UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, ~~2017~~2018

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)

Maryland
(State or other jurisdiction of
incorporation or organization)

47-1569198
(I.R.S. Employer Identification No.)

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

19103
(Zip Code)

Registrant’s telephone number, including area code: (215) 864-6000

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

Title of each class		Name of each exchange on which registered
Common Stock, par value $0.01 per share		Nasdaq Stock Market, LLC

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ~~Yes x No o~~

Yes x No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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

(Check one): ~~Large Accelerated Filer x Accelerated Filer o Emerging Growth Company o Non-Accelerated Filer o Smaller Reporting Company o~~

IfLarge anAccelerated ~~emerging~~Filer ~~growth~~x ~~company,~~Accelerated ~~indicate~~Filer byo ~~check~~Emerging ~~mark~~Growth ifCompany ~~the~~o ~~registrant~~Non-Accelerated ~~has~~Filer ~~elected~~o ~~not~~Smaller toReporting ~~use~~Company ~~the extended transition period for complying with any new or revised financial standards provided pursuant to Section 7(a)(2)(B) of the Securities Act~~ o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial standards provided pursuant to Section 7(a)(2)(B) of the Securities Act

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates as of June 30, ~~2017~~2018 was approximately $1.12 billion. As of February 2826, ~~2018~~2019, there were 7574,~~493~~691,~~162~~275 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Proxy Statement for the 2018 Annual Meeting of Stockholders are incorporated by

reference into Part III of this Form 10-K.

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DOCUMENTS INCORPORATED BY REFERENCE

None.

Note on Forward-Looking Statements

This report contains certain “forward-looking statements” within the meaning of the federal securities laws. These statements are not historical facts, but rather are statements based on Beneficial Bancorp’s current expectations regarding its business strategies, intended results and future performance. Forward-looking statements are preceded by terms such as “expects,” “believes,” “anticipates,” “intends” and similar expressions.

Management’s ability to predict results or the effect of future plans or strategies is inherently uncertain. Factors that could affect actual results include, but are not limited to, our ability to complete our previously announced business combination with WSFS Financial Corporation, interest rate trends, the general economic climate in our market area, as well as nationwide, our ability to control costs and expenses, competitive products and pricing, loan delinquency rates and changes in federal and state legislation and regulation and tax laws. These factors should be considered in evaluating the forward-looking statements and undue reliance should not be placed on such statements. Beneficial Bancorp assumes no obligation to update any forward-looking statements.

INDEX

		Page	~~Page~~
	Part I
Item 1.	Business	1	1
Item 1A.	Risk Factors	15	15
Item 1B.	Unresolved Staff Comments	20	19
Item 2.	Properties	20	20
Item 3.	Legal Proceedings	20	20
Item 4.	Mine Safety Disclosures	20	20
	Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	22	21
Item 6.	Selected Consolidated Financial Data and Other Data	23	23
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25	25
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	56	58
Item 8.	Financial Statements and Supplementary Data	56	58
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	56	58
Item 9A.	Controls and Procedures	56	58
Item 9B.	Other Information	58	60
	Part III
Item 10.	Directors, Executive Officers and Corporate Governance	58	60
Item 11.	Executive Compensation	61	60
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	83	60
Item 13.	Certain Relationships and Related Transactions, and Director Independence	85	61
Item 14.	Principal Accountant Fees and Services	86	61
	Part IV
Item 15.	Exhibits and Financial Statement Schedules	86	61
Item 16.	Form 10-K Summary	87	62
SIGNATURES

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PART I

Item 1. Business

General

Beneficial Bancorp, Inc. (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 Beneficial Bank (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, Beneficial Savings Bank MHC merged into Beneficial Mutual Bancorp (and ceased to exist), and Beneficial Mutual Bancorp merged into the Company, with the Company as the surviving entity. 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. Upon the completion of the second-step conversion, the Bank changed its legal name from Beneficial Mutual Savings Bank to Beneficial Bank.

The consolidated financial statements include the accounts of the Company, the Bank, a Pennsylvania chartered savings bank, and the Bank’s subsidiaries. ~~Because~~The Company owns 100% of the issued and outstanding common stock of the Bank’s. ~~second-step~~The ~~conversion~~Bank ~~was~~offers ~~completed~~a onvariety ~~January 12~~of consumer and commercial banking services to individuals, ~~2015~~businesses, ~~all~~and ~~financial~~nonprofit organizations through 61 offices throughout the Philadelphia and ~~other~~Southern ~~information~~New ~~for~~Jersey area. The Bank is supervised and regulated by the ~~year~~Pennsylvania ~~ended~~Department ~~December 31,~~of ~~2014~~Banking and ~~years~~Securities ~~prior~~and isthe ~~presented~~Federal inDeposit ~~this~~Insurance ~~Annual~~Corporation ~~Report~~(the on“FDIC”). ~~Form 10-K~~The asCompany ~~derived~~is ~~from~~regulated by the ~~consolidated~~Board ~~financial~~of ~~statements~~Governors of ~~Beneficial~~the ~~Mutual~~Federal ~~Bancorp~~Reserve System. The deposits of the Bank are insured up to the applicable legal limits by the Deposit Insurance Fund of the FDIC.

Beneficial Bancorp’s business activities are the ownership of Beneficial Bank’s capital stock. Beneficial Bancorp does not own or lease any property but instead uses the premises, equipment and other property of Beneficial Bank with the payment of appropriate rental fees, as required by applicable law and regulations, under the terms of an expense allocation agreement. Accordingly, the information set forth in this Annual Report, including the consolidated financial statements and related financial data, relates primarily to Beneficial Bank.

Beneficial Bank was founded in 1853. Since we were founded, we have served the financial needs of our depositors and the local community as a community-minded, customer service-focused institution. We offer traditional financial services to consumers and businesses in our market areas. We attract deposits from the general public and use those funds to originate a variety of loans, including commercial real estate loans, commercial business loans, equipment financing and leasing, one- to four-family real estate loans, consumer loans, home equity loans and construction loans. ~~We offer insurance brokerage services through our wholly owned subsidiary, Beneficial Insurance Services, LLC.~~

Pending Merger with WSFS Financial Corporation

On August 8, 2018, WSFS Financial Corporation (“WSFS”) and the Company issued a joint press release announcing that WSFS and the Company have entered into an Agreement and Plan of Reorganization (the “Merger Agreement”) pursuant to which the Company will merge with and into WSFS, with WSFS as the surviving entity (the “Merger”). Under the terms of the Merger Agreement, which has been approved by the boards of directors and stockholders of both companies, stockholders of Beneficial will receive 0.3013 shares of WSFS common stock and $2.93 in cash for each share of Beneficial common stock. The transaction is subject to customary closing conditions and is expected to close during the first quarter of 2019.

Acquisition History

Acquisitions of banking institutions and other financial services companies within and surrounding our market area have been, and we expect will continue to be, a key component of our business strategy. In 2007, in connection with the closing of our initial public offering, Beneficial Mutual Bancorp acquired FMS Financial Corporation and its wholly owned subsidiary, Farmers & Mechanics Bank. The acquisition of FMS Financial Corporation and Farmers & Mechanics Bank, which had 31 branch offices in Burlington, Camden and Gloucester Counties in New Jersey, substantially enhanced our market share and solidified Beneficial Bank’s position as the largest Philadelphia-based bank operating solely in the greater Philadelphia metropolitan area. In 2012, Beneficial Mutual Bancorp acquired SE Financial Corp. and its wholly owned subsidiary, St. Edmond’s Federal Savings Bank. The acquisition increased our market share in southeastern Pennsylvania, specifically in Philadelphia and Delaware Counties. Additionally, the acquisition provided Beneficial Bank with new branches in Roxborough, Pennsylvania and Deptford, New Jersey.

On April 14, 2016, the Company completed the acquisition of Conestoga Bank. Pursuant to the terms of the Stock Purchase Agreement, dated October 21, 2015, between the Company, Conestoga Bancorp, Inc. (“Conestoga”) and Conestoga Bank, the Company acquired Conestoga’s ownership interest in Conestoga Bank for a cash payment of $105.0 million and subsequently merged Conestoga Bank with and into Beneficial Bank. The results of Conestoga Bank’s operations are included in the Company’s unaudited condensed Consolidated Statements of Income for the period beginning on April 15, 2016, the date of the acquisition, through December 31, ~~2017~~2018. The acquisition of Conestoga Bank increased the Company’s market share in southeastern Pennsylvania and provided Beneficial Bank with new branches in Blue Bell, Chester Springs, Feasterville, Media, Wayne and Philadelphia, Pennsylvania.

We have also acquired other financial services companies in previous years to expand the retail products and services we offer to our customers. In 2005, Beneficial Insurance Services, LLC, a wholly owned subsidiary of Beneficial Bank, acquired the assets of a Philadelphia-based insurance brokerage firm, Paul Hertel & Co., Inc., which provided property, casualty, life, health and benefits insurance services to individuals and businesses. In 2007, Beneficial Insurance Services, LLC also acquired the business of CLA Agency, Inc., a full-service property and casualty and professional liability insurance brokerage company headquartered in Plymouth Meeting, Pennsylvania. On August 3, 2015, Beneficial Insurance Services, LLC acquired Pye Karr Ambler & Co., Inc., a small insurance brokerage firm located in Jenkintown, Pennsylvania.

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In 2017, the Company formed Neumann Finance Company (“Neumann”), a majority owned subsidiary equipment leasing company, named after the Bank’s pioneering founder, Saint John Neumann. Neumann is focused on providing financing products and services to businesses nationwide and targets various equipment categories including technology, software, office, medical and other areas.

Market Area

We are headquartered in Philadelphia, Pennsylvania. We currently operate 38 full-service banking offices in Bucks, Chester, Delaware, Montgomery and Philadelphia Counties, Pennsylvania and 23 full-service banking offices in Burlington, Gloucester, and Camden Counties, New Jersey. We operate two lending offices in Montgomery and Delaware Counties, Pennsylvania. We also operate one leasing office in Chester County, Pennsylvania. In addition, Beneficial Insurance Services, LLC, operates one office in Montgomery County, Pennsylvania, and provides property, causality, life, health and professional liability insurance to our customers. We regularly evaluate our network of banking offices to optimize the penetration in our market area. We will occasionally open or consolidate banking offices.

Philadelphia is the ~~seventh~~eighth largest metropolitan region in the United States and home to 66 colleges and universities. Traditionally, the economy of the Philadelphia metropolitan area was driven by the manufacturing and distribution sectors. However, the region has evolved into a more diverse economy geared toward information and service-based businesses. Currently, the leading employment sectors in the region are (1) educational and health services; (2) transportation, trade and utilities services; (3) professional and business services; and (4) due to the region’s numerous historic attractions, leisure and hospitality services. The region’s leading employers include Jefferson Health System, the University of Pennsylvania Health System, Merck & Company, Inc. and Comcast Corporation. The Philadelphia metropolitan area has also evolved into one of the major corporate centers in the United States due to its geographic location, access to transportation, significant number of educational facilities to supply technical talent and available land for corporate and industrial development. The Philadelphia metropolitan area is currently home to 1614 Fortune 500 companies, including AmerisourceBergen, Comcast, PPL, DuPont, Aramark and Lincoln National.

According to a ~~2016~~2017 census estimate, the population of our eight-county primary retail market area totaled approximately 5.34 million. Overall, the eight counties that comprise our primary retail market area provide attractive long-term growth potential by demonstrating relatively strong household income and wealth growth trends relative to national and state-wide projections. The unemployment rate, seasonally adjusted, for the Philadelphia metropolitan area totaled 4.71% in December ~~2017~~2018, which was higher than the national unemployment rate of 43.19% in December ~~2017~~2018.

Competition

We face significant competition for the attraction of deposits and origination of loans. Our most direct competition for deposits has historically come from the many banks, thrift institutions and credit unions operating in our market area and, to a lesser extent, from other financial service companies such as brokerage firms and insurance companies. We also face competition for investors’ funds from money market funds, mutual funds and other corporate and government securities.

Our competition for loans comes primarily from the competitors referenced above and other regional and local community banks, thrifts and credit unions and from other financial service providers, such as mortgage companies and mortgage brokers. Competition for loans also comes from the increasing number of non-depository financial service companies participating in the mortgage market, such as insurance companies, securities companies and specialty finance companies. We have also seen an increasing number of FINTECH companies that are focused on consumer and small business lending that are not subject to the same regulatory oversight as banks. These companies have introduced a number of technology solutions threatening to disrupt traditional lending channels.

We expect competition to remain intense in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Technological advances, for example, have lowered barriers to entry, allowed banks to expand their geographic reach by providing services over the internet and made it possible for non-depository institutions to offer products and services that traditionally have been provided by banks. Competition for deposits and the origination of loans could limit our growth in the future.

Lending Activities

We offer a variety of loans and leases including commercial, residential and consumer loan products. Our commercial loan and lease portfolio includes business loans, small business leases, commercial real estate loans and commercial construction loans. Our residential loan portfolio includes one- to four-family residential real estate loans. Our consumer loan portfolio primarily includes home equity loans and lines of credit, automobile loans, personal, and educational loans.

We intend to continue to emphasize commercial and small business lending and remain focused on commercial real estate lending. We will continue to proactively monitor and manage existing credit relationships. We continue to invest in our credit risk management and lending staff and processes to position Beneficial Bank for future growth. Specifically, we have hired additional lenders with significant experience in our market area to expand our commercial real estate and commercial and industrial lending efforts.

Commercial Real Estate Loans. At December 31, ~~2017~~2018, commercial real estate loans totaled $1.5854 billion, or 39.26% of our total loan and lease portfolio. This portfolio is comprised of loans for the acquisition (purchase), financing and/or refinancing of commercial real estate and the financing of income-producing real estate. Income-producing real estate includes real estate held for lease to third parties and nonresidential real estate. These loans are generally non-owner-occupied properties in which 50% or more of the primary source of repayment is derived from rental income from unaffiliated third parties. The commercial real estate portfolio includes loans to finance

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~~repayment is derived from rental income from unaffiliated third parties. The commercial real estate portfolio includes loans to finance~~ office buildings, apartment buildings, shopping centers, hotels, motels, dormitories, nursing homes, assisted-living facilities, mini-storage warehouse facilities and similar non-owner-occupied properties.

We offer both fixed and adjustable rate commercial real estate loans. We originate a variety of commercial real estate loans generally for terms of up to 10 years and with payments generally based on an amortization schedule of up to 25 years. Our fixed rate loans are typically based on either the Federal Home Loan Bank of Pittsburgh’s borrowing rate or U.S. Treasury rate and generally most are fixed with a rate reset after a five-year period.

When making commercial real estate loans, we consider the financial statements and tax returns of the borrower, the borrower’s payment history of its debt, the debt service capabilities of the borrower, the projected cash flows of the real estate, leases for any of the tenants located at the collateral property and the value of the collateral.

AtAs of December 31, ~~2017~~2018, ~~the~~our largest commercial real estate ~~portfolio~~loan ~~included~~was ~~one~~a $2567.02 million ~~shared~~loan ~~national~~for ~~credit~~an upscale hotel in Avalon, New Jersey. The loan is well collateralized and was performing in accordance with its original terms at December 31, 2018.

AsCommercial ofBusiness Loans. At December 31, ~~2017~~2018, ~~our largest~~ commercial ~~real~~business ~~estate~~loans ~~loan~~totaled ~~was a~~ $41615.92 million ~~loan for an upscale hotel in Avalon~~, ~~New~~or ~~Jersey~~15.8% ~~The~~of ~~loan~~our istotal ~~well~~loan ~~collateralized~~ and ~~was~~lease ~~performing in accordance with its original terms at December 31, 2017~~portfolio.

Commercial Business Loans. At December 31, 2017, commercial business loans totaled $670.1 million, or 16.6% of our total loan and lease portfolio.

This portfolio is comprised of loans to individuals, sole proprietorships, partnerships, corporations, and other business enterprises, whether secured or unsecured, single-payment or installment, for commercial, industrial and professional purposes as well as owner-occupied real estate loans. Owner-occupied real estate loans are loans where the primary source of repayment is the cash flow generated by the occupying business. Proceeds from these loans may finance the acquisition or construction of business premises or may be used for other business purposes such as working capital. In many cases, the owner of the occupying business owns the building in a separate entity and leases it to the business. In an owner-occupied property, more than 50% of the primary source of repayment is derived from the affiliated entity. Properties such as hospitals, golf courses, recreational facilities, and car washes are considered owner-occupied unless leased to an unaffiliated party.

We offer lines of credit, intermediate term loans and long -term loans primarily to assist businesses in achieving their growth objectives and/or working or long-term capital needs. The interest rates for these loans are typically based on LIBOR, bank prime, U.S. Treasury or Federal Home Loan Bank of Pittsburgh borrowing rate. These loans are usually secured by business assets, including but not limited to, accounts receivable, inventory, equipment and real estate. Many of these loans include the personal guarantees of the owners or business owners.

When making commercial business loans, we review financial information of the borrowers and guarantors. We apply a due diligence process that includes a review of the borrowers’ and/or guarantors’ payment history, an understanding of the business and its industry, an assessment of the management capabilities, an analysis of the financial capacity, financial condition and cash flows of the borrower, an assessment of the collateral and when applicable a review of the guarantors’ financial capacity and condition.

Commercial business loans include shared national credits, which are participations in loans or loan commitments of at least $20.0 million that are shared by three or more banks. Effective January 1, 2018, the federal banking agencies have changed the aggregate loan commitment threshold for inclusion in the shared national credit program from $20 million to $100 million. Included in our 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, we 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. Even though we intend to hold these loans in our portfolio, we actively monitor the secondary market for these types of loans to ensure that we maintain flexibility to sell such loans in the event of deteriorating credit quality. To further minimize risk, based on our current capital levels and loan portfolio, we have 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%. We may reevaluate these limits in future periods.

Shared national credit loans are typically variable rate with terms ranging from one to seven years. At December 31, ~~2017~~2018, shared national credits totaled $~~173~~139.5 million, which included $7783.34 million of leveraged lending transactions. All of these loans were classified as pass rated as of December 31, ~~2017~~2018 as all payments are current and the loans are performing in accordance with their contractual terms~~, with the exception of one loan that totaled $8~~.~~0 million that is classified as non-accrual that the Company has evaluated and for which it has recorded a $1.5 million specific valuation allowance.~~

At December 31, ~~2017~~2018, our largest commercial business loan was a $3019.08 million ~~shared~~term ~~national~~loan ~~credit~~to a telecommunications provider located in Bala Cynwyd, Pennsylvania. The loan was performing in accordance with its original terms at December 31, ~~2017~~2018.

Commercial Small Business Leases. At December 31, ~~2017~~2018, commercial small business leases totaled $~~141~~139.39 million, or 3.56% of our total loan and lease portfolio.

This portfolio is comprised of small business finance leases. Primary production has been focused on equipment for medical and veterinary businesses with smaller ticket leases with shorter terms. The average small business lease amount and lease term was $21 thousand and 4.7 years as of December 31, 2018.

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When making commercial small business leases, we review financial information of the borrowers and guarantors. We apply a due diligence process that includes a review of the borrowers’ and/or guarantors’ payment history, an understanding of the business and its industry, an assessment of the management capabilities, an analysis of the financial capacity, financial condition and cash flows of the borrower, an assessment of the collateral and when applicable a review of the guarantors’ financial capacity and condition.

Construction Loans. At December 31, ~~2017~~2018, commercial ~~and residential~~ construction loans totaled $~~146~~188.65 million, or 34.68% of our total loan and lease portfolio.

We offer commercial and residential construction loans to commercial real estate and residential construction developers in our market area. We offer loans secured by real estate, with original maturities of 60 months or less, made to finance land development costs incurred before erecting new structures (i.e., the process of improving land including laying sewers, water pipes, etc.) or the on-site construction of industrial, commercial, residential, or farm buildings. Commercial construction loans include loans secured by real estate which are used to acquire and improve developed and undeveloped property as well as used to alter or demolish existing structures to allow for new development.

We generally limit the number of model homes and homes built on speculation, and scheduled draws against executed agreements of sales as conditions of the commercial construction loans.

Commercial real estate and residential construction loans are typically based upon the prime rate as published in The Wall Street Journal and/or LIBOR. Commercial real estate loans for developed real estate and for real estate acquisition and development are originated generally with loan-to-value ratios up to 75%, while loans for the acquisition of land are originated with a maximum loan to value ratio of 65%.

When making commercial and residential construction loans, we consider the financial statements of the borrower, the borrower’s payment history, the projected cash flows from the proposed real estate collateral, and the value of the collateral. In general, our real estate construction loans are guaranteed by the borrowers. We consider the financial statements and tax returns of the guarantors, along with the guarantors’ payment history, when underwriting a commercial construction loan.

At December 31, ~~2017~~2018, our largest commercial construction loan was a $2522.74 million participation loan for the ~~improvement~~construction of a ~~retail~~luxury ~~shopping~~apartment ~~center~~complex located in ~~Brookhaven~~King of Prussia, Pennsylvania. The loan is well collateralized and was performing in accordance with its original terms at December 31, ~~2017~~2018.

One- to Four-Family Residential Loans. At December 31, ~~2017~~2018, one- to four-family residential loans totaled $~~943~~968.69 million, or 2324.49% of our total loan and lease portfolio.

We offer fixed-rate and adjustable-rate residential mortgage loans. We offer fixed-rate mortgage loans with terms of up to 30 years. Approximately 95.34% of our outstanding residential mortgage loans were fixed rate loans at December 31, ~~2017~~2018. We also offer adjustable-rate mortgage loans with interest rates and payments that adjust annually after an initial fixed period of one, three or five years. Interest rates and payments on our adjustable-rate loans generally are adjusted to a rate equal to a percentage above the U.S. Treasury Security Index or LIBOR. Our adjustable-rate single-family residential real estate loans generally have a cap of 2% on any increase or decrease in the interest rate at any adjustment date, and a maximum adjustment limit of 5% on any such increase or decrease over the life of the loan. Our adjustable-rate loans require that any payment adjustment resulting from a change in the interest rate be sufficient to result in full amortization of the loan by the end of the loan term and, thus, do not permit any of the increased payment to be added to the principal amount of the loan, creating negative amortization.

Borrower demand for adjustable-rate loans compared to fixed-rate loans is a function of the level of interest rates, the expectations of changes in the level of interest rates, and the difference between the interest rates and loan fees offered for fixed-rate mortgage loans as compared to the interest rates and loan fees for adjustable-rate loans. At December 31, ~~2017~~2018, floating or adjustable rate mortgage loans totaled approximately $44.43 million and fixed rate mortgage loans totaled approximately $~~899~~924.26 million. The loan fees, interest rates and other provisions of mortgage loans are determined by us on the basis of our own pricing criteria and competitive market conditions.

While one- to four-family residential real estate loans are normally originated with up to 30-year terms, such loans typically remain outstanding for substantially shorter periods because borrowers often prepay their loans in full either upon sale of the property pledged as security or upon refinancing the original loan. Therefore, average loan maturity is a function of, among other factors, the level of purchase and sale activity in the real estate market, prevailing interest rates and the interest rates payable on outstanding loans. We do not offer loans with negative amortization or interest-only loans.

It is our general policy not to make high loan-to-value loans (defined as loans with a loan-to-value ratio of 80% or more) without private mortgage insurance. However, we do offer loans with loan-to-value ratios of up to 100% under a special low -income loan program, which consisted of $1615.36 million in loans as of December 31, ~~2017~~2018. The maximum loan-to-value ratio we generally permit is 95% with private mortgage insurance, although occasionally we do originate loans with loan-to-value ratios as high as 97% under special loan programs, including our first-time home owner loan program. The balance of one- to four-family residential loans with an original loan-to-value equal to 97% or more was $8.0 million as of December 31, 2018. We require all properties securing mortgage loans to be appraised by an independent appraiser approved by our board of directors. We require title insurance on all first mortgage loans. Borrowers must obtain hazard insurance, and flood insurance is required for loans on properties located in a flood zone.

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toHome ~~97%~~Equity orLoans ~~more~~and ~~was~~Equity ~~$7.5~~Lines ~~million~~of asCredit. ofAt December 31, ~~2017. We~~2018, ~~require~~home ~~all~~equity ~~properties securing mortgage~~ loans toand beequity ~~appraised~~lines byof ancredit ~~independent~~totaled ~~appraiser approved by our board of directors~~$201.5 Wemillion, ~~require~~or ~~title insurance on all first mortgage loans~~5.2% ~~Borrowers~~of ~~must~~our ~~obtain~~total ~~hazard~~loan ~~insurance,~~ and ~~flood~~lease ~~insurance is required for loans on properties located in a flood zone~~portfolio.

~~Home~~We ~~Equity~~offer ~~Loans~~consumer home equity loans and ~~Equity~~equity ~~Lines~~lines of ~~Credit.~~credit Atthat ~~December 31,~~are ~~2017~~secured by one- to four-family residential real estate, where Beneficial Bank may be in a first or second lien position. We generally offer home equity loans and lines of credit with a maximum combined loan-to-value ratio of 80%. We require flood insurance on all home equity loans and equity lines of credit. Home ~~totaled~~equity ~~$228~~loans have fixed-rates of interest and are originated with terms of generally up to 15 years with some exceptions up to 20 years.1 ~~million,~~Home equity lines of credit have adjustable rates and are based upon the prime rate as published in The Wall Street Journal. Home equity lines of credit can have repayment schedules of both principal and interest or 5interest only paid monthly.7 We hold a first mortgage position on approximately 60.0% of the homes that secured our ~~total~~home ~~loan~~equity loans and ~~lease~~lines ~~portfolio~~of credit at December 31, 2018.

We offer consumer home equity loans and equity lines of credit that are secured by one- to four-family residential real estate, where Beneficial Bank may be in a first or second lien position. We generally offer home equity loans and lines of credit with a maximum combined loan-to-value ratio of 80%. We require flood insurance on all home equity loans and equity lines of credit. Home equity loans have fixed-rates of interest and are originated with terms of generally up to 15 years with some exceptions up to 20 years. Home equity lines of credit have adjustable rates and are based upon the prime rate as published in The Wall Street Journal. Home equity lines of credit can have repayment schedules of both principal and interest or interest only paid monthly. We hold a first mortgage position on approximately 57.4% of the homes that secured our home equity loans and lines of credit at December 31, 2017.

The procedures for underwriting consumer home equity and equity lines of credit include an assessment of the applicant’s payment history on other debts and ability to meet existing obligations and payments on the proposed loan. Although the applicant’s creditworthiness is a primary consideration, the underwriting process also includes a comparison of the value of the collateral to the proposed loan amount.

Consumer Personal Loans. At December 31, ~~2017~~2018, consumer personal loans totaled $1713.35 million, or 0.43% of our total loan and lease portfolio.

We offer a variety of consumer personal loans, including loans for recreational vehicles, unsecured personal loans and lines of credit. Our consumer loans secured by passbook accounts and certificates of deposit held at Beneficial Bank are based upon the prime rate as published in The Wall Street Journal with terms up to four years. We will offer such loans up to 100% of the principal balance of the certificate of deposit or balance in the passbook account. We also offer unsecured loans and lines of credit with terms up to five years. Our unsecured loans and lines of credit bear a substantially higher interest rate than our secured loans and lines of credit. For more information on our loan commitments, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity Risk.”

Consumer Education Loans. At December 31, ~~2017~~2018, consumer education loans totaled $~~147~~131.60 million, or 3.74% of our total loan and lease portfolio. Our consumer education loans are unsecured but are generally 98% government guaranteed. These loans are serviced by the Pennsylvania Higher Education Assistance Agency and Navient (formerly Sallie Mae). Our consumer education loan portfolio was previously purchased. We do not except to purchase or originate more of these types of loans. Thus, we expect this portfolio to decrease as these loans continue to be paid down.

Automobile Loans. At December 31, ~~2017~~2018, automobile loans that we originated totaled $~~157~~94.75 million, or 32.94% of our total loan and lease portfolio. These loans are secured by new and used automobiles. The majority of the loans in this portfolio are indirect automobile loans. These loans have fixed interest rates and generally have terms up to 84 months. These loans have loan-to-value ratios of up to 120% of the purchase price of the vehicle depending upon the credit history of the borrower and other factors. During 2017, we discontinued offering indirect auto loans as other lending channels provided higher levels of profitability and returns on capital.

Credit Risks.

Commercial Real Estate Loans. Loans secured by commercial real estate generally have larger balances and involve a greater degree of risk than one- to four-family residential mortgage loans. Of primary concern in commercial real estate lending is the borrower’s creditworthiness and the feasibility and cash flow potential of the property that secures the loan. Additional considerations include: location, market and geographic concentrations, loan to value ratio, strength of guarantors and quality of tenants. Payments on loans secured by income properties often depend on successful operation and management of the properties. As a result, repayment of such loans may be subject to a greater extent than residential real estate loans to adverse conditions in the real estate market or the economy. To monitor cash flows on income properties, we require borrowers and loan guarantors, if any, to provide annual financial statements on commercial real estate loans and rent rolls where applicable. In reaching a decision on whether to make a commercial real estate loan, we consider and review a global cash flow analysis of the borrower, when applicable, and consider the net operating income of the property, the borrower’s expertise, credit history and profitability and the value of the underlying property. We have generally required that the properties securing these real estate loans have debt service coverage ratios (the ratio of earnings before debt service to debt service) of at least 1.2x and a loan to value no greater than 75%. An environmental report is obtained when the possibility exists that hazardous materials may have existed on the site, or the site may have been impacted by adjoining properties that handled hazardous materials.

Commercial Business Loans. Unlike commercial real estate loans, which generally are made on the basis of the cash flow of the property that secures the loan, and are secured by real property, the value of which tends to be more easily ascertainable, commercial business loans are of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business. As a result, the availability of funds for the repayment of commercial business loans may depend substantially on the success of the business itself. Further, any collateral securing such loans may depreciate over time, may be difficult to appraise and may fluctuate in value. Our commercial business loans also include owner-occupied commercial real estate where the cash flow supporting the loan is derived from the owners underlying business.

Commercial Small Business Leases. Commercial small business leases are of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business. As a result, the availability of funds for the repayment of commercial small business leases may depend substantially on the success of the business itself. Further, any collateral securing such leases may depreciate over time, may be difficult to appraise and may fluctuate in value. However, these leases tend to be significantly smaller than commercial real estate and commercial business loans with shorter average terms.

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~~Commercial~~Construction ~~Small Business Leases~~Loans. ~~Commercial~~Loans ~~small~~made ~~business~~to ~~leases~~facilitate construction are ofprimarily ~~higher~~short-term ~~risk~~loans ~~and~~used ~~typically~~to ~~are~~finance ~~made on~~ the ~~basis~~construction of ~~the~~an ~~borrower’s~~owner-occupied ~~ability~~residence toor ~~make~~income ~~repayment~~producing ~~from~~assets. ~~the~~Generally, ~~cash~~upon ~~flow~~stabilization ofor ~~the~~upon ~~borrower’s~~completion ~~business.~~and Asissuance of a ~~result~~certificate of occupancy, ~~the~~these ~~availability~~loans ofconvert ~~funds~~to ~~for~~permanent ~~the~~loans ~~repayment~~with oflong-term ~~commercial~~amortization. ~~small~~Payments ~~business~~during ~~leases~~construction ~~may~~consist ~~depend~~of ~~substantially~~an oninterest-only ~~the~~period ~~success~~funded ofgenerally ~~the~~by ~~business~~borrower ~~itself~~equity. ~~Further,~~As ~~any~~these ~~collateral~~loans ~~securing~~represent ~~such~~higher ~~leases~~risk, ~~may~~each ~~depreciate~~project ~~over~~is ~~time,~~monitored ~~may~~for beprogress ~~difficult~~throughout tothe ~~appraise~~life of the loan, and ~~may~~loan ~~fluctuate~~funding inoccurs ~~value. However~~through ~~these~~borrower ~~leases~~draw ~~tend~~requests. toThese berequests ~~significantly~~are ~~smaller~~compared ~~than~~to ~~commercial~~agreed-upon ~~real~~project ~~estate~~milestones and ~~commercial~~progress ~~business~~is ~~loans~~verified ~~with~~by ~~shorter~~independent ~~average~~inspectors ~~terms~~engaged by us.

Construction Loans. Loans made to facilitate construction are primarily short term loans used to finance the construction of an owner-occupied residence or income producing assets. Generally, upon stabilization or upon completion and issuance of a certificate of occupancy, these loans convert to permanent loans with long-term amortization. Payments during construction consist of an interest-only period funded generally by borrower equity. As these loans represent higher risk, each project is monitored for progress throughout the life of the loan, and loan funding occurs through borrower draw requests. These requests are compared to agreed-upon project milestones and progress is verified by independent inspectors engaged by us.

Construction financing is generally considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate. Risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the property’s value at completion of construction or development and the estimated cost (including interest) of construction. During the construction phase, a number of factors could result in delays and cost overruns. If the estimate of construction costs proves to be inaccurate, we may be required to advance funds beyond the amount originally committed to permit completion of the dwelling. If the estimate of value proves to be inaccurate, we may be confronted, at or before the maturity of the loan, with a project having a value which is insufficient to assure full repayment.

Residential Real Estate Loans. Loans made for the purchase of one- to four- family residential loans generally are made on the basis of the borrower’s ability to make repayment from his or her employment or other income, and are secured by real property with ascertainable fair values. Because these loans tend to carry a fixed interest rate and have terms as long as 30 years, the Company can be adversely impacted if interest rates increase. While we anticipate that adjustable-rate loans will better offset the adverse effects of an increase in interest rates as compared to fixed-rate mortgages, the increased mortgage payments required of adjustable-rate loan borrowers in a rising interest rate environment could cause an increase in delinquencies and defaults. The marketability of the underlying property also may be adversely affected in a high interest rate environment. Although adjustable-rate mortgage loans help make our asset base more responsive to changes in interest rates, the extent of this interest sensitivity is limited by the annual and lifetime interest rate adjustment limits on such loans.

