Beneficial Bancorp Inc. - FORM 10-Q

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EX-31.1 - EX-31.1 - Beneficial Bancorp Inc.	a16-6654_1ex31d1.htm
EX-32.0 - EX-32.0 - Beneficial Bancorp Inc.	a16-6654_1ex32d0.htm
EX-31.2 - EX-31.2 - Beneficial Bancorp Inc.	a16-6654_1ex31d2.htm

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-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 March 31, 2016

o 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: 001-36806

BENEFICIAL BANCORP, INC.

(Exact name of registrant as specified in its charter)

Maryland		47-1569198
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

1818 Market Street, Philadelphia, Pennsylvania		19103
(Address of principal executive offices)		(Zip Code)

(215) 864-6000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

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

Large Accelerated Filer x		Accelerated Filer o

Non-Accelerated Filer o		Smaller Reporting Company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of April 28, 2016, there were 75,426,531 shares of the registrant’s common stock outstanding.

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BENEFICIAL BANCORP, INC.

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		Page No.
Part I. Financial Information

Item 1.	Financial Statements (unaudited)

	Unaudited Condensed Consolidated Statements of Financial Condition as of March 31, 2016 and December 31, 2015	1

	Unaudited Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2016 and 2015	2

	Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2016 and 2015	3

	Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2016	4

	Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2016 and 2015	5

	Notes to Unaudited Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	46

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	62

Item 4.	Controls and Procedures	63

Part II. Other Information

Item 1.	Legal Proceedings	64

Item 1A.	Risk Factors	64

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64

Item 3.	Defaults Upon Senior Securities	64

Item 4.	Mine Safety Disclosures	64

Item 5.	Other Information	64

Item 6.	Exhibits	64

Signatures		66

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BENEFICIAL BANCORP, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Financial Condition

(Dollars in thousands, except share and per share amounts)

ASSETS	March 31, 2016			December 31, 2015

CASH AND CASH EQUIVALENTS:
Cash and due from banks	$	40,381		$	43,978
Overnight investments	71,384			189,942
Total cash and cash equivalents	111,765			233,920

INVESTMENT SECURITIES:
Available-for-sale, at fair value (amortized cost of $570,785 and $650,439 at March 31, 2016 and December 31, 2015, respectively)	582,402			655,162
Held-to-maturity (estimated fair value of $683,884 and $695,290 at March 31, 2016 and December 31, 2015, respectively)	673,222			696,310
Federal Home Loan Bank stock, at cost	8,786			8,786
Total investment securities	1,264,410			1,360,258
LOANS:	3,151,785			2,941,446
Allowance for loan losses	(45,234		)	(45,500		)
Net loans	3,106,551			2,895,946
ACCRUED INTEREST RECEIVABLE	14,794			14,298
BANK PREMISES AND EQUIPMENT, Net	72,465			73,213
OTHER ASSETS:
Goodwill	121,973			121,973
Bank owned life insurance	65,095			64,827
Other intangibles	3,915			4,389
Other assets	53,726			57,871
Total other assets	244,709			249,060
TOTAL ASSETS	$	4,814,694		$	4,826,695
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Deposits:
Non-interest bearing deposits	$	409,716		$	409,232
Interest-bearing deposits	3,100,774			3,042,691
Total deposits	3,510,490			3,451,923

Borrowed funds	190,410			190,405
Other liabilities	67,206			68,821
Total liabilities	3,768,106			3,711,149

COMMITMENTS AND CONTINGENCIES (Note 15)
STOCKHOLDERS’ EQUITY:
Preferred Stock - $.01 par value; 100,000,000 shares authorized, None issued or outstanding as of March 31, 2016 and December 31, 2015	—			—
Common Stock - $.01 par value 500,000,000 shares authorized, 83,089,369 and 82,949,191 issued and 76,741,577 and 82,918,595 outstanding, as of March 31, 2016 and December 31, 2015, respectively	831			829
Additional paid-in capital	789,978			787,503
Unearned common stock held by employee savings and stock ownership plan	(31,397		)	(32,014		)
Retained earnings (partially restricted)	387,974			382,951
Accumulated other comprehensive loss	(18,562		)	(23,374		)
Treasury Stock at cost, 6,347,792 shares and 30,596 shares at March 31, 2016 and December 31, 2015, respectively	(82,236		)	(349		)
Total stockholders’ equity	1,046,588			1,115,546
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	4,814,694		$	4,826,695

See accompanying notes to unaudited condensed consolidated financial statements.

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BENEFICIAL BANCORP, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Income

(Dollars in thousands, except per share amounts)

	For the Three Months Ended
	March 31,			March 31,
	2016			2015
INTEREST INCOME:
Interest and fees on loans	$	29,990		$	26,266
Interest on overnight investments	259			269
Interest and dividends on investment securities:
Taxable	6,360			7,910
Tax-exempt	325			498
Total interest income	36,934			34,943

INTEREST EXPENSE:
Interest on deposits:
Interest bearing checking accounts	466			423
Money market and savings deposits	1,322			1,307
Time deposits	1,628			1,833
Total	3,416			3,563
Interest on borrowed funds	1,278			1,247
Total interest expense	4,694			4,810
Net interest income	32,240			30,133
Provision for loan losses	—			(2,000		)
Net interest income after provision for loan losses	32,240			32,133

NON-INTEREST INCOME:
Insurance and advisory commission and fee income	1,990			1,986
Service charges and other income	3,385			3,507
Mortgage banking (loss) income	(28		)	127
Net loss on sale of investment securities	(4		)	(5		)
Total non-interest income	5,343			5,615

NON-INTEREST EXPENSE:
Salaries and employee benefits	15,817			15,492
Occupancy expense	2,293			2,797
Depreciation, amortization and maintenance	2,317			2,301
Marketing expense	913			1,316
Intangible amortization expense	474			466
FDIC Insurance	553			548
Merger and restructuring charges	838			—
Professional fees	1,029			1,555
Classified loan and other real estate owned related expense	292			292
Other	5,807			5,724
Total non-interest expense	30,333			30,491

Income before income taxes	7,250			7,257
Income tax expense	2,227			2,006
NET INCOME	$	5,023		$	5,251

EARNINGS PER SHARE — Basic	$	0.07		$	0.07
EARNINGS PER SHARE — Diluted	$	0.07		$	0.07

Average common shares outstanding — Basic	76,162,515			78,454,187
Average common shares outstanding — Diluted	76,993,671			79,073,032

See accompanying notes to the unaudited condensed consolidated financial statements.

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BENEFICIAL BANCORP, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Comprehensive Income

(Dollars in thousands)

	For the Three Months Ended
	March 31,
	2016		2015

Net Income	$	5,023	$	5,251
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities:
Unrealized holding gains on available-for-sale securities arising during the period (net of deferred tax of $2,519 and $1,405 for the three months ended March 31, 2016 and 2015, respectively)	4,370		2,431
Accretion of unrealized losses on available-for-sale securities transferred to held-to-maturity (net of tax of $76 and $79 for the three months ended March 31, 2016 and 2015, respectively)	131		137
Reclassification adjustment for net losses on available-for-sale securities included in net income (net of tax of $1 and $2 for the three months ended March 31, 2016 and 2015, respectively)	3		3
Defined benefit pension plans:
Pension losses, other postretirement and postemployment benefit plan adjustments (net of tax of $232 and $231 for the three months ended March 31, 2016 and 2015, respectively)	308		345
Total other comprehensive income	4,812		2,916
Comprehensive income	$	9,835	$	8,167

See accompanying notes to the unaudited condensed consolidated financial statements.

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BENEFICIAL BANCORP, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Dollars in thousands, except share amounts)

	Number of Shares Issued	Common Stock		Additional Paid in Capital		Common Stock held by KSOP			Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
BALANCE, JANUARY 1, 2016	82,949,191	$	829	$	787,503	$	(32,014	)	$	382,951	$	(349	)	$	(23,374	)	$	1,115,546
Net Income									5,023								5,023
KSOP shares committed to be released				238		617											855
Stock option expense				417													417
Restricted stock expense				413													413
Stock options exercised	140,178	2		1,407													1,409
Purchase of treasury stock											(81,887		)				(81,887		)
Net unrealized losses on AFS securities arising during the period (net of deferred tax of $2,519)														4,370			4,370
Accretion of unrealized losses on AFS securities transferred to HTM during the period (net of deferred tax of $76)														131			131
Reclassification adjustment for net losses on AFS securities included in net income (net of tax of $1)														3			3
Pension, other post retirement and postemployment benefit plan adjustments (net of tax of $232)														308			308
BALANCE, MARCH 31, 2016	83,089,369	$	831	$	789,978	$	(31,397	)	$	387,974	$	(82,236	)	$	(18,562	)	$	1,046,588

See accompanying notes to the unaudited condensed consolidated financial statements.

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BENEFICIAL BANCORP, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows

	For the Three Months Ended March 31,
(Dollars in thousands)	2016			2015
OPERATING ACTIVITIES:
Net income	$	5,023		$	5,251
Adjustment to reconcile net income to net cash provided by operating activities:
Provision for loan losses	—			(2,000		)
Depreciation and amortization	1,517			1,511
Intangible amortization	474			466
Net loss on sale of investments	4			5
Accretion of discount on investments	(74		)	(148		)
Amortization of premium on investments	1,444			1,443
Gain on sale of residential loans held for sale	(84		)	(93		)
Net loss from disposition of premises and equipment	46			5
Net gain on sale of other real estate	(53		)	(98		)
Amortization of KSOP	855			709
Increase in bank owned life insurance	(268		)	(375		)
Stock based compensation	830			710
Origination of loans held for sale	(2,891		)	(5,637		)
Proceeds from sale of loans	4,158			5,555
Changes in assets and liabilities:
Accrued interest receivable	(496		)	(353		)
Accrued interest payable	(281		)	(162		)
Income taxes payable	703			1,891
Other liabilities	(1,442		)	215
Other assets	648			(5,752		)
Net cash provided by operating activities	10,113			3,143
INVESTING ACTIVITIES:
Loans originated or acquired	(368,828		)	(365,490		)
Principal repayment on loans	156,673			121,826
Proceeds from maturities, calls or repayments of investment securities available for sale	87,355			36,161
Purchases of investment securities held to maturity	—			(53,071		)
Proceeds from maturities, calls or repayments of investment securities held to maturity	22,625			22,640
Net purchases of money market and mutual funds	(8,406		)	(8,325		)
Proceeds from sale other real estate owned	868			383
Purchases of premises and equipment	(868		)	(2,192		)
Proceeds from sale of premises and equipment	—			17
Cash used in other investing activities	219			49
Net cash used in investing activities	(110,362		)	(248,002		)
FINANCING ACTIVITIES:
Increase in borrowed funds	5,008			6,000
Repayment of borrowed funds	(5,003		)	(5,996		)
Net increase in checking, savings and demand accounts	54,916			33,772
Net increase (decrease) in time deposits	3,651			(16,065		)
Proceeds from the exercise of stock options	1,409			114
Purchase of treasury stock	(81,887		)	(266		)
Net cash (used in) provided by financing activities	(21,906		)	17,559
NET DECREASE IN CASH AND CASH EQUIVALENTS	(122,155		)	(227,300		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	233,920			534,015
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	111,765		$	306,715
SUPPLEMENTAL DISCLOSURES OF CASH FLOW AND NON-CASH INFORMATION:
Cash payments for interest	$	4,975		$	4,972
Cash payments for income taxes	1,533			115
Transfers of loans to other real estate owned	366			113
Issuance of common stock funded by stock subscriptions received prior to January 1, 2015, net of offering costs	—			474,398

See accompanying notes to the unaudited condensed consolidated financial statements.

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BENEFICIAL BANCORP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles in the United States of America (“GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. These financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto contained in the Annual Report on Form 10-K filed by Beneficial Bancorp, Inc. (the “Company” or “Beneficial”) with the U.S. Securities and Exchange Commission on February 26, 2016. The results for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2016 or any other period.

Principles of Consolidation

The unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Specifically, the financial statements include the accounts of Beneficial Bank (the “Bank”), the Company’s wholly owned subsidiary, and the Bank’s wholly owned subsidiaries. The Bank’s wholly owned subsidiaries are: (i) Beneficial Advisors, LLC, which offers wealth management services and non-deposit investment products, (ii) Neumann Corporation, a Delaware corporation formed to manage certain investments, (iii) Beneficial Insurance Services, LLC, which provides insurance services to individual and business customers and (iv) Beneficial Equipment Finance Corporation (formerly BSB Union Corporation), an equipment leasing company. Additionally, the Company has subsidiaries that hold other real estate acquired in foreclosure or transferred from the real estate loan portfolio. All significant intercompany accounts and transactions have been eliminated. The various services and products support each other and are interrelated.

Management makes significant operating decisions based upon the analysis of the entire Company and financial performance is evaluated on a company-wide basis. Accordingly, the various financial services and products offered are included in one reportable operating segment: community banking as outlined under guidance in the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC” or “codification”) Topic 280 for Segment Reporting.

Use of Estimates in the Preparation of Financial Statements

These unaudited interim condensed consolidated financial statements are prepared in conformity with GAAP. The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Significant estimates include the allowance for loan losses, goodwill, other intangible assets, income taxes, postretirement benefits, and the fair value of investment securities. Actual results could differ from those estimates and assumptions.

NOTE 2 — NATURE OF OPERATIONS

The Company is a Maryland corporation that was incorporated in August 2014 to be the successor to Beneficial Mutual Bancorp, Inc. (“Beneficial Mutual Bancorp”) upon completion of the second-step conversion of the Bank from the two-tier mutual holding company structure to the stock holding company structure. Beneficial Savings Bank MHC was the former mutual holding company for Beneficial Mutual Bancorp prior to completion of the second-step conversion. In conjunction with the second-step conversion, each of Beneficial Savings Bank MHC and Beneficial Mutual Bancorp ceased to exist. The second-step conversion was completed on January 12, 2015, at which time the Company sold, for gross proceeds of $503.8 million, a total of 50,383,817 shares of common stock at $10.00 per share, including 2,015,352 shares purchased by the Bank’s employee savings and stock ownership plan. As part of the second-step conversion, each of the existing 29,394,417 outstanding shares of Beneficial Mutual Bancorp common stock

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owned by persons other than Beneficial Savings Bank MHC was converted into 1.0999 of a share of Company common stock.

The consolidated financial statements include the accounts of the Company, the Bank, a Pennsylvania chartered savings bank, and the Bank’s subsidiaries. The Company owns 100% of the issued and outstanding common stock of the Bank. The Bank offers a variety of consumer and commercial banking services to individuals, businesses, and nonprofit organizations through 67 offices throughout the Philadelphia and Southern New Jersey area. The Bank is supervised and regulated by the Pennsylvania Department of Banking and Securities and the Federal Deposit Insurance Corporation (the “FDIC”). The Company is regulated by the Board of Governors of the Federal Reserve System. The deposits of the Bank are insured up to the applicable legal limits by the Deposit Insurance Fund of the FDIC.

NOTE 3 — CHANGES IN AND RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following tables present the changes in the balances of each component of accumulated other comprehensive income (“AOCI”) for the three months ended March 31, 2016 and March 31, 2015. All amounts are presented net of tax.

	Net unrealized
	holding gains on
	available-for-sale		Defined benefit
(Dollars in thousands)	securities		pension plan items			Total

Beginning balance, January 1, 2016	$	542	$	(23,916	)	$	(23,374	)
Changes in other comprehensive loss before reclassifications:
Unrealized holding gains on AFS securities	4,370		—			4,370
Accretion of unrealized losses on AFS securities transferred to HTM	131		—			131
Amount reclassified from accumulated other comprehensive loss	3		308			311
Net current-period other comprehensive income	4,504		308			4,812
Ending balance, March 31, 2016	$	5,046	$	(23,608	)	$	(18,562	)

	Net unrealized
	holding gains on
	available-for-sale		Defined benefit
(Dollars in thousands)	securities		pension plan items			Total

Beginning balance, January 1, 2015	$	2,711	$	(25,374	)	$	(22,663	)
Changes in other comprehensive loss before reclassifications:
Unrealized holding gains on AFS securities	2,431		—			2,431
Accretion of unrealized losses on AFS securities transferred to HTM	137		—			137
Amount reclassified from accumulated other comprehensive loss	3		345			348
Net current-period other comprehensive income	2,571		345			2,916
Ending balance, March 31, 2015	$	5,282	$	(25,029	)	$	(19,747	)

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The following tables present reclassifications out of AOCI by component for the three months ended March 31, 2016 and March 31, 2015:

For the Three Months Ended March 31, 2016

(Dollars in thousands)

Details about accumulated	Amount reclassified			Affected line item in
other comprehensive loss	from accumulated other			the consolidated statements
Components	comprehensive loss			of operations
Unrealized gains and losses on available-for-sale securities
	$	4		Net loss on sale of investment securities
	(1		)	Income tax benefit
	$	3		Net of tax
Amortization of defined benefit pension items
Prior service costs	$	(122	)(1)	Other non-interest expense
Net recognized actuarial losses	662		(1)	Other non-interest expense
	$	540		Total before tax
	(232		)	Income tax benefit
	$	308		Net of tax

(1) These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension cost. See Note 13 - Pension and Other Postretirement Benefits for additional details.

For the Three Months Ended March 31, 2015

(Dollars in thousands)

Details about accumulated	Amount reclassified			Affected line item in
other comprehensive loss	from accumulated other			the consolidated statements
components	comprehensive loss			of operations
Unrealized gains and losses on available-for-sale securities
	$	5		Net loss on sale of investment securities
	(2		)	Income tax benefit
	$	3		Net of tax
Amortization of defined benefit pension items
Prior service costs	$	(130	)(1)	Other non-interest expense
Net recognized actuarial losses	706		(1)	Other non-interest expense
	$	576		Total before tax
	(231		)	Income tax benefit
	$	345		Net of tax

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NOTE 4 — EARNINGS PER SHARE

The following table presents a calculation of basic and diluted earnings per share for the three months ended March 31, 2016 and 2015. Earnings per share is computed by dividing net income available to common shareholders by the weighted average number of shares of common stock outstanding. The difference between common shares issued and basic average common shares outstanding, for purposes of calculating basic earnings per share, is a result of subtracting unallocated employee stock ownership plan (“ESOP”) shares and unvested restricted stock shares. See Note 14 for further discussion of stock grants.

	Three Months Ended March 31,
(Dollars in thousands, except share and per share amounts)	2016		2015

Basic and diluted earnings per share:
Net income	$	5,023	$	5,251
Basic average common shares outstanding	76,162,515		78,454,187
Effect of dilutive securities	831,156		618,845
Dilutive average shares outstanding	76,993,671		79,073,032
Net earnings per share
Basic	$	0.07	$	0.07
Diluted	$	0.07	$	0.07

Anti-dilutive shares are common stock equivalents with weighted average exercise prices in excess of the weighted average market value for the periods presented. For the three months ended March 31, 2016, there were 185,544 outstanding options that were anti-dilutive and therefore excluded from the earnings per share calculation. For the three months ended March 31, 2015, there were 230,700 restricted stock grants and 868,999 outstanding options that were anti-dilutive and therefore excluded from the earnings per share calculation.

