EXHIBIT 13

SELECTED
CONSOLIDATED FINANCIAL AND OTHER DATA

|                                                                                         |  |         |            |      |   |            |  |      |            |      |   |            |     |   |           |    
|---------------------------------------------------------------------------------------- |  | ------- | ---------- | ---- | - | ---------- |  | ---- | ---------- | ---- | - | ---------- | --- | - | --------- | ---
|At and For
  the Year Ended December 31,(Dollars in thousands, except per share amounts) |  | 2007(1) |            | 2006 |   | 2005       |  | 2004 |            | 2003 |  
|                                                                                         |  |         |            |      |   |            |  |      |            |      |  
|                                                                                         |  |         |            |      |   |            |  |      |            |      |   |            |     |   |           |    
|Financial Condition Data:                                                                |  |         |            |      |   |            |  |      |            |      |   |            |     |   |           |    
|Total assets                                                                             |  | $       | 3,557,818  |      | $ | 2,300,219  |  | $    | 2,392,394  |      | $ | 2,332,730  |     | $ | 2,255,277 |    
|Cash and cash equivalents (2)                                                            |  |         | 58,327     |      |   | 21,074     |  |      | 32,927     |      |   | 32,352     |     |   | 25,109    |    
|Investment securities available-for-sale (2)                                             |  |         | 968,609    |      |   | 348,484    |  |      | 359,444    |      |   | 434,742    |     |   | 379,713   |    
|Investment securities held-to-maturity                                                   |  |         | 111,986    |      |   | 130,357    |  |      | 163,320    |      |   | 205,584    |     |   | 264,812   |    
|Loans receivable, net                                                                    |  |         | 2,097,581  |      |   | 1,671,457  |  |      | 1,716,057  |      |   | 1,558,159  |     |   | 1,481,223 |    
|Deposits (2)                                                                             |  |         | 2,465,163  |      |   | 1,678,054  |  |      | 1,665,821  |      |   | 1,608,585  |     |   | 1,546,412 |    
|Federal Home Loan Bank                                                                   |  |         | 185,750    |      |   | 196,550    |  |      | 312,797    |      |   | 395,104    |     |   | 371,484   |    
|Other borrowed funds                                                                     |  |         | 221,372    |      |   | 98,346     |  |      | 95,414     |      |   | 14,232     |     |   | 20,000    |    
|Stockholders equity                                                                     |  |         | 619,797    |      |   | 280,415    |  |      | 278,372    |      |   | 270,116    |     |   | 258,414   |    
|                                                                                         |  |         |            |      |   |            |  |      |            |      |   |            |     |   |           |    
|Operating Data:                                                                          |  |         |            |      |   |            |  |      |            |      |   |            |     |   |           |    
|Interest income                                                                          |  | $       | 157,894    |      | $ | 127,326    |  | $    | 117,091    |      | $ | 108,080    |     | $ | 113,629   |    
|Interest expense                                                                         |  |         | 73,774     |      |   | 62,896     |  |      | 51,363     |      |   | 41,943     |     |   | 46,488    |    
|                                                                                         |  |         |            |      |   |            |  |      |            |      |   |            |     |   |           |    
|Net interest income                                                                      |  |         | 84,120     |      |   | 64,430     |  |      | 65,728     |      |   | 66,137     |     |   | 67,141    |    
|Provision for loan losses                                                                |  |         | 2,470      |      |   | 1,575      |  |      | 1,703      |      |   | 2,400      |     |   | 2,775     |    
|                                                                                         |  |         |            |      |   |            |  |      |            |      |   |            |     |   |           |    
|Net interest income after provision for loan losses                                      |  |         | 81,650     |      |   | 62,855     |  |      | 64,025     |      |   | 63,737     |     |   | 64,366    |    
|Non-interest income                                                                      |  |         | 13,372     |      |   | 10,531     |  |      | 10,862     |      |   | 3,168      |     |   | 7,073     |    
|Non-interest expenses                                                                    |  |         | 101,032    |      |   | 59,439     |  |      | 56,961     |      |   | 50,577     |     |   | 49,657    |    
|                                                                                         |  |         |            |      |   |            |  |      |            |      |   |            |     |   |           |    
|(Loss) Income before income taxes                                                        |  |         | (6,010     | )    |   | 13,947     |  |      | 17,928     |      |   | 16,328     |     |   | 21,782    |    
|Income tax (benefit) expense                                                             |  |         | (4,465     | )    |   | 2,322      |  |      | 4,728      |      |   | 4,704      |     |   | 6,322     |    
|                                                                                         |  |         |            |      |   |            |  |      |            |      |   |            |     |   |           |    
|Net (loss) income                                                                        |  | $       | (1,545     | )    | $ | 11,625     |  | $    | 13,200     |      | $ | 11,624     |     | $ | 15,460    |    
|                                                                                         |  |         |            |      |   |            |  |      |            |      |   |            |     |   |           |    
|Average common shares outstanding  Basic and Diluted                                    |  |         | 61,374,792 |      |   | 45,792,775 |  |      | 45,792,775 |      |   | 45,792,775 | (3) |   | N/A       | (3)
|                                                                                         |  |         |            |      |   |            |  |      |            |      |   |            |     |   |           |    
|Net (loss) earnings per share - Basic and Diluted                                        |  | $       | (0.03      | )    | $ | 0.25       |  | $    | 0.29       |      | $ | 0.25       |     |   | N/A       |    
|                                                                                         |  |         |            |      |   |            |  |      |            |      |   |            |     |   |           |    
|Dividends per share (4)                                                                  |  | $       | 0.01       |      | $ | 0.00       |  | $    | 0.00       |      | $ | 0.00       |     |   | N/A       |    
|                                                                                         |  |         |            |      |   |            |  |      |            |      |   |            |     |   |           |    

|    |                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | 2007 financial results
  reflect the acquisition of FMS Financial Corporation and the Companys
  minority stock offering.                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                            
|(2) | See Note 2, Summary of
  Significant Accounting Policies, of the Notes to the Consolidated Financial
  Statements for explanation of correction of error on the balance sheet.                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                            
|(3) | Beneficial Savings Bank MHC
  was organized as Beneficial Mutual Bancorps federally-chartered mutual
  holding company in August 2004.                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                            
|(4) | Reflects dividends paid to
  Beneficial Savings Bank MHC, in April 2007, prior to Beneficial Mutual
  Bancorps minority stock offering in July 2007. See Note 3, Minority Stock
  Offering and Mergers and Acquisitions, of the Notes to the Consolidated
  Financial Statements for further discussion.

