Beneficial Bancorp Inc. - FORM 10-Q

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EX-32.0 - EX-32.0 - Beneficial Bancorp Inc.	a16-11567_1ex32d0.htm
EX-31.2 - EX-31.2 - Beneficial Bancorp Inc.	a16-11567_1ex31d2.htm
EX-31.1 - EX-31.1 - Beneficial Bancorp Inc.	a16-11567_1ex31d1.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 June 30, 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 July 28, 2016, there were 77,139,939 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 June 30, 2016 and December 31, 2015	1

	Unaudited Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2016 and 2015	2

	Unaudited Condensed Consolidated Statements of Comprehensive Income for the Six Months Ended June 30, 2016 and 2015	3

	Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Equity for the Six Months Ended June 30, 2016	4

	Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 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	54

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	71

Item 4.	Controls and Procedures	72

Part II. Other Information

Item 1.	Legal Proceedings	73

Item 1A.	Risk Factors	73

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	73

Item 3.	Defaults Upon Senior Securities	73

Item 4.	Mine Safety Disclosures	73

Item 5.	Other Information	73

Item 6.	Exhibits	74

Signatures		75

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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)	June 30, 2016			December 31, 2015
ASSETS
CASH AND CASH EQUIVALENTS:
Cash and due from banks	$	51,622		$	43,978
Overnight investments	51,868			189,942
Total cash and cash equivalents	103,490			233,920

INVESTMENT SECURITIES:
Available-for-sale, at fair value (amortized cost of $562,980 and $650,439 at June 30, 2016 and December 31, 2015, respectively)	576,374			655,162
Held-to-maturity (estimated fair value of $658,882 and $695,290 at June 30, 2016 and December 31, 2015, respectively)	642,826			696,310
Federal Home Loan Bank stock, at cost	16,431			8,786
Total investment securities	1,235,631			1,360,258
LOANS AND LEASES:	3,798,493			2,941,446
Allowance for loan and lease losses	(44,519		)	(45,500		)
Net loans and leases	3,753,974			2,895,946
ACCRUED INTEREST RECEIVABLE	16,314			14,298
BANK PREMISES AND EQUIPMENT, Net	77,842			73,213
OTHER ASSETS:
Goodwill	169,239			121,973
Bank owned life insurance	79,612			64,827
Other intangibles	5,605			4,389
Other assets	72,382			57,871
Total other assets	326,838			249,060
TOTAL ASSETS	$	5,514,089		$	4,826,695
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Deposits:
Non-interest bearing deposits	$	505,029		$	409,232
Interest-bearing deposits	3,535,542			3,042,691
Total deposits	4,040,571			3,451,923

Borrowed funds	370,414			190,405
Other liabilities	76,788			68,821
Total liabilities	4,487,773			3,711,149

COMMITMENTS AND CONTINGENCIES (Note 16)
STOCKHOLDERS’ EQUITY:
Preferred Stock - $.01 par value; 100,000,000 shares authorized, None issued or outstanding as of June 30, 2016 and December 31, 2015	—			—
Common Stock - $.01 par value 500,000,000 shares authorized, 83,186,789 and 82,949,191 issued and 77,099,050 and 82,918,595 outstanding, as of June 30, 2016 and December 31, 2015, respectively	832			829
Additional paid-in capital	762,685			787,503
Unearned common stock held by employee savings and stock ownership plan	(30,780		)	(32,014		)
Retained earnings (partially restricted)	390,722			382,951
Accumulated other comprehensive loss	(17,001		)	(23,374		)
Treasury Stock at cost, 6,087,739 shares and 30,596 shares at June 30, 2016 and December 31, 2015, respectively	(80,142		)	(349		)
Total stockholders’ equity	1,026,316			1,115,546
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	5,514,089		$	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

	For the Three Months Ended						For the Six Months Ended
	June 30,			June 30,			June 30,			June 30,
(Dollars in thousands, except per share amounts)	2016			2015			2016			2015
INTEREST INCOME:
Interest and fees on loans and leases	$	37,743		$	28,196		$	67,733		$	54,461
Interest on overnight investments	161			157			421			426
Interest and dividends on investment securities:
Taxable	6,166			7,215			12,525			15,126
Tax-exempt	325			394			650			892
Total interest income	44,395			35,962			81,329			70,905

INTEREST EXPENSE:
Interest on deposits:
Interest bearing checking accounts	556			381			1,022			805
Money market and savings deposits	1,503			1,334			2,825			2,641
Time deposits	1,886			1,762			3,515			3,595
Total	3,945			3,477			7,362			7,041
Interest on borrowed funds	1,674			1,261			2,952			2,508
Total interest expense	5,619			4,738			10,314			9,549
Net interest income	38,776			31,224			71,015			61,356
Provision for loan and lease losses	—			(1,600		)	—			(3,600		)
Net interest income after provision for loan and lease losses	38,776			32,824			71,015			64,956

NON-INTEREST INCOME:
Insurance and advisory commission and fee income	1,539			1,486			3,530			3,472
Service charges and other income	4,383			5,425			7,768			8,932
Mortgage banking income	101			267			73			394
Net loss on sale of investment securities	(4		)	(4		)	(8		)	(9		)
Total non-interest income	6,019			7,174			11,363			12,789

NON-INTEREST EXPENSE:
Salaries and employee benefits	16,577			15,845			32,394			31,337
Occupancy expense	2,453			2,211			4,745			5,008
Depreciation, amortization and maintenance	2,571			2,174			4,889			4,475
Marketing expense	889			1,148			1,802			2,464
Intangible amortization expense	558			467			1,032			933
FDIC Insurance	625			512			1,178			1,060
Merger and restructuring charges	8,621			—			9,459			—
Professional fees	1,386			1,297			2,415			2,852
Classified loan and other real estate owned related expense	173			799			465			1,091
Other	6,200			5,542			12,008			11,265
Total non-interest expense	40,053			29,995			70,387			60,485

Income before income taxes	4,742			10,003			11,991			17,260
Income tax expense	1,994			2,948			4,220			4,954
NET INCOME	$	2,748		$	7,055		$	7,771		$	12,306

EARNINGS PER SHARE — Basic	$	0.04		$	0.09		$	0.11		$	0.16
EARNINGS PER SHARE — Diluted	$	0.04		$	0.09		$	0.10		$	0.16

Average common shares outstanding — Basic	71,197,288			78,374,704			73,679,901			78,414,226
Average common shares outstanding — Diluted	72,078,696			79,058,474			74,536,502			79,067,396

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

	For the Six Months Ended
	June 30,
(Dollars in thousands)	2016		2015

Net Income	$	7,771	$	12,306
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) on available for sale securities arising during the period (net of deferred tax of $3,167 and $377 for the six months ended June 30, 2016 and 2015, respectively)	5,495		(652		)
Accretion of unrealized losses on available-for-sale securities transferred to held-to-maturity (net of deferred tax of $148 and $153 for the six months ended June 30, 2016 and 2015, respectively)	256		265
Reclassification adjustment for net losses (gains) on available for sale securities included in net income (net of tax of $3 for the six months ended June 30, 2016 and 2015)	5		6
Defined benefit pension plans:
Pension gains, other postretirement and postemployment benefit plan adjustments (net of tax of $464 and $490 for the six months ended June 30, 2016 and 2015, respectively)	617		662
Total other comprehensive income	6,373		281
Comprehensive income	$	14,144	$	12,587

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										7,771								7,771
KSOP shares committed to be released				519			1,234											1,753
Stock option expense				763														763
Restricted stock expense				1,429														1,429
Stock options exercised	237,598	3		2,319														2,322
Purchase of treasury stock												(109,641		)				(109,641		)
Omnibus Equity Plan shares granted from treasury stock				(29,848		)						29,848						—
Net unrealized gain on AFS securities arising during the period (net of deferred tax of $3,167)															5,495			5,495
Accretion of unrealized losses on AFS securities transferred to HTM during the period (net of deferred tax of $148)															256			256
Reclassification adjustment for net losses on AFS securities included in net income (net of tax of $3)															5			5
Pension, other post retirement and postemployment benefit plan adjustments (net of tax of $464)															617			617
BALANCE, JUNE 30, 2016	83,186,789	$	832	$	762,685		$	(30,780	)	$	390,722	$	(80,142	)	$	(17,001	)	$	1,026,316

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 Six Months Ended June 30,
(Dollars in thousands)	2016			2015
OPERATING ACTIVITIES:
Net income	$	7,771		$	12,306
Adjustment to reconcile net income to net cash (used in) provided by operating activities:
Provision for loan and lease losses	—			(3,600		)
Depreciation and amortization	3,190			3,018
Intangible amortization	1,032			933
Net loss on sale of investments	8			9
Accretion of discount on investments	(155		)	(280		)
Amortization of premium on investments	2,828			3,076
Gain on sale of loans	(121		)	(175		)
Net loss from disposition of premises and equipment	715			8
Proceeds from sale of fixed assets held for sale	33			(83		)
Other real estate impairment	—			4
Net gain on sale of other real estate	(55		)	(117		)
Amortization of KSOP	1,753			1,548
Increase in bank owned life insurance	(455		)	(1,298		)
Stock based compensation	2,192			1,429
Origination of loans held for sale	(7,405		)	(11,171		)
Proceeds from sale of loans	6,162			9,955
Changes in assets and liabilities:
Accrued interest receivable	(895		)	(274		)
Accrued interest payable	206			(62		)
Income taxes receivable	(574		)	3,987
Other liabilities	8,615			(156		)
Other assets	143			(4,053		)
Net cash provided by operating activities	24,988			15,004
INVESTING ACTIVITIES:
Loans and leases originated or acquired	(713,825		)	(575,349		)
Principal repayment on loans and leases	374,897			290,591
Purchases of investment securities available for sale	(7,500		)	(4,985		)
Proceeds from sales of investment securities available for sale	59,424			—
Proceeds from maturities, calls or repayments of investment securities available for sale	111,701			70,926
Purchases of investment securities held to maturity	—			(70,247		)
Proceeds from maturities, calls or repayments of investment securities held to maturity	52,438			51,205
Net purchases from sales of money market and mutual funds	(17,974		)	(220		)
Net (purchases) redemption of Federal Home Loan Bank stock	(7,338		)	44
Acquisition of Conestoga, net cash acquired	(79,610		)	—
Proceeds from sale of other real estate owned	1,065			462
Purchases of premises and equipment	(2,139		)	(3,245		)
Proceeds from sale of premises and equipment	21			17
Cash provided by (used in) other investing activities	470			(386		)
Net cash used in investing activities	(228,370		)	(241,187		)
FINANCING ACTIVITIES:
Increase in borrowed funds	320,994			6,000
Repayment of borrowed funds	(140,985		)	(5,992		)
Net increase in checking, savings and demand accounts	18,921			4,324
Net decrease in time deposits	(18,659		)	(26,813		)
Proceeds from the exercise of stock options	2,322			1,292
Purchase of treasury stock	(109,641		)	(340		)
Net cash provided by (used in) financing activities	72,952			(21,529		)
NET DECREASE IN CASH AND CASH EQUIVALENTS	(130,430		)	(247,712		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	233,920			534,015
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	103,490		$	286,303
SUPPLEMENTAL DISCLOSURES OF CASH FLOW AND NON-CASH INFORMATION:
Cash payments for interest	$	10,108		$	9,611
Cash payments for income taxes	4,475			969
Transfers of loans to other real estate owned	366			125
Transfers of bank branches to fixed assets held for sale	501			—
Acquisition of noncash assets and liabilities:
Assets acquired	621,584			—
Liabilities assumed	589,240			—
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 six months ended June 30, 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 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 63 offices throughout the

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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 — ACQUISITION OF CONESTOGA BANK

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 are included in the Company’s unaudited condensed Consolidated Statements of Operations for the period beginning on April 15, 2016, the date of the acquisition, through June 30, 2016. During the six months ended June 30, 2016, the Company recorded $9.5 million of merger and other restructuring charges as a result of the completion of the transaction.