NOTE 5 — INVESTMENT SECURITIES

The amortized cost and estimated fair value of investments in debt and equity securities at March 31, 2016 and December 31, 2015 are as follows:

	March 31, 2016
	Investment Securities Available-for-Sale
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		Losses		Value

U.S. Government Sponsored Enterprise (“GSE”) and Agency Notes	$	5,704	$	95	$	—	$	5,799
Ginnie Mae guaranteed mortgage certificates	4,205		160		—		4,365
GSE mortgage-backed securities	458,755		10,042		123		468,674
GSE collateralized mortgage obligations	30,178		32		175		30,035
Municipal bonds	30,154		1,456		—		31,610
Corporate securities	11,986		188		40		12,134
Money market and mutual funds	29,803		—		18		29,785

Total	$	570,785	$	11,973	$	356	$	582,402

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	March 31, 2016
	Investment Securities Held-to-Maturity
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		Losses		Value

GSE mortgage-backed securities	$	633,567	$	10,184	$	437	$	643,314
GSE collateralized mortgage obligations	36,905		900		99		37,706
Municipal bonds	750		73		—		823
Foreign bonds	2,000		41		—		2,041

Total	$	673,222	$	11,198	$	536	$	683,884

	December 31, 2015
	Investment Securities Available-for-Sale
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		Losses		Value

U.S. Government Sponsored Enterprise (“GSE”) and Agency Notes	$	6,107	$	2	$	—	$	6,109
Ginnie Mae guaranteed mortgage certificates	4,395		146		—		4,541
GSE mortgage-backed securities	543,687		5,963		2,379		547,271
Collateralized mortgage obligations	32,717		37		397		32,357
Municipal bonds	30,146		1,510		—		31,656
Corporate Securities	11,986		—		126		11,860
Money market, mutual funds and certificates of deposit	21,401		—		33		21,368

Total	$	650,439	$	7,658	$	2,935	$	655,162

	December 31, 2015
	Investment Securities Held-to-Maturity
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		Losses		Value

GSE mortgage-backed securities	$	654,803	$	3,042	$	4,335	$	653,510
Collateralized mortgage obligations	38,757		456		292		38,921
Municipal bonds	750		69		—		819
Foreign bonds	2,000		40		—		2,040

Total	$	696,310	$	3,607	$	4,627	$	695,290

During the three months ended March 31, 2016, the Bank sold $89 thousand of mutual funds that resulted in a loss of $4 thousand.

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The following tables provide information on the gross unrealized losses and fair market value of the Company’s investments with unrealized losses that are not deemed to be other than temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2016 and December 31, 2015:

	At March 31, 2016
	Less than 12 months				12 months or longer				Total
			Unrealized				Unrealized				Unrealized
(Dollars in thousands)	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Mortgage-backed securities	$	104,546	$	339	$	42,781	$	221	$	147,327	$	560
Corporate Securities	1,960		40		—		—		1,960		40
Collateralized mortgage obligations	—		—		34,621		274		34,621		274
Subtotal, debt securities	$	106,506	$	379	$	77,402	$	495	$	183,908	$	874
Mutual Funds	—		—		463		18		463		18
Total temporarily impaired securities	$	106,506	$	379	$	77,865	$	513	$	184,371	$	892

	At December 31, 2015
	Less than 12 months				12 months or longer				Total
			Unrealized				Unrealized				Unrealized
(Dollars in thousands)	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Mortgage-backed securities	$	588,681	$	5,296	$	113,146	$	1,418	$	701,827	$	6,714
Corporate Securities	11,860		126		—		—		11,860		126
Collateralized mortgage obligations	3,781		23		36,819		666		40,600		689
Subtotal, debt securities	$	604,322	$	5,445	$	149,965	$	2,084	$	754,287	$	7,529
Mutual Funds	—		—		541		33		541		33
Total temporarily impaired securities	$	604,322	$	5,445	$	150,506	$	2,117	$	754,828	$	7,562

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. The Company determines whether the unrealized losses are temporary in accordance with guidance under FASB ASC Topic 320 for Investments - Debt and Equity Securities. The evaluation is based upon factors such as the creditworthiness of the issuers/guarantors, the underlying collateral, if applicable, and the continuing performance of the securities. Management also evaluates other facts and circumstances that may be indicative of an OTTI condition. This includes, but is not limited to, an evaluation of the type of security, length of time and extent to which the fair value has been less than cost, and near-term prospects of the issuer. The likelihood of recovering the Company’s investment, whether the Company has the intent to sell the investment or that it is more likely than not that the Company will be required to sell the investment before recovery is also used to determine the nature of the decline in market value of the securities.

The Company records the credit portion of OTTI through earnings based on the credit impairment estimates generally derived from cash flow analyses. The remaining unrealized loss, due to factors other than credit, is recorded in other comprehensive income (“OCI”). The Company had an unrealized loss of $560 thousand related to its GSE mortgage-backed securities as of March 31, 2016. Additionally, the Company had an unrealized loss of $274 thousand on GSE collateralized mortgage obligations, an unrealized loss of $40 thousand on corporate securities and an unrealized loss of $18 thousand on mutual funds as of March 31, 2016.

Mortgage-Backed Securities

The Company’s investments that were in a loss position for greater than 12 months included GSE mortgage-backed securities with an unrealized loss of 0.5% as of March 31, 2016. The Company’s investments that were in a loss position for less than 12 months included GSE mortgage-backed securities with an unrealized loss of 0.3% as of March 31, 2016. The unrealized loss is due to current interest rate levels relative to the Company’s cost. Because the unrealized losses are due to current interest rate levels relative to the Company’s cost and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell these investments before recovery

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of its amortized cost, which may be at maturity, the Company does not consider these investments to be other-than temporarily impaired at March 31, 2016.

Collateralized Mortgage Obligations (CMOs)

The Company’s investments that were in a loss position for greater than 12 months included GSE CMOs with an unrealized loss of 0.8% as of March 31, 2016. The unrealized loss is due to current interest rate levels relative to the Company’s cost. Because the unrealized losses are due to current interest rate levels relative to the Company’s cost and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell these investments before recovery of its amortized cost, which may be at maturity, the Company does not consider these investments to be other-than temporarily impaired at March 31, 2016.

Corporate Securities

The Company’s investment that was in a loss position for less than 12 months included one investment-grade rated subordinated debt issued by a financial institution with an unrealized loss of 2.0% as of March 31, 2016. The unrealized loss is due to current interest rate levels relative to the Company’s cost. Because the unrealized losses are due to current interest rate levels relative to the Company’s cost and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell these investments before recovery of its amortized cost, which may be at maturity, the Company does not consider these investments to be other-than temporarily impaired at March 31, 2016.

The following table sets forth the stated maturities of the investment securities at March 31, 2016 and December 31, 2015. Maturities for mortgage-backed securities are dependent upon the rate environment and prepayments of the underlying loans. For purposes of this table they are presented separately.

	March 31, 2016				December 31, 2015
	Amortized		Estimated		Amortized		Estimated
(Dollars are in thousands)	Cost		Fair Value		Cost		Fair Value

Available-for-sale:
Due in one year or less	$	—	$	—	$	—	$	—
Due after one year through five years	9,247		9,526		8,696		9,025
Due after five years through ten years	38,597		40,017		39,543		40,600
Due after ten years	—		—		—		—
Mortgage-backed securities	493,138		503,074		580,799		584,169
Money market and mutual funds	29,803		29,785		21,401		21,368

Total	$	570,785	$	582,402	$	650,439	$	655,162

Held-to-maturity:
Due in one year or less	$	120	$	122	$	120	$	123
Due after one year through five years	2,505		2,595		2,505		2,592
Due after five years through ten years	125		147		125		144
Due after ten years	—		—		—		—
Mortgage-backed securities	670,472		681,020		693,560		692,431

Total	$	673,222	$	683,884	$	696,310	$	695,290

At March 31, 2016 and December 31, 2015, $75.6 million and $75.7 million, respectively, of securities were pledged to secure municipal deposits. At March 31, 2016 and December 31, 2015, the Company had $548 thousand and $458 thousand, respectively, of securities pledged as collateral on interest rate swaps.

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NOTE 6 — LOANS

Loans at March 31, 2016 and December 31, 2015 are summarized as follows:

(Dollars in thousands)	March 31, 2016			December 31, 2015

Commercial:
Commercial real estate	$	1,152,559		$	971,086
Commercial business loans	510,423			496,313
Commercial construction	129,495			116,452
Total commercial loans	1,792,477			1,583,851
Residential:
Residential real estate	738,477			735,468
Residential construction	253			256
Total residential loans	738,730			735,724

Consumer loans:
Home equity & lines of credit	228,869			231,808
Personal	18,959			20,640
Education	177,087			181,646
Automobile	195,663			187,777
Total consumer loans	620,578			621,871
Total loans	3,151,785			2,941,446

Allowance for losses	(45,234		)	(45,500		)
Loans, net	$	3,106,551		$	2,895,946

During the three months ended March 31, 2016, the Company entered into $117.5 million of participations in a portfolio of multi-family loans that are included in commercial real estate loans. These loans all met the Company’s underwriting standards and are secured by real estate located within the Company’s market area.

As of March 31, 2016, the Company had no loans held for sale compared to $1.2 million of residential loans held for sale at December 31, 2015. These loans are carried at the lower of cost or estimated fair value, on an aggregate basis. Loans held for sale are loans originated by the Bank to be sold to a third party who is under contractual obligation to purchase the loans from the Bank. For the three months ended March 31, 2016 and 2015, the Bank sold residential mortgage loans with an unpaid principal balance of approximately $4.1 million and $5.5 million, respectively, and recorded mortgage banking (loss) income of approximately $(28) thousand and $127 thousand, respectively. The mortgage banking loss during the three months ended March 31, 2016 was the result of a decrease in the fair value of mortgage servicing rights due to an increase in the constant prepayment assumption. Please refer to Note 18 — Mortgage Servicing Rights for additional information. The Bank retained the related servicing rights for the loans that were sold to Fannie Mae and receives a 25 basis point servicing fee from the purchaser of the loans.

Commercial business loans include shared national credits, which are participations in loans or loan commitments of at least $20.0 million that are shared by three or more banks. Included in the shared national credit portfolio are purchased participations and assignments in leveraged lending transactions. Leveraged lending transactions are generally used to support a merger- or acquisition-related transaction, to back a recapitalization of a company’s balance sheet or to refinance debt. When considering a participation in the leveraged lending market, the Company will participate only in first lien senior secured term loans that are highly rated (investment grade) by the rating agencies and that trade in active secondary markets. The Company actively monitors the secondary market for these types of loans to ensure that it maintains flexibility to sell such loans in the event of deteriorating credit quality. To further minimize risk and based on our current capital levels and loan portfolio, the Company has limited the total amount of leveraged loans to $150.0 million with no single obligor exceeding $15.0 million while maintaining single industry concentrations below 30% of the leveraged lending limit. The Company may reevaluate these limits in future periods.

The shared national credit loans are typically variable rate with terms ranging from one to seven years. At March 31, 2016, shared national credits totaled $227.2 million, which included $127.4 million of leveraged lending transactions. All of these loans were classified as pass rated as of March 31, 2016 as all payments are current and the loans are performing in accordance with their contractual terms.

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Allowance for Loan Losses

The allowance for loan losses is a valuation allowance for probable losses inherent in the loan portfolio. The Company evaluates the appropriateness of the allowance for loan losses balance on loans on a quarterly basis. When additional allowances are necessary, a provision for loan losses is charged to earnings and, when less allowances are necessary, a credit is taken. As of March 31, 2016, the Company’s methodology for assessing the appropriateness of the allowance for loan losses consists of (1) a specific valuation allowance on identified problem loans and (2) a general valuation allowance on the remainder of the loan portfolio. The appropriate allowance level is estimated based upon factors and trends identified by the Company at the time the consolidated financial statements are prepared. Management continuously evaluates its allowance methodology.

The Company charges-off the collateral or discounted cash flow deficiency on all loans at 90 days past due, except government guaranteed student loans, and all loans rated substandard or worse that are 90 days past due. As a result, no specific valuation allowance was maintained at March 31, 2016 or December 31, 2015.

The summary activity in the allowance for loan losses for all portfolios for the three months ended March 31, 2016 and 2015, and for the year ended December 31, 2015, is as follows:

	Three Months Ended						Year Ended
	March 31,						December 31,
(Dollars in thousands)	2016			2015			2015

Balance, beginning of year	$	45,500		$	50,654		50,654
Provision for loan losses	—			(2,000		)	(3,600		)
Charge-offs	(742		)	(1,462		)	(6,302		)
Recoveries	476			1,952			4,748

Balance, end of period	$	45,234		$	49,144		$	45,500

The following table sets forth the activity in the allowance for loan losses by portfolio for the three months ended March 31, 2016 and the year ended December 31, 2015:

	COMMERCIAL							RESIDENTIAL					CONSUMER
March 31, 2016 (Dollars in thousands)	Real Estate		Business			Construction		Real Estate			Construction		Home Equity & Equity Lines			Personal			Education			Auto			Total
Allowance for loan losses:
Beginning balance	$	22,640	$	11,856		$	2,335	$	1,644		$	—	$	2,356		$	436		$	125		$	4,108		$	45,500
Charge-offs	—		(96		)	—		(75		)	—		(102		)	(17		)	(46		)	(406		)	(742		)
Recoveries	14		11			3		1			—		15			124			—			308			476
Provision (credit)	1,658		52			101		45			—		(657		)	(171		)	52			(1,080		)	—
Allowance ending balance	$	24,312	$	11,823		$	2,439	$	1,615		$	—	$	1,612		$	372		$	131		$	2,930		$	45,234

Allowance ending balance
Individually evaluated for impairment	$	—	$	—		$	—	$	—		$	—	$	—		$	—		$	—		$	—		$	—
Collectively evaluated for impairment	24,312		11,823			2,439		1,615			—		1,612			372			131			2,930			45,234
Total Allowance	$	24,312	$	11,823		$	2,439	$	1,615		$	—	$	1,612		$	372		$	131		$	2.930		$	45,234

Financing receivable:
Ending balance
Individually evaluated for impairment	$	17,806	$	2,154		$	—	$	11,776		$	253	$	1,883		$	34		$	—		$	—		$	33,906
Collectively evaluated for impairment	1,134753		508,269			129,495		726,701			—		226,986			18,925			177,087			195,663			3,117,879
Total Portfolio	$	1,152,559	$	510,423		$	129,495	$	738,477		$	253	$	228,869		$	18,959		$	177,087		$	195,663		$	3,151,785

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	COMMERCIAL									RESIDENTIAL					CONSUMER
December 31, 2015 (Dollars in thousands)	Real Estate			Business			Construction			Real Estate			Construction		Home Equity & Equity Lines			Personal			Education			Auto			Unallocated			Total
Allowance for loan losses:
Beginning balance	$	18,016		$	18,264		$	2,343		$	1,960		$	—	$	2,669		$	1,957		$	285		$	4,610		$	550		$	50,654
Charge-offs	(2,333		)	(703		)	—			(283		)	—		(584		)	(505		)	(120		)	(1,774		)	—			(6,302		)
Recoveries	647			2,759			102			16			—		173			153			—			898			—			4,748
Provision (credit)	6,310			(8,464		)	(110		)	(49		)	—		98			(1,169		)	(40		)	374			(550		)	(3,600		)
Allowance ending balance	$	22,640		$	11,856		$	2,335		$	1,644		$	—	$	2,356		$	436		$	125		$	4,108		$	—		$	45,500

Allowance ending balance
Individually evaluated for impairment	$	—		$	—		$	—		$	—		$	—	$	—		$	—		$	—		$	—		$	—		$	—
Collectively evaluated for impairment	22,640			11,856			2,335			1,644			$	—	2,356			436			125			4,108			$	—		$	45,500
Total Allowance	$	22,640		$	11,856		$	2,335		$	1,644		$	—	$	2,356		$	436		$	125		$	4,108		$	—		$	45,500

Financing receivable:
Ending balance
Individually evaluated for impairment	$	17,943		$	2,287		$	41		$	12,634		$	256	$	2,002		$	10		$	—		$	—		$	—		$	35,173
Collectively evaluated for impairment	953,143			494,026			116,411			722,834			—		229,806			20,630			181,646			187,777			—			2,906,273
Total Portfolio	$	971,086		$	496,313		$	116,452		$	735,468		$	256	$	231,808		$	20,640		$	181,646		$	187,777		$	—		$	2,941,446

The provision for loan losses charged to expense is based upon past loan loss experience and an evaluation of estimated losses in the current loan portfolio, including the evaluation of impaired loans under FASB ASC Topic 310 for Loans and Debt Securities. Under FASB ASC Topic 310 for Receivables, for all loan segments a loan is considered to be impaired when, based upon current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan. An insignificant delay or insignificant shortfall in amount of payments does not necessarily result in the loan being identified as impaired. When all or a portion of the loan is deemed uncollectible, the uncollectible portion is charged-off. The measurement is based either on the fair value of the collateral if the loan is collateral dependent, the liquidation value, or the present value of expected future cash flows discounted at the loan’s effective interest rate. Most of the Company’s commercial loans are collateral dependent and, therefore, the Company uses the value of the collateral to measure the loss. Any collateral or discounted cash flow deficiency for loans that are 90 days past due are charged-off. Impairment losses are included in the provision for loan losses. Large groups of homogeneous loans are collectively evaluated for impairment, except for those loans restructured under a troubled debt restructuring.

Classified Loans

The Bank’s credit review process includes a risk classification of all commercial and residential loans that includes pass, special mention, substandard and doubtful. The classification of a loan may change based on changes in the creditworthiness of the borrower. The description of the risk classifications are as follows:

A loan is classified as pass when payments are current and it is performing under the original contractual terms. A loan is classified as special mention when the borrower exhibits potential credit weakness or a downward trend which, if not checked or corrected, will weaken the asset or inadequately protect the Bank’s position. While potentially weak, the borrower is currently marginally acceptable; no loss of principal or interest is envisioned. A loan is classified as substandard when the borrower has a well-defined weakness or weaknesses that jeopardize the orderly liquidation of the debt. A substandard loan is inadequately protected by the current net worth and paying capacity of the obligor, normal repayment from this borrower is in jeopardy, and there is a distinct possibility that a partial loss of interest and/or principal will occur if the deficiencies are not corrected. A loan is classified as doubtful when a borrower has all weaknesses inherent in a loan classified as substandard with the added provision that: (1) the weaknesses make collection of debt in full on the basis of currently existing facts, conditions and values highly questionable and improbable; (2) serious problems exist to the point where a partial loss of principal is likely; and (3) the possibility of loss is extremely high, but because of certain important, reasonably specific pending factors which may work to the advantage and strengthening of the assets, its classification as an estimated loss is deferred until its

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more exact status may be determined. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens and additional refinancing plans. The Company charges-off the collateral or discounted cash flow deficiency on all loans classified as substandard or worse. In all cases, loans are placed on non-accrual when 90 days past due or earlier if collection of principal or interest is considered doubtful.

The following tables set forth the amounts and percentage of the portfolio of classified asset categories for the commercial and residential loan portfolios at March 31, 2016 and December 31, 2015:

Commercial and Residential Loans

Credit Risk Internally Assigned

	March 31, 2016
	Commercial				Commercial				Commercial				Residential				Residential
(Dollars in thousands)	Real Estate				Business				Construction				Real Estate				Construction				Total
Grade
Pass	$	1,136,663	99	%	$	494,814	97	%	$	129,495	100	%	$	732,558	99	%	$	123	49	%	$	2,493,653	99	%
Special Mention	4,756		—	%	3,288		1	%	—		—	%	—		—	%	—		—	%	8,044		—	%
Substandard	11,140		1	%	12,321		2	%	—		—	%	5,919		1	%	130		51	%	29,510		1	%
Doubtful	—		—	%	—		—	%	—		—	%	—		—	%	—		—	%	—		—	%
Total	$	1,152,559	100	%	$	510,423	100	%	$	129,495	100	%	$	738,477	100	%	$	253	100	%	$	2,531,207	100	%

	December 31, 2015
	Commercial				Commercial				Commercial				Residential				Residential
	Real Estate				Business				Construction				Real Estate				Construction				Total
Grade
Pass	$	953,761	98	%	$	473,653	95	%	$	116,411	100	%	$	728,870	99	%	$	126	49	%	$	2,272,821	98	%
Special Mention	6,465		1	%	8,725		2	%	—		—	%	—		—	%	—		—	%	15,190		1	%
Substandard	10,860		1	%	13,935		3	%	41		—	%	6,598		1	%	130		51	%	31,564		1	%
Doubtful	—		—	%	—		—	%	—		—	%	—		—	%	—		—	%	—		—	%
Total	$	971,086	100	%	$	496,313	100	%	$	116,452	100	%	$	735,468	100	%	$	256	100	%	$	2,319,575	100	%

The Bank’s credit review process is based on payment history for all consumer loans. The collateral deficiency on consumer loans is charged-off when they become 90 days delinquent with the exception of education loans which are guaranteed by the U.S. government.