1

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|                                                                                            |  |  |         |    |      |         |      |  |         |   |      |         |   |  |         |  
|------------------------------------------------------------------------------------------- |  |  | ------- | -- | ---- | ------- | ---- |  | ------- | - | ---- | ------- | - |  | ------- | -
|At and For
  the Year Ended December 31, (Dollars in thousands, except per
  share amounts) |  |  | 2007    |    | 2006 |         | 2005 |  | 2004    |   | 2003
|                                                                                            |  |  |         |    |      |         |      |  |         |   |     
|                                                                                            |  |  |         |    |      |         |      |  |         |   |      |         |   |  |         |  
|Performance Ratios:                                                                         |  |  |         |    |      |         |      |  |         |   |      |         |   |  |         |  
|Return on average assets                                                                    |  |  | (0.05   | )% |      | 0.49    | %    |  | 0.56    | % |      | 0.51    | % |  | 0.69    | %
|                                                                                            |  |  |         |    |      |         |      |  |         |   |      |         |   |  |         |  
|Return on average equity                                                                    |  |  | (0.35   | )  |      | 4.04    |      |  | 4.83    |   |      | 4.44    |   |  | 6.24    |  
|                                                                                            |  |  |         |    |      |         |      |  |         |   |      |         |   |  |         |  
|Interest rate spread (1)                                                                    |  |  | 2.59    |    |      | 2.45    |      |  | 2.57    |   |      | 2.73    |   |  | 2.81    |  
|                                                                                            |  |  |         |    |      |         |      |  |         |   |      |         |   |  |         |  
|Net interest margin (2)                                                                     |  |  | 3.17    |    |      | 2.87    |      |  | 2.90    |   |      | 3.03    |   |  | 3.15    |  
|                                                                                            |  |  |         |    |      |         |      |  |         |   |      |         |   |  |         |  
|Other expenses to average assets                                                            |  |  | 3.48    |    |      | 2.51    |      |  | 2.40    |   |      | 2.22    |   |  | 2.23    |  
|                                                                                            |  |  |         |    |      |         |      |  |         |   |      |         |   |  |         |  
|Efficiency ratio (3)                                                                        |  |  | 102.68  |    |      | 79.29   |      |  | 74.37   |   |      | 72.98   |   |  | 66.91   |  
|                                                                                            |  |  |         |    |      |         |      |  |         |   |      |         |   |  |         |  
|Average interest-earning assets to average interest-bearing liabilities                     |  |  | 120.96  |    |      | 114.86  |      |  | 114.80  |   |      | 115.75  |   |  | 115.43  |  
|                                                                                            |  |  |         |    |      |         |      |  |         |   |      |         |   |  |         |  
|Average equity to average assets                                                            |  |  | 15.06   |    |      | 12.20   |      |  | 11.52   |   |      | 11.49   |   |  | 11.12   |  
|                                                                                            |  |  |         |    |      |         |      |  |         |   |      |         |   |  |         |  
|Capital Ratios (4):                                                                         |  |  |         |    |      |         |      |  |         |   |      |         |   |  |         |  
|Tier 1 capital to average assets                                                            |  |  | 12.20   |    |      | 11.73   |      |  | 11.37   |   |      | 11.40   |   |  | 11.29   |  
|                                                                                            |  |  |         |    |      |         |      |  |         |   |      |         |   |  |         |  
|Tier 1 capital to risk-weighted assets                                                      |  |  | 19.80   |    |      | 17.66   |      |  | 16.83   |   |      | 17.95   |   |  | 17.77   |  
|                                                                                            |  |  |         |    |      |         |      |  |         |   |      |         |   |  |         |  
|Total risk-based capital to risk-weighted assets                                            |  |  | 20.92   |    |      | 18.78   |      |  | 17.91   |   |      | 19.18   |   |  | 18.99   |  
|                                                                                            |  |  |         |    |      |         |      |  |         |   |      |         |   |  |         |  
|Asset Quality Ratios:                                                                       |  |  |         |    |      |         |      |  |         |   |      |         |   |  |         |  
|Allowance for loan losses as a percent of total loans                                       |  |  | 1.10    |    |      | 1.03    |      |  | 0.99    |   |      | 1.09    |   |  | 1.13    |  
|                                                                                            |  |  |         |    |      |         |      |  |         |   |      |         |   |  |         |  
|Allowance for loan losses as a percent of non-performing loans                              |  |  | 143.10  |    |      | 213.09  |      |  | 331.32  |   |      | 278.17  |   |  | 252.90  |  
|                                                                                            |  |  |         |    |      |         |      |  |         |   |      |         |   |  |         |  
|Net charge-offs to average outstanding loans during the period                              |  |  | 0.08    |    |      | 0.07    |      |  | 0.10    |   |      | 0.14    |   |  | 0.18    |  
|                                                                                            |  |  |         |    |      |         |      |  |         |   |      |         |   |  |         |  
|Nonperforming loans as a percent of total loans                                             |  |  | 0.77    |    |      | 0.48    |      |  | 0.30    |   |      | 0.39    |   |  | 0.45    |  
|                                                                                            |  |  |         |    |      |         |      |  |         |   |      |         |   |  |         |  
|Nonperforming assets as a percent of total assets                                           |  |  | 0.59    |    |      | 0.48    |      |  | 0.35    |   |      | 0.39    |   |  | 0.44    |  
|                                                                                            |  |  |         |    |      |         |      |  |         |   |      |         |   |  |         |  
|Other Data:                                                                                 |  |  |         |    |      |         |      |  |         |   |      |         |   |  |         |  
|Number of offices (5)                                                                       |  |  | 72      |    |      | 39      |      |  | 38      |   |      | 35      |   |  | 33      |  
|Number of deposit accounts                                                                  |  |  | 284,742 |    |      | 163,140 |      |  | 163,740 |   |      | 164,827 |   |  | 169,915 |  
|Number of loans                                                                             |  |  | 62,017  |    |      | 61,478  |      |  | 67,242  |   |      | 70,430  |   |  | 73,327  |  
|                                                                                            |  |  |         |    |      |         |      |  |         |   |      |         |   |  |         |  

|    |                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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) | Two additional offices were
  opened in fiscal 2007 and 31 additional offices were acquired in the FMS
  Financial merger.                                                

2

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MANAGEMENTS
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Overview

Our principal business is to acquire deposits from
individuals and businesses in the communities surrounding our offices and to
use these deposits to fund loans. We also seek to broaden relationships with
our customers by offering insurance and investment advisory services. We focus
on providing our products and services to two segments of customers:
individuals and small businesses.

The history of Beneficial Bank (the Bank) dates back
to 1853. Over the years, we have expanded primarily through internal growth,
reaching $3.6 billion in assets at December 31, 2007. In 2004, the Bank
reorganized into the mutual holding company structure, forming Beneficial
Mutual Bancorp, Inc. (the Company) as its holding company and Beneficial
Savings Bank MHC (the MHC) as the sole stockholder of the Company. In 2005,
we completed the acquisition of Northwood Savings Bank, located in the Fishtown
area of Philadelphia and acquired the insurance firm Paul Hertel & Co.,
Inc. through our subsidiary Beneficial Insurance Services, LLC, to provide
property, casualty, life, health and benefits insurance to individual and
business customers with a focus on strengthening our fee income and overall
earnings. On July 13, 2007, the Company completed its minority stock offering,
raising approximately $236.1 million, and acquired FMS Financial Corporation,
the parent company of Farmers & Mechanics Bank (together, FMS Financial).
FMS Financial, which had total assets of over $1.2 billion and a lower loan to
deposit ratio than the Company, has provided us with an additional source of
funds for our rising loan activity. On October 5, 2007, Beneficial Insurance
Services, LLC acquired the business of CLA Agency, Inc. (CLA), a full-service
property and casualty and professional liability insurance brokerage company
headquartered in Newtown Square, Pennsylvania.

The Company was established to serve the financing
needs of the public and has expanded its services over time to offer personal
and business checking accounts, home equity loans and lines of credit,
commercial real estate loans and other types of commercial and consumer loans.
We also provide insurance services through our wholly owned subsidiary,
Beneficial Insurance Services, LLC, and investment and non-deposit services through
Beneficial Advisors, LLC. Our retail market area primarily includes all of the
area surrounding our 72 banking offices located in Bucks, Chester, Delaware,
Montgomery and Philadelphia Counties in Pennsylvania and Burlington and Camden
Counties in New Jersey, while our lending market also includes Gloucester, and
Mercer Counties in New Jersey. In Pennsylvania, we serve our customers through
our four offices in Bucks County, seven offices in Delaware County, eight
offices in Montgomery County, 19 offices in Philadelphia County, and one office
in Chester County, Pennsylvania. In New Jersey, we serve our customers through
our 30 offices in Burlington County and three offices in Camden County. In
addition, Beneficial Insurance Services, LLC operates two offices in
Pennsylvania, one in Philadelphia County and one in Delaware County.

