SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549


                                  FORM lO-Q
(Mark One)

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

For the quarterly period ended             September  30, 1996
                                      ----------------------------

                                      OR

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

For the transition period from _________________ to __________________

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

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


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


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

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

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

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


                      APPLICABLE ONLY TO CORPORATE ISSUERS:


      Indicate the number of shares  outstanding of each of the issuer's classes
of common stock as of the latest practicable date     November 12, 1996
                                                      -----------------

        Class                                           Outstanding
---------------------------                           ----------------
$.10 par value common stock                           4,297,386 shares

<PAGE>






                    TF FINANCIAL CORPORATION AND SUBSIDIARIES

                                    FORM 1O-Q

                    FOR THE QUARTER ENDED September 30, 1996


                                      INDEX

<TABLE>
<CAPTION>

<S>             <C>                                                             <C>

                                                                                 Page
                                                                                Number

PART I - CONSOLIDATED FINANCIAL INFORMATION

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

PART II- OTHER INFORMATION

Item    1.      Legal Proceedings                                                14
Item    2.      Changes in Securities                                            14
Item    3.      Defaults upon Senior Securities                                  14
Item    4.      Submission of Matters to a Vote of Security Holders              14
Item    5.      Other Materially Important Events                                14
Item    6.      Exhibits and Reports on Form 8-K                                 14

SIGNATURES
</TABLE>


<PAGE>



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

<TABLE>
<CAPTION>


                                                                               September 30,  December 31,
               ASSETS                                                               1996          1995
                                                                               -------------  ------------
<S>                                                                             <C>          <C>      
Cash and cash equivalents                                                       $ 116,311    $  27,032
Certificates of deposit in other financial institutions                             4,218        4,221
Investment securities available for sale - at market value                         15,139       15,044
Investment securities held to maturity (market value of $22,583 and 
   $23,880 respectively, for the periods shown)                                    22,884       23,640
   respectively, for the periods shown)
Mortgage-backed  securities  available for sale - at market  valueb                26,281       29,640
Mortgage-backed securities held to maturity (market value of $154,101 and
    $139,260 respectively, for the periods shown)                                 156,400      137,841
Loans receivable, net                                                             293,587      238,275
Federal Home Loan Bank Stock - at cost                                              5,918        3,668
Accrued interest receivable                                                         3,550        3,430
Real estate acquired through foreclosure, net                                         351          129
Goodwill/Core deposit intangible                                                    9,476
Premises and equipment, net                                                         7,734        6,555
Other assets                                                                        1,243          883
                                                                                  -------      -------
               Total Assets                                                     $ 663,092    $ 490,358
                                                                                  =======      =======

               LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities
   Deposits                                                                     $ 476,419    $ 337,069
   Advances from the Federal Home Loan Bank                                       103,359       73,359
   Advances from borrowers for taxes and insurance                                  1,670        1,980
   Accrued interest payable                                                         4,094        1,763
   Other liabilities                                                                5,853        2,855
                                                                                  -------      -------
               Total Liabilities                                                  591,395      417,026
                                                                                  -------      -------


Commitments and contingencies                                                          --           --
Stockholders' Equity
   Preferred stock, no par value; 2,000,000 shares authorized
      and none issued                                                                  --           --
   Common stock, $0.10 par value; 10,000,000 shares authorized,
       5,290,000 issued; 4,297,386 and 4,164,942 shares outstanding
       at September 30, 1996 and December 31, 1995, net of treasury shares of
       992,614 and 766,589 respectively                                               529          529
   Additional paid-in capital                                                      51,597       51,475
   Net unrealized (loss) gain on investment securities available for sale            (165)         137
   Unearned ESOP shares (326,018 and 349,161 shares
       respectively, for the periods shown) - at cost                              (3,259)      (3,491)
   Shares acquired by MSBP                                                         (1,424)      (1,731)
   Treasury stock - at cost                                                       (14,456)     (11,116)
   Retained earnings                                                               38,875       37,529
                                                                                  -------      -------

               Total Stockholders' Equity                                          71,697       73,332
                                                                                  -------      -------

               TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                       $ 663,092    $ 490,358
                                                                                  =======      =======
</TABLE>

See notes to consolidated financial statement

                                        1

<PAGE>



                    TF FINANCIAL CORPORATION AND SUBSIDIARIES
                  UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS

                      (in thousands, except per share data)

<TABLE>
<CAPTION>


                                                                      For Three Months     For Nine Months
                                                                     Ended September 30,  Ended September 30,
                                                                     -------------------  -------------------
                                                                        1996       1995      1996      1995
                                                                        ----       ----      ----      ----

Interest income
<S>                                                                   <C>        <C>      <C>        <C>    
   Loans                                                              $ 6,117    $ 2,874  $ 17,019   $ 7,664
   Mortgage-backed securities                                           2,629      2,938     7,995     8,964
   Investment securities                                                  612        978     1,840     3,090
   Interest bearing deposits and other                                    353        635       930     1,893
                                                                        -----      -----    ------    ------
    TOTAL INTEREST INCOME                                               9,711      7,425    27,784    21,611
Interest expense
   Deposits                                                             3,495      3,340     9,892    10,008
   Borrowings                                                           1,614        227     4,537       273
                                                                        -----      -----    ------    ------
    TOTAL INTEREST EXPENSE                                              5,109      3,657    14,429    10,281
   NET INTEREST INCOME                                                  4,602      3,768    13,355    11,330
Provision for loan losses                                                 120         21       210        51
                                                                        -----      -----    ------    ------
   NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES                  4,482      3,747    13,145    11,279
Non-interest income
   Gain on sale of real estate acquired through foreclosure                 0         77       114        82
   Gain (loss) on sale of investment and mortgage-backed securities         0         16       223        16
   Gain (loss) on sale of loans                                            30          0        37         0
   Service fees, charges and other operating income                       266        259       916       752
                                                                        -----      -----    ------    ------
          TOTAL NON-INTEREST INCOME                                       296        352     1,290       850
Non-interest expense
   Employee compensation and benefits                                   1,455      1,326     4,261     3,879
   Occupancy and equipment                                                339        351       996     1,021
   Federal deposit insurance premium                                    2,418        195     2,808       595
   Data processing                                                        123        106       360       328
   Professional fees                                                      160        117       437       301
   Provision for losses on real estate acquired through foreclosure         0          0         3         2
   Advertising                                                             75         63       230       205
                                                                        -----      -----    ------    ------
   Other operating                                                        519        398     1,397     1,039
  TOTAL NON-INTEREST EXPENSE                                            5,089      2,556    10,492     7,370
        INCOME BEFORE INCOME TAX EXPENSE (BENEFIT)                       (311)     1,543     3,943     4,759
Income tax expense (benefit)                                             (102)       594     1,656     1,902
                                                                        -----      -----    ------    ------
   NET INCOME (LOSS)                                                  $  (209)    $  949  $  2,287   $ 2,857
                                                                        =====      =====    ======    ======