The following tables set forth the consumer loan risk profile based on payment activity as of March 31, 2016 and December 31, 2015:

Credit Risk Profile Based on Payment Activity

	March 31, 2016
(Dollars in thousands)	Home Equity & Lines of Credit				Personal				Education				Auto				Total
Performing	$	227,345	99	%	$	18,934	100	%	$	155,864	88	%	$	195,663	100	%	$	597,806	96	%
Non-performing	1,524		1	%	25		—	%	21,223		12	%	—		—	%	22,772		4	%
Total	$	228,869	100	%	$	18,959	100	%	$	177,087	100	%	$	195,663	100	%	$	620,578	100	%

	December 31, 2015
	Home Equity & Lines of Credit				Personal				Education				Auto				Total
Performing	$	230,173	99	%	$	20,640	100	%	$	158,746	87	%	$	187,777	100	%	$	597,336	96	%
Non-performing	1,635		1	%	—		—	%	22,900		13	%	—		—	%	24,535		4	%
Total	$	231,808	100	%	$	20,640	100	%	$	181,646	100	%	$	187,777	100	%	$	621,871	100	%

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Loan Delinquencies and Non-accrual Loans

The Company monitors the past due and non-accrual status of loans in determining the loss classification, impairment status and the allowance for loan losses. Generally, all loans past due 90 days or more are put on non-accrual status. Education loans greater than 90 days delinquent continue to accrue interest as they are U.S. government guaranteed with little risk of credit loss.

The following tables provide information about delinquent and non-accrual loans in the Company’s portfolio at the dates indicated:

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Aged Analysis of Past Due and Non-accrual Financing Receivables

As of March 31, 2016

																									Recorded
	30-59				60-89				> 90																Investment
	Days				Days				Days				Total								Total				>90 Days
	Past				Past				Past				Past								Financing				And		Non-
(Dollars in thousands)	Due				Due				Due				Due				Current				Receivables				Accruing		Accruing
Commercial:
Commercial real estate	$	503	3	%	$	—	—	%	$	791	3	%	$	1,294	2	%	$	1,151,265	38	%	$	1,152,559	37	%	$	—	$	1,984	14	%
Commercial business loans	—		—	%	—		—	%	470		2	%	470		1	%	509,953		16	%	510,423		16	%	—		1,252		9	%
Commercial construction	—		—	%	—		—	%	—		—	%	—		—	%	129,495		4	%	129,495		4	%	—		—		—	%
Total commercial	$	503	3	%	$	—	—	%	$	1,261	5	%	$	1,764	3	%	$	1,790,713	58	%	$	1,792,477	57	%	$	—	$	3,236	23	%

Residential:
Residential real estate	$	1,039	6	%	$	765	11	%	$	3,382	13	%	$	5,186	10	%	$	733,291	24	%	$	738,477	23	%	$	—	$	8,693	64	%
Residential construction	—		—	%	—		—	%	253		1	%	253		—	%	—		—	%	253		—	%	—		253		2	%
Total residential	$	1,039	6	%	$	765	11	%	$	3,635	14	%	$	5,439	10	%	$	733,291	24	%	$	738,730	23	%	$	—	$	8,946	66	%

Consumer loans:
Home equity & lines of credit	$	750	4	%	$	233	3	%	$	774	3	%	$	1,757	3	%	$	227,112	7	%	$	228,869	7	%	$	—	$	1,524	11	%
Personal	245		1	%	182		3	%	—		—	%	427		1	%	18,532		1	%	18,959		1	%	—		25		—	%
Education	12,908		72	%	5,638		80	%	21,223		78	%	39,769		78	%	137,318		4	%	177,087		6	%	21,223		—		—	%
Automobile	2,542		14	%	181		3	%	—		—	%	2,723		5	%	192,940		6	%	195,663		6	%	—		—		—	%
Total consumer	$	16,445	91	%	$	6,234	89	%	$	21,997	81	%	$	44,676	87	%	$	575,902	18	%	$	620,578	20	%	$	21,223	$	1,549	11	%

Total	$	17,987	100	%	$	6,999	100	%	$	26,893	100	%	$	51,879	100	%	$	3,099,906	100	%	$	3,151,785	100	%	$	21,223	$	13,731	100	%

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Aged Analysis of Past Due and Non-accrual Financing Receivables

As of December 31, 2015

																									Recorded
	30-59				60-89				> 90																Investment
	Days				Days				Days				Total								Total				>90 Days
	Past				Past				Past				Past								Financing				And		Non-
(Dollars in thousands)	Due				Due				Due				Due				Current				Receivables				Accruing		Accruing
Commercial:
Commercial real estate	$	—	—	%	$	800	7	%	$	—	—	%	$	800	1	%	$	970,286	34	%	$	971,086	33	%	$	—	$	2,029	14	%
Commercial business loans	143		1	%	3		—	%	531		2	%	677		1	%	495,636		17	%	496,313		17	%	—		1,378		9	%
Commercial construction	—		—	%	—		—	%	41		—	%	41		—	%	116,411		4	%	116,452		4	%	—		41		—	%
Total commercial	$	143	1	%	$	803	7	%	$	572	2	%	$	1,518	2	%	$	1,582,333	55	%	$	1,583,851	54	%	$	—	$	3,448	23	%

Residential:
Residential real estate	$	1,075	8	%	$	338	3	%	$	4,311	15	%	$	5,724	10	%	$	729,744	25	%	$	735,468	25	%	$	—	$	9,429	63	%
Residential construction	—		—	%	—		—	%	256		1	%	256		—	%	—		—	%	256		—	%	—		256		2	%
Total residential	$	1,075	8	%	$	338	3	%	$	4,567	16	%	$	5,980	10	%	$	729,744	25	%	$	735,724	25	%	$	—	$	9,685	65	%

Consumer loans:
Home equity & lines of credit	$	762	4	%	$	141	1	%	$	937	3	%	$	1,840	3	%	$	229,968	8	%	$	231,808	8	%	$	—	$	1,635	12	%
Personal	209		1	%	11		—	%	—		—	%	220		—	%	20,420		1	%	20,640		1	%	—		—		—	%
Education	13,536		70	%	9,927		86	%	22,900		79	%	46,363		79	%	135,283		5	%	181,646		6	%	22,900		—		—	%
Automobile	3,094		16	%	329		3	%	—		—	%	3,423		6	%	184,354		6	%	187,777		6	%	—		—		—	%
Total consumer	$	17,601	91	%	$	10,408	90	%	$	23,837	82	%	$	51,846	88	%	$	570,025	20	%	$	621,871	21	%	$	22,900	$	1,635	12	%

Total	$	18,819	100	%	$	11,549	100	%	$	28,976	100	%	$	59,344	100	%	$	2,882,102	100	%	$	2,941,446	100	%	$	22,900	$	14,768	100	%

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Troubled Debt Restructured Loans

The Bank determines whether a restructuring of debt constitutes a troubled debt restructuring (“TDR”) in accordance with guidance under FASB ASC Topic 310 Receivables. The Bank considers a loan a TDR when the borrower is experiencing financial difficulty and the Bank grants a concession that it would not otherwise consider but for the borrower’s financial difficulties. A TDR includes a modification of debt terms or assets received in satisfaction of the debt (including a foreclosure or a deed in lieu of foreclosure) or a combination of types. The Bank evaluates selective criteria to determine if a borrower is experiencing financial difficulty, including the ability of the borrower to obtain funds from sources other than the Bank at market rates. The Bank considers all TDR loans as impaired loans and, generally, they are put on non-accrual status. The Bank will not consider the loan a TDR if the loan modification was made for customer retention purposes and the modification reflects prevailing market conditions. The Bank’s policy for returning a loan to accruing status requires the preparation of a well-documented credit evaluation, which includes the following:

· A review of the borrower’s current financial condition in which the borrower must demonstrate sufficient cash flow to support the repayment of all principal and interest including any amounts previously charged-off;

· An updated appraisal or home valuation, which must demonstrate sufficient collateral value to support the debt;

· Sustained performance based on the restructured terms for at least six consecutive months; and

· Approval by the Special Assets Committee, which consists of the Chief Credit Officer, the Chief Financial Officer and other members of senior management.

The following table summarizes loans whose terms were modified in a manner that met the definition of a TDR as of March 31, 2016 and 2015.

	March 31,			March 31,
	2016			2015
(Dollars in thousands)	No. of Loans	Balance		No. of Loans	Balance
Commercial:
Commercial real estate	—	$	—	3	$	1,383
Commercial business loans	—	—		—	—
Commercial construction	—	—		—	—
Total commercial	—	—		3	1,383

Residential:
Residential real estate	5	515		3	371
Residential construction	—	—		—	—
Total real estate loans	5	515		3	371

Consumer loans:
Home equity & lines of credit	1	194		1	229
Automobile	—	—		—	—
Total consumer loans	1	194		1	229
Total loans	6	$	709	7	$	1,983

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The following tables summarize information about TDRs as of and for the three months ended March 31, 2016 and 2015:

	For the Three Months Ended March 31, 2016
(Dollars in thousands, except number of loans)	No. of Loans	Balance
Loans modified during the period in a manner that met the definition of a TDR	—	$	—
Modifications granted:
Reduction of outstanding principal due	—	—
Deferral of principal amounts due	—	—
Temporary reduction in interest rate	—	—
Deferral of interest due	—	—
Below market interest rate granted	—	—
Outstanding principal balance immediately before modification	—	—
Outstanding principal balance immediately after modification	—	—
Aggregate principal charge-off recognized on TDRs outstanding at period end since origination	—	—
Outstanding principal balance at period end	6	709
TDRs that re-defaulted subsequent to being modified (in the past twelve months)	—	—

	For the Three Months Ended March 31, 2015
(Dollars in thousands, except number of loans)	No. of Loans	Balance
Loans modified during the period in a manner that met the definition of a TDR	4	$	1,534
Modifications granted:
Reduction of outstanding principal due	—	—
Deferral of principal amounts due	4	1,534
Temporary reduction in interest rate	—	—
Deferral of interest due	—	—
Below market interest rate granted	—	—
Outstanding principal balance immediately before modification	4	1,534
Outstanding principal balance immediately after modification	4	1,534
Aggregate principal charge-off recognized on TDRs outstanding at period end since origination	—	—
Outstanding principal balance at period end	7	1,983
TDRs that re-defaulted subsequent to being modified (in the past twelve months)	—	—

Impaired Loans

Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures the extent of the impairment in accordance with guidance under FASB ASC Topic 310 for Receivables. The fair value of impaired loans is estimated using one of several methods, including collateral value, liquidation value or discounted cash flows. However, collateral value is predominantly used to assess the fair value of an impaired loan. Those impaired loans not requiring an allowance represent loans for which the fair value of the collateral or expected repayments exceed the recorded investments in such loans.

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Components of Impaired Loans

Impaired Loans

Year to date March 31, 2016

(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Interest Income Recognized Using Cash Basis
Impaired loans with no related specific allowance recorded:
Commercial Real Estate	$	1,984	$	1,984	$	—	$	2,008	$	—	$	—
Commercial Business	1,252		1,348		—		1,315		—		—
Commercial Construction	—		—		—		31		—		—
Residential Real Estate	8,693		9,376		—		8,992		—		—
Residential Construction	253		461		—		254		—		—
Home Equity and Lines of Credit	1,524		1,543		—		1,573		—		—
Personal	25		25		—		12		—		—
Education	—		—		—		—		—		—
Auto	—		—		—		—		—		—
Total Impaired Loans:	$	13,731	$	14,737	$	—	$	14,185	$	—	$	—

Commercial	3,236		3,332		—		3,354		—		—
Residential	8,946		9,837		—		9,246		—		—
Consumer	1,549		1,568		—		1,585		—		—
Total	$	13,731	$	14,737	$	—	$	14,185	$	—	$	—

Impaired Loans

For the Year Ended December 31, 2015

(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Interest Income Recognized Using Cash Basis
Impaired loans with no related specific allowance recorded:
Commercial Real Estate	$	2,029	$	2,029	$	—	$	1,654	$	—	$	—
Commercial Business	1,378		1,378		—		1,707		—		—
Commercial Construction	41		41		—		345		—		—
Residential Real Estate	9,578		10,211		—		8,249		—		—
Residential Construction	256		464		—		264		—		—
Home Equity and Lines of Credit	1,635		1,645		—		1,711		—		—
Personal	—		—		—		12		—		—
Education	—		—		—		—		—		—
Auto	—		—		—		3		—		—
Total Impaired Loans:	$	14,917	$	15,768	$	—	$	13,945	$	—	$	—

Commercial	3,448		3,448		—		3,706		—		—
Residential	9,834		10,675		—		8,513		—		—
Consumer	1,635		1,645		—		1,726		—		—
Total	$	14,917	$	15,768	$	—	$	13,945	$	—	$	—

The Company charged-off the collateral or discounted cash flow deficiency on all impaired loans and, as a result, no specific valuation allowance was required for any impaired loans at March 31, 2016. Interest income that would have been recorded for the three months ended March 31, 2016, had impaired loans been current according to their original terms, amounted to $202 thousand.

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Non-performing loans (which include non-accrual loans and loans past due 90 days or more and still accruing) at March 31, 2016 and December 31, 2015 amounted to $35.8 million and $37.7 million, respectively, and included $21.2 million and $22.9 million, respectively, of government guaranteed student loans.

NOTE 7 — GOODWILL AND OTHER INTANGIBLES

The goodwill and other intangible assets arising from acquisitions accounted for in accordance with the accounting guidance in FASB ASC Topic 350 for Intangibles - Goodwill and Other. As of March 31, 2016, the other intangibles consisted of $2.0 million of core deposit intangibles, which are amortized over an estimated useful life of ten years, and $1.9 million of customer list intangibles, which are amortized over an estimated remaining life of between four and six years.

Goodwill and other intangibles at March 31, 2016 are summarized below.

(Dollars in thousands)	Goodwill		Intangibles
Balance at January 1, 2016	$	121,973	$	4,389
Additions	—		—
Amortization	—		(474		)
Balance at March 31, 2016	$	121,973	$	3,915

During 2015, management reviewed qualitative factors for the bank unit including financial performance, market changes and general economic conditions and noted there was not a significant change in any of these factors as compared to 2014. Accordingly, it was determined that it was more likely than not that the fair value of each reporting unit continued to be in excess of its carrying amount as of December 31, 2015. As it relates to Beneficial Insurance Services, LLC the Company performed an impairment test which estimates the fair value of equity using discounted cash flow analyses as well as guideline company and guideline transaction information. The inputs and assumptions are incorporated in the valuations including projections of future cash flows, discount rates, the fair value of tangible and intangible assets and liabilities, and applicable valuation multiples based on the guideline information. Based on the Company’s latest annual impairment assessment of Beneficial Insurance Services, LLC, management believes that the fair value is in excess of the carrying amount. As a result, management concluded that there was no impairment of goodwill during the year ended December 31, 2015.

During the three months ended March 31, 2016, the Company noted no indicators of impairment as it relates to goodwill or other intangibles.

NOTE 8 — OTHER ASSETS

The following table provides selected information on other assets at March 31, 2016 and December 31, 2015:

	March 31,		December 31,
(Dollars in thousands)	2016		2015
Investments in affordable housing and other partnerships	$	8,506	$	9,317
Prepaid assets	2,624		2,120
Net deferred tax assets	34,950		37,778
Other real estate	827		1,276
Fixed assets held for sale	744		744
Mortgage servicing rights	1,137		1,349
Prepaid and other assets	4,938		5,287
Total other assets	$	53,726	$	57,871

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The Company follows the authoritative guidance under ASC 860-50 - Servicing Assets and Liabilities to account for its mortgage servicing rights (“MSRs”). The Company utilizes the fair value measurement method to value its existing mortgage servicing assets at fair value in accordance with ASC 860-50. Under the fair value measurement method, the Company measures its MSRs at fair value at each reporting date and reports changes in the fair value of its MSRs in earnings in the period in which the changes occur. See Note 18 for further discussion of MSRs.

NOTE 9 — DEPOSITS

Deposits consisted of the following major classifications at March 31, 2016 and December 31, 2015:

	March 31,		% of Total		December 31,		% of Total
(Dollars in thousands)	2016		Deposits		2015		Deposits

Non-interest bearing deposits	$	409,716	11.7	%	$	409,232	11.8	%
Interest-earning checking accounts	778,816		22.2	%	757,719		22.0	%
Municipal checking accounts	118,207		3.4	%	132,642		3.8	%
Money market accounts	401,332		11.4	%	389,403		11.3	%
Savings accounts	1,168,683		33.3	%	1,132,842		32.8	%
Certificates of deposit	633,736		18.0	%	630,085		18.3	%
Total deposits	$	3,510,490	100.0	%	$	3,451,923	100.0	%

NOTE 10 — BORROWED FUNDS

Borrowed funds at March 31, 2016 and December 31, 2015 are summarized as follows:

(Dollars in thousands)	March 31, 2016		December 31, 2015
FHLB advances	$	165.000	$	165,000
Statutory trust debenture	25,410		25,405
Total borrowed funds	$	190,410	$	190,405

The Company pledges loans to secure its borrowings at the Federal Reserve Bank of Philadelphia. At March 31, 2016 and December 31, 2015, loans in the amount of $237.2 million and $235.8 million, respectively, were pledged to secure the Company’s borrowing capacity at the Federal Reserve Bank of Philadelphia.

The Bank entered into future borrowing arrangements with the FHLB of Pittsburgh to borrow $200.0 million and $75.0 million, respectively, at a fixed interest rate during the period from April 2016 through April 2019 and the period from March 2017 through March 2020, respectively, to replace existing borrowings that will mature during these periods, as well as, to manage future interest rate volatility by locking into fixed borrowing rates. There was no impact to the Company’s financial condition, results of operations or cash flows for the quarter ended March 31, 2016.

NOTE 11 — REGULATORY CAPITAL REQUIREMENTS

The Bank is subject to various regulatory capital requirements administered by state and federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

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The Dodd-Frank Act required the Federal Reserve Board to promulgate consolidated capital requirements for depository institution holding companies that are no less stringent, both quantitatively and in terms of components of capital, than those applicable to institutions themselves. In early July 2013, the Federal Reserve Board and the Office of the Comptroller of the Currency approved revisions to their capital adequacy guidelines and prompt corrective action rules that implement the revised standards of the Basel Committee on Banking Supervision, commonly called Basel III, and address relevant provisions of the Dodd-Frank Act. “Basel III” refers to two consultative documents released by the Basel Committee on Banking Supervision in December 2009, the rules text released in December 2010, and loss absorbency rules issued in January 2011, which include significant changes to bank capital, leverage and liquidity requirements.

In July 2013, the Federal Deposit Insurance Corporation and the Federal Reserve Board approved a new rule that substantially amended the regulatory risk-based capital rules applicable to Beneficial Bank and Beneficial Bancorp. The final rule implements the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act. The rules include new risk-based capital and leverage ratios, which became effective on January 1, 2015, and revised the definition of what constitutes “capital” for purposes of calculating those ratios. The new minimum capital level requirements applicable to the Company and the Bank are: (1) a new common equity Tier 1 capital ratio of 4.5%; (2) a Tier 1 capital ratio of 6% (increased from 4%); (3) a total capital ratio of 8% (unchanged from current rules); and (4) a Tier 1 leverage ratio of 4% for all institutions. The rules also establish a “capital conservation buffer” of 2.5% above the new regulatory minimum capital requirements, which must consist entirely of common equity Tier 1 capital and would result in the following minimum ratios: (1) a common equity Tier 1 capital ratio of 7.0%, (2) a Tier 1 capital ratio of 8.5%, and (3) a total capital ratio of 10.5%. The new capital conservation buffer requirement was phased in beginning in January 2016 at 0.625% of risk-weighted assets and will increase by that amount each year until fully implemented in January 2019. An institution is also subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.

As of March 31, 2016, the Company’s and the Bank’s current capital levels exceed the required capital amounts to be considered “well capitalized” and we believe they also meet the fully-phased in minimum capital requirements, including the related capital conservation buffers, as required by the Basel III capital rules.