In addition to expanding relationships with current
customers, we plan to increase the number of households and customers we serve
by continuing to expand our branch network. While our major focus will be
organic growth, we will continue to evaluate acquisition opportunities,
although we currently have no definitive plans regarding acquisition
opportunities.

We have focused on attaining and maintaining a sound
financial position and recognize that maintaining a strong financial position
is a major consideration in strategic planning. We are aware that our vision
must be pursued in conjunction with key financial objectives to ensure overall
sound financial performance. At the time of our public offering in mid 2007,
the credit markets began to experience serious disruptions. This began with
concerns about delinquency and default rates on certain mortgage loans defined
as sub-prime. Sub-prime loans are defined as mortgages advanced to borrowers
who do not qualify for market interest rates because of problems with their
credit history.

The Bank does not engage in sub-prime lending, which
is defined as mortgage loans advanced to borrowers who do not qualify for
market interest rates because of problems with their credit history. The Bank
focuses its lending efforts within its market area.

3

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Through the balance of 2007 and into 2008, the
volatility sparked by the sub-prime mortgage crisis has been accompanied by
similar deterioration in other asset classes such as non-sub-prime mortgages,
student loans, credit cards, and hedge funds. As a result, we have entered a
period of uncertainty across markets fueled by instability throughout the
commercial and investment banking sectors. The market aftermath has included
concerns about core inflation, liquidity, personal and corporate debt levels
and repayment risk, housing prices, and mortgage loan availability. In response
to these concerns, the Federal Reserve has taken unprecedented steps to bolster
the financial markets in an effort to restore confidence while avoiding a
recession.

The disruptions in certain credit markets, while
challenging for the entire industry, has led to significant easing in the
Federal Reserves monetary policy, resulting in lower short-term interest
rates, more rational competitive deposit pricing and a more normalized term
structure of interest rates, which provide the Company with opportunities to
grow its deposit base at a lower cost, as consumers seek the safety of insured
deposits. In addition, these disruptions have led to a thinning in the ranks of
non-bank lenders, pointing consumers to satisfy their borrowing needs by
accessing the services offered by traditional community banks. As the  largest bank headquartered in the Philadelphia, with a strong capital base,
the Company is uniquely positioned to capitalize on these disruptions.

Income. Our primary source of pre-tax
income is net interest income. Net interest income is the difference between
interest income, which is the income that we earn on our loans and investments,
and interest expense, which is the interest that we pay on our deposits and
borrowings. Changes in levels of interest rates affect our net interest income.
During the second half of 2007, the spread between short-term interest rates
(which influence the rates we pay on deposits) and longer-term interest rates
(which influence the rates we earn on loans) has widened. The widening of the
spread between the interest we earn on loans and investments and the interest
we pay on deposits has allowed us to maintain a stable net interest margin.

A secondary source of income is non-interest income,
which is revenue that we receive from providing products and services.
Traditionally, the majority of our non-interest income has generally come from
service charges (mostly from service charges on deposit accounts). In some
years, we recognize income from the sale of loans and securities. We have
recently sought to increase non-interest income by expanding the insurance and
investment products we can offer our customers. In 2005, Beneficial Insurance
Services, LLC, a subsidiary of the Bank, acquired the assets of Paul Hertel
& Co., Inc., an insurance agency and brokerage that has provided insurance
services since 1908. In addition, on October 5, 2007, Beneficial Insurance
Services, LLC acquired the business of CLA Agency, Inc., a full-service
property and casualty and professional liability insurance brokerage company
headquartered in Newtown Square, Pennsylvania.

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.

Expenses. The non-interest expenses we
incur in operating our business consist of salaries and employee benefits
expenses, occupancy expenses, depreciation, amortization and maintenance
expenses and other miscellaneous expenses, such as 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. Our salaries and employee benefits expense has
increased in recent periods as a result of the acquisition of FMS Financial,
the addition of staff for our new branch offices, and the recruitment of new
employees hired to help the Company achieve its growth objectives. In addition,
we recognized additional salary and employee benefit expense resulting from
severance payments made to former FMS Financial employees whose positions were
made redundant in the acquisition, and to former employees of the Company
affected by the first reduction in force in our history. In 2008, we expect to
recognize additional annual employee compensation expenses stemming from the
adoption of new equity benefit plans.

Occupancy expenses, which are the fixed and variable
costs of buildings and equipment, consist primarily of furniture and equipment
expenses, maintenance, real estate taxes and costs of utilities. Our occupancy
expenses have increased in recent periods because of the expansion of our
branch network resulting from the acquisition of FMS Financial and the new
branch offices we have opened in our market area.

In conjunction with the offering, we contributed $10.0
million to establish The Beneficial Foundation, a charitable foundation
committed to carrying forward the Companys long standing tradition of
community support. This contribution increased non-interest expense in 2007.

4

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Effective at the beginning of 2007, the Federal
Deposit Insurance Corporation (FDIC) began assessing most insured depository
institutions premiums for deposit insurance at a rate between five cents and
seven cents for every one hundred dollars of deposits. Assessment credits have been provided
to institutions that paid high premiums in the past. The Bank received an
assessment credit of approximately $1.72 million, which was supplemented with
an additional credit of approximately $0.4 million as a result of the
acquisition of FMS Financial. Our assessment in 2007 equaled five cents for
every one hundred dollars of deposits, resulting in a premium of approximately $0.8 million,
which was entirely offset by our assessment credit. The FDIC has announced that
it will keep its premium rates the same in 2008, and we expect that our 2008
premium will be largely offset by our assessment credit.

As a result of our initial public offering, we will
continue to incur additional non-interest expenses as a result of operating as
a public company. These additional expenses will consist primarily of legal and
accounting fees, expenses of shareholder communications and meetings and
expenses related to the addition of personnel.

The Management Discussion & Analysis has been revised as a result of correcting certain presentation errors,
see Note 2, Summary of Significant Accounting Policies, of the notes to the consolidated financial statements for further discussion.

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.
Our significant accounting policies are described in note 2 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
to be critical accounting policies. The judgments and assumptions we use are
based on historical experience and other factors, which we believe to be
reasonable under the circumstances. Actual results could differ from these
judgments and estimates under different conditions, resulting in a change that
could have a material impact on the carrying values of our assets and
liabilities and our results of operations.

Allowance for Loan Losses. We consider
the allowance for loan losses to be a critical accounting policy. The allowance
for loan losses is the amount estimated by management as necessary to cover
losses inherent in the loan portfolio at the balance sheet date. The allowance
is established through the provision for loan losses, which is charged to
income. Determining the amount of the allowance for loan losses necessarily
involves a high degree of judgment. Among the material estimates required to
establish the allowance are: overall economic conditions; value of collateral;
strength of guarantors; loss exposure at default; the amount and timing of
future cash flows on impacted 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 reviews the level of the
allowance at least quarterly and establishes the provision for loan losses
based upon an evaluation of the portfolio, past loss experience, current
economic conditions and other factors related to the collectibility of the loan
portfolio. Although we believe that we use the best information available to
establish the allowance for loan losses, future adjustments to the allowance
may be necessary if economic conditions differ substantially from the
assumptions used in making the evaluation. In addition, the FDIC and the
Pennsylvania Department of Banking (the Department), 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.
A large loss could deplete the allowance and require increased provisions to
replenish the allowance, which would adversely affect earnings. See note 7 to
the consolidated financial statements included in this Annual Report.