Per share data
   Earnings (Loss) per share                                             (.05)       .20       .54       .60
Weighted average number of shares outstanding                           4,243      4,735     4,243     4,735


</TABLE>

See notes to consolidated financial statement


                                        2

<PAGE>






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

<TABLE>
<CAPTION>



                                                                                   For the Nine Months
                                                                                   Ended September 30
                                                                                   -------------------
                                                                                    1996         1995
                                                                                    -----        ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                               <C>         <C>     
Net Income                                                                        $  2,287    $  2,857
Adjustments to reconcile net income to net cash provided by
operating activities:
   Amortization of:
      Mortgage loan servicing rights                                                     2           0
      Deferred loan origination fees                                                  (151)        (95)
      Premiums and discounts on investment securities. net                             (18)        (24)
      Premiums and discounts on mortgage-backed securities and
      loans. net                                                                        59         152
   Provision for loan losses and provision for losses on real estate                   213          46
   Depreciation of premises and equipment                                              397         377
   Recognition of ESOP and MSBP expenses                                               660         783
   (Gain)/Loss on sale of mortgage-backed securities - available for sale             (223)        (16)
   (Gain)/Loss on sale of real estate acquired through foreclosure                    (114)        (82)
   (Gain)/Loss on sale of mortgage loans                                               (37)
   Decrease (increase) in
      Accrued interest receivable                                                     (120)        421
      Other assets                                                                    (666)       (308)
   Increase (decrease) in
      Accrued interest payable                                                       2,332       2,806
      Other liabilities                                                              3,226         428
                                                                                   -------     -------
       NET CASH PROVIDED BY OPERATING ACTIVITIES                                     7,847       7,345

CASH FLOWS FROM INVESTING ACTIVITIES
Loan originations and principal payments on loans. net                             (31,807)    (13,079)
Purchases of loans                                                                 (62,205)    (28,493)
Proceeds from loan sales                                                            10,566           0
Purchases and maturities of certificates of deposit in other
   financial institutions. net                                                           3      (5,314)
Purchases of investment securities - available for sale                             (8,976)          0
Purchases of mortgage-backed securities - available for sale                        (4,943)          0
Purchases of investment securities held to maturity                                 (7,708)    (18,548)
Purchase of mortgage-backed securities - held to maturity                          (11,626)          0
Proceeds from maturities of investment securities held to maturity                   8,432      17,029
Proceeds from maturities of investment securities available for sale                 9,000      19,000
Principal repayments from maturities of mortgage-backed securities-
   held to maturity                                                                 20,836      17,426
Principal repayments from maturities of mortgage-backed securities-
   available for sale                                                                2,627           0
Proceeds from the sale of mortgage-backed securities - available for sale            5,338           0
Proceeds from the sale of investment securities - available for sale                     0       4,054
Purchases and redemptions of Federal Home Loan Bank Stock. net                      (2,250)       (468)
Proceeds from sales of real estate acquired through foreclosure                        439         214
Premium paid for deposit liabilities                                                (9,476)          0
Purchase of premises and equipment                                                  (1,576)       (344)
                                                                                   -------     -------
       NET CASH PROVIDED BY (USED IN)  INVESTING ACTIVITIES                        (83,326)     (8,523)


</TABLE>

See notes to consolidated financial statement

                                      3

<PAGE>


 



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


<TABLE>
<CAPTION>
                                                                                     For the Nine Months
                                                                                      Ended September 30,
                                                                                    ----------------------
                                                                                      1996          1995
                                                                                      ----          ----
CASH FLOWS FROM FINANCING ACTIVITIES
Net  increase  (decrease)  in demand  deposits/NOW  accounts, 
<S>                                                                                 <C>          <C>      
   passbook  savings accounts and certificates of deposit                           $139,350     $ (7,748)
Advances from Federal Home Loan Bank - net                                            30,000       23,359
Net (decrease) increase in advances from borrowers for taxes
   and insurance                                                                        (310)        (584)
Purchase of treasury stock                                                            (3,340)      (7,341)
Common stock cash dividend                                                              (942)        (798)

   NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                               164,758        6,888

   NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                               89,279        5,710

Cash and cash equivalents at beginning of period                                      27,032       42,376

Cash and cash equivalents at end of period                                         $ 116,311    $  48,086
                                                                                     -------      -------

Supplemental disclosure of cash flow information
   Cash paid for
      Interest on deposits and advances                                            $  12,098    $   7,476
      Income taxes                                                                 $   1,578    $   1,028
   Non-cash transactions
      Transfers from loans to real estate acquired through foreclosure             $     275    $      23
      Securitization of mortgage loans held for investment                         $  27,854    $       0

</TABLE>


See notes to consolidated financial statement

                                        4

<PAGE>




                    TF FINANCIAL CORPORATION AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - PRINCIPLES OF CONSOLIDATION

     The consolidated  financial  statements as of September 30, 1996,  December
     31, 1995 and for the three and nine month periods ended  September 30, 1996
     and  1995   include  the  accounts  of  TF   Financial   Corporation   (the
     "Corporation") and its wholly owned subsidiaries Third Federal Savings Bank
     (the  "Savings   Bank"),   TF  Investments   Corporation  and  Penns  Trail
     Development   Corporation.   The   Corporation's   business  is   conducted
     principally through the Savings Bank. All significant intercompany accounts
     and transactions have been eliminated in consolidation.