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The following table summarizes the Company’s compliance with applicable regulatory capital requirements as of March 31, 2016 and December 31, 2015:

	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars in thousands)	Capital Amount		Ratio		Capital Amount		Ratio		Capital Amount		Ratio

As of March 31, 2016:

Tier 1 Leverage (to average assets)	$	962,503	20.58	%	$	187,030	4.00	%	$	233,788	5.00	%
Common Equity Tier 1 Capital (to risk weighted assets)	938,583		29.15	%	144,902		4.50	%	209,302		6.50	%
Tier 1 Capital (to risk weighted assets)	962,503		29.89	%	193,202		6.00	%	257,603		8.00	%
Total Capital (to risk weighted assets)	1,002,836		31.14	%	257,603		8.00	%	322,003		10.00	%

As of December 31, 2015:

Tier 1 Leverage (to average assets)	$	1,036,850	22.38	%	$	185,332	4.00	%	$	231,665	5.00	%
Common Equity Tier 1 Capital (to risk weighted assets)	1,013,680		33.36	%	136,722		4.50	%	197,487		6.50	%
Tier 1 Capital (to risk weighted assets)	1,036,850		34.13	%	182,296		6.00	%	243,061		8.00	%
Total Capital (to risk weighted assets)	1,074,952		35.38	%	243,061		8.00	%	303,826		10.00	%

The following table summarizes the Bank’s compliance with applicable regulatory capital requirements as of March 31, 2016 and December 31, 2015:

									To Be Well Capitalized
					For Capital				Under Prompt Corrective
	Actual				Adequacy Purposes				Action Provisions
(Dollars in thousands)	Capital Amount		Ratio		Capital Amount		Ratio		Capital Amount		Ratio

As of March 31, 2016:

Tier 1 Leverage (to average assets)	$	785,182	16.81	%	$	186,869	4.00	%	$	233,586	5.00	%
Common Equity Tier 1 Capital (to risk weighted assets)	785,182		24.42	%	144,690		4.50	%	208,997		6.50	%
Tier 1 Capital (to risk weighted assets)	785,182		24.42	%	192,920		6.00	%	257,227		8.00	%
Total Capital (to risk weighted assets)	825,457		25.67	%	257,227		8.00	%	321,534		10.00	%

As of December 31, 2015:

Tier 1 Leverage (to average assets)	$	780,713	16.86	%	$	185,183	4.00	%	$	231,479	5.00	%
Common Equity Tier 1 Capital (to risk weighted assets)	780,713		25.74	%	136,514		4.50	%	197,187		6.50	%
Tier 1 Capital (to risk weighted assets)	780,713		25.74	%	182,018		6.00	%	242,691		8.00	%
Total Capital (to risk weighted assets)	818,758		26.99	%	242,691		8.00	%	303,364		10.00	%

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NOTE 12 — INCOME TAXES

For the three months ended March 31, 2016, we recorded a provision for income taxes of $2.2 million, reflecting an effective tax rate of 30.7%, compared to a provision for income taxes of $2.0 million, reflecting an effective tax rate of 27.6%, for the three months ended March 31, 2015. The increase in income tax expense and the effective tax rate during these periods is due to a higher ratio of taxable income compared to tax exempt income for the three months ended March 31, 2016 as compared to the same periods in 2015.

The effective income tax rates differ from the statutory rate of 35% principally because of tax-exempt investments, non-taxable income related to bank-owned life insurance, state and local income taxes and tax credits received on affordable housing partnerships. Tax-exempt income, state and local income taxes and federal income tax credits (reduced) increased the effective tax rates by (3.5%),
3.4% and (3.9%) in the effective income tax rate calculation as of March 31, 2016, respectively, and (4.1%), 2.5% and (4.2%) in the effective income tax rate calculation as of March 31, 2015, respectively.

As of March 31, 2016, the Company had net deferred tax assets totaling $34.9 million. These deferred tax assets can only be realized if the Company generates sufficient taxable income in the future. If it cannot, a valuation allowance is established. The Company regularly evaluates the reliability of deferred tax asset positions. In determining whether a valuation allowance is necessary, the Company considers the level of taxable income in prior years to the extent that carry backs are permitted under current tax laws, as well as estimates of future pre-tax and taxable income and tax planning strategies that would, if necessary, be implemented. The Company currently maintains a valuation allowance for certain state net operating losses and other-than-temporary impairments that management believes it is more likely than not that such deferred tax assets will not be realized. The Company expects to realize the remaining deferred tax assets over the allowable carry back and/or carry forward periods. Therefore, no valuation allowance is deemed necessary against its remaining federal or remaining state deferred tax assets as March 31, 2016. However, if an unanticipated event occurs that materially changes pre-tax and taxable income in future periods, an increase in the valuation allowance may become necessary and it could be material to the Company’s financial statements.

NOTE 13 — PENSION AND OTHER POSTRETIREMENT BENEFITS

The Bank has noncontributory defined benefit pension plans covering many of its employees. Additionally, the Company sponsors nonqualified supplemental employee retirement plans for certain participants. The Bank also provides certain postretirement benefits to qualified former employees. These postretirement benefits principally pertain to certain health and life insurance coverage. Information relating to these employee benefits program are included in the tables that follow.

Effective June 30, 2008, the defined pension benefits for Bank employees were frozen at the current levels. Additionally, the Bank enhanced its 401(k) Plan and combined it with its Employee Stock Ownership Plan to fund employer contributions.

The components of net pension cost are as follows:

	Pension Benefits						Other Postretirement Benefits
	Three Months Ended March 31,						Three Months Ended March 31,
(Dollars in thousands)	2016			2015			2016			2015
Service cost	$	—		$	—		$	34		$	44
Interest cost	818			958			179			215
Expected return on assets	(1,559		)	(1,655		)	—			—
Amortization of loss	623			616			39			90
Amortization of prior service cost	—			—			(122		)	(130		)
Net periodic pension (benefit) cost	$	(118	)	$	(81	)	$	130		$	219

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NOTE 14 — STOCK BASED COMPENSATION

Stock-based compensation is accounted for in accordance with FASB ASC Topic 718 for Compensation — Stock Compensation. The Company establishes fair value for its equity awards to determine their cost. The Company recognizes the related expense for employees over the appropriate vesting period, or when applicable, service period, using the straight-line method. However, consistent with the guidance, the amount of stock-based compensation recognized at any date must at least equal the portion of the grant date value of the award that is vested at that date. As a result, it may be necessary to recognize the expense using a ratable method.

The Company’s 2008 Equity Incentive Plan (“EIP”) authorizes the issuance of shares of common stock pursuant to awards that may be granted in the form of stock options to purchase common stock (“options”) and awards of shares of common stock (“stock awards”). The purpose of the Company’s stock-based incentive plans is to attract and retain personnel for positions of substantial responsibility and to provide additional incentive to certain officers, directors and employees. In order to fund grants of stock awards under the EIP, the Equity Incentive Plan Trust (the “EIP Trust”) purchased 1,773,463 shares of Company common stock in the open market for approximately $19.0 million during the year ended December 31, 2008. The Company funded the stock purchases. The acquisition of these shares by the EIP Trust reduced the Company’s outstanding additional paid in capital. The EIP shares will generally vest at a rate of 20% over five years. As of March 31, 2016, 1,028,578 shares were fully vested and 513,789 shares were forfeited. All grants that were issued contain a service condition in order for the shares to vest.

Compensation expense related to the stock awards is recognized ratably over the five-year vesting period in an amount which totals the market price of the Company’s stock at the grant date. The expense recognized for the three months ended March 31, 2016 was $413 thousand compared to $273 thousand for the three months ended March 31, 2015.

The following table summarizes the non-vested stock award activity for the three months ended March 31, 2016:

Summary of Non-vested Stock Award Activity	Number of Shares		Weighted Average Grant Price

Non-vested Stock Awards outstanding, January 1, 2016	616,505		$	10.00
Issued	222,017		12.69
Vested	(99,738	)	8.47
Forfeited	(21,066	)	9.89
Non-vested Stock Awards outstanding, March 31, 2016	717,718		11.05

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The following table summarizes the non-vested stock award activity for the three months ended March 31, 2015:

Summary of Non-vested Stock Award Activity	Number of Shares		Weighted Average Grant Price

Non-vested Stock Awards outstanding, January 1, 2015	534,738		$	8.89
Issued	238,900		11.41
Vested	(85,887	)	8.52
Forfeited	(46,211	)	8.48
Non-vested Stock Awards outstanding, March 31, 2015	641,540		9.91

The fair value of the 99,738 shares that vested during the three months ended March 31, 2016 was $1.3 million. The fair value of the 85,887 shares that vested during the three months ended March 31, 2015 was $957 thousand.

The EIP authorizes the grant of options to officers, employees, and directors of the Company to acquire shares of common stock with an exercise price equal to the fair value of the common stock at the grant date. Options expire ten years after the date of grant, unless terminated earlier under the option terms. Options are granted at the then fair market value of the Company’s stock. The options were valued using the Black-Scholes option pricing model. During the three months ended March 31, 2016, the Company did not grant any options compared to 166,075 options granted during the three months ended March 31, 2015. All options issued contain vesting conditions that require the participant’s continued service. The options generally vest and are exercisable over five years. Compensation expense for the options totaled $417 thousand for the three months ended March 31, 2016, compared to $437 thousand for the three months ended March 31, 2015.

A summary of option activity as of March 31, 2016 and changes during the three month period ended March 31, 2016 is presented below:

	Number of Options		Weighted Exercise Price per Shares

January 1, 2016	3,422,241		$	9.59
Granted	—		—
Exercised	(140,178	)	10.05
Forfeited	(26,290	)	9.72
Expired	—		—
March 31, 2016	3,255,773		9.57

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A summary of option activity as of March 31, 2015 and changes during the three month period ended March 31, 2015 is presented below:

	Number of Options		Weighted Exercise Price per Shares

January 1, 2015	3,568,887		$	9.51
Granted	166,075		11.41
Exercised	(13,030	)	8.72
Forfeited	(78,865	)	9.14
Expired	(88	)	8.90
March 31, 2015	3,642,979		9.61

The weighted average remaining contractual term was approximately 5.52 years and the aggregate intrinsic value was $13.4 million for options outstanding as of March 31, 2016. As of March 31, 2016, exercisable options totaled 2,306,651 with an average weighted exercise price of $9.49 per share, a weighted average remaining contractual term of approximately 4.75 years, and an aggregate intrinsic value of $9.7 million. The weighted average remaining contractual term was approximately 6.33 years and the aggregate intrinsic value was $6.2 million for options outstanding as of March 31, 2015. As of March 31, 2015, exercisable options totaled 2,210,328 with an average weighted exercise price of $9.61 per share, a weighted average remaining contractual term of approximately 5.11 years, and an aggregate intrinsic value of $3.7 million.

During the three months ended March 31, 2016, the Company did not grant any options. Significant weighted average assumptions used to calculate the fair value of the options granted during the three months ended March 31, 2015 are as follows:

	For the Three Months Ended March 31, 2015
Weighted average fair value of options granted	$	3.98
Weighted average risk-free rate of return	1.74		%
Weighted average expected option life in months	78
Weighted average expected volatility	31.19		%
Expected dividends	$	—

As of March 31, 2016, there was $3.1 million of total unrecognized compensation cost related to options and $6.4 million in unrecognized compensation cost related to non-vested stock awards granted under the EIP. As of March 31, 2015, there was $4.8 million of total unrecognized compensation cost related to options and $5.1 million in unrecognized compensation cost related to non-vested stock awards granted under the EIP. The average weighted lives for the option expense were 2.59 and 3.39 years as of March 31, 2016 and March 31, 2015, respectively. The average weighted lives for the stock award expense were 3.90 and 3.97 years at March 31, 2016 and March 31, 2015, respectively.

NOTE 15 — COMMITMENTS AND CONTINGENCIES

At March 31, 2016 and December 31, 2015, the Company had outstanding commitments to purchase or originate new loans aggregating $20.7 million and $40.4 million, respectively, commitments to customers on available lines of credit of $303.6 million and $290.4 million, respectively, commitments to fund commercial construction and other advances of $133.3 million and $136.9 million, respectively, and standby letters of credit of $20.0 million and $17.6 million, respectively. Commitments are issued in accordance with the same policies and underwriting procedures as settled loans. The Bank had a reserve for its unfunded commitments of $284 thousand and $275 thousand at March 31, 2016 and December 31, 2015, respectively.

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Periodically, there have been various claims and lawsuits against the Company, such as claims to enforce liens, condemnation proceedings on properties in which it holds security interests, claims involving the making and servicing of real property loans and other issues incident to its business. The Company is not a party to any pending legal proceedings that it believes would have a material adverse effect on its financial condition, results of operations or cash flows.

NOTE 16 — RECENT ACCOUNTING PRONOUNCEMENTS

In April 2016, the FASB issued ASU 2016-10: Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. The amendments in this update clarify the following two aspects of Topic 606: (a) identifying performance obligations; and (b) the licensing implementation guidance. The amendments do not change the core principle of the guidance in Topic 606. The effective date and transition requirements for the amendments in this update are the same as the effective date and transition requirements in Topic 606. The Company is in the process of evaluating the impact of this guidance and does not anticipate a material impact to the consolidated financial statements at this time.

In March 2016, the FASB issued ASU 2016-09: Compensation —Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The Board is issuing this update as part of its initiative to reduce complexity in accounting standards. The areas for simplification in this update involve several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities. In addition, the amendments in this update eliminate the guidance in Topic 718 that was indefinitely deferred shortly after the issuance of FASB Statement No. 123 (revised 2004), Share-Based Payment. For public business entities, the amendments in this update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any entity in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The Company is in the process of evaluating the impact of this guidance and does not anticipate a material impact to the consolidated financial statements at this time.

Also in March 2016, the FASB issued ASU 2016-08: Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net). The amendments in this update clarify the implementation guidance included in Topic 606 on principal versus agent considerations. The effective date and transition requirements for the amendments in this update are the same as the effective date and transition requirements in Topic 606. The Company is in the process of evaluating the impact of this guidance and does not anticipate a material impact to the consolidated financial statements at this time.

Also in March 2016, the FASB issued ASU 2016-07: Investments —Equity Method and Joint Ventures (Topic 323). To simplify the accounting for equity method investments, the amendments in this update eliminate the requirement in Topic 323 that an entity retroactively adopt the equity method of accounting if an investment qualifies for use of the equity method as a result of an increase in the level of ownership or degree of influence. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The amendments in this update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The Company has not identified significant changes in the level of its ownership in its investments in limited partnerships. As a result, the Company does not anticipate an impact to the consolidated financial statements.

Also in March 2016, the FASB issued ASU 2016-05: Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships. The term novation refers to replacing one counterparty to a derivative instrument with a new counterparty. That change occurs for a

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variety of reasons, including financial institution mergers, intercompany transactions, an entity exiting a particular derivatives business or relationship, an entity managing against internal credit limits, or in response to laws or regulatory requirements. The amendments in this update clarify that a change in the counterparty to a derivative instrument that has been designated as a hedging instrument under Topic 815, does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. For public business entities, the amendments in this update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The Company does not designate any of its derivative instruments as a heading relationship. As a result, the Company does not anticipate an impact to the consolidated financial statements.

Also in March 2016, the FASB issued ASU 2016-04: Liabilities —Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products. When an entity sells a prepaid stored-value product (such as gift cards, telecommunication cards, and traveler’s checks), it recognizes a financial liability for its obligation to provide the product holder with the ability to purchase goods or services at a third-party merchant. When a prepaid stored-value product goes unused wholly or partially for an indefinite time period, the amount that remains on the product is referred to as breakage. There currently is diversity in the methodology used to recognize breakage. Subtopic 405-20 includes derecognition guidance for both financial liabilities and nonfinancial liabilities, and Topic 606, Revenue from Contracts with Customers, includes authoritative breakage guidance but excludes financial liabilities. The amendments in this update provide a narrow scope exception to the guidance in Subtopic 405-20 to require that breakage be accounted for consistent with the breakage guidance in Topic 606. The amendments in this update are effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Earlier application is permitted, including adoption in an interim period. The Company is in the process of evaluating the impact of this guidance and does not anticipate an impact to the consolidated financial statements at this time.

In February 2016, the FASB issued its new lease accounting guidance in ASU 2016-02: Leases (Topic 842). Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted for all public business entities upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company is in the process of evaluating the impact of this guidance and anticipates an impact to the consolidated financial statements with regard to the Company’s operating lease agreements.

In January 2016, the FASB issued ASU 2016-01: Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this update address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments in this update require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). The amendments in this update also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition the amendments in this update also simplify the impairment assessment of equity investments without readily determinable fair values by requiring assessment for impairment qualitatively at each reporting period. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within

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those fiscal years. The Company is in the process of evaluating the impact of this guidance and does not anticipate a material impact to the consolidated financial statements at this time.

In November 2015, the FASB issued ASU 2015-17: Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. In Topic 740, Income Taxes, requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. Deferred tax liabilities and assets are classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. Deferred tax liabilities and assets that are not related to an asset or liability for financial reporting are classified according to the expected reversal date of the temporary difference. To simplify the presentation of deferred income taxes, the amendments in this update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments in this update apply to all entities that present a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments in this update. For public business entities, the amendments in this Update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period. This update is not applicable since the Company does not present a classified statement of financial position. As a result, the Company does not anticipate an impact to the consolidated financial statements.

In September 2015, the FASB issued ASU 2015-16: Business Combinations — Simplifying the Accounting for Measurement-Period Adjustments. GAAP requires that during the measurement period, the acquirer retrospectively adjust the provisional amounts recognized at the acquisition date with a corresponding adjustment to goodwill. Those adjustments are required when new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts initially recognized or would have resulted in the recognition of additional assets or liabilities. The acquirer also must revise comparative information for prior periods presented in financial statements as needed, including revising depreciation, amortization, or other income effects as a result of changes made to provisional amounts. To simplify the accounting for adjustments made to provisional amounts recognized in a business combination, the amendments in this update eliminate the requirement to retrospectively account for those adjustments. The amendments in this update require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this update require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments in this update require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The Company adopted the provisions of this update during the three months ended March 31, 2016 and noted no impact to the consolidated financial statements related to this guidance.

In August 2015, the FASB issued ASU 2015-14: Revenue from Contracts with Customers — Deferral of the Effective Date. On May 28, 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers. For public business entities, the effective date was for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. In response to stakeholders’ requests to defer the effective date of the guidance in Update 2014-09 and in consideration of feedback received through extensive outreach with preparers, practitioners, and users of financial statements, the Board issued proposed Accounting Standards Update, Revenue from Contracts with Customers: Deferral of the Effective Date. The amendments in this update defer the effective date of Update 2014-09 for all entities by one year. Public business entities should apply the guidance in Update 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual

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reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company intends to comply with the effective date of this update.

In June 2015, the FASB issued ASU 2015-10: Technical Corrections and Improvements. This update contains amendments that will affect a wide variety of Topics in the Codification. The amendments in this update will apply to all reporting entities within the scope of the affected accounting guidance. The amendments generally fall into one of the types of amendments: (i) amendments related to differences between original guidance and the Codification, (ii) guidance clarification and reference corrections, (iii) simplification, and (iv) minor improvements. The amendments in this update represent changes to clarify the Codification, correct unintended application of guidance, or make minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. Additionally, some of the amendments will make the Codification easier to understand and easier to apply by eliminating inconsistencies, providing needed clarifications, and improving the presentation of guidance in the Codification. Transition guidance varies based on the amendments in this update. The amendments in this update that require transition guidance are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The Company adopted the provisions of this update during the three months ended March 31, 2016 and noted no impact to the consolidated financial statements related to this guidance.

In April 2015, the FASB issued ASU 2015-05: Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. The amendments in this update provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance will not change GAAP for a customer’s accounting for service contracts. For public business entities, the amendments in this update will be effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. The Company adopted the provisions of this update during the three months ended March 31, 2016 and, following an evaluation of its software agreements, noted no impact to the consolidated financial statements related to this guidance.

In February 2015, the FASB issued ASU 2015-02: Consolidation. The amendments in this update respond to concerns about the current accounting for consolidation of certain legal entities. Entities expressed concerns that current generally accepted accounting principles might require a reporting entity to consolidate another legal entity in situations in which the reporting entity’s contractual rights do not give it the ability to act primarily on its own behalf, the reporting entity does not hold a majority of the legal entity’s voting rights, or the reporting entity is not exposed to a majority of the legal entity’s economic benefits or obligations. Financial statement users asserted that in certain of those situations in which consolidation is ultimately required, deconsolidated financial statements are necessary to better analyze the reporting entity’s economic and operational results. Previously, the FASB issued an indefinite deferral for certain entities to partially address those concerns. However, the amendments in this update rescind that deferral and address those concerns by making changes to the consolidation guidance. The amendments in this update impact all reporting entities involved with limited partnerships or similar entities and require reporting entities to re-evaluate these entities for consolidation. In some cases, consolidation conclusion may change. In other cases, a reporting entity will need to provide additional disclosures if an entity that currently isn’t considered a variable interest entity is considered a variable interest entity under the new guidance. For public business entities, the guidance is effective for annual and interim periods beginning after December 15, 2015. The Company adopted the provisions of this update during the three months ended March 31, 2016 and noted no impact to the consolidated financial statements related to this guidance.