Goodwill and Intangible Assets. Net
assets of companies acquired in purchase transactions are recorded at fair
value at the date of acquisition and, as such, the historical cost basis of
individual assets and liabilities are adjusted to reflect their fair value.
Identified intangibles are amortized on an accelerated or straight-line basis
over the period benefited. Goodwill is not amortized but is reviewed for
potential impairment on an annual basis, or if events or circumstances indicate
a potential impairment, at the reporting unit level. The impairment test is
performed in two phases. The first step of the goodwill impairment test
compares the fair value of the reporting unit with its carrying amount,
including goodwill. If the fair value of the reporting unit exceeds its
carrying amount, goodwill of the reporting unit is considered not impaired;
however, if the carrying amount of the reporting unit exceeds its fair value,
an additional procedure must be performed. That additional procedure compares
the implied fair value of the reporting units goodwill (as defined in
Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and
Other Intangible Assets (SFAS No. 142)) with the carrying amount of that
goodwill. An impairment loss is recorded to the extent that the carrying amount
of goodwill exceeds its implied fair value. In 2007 and 2006, our step one
impairment analysis indicated goodwill was not impaired.

5

---



Other intangible assets subject to amortization are
evaluated for impairment in accordance with SFAS No. 144 Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS No. 144). An impairment
loss will be recognized if the carrying amount of the intangible asset is not
recoverable and exceeds fair value. The carrying amount of the intangible is
considered not recoverable if it exceeds the sum of the undiscounted cash flows
expected to result from the use of the asset. At December 31, 2007, intangible
assets included customer relationships and other related intangibles that are
amortized on a straight-line basis using estimated lives of nine to 13 years for
customer relationships and two to four years for other intangibles.

Income Taxes. The
Company estimates income tax expense based on amounts expected to be owed to
the various tax jurisdictions in which the Company conducts business. On a
quarterly basis, management assesses the reasonableness of its effective tax
rate based upon its current estimate of the amount and components of net
income, tax credits and the applicable statutory tax rates expected for the
full year. The estimated income tax expense is recorded in the Consolidated
Statement of Operations. As of January 1, 2007, the Company adopted FASB
Interpretation No. (FIN) 48, Accounting for Uncertainty of Income Taxes
(FIN 48) as described in greater detail in note 2 and note 15 of the notes to
the consolidated financial statements.

We use the asset and liability method of accounting
for income taxes as prescribed in SFAS No. 109,Accounting for Income
Taxes (SFAS No. 109). 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 current 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 liabilities and assets. These judgments
require us to make projections of future taxable income. The judgments and
estimates we make in determining our deferred tax assets, which are inherently
subjective, 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 would result in additional income tax expense in the period, which
would negatively affect earnings.

Business
Strategy

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

| |   |                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | Expanding our franchise through the opening of
  additional branch offices in our primary market area and careful review of
  acquisition opportunities;                         
| |   |                                                                                                                                                                                  
| | · | Pursuing opportunities to increase commercial
  lending in our primary market area;                                                                                              
| |   |                                                                                                                                                                                  
| | · | Continuing to use consistent, disciplined
  underwriting practices to maintain the high quality of our loan portfolio;                                                           
| |   |                                                                                                                                                                                  
| | · | Growing non-interest income by expanding the
  products and services we offer our customers, including the expansion of our
  insurance services and investment services; and    
| |   |                                                                                                                                                                                  
| | · | Building profitable business and consumer relationships
  by providing superior customer service with an emphasis on growing
  transaction deposit accounts and deposit balances.

6

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Expanding our franchise through the opening
of additional branch offices in our primary market area and careful review of
acquisition opportunities

The Bank has sought to expand its franchise in recent
years through acquisition opportunities and by opening new branch offices and
continues to evaluate opportunities for further expansion. In November 2005, we
acquired Northwood Savings Bank, an $8.8 million Pennsylvania-chartered mutual
savings bank with one branch office located in Philadelphia, Pennsylvania. This
acquisition enabled the Bank to acquire nearly $8.0 million in deposits. The
Bank has actively sought to expand its franchise through the opening of new
branch offices. In 2005, we opened three new branch offices in Northeast
Philadelphia. In 2006, we opened one new branch in Bucks County, Pennsylvania
and relocated two branches, one to Philadelphia, Pennsylvania and another to
Delaware County, Pennsylvania. Our branch expansion has been within our
existing market area as we have sought to penetrate more of our primary market
area. We opened a new branch office in Camden County, New Jersey in January
2007 and another in Montgomery County, Pennsylvania in March 2007. In January
2008, we opened a new branch office in Montgomery County, Pennsylvania.

On July 13, 2007, the Company completed its merger
with FMS Financial. In connection with the merger, FMS Financial Corporations
wholly owned subsidiary, Farmers & Mechanics Bank, which had a network of
31 branch offices located primarily in Burlington County, New Jersey and parts
of Camden County, New Jersey, merged with and into the Bank. The merger
solidified the Banks position as the largest Philadelphia-based bank operating
solely in the greater metropolitan area, with more than $3.5 billion in assets
and a greatly expanded network of neighborhood banking offices throughout the
region. The combined bank now offers a full array of financial products
encompassing retail and commercial banking, real estate, consumer and
commercial lending, insurance and brokerage operations through 72 banking
offices and two insurance offices.

Pursuing opportunities to increase
commercial lending in our primary market area

We have a diversified loan portfolio which includes
commercial real estate and commercial business loans. At December 31, 2007, we
had $693.7 million and $136.3 million of commercial real estate and commercial
business loans representing 32.80% and 6.45% of total loans, respectively.
Commercial loans provide diversification to our loan portfolio and, because our
commercial loans are based upon rate indices that are higher than those used
for one-to-four family loans, improve the interest sensitivity of our assets.
With the additional capital raised in the offering, we intend to continue to
pursue the larger lending relationships associated with commercial lending. In
2007, we added to our experienced staff of commercial lenders and increased our
efforts to seek participation opportunities with other local lenders.
Participation opportunities are subject to our full internal underwriting
practices.

Continuing to use consistent, disciplined
underwriting practices to maintain the high quality of our loan portfolio

We believe that maintaining high asset quality is a
key to long-term financial success. We have sought to grow and diversify our
loan portfolio within our local market area while keeping nonperforming assets
to a minimum. We consistently apply underwriting standards that we believe are
prudent and disciplined and we diligently monitor collection efforts. At
December 31, 2007, our nonperforming loans were .77% of our total loan
portfolio. The increase in nonperforming loans during the year ended December
31, 2007 includes two loans to affiliates of a Philadelphia-based builder and
development company that filed for Chapter 11 bankruptcy in June 2007. We
maintain our philosophy of managing large loan exposures through our
consistent, disciplined approach to lending, and our proactive approach to
managing existing credits. Approximately 19%, or $159.5 million, of our
commercial loan portfolio consists of loans to commercial and residential real
estate developers. Most of the loans to residential real estate developers are
structured in a way that strictly limits the construction of model and
speculative homes. Loan proceeds are generally drawn against executed
agreements of sale.

The Bank does not originate sub-prime loans. Sub-prime
loans are defined as mortgages advanced to borrowers who do not qualify for
market interest rates because of problems with their credit history. At
origination, with few exceptions, the combined loan to value ratios in our home
equity loan portfolio does not exceed 80%.