Consumer Home Equity and Equity Lines of Credit. Consumer home equity loans and equity lines of credit are loans secured by one- to four-family residential real estate, where we may be in a first or second lien position. In each instance, the value of the property is determined and the loan is made against identified equity in the market value of the property. When a residential mortgage is not present on the property, a first lien position is secured against the property. In cases where a mortgage is present on the property, a second lien position is established, subordinated to the mortgage. As these subordinated liens represent higher risk, loan collection becomes more influenced by various factors, including job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.

Consumer and Automobile Loans. Unlike consumer home equity loans, these loans are either unsecured or secured by rapidly depreciating assets such as boats or motor homes. In such cases, repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan and a small remaining deficiency often does not warrant further substantial collection efforts against the borrower. Consumer loan collections depend on the borrower’s continuing financial stability, and, therefore, are likely to be adversely affected by various factors, including job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.

Automobile loans may entail greater risk than residential mortgage loans, as they are secured by assets that depreciate rapidly. Repossessed collateral for a defaulted automobile loan may not provide an adequate source of repayment for the outstanding loan and a small remaining deficiency often does not warrant further substantial collection efforts against the borrower. Automobile loan collections depend on the borrower’s continuing financial stability, and therefore are likely to be adversely affected by various factors, including job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.

Consumer Education Loans. These consumer loans are unsecured but generally 98% government guaranteed. Consumer education loan collections depend on the efforts of the Pennsylvania Higher Education Assistance Agency and Navient (formerly Sallie Mae) and are dependent on the borrower’s continuing financial stability. Therefore, these loans are likely to be adversely affected by various factors including job loss, divorce, illness or personal bankruptcy. As a result of the government guarantee, we will ultimately be unaffected materially by delinquencies in the portfolio.

Loan Originations and Purchases. Loan originations come from a number of sources. The primary sources of loan originations are existing customers, advertising and referrals from customers and other business contacts, including attorneys, accountants and other professionals, and walk-in traffic.

We also purchase loans and enter into loan participations with other financial institutions to supplement our lending portfolio. There were no purchases of participations in loan portfolios originated by other financial institutions during the ~~year~~years ended December 31, 2017 and 2018. Loan ~~During~~participations totaled $563.0 million at December 31, 2018 and are primarily comprised of commercial real estate and commercial and industrial loans. A portion of our participation loans are 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. Effective January 1, 2018, the federal banking agencies have changed the aggregate loan commitment threshold for inclusion in the shared national credit program from $20 million to $100 million. As of December 31, 2018 and December 31, 2017, the balance of Beneficial Bank’s outstanding purchased shared national credits was $139.5 million and $199.5 million, respectively. See “—Lending Activities—Commercial Business Loans.” Loan participations

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the year ended December 31, 2016, the Company purchased a total of $117.5 million of participations in loan portfolios in multi-family commercial real estate loans originated by other financial institutions. All of these loans are in our markets and meet our underwriting standards. These purchases were generally funded by the cash proceeds held by the Bank from the second-step conversion completed January 12, 2015. Loan participations totaled $596.3 million at December 31, 2017 and are primarily comprised of commercial real estate and commercial and industrial loans. A portion of our participation loans are 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. As of December 31, 2017 and December 31, 2016, the balance of Beneficial Bank’s outstanding purchased shared national credits was $199.5 million and $234.1 million, respectively. See “—Lending Activities—Commercial Business Loans.” Loan participations are subject to the same credit analysis and loan approvals as loans we originate. We are permitted to review all of the documentation relating to any loan in which we participate. However, for participation loans, we do not service the loan and, thus, are subject to the policies and practices of the lead lender with regard to monitoring delinquencies, pursuing collections and instituting foreclosure proceedings.

Loan Approval Procedures and Authority Our lending activities follow written, non-discriminatory, underwriting standards and loan origination procedures established by management and approved by the board of directors. Beneficial Bank’s board of trustees has granted loan approval authority to certain officers or groups of officers up to prescribed limits, based on an officer’s experience and tenure. Generally, all commercial loans greater than $10.0 million must be approved by the Senior Loan Committee, which is comprised of personnel from the Credit, Finance and Lending departments. Generally, all commercial loans greater than $50.0 million must be approved by the director loan committee of the Bank’s board of trustees, which is comprised of five non-employee trustees. In addition, leveraged lending transactions must be approved by the Senior Loan Committee and the director loan committee of the Bank’s board of trustees.

Loans to One Borrower. The maximum amount that we may lend to one borrower and the borrower’s related entities is limited, by regulation, to generally 15% of our stated capital and reserves. At December 31, ~~2017~~2018, our regulatory limit on loans to one borrower was $~~150~~143.73 million. Beneficial Bank’s internal lending limits are lower than the levels permitted by regulation and at December 31, ~~2017~~2018, the total exposure with our largest lending relationship was $5578.16 million, which is the total of the amount outstanding and committed for a group of ~~seven~~three commercial real estate loans and one commercial construction loan. These loans were performing in accordance with their original terms at December 31, ~~2017~~2018.

Loan Commitments. We issue commitments for fixed and adjustable-rate mortgage loans conditioned upon the occurrence of certain events. Commitments to originate mortgage loans are legally binding agreements to lend to our customers. Generally, our loan commitments expire after 60 days.

Delinquent Loans and Leases. We identify loans and leases that may need to be charged-off as a loss by reviewing all delinquent loans and leases, classified loans and other loans that management may have concerns about collectability. For individually reviewed loans, the borrower’s inability to make payments under the terms of the loan as well as a shortfall in collateral value may result in a write down to management’s estimate of net realizable value. The collateral or cash flow shortfall on all secured loans is charged-off when the loan becomes 90 days delinquent or in the case of unsecured loans the entire balance is charged-off when the loan becomes 90 days delinquent. For more information on how Beneficial Bank addresses credit risk, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk Management.”

Deposit Activities and Other Sources of Funds

General. Deposits, borrowings and loan and investment repayments are the major sources of our funds for lending and other investment purposes. Scheduled loan and investment repayments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general interest rates and market conditions.

Deposit Accounts. Deposits are primarily attracted from within our market area through the offering of a broad selection of deposit instruments, including non-interest -bearing demand deposits (such as individual checking accounts), interest-bearing demand accounts (such as NOW, municipal and money market accounts), savings accounts and certificates of deposit.

Our three primary categories of deposit customers consist of retail or individual customers, businesses and municipalities. Our business banking and municipal deposit products include a commercial checking account and a checking account specifically designed for small businesses. Additionally, we offer cash management, including remote deposit, lockbox service and sweep accounts.

Deposit account terms vary according to the minimum balance required, the time periods the funds must remain on deposit and the interest rate, among other factors. In determining the terms of our deposit accounts, we consider the rates offered by our competition, the rates on borrowings, brokered deposits, our liquidity needs, profitability to us, and customer preferences and concerns. We generally review our deposit mix and pricing bi-weekly. Our deposit pricing strategy has generally been to offer competitive rates on all types of deposit products.

Certificate of Deposit Account Registry Service (CDARS). Our participation in this program enables our customers to invest balances in excess of the FDIC deposit insurance limit into other banks within the CDARS network while maintaining their relationship with us. We work with our customers to obtain the most favorable rates and combine all accounts for convenience onto one statement.

Brokered Certificates of Deposit. We will use brokered certificates of deposit to extend the maturity of our deposits and limit interest rate risk in our deposit portfolio. We generally limit our use of brokered certificates of deposit to 10% or less of total deposits. At December 31, ~~2017~~2018, our brokered certificates of deposits totaled $~~285~~210.62 million and represented approximately 65.90% of total deposits.

Borrowings. We have the ability to utilize advances from the Federal Home Loan Bank of Pittsburgh to supplement our liquidity. As a member, we are required to own capital stock in the Federal Home Loan Bank of Pittsburgh and are authorized to apply for advances on the security of such stock and certain mortgage loans and other assets, provided certain standards related to creditworthiness have been met. Advances are made under several different programs, each having its own interest rate and range of maturities. We also have the ability to utilize overnight repurchase agreements and securities sold under agreements to repurchase, along with the Federal Reserve

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~~Borrowings. We have the ability to utilize advances from the Federal Home Loan~~ Bank of Pittsburgh to supplement our liquidity. As a member, we are required to own capital stock in the Federal Home Loan Bank of Pittsburgh and are authorized to apply for advances on the security of such stock and certain mortgage loans and other assets, provided certain standards related to creditworthiness have been met. Advances are made under several different programs, each having its own interest rate and range of maturities. We also have the ability to utilize overnight repurchase agreements and securities sold under agreements to repurchase, along with the Federal Reserve Bank’s discount window and Federal Funds lines with correspondent banks to supplement our supply of investable funds and to meet deposit withdrawal requirements. To secure our borrowings, we generally pledge securities and/or loans. The types of securities pledged for borrowings include, but are not limited to, government-sponsored enterprises (“GSE”) notes and government agency mortgage-backed securities. The types of loans pledged for borrowings include, but are not limited to, one- to four-family real estate mortgage loans. At December 31, ~~2017~~2018, we had combined maximum borrowing capacity from the Federal Home Loan Bank of Pittsburgh and the Federal Reserve Bank of Philadelphia of $2.12 billion.

Personnel

As of December 31, ~~2017~~2018, we had ~~765~~720 full-time employees and 1415 part-time employees, none of whom is represented by a collective bargaining unit. We believe our relationship with our employees is good.

Subsidiaries

Beneficial ~~Insurance Services~~Advisors, LLC, which is wholly owned by Beneficial Bank, is a Pennsylvania limited liability company formed in ~~2004~~2000 ~~and~~to isoffer ~~wholly~~wealth ~~owned~~management byservices ~~Beneficial~~and ~~Bank.~~investment Inand ~~2005,~~insurance ~~Beneficial~~related ~~Insurance~~products, ~~Services~~including, ~~LLC~~but ~~provides~~not ~~property,~~limited ~~casualty~~to, ~~life,~~fixed- ~~health~~and variable-rate annuities and ~~benefits~~the ~~insurance~~sale ~~services~~of tomutual ~~individuals~~funds and ~~businesses~~securities through a third-party broker dealer. We decided to cease the operations of Beneficial Advisors, LLC effective the first quarter of 2018. This entity is currently inactive.

~~Beneficial~~Neumann ~~Advisors~~Corporation, ~~LLC,~~ which iswas ~~wholly~~formed ~~owned~~in ~~by Beneficial Bank~~1990, is a ~~Pennsylvania~~Delaware ~~limited~~investment ~~liability~~holding company ~~formed~~that inholds ~~2000~~title to ~~offer~~various ~~wealth~~securities ~~management services~~ and ~~investment~~other ~~and~~investments. ~~insurance~~Neumann ~~related~~Corporation ~~products,~~is ~~including,~~100% ~~but~~owned ~~not~~by ~~limited~~Beneficial ~~to, fixed- and variable-rate annuities and the sale of mutual funds and securities through a third party broker dealer~~Bank. WeAt ~~decided~~December 31, ~~to cease the operations of Beneficial Advisors~~2018, ~~LLC~~Neumann ~~effective~~Corporation ~~the~~held ~~first~~$567.7 ~~quarter~~million ofin ~~2018~~assets.

Neumann ~~Corporation~~Finance Company, which was formed in ~~1990~~2017 to originate small business leases, is a ~~Delaware~~New ~~investment~~Jersey ~~holding~~corporation. ~~company~~Neumann Finance Company is majority owned (83%) by Beneficial Bank. The Bank concluded that ~~holds~~the ~~title~~entity tomeets ~~various~~the ~~securities~~definition of a variable interest entity and ~~other~~that ~~investments~~the Bank is the primary beneficiary of the variable interest entity. ~~Neumann~~Accordingly, ~~Corporation~~the isinvestment ~~100%~~has ~~owned~~been byconsolidated ~~Beneficial~~into the Company’s financial statements as of December 31, 2018. Non-controlling interest at December 31, 2018 was comprised of capital and undistributed losses of the shareholders of Neumann Finance Company, other than the Bank. Non-controlling interest on our consolidated balance sheet at December 31, 2018 totaled $158 thousand. At December 31, ~~2017~~2018, Neumann ~~Corporation~~Finance Company held $~~550~~13.60 million in assets.

~~Neumann~~Beneficial Equipment Finance ~~Company~~Corporation, ~~which~~formerly BSB Union Corporation, was formed in ~~2017~~1994 to ~~originate~~own ~~small~~and ~~business~~lease ~~leases,~~automobiles. isIn a2012, ~~New~~BSB ~~Jersey~~Union ~~corporation.~~Corporation ~~Neumann~~obtained ~~Finance~~approval ~~Company~~to isengage ~~majority~~in ~~owned~~equipment byleasing ~~Beneficial Bank~~activities. ~~The~~ ~~Bank~~Following ~~concluded that~~ the ~~entity~~acquisition ~~meets the definition~~ of aConestoga ~~variable interest entity and that the~~ Bank isin ~~the primary beneficiary of the variable interest entity. Accordingly~~April 2016, the ~~investment~~leasing ~~has~~operations ~~been consolidated into the Company’s financial statements as~~ of ~~December 31,~~Beneficial ~~2017. Non-controlling~~Equipment ~~interest at December 31, 2017 was comprised of capital and undistributed losses of the shareholders of Neumann~~ Finance ~~Company,~~Corporation ~~other~~became ~~than~~an ~~the~~active ~~Bank.~~subsidiary ~~Non-controlling~~which ~~interest~~originates onsmall ~~our~~business ~~consolidated~~leases ~~balance~~primarily ~~sheet~~medical atand ~~December 31,~~veterinarian ~~2017 totaled $592 thousand~~equipment. ~~At December 31, 2017, Neumann Finance Company held $4.7 million in assets.~~

Beneficial Equipment Finance Corporation, formerly BSB Union Corporation, was formed in 1994 to own and lease automobiles. In 2012, BSB Union Corporation obtained approval to engage in equipment leasing activities. Following the acquisition of Conestoga Bank in April 2016, the leasing operations of Beneficial Equipment Finance Corporation became an active subsidiary which originates small business leases.

PA Real Property GP, LLC, which is wholly owned by Beneficial Bank, is a special purpose entity formed in 2009 to manage and hold other real estate owned (“OREO”) properties in Pennsylvania until disposition.

NJ Real Property GP, LLC, which is wholly owned by Beneficial Bank, is a special purpose entity formed in 2010 to manage and hold OREO properties in New Jersey until disposition.

DE Real Property Holding, Inc., which is wholly owned by Beneficial Bank, is a special purpose entity formed in 2011 to manage and hold OREO properties in Delaware until disposition.

REGULATION AND SUPERVISION

General

The Bank is a Pennsylvania-chartered savings bank that is subject to extensive regulation, examination and supervision by the Pennsylvania Department of Banking and Securities (“Department”), as its primary regulator, and the FDIC, as its deposit insurer. The Bank is a member of the Federal Home Loan Bank system and, with respect to deposit insurance, of the Deposit Insurance Fund managed by the FDIC. The Bank must file reports with the Department and the FDIC concerning its activities and financial condition, in addition to obtaining regulatory approvals before entering into certain transactions such as mergers with, or acquisitions of, other savings institutions. The Pennsylvania Department of Banking and Securities and/or the FDIC conduct periodic examinations to test the Bank’s safety and soundness and compliance with various regulatory requirements. This regulatory structure gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in the regulatory requirements and policies, whether by the Department, the FDIC, the Federal Reserve Board or Congress, could have a material adverse impact on the Bank and its operations.

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~~discretion~~Federal inReserve ~~connection~~Board. Prior ~~with~~to ~~their~~December 23, ~~supervisory and enforcement activities and examination policies~~2016, ~~including policies with respect to~~ the ~~classification~~Company ofwas ~~assets~~a ~~and~~bank ~~the~~holding ~~establishment~~company ofthat ~~adequate~~was ~~loan~~subject ~~loss~~to ~~reserves~~regulation, ~~for~~examination ~~regulatory purposes. Any change in the regulatory requirements~~ and ~~policies,~~supervision ~~whether~~ by the ~~Department, the FDIC, the~~ Federal Reserve Board ~~or Congress, could have a material adverse impact on the Bank and its operations~~.

Effective as of December 23, 2016, the Company elected to become a financial holding company under the Bank Holding Company Act of 1956, as amended. As a financial holding company, the Company may engage in a broader array of financial activities than previously permitted, such as insurance underwriting and investment banking, and is subject to regulation, examination and supervision by the Federal Reserve Board. Prior to December 23, 2016, the Company was a bank holding company that was subject to regulation, examination and supervision by the Federal Reserve Board.

Certain of the regulatory requirements that are applicable to the Bank and the Company are described below. This description of statutes and regulations is not intended to be a complete explanation of such statutes and regulations and their effects on the Bank and the Company.

Bank Regulation

Pennsylvania Savings Bank Law. The Pennsylvania Banking Code of 1965, as amended, contains detailed provisions governing the organization, location of offices, rights and responsibilities of directors, officers and employees, as well as corporate powers, savings and investment operations and other aspects of the Bank and its affairs. The Pennsylvania Banking Code delegates extensive rule-making power and administrative discretion to the Pennsylvania Department of Banking and Securities so that the supervision and regulation of state-chartered savings banks may be flexible and readily responsive to changes in economic conditions and in savings and lending practices. Specifically, under the Pennsylvania Banking Code, the Department is given the authority to exercise such supervision over state-chartered savings banks as to afford the greatest safety to creditors, shareholders and depositors, ensure business safety and soundness, conserve assets, protect the public interest and maintain public confidence in such institutions.

The Pennsylvania Banking Code provides, among other powers, that state-chartered savings banks may engage in any activity permissible for a national banking association or federal savings association, subject to regulation by the Department (which shall not be more restrictive than the regulation imposed upon a national banking association or federal savings association, respectively). Before it engages in an activity allowable for a national banking association or federal savings association, a state-chartered savings bank must either obtain prior approval from the Department or provide at least 30 days’ prior written notice to the Department. The authority of the Bank under Pennsylvania law, however, may be constrained by federal law and regulation. See “Investments and Activities” below.

Capital Requirements. Under FDIC regulations, federally insured state-chartered banks that are not members of the Federal Reserve System (“state non-member banks”), such as the Bank, are required to comply with minimum leverage capital requirements. In early July 2013, the FDIC approved revisions to its 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.

The rules include new risk-based capital and leverage ratios, which became effective 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 Beneficial Bank are: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 4% for all institutions. In addition, the rules assign a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. The rules also eliminate the inclusion of certain instruments, such as trust preferred securities, from Tier 1 capital. However, instruments issued prior to May 19, 2010 will be grandfathered for companies with consolidated assets of $15.0 billion or less. In addition, Tier 2 capital is no longer limited to the amount of Tier 1 capital included in total capital. Mortgage servicing rights, certain deferred tax assets and investments in unconsolidated subsidiaries over designated percentages of common stock will be required to be deducted from capital, subject to a two-year transition period. Finally, Tier 1 capital will include accumulated other comprehensive income (which includes all unrealized gains and losses on available for sale debt and equity securities), subject to a two-year transition period.

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: (i) a common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. The new capital conservation buffer requirement started to be phased in beginning in January 2016 at 0.625% of risk-weighted assets and ~~will~~were ~~increase~~increased by that amount each year until fully implemented in January 2019. An institution would be 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 can be utilized for such actions.

The FDIC also has authority to establish individual minimum capital requirements in appropriate cases upon a determination that an institution’s capital level is or may become inadequate in light of particular risks or circumstances.

As of December 31, 2018, our 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.

Restrictions on Dividends. The Company’s ability to declare and pay dividends may depend in part on dividends received from the Bank. The Pennsylvania Banking Code regulates the distribution of dividends by savings banks and provides that dividends may be declared and paid only out of accumulated net earnings and may be paid in cash or property other than its own shares. Dividends may

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Asnot ofbe ~~December 31,~~declared ~~2017,~~or ~~our~~paid ~~current~~unless ~~capital~~shareholders’ ~~levels~~equity ~~exceed~~is ~~the~~at ~~required~~least ~~capital~~equal ~~amounts~~ to becontributed ~~considered~~capital. ~~“well~~The ~~capitalized”~~Company ~~and~~paid wecash ~~believe~~dividends ~~they~~on ~~also~~its ~~meet~~common ~~the~~stock ~~fully-phased~~totaling in$0.49 ~~minimum~~per ~~capital~~share ~~requirements,~~during ~~including~~ the ~~related~~year ~~capital~~ended ~~conservation buffers~~December 31, ~~as required by the Basel III capital rules~~2018.

Restrictions on Dividends. The Company’s ability to declare and pay dividends may depend in part on dividends received from the Bank. The Pennsylvania Banking Code regulates the distribution of dividends by savings banks and provides that dividends may be declared and paid only out of accumulated net earnings and may be paid in cash or property other than its own shares. Dividends may not be declared or paid unless shareholders’ equity is at least equal to contributed capital. The Company paid cash dividends on its common stock totaling $0.24 per share during the year ended December 31, 2017.

Interstate Banking and Branching. Federal law permits a bank, such as the Bank, to acquire an institution by merger in a state other than Pennsylvania unless the other state has opted out of interstate banking and branching. Federal law, as amended by the Dodd-Frank Act, also authorizes de novo branching into another state if the host state allows banks chartered by that state to establish such branches within its borders. The Bank currently has 23 full-service locations in Burlington, Gloucester and Camden counties, New Jersey. At its interstate branches, the Bank may conduct any activity that is authorized under Pennsylvania law that is permissible either for a New Jersey savings bank (subject to applicable federal restrictions) or a New Jersey branch of an out-of-state national bank. The New Jersey Department of Banking and Insurance may exercise certain regulatory authority over the Bank’s New Jersey branches.

Prompt Corrective Regulatory Action. Federal law requires, among other things, that federal bank regulatory authorities take “prompt corrective action” with respect to banks that do not meet minimum capital requirements. For these purposes, the law establishes three categories of capital deficient institutions: undercapitalized, significantly undercapitalized and critically undercapitalized.

Under the current prompt corrective action capital guidelines, an institution is deemed to be “well capitalized” if it has (1) a common equity Tier 1 capital ratio of 6.5%; (2) a Tier 1 capital ratio of 8%; (3) a total capital ratio of 10%; and (4) a Tier 1 leverage ratio of 5%. An institution is deemed to be “adequately capitalized” if it has (1) a common equity Tier 1 capital ratio of 4.5%; (2) a Tier 1 capital ratio of 6%; (3) a total capital ratio of less than 4.5%; and (4) a Tier 1 leverage ratio of 4%. An institution is deemed to be “undercapitalized” if it has (1) a common equity Tier 1 capital ratio of less than 4.5%; (2) a Tier 1 capital ratio of less than 6%; (3) a total capital ratio of less than 8%; and (4) a Tier 1 leverage ratio of less than 4%. An institution is deemed to be “significantly undercapitalized” if it has (1) a common equity Tier 1 capital ratio of less than 3%; (2) a Tier 1 capital ratio of less than 4%; (3) a total capital ratio of less than 6%; and (4) a Tier 1 leverage ratio of less than 3%. An institution is considered to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2%. As of December 31, ~~2017~~2018, the Company and the Bank met the conditions to be classified as a “well capitalized” institution.

“Undercapitalized” banks must adhere to growth, capital distribution (including dividend) and other limitations and are required to submit a capital restoration plan. No institution may make a capital distribution, including payment as a dividend, if it would be “undercapitalized” after the payment. A bank’s compliance with such plans is required to be guaranteed by its parent holding company in an amount equal to the lesser of 5% of the institution’s total assets when deemed undercapitalized or the amount needed to comply with regulatory capital requirements. If an “undercapitalized” bank fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” “Significantly undercapitalized” banks must comply with one or more of a number of additional restrictions, including but not limited to an order by the FDIC to sell sufficient voting stock to become adequately capitalized, requirements to reduce assets and cease receipt of deposits from correspondent banks or dismiss directors or officers, and restrictions on interest rates paid on deposits, compensation of executive officers and capital distributions by the parent holding company. “Critically undercapitalized” institutions must comply with additional sanctions including, subject to a narrow exception, the appointment of a receiver or conservator within 270 days after it obtains such status.

Investments and Activities. Under federal law, all state-chartered banks insured by the FDIC have generally been limited to activities as principal and equity investments of the type and in the amount authorized for national banks, notwithstanding state law. The Federal Deposit Insurance Corporation Improvement Act and the FDIC permit exceptions to these limitations. For example, state chartered banks may, with FDIC approval, continue to exercise grandfathered state authority to invest in common or preferred stocks listed on a national securities exchange and in the shares of an investment company registered under federal law. The Bank received grandfathering authority from the FDIC to invest in listed stocks and/or registered shares. The maximum permissible investment is 100% of Tier 1 capital, as specified by the FDIC’s regulations, or the maximum amount permitted by Pennsylvania Banking Law, whichever is less. Such grandfathering authority may be terminated upon the FDIC’s determination that such investments pose a safety and soundness risk to the Bank or if the Bank converts its charter or undergoes a change in control. In addition, the FDIC is authorized to permit such institutions to engage in other state authorized activities or investments (other than non-subsidiary equity investments) that meet all applicable capital requirements if it is determined that such activities or investments do not pose a significant risk to the Deposit Insurance Fund. As of December 31, ~~2017~~2018, the Bank held no marketable equity securities under such grandfathering authority.

Transactions with Related Parties. Federal law limits the Bank’s authority to lend to, and engage in certain other transactions with (collectively, “covered transactions”) its “affiliates” (e.g., any company that controls or is under common control with an institution). The aggregate amount of covered transactions with any individual affiliate is limited to 10% of the capital and surplus of the savings institution. Certain transactions with affiliates are required to be secured by collateral in an amount and of a type specified by federal law. The purchase of low quality assets from affiliates is generally prohibited. Transactions with affiliates must generally be on terms and under circumstances, that are at least as favorable to the institution as those prevailing at the time for comparable transactions with non-affiliates. In addition, savings institutions are prohibited from lending to any affiliate that is engaged in activities that are not permissible for bank or financial holding companies and no savings institution may purchase the securities of any affiliate other than a subsidiary.

The Sarbanes-Oxley Act of 2002 generally prohibits loans by the Bank to its executive officers and directors. However, the law contains a specific exception for loans by the Bank to its executive officers and directors in compliance with federal banking laws. Under such laws, the Bank’s authority to extend credit to executive officers, directors and 10% shareholders (“insiders”), as well as entities such persons control, is limited. The law limits both the individual and aggregate amount of loans the Bank may make to insiders based, in part, on the Bank’s capital position and requires certain board approval procedures to be followed. Such loans are required to be made on terms substantially the same as those offered to unaffiliated individuals and not involve more than the normal risk of repayment. There

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Enforcement. The FDIC has extensive enforcement authority over insured savings banks, including the Bank. This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease and desist orders and to remove directors and officers. In general, these enforcement actions may be initiated in response to violations of laws and regulations and unsafe or unsound practices.

Standards for Safety and Soundness. As required by statute, the federal banking agencies have adopted Interagency Guidelines prescribing Standards for Safety and Soundness. The guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the FDIC determines that a savings institution fails to meet any standard prescribed by the guidelines, the FDIC may require the institution to submit an acceptable plan to achieve compliance with the standard.

Insurance of Deposit Accounts. The Bank’s deposits are insured up to applicable limits by the Deposit Insurance Fund of the FDIC. The deposit insurance per account owner is currently $250,000.

Under the FDIC’s risk-based assessment system, insured institutions are assigned to one of four risk categories based on supervisory evaluations, regulatory capital levels and certain other factors, with less risky institutions paying lower assessments. An institution’s assessment rate depends upon the category to which it is assigned. In 2011, the FDIC approved a final rule that implemented changes to the deposit insurance assessment system mandated by the Dodd-Frank Act. Under the final rule, assessment base for payment of FDIC premiums was changed from a deposit level base to an asset level base consisting of average tangible assets less average tangible equity.

The FDIC may adjust rates uniformly from one quarter to the next, except that no adjustment can deviate more than three basis points from the base scale without notice and comment rulemaking. No institution may pay a dividend if in default of the FDIC assessment.

The FDIC has authority to increase insurance assessments. A significant increase in insurance premiums would likely have an adverse effect on the operating expenses and our results of operations. Management cannot predict what insurance assessment rates will be in the future.

On June 30, 2016, the Deposit Insurance Fund’s designated reserve ratio rose to 1.17% from 1.13% on March 31, 2016. FDIC regulations provided for three changes to deposit insurance assessments the quarter after the designated reserve ratio reaches or surpasses 1.15%. As a result, effective July 1, 2016, (1) the range of initial assessment rates for all institutions declined based on final rules approve by the FDIC in February 2011 and April 2016; (2) surcharges on insured depository institutions with total consolidated assets of $10 billion or more (large banks) began to be assessed by the FDIC; and (3) a revised method to calculate risk-based assessment rates for established small banks became applicable pursuant to a final rule approved by the FDIC in April 2016. The surcharge on large banks, which equals 4.5 basis points of the institution’s deposit insurance assessment base, iswas in effect for assessments billed after the designated reserve ratio reaches 1.15%, and ~~will~~would continue until ~~the~~it ~~reserve ratio~~ reaches ~~or exceeds~~ 1.35%. On ~~but~~September 30, no2018, ~~later~~the ~~than~~deposit ~~December 31,~~insurance ~~2018~~fund reserve ratio reached 1.36%. As a result, ofBeneficial ~~these~~Bank ~~changes~~was inawarded ~~deposit~~an ~~insurance~~assessment ~~assessments,~~credit for the ~~Company’s~~portion ~~deposit~~of ~~insurance~~its ~~assessments~~assessment ~~decreased~~that bycontributed ~~$311~~to ~~thousand~~the ~~during~~growth in the ~~year~~reserve ~~ended~~ratio ~~December 31,~~from ~~2017~~1.15% ~~compared~~ to 1.35%. This credit will be applied when the ~~year~~reserve ~~ended~~ratio ~~December 31,~~is ~~2016~~at least 1.38%.

Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or the Pennsylvania Department of Banking and Securities. The management of the Bank does not know of any practice, condition or violation that might lead to termination of deposit insurance.

Federal Home Loan Bank System. The Bank is a member of the Federal Home Loan Bank system, which consists of 11 regional Federal Home Loan Banks. The Federal Home Loan Bank provides a central credit facility primarily for member institutions. At December 31, ~~2017~~2018, Beneficial Bank had a maximum borrowing capacity from the Federal Home Loan Bank of Pittsburgh of $2.0 billion of which it had $515.0 million in outstanding advances ~~and $20~~.0 ~~million in future dated advances outstanding.~~ The balance remaining of $1.5 billion is our unused borrowing capacity with the Federal Home Loan Bank at December 31, ~~2017~~2018. Beneficial Bank, as a member of the Federal Home Loan Bank of Pittsburgh, is required to acquire and hold shares of capital stock in that Federal Home Loan Bank. Beneficial Bank was in compliance with requirements for the Federal Home Loan Bank of Pittsburgh with an investment of $23.2 million at December 31, ~~2017~~2018.

Community Reinvestment Act. Under the Community Reinvestment Act, as implemented by FDIC regulations, a state non-member bank has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate-income neighborhoods. The Community Reinvestment Act neither establishes specific lending requirements or programs for financial institutions nor limits an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community. The Community Reinvestment Act requires the FDIC, in connection with its examination of an institution, to assess the institution’s record of meeting the credit needs of its community and to consider such record when it evaluates applications made by such institution. The Community Reinvestment Act requires public disclosure of an institution’s Community Reinvestment Act rating. The Bank’s latest Community Reinvestment Act rating received from the FDIC was “outstanding.”

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requirements or programs for financial institutions nor limits an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community. The Community Reinvestment Act requires the FDIC, in connection with its examination of an institution, to assess the institution’s record of meeting the credit needs of its community and to consider such record when it evaluates applications made by such institution. The Community Reinvestment Act requires public disclosure of an institution’s Community Reinvestment Act rating. The Bank’s latest Community Reinvestment Act rating received from the FDIC was “outstanding.”

Bank Secrecy Act and Anti-Money Laundering. Federal laws and regulations impose obligations on U.S. financial institutions, including banks and broker/dealer subsidiaries, to implement and maintain appropriate policies, procedures and controls which are reasonably designed to prevent, detect and report instances of money laundering and the financing of terrorism and to verify the identity of their customers. In addition, these provisions require the federal financial institution regulatory agencies to consider the effectiveness of a financial institution’s anti-money laundering activities when reviewing bank mergers and bank holding company acquisitions. Failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing could have serious legal and reputational consequences for the institution.

Office of Foreign Assets Control Regulation. The United States has imposed economic sanctions that affect transactions with designated foreign countries, nationals and others. These are typically known as the “OFAC” rules based on their administration by the U.S. Treasury Department Office of Foreign Assets Control (“OFAC”). The OFAC-administered sanctions targeting countries take many different forms. Generally, however, they contain one or more of the following elements: (i) restrictions on trade with or investment in a sanctioned country, including prohibitions against direct or indirect imports from and exports to a sanctioned country and prohibitions on “U.S. persons” engaging in financial transactions relating to making investments in, or providing investment-related advice or assistance to, a sanctioned country; and (ii) a blocking of assets in which the government or specially designated nationals of the sanctioned country have an interest, by prohibiting transfers of property subject to U.S. jurisdiction (including property in the possession or control of U.S. persons). Blocked assets (e.g. property and bank deposits) cannot be paid out, withdrawn, set off or transferred in any manner without a license from OFAC. Failure to comply with these sanctions could have serious legal and reputational consequences.

Other Regulations. Interest and other charges collected or contracted for by the Bank are subject to state usury laws and federal laws concerning interest rates. The Bank’s operations are also subject to federal laws applicable to credit transactions, such as the:

· Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;

· Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;

· Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;

· Fair Credit Reporting Act of 1978, governing the use and provision of information to credit reporting agencies;

· Fair Debt Collection Practices Act, governing the manner in which consumer debts may be collected by collection agencies; and

· Rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws.