The acquisition of Conestoga Bank increased the Company’s market share in southeastern Pennsylvania and provided Beneficial with a number of new branches.

The acquisition of Conestoga Bank was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration paid were recorded at their estimated fair values as of the acquisition date. The excess of consideration paid over the fair value of net assets acquired was recorded as goodwill in the amount of approximately $47.3 million, which will not be amortizable and is not deductible for tax purposes. The Company allocated the total balance of goodwill to its banking segment.

The fair values listed below are preliminary estimates and are subject to adjustment. While they are not expected to be materially different than those shown, any material adjustments to the estimates will be reflected, retroactively, as of the date of the acquisition. In connection with the acquisition of Conestoga Bank, the consideration paid, and the fair value of identifiable assets acquired and liabilities assumed as of the date of acquisition are summarized in the following table:

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(In thousands)
Consideration Paid
Cash paid to Conestoga Bank	$	105,000
Change in control payments	2,777
Value of consideration	107,777

Assets acquired:
Cash and due from banks	$	28,167
Investment securities	59,424
FHLB stock	307
Loans	518,102
Premises and equipment	7,006
Bank owned life insurance	14,330
Core deposit intangible	2,248
Real estate owned	1,369
Accrued interest receivable	1,121
Deferred tax asset	12,252
Other assets	5,425
Total assets	649,751

Liabilities assumed:
Deposits	$	588,386
Accrued interest payable	131
Other liabilities	723
Total liabilities	589,240
Net assets acquired	60,511
Goodwill resulting from acquisition of Conestoga Bank	$	47,266

In many cases, the fair values of assets acquired and liabilities assumed were determined by estimating the cash flows expected to result from those assets and liabilities and discounting them at appropriate market rates. The most significant category of assets for which this procedure was used was acquired loans. The excess of expected cash flows above the fair value of the majority of loans will be accreted to interest income over the remaining lives of the loans in accordance with FASB ASC 310-20.

Certain loans, for which specific credit-related deterioration was identified, are recorded at fair value, reflecting the present value of the amounts expected to be collected. Income recognition on these loans is based on a reasonable expectation of the timing and amount of cash flows to be collected. The timing of the sale of loan collateral was estimated for acquired loans deemed impaired and considered collateral dependent. For these collateral dependent impaired loans, the excess of the future expected cash flow over the present value of the future expected cash flow represents the accretable yield, which will be accreted into interest income over the estimated liquidation period using the effective interest method.

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The following table details the loans that are accounted for in accordance with FASB ASC 310-30 as of April 14, 2016:

(Dollars in thousands)
Contractually required principal and interest at acquisition	$	20,837
Contractual cash flows not expected to be collected (nonaccretable difference)	7,119
Expected cash flows at acquisition	13,718

Interest component of expected cash flows (accretable discount)	1,263
Fair value of acquired loans accounted for under FASB ASC 310-30	$	12,455

Acquired loans not subject to the requirements of FASB ASC 310-30 are recorded at fair value. The fair value mark on each of these loans will be accreted into interest income over the remaining life of the loan. The following table details loans that are not accounted for in accordance with FASB ASC 310-30 as of April 14, 2016:

(Dollars in thousands)
Contractually required principal and interest at acquisition	$	507,433
Contractual cash flows not expected to be collected (credit mark)	8,270
Expected cash flows at acquisition	499,163

Interest rate premium mark	5,005
Fair value of acquired loans not accounted for under FASB ASC 310-30	$	504,168

In accordance with GAAP, there was no carryover of the allowance for loan losses that had been previously recorded by Conestoga Bank.

In connection with the acquisition of Conestoga Bank, the Company acquired an investment portfolio with a fair value of $59.7 million. All investment securities were sold on April 15, 2016 at fair value.

In connection with the acquisition of Conestoga Bank, the Company recorded a net deferred income tax asset of $12.2 million related to Conestoga Bank’s net operating loss carryforward, as well as other tax attributes of the acquired company, along with the tax effects of fair value adjustments resulting from applying the acquisition method of accounting.

The fair value of savings and transaction deposit accounts acquired from Conestoga Bank provide value to the Company as a source of below market rate funds. The fair value of the core deposit intangible (“CDI”) was determined based on a discounted cash flow analysis. To calculate cash flows, deposit account servicing costs (net of deposit fee income) and interest expense on deposits were compared to the cost of alternative funding sources available to the Company. The life of the deposit base and projected deposit attrition rates were determined using Beneficial’s historical deposit data. The CDI was valued at $2.2 million or 0.65% of deposits. The intangible asset is being amortized on an accelerated basis over ten years. Amortization for the six months ended June 30, 2016 was $85 thousand.

Certificates of deposit accounts were valued by comparing the contractual cost of the portfolio to an identical portfolio bearing current market rates. The portfolio was segregated into pools based on remaining maturity. For each pool, the projected cash flows from maturing certificates were then calculated based on contractual rates and prevailing market rates. The valuation adjustment for each pool is equal to the present value of the difference of these two cash flows, discounted at the assumed market rate for a certificate with a corresponding maturity. This valuation adjustment was valued at $588 thousand and is being amortized in line with the expected cash flows driven by maturities of these deposits over the next five years. Amortization for the six months ended June 30, 2016 was $137 thousand.

Direct costs related to the acquisition of Conestoga Bank were expensed as incurred. During the six months ended June 30, 2016, the Company incurred $7.9 million in merger and acquisition integration expenses related to the Merger, including $3.5 million of professional fees and contract termination expenses, $1.8 million of facility expenses, $1.2 million of severance expenses, and $1.4 million of other merger expenses.

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The following table presents actual operating results attributable to Conestoga Bank since the April 14, 2016 acquisition date through June 30, 2016. This information does not include purchase accounting adjustments or acquisition integration costs.

	Conestoga Bank
	April 14, 2016 to
(Dollars in thousands)	June 30, 2016
Net interest income	$	5,013
Non-interest income	300
Non-interest expense	(2,405		)
Income taxes	(1,018		)
Net income	$	1,890

The following table presents unaudited pro forma information as if the acquisition of Conestoga Bank had occurred on January 1, 2015. This pro forma information gives effect to certain adjustments, including purchase accounting fair value adjustments, amortization of core deposit and other intangibles and related income tax effects. Merger costs expensed by Beneficial Bank and Conestoga Bank of $8.8 million were estimated to have been incurred during the six months ended June 30, 2015.

The pro forma information does not necessarily reflect the results of operations that would have occurred had the acquisition of Conestoga Bank occurred at the beginning of 2016 or 2015. Expected cost savings are not reflected in the pro forma amounts.

	Pro forma
	Six Months Ended
(Dollars in thousands)	June 30, 2016			June 30, 2015

Net interest income	$	77,801		$	74,001
Provision for loan loss	(87		)	2,800
Non-interest income	13,327			14,568
Non-interest expense	(69,294		)	(79,857		)
Income taxes	(7,612		)	(4,029		)
Net income	$	14,135		$	7,483

Net earnings per share
Basic	$	0.19		$	0.10
Diluted	$	0.19		$	0.09

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NOTE 4 — 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 six months ended June 30, 2016 and June 30, 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	5,495		—			5,495
Accretion of unrealized losses on AFS securities transferred to HTM	256		—			256
Amount reclassified from accumulated other comprehensive loss	5		617			622
Net current-period other comprehensive income	5,756		617			6,373
Ending balance, June 30, 2016	$	6,298	$	(23,299	)	$	(17,001	)

	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 losses on AFS securities	(652		)	—			(652		)
Accretion of unrealized losses on AFS securities transferred to HTM	265			—			265
Amount reclassified from accumulated other comprehensive loss	6			662			668
Net current-period other comprehensive income	(381		)	662			281
Ending balance, June 30, 2015	$	2,330		$	(24,712	)	$	(22,382	)

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The following tables present reclassifications out of AOCI by component for the six months ended June 30, 2016 and June 30, 2015:

For the Six Months Ended June 30, 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
	$	8		Net loss on sale of investment securities
	(3		)	Income tax benefit
	$	5		Net of tax
Amortization of defined benefit pension items
Prior service costs	$	(243	)(1)	Other non-interest expense
Net recognized actuarial losses	1,324		(1)	Other non-interest expense
	$	1,081		Total before tax
	(464		)	Income tax benefit
	$	617		Net of tax

(1) These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension cost. See Note 14 - Pension and Other Postretirement Benefits for additional details.

For the Six Months Ended June 30, 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
	$	9		Net loss on sale of investment securities
	(3		)	Income tax benefit
	$	6		Net of tax
Amortization of defined benefit pension items
Prior service costs	$	(259	)(1)	Other non-interest expense
Net recognized actuarial losses	1,411		(1)	Other non-interest expense
	$	1,152		Total before tax
	(490		)	Income tax benefit
	$	662		Net of tax

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NOTE 5 — EARNINGS PER SHARE

The following table presents a calculation of basic and diluted earnings per share for the three and six months ended June 30, 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 outstanding 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 15 for further discussion of stock grants.

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands, except share and per share amounts)	2016		2015		2016		2015

Basic and diluted earnings per share:
Net income	$	2,748	$	7,055	$	7,771	$	12,306
Basic average common shares outstanding	71,197,288		78,374,704		73,679,901		78,414,226
Effect of dilutive securities	881,408		683,770		856,601		653,170
Dilutive average shares outstanding	72,078,696		79,058,474		74,536,502		79,067,396
Net earnings per share
Basic	$	0.04	$	0.09	$	0.11	$	0.16
Diluted	$	0.04	$	0.09	$	0.10	$	0.16

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 six months ended June 30, 2016, there were 2,274,416 restricted stock awards that were anti-dilutive and therefore excluded from the earnings per share calculation. For the three and six months ended June 30, 2016, there were 161,531 outstanding options that were anti-dilutive and therefore excluded from the earnings per share calculation. For the three and six months ended June 30, 2015, there were 861,961 outstanding options that were anti-dilutive and therefore excluded from the earnings per share calculation.

NOTE 6 — INVESTMENT SECURITIES

The amortized cost and estimated fair value of investments in debt and equity securities at June 30, 2016 and December 31, 2015 are as follows:

	June 30, 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	$	5,324	$	75	$	—	$	5,399
Ginnie Mae guaranteed mortgage certificates	4,052		152		—		4,204
GSE mortgage-backed securities	436,730		11,449		50		448,129
GSE collateralized mortgage obligations	27,859		32		90		27,801
Municipal bonds	30,161		1,501		—		31,662
Corporate securities	19,487		356		20		19,823
Money market and mutual funds	39,367		—		11		39,356

Total	$	562,980	$	13,565	$	171	$	576,374

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	June 30, 2016
	Investment Securities Held-to-Maturity
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		Losses		Value

GSE mortgage-backed securities	$	605,544	$	15,231	$	258	$	620,517
GSE collateralized mortgage obligations	34,532		995		44		35,483
Municipal bonds	750		71		—		821
Foreign bonds	2,000		61		—		2,061

Total	$	642,826	$	16,358	$	302	$	658,882

	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 six months ended June 30, 2016, the Bank sold $178 thousand of mutual funds that resulted in a loss of $8 thousand.