Growing non-interest income by expanding
the products and services we offer our customers, including the expansion of
our insurance services

We are seeking to expand the non-traditional financial
products that we offer to serve the insurance and investment needs of our
customers. In 2005, Beneficial Insurance Services, LLC, a wholly owned
subsidiary of the Bank, acquired the assets of Philadelphia-based Paul Hertel
& Co., Inc., an insurance brokerage firm that provides property, casualty,
life, health and benefits insurance services to individuals and business
customers. Additionally, on October 5, 2007, Beneficial Insurance Services, LLC
acquired the business of CLA Agency, Inc., a full-service property and casualty
and professional liability insurance brokerage company headquartered in Newtown
Square, Pennsylvania. We intend to continue to seek opportunities to expand the
products and services we make available to our customers.

7

---



Building profitable business and consumer
relationships by providing superior customer service with an emphasis on
growing transaction deposit accounts and deposit balances

We are a full-service financial services company
offering our customers a broad range of loan and deposit products. On the
lending side, we continue to seek to increase the commercial real estate and
commercial business loans we originate and hope to serve a greater percentage
of the small businesses in our market area. Following our merger with FMS
Financial, we have aggressively sought lending relationships with the former
customers of FMS Financial and have sought to capitalize on the reputation of
Farmers & Mechanics Bank in the market area it served, particularly with
small businesses throughout those counties. On the deposit side, we offer a
broad array of services, including internet banking, which enables our
customers to pay bills on-line, among other conveniences. We also offer a full
array of cash management services, including remote deposit, an electronic
device that is essentially a virtual branch office, to our commercial
customers, which enables businesses to make deposits and conduct other banking
business with us at their place of business.

We believe a solid banking relationship is best
expressed in the form of the primary transaction account. For consumers, this
is the household checking account from which they pay their bills. For
businesses, it is one or more operating accounts and related cash management
services. The primary transaction account provides us with a low-cost source of
funds and enables us to build relationships with our customers. We intend to
focus our resources on growing profitable business and consumer relationships
by emphasizing the primary transaction account. This is becoming increasingly
difficult as more of our competitors realize the inherent value of the primary
consumer and business transaction account in solidifying banking relationships
and growing the products and services that can be provided to a customer. The
primary transaction account becomes linked to automated payment links in the
form of direct debits and direct deposits and, coupled with superior customer
service, tend to create a relationship between the bank and the customer. We
believe that many opportunities remain to deliver what our customers want in
the form of exceptional service and convenience and intend to continue to
promote our transaction accounts, particularly when we originate loans for our
customers.

Balance
Sheet Analysis

Loans.
At December 31, 2007, total loans, net, were $2.1 billion, or 58.95% of total
assets. In 2007, our total loan portfolio increased $434.7 million, or 25.87%,
while our commercial real estate loan portfolio increased $284.0 million, or
69.33%, primarily due to the acquisition of $134.9 million in commercial real
estate loans in connection with our acquisition of FMS Financial, the addition
of experienced commercial lenders and increased marketing efforts focused
towards commercial real estate and commercial business loan origination. In
2006, our total loan portfolio decreased $42.5 million, or 2.47%, while
commercial real estate loans and commercial business loans increased by 10.70%
and 47.58%, respectively, resulting from an increase in commercial lending
staff as well as continued marketing efforts. Primarily due to our acquisition
of FMS Financial, one-to-four family loans increased to 22.69% of our loan
portfolio at December 31, 2007 compared to 16.61% at December 31, 2006,
respectively. Our home equity loan portfolio decreased slightly to 18.48% of
our loan portfolio at December 31, 2007 compared to 22.88% at December 2006,
respectively.

8

---



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

|                                      |  |        |           |         |        |        |  |         |           |        |        |         |  |        |           |         |        |        |  |         |           |   |        |   |  |   |           |   |        |   | 
|------------------------------------- |  | ------ | --------- | ------- | ------ | ------ |  | ------- | --------- | ------ | ------ | ------- |  | ------ | --------- | ------- | ------ | ------ |  | ------- | --------- | - | ------ | - |  | - | --------- | - | ------ | - | 
|                                      |  | 2007   |           | 2006    |        | 2005   |  | 2004    |           | 2003   |       
|                                      |  |        |           |         |        |        |  |         |           |        |       
|December
  31,(Dollars in thousands)  |  | Amount |           | Percent |        | Amount |  | Percent |           | Amount |        | Percent |  | Amount |           | Percent |        | Amount |  | Percent |          
|                                      |  |        |           |         |        |        |  |         |           |        |        |         |  |        |           |         |        |        |  |         |          
|                                      |  |        |           |         |        |        |  |         |           |        |        |         |  |        |           |         |        |        |  |         |          
|Real estate loans:                    |  |        |           |         |        |        |  |         |           |        |        |         |  |        |           |         |        |        |  |         |           |   |        |   |  |   |           |   |        |   | 
|                                      |  |        |           |         |        |        |  |         |           |        |        |         |  |        |           |         |        |        |  |         |           |   |        |   |  |   |           |   |        |   | 
|One-to-four family                    |  | $      | 479,817   |         | 22.69  | %      |  | $       | 278,970   |        | 16.61  | %       |  | $      | 294,960   |         | 17.12  | %      |  | $       | 278,011   |   | 17.75  | % |  | $ | 292,708   |   | 19.66  | % | 
|Commercial real estate (1)            |  |        | 693,733   |         | 32.80  |        |  |         | 409,702   |        | 24.38  |         |  |        | 370,086   |         | 21.48  |        |  |         | 281,038   |   | 17.95  |   |  |   | 208,090   |   | 13.98  |   | 
|Residential construction              |  |        | 1,958     |         | 0.09   |        |  |         | 9,967     |        | 0.59   |         |  |        | 16,529    |         | 0.96   |        |  |         | 10,404    |   | 0.67   |   |  |   | 7,102     |   | 0.48   |   | 
|                                      |  |        |           |         |        |        |  |         |           |        |        |         |  |        |           |         |        |        |  |         |           |   |        |   |  |   |           |   |        |   | 
|Total real estate loans               |  |        | 1,175,508 |         | 55.58  |        |  |         | 698,639   |        | 41.58  |         |  |        | 681,575   |         | 39.56  |        |  |         | 569,453   |   | 36.37  |   |  |   | 507,900   |   | 34.11  |   | 
|                                     
|Commercial business loans             |  |        | 136,345   |         | 6.45   |        |  |         | 98,612    |        | 5.87   |         |  |        | 66,818    |         | 3.88   |        |  |         | 48,898    |   | 3.12   |   |  |   | 31,429    |   | 2.11   |   | 
|                                      |  |        |           |         |        |        |  |         |           |        |        |         |  |        |           |         |        |        |  |         |           |   |        |   |  |   |           |   |        |   | 
|Consumer loans:                       |  |        |           |         |        |        |  |         |           |        |        |         |  |        |           |         |        |        |  |         |           |   |        |   |  |   |           |   |        |   | 
|Home equity loans and lines of credit |  |        | 390,762   |         | 18.48  |        |  |         | 384,370   |        | 22.88  |         |  |        | 394,432   |         | 22.90  |        |  |         | 347,727   |   | 22.20  |   |  |   | 263,079   |   | 17.67  |   | 
|Automobile loans                      |  |        | 174,769   |         | 8.26   |        |  |         | 232,675   |        | 13.85  |         |  |        | 271,209   |         | 15.74  |        |  |         | 265,048   |   | 16.93  |   |  |   | 269,533   |   | 18.10  |   | 
|Other consumer loans (2)              |  |        | 237,442   |         | 11.23  |        |  |         | 265,878   |        | 15.82  |         |  |        | 308,605   |         | 17.92  |        |  |         | 334,834   |   | 21.38  |   |  |   | 417,066   |   | 28.01  |   | 
|                                      |  |        |           |         |        |        |  |         |           |        |        |         |  |        |           |         |        |        |  |         |           |   |        |   |  |   |           |   |        |   | 
|Total consumer loans                  |  |        | 802,973   |         | 37.97  |        |  |         | 882,923   |        | 52.55  |         |  |        | 974,246   |         | 56.56  |        |  |         | 947,609   |   | 60.51  |   |  |   | 949,678   |   | 63.78  |   | 
|                                      |  |        |           |         |        |        |  |         |           |        |        |         |  |        |           |         |        |        |  |         |           |   |        |   |  |   |           |   |        |   | 
|Total loans                           |  |        | 2,114,826 |         | 100.00 | %      |  |         | 1,680,174 |        | 100.00 | %       |  |        | 1,722,639 |         | 100.00 | %      |  |         | 1,565,960 |   | 100.00 | % |  |   | 1,489,007 |   | 100.00 | % | 
|                                      |  |        |           |         |        |        |  |         |           |        |        |         |  |        |           |         |        |        |  |         |           |   |        |   |  |   |           |   |        |   | 
|Net deferred loan costs               |  |        | 6,096     |         |        |        |  |         | 8,651     |        |        |         |  |        | 10,514    |         |        |        |  |         | 9,340     |   |        |   |  |   | 9,160     |   |        |   | 
|Allowance for losses                  |  |        | (23,341   | )       |        |        |  |         | (17,368   | )      |        |         |  |        | (17,096   | )       |        |        |  |         | (17,141   | ) |        |   |  |   | (16,944   | ) |        |   | 
|Loans, net                            |  | $      | 2,097,581 |         |        |        |  | $       | 1,671,457 |        |        |         |  | $      | 1,716,057 |         |        |        |  | $       | 1,558,159 |   |        |   |  | $ | 1,481,223 |   |        |   | 
|                                      |  |        |           |         |        |        |  |         |           |        |        |         |  |        |           |         |        |        |  |         |           |   |        |   |  |   |           |   |        |   | 

