SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the period ended September 30, 2005

- or -

For the transition period from                                   to

Commission file number:  0-24168

TF FINANCIAL CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

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

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

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

Common Stock, par value $.10 per share

(Title of Class)

Indicate by check mark whether the registrant: (1) has filed all 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 ý  NO o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 Exchange Act).  YES o  NO ý

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: October 31, 2005

CONTENTS

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TF Financial Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

The accompanying notes are an integral part of these statements

3

TF Financial Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

The accompanying notes are an integral part of these statements

4

TF Financial Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

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The accompanying notes are an integral part of these statements

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TF FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - PRINCIPLES OF CONSOLIDATION

The consolidated financial statements as of September 30, 2005 (unaudited) and December 31, 2004 and for the nine-month periods ended September 30, 2005 and 2004 (unaudited) include the accounts of TF Financial Corporation (the “Company”) and its wholly owned subsidiaries Third Federal Bank (the “Bank”), TF Investments Corporation and Penns Trail Development Corporation. The Company’s business is conducted principally through the 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 all of the disclosures or footnotes required by accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments, consisting of normal recurring accruals, necessary for fair presentation of the consolidated financial statements have been included.  The results of operations for the period ended September 30, 2005 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 Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004.

NOTE 3 - CONTINGENCIES

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

NOTE 4 - OTHER COMPREHENSIVE INCOME (LOSS)

The Company’s other comprehensive income consists of net unrealized gains (losses) on investment securities and mortgage-backed securities available for sale. Total comprehensive income for the three-month periods ended September 30, 2005 and 2004 was $506,000 and $2,746,000, net of applicable income tax expense of $11,000 and $1,173,000, respectively. Total comprehensive income for the nine-month periods ended September 30, 2005 and 2004 was $3,421,000 and $5,055,000, net of applicable income tax expense of $1,014,000 and $1,921,000, respectively.

NOTE 5 - EARNINGS PER SHARE

The following tables illustrate the reconciliation of the numerators and denominators of the basic and diluted earnings per share computations (dollars in thousands, except per share data):

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

There were options to purchase 31,816 shares of common stock at a price of $34.14 per share which were outstanding during the nine months ended September 30, 2004 that were not included in the computation of diluted earnings per share because the options’ exercise prices were greater than the average market price of the common shares.

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NOTE 6- STOCK BASED COMPENSATION

The Company has two fixed stock option plans. The Company’s employee stock option plans are accounted for using the intrinsic value method under APB Opinion No. 25, as permitted by SFAS No. 123. No stock-based compensation expense is reflected in net income, as all options granted under the plans had an exercise price equal to the market value of the underlying common stock on the date of the grant.

Had compensation cost for the plans been determined based on the fair value of options at the grant dates consistent with the method of SFAS No. 123, “Accounting for Stock-Based Compensation,” the Company’s net income and earnings per share would have been reduced to the pro forma amounts indicated below (in thousands, except per share data):

Stock-based compensation expense included in net income is related to stock grants in lieu of salary and the Company’s employee stock ownership plan. Such expense totaled $91,000 and $95,000 for the three-month periods ended September 30, 2005 and 2004, respectively.

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Stock-based compensation expense included in net income is related to stock grants in lieu of salary and the Company’s employee stock ownership plan. Such expense totaled $295,000 and $322,000 for the nine-month periods ended September 30, 2005 and 2004, respectively.

On April 27, 2005, the Company’s shareholders approved the 2005 Stock-Based Incentive Plan (the “2005” Plan) which provides for grants of stock options and/or restricted stock aggregating up to 240,000 shares of the Company’s common stock, with a maximum of 40,000 shares of restricted stock.

NOTE 7- EMPLOYEE BENEFIT PLANS

Net periodic defined benefit pension cost included the following (in thousands):

The employer contribution made for the nine months ended September 30, 2005 and 2004 was $1,015,000 and $30,000, respectively.