The operations of the Bank also are subject to the:

· Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;

· Electronic Funds Transfer Act and Regulation E promulgated thereunder, which establishes the rights, liabilities and responsibilities of consumers who use electronic fund transfer (EFT) services and financial institutions that offer these services; its primary objective is the protection of individual consumers in their dealings with these services;

· Check Clearing for the 21st Century Act (also known as “Check 21”), which allows banks to create and receive “substitute checks” (paper reproduction of the original check), and discloses the customers rights regarding “substitute checks” pertaining to these items having the “same legal standing as the original paper check”;

· Title III of The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (referred to as the “USA PATRIOT Act”), and related regulations that require savings associations operating in the United States to develop new anti-money laundering compliance programs (including a customer identification program that must be incorporated into the anti-money laundering compliance program), due diligence policies and controls to ensure the detection and reporting of money laundering;

· The Gramm-Leach-Bliley Act, which prohibits a financial institution from disclosing non-public personal information about a consumer to non-affiliated third parties, unless the institution satisfies various notice and opt-out requirements;

· The Fair and Accurate Reporting Act of 2003, as an amendment to the Fair Credit Reporting Act, as noted previously, which includes provisions to help reduce identity theft by providing procedures for the identification, detection, and response to patterns, practices, or specific activities—known as “red flags”; and

· Truth in Savings Act, which establishes the requirement for clear and uniform disclosure of terms and conditions regarding interest and fees to help promote economic stability, competition between depository institutions, and allow the consumer to

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~~· The~~make ~~Fair~~informed and Accurate Reporting Act of 2003, as an amendment to the Fair Credit Reporting Act, as noted previously, which includes provisions to help reduce identity theft by providing procedures for the identification, detection, and response to patterns, practices, or specific activities—known as “red flags”; anddecisions.

Holding Company Regulation

General. As a financial holding company, the Company is subject to examination, regulation and periodic reporting under the Bank Holding Company Act of 1956, as amended, as administered by the Federal Reserve Board. As a result, prior Federal Reserve Board approval would be required for the Company to acquire direct or indirect ownership or control of any voting securities of any bank or bank or financial holding company if, after such acquisition, it would, directly or indirectly, own or control more than 5% of any class of voting shares of the bank or bank holding company. In addition to the approval of the Federal Reserve Board, before any bank acquisition can be completed, prior approval may also be required to be obtained from other agencies having supervisory jurisdiction over the bank to be acquired.

A bank or financial holding company is generally prohibited from engaging in, or acquiring, direct or indirect control of more than 5% of the voting securities of any company engaged in non-banking activities. One of the principal exceptions to this prohibition is for activities found by the Federal Reserve Board to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Some of the principal activities that the Federal Reserve Board has determined by regulation to be so closely related to banking are: (1) making or servicing loans; (2) performing certain data processing services; (3) providing discount brokerage services; (4) acting as fiduciary, investment or financial advisor; (5) leasing personal or real property; (6) making investments in corporations or projects designed primarily to promote community welfare; and (7) acquiring a savings and loan association.

The Company is also subject to the Federal Reserve Board’s capital adequacy guidelines for bank and financial holding companies (on a consolidated basis) substantially similar to those of the FDIC for the Bank.

A financial holding company is generally required to give the Federal Reserve Board prior written notice of any purchase or redemption of then outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the company’s consolidated net worth. The Federal Reserve Board may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe and unsound practice, or would violate any law, regulation, Federal Reserve Board order or directive, or any condition imposed by, or written agreement with, the Federal Reserve Board. The Federal Reserve Board has adopted an exception to this approval requirement for well-capitalized bank and financial holding companies that meet certain other conditions.

The Federal Reserve Board has issued a policy statement regarding the payment of dividends by bank or financial holding companies. In general, the Federal Reserve Board’s policies provide that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the bank or financial holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. The Federal Reserve Board’s policies also require that a bank or financial holding company serve as a source of financial strength to its subsidiary banks by standing ready to use available resources to provide adequate capital funds to those banks during periods of financial stress or adversity and by maintaining the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks where necessary. Under the prompt corrective action laws, the ability of a bank or financial holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. These regulatory policies could affect the ability of the Company to pay dividends or otherwise engage in capital distributions.

Under the Federal Deposit Insurance Act, depository institutions are liable to the FDIC for losses suffered or anticipated by the FDIC in connection with the default of a commonly controlled depository institution or any assistance provided by the FDIC to such an institution in danger of default. This law would have potential applicability if the Company ever held as a separate subsidiary a depository institution in addition to the Bank.

The Company and the Bank will be affected by the monetary and fiscal policies of various agencies of the United States Government, including the Federal Reserve System. In view of changing conditions in the national economy and in the money markets, it is impossible for management to accurately predict future changes in monetary policy or the effect of such changes on the business or financial condition of the Company or the Bank.

The status of the Company as a registered financial holding company under the Bank Holding Company Act does not exempt it from certain federal and state laws and regulations applicable to corporations generally, including, without limitation, certain provisions of the federal securities laws.

Under the Change in Bank Control Act, a notice must be submitted to the Federal Reserve Board if any person (including a company), or group acting in concert, seeks to acquire direct or indirect “control” of a bank or financial holding company or savings association. Under certain circumstances, a change of control may occur, and prior notice is required, upon the acquisition of 10% or more of the outstanding voting stock of the company or institution, unless the Federal Reserve Board has found that the acquisition will not result in a change of control. Under the Change in Control Act, the Federal Reserve Board generally has 60 days from the filing of a complete

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outstanding voting stock of the company or institution, unless the Federal Reserve Board has found that the acquisition will not result in a change of control. Under the Change in Control Act, the Federal Reserve Board generally has 60 days from the filing of a complete notice to act, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the anti-trust effects of the acquisition. Any company that acquires control would then be subject to regulation as a bank company.

Federal Securities Laws

The Company’s common stock is registered with the Securities and Exchange Commission under the Securities Exchange Act. As a result, the Company is required to file quarterly and annual reports with the Securities and Exchange Commission and is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act.

Federal Income Taxation

General. We report our income on a calendar year basis using the accrual method of accounting. ~~H.R.~~The ~~1 (originally known as the “~~Tax Cuts and Jobs Act”) was enacted on December 22, 2017 and lowered the federal corporate tax rate in 2018 to 21% from 35%. Under ASC 740, the effects of changes in tax rates and laws on deferred tax balances are recorded as a component of income tax expense related to continuing operations for the period in which the law was enacted, even if the assets and liabilities related to items of accumulated other comprehensive income. The Company re-measured its net deferred tax assets at the current 21% federal corporate tax rate and, as a result, the Company recorded $13.1 million of additional income tax expense during the year ended December 31, 2017.

The federal income tax laws apply to us in the same manner as to other corporations with some exceptions, including particularly our reserve for bad debts discussed below. The following discussion of tax matters is intended only as a summary and does not purport to be a comprehensive description of the tax rules applicable to us. The ~~2014~~2016 toand ~~2016~~2017 tax years remain subject to examination by the Internal Revenue Service. For ~~2017~~2018, the Company’s maximum federal income tax rate was 3521%. AsThe ~~a result of the passage of H.R. 1, the~~ Company’s maximum federal income tax rate will be 21% in 2018 and future periods.

Beneficial Bancorp and Beneficial Bank have entered into a tax allocation agreement. Because Beneficial Bancorp owns 100% of the issued and outstanding capital stock of Beneficial Bank, Beneficial Bancorp and Beneficial Bank are members of an affiliated group within the meaning of Section 1504(a) of the Internal Revenue Code, of which group Beneficial Bancorp is the common parent corporation. As a result of this affiliation, Beneficial Bank may be included in the filing of a consolidated federal income tax return with Beneficial Bancorp and, if a decision to file a consolidated tax return is made, the parties have agreed to compensate each other for their individual share of the consolidated tax liability and/or any tax benefits provided by them in the filing of the consolidated federal income tax return.

Bad Debt Reserves. For fiscal years beginning before June 30, 1996, thrift institutions that qualified under certain definitional tests and other conditions of the Internal Revenue Code were permitted to use certain favorable provisions to calculate their deductions from taxable income for annual additions to their bad debt reserve. A reserve could be established for bad debts on qualifying real property loans, generally secured by interests in real property improved or to be improved, under the percentage of taxable income method or the experience method. The reserve for non-qualifying loans was computed using the experience method. Federal legislation enacted in 1996 repealed the reserve method of accounting for bad debts and the percentage of taxable income method for tax years beginning after 1995 and required savings institutions to recapture or take into income certain portions of their accumulated bad debt reserves as of December 31, 1987. Approximately $1.4 million of income tax related to our accumulated bad debt reserves would not be recognized unless Beneficial Bank makes a “non-dividend distribution” to Beneficial Bancorp as described below.

Distributions. If Beneficial Bank makes “non-dividend distributions” to Beneficial Bancorp, the distributions will be considered to have been made from Beneficial Bank’s un-recaptured tax bad debt reserves, including the balance of its reserves as of December 31, 1987, to the extent of the “non-dividend distributions,” and then from Beneficial Bank’s supplemental reserve for losses on loans, to the extent of those reserves, and an amount based on the amount distributed, but not more than the amount of those reserves, will be included in Beneficial Bank’s taxable income. Non-dividend distributions include distributions in excess of Beneficial Bank’s current and accumulated earnings and profits, as calculated for federal income tax purposes, distributions in redemption of stock, and distributions in partial or complete liquidation. Dividends paid out of Beneficial Bank’s current or accumulated earnings and profits will not be so included in Beneficial Bank’s taxable income.

The amount of additional taxable income triggered by a non-dividend is an amount that, when reduced by the tax attributable to the income, is equal to the amount of the distribution. Therefore, if Beneficial Bank makes a non-dividend distribution to Beneficial Bancorp, approximately one and one-quarter times the amount of the distribution not in excess of the amount of the reserves would be includable in income for federal income tax purposes, assuming a 21% federal corporate income tax rate. Beneficial Bank does not intend to pay dividends that would result in a recapture of any portion of its bad debt reserves.

State, City and Local Taxation

Beneficial Bank is a savings bank conducting business in Pennsylvania (PA), New Jersey (NJ) and Philadelphia (PHL), and is subject to tax under the Pennsylvania Mutual Thrift Institutions Tax (“MTIT”) Act, New Jersey’s Corporation Business Tax, and the City of Philadelphia Business Privilege Tax. The MTIT is a tax upon separately stated net book income, determined in accordance with generally accepted accounting principles with certain adjustments. The MTIT tax rate is 11.5%. Net operating losses, if any, can be carried forward a maximum of three years for MTIT purposes. New Jersey’s Corporation Business Tax is calculated based on separate company apportioned taxable income, where taxable income is determined based on federal taxable income, subject to certain state adjustments and modifications. The New Jersey corporate income tax rate is 9.0%. On July 1, 2018, New Jersey signed into law Assembly Bill 4202, which significantly revises New Jersey’s Corporation Business Tax laws. Assembly Bill 4202 imposes a surtax on Corporation Business

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Tax taxpayers of 2.5% for the tax years 2018 and ~~modifications~~2019 and 1.5% ~~The~~for ~~New~~the ~~Jersey~~tax ~~corporate~~years ~~income~~2020 and 2021. For tax ~~rate~~years beginning on or after January 1, 2019, combined unitary filing is 9required.~~0%.~~ Net operating losses may be carried forward for twenty years following the tax year for which they were first reported. The City of Philadelphia Business Privilege Tax is a tax upon net income (6.35%) or taxable gross receipts (.14%) imposed on persons carrying on or exercising for gain or profit certain business activities within Philadelphia. For regulated industry taxpayers, the tax is the lesser of the tax on net income or the tax on gross receipts. The tax years ~~2013~~2015 through ~~2016~~2017 remain subject to examination by various state and local taxing authorities.

Beneficial Equipment Finance Corporation (“BEFC”) is a corporation that is in the business of leasing small equipment and fixed assets. As a result of its leasing transactions, BEFC files as a separate company in several state and local jurisdictions and Beneficial Bancorp and its affiliates file in several unitary jurisdictions. These state and local jurisdictions have net operating loss carry forward periods between three and twenty years. Additionally, Beneficial Bank has other subsidiaries that file in Pennsylvania, Maryland and Delaware. These jurisdictions allow for net operating loss carryforwards that can be carried forward for twenty years.

Executive Officers

Our executive officers are elected annually by the board of directors and serve at the board’s discretion. The following individuals currently serve as executive officers of the Company and the Bank:

Name		Position
Gerard P. Cuddy		President and Chief Executive Officer of Beneficial Bancorp and Beneficial Bank
Joseph V. Canosa		Executive Vice President and Chief Credit Officer of Beneficial Bank
Thomas D. Cestare		Executive Vice President and Chief Financial Officer of Beneficial Bancorp and Beneficial Bank
Pamela M. Cyr		Executive Vice President and Chief Retail Banking Officer of Beneficial Bank
Martin F. Gallagher		Executive Vice President and Chief Lending Officer of Beneficial Bank
Joanne R. Ryder		Executive Vice President and Chief Administration Officer of Beneficial Bank

Below is information regarding our executive officers. Each executive officer has held his or her current position for the period indicated below. Ages presented are as of December 31, ~~2017~~2018.

Gerard P. Cuddy has served as President and Chief Executive Officer since 2006. From May 2005 to November 2006, Mr. Cuddy was a senior lender at Commerce Bank. From 2002 to 2005, Mr. Cuddy served as a Senior Vice President of Fleet/Bank of America. Before his service with Fleet/Bank of America, Mr. Cuddy held senior management positions with First Union National Bank and Citigroup. Age 5859.

Joseph V. Canosa was named Executive Vice President in February 2018. Mr. Canosa joined Beneficial Bank in 2014 as a Senior Credit Officer and was appointed Chief Credit Officer in 2016. Before that time, Mr. Canosa served as Senior Vice President and Senior Credit Officer of Sun National Bank. Age 5657.

Thomas D. Cestare joined Beneficial Bank as Executive Vice President and Chief Financial Officer of Beneficial Bank in July 2010. Before joining Beneficial Bancorp and Beneficial Bank, Mr. Cestare served as Executive Vice President and Chief Accounting Officer of Sovereign Bancorp. Mr. Cestare is a certified public accountant who was a partner with the public accounting firm of KPMG LLP before joining Sovereign Bancorp in 2005. Age 4950.

Pamela M. Cyr has served as Executive Vice President and Chief Retail Banking Officer since June 2012. Ms. Cyr is the former President and Chief Executive Officer of SE Financial Corp. Age 5051.

Martin F. Gallagher has served as Executive Vice President and Chief Lending Officer of Beneficial Bank since February 2015. Mr. Gallagher joined Beneficial in 2011 to build the Bank’s commercial lending business while enhancing the Bank’s overall credit approach. He was named Chief Credit Officer in 2012, overseeing credit, portfolio management, and special assets/workout. Before that time, Mr. Gallagher managed and developed commercial banking portfolios for Bryn Mawr Trust Company and National Penn Bank. Age 6162.

Joanne R. Ryder has served as Executive Vice President and Chief Administration Officer since April 2015. Ms. Ryder joined Beneficial Bank in July 2007 and was named Executive Vice President and Director of Brand & Strategy in January 2012. Before that time, Ms. Ryder served as Vice President, Field Marketing Manager at Commerce Bank. Age 4344.

Item 1A. RISK FACTORS

~~Our~~Completion ~~business~~of our previously announced merger with WSFS Financial Corporation is subject to ~~interest~~certain ~~rate~~conditions, ~~risk~~ and ~~variations~~if inthese ~~interest~~conditions ~~rates~~are ~~may~~not ~~negatively~~satisfied ~~affect~~or ~~our~~waived, ~~financial~~the ~~performance~~Merger will not be completed.

~~Changes~~We incurrently ~~the~~expect ~~interest~~our ~~rate~~previously ~~environment~~announced ~~may~~business ~~reduce~~combination ~~profits.~~with ~~The~~WSFS ~~primary~~to ~~source~~be ofcompleted ~~our~~during ~~income is~~ the ~~differential~~first orquarter ~~“spread”~~of ~~between~~2019. However, the ~~interest~~obligations ~~earned~~of onWSFS ~~loans, securities~~ and ~~other~~us ~~interest-earning~~to ~~assets,~~complete ~~and~~the ~~interest~~Merger ~~paid~~are onsubject ~~deposits,~~to ~~borrowings~~the ~~and~~satisfaction ~~other~~or ~~interest-bearing~~waiver ~~liabilities.~~(if Aspermitted) ~~prevailing~~of ~~interest~~a ~~rates~~number ~~change,~~of ~~net~~conditions. The ~~interest~~satisfaction ~~spreads~~of ~~are~~all ~~affected~~of by the ~~difference~~required ~~between~~conditions ~~the~~could ~~maturities~~delay ~~and~~the ~~re-pricing~~completion ~~characteristics~~ of ~~interest-earning~~the ~~assets~~Merger ~~and~~for ~~interest-bearing~~a ~~liabilities.~~significant Atperiod ~~December 31,~~of ~~2017,~~time weor ~~were~~prevent ~~asset~~it ~~sensitive and would benefit~~ from anoccurring. Any ~~increase~~delay in ~~interest~~completing ~~rates. In~~ the ~~event~~Merger ofcould acause ~~200~~the ~~basis~~combined ~~point~~company ~~increase~~not into ~~interest~~realize ~~rates,~~some weor ~~would~~all ~~expect~~of tothe ~~experience~~benefits athat ~~4.4%~~the ~~increase~~combined incompany ~~net~~expects ~~interest~~to ~~income.~~achieve ~~Because~~if the ~~prospective~~Merger ~~effects~~is ofsuccessfully ~~hypothetical~~completed ~~interest~~within ~~rate~~its ~~changes~~expected ~~are~~timeframe. ~~based on a number of assumptions~~Further, ~~these~~there ~~computations should not be relied upon as indicative of actual results.~~can

In addition, loan volume and yields are affected by market interest rates on loans, and rising interest rates generally are associated with a lower volume of loan originations. An increase in the general level of interest rates may also adversely affect the ability of certain borrowers to pay the interest on and principal of their obligations. Accordingly, changes in levels of market interest rates could materially adversely affect our net interest spread, asset quality, loan origination volume and overall profitability. In addition, our deposits are subject

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tobe ~~increases~~no inassurance ~~interest~~that ~~rates~~the ~~and~~conditions asto ~~interest~~the ~~rates~~closing ~~rise~~of wethe ~~may~~Merger ~~lose~~will ~~these~~be ~~deposits~~satisfied ifor wewaived door ~~not~~that ~~pay~~the ~~competitive~~merger ~~interest~~will ~~rates,~~be ~~which may affect our liquidity and profits~~completed.

Failure to complete our previously announced merger with WSFS Financial Corporation could negatively impact our stock price and our future business and financial results.

If our proposed merger with WSFS is not completed for any reason, our ongoing business may be adversely affected and, without realizing any of the benefits of having completed the Merger, we would be subject to a number of risks, including the following:

· We are subject to certain restrictions on the conduct of our business prior to completing the Merger, which may adversely affect our abilities to execute certain of our business strategies;

· We may experience negative reactions from the financial markets, including negative impacts on our stock price or from our customers, regulators and employees;

· We have incurred and will continue to incur certain costs and fees associated with the Merger and other transactions contemplated by the Merger Agreement; and

· Matters relating to the Merger (including integration planning) have required substantial commitments of time and resources by our management, which would otherwise have been devoted to day-to-day operations and other opportunities that may have been beneficial to us as an independent company.

In addition, we could be subject to litigation related to any failure to complete the Merger or related to any enforcement proceeding commenced against us to perform our obligations under the Merger Agreement. If the Merger is not completed, these risks may adversely affect our business, financial condition, results of operations and stock price.

Our business is subject to interest rate risk and variations in interest rates may negatively affect our financial performance.

Changes in the interest rate environment may reduce profits. The primary source of our income is the differential or “spread” between the interest earned on loans, securities and other interest-earning assets, and interest paid on deposits, borrowings and other interest-bearing liabilities. As prevailing interest rates change, net interest spreads are affected by the difference between the maturities and re-pricing characteristics of interest-earning assets and interest-bearing liabilities. At December 31, 2018, we were asset sensitive and would benefit from an increase in interest rates. In the event of a 200 basis point increase in interest rates, we would expect to experience a 5.0% increase in net interest income. 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.

Our emphasis on commercial loans may expose us to increased lending risks.

At December 31, ~~2017~~2018, $1.5854 billion, or 39.26%, of our loan portfolio consisted of commercial real estate loans, $~~670~~615.12 million, or 1615.68%, of our loan portfolio consisted of commercial business loans, and $~~146~~188.65 million, or 34.68%, of our loan portfolio consisted of commercial construction loans, including loans for the acquisition and development of property. At December 31, ~~2017~~2018, we had a total of 3751 land acquisition and development loans totaling $~~117~~149.13 million included primarily in commercial real estate and commercial construction loans, which consist of 1423 residential land acquisition and development loans totaling $5286.80 million and 2328 commercial land acquisition and development loans totaling $6463.3 million. We are committed to growing our commercial banking business and, over the past few years, we have hired additional lenders with significant experience in our market area to expand our commercial real estate and commercial and industrial lending efforts. We expect to continue to look for additional qualified lenders to further accelerate our commercial loan growth.

Commercial real estate loans and commercial business loans generally expose a lender to a greater risk of loss than one- to four-family residential loans. Repayment of commercial real estate and commercial business loans generally is dependent, in large part, on sufficient income from the property or business to cover operating expenses and debt service. Commercial real estate loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to one- to four-family residential mortgage loans. Changes in economic conditions that are out of the control of the borrower and lender could impact the value of the security for the loan, the future cash flow of the affected property, or the marketability of a construction project with respect to loans originated for the acquisition and development of property. Additionally, any decline in real estate values may be more pronounced with respect to commercial real estate properties than residential properties. Also, many of our multi-family and commercial real estate and commercial business borrowers have more than one loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss compared to an adverse development with respect to a residential mortgage loan. Further, unlike residential mortgages or multi-family and commercial real estate loans, commercial and industrial loans may be secured by collateral other than real estate, such as inventory and accounts receivable, the value of which may be more difficult to appraise and may be more susceptible to fluctuation in value at default.

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Strong competition within our market area could hurt our profits and slow growth.

We face substantial competition in originating loans, both commercial and consumer. This competition comes principally from other banks, savings institutions, mortgage banking companies and other lenders. Many of our competitors enjoy advantages that we do not, including greater financial resources and higher lending limits, a wider geographic presence, more accessible branch office locations, the ability to offer a wider array of services or more favorable pricing alternatives, as well as lower origination and operating costs. This competition could reduce our net income by decreasing the number and size of loans that we originate and the interest rates we may charge on these loans.

In attracting business and consumer deposits, we face substantial competition from other insured depository institutions such as banks, savings institutions and credit unions, as well as institutions offering uninsured investment alternatives, including money market funds. Many of our competitors enjoy advantages that we do not, including greater financial resources, more aggressive marketing campaigns, better brand recognition and more branch locations. These competitors may offer higher interest rates than we do, which could decrease the deposits that we attract or require us to increase our rates to retain existing deposits or attract new deposits. Increased deposit competition could adversely affect our ability to generate the funds necessary for lending operations. As a result, we may need to seek other sources of funds that may be more expensive to obtain and could increase our cost of funds.

Our banking and non-banking subsidiaries also compete with non-bank providers of financial services, such as brokerage firms, consumer finance companies, credit unions, insurance agencies, on-line banks, financial technology companies and governmental organizations, which may offer more favorable terms. Some of our non-bank competitors are not subject to the same extensive regulations that govern our banking operations. As a result, such non-bank competitors may have advantages over our banking and non-banking subsidiaries in providing certain products and services. Technological change is influencing how individuals and firms conduct their financial affairs and changing the delivery channels for financial services, with the result that the Company may have to contend with a broader range of competitors including many that are not located within the geographic footprint of its banking office network. This competition may reduce or limit our margins on banking and non-banking services, reduce our market share, and adversely affect our earnings and financial condition.

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In addition, our performance is largely dependent on the talents and efforts of highly skilled individuals. Our future success depends on our continuing ability to identify, hire, develop, motivate and retain highly skilled personnel for all areas of our organization. Competition in our industry for qualified employees is intense, and we are aware that certain of our competitors have directly targeted our employees. Our continued ability to compete effectively depends on our ability to attract new employees and to retain and motivate our existing employees.

Our emphasis on residential mortgage loans and home equity loans exposes us to lending risks, and the geographic concentration of our loan portfolio and lending activities makes us vulnerable to a downturn in the local economy.

At December 31, ~~2017~~2018, $~~943~~968.69 million, or 2324.49% of our loan portfolio, consisted of one- to four-family residential real estate loans and $~~228~~201.15 million, or 5.72% of our loan portfolio, consisted of home equity loans and lines of credit. One- to four-family residential mortgage lending is generally sensitive to regional and local economic conditions that significantly impact the ability of borrowers to meet their loan payment obligations, making loss levels difficult to predict. Declines in real estate values could cause some of our residential mortgages and home equity loans to be inadequately collateralized, which would expose us to a greater risk of loss if we seek to recover on defaulted loans by selling the real estate collateral. Real estate values are affected by various factors, including supply and demand, changes in general or regional economic conditions, interest rates, governmental rules or policies and natural disasters. Future weakness in economic conditions also could result in reduced loan demand and a decline in loan originations. In particular, a significant decline in real estate values would likely lead to a decrease in new multi-family, commercial real estate, residential mortgage, and home equity loan originations and increased delinquencies and defaults in our real estate loan portfolio.

A return to recessionary conditions could result in increases in our level of non-performing loans and/or reduce demand for our products and services, which would lead to lower revenue, higher loan losses and lower earnings.

Although economic conditions have improved since the end of the economic recession in June 2009, economic growth has been slower than in past recoveries and the recovery is entering its ~~eighth~~tenth year which is longer than past recoveries. A return of recessionary conditions and/or continued negative developments in the domestic and international credit markets may significantly affect the markets in which we do business, the value of our loans and investments, and our ongoing operations, costs and profitability. Further declines in real estate values and sales volumes and increases in unemployment levels may result in higher than expected loan delinquencies, increases in our levels of nonperforming and classified assets and a decline in demand for our products and services. These negative events may cause us to incur losses and may adversely affect our capital, liquidity and financial condition.

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levels of nonperforming and classified assets and a decline in demand for our products and services. These negative events may cause us to incur losses and may adversely affect our capital, liquidity and financial condition.

If our allowance for loan losses is not sufficient to cover actual loan losses, our results of operations will be negatively impacted.

In determining the amount of the allowance for loan losses, we analyze our loss and delinquency experience by loan categories and we consider the effect of existing economic conditions. In addition, we make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. If the results of our analyses are incorrect, our allowance for loan losses may not be sufficient to cover losses inherent in our loan portfolio, which would require additions to our allowance and would decrease our net income. Our emphasis on loan growth and on increasing our portfolio of multi-family, commercial business and commercial real estate loans, as well any future credit deterioration, could also require us to increase our allowance further in the future.

In addition, bank regulators periodically review our allowance for loan losses and may require us to increase our provision for loan losses or recognize further loan charge-offs. Any increase in our allowance for loan losses or loan charge-offs as required by these regulatory authorities may have a material adverse effect on our results of operations and financial condition.

A significant percentage of our assets is invested in securities which typically have a lower yield than our loan portfolio.

Our results of operations are substantially dependent on our net interest income. At December 31, ~~2017~~2018, 2427.63% of our assets were invested in investment securities, overnight investments and cash and due from banks. These investments yield substantially less than the loans we hold in our portfolio. While we intend to invest a greater proportion of our assets in loans with the goal of increasing our net interest income, we may not be able to increase originations of loans that are acceptable to us.

We are subject to certain risks in connection with our strategy of growing through mergers and acquisitions.

Mergers and acquisitions have contributed significantly to our growth in the past, and remain a component of our business model. Most recently, as previously disclosed, on April 14, 2016, we completed the acquisition of Conestoga Bank. Additionally, it is possible that we could acquire other banking institutions, other financial services companies or branches of banks in the future. Acquisitions typically involve the payment of a premium over book and trading values and, therefore, may result in the dilution of our book value per share. Our ability to engage in future mergers and acquisitions depends on various factors, including (1) our ability to identify suitable merger partners and acquisition opportunities, (2) our ability to finance and complete transactions on acceptable terms and at acceptable prices and (3) our ability to receive the necessary regulatory and, when required, shareholder approvals. Furthermore, mergers and acquisitions involve a number of risks and challenges, including (1) our ability to integrate the branches and operations we acquire, and the internal controls and regulatory functions into our current operations and (2) the diversion of management’s attention from existing operations. Our inability to engage in an acquisition or merger for any of these reasons could have an adverse impact on the implementation of our business strategies.

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We hold goodwill, an intangible asset, that could be classified as impaired in the future. If goodwill is considered to be either partially or fully impaired in the future, our earnings and the book value of goodwill would decrease.

We are required to test our goodwill for impairment on a periodic basis. The impairment testing process considers a variety of factors, including the current market price of our common shares, the estimated net present value of our assets and liabilities and information concerning the terminal valuation of similarly situated insured depository institutions. It is possible that future impairment testing could result in a partial or full impairment of the value of our goodwill. If an impairment determination is made in a future reporting period, our earnings and the book value of goodwill will be reduced by the amount of the impairment.

We may be adversely affected by recent changes in U.S. tax laws and regulations.

Changes in tax laws contained in the Tax Cuts and Jobs Act, which was enacted in December 2017, include a number of provisions that will have an impact on the banking industry, borrowers and the market for residential real estate. Included in this legislation was a reduction of the corporate income tax rate from 35% to 21%. In addition, other changes included: (i) a lower limit on the deductibility of mortgage interest on single-family residential mortgage loans, (ii) the elimination of interest deductions for home equity loans, (iii) a limitation on the deductibility of business interest expense and (iv) a limitation on the deductibility of property taxes and state and local income taxes.

The recent changes in the tax laws may have an adverse effect on the market for, and valuation of, residential properties, and on the demand for such loans in the future, and could make it harder for borrowers to make their loan payments. In addition, these recent changes may also have a disproportionate effect on taxpayers in states with high residential home prices and high state and local taxes, such as Pennsylvania and New Jersey. If home ownership becomes less attractive, demand for mortgage loans could decrease. The value of the properties securing loans in our loan portfolio may be adversely impacted as a result of the changing economics of home ownership, which could require an increase in our provision for loan losses, which would reduce our profitability and could materially adversely affect our business, financial condition and results of operations.

The preparation of our tax returns requires the use of estimates and interpretations of complex tax laws and regulations and is subject to review by taxing authorities.

We are subject to the income tax laws of the U.S., its states and municipalities. These tax laws are complex and subject to different interpretations by the taxpayer and the relevant governmental taxing authorities. In establishing a provision for income tax expense and filing returns, we must make judgments and interpretations about the application of these inherently complex tax laws. Actual income taxes paid may vary from estimates depending upon changes in income tax laws, actual results of operations, and the final audit of tax returns by taxing authorities. Tax assessments may arise several years after tax returns have been filed. We are subject to ongoing tax examinations and assessments in various jurisdictions.

As of December 31, ~~2017~~2018, we had net deferred tax assets totaling $2321.07 million. These deferred tax assets can only be realized if we generate taxable income in the future. We regularly evaluate the realizability of deferred tax asset positions. In determining whether a valuation allowance is necessary, we consider estimates of future pre-tax and taxable income and tax planning strategies that would, if necessary, be implemented. We currently maintain a valuation allowance for certain state net operating losses that management believes it is more likely than not that such deferred tax assets will not be realized. We expect to realize our remaining deferred tax assets over the allowable carryforward periods. Therefore, no valuation allowance is deemed necessary against our federal or remaining state deferred tax assets as of December 31, ~~2017~~2018. However, if an unanticipated event occurred that materially changed pre-tax and taxable income in future periods, an increase in the valuation allowance may become necessary and it could be material to our financial statements. Our net deferred tax asset of $2321.07 million was determined based on the current enacted federal tax rate of 21%. The passage of the H.R. 1 Act in December 2017 lowered the federal corporate tax rate to 21% from 35%. The Company re-measured its net deferred tax assets at the current 21% federal corporate tax rate and, as a result, the Company recorded $13.1 million of additional income tax expense during the year ended December 31, 2017. Any possible future reduction in federal tax rates, would reduce the value of our net deferred tax assets and result in immediate write-down of the net deferred tax assets though our statement of operations, the effect of which would be material.

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passage of the Tax Cuts and Jobs Act Act in December 2017 lowered the federal corporate tax rate for 2018 to 21% from 35%. The Company re-measured its net deferred tax assets at the current 21% federal corporate tax rate and, as a result, the Company recorded $13.1 million of additional income tax expense during the year ended December 31, 2017. Any possible future reduction in federal tax rates, would reduce the value of our net deferred tax assets and result in immediate write-down of the net deferred tax assets though our statement of operations, the effect of which would be material.

We operate in a highly regulated environment and we may be adversely affected by changes in laws and regulations.

We are subject to extensive regulation, supervision and examination by the FDIC, as insurer of our deposits, and by the Department as our primary regulator. Beneficial Bancorp is subject to regulation and supervision by the Federal Reserve Board. Such regulation and supervision governs the activities in which an institution and its holding company may engage and are intended primarily for the protection of the insurance fund and the depositors and borrowers of Beneficial Bank rather than for holders of our common stock. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, the classification of our assets and determination of the level of our allowance for loan losses. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may increase our costs of operations and have a material impact on our operations.

We are now subject to more stringent capital requirements, which may adversely impact our return on equity, or constrain us from paying dividends or repurchasing shares.

In July 2013, the Federal Deposit Insurance Corporation and the Federal Reserve Board approved new rules that amended the regulatory risk-based capital rules applicable to Beneficial Bank and Beneficial Bancorp. The final rules implement the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act.

18The rules include new risk-based capital and leverage ratios, which became effective on January 1, 2015, and revise 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 eliminate the inclusion of certain instruments, such as trust preferred securities, from Tier 1 capital. Instruments issued prior to May 19, 2010 will be grandfathered for companies with consolidated assets of $15 billion or less. 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 started to be phased in beginning in January 2016 at 0.625% of risk-weighted assets and were increased by that amount each year until fully implemented in January 2019. An institution is 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.