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,

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aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2016 and December 31, 2015:

	At June 30, 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	$	22,332	$	258	$	28,274	$	50	$	50,606	$	308
Corporate Securities	1,980		20		—		—		1,980		20
Collateralized mortgage obligations	—		—		31,949		134		31,949		134
Subtotal, debt securities	$	24,312	$	278	$	60,223	$	184	$	84,535	$	462
Mutual Funds	—		—		378		11		378		11
Total temporarily impaired securities	$	24,312	$	278	$	60,601	$	195	$	84,913	$	473

	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 $308 thousand related to its GSE mortgage-backed securities as of June 30, 2016. Additionally, the Company had an unrealized loss of $134 thousand on GSE collateralized mortgage obligations, an unrealized loss of $20 thousand on corporate securities and an unrealized loss of $11 thousand on mutual funds as of June 30, 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 0.2% as of June 30, 2016. The Company’s investment that was in a loss position for less than 12 months included a GSE mortgage-backed security with an unrealized loss of 1.1% as of June 30, 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 June 30, 2016.

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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 0.4% as of June 30, 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 June 30, 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 1.0% as of June 30, 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 June 30, 2016.

The following table sets forth the stated maturities of the investment securities at June 30, 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.

	June 30, 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		9,451		8,696		9,025
Due after five years through ten years	45,725		47,433		39,543		40,600
Due after ten years	—		—		—		—
Mortgage-backed securities	468,641		480,134		580,799		584,169
Money market and mutual funds	39,367		39,356		21,401		21,368

Total	$	562,980	$	576,374	$	650,439	$	655,162

Held-to-maturity:
Due in one year or less	$	120	$	121	$	120	$	123
Due after one year through five years	2,505		2,613		2,505		2,592
Due after five years through ten years	125		148		125		144
Due after ten years	—		—		—		—
Mortgage-backed securities	640,076		656,000		693,560		692,431

Total	$	642,826	$	658,882	$	696,310	$	695,290

At June 30, 2016 and December 31, 2015, $82.4 million and $75.7 million, respectively, of securities were pledged to secure municipal deposits. At June 30, 2016 and December 31, 2015, the Company had $3.6 million and $458 thousand, respectively, of securities pledged as collateral on interest rate swaps.

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NOTE 7 — LOANS

Loans at June 30, 2016 and December 31, 2015 are summarized as follows:

(Dollars in thousands)	June 30, 2016			December 31, 2015

Commercial:
Commercial real estate	$	1,367,428		$	971,086
Commercial business loans	686,955			496,274
Commercial small business leases	128,999			39
Commercial construction	146,451			116,452
Total commercial loans	2,329,833			1,583,851
Residential:
Residential real estate	810,131			735,468
Residential construction	250			256
Total residential loans	810,381			735,724

Consumer loans:
Home equity & lines of credit	252,401			231,808
Personal	25,617			20,640
Education	173,493			181,646
Automobile	206,768			187,777
Total consumer loans	658,279			621,871
Total loans	3,798,493			2,941,446

Allowance for losses	(44,519		)	(45,500		)
Loans, net	$	3,753,974		$	2,895,946

On April 14, 2016, the Company acquired $518.1 million of loans and leases in connection with the acquisition of Conestoga Bank.

During the six months ended June 30, 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 June 30, 2016, the Company had $1.4 million residential 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 and six months ended June 30, 2016 and 2015, the Bank sold residential mortgage loans with an unpaid principal balance of approximately $2.0 million and $6.0 million, respectively, and recorded mortgage banking income of approximately $73 thousand and $394 thousand, respectively. The mortgage banking income decline during the six months ended June 30, 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 19 — 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 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 June 30, 2016, shared national credits totaled $245.3 million, which included $99.0 million of leveraged lending transactions. All of these loans were classified as pass rated as of June 30, 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 June 30, 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 June 30, 2016 or December 31, 2015.

The summary activity in the allowance for loan losses for all portfolios for the three months ended June 30, 2016 and 2015, and for the year ended December 31, 2015, is as follows:

	Six Months Ended June 30,						Year Ended December 31,
	Six Months Ended June 30,						Year Ended December 31,
(Dollars in thousands)	2016			2015			2015
Balance, beginning of year	$	45,500		$	50,654		50,654
Provision for loan losses	—			(3,600		)	(3,600		)
Charge-offs	(1,837		)	(2,502		)	(6,302		)
Recoveries	856			3,240			4,748

Balance, end of period	$	44,519		$	47,792		$	45,500

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The following table sets forth the activity in the allowance for loan losses by portfolio for the three months ended June 30, 2016 and the year ended December 31, 2015:

			COMMERCIAL								RESIDENTIAL					CONSUMER
June 30, 2016 (Dollars in thousands)	Real Estate		Business			Small Business Leases		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		)	—		—			(247		)	—		(276		)	(310		)	(83		)	(825		)	(1,837		)
Recoveries	28		31			—		150			1			—		39			183			—			424			856
Provision (credit)	1,737		19			179		(272		)	672			—		(1,095		)	16			88			(1,344		)	—
Allowance ending balance	$	24,405	$	11,810		$	179	$	2,213		$	2,070		$	—	$	1,024		$	325		$	130		$	2,363		$	44,519

Allowance ending balance
Individually evaluated for impairment	$	—	$	—		$	—	$	—		$	—		$	—	$	—		$	—		$	—		$	—		$	—
Collectively evaluated for impairment	24,405		11,810			179		2,213			2,070			—		1,024			325			130			2,363			44,519
Loans acquired with deteriorated quality (1)	—		—			—		—			—			—		—			—			—			—			—
Total Allowance	$	24,405	$	11,810		$	179	$	2,213		$	2,070		$	—	$	1,024		$	325		$	130		$	2,363		$	44,519

Financing receivable:
Ending balance
Individually evaluated for impairment	$	18,564	$	4,045		$	—	$	—		$	11,656		$	—	$	1,827		$	419		$	—		$	—		$	36,511
Collectively evaluated for impairment	1,342,875		677,586			128,999		146,451			798,010			250		250,118			24,949			173,493			206,768			3,749,499
Loans acquired with deteriorated quality (1)	5,989		5,324			—		—			465			—		456			249			—			—			12,483
Total Portfolio	$	1,367,428	$	686,955		$	128,999	$	146,451		$	810,131		$	250	$	252,401		$	25,617		$	173,493		$	206,768		$	3,798,493

(1) Loans acquired with deteriorated credit quality are evaluated on an individual basis.

	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

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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 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 June 30, 2016 and December 31, 2015:

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Commercial and Residential Loans

Credit Risk Internally Assigned

	June 30, 2016
(Dollars in thousands)	Commercial Real Estate				Commercial Business				Small Business Leases				Commercial Construction				Residential Real Estate				Residential Construction				Total
Grade
Pass	$	1,342,251	98	%	$	667,542	97	%	$	128,999	100	%	$	146,451	100	%	$	804,187	99	%	$	120	48	%	$	3,089,550	99	%
Special Mention	7,835		1	%	4,111		1	%	—		—	%	—		—	%	—		—	%	—		—	%	11,946		—	%
Substandard	17,342		1	%	15,302		2	%	—		—	%	—		—	%	5,944		1	%	130		52	%	38,718		1	%
Doubtful	—		—	%	—		—	%	—		—	%	—		—	%	—		—	%	—		—	%	—		—	%
Total	$	1,367,428	100	%	$	686,955	100	%	$	128,999	100	%	$	146,451	100	%	$	810,131	100	%	$	250	100	%	$	3,140,214	100	%

	December 31, 2015
	Commercial Real Estate				Commercial Business				Commercial Construction				Residential Real Estate				Residential 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 June 30, 2016 and December 31, 2015:

Credit Risk Profile Based on Payment Activity

	June 30, 2016
(Dollars in thousands)	Home Equity & Lines of Credit				Personal				Education				Auto				Total
Performing	$	250,924	99	%	$	25,617	100	%	$	153,355	88	%	$	206,768	100	%	$	636,664	97	%
Non-performing	1,477		1	%	—		—	%	20,138		12	%	—		—	%	21,615		3	%
Total	$	252,401	100	%	$	25,617	100	%	$	173,493	100	%	$	206,768	100	%	$	658,279	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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Loans Acquired with Deteriorated Credit Quality

The outstanding principal balance and related carrying amount of loans acquired with deteriorated credit quality, for which the Company applies the provisions of ASC 310-30, as of June 30, 2016, are as follows:

	June 30
(Dollars in thousands)	2016

Outstanding principal balance	$	18,948
Carrying amount	12,483

The following table presents changes in the accretable discount on loans acquired with deteriorated credit quality, for which the Company applies the provisions of ASC 310-30, since the April 14, 2016 acquisition date through June 30, 2016:

	Accretable
(Dollars in thousands)	Discount

Balance, April 14, 2016	$	1,263
Accretion	(132		)
Balance, June 30, 2016	$	1,131

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.

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

Aged Analysis of Past Due and Non-accrual Financing Receivables

As of June 30, 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	$	835	4	%	$	382	5	%	$	493	2	%	$	1,710	3	%	$	1,365,718	37	%	$	1,367,428	36	%	$	—	$	2,831	20	%
Commercial business loans	546		3	%	270		3	%	542		2	%	1,358		3	%	685,597		18	%	686,955		18	%	—		1,344		9	%
Commercial small business leases	957		5	%	374		4	%	—		—	%	1,331		3	%	127,668		3	%	128,999		3	%	—		—		—	%
Commercial construction	—		—	%	—		—	%	—		—	%	—		—	%	146,451		4	%	146,451		4	%	—		—		—	%
Total commercial	$	2,338	12	%	$	1,026	12	%	$	1,035	4	%	$	4,399	9	%	$	2,325,434	62	%	$	2,329,833	61	%	$	—	$	4,175	29	%

Residential:
Residential real estate	$	1,661	9	%	$	447	5	%	$	3,795	15	%	$	5,903	11	%	$	804,228	21	%	$	810,131	21	%	$	—	$	8,598	60	%
Residential construction	—		—	%	—		—	%	250		1	%	250		—	%	—		—	%	250		—	%	—		250		1	%
Total residential	$	1,661	9	%	$	447	5	%	$	4,045	16	%	$	6,153	11	%	$	804,228	21	%	$	810,381	21	%	$	—	$	8,848	61	%

Consumer loans:
Home equity & lines of credit	$	792	4	%	$	233	3	%	$	503	2	%	$	1,528	3	%	$	250,873	7	%	$	252,401	7	%	$	—	$	1,477	10	%
Personal	359		2	%	212		3	%	—		—	%	571		1	%	25,046		1	%	25,617		1	%	—		—		—	%
Education	11,217		59	%	5,924		71	%	20,138		78	%	37,279		70	%	136,214		4	%	173,493		5	%	20,138		—		—	%
Automobile	2,697		14	%	463		6	%	—		—	%	3,160		6	%	203,608		5	%	206,768		5	%	—		—		—	%
Total consumer	$	15,065	79	%	$	6,832	83	%	$	20,641	80	%	$	42,538	80	%	$	615,741	17	%	$	658,279	18	%	$	20,138	$	1,477	10	%

Total	$	19,064	100	%	$	8,305	100	%	$	25,721	100	%	$	53,090	100	%	$	3,745,403	100	%	$	3,798,493	100	%	$	20,138	$	14,500	100	%

(1) Non-accruing loans do not include $12.5 million of loans acquired with deteriorated credit quality, which have been recorded at their fair value at acquisition.