NOTE 2 - BASIS OF PRESENTATION

     The accompanying  unaudited consolidated financial statements were prepared
     in  accordance  with  instructions  for Form  10-Q and,  therefore,  do not
     include information or footnotes  necessary for a complete  presentation of
     consolidated financial condition,  results of operations, and cash flows in
     conformity with generally  accepted  accounting  principles.  However,  all
     adjustments, consisting of normal recurring accruals, which, in the opinion
     of  management,  are necessary for fair  presentation  of the  consolidated
     financial statements have been included.  The results of operations for the
     period  ended  September  30, 1996 are not  necessarily  indicative  of the
     results  which may be  expected  for the  entire  fiscal  year or any other
     period. For further information, refer to consolidated financial statements
     and footnotes thereto included in the  Corporation's  Annual Report on Form
     10-K for the fiscal year ended December 31, 1995.

NOTE 3 - IMPAIRED LOANS

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

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

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

                        (in thousands)                     September 30, 1996
                                                           ------------------
      Principal amount of impaired loans                       $     604
      Accrued interest                                                 -
      Deferred loan costs                                              -
           Subtotal                                            $     604
                                                                  ------
      Less valuation allowance                                       128
           Total                                               $     476
                                                                  ======

                                        5

<PAGE>




       The average  recorded  investment  in impaired  loans  during the quarter
       ended  September 30, 1996 was $631,000.  Total cash collected on impaired
       loans during the quarter  ended  September  30, 1996 was $85,000 of which
       $72,000 was credited to the principal  balance  outstanding on such loans
       and $13,000 was recognized as interest  income.  Interest that would have
       been accrued on impaired  loans during the quarter was $13,000.  Interest
       income recognized during the quarter was $13,000.

NOTE 4 -  CONTINGENCIES

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

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


NOTE 5 - CONVERSION FROM MUTUAL SAVINGS AND LOAN ASSOCIATION TO STOCK
         SAVINGS BANK AND FORMATION OF SAVINGS AND LOAN HOLDING COMPANY

       On July 13, 1994 Third Federal Savings and Loan  Association  consummated
       its  conversion  from a  federally  chartered  mutual  savings  and  loan
       association to a stock savings bank pursuant to a Plan of Conversion (the
       "Conversion  ) via the issuance of common stock.  In connection  with the
       Conversion,  the Corporation sold 5,290,000 shares of common stock which,
       after giving effect to offering expenses of $1.2 million, resulted in net
       proceeds of $51.7 million.  Pursuant to the Conversion,  the Savings Bank
       transferred  all of its outstanding  shares to a newly organized  holding
       company, TF Financial Corporation, in exchange for 50% of net proceeds.

       Upon consummation of the Conversion,  the preexisting  liquidation rights
       of the depositors of the Savings Bank were unchanged.  Specifically, such
       rights were  retained and will be  accounted  for by the Savings Bank for
       the  benefit  of such  depositors  in  proportion  to  their  liquidation
       interests as of the Eligibility Record Date.

NOTE 6 -ACQUISITIONS

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

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

NOTE 7 - SPECIAL DEPOSIT INSURANCE ASSESSMENT

       On September  30,  1996,  the Deposit  Insurance  Funds Act of 1996 ("the
       Act") was  enacted.  The Act calls for a special  assessment  on  Savings
       Association  Insurance Fund (" SAIF") - assessable deposits to capitalize
       the Savings  Association  Insurance Fund. The Company recorded an expense
       of $2.2  million  and a  liability  in the same  amount.  The  assessment
       amounted to .657 of SAIF - assessable deposits as of March 31, 1995.

                                        6

<PAGE>



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

GENERAL

The  Corporation's  total  assets at  September  30, 1996 and  December 31, 1995
totaled $663.1 million and $490.4 million,  respectively,  an increase of $172.7
million or 35.2% for the nine month  period.  This  increase was  primarily as a
result of the $89.3  million  or 330.3%  increase  in cash and cash  equivalents
along with the $55.3 million or 23.2% increase in loans receivable  coupled with
the $15.2 million or 9.1% increase in  mortgage-backed  securities  for the nine
month period ended September 30, 1996. This asset growth was primarily funded by
the increase in total savings  deposits at September 30, 1996 of $139.4  million
or 41.3% to $476.4 million as compared to savings  deposits of $337.1 million as
of December  31, 1995 coupled  with the $30.0  million  increase in Federal Home
Loan Bank  advances.  The increase in deposits was  primarily  the result of the
acquisition  of $137.6  million in deposit  balances.  The  increase  in deposit
balances, coupled with the reinvestment of normal cashflows, funded the increase
in cash and cash equivalents,  loans receivable and mortgage-backed  securities.
The  deposit  acquisition  also  contributed  to the  increase in assets for the
period with the addition of $9.5 million in goodwill/core deposit intangible.

The increase in loans  receivable of $55.3 million or 23.2% to $923.6 million at
September  30, 1996 from $238.3  million at December 31, 1995 was  primarily the
result of the  origination  of $64.9 million in mortgage  loans coupled with the
purchase of $61.6  million in mortgage  loans,  partially  offset by the sale of
$39.1 million in mortgage  loans  coupled with the normal  repayment of mortgage
loans.

The increase in  mortgage-backed  securities  of $15.2 million or 9.2% to $182.7
million at  September  30,  1996 from $167.5  million at  December  31, 1995 was
primarily the result of the  securitization  of $27.9 million in mortgage  loans
which was partially  offset by principal  repayments from maturities  along with
the sale of the mortgage-backed securities.

Investment  securities  at September  30, 1996,  totaled  $38.0  million,  which
represents a decrease of $.7 million or 1.7% as compared to December 31, 1995.