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The rules include new risk-based capital and leverage ratios, which became effective on January 1, 2015, and revise 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 eliminate the inclusion of certain instruments, such as trust preferred securities, from Tier 1 capital. Instruments issued prior to May 19, 2010 will be grandfathered for companies with consolidated assets of $15 billion or less. 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 started to be 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 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.

The application of more stringent capital requirements for Beneficial Bank and Beneficial Bancorp could, among other things, result in lower returns on equity, require the raising of additional capital, and result in regulatory actions constraining us from paying dividends or repurchasing shares if we were to be unable to comply with such requirements.

Our framework for managing risks may not be effective in mitigating risk and loss.

Our risk management framework seeks to mitigate risk and loss. We have established processes and procedures intended to identify, measure, monitor, report and analyze the types of risk to which we are subject, including liquidity risk, interest rate risk, credit risk, market risk and reputational risk, among others. However, as with any risk management framework, there are inherent limitations to our risk management strategies and there may exist, or develop in the future, risks that we have not anticipated or identified. If our risk management framework proves to be ineffective, we could suffer unexpected losses and could be materially adversely affected.

Loss of, or failure to adequately safeguard, confidential or proprietary information may adversely affect our operations, net income or reputation.

We regularly collect, process, transmit and store significant amounts of confidential information regarding our customers, employees and others and concerning our own business, operations, plans and strategies. In some cases, this confidential or proprietary information is collected, compiled, processed, transmitted or stored by third parties on our behalf.

Information security risks have generally increased in recent years because of the proliferation of new technologies and the increased sophistication and activities of perpetrators of cyber-attacks and mobile phishing. Mobile phishing, a means for identity thieves to obtain sensitive personal information through fraudulent e-mail, text or voice mail, is an emerging threat targeting the customers of popular financial entities. A failure in or breach of our operational or information security systems, or those of our third-party service providers, as a result of cyber-attacks or information security breaches or due to employee error, malfeasance or other disruptions could adversely affect our business, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs and/or cause losses.

If this confidential or proprietary information were to be mishandled, misused or lost, we could be exposed to significant regulatory consequences, reputational damage, civil litigation and financial loss.

Although we employ a variety of physical, procedural and technological safeguards to protect this confidential and proprietary information from mishandling, misuse or loss, these safeguards do not provide absolute assurance that mishandling, misuse or loss of the information will not occur, and that if mishandling, misuse or loss of the information did occur, those events will be promptly detected and addressed. Similarly, when confidential or proprietary information is collected, compiled, processed, transmitted or stored by third parties on our behalf, our policies and procedures require that the third party agree to maintain the confidentiality of the information, establish and maintain policies and procedures designed to preserve the confidentiality of the information, and permit us to confirm the third party’s compliance with the terms of the agreement. Although we believe that we have adequate information security procedures and other safeguards in place, as information security risks and cyber threats continue to evolve, we may be required to expend additional resources to continue to enhance our information security measures and/or to investigate and remediate any information security vulnerabilities.

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will not occur, and that if mishandling, misuse or loss of the information did occur, those events will be promptly detected and addressed. Similarly, when confidential or proprietary information is collected, compiled, processed, transmitted or stored by third parties on our behalf, our policies and procedures require that the third party agree to maintain the confidentiality of the information, establish and maintain policies and procedures designed to preserve the confidentiality of the information, and permit us to confirm the third party’s compliance with the terms of the agreement. Although we believe that we have adequate information security procedures and other safeguards in place, as information security risks and cyber threats continue to evolve, we may be required to expend additional resources to continue to enhance our information security measures and/or to investigate and remediate any information security vulnerabilities.

The failure of other companies to adequately provide key components of our business infrastructure could adversely affect our operations and revenues.

Third party vendors provide key components of our business infrastructure such as internet connections, network access and core processing systems. While we have selected these third -party vendors carefully and our agreements include requirements regarding the levels of their service quality, we ultimately do not control their actions. Any problems caused by these third parties, including those that result from their failure to provide services for any reason or their poor performance of services, could adversely affect our ability to deliver products and services to our customers and otherwise to conduct our business. Replacing these third -party vendors could also entail significant delay and expense.

Item 1B. UNRESOLVED STAFF COMMENTS

None.

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Item 2. PROPERTIES

We conduct our business through our headquarters located at 1818 Market Street, Philadelphia, PA and 61 branch offices located in Bucks, Chester, Delaware, Montgomery and Philadelphia Counties in Pennsylvania and Burlington, Camden and Gloucester Counties in New Jersey. We own 3231 properties and lease the other 2930 properties. In Pennsylvania, we serve our customers through our four offices in Bucks County, seven offices in Delaware County, nine offices in Montgomery County, 15 offices in Philadelphia County and three offices in Chester County. In New Jersey, we serve our customers through our 18 offices in Burlington County, four offices in Camden County and one office in Gloucester County. We operate ~~one~~a leasing office in Chester County, Pennsylvania~~. In~~ ~~addition,~~and ~~Beneficial Insurance Services~~Philadelphia, ~~LLC operates one office in Montgomery County,~~ Pennsylvania. All branches and offices are adequate for business operation.

During the year ended December 31, 2017, the Company formed Neumann Finance Company (“Neumann”), a majority owned subsidiary equipment leasing company that operates from a leased office located in Philadelphia, Pennsylvania.

Item 3. LEGAL PROCEEDINGS

The Company and its directors ~~have~~had been named in a lawsuit filed in Maryland state circuit court regarding compensation levels of directors in connection with equity awards granted in the second quarter of 2016 under the Company’s 2016 Omnibus Incentive Plan. The defendants ~~believe~~believed the lawsuit, alleging breach of fiduciary duty and unjust enrichment under Maryland law, is without merit and ~~intend to~~ vigorously ~~defend~~defended it. During the quarter ended December 31, 2018, this lawsuit was settled with the plaintiffs.

~~Aside~~On ~~from~~October 15, ~~the~~2018, ~~litigation~~one ~~discussed~~purported ~~above,~~Company ~~Beneficial~~stockholder ~~Bancorp~~filed ~~and~~a putative class action lawsuit against Beneficial ~~Bank~~and ~~are~~the ~~involved~~members inof ~~routine~~the ~~legal~~Company’s ~~proceedings~~Board of Directors in the ~~ordinary~~United ~~course~~States District Court for the Southern District of ~~business~~New York, captioned Dappollone v. ~~Such~~Beneficial ~~routine~~Bancorp, Inc., ~~legal~~et ~~proceedings~~al., inDocket ~~the~~No. 1:18-cv-09395. ~~aggregate~~The plaintiff, ~~are~~on ~~believed~~behalf of himself and similarly situated Company stockholders, generally alleged that the defendants violated Sections 14(a) and 20(a) of the Exchange Act and Rule 14a-9 promulgated thereunder by ~~management~~disclosing tomaterially beincomplete ~~immaterial~~and misleading information about the Merger to ~~our~~Company ~~financial~~stockholders. ~~condition~~The plaintiff sought injunctive relief, ~~results~~unspecified damages and an award of ~~operations~~attorneys’ fees and ~~cash flows~~expenses.

On October 19, 2018, another purported Company stockholder filed a putative derivative and class action lawsuit against the Company, the members of the Company’s Board of Directors and Wilmington Savings Fund Society, FSB, in the Circuit Court for Baltimore City, Maryland, on behalf of himself and similarly situated Beneficial stockholders, and derivatively on behalf of Beneficial, captioned Parshall v. Farnesi et al., Case No. The plaintiff generally alleged that the Beneficial board of directors breached its fiduciary obligations by approving the terms of the Merger, including allegedly inadequate merger consideration and certain deal protection devices, and making materially incomplete disclosures about the merger to Company stockholders. The plaintiff sought injunctive relief, unspecified damages, and an award of attorneys’ fees and expenses.

On October 31, 2018, three other purported Company stockholders filed separate lawsuits against the Company and the members of the Company’s Board of Directors in the District Court for the District of Maryland, captioned Wolenter v. Beneficial Bancorp, Inc. et al. (Case No. 1:18-cv-03379-JKB), Karp v. Beneficial Bancorp, Inc. et. al. (Case No. 1:18-cv-03381-ELH), and Bushanksy v. Beneficial Bancorp, Inc. et al. (Case No. 1:18-cv-03382-DKC). The plaintiffs each generally alleged that the registration statement filed with the SEC on September 27, 2018 contained materially misleading omissions or misrepresentations in violation of Section 14(a) and Section 20(a) of the Exchange Act. The plaintiffs each sought injunctive relief, unspecified damages, and an award of attorneys’ fees and expenses.

On November 29, 2018, the Company filed with the SEC a Current Report on Form 8-K making additional disclosures to supplement the disclosures in the allegedly misleading proxy statement disclosures set forth in the five complaints relating to the Merger. Each plaintiff agreed that the Form 8-K mooted his or her disclosure claims, and accordingly each of the five lawsuits related to the Merger was voluntarily dismissed in January 2019

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Beneficial Bancorp and Beneficial Bank are 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 our financial condition, results of operations and cash flows.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

2021

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PART II

The Company’s common stock is listed on the Nasdaq Global Select Market (“Nasdaq”) under the trading symbol “BNCL.” As of February 2826, ~~2018~~2019, the Company had approximately 2,~~840~~766 holders of record of common stock.

The following table sets forth high and low sales prices for Beneficial Bancorp’s common stock for the periods indicated. Beneficial Bancorp paid dividends of 24 cents per share for the year ended December 31, 2017. Beneficial Bancorp paid dividends of 6 cents per share in the third and fourth quarters of 2016 but did not pay dividends for the first and second quarters of 2016.

2017:	High		Low
First Quarter	$	18.28	$	15.73
Second Quarter	$	16.67	$	14.24
Third Quarter	$	16.69	$	14.50
Fourth Quarter	$	17.40	$	15.40

2016:	High		Low
First Quarter	$	13.66	$	12.33
Second Quarter	$	13.88	$	12.48
Third Quarter	$	15.04	$	12.33
Fourth Quarter	$	19.00	$	14.35

Stock Performance Graph

The following graph provided by SNL Financial compares the cumulative total return of the Company’s common stock with the cumulative total return of the SNL Mid-Atlantic Thrift Index and the Index for the Nasdaq Stock Market (U.S. Companies, all Standard Industrial Classification, (“SIC”)). The graph assumes $100 was invested on December 31, 2012, the first day of trading of the Company’s common stock. Cumulative total return assumes reinvestment of all dividends. The performance graph is being furnished solely to accompany this report pursuant to Item 201(e) of Regulation S-K, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

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	Period Ending
Index	12/31/12	12/31/13	12/31/14	12/31/15	12/31/16	12/31/17
Beneficial Bancorp, Inc.	100.00	114.95	129.16	154.22	214.85	194.92
NASDAQ Composite Index	100.00	140.12	160.78	171.97	187.22	242.71
SNL Mid-Atlantic Thrift Index	100.00	130.06	137.76	152.29	182.99	178.27

Purchases of Equity Securities

On ~~January~~July 1321, 2016, the Company ~~announced~~adopted ~~that~~a ~~its~~second ~~Board~~stock ~~of Directors had authorized its first share~~ repurchase program ~~since~~for ~~completing its mutual-to-stock conversion and related stock offering in January 2015 to acquire~~ up to ~~8,291,859~~10% ~~shares~~ of ~~the~~its ~~Company’s~~ outstanding common stock, or ~~approximately~~7,770,978 ~~10% of outstanding~~ shares. During the ~~second~~year ~~quarter~~ended ofDecember 31, ~~2016~~2018, ~~Beneficial~~the ~~completed~~Company ~~this~~purchased ~~first~~945,400 ~~share~~shares under the second stock repurchase ~~program~~plan.

OnThe ~~July 21, 2016, the~~ Company ~~adopted~~did anot ~~second stock~~ repurchase ~~program~~any ~~for~~shares ~~up to 10%~~ of its ~~outstanding~~ common stock, orduring ~~7,770,978 shares. During~~ the ~~year~~three months ended December 31, ~~2017, the Company purchased 703,800 shares under the second stock repurchase plan~~2018.

The following table sets forth information regarding the Company’s repurchases of its common stock during the three months ended December 31, 2017.

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)
October 1-31	—	—	—	5,445,078
November 1-30	—	—	—	5,445,078
December 1-31	—	—	—	5,445,078

(1) On July 21, 2016, the Company announced that its Board of Directors had authorized a stock repurchase program to acquire up to 7,770,978 shares of the Company’s outstanding common stock, or approximately 10% of outstanding shares.

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Item 6. SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

At and For the Year Ended December 31, (Dollars in thousands, except per share amounts)

~~2017~~2018

~~2016~~2017

~~2015~~2016

~~2014~~2015

~~2013~~2014

Financial Condition Data:

Total assets

5,~~798~~806,~~828~~925

5,~~738~~798,~~593~~828

45,~~826~~738,~~695~~593

4,~~751~~826,~~522~~695

4,~~583~~751,~~413~~522

Cash and cash equivalents

~~557~~852,~~615~~475

~~287~~557,~~046~~615

~~233~~287,~~920~~046

~~534~~233,~~015~~920

~~355~~534,~~683~~015

Investment securities available-for-sale

~~310~~285,~~308~~622

~~451~~310,~~544~~308

~~655~~451,~~162~~544

~~757~~655,~~834~~162

1757,~~034,180~~834

Investment securities held-to-maturity

~~537~~424,~~302~~571

~~602~~537,~~529~~302

~~696~~602,~~310~~529

~~727~~696,~~755~~310

~~528~~727,~~829~~755

Loans and leases receivable, net

3,~~990~~851,~~863~~343

3,~~967~~990,~~307~~863

23,~~895~~967,~~946~~307

2,~~371~~895,~~091~~946

2,~~286~~371,~~158~~091

Deposits

4,~~150~~172,~~493~~598

4,~~158~~150,~~188~~493

34,~~451~~158,~~923~~188

3,~~879~~451,~~709~~923

3,~~660~~879,~~016~~709

Federal Home Loan Bank advances

515,000

~~465~~515,000

~~165~~465,000

165,000

~~195~~165,000

Other borrowed funds

~~25,439~~—

25,~~423~~439

25,~~405~~423

25,~~388~~405

5525,~~370~~388

Noncontrolling Interest*

~~592~~158

—592

—

Beneficial Bancorp, Inc. stockholders’ equity

1,~~034~~049,~~298~~992

1,~~013~~034,~~756~~298

1,~~115~~013,~~546~~756

~~610~~1,~~894~~115,546

~~615~~610,~~146~~894

Operating Data:

Interest income

~~197~~211,~~868~~778

~~173~~197,~~793~~868

~~143~~173,~~339~~793

~~139~~143,~~305~~339

~~149~~139,~~376~~305

Interest expense

2831,~~000~~414

2228,~~876~~000

1922,~~117~~876

2119,~~881~~117

2521,~~640~~881

Net interest income

~~169~~180,~~868~~364

~~150~~169,~~917~~868

~~124~~150,~~222~~917

~~117~~124,~~424~~222

~~123~~117,~~736~~424

Provision for loan and lease losses

34,~~118~~581

~~485~~3,118

~~(3,600~~485

)

~~200~~(3,600

)

~~13,000~~200

Net interest income after provision for loan and lease losses

~~166~~175,~~750~~783

~~150~~166,~~432~~750

~~127~~150,~~822~~432

~~117~~127,~~224~~822

~~110~~117,~~736~~224

Non-interest income

28,~~765~~870

2728,~~805~~765

2427,~~284~~805

24,~~783~~284

2524,~~125~~783

Non-interest expenses

~~138~~141,~~797~~262

~~139~~138,~~124~~797

~~118~~139,~~488~~124

118,~~251~~488

~~120~~118,~~688~~251

Income before income taxes

5663,~~718~~391

3956,~~113~~718

3339,~~618~~113

2333,~~756~~618

1523,~~173~~756

Income tax expense

3216,~~794~~156

1332,~~644~~794

1013,~~725~~644

510,~~723~~725

25,~~595~~723

Consolidated net income

2347,~~924~~235

2523,~~469~~924

2225,~~893~~469

1822,~~033~~893

1218,~~578~~033

Net Income attributable to noncontrolling interest*

(8609

)

—(8

)

—

Net income attributable to Beneficial Bancorp Inc.

2347,~~932~~844

2523,~~469~~932

2225,~~893~~469

1822,~~033~~893

1218,~~578~~033

Average common shares outstanding — Basic

70,~~574~~912,~~037~~191

7170,~~902~~574,~~158~~037

7871,~~513~~902,~~929~~158

8078,~~701~~513,~~991~~929

8380,~~417~~701,~~947~~991

Average common shares outstanding — Diluted

71,~~167~~517,~~475~~248

7271,~~632~~167,~~437~~475

7972,~~276~~632,~~984~~437

8179,~~379~~276,~~981~~984

8381,~~686~~379,~~329~~981

Net income earnings per share - Basic

0.3366

0.3433

0.2934

0.2229

0.1522

Net income earnings per share — Diluted

0.3265

0.3432

0.2934

0.2229

0.1522

Dividends declared per share

0.2449

0.1224

—0.12

—

* - Noncontrolling interest relates to the majority owned subsidiary equipment leasing company, Neumann Finance Company, formed during the year ended December 31, 2017.

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At and For the Year Ended December 31,	~~2017~~2018		~~2016~~2017		~~2015~~2016		~~2014~~2015		~~2013~~2014
Performance Ratios:
Return on average assets	0.4181	%	0.4741	%	0.4847	%	0.4048	%	0.2640	%
Return on average equity	24.2961		2.4529		2.1545		2.9415		2.0194
Interest rate spread (1)	23.9711		2.8697		2.6486		2.7264		2.7072
Net interest margin (2)	3.1229		3.0012		23.8000		2.8280		2.8182
Non-interest expense to average assets	2.3943		2.5839		2.5058		2.6450		2.5464
Efficiency ratio (3)	6967.9351		7769.8493		7977.7984		8379.1579		8183.0715
Average interest-earning assets to average interest-bearing liabilities	~~129~~130.3283		~~131~~129.3432		~~136~~131.2634		~~119~~136.9126		~~117~~119.5091
Average equity to average assets	17.7263		1917.2072		2219.4220		1322.6742		13.1567
Capital Ratios (4):
Tier 1 Leverage (to average assets)	1413.4661		14.7646		1614.8676		1116.0586		1011.1505
Common Equity Tier 1 Capital (to risk weighted assets)	2019.3463		20.1734		2720.5717		~~N/A~~27.57		N/A
Tier 1 capital to risk-weighted assets	2019.3463		20.1734		2720.5717		2127.1757		2021.5717
Total risk-based capital to risk-weighted assets	2120.4172		21.2541		2821.8325		2228.4383		2122.8343
Asset Quality Ratios:
Allowance for loan losses as a percent of total loans	1.07		1.08		1.55		2.09		2.38
Allowance for loan losses as a percent of total loans and leases	1.11		1.07		1.08		1.55		2.09
Allowance for loan losses as a percent of non-performing loans	~~124~~145.7953		~~160~~124.7579		~~120~~160.7975		~~126~~120.9279		73126.0592
Net charge-offs to average outstanding loans during the period	0.08		0.08		0.06		0.22		0.63
Net charge-offs to average outstanding loans and leases during the period	0.12		0.08		0.08		0.06		0.22
Non-performing loans as a percent of total loans (5)	0.86		0.67		1.28		1.65		3.25
Non-performing loans as a percent of total loans and leases (5)	0.76		0.86		0.67		1.28		1.65
Non-performing assets as a percent of total assets (5)	0.6052		0.4860		0.8148		0.8781		10.7987
Other Data:
Number of offices (6)	61		6361		5563		5855		6058

(1) Represents the difference between the weighted average yield on average interest-earning assets and the weighted average cost on average interest-bearing liabilities.

(2) Represents net interest income as a percent of average interest-earning assets.

(3) Represents other non-interest expenses divided by the sum of net interest income and non-interest income.

(4) Ratios are for Beneficial Bank.

(5) Non-performing loans and assets include accruing government guaranteed student loans past due 90 days or more.

(6) During 2016, the increase in the number of offices was primarily due to the addition of nine branches as part of the acquisition of Conestoga Bank.

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Note on Forward-Looking Statements

This section contains certain “forward-looking statements” within the meaning of the federal securities laws. These statements are not historical facts, but rather are statements based on the Company’s current expectations regarding its business strategies, intended results and future performance. Forward-looking statements are preceded by terms such as “expects,” “believes,” “anticipates,” “intends” and similar expressions.

Management’s ability to predict results or the effect of future plans or strategies is inherently uncertain. Factors that could affect actual results include, but are not limited to, our ability to complete our previously announced business combination with WSFS Financial Corporation, interest rate trends, the general economic climate in our market area, as well as nationwide, our ability to control costs and expenses, competitive products and pricing, loan delinquency rates and changes in federal and state legislation and regulation and tax laws. These factors should be considered in evaluating the forward-looking statements and undue reliance should not be placed on such statements. The Company assumes no obligation to update any forward-looking statements.

Executive Summary

~~Our~~On ~~profitability~~August 8, is2018, ~~generally~~WSFS Financial Corporation (“WSFS”) and the Company issued a ~~function~~joint press release announcing that WSFS and the Company have entered into an Agreement and Plan of Reorganization pursuant to which the ~~revenues~~Company wewill ~~earn~~merge ~~from~~with ~~our~~and ~~interest~~into ~~bearing~~WSFS, ~~assets~~with ~~less~~WSFS as the ~~cost~~surviving entity. Under the terms of ~~our~~the ~~interest~~agreement, ~~bearing~~which ~~liabilities~~has ~~plus~~been ~~revenues~~unanimously weapproved by the boards of directors of both companies, stockholders of Beneficial will receive ~~from~~0.3013 ~~non-interest~~shares ~~income~~of ~~less~~WSFS ~~our~~common ~~provision~~stock and $2.93 in cash for ~~loan~~each ~~losses~~share of Beneficial common stock. The transaction is subject to customary closing conditions and ~~non-interest~~is ~~expenses~~expected to close during the first quarter of 2019.

Our ~~primary~~profitability ~~source of revenue~~ is ~~net~~generally ~~interest~~a ~~income.~~function ~~Net interest income, which comprises 85.5%~~ of ~~our revenue for~~ the ~~year~~revenues ~~ended~~we ~~December 31,~~earn ~~2017,~~from isour ~~the~~interest-bearing ~~difference~~assets ~~between~~less the ~~income~~cost weof ~~earn~~our oninterest-bearing ~~our~~liabilities ~~loans~~plus ~~and~~revenues ~~investments~~we ~~and~~receive ~~the~~from non-interest weincome ~~pay~~less on our ~~deposits~~provision ~~and~~for ~~borrowings.~~loan ~~Changes~~losses inand ~~levels of~~ non-interest ~~rates affect our net interest income~~expenses.

AOur ~~secondary~~primary source of revenue is ~~non-~~net interest income. Net interest income, which iscomprises ~~income~~86.2% weof ~~receive~~our ~~from~~revenue ~~providing~~for ~~products~~the ~~and~~year ~~services.~~ended ~~Traditionally~~December 31, ~~the~~2018, ~~majority~~is ofthe ~~our~~difference ~~non-interest~~between the income ~~has~~we ~~come~~earn ~~from~~on ~~service~~our ~~charges~~loans ~~(mostly~~and oninvestments ~~deposit~~and ~~accounts),~~the ~~interchange~~interest ~~income,~~we ~~mortgage~~pay ~~banking~~on ~~and~~our ~~SBA~~deposits ~~income~~ and ~~from~~borrowings. ~~fee~~Changes ~~income~~in ~~from~~levels ~~our~~of ~~insurance~~interest ~~and~~rates ~~wealth~~affect ~~management~~our ~~services~~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 SBA income and from fee income from our insurance and wealth management services. We discontinued our wealth management services during the first quarter of 2018 and we sold the assets and liabilities of our insurance agency subsidiary during the three months ended September 30, 2018.

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, advertising, insurance, professional services and printing and supplies expenses. Our largest non-interest expense is salaries and employee benefits, which consist primarily of salaries and wages paid to our employees, payroll taxes, and expenses for health insurance, retirement plans and other employee benefits.

During the year ended December 31, 2017, the Company formed Neumann Finance Company (“Neumann”), a majority owned subsidiary equipment leasing company, named after the Bank’s pioneering founder, Saint John Neumann. Neumann focuses on providing financing products and services to businesses nationwide and targets various equipment categories including technology, software, office, medical and other areas.

~~The~~We ~~Company~~recorded ~~completed~~net ~~the~~income ~~acquisition~~of ~~and~~$47.8 ~~integration~~million, ofor ~~Conestoga~~$0.65 ~~Bank~~per ~~during~~diluted share, for the ~~second~~year ~~quarter~~ended ofDecember 31, ~~2016~~2018 ~~which~~compared ~~increased~~to ~~total~~net ~~loans~~income byof $~~518~~23.69 million, ~~and~~or ~~total deposits by~~ $~~588~~0.432 ~~million.~~per ~~The~~diluted ~~results~~share, offor ~~Conestoga~~the ~~Bank’s~~year ~~operations~~ended ~~have~~December 31, ~~been~~2017. Net ~~included~~income infor the ~~Company’s~~year ~~financial~~ended ~~statements beginning on April~~December 1531, ~~2016,~~2017 ~~the~~included ~~date~~a ofone- ~~the~~time ~~consummation~~$13.1 ofmillion ~~the~~charge, ~~acquisition~~or $0. ~~Additionally,~~18 ~~net~~per ~~organic~~diluted ~~loan~~share, ~~growth~~of ~~coupled~~additional ~~with~~income ~~the~~tax ~~Conestoga~~expense ~~Bank~~related ~~acquisition~~to ~~resulted~~the inenactment ~~average~~of ~~interest~~the ~~earning~~Tax ~~assets~~Cuts ~~increasing~~and ~~$411.1~~Jobs ~~million~~Act toand ~~$5.41~~its ~~billion~~impact ~~for~~on the ~~year~~re-measurement ~~ended~~of ~~December 31,~~our ~~2017~~net ~~from~~deferred ~~$5.00~~tax ~~billion~~assets ~~for~~due to the ~~same~~reduction ~~period one year ago. This growth~~ in ~~average~~the ~~earning~~corporate ~~assets~~income ~~drove~~tax ~~higher~~rate ~~levels~~for of2018 ~~net~~to ~~interest~~21% ~~income~~from ~~and profitability~~35%.

~~Overall~~Our ~~economic~~business ~~activity~~results ~~slowed~~for induring ~~our~~2018 ~~markets~~were ~~during~~favorably ~~2017~~impacted ~~resulting~~by ina ~~reduced~~rise ~~loan~~in ~~demand~~interest rates. ~~During~~Net interest margin totaled 3.29% for the year ended December 31, ~~2017,~~2018 ~~our~~compared ~~loan portfolio increased $23.6 million primarily due~~ to ~~organic growth in our commercial loan portfolio of $93.4 million, or~~ 3.812%, ~~and~~for ~~residential~~the ~~loan~~year ~~portfolio~~ended ~~of $49.1 million~~December 31, ~~or 5~~2017.~~5%,~~ The ~~partially~~increase ~~offset by decreases~~ in ~~our~~net ~~consumer~~interest ~~loans~~income ~~due~~was primarily due to aan ~~decrease~~increase in ~~indirect~~yields ~~auto~~on ~~loans~~the ~~resulting~~investment ~~from~~and ~~our~~loan ~~planned~~portfolios ~~run-off~~following ofrecent ~~this~~Federal ~~portfolio~~Reserve ~~segment. As~~Bank ~~previously~~federal ~~disclosed,~~funds werate ~~decided~~increases. During ~~to exit~~ the ~~indirect~~year ~~lending~~ended ~~business~~December 31, in2018, the ~~first~~net ~~quarter~~interest ofmargin ~~2017. We~~was ~~remain~~positively ~~focused~~impacted on9 ~~growing~~basis ~~our~~points ~~commercial~~by loan ~~portfolio~~prepayment ~~and~~income ~~leveraging~~compared ~~our~~to ~~infrastructure~~7 tobasis ~~drive~~points ~~improved~~during ~~financial~~the ~~performance~~year ended December 31, 2017.

WeDuring ~~recorded net income for~~ the ~~year~~quarter ended ~~December~~September 3130, ~~2017 of $23.9 million~~2018, orwe ~~$0.32~~entered ~~per~~into ~~diluted~~an ~~share,~~asset ~~compared~~purchase toagreement ~~net~~with ~~income~~a ofthird ~~$25.5~~party ~~million,~~to orsell ~~$0.34~~the ~~per~~net ~~diluted~~assets ~~share,~~of ~~for~~Beneficial ~~the~~Insurance ~~year ended December 31~~Services, ~~2016~~LLC. ~~Net~~In ~~income~~connection ~~for~~with ~~the~~that ~~year ended December 31~~sale, ~~2017~~Beneficial ~~included~~received anet ~~one-~~proceeds ~~time~~of $1314.1 million ~~charge,~~and orrealized ~~$0.18 per diluted share, of additional income tax expense as~~ a ~~result of the enactment of H.R. 1 (originally known as the Tax Cuts and Jobs Act) and its impact on re-measuring of our~~ net deferred tax assets (DTA) due to the reduction in the corporate income tax rate to 21% from 35%. Net income for year ended December 31, 2016 included $8.8 million of merger and restructuring charges related to the acquisition of Conestoga Bank (“Conestoga”) and the Bank’s expense management reduction program.

Following the passage of H.R. 1 (originally known as the Tax Cuts and Jobs Act) and the anticipated savings from lower future taxes, we announced a special $1,000 bonus paid to over 600 employees and enhanced our medical coverage to our entire employee base. We

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~~also~~gain ~~evaluated~~of $3.3 million as the ~~compensation~~sale ofproceeds exceeded our ~~hourly~~carrying ~~employees~~amount for Beneficial Insurance Services including goodwill and ~~intend~~intangible toassets. Goodwill ~~raise~~and ~~our~~intangible ~~minimum~~assets ~~hourly~~that ~~rate~~related to Beneficial Insurance Services decreased $1410.002 million during the ~~first~~ quarter ended September 30, 2018 as a result of the sale. For the nine months ending September 30, 2018, non-interest income and non-interest expense includes $4.6 million and $4.6 million, respectively, related to Beneficial Insurance Services. These non-interest income and non-interest expense items related to Beneficial Insurance Services will not occur in future periods.

~~During~~Loans ~~2017,~~decreased we$139.5 ~~were~~million, ~~able~~or 3.5%, to ~~improve~~$3.89 ~~our~~billion ~~net~~at ~~interest~~December 31, ~~margin~~2018, ~~which~~from ~~totaled 3~~$4.~~12%~~03 ~~for~~billion at December 31, 2017. During the year ended December 31, ~~2017~~2018, ~~compared~~our toresidential real estate portfolio increased $25.3 million, or 2.007%. However, ~~for~~this ~~the~~growth ~~year~~was ~~ended~~offset ~~December 31,~~by ~~2016~~a $54.7 ~~Net~~million ~~interest~~decrease ~~margin~~in ~~year~~our ~~over~~total ~~year~~commercial ~~has~~portfolio ~~benefited~~and ~~from~~an ~~organic~~$110.1 million decrease in our total consumer loan ~~growth,~~portfolio. We ~~the~~continue ~~impact~~to experience a number of ~~the~~large ~~Conestoga~~commercial ~~acquisition,~~loan ~~and~~payoffs ~~continued~~as ~~improvement~~projects inare ~~the~~completed ~~mix~~and ofsold ~~our~~and ~~balance~~financing ~~sheet~~is obtained from non-bank sources. The ~~net~~decrease ~~interest~~in ~~margin~~our ~~for~~consumer ~~the~~loan ~~year~~portfolio ~~ended~~was ~~December 31,~~due ~~2017~~primarily ~~was~~to ~~benefited~~a 7$63.1 ~~basis~~million ~~points~~decrease in indirect auto loans resulting from ~~loan~~our ~~prepayment~~planned ~~adjustments~~run-off of this portfolio segment. As previously disclosed, we decided to exit the indirect auto lending business in the first quarter of 2017.

Asset quality metrics continued to remain strong with a non-performing assets to total assets, excluding government guaranteed student loans, of 0.38% as of December 31, 2018, compared to 0.36% at December 31, 2017. Our allowance for loan losses totaled $43.3 million, or 1.0711% of total loans, as of December 31, ~~2017~~2018, compared to $43.3 million, or 1.0807% of total loans, as of December 31, ~~2016~~2017.

During the second quarter of 2016, the Company 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 of its common stock. 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. During the year ended December 31, ~~2017~~2018, the Company purchased ~~703~~945,~~800~~400 shares of its common stock under the second stock repurchase plan.

During the year ended December 31, ~~2017~~2018, the Company declared and paid cash dividends totaling $1735.67 million. On January 2531, ~~2018~~2019, the Company declared ~~its~~a ~~seventh consecutive quarterly~~ cash dividend of ~~$0.06~~6 ~~per~~cents ~~share. Additionally the Company declared a special dividend of $0.25~~ per common share, ~~given our high capital levels and expected benefit to future earnings as a result of the enactment of H.R. 1. Both dividends were~~ payable on or after February 1521, ~~2018~~2019, to common shareholders of record at the close of business on February 511, ~~2018~~2019.

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. Our capital levels have remained strong with tangible capital to tangible assets totaling 15.3375% at December 31, ~~2017~~2018 compared to 15.1033% at December 31, ~~2016~~2017.

We believe in working with our customers to help them save and use credit wisely. We dedicate financial and human capital to support organizations that share our sense of responsibility to do what’s right for the communities we serve. We remain committed to the financial responsibility we have practiced throughout our ~~163-year~~ history, and we are dedicated to providing financial education opportunities to our customers by providing the tools necessary to make wise financial decisions.

To further improve our operating returns, we continue to leverage our position as one of the largest and oldest banks headquartered in the Philadelphia metropolitan area. We are focused on acquiring and retaining customers, and then educating them by aligning our products and services to their financial needs. We also intend to deploy some of our excess capital to grow Beneficial Bank in our markets.