|    |                                                                                                                                                                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | At December 31, 2007, includes
  loans totaling $68.0 million originated for the acquisition and development
  of real estate. We continually communicate with borrowers and monitor on a regular
  basis the progress of these loans. These loans are within our local region
  and are not spread throughout the country.                                      
|    |                                                                                                                                                                                                                                                                                                                                                                  
|(2) | At December 31, 2007,
  includes $1.8 million in personal loans, $1.7 million in automobile lease
  financing, $7.6 million in loans secured by mobile homes and manufactured
  housing, $67.3 million in loans secured by recreational vehicles, $67.4
  million in loans secured by boats and $89.4 million in student loans, which
  are primarily guaranteed.

Loan Maturity

The following
tables set forth certain information at December 31, 2007 regarding the dollar
amount of loan principal repayments becoming due during the periods indicated.
The tables do not include any estimate of prepayments which 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. The amounts shown below exclude applicable loans in process and
unearned interest in consumer loans and include net deferred loan costs. Our adjustable-rate mortgage loans
generally do not provide for downward adjustments below the initial discounted
contract rate. When market interest rates rise, as has occurred in recent
periods, the interest rates on these loans may increase based on the contract
rate (the index plus the margin) exceeding the initial interest rate floor.

|                                        |  |                      |         |                          |   |                            |  |                       |       |               |   |                |  |                  |         |               |   |         |  |   |         |  |   |           | 
|--------------------------------------- |  | -------------------- | ------- | ------------------------ | - | -------------------------- |  | --------------------- | ----- | ------------- | - | -------------- |  | ---------------- | ------- | ------------- | - | ------- |  | - | ------- |  | - | --------- | 
|December 31, 2007(Dollars in thousands) |  | One-to-Four
  Family |         | Commercial
  Real Estate |   | Residential
  Construction |  | Commercial
  Business |       | Home
  Equity |   | Auto-
  mobile |  | Other
  Consumer |         | Total
  Loans |  
|                                        |  |                      |         |                          |   |                            |  |                       |       |               |   |                |  |                  |         |               |  
|                                        |  |                      |         |                          |   |                            |  |                       |       |               |   |                |  |                  |         |               |   |         |  |   |         |  |   |           | 
|Amounts due in:                         |  |                      |         |                          |   |                            |  |                       |       |               |   |                |  |                  |         |               |   |         |  |   |         |  |   |           | 
|                                        |  |                      |         |                          |   |                            |  |                       |       |               |   |                |  |                  |         |               |   |         |  |   |         |  |   |           | 
|One year or less                        |  | $                    | 36,902  |                          | $ | 162,030                    |  | $                     | 1,593 |               | $ | 39,483         |  | $                | 7,211   |               | $ | 7,170   |  | $ | 4,287   |  | $ | 258,676   | 
|                                        |  |                      |         |                          |   |                            |  |                       |       |               |   |                |  |                  |         |               |   |         |  |   |         |  |   |           | 
|More than one to five years             |  |                      | 35,797  |                          |   | 107,391                    |  |                       | 365   |               |   | 31,812         |  |                  | 40,203  |               |   | 154,408 |  |   | 9,243   |  |   | 379,219   | 
|                                        |  |                      |         |                          |   |                            |  |                       |       |               |   |                |  |                  |         |               |   |         |  |   |         |  |   |           | 
|More than five to ten years             |  |                      | 88,892  |                          |   | 42,338                     |  |                       |      |               |   | 13,864         |  |                  | 127,304 |               |   | 13,179  |  |   | 49,996  |  | $ | 335,573   | 
|                                        |  |                      |         |                          |   |                            |  |                       |       |               |   |                |  |                  |         |               |   |         |  |   |         |  |   |           | 
|More than ten years                     |  |                      | 318,226 |                          |   | 381,974                    |  |                       |      |               |   | 51,186         |  |                  | 216,044 |               |   | 12      |  |   | 173,916 |  |   | 1,141,358 | 
|                                        |  |                      |         |                          |   |                            |  |                       |       |               |   |                |  |                  |         |               |   |         |  |   |         |  |   |           | 
|                                        |  |                      |         |                          |   |                            |  |                       |       |               |   |                |  |                  |         |               |   |         |  |   |         |  |   |           | 
|Total                                   |  | $                    | 479,817 |                          | $ | 693,733                    |  | $                     | 1,958 |               | $ | 136,345        |  | $                | 390,762 |               | $ | 174,769 |  | $ | 237,442 |  | $ | 2,114,826 | 
|                                        |  |                      |         |                          |   |                            |  |                       |       |               |   |                |  |                  |         |               |   |         |  |   |         |  |   |           | 

9

---



The following
table sets forth all loans at December 31, 2007 that are due after December 31,
2008 and have either fixed interest rates or floating or adjustable interest
rates:

|                       |  |             |           |                                |   |         |  |   |           | 
|---------------------- |  | ----------- | --------- | ------------------------------ | - | ------- |  | - | --------- | 
|(Dollars in thousands) |  | Fixed Rates |           | Floating or
  Adjustable Rates |   | Total   | 
|                       |  |             |           |                                |   |         | 
|                       |  |             |           |                                |   |         | 
|One-to-four family     |  | $           | 382,741   |                                | $ | 60,173  |  | $ | 442,914   | 
|Commercial real estate |  |             | 61,593    |                                |   | 470,110 |  |   | 531,703   | 
|Construction           |  |             |          |                                |   | 366     |  |   | 366       | 
|Commercial business    |  |             | 20,218    |                                |   | 76,644  |  |   | 96,862    | 
|Consumer               |  |             | 741,198   |                                |   | 43,107  |  |   | 784,305   | 
|                       |  |             |           |                                |   |         |  |   |           | 
|Total                  |  | $           | 1,205,750 |                                | $ | 650,400 |  | $ | 1,856,150 | 
|                       |  |             |           |                                |   |         |  |   |           | 