Federal Home Loan Bank stock  totalled  $5.9  million at  September  30, 1996 as
compared to $3.7 million at December 31, 1995.  This increase of $2.3 million or
61.3% was the result of the  purchase  of Federal  Home Bank stock  required  to
support the $30 million or 40.1%  increase in Federal Home Loan Bank  borrowings
to $103.4  million at  September  30, 1996,  from $73.4  million at December 31,
1995.

Other assets,  inclusive of prepaid expenses, at September 30 1996, totaled $1.2
million,  which  represents  an  increase  of  $360,000  or 40.7% as compared to
December  31,  1995.  This  increase is  comprised  primarily  of an increase in
accounts receivable due the Savings Bank.

Total  consolidated  stockholders'  equity  of the  Corporation  decreased  $1.6
million to $71.7  million at September  30, 1996 from $73.3  million at December
31, 1995. The 2.2% decrease is primarily attributed to the repurchase of 226,000
shares of the  Corporation's  outstanding  common stock in the open market, at a
total cost of $3.3 million  coupled with the payment of $942,000 in dividends to
shareholders, partially offset by the addition of $2.3 million of net income for
the period. The decrease in total consolidated stockholders' equity coupled with
the  increase  of $172.7  million in total  assets  resulted  in a  decrease  in
consolidated  stockholders'  equity as a percentage  of total assets to 10.8% at
September 30, 1996 from 15.0 % at December 31, 1995.


                                        7

<PAGE>



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

The  measurement of impaired loans is generally  based upon the present value of
expected future cash flows discounted at the historical effective interest rate,
except that all collateral  dependent loans may be measured for impairment based
upon the fair value of the  collateral.  The  accounting of SFAS 114 and 118 did
not have a material impact on the financial position or results of operations of
the Corporation during the three or nine month period ended September 30, 1996.

Average Balance Sheet

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

<TABLE>
<CAPTION>


                                                                      For Three Months Ended September 30
                                         ------------------------------------------------------------------------------------
                                                        1996 (4)                                      1995(4)
                                         ----------------------------------------     ---------------------------------------


(Dollars in thousands)                   Average                      Average         Average                       Average
                                         Balance       Interest     Yield/Cost        Balance        Interest      Yield/Cost
                                         -------       --------     ----------        -------        --------      ----------
Assets:
Interest earning assets:
<S>                                      <C>           <C>             <C>           <C>             <C>              <C>  
  Loans receivable, net...............   $308,985      $ 6,117         7.92%         $145,598        $ 2,874          7.90%
  Mortgage-backed securities..........    162,134        2,629         6.49%          173,299          2,938          6.78%
  Investment securities...............     39,533          612         6.19%           65,214            978          6.00%
  Other interest-earning assets(1)....     51,955          353         2.72%           48,453            635          5.24%
                                          -------        -----         ----           -------          -----          ----
    Total interest-earning assets.....   $562,607      $ 9,711         6.90%         $432,564        $ 7,425          6.87%
                                          =======        =====         ====           =======          =====
Non interest-earning assets...........     13,118                                       9,166
                                          -------                                     -------  
    Total assets......................   $575,725                                    $441,730
                                          =======                                     =======

Liabilities and Stockholders' Equity:
  Interest-bearing liabilities:
    Savings deposits..................   $386,945       $3,495         3.61%         $339,268        $ 3,430          4.04%
    Borrowed money....................    106,692        1,614         6.05%           17,786            227          5.11%
                                          -------        -----         ----           -------          -----          ----
    Total interest-bearing liabilities   $493,637       $5,109         4.14%         $357,054         $3,657          4.10%
                                          =======        =====         ====           =======
Non interest-bearing liabilities......     10,034                                       6,442
      Total liabilities...............    503,671                                     363,496
Stockholders' equity..................     72,054                                      78,234
                                          -------                                     ------- 

    Total liabilities and stockholder's
        equity........................   $575,725                                    $441,730
                                          =======                                     =======

Net interest income...................                  $4,602                                        $3,768
                                                         =====                                         =====
Interest rate spread (2)..............                                2.76%                                           2.77%
Net yield on interest-earning assets(3)                               3.27%                                           3.48%
Ratio of average interest-earning assets 
  to average interest-bearing liabilities                              114%                                            121%

</TABLE>

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

                                        8

<PAGE>



Average Balance Sheet  (continued)

<TABLE>
<CAPTION>


                                                                     For Nine Months Ended September 30
                                               ---------------------------------------------------------------------------------
                                                           1996 (4)                                      1995(4)
                                               -------------------------------------    ----------------------------------------


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

Assets:
Interest earning assets:
<S>                                           <C>           <C>             <C>         <C>            <C>             <C>  
  Loans receivable, net...............        $296,431      $17,019         7.66%       $125,786       $ 7,664         8.12%
  Mortgage-backed securities..........         151,181        7,995         7.05%        174,535         8,964         6.85%
  Investment securities...............          39,842        1,840         6.16%         69,978         3,090         5.89%
  Other interest-earning assets(1)....          41,215          930         3.01%         49,402         1,893         5.11%
                                               -------       ------         ----         -------        ------
    Total interest-earning assets.....        $528,669      $27,784         7.01%       $419,701       $21,611         6.87%
                                               =======       ======                      =======        ======             
Non interest-earning assets...........          10,579                                    10,873
                                               -------                                   -------
    Total assets......................        $539,248                                  $430,574
                                               =======                                   =======

Liabilities and Stockholders' Equity:
  Interest-bearing liabilities:
    Savings deposits..................        $353,537       $9,892         3.73%       $338,536       $10,008         3.94%
    Borrowed money....................         102,803        4,537         5.88%          7,040           273         5.17%
                                               -------       ------         ----         -------        ------
      Total interest-bearing liabilities      $456,340      $14,429         4.22%       $345,576       $10,281         3.97%
                                               =======       ======         ====         =======        ======
Non interest-bearing liabilities......           9,252                                     6,031
      Total liabilities...............         465,592                                   351,607
Stockholders' equity..................          73,656                                    78,967
                                               -------                                   -------
      Total liabilities and stockholders    
        equity                                $539,248                                  $430,574
                                               =======                                   =======
Net interest income...................                      $13,355                                    $ 11,330
                                                             ======                                      ======
Interest rate spread (2)..............                                      2.79%                                      2.90%
Net yield on interest-earning assets (3)                                    3.37%                                      3.60%
Ratio of average interest-earning assets to average
  interest-bearing liabilities........                                       116%                                       121%