Business Strategy

Our business strategy is to continue to operate and grow a profitable community-oriented financial institution. We plan to achieve this by executing our strategy of:

· Differentiating Beneficial Bank as a community bank that educates its customers to “do the right thing” financially by utilizing the “Beneficial Conversation” to better understand our customers and their needs and offer more personalized products and services;

· Increasing profitability through an improved balance sheet mix by growing commercial and small business lending and reducing our cash and investments;

· Employing a shareholder-focused management of capital;

· Expanding our franchise by selectively pursuing acquisition opportunities in or adjacent to our market area;

· Enhancing earnings by increasing core deposits and emphasizing operational efficiencies; and

· Maintaining asset quality by using consistent, disciplined underwriting practices to maintain the quality of our loan portfolio.

Differentiating Beneficial Bank as a community bank that educates its customers to “do the right thing” financially by utilizing the “Beneficial Conversation” to better understand our customers and their needs and offer more personalized products and services

We are committed to educating our customers to “do the right thing” financially by providing them with the tools necessary to make wise financial decisions. To effect this, we seek to understand our customers’ financial needs and goals through a conversational approach known as the “Beneficial Conversation,” which allows us to build financial plans around each customer’s needs, life stages and priorities. We have developed a sophisticated training program centered around the Beneficial Conversation that we have administered to our entire retail group in an effort to familiarize our employees with our broad array of financial products, including cash management, insurance and other related retail services we provide. We require that all of our employees become fluent and certified in this conversational approach to customer interaction, and we have implemented the “Beneficial Conversation” in our branch offices as well as through digital social media outlets. The Beneficial Conversation is a continuous, multi-step process that enables us to better understand a customer’s

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current financial state, future financial goals and the best path towards achieving those goals. Once we develop such an understanding, we then educate the customer on the products and services we offer that best help them attain their financial goals.

In addition to our branch offices, we maintain educational campuses that we believe provide the ideal setting for us to engage in the Beneficial Conversation with our customers. We opened our first two educational campuses in 2010 in Cherry Hill, New Jersey and have subsequently opened four additional educational campuses in Pennsylvania. Our educational campuses, which are strategically located within our branch network, exemplify our “knowledge bank” philosophy by providing educational workshops, where customers can receive helpful financial tips on a variety of topics from experts in their respective fields, in addition to traditional banking services. Each of our educational campuses also hosts a learning library that includes books for customers to read and borrow, offers a “knowledge bar” that allows customers to explore new technologies in banking and includes space that can be used by local community members free of charge for meetings or seminars.

We believe that this approach to understanding our customers’ financial needs and providing customized product offerings will distinguish us from other regional and local community banks and increase products and services to our existing customers and acquire new customers.

Increasing profitability through an improved balance sheet mix by growing commercial and small business lending and leasing and reducing our cash and investments

We have a diversified loan portfolio, which includes commercial real estate and commercial and industrial loans made to middle market and small business customers. We are focused on improving the composition of our balance sheet by increasing loan production, particularly by originating commercial loans. Commercial loan customers provide us with an opportunity to offer a full range of our products and services including cash management, insurance, loan and deposit products. We have strengthened our infrastructure to support future growth by investing in highly-qualified employees in key areas, particularly with respect to our commercial banking business and by improving our technological capabilities and brand recognition. Specifically, in recent years, we have hired additional lenders with significant experience in our market area to expand our commercial real estate and commercial and industrial lending efforts. During the year ended December 31, 2017, our loan portfolio increased $23.6 million to $4.03 billion at December 31, 2017, from $4.01 billion at December 31, 2016. The increase in loans was primarily due to organic growth in our commercial loan portfolio and residential real estate loan portfolio of $93.4 million (3.8% growth) and $49.1 million (5.5% growth), respectively, partially offset by decreases in our consumer loan portfolio due primarily to a decrease in indirect auto loans resulting from our planned run-off of this portfolio segment. During 2017, we discontinued offering indirect auto loans as other lending channels provided higher levels of profitability and returns on capital.

We are also focused on increasing our small business lending. We currently offer a wide array of lending and deposit products that we can effectively market to our small business customers in an effort to increase our small business market share. To better capitalize on these opportunities, in recent years, our lending teams work with our branches and focus on small business lending. Also, by offering quicker decision making in the delivery of banking products and services, offering customized products where appropriate and providing access to senior officers, we can distinguish ourselves from the larger banks operating in our market area. In connection with the Conestoga acquisition we also acquired a small business equipment leasing and finance company that provides equipment finance to small businesses primarily focused on medical and veterinarian equipment. During the year, the Company formed Neumann Finance Company (“Neumann”), a majority owned equipment leasing company. Neumann will focus on providing financing products and services to businesses nationwide. Neumann will target various equipment categories including technology, software, office, medical and other areas. Our loans-to-deposits ratio increased to 97.2% at December 31, 2017 from 96.4% at December 31, 2016 which helped stabilize net interest margin and improve profitability.

Employing a shareholder-focused management of capital

Maintaining a strong capital base is critical to support our long-range business plan; however, we recognize that we will have a historically high level of capital following completion of the offering. Consequently, we intend to manage our capital position, using appropriate capital management tools to return excess capital to our stockholders, consistent with applicable regulations and policies. In accordance with the capital management strategy, on January 13, 2016, the Company’s Board of Directors 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. During the second quarter of 2016, the Company completed this share repurchase program. 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. During the year ended December 31, 2017, the Company purchased 703,800 shares under the second stock repurchase plan. The Company paid cash dividends on its common stock totaling $0.24 per share during the year ended December 31, 2017. On January 25, 2018, the Company declared its seventh consecutive quarterly cash dividend of $0.06 per share. Also on January 25, 2018, the Company declared a special dividend of $0.25 per share given our high capital levels and expected benefit to future earnings as a result of the enactment of H.R 1. Both dividends will be payable on or after February 15, 2018, to common shareholders of record at the close of business on February 5, 2018. We also intend to use our capital to support continued organic growth and to pursue acquisition opportunities.

Expanding our franchise by selectively pursuing acquisition opportunities in or adjacent to our market area

Our growth strategy also includes the acquisition of other financial institutions and other financial service corporations primarily in or adjacent to our existing market areas. The markets we operate in are considered to be some of the most attractive banking markets in the United States, and we believe they will continue to provide us with exceptional opportunities to grow and transform Beneficial Bank.

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Since our initial public offering, we have expanded our franchise to include the suburbs of South Jersey. Additionally, we have strengthened our presence in our historic markets throughout Philadelphia and the surrounding counties, which has established Beneficial Bank as the oldest and largest bank headquartered in Philadelphia.

On April 14, 2016, the Company completed the acquisition of Conestoga Bank. Pursuant to the terms of the Stock Purchase Agreement, dated October 21, 2015, between the Company, Conestoga and Conestoga Bank, the Company acquired Conestoga’s ownership interest in Conestoga Bank for a cash payment of $105.0 million and subsequently merged Conestoga Bank with and into Beneficial Bank. The acquisition increased total loans by $518.6 million and total deposits by $588.4 million. 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 December 31, 2017. The acquisition of Conestoga Bank increased the Company’s market share in southeastern Pennsylvania and provided Beneficial with new branches in Blue Bell, Chester Springs, Feasterville, Media, Wayne and Philadelphia, Pennsylvania.

We continue to operate in a highly fragmented banking market, in which 72 of the 94 banking institutions in the Philadelphia metro area have less than 10 branches. We believe that this fragmented market will provide opportunities to deploy the capital raised from the second step conversion and grow both organically and through acquisition. We further believe that changes in the industry as well as continued economic challenges for the banking industry have created and will create acquisition opportunities for us. We believe that we are well positioned to execute on our growth strategies and to continue to pursue selective acquisitions of banking institutions and other financial services companies primarily in and adjacent to our existing market area due to our strong capital position. We will continue to ensure any acquisition opportunity meets our financial hurdles including earnings accretion, tangible book value dilution, earn-back period and internal rate of return.

Enhancing earnings by increasing core deposits and emphasizing operational efficiencies

Deposits are our primary source of funds for investing and lending. Deposits decreased $7.7 million, or 0.2%, to $4.15 billion at December 31, 2017 from $4.16 billion at December 31, 2016. The decrease in deposits was primarily due to decreases in interest bearing checking and money market accounts, partially offset by increases in interest retail checking and non-interest bearing business checking accounts. Core deposits, which include all deposit types except for certificates of deposit, comprised 79.0% of our total deposits at December 31, 2017, up from 76.4% of total deposits at December 31, 2011. We value our core deposits because they represent a lower cost of funding and are generally less sensitive to withdrawal when interest rates fluctuate as compared to certificate of deposit accounts. We will continue to customize existing deposit products and introduce new products to meet the needs of our customers while based on employing the Beneficial Conversation at our branch locations. In 2017, we launched a new online platform for our commercial and consumer customers, as well as a new cash management system for commercial accounts. We believe that these new tools help our commercial lending teams expand existing relationships and develop new ones to grow commercial deposits.

We also recognize that controlling operating expenses is essential to our long-term profitability. We are focused on leveraging our existing infrastructure as we grow organically and through acquisition. During 2017, our efficiency ratio improved to 69.93% from 83.15% in 2014. We intend to continue to focus on operational efficiencies and methods to identify cost savings opportunities, such as reviewing our current branch structure, reviewing key third-party contracts and evaluating certain other operating expenses. We also expect our efficiency ratio to further improve as we deploy our capital for organic growth and acquisitions.

Maintaining asset quality by using consistent, disciplined underwriting practices to maintain the quality of our loan portfolio

We believe that maintaining high asset quality is a key to long-term financial success. Over the past several years, in an effort to improve asset quality, we have strengthened and added additional resources to our lending and credit teams, who have continued to apply prudent and disciplined underwriting standards and have continued to diligently monitor collection efforts. As a result of these efforts, we have improved our asset quality over the past several years. Non-performing assets have decreased from $82.0 million at December 31, 2013 to $34.9 million at December 31, 2017. Additionally, non-performing loans to total loans have decreased from 3.25% at December 31, 2013 to 0.86% at December 31, 2017.

Current Interest Rate Environment

Net interest income represents a significant portion of our revenues. For the year ended December 31, ~~2017~~2018, net interest income was $~~169~~180.94 million, an increase of $1910.05 million, or ~~12.~~6.2%, from the year ended December 31, ~~2016~~2017. The increase in net interest income was primarily due to ~~the~~an ~~acquisition~~increase ofin ~~Conestoga~~yields ~~during~~on the ~~second~~investment ~~quarter~~and ofloan ~~2016~~portfolios ~~and~~following ~~organic~~recent ~~loan~~Federal ~~growth,~~Reserve ~~which~~Bank ~~resulted~~federal infunds ~~higher~~rate ~~interest~~increases. The ~~earning~~Company ~~assets~~also ofpaid off $~~411~~25.18 million inof ~~2017~~a ~~compared~~higher tocost ~~2016~~trust aspreferred ~~well~~debenture asduring ~~prepayment~~the ~~income~~first quarter of $42018.~~0 million.~~ Our net interest margin increased to 3.1229% for the year ended December 31, ~~2017~~2018, from 3.0012% for ~~the same period in 2016~~2017. During ~~For~~ the year ended December 31, ~~2017~~2018, the net interest margin was ~~benefited~~positively 7impacted by nine basis points bydue to loan ~~prepayment~~prepayments ~~income. We~~compared ~~continue~~ to ~~focus~~a onseven ~~improving~~basis ~~our~~points ~~balance~~positive ~~sheet~~impact ~~mix~~during ~~by reducing~~ the ~~percentage~~year ofended ~~our~~December 31, ~~assets in cash and investments and growing our loan portfolio~~2017. Due to a slow-down in lending in our markets, the ratio of our total cash and cash equivalents and total investment securities to total assets ~~remained~~increased ~~consistent~~to ~~at 24~~27.63% as of December 31, ~~2017~~2018 compared to 2324.76% as of December 31, ~~2016~~2017. During ~~2017~~2018, our cash balances increased $~~270~~294.19 million to $~~557~~852.65 million. WeOur ~~will~~loans-to-deposits ~~consider~~ratio ~~investing~~decreased ato ~~portion~~93.3% ofat ~~our~~December 31, ~~excess~~2018 ~~liquidity~~from ~~sometime~~97.2% inat ~~2018~~December 31, ~~depending~~2017 ondue ~~market~~to ~~conditions~~continued loan prepayments and ~~interest~~payoffs ~~rate~~that ~~levels~~outpaced our organic loan growth. ~~However,~~Net weinterest ~~believe~~margin ~~current~~in ~~rates~~future doperiods ~~not~~will ~~support~~be ~~taking~~impacted ~~duration~~by ~~risk. For~~several ~~now~~factors such as, webut ~~anticipate~~not ~~holding~~limited ~~excess~~to, ~~liquidity~~our ability to ~~fund~~grow ~~future~~and ~~loan~~retain ~~growth~~low ~~despite~~cost core deposits, the ~~pressure~~future oninterest ~~short~~rate ~~term~~environment, ~~earnings. Our~~loan ~~loans-to-deposits~~and ~~ratio~~investment ~~increased~~prepayment torates, ~~97.2%~~loan atgrowth and changes in non-accrual loans.

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December 31, 2017 from 96.4% at December 31, 2016 which helped stabilize net interest margin and improve profitability. Net interest margin in future periods will be impacted by several factors such as, but not limited to, our ability to grow and retain low cost core deposits, the future interest rate environment, loan and investment prepayment rates, loan growth and changes in non-accrual loans.

Critical Accounting Policies

In the preparation of our 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. Our significant accounting policies are described in note 23 to the consolidated financial statements included in this Annual Report.

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.

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Allowance for Loan and Lease Losses. We consider the allowance for loan and lease losses to be a critical accounting policy. The allowance for loan and lease losses is determined by management based upon portfolio segment, past experience, evaluation of estimated loss and impairment in the loan or lease 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 and lease losses is established through a provision for loan and lease 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 and lease losses necessarily involves a high degree of judgment. Among the material estimates required to establish the allowance are: overall economic conditions; value of collateral; strength of guarantors; loss exposure at default; the amount and timing of future cash flows on impaired loans; and determination of loss factors to be applied to the various elements of the portfolio. All of these estimates are susceptible to significant change. Management regularly reviews the level of loss experience, current economic conditions and other factors related to the collectability of the loan portfolio. Although we believe that we use the best information available to establish the allowance for loan and lease 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 and lease 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. As a result of the uncertainty associated with this subjectivity, we cannot assure the precision of the amount reserved, should we experience sizeable loan or lease losses in any particular period. For example, 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 and lease 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 $4.3 million to $8.7 million for the year ended December 31, ~~2017~~2018. We also have approximately $3430.95 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 $3.50 million. In recent periods, we experienced improvement in our asset quality metrics including delinquencies, net charge-offs and non-performing assets. 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.

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. 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 but expects that the impact will likely be material to the consolidated financial statements.

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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. The acquisition method of accounting for business combinations requires us to record assets acquired, liabilities assumed and consideration paid at their estimated fair values as of the acquisition date. The excess of consideration paid over the fair value of net assets acquired represents goodwill. Goodwill totaled $169.0 million at December 31, 2017 compared to $169.1 million at December 31, 2016. The change in goodwill during the year ended December 31, 2017 was the result of adjustments to the final goodwill amount associated with the Company’s acquisition of Conestoga Bank in 2016.

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 2017, management reviewed qualitative factors for the banking unit, which represents $159.7 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 2016. 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, 2017.

During 2016, the Company made a voluntary change in the method of applying an accounting principle related to the timing of the annual goodwill impairment assessment, as it relates to Beneficial Insurance Services, LLC, from December 31st to September 30th. Management made this decision based on the time intensive nature of the goodwill impairment assessment for Beneficial Insurance Services, LLC. During 2017, 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 as of September 30, 2017 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 as of September 30, 2017.

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 December 31, 2017, we had net deferred tax assets totaling $23.0 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 that management believes it is more likely than not that such deferred tax assets will not be realized. Therefore, no valuation allowance is deemed necessary against our remaining federal or remaining state deferred tax assets as of December 31, 2017. Our net deferred tax asset of $23.0 million was determined based on the current enacted federal tax rate of 21%. Any possible future reduction in federal tax rates, would reduce the value of our net deferred tax assets and result in immediate write-down of the net deferred tax assets though our statement of operations, the effect of which would be material.27

Balance Sheet Analysis

Total assets increased $60.2 million, or 1.0%, to $5.80 billion at December 31, 2017, compared to $5.74 billion at December 31, 2016. The increase in total assets was primarily due to an increase in cash and cash equivalents and loan growth, partially offset by a decline

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inAs ~~investment~~of ~~securities. Cash~~December 31, ~~and~~2018, ~~cash~~we ~~equivalents~~had ~~increased~~net ~~$270.6~~deferred ~~million~~tax toassets totaling $~~557~~21.67 million. atWe ~~December 31,~~use ~~2017,~~the ~~from~~asset ~~$287~~and liability method of accounting for income taxes.0 ~~million~~Under atthis ~~December 31~~method, ~~2016~~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. ~~Over~~ If currently available information raises doubt as to the ~~past~~realization ~~few~~of ~~years~~the deferred tax assets, wea ~~have~~valuation ~~been~~allowance ~~focused~~is onestablished. ~~reducing~~Deferred ~~our~~tax ~~investments~~assets and ~~increasing~~liabilities ~~our~~are ~~loan~~measured ~~portfolio~~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. As ~~growth~~We ~~slowed~~exercise significant judgment in evaluating the ~~second~~amount ~~half~~and timing of ~~2017,~~recognition ~~investment~~of ~~maturities~~the resulting tax assets and ~~repayments~~liabilities. ~~increased~~These ~~our~~judgments ~~cash~~require ~~levels~~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 ~~excess~~judgments ~~cash~~and ~~that~~estimates we make in determining our deferred tax assets are ~~holding~~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 that management believes it is more likely than not that such deferred tax assets will not be ~~used~~realized. toTherefore, ~~fund~~no valuation allowance is deemed necessary against our remaining federal or remaining state deferred tax assets as of December 31, 2018. Our net deferred tax asset of $21.7 million was determined based on the current enacted federal tax rate of 21%. Any possible future ~~loan~~reduction ~~growth~~in federal tax rates, would reduce the value of our net deferred tax assets and result in immediate write-down of the net deferred tax assets though our statement of operations, the effect of which would be material.

Balance Sheet Analysis

Total assets were $5.81 billion at December 31, 2018 consistent with the $5.80 billion of total assets at December 31, 2017. Due to a slowdown in loan demand and maintaining our excess liquidity, we experienced a change in the mix of our balance sheet with the loan and investment securities portfolios decreasing and cash and cash equivalents increasing. Cash and cash equivalents increased $294.9 million, or 52.9%, to $852.5 million at December 31, 2018, from $557.6 million at December 31, 2017.

Securities

Investments decreased $~~204~~137.54 million, or 1915.08%, to $~~870~~733.84 million at December 31, ~~2017~~2018, compared to $1870.088 ~~billion~~million at December 31, ~~2016, 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~~2017. 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.

At December 31, ~~2017~~2018, our investment portfolio, excluding Federal Home Loan Bank (“FHLB”) stock, was $~~847~~710.62 million, or 1412.62% of total assets. At December 31, ~~2017~~2018, 9487.37% of the investment portfolio was comprised of mortgage-backed securities issued by Freddie Mac and Fannie Mae and the Government National Mortgage Association (“Ginnie Mae”), including collateralized mortgage obligations (“CMO”) securities issued by Freddie Mac, Fannie Mae, and the Ginnie Mae. At December 31, ~~2017~~2018, our investment portfolio also included 0.3% of municipal bonds, 23.83% of corporate bonds and 0.4% of government-sponsored enterprise (“GSE”) notes. The remaining 28.23% of our investment portfolio consisted of foreign bonds, ~~equities,~~ mutual funds and money market funds.

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 December 31, ~~2017~~2018, approximately 9492.09% 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 December 31, ~~2017~~2018, approximately 3.28% 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 23.83% of the investment portfolio was not rated. Securities not rated consist primarily of private placement municipal bonds, ~~equities,~~ FHLB stock and mutual funds.

~~The following table sets forth the cost and fair value of investment securities at December 31, 2017, 2016 and 2015.~~28

	2017				2016				2015
December 31, (Dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Securities available-for-sale:
GSE and agency notes	$	3,488	$	3,453	$	4,649	$	4,659	$	6,107	$	6,109
Mortgage-backed securities:
Ginnie Mae guaranteed mortgage certificate	2,980		3,088		3,734		3,868		4,395		4,541
GSE mortgage-backed securities	245,926		246,140		374,593		376,534		543,687		547,271
Collateralized mortgage obligations	14,910		14,774		22,920		22,681		32,717		32,357
Total mortgage-backed securities	263,816		264,002		401,247		403,083		580,799		584,169
Municipal and other bonds
Municipal bonds	1,792		1,866		2,320		2,402		30,146		31,656
Corporate securities	23,489		24,083		19,487		19,457		11,986		11,860
Total municipal and other bonds	25,281		25,949		21,807		21,859		42,132		43,516
Equity Securities	250		410
Money market and mutual funds	16,498		16,494		21,952		21,943		21,401		21,368
Total securities available-for-sale	309,333		310,308		449,655		451,544		650,439		655,162
Securities held-to-maturity:
Mortgage-backed securities:
GSE mortgage-backed securities	472,259		469,268		569,319		564,647		654,803		653,510
Collateralized mortgage obligations	63,038		62,096		30,580		30,422		38,757		38,921
Total mortgage-backed securities	535,297		531,364		599,899		595,069		693,560		692,431
Municipal bonds	505		537		630		680		750		819
Foreign bonds	1,500		1,524		2,000		2,036		2,000		2,040
Total municipal and other bonds	2,055		2,061		2,630		2,716		2,750		2,859
Total securities held-to-maturity	537,302		533,425		602,529		597,785		696,310		695,290
Total investment securities	$	846,635	$	843,733	$	1,052,184	$	1,049,329	$	1,346,749	$	1,350,452

Mortgage-backed securities are a type of asset-backed security that is secured by a mortgage, or a collection of mortgages. These securities usually pay periodic payments that are similar to coupon payments. Furthermore, the mortgage must have originated from regulated and authorized financial institutions. The contractual cash flows of investments in government sponsored enterprises’ mortgage-backed securities are debt obligations of Freddie Mac and Fannie Mae, both of which are currently under the conservatorship of the

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~~Federal Housing Finance Agency.~~ The ~~cash~~following ~~flows~~table ~~related~~sets toforth ~~Ginnie Mae securities are direct obligations of~~ the ~~U.S.~~cost ~~Government.~~and ~~Mortgage-backed~~fair ~~securities~~value ~~are also known as mortgage pass-throughs. CMOs are a type~~ of ~~mortgage-backed~~investment ~~security that create separate pools of pass-through rates for different classes of bondholders with varying cash flow structures, called tranches. The repayments from the pool of pass-through~~ securities ~~are~~at ~~used to retire the bonds in the order specified by the bonds’ prospectuses. At~~ December 31, ~~2017~~2018, we2017 ~~had~~and ~~no investments in a single company or entity (other than United States government sponsored enterprise securities) that had an aggregate book value in excess of 10% of our equity~~2016.

At December 31, 2017, December 31, 2016 and December 31, 2015, securities totaling $634.4 million, $623.4 million and $754.8 million, respectively, were in an unrealized loss position and the unrealized losses on these securities totaled $7.0 million, $9.3 million and $7.6 million, respectively. At December 31, 2017 and 2016, the unrealized losses in the portfolio were mainly attributed to GSE mortgage-backed securities and CMOs. The unrealized losses are due to current interest rate levels relative to our cost and not credit quality. As we do not intend to sell the investments, and it is not likely we will be required to sell the investments before recovery, we do not consider the investments to be other than temporarily impaired at December 31, 2017. During the years ended December 31, 2017, and 2016, we did not record any impairment charges for securities.

	2018				2017				2016
December 31, (Dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Securities available-for-sale:
GSE and agency notes	$	2,772	$	2,717	$	3,488	$	3,453	$	4,649	$	4,659

Mortgage-backed securities:
Ginnie Mae guaranteed mortgage certificate	2,288		2,363		2,980		3,088		3,734		3,868
GSE mortgage-backed securities	191,580		190,105		245,926		246,140		374,593		376,534
Collateralized mortgage obligations	8,559		8,443		14,910		14,774		22,920		22,681
Total mortgage-backed securities	202,427		200,911		263,816		264,002		401,247		403,083

Municipal and other bonds
Municipal bonds	1,815		1,849		1,792		1,866		2,320		2,402
Corporate securities	23,490		23,492		23,489		24,083		19,487		19,457
Total municipal and other bonds	25,305		25,341		25,281		25,949		21,807		21,859

Equity Securities	—		—		250		410		—		—
Money market and mutual funds	56,658		56,653		16,498		16,494		21,952		21,943
Total securities available-for-sale	287,162		285,622		309,333		310,308		449,655		451,544

Securities held-to-maturity:
Mortgage-backed securities:
GSE mortgage-backed securities	371,059		362,130		472,259		469,268		569,319		564,647
Collateralized mortgage obligations	51,132		49,919		63,038		62,096		30,580		30,422
Total mortgage-backed securities	422,191		412,049		535,297		531,364		599,899		595,069

Municipal bonds	380		397		505		537		630		680
Foreign bonds	2,000		2,005		1,500		1,524		2,000		2,036
Total municipal and other bonds	2,380		2,402		2,055		2,061		2,630		2,716
Total securities held-to-maturity	424,571		414,451		537,302		533,425		602,529		597,785
Total investment securities	$	711,733	$	700,073	$	846,635	$	843,733	$	1,052,184	$	1,049,329

~~The~~Mortgage-backed ~~following~~securities ~~table~~are ~~sets~~a ~~forth~~type of asset-backed security that is secured by a mortgage, or a collection of mortgages. These securities usually pay periodic payments that are similar to coupon payments. Furthermore, the ~~stated~~mortgage ~~maturities~~must have originated from regulated and ~~weighted~~authorized ~~average~~financial ~~yields~~institutions. The contractual cash flows of ~~investment~~investments in government sponsored enterprises’ mortgage-backed securities atare ~~December 31~~debt obligations of Freddie Mac and Fannie Mae, ~~2017~~both of which are currently under the conservatorship of the Federal Housing Finance Agency. ~~Certain~~The cash flows related to Ginnie Mae securities ~~have~~are ~~adjustable~~direct ~~interest~~obligations of the U.S. Government. Mortgage-backed securities are also known as mortgage pass-throughs. CMOs are a type of mortgage-backed security that create separate pools of pass-through rates ~~and~~for ~~may~~different ~~reprice~~classes ~~monthly,~~of ~~quarterly~~bondholders with varying cash flow structures, ~~semi~~called tranches. The repayments from the pool of pass-~~annually~~through orsecurities ~~annually~~are ~~within~~used to retire the ~~various~~bonds ~~maturity~~in ~~ranges~~the order specified by the bonds’ prospectuses. ~~Mutual~~At ~~funds~~December 31, ~~money~~2018, ~~market~~we ~~funds~~had ~~and~~no ~~equities~~investments ~~are~~in ~~not~~a ~~included~~single incompany ~~the~~or ~~table~~entity ~~based~~(other onthan ~~lack~~United States government sponsored enterprise securities) that had an aggregate book value in excess of a10% ~~maturity~~of ~~date~~our equity.

	One Year or Less				More than One Year to Five Years				More than Five Years to Ten Years				More than Ten Years				Total
December 31, 2017 (Dollars in thousands)	Carrying Value		Weighted Average Yield		Carrying Value		Weighted Average Yield		Carrying Value		Weighted Average Yield		Carrying Value		Weighted Average Yield		Carrying Value		Weighted Average Yield
Securities available-for-sale:
GSE and agency notes	$	—	—	%	$	3,453	1.9	%	$	—	—	%	$	—	—	%	$	3,453	1.9	%
Mortgage-backed securities & CMOs	61		5.4		110,306		2.1		75,227		3.2		78,408		2.5		264,002		2.5
Municipal bonds	—		—		1,866		4.0		0		—		—		—		1,866		4.0
Corporates	—		—		—		—		24,083		4.6		—		—		24,083		4.6
Total available-for-sale	61		5.4		115,625		2.1		99,310		3.5		78,408		2.5		293,404		2.7
Securities held to maturity:
Mortgage-backed securities & CMOs	43		4.0		120,272		2.2		102,050		2.6		312,933		2.7		535,298		2.5
Foreign bonds	—		—		1,500		3.0		—		—		—		—		1,500		3.0
Municipal bonds	125		5.1		380		5.7		—		—		—		—		505		5.5
Total held to maturity	168		4.8		122,152		2.2		102,050		2.6		312,933		2.7		537,303		2.6
Total	$	229	5.0		$	237,777	2.2		$	201,360	3.0		$	391,341	2.6		$	830,707	2.6

At December 31, 2018, December 31, 2017 and December 31, 2016, securities totaling $598.7 million, $634.4 million and $623.4 million, respectively, were in an unrealized loss position and the unrealized losses on these securities totaled $13.2 million, $7.0 million and $9.3 million, respectively. At December 31, 2018 and 2017, the unrealized losses in the portfolio were mainly attributed to GSE mortgage-backed securities and CMOs. The unrealized losses are due to current interest rate levels relative to our cost and not credit quality. As we do not intend to sell the investments, and it is not likely we will be required to sell the investments before recovery, we do not consider the investments to be other than temporarily impaired at December 31, 2018. During the years ended December 31, 2018, and 2017, we did not record any impairment charges for securities.

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The following table sets forth the stated maturities and weighted average yields of investment securities at December 31, 2018. Certain securities have adjustable interest rates and may reprice monthly, quarterly, semi-annually or annually within the various maturity ranges. Mutual funds, money market funds and equities are not included in the table based on lack of a maturity date.

	One Year or Less				More than One Year to Five Years				More than Five Years to Ten Years				More than Ten Years				Total
December 31, 2018 (Dollars in thousands)	Carrying Value		Weighted Average Yield		Carrying Value		Weighted Average Yield		Carrying Value		Weighted Average Yield		Carrying Value		Weighted Average Yield		Carrying Value		Weighted Average Yield
Securities available-for-sale:
GSE and agency notes	$	—	—	%	$	2,717	1.9	%	$	—	—	%	$	—	—	%	$	2,717	1.9	%
Mortgage-backed securities & CMOs	28,478		1.6		53,338		2.5		108,305		2.6		10,790		4.2		200,911		2.5
Municipal bonds	—		—		1,849		4.0		—		—		—		—		1,849		4.0
Corporates	—		—		—		—		23,492		4.6		—		—		23,492		4.6
Total available-for-sale	28,478		1.6		57,904		2.5		131,797		3.0		10,790		4.2		228,969		2.7

Securities held to maturity:
Mortgage-backed securities & CMOs	4,261		2.0		63,991		2.2		81,109		2.5		272,830		2.7		422,191		2.6
Foreign bonds	—		—		2,000		3.2		—		—		—		—		2,000		3.2
Municipal bonds	125		5.3		255		5.8		—		—		—		—		380		5.7
Total held to maturity	4,386		2.1		66,246		2.2		81,109		2.5		272,830		2.7		424,571		2.6
Total	$	32,864	1.6		$	124,150	2.4		$	212,906	2.8		$	283,620	2.7		$	653,540	2.6

Loans

Loans ~~increased~~decreased $23139.65 million, or 3.5%, to $43.0389 billion at December 31, ~~2017~~2018, from $4.0103 billion at December 31, ~~2016~~2017. ~~The~~During ~~increase~~the inyear ~~loans~~ended ~~was~~December 31, ~~primarily~~2018, ~~due~~our toresidential ~~organic~~real ~~growth~~estate inportfolio ~~our~~increased ~~commercial~~$25.3 ~~loan~~million, ~~portfolio~~or ~~and~~2.7%. However, ~~residential~~this ~~real~~growth ~~estate~~was ~~loan~~offset ~~portfolio~~by ofa $9354.47 million ~~(3.8%~~decrease ~~growth)~~in our total commercial portfolio and an $49110.1 million (5decrease in our total consumer loan portfolio.5% We ~~growth),~~continue ~~respectively,~~to ~~partially~~experience ~~offset~~a bynumber ~~decreases~~of large commercial loan payoffs as projects are completed and sold and financing is obtained from non-bank sources. The decrease in our consumer loan portfolio was due primarily to a $63.1 million decrease in indirect auto loans resulting from our planned run-off of this portfolio segment. As previously disclosed, we decided to exit the indirect auto lending business in the first quarter of 2017.