Loan Activity

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

|                                                |  |      |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|----------------------------------------------- |  | ---- | --------- | ---- | - | --------- |  | ---- | --------- | ---- | - | --------- |  | - | --------- | 
|Year Ended
  December 31,(Dollars in thousands) |  | 2007 |           | 2006 |   | 2005      |  | 2004 |           | 2003 |  
|                                                |  |      |           |      |   |           |  |      |           |      |  
|                                                |  |      |           |      |   |           |  |      |           |      |  
|Total loans at beginning of period              |  | $    | 1,688,825 |      | $ | 1,733,153 |  | $    | 1,575,300 |      | $ | 1,498,167 |  | $ | 1,391,574 | 
|Originations:                                   |  |      |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|Real estate loans:                              |  |      |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|One-to-four family                              |  |      | 33,988    |      |   | 27,306    |  |      | 43,505    |      |   | 65,205    |  |   | 160,085   | 
|Commercial real estate                          |  |      | 273,547   |      |   | 185,246   |  |      | 176,874   |      |   | 147,612   |  |   | 96,393    | 
|Residential construction                        |  |      | 1,959     |      |   | 8,978     |  |      | 18,048    |      |   | 14,317    |  |   | 9,398     | 
|                                                |  |      |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|Total real estate loans                         |  |      | 309,494   |      |   | 221,530   |  |      | 238,427   |      |   | 227,134   |  |   | 265,876   | 
|                                                |  |      |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|Commercial business loans                       |  |      | 53,861    |      |   | 44,588    |  |      | 31,926    |      |   | 25,682    |  |   | 14,557    | 
|                                                |  |      |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|Consumer:                                       |  |      |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|Home equity loans and lines of credit           |  |      | 71,783    |      |   | 87,377    |  |      | 153,824   |      |   | 199,099   |  |   | 207,217   | 
|Automobile loans                                |  |      | 52,329    |      |   | 92,926    |  |      | 148,738   |      |   | 139,570   |  |   | 152,786   | 
|Other consumer loans                            |  |      | 34,094    |      |   | 64,469    |  |      | 102,041   |      |   | 63,548    |  |   | 154,523   | 
|                                                |  |      |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|Total consumer loans                            |  |      | 158,206   |      |   | 244,772   |  |      | 404,603   |      |   | 402,217   |  |   | 514,526   | 
|                                                |  |      |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|Total loans originated                          |  |      | 521,561   |      |   | 510,890   |  |      | 674,956   |      |   | 655,033   |  |   | 794,959   | 
|                                                |  |      |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|                                                |  |      |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|Loans acquired from FMS Financial               |  |      | 443,016   |      |   |          |  |      |          |      |   |          |  |   |          | 
|                                                |  |      |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|Purchases                                       |  |      | 91        |      |   | 5,064     |  |      | 38,283    |      |   |          |  |   | 1,744     | 
|Less:                                           |  |      |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|Principal payments and repayments               |  |      | 529,335   |      |   | 551,351   |  |      | 545,565   |      |   | 561,693   |  |   | 648,949   | 
|Loan sales                                      |  |      | 2,941     |      |   | 8,592     |  |      | 9,371     |      |   | 16,066    |  |   | 40,841    | 
|Transfers to foreclosed real estate             |  |      | 295       |      |   | 339       |  |      | 450       |      |   | 141       |  |   | 320       | 
|                                                |  |      |           |      |   |           |  |      |           |      |   |           |  |   |           | 
|Total loans at end of period                    |  | $    | 2,120,922 |      | $ | 1,688,825 |  | $    | 1,733,153 |      | $ | 1,575,300 |  | $ | 1,498,167 | 
|                                                |  |      |           |      |   |           |  |      |           |      |   |           |  |   |           | 

10

---



Securities.At December 31, 2007, the investment securities portfolio excluding FHLB
(FHLB) stock was $1.1 billion, or 29.8% of total assets. At December 31,
2007, 70.4% of the investment portfolio was invested in mortgage-backed
securities issued by the Federal Home Loan Mortgage Corporation (FHLMC), the
Federal National Mortgage Association (FNMA) and government agency
mortgage-backed securities (GNMA); including collateralized mortgage
obligations (CMO) securities issued by the FHLMC, FNMA, and private issuer
CMOs securities rated AAA by Standard & Poors. Private issuer CMOs totaled
$132.7 million or 12.5% of our total securities portfolio at December 31, 2007.
The remainder was invested primarily in United States government sponsored
enterprises (GSE) and agency note securities, municipal and other bonds,
corporate bonds and equity securities.

|                                          |  |                  |           |              |   |                  |  |              |         |                  |   |              |  |   |         |  |   |         | 
|----------------------------------------- |  | ---------------- | --------- | ------------ | - | ---------------- |  | ------------ | ------- | ---------------- | - | ------------ |  | - | ------- |  | - | ------- | 
|                                          |  | 2007             |           | 2006         |   | 2005             | 
|                                          |  |                  |           |              |   |                  | 
|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                      |  | $                | 184,756   |              | $ | 187,063          |  | $            | 72,644  |                  | $ | 71,786       |  | $ | 54,507  |  | $ | 53,649  | 
|                                          |  |                  |           |              |   |                  |  |              |         |                  |   |              |  |   |         |  |   |         | 
|Mortgage-backed securities:               |  |                  |           |              |   |                  |  |              |         |                  |   |              |  |   |         |  |   |         | 
|GNMA guaranteed mortgage certificates     |  |                  | 17,299    |              |   | 17,388           |  |              | 26,438  |                  |   | 26,348       |  |   | 37,332  |  |   | 36,972  | 
|FNMA and FHLMC mortgage-backed securities |  |                  | 431,500   |              |   | 440,184          |  |              | 53,759  |                  |   | 52,962       |  |   | 54,988  |  |   | 53,967  | 
|Collateralized mortgage obligations       |  |                  | 206,842   |              |   | 206,007          |  |              | 144,339 |                  |   | 140,400      |  |   | 156,196 |  |   | 152,480 | 
|                                          |  |                  |           |              |   |                  |  |              |         |                  |   |              |  |   |         |  |   |         | 
|Total mortgage-backed securities          |  |                  | 655,641   |              |   | 663,578          |  |              | 224,536 |                  |   | 219,710      |  |   | 248,516 |  |   | 243,419 | 
|                                          |  |                  |           |              |   |                  |  |              |         |                  |   |              |  |   |         |  |   |         | 
|Municipal and other bonds                 |  |                  | 74,330    |              |   | 74,226           |  |              | 31,632  |                  |   | 31,732       |  |   | 29,875  |  |   | 29,917  | 
|Equity securities                         |  |                  | 9,391     |              |   | 9,802            |  |              | 6,453   |                  |   | 7,639        |  |   | 13,066  |  |   | 14,119  | 
|Mutual Funds                              |  |                  | 14,717    |              |   | 15,125           |  |              | 2,073   |                  |   | 2,073        |  |   | 3       |  |   | 3       | 
|                                          |  |                  |           |              |   |                  |  |              |         |                  |   |              |  |   |         |  |   |         | 
|Total availablefor-sale                  |  |                  | 938,835   |              |   | 949,795          |  |              | 337,338 |                  |   | 332,940      |  |   | 345,967 |  |   | 341,107 | 
|                                          |  |                  |           |              |   |                  |  |              |         |                  |   |              |  |   |         |  |   |         | 
|Securities held-to-maturity:              |  |                  |           |              |   |                  |  |              |         |                  |   |              |  |   |         |  |   |         | 
|GSE and agency notes                      |  |                  | 27,498    |              |   | 27,487           |  |              | 27,499  |                  |   | 26,880       |  |   | 37,494  |  |   | 36,550  | 
|                                          |  |                  |           |              |   |                  |  |              |         |                  |   |              |  |   |         |  |   |         | 
|Mortgage-backed securities:               |  |                  |           |              |   |                  |  |              |         |                  |   |              |  |   |         |  |   |         | 
|GNMA guaranteed mortgage certificates     |  |                  | 771       |              |   | 745              |  |              | 912     |                  |   | 881          |  |   | 1,300   |  |   | 1,289   | 
|FNMA and FHLMC mortgage-backed securities |  |                  | 83,717    |              |   | 82,895           |  |              | 101,946 |                  |   | 99,472       |  |   | 122,757 |  |   | 120,355 | 
|                                          |  |                  |           |              |   |                  |  |              |         |                  |   |              |  |   |         |  |   |         | 
|Total mortgage-backed securities          |  |                  | 84,488    |              |   | 83,640           |  |              | 102,858 |                  |   | 100,353      |  |   | 124,057 |  |   | 121,644 | 
|                                          |  |                  |           |              |   |                  |  |              |         |                  |   |              |  |   |         |  |   |         | 
|Municipal and other bonds                 |  |                  |          |              |   |                 |  |              |        |                  |   |             |  |   | 1,769   |  |   | 1,756   | 
|                                          |  |                  |           |              |   |                  |  |              |         |                  |   |              |  |   |         |  |   |         | 
|Total heldto-maturity                    |  |                  | 111,986   |              |   | 111,127          |  |              | 130,357 |                  |   | 127,233      |  |   | 163,320 |  |   | 159,950 | 
|Total                                     |  | $                | 1,050,821 |              | $ | 1,060,922        |  | $            | 467,695 |                  | $ | 460,173      |  | $ | 509,287 |  | $ | 501,057 | 
|                                          |  |                  |           |              |   |                  |  |              |         |                  |   |              |  |   |         |  |   |         | 