In August 2014, the FASB issued ASU 2014-15: Presentation of Financial Statements — Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The amendments in this update apply to all entities. The amendments in this update provide guidance in GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to

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continue as a going concern and to provide related footnote disclosures. In doing so, the amendments should reduce diversity in the timing and content of footnote disclosures. In connection with preparing financial statements for each annual and interim reporting period, an entity’s management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. Management’s evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued. Substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued. The term probable is used consistently with its use in Topic 450, Contingencies. When management identifies conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern, management should consider whether its plans that are intended to mitigate those relevant conditions or events will alleviate the substantial doubt. The amendments in this update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company does not anticipate a material impact to the consolidated financial statements related to this guidance.

In June 2014, the FASB issued ASU 2014-12 — Compensation — Stock Compensation: Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period: Current U.S. GAAP does not contain explicit guidance on whether to treat a performance target that could be achieved after the requisite service period as a performance condition that affects vesting or as a nonvesting condition that affects the grant-date fair value of an award. The amendments in this update provide explicit guidance for those awards. For all entities, the amendments are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Early adoption is permitted. The Company does not believe that it is probable that the performance conditions for any of the outstanding performance based awards will be met. The Company adopted the provisions of this update during the three months ended March 31, 2016 and noted no impact to the consolidated financial statements related to this guidance.

In May 2014, the FASB issued ASU 2014-09 — Revenue from Contracts with Customers: The objective of this amendment is to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS. This update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are in the scope of other standards. For public entities, the amendments in this Update are effective for annual reporting periods beginning after December 15, 2016. The Company is in the process of evaluating the impact of this guidance and does not anticipate a material impact to the consolidated financial statements at this time.

NOTE 17 — FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company follows authoritative guidance under FASB ASC Topic 820 for Fair Value Measurements and Disclosures which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The definition of fair value under ASC 820 is the exchange price. The guidance clarifies that the exchange price is the price in an orderly transaction between market participants to sell the asset or transfer the liability in the market in which the reporting entity would transact for the asset or liability. The definition focuses on the price that would be received to sell the asset or paid to transfer the liability (an exit price), not the price that would be paid to acquire the asset or received to assume the liability (an entry price). The guidance emphasizes that fair value is a market-based measurement, not an entity-specific measurement.

Fair value is based on quoted market prices, when available. If listed prices or quotes are not available, fair value is based on fair value models that use market participant or independently sourced market data which include: discount rate, interest rate yield curves, credit risk, default rates and expected cash flow assumptions. In addition, valuation adjustments may be made in the determination of fair value. These fair value adjustments may include amounts to reflect counter party credit quality, creditworthiness,

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liquidity and other unobservable inputs that are applied consistently over time. These adjustments are estimated and, therefore, subject to significant management judgment, and at times, may be necessary to mitigate the possibility of error or revision in the model-based estimate of the fair value provided by the model. The methods described above may produce fair value calculations that may not be indicative of the net realizable value. While the Company believes its valuation methods are consistent with other financial institutions, the use of different methods or assumptions to determine fair values could result in different estimates of fair value. FASB ASC Topic 820 for Fair Value Measurements and Disclosures describes three levels of inputs that may be used to measure fair value:

Level 1		Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt securities, equity securities and derivative contracts that are traded in an active exchange market as well as certain U.S. Treasury securities that are highly liquid and actively traded in over-the-counter markets.

Level 2		Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted market prices that are traded less frequently than exchange traded assets and liabilities. The values of these items are determined using pricing models with inputs observable in the market or can be corroborated from observable market data. This category generally includes U.S. Government and agency mortgage-backed debt securities, corporate debt securities and derivative contracts.

Level 3		Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Those assets which will continue to be measured at fair value on a recurring basis are as follows at March 31, 2016:

	Category Used for Fair Value Measurement
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Mortgage servicing rights	$	—	$	—	$	1,137	$	1,137
Investment securities available for sale:
U.S. GSE and agency notes	—		5,799		—		5,799
Ginnie Mae guaranteed mortgage certificates	—		4,365		—		4,365
Collateralized mortgage obligations (“CMOs”)
GSE CMOs	—		30,035		—		30,035
GSE mortgage-backed securities	—		468,674		—		468,674
Municipal bonds
General obligation municipal bonds	—		14,870		—		14,870
Revenue municipal bonds	—		16,740		—		16,740
Corporate securities	—		12,134		—		12,134
Money market funds	29,322		—		—		29,322
Mutual funds	463		—		—		463
Interest rate swap agreements	—		419		—		419
Total Assets	$	29,785	$	553,036	$	1,137	$	583,958
Liabilities:
Interest rate swap agreements and other contracts	$	—	$	452	$	—	$	452
Total Liabilities	$	—	$	452	$	—	$	452

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Those assets which will continue to be measured at fair value on a recurring basis are as follows at December 31, 2015:

	Category Used for Fair Value Measurement
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Mortgage servicing rights	$	—	$	—	$	1,349	$	1,349
Investment securities available for sale:
U.S. GSE and agency notes	—		6,109		—		6,109
Ginnie Mae guaranteed mortgage securities	—		4,541		—		4,541
Collateralized mortgage obligations (“CMOs”)
GSE CMOs	—		32,357		—		32,357
GSE mortgage-backed securities	—		547,271		—		547,271
Municipal bonds
General obligation municipal bonds	—		14,968		—		14,968
Revenue municipal bonds	—		16,688		—		16,688
Corporate securities	—		11,860		—		11,860
Money market funds	20,827		—		—		20,827
Mutual funds	541		—		—		541
Interest rate swap agreements	—		190		—		190
Total Assets	$	21,368	$	633,984	$	1,349	$	656,701
Liabilities:
Interest rate swap agreements	$	—	$	202	$	—	$	202
Total Liabilities	$	—	$	202	$	—	$	202

Level 1 Valuation Techniques and Inputs

Included in this category are money market funds, mutual funds and certificates of deposit. To estimate the fair value of these securities, the Company utilizes observable quotations for the indicated security.

Level 2 Valuation Techniques and Inputs

The majority of the Company’s investment securities are reported at fair value utilizing Level 2 inputs. Prices of these securities are obtained through independent, third-party pricing services. Prices obtained through these sources include market derived quotations and matrix pricing and may include both observable and unobservable inputs. Fair market values take into consideration data such as dealer quotes, new issue pricing, trade prices for similar issues, prepayment estimates, cash flows, market credit spreads and other factors. The Company reviews the output from the third-party providers for reasonableness by considering the pricing consistency among securities with similar characteristics, where available, and comparing values with other pricing sources available to the Company. In general, the Level 2 valuation process uses the following significant inputs in determining the fair value of the different classes of investments:

U.S. Government Sponsored Enterprise (GSE) and Agency Notes. Pricing evaluations are based on obtaining relevant trade data, benchmark quotes and spreads and incorporating this information into the evaluation process. Evaluations are generated on either a price or spread basis as determined by the observed market data. For spread-based evaluations, a non-call spread scale is created or an Option Adjusted Spread (OAS) model is incorporated to adjust spreads of issues that have early redemption features. Spreads are calculated continuously throughout the day, as well as “end of day”.

Ginnie Mae Guaranteed Mortgage Certificates. Pricing evaluations are based on issuer type, coupon and maturity. The Pool specific evaluation model takes into account pool level information supplied directly by the agency. For adjustable rate mortgages, the model takes into account indices, margin, periodic and life caps, next coupon adjustment date and the convertibility of the bond.

GSE CMOs. For pricing evaluations, the pricing service, obtains and applies available direct market color (trades, covers, bids, offers and price talk) along with market color for similar bonds and GSE/Agency CMOs in general (including market research). Evaluations of tranches (non-volatile and volatile) are based on IDC’s interpretation of accepted market modeling, trading, and pricing conventions.

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GSE Mortgage-backed Securities. Included in this category are Fannie Mae and Freddie Mac fixed rate residential mortgage backed securities and Fannie Mae and Freddie Mac Adjustable Rate residential mortgage backed securities. Pricing evaluations are based on issuer type, coupon and maturity. The Pool specific evaluation model takes into account pool level information supplied directly by the GSE. For adjustable rate mortgages, the model takes into account indices, margin, periodic and life caps, next coupon adjustment date and the convertibility of the bond.

Tax Exempt General Obligation and Revenue Municipal Bonds. For pricing, the pricing service’s evaluators build internal yield curves, which are adjusted throughout the day based on trades and other pertinent market information. Evaluators apply this information to bond sectors, and individual bond evaluations are then extrapolated. Within a given sector, evaluators have the ability to make daily spread adjustments for various attributes that include, but are not limited to, discounts, premiums, credit, alternative minimum tax (AMT), use of proceeds, and callability.

Corporate Securities. Pricing evaluations are based on obtaining relevant trade data, benchmark quotes and spreads and incorporating this information into the evaluation process. Evaluations are generated on either a price or spread basis as determined by the observed market data. For spread-based evaluations, a non-call spread scale is created or an Option Adjusted Spread (OAS) model is incorporated to adjust spreads of issues that have early redemption features. Spreads are calculated continuously throughout the day, as well as “end of day”.

Interest Rate Swaps and Other Contracts. The Company’s valuation methodology for over-the-counter (“OTC”) derivatives includes an analysis of discount cash flows based on Overnight Index Swap (“OIS”) rates. Fully collateralized trades are discounted using OIS with no additional economic adjustments to arrive at fair value. Uncollateralized or partially-collateralized trades are also discounted at OIS, but include appropriate economic adjustments for funding costs (i.e., a LIBOR-OIS basis adjustment to approximate uncollateralized cost of funds) and credit risk.

Level 3 Valuation Techniques and Inputs

Mortgage Servicing Rights. The Company determines the fair value of its MSRs by estimating the amount and timing of future cash flows associated with the servicing rights and discounting the cash flows using market discount rates. The valuation includes the application of certain assumptions made by management of the Company, including prepayment projections, and prevailing assumptions used in the marketplace at the time of the valuation.

The table below presents all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2016 and 2015.

Level 3 Investments Only

	For the Three Months Ended
	March 31, 2016			March 31, 2015
(Dollars in thousands)	Mortgage Servicing Rights			Mortgage Servicing Rights
Balance, January 1,	$	1,349		$	1,403
Additions	20			51
Payments	(50		)	(37		)
Decrease in fair value due to changes in valuation inputs or assumptions	(182		)	(83		)
Balance, March 31,	$	1,137		$	1,334

The Company also has assets that, under certain conditions, are subject to measurement at fair value on a non-recurring basis. These include assets that are measured at the lower of cost or market value and

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had a fair value below cost at the end of the period as summarized below. A loan is impaired when, based on current information, the Company determines that it is probable that the Company will be unable to collect amounts due according to the terms of the loan agreement. The Company’s impaired loans are measured based on the estimated fair value of the collateral if the loans are collateral dependent or based on a discounted cash flow analysis if the loans are not collateral dependent. Assets measured at fair value on a nonrecurring basis are as follows:

	Balance Transferred YTD
(Dollars in thousands)	March 31, 2016		Level 1		Level 2		Level 3		Gains/(Losses)
Impaired loans	$	1,358	$	—	$	—	$	1,358	$	(33	)
Other real estate owned	366		—		—		366		—

	Balance Transferred YTD
(Dollars in thousands)	March 31, 2015		Level 1		Level 2		Level 3		Gains/(Losses)
Impaired loans	$	3,440	$	—	$	—	$	3,440	$	(349	)
Other real estate owned	113		—		—		113		—

In accordance with FASB ASC Topic 825 for Financial Instruments, Disclosures about Fair Value of Financial Instruments, the Company is required to disclose the fair value of financial instruments. The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a distressed sale. Fair value is best determined using observable market prices; however for many of the Company’s financial instruments no quoted market prices are readily available. In instances where quoted market prices are not readily available, fair value is determined using present value or other techniques appropriate for the particular instrument. These techniques involve some degree of judgment, and as a result, are not necessarily indicative of the amounts the Company would realize in a current market exchange. Different assumptions or estimation techniques may have a material effect on the estimated fair value.

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The following table sets forth the carrying and estimated fair value of the Company’s financial assets and liabilities for the periods indicated:

	Fair Value of Financial Instruments
		At March 31, 2016				At December 31, 2015
				Estimated				Estimated
	Fair Value	Carrying		Fair		Carrying		Fair
(Dollars in thousands)	Hierarchy Level	Amount		Value		Amount		Value
Assets:
Cash and cash equivalents	Level 1	$	111,765	$	111,765	$	233,920	$	233,920
Securities available for sale	See previous table	582,402		582,402		655,162		655,162
Securities held to maturity	Level 2	673,222		683,884		696,310		695,290
FHLB stock	Level 3	8,786		8,786		8,786		8,786
Loans, net	Level 3	3,106,551		3,179,944		2,894,763		2,917,053
Loans held for sale	Level 2	—		—		1,183		1,210
Mortgage servicing rights	Level 3	1,137		1,137		1,349		1,349
Interest rate swaps	Level 2	419		419		190		190
Accrued interest receivable	Level 3	14,794		14,794		14,298		14,298

Liabilities:
Deposits	Level 2	3,510,490		3,512,736		3,451,923		3,453,135
Borrowed funds	Level 2	190,410		188,501		190,405		184,048
Interest rate swaps and other contracts	Level 2	452		452		202		202
Accrued interest payable	Level 2	1,447		1,447		1,728		1,728

Cash and Cash Equivalents - For cash and cash equivalents, the carrying amount is a reasonable estimate of fair value.

Securities Available for Sale and Held to Maturity - The fair value of investment securities, mortgage-backed securities and collateralized mortgage obligations is based on quoted market prices, dealer quotes, yield curve analysis, and prices obtained from independent pricing services.

FHLB Stock - The fair value of FHLB stock is estimated at its carrying value and redemption price of $100 per share.

Loans, Net - The fair value of loans is estimated by discounting the future cash flows using the current rate at which similar loans would be made to borrowers with similar credit and for the same remaining maturities. Additionally, to be consistent with the requirements under FASB ASC Topic 820 for Fair Value Measurements and Disclosures, the loans were valued at a price that represents the Company’s exit price or the price at which these instruments would be sold or transferred.

Loans Held for Sale - The fair value of loans held for sale is estimated using the current rate at which similar loans would be made to borrowers with similar credit risk and the same remaining maturities. Loans held for sale are carried at the lower of cost or estimated fair value.

Mortgage Servicing Rights - The Company determines the fair value of its MSRs by estimating the amount and timing of future cash flows associated with the servicing rights and discounting the cash flows using market discount rates. The valuation included the application of certain assumptions made by management of the Bank, including prepayment projections, and prevailing assumptions used in the marketplace at the time of the valuation.

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Interest Rate Swaps and Other Contracts - The Company’s valuation methodology for OTC derivatives includes an analysis of discount cash flows based on OIS rates. Fully collateralized trades are discounted using OIS with no additional economic adjustments to arrive at fair value. Uncollateralized or partially-collateralized trades are also discounted at OIS, but include appropriate economic adjustments for funding costs (i.e., a LIBOR-OIS basis adjustment to approximate uncollateralized cost of funds) and credit risk. Beginning January 1, 2013, the Company made the changes to better align its inputs, assumptions, and pricing methodologies with those used in its principal market by most dealers and major market participants. These changes in valuation methodology were applied prospectively as a change in accounting estimate and were immaterial to the Company’s financial statements.

Accrued Interest Receivable/Payable - The carrying amounts of interest receivable/payable approximate fair value.

Deposits - The fair value of checking and money market deposits and savings accounts is the amount reported in the consolidated financial statements. The carrying amount of checking, savings and money market accounts is the amount that is payable on demand at the reporting date. The fair value of time deposits is generally based on a present value estimate using rates currently offered for deposits of similar remaining maturity.

Borrowed Funds - The fair value of borrowed funds is based on a present value estimate using rates currently offered.

Commitments to Extend Credit and Letters of Credit - The majority of the Company’s commitments to extend credit and letters of credit carry current market interest rates if converted to loans and are not included in the table above. Because commitments to extend credit and letters of credit are generally unassignable by either the Company or the borrower, they only have value to the Company and the borrower. The estimated fair value approximates the recorded net deferred fee amounts, which are not significant.

The fair value estimates presented herein are based on pertinent information available to management as of March 31, 2016 and December 31, 2015. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these consolidated financial statements since March 31, 2016 and December 31, 2015 and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

NOTE 18 — MORTGAGE SERVICING RIGHTS

The Company follows the authoritative guidance under ASC 860-50 - Servicing Assets and Liabilities to account for its MSRs. The Company has elected the fair value measurement method to value its existing mortgage servicing assets at fair value in accordance with ASC 860-50. Under the fair value measurement method, the Company records its MSRs on its consolidated statements of financial condition as a component of other assets at fair value with changes in fair value recorded as a component of mortgage banking income in the Company’s consolidated statements of income for each period. As of March 31, 2016 and March 31, 2015, the Company serviced $139.2 million and $150.9 million of residential mortgage loans, respectively. During the three months ended March 31, 2016, the Company recognized servicing fee income of $87 thousand, compared to $95 thousand for the same period in 2015.

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The following is an analysis of the activity in the Company’s residential MSRs for the three months ended March 31, 2016 and 2015:

	Residential
	Mortgage Servicing Rights
	For the Three months ended March 31,
Dollars in thousands	2016			2015

Balance, January 1,	$	1,349		$	1,403
Additions	20			51
Decreases in fair value due to:
Changes in valuation input or assumptions	(182		)	(83		)
Paydowns	(50		)	(37		)
Balance, March 31,	$	1,137		$	1,334

The Company uses assumptions and estimates in determining the fair value of MSRs. These assumptions include prepayment speeds, discount rates, escrow earnings rates and other assumptions. The assumptions used in the valuation were based on input from buyers, brokers and other qualified personnel, as well as market knowledge. At March 31, 2016, the key assumptions used to determine the fair value of the Company’s MSRs included a lifetime constant prepayment rate equal to 13.13%, a discount rate equal to 9.38% and an escrow earnings credit rate equal to 1.35%. At March 31, 2015, the key assumptions used to determine the fair value of the Company’s MSRs included a lifetime constant prepayment rate equal to 11.77%, a discount rate equal to 9.50% and an escrow earnings credit rate equal to 1.63%.

At March 31, 2016 and March 31, 2015, the sensitivity of the current fair value of the residential mortgage servicing rights to immediate 10% and 20% favorable and unfavorable changes in key economic assumptions are included in the following table.

	Residential		Residential
	Mortgage Servicing Rights		Mortgage Servicing Rights
(Dollars in thousands)	March 31, 2016		March 31, 2015

Fair value of residential mortgage servicing rights	$	1,137	$	1,334

Weighted average life (years)	4.7 years		5.1 years

Prepayment speed	13.13%		11.77%
Effect on fair value of a 20% increase	$	(97)	$	(107)
Effect on fair value of a 10% increase	(50)		(55)
Effect on fair value of a 10% decrease	55		60
Effect on fair value of a 20% decrease	114		126

Discount rate	9.38%		9.50%
Effect on fair value of a 20% increase	$	(65)	$	(83)
Effect on fair value of a 10% increase	(33)		(43)
Effect on fair value of a 10% decrease	36		46
Effect on fair value of a 20% decrease	73		94

Escrow earnings credit	1.35%		1.63%
Effect on fair value of a 20% increase	$	25	$	32
Effect on fair value of a 10% increase	12		15
Effect on fair value of a 10% decrease	(11)		(15)
Effect on fair value of a 20% decrease	(24)		(32)

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The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. As indicated, changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of an adverse variation in a particular assumption on the fair value of the MSRs is calculated without changing any other assumption; while in reality, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments), which may magnify or counteract the effect of the change.

NOTE 19 — DERIVATIVE FINANCIAL INSTRUMENTS

The Company is a party to derivative financial instruments in the normal course of business to meet the needs of commercial banking customers. These financial instruments have been limited to interest rate swap agreements, which are entered into with counterparties that meet established credit standards and, where appropriate, contain master netting and collateral provisions protecting the party at risk. The Company believes that the credit risk inherent in all of the derivative contracts is minimal based on the credit standards and the netting and collateral provisions of the interest rate swap agreements.