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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 June 30, 2016 and 2015.

	June 30,			June 30,
	2016			2015
(Dollars in thousands)	No. of Loans	Balance		No. of Loans	Balance
Commercial:
Commercial real estate	2	$	840	2	$	821
Commercial business loans	2	1,800		—	—
Commercial small business leases	—	—		—	—
Commercial construction	—	—		—	—
Total commercial	4	2,640		2	821

Residential:
Residential real estate	5	501		3	365
Residential construction	—	—		—	—
Total real estate loans	5	501		3	365

Consumer loans:
Home equity & lines of credit	1	186		1	221
Personal	1	411		—	—
Total consumer loans	2	597		1	221
Total loans	11	$	3,738	6	$	1,407

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The following tables summarize information about TDRs as of and for the six months ended June 30, 2016 and 2015:

	For the Six Months Ended June 30, 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	5	$	3,051
Modifications granted:
Reduction of outstanding principal due	—	—
Deferral of principal amounts due	5	3,051
Temporary reduction in interest rate	—	—
Deferral of interest due	—	—
Below market interest rate granted	—	—
Outstanding principal balance immediately before modification	5	3,051
Outstanding principal balance immediately after modification	5	3,051
Aggregate principal charge-off recognized on TDRs outstanding at period end since origination	—	—
Outstanding principal balance at period end	11	3,738
TDRs that re-defaulted subsequent to being modified (in the past twelve months)	—	—

	For the Six Months Ended June 30, 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	3	$	972
Modifications granted:
Reduction of outstanding principal due	—	—
Deferral of principal amounts due	3	972
Temporary reduction in interest rate	—	—
Deferral of interest due	—	—
Below market interest rate granted	—	—
Outstanding principal balance immediately before modification	3	1,292
Outstanding principal balance immediately after modification	3	972
Aggregate principal charge-off recognized on TDRs outstanding at period end since origination	—	—
Outstanding principal balance at period end	6	1,407
TDRs that re-defaulted subsequent to being modified (in the past twelve months)	2	821

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 June 30, 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	$	2,831	$	2,831	$	—	$	2,203	$	—	$	—
Commercial Business	3,144		3,240		—		1,553		—		—
Commercial Small Business Leases	—		—		—		—		—		—
Commercial Construction	—		—		—		17		—		—
Residential Real Estate	8,598		9,303		—		8,772		—		—
Residential Construction	250		458		—		253		—		—
Home Equity and Lines of Credit	1,888		1,626		—		1,539		—		—
Personal	—		503		—		59		—		—
Education	—		—		—		7		—		—
Auto	—		36		—		2		—		—
Total Impaired Loans:	$	16,711	$	17,997	$	—	$	14,405	$	—	$	—

Commercial	5,975		6,071		—		3,773		—		—
Residential	8,848		9,761		—		9,025		—		—
Consumer	1,888		2,165		—		1,607		—		—
Total	$	16,711	$	17,997	$	—	$	14,405	$	—	$	—

The impaired loans table above does not include $12.5 million of loans acquired with deteriorated credit quality, which have been recorded at their fair value at acquisition.

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 June 30, 2016. Interest

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income that would have been recorded for the six months ended June 30, 2016, had impaired loans been current according to their original terms, amounted to $501 thousand. Non-performing loans (which include non-accrual loans and loans past due 90 days or more and still accruing) at June 30, 2016 and December 31, 2015 amounted to $34.6 million and $37.7 million, respectively, and included $20.1 million and $22.9 million, respectively, of government guaranteed student loans.

NOTE 8 — 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. The Company recorded goodwill of $47.3 million and core deposit intangibles of $2.2 million, or 0.65% of core deposits, in connection with the acquisition of Conestoga Bank during the quarter. As of June 30, 2016, the other intangibles consisted of $3.8 million of core deposit intangibles, which are amortized over an estimated useful life of ten years, and $1.8 million of customer list intangibles, which are amortized over an estimated remaining life of between four and six years.

Goodwill and other intangibles at June 30, 2016 are summarized below.

(Dollars in thousands)	Goodwill		Intangibles
Balance at January 1, 2016	$	121,973	$	4,389
Additions	47,266		2,248
Amortization	—		(1,032		)
Balance at June 30, 2016	$	169,239	$	5,605

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 six months ended June 30, 2016, the Company noted no indicators of impairment as it relates to goodwill or other intangibles.

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NOTE 9 — OTHER ASSETS

The following table provides selected information on other assets at June 30, 2016 and December 31, 2015:

	June 30,		December 31,
(Dollars in thousands)	2016		2015
Investments in affordable housing and other partnerships	$	7,287	$	9,317
Prepaid assets	2,608		2,120
Net deferred tax assets	46,256		37,778
Other real estate	1,999		1,276
Fixed assets held for sale	1,245		744
Servicing rights	1,953		1,349
Prepaid and other assets	11,034		5,287
Total other assets	$	72,382	$	57,871

The Company follows the authoritative guidance under ASC 860-50 - Servicing Assets and Liabilities to account for its servicing rights. The Company utilizes the fair value measurement method to value its servicing rights at fair value in accordance with ASC 860-50. Under the fair value measurement method, the Company measures its servicing rights at fair value at each reporting date and reports changes in the fair value of its servicing rights in earnings in the period in which the changes occur. See Note 19 for further discussion of servicing rights.

NOTE 10 — DEPOSITS

Deposits consisted of the following major classifications at June 30, 2016 and December 31, 2015:

	June 30,		% of Total		December 31,		% of Total
(Dollars in thousands)	2016		Deposits		2015		Deposits

Non-interest bearing deposits	$	505,029	12.5	%	$	409,232	11.8	%
Interest-earning checking accounts	851,031		21.1	%	757,719		22.0	%
Municipal checking accounts	135,050		3.3	%	132,642		3.8	%
Money market accounts	445,363		11.0	%	389,403		11.3	%
Savings accounts	1,251,617		31.0	%	1,132,842		32.8	%
Certificates of deposit	852,481		21.1	%	630,085		18.3	%
Total deposits	$	4,040,571	100.00	%	$	3,451,923	100.0	%

On April 14, 2016, the Company acquired $588.4 million of deposits in connection with the acquisition of Conestoga Bank.

NOTE 11 — BORROWED FUNDS

Borrowed funds at June 30, 2016 and December 31, 2015 are summarized as follows:

(Dollars in thousands)	June 30, 2016		December 31, 2015
FHLB advances	$	345,000	$	165,000
Statutory trust debenture	25,414		25,405
Total borrowed funds	$	370,414	$	190,405

The Company increased borrowings $180.0 million during the six months ended June 30, 2016 to replace maturing borrowings and higher cost brokered certificates of deposit and to fund organic loan growth. The Company pledges loans to secure its borrowings at the Federal Reserve Bank of Philadelphia. At

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June 30, 2016 and December 31, 2015, loans in the amount of $248.8 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 two future borrowing arrangements with the FHLB of Pittsburgh to borrow $50.0 million and $75.0 million, respectively, at a fixed interest rate during the period from February 2017 through February 2021 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 June 30, 2016.

NOTE 12 — REGULATORY CAPITAL REQUIREMENTS

The Company and the Bank are 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 Company’s and 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 assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

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 June 30, 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 June 30, 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 June 30, 2016:

Tier 1 Leverage (to average assets)	$	892,398	17.00	%	$	209,971	4.00	%	$	262,464	5.00	%
Common Equity Tier 1 Capital (to risk weighted assets)	868,474		22.33	%	175,037		4.50	%	252,831		6.50	%
Tier 1 Capital (to risk weighted assets)	892,398		22.94	%	233,382		6.00	%	311,176		8.00	%
Total Capital (to risk weighted assets)	937,217		24.09	%	311,176		8.00	%	388,970		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 June 30, 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 June 30, 2016:

Tier 1 Leverage (to average assets)	$	794,787	15.15	%	$	209,854	4.00	%	$	262,318	5.00	%
Common Equity Tier 1 Capital (to risk weighted assets)	794,787		20.46	%	174,825		4.50	%	252,526		6.50	%
Tier 1 Capital (to risk weighted assets)	794,787		20.46	%	233,100		6.00	%	310,801		8.00	%
Total Capital (to risk weighted assets)	839,606		21.61	%	310,801		8.00	%	388,501		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)	818,758		25.74	%	182,018		6.00	%	242,691		8.00	%
Total Capital (to risk weighted assets)	780,713		26.99	%	242,691		8.00	%	303,364		10.00	%

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NOTE 13 — INCOME TAXES

For the three months ended June 30, 2016, we recorded a provision for income taxes of $2.0 million, reflecting an effective tax rate of 42.0%, compared to a provision for income taxes of $2.9 million, reflecting an effective tax rate of 29.5%, for the three months ended June 30, 2015. For the six months ended June 30, 2016, the Company recorded a provision for income taxes of $4.2 million, reflecting an effective tax benefit 35.2% compared to a provision for income taxes of $5.0 million, reflecting an effective tax rate of 28.7% for the six months ended June 30, 2015. The increase in income tax expense and the effective tax rate was due to a lower ratio of tax exempt income compared to pre-tax income as compared to the same periods in 2015.

As of June 30, 2016, the Company had net deferred tax assets totaling $46.3 million. During the three months ended June 30, 2016, the Company recorded a net deferred tax asset of $12.2 million related to the acquisition of Conestoga Bank. 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 June 30, 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 14 — 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. Conestoga Bank had a defined benefit pension plan covering less than twenty employees. The Bank intends on combining this plan, which had been frozen by Conestoga Bank, into the Bank’s existing defined benefit pension plan during 2016.

The components of net pension cost are as follows:

	Pension Benefits						Other Postretirement Benefits
	Three Months Ended June 30,						Three Months Ended June 30,
(Dollars in thousands)	2016			2015			2016			2015
Service cost	$	—		$	—		$	34		$	43
Interest cost	818			958			179			214
Expected return on assets	(1,559		)	(1,655		)	—			—
Amortization of loss	623			616			39			90
Amortization of prior service cost	—			—			(122		)	(129		)
Amortization of transition obligation	—			—			—			—
Net periodic pension (benefit) cost	$	(118	)	$	(81	)	$	130		$	218

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	Pension Benefits						Other Postretirement Benefits
	Six Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Service cost	$	—		$	—		$	69		$	87
Interest cost	1,635			1,916			357			429
Expected return on assets	(3,118		)	(3,310		)	—			—
Amortization of loss	1,247			1,231			77			180
Amortization of prior service cost	—			—			(243		)	(259		)
Amortization of transition obligation	—			—			—			—
Net periodic pension (benefit) cost	$	(236	)	$	(163	)	$	260		$	437

NOTE 15 — 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.