</TABLE>

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

                                        9

<PAGE>



RESULTS OF OPERATIONS

Net Income. The Corporation recorded a net loss of $209,000 for the three months
ended  September  30, 1996 as  compared to net income of $949,000  for the three
months ended  September 30, 1995.  Earnings for the three months ended September
30, 1996 represent a decrease of $1.2 million compared to earnings  reported for
the same period in 1995.  The  decrease in earnings for this period is primarily
attributable  to the increase in the federal deposit  insurance  premium to $2.4
million at September 30, 1996 from $195,000 at September 30, 1995. This increase
of $2.2  million  was the result of a one-time  fee  assessed  to members of the
Savings Association  Insurance Fund ("SAIF") for the recapitalization of "SAIF".
Net interest  income before  provisions for loan losses was $4.6 million for the
three month period ended  September 30, 1996 as compared to $3.8 million for the
same  period in 1995.  This  increase in net  interest  income is a result of an
increase in core earnings.  For these same periods,  total interest  expense was
$5.1 million and $3.7 million,  respectively.  Non-interest  income was $296,000
and  $352,000,   respectively,   for  these  same  periods.   Operating  expense
(non-interest  expense)  was $5.1  million and $2.6  million for the three month
periods  ending  September 30, 1996 and September  30, 1995,  respectively.  The
increase in operating  expense,  for the three months ended  September 30, 1996,
reflects the one-time SAIF assessment.

Net Income of $2.3 million for the nine months ended September 30, 1996 showed a
$570,000  decrease  over net income of $2.9  million for the nine  months  ended
September 30, 1995. The decrease in earnings for this period is  attributable to
the one-time  deposit  insurance  assessment  partially offset by an increase in
core earnings in conjunction  with gains associated with the sale of real estate
and mortgage backed  securities.  Net interest income before provisions for loan
losses was $13.4  million for the nine month period ended  September 30, 1996 as
compared to $11.3  million for the same period in 1995.  For these same periods,
total  interest  expense  was $14.4  million  and $10.3  million,  respectively.
Non-interest  income was $1.3 million and $850,000,  respectively for these same
periods.  The  increase  in  non-interest  income  was  attributed  to the gains
associated  with the sale of the real  estate  and  mortgage  backed  securities
previously mentioned. Operating expense (non-interest expense) was $10.5 million
and $7.4  million  for the nine month  periods  ending  September  30,  1996 and
September 30, 1995, respectively.

Total Interest Income.  Total interest income increased by $2.3 million or 30.8%
to $9.7 million for the three months ended September 30, 1996, from $7.4 million
for the three months ended  September 30, 1995 due primarily to increases in the
average balance of loans receivable  offset somewhat by decreases in the average
balances of investment  securities and mortgage backed  securities.  The average
balance of loans  receivable  increased  112.2% to $309.0  million  from  $145.6
million for the three months ended  September  30, 1996 and 1995,  respectively.
Interest  attributable to loans  receivable  increased $3.2 million or 112.8% to
$6.1  million  from $2.9  million  for these  same  periods.  This  increase  is
primarily  attributed to the increase in the average balance of loans receivable
in conjunction  with an increase in the average yield on loans  receivable  from
7.90% for the period end  September  30,  1995,  to 7.92% for the period  ending
September 30, 1996.  Interest on mortgage-backed  securities  decreased $309,000
(10.5%) primarily as a result of principal  repayment of these  securities.  The
average  yield on  mortgage-backed  securities  decreased to 6.49% for the three
month period ended  September 30, 1996 compared to 6.78% for the similar  period
in 1995 while the  average  balance of  mortgage-backed  securities  declined by
$11.2  million  when  comparing  these  two  periods.   Interest  on  investment
securities  declined by $366,000 for the three month period ended  September 30,
1996 as compared to the similar period in 1995 as a result of declining balances
due to  maturities.  Interest  on other  interest  earning  assets  declined  by
$282,000  for the three month period ended  September  30, 1996  compared to the
similar  period ended  September 30, 1995 primarily as a result of a decrease in
the average  yield to 2.72% at September  30, 1996 from 5.24% at  September  30,
1995.  The  increases  in the  average  balances  of  loans  receivable  and the
decreases in the average balances of  mortgage-backed  securities and investment
securities are a result of management's decision to increase mortgage lending.

For the nine months ended September 30, 1996, total interest income increased to
$27.8 million from $21.6  million for the nine months ended  September 30, 1995.
This  increase of $6.2  million,  or 28.6%,  is due primarily to the increase in
income  on loans  receivable,  somewhat  offset  by the  decrease  in  income on
mortgage-backed

                                       10

<PAGE>



securities, investment securities and other interest earning assets. Interest on
loans  receivable  increased by $9.4  million,  or 122.1%,  to $17.0  million at
September  30, 1996,  from $7.7 million at September  30, 1995.  During the same
time  periods the average  balance of loans  receivable  increased  by $170.6 to
$296.4  million  from $125.8  million.  Interest on  mortgage-backed  securities
decreased  $969,000  (10.8%)  from  September  30, 1995 to  September  30, 1996,
primarily as a result of principal  repayment on these  securities.  The average
yield on mortgage-backed securities increased to 7.05% for the nine month period
ended  September 30, 1996 compared to 6.85% for the similar period in 1995 while
the average balance of mortgage-backed securities declined by $23.4 million when
comparing these two periods.  Interest on investment securities declined by $1.3
million for the nine month  period ended  September  30, 1996 as compared to the
similar  period in 1995 as a result of  declining  balances  due to  maturities.
Interest on other  interest  earning  assets  declined by $963,000  for the nine
month  period  ended  September  30, 1996  compared to the similar  period ended
September  30, 1995  primarily as a result of a decrease in the average yield to
3.01% at September 30, 1996 from 5.11% at September  30, 1995,  coupled with the
average balance declining by $8.2 million to $41.2 million at September 30, 1996
from $49.4 million at September 30, 1995. The increases in the average  balances
of loans receivable and the decreases in the average balances of mortgage-backed
securities, investment securities and other interest earning assets are a result
of management's decision to increase mortgage lending.