The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. These derivatives are not designated as hedges and are not speculative. Rather, these derivatives result from a service the Company provides to certain customers. As the interest rate swaps associated with this program do not meet the hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. As of March 31, 2016, the Company had six interest rate swaps with an aggregate notional amount of $23.9 million related to this program. During the three months ended March 31, 2016, the Company recognized a net loss of $10 thousand, compared to a net loss of $9 thousand for the three months ended March 31, 2015 related to interest rate swap agreements that are included as a component of services charges and other non-interest income in the Company’s consolidated statements of income.

Under certain circumstances, when the Company purchases a portion of a commercial loan that has an existing interest rate swap, it enters a Risk Participation Agreement with the counterparty and assumes the credit risk of the loan customer related to the swap. The risk participation agreements provide credit protection to the financial institution should the borrower fail to perform on its interest rate derivative contract with the financial institution. Any fee paid to the Company as a result of the risk participation agreement is offset by credit risk of the counterparties and is recognized in the Company’s consolidated statements of income. Credit risk on the risk participation agreements is determined after considering the risk rating, probability of default and loss given default of the counterparties. During the first quarter, the Company entered into one risk participation agreement with a notional value of $2.5 million and a fair value of $10 thousand as of March 31, 2016. During the three months ended March 31, 2016, the Company recognized a gain of $22 thousand related to the risk participation agreement that is included as a component of services charges and other non-interest income in the Company’s consolidated statements of income.

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The tables below present the fair value of the Company’s derivative financial instruments as well as their classification on the consolidated statements of financial condition as of March 31, 2016 and December 31, 2015:

As of March 31, 2016

	Asset derivatives				Liability derivatives
(Dollars in thousands)	Notional amount		Fair value (1)		Notional amount		Fair value (2)

Interest rate swap agreements	$	11,930	$	419	$	11,930	$	442
Risk participation agreement	—		—		2,480		10
Total derivatives	$	11,930	$	419	$	14,410	$	452

(1) Included in other assets in our Consolidated Statements of Financial Condition.

(2) Included in other liabilities in our Consolidated Statements of Financial Condition.

As of December 31, 2015

	Asset derivatives				Liability derivatives
(dollars in thousands)	Notional amount		Fair value (1)		Notional amount		Fair value (2)

Interest rate swap agreements	$	12,066	$	190	$	12,066	$	202
Total derivatives	$	12,066	$	190	$	12,066	$	202

(1) Included in other assets in our Consolidated Statements of Financial Condition.

(2) Included in other liabilities in our Consolidated Statements of Financial Condition.

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The following displays offsetting interest rate swap assets and liabilities for the dates presented:

Offsetting of Derivative Assets

As of March 31, 2016

(Dollars in thousands)

							Gross Amounts Not Offset in the Statement of Financial Condition
	Gross Amounts of Recognized Assets (1)		Gross Amounts Offset in the Statement of Financial Condition		Net Amounts of Assets presented in the Statement of Financial Condition		Financial Instruments		Collateral Received		Net Amount
Interest rate swaps	$	433	$	—	$	433	$	—	$	—	$	433

Offsetting of Derivative Liabilities

As of March 31, 2016

(Dollars in thousands)

							Gross Amounts Not Offset in the Statement of Financial Condition
	Gross Amounts of Recognized Liabilities (1)		Gross Amounts Offset in the Statement of Financial Condition		Net Amounts of Liabilities presented in the Statement of Financial Condition		Financial Instruments		Collateral Posted		Net Amount
Interest rate swaps and risk participation agreements	$	465	$	—	$	465	$	—	$	548	$	(83	)

(1) - Balance includes accrued interest receivable/payable and credit valuation adjustments.

Offsetting of Derivative Assets

As of December 31, 2015

(Dollars in thousands)

							Gross Amounts Not Offset in the Statement of Financial Condition
	Gross Amounts of Recognized Assets (1)		Gross Amounts Offset in the Statement of Financial Condition		Net Amounts of Assets presented in the Statement of Financial Condition		Financial Instruments		Collateral Received		Net Amount
Interest rate swaps	$	206	$	—	$	206	$	—	$	—	$	206

Offsetting of Derivative Liabilities

As of December 31, 2015

(Dollars in thousands)

							Gross Amounts Not Offset in the Statement of Financial Condition
	Gross Amounts of Recognized Liabilities (1)		Gross Amounts Offset in the Statement of Financial Condition		Net Amounts of Liabilities presented in the Statement of Financial Condition		Financial Instruments		Collateral Posted		Net Amount
Interest rate swaps	$	218	$	—	$	218	$	—	$	458	$	(240	)

(1) - Balance includes accrued interest receivable/payable and credit valuation adjustments.

The Company has agreements with certain of its derivative counterparties that provide that if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations. The Company also has agreements with certain of its derivative counterparties that provide that if the Company fails to maintain its status as a well or adequately capitalized institution, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements.

As of March 31, 2016, the termination value of the interest rate swaps and risk participation agreements in a liability position was $465 thousand. The Company has minimum collateral posting thresholds with its counterparty. At March 31, 2016, the Company had $548 thousand of securities pledged as collateral on interest rate swaps. If the Company had breached any of these provisions at March 31, 2016 it would have been required to settle its obligation under the agreement at the termination value and could have

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been required to pay any additional amounts due in excess of amounts previously posted as collateral with the counterparty. The Company had not breached any provisions at March 31, 2016.

NOTE 20 — ACQUISITION OF CONESTOGA BANK AND RESTRUCTURING

On April 15, 2016, Beneficial announced the completion of its acquisition of Conestoga Bank. Pursuant to the terms of the Stock Purchase Agreement, dated October 21, 2015, between the Company and Conestoga Bancorp, Inc. (“Conestoga”) and Conestoga Bank, on April 14, 2016, the Company acquired Conestoga’s ownership interest in Conestoga Bank for a cash payment of $105.0 million and Conestoga Bank subsequently merged with and into Beneficial Bank. The results of Conestoga Bank’s operations will be included in the Company’s financial statements beginning on April 15, 2016. During the second quarter of 2016, the Company expects to record merger and other restructuring charges of approximately $8.0 million, pre-tax, as a result of the completion of the transaction.

Because the Company has not completed the measurement of fair value of assets acquired and liabilities assumed in the Conestoga Bank acquisition, the initial accounting for the business combination has not been completed at the time of the Company’s filing of this Form 10-Q. Consequently, the Company has not made certain disclosures as described in ASC 805-10-50-2, 805-20-50-1 and 805-30-50-1.

In connection with the closing of the Conestoga transaction, the Company announced the implementation of an expense management reduction program following a comprehensive review of the Company’s and Bank’s operating cost structure. Under the expense management reduction program, the Bank will reduce its salary and benefits expense by approximately 11% during the second quarter of 2016. Employees whose positions are eliminated as a result of the reduction in force will receive severance packages, which will include outplacement services. During the second quarter of 2016, the Company expects to record a charge of approximately $1.2 million, pre-tax, as a result of the expense management reduction program.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This quarterly report contains forward-looking statements that are based on assumptions and may describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to, changes in interest rates, national and regional economic conditions, legislative or regulatory changes or regulatory actions, monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality and composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company’s market area, changes in real estate market values in the Company’s market area, changes in relevant accounting principles and guidelines and the inability of third party service providers to perform, our ability to successfully integrate the assets, liabilities, customers, systems and employees of Conestoga Bank into our operations and our ability to realize related revenue synergies and cost savings within expected time frames. Additional factors that may affect our results are disclosed in the section titled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 and its other reports filed with the U.S. Securities and Exchange Commission.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, the Company does not undertake, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

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EXECUTIVE SUMMARY

Beneficial Bancorp is a Maryland corporation and owns 100% of the outstanding common stock of the Bank, a Pennsylvania chartered savings bank. The Bank offers a variety of consumer and commercial banking services to individuals, businesses, and nonprofit organizations through 67 offices throughout the Philadelphia and Southern New Jersey area.

Our profitability is generally a function of the revenues we earn from our interest bearing assets less the cost of our interest bearing liabilities plus revenues we receive from non-interest income less our provision for loan losses and non-interest expenses.

Our primary source of revenue is net interest income. Net interest income, which comprises 85.8% of our revenue for the three months ended March 31, 2016, is the difference between the income we earn on our loans and investments and the interest we pay on our deposits and borrowings. Changes in levels of interest rates affect our net interest income.

A secondary source of revenue is non-interest income, which is income we receive from providing products and services. Traditionally, the majority of our non-interest income has come from service charges (mostly on deposit accounts), interchange income, mortgage banking and from fee income from our insurance and wealth management services.

Provision for loan losses is the expense we incur to cover the estimated inherent losses in our portfolio at each reporting period.

The non-interest expense represents our operating costs and consists of salaries and employee benefits expenses, the cost of our equity plans, occupancy expenses, depreciation, amortization and maintenance expenses and other miscellaneous expenses, such as loan and owned real estate expenses, marketing, insurance, professional services and printing and supplies expenses. Our largest non-interest expense is salaries and employee benefits, which consist primarily of salaries and wages paid to our employees, payroll taxes, and expenses for health insurance, retirement plans and other employee benefits.

Our business results continue to be impacted by modest economic growth in our markets. To stimulate economic growth, the Federal Reserve Board continues to hold short-term interest rates at historic lows and expects rates to remain low throughout 2016. The low rate environment has impacted the yield on our investment and loan portfolios. Modest economic growth and continued economic uncertainty has resulted in a slow recovery. Additionally, capital spending and investing by businesses has remained sluggish given the slow and uneven economic recovery, which has resulted in low loan demand. This has resulted in increased competition among banks to secure new loans often with risky terms and lower pricing. We continue to adhere to our prudent underwriting standards and are committed to originating quality loans.

We continue to leverage our position as one of the largest and oldest banks headquartered in the Philadelphia metropolitan area. Following our second step conversion in 2015, our top priority is to further improve our financial performance. We are focused on deployment of capital from the second step conversion through organic growth and acquisitions while closely managing our expense levels and asset quality.

We recorded net income for the three months ended March 31, 2016 of $5.0 million, or $0.07 per diluted share, compared to net income of $5.3 million, or $0.07 per diluted share, for the three months ended March 31, 2015. Our first quarter results show significant improvement from the prior year as our results for the quarter ending March 31, 2016 included $838 thousand of merger and restructuring charges and the 2015 results included a negative provision of $2.0 million related to a number of large commercial recoveries.

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For the three months ended March 31, 2016, net interest income totaled $32.2 million, an increase of $2.1 million, or 7.0%, from the three months ended March 31, 2015. The increase in net interest income was primarily due growth that occurred during 2015 and the first quarter of 2016 in our loan portfolio.

The net interest margin totaled 2.87% for the quarter ended March 31, 2016 as compared to 2.75% for the same period in 2015. The increase in the net interest margin for the quarter ended March 31, 2016 was primarily due to a change in the mix of the interest earning assets from lower yielding investment securities into higher yielding loans.

During the three months ended March 31, 2016, our loan portfolio increased $210.3 million, or 7.2%, due to organic growth primarily in our commercial loan portfolio of $92.8 million as well as a $117.5 million participation in a portfolio of multi-family loans. These loan participations all met our underwriting standards and are located within our market area. We are focused on growing our loan portfolio and reducing our cash and investment levels to improve interest income levels in future periods.

Asset quality metrics remain strong as non-performing loans, excluding government guaranteed student loans, decreased to $13.7 million at March 31, 2016, compared to $14.8 million at December 31, 2015. Our ratio of non-performing loans to total assets, excluding government guaranteed student loans, decreased to 0.29% at March 31, 2016 compared to 0.31% at December 31, 2015.

As a result of our strong asset quality metrics and low net charge-offs recorded in recent periods, we did not record a provision for loan losses during the quarter ended March 31, 2016. Net charge-offs were $267 thousand during the quarter ended March 31, 2016 compared to net recoveries of $490 thousand during the quarter ended March 31, 2015. As a result of the improvement in our asset quality metrics and net recoveries received, we recorded a $2.0 million negative provision for loan losses for the quarter ended March 31, 2015.

At March 31, 2016, the Bank’s allowance for loan losses totaled $45.2 million, or 1.44% of total loans, compared to $45.5 million, or 1.55% of total loans, at December 31, 2015.

We continue to maintain strong levels of capital and our capital ratios are well in excess of the levels required to be considered well-capitalized under applicable federal regulations for both the Company and the Bank. Following the second-step conversion, our capital levels increased and have remained strong with tangible capital to tangible assets totaling 19.64% at March 31, 2016 compared to 21.04% at December 31, 2015.

During the first quarter of 2016, we announced a stock repurchase program that allows us to repurchase 10% of our outstanding stock or 8,291,859 shares. We repurchased 6,283,435 during the quarter ended March 31, 2016 at an average price per share of $12.93 per share or 1.08 times tangible book value per share.

On April 15, 2016, the Company announced the completion of its acquisition of Conestoga Bank. Conestoga Bank’s assets totaled approximately $655.5 million at April 14, 2016 and Conestoga Bank operates 13 banking offices in the greater Philadelphia area. The transaction will enhance Beneficial’s already strong presence in southeastern Pennsylvania, and will increase the Company’s market share in the Philadelphia metropolitan area. See the Company’s Current Report on Form 8-K filed with the SEC on October 21, 2015 for additional information regarding the terms of the acquisition and the agreement and plan of merger, and the Company’s Current Report on Form 8-K filed with the SEC on April 15, 2016 for additional information regarding the completion of the acquisition.

On April 15, 2016, the Company announced the implementation of an expense management reduction program following a comprehensive review of the Company’s and Bank’s operating cost structure. Under the expense management reduction program, the Bank will reduce its workforce by approximately 11% during the second quarter of 2016. During the second quarter of 2016, the Company expects to record a charge of approximately $1.2 million, pre-tax, as a result of the expense management reduction program.

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CRITICAL ACCOUNTING POLICIES

In the preparation of our condensed consolidated financial statements, we have adopted various accounting policies that govern the application of accounting principles generally accepted in the United States and that conform to general practices within the banking industry. Certain accounting policies involve significant judgments and assumptions by us that have a material impact on the carrying value of certain assets and liabilities. We consider these accounting policies, which are discussed below, to be critical accounting policies. The judgments and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under the circumstances. Actual results could differ from these judgments and estimates under different conditions, resulting in a change that could have a material impact on the carrying values of our assets and liabilities and our results of operations.

Allowance for Loan Losses. We consider the allowance for loan losses to be a critical accounting policy. The allowance for loan losses is determined by management based upon portfolio segment, past experience, evaluation of estimated loss and impairment in the loan portfolio, current economic conditions and other pertinent factors. Management also considers risk characteristics by portfolio segments including, but not limited to, renewals and real estate valuations. The allowance for loan losses is maintained at a level that management considers adequate to provide for estimated losses and impairment based upon an evaluation of known and inherent risk in the loan portfolio. Loan impairment is evaluated based on the fair value of collateral or estimated net realizable value. While management uses the best information available to make such evaluations, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluations.

The allowance for loan losses is established through a provision for loan losses charged to expense, which is based upon past loan loss experience and an evaluation of estimated losses in the current loan portfolio, including the evaluation of impaired loans. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Among the material estimates required to establish the allowance are: overall economic conditions; value of collateral; strength of guarantors; loss exposure at default; the amount and timing of future cash flows on impaired loans; and determination of loss factors to be applied to the various elements of the portfolio. All of these estimates are susceptible to significant change. Management regularly reviews the level of loss experience, current economic conditions and other factors related to the collectability of the loan portfolio. Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation. In addition, the Federal Deposit Insurance Corporation and the Pennsylvania Department of Banking and Securities, as an integral part of their examination process, periodically review our allowance for loan losses. Such agencies may require us to recognize adjustments to the allowance based on judgments about information available to them at the time of their examination.

Our financial results are affected by the changes in and the level of the allowance for loan losses. This process involves our analysis of complex internal and external variables, and it requires that we exercise judgment to estimate an appropriate allowance for loan losses. Changes in the financial condition of individual borrowers, economic conditions, or the condition of various markets in which collateral may be sold could require us to significantly decrease or increase the level of the allowance for loan losses. Such an adjustment could materially affect net income as a result of the change in provision for credit losses. For example, a change in the estimate resulting in a 10% to 20% difference in the allowance would have resulted in an additional provision for credit losses of $4.5 million to $9.0 million for the three months ended March 31, 2016. We also have approximately $35.8 million in non-performing assets consisting of non-performing loans and other real estate owned. Most of these assets are collateral dependent loans where we have incurred significant credit losses to write the assets down to their current appraised value less selling costs. We continue to assess the realizability of these loans and update our appraisals on these loans each year. To the extent the property values continue to decline, there could be additional losses on these non-performing assets which may be material. For example, a 10% decrease in the collateral value supporting the non-performing assets could result in additional credit losses of $3.6

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million. During the three months ending March 31, 2016 and during 2015, levels of delinquencies, net charge-offs and non-performing assets declined. Management considered market conditions in deriving the estimated allowance for loan losses; however, given the continued economic difficulties, the ultimate amount of loss could vary from that estimate. For additional discussion related to the determination of the allowance for loan losses, see “—Risk Management—Analysis and Determination of the Allowance for Loan Losses” and the notes to the consolidated financial statements included in this Annual Report.

Goodwill and Intangible Assets. The acquisition method of accounting for business combinations requires us to record assets acquired, liabilities assumed and consideration paid at their estimated fair values as of the acquisition date. The excess of consideration paid over the fair value of net assets acquired represents goodwill. Goodwill totaled $122.0 million at both March 31, 2016 and December 31, 2015.

Goodwill and other indefinite lived intangible assets are not amortized on a recurring basis, but rather are subject to periodic impairment testing. The provisions of Accounting Standards Codification (“ASC”) Topic 350 allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test.

During 2015, management reviewed qualitative factors for the banking unit, which represents $112.7 million of our goodwill balance, including financial performance, market changes and general economic conditions and noted there was not a significant change in any of these factors as compared to 2014. Accordingly, it was determined that it was more likely than not that the fair value of the banking unit continued to be in excess of its carrying amount as of December 31, 2015. Additionally during 2015, we assessed the qualitative factors related to Beneficial Insurance Services, LLC, which represents $9.3 million of our goodwill balance and determined that the two-step quantitative goodwill impairment test was warranted. We performed a two-step quantitative goodwill impairment for Beneficial Insurance Services, LLC based on estimates of the fair value of equity using discounted cash flow analyses as well as guideline company information. The inputs and assumptions are incorporated in the valuations including projections of future cash flows, discount rates, the fair value of tangible and intangible assets and liabilities, and applicable valuation multiples based on the guideline information. Based on our latest annual impairment assessment of Beneficial Insurance Services, LLC and their current and projected financial results, we believe that the fair value is in excess of the carrying amount. As a result, management concluded that there was no impairment of goodwill during the year ended December 31, 2015. Although we concluded that no impairment of goodwill existed for Beneficial Insurance Services, LLC for 2015, Beneficial Insurance Services, LLC has experienced declining revenues and profitability in recent periods and any further declines in financial performance for Beneficial Insurance Services, LLC could result in potential goodwill impairment in future periods.

Other intangible assets subject to amortization are evaluated for impairment in accordance with authoritative guidance. An impairment loss will be recognized if the carrying amount of the intangible asset is not recoverable and exceeds fair value. The carrying amount of the intangible is not considered recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of the asset. During the year ended December 31, 2015, the Company noted no indicators of impairment as it relates to other amortizing intangibles. As of December 31, 2015, management reviewed qualitative factors for its intangible assets and determined that it was more likely than not that the fair value of the intangible assets was greater than their carrying amount.

During the three months ended March 31, 2016, the Company noted no indicators of impairment as it relates to goodwill and other intangibles.

Income Taxes. We are subject to the income tax laws of the various jurisdictions where we conduct business and estimate income tax expense based on amounts expected to be owed to these various tax jurisdictions. The estimated income tax expense (benefit) is reported in the Consolidated Statements of Operations. The evaluation pertaining to the tax expense and related tax asset and liability balances involves a high degree of judgment and subjectivity around the ultimate measurement and resolution of these matters.