NOTE 8- RECLASSIFICATIONS

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

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TF FINANCIAL CORPORATION AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL POSITION AND RESULTS OF OPERATIONS

GENERAL

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

These forward-looking statements involve risks and uncertainties, such as statements of the Company’s plans, objectives, expectations, estimates and intentions that are subject to change based on various important factors (some of which are beyond the Company’s control).  The following factors, among others, could cause the Company’s financial performance to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements: the strength of the United States economy in general and the strength of the local economies in which the Company conducts operations; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System, inflation, interest rate, market and monetary fluctuations; the timely development of and acceptance of new products and services of the Company and the perceived overall value of these products and services by users, including the features, pricing and quality compared to competitors’ products and services; the willingness of users to substitute competitors’ products and services for the Company’s products and services; the success of the Company in gaining regulatory approval of its products and services, when required; the impact of changes in financial services’ laws and regulations (including laws concerning taxes, banking, securities and insurance); technological changes, acquisitions; changes in consumer spending and saving habits; and the success of the Company at managing the risks involved in the foregoing.

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

Financial Condition

The Company’s total assets at September 30, 2005 and December 31, 2004 were $647.7 million and $629.0 million, respectively, an increase of $18.7 million, or 3.0%, during the nine-month period. Cash and cash equivalents decreased by $2.3 million, the direct result of lower reserves required to be maintained at the Federal Reserve Bank. Investment securities available for sale increased by $10.5 million due to purchases of $4.8 million of tax free municipal bonds and purchases of $6.0 million corporate notes, offset by a market value decrease of $0.3 million. Investment securities held to maturity decreased by $1.3 million largely due to proceeds from maturities of such securities.  Mortgage-backed securities available for sale decreased by $16.1 million as $9.0 million of security purchases was off-set by $23.3 million in principal pay-downs, a decrease in the market value of these securities totaling $1.5 million and net premium amortization of $0.3 million. Mortgage-backed securities held to maturity decreased by $3.5 million as a result of principal repayments. Loans receivable increased by $29.9 million during the first nine months of 2005. Consumer and single-family residential mortgage loans of $41.5 million and commercial loans of $50.0 million were originated during the first nine months of 2005. Proceeds from the sale of loans in the secondary market were $6.7 million and proceeds from the sale of the credit card portfolio totaled $1.1 million during the nine-month period.  Principal repayments of loans during this period were $87.4 million.

Total liabilities increased by $17.5 million. Deposit balances increased by $5.0 million during the nine-month period ended September 30, 2005. Non-interest bearing demand deposits grew by $2.4 million and money market deposits increased by $37.2 million while savings and interest-bearing checking accounts decreased by a combined $26.0 million. Certificates of deposit decreased by $8.6 million. Advances from the Federal Home Loan Bank increased by $11.6 million due to a $16.4 million increase in long-term fixed rate advances and an increase of $6.5 million in short-term advances less scheduled amortization payments of long-term advances of $11.3 million.

Total consolidated stockholders’ equity of the Company was $62.4 million or 9.6% of total assets at September 30, 2005. During the nine months ended September 30, 2005, the Company repurchased 58,672 shares of its common stock and issued 37,143 shares pursuant to the exercise of stock options. As of September 30, 2005, there were 94,773 shares available for repurchase under the previously announced share repurchase plan.

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Asset Quality

During the first nine months of 2005 and 2004, the Company’s provision for loan losses was $450,000.  As of September 30, 2005, the Company owned one parcel of foreclosed real estate. This parcel has been recorded as real estate owned at the lower of the recorded investment in the loan or estimated fair value in the amount of $0.7 million and is included in other assets in the statement of financial position at September 30, 2005. Management of the Company believes that there has not been any significant deterioration in its asset quality during the first nine months of 2005.

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

Management maintains an allowance for loan losses at levels that are believed to be adequate; however, there can be no assurances that further additions will not be necessary or that losses inherent in the existing loan portfolio will not exceed the allowance.  The following table sets forth the activity in the allowance for loan losses during the periods indicated (in thousands):

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RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004

Net Income.  The Company recorded net income of $1,545,000, or $0.55 per diluted share, for the three months ended September 30, 2005 as compared to net income of $1,714,000, or $0.61 per diluted share, for the three months ended September 30, 2004.

Average Balance Sheet

The following table sets forth information relating to the Company’s average balance sheet and reflects the average yield on assets and average cost of liabilities for the periods indicated. Yield and cost are computed by dividing income or expense by the average daily balance of interest-earning assets or interest-bearing liabilities, respectively, at or for the three-month periods indicated.