Total Interest Expense. Total interest expense increased to $5.1 million for the
three month period ended  September  30, 1996 from $3.7 million at September 30,
1995.  This  increase of $1.5  million or 39.7% in total  interest  expense is a
result of the increase in the average balance of Federal Home Loan Bank advances
by 500.0% to $106.7  million  from  $17.8  million  for the three  months  ended
September  30, 1996 and 1995,  respectively,  coupled  with the  increase in the
average  balance  of  savings  deposits  by $47.7  million or 14.1% for the same
periods.  The  increase  in  savings  deposits  was  primarily  a result  of the
acquisition of $137.6 million in deposit balances.  The average balance of total
interest bearing liabilities increased to $493.6 million during the three months
ended  September  30, 1996 from $357.1  million  during the three  months  ended
September  30,  1995 as a result  of the  increase  in  Federal  Home  Loan Bank
borrowings and the acquisition of the deposit balances.

Total  interest  expense  increased  to $14.4  million for the nine month period
ended  September  30, 1996 from $10.3  million for the nine month  period  ended
September  30, 1995.  This  increase of $4.1 million or 40.3% in total  interest
expense is a result of the increase in the average  balance of Federal Home Loan
Bank  advances to $102.8  million  from $7.0  million for the nine months  ended
September  30, 1996 and 1995,  respectively,  coupled  with the  increase in the
average  balance  of  savings  deposits  by $15.0  million  or 4.4% for the same
periods.   The  increase  in  savings  deposits  was  primarily  result  of  the
acquisition of $137.6 million in deposit balances.  The average balance of total
interest bearing liabilities  increased to $456.3 million during the nine months
ended  September  30, 1996 from  $345.6  million  during the nine  months  ended
September  30,  1995 as a result  of the  increase  in  Federal  Home  Loan Bank
borrowings and the acquisition of deposit  balances.  The increase in borrowings
was utilized primarily to fund the origination or purchase of mortgage loans.

Net  Interest  Income.  Net  interest  income for the three month  period  ended
September  30, 1996  increased  by $834,000 or 22.1% to $4.6  million  from $3.8
million  for the same period in 1995.  This  increase  is  primarily  due to the
increase in interest  earning assets offset by the increase to interest  bearing
liabilities. The average balances of interest-earning assets increased to $562.6
million for the three months ended  September  30, 1996 from $432.6  million for
the similar period in 1995.  During these same periods,  the average balances on
interest-bearing  liabilities  increased to $493.6 million from $357.1  million.
The cost of interest-bearing liabilities increased from 4.10% to 4.14% while the
yield on  interest-earning  assets  increased  from 6.87% to 6.90% for the three
month periods ended September 30, 1995 and 1996 respectively.

Net interest income for the nine month period ended September 30, 1996 increased
by $2.1 million or 17.9% to $13.4 million from $11.3 million for the same period
in 1995.  This  increase is primarily  due to the  increase in interest  earning
assets  partially offset by the increase to interest  earning  liabilities.  The
average balances of interest-earning  assets increased to $528.7 million for the
nine months  ended  September  30, 1996 from $419.7  million for the  comparable
period  in  1995.   During  these  same   periods,   the  average   balances  on
interest-bearing liabilities

                                       11

<PAGE>



increased to $456.3 million from $345.6  million.  The cost of  interest-bearing
liabilities  increased  from 3.97% to 4.22% while the yield on  interest-earning
assets  increased from 6.87% to 7.01% for the nine month periods ended September
30, 1995 and 1996 respectively.

Allowance  for Loan Losses.  The allowance  for loan losses  remained  stable at
September 30, 1996 and September 30, 1995 at approximately $1.7 and $1.5 million
respectively.  Such totals correlate to non-performing  loans of $1.8 million at
September 30, 1996 and $1.8 million at September  30, 1995.  The increase in the
allowance for loan losses of $223,000  resulted from the addition of $231,000 to
the provision for loan losses and the deduction of $8,000 of net charge offs for
losses on loans.  The  provision  for losses on loans is the method by which the
allowance for losses is adjusted during the period.  The provision for losses on
loans was $120,000 for the three months ended  September  30, 1996. At September
30, 1996,  the  allowance for loan losses was 95.8% of  non-performing  loans as
compared  to  82.4%  of  non-performing  loans  at  September  30,  1995.  While
management  maintains  its allowance for losses at a level which it considers to
be adequate to provide for  potential  losses,  there can be no  assurance  that
further  additions  will not be made to the  allowance and that such losses will
not exceed the estimated amounts.

Non-interest  Income.  Total  non-interest  income decreased to $296,000 for the
three months ended September 30, 1996 from $352,000 for the same period in 1995.
This decrease can be attributed  to the decrease in  non-recurring  gains on the
sale of real estate and investment  securities  partially offset by the increase
in service fee income.

Total  non-interest  income  increased to $1.3 million for the nine month period
ended  September  30, 1996 from  $850,000 for the similar  period in 1995.  This
increase  can be  attributed  to the  increase  in the  gain on the sale of real
estate acquired through  foreclosure of $32,000 in conjunction with the increase
in the gain on the sale of mortgage backed securities  totalling  $207,000.  The
remainder  of the  increase  can be  attributed  to an  increase  of $164,000 in
service fee income,  which was a result of increased loan  origination  activity
during the period coupled with gains on the sale of loans.