At the annual meeting held on April 21, 2016, the stockholders’ of the Company approved the 2016 Omnibus Incentive Plan (‘the 2016 Plan”). The 2016 Plan provides for the issuance or delivery of 3.5 million shares of Beneficial Bancorp, Inc. stock. On June 9, 2016, the Company granted 2,274,416 of restricted stock awards to employees, officers and directors, which reduced the Company’s outstanding additional paid in capital by $29.8 million and also reduced the balance of treasury stock. The restricted stock awards granted to directors vest over a 30 month period and the restricted stock awards granted to employees and officers vest over a three year period. Upon the adoption of the 2016 Plan, the Company’s 2008 Equity Incentive Plan (“EIP”) was terminated. However, outstanding awards under the 2008 EIP remain in effect in accordance with their original terms.

Compensation expense related to the stock awards is recognized ratably over the 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 and six months ended June 30, 2016 was $1.0 million and $1.5 million, respectively, as compared to $340 thousand and $613 thousand for the three and six months ended June 30, 2015. The increase in expense in 2016 as compared to 2015 was primarily the result of the 2016 Omnibus Incentive Plan shares granted during the second quarter of 2016.

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The following table summarizes the non-vested stock award activity for the six months ended June 30, 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	2,496,433		13.55
Vested	(121,078	)	8.32
Forfeited	(59,494	)	10.78
Non-vested Stock Awards outstanding, June 30, 2016	2,932,366		13.07

The following table summarizes the non-vested stock award activity for the six months ended June 30, 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	(108,327	)	8.33
Forfeited	(46,211	)	8.48
Non-vested Stock Awards outstanding, June 30, 2015	619,100		10.00

The fair value of the 121,078 shares that vested during the six months ended June 30, 2016 was $1.6 million. The fair value of the 108,327 shares that vested during the six months ended June 30, 2015 was $1.2 million.

The 2008 EIP authorized 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 six months ended June 30, 2016, the Company did not grant any options compared to 166,075 options granted during the six months ended June 30, 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 $354 thousand and $771 thousand, for the three and six months ended June 30, 2016, respectively, compared to $379 thousand and $816 thousand for the three months and six months ended June 30, 2015, respectively.

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A summary of option activity as of June 30, 2016 and changes during the six month period ended June 30, 2016 is presented below:

	Number of Options		Weighted Exercise Price per Shares

January 1, 2016	3,422,241		$	9.59
Granted	—		—
Exercised	(237,598	)	9.78
Forfeited	(103,319	)	9.86
Expired	—		—
June 30, 2016	3,081,324		9.57

A summary of option activity as of June 30, 2015 and changes during the six month period ended June 30, 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	(137,644	)	9.39
Forfeited	(78,865	)	9.14
Expired	(88	)	8.90
June 30, 2015	3,518,365		9.61

The weighted average remaining contractual term was approximately 5.25 years and the aggregate intrinsic value was $9.7 million for options outstanding as of June 30, 2016. As of June 30, 2016, exercisable options totaled 2,262,141 with an average weighted exercise price of $9.45 per share, a weighted average remaining contractual term of approximately 4.53 years, and an aggregate intrinsic value of $7.4 million. The weighted average remaining contractual term was approximately 6.12 years and the aggregate intrinsic value was $10.1 million for options outstanding as of June 30, 2015. As of June 30, 2015, exercisable options totaled 2,141,808 with an average weighted exercise price of $9.57 per share, a weighted average remaining contractual term of approximately 4.88 years, and an aggregate intrinsic value of $6.3 million.

During the six months ended June 30, 2016, the Company did not grant any options. Significant weighted average assumptions used to calculate the fair value of the options granted during the six months ended June 30, 2015 are as follows:

	For the Six Months Ended June 30, 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 June 30, 2016, there was $2.5 million of total unrecognized compensation cost related to options and $36.0 million in unrecognized compensation cost related to non-vested stock awards granted. As of June 30, 2015, there was $4.4 million of total unrecognized compensation cost related to options and

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$4.8 million in unrecognized compensation cost related to non-vested stock awards granted. The average weighted lives for the option expense were 2.41 and 3.18 years as of June 30, 2016 and June 30, 2015, respectively. The average weighted lives for the stock award expense were 4.75 and 3.77 years at June 30, 2016 and June 30, 2015, respectively.

NOTE 16 — COMMITMENTS AND CONTINGENCIES

At June 30, 2016 and December 31, 2015, the Company had outstanding commitments to purchase or originate new loans aggregating $20.5 million and $40.4 million, respectively, commitments to customers on available lines of credit of $354.6 million and $290.4 million, respectively, commitments to fund commercial construction and other advances of $153.3 million and $136.9 million, respectively, and standby letters of credit of $20.3 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 $299 thousand and $275 thousand at June 30, 2016 and December 31, 2015, respectively.

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 17 — RECENT ACCOUNTING PRONOUNCEMENTS

In June 2016, the FASB issued ASU 2016-13: Financial Instruments —Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Topic 326 amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write-down. This update affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in this update are effective for fiscal years beginning after December 15, 2019. The Company is in the process of evaluating the impact of this guidance.

In May 2016, the FASB issued ASU 2016-12: Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. The amendments in this update address narrow-scope improvements to the guidance on collectability, noncash consideration, and completed contracts at transition. Additionally, the amendments in this update provide a practical expedient for contract modifications at transition and an accounting policy election related to the presentation of sales taxes and other similar taxes collected from customers. The amendments in this update affect the guidance in Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. 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 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.

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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 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.

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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 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

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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 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

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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 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.

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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 18 — 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, 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.

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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 June 30, 2016:

	Category Used for Fair Value Measurement
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Mortgage servicing rights	$	—	$	—	$	1,139	$	1,139
SBA servicing rights	—		—		814		814
Investment securities available for sale:
U.S. GSE and agency notes	—		5,399		—		5,399
Ginnie Mae guaranteed mortgage certificates	—		4,204		—		4,204
Collateralized mortgage obligations (“CMOs”)
GSE CMOs	—		27,801		—		27,801
GSE mortgage-backed securities	—		448,129		—		448,129
Municipal bonds
General obligation municipal bonds	—		14,762		—		14,762
Revenue municipal bonds	—		16,900		—		16,900
Corporate securities	—		19,823		—		19,823
Money market funds	38,978		—		—		38,978
Mutual funds	378		—		—		378
Interest rate swap agreements	—		3,235		—		3,235
Total Assets	$	39,356	$	540,253	$	1,953	$	581,562
Liabilities:
Interest rate swap agreements and other contracts	$	—	$	3,472	$	—	$	3,472
Total Liabilities	$	—	$	3,472	$	—	$	3,472

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

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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.

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”.

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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

Servicing Rights. The Company determines the fair value of its servicing rights 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 six months ended June 30, 2016 and 2015.

	For the Six Months Ended
	June 30, 2016			June 30, 2015
Level 3 Investments Only (Dollars in thousands)	Mortgage Servicing Rights			Mortgage Servicing Rights
Balance, January 1,	$	1,349		$	1,403
Additions	76			85
Payments	(103		)	(81		)
(Decrease) Increase in fair value due to changes in valuation inputs or assumptions	(183		)	5
Balance, June 30,	$	1,139		$	1,412

	For the Six Months Ended June 30, 2016
Level 3 Investments Only (Dollars in thousands)	SBA Servicing Rights
Balance, January 1,	$	—
Additions	814
Payments	—
(Decrease) Increase in fair value due to changes in valuation inputs or assumptions	—
Balance, June 30,	$	814

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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 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)	June 30, 2016		Level 1		Level 2		Level 3		Gains/(Losses)
Impaired loans	$	3,033	$	—	$	—	$	3,033	$	(49	)
Other real estate owned	366		—		—		366		—

	Balance Transferred YTD
(Dollars in thousands)	June 30, 2015		Level 1		Level 2		Level 3		Gains/(Losses)
Impaired loans	$	3,153	$	—	$	—	$	3,153	$	(399	)
Other real estate owned	$	125	—		—		$	125	(4		)

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 June 30, 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	$	103,490	$	103,490	$	233,920	$	233,920
Securities available for sale	See previous table	576,374		576,374		655,162		655,162
Securities held to maturity	Level 2	642,826		658,882		696,310		695,290
FHLB stock	Level 3	16,431		16,431		8,786		8,786
Loans and leases, net	Level 3	3,752,610		3,892,201		2,894,763		2,917,053
Loans held for sale	Level 2	1,364		1,434		1,183		1,210
Mortgage servicing rights	Level 3	1,139		1,139		1,349		1,349
SBA servicing rights	Level 3	814		814		—		—
Interest rate swaps	Level 2	3,235		3,235		190		190
Accrued interest receivable	Level 3	16,314		16,314		14,298		14,298

Liabilities:
Deposits	Level 2	4,040,571		4,043,359		3,451,923		3,453,135
Borrowed funds	Level 2	370,414		369,372		190,405		184,048
Interest rate swaps and other contracts	Level 2	3,472		3,472		202		202
Accrued interest payable	Level 2	1,934		1,934		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 and Leases, Net - The fair value of loans and leases is estimated by discounting the future cash flows using the current rate at which similar loans and leases 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 and leases 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.

Servicing Rights - The Company determines the fair value of its servicing rights 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 June 30, 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 June 30, 2016 and December 31, 2015 and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

NOTE 19 — SERVICING RIGHTS

The Company sells certain residential mortgage loans and the guaranteed portion of certain Small Business Administration (“SBA”) loans to third parties and retains servicing rights and receives servicing fees. All such transfers are accounted for as sales. When the Company sells a residential mortgage loan, it does not retain any portion of that loan and its continuing involvement in such transfers is limited to certain servicing responsibilities. While the Company may retain a portion of certain sold SBA loans, its continuing involvement in the portion of the loan that was sold is limited to certain servicing responsibilities. When the contractual servicing fees on loans sold with servicing retained are expected to be more than adequate compensation to a servicer for performing the servicing, a capitalized servicing asset is recognized. The Company accounts for the transfers and servicing of financial assets in accordance with ASC 860, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities.

Residential Mortgage Loans

The Company has elected the fair value measurement method to value its MSRs. 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 recorded as a component of mortgage banking income in the Company’s consolidated statements of income for each period. As of

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June 30, 2016 and June 30, 2015, the Company serviced $141.5 million and $148.7 million of residential mortgage loans, respectively. During the three and six months ended June 30, 2016, the Company recognized servicing fee income of $89 thousand and $176 thousand, respectively, compared to $93 thousand and $188 thousand for the same periods in 2015.

The following is an analysis of the activity in the Company’s residential MSRs for the six months ended June 30, 2016 and 2015:

	Residential
	Mortgage Servicing Rights
	For the Six months ended June 30,
Dollars in thousands	2016			2015

Balance, January 1,	$	1,349		$	1,403
Additions	76			85
Increases (decreases) in fair value due to:
Changes in valuation input or assumptions	(183		)	5
Paydowns	(103		)	(81		)
Balance, June 30,	$	1,139		$	1,412

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 June 30, 2016, the key assumptions used to determine the fair value of the Company’s MSRs included a lifetime constant prepayment rate equal to 14.96%, a discount rate equal to 9.13% and an escrow earnings credit rate equal to 1.22%. At June 30, 2015, the key assumptions used to determine the fair value of the Company’s MSRs included a lifetime constant prepayment rate equal to 9.72%, a discount rate equal to 9.75% and an escrow earnings credit rate equal to 1.66%.