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Accrued taxes represent the net estimated amount due to or to be received from tax jurisdictions either currently or in the future and are reported in other assets on our consolidated statements of financial condition. We assess the appropriate tax treatment of transactions and filing positions after considering statutes, regulations, judicial precedent and other pertinent information and maintain tax accruals consistent with our evaluation. Changes in the estimate of accrued taxes occur periodically due to changes in tax rates, interpretations of tax laws, the status of examinations by the tax authorities and newly enacted statutory, judicial and regulatory guidance that could impact the relative merits of tax positions. These changes, when they occur, impact accrued taxes and can materially affect our operating results. We regularly evaluate our uncertain tax positions and estimate the appropriate level of reserves related to each of these positions.

As of March 31, 2016, we had net deferred tax assets totaling $34.9 million. We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. If currently available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax assets and liabilities. These judgments require us to make projections of future taxable income. Management believes, based upon current facts, that it is more likely than not that there will be sufficient taxable income in future years to realize the deferred tax assets. The judgments and estimates we make in determining our deferred tax assets are inherently subjective and are reviewed on a continual basis as regulatory and business factors change. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets. A valuation allowance that results in additional income tax expense in the period in which it is recognized would negatively affect earnings. The Company currently maintains a valuation allowance for certain state net operating losses and other-than-temporary impairments that management believes it is more likely than not that such deferred tax assets will not be realized. No valuation allowance is deemed necessary against our remaining federal or remaining state deferred tax assets as of March 31, 2016.

Postretirement Benefits. Several variables affect the annual cost for our defined benefit retirement programs. The main variables are: (1) size and characteristics of the employee population, (2) discount rate, (3) expected long-term rate of return on plan assets, (4) recognition of actual asset returns and (5) other actuarial assumptions. Below is a brief description of these variables and the effect they have on our pension costs.

Size and Characteristics of the Employee Population. Pension cost is directly related to the number of employees covered by the plans, and other factors including salary, age, years of employment and benefit terms. Effective June 30, 2008, plan participants ceased to accrue additional benefits under the existing pension benefit formula and their accrued benefits were frozen.

Discount Rate. The discount rate is used to determine the present value of future benefit obligations. The discount rate for each plan is determined by matching the expected cash flows of each plan to a yield curve based on long-term, high-quality fixed income debt instruments available as of the measurement date. The discount rate for each plan is reset annually or upon occurrence of a triggering event on the measurement date to reflect current market conditions.

Expected Long-term Rate of Return on Plan Assets. Based on historical experience, market projections, and the target asset allocation set forth in the investment policy for the retirement plans, the pre-tax expected rate of return on plan assets was 7.25% for both 2015 and 2014. This expected rate of return is dependent upon the asset allocation decisions made with respect to plan assets. Annual differences, if any, between expected and actual returns are included in the unrecognized net actuarial gain or loss amount. We generally amortize any unrecognized net actuarial gain or loss in excess of 10% in net periodic pension expense over the average future service of active employees, which is approximately seven years, or the average future lifetime for plans with no active participants that are frozen.

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Recognition of Actual Asset Returns. Accounting guidance allows for the use of an asset value that “smoothes” investment gains and losses over a period up to five years. However, we have elected to use an alternative method in determining pension cost that uses the actual market value of the plan assets. Therefore, we will experience more variability in the annual pension cost, as the asset values will be more volatile than companies who elected to smooth their investment experience.

Other Actuarial Assumptions. To estimate the projected benefit obligation, actuarial assumptions are required with respect to factors such as mortality rate, turnover rate, retirement rate and disability rate. These factors do not tend to change significantly over time, so the range of assumptions, and their impact on pension cost, is generally limited. We annually review the assumptions used based on historical and expected future experience.

In addition to our defined benefit programs, we offer a defined contribution plan (the “401(k) Plan”) covering substantially all of our employees. During 2008, in conjunction with freezing benefit accruals under the defined benefit program, we enhanced our 401(k) Plan and combined it with our employee stock ownership plan (the “ESOP”) to form the Beneficial Bank Employee Savings and Stock Ownership Plan. While the employee savings and stock ownership plan is one plan, the two separate components of the 401(k) Plan and ESOP remain. Under the employee savings and stock ownership plan, we make basic and matching contributions as well as additional contributions for certain employees based on age and years of service. We may also make discretionary contributions. Each participant’s account is credited with shares of the Company’s stock or cash based on compensation earned during the year.

Comparison of Financial Condition at March 31, 2016 and December 31, 2015

Total assets decreased $12.0 million, or 0.2%, to $4.81 billion at March 31, 2016 compared to $4.83 billion at December 31, 2015. Cash and cash equivalents decreased $122.2 million to $111.8 million at March 31, 2016 from $233.9 million at December 31, 2015. The decrease in cash and cash equivalents was primarily driven by the deployment of a portion of the second-step conversion proceeds to support organic loan growth, the participation in a portfolio of multi-family loans during the quarter as well as repurchases of our common stock.

Investments decreased $95.8 million, or 7.0%, to $1.3 billion at March 31, 2016 compared to $1.4 billion at December 31, 2015, as we continued to focus on improving our balance sheet mix by reducing the percentage of our assets in cash and investments and growing our loan portfolio. We continue to focus on maintaining a high quality investment portfolio that provides a steady stream of cash flows both in the current and in rising interest rate environments.

Loans increased $210.3 million, or 7.2%, to $3.15 billion at March 31, 2016 from $2.94 billion at December 31, 2015. The increase in loans was due to $92.8 million in organic growth primarily in commercial real estate, commercial construction, and commercial business loan portfolios as well as a $117.5 million participation in a portfolio of multi-family loans.

Commercial business loans include shared national credits, which are participations in loans or loan commitments of at least $20.0 million that are shared by three or more banks. Shared national credit loans are typically variable rate with terms ranging from one to seven years. At March 31, 2016, shared national credits totaled $227.2 million compared to $222.4 million at December 31, 2015. All of these loans were classified as pass rated as of March 31, 2016 as all payments are current and the loans are performing in accordance with their contractual terms.

Deposits increased $58.6 million, or 1.7%, to $3.51 billion at March 31, 2016 from $3.45 billion at December 31, 2015. The $58.6 million increase in deposits during the quarter ended March 31, 2016 was primarily due to increases of $35.8 million and $34.9 million in savings and club deposits and interest business checking deposits, respectively, partially offset by a $14.4 million decrease in municipal deposits and a $13.8 million decrease in interest retail checking deposits.

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Stockholders’ equity decreased $69.0 million, or 6.2%, to $1.05 billion at March 31, 2016 from $1.12 billion at December 31, 2015. The decrease in stockholders’ equity was primarily due to the repurchase of 6,283,435 shares of common stock during the quarter, partially offset by $5.0 million increase in retained earnings.

Comparison of Operating Results for the Three Months Ended March 31, 2016 and March 31, 2015

General — For the three months ended March 31, 2016, net income was $5.0 million, or $0.07 per diluted share, compared to $5.3 million, or $0.07 per diluted share, for the three months ended March 31, 2015.

Net Interest Income — For the three months ended March 31, 2016, net interest income was $32.2 million, an increase of $2.1 million, or 7.0%, from the three months ended March 31, 2015. The increase in net interest income was primarily due to improvement in our balance sheet mix and related interest earning assets with growth occurring in our higher yielding loan portfolio with reductions in cash and investment levels. The net interest margin totaled 2.87% for the quarter ended March 31, 2016 as compared to 2.75% for the same period in 2015. The increase in the net interest margin for the quarter ended March 31, 2016 was primarily due to a change in the mix of the interest earning assets from lower yielding investment securities into higher yielding loans. The continued low interest rate environment will put pressure on the net interest margin in future periods but we are focused on growing our loan portfolio and continuing to improve our balance sheet mix to help stabilize our net interest margin.

Provision for Loan Losses — As a result of our strong asset quality metrics and low net charge-offs recorded in recent periods, we recorded no provision for loan losses for the three months ended March 31, 2016 compared to recording a $2.0 million negative provision for loan losses for the three months ended March 31, 2015. Net charge-offs were $267 thousand during the quarter ended March 31, 2016 compared to $490 thousand of net recoveries during the quarter ended March 31, 2015. Non-performing loans, excluding government guaranteed student loans, decreased to $13.7 million at March 31, 2016, compared to $14.8 million at December 31, 2015. The decrease from December 31, 2015 in non-performing loans was the result of our continued work out of non-performing assets.

At March 31, 2016, the Bank’s allowance for loan losses totaled $45.2 million, or 1.44% of total loans, compared to $45.5 million, or 1.55% of total loans at December 31, 2015.

Non-interest Income — For the three months ended March 31, 2016 non-interest income totaled $5.3 million, a decrease of $300 thousand, or 5.3%, compared to $5.6 million for the same period in 2015. The decrease was primarily due to a $168 thousand limited partnership net loss and a $155 thousand decline in mortgage banking income during the three months ended March 31, 2016 due to a decrease in the fair value of mortgage servicing rights due to an increase in the constant prepayment assumption.

Non-interest Expense — For the three months ended March 31, 2016, non-interest expense totaled $30.3 million, a decrease of $158 thousand, or 0.5%, from the three months ended March 31, 2015. The decrease in non-interest expense was primarily driven by a $526 thousand decline in professional fees, a $504 thousand decrease in occupancy expense due to lower snow removal costs and a $403 thousand decrease in marketing expense. These decreases were partially offset by $838 thousand of merger costs associated with the acquisition of Conestoga Bank and a $325 thousand increase in salaries and benefits primarily due to merit increases.

Income Taxes — For the three months ended March 31, 2016, we recorded a provision for income taxes of $2.2 million, reflecting an effective tax rate of 30.7%, compared to a provision for income taxes of $2.0 million, reflecting an effective tax rate of 27.6%, for the three months ended March 31, 2015. The increase in income tax expense and the effective tax rate during these periods is due to a higher ratio of taxable income compared to tax exempt income for the three months ended March 31, 2016 as compared to the same periods in 2015. The effective tax rates differ from the statutory rate of 35% principally because of tax-exempt investments, non-taxable income related to bank-owned life insurance and tax credits received on affordable housing partnerships. These tax credits relate to investments

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maintained by the Bank as a limited partner in partnerships that sponsor affordable housing projects utilizing low-income housing credits pursuant to Section 42 of the Internal Revenue Code.

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The following table summarizes average balances and average yields and costs for the three months ended March 31, 2016 and March 31, 2015. Yields are not presented on a tax-equivalent basis. Any adjustments necessary to present yields on a tax-equivalent basis are insignificant.

Average Balance Tables


	Three Months Ended March 31,						Three Months Ended March 31,
	2016						2015
	Average		Interest &		Yield /		Average		Interest &		Yield /
(Dollars in thousands)	Balance		Dividends		Cost		Balance		Dividends		Cost
Interest Earning Assets:
Investment Securities:
Overnight Investments	$	205,383	$	259	0.50	%	$	430,391	$	269	0.25	%
Stock	8,787		100		4.45	%	8,833		460		20.78	%
Other Investment securities	1,292,003		6,585		2.04	%	1,495,047		7,948		2.13	%
Total Investment securities	1,506,173		6,944		1.84	%	1,934,271		8,677		1.79	%
Loans:
Real estate loans
Residential	734,020		7,635		4.16	%	676,032		7,324		4.33	%
Non-residential	1,087,469		10,775		3.94	%	650,686		7,463		4.59	%
Total real estate	1,821,489		18,410		4.03	%	1,326,718		14,787		4.46	%
Business loans	237,826		2,540		4.23	%	211,881		2,399		4.53	%
Shared National Credits	215,881		1,526		2.80	%	190,674		1,317		2.76	%
Small Business loans	78,055		986		5.01	%	92,218		1,212		5.26	%
Total Business & Small Business loans	531,762		5,052		3.77	%	494,773		4,928		3.99	%
Total Business loans	1,619,231		15,827		3.88	%	1,145,459		12,391		4.33	%
Personal loans	622,298		6,528		4.22	%	627,954		6,551		4.23	%
Total loans, net of discount	2,975,549		29,990		4.02	%	2,449,445		26,266		4.31	%
Total interest earning assets	4,481,722		$	36,934	3.29	%	4,383,716		$	34,943	3.20	%
Non-interest earning assets	327,772						350,035
Total assets	$	4,809,494					$	4,733,751
Interest Bearing Liabilities:
Interest bearing savings and demand deposits:
Savings and club accounts	$	1,155,603	$	986	0.34	%	$	1,122,098	$	964	0.35	%
Money market accounts	399,739		336		0.34	%	426,792		343		0.33	%
Demand deposits	763,857		430		0.23	%	796,491		383		0.20	%
Demand deposits - Municipals	128,946		36		0.11	%	145,307		40		0.11	%
Certificates of deposit	619,356		1,628		1.06	%	674,827		1,833		1.10	%
Total interest-bearing deposits	3,067,501		3,416		0.45	%	3,165,515		3,563		0.46	%
Borrowings	190,462		1,278		2.70	%	190,456		1,247		2.65	%
Total interest-bearing liabilities	3,257,963		4,694		0.58	%	3,355,971		4,810		0.58	%
Non-interest-bearing deposits	395,940						366,686
Other non-interest-bearing liabilities	68,930						73,908
Total liabilities	3,722,833						3,796,565
Total stockholders’ equity	1,086,661						937,186
Total liabilities and stockholders’ equity	$	4,809,494					$	4,733,751
Net interest income			$	32,240					$	30,133
Interest rate spread					2.71	%					2.62	%
Net interest margin					2.87	%					2.75	%
Average interest-earning assets to average interest-bearing liabilities					137.56	%					130.62	%

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Asset Quality

Non-performing assets decreased $3.2 million to $35.8 million at March 31, 2016 from $38.9 million at December 31, 2015. The ratio of non-performing assets to total assets decreased to 0.74% at March 31, 2016 from 0.81% at December 31, 2015.

ASSET QUALITY INDICATORS

	March 31,			December 31,			March 31,
(Dollars in thousands)	2016			2015			2015

Non-performing assets:
Non-accruing loans	$	13,731		$	14,768		$	14,112
Accruing loans past due 90 days or more	21,223			22,900			24,072
Total non-performing loans	$	34,954		$	37,668		$	38,184

Real estate owned	827			1,276			1,406

Total non-performing assets	$	35,781		$	38,944		$	39,590

Non-performing loans to total loans	1.11		%	1.28		%	1.43		%
Non-performing assets to total assets	0.74		%	0.81		%	0.83		%
Non-performing assets less accruing government guaranteed student loans past due 90 days or more to total assets	0.30		%	0.33		%	0.33		%
ALLL to total loans	1.44		%	1.55		%	1.84		%
ALLL to non-performing loans	129.41		%	120.79		%	128.70		%
ALLL to non-performing loans, excluding government guaranteed student loans	329.43		%	308.10		%	348.24		%

With the exception of government guaranteed student loans, we place loans on non-performing status at 90 days delinquent or sooner if management believes the loan has become impaired (unless return to current status is expected imminently). The accrual of interest is discontinued and reversed once an account becomes past due 90 days or more. The uncollectible portion including any cash flow or collateral deficiency of all loans is charged-off at 90 days past due or when we have confirmed there is a loss. Non-performing consumer loans include $21.2 million and $22.9 million in government guaranteed student loans as of March 31, 2016 and December 31, 2015, respectively.

Non-performing loans are evaluated under authoritative guidance in FASB ASC Topic 310 for Receivables and Topic 450 for Contingencies and are included in the determination of the allowance for loan losses. The Company charges-off the collateral or discounted cash flow deficiency on all loans at 90 days past due, and as a result, no specific valuation allowance was maintained at March 31, 2016 or December 31, 2015 for non-performing loans. If necessary, specific reserves are established for estimated losses in determination of the allowance for loan loss.

Allowance for Loan Losses

The following table sets forth the breakdown of the allowance for loan losses by loan category at the dates indicated:

	March 31, 2016						December 31, 2015
(Dollars in thousands)	Loan Balance		ALLL		Coverage		Loan Balance		ALLL		Coverage
Commercial	$	1,792,477	$	38,574	2.15	%	$	1,583,851	$	36,831	2.33	%
Residential	738,730		1,615		0.22	%	735,724		1,644		0.22	%
Consumer	620,578		5,045		0.81	%	621,871		7,025		1.13	%
Total	$	3,151,785	$	45,234	1.44	%	$	2,941,446	$	45,500	1.55	%

The allowance for loan losses is a valuation allowance for probable losses inherent in the loan portfolio. We evaluate the appropriateness of the allowance for loan losses balance on loans on a quarterly basis. When additional allowances are necessary, a provision for loan losses is charged to earnings and, when

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less allowances are necessary, a credit is taken. As of March 31, 2016, our methodology for assessing the appropriateness of the allowance for loan losses consists of: (1) a specific valuation allowance on identified problem loans; and (2) a general valuation allowance on the remainder of the loan portfolio. The appropriate allowance level is estimated based upon factors and trends identified by the Company at the time the consolidated financial statements are prepared. Management continuously evaluates its allowance methodology to reflect changes in the portfolio and current economic conditions.

Management regularly monitors the condition of borrowers and assesses both internal and external factors in determining whether any relationships have deteriorated considering factors such as historical loss experience as well as the nine interagency qualitative factors including changes in lending policies and procedures, economic conditions, nature, volume and terms of loans, experience and ability of staff, delinquent, classified and nonaccrual loans, internal loan review system, concentrations of credits and other factors.

Our Chief Credit Officer supervises the workout department and identifies, manages and works through non-performing assets. Our credit officers and workout group identify and manage potential problem loans for our commercial loan portfolios. Changes in management, financial and operating performance, company behavior, industry factors and external events and circumstances are evaluated on an ongoing basis to determine whether potential impairment is evident and additional analysis is needed. For our commercial loan portfolios, risk ratings are assigned to each individual loan to differentiate risk within the portfolio and are reviewed on an ongoing basis by credit risk management and revised, if needed, to reflect the borrowers’ current risk profiles and the related collateral positions. The risk ratings consider factors such as financial condition, debt capacity and coverage ratios, market presence and quality of management. When a credit’s risk rating is downgraded to a certain level, the relationship must be reviewed and detailed reports completed that document risk management strategies for the credit going forward, and the appropriate accounting actions to take in accordance with generally accepted accounting principles in the United States. When credits are downgraded beyond a certain level, our workout department becomes responsible for managing the credit risk.

Risk rating actions are generally reviewed formally by one or more credit committees depending on the size of the loan and the type of risk rating action being taken. Our commercial, consumer and residential loans are monitored for credit risk and deterioration considering factors such as delinquency, loan to value ratios, and credit scores.

When problem loans are identified that are secured with collateral, management examines the loan files to evaluate the nature and type of collateral supporting the loans. Management documents the collateral type, date of the most recent valuation, and whether any liens exist, to determine the value to compare against the committed loan amount. If a loan is identified as impaired and is collateral dependent, an updated appraisal is obtained to provide a baseline in determining the property’s fair market value. We also consider costs to sell the property and use the appraisal less selling costs to determine if a charge-off is required for the collateral dependent problem loan. If the collateral value is subject to significant volatility (due to location of asset, obsolescence, etc.) an appraisal is obtained more frequently. In-house revaluations are typically performed on a quarterly basis and updated appraisals are obtained annually, if determined necessary.

When we determine that the value of an impaired loan is less than its carrying amount, we recognize impairment through a charge-off to the allowance. We perform these assessments on at least a quarterly basis. For commercial loans, a charge-off is recorded when management determines we will not collect 100% of a loan based on the fair value of the collateral, less costs to sell the property, or the net present value of expected future cash flows. Charge-offs are recorded on a monthly basis and partially charged-off loans continue to be evaluated on a monthly basis. The collateral deficiency on consumer loans and residential loans are generally charged-off when deemed to be uncollectible or delinquent 90 days or more, whichever comes first, unless it can be clearly demonstrated that repayment will occur regardless of the delinquency status. Examples that would demonstrate repayment include a loan that is secured by adequate collateral and is in the process of collection, a loan supported by a valid guarantee or insurance, or a loan supported by a valid claim against a solvent estate. Consumer loan delinquency

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includes $21.2 million and $22.9 million in government guaranteed student loans that were greater than 90 days delinquent and accruing at March 31, 2016 and December 31, 2015, respectively.