Non-interest  Expense.  Total non-interest  expense increased by $2.5 million to
$5.1 million for the three months ended  September  30, 1996 as compared to $2.6
million for the similar period in 1995. This increase is primarily attributed to
the increase in federal deposit insurance premium of $2.2 million,  the $129,000
increase  in  employee  compensation  and  benefits,  the  $43,000  increase  in
professional  fees and the  $121,000  increase  in other  operating  costs.  The
increases  in  compensation  and  benefit  costs were  primarily  as a result of
increases to staffing  necessary to support increased lending activity,  coupled
with salary increases resulting from annual performance  reviews.  Benefit costs
were also increased due to the increases in costs  associated with benefit plans
utilizing  Corporation  stock  (portions of the costs of benefit plans utilizing
Corporation stock change as the market value of the stock changes). The increase
in other  operating  expenses are due to increases in the costs  associated with
current lending activities.

Total non-interest  expense increased to $10.5 million for the nine months ended
September  30, 1996 as compared to $7.4 million for the similar  period in 1995.
This  increase of $3.1  million is  primarily  attributable  to the  increase in
federal  deposit  insurance  premium of $2.2  million,  a $382,000  increase  in
employee  compensation and benefits,  the $136,000 increase in professional fees
and  the  $358,000   increase  in  other  operating   costs.  The  increases  in
compensation  and  benefit  costs were  primarily  as a result of  increases  to
staffing  necessary to support increased  lending activity,  coupled with salary
increases  resulting from annual  performance  reviews.  Benefit costs were also
increased due to the increases in costs  associated with benefit plans utilizing
Corporation stock (portions of the costs of benefit plans utilizing  Corporation
stock  change as the market value of the stock  changes).  The increase in other
operating  expenses are due to increases  in the costs  associated  with current
lending activities.

Pursuant to the Economic Growth and Paperwork Reduction Act of 1996 (the "Act"),
the FDIC imposed a special  assessment on SAIF members to capitalize the SAIF at
the  designated  reserve  level of 1.25% as of  October  1,  1996.  Based on the
Savings Bank's  deposits as of March 31, 1995, the date for measuring the amount
of the  special  assessment  pursuant to the Act,  the  Savings  Bank will pay a
special assessment of $2.2 million on or about

                                       12

<PAGE>



November 27, 1996 to recapitalize  the SAIF. This expense was accrued for in the
quarter ended  September 30, 1996. The FDIC is expected to lower the premium for
deposit  insurance  to a level  necessary  to maintain  the SAIF at its required
reserve level;  however,  the range of premiums has not been  determined at this
time.

Pursuant  to the Act,  the  Savings  Bank will pay,  in  addition  to its normal
deposit  insurance  premium  as a  member  of  the  SAIF,  an  amount  equal  to
approximately   6.4  basis  points  toward  the   retirement  of  the  Financing
Corporation  bonds ("Fico Bonds") issued in the 1980's to assist in the recovery
of the savings and loan industry.  Member of the Bank Insurance Fund ("BIF"), by
contrast,  will pay, in  addition to their  normal  deposit  insurance  premium,
approximately  1.3 basis  points.  Based on total  deposits as of September  30,
1996,  had the Act been in effect,  the Savings  Bank's Fico Bond premium  would
have been  approximately  $305,000 in addition to its normal  deposit  insurance
premium.  Beginning no later than  January 1, 2000,  the rate paid to retire the
Fico  Bonds  will be equal for  members  of the BIF and the  SAIF.  The Act also
provides  for the  merging of the BIF and the SAIF by  January 1, 1999  provided
there are no financial  institutions still chartered as savings  associations at
that time. Should the insurance funds be merged before January 1, 2000, the rate
paid by all members of this new fund to retire the Fico Bonds would be equal.

Income Tax Expense.  Income taxes  decreased by $696,000 to  $(102,000)  for the
three month period ended  September 30, 1996, from $594,000 for the three months
ended  September 30, 1995. The primary reason for this decrease was the decrease
in net income before taxes to  $(311,000)  from $1.5 million for the three month
periods ended September 30, 1996 and 1995, respectively.

For the nine month period ended  September 30, 1996,  income taxes  decreased to
$1.7 million from $1.9  million for the nine months  ended  September  30, 1995.
This decrease of $246,000 is primarily  attributed to the decrease in net income
before taxes to $3.9 million from $4.8 million for the nine month  periods ended
September 30, 1996 and 1995, respectively.

Liquidity and Capital Resources

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

On  September  30,  1996,  the  Savings  Bank was in  compliance  with its three
regulatory capital requirements as follows:

                                                      Amount          Percent
                                                     -------          -------
                                                      (dollars in thousands)
Tangible capital                                     $48,575             7.4%
Tangible capital requirement                           9,877             1.5
                                                      ------            ----
Excess over requirement                              $38,698             5.9%
                                                      ======            ====

Core capital                                         $48,575             7.4%
Core capital requirement                              19,755             3.0
                                                      ------            ----
Excess over requirement                              $28,820             4.4%
                                                      ======             ===

Risk based capital                                   $50,261            18.4%
Risk based capital requirement                        21,878             8.0
                                                      ------            ----
Excess over requirement                              $28,383            10.4%
                                                      ======            ====

                                       13

<PAGE>




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

The Savings  Bank's  liquidity  is a measure of its  ability to fund loans,  pay
withdrawals of deposits, and other cash outflows in an efficient, cost effective
manner.  The Savings  Bank's  primary source of funds are deposits and scheduled
amortization  and prepayment of loan and mortgage backed  principal.  During the
past  several  years,  the Savings  Bank has used such funds  primarily  to fund
maturing  time  deposits,  pay savings  withdrawals,  fund lending  commitments,
purchase new investments,  and increase liquidity. The Savings Bank is currently
able to fund its operations  internally but has, when deemed  prudent,  borrowed
funds from the Federal Home Loan Bank of  Pittsburgh.  As of September 30, 1996,
such borrowed funds total $103.4 million.  Loan payments,  maturing  investments
and  mortgage-backed  security  prepayments  are greatly  influenced  by general
interest rates, economic conditions and competition.