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At June 30, 2016 and June 30, 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)	June 30, 2016			June 30, 2015

Fair value of residential mortgage servicing rights	$	1,139		$	1,412

Weighted average life (years)	5.1 years			5.7 years

Prepayment speed	14.96%			9.72%
Effect on fair value of a 20% increase	$	(111)		$	(98)
Effect on fair value of a 10% increase	(58		)	(50)
Effect on fair value of a 10% decrease	65			55
Effect on fair value of a 20% decrease	139			112

Discount rate	9.13%			9.75%
Effect on fair value of a 20% increase	$	(70)		$	(93)
Effect on fair value of a 10% increase	(36)			(49)
Effect on fair value of a 10% decrease	38			52
Effect on fair value of a 20% decrease	79			108

Escrow earnings credit	1.22%			1.66%
Effect on fair value of a 20% increase	$	21		$	36
Effect on fair value of a 10% increase	11			18
Effect on fair value of a 10% decrease	(11)			(16)
Effect on fair value of a 20% decrease	(21)			(34)

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.

SBA Loans

As a result of the acquisition of Conestoga Bank, the Company acquired a $44.5 million SBA loan servicing portfolio. The Company has elected the fair value measurement method to value its SBA servicing rights. Under the fair value measurement method, the Company records its SBA servicing asset on its consolidated statements of financial condition as a component of other assets at fair value with changes recorded as a component of other non-interest income in the Company’s consolidated statements of income for each period. As of June 30, 2016 the Company’s SBA servicing portfolio totaled $46.3 million. During both the three and six months ended June 30, 2016, the Company recognized servicing fee income of $90 thousand.

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The following is an analysis of the activity in the Company’s SBA servicing rights for the six months ended June 30, 2016:

	SBA Servicing Rights
	For the Six months ended June 30,
Dollars in thousands	2016

Balance, January 1, 2016	$	—
Additions	814
Increases (decreases) in fair value due to:
Changes in valuation input or assumptions	—
Paydowns	—
Balance, June 30, 2016	$	814

The Company uses assumptions and estimates in determining the fair value of SBA servicing rights. 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 June 30, 2016, the key assumptions used to determine the fair value of the Company’s SBA servicing rights included a lifetime constant prepayment rate equal to 8.83%, a discount rate equal to 12.62% and servicing expenses per loan of $1 thousand.

At June 30, 2016, the sensitivity of the current fair value of the SBA servicing rights to immediate 10% and 20% favorable and unfavorable changes in key economic assumptions are included in the following table.

	SBA Servicing Rights
(Dollars in thousands)	June 30, 2016

Fair value of SBA servicing rights	$	814

Weighted average life (years)	5.5 years

Prepayment speed	8.83%
Effect on fair value of a 20% increase	$	(46)
Effect on fair value of a 10% increase	(24)
Effect on fair value of a 10% decrease	25
Effect on fair value of a 20% decrease	52

Discount rate	12.62%
Effect on fair value of a 20% increase	$	(63)
Effect on fair value of a 10% increase	(33)
Effect on fair value of a 10% decrease	36
Effect on fair value of a 20% decrease	75

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 SBA servicing rights 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.

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NOTE 20 — 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 primarily include 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 June 30, 2016, the Company had 26 interest rate swaps with an aggregate notional amount of $97.6 million related to this program, including 20 interest rate swaps with an aggregate notional value of $74.0 million resulting from the acquisition of Conestoga Bank. During the three and six months ended June 30, 2016, the Company recognized a net loss of $6 thousand and $17 thousand, respectively, compared to a net gain of $10 thousand and $2 thousand for the same periods in 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. The Company has entered into risk participation agreements with a notional value of $5.5 million and a fair value of $33 thousand as of June 30, 2016. During the three and six months ended June 30, 2016, the Company recognized a net gain of $5 thousand and $28 thousand, respectively, related to the risk participation agreements that are included as a component of services charges and other non-interest income in the Company’s consolidated statements of income.

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 June 30, 2016 and December 31, 2015:

	Asset derivatives				Liability derivatives
As of June 30, 2016 (Dollars in thousands)	Notional amount		Fair value (1)		Notional amount		Fair value (2)

Interest rate swap agreements	$	48,776	$	3,235	$	48,776	$	3,439
Risk participation agreements	—		—		5,533		33
Total derivatives	$	48,776	$	3,235	$	54,309	$	3,472

(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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	Asset derivatives				Liability derivatives
As of December 31, 2015 (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.

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

Offsetting of Derivative Assets

	Gross Amounts of		Gross Amounts Offset in the		Net Amounts of Assets presented in		Gross Amounts Not Offset in the Statement of Financial Condition
As of June 30, 2016	Recognized Assets (1)		Statement of Financial Condition		the Statement of Financial Condition		Financial Instruments		Collateral Received		Net Amount
Interest rate swaps and risk participation agreements	$	3,293	$	—	$	3,293	$	—	$	—	$	3,293

Offsetting of Derivative Liabilities

	Gross Amounts of		Gross Amounts Offset in the		Net Amounts of Liabilities presented in		Gross Amounts Not Offset in the Statement of Financial Condition
As of June 30, 2016	Recognized Liabilities (1)		Statement of Financial Condition		the Statement of Financial Condition		Financial Instruments		Collateral Posted		Net Amount
Interest rate swaps and risk participation agreements	$	3,530	$	—	$	3,530	$	—	$	3,635	$	(105	)

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

Offsetting of Derivative Assets

	Gross Amounts of		Gross Amounts Offset in the		Net Amounts of Assets presented in		Gross Amounts Not Offset in the Statement of Financial Condition
As of December 31, 2015	Recognized Assets (1)		Statement of Financial Condition		the Statement of Financial Condition		Financial Instruments		Collateral Received		Net Amount
Interest rate swaps	$	206	$	—	$	206	$	—	$	—	$	206

Offsetting of Derivative Liabilities

	Gross Amounts of		Gross Amounts Offset in the		Net Amounts of Liabilities presented in		Gross Amounts Not Offset in the Statement of Financial Condition
As of December 31, 2015	Recognized Liabilities (1)		Statement of Financial Condition		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.

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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 June 30, 2016, the termination value of the interest rate swaps and risk participation agreements in a liability position was $3.5 million. The Company has minimum collateral posting thresholds with its counterparty. At June 30, 2016, the Company had $3.6 million of securities pledged as collateral on interest rate swaps. If the Company had breached any of these provisions at June 30, 2016 it would have been required to settle its obligation under the agreement at the termination value and could have 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 June 30, 2016.

NOTE 21 — MERGER AND RESTRUCTURING CHARGES

In connection with the closing of the acquisition of Conestoga Bank, 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 reduced salary and benefits expense. Employees whose positions were eliminated as a result of the reduction in force received severance packages, which included outplacement services. During the six months ended June 30, 2016, the Company accrued for approximately $9.5 million of merger and restructuring charges related to the acquisition of Conestoga Bank and the Bank’s cost reduction plan. These charges are included in merger and restructuring charges, a component of non-interest expense, within the unaudited condensed consolidated statements of operations. A schedule of the current merger and restructuring accrual is summarized below as of June 30, 2016:

(Dollars in thousands)	Severance			Contract termination, merger and other costs			Total
Accrued at December 31, 2015	$	—		$	—		$	—
Accrued during the six months	2,797			6,662			9,459
Paid during the six months	(610		)	(2,687		)	(3,297		)
Accrued at June 30, 2016	$	2,187		$	3,975		$	6,162

NOTE 22 — SUBSEQUENT EVENTS

On July 21, 2016, the Company adopted a second stock repurchase program for up to 10% of its outstanding common stock, or 7,770,978 shares. Repurchases will be conducted through open market purchases, which may include purchases under a trading plan adopted pursuant to Securities and Exchange Commission Rule 10b5-1, or through privately negotiated transactions. Repurchases will be made from time to time depending on market conditions and other factors. There is no guarantee as to the exact number of shares to be repurchased.

On July 21, 2016, the Company declared a cash dividend of 6 cents per share, payable on or after August 11, 2016, to common shareholders of record at the close of business on August 1, 2016.

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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.

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 63 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 86.2% of our revenue for the six months ended June 30, 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

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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 moderate 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.

Beneficial completed the acquisition and integration of Conestoga Bank during the quarter which increased total loans by $518.1 million and total deposits by $588.4 million. The results of Conestoga Bank’s operations have been included in the Company’s financial statements beginning on April 15, 2016, the date of the consummation of the acquisition. Net income for the six months ended June 30, 2016 included $9.5 million of merger and restructuring charges related to the acquisition of Conestoga Bank and the Bank’s cost reduction plan.

We recorded net income for the three and six months ended June 30, 2016 of $2.7 million and $7.8 million compared to net income of $7.1 million and $12.3 million for the three and six months ended June 30, 2015. Our second quarter results included $9.5 million of merger and restructuring charges.

For the three and six months ended June 30, 2016, net interest income totaled $38.8 million and $71.0 million, respectively, an increase of $7.6 million, or 24.2%, from the three months ended June 30, 2015 and $9.7 million, or 15.7%, from the six months ended June 30, 2015. The increase in net interest income was primarily due to impact of the Conestoga acquisition, and 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.

Net interest margin totaled 3.08% and 2.96% for the three and six months ended June 30, 2016 as compared to 2.83% and 2.79% for each of the same periods in 2015. Margin has benefited from organic loan growth, the impact of the Conestoga acquisition, and continued improvement in the mix of our balance sheet.

During the six months ended June 30, 2016, our loan portfolio increased $857.1 million, or 29.1%, due to the acquisition of Conestoga loans of $518.1 million (17.6% growth), the purchase of $117.5 million of commercial real estate loans (4.0% growth) and net organic growth of $221.4 million (7.5% since year-end and 15.0% annualized).

Asset quality metrics remained strong as non-performing loans, excluding government guaranteed student loans, decreased to $14.5 million at June 30, 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 0.30% at June 30, 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 six months ended June 30, 2016. Net charge-offs were $981 thousand during the six months ended June 30, 2016 compared to net recoveries of $738 thousand during the six months ended June 30, 2015. As a result of the improvement in our asset quality metrics

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and net recoveries received as compared to 2014, we recorded a $3.6 million negative provision for loan losses for the six months ended June 30, 2015.

At June 30, 2016, the Bank’s allowance for loan losses totaled $44.5 million, or 1.17% of total loans, compared to $45.5 million, or 1.55% of total loans, at December 31, 2015. The decline in the coverage ratio is primarily due to $518.1 million of acquired Conestoga loans that were recorded at fair value.

During the second quarter, Beneficial completed its first share repurchase program since completing its mutual-to-stock conversion and related stock offering in January 2015. Under the first program, Beneficial repurchased 8,291,859 shares. On July 21, 2016, Beneficial Bancorp adopted a second stock repurchase program for up to 10% of its outstanding common stock, or 7,770,978 shares.

On July 21, 2016, Beneficial Bancorp declared a cash dividend of 6 cents per share, payable on or after August 11, 2016, to common shareholders of record at the close of business on August 1, 2016. This is the first dividend declared in Beneficial’s 163 year history.