The following table shows the loan portfolio at the dates indicated:

(Dollars in thousands)	December 31, 2018
	Originated			Acquired Non- Credit Impaired		Acquired Credit Impaired		Total
Commercial:
Commercial real estate	$	1,441,279		$	99,597	$	726	$	1,541,602
Commercial business loans	543,230			71,475		451		615,156
Commercial small business leases	117,326			22,616		—		139,942
Commercial construction	188,510			—		—		188,510
Total commercial loans	2,290,345			193,688		1,177		2,485,210

Residential:
Residential real estate	930,043			38,741		93		968,877
Total residential loans	930,043			38,741		93		968,877

Consumer loans:
Home equity & lines of credit	185,440			15,874		193		201,507
Personal	7,819			5,591		40		13,450
Education	131,012			—		—		131,012
Automobile	94,549			—		—		94,549
Total consumer loans	418,820			21,465		233		440,518
Total loans	3,639,208			253,894		1,503		3,894,605

Allowance for losses	(43,262		)	—		—		(43,262		)
Loans, net	$	3,595,946		$	253,894	$	1,503	$	3,851,343

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	December 31, 2017
(Dollars in thousands)	December 31, 2017
(Dollars in thousands)	Originated			Acquired Non- Credit Impaired		Acquired Credit Impaired		Total
	Originated			Acquired Non-Credit Impaired		Acquired Credit Impaired		Total
Commercial:
Commercial real estate	$	1,448,226		$	128,659	$	5,037	$	1,581,922
Commercial business loans	568,241			100,613		1,235		670,089
Commercial small business leases	92,632			48,622		—		141,254
Commercial construction	146,633			—		—		146,633
Total commercial loans	2,255,732			277,894		6,272		2,539,898
Residential:
Residential real estate	897,052			46,414		107		943,573
Total residential loans	897,052			46,414		107		943,573
Consumer loans:
Home equity & lines of credit	208,191			19,712		206		228,109
Personal	10,978			6,237		56		17,271
Education	147,582			—		—		147,582
Automobile	157,697			—		—		157,697
Total consumer loans	524,448			25,949		262		550,659
Total loans	3,677,232			350,257		6,641		4,034,130
Allowance for losses	(43,267		)	—		—		(43,267		)
Loans, net	$	3,633,965		$	350,257	$	6,641	$	3,990,863

	December 31, 2016
(Dollars in thousands)	December 31, 2016
(Dollars in thousands)	Originated			Acquired Non- Credit Impaired		Acquired Credit Impaired		Total
	Originated			Acquired Non-Credit Impaired		Acquired Credit Impaired		Total
Commercial:
Commercial real estate	$	1,218,431		$	164,569	$	5,396	$	1,388,396
Commercial business loans	563,047			125,915		5,284		694,246
Commercial small business leases	49,900			89,113		—		139,013
Commercial construction	224,731			101		—		224,832
Total commercial loans	2,056,109			379,698		10,680		2,446,487
Residential:
Residential real estate	835,896			58,053		525		894,474
Total residential loans	835,896			58,053		525		894,474
Consumer loans:
Home equity & lines of credit	223,060			25,477		416		248,953
Personal	14,458			7,263		142		21,863
Education	164,202			—		—		164,202
Automobile	234,584			5		—		234,589
Total consumer loans	636,304			32,745		558		669,607
Total loans	3,528,309			470,496		11,763		4,010,568
Allowance for losses	(43,261		)	—		—		(43,261		)
Loans, net	$	3,485,048		$	470,496	$	11,763	$	3,967,307

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	December 31, 2015
(Dollars in thousands)	December 31, 2015
(Dollars in thousands)	Originated			Acquired Non- Credit Impaired		Acquired Credit Impaired		Total
	Originated			Acquired Non-Credit Impaired		Acquired Credit Impaired		Total
Commercial:
Commercial real estate	$	954,689		$	16,397	$	—	$	971,086
Commercial business loans	492,865			3,448		—		496,313
Commercial construction	116,452			—		—		116,452
Total commercial loans	1,564,006			19,845		—		1,583,851
Residential:
Residential real estate	704,133			31,493		98		735,724
Total residential loans	704,133			31,493		98		735,724
Consumer loans:
Home equity & lines of credit	226,848			4,960		—		231,808
Personal	20,640			—		—		20,640
Education	181,646			—		—		181,646
Automobile	187,777			—		—		187,777
Total consumer loans	616,911			4,960		—		621,871
Total loans	2,885,050			56,298		98		2,941,446
Allowance for losses	(45,500		)	—		—		(45,500		)
Loans, net	$	2,839,550		$	56,298	$	98	$	2,895,946

	December 31, 2014
(Dollars in thousands)	December 31, 2014
(Dollars in thousands)	Originated			Acquired Non- Credit Impaired		Acquired Credit Impaired		Total
	Originated			Acquired Non-Credit Impaired		Acquired Credit Impaired		Total
Commercial:
Commercial real estate	$	584,751		$	24,895	$	—	$	609,646
Commercial business loans	438,073			4,117		—		442,190
Commercial construction	69,083			—		57		69,140
Total commercial loans	1,091,907			29,012		57		1,120,976
Residential:
Residential real estate	626,161			41,722		185		668,068
Total residential loans	626,161			41,722		185		668,068
Consumer loans:
Home equity & lines of credit	220,770			6,285		—		227,055
Personal	28,648			20		—		28,668
Education	195,185			—		—		195,185
Automobile	181,793			—		—		181,793
Total consumer loans	626,396			6,305		—		632,701
Total loans	2,344,464			77,039		242		2,421,745
Allowance for losses	(50,654		)	—		—		(50,654		)
Loans, net	$	2,293,810		$	77,039	$	242	$	2,371,091

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	December 31, 2013
(Dollars in thousands)	Originated			Acquired Non- Credit Impaired		Acquired Credit Impaired		Total
Commercial:
Commercial real estate	$	550,439		$	33,586	$	108	$	584,133
Commercial business loans	378,098			565		—		378,663
Commercial construction	37,862			—		205		38,067
Total commercial loans	966,399			34,151		313		1,000,863
Residential:
Residential real estate	626,534			57,256		187		683,977
Total residential loans	626,534			57,256		187		683,977
Consumer loans:
Home equity & lines of credit	225,930			8,224		—		234,154
Personal	40,865			27		—		40,892
Education	206,521			—		—		206,521
Automobile	175,400			—		—		175,400
Total consumer loans	648,716			8,251		—		656,967
Total loans	2,241,649			99,658		500		2,341,807
Allowance for losses	(55,649		)	—		—		(55,649		)
Loans, net	$	2,186,000		$	99,658	$	500	$	2,286,158

Loan Maturity

The following table sets forth certain information at December 31, ~~2017~~2018 regarding the dollar amount of loan principal repayments becoming due during the periods indicated. The tables do not include any estimate of prepayments that significantly shorten the average life of all loans and may cause our actual repayment experience to differ from that shown below. Demand loans having no stated schedule of repayments and no stated maturity are reported as due in one year or less.

December 31, 2017 (Dollars in thousands)

Commercial Real Estate

Commercial Business

Small Business Leases

Commercial Construction

Residential Real Estate

Home Equity & Lines of Credit

Personal

Education

Auto

Total Loans

December 31, 2018 (Dollars in thousands)

Commercial Real Estate

Commercial Business

Small Business Leases

Commercial Construction

Residential Real Estate

Home Equity & Lines of Credit

Personal

Education

Auto

Total Loans

Amounts due in:

One year or less

~~133~~104,~~031~~283

9181,~~518~~459

76,~~856~~415

2112,~~426~~619

~~954~~483

2720,~~868~~706

1,~~481~~252

~~618~~508

2,~~367~~346

~~287~~230,~~119~~071

More than 1-5 years

~~477~~522,~~759~~559

~~267~~231,~~616~~292

~~123~~119,~~705~~588

95131,~~029~~443

69,~~935~~168

1613,~~741~~988

43,~~127~~120

54,~~146~~780

~~132~~90,~~831~~136

1,~~129~~126,~~889~~074

More than 5-10 years

~~829~~731,~~176~~229

~~229~~225,~~599~~277

913,~~693~~939

3044,~~178~~448

5558,~~840~~029

4648,~~937~~362

53,~~419~~912

1917,~~464~~400

222,~~499~~067

1,~~248~~144,~~805~~663

More than 10 years

~~141~~183,~~956~~531

8177,~~356~~128

—

~~879~~901,~~844~~197

~~136~~118,~~563~~451

65,~~244~~166

~~122~~108,~~354~~324

—

1,~~368~~393,~~317~~797

Total

1,~~581~~541,~~922~~602

~~670~~615,~~089~~156

~~141~~139,~~254~~942

~~146~~188,~~633~~510

~~943~~968,~~573~~877

~~228~~201,~~109~~507

1713,~~271~~450

~~147~~131,~~582~~012

~~157~~94,~~697~~549

43,~~034~~894,~~130~~605

The following table sets forth all loans at December 31, ~~2017~~2018 that are due after December 31, ~~2018~~2019, and have either fixed interest rates or floating or adjustable interest rates:

(Dollars in thousands)	Fixed Rates		Floating or Adjustable Rates		Total
Commercial real estate	$	~~491~~526,~~678~~079	$	~~957~~911,~~213~~240	$	1,~~448~~437,~~891~~319
Commercial business	~~177~~155,~~025~~795		~~401~~377,~~546~~902		~~578~~533,~~571~~697
Small business leases	133,~~398~~527		—		133,~~398~~527
Commercial construction	3037,~~055~~614		95138,~~152~~277		~~125~~175,~~207~~891
Residential real estate	~~898~~924,~~271~~235		44,~~348~~159		~~942~~968,~~619~~394
Home equity and lines of credit	~~111~~103,~~593~~004		8877,~~648~~797		~~200~~180,~~241~~801
Personal	1512,~~740~~156		5042		1512,~~790~~198
Education	~~144~~128,~~635~~212		2,~~329~~292		~~146~~130,~~964~~504
Automobile	~~155~~92,~~330~~203		—		~~155~~92,~~330~~203
Total	$	2,~~157~~112,~~725~~825	$	1,~~589~~551,~~286~~709	$	3,~~747~~664,~~011~~534

3533

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Loan Activity

The following table shows loans originated, purchased and sold during the periods indicated:

Year Ended December 31, (Dollars in thousands)

~~2017~~2018

~~2016~~2017

~~2015~~2016

~~2014~~2015

~~2013~~2014

Total loans at beginning of period

4,~~010~~034,~~568~~130

24,~~941~~010,~~446~~568

2,~~421~~941,~~745~~446

2,~~341~~421,~~807~~745

2,~~447~~341,~~304~~807

Originations:

Commercial:

Commercial real estate

~~248~~266,~~943~~535

~~233~~248,~~318~~943

~~123~~233,~~844~~318

~~131~~123,~~223~~844

59131,~~278~~223

Commercial business

~~462~~376,~~298~~992

~~347~~462,~~973~~298

~~315~~347,~~301~~973

~~285~~315,~~165~~301

~~163~~285,~~937~~165

Commercial small business leases

6967,~~948~~096

6069,~~157~~948

—60,157

—

Commercial construction

~~165~~208,~~478~~747

~~200~~165,~~691~~478

~~104~~200,~~306~~691

53104,~~886~~306

2353,~~535~~886

Total commercial loans

~~946~~919,~~667~~370

~~842~~946,~~139~~667

~~543~~842,~~451~~139

~~470~~543,~~274~~451

~~246~~470,~~750~~274

Residential:

Residential real estate

~~178~~140,~~374~~753

~~258~~178,~~287~~374

~~148~~258,~~380~~287

~~100~~148,~~766~~380

~~174~~100,~~185~~766

Total residential loans

~~178~~140,~~374~~753

~~258~~178,~~287~~374

~~148~~258,~~380~~287

~~100~~148,~~766~~380

~~174~~100,~~185~~766

Consumer:

Home equity and lines of credit

7668,~~519~~212

8976,~~503~~519

8289,~~519~~503

6882,~~506~~519

5868,~~175~~506

Personal

81,~~920~~024

1,~~450~~232

1,~~063~~450

1,~~187~~063

1,~~478~~187

Automobile

~~1,232~~—

~~131~~8,~~382~~920

86131,~~233~~382

8586,~~076~~233

7985,~~856~~076

Total consumer loans

8669,~~671~~236

~~222~~86,~~335~~671

~~169~~222,~~815~~335

~~154~~169,~~769~~815

~~139~~154,~~509~~769

Total loans originated

1,~~211~~129,~~712~~359

1,~~322~~211,~~761~~712

~~861~~1,~~646~~322,761

~~725~~861,~~809~~646

~~560~~725,~~444~~809

Loans acquired in business combinations

—

~~518,562~~—

—518,562

—

Purchases

—107

~~117,458~~—

~~356~~117,~~083~~458

—356,083

—

Less:

Principal payments & repayments (net of charge-offs)

1,~~152~~234,~~648~~038

~~869~~1,~~766~~152,648

~~678~~869,~~537~~766

~~607~~678,~~246~~537

~~639~~607,~~813~~246

Loan sales

3534,~~313~~249

1935,~~530~~313

19,~~050~~530

3819,~~352~~050

2038,~~591~~352

Transfers to foreclosed real estate

~~189~~704

~~363~~189

~~441~~363

~~273~~441

~~5,537~~273

Total loans at end of period

43,~~034~~894,~~130~~605

4,~~010~~034,~~568~~130

24,~~941~~010,~~446~~568

2,~~421~~941,~~745~~446

2,~~341~~421,~~807~~745

Deposits

Our primary source of funds is our deposits, which are comprised of demand deposits, money market and passbook accounts and certificates of deposit.

Deposits ~~decreased~~increased $722.71 million, or 0.253%, to $4.1517 billion at December 31, ~~2017~~2018, from $4.1615 billion at December 31, ~~2016~~2017. The ~~decrease~~increase in deposits was primarily due to ~~decreases~~increases in interest-earning ~~bearing~~ checking ~~and money market~~ accounts, partially offset by ~~increases~~decreases in ~~interest retail checking and~~ non-interest bearing ~~business~~deposits, ~~checking~~money market accounts and certificate of deposits. The following table sets forth the deposits as a percentage of total deposits for the dates indicated:

	2017				2016				2015
	2018				2017				2016
At December 31, (Dollars in thousands)	Amount		Percent of Total Deposits		Amount		Percent of Total Deposits		Amount		Percent of Total Deposits
Non-interest bearing deposits	$	~~563~~557,~~185~~535	13.64	%	$	~~518~~563,~~294~~185	1213.56	%	$	~~409~~518,~~233~~294	1112.85	%
Interest-earning checking accounts	~~898~~999,~~263~~838		2124.60		~~930~~898,~~227~~263		2221.46		~~757~~930,~~718~~227		22.04
Municipal checking accounts	~~123~~110,~~697~~888		32.07		~~125~~123,~~063~~697		3.0		~~132~~125,~~642~~063		3.80
Money market accounts	~~419~~389,~~773~~336		109.13		~~444~~419,~~226~~773		10.71		~~389~~444,~~403~~226		1110.37
Savings accounts	1,288,~~875~~731		3130.18		1,~~265~~288,~~864~~875		3031.41		1,~~132~~265,~~842~~864		3230.84
Certificates of deposit	~~856~~826,~~700~~270		2019.68		~~874~~856,~~514~~700		2120.06		~~630~~874,~~085~~514		1821.30
Total	$	4,~~150~~172,~~493~~598	100.0	%	$	4,~~158~~150,~~188~~493	100.0	%	$	34,~~451~~158,~~923~~188	100.0	%

We are required to pledge securities to secure municipal deposits. At December 31, ~~2017~~2018 and ~~2016~~2017, we had pledged $7879.15 million and $9078.71 million, respectively, of securities to secure these deposits.

~~The following table sets forth the time remaining until maturity for certificate of deposits of $100,000 or more at December 31, 2017:~~34

Table of Contents

December 31, 2017 (Dollars in thousands)	Certificates of Deposit
Maturity Period:
Three months or less	$	35,590
Over three through six months	30,001
Over six through twelve months	56,369
Over twelve months	60,618
Total	$	182,578

The following table sets forth the time remaining until maturity for certificate of deposits of $100,000 or more at December 31, 2018:

December 31, 2018 (Dollars in thousands)	Certificates of Deposit
Maturity Period:
Three months or less	$	53,313
Over three through six months	36,246
Over six through twelve months	55,205
Over twelve months	78,559
Total	$	223,323

The following table sets forth the deposit activity for the periods indicated:

Year Ended December 31, (Dollars in thousands)	~~2017~~2018			~~2016~~2017			~~2015~~2016
Beginning balance	$	4,~~158~~150,~~188~~493		$	34,~~451~~158,~~923~~188		$	3,~~879~~451,~~709~~923
(Decrease) increase before interest credited	(~~25,607~~235		)	~~102~~(25,~~299~~607		)	40102,~~348~~299
Interest credited	1722,~~912~~340			1517,~~580~~912			1415,~~002~~580
Deposits acquired from Conestoga Bank	—			~~588,386~~—			—588,386
Stock subscription deposits received	—			—			(482,136		)
Net (decrease) increase in deposits	22,105			(7,695		)	706,265
Net (decrease) increase in deposits	(7,695		)	706,265			(427,786		)
Ending balance	$	4,172,598		$	4,150,493		$	4,158,188
Ending balance	$	4,150,493		$	4,158,188		$	3,451,923

Stock subscription funds were reclassified to stockholders’ equity upon the completion of the second-step conversion on January 12, 2015.

Borrowings

We have the ability to utilize advances from the Federal Home Loan Bank of Pittsburgh to supplement our liquidity. As a member, we are required to own capital stock in the Federal Home Loan Bank and are authorized to apply for advances on the security of such stock and certain mortgage loans and other assets, provided certain standards related to creditworthiness have been met. Advances are made under several different programs, each having its own interest rate and range of maturities. We also have the ability to utilize securities sold under agreements to repurchase and overnight repurchase agreements, along with the Federal Reserve Bank’s discount window and Federal Funds lines with correspondent banks to supplement our supply of investable funds and to meet deposit withdrawal requirements. To secure our borrowings, we generally pledge securities and/or loans. The types of securities pledged for borrowings include, but are not limited to, GSE notes and GSE mortgage-backed securities. The types of loans pledged for borrowings include, but are not limited to, one- to four-family real estate mortgage loans. ~~During~~Borrowings ~~2017,~~decreased ~~borrowings increased~~ $5025.04 million to $~~540~~515.40 million at December 31, ~~2017 and are being used as a low cost funding source to replace higher cost brokered CDs~~2018. During the year ended December 31, ~~2017~~2018, wethe ~~executed~~Company apaid off $~~200~~25.08 million ~~forward~~of ~~starting interest rate swap at 2.24% to lock in funding costs for~~ a ~~$200.0~~higher ~~million~~cost ~~borrowing~~trust ~~that~~preferred ~~matures in 2019~~debenture.

Table of Contents

The following table sets forth the outstanding borrowings and weighted averages at the dates or for the periods indicated:

Year Ended December 31, (Dollars in thousands)	2018			2017			2016
Maximum amount outstanding at any month-end during period:
Federal Home Loan Bank advances	$	515,000		$	515,000		$	465,000
Repurchase agreements	—			—			—
Federal Home Loan Bank overnight borrowings	—			—			—
Federal Reserve Bank of Philadelphia overnight borrowings	—			—			—
Statutory trust debenture	25,439			25,439			25,423
Other	—			—			—

Average outstanding balance during period:

Federal Home Loan Bank advances	$	515,000		$	510,753		$	322,760
Repurchase agreements	—			—			—
Federal Home Loan Bank overnight borrowings	5			5			5
Federal Reserve Bank of Philadelphia overnight borrowings	5			5			5
Statutory trust debenture	5,017			25,441			25,414
Other	16			16			16

Weighted average interest rate during period:
Federal Home Loan Bank advances	1.72		%	1.72		%	2.04		%
Repurchase agreements	—			—			—
Federal Home Loan Bank overnight borrowings	1.92			1.08			0.62
Federal Reserve Bank of Philadelphia overnight borrowings	2.24			1.50			1.01
Statutory trust debenture	3.35			2.92			2.40
Other	2.18			1.38			0.79

Balance outstanding at end of period:
Federal Home Loan Bank advances	$	515,000		$	515,000		$	465,000
Repurchase agreements	—			—			—
Federal Home Loan Bank overnight borrowings	—			—			—
Federal Reserve Bank of Philadelphia overnight borrowings	—			—			—
Statutory trust debenture	—			25,439			25,423
Other	—			—			—

Weighted average interest rate at end of period:
Federal Home Loan Bank advances	1.70		%	1.68		%	1.82		%
Repurchase agreements	—			—			—
Federal Home Loan Bank overnight borrowings	—			—			—
Federal Reserve Bank of Philadelphia overnight borrowings	—			—			—
Statutory trust debenture	—			3.17			2.54
Other	—			—			—

Table of Contents

Year Ended December 31, (Dollars in thousands)	2017			2016			2015
Maximum amount outstanding at any month-end during period:
Federal Home Loan Bank advances	$	515,000		$	465,000		$	165,000
Repurchase agreements	—			—			—
Federal Home Loan Bank overnight borrowings	—			—			—
Federal Reserve Bank of Philadelphia overnight borrowings	—			—			—
Statutory trust debenture	25,439			25,423			25,405
Other	—			—			—
Average outstanding balance during period:
Federal Home Loan Bank advances	$	510,753		$	322,760		$	165,000
Repurchase agreements	—			—			—
Federal Home Loan Bank overnight borrowings	5			5			5
Federal Reserve Bank of Philadelphia overnight borrowings	5			5			5
Statutory trust debenture	25,441			25,414			25,397
Other	16			16			19
Weighted average interest rate during period:
Federal Home Loan Bank advances	1.72		%	2.04		%	2.76		%
Repurchase agreements	—			—			—
Federal Home Loan Bank overnight borrowings	1.08			0.62			0.35
Federal Reserve Bank of Philadelphia overnight borrowings	1.50			1.01			0.75
Statutory trust debenture	2.92			2.40			2.00
Other	1.38			0.79			0.60
Balance outstanding at end of period:
Federal Home Loan Bank advances	$	515,000		$	465,000		$	165,000
Repurchase agreements	—			—			—
Federal Home Loan Bank overnight borrowings	—			—			—
Federal Reserve Bank of Philadelphia overnight borrowings	—			—			—
Statutory trust debenture	25,439			25,423			25,405
Other	—			—			—
Weighted average interest rate at end of period:
Federal Home Loan Bank advances	1.68		%	1.82		%	2.72		%
Repurchase agreements	—			—			—
Federal Home Loan Bank overnight borrowings	—			—			—
Federal Reserve Bank of Philadelphia overnight borrowings	—			—			—
Statutory trust debenture	3.17			2.54			2.09
Other	—			—			—

Results of Operations for the Years Ended December 31, 2018, 2017, and 2016

Table of Contents

Results of Operations for the Years Ended December 31, 2017, 2016, and 2015

Financial Highlights

Net income was $2347.98 million for the year ended December 31, ~~2017~~2018 compared to net income of $2523.59 million for the year ended December 31, ~~2016~~2017 and net income of $2225.95 million for the year ended December 31, ~~2015~~2016. Net income for the year ended December 31, 2017 included a one- time $13.1 million charge, or $0.18 per diluted share, of additional income tax expense related to the enactment of ~~H.R.~~the 1Tax Cuts and Jobs Act and its impact on the re-measurement of our net deferred tax assets (DTA) due to the reduction in the corporate income tax rate in 2018 to 21% from 35%. Net income for year ended December 31, 2016 included $8.8 million of merger and restructuring charges related to the acquisition of Conestoga Bank (“Conestoga”) and the Bank’s expense management reduction program. The increase in net income during 2016 compared to 2015 can be attributed to an increase in our average interesting earning assets of $411.1 million due to the acquisition of Conestoga Bank during the second quarter of 2016 as well as organic loan growth.

For the year ended December 31, ~~2017~~2018, net interest income was $~~169~~180.94 million, an increase of $1910.05 million, or ~~12.~~6.2%, from $~~150~~169.9 million for the year ended December 31, ~~2016~~2017. The increase in net interest income was primarily due to ~~the~~an ~~acquisition~~increase ofin ~~Conestoga~~yields ~~during~~on the ~~second~~investment ~~quarter of 2016~~ and ~~organic~~ loan ~~growth,~~portfolios ~~which~~following ~~resulted~~recent inFederal ~~higher~~Reserve ~~interest~~Bank ~~earning~~federal ~~assets~~funds ofrate ~~$596~~increases.5 Our ~~million~~net ininterest ~~2017~~margin ~~compared~~increased to ~~2016~~3.29% asfor ~~well~~the asyear ~~prepayment~~ended ~~income~~December 31, of2018, $4from 3.012% ~~million~~for 2017. ~~For~~During the year ended December 31, ~~2016~~2018, the net interest ~~income~~margin was ~~$150.9~~positively ~~million,~~impacted anby ~~increase~~nine ofbasis ~~$26.7~~points ~~million,~~due orto ~~21.5%,~~loan ~~from~~prepayments ~~$124.2~~compared ~~million~~to ~~for~~a seven basis points positive impact during the year ended December 31, ~~2015~~2017. ~~The increase in net interest income was primarily due to the acquisition of Conestoga Bank and organic loan growth.~~

As a result of loan growth and net charge-offs ~~during 2017 and 2016~~, we recorded a $4.6 million, $3.1 million, and $485 thousand provision for loan losses during the years ended December 31, ~~2017~~2018, ~~and~~ December 31, ~~2016~~2017, ~~respectively. Asset quality improvement~~ and ~~low net loan charge-offs resulted in a reduction in our provision of $3.6 million for the year ended~~ December 31, ~~2015~~2016, respectively.

For the year ended December 31, ~~2017~~2018, non-interest ~~expense~~income totaled $~~138~~28.89 million, aan ~~decrease~~increase of $~~327~~105 thousand, or 0.24%, from the year ended December 31, ~~2016~~2017. The ~~decrease~~increase ~~in non-interest expense~~ was primarily due to a $83.83 million ofnet ~~merger~~gain ~~and~~on ~~restructuring charges related to~~ the ~~acquisition~~sale of ~~Conestoga~~the assets and ~~our~~liabilities ~~April 2016~~of ~~expense~~Beneficial ~~management~~Insurance ~~reduction program recorded during the year ended December 31~~Services, ~~2016~~LLC. This ~~decrease~~increase to non-interest ~~expense~~income was partially offset by ~~an increase in salaries and employee benefits of $6.7 million and~~ a $2.04 million ~~increase~~decrease in ~~board~~income ~~fees~~from ~~due~~insurance ~~primarily~~and toadvisory ~~increased~~services ~~costs~~during ~~associated with equity awards granted under~~ the ~~Company’s~~year ~~2016~~ended ~~Omnibus~~December 31, ~~Incentive~~2018 ~~Plan.~~compared ~~Following~~to the ~~enactment~~prior ~~of H~~year.R The 1increase ~~and~~was ~~the~~also ~~anticipated~~partially ~~savings~~offset ~~from~~by ~~lower future taxes, we announced~~ a ~~special~~ $~~1,000~~518 ~~bonus~~thousand ~~paid~~decrease toin ~~over~~mortgage ~~600~~banking ~~employees~~ and ~~enhanced~~SBA ~~our medical coverage to our entire employee base~~income. ~~We also evaluated the compensation of our hourly employees and intend to raise our minimum hourly rate to $14.00 during the first quarter of 2018.~~

~~Income~~For ~~tax~~the year ended December 31, 2018, non-interest expense ~~increased~~totaled in$141.3 million, an increase of $2.5 million, or 1.8%, from the year ended December 31, 2017. The ~~compared~~increase toin ~~2016~~non-interest ~~and~~expense ~~2015~~was primarily due to ~~the~~an ~~passage~~increase in salaries and employee benefits of H$2.R.8 1million ondue ~~December 22,~~primarily ~~2017,~~to ~~which~~the ~~lowered~~costs associated with the ~~federal~~build ~~corporate~~out ~~tax~~of ~~rate~~Neumann toFinance ~~21%~~Company, ~~from~~our ~~35%~~majority-owned equipment financing subsidiary, an increase in our minimum wage and ~~resulted~~annual merit increases. The increase in non-interest expense was also due to $133.1 million of ~~additional~~professional ~~tax~~fees associated with the previously mentioned pending merger of Beneficial with WSFS Financial Corporation. These increases to non-interest expense ~~for~~were partially offset by a $1.0 million decrease in net losses on other assets due to the $319 thousand gain on the sale of a closed branch during 2018 and $685 thousand of branch closure expenses recorded during the year ended December 31, 2017. These increases to non-interest expense were also partially offset by an $816 thousand decrease in stock-based compensation expense, and an $867 thousand decrease in intangible amortization expense as a result of certain intangible assets reaching the end of their estimated lives.

For the year ended December 31, 2018, we recorded a provision for income taxes of $16.2 million, reflecting an effective tax rate of 25.5%, compared to a provision for income taxes of $32.8 million, reflecting an effective tax rate of 57.8%, for the year ended December 31, 2017. The decrease in the effective tax rate in the year ended December 31, 2018 compared to the same period a year ago is primarily due to the passage of the Tax Cuts and Jobs Act, which was enacted on December 22, 2017 and lowered the federal corporate tax rate for 2018 to 21% from 35%.

Summary Income Statements

The following table sets forth the income summary for the periods indicated:

Year Ended December 31,										Change ~~2017~~2018/~~2016~~2017					Change ~~2016~~2017/~~2015~~2016
(Dollars in thousands)	~~2017~~2018			~~2016~~2017			~~2015~~2016			$			%		$			%
Net interest income	$	~~169~~180,~~868~~364		$	~~150~~169,~~917~~868		$	~~124~~150,~~222~~917		$	1810,~~951~~496		~~12,56~~6.18	%	$	2618,~~695~~951		~~21.49~~12,56	%
Provision for loan losses	34,~~118~~581			~~485~~3,118			~~(3,600~~485		)	21,~~633~~463			~~542~~46.8992	%	42,~~085~~633			~~(113~~542.4789	)%
Non-interest income	28,~~765~~870			2728,~~805~~765			2427,~~284~~805			~~960~~105			30.4537	%	~~3,521~~960			143.5045	%
Non-interest expense	~~138~~141,~~797~~262			~~139~~138,~~124~~797			~~118~~139,~~488~~124			~~(327~~2,465		)	(01.2478	)%	~~20,636~~(327		)	17(0.4224	)%
Income tax expense	3216,~~794~~156			1332,~~644~~794			1013,~~725~~644			19(16,~~150~~638		)	~~140~~(50.3573	)%	219,~~919~~150			27140.2235	%
Net income	2347,~~932~~844			2523,~~469~~932			2225,~~893~~469			(123,~~537~~912		)	(699.0392	)%	2(1,~~576~~537		)	11(6.2503	)%
Return on average equity	24.2961		%	2.4529		%	2.1545		%
Return on average assets	0.4181		%	0.4741		%	0.4847		%

3937

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Net Interest Income

Average Balances and Yields

The following tables present information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting annualized average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average daily balances of assets or liabilities, respectively, for the periods presented. Loan fees are included in interest income on loans and are not material. Non-accrual loans are included in the average balances only. In addition, 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

	Year Ended December 31,							Year Ended December 31,							Year Ended December 31,
	2017							2016							2015
	2018							2017							2016
	Average			Interest &		Yield /		Average			Interest &		Yield /		Average			Interest &		Yield /
(Dollars in thousands)	Balance			Dividends		Cost		Balance			Dividends		Cost		Balance			Dividends		Cost
Interest Earning Assets:
Investment Securities:
Overnight Investments	$	~~373~~653,~~859~~763		$	412,~~330~~769	1.1493	%	$	~~177~~373,~~493~~859		$	~~935~~4,330	01.5314	%	$	~~291~~177,~~062~~493		$	~~758~~935	0.2653	%
Stock	23,~~046~~190			1,~~074~~582		46.6682	%	1523,~~515~~046			~~707~~1,074		4.5666	%	815,~~800~~515			~~766~~707		84.5856	%
Other Investment securities	~~962~~778,~~872~~335			2017,~~060~~606		2.0826	%	1962,~~192,835~~872			2420,~~461~~060		2.0508	%	1,~~438~~192,~~770~~835			2924,~~936~~461		2.0805	%
Total Investment securities	1,~~359~~455,~~777~~288			2531,~~464~~957		12.8718	%	1,~~385~~359,~~843~~777			2625,~~103~~464		1.8887	%	1,~~738~~385,~~632~~843			3126,~~460~~103		1.8188	%
Loans and leases:
Real estate loans
Residential	~~911~~964,~~922~~158			3538,~~849~~018		3.9394	%	~~803~~911,~~490~~922			3235,~~553~~849		43.0593	%	~~706~~803,~~597~~490			2932,~~951~~553		4.2405	%
Non-residential	1,~~664~~681,~~726~~365			7176,~~600~~994		4.2653	%	1,~~400~~664,~~986~~726			5571,~~607~~600		34.9326	%	~~828~~1,~~044~~400,986			3555,~~748~~607		43.2893	%
Total real estate	2,~~576~~645,~~648~~523			~~107~~115,~~449~~012		4.1532	%	2,~~204~~576,~~476~~648			88107,~~160~~449		34.9715	%	12,~~534~~204,~~641~~476			6588,~~699~~160		43.2697	%
Business loans	~~433~~463,~~737~~121			1922,~~728~~622		4.5083	%	~~344~~433,~~104~~737			1519,~~450~~728		4.4350	%	~~215~~344,~~270~~104			915,~~688~~450		4.4543	%
Shared National Credits	~~191~~156,~~288~~001			56,~~976~~313		3.0999	%	~~219~~191,~~750~~288			65,~~213~~976		23.7909	%	~~204~~219,~~544~~750			56,~~574~~213		2.6979	%
Small Business loans	9982,~~294~~746			54,~~134~~589		5.1148	%	99,~~224~~294			45,~~942~~134		45.9111	%	8599,~~694~~224			4,~~747~~942		54.4891	%
Small Business leases	~~137~~138,~~480~~589			7,~~704~~714		5.6057	%	93137,~~447~~480			57,~~428~~704		5.8160	%	8193,447			45,428		45.8581	%
Total Business & Small Business loans and leases	~~861~~840,~~799~~457			3841,~~542~~238		4.4386	%	~~756~~861,~~525~~799			3238,~~033~~542		4.1843	%	~~505~~756,~~589~~525			2032,~~013~~033		34.9218	%
Total Business loans and leases	2,~~526~~521,~~525~~822			~~110~~118,~~142~~232		4.3164	%	2,~~157~~526,~~511~~525			87110,~~640~~142		4.0131	%	12,~~333~~157,~~633~~511			5587,~~761~~640		4.1401	%
Personal loans	~~611~~491,~~730~~530			2623,~~413~~571		4.3280	%	~~651~~611,~~975~~730			2726,~~497~~413		4.2232	%	~~623~~651,~~426~~975			2627,~~167~~497		4.2022	%
Total loans and leases, net of discount	43,~~050~~977,~~177~~510			~~172~~179,~~404~~821		4.2349	%	34,~~612~~050,~~976~~177			~~147~~172,~~690~~404		4.0623	%	23,~~663~~612,~~656~~976			~~111~~147,~~879~~690		4.1806	%
Total interest earning assets	5,~~409~~432,~~954~~798			$	~~197~~211,~~868~~778	3.6487	%	45,~~998~~409,~~819~~954			$	~~173~~197,~~793~~868	3.4664	%	4,~~402~~998,~~288~~819			$	~~143~~173,~~339~~793	3.2446	%
Non-interest earning assets	~~400~~377,~~897~~763							~~401~~400,~~307~~897							~~341~~401,~~758~~307
Total assets	$	5,810,~~851~~561						$	5,~~400~~810,~~126~~851						$	45,~~744~~400,~~046~~126
Interest Bearing Liabilities:
Interest bearing savings and demand deposits:
Savings and club accounts	$	1,~~297~~294,~~543~~649		$	46,~~423~~146	0.3447	%	$	1,~~227~~297,~~188~~543		$	4,~~179~~423	0.34	%	$	1,~~132~~227,~~869~~188		$	34,~~910~~179	0.3534	%
Money market accounts	~~441~~407,~~528~~574			12,~~558~~010		0.3549	%	~~452~~441,~~515~~528			1,~~572~~558		0.35	%	~~415~~452,~~555~~515			1,~~370~~572		0.3335	%
Demand deposits	~~914~~993,~~404~~309			2,~~206~~556		0.2426	%	~~851~~914,~~847~~404			2,~~009~~206		0.24	%	~~704~~851,~~239~~847			12,~~469~~009		0.2224	%
Demand deposits - Municipals	~~122~~113,~~636~~875			~~236~~190		0.1917	%	~~129~~122,~~164~~636			~~209~~236		0.1619	%	~~131~~129,~~905~~164			~~146~~209		0.1116	%
Certificates of deposit	~~871~~823,~~167~~218			911,~~698~~493		1.1140	%	~~796~~871,~~381~~167			79,~~722~~698		01.9711	%	~~655~~796,~~762~~381			7,~~156~~722		10.0997	%
Total interest-bearing deposits	3,~~647~~632,~~278~~625			1822,~~121~~395		0.5062	%	3,~~457~~647,~~095~~278			1518,~~691~~121		0.4550	%	3,~~040~~457,~~330~~095			1415,~~051~~691		0.4745	%
Borrowings	~~536~~520,~~222~~045			9,~~879~~019		1.8273	%	~~348~~536,~~919~~222			79,~~185~~879		21.0682	%	~~190~~348,~~427~~919			57,~~066~~185		2.6606	%
Total interest-bearing liabilities	4,~~183~~152,~~500~~670			2831,~~000~~414		0.6776	%	34,~~806~~183,~~014~~500			2228,~~876~~000		0.6067	%	3,~~230~~806,~~757~~014			1922,~~117~~876		0.60	%
Non-interest-bearing deposits	~~525~~561,~~209~~740							~~478~~525,~~694~~209							~~377~~478,~~910~~694
Other non-interest-bearing liabilities	7271,~~217~~998							7872,~~632~~217							7178,~~618~~632
Total liabilities	4,~~780~~786,~~926~~408							4,~~363~~780,~~340~~926							34,~~680~~363,~~285~~340
Total stockholders’ equity	1,~~029~~024,~~925~~153							1,~~036~~029,~~786~~925							1,~~063~~036,~~761~~786
Total liabilities and stockholders’ equity	$	5,810,~~851~~561						$	5,~~400~~810,~~126~~851						$	45,~~744~~400,~~046~~126
Net interest income				$	~~169~~180,~~868~~364						$	~~150~~169,~~917~~868						$	~~124~~150,~~222~~917
Interest rate spread				23.9711							2.8697							2.6486
Net interest margin				3.1229							3.0012							23.8000
Average interest-earning assets to average interest-bearing liabilities	~~129~~130.3283		%					~~131~~129.3432		%					~~136~~131.2634		%

4038

Table of Contents

Rate/Volume Analysis

The following table sets forth the effects of changing rates and volumes on our net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. Changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionally based on the changes due to rate and the changes due to volume.