Additionally, we reserve for certain inherent, but undetected, losses that are probable within the loan portfolio. This is due to several factors, such as, but not limited to, inherent delays in obtaining information regarding a customer’s financial condition or changes in their unique business conditions and the interpretation of economic trends. While this analysis is conducted at least quarterly, we have the ability to revise the allowance factors whenever necessary to address improving or deteriorating credit quality trends or specific risks associated with a given loan pool classification. Regardless of the extent of our analysis of customer performance, portfolio evaluations, trends or risk management processes established, a level of imprecision will always exist due to the subjective nature of the loan portfolio and/or individual loan evaluations.

A comprehensive analysis of the allowance for loan losses is performed on a quarterly basis. The factors supporting the allowance for loan losses do not diminish that the entire allowance for loan losses is available to absorb losses in the loan portfolio. Our principal focus, therefore, is on the adequacy of the total allowance for loan losses.

The allowance for loan losses is subject to review by banking regulators. Our primary bank regulators regularly conduct examinations of the allowance for loan losses and make assessments regarding their adequacy and the methodology employed in their determination. Our regulators may require the allowance for loan losses to be increased based on their review of information available to them at the time of their examination.

Commercial Loan Portfolio. The allowance for the commercial portfolio totaled $38.6 million at March 31, 2016 compared to $36.8 million at December 31, 2015. The increase in the allowance was the result of $208.6 million of growth in the commercial loan portfolio during the first quarter. The allowance for loan losses related to the commercial portfolio was 2.2% of commercial loans at March 31, 2016 compared to 2.3% of commercial loans at December 31, 2015. The slight decrease is due to the fact that we experienced a decrease in commercial criticized and classified loans, delinquencies, and net charge-offs during the three months ended March 31, 2016 compared to the three months ended December 31, 2015. We believe the commercial reserves are adequate given the improvement in credit quality metrics during the three months ended March 31, 2016.

Residential Loans. The allowance for the residential loan portfolio was $1.6 million, or 0.22% of residential loans, at both March 31, 2016 and December 31, 2015. We continue to experience consistently low levels of net charge-offs with this portfolio with 0.01% annualized losses during the three months ended March 31, 2016 and 2015. In addition, delinquencies in this portfolio decreased $682 thousand, or 12.3%, during the three months ended March 31, 2016. We believe the balance of residential reserves are appropriate given the continued low charge-off levels and decrease in delinquencies.

Consumer Loans. The allowance for the consumer loan portfolio was $5.0 million, or 0.8% of consumer loans, at March 31, 2016 compared to $7.0 million, or 1.1% of consumer loans, at December 31, 2015. We have experienced continued improvement in delinquencies within this portfolio. Our delinquent consumer loans, excluding student loans, decreased $642 thousand, or 11.7%, to $4.8 million at March 31, 2016 from $5.5 million at December 31, 2015. In addition, net charge-offs decreased to $127 thousand during the three months ended March 31, 2016 compared to $609 thousand during the three months ended December 31, 2015. We believe the balance of consumer reserves are appropriate given the decrease in delinquencies and net charge-offs during the three months ended March 31, 2016.

The allowance for loan losses is maintained at levels that management considers appropriate to provide for losses based upon an evaluation of known and inherent risks in the loan portfolio. Management’s evaluation takes into consideration historical losses and other quantitative adjustments as well as the nine interagency qualitative factors. While management uses the best information available to make such evaluations, future adjustments to the allowance for credit losses may be necessary if conditions differ

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substantially from the assumptions used in making the evaluations. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, the existing allowance for loan losses may not be sufficient should the quality of loans deteriorate as a result of the factors described above. Any material increase in the allowance for loan losses may adversely affect our financial condition and results of operations.

Liquidity, Contractual Obligations, Capital and Credit Management

Liquidity Management — Liquidity is the ability to meet current and future financial obligations of a short-term nature. The Bank’s primary investing activities are the origination and purchase of loans and the purchase of securities. The Bank’s primary sources of funds consist of deposits, loan repayments, maturities of and payments on investment securities and borrowings from the Federal Home Loan Bank of Pittsburgh and the Federal Reserve Bank of Philadelphia. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposits and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. We generally manage the pricing of our deposits to be competitive. Occasionally, we offer promotional rates on certain deposit products to attract deposits.

We regularly adjust our investments in liquid assets based upon our assessment of (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities, (4) repayment of borrowings and (5) the objectives of our asset/liability management program. Excess liquid assets are invested generally in short to intermediate-term U.S. Government Sponsored Enterprise (“GSE”) obligations.

The Bank’s most liquid assets are cash and cash equivalents. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At March 31, 2016, cash and cash equivalents totaled $111.8 million, including overnight investments of $71.4 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $582.4 million at March 31, 2016. At March 31, 2016, we had $165.0 million in Federal Home Loan Bank advances outstanding. In addition, if Beneficial Bank requires funds beyond its ability to generate them internally, it can borrow funds from the Federal Home Loan Bank up to Beneficial Bank’s maximum borrowing capacity.

Our primary sources of funds include a large, stable deposit base. Core deposits, primarily gathered from our retail branch network, are our largest and most cost-effective source of funding. Core deposits totaled $2.87 billion at March 31, 2016, compared to $2.82 billion at December 31, 2015. We also maintain access to a diversified base of wholesale funding sources. These uncommitted sources may include fed funds purchased from other banks, securities sold under agreements to repurchase, brokered certificates of deposit, and FHLB advances. As of March 31, 2016 and December 31, 2015, aggregate wholesale funding totaled $329.3 million and $306.9 million, respectively. In addition, at March 31, 2016, we had arrangements to borrow up to $1.5 billion from the FHLB of Pittsburgh and the Federal Reserve Bank of Philadelphia. On March 31, 2016, we had $165.0 million of advances outstanding and $275.0 million of future dated advances outstanding with the FHLB.

A significant use of our liquidity is the funding of loan originations. At March 31, 2016, the Bank had $477.6 million in loan commitments outstanding, which consisted of $12.0 million and $8.7 million in commercial and consumer commitments to fund new loans, respectively, $303.6 million in commercial and consumer unused lines of credit, $133.3 million of commitments to fund commercial construction and other advances, and $20.0 million in standby letters of credit. Another significant use of Beneficial Bank’s liquidity is the funding of deposit withdrawals. Certificates of deposit due within one year of March 31, 2016 totaled $351.2 million, or 55.4% of certificates of deposit. The large percentage of certificates of deposit that mature within one year reflects customers’ hesitancy to invest their funds for long periods in the current low interest rate environment. If these maturing deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit, brokered deposits and borrowings. Depending on market conditions, we may be required to pay higher rates on such deposits

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or other borrowings than we currently pay on the certificates of deposit due on or before March 31, 2016. We have the ability to attract and retain deposits by adjusting the interest rates offered.

Contractual Obligations — The following table presents certain of our contractual obligations at March 31, 2016:

			Payments due by period
			Less than		One to		Three to		More than
(Dollars in thousands)	Total		One Year		Three Years		Five Years		Five Years
Borrowed Funds	$	190,410	$	145,000	$	20,000	$	—	$	25,410
Commitments to fund new loans	20,721		20,721		—		—		—
Commitments to fund commercial construction and other advances	133,324		22,068		46,435		20,910		43,911
Unused lines of credit	303,576		146,696		52,252		23,729		80,899
Standby letters of credit	19,973		18,363		590		13		1,007
Operating lease obligations	60,487		5,434		11,161		10,384		33,508
Total	$	728,491	$	358,282	$	130,438	$	55,036	$	184,735

The Bank’s primary investing activities are the origination and purchase of loans and the purchase of securities. The Bank’s primary financing activities consist of activity in deposit accounts, repurchase agreements and FHLB advances. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our competitors and other factors. We generally manage the pricing of our deposits to be competitive. Occasionally, we offer promotional rates on certain deposit products to attract deposits.

The Company is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its operating expenses, the Company is responsible for paying any dividends declared to its shareholders. The Company has not paid any dividends to shareholders in the past. The Company has repurchased shares of its common stock. The amount of dividends that the Bank may declare and pay to the Company is generally restricted under Pennsylvania law to the retained earnings of the Bank. At March 31, 2016, the Company (stand-alone) had liquid assets of $173.0 million. The majority of the cash held by the Company (stand-alone) as of March 31, 2016 includes net proceeds received in connection with the second-step conversion. On April 14, 2016, the Company used $105.0 million of cash to complete the acquisition of Conestoga Bank.

Capital Management — The Company and Bank are subject to various regulatory capital requirements administered by the Federal banking regulators, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At March 31, 2016, the Company and Bank exceeded all of our regulatory capital requirements and were considered “well capitalized” under the regulatory guidelines.

Credit Risk Management. The objective of our credit risk management strategy is to quantify and manage credit risk and to limit the risk of loss resulting from an individual customer default. Our credit risk management strategy focuses on conservatism, diversification within the loan portfolio and monitoring. Our lending practices include conservative exposure limits and underwriting, documentation and collection standards. Our credit risk management strategy also emphasizes diversification on an industry and customer level as well as regular credit examinations and monthly management reviews of large credit exposures and credits experiencing deterioration of credit quality. Underwriting activities are centralized. Our credit risk review function provides objective assessments of the quality of underwriting and documentation, the accuracy of risk grades and the charge-off, non-accrual and reserve analysis process. Our credit review process and overall assessment of required allowances is based on quarterly assessments of the probable estimated losses inherent in the loan portfolio. We use these assessments to identify potential problem loans within the portfolio, maintain an adequate reserve and take any

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necessary charge-offs. Further, we have strengthened our oversight of problem assets through the formation of a special assets committee. The committee, which consists of our Chief Credit Officer, Chief Financial Officer and other members of senior management, increase the frequency with which classified and watch list credits are reviewed and aggressively acts to resolve problem assets.

When a borrower fails to make a required payment, we take a number of steps to have the borrower cure the delinquency and restore the loan to current status. Generally, our collection department follows the guidelines for servicing loans as prescribed by the appropriate investor, state or federal law. Collection activities include, but are not limited to, phone calls to borrowers and collection letters, which include a late charge notice based on the contractual requirements of the specific loan. Additional calls and notices are mailed in compliance with state and federal regulations including, but not limited to, the Fair Debt Collection Practices Act. After the 90th day of delinquency, or on a different date as allowable by state law, the collection department will forward the account to counsel and begin the foreclosure proceedings. If a foreclosure action is instituted and the loan is not in at least the early stages of a workout by the scheduled sale date, the real property securing the loan generally is sold at a foreclosure sale. If we determine that there is a possibility of a settlement, pay-off or reinstatement, the foreclosure sale may be postponed. If there is a failure to cure the delinquency, the foreclosure sale would proceed.

We charge off the collateral or cash flow deficiency on all loans once they become 90 days delinquent. Generally, all consumer loans are charged-off once they become 90 days delinquent except for education loans as they are guaranteed by the government and there is little risk of loss. In addition to the individual review of larger commercial loans that exhibit probable or observed credit weaknesses, the commercial credit review process includes the use of an enhanced risk grading system. This risk grading system is consistent with Basel II expectations and allows for precision in the analysis of commercial credit risk. Historical portfolio performance metrics, current economic conditions and delinquency monitoring are factors used to assess the credit risk in our homogenous commercial, residential and consumer loan portfolio.

In order to mitigate the credit risk related to the Company’s held-to-maturity and available-for-sale portfolios, the Company monitors the ratings of its securities. As of March 31, 2016, approximately 95.6% of the Company’s portfolio consisted of direct government obligations, government sponsored enterprise obligations or securities rated AAA by Moody’s and/or S&P. In addition, at March 31, 2016 approximately 3.6% of the investment portfolio was non-agency securities, rated below AAA but rated investment grade by Moody’s, S&P and/or Kroll and approximately 0.8% of the investment portfolio was not rated. Securities not rated consist primarily of private placement municipal bonds, FHLB stock and mutual funds.

Off-Balance Sheet Arrangements

In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in our consolidated financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments and lines of credit. See “Liquidity Management” for further discussion regarding loan commitments and unused lines of credit.

The Bank entered into two future borrowing arrangements with the FHLB of Pittsburgh to borrow $200.0 million and $75.0 million, respectively, at a fixed interest rate during the period from April 2016 through April 2019 and the period from March 2017 through March 2020, respectively, to replace existing borrowings that will mature during these periods, as well as, to manage future interest rate volatility by locking into fixed borrowing rates. There was no impact to the Company’s financial condition, results of operations or cash flows for the period ended March 31, 2016.

For the three months ended March 31, 2016, we did not engage in any off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

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Item 3. Quantitative and Qualitative Disclosure about Market Risk

Qualitative Aspects of Market Risk

Interest rate risk is defined as the exposure of current and future earnings and capital that arises from adverse movements in interest rates. Depending on a bank’s asset/liability structure, either rising or declining interest rates can negatively affect the institution’s financial condition and results of operations. For example, a bank with predominantly long-term fixed-rate assets, and short-term liabilities could have an adverse earnings exposure to a rising rate environment. Conversely, a short-term or variable-rate asset base funded by longer-term liabilities could be negatively affected by falling rates. This is referred to as re-pricing or maturity mismatch risk.

Interest rate risk also arises from changes in the slope of the yield curve (yield curve risk); from imperfect correlations in the adjustment of rates earned and paid on different instruments with otherwise similar re-pricing characteristics (basis risk); and from interest rate related options imbedded in the bank’s assets and liabilities (option risk).

Our goal is to manage our interest rate risk by determining whether a given movement in interest rates affects our net income and the market value of our portfolio equity in a positive or negative way, and to execute strategies to maintain interest rate risk within established limits.

Quantitative Aspects of Market Risk

We view interest rate risk from two different perspectives. The traditional accounting perspective, which defines and measures interest rate risk as the change in net interest income and earnings caused by a change in interest rates, provides the best view of short-term interest rate risk exposure. We also view interest rate risk from an economic perspective, which defines and measures interest rate risk as the change in the market value of portfolio equity caused by changes in the values of assets and liabilities, which have been caused by changes in interest rates. The market value of portfolio equity, also referred to as the economic value of equity, is defined as the present value of future cash flows from existing assets, minus the present value of future cash flows from existing liabilities.

These two perspectives give rise to income simulation and economic value simulation, each of which presents a unique picture of our risk from any movement in interest rates. Income simulation identifies the timing and magnitude of changes in income resulting from changes in prevailing interest rates over a short-term time horizon (usually one year). Economic value simulation captures more information and reflects the entire asset and liability maturity spectrum. Economic value simulation reflects the interest rate sensitivity of assets and liabilities in a more comprehensive fashion, reflecting all future time periods. It can identify the quantity of interest rate risk as a function of the changes in the economic values of assets and liabilities, and the equity of the Company. Both types of simulation assist in identifying, measuring, monitoring and controlling interest rate risk and are employed by management to ensure that variations in interest rate risk exposure will be maintained within policy guidelines.

The Bank’s Asset/Liability Management Committee produces reports on a quarterly basis, which compare current baseline positions (no interest rate change) showing forecasted net income, the economic value of equity and the duration of individual asset and liability classes, and of equity. Duration is defined as the weighted average time to the receipt of the present value of future cash flows. These baseline forecasts are subjected to a series of interest rate changes in order to demonstrate or model the specific impact of the interest rate scenario tested on income, equity and duration. The model, which incorporates all asset and liability rate information, simulates the effect of various interest rate movements on income and equity value. The reports identify and measure the interest rate risk exposure present in our current asset/liability structure.

The table below sets forth an approximation of our interest rate risk exposure. The simulation uses projected re-pricing of assets and liabilities at March 31, 2016. The primary interest rate exposure

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measurement applied to the entire balance sheet is the effect on net interest income and earnings of a gradual change in market interest rates of plus or minus 200 basis points over a one-year time horizon, and the effect on economic value of equity of a gradual change in market rates of plus or minus 200 basis points for all projected future cash flows. Various assumptions are made regarding the prepayment speed and optionality of loans, investments and deposits, which are based on analysis, market information and in-house studies. The assumptions regarding optionality, such as prepayments of loans and the effective maturity of non-maturity deposit products are documented periodically through evaluation under varying interest rate scenarios.

Because the prospective effects of hypothetical interest rate changes are based on a number of assumptions, these computations should not be relied upon as indicative of actual results. While we believe such assumptions to be reasonable, there can be no assurance that assumed prepayment rates will approximate actual future mortgage-backed security, collateralized mortgage obligation and loan repayment activity. Further the computation does not reflect any actions that management may undertake in response to changes in interest rates. Management periodically reviews its rate assumptions based on existing and projected economic conditions.

As of March 31, 2016:

Basis point change in rates	-200			Base Forecast		+200
(Dollars in thousands)
*Net Interest Income at Risk:*
Net Interest Income	$	113,910		$	128,451	$	137,211
% change	(11.32		)%			6.82		%

*Economic Value at Risk:*
Equity	$	1,082,906		$	1,186,269	$	1,151,773
% change	(8.71		)%			(2.91		)%

As of March 31, 2016, based on the scenarios above, net interest income at risk would be positively affected in a one-year time horizon in a rising rate environment and negatively affected over a one-year time horizon in a declining rate environment. Economic value at risk would be negatively affected over a one-year time horizon in both a rising and a declining rate environment.

The current historically low interest rate environment reduces the reliability of the measurement of a 200 basis point decline in interest rates, as such a decline would result in negative interest rates. We have established an interest rate floor of zero percent for purposes of measuring interest rate risk. Such a floor in our income simulation results in a reduction in our net interest margin as more of our liabilities than our assets are impacted by the zero percent floor. In addition, economic value of equity is also reduced in a declining rate environment due to the negative impact to deposit premium values.

Overall, our March 31, 2016 results indicate that we are adequately positioned with limited net interest income and economic value at risk and that all interest rate risk results continue to be within our policy guidelines.

Item 4. Controls and Procedures

The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. In addition, based on that evaluation, no change in the Company’s internal control over financial reporting occurred during the three months ended March

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31, 2016 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company is involved in routine legal proceedings in the ordinary course of business. Such routine legal proceedings, in the aggregate, are believed by management to be immaterial to the Company’s financial condition, results of operations and cash flows.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015, which could materially affect our business, financial condition or future results. The risk factors of the Company have not changed materially from those reported in the Company’s Annual Report Form 10-K for the year ended December 31, 2015. The risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth information regarding the Company’s repurchases of its common stock during the three months ended March 31, 2016.

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number Of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)

January 1-31	1,228,028	(2)	$	12.74	1,200,400	7,091,459
February 1-29	2,478,670		12.72		2,478,670	4,612,789
March 1-31	2,610,498	(3)	13.22		2,604,365	2,008,424

(1) On January 13, 2016, the Company announced that its Board of Directors had authorized a stock repurchase program to acquire up to 8,291,859 shares of the Company’s outstanding common stock, or approximately 10% of outstanding shares.

(2) Includes 27,628 shares that were withheld subject to restricted stock awards, under the Beneficial Bancorp, Inc. 2008 Equity Incentive Plans, as payment of taxes due upon the vesting of the restricted awards.

(3) Includes 6,133 shares that were withheld subject to restricted stock awards, under the Beneficial Bancorp, Inc. 2008 Equity Incentive Plans, as payment of taxes due upon the vesting of the restricted awards.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

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Item 6. Exhibits

3.1 Articles of Incorporation of Beneficial Bancorp, Inc. (1)

3.2 Bylaws of Beneficial Bancorp, Inc. (1)

4.1 Stock Certificate of Beneficial Bancorp, Inc. (1)

31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

31.2 Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer

32.0 Section 1350 Certification of Chief Executive Officer and Chief Financial Officer

101.0 The following materials from the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2016, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statement of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to the Consolidated Financial Statements.

(1) Incorporated herein by reference to the exhibits to the Company’s Registration Statement on Form S-1 (File No. 333-198282), as amended, initially filed with the Securities and Exchange Commission on August 21, 2014.

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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.

	BENEFICIAL BANCORP, INC.


Dated: April 28, 2016	By:	/s/ Gerard P. Cuddy
		Gerard P. Cuddy
		President and Chief Executive Officer
		(principal executive officer)


Dated: April 28, 2016	By:	/s/ Thomas D. Cestare
		Thomas D. Cestare
		Executive Vice President and
		Chief Financial Officer
		(principal financial officer)

Beneficial Bancorp Inc. - FORM 10-Q - April 28, 2016

Attached files

Beneficial Bancorp Inc. Reports