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 15.95% at June 30, 2016 compared to 21.04% at December 31, 2015. The decrease in this ratio can be attributed our first share repurchase program and the impact of the acquisition of Conestoga Bank.

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

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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 $8.9 million for the six months ended June 30, 2016. We also have approximately $36.7 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 $3.7 million. During the six months ended June 30, 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 increased $47.3 million to $169.3 million at June 30, 2016, compared to $122.0 million at December 31, 2015 due to the acquisition of Conestoga Bank.

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,

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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 six months ended June 30, 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.

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 June 30, 2016, we had net deferred tax assets totaling $46.3 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 June 30, 2016.

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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.

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.

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Comparison of Financial Condition at June 30, 2016 and December 31, 2015

Total assets increased $687.5 million, or 14.2%, to $5.51 billion at June 30, 2016 compared to $4.83 billion at December 31, 2015. The increase in total assets was primarily due to the $649.8 million of assets acquired as part of the acquisition of Conestoga Bank.

Cash and cash equivalents decreased $130.4 million to $103.5 million at June 30, 2016 from $233.9 million at December 31, 2015. The decrease in cash and cash equivalents was primarily driven by repurchases of our common stock and the $105.0 million paid to acquire Conestoga Bank.

Investments decreased $124.6 million, or 9.2%, to $1.2 billion at June 30, 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 $857.1 million, or 29.1%, to $3.80 billion at June 30, 2016 from $2.94 billion at December 31, 2015. The increase in loans was primarily due to the acquisition of Conestoga loans of $518.1 million, net organic growth of $221.4 million and the purchase of $117.5 million of commercial real estate loans. Commercial 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. The shared national credit loans are typically variable rate with terms ranging from one to seven years. At June 30, 2016, shared national credits totaled $245.3 million compared to $222.4 million at December 31, 2015. All of these loans were classified as pass rated as of June 30, 2016 as all payments are current and the loans are performing in accordance with their contractual terms.

Deposits increased $588.6 million, or 17.1%, to $4.04 billion at June 30, 2016 from $3.45 billion at December 31, 2015. The $588.6 million increase in deposits during the six months ended June 30, 2016 was primarily due to the $588.4 million of deposits acquired as part of the acquisition of Conestoga Bank.

Stockholders’ equity decreased $89.2 million, or 8.0%, to $1.03 billion at June 30, 2016 from $1.12 billion at December 31, 2015. The decrease in stockholders’ equity was primarily due to the repurchase of 8,291,859 shares of common stock during the six months ended June 30, 2016, partially offset by net income for the first six months of 2016.

Comparison of Operating Results for the Three Months Ended June 30, 2016 and June 30, 2015

General — For the three months ended June 30, 2016, net income was $2.7 million compared to $7.1 million for the three months ended June 30, 2015. Net income for the three months ended June 30, 2016 included $8.6 million of merger and restructuring charges related to the acquisition of Conestoga Bank and the Bank’s cost reduction plan.

Net Interest Income — For the three months ended June 30, 2016, net interest income was $38.8 million, an increase of $7.6 million, or 24.2%, from the three months ended June 30, 2015. The increase in net interest income was primarily due to the impact of the Conestoga acquisition, and 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 3.08% for the three months ended June 30, 2016 as compared to 2.83% for the same period in 2015. The increase in the net interest margin for the three months ended June 30, 2016 was primarily due to a change in the mix of the interest earning assets from lower yielding investment securities into higher yielding loans and the impact of the Conestoga acquisition. 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.

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2016 compared to recording a $1.6 million negative provision for loan losses for the three months ended June 30, 2015. Net charge-offs were $714 thousand during the three months ended June 30, 2016 compared to $248 thousand of net recoveries during the three months ended June 30, 2015. Non-performing loans, excluding government guaranteed student loans, decreased to $14.5 million at June 30, 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 June 30, 2016, the Bank’s allowance for loan losses totaled $44.5 million, or 1.17% of total loans, compared to $45.5 million, or 1.55% of total loans at December 31, 2015. The decline in the coverage ratio is primarily due to $518.1 million of acquired Conestoga loans that were recorded at fair value.

Non-interest Income — For the three months ended June 30, 2016, non-interest income totaled $6.0 million, a decrease of $1.2 million, or 16.1%, from the three months ended June 30, 2015. The decrease was primarily due to a $1.1 million gain recorded on a limited partnership investment in 2015.

Non-interest Expense — For the three months ended June 30, 2016, non-interest expense totaled $40.1 million, an increase of $10.1 million, or 33.5%, from the three months ended June 30, 2015. The increase in non-interest expense was primarily due to $8.6 million of merger and restructuring charges related to the acquisition of Conestoga Bank and an expense management reduction program. In addition, salaries and employee benefits increased $732 thousand due primarily to annual merit increases as well as expense related to shares granted in June 2016 in connection with the 2016 Omnibus Incentive Plan.

On June 9, 2016, the Compensation Committee of the Board of Directors of Beneficial approved restricted stock grants to employees, officers and directors of the Company, pursuant to the 2016 Omnibus Equity Incentive that was previously approved by the Company’s shareholders. An aggregate of approximately 2,275,000 shares of restricted stock were granted. Generally, the grants to directors vest over a 30 month period and the grants to employees and officers vest over a three year period. Non-interest expense for the quarter ended June 30, 2016 includes $602 thousand of expenses related to these grants. The estimated full quarter expense for these grants will be $2.5 million.

Income Taxes — For the three months ended June 30, 2016, we recorded a provision for income taxes of $2.0 million, reflecting an effective tax rate of 42.0%, compared to a provision for income taxes of $2.9 million, reflecting an effective tax rate of 29.5% for the three months ended June 30, 2015. The increase in income tax expense and the effective tax rate during the period is due to a lower ratio of tax exempt income compared to pre-tax income for the three months ended June 30, 2016 as compared to the same period in 2015.

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The following table summarizes average balances and average yields and costs for the three months ended June 30, 2016 and June 30, 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 June 30,						Three Months Ended June 30,
	2016						2015
	Average		Interest &		Yield /		Average		Interest &		Yield /
(Dollars in thousands)	Balance		Dividends		Cost		Balance		Dividends		Cost
Interest Earning Assets:
Investment Securities:
Overnight Investments	$	125,509	$	162	0.51	%	$	248,284	$	157	0.25	%
Stock	14,405		162		4.45	%	8,793		108		4.78	%
Other Investment securities	1,238,719		6,328		2.04	%	1,465,485		7,501		2.05	%
Total Investment securities	1,378,633		6,652		1.93	%	1,722,562		7,766		1.80	%
Loans and leases:
Real estate loans
Residential	788,063		8,052		4.09	%	702,994		7,546		4.29	%
Non-residential	1,450,685		14,685		4.02	%	848,740		8,950		4.19	%
Total real estate	2,238,748		22,737		4.05	%	1,551,734		16,496		4.24	%
Business loans	319,532		3,800		4.71	%	211,745		2,537		4.75	%
Shared National Credits	220,128		1,520		2.73	%	207,228		1,463		2.79	%
Small Business loans	98,959		1,197		4.80	%	87,057		1,217		5.54	%
Small Business leases	107,787		1,611		5.98	%	92		1		5.13	%
Total Business & Small Business loans and leases	746,406		8,128		4.32	%	506,122		5,218		4.09	%
Total Business loans and leases	2,197,091		22,813		4.12	%	1,354,862		14,168		4.15	%
Personal loans	653,683		6,878		4.23	%	623,577		6,481		4.17	%
Total loans and leases, net of discount	3,638,837		37,743		4.14	%	2,681,433		28,195		4.19	%
Total interest earning assets	5,017,470		44,395		3.53	%	4,403,995		35,961		3.26	%
Non-interest earning assets	415,455						341,527
Total assets	$	5,432,925					$	4,745,522
Interest Bearing Liabilities:
Interest bearing savings and demand deposits:
Savings and club accounts	$	1,233,829	$	1,042	0.34	%	$	1,144,825	$	988	0.35	%
Money market accounts	492,471		461		0.38	%	421,801		346		0.33	%
Demand deposits	854,054		503		0.24	%	652,839		345		0.21	%
Demand deposits - Municipals	129,905		53		0.17	%	125,558		36		0.11	%
Certificates of deposit	801,634		1,886		0.95	%	660,907		1,762		1.07	%
Total interest-bearing deposits	3,511,893		3,945		0.45	%	3,005,930		3,477		0.46	%
Borrowings	306,221		1,674		2.20	%	190,395		1,261		2.66	%
Total interest-bearing liabilities	3,818,114		5,619		0.59	%	3,196,325		4,738		0.59	%
Non-interest-bearing deposits	498,311						379,221
Other non-interest-bearing liabilities	92,627						73,056
Total liabilities	4,409,052						3,648,602
Total stockholders’ equity	1,023,873						1,096,920
Total liabilities and stockholders’ equity	$	5,432,925					$	4,745,522
Net interest income			$	38,776					$	31,223
Interest rate spread					2.94	%					2.67	%
Net interest margin					3.08	%					2.83	%
Average interest-earning assets to average interest-bearing liabilities					131.41	%					137.78	%

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Comparison of Operating Results for the Six Months Ended June 30, 2016 and June 30, 2015

General — For the six months ended June 30, 2016, net income was $7.8 million, or $0.10 per diluted share, compared to net income of $12.3 million, or $0.16 per diluted share, for the six months ended June 30, 2015. Net income for the six months ended June 30, 2016 included $9.5 million of merger and restructuring charges related to the acquisition of Conestoga Bank.

Net Interest Income — For the six months ended June 30, 2016, Beneficial reported net interest income of $71.0 million, an increase of $9.7 million, or 15.7%, from the six months ended June 30, 2015. The increase in net interest income was primarily due to the acquisition of Conestoga Bank and higher interest earning assets as a result of the deployment of the second-step conversion proceeds. Our net interest margin increased to 2.96% for the six months ended June 30, 2016 from 2.79% for the same period in 2015.

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 six months ended June 30, 2016 compared to recording a $3.6 million negative provision for loan losses for the six months ended June 30, 2015.

Non-interest Income — For the six months ended June 30, 2016, non-interest income totaled $11.4 million, a decrease of $1.4 million, or 11.2%, from the six months ended June 30, 2015. The decrease was primarily due to a $1.1 million gain recorded on a limited partnership investment in 2015 and a $321 thousand decrease in mortgage banking income, partially offset by a $285 thousand increase in interchange fees.

Non-interest Expense — For the six months ended June 30, 2016, non-interest expense totaled $70.4 million, an increase of $9.9 million, or 16.4%, from the six months ended June 30, 2015. The increase in non-interest expense was primarily due to $7.9 million of merger and restructuring charges related to the acquisition of Conestoga Bank and $1.6 million related to an expense management reduction program. In addition, salaries and employee benefits increased $1.1 million due primarily to annual merit increases as well as expense related to shares granted in June 2016 in connection with the 2016 Omnibus Incentive Plan. These increases were partially offset by a $662 thousand decrease in marketing costs associated with 2015 rebranding initiatives.

Income Taxes — For the six months ended June 30, 2016, we recorded a provision for income taxes of $4.2 million, reflecting an effective tax rate of 35.2%, compared to a provision for income taxes of $5.0 million, reflecting an effective tax rate of 28.7%, for the six months ended June 30, 2015. The increase in income tax expense and the effective tax rate was due to a lower ratio of tax exempt income compared to pre-tax income for the six months ended June 30, 2016 as compared to the six months ended June 30, 2015.