Year Ended 12/31/2017 Compared to Year Ended 12/31/2016

Year Ended 12/31/2016 Compared to Year Ended 12/31/2015

Year Ended 12/31/2018 Compared to Year Ended 12/31/2017

Year Ended 12/31/2017 Compared to Year Ended 12/31/2016

Increase (Decrease) Due to

(Dollars in thousands)

Volume

Rate

Net

Volume

Rate

Net

Interest income:

Loans receivable

18(3,~~610~~285

)

610,~~104~~702

247,~~714~~417

3818,~~806~~610

(26,~~995~~104

)

3524,~~811~~714

Overnight investments

25,~~274~~467

12,~~121~~972

38,~~395~~439

~~(598~~2,274

)

~~775~~1,121

~~177~~3,395

Investment securities

~~(481~~416

)

~~(390~~218

)

~~(871~~634

)

~~364~~(481

)

(~~170~~390

)

~~194~~(871

)

Mortgage-backed securities

(4,~~325~~630

)

~~741~~1,245

(3,~~584~~385

)

(4,~~820~~325

)

~~(527~~741

)

(53,~~347~~584

)

Collateralized mortgage obligations

~~(50~~159

)

~~104~~138

54297

(~~300~~50

)

~~(22~~104

)

~~(322~~54

)

Other interest-earning assets

~~351~~10

16498

~~367~~508

~~306~~351

~~(365~~16

)

~~(59~~367

)

Total interest-earning assets

16(1,~~379~~863

)

715,~~696~~773

2413,~~075~~910

3316,~~758~~379

(37,~~304~~696

)

3024,~~454~~075

Interest expense:

Interest-earning checking accounts

~~132~~174

92130

~~224~~304

~~328~~132

~~275~~92

~~603~~224

Money market

(39167

)

25619

~~(14~~452

)

~~128~~(39

)

7425

~~202~~(14

)

Savings accounts

~~240~~(14

)

41,737

~~244~~1,723

~~321~~240

~~(52~~4

)

~~269~~244

Time deposits

~~833~~(669

)

12,~~143~~464

1,~~976~~795

~~1,363~~833

~~(797~~1,143

)

~~566~~1,976

Total interest-bearing deposits

~~1,166~~(676

)

14,~~264~~950

24,~~430~~274

21,~~140~~166

~~(500~~1,264

)

12,~~640~~430

FHLB advances

~~3,240~~73

(~~1,010~~25

)

~~2,230~~48

3,~~212~~240

(1,~~198~~010

)

2,~~014~~230

Repurchase agreements

—

(1—

)

(1—

)

1—

—(1

)

Statutory trust debenture

1(688

)

~~464~~(220

)

~~465~~(908

)

—1

~~104~~464

~~104~~465

Total interest-bearing liabilities

4(1,~~407~~291

)

~~717~~4,705

53,~~124~~414

54,~~353~~407

~~(1,594~~717

)

35,~~759~~124

Net change in net interest income

~~11,972~~(572

)

611,~~979~~068

1810,~~951~~496

2811,~~405~~972

(16,~~710~~979

)

2618,~~695~~951

~~2017~~2018 vs. ~~2016~~2017. For the year ended December 31, ~~2017~~2018, the Company reported net interest income of $~~169~~180.94 million, an increase of $1910.05 million, or ~~12.~~6.2%, from the year ended December 31, ~~2016~~2017. Total interest income increased $2413.19 million, or 137.90%, to $~~197~~211.98 million for the year ended December 31, ~~2017~~2018 from $~~173~~197.89 million for the year ended December 31, ~~2016~~2017. The increase in interest income was primarily due to ~~the~~an ~~acquisition~~increase ofin ~~Conestoga~~yields ~~Bank~~on ~~and~~the ~~organic~~investment and loan ~~growth~~portfolios ~~with~~following ~~average~~recent ~~loans~~Federal ~~increasing~~Reserve ~~$437.2~~Bank ~~million,~~federal orfunds ~~12.1%,~~rate ~~in 2017 compared to 2016~~increases. ~~Total~~Loans ~~loans~~decreased ~~increased~~ $23139.65 million, or 3.5%, to $43.0389 billion at December 31, ~~2017~~2018, from $4.0103 billion at December 31, ~~2016~~2017. ~~The~~During ~~increase~~the inyear ~~loans~~ended ~~was~~December 31, ~~primarily~~2018, ~~due~~our toresidential ~~organic~~real ~~growth~~estate inportfolio ~~our~~increased ~~commercial~~$25.3 ~~loan~~million, ~~portfolio~~or ~~and~~2.7%. However, ~~residential~~this ~~real~~growth ~~estate~~was ~~loan~~offset ~~portfolio~~by ofa $9354.47 million ~~(3.8%~~decrease ~~growth)~~in our total commercial portfolio and an $49110.1 million (5decrease in our total consumer loan portfolio.5% We ~~growth),~~continue ~~respectively,~~to ~~partially~~experience ~~offset~~a bynumber ~~decreases~~of large commercial loan payoffs as projects are completed and sold and financing is obtained from non-bank sources. The decrease in our consumer loan portfolio was due primarily to a $63.1 million decrease in indirect auto loans resulting from our planned run-off of this portfolio segment. As previously disclosed, we decided to exit the indirect auto lending business in the first quarter of 2017. ~~In addition to the increase in the average balance of loans, there was an increase in the average interest rate earned on loans to 4.23% in 2017 compared to 4.06% in 2016.~~ For the year ended December 31, ~~2017~~2018, total interest expense increased $53.14 million, or 2212.42%, to $2831.04 million from $2228.90 million for the year ended December 31, ~~2016~~2017 primarily due to an increase in the ~~average~~cost ~~balance~~ of deposits driven by the ~~acquisition~~previously ofdiscussed ~~Conestoga~~federal ~~Bank,~~funds asrate ~~well~~increases. The asCompany analso ~~increase~~paid inoff ~~the~~$25.8 ~~average~~million ~~balance~~ of ~~borrowings,~~a ~~partially~~higher ~~offset~~cost bytrust apreferred 24debenture ~~basis~~during ~~point~~the ~~decrease~~first inquarter ~~the~~of ~~rate~~2018. Our onnet ~~borrowings~~interest margin increased to 3.29% ~~During~~for the year ended December 31, ~~2017~~2018, ~~the~~from ~~Federal~~3.12% ~~Reserve~~for ~~Board raised short term interest rates three times resulting in a FED Funds rate on overnight funds of 1~~2017.~~50%.~~ ~~Despite~~During the ~~movement~~year inended ~~short~~December 31, ~~term rates~~2018, ~~long~~the ~~term~~net ~~rates~~interest ~~did~~margin ~~not~~was ~~rise~~positively impacted by anine ~~comparable~~basis ~~amount~~points ~~resulting~~due into aloan ~~flattening~~prepayments ofcompared ~~the~~to ~~yield~~a ~~curve~~seven ~~(10~~basis ~~year~~points USpositive ~~treasuries~~impact ~~were~~during ~~2.60%~~the atyear ended December 31, 2017). We believe that the current interest rate environment will put pressure on net interest margin in future periods until we continue to grow our loan portfolio and reduce the percentage of our balance sheet assets that are held in lower yielding cash and investments.

~~2016~~2017 vs. ~~2015~~2016. For the year ended December 31, ~~2016~~2017, the Company reported net interest income of $~~150~~169.9 million, an increase of $2619.70 million, or 2112.56%, from the year ended December 31, ~~2015~~2016. Total interest income increased $3024.51 million, or 2113.29%, to $~~173~~197.89 million for the year ended December 31, ~~2016~~2017 from $~~143~~173.38 million for the year ended December 31, ~~2015~~2016. The increase in interest income was primarily due to the acquisition of Conestoga Bank and organic loan growth. ~~Loans~~with ~~increased~~average loans increasing $1437.12 ~~billion~~million, or 3612.31%, in 2017 compared to 2016. Total loans increased $23.6 million to $4.0103 billion at December 31, ~~2016~~2017, from $24.9401 billion at December 31, ~~2015~~2016. The increase in loans was primarily due to ~~acquired~~organic ~~Conestoga~~growth ~~Bank~~in ~~loans~~our commercial loan portfolio and residential real estate loan portfolio of $~~518~~93.34 million, ~~net~~(3.8% ~~organic~~ growth) ofand $~~433~~49.31 million (5.5% growth), ~~and~~respectively, ~~the~~partially ~~purchase~~offset by decreases in our consumer loan portfolio due primarily to a decrease in indirect auto loans resulting from our planned run-off of ~~$117~~this portfolio segment.5 As ~~million~~previously ofdisclosed, ~~commercial~~we ~~real~~decided ~~estate~~to ~~loans~~exit the indirect lending business in the first quarter of 2017. ~~The~~In addition to the increase in the average balance of loans, there was ~~partially~~an ~~offset~~increase ~~by a reduction~~ in the average interest rate earned on loans ~~and~~to ~~investments~~4.23% in 2017 compared to 4.06% in 2016. For the year ended December 31, ~~2016~~2017, total interest expense increased $35.81 million, or 1922.74%, to $2228.90 million from $1922.19 million for the year ended December 31, 2015 primarily due to an increase in the average balance of deposits driven by the acquisition of Conestoga Bank, as well as an increase in the average balance of borrowings, partially offset by a 60 basis point decrease in the rate on borrowings.

4139

Table of Contents

2016 primarily due to an increase in the average balance of deposits driven by the acquisition of Conestoga Bank, as well as an increase in the average balance of borrowings, partially offset by a 24 basis point decrease in the rate on borrowings. During the year ended December 31, 2017, the Federal Reserve Board raised short term interest rates three times resulting in a FED Funds rate on overnight funds of 1.50%. Despite the movement in short term rates, long term rates did not rise by a comparable amount resulting in a flattening of the yield curve (10 year US treasuries were 2.60% at December 31, 2017). We believe that the current interest rate environment will put pressure on net interest margin in future periods until we continue to grow our loan portfolio and reduce the percentage of our balance sheet assets that are held in lower yielding cash and investments.

Provision for Loan Losses

As a result of loan growth and net charge-offs during 2018, 2017 and 2016, we recorded a $4.6 million, $3.1 million and $485 thousand provision for loan losses during the years ended December 31, 2018, December 31, 2017 and December 31, 2016, respectively. The provision for the year ended December 31, 2017 also included a $1.5 million specific valuation allowance for a shared national credit that was downgraded to doubtful and moved to non-accrual status during the first quarter of 2017. ~~Asset~~During ~~quality~~2018, ~~improvement~~this ~~and~~non-performing ~~low~~shared ~~net~~national ~~loan~~credit ~~charge-offs~~was ~~resulted~~sold inand awe ~~reduction~~recorded ina ~~our~~loss ~~provision~~ of $~~3.6~~766 ~~million for the year ended December 31, 2015~~thousand. Net charge-offs for the year ended December 31, ~~2017~~2018 were $34.16 million, compared to $23.71 million and $12.67 million for the years ended December 31, ~~2016~~2017 and ~~2015~~2016, respectively. We charge-off any collateral or cash flow deficiency on all classified loans once they are 90 days delinquent. Government guaranteed student loans greater than 90 days delinquent continue to accrue interest as these loans are guaranteed by the government and have little risk of credit loss. The provision for loan losses was determined by management to be an amount necessary to maintain a balance of allowance for loan losses at a level that considers all known and current losses in the loan portfolio as well as potential losses due to unknown factors such as the economic environment. Changes in the provision were based on management’s analysis of various factors such as: estimated fair value of underlying collateral, recent loss experience in particular segments of the portfolio, levels and trends in delinquent loans, and changes in general economic and business conditions.

At December 31, ~~2017~~2018, the allowance for loan losses totaled $43.3 million, or 1.0711% of total loans outstanding, compared to $43.3 million, or 1.0807% of total loans outstanding, as of December 31, ~~2016~~2017 and $4543.53 million, or 1.5508% of total loans outstanding, as of December 31, ~~2015~~2016. An analysis of the changes in the allowance for loan losses is presented under “Risk Management—Analysis and Determination of the Allowance for Loan Losses” below.

Non-Interest Income

The following table sets forth a summary of non-interest income for the periods indicated:

										Change 2017/2016					Change 2016/2015
										Change 2018/2017					Change 2017/2016
Year Ended December 31,	~~2017~~2018			~~2016~~2017			~~2015~~2016			$			%		$			%
(Dollars in thousands)
Insurance commission income	$	74,~~124~~681		$	67,~~719~~124		$	6,~~796~~719		$	~~405~~(2,443	)	6(34.03	)%	$	~~(77~~405	)	(16.10	)%
Other services charges	1413,~~096~~202			1312,~~699~~539			1112,~~957~~556			~~397~~663			25.93	%	~~1,742~~(17		)	14(0.61	)%
Mortgage banking income	2,105			854			727			1,251			146.5	%	127			17.5	%
Mortgage banking and SBA income	1,587			2,105			854			(518		)	(24.6	)%	1,251			146.5	%
(Loss) gain on sale of investment securities available-for-sale	(7		)	1,811			(19		)	(1,818		)	(100.4	)%	1,830			9,631.6	%
Net gain (loss) on sale of investment securities	98			(7		)	1,811			105			1,500.0	%	(1,818		)	(100.4	)%
Limited partnership losses and amortization	(474		)	(621		)	(174		)	147			23.7	%	(447		)	(256.9	)%
Net gain on sale of insurance agency	3,297			—			—			3,297			100.0	%	—			—
Bank owned life insurance	1,876			1,606			1,349			270			16.8	%	257			19.1	%
Limited partnership losses and amortization	(1,139		)	(474		)	(621		)	(665		)	(140.3	)%	147			23.7	%
Returned check charges	4,045			3,737			3,648			308			8.2	%	89			2.4	%
Bank owned life insurance	3,112			3,433			2,749			(321		)	(9.4	)%	684			24.9	%
Total	$	28,765		$	27,805		$	24,284		960			3.5	%	$	3,521		14.5	%
Returned check charges	4,032			4,045			3,737			(13		)	(0.3	)%	308			8.2	%
Total	$	28,870		$	28,765		$	27,805		$	105		0.4	%	$	960		3.5	%

2018 vs. 2017. For the year ended December 31, 2018, non-interest income increased $105 thousand, or 0.4%, to $28.9 million from $28.8 million for the year ended December 31, 2017. The increase was primarily due to a $3.3 million net gain on the sale of the assets and liabilities of Beneficial Insurance Services, LLC. This increase to non-interest income was partially offset by a $2.4 million decrease in income from insurance and advisory services during the year ended December 31, 2018 compared to the prior year. The increase was also partially offset by a $518 thousand decrease in mortgage banking and SBA income.

2017 vs. 2016. For the year ended December 31, 2017, non-interest income increased $960 thousand, or 3.5%, to $28.8 million from $27.8 million for the year ended December 31, 2016. The increase was primarily due to a $1.6 million net gain on the sale of $17.8 million of SBA loans recorded during the year ended December 31, 2017, a $765 thousand increase in interchange fees, and a $308 thousand increase in returned check charges, partially offset by a $1.8 million investment gain recorded during the year ended December 31, 2016 from the sale of stock that we held in a financial institution that was acquired.

2016 vs. 2015. For the year ended December 31, 2016, non-interest income increased $3.5 million, or 14.5%, to $27.8 million from $24.3 million for the year ended December 31, 2015. The increase during the year ended December 31, 2016 was primarily due to a $1.8 million investment gain from the sale of stock that we held in a financial institution that was acquired, a $688 thousand increase in interchange fees, a $493 thousand swap fee earned on a commercial real estate loan and a $257 thousand increase in income on bank owned life insurance.40

Table of Contents

Non-Interest Expense

The following table sets forth an analysis of non-interest expense for the periods indicated:

										Change 2017/2016					Change 2016/2015
										Change 2018/2017					Change 2017/2016
(Dollars in thousands)	~~2017~~2018			~~2016~~2017			~~2015~~2016			$			%		$			%
Salaries and employee benefits	$	7578,~~225~~253		$	6875,~~515~~225		$	6268,~~970~~515		$	63,~~710~~028		94.80	%	$	56,~~545~~710		89.8	%
Occupancy expense	10,~~336~~580			910,~~786~~336			9,~~201~~786			~~550~~244			52.64		~~585~~550			65.46
Depreciation, amortization and maintenance	9,~~507~~244			9,~~942~~507			9,~~026~~942			(~~435~~263		)	(42.48	)	~~916~~(435		)	10(4.14	)
Marketing expense	4,~~684~~897			4,~~404~~684			34,~~806~~404			~~280~~213			6.4.5		~~598~~280			156.74
Amortization of intangibles	~~1,563~~696			21,~~190~~563			12,~~883~~190			(~~627~~867		)	(2855.65	)	~~307~~(627		)	16(28.36	)
FDIC insurance	1,~~744~~658			21,~~055~~744			2,~~142~~055			(~~311~~86		)	(154.19	)	(87311		)	(415.1	)
Merger and restructuring charges	—3,109			~~8,765~~—			~~753~~8,765			(83,~~765~~109		)	(100.0	)	(8,~~012~~765		)	~~1,064~~(100.0	)
Professional fees	4,~~606~~360			54,~~342~~606			45,~~449~~342			(~~736~~246		)	(135.83	)	~~893~~(736		)	20(13.18	)
Insurance expense	1,~~791~~768			1,~~871~~791			1,~~672~~871			(8023		)	(41.3	)	~~199~~(80		)	11(4.93	)
Printing and supplies	~~864~~917			~~1,283~~864			1,~~284~~283			~~(419~~53		)	~~(32~~6.71	)	(1419		)	(032.17	)
Correspondent bank charges	23,~~887~~031			2,~~752~~887			2,~~850~~752			~~135~~144			45.90		~~(98~~135		)	~~(3.~~4.9	)
Postage expense	1,~~379~~344			1,~~418~~379			1,~~402~~418			(3935		)	(2.85	)	16(39		)	1(2.18	)
Internet banking	2,~~771~~377			2,~~865~~771			2,~~427~~865			(94394		)	(314.32	)	~~438~~(94		)	18(3.03	)
Debit card rewards	~~465~~952			~~510~~465			~~(237~~510		)	~~(45~~487		)	(8104.87	)	~~747~~(45		)	~~315~~(8.28	)
Real estate owned expenses	8969			~~242~~89			~~322~~242			(~~153~~20		)	(6322.25	)	(80153		)	(2463.82	)
Real estate owned losses (gains)	122			(164		)	(228		)	286			174.4		64			28.1
Real estate owned (gains) losses	(77		)	122			(164		)	(199		)	(163.1	)	286			174.4
Classified loan expenses	~~925~~1,282			~~1,025~~925			1,~~098~~025			~~(100~~357		)	(938.86	)	(73100		)	(69.68	)
Other loan expenses	1,~~778~~465			1,~~978~~778			1,~~316~~978			(~~200~~313		)	(1017.16	)	~~662~~(200		)	50(10.31	)
Other	1815,~~061~~337			1418,~~345~~061			1214,~~352~~345			3(2,~~716~~724		)	25(15.91	)	13,~~993~~716			1625.19
Total	$	~~138~~141,~~797~~262		$	~~139~~138,~~124~~797		$	~~118~~139,~~488~~124		$	~~(327~~2,465	)	(01.28	)%	$	~~20,636~~(327	)	17(0.42	)%

2018 vs. 2017. For the year ended December 31, 2018, non-interest expense increased $2.5 million, or 1.8%, to $141.3 million from $138.8 million for the year ended December 31, 2017. The increase in non-interest expense was primarily due to an increase in salaries and employee benefits of $2.8 million due primarily to the costs associated with the build out of Neumann Finance Company, our majority-owned equipment financing subsidiary, an increase in our minimum wage and annual merit increases. The increase in non-interest expense was also due to $3.1 million of professional fees associated with the previously mentioned pending merger of Beneficial with WSFS Financial Corporation. These increases to non-interest expense were partially offset by a $1.0 million decrease in net losses on other assets due to the $319 thousand gain on the sale of a closed branch during 2018 and $685 thousand of branch closure expenses recorded during the year ended December 31, 2017. These increases to non-interest expense were also partially offset by an $816 thousand decrease in stock-based compensation expense, and an $867 thousand decrease in intangible amortization expense as a result of certain intangible assets reaching the end of their estimated lives.

2017 vs. 2016. For the year ended December 31, 2017, non-interest expense decreased $327 thousand, or 0.2%, to $138.8 million from $139.1 million for the year ended December 31, 2016. The decrease in non-interest expense was primarily due to $8.8 million of merger and restructuring charges related to the acquisition of Conestoga and our April 2016 expense management reduction program recorded during the year ended December 31, 2016. This decrease to non-interest expense was partially offset by an increase in salaries and employee benefits of $6.7 million and other expense of $2.0 million due primarily to increases in stock based compensation and board fees associated with equity awards granted under the Company’s 2016 Omnibus Incentive Plan. For the year ended December 31, 2017, our efficiency ratio was 69.93% compared to 77.84% for the year ended December 31, 2016.

2016 vs. 2015. For the year ended December 31, 2016, non-interest expense increased $20.6 million, or 17.4%, to $139.1 million from $118.5 million for the year ended December 31, 2015. The increase in non-interest expense was primarily due to $7.2 million of merger and restructuring charges related to the acquisition of Conestoga Bank and $1.6 million related to our previously announced April 2016 expense management reduction program. In addition, salaries and employee benefits increased $4.1 million and board fees increased $1.8 million primarily due to compensation associated with equity awards granted under the Company’s 2016 Omnibus Incentive Plan. The increase in non-interest expense can also be attributed to an $893 thousand increase in professional fees primarily related to an online banking technology upgrade and new cash management system, a $747 thousand increase in debit card rewards expense, a $662 thousand increase in loan expenses primarily due to commercial loan servicing, and a $598 thousand increase in marketing expense as a result of the launch of our new advertising campaign. For the year ended December 31, 2016, our efficiency ratio was 77.84% compared to 79.79% for the year ended December 31, 2015.

Income Tax Expense

~~2017~~2018 vs. ~~2016~~2017. We recorded a provision for income taxes of $3216.82 million for ~~2017~~2018, reflecting an effective rate of 5725.85%, compared to a provision for income taxes of $1332.68 million for ~~2016~~2017, reflecting an effective rate of 3457.98%. ~~Income~~The decrease in the effective tax ~~expense~~rate ~~increased~~in ~~$13.1~~the ~~million~~year ended December 31, ~~related~~2018 compared to the ~~enactment~~same ofperiods ~~H.R.~~a 1year ~~(originally~~ago ~~known~~is asprimarily due to the passage of the Tax Cuts and Jobs Act), ~~and~~which ~~its~~was ~~impact~~enacted on ~~re-measuring~~December 22, ~~our~~2017 ~~net~~and ~~deferred~~lowered ~~tax assets (DTA) due to~~ the ~~reduction in the~~ federal corporate ~~income~~ tax rate for 2018 to 21% from 35%.

~~2016~~2017 vs. ~~2015~~2016. We recorded a provision for income taxes of $1332.68 million for ~~2016~~2017, reflecting an effective rate of 3457.98%, compared to a provision for income taxes of $1013.76 million for ~~2015~~2016, reflecting an effective rate of 3134.9%. ~~The~~Income ~~increase in income~~ tax expense ~~and~~increased ~~the~~$13.1 ~~effective~~million, ~~tax~~related ~~is due~~ to ~~higher~~the ~~pre-tax~~enactment ~~income~~of ~~and~~the aTax ~~lower~~Cuts ~~ratio~~and ofJobs ~~tax~~Act ~~exempt~~and ~~income~~its ~~compared~~impact toon ~~pre~~re-~~tax~~measuring ~~income. The~~our ~~tax~~net ~~rates~~deferred ~~differ~~tax ~~from~~assets ~~the~~(DTA) ~~statutory~~due ~~rate~~to ofthe ~~35%~~reduction ~~principally~~in ~~because~~the offederal ~~tax-exempt~~corporate ~~investments, non-taxable~~ income ~~related to bank-owned life insurance, and~~ tax ~~credits~~rate ~~received~~for on2018 ~~affordable~~to ~~housing~~21% ~~partnerships,~~from ~~offset by non-deductible compensation and state income tax expense~~35%. ~~These~~

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As of December 31, 2018 and 2017, the Company had net deferred tax ~~credits~~assets ~~relate~~totaling to$21.7 ~~investments~~million ~~maintained~~and by$23.0 million, respectively. Deferred tax assets can only be realized if the Company asgenerates taxable income in the future. The Company regularly evaluates the realizability of deferred tax asset positions. In determining whether a ~~limited~~valuation ~~partner~~allowance is necessary, the Company considers the level of taxable income in ~~partnerships~~prior years to the extent that ~~sponsor~~carrybacks ~~affordable~~are ~~housing~~permitted ~~projects~~under ~~utilizing~~current ~~low~~tax laws, as well as estimates of future pre-tax and taxable income ~~housing~~and ~~credits~~tax ~~pursuant~~planning strategies that would, if necessary, be implemented. The Company currently maintains a valuation allowance for certain state net operating losses that management believes it is more likely than not that such deferred tax assets will not be realized. The Company expects to ~~Section 42~~realize the remaining deferred tax assets over the allowable carryforward periods. Therefore, no valuation allowance is deemed necessary against its remaining federal or state deferred tax assets as of December 31, 2018 and 2017. However, if an unanticipated event occurred that materially changed pre-tax book income and taxable income in future periods, an increase in the ~~Internal~~valuation ~~Revenue~~allowance ~~Code~~may become necessary and it could be material to the Company’s financial statements.

As of December 31, 2017 and 2016, the Company had net deferred tax assets totaling $23.0 million and $44.8 million, respectively. The decrease for 2017 is primarily the result of the re-measurement of our net deferred tax assets at the current enacted 21% corporate federal tax rate, which was lowered from 35% as a result of the passage of H.R. 1. Deferred tax assets can only be realized if the Company generates taxable income in the future. The Company regularly evaluates the realizability 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 carrybacks 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 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 carryforward periods. Therefore, no valuation allowance is deemed necessary against its remaining federal or state deferred tax assets as of December 31, 2017 and 2016. However, if an unanticipated event occurred that materially changed pre-tax book income 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.

Risk Management

Overview. Managing risk is an essential part of successfully managing a financial institution. Our most prominent risk exposures are credit risk, interest rate risk and market risk. Credit risk is the risk of not collecting the interest and/or the principal balance of a loan or investment when it is due. Interest rate risk is the potential reduction of interest income as a result of changes in interest rates. Market risk arises from fluctuations in interest rates that may result in changes in the values of financial instruments, such as available-for-sale securities that are accounted for at fair value. Other risks that we face are operational risk, liquidity risk and reputation risk. Operational risk includes risks related to fraud, regulatory compliance, processing errors, technology, cyber-security and disaster recovery. Liquidity risk is the possible inability to fund obligations to depositors, lenders or borrowers. Reputation risk is the risk that negative publicity or press, whether true or not, could cause a decline in our customer base or revenue.

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 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.

Analysis of Non-performing, Troubled Debt Restructurings and Classified Assets. We consider repossessed assets and loans that are 90 days or more past due, except guaranteed student loans, to be non-performing assets. Generally, all loans are placed on non-accrual status when they become 90 days delinquent at which time the accrual of interest ceases and any collateral deficiency is charged-off. Typically, payments received on a non-accrual loan are applied to the outstanding principal balance of the loan.

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Real estate that we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned until it is sold. When property is acquired, it is recorded at the lower of its cost or fair market value less estimated costs to sell. Holding costs and declines in fair value after acquisition of the property result in charges against income.

We consider a loan a troubled debt restructuring, or “TDR,” when the borrower is experiencing financial difficulty and we grant a concession that we 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 (which may include foreclosure or deed in lieu of foreclosure) or a combination of types. We evaluate selective criteria to determine if a borrower is experiencing financial difficulty including the ability of the borrower to obtain funds from sources other than Beneficial Bank at market rates. We consider all TDRs that are on non-accrual status to be impaired loans. We will not consider the loan a TDR if the loan modification was made for customer retention purposes and the modification is consistent with prevailing market conditions.

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or assets received in satisfaction of the debt (which may include foreclosure or deed in lieu of foreclosure) or a combination of types. We evaluate selective criteria to determine if a borrower is experiencing financial difficulty including the ability of the borrower to obtain funds from sources other than Beneficial Bank at market rates. We consider all TDRs that are on non-accrual status to be impaired loans. We will not consider the loan a TDR if the loan modification was made for customer retention purposes and the modification is consistent with prevailing market conditions.

Once a loan has been classified as a TDR and has been put on non-accrual status, it will only be put back on accruing status when certain criteria are met. Our 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 flows to support the repayment of all principal and interest including any amounts previously charged-off;

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

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

· Approval by the special assets committee, which consists of senior management including the Chief Credit Officer and the Chief Financial Officer.

The following table sets forth information with respect to our non-performing assets at the dates indicated.

December 31, (Dollars in thousands)

~~2017~~2018

~~2016~~2017

~~2015~~2016

~~2014~~2015

~~2013~~2014

Non-accrual loans:

Real estate loans:

Residential

54,~~829~~571

75,~~740~~829

97,~~685~~740

89,~~768~~685

118,~~523~~768

Commercial real estate

312,~~273~~323

13,~~472~~273

21,~~070~~472

2,~~123~~070

232,~~131~~123

Total real estate loans

916,~~102~~894

9,~~212~~102

119,~~755~~212

1011,~~891~~755

3410,~~654~~891

Commercial business loans

92,~~828~~922

19,~~768~~828

1,~~378~~768

1,~~755~~378

151,~~900~~755

Consumer loans:

Home equity lines of credit

1,~~246~~160

1,~~009~~246

1,~~635~~009

1,~~858~~635

~~953~~1,858

Automobile loans

—

~~151~~—

Other consumer loans

~~345~~162

80345

—80

~~111~~—

~~107~~111

Total consumer loans

1,~~591~~322

1,~~089~~591

1,~~635~~089

1,~~969~~635

1,~~211~~969

Total non-accrual loans (1)

2021,~~521~~138

1220,~~069~~521

1412,~~768~~069

14,~~615~~768

5114,~~765~~615

Accruing loans past due 90 days or more:

Consumer loans:

Education loans (2)

148,~~152~~589

14,~~843~~152

2214,~~900~~843

2522,~~296~~900

2425,~~410~~296

Total consumer loans

148,~~152~~589

14,~~843~~152

2214,~~900~~843

2522,~~296~~900

2425,~~410~~296

Total accruing loans past due 90 days or more

148,~~152~~589

14,~~843~~152

2214,~~900~~843

2522,~~296~~900

2425,~~410~~296

Total non-performing loans

3429,~~673~~727

2634,~~912~~673

3726,~~668~~912

3937,~~911~~668

7639,~~175~~911

Real estate owned

~~189~~754

~~821~~189

~~1,276~~821

1,~~578~~276

51,~~861~~578

Total non-performing assets

3430,~~862~~481

2734,~~733~~862

3827,~~944~~733

4138,~~489~~944

8241,~~036~~489

Total non-performing loans to total loans

0.8676

0.6786

10.2867

1.6528

31.2565

Total non-performing assets to total assets

0.6052

0.4860

0.8148

0.8781

10.7987

(1) Includes $8.2 million, $8.4 million, $1.1 million, $731 thousand, and $1.1 million, ~~and $18.3 million~~ of TDRs on non-accrual status as of December 31, 2018, 2017, 2016, 2015, ~~2014,~~ and ~~2013~~2014, respectively.