The Savings  Bank is required  under  federal  regulations  to maintain  certain
specified  levels of "liquid  investments",  which include certain United States
government  obligations  and other  approved  investments.  Current  regulations
require the Savings  Bank to maintain  liquid  assets of not less than 5% of its
net withdrawable  accounts plus short term borrowings.  Short term liquid assets
must consist of not less than 1% of such accounts and  borrowings,  which amount
is also  included  within the 5%  requirement.  These levels may be changed from
time to time by the  regulators  to reflect  current  economic  conditions.  The
Savings Bank has  generally  maintained  liquidity  far in excess of  regulatory
requirements.  The Savings  Bank's  regulatory  liquidity was 20.5% and 20.4% at
September  30, 1996 and 1995,  respectively,  and its short term  liquidity  was
16.3% and 14.5%, at such dates, respectively.

The amount of  certificate  accounts  which are  scheduled to mature  during the
twelve months ending September 30, 1997, is approximately $163.7 million. To the
extent that these deposits do not remain at the Savings Bank upon maturity,  the
Savings Bank  believes  that it can replace  these funds with  deposits,  excess
liquidity,  FHLB advances or outside borrowings.  It has been the Savings Bank's
experience  that a substantial  portion of such maturing  deposits remain at the
Savings Bank.

At September 30, 1996, the Savings Bank had outstanding commitments to originate
loans of $9.6 million.  Also  outstanding at September 30, 1996 were commitments
to purchase $23.3 million of loans from correspondents along with commitments to
purchase $3.8 million of  investment  securities.  Funds  required to fill these
commitments are derived primarily from current excess liquidity, deposit inflows
or loan and security  repayments.  At September  30, 1996,  the Savings Bank had
outstanding commitments to sell loans of $3.7 million.

Recent Developments

Savings  associations are subject to the provisions of the Internal Revenue Code
of  1986,  as  amended  (the  "Code"),  in the  same  general  manner  as  other
corporations.  However,  prior to August 1996, savings  associations such as the
Savings  Bank,  which  met  certain  definitional  tests  and  other  conditions
prescribed by the Code could benefit from certain favorable provisions regarding
their  deductions  from  taxable  income for annual  additions to their bad debt
reserve.  The  amount  of the  bad  debt  deduction  that a  qualifying  savings
institution  could claim with  respect to additions to its reserve for bad debts
was subject to certain limitations. The Savings Bank reviewed the most favorable
way to  calculate  the  deduction  attributable  to an  addition to its bad debt
reserve on an annual basis.

In August  1996,  the Code was revised to equalize  the  taxation of thrifts and
banks.  Thrifts,  such as the Savings Bank, no longer have a choice  between the
percentage of taxable  income method and the  experience  method in  determining
additions to bad debt reserves.  Thrifts with $500 million of assets or less may
still use the  experience  method,  which is generally  available to small banks
currently.  Larger  thrifts  such as the Bank must use the  specific  charge off
method  regarding bad debts.  Any reserve amounts added after 1987 will be taxed
over a six year period beginning in 1996;  however,  bad debt reserves set aside
through 1987 are generally not taxed. An institution may

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<PAGE>



delay  recapturing into income its post-1987 bad debt reserves for an additional
two years if it meets a residential-  lending test.  This law is not expected to
have a material  impact on the Savings Bank. At September 30, 1996,  the Savings
Bank had $360,000 of post 1987 bad-debt reserves.

                    TF FINANCIAL CORPORATION AND SUBSIDIARIES

                                     PART II

ITEM 1.           LEGAL PROCEEDINGS

                  Neither the  Corporation  nor the Savings  Bank was engaged in
                  any legal  proceeding  of a material  nature at September  30,
                  1996.  From time to time, the  Corporation is a party to legal
                  proceedings  in the  ordinary  course of  business  wherein it
                  enforces its security interest in loans.

ITEM 2.           CHANGES IN SECURITIES

                  Not applicable.

ITEM 3.           DEFAULTS ON SENIOR SECURITIES

                  Not applicable.

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

                  Not applicable.

ITEM 5.           OTHER MATERIALLY IMPORTANT EVENTS

                  On  September   20,  1996  the  Savings  Bank   completed  the
                  acquisition of three branch offices, and the related deposits,
                  of Cenlar  Federal  Savings Bank of Trenton,  New Jersey.  The
                  branch  offices   located  in  Ewing,   Hamilton   Square  and
                  Princeton,  New Jersey had combined  deposits of approximately
                  $137.6 million at the time of acquisition.

ITEM 6.           EXHIBITS AND REPORTS ON FORM 8-K

                  (a)   Exhibits

                        None

                  (b)   Reports on Form 8-K

                  (i)   On October 25,  1996,  the  Corporation  filed a Current
                        Report  on Form  8-K with the  Securities  and  Exchange
                        Commission  ("SEC")  to report the  issuance  of a press
                        release announcing theCorporation's intent to repurchase
                        in  the  open  market  up  to  214,869   shares  of  the
                        Corporation's common stock totalling approximately 5% of
                        its outstanding shares.

                  (ii)  On  October  4, 1996,  the  Corporation  filed a Current
                        Report  on Form  8-K with the  Securities  and  Exchange
                        Commission  ("SEC") to report that the Savings  Bank had
                        finalized the acqusition of Cenlar Savings Bank's Ewing,
                        Hamilton and Princeton, New Jersey branch offices.


                                       15

<PAGE>





                                   SIGNATURES


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


                                       TF FINANCIAL CORPORATION



Date:      November 10, 1996          By: /s/ John R. Stranford
           -----------------             -----------------------
                                         John R. Stranford
                                         President and CEO
                                         (Principal Executive Officer)



Date:      November 10, 1996          By: /s/ William C. Niemczura
           -----------------              -------------------------
                                          William C. Niemczura
                                          Senior Vice President and
                                          Chief Financial Officer
                                          (Principal Financial & Accounting 
                                             Officer)





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