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The following table summarizes average balances and average yields and costs for the six months ended June 30, 2016 and June 30, 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

	Six Months Ended June 30,						Six Months Ended June 30,
	2016						2015
	Average		Interest &		Yield /		Average		Interest &		Yield /
(Dollars in thousands)	Balance		Dividends		Cost		Balance		Dividends		Cost
Interest Earning Assets:
Investment Securities:
Overnight Investments	$	165,446	$	421	0.50	%	$	338,834	$	426	0.25	%
Stock	11,707		262		4.42	%	8,813		565		12.76	%
Other Investment securities	1,265,361		12,913		2.04	%	1,480,184		15,453		2.09	%
Total Investment securities	1,442,514		13,596		1.88	%	1,827,831		16,444		1.80	%
Loans:
Real estate loans
Residential	764,500		15,687		4.10	%	689,588		14,870		4.31	%
Non-residential	1,291,323		25,461		3.92	%	750,260		16,414		4.36	%
Total real estate	2,055,823		41,148		3.99	%	1,439,848		31,284		4.34	%
Business loans	281,669		6,340		4.46	%	211,813		4,936		4.64	%
Shared National Credits	218,004		3,046		2.76	%	198,997		2,779		2.78	%
Small Business loans	89,907		2,183		4.82	%	89,564		2,428		5.40	%
Small Business leases	53,909		1,611		5.98	%	105		3		4.95	%
Total Business & Small Business loans	643,489		13,180		4.06	%	500,479		10,146		4.04	%
Total Business loans	1,934,812		38,641		3.96	%	1,250,739		26,560		4.23	%
Personal loans	641,020		13,405		4.21	%	625,753		13,031		4.20	%
Total loans, net of discount	3,340,332		67,733		4.04	%	2,566,080		54,461		4.25	%
Total interest earning assets	4,782,846		$	81,329	3.39	%	4,393,911		$	70,905	3.23	%
Non-interest earning assets	386,739						345,758
Total assets	$	5,169,585					$	4,739,669
Interest Bearing Liabilities:
Interest bearing savings and demand deposits:
Savings and club accounts	$	1,200,586	$	2,028	0.34	%	$	1,133,524	$	1,952	0.35	%
Money market accounts	460,104		797		0.35	%	424,283		689		0.33	%
Demand deposits	814,445		933		0.23	%	724,268		729		0.20	%
Demand deposits - Municipals	129,425		89		0.14	%	135,378		76		0.11	%
Certificates of deposit	724,314		3,515		0.98	%	667,829		3,595		1.09	%
Total interest-bearing deposits	3,328,874		7,362		0.44	%	3,085,282		7,041		0.46	%
Borrowings	255,123		2,952		2.33	%	190,425		2,508		2.66	%
Total interest-bearing liabilities	3,583,997		10,314		0.58	%	3,275,707		9,549		0.59	%
Non-interest-bearing deposits	451,177						372,988
Other non-interest-bearing liabilities	79,144						73,480
Total liabilities	4,114,318						3,722,175
Total stockholders’ equity	1,055,267						1,017,494
Total liabilities and stockholders’ equity	$	5,169,585					$	4,739,669
Net interest income			$	71,015					$	61,356
Interest rate spread					2.81	%					2.64	%
Net interest margin					2.96	%					2.79	%
Average interest-earning assets to average interest-bearing liabilities					133.45	%					134.14	%

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Asset Quality

Non-performing assets decreased $2.3 million to $36.6 million at June 30, 2016 from $38.9 million at December 31, 2015. The ratio of non-performing assets to total assets decreased to 0.66% at June 30, 2016 from 0.81% at December 31, 2015.

ASSET QUALITY INDICATORS

	June 30,			March 31,			December 31,			June 30,
(Dollars in thousands)	2016			2016			2015			2015

Non-performing assets:
Non-accruing loans	$	14,500		$	13,731		$	14,768		$	12,812
Accruing loans past due 90 days or more	20,138			21,223			22,900			25,460
Total non-performing loans	$	34,638		34,954			37,668			38,272

Real estate owned	1,999			827			1,276			1,359

Total non-performing assets	$	36,637		$	35,781		$	38,944		$	39,631

Non-performing loans to total loans and leases	0.91		%	1.11		%	1.28		%	1.41		%
Non-performing assets to total assets	0.66		%	0.74		%	0.81		%	0.84		%
Non-performing assets less accruing government guaranteed student loans past due 90 days or more to total assets	0.30		%	0.30		%	0.33		%	0.30		%
ALLL to total loans and leases	1.17		%	1.44		%	1.55		%	1.76		%
ALLL to non-performing loans	128.53		%	129.41		%	120.79		%	124.87		%
ALLL to non-performing loans, excluding government guaranteed student loans	307.03		%	329.43		%	308.10		%	373.03		%

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 $20.1 million and $22.9 million in government guaranteed student loans as of June 30, 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 June 30, 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:

	June 30, 2016						December 31, 2015
(Dollars in thousands)	Loan Balance		ALLL		Coverage		Loan Balance		ALLL		Coverage
Commercial	$	2,329,833	$	38,607	1.66	%	$	1,583,851	$	36,831	2.33	%
Residential	810,381		2,070		0.26	%	735,724		1,644		0.22	%
Consumer	658,279		3,842		0.58	%	621,871		7,025		1.13	%
Total	$	3,798,493	$	44,519	1.17	%	$	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.

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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 June 30, 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

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insurance, or a loan supported by a valid claim against a solvent estate. Consumer loan delinquency includes $20.1 million and $22.9 million in government guaranteed student loans that were greater than 90 days delinquent and accruing at June 30, 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 June 30, 2016 compared to $36.8 million at December 31, 2015. The increase in the allowance was the result of loan purchases and organic growth in the commercial loan portfolio during the six months ended June 30, 2016. The allowance for loan losses related to the commercial portfolio was 1.7% of commercial loans at June 30, 2016 compared to 2.3% of commercial loans at December 31, 2015. The decline in the coverage ratio is primarily due to $439.7 million of acquired Conestoga commercial loans that were recorded at fair value. We continue to experience low levels of delinquencies, commercial criticized and classified loans, and charge-offs. We believe the commercial reserves are adequate given the improvement in credit quality metrics during the six months ended June 30, 2016.

Residential Loans. The allowance for the residential loan portfolio was $2.1 million, or 0.26% of residential loans at June 30, 2016 compared to $1.6 million, or 0.22%, at December 31, 2015. The increase in the allowance was primarily the result of an increase in delinquent loans during the quarter. We continue to experience consistently low levels of net charge-offs with this portfolio with 0.06% and 0.04% annualized losses during the six months ended June 30, 2016 and 2015, respectively. We believe the balance of residential reserves is appropriate given the continued low charge-off levels.

Consumer Loans. The allowance for the consumer loan portfolio was $3.8 million, or 0.58% of consumer loans, at June 30, 2016 compared to $7.0 million, or 1.1% of consumer loans, at December 31, 2015. The decrease in the allowance for loan losses within this portfolio is primarily due to a decline in delinquencies as well as continued low levels of charge offs. The decline in the coverage ratio is also the result of $35.1 million of acquired Conestoga consumer loans that were recorded at fair value. For the six months ended June 30, 2016, net charge-offs totaled $848 thousand. Delinquent consumer loans, excluding student loans, decreased $670 thousand, or 12.2%, to $4.8 million at June 30, 2016 from $5.5 million at December 31, 2015. We believe the balance of consumer reserves is appropriate given the decrease in delinquencies and continued low levels of charges offs.

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

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evaluations, future adjustments to the allowance for credit losses may be necessary if conditions differ 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 June 30, 2016, cash and cash equivalents totaled $103.5 million, including overnight investments of $51.9 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $576.4 million at June 30, 2016. At June 30, 2016, we had $345.0 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 $3.18 billion at June 30, 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 June 30, 2016 and December 31, 2015, aggregate wholesale funding totaled $561.8 million and $306.9 million, respectively. In addition, at June 30, 2016, we had arrangements to borrow up to $1.7 billion from the FHLB of Pittsburgh and the Federal Reserve Bank of Philadelphia. On June 30, 2016, we had $345.0 million of advances outstanding and $125.0 million of future dated advances committed with the FHLB.

A significant use of our liquidity is the funding of loan originations. At June 30, 2016, the Bank had $548.7 million in loan commitments outstanding, which consisted of $14.3 million and $6.2 million in commercial and consumer commitments to fund new loans, respectively, $354.6 million in commercial and consumer unused lines of credit, $153.3 million of commitments to fund commercial construction and other advances, and $20.3 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 June 30, 2016 totaled $475.9 million, or 55.8% 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 June 30, 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 June 30, 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	$	370,414	$	125,000	$	220,000	$	—	$	25,414
Commitments to fund new loans	20,469		20,469		—		—		—
Commitments to fund commercial construction and other advances	153,283		23,681		42,466		23,536		63,600
Unused lines of credit	354,641		163,739		65,207		20,048		105,647
Standby letters of credit	20,290		18,785		467		38		1,000
Operating lease obligations	61,808		6,592		11,924		10,765		32,527
Total	$	980,905	$	358,266	$	340,064	$	54,387	$	228,188

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 June 30, 2016, the Company (stand-alone) had liquid assets of $92.6 million. The majority of the cash held by the Company (stand-alone) as of June 30, 2016 includes net proceeds received in connection with the second-step conversion. During the six months ended June 30, 2016, the Company used cash of $105.0 to complete the acquisition of Conestoga Bank and $109.1 million to repurchase stock.

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 June 30, 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 necessary charge-offs. Further, we have strengthened our oversight of problem assets through the

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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 June 30, 2016, approximately 94.3% 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 June 30, 2016 approximately 4.3% 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 1.4% of the investment portfolio was not rated. Securities not rated consist 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.

For the six months ended June 30, 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 June 30, 2016. The primary interest rate exposure measurement applied to the entire balance sheet is the effect on net interest income and earnings of a

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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 June 30, 2016:

Basis point change in rates	-200			Base Forecast		+200
(Dollars in thousands)
*Net Interest Income at Risk:*
Net Interest Income	$	137,778		$	152,426	$	160,764
% change	(9.61		)%			5.47		%

*Economic Value at Risk:*
Equity	$	1,036,007		$	1,174,472	$	1,158,768
% change	(11.79		)%			(1.34		)%

As of June 30, 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 June 30, 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 six months ended June 30,

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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 June 30, 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)

April 1-30	1,725,000		$	13.74	1,725,000	283,424
May 1-31	289,101	(2)	13.87		283,424	—
June 1-30	262	(3)	12.59		—	—

(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 5,677 shares that were withheld subject to restricted stock awards, under the Beneficial Bancorp, Inc. 2008 Equity Incentive Plan, as payment of taxes due upon the vesting of the restricted awards.

(3) Represents shares that were withheld subject to restricted stock awards, under the Beneficial Bancorp, Inc. 2008 Equity Incentive Plan, 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 and six months ended June 30, 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: July 28, 2016	By:	/s/ Gerard P. Cuddy
		Gerard P. Cuddy
		President and Chief Executive Officer
		(principal executive officer)


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

Attached files

Beneficial Bancorp Inc. Reports

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