(2) Education loans are 98% government guaranteed.

Non-performing assets ~~increased~~decreased $74.14 million to $3430.95 million, or 0.6052% of total assets, at December 31, ~~2017~~2018 from $2734.79 million, or 0.4860% of total assets, at December 31, ~~2016~~2017. ~~This~~The ~~increase~~decrease ~~was~~is primarily due to the ~~result~~sale of ~~the~~one ~~downgrade~~large tocommercial ~~doubtful~~non-performing ~~and~~loan ~~change~~totaling to$7.6 ~~non-accrual~~million ofduring 2018. We had a ~~shared~~specific ~~national~~loan ~~credit~~loss reserve of $91.65 million infor this loan. The actual loss for the ~~first~~loan ~~quarter~~was of$766 ~~2017~~thousand. This was offset by an increase in non-accrual commercial real estate loans due primarily to one large relationship. This loan ~~continued~~has been charged down to ~~make~~the ~~payments~~appraised invalue ~~2017~~of ~~and~~the atcollateral ~~December 31~~securing the loan. In 2018, ~~2017~~we ~~had~~experienced ana ~~$8.0~~decrease ~~million~~in ~~outstanding~~the balance of government guaranteed student loans that are greater than 90 days delinquent. The decrease in past due government guaranteed loans is due to the timing of loans coming out of deferment status as of the reporting dates. Net charge-offs for the year ended December 31, ~~2017~~2018 were $34.16 million compared to $23.71 million for the year ended December 31, ~~2016~~2017. We charge-off the collateral or cash flow deficiency on all classified loans once they are 90 days delinquent. Non-performing assets at December 31, ~~2017~~2018 included $148.26 million, or 4028.62%, of government guaranteed student loans where we have little risk of credit loss. We continue to rigorously review our loan portfolio to ensure that the collateral values remain sufficient to support the outstanding balances.

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~~guaranteed~~Interest ~~student~~income ~~loans~~that ~~where~~would we have ~~little~~been ~~risk~~recorded offor ~~credit~~the ~~loss.~~years Weended ~~continue~~December 31, to2018 ~~rigorously~~and ~~review~~2017, ~~our~~had ~~loan~~non-accrual ~~portfolio~~loans tobeen ~~ensure~~current ~~that~~according ~~the~~to ~~collateral~~their ~~values~~original ~~remain~~terms, ~~sufficient~~amounted to ~~support~~approximately $1.2 million and $1.3 million, respectively. There was no interest income recorded on non-accrual loans during the ~~outstanding~~years ~~balances~~ended December 31, 2018 and 2017, respectively.

~~Interest~~The ~~income~~tables ~~that~~below ~~would~~include ~~have~~impaired ~~been recorded for the years ended December 31, 2017 and 2016, had non-accrual~~ loans ~~been current according to their original terms, amounted to approximately $1.3 million~~ and ~~$724~~the ~~thousand,~~average ~~respectively.~~impaired ~~There~~loan ~~was~~balance noas ~~interest~~of ~~income recorded on non-accrual loans during the years ended~~ December 31, ~~2017~~2018 and ~~2016, respectively~~2017.

The tables below include impaired loans and the average impaired loan balance as of December 31, 2017 and 2016.

Impaired Loans

As of December 31, ~~2017~~ 2018

(Dollars in thousands)

	Unpaid				Carrying						~~Average~~	Average
	Principal		Life-to-Date		Amount of		Charge-off		Number		~~Impaired~~	Impaired		~~Related~~	Related
	Balance		Charge-offs		Impaired Loans		% of UPB		of Loans		~~Loan Balance~~	Loan Balance		~~Allowance~~	Allowance
Impaired loans with no related specific allowance recorded:
Commercial Real Estate	$	412,~~548~~581	$	33258	$	412,~~515~~323	02.71	%	2428		$	~~188~~$	440	$	—$	—
Commercial Business	23,~~272~~282		~~160~~360		2,~~112~~922		111.60	%	1722		~~592~~	133		—	—
Commercial Construction	—		—		—		—		—		—	—		—	—
Residential Real Estate	65,~~546~~254		~~717~~683		54,~~829~~571		1113.0	%	~~116~~94		50	49		—	—
Home Equity and Lines of Credit	1,~~276~~160		30—		1,~~246~~160		~~2.4~~—	%	3029		42	40		—	—
Personal	~~345~~162		—		~~345~~162		—		1311		27	15		—	—
Education	—		—		—		—		—		—	—		—	—
Auto	—		—		—		—		—		—	—		—	—
Total impaired loans with no related specific allowance recorded:	$	1422,~~987~~439	$	~~940~~1,301	$	1421,~~047~~138	65.38	%	~~198~~184		$	71$	115	$	—$	—
Impaired loans with a related specific allowance recorded:
Commercial Business	$	~~7,953~~—	$	—	$	~~7,953~~—	0.0	%	2—		$	~~3,977~~$	—	$	~~1,500~~$	—
Impaired loans with a related specific allowance recorded:	$	~~7,953~~—	$	—	$	~~7,953~~—	0.0	%	2$	—	~~3,977~~	$	—	$	~~1,500~~$	—
Total Impaired Loans	$	22,~~940~~439	$	~~940~~1,301	$	2221,~~000~~138	45.18	%	~~200~~184		$	~~4,047~~$	115	$	~~1,500~~$	—

Impaired Loans

As of December 31, ~~2016~~2017

(Dollars in thousands)

	Unpaid				Carrying					Average
	Principal		Life-to-Date		Amount of		Charge-off		Number	Impaired		Related
	Balance		Charge-offs		Impaired Loans		% of UPB		of Loans	Loan Balance		Allowance
Impaired loans with no related specific allowance recorded:
Commercial Real Estate	$	14,~~472~~548	$	—33	$	14,~~472~~515	—0.7	%	1124	$	~~134~~188	$	—
Commercial Business	32,~~772~~272		63160		32,~~709~~112		1.76	%	1517	~~247~~592		—
Commercial Construction	—		—		—		—		—	—		—
Residential Real Estate	86,~~672~~546		~~932~~717		75,~~740~~829		1011.70	%	~~135~~116	5750		—
Home Equity and Lines of Credit	1,~~050~~276		4130		1,~~009~~246		32.94	%	2230	4642		—
Personal	80345		—		80345		—		613	1327		—
Education	—		—		—		—		—	—		—
Auto	—		—		—		—		—	—		—
Total Impaired Loans	$	15,046	$	1,036	$	14,010	6.9	%	189	$	74	$	—
Total impaired loans with no related specific allowance recorded:	$	14,987	$	940	$	14,047	6.3	%	198	$	71	$	—
Impaired loans with a related specific allowance recorded:
Commercial Business	$	7,953	$	—	$	7,953	0.0	%	2	$	3,977	$	1,500
Impaired loans with a related specific allowance recorded:	$	7,953	$	—	$	7,953	0.0	%	2	3,977		$	1,500
Total Impaired Loans	$	22,940	$	940	$	22,000	4.1	%	200	$	4,047	$	1,500

Federal regulations require us to review and classify our assets on a regular basis. In addition, the Federal Deposit Insurance Corporation has the authority to identify problem assets and, if appropriate, require them to be classified. Our credit review process includes a risk classification of all commercial and residential loans that includes pass, special mention, substandard and doubtful. 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 Beneficial 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 substandard loan 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 that may work to the advantage and strengthening of the assets, its classification as an estimated loss is deferred until its more exact status may

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principal will occur if the deficiencies are not corrected. A loan is classified as doubtful when a borrower has all weaknesses inherent in a substandard loan 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 that 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. We charge-off the collateral deficiency on all loans classified as substandard. 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 table summarizes classified assets of all portfolio types at the dates indicated:

At December 31,

(Dollars in thousands)

~~2017~~2018

~~2016~~2017

~~2015~~2016

~~2014~~2015

~~2013~~2014

Special mention assets

1211,~~510~~560

1412,~~914~~510

1514,~~190~~914

1915,~~423~~190

4919,~~526~~423

Substandard assets

2823,~~772~~554

3628,~~089~~772

3336,~~199~~089

4333,~~704~~199

9843,~~275~~704

Doubtful assets

~~7,953~~—

—7,953

—

Total classified assets

4935,~~235~~114

5149,~~003~~235

4851,~~389~~003

6348,~~127~~389

~~147~~63,~~801~~127

For all loans classified as substandard and doubtful, we generally charge-off the collateral deficiency on all collateral dependent classified loans that are 90 days past due. During the first quarter of 2017, one shared national credit for $9.6 million was downgraded to doubtful and changed to non-accrual status based on the results of a shared national credit examination performed by regulators. This loan continued to make payments in 2017 and, at December 31, 2017, had an $8.0 million outstanding balance. Management ~~has~~had established a $1.5 million specific valuation allowance to cover risk associated with this loan as of December 31, 2017. During the year ended December 31, 2018, this loan was sold and the actual loss for the loan was $766 thousand.

Analysis and Determination of the Allowance for Loan Losses. The allowance for loan losses is a valuation allowance for probable losses inherent in the loan portfolio. We evaluate the need to establish allowances against losses on loans on a quarterly basis. When additional allowances are necessary, a provision for loan losses is charged to earnings. As of December 31, ~~2017~~2018 and ~~2016~~2017, 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 allowance for loan losses methodology includes review of the nine interagency qualitative factors that are assessed to adjust the allowance based on the incremental risk of drivers not adequately reflected in the quantitative component of the allowance. 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.

Specific Allowance. 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, trends in delinquency and non-performing loans, changes in risk composition and underwriting standards, the experience and ability of staff and regional and national economic conditions and trends.

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 the45

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~~net~~collateral ~~present~~ value ofis ~~expected~~subject ~~future cash flows. Charge-offs are recorded on a monthly basis and partially charged-off loans continue~~ to besignificant ~~evaluated~~volatility on(due ~~a monthly basis. The collateral deficiency on consumer loans and residential loans are generally charged-off when deemed~~ to belocation ~~uncollectible~~of ~~or delinquent 90 days or more~~asset, ~~whichever comes first~~obsolescence, etc.) ~~unless~~an itappraisal ~~can~~is beobtained ~~clearly~~more ~~demonstrated that repayment will occur regardless of the delinquency status~~frequently. ~~Examples~~In-house ~~that~~revaluations ~~would~~are ~~demonstrate~~typically ~~repayment~~performed ~~include~~on a ~~loan~~quarterly ~~that~~basis ~~is secured by adequate collateral~~ and isupdated inappraisals ~~the~~are ~~process~~obtained ~~of collection~~annually, aif ~~loan~~determined ~~supported by a valid guarantee or insurance, or a loan supported by a valid claim against a solvent estate~~necessary.

~~Although~~When we determine that the ~~amount~~value of ~~each~~an ~~element~~impaired ofloan ~~the~~is ~~allowance~~less ~~separately,~~than ~~the~~its ~~entire~~carrying ~~allowance~~amount, ~~for~~we ~~loan~~recognize ~~losses~~impairment isthrough ~~available~~a charge-off to ~~absorb~~the ~~losses~~allowance. inWe ~~the~~perform ~~loan~~these ~~portfolio~~assessments on at least a quarterly basis. WeFor ~~generally~~commercial loans, a charge-off ~~the~~is ~~collateral~~recorded orwhen management ~~discounted~~determines ~~cash~~we ~~flow~~will ~~deficiency~~not oncollect ~~all~~100% ~~loans~~of ata 90loan ~~days~~based ~~past~~on ~~due. During~~ the ~~first~~fair ~~quarter~~value of ~~2017~~the collateral, ~~one~~less ~~shared~~costs ~~national~~to ~~credit~~sell ~~for~~the ~~$9.6~~property, ~~million~~or ~~was~~the ~~downgraded~~net topresent ~~doubtful~~value ~~and~~of ~~changed~~expected tofuture ~~non~~cash flows. Charge-~~accrual~~offs ~~status~~are ~~based~~recorded on ~~the~~a ~~results~~monthly ofbasis aand ~~shared~~partially ~~national~~charged-off ~~credit~~loans ~~examination~~continue ~~performed~~to bybe ~~regulators~~evaluated on a monthly basis. ~~This~~The ~~loan~~collateral ~~continued~~deficiency on consumer loans and residential loans are generally charged-off when deemed to ~~make~~be ~~payments~~uncollectible inor ~~2017~~delinquent ~~and,~~90 atdays ~~December 31~~or more, ~~2017~~whichever comes first, ~~had~~unless anit ~~$8.0~~can ~~million~~be ~~outstanding~~clearly ~~balance.~~demonstrated ~~Management~~that ~~has~~repayment ~~established~~will aoccur ~~$1.5~~regardless ~~million~~of ~~specific~~the ~~valuation~~delinquency ~~allowance~~status. toExamples ~~cover~~that ~~risk~~would ~~associated~~demonstrate ~~with~~repayment ~~this~~include a loan asthat is secured by adequate collateral and is in the process of ~~December 31~~collection, ~~2017.~~a ~~There~~loan ~~was~~supported noby ~~specific~~a ~~valuation~~valid ~~allowance~~guarantee ator ~~December 31~~insurance, ~~2016~~or ~~for~~a ~~non-performing~~loan ~~loans~~supported by a valid claim against a solvent estate.

Although we determine the amount of each element of the allowance separately, the entire allowance for loan losses is available to absorb losses in the loan portfolio. We generally charge-off the collateral or discounted cash flow deficiency on all loans at 90 days past due. During the first quarter of 2017, one shared national credit for $9.6 million was downgraded to doubtful and changed to non-accrual status based on the results of a shared national credit examination performed by regulators. This loan continued to make payments in 2017 and, at December 31, 2017, had an $8.0 million outstanding balance. Management had established a $1.5 million specific valuation allowance to cover risk associated with this loan as of December 31, 2017. During the year ended December 31, 2018, this loan was sold and the actual loss for the loan was $766 thousand.

General Allowance. 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 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.

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 appropriateness 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.

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

	2017				2016				2015				2014				2013
(Dollars in thousands)	2018				2017				2016				2015				2014
(Dollars in thousands)	Allowance Allocated to Loan Portfolio		Loan Category as a % of Total Loans		Allowance Allocated to Loan Portfolio		Loan Category as a % of Total Loans		Allowance Allocated to Loan Portfolio		Loan Category as a % of Total Loans		Allowance Allocated to Loan Portfolio		Loan Category as a % of Total Loans		Allowance Allocated to Loan Portfolio		Loan Category as a % of Total Loans
	Allowance Allocated to Loan Portfolio		Loan Category as a % of Total Loans		Allowance Allocated to Loan Portfolio		Loan Category as a % of Total Loans		Allowance Allocated to Loan Portfolio		Loan Category as a % of Total Loans		Allowance Allocated to Loan Portfolio		Loan Category as a % of Total Loans		Allowance Allocated to Loan Portfolio		Loan Category as a % of Total Loans
General valuation allowance:
Commercial:
Commercial real estate	$	28,~~205~~651	39.26	%	$	2328,~~395~~205	3439.62	%	$	2223,~~640~~395	3334.06	%	$	1822,~~016~~640	2533.20	%	$	2218,~~089~~016	2425.92	%
Commercial business loans	9,~~019~~372		1615.48		9,~~923~~019		1716.34		119,~~856~~923		1617.93		1811,~~264~~856		1816.29		1918,~~301~~264		1618.2
Small business leases	~~961~~1,477		3.56		~~536~~961		3.5		—536		—3.5		—		—		—		—
Commercial construction	~~963~~1,770		34.68		~~3,579~~963		53.6		23,~~335~~579		45.06		2,~~343~~335		24.90		32,~~188~~343		12.69
Total Commercial	3941,~~148~~270		6263.98		3739,~~433~~148		6162.09		3637,~~831~~433		5361.90		3836,~~623~~831		4653.39		4438,~~578~~623		4246.73
Residential:
Residential real estate	~~838~~810		2324.49		~~1,493~~838		2223.34		1,~~644~~493		2522.03		1,~~960~~644		2725.60		21,~~200~~960		2927.26
Total real estate loans	~~838~~810		2324.49		~~1,493~~838		2223.34		1,~~644~~493		2522.03		1,~~960~~644		2725.60		21,~~200~~960		2927.26
Consumer:
Home equity & lines of credit	~~491~~312		5.72		~~1,185~~491		65.27		21,~~356~~185		76.92		2,~~669~~356		97.39		32,~~133~~669		109.03
Personal	~~255~~158		0.43		~~372~~255		0.64		~~436~~372		0.76		~~1,957~~436		10.37		21,~~687~~957		1.83
Education	~~121~~125		3.74		~~129~~121		43.17		~~125~~129		64.1		~~285~~125		86.1		~~306~~285		8.81
Automobile	~~914~~587		32.94		~~2,649~~914		53.89		42,~~108~~649		65.48		4,~~610~~108		76.4		24,~~195~~610		7.54
Total consumer	1,~~781~~182		1311.73		41,~~335~~781		1613.7		74,~~025~~335		2116.17		97,~~521~~025		2621.1		89,~~321~~521		2826.1
Unallocated	—				—				—				~~550~~—				550
Total general valuation allowance	$	4143,~~767~~262	99100.80	%	$	4341,~~261~~767	~~100~~99.08	%	$	4543,~~500~~261	100.0	%	$	5045,~~654~~500	100.0	%	$	5550,~~649~~654	100.0	%
Specific valuation allowance:
Commercial:
Commercial business loans	$	~~1,500~~—	~~0.2~~—	%	$	—1,500	—0.2	%	$	—	—	%	$	—	—	%	$	—	—	%
Total Commercial	~~1,500~~—		—		—1,500		—		—		—		—		—		—		—
Total specific valuation allowance	$	~~1,500~~—	—	%	$	—1,500	—	%	$	—	—	%	$	—	—	%	$	—	—	%
Total allowance for loan and lease losses	$	43,~~267~~262	100.0	%	$	—43,267	100.0	%	$	—43,261	100.0	%	$	—45,500	100.0	%	$	—50,654	100.0	%

Commercial Loans. The allowance for the commercial portfolio totaled $3941.13 million at December 31, ~~2017~~2018 compared to $3739.41 million at December 31, ~~2016~~2017. The ~~increase in the~~ allowance ~~was~~for ~~the result of organic~~ loan ~~growth~~losses inrelated to the commercial portfolio ~~coupled~~was ~~with~~1.66% anof ~~increase in net charge-offs and delinquencies in the~~ commercial ~~loan~~loans ~~portfolio~~at ~~during the year ended~~ December 31, ~~2017.~~2018 ~~The~~compared ~~allowance for loan losses related~~ to ~~the commercial portfolio was~~ 1.660% of commercial loans at December 31, 2017. We ~~compared~~continue to ~~1.5%~~experience low levels of delinquencies, commercial ~~loans~~criticized atand ~~December 31~~classified loans, ~~2016~~and net charge-offs. We believe the commercial reserves are adequate given the continued improvement in credit quality metrics during the year ended December 31, ~~2017~~2018.

Residential Loans. The allowance for the residential loan portfolio was $~~838~~810 thousand, or 0.0908% of residential loans, at December 31, ~~2017~~2018 compared to $~~1.5~~838 ~~million~~thousand, or 0.1709%, ~~at December 31, 2016. The decrease in the allowance was primarily the result~~ of aresidential ~~decrease~~loans, inat ~~delinquencies during the year ended~~ December 31, 2017 ~~and continued low levels of net charge-offs~~. We continue to experience consistently low levels of net charge-offs and delinquencies within this portfolio with annual loss rates of 0.0209% and 0.0402% during the year ended December 31, ~~2017~~2018 and ~~2016~~2017, respectively. We believe the balance of residential reserves is appropriate given the continued low net charge-off levels.

Consumer Loans. The allowance for the consumer loan portfolio was $1.82 million, or 0.3227% of consumer loans, at December 31, ~~2017~~2018 compared to $41.38 million, or 0.6532% of consumer loans, at December 31, ~~2016~~2017. The decrease in the allowance for loan losses within this portfolio is primarily due to a decline in the balance of consumer loans and continued low levels of ~~net charge-offs~~delinquencies. For the year ended December 31, ~~2017~~2018, ~~net~~delinquent ~~charge-offs~~consumer loans totaled $~~592~~22.9 ~~thousand~~million compared to $233.25 million ~~for~~as ~~the~~of ~~year ended~~ December 31, ~~2016~~2017. We believe the balance of consumer reserves is appropriate given continued low levels of ~~charges-offs~~delinquencies.

Specific Allowance. Management determined that no specific allowance was necessary as of December 31, 2018. As of December 31, 2017, management established a $1.5 million specific valuation allowance to cover the risk associated with one shared national credit for $8.0 million that was downgraded to doubtful and changed to non-accrual status during the year. This ~~based~~loan onwas sold during the ~~results~~year ofended aDecember 31, ~~shared~~2018. The ~~national~~actual ~~credit~~loss ~~examination~~for ~~performed~~this byloan ~~regulators~~was $766 thousand.

The appropriate allowance level is estimated based upon factors and trends identified by Beneficial Bancorp at the time the consolidated financial statements are prepared. Management continuously evaluates its allowance methodology.

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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 the risks inherent in the loan portfolio, past loan loss experience, specific loans with loss potential, geographic and industry concentrations, delinquency trends, economic conditions, the level of originations and other relevant factors. While management uses the best information available to make such evaluations, future adjustments to the allowance for credit losses may be necessary if conditions differ 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.

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The following table sets forth an analysis of the activity in the allowance for loan losses for the periods indicated:

Year Ended December 31, (Dollars in thousands)

~~2017~~2018

~~2016~~2017

~~2015~~2016

~~2014~~2015

~~2013~~2014

Allowance at beginning of period

43,~~261~~267

4543,~~500~~261

5045,~~654~~500

5550,~~649~~654

5755,649

General provision for loan losses

14,~~618~~581

~~485~~1,618

~~(3,600~~485

)

~~200~~(3,600

)

~~13,000~~200

Specific valuation allowance

~~1,500~~—

—1,500

—

Charge-offs:

Real estate loans:

Residential

~~246~~991

~~379~~246

~~283~~379

~~702~~283

~~1,051~~702

Commercial real estate

~~470~~488

~~134~~470

~~2,333~~134

52,~~804~~333

115,~~334~~804

Total real estate loans

~~716~~1,479

~~513~~716

~~2,616~~513

62,~~506~~616

126,~~385~~506

Commercial business loans

~~525~~2,981

~~536~~525

~~703~~536

~~5,338~~703

5,~~340~~338

Commercial small business leases

1,~~776~~367

~~292~~1,776

—292

—

Consumer:

Home equity & lines of credit

~~356~~431

~~411~~356

~~584~~411

~~180~~584

~~740~~180

Automobile

1,~~816~~514

21,~~170~~816

12,~~774~~170

1,~~682~~774

1,~~113~~682

Other consumer loans

~~287~~525

~~892~~287

~~625~~892

~~823~~625

~~759~~823

Total consumer loans

2,~~459~~470

32,~~474~~459

23,~~983~~474

2,~~685~~983

2,~~612~~685

Total charge-offs

58,~~476~~297

45,~~814~~476

64,~~302~~814

146,~~529~~302

2014,~~337~~529

Recoveries:

Real estate loans:

Residential

2880

128

161

8816

~~430~~88

Commercial real estate

251,787

~~425~~25

~~749~~425

~~3,845~~749

23,~~843~~845

Total real estate loans

531,867

~~426~~53

~~765~~426

~~3,933~~765

3,~~273~~933

Commercial business

38571

~~203~~38

~~2,759~~203

42,~~499~~759

~~902~~4,499

Commercial small business leases

~~444~~411

95444

—95

—

Consumer:

Home equity& lines of credit

~~311~~125

~~273~~311

~~173~~273

~~198~~173

~~255~~198

Automobile

~~1,189~~614

~~823~~1,189

~~898~~823

~~601~~898

~~725~~601

Other consumer loans

~~330~~123

~~270~~330

~~153~~270

~~103~~153

~~182~~103

Total consumer loans

~~1,828~~862

1,~~366~~828

1,~~224~~366

~~902~~1,224

~~1,162~~902

Total recoveries

23,~~364~~711

2,~~090~~364

42,~~748~~090

94,~~334~~748

59,~~337~~334

Net charge-offs

34,~~112~~586

23,~~724~~112

12,~~554~~724

51,~~195~~554

155,~~000~~195

General allowance at end of period

~~41,767~~$

43,262

~~43,261~~$

41,767

~~45,500~~$

43,261

~~50,654~~$

45,500

~~55,649~~$

50,654

Specific allowance at end of period

~~1,500~~—

—1,500

—

Allowance to non-performing loans

~~124~~145.7953

~~160~~124.7579

~~120~~160.7975

~~126~~120.9279

73126.0592

Allowance to total loans

1.0711

1.0807

1.5508

21.0955

2.3809

Net charge-offs to average loans

0.0812

0.08

0.0608

0.2206

0.6322

Interest Rate Risk Management. Interest rate risk is defined as the exposure to current and future earnings, and capital that arises from adverse movements in interest rates. Depending on a bank’s asset/liability structure, adverse movements in interest rates could be either rising or falling interest rates. For example, a bank with predominantly long-term fixed-rate loans, and short-term deposits 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 embedded in our 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. The results at December 31, ~~2017~~2018 indicate an acceptable level of risk.

Model Simulation Analysis. 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

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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 fluctuate due to 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 of 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 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 Beneficial Bancorp. 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.

Our asset/liability management committee (“ALCO”) produces reports on a quarterly basis, which compare baseline (no interest rate change) current positions 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, 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 our interest rate risk exposure present in our current asset/liability structure. If the results produce quantifiable interest rate risk exposure beyond our limits, then the testing will have served as a monitoring mechanism to allow us to initiate asset/liability strategies designed to reduce and therefore control interest rate risk.

The tables below set forth an approximation of our interest rate risk exposure. The simulation uses projected repricing of assets and liabilities at December 31, ~~2017~~2018 and December 31, ~~2016~~2017. The primary interest rate exposure measurement applied to the entire balance sheet is the effect on net interest income of a 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 change in market interest 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 and market information. 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, assumed prepayment rates may not approximate actual future prepayment activity on mortgage-backed securities, collateralized mortgage obligations and loans. Further, the computation does not reflect any actions that management may undertake in response to changes in interest rates. Management periodically reviews the rate assumptions based on existing and projected economic conditions.

As of December 31, 2018 (Dollars in thousands):

Basis point change in rates	-200			Base Forecast		+200

*Net Interest Income at Risk:*
Net Interest Income	$	159,750		$	176,035	$	184,805
% change	(9.25		)%			4.98		%

*Economic Value at Risk:*
Equity	$	1,100,375		$	1,182,676	$	1,177,336
% change	(6.96		)%			(0.45		)%

As of December 31, 2017 (Dollars in thousands):

Basis point change in rates	-200			Base Forecast		+200

*Net Interest Income at Risk:*
Net Interest Income	$	153,783		$	167,781	$	175,152
% change	(8.34		)%			4.39		%

*Economic Value at Risk:*
Equity	$	1,026,313		$	1,107,750	$	1,107,238
% change	(7.35		)%			(0.05		)%

As of December 31, ~~2016~~2018, ~~(Dollars~~based on the scenarios above, net interest income at risk would be positively affected over a one-year time horizon in ~~thousands):~~a rising interest rate environment and negatively affected in a declining interest rate environment. The economic value at risk would be negatively affected over a one-year time horizon in both a rising and a declining interest rate environment. As of December 31, 2017, based on the scenarios above, net interest income at risk would be positively affected over a one-year time horizon in a rising interest rate environment and negatively affected in a declining interest rate environment. The economic value at risk would be negatively

Basis point change in rates	-200			Base Forecast		+200
Net Interest Income at Risk:
Net Interest Income	$	149,221		$	159,482	$	165,265
% change	(6.43		)%			3.63		%
Economic Value at Risk:
Equity	$	1,071,486		$	1,170,057	$	1,152,158
% change	(8.42		)%			(1.53		)%

As of December 31, 2017, based on the scenarios above, net interest income at risk would be positively affected over a one-year time horizon in a rising interest rate environment and negatively affected in a declining interest rate environment. The economic value at risk would be negatively affected over a one-year time horizon in both a rising and a declining interest rate environment. As of December 31, 2016, based on the scenarios above, net interest income at risk would be positively affected over a one-year time horizon in a rising interest rate environment and negatively affected in a declining interest rate environment. The economic value at risk would be negatively

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affected over a one-year time horizon in both a rising and a declining interest 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 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 December 31, ~~2017~~2018 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.

Liquidity Risk

Liquidity risk is the risk of being unable to meet obligations as they come due at a reasonable funding cost. We mitigate this risk by attempting to structure our balance sheet prudently and by maintaining diverse borrowing resources to fund potential cash needs. For example, we structure our balance sheet so that we fund less liquid assets, such as loans, with stable funding sources, such as retail deposits, long-term debt, wholesale deposits, and capital. We assess liquidity needs arising from asset growth, maturing obligations, and deposit withdrawals, considering operations in both the normal course of business and times of unusual events. In addition, we consider our off-balance sheet arrangements and commitments that may impact liquidity in certain business environments.

Our ALCO measures liquidity risks, sets policies to manage these risks, and reviews adherence to those policies at its quarterly meetings. For example, we manage the use of short-term unsecured borrowings as well as total wholesale funding through policies established and reviewed by our ALCO. In addition, the director risk committee of our board of directors sets liquidity limits and reviews current and forecasted liquidity positions at each of its regularly scheduled meetings.

We have contingency funding plans that assess liquidity needs that may arise from certain stress events such as rapid asset growth and financial market disruptions. Our contingency plans also provide for continuous monitoring of net borrowed funds dependence and available sources of contingent liquidity. These sources of contingent liquidity include cash and cash equivalents, capacity to borrow at the Federal Reserve discount window and the Federal Home Loan Bank system, fed funds purchased from other banks and the ability to sell, pledge or borrow against unencumbered securities in our investment portfolio. As of December 31, ~~2017~~2018, the potential liquidity from these sources totaled $3.02 billion, which is an amount we believe currently exceeds any contingent liquidity needs.

Uses of Funds. Our primary uses of funds include the extension of loans and credit, the purchase of investment securities, working capital, and debt and capital management. In addition, contingent uses of funds may arise from events such as financial market disruptions.

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 agency obligations.

Sources of Funds. Our 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 December 31, ~~2017~~2018, cash and cash equivalents totaled $~~557~~852.65 million, including overnight investments of $~~512~~792.62 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $~~310~~285.36 million at December 31, ~~2017~~2018. On December 31, ~~2017~~2018, we had $515.0 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 under an overnight advance program up to Beneficial Bank’s maximum borrowing capacity based on its ability to collateralize such borrowings.

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 $3.2833 billion at December 31, ~~2017~~2018, compared to $3.2728 billion at December 31, ~~2016~~2017. In addition, we use brokered certificates of deposit as a funding source of our asset base. The Company primarily relies on its retail and commercial deposit base to fund the balance sheet as these deposits are typically a lower cost and more stable funding source than brokered deposits. However, the Company also utilizes brokered certificates of deposit to fund a portion of the balance sheet subject to policy limits approved by the Company’s Board of Directors. As of December 31, ~~2017~~2018 and December 31, ~~2016~~2017, the Company had $~~285~~210.62 million, or 43.96% of total assets, and $285.86 million, or 54.09% of total assets, of brokered certificates of deposit, respectively. For the years ended December 31, ~~2017~~2018 and December 31, ~~2016~~2017, the cost of brokered certificates of deposit totaled 1.5653% and 1.6856%, respectively.

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The Company utilizes different terms for the brokered certificates of deposit to minimize the refinancing risk that exists in any given year. The Company has structured its brokered certificates of deposit to mature over a five -year period. The following table summarizes the outstanding balance of brokered certificates of deposit by calendar year of maturity for the period presented:

(Dollars in thousands)	December 31, ~~2017~~2018
Amounts mature in:
2018	$	75,770
2019	$	45,836
2019	45,000
2020	99,414
2020	99,790
2021	50,000
2022	1514,~~000~~950
Total	$	285,560
2023	—
Total	$	210,200

The Company may be restricted in its ability to accept, renew or roll over brokered deposits, depending on its capital classification. Only “well-capitalized” banks are permitted to accept, renew or roll over brokered deposits. The FDIC may, on a case-by-case basis, permit banks that are adequately capitalized to accept brokered deposits if the FDIC determines that acceptance of such deposits would not constitute an unsafe or unsound banking practice with respect to the bank. Undercapitalized banks generally may not accept, renew or roll over brokered deposits. Should the Bank be restricted from the brokered deposit market, we could replace these deposits with a diversified base of wholesale funding sources. These uncommitted sources may include fed funds purchased from other banks, securities sold under agreements to repurchase, and FHLB advances.

As of December 31, ~~2017~~2018 and December 31, ~~2016~~2017, aggregate wholesale funding totaled $~~790~~724.90 million and $~~743~~790.6

Filing Compare · Beneficial Bancorp Inc.