Mortgage-backed
securities are a type of asset-backed security that is secured by a mortgage,
or a collection of mortgages. These securities must also be grouped in one of
the top two ratings as determined by an accredited credit rating agency, and
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 FHLMC and FNMA.
The cash flows related to GNMA securities are direct 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 creates
separate pools of pass-through rates for different classes of bondholders with
varying maturities, called tranches. The repayments from the pool of
pass-through securities are used to retire the bonds in the order specified by
the bonds prospectus. At December 31, 2007, we had 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 at
December 31, 2007. All CMOs we hold carry the highest rating by an accredited
credit rating agency.

Due to the
condition of financial institutions in the fourth quarter of 2007, the Company
recorded an impairment charge related to the value of common equity securities
of various financial services companies that were deemed to be
other-than-temporarily-impaired. The Company recognized an other-than-temporary
impairment for these securities of $1.2 million in 2007.

11

---



Investments
that have been in a continuous unrealized loss position for periods of less
than 12 months and 12 months or longer at December 31, 2007 and 2006 are
summarized in the following table:

|                                      |  |                     |        |                     |   |            |  |                     |         |            |   |                     |  |   |         |  |   |       | 
|------------------------------------- |  | ------------------- | ------ | ------------------- | - | ---------- |  | ------------------- | ------- | ---------- | - | ------------------- |  | - | ------- |  | - | ----- | 
|(Dollars in thousands)                |  | 2007                |       
|                                      |  |                     |       
|                                      |  | Less than 12 months |        | 12 months or longer |   | Total      | 
|                                      |  |                     |        |                     |   |            | 
|                                      |  | Fair Value          |        | Unrealized
  Losses |   | Fair Value |  | Unrealized
  Losses |         | Fair Value |   | Unrealized
  Losses | 
|GSE and Agency Notes                  |  | $                   |       |                     | $ |           |  | $                   | 63,979  |            | $ | 174                 |  | $ | 63,979  |  | $ | 174   | 
|Mortgage-backed securities            |  |                     | 8,357  |                     |   | 14         |  |                     | 87,931  |            |   | 1,621               |  |   | 96,288  |  |   | 1,635 | 
|Municipal and other bonds             |  |                     | 28,293 |                     |   | 376        |  |                     | 3,075   |            |   | 16                  |  |   | 31,368  |  |   | 392   | 
|Collateralized mortgage obligations   |  |                     | 37,414 |                     |   | 408        |  |                     | 97,324  |            |   | 2,300               |  |   | 134,738 |  |   | 2,708 | 
|                                      |  |                     |        |                     |   |            |  |                     |         |            |   |                     |  |   |         |  |   |       | 
|Subtotal, debt securities             |  |                     | 74,064 |                     |   | 798        |  |                     | 252,309 |            |   | 4,111               |  |   | 326,373 |  |   | 4,909 | 
|Equity securities                     |  |                     | 750    |                     |   | 26         |  |                     |        |            |   |                    |  |   | 750     |  |   | 26    | 
|Mutual Funds                          |  |                     | 347    |                     |   | 24         |  |                     |        |            |   |                    |  |   | 347     |  |   | 24    | 
|                                      |  |                     |        |                     |   |            |  |                     |         |            |   |                     |  |   |         |  |   |       | 
|Total temporarily impaired securities |  | $                   | 75,161 |                     | $ | 848        |  | $                   | 252,309 |            | $ | 4,111               |  | $ | 327,470 |  | $ | 4,959 | 
|                                      |  |                     |        |                     |   |            |  |                     |         |            |   |                     |  |   |         |  |   |       | 
|                                      |  |                     |        |                     |   |            |  |                     |         |            |   |                     |  |   |         |  |   |       | 
|(Dollars in thousands)                |  | 2006                |       
|                                      |  |                     |       
|                                      |  | Less than 12 months |        | 12 months or longer |   | Total      | 
|                                      |  |                     |        |                     |   |            | 
|                                      |  | Fair Value          |        | Unrealized
  Losses |   | Fair Value |  | Unrealized
  Losses |         | Fair Value |   | Unrealized
  Losses | 
|GSE and Agency Notes                  |  | $                   | 6,859  |                     | $ | 17         |  | $                   | 73,385  |            | $ | 1,466               |  | $ | 80,244  |  | $ | 1,483 | 
|Other mortgage-backed securities      |  |                     | 9,869  |                     |   | 30         |  |                     | 126,346 |            |   | 3,941               |  |   | 136,215 |  |   | 3,971 | 
|Municipal and other bonds             |  |                     | 4,804  |                     |   | 16         |  |                     | 5,891   |            |   | 76                  |  |   | 10,695  |  |   | 92    | 
|Collateralized mortgage obligations   |  |                     |       |                     |   |           |  |                     | 116,164 |            |   | 4,057               |  |   | 116,164 |  |   | 4,057 | 
|                                      |  |                     |        |                     |   |            |  |                     |         |            |   |                     |  |   |         |  |   |       | 
|Subtotal, debt securities             |  |                     | 21,532 |                     |   | 63         |  |                     | 321,786 |            |   | 9,540               |  |   | 343,318 |  |   | 9,603 | 
|Equity securities                     |  |                     | 1,434  |                     |   | 66         |  |                     |        |            |   |                    |  |   | 1,434   |  |   | 66    | 
|                                      |  |                     |        |                     |   |            |  |                     |         |            |   |                     |  |   |         |  |   |       | 
|Total temporarily impaired securities |  | $                   | 22,966 |                     | $ | 129        |  | $                   | 321,786 |            | $ | 9,540               |  | $ | 344,752 |  | $ | 9,669 | 
|                                      |  |                     |        |                     |   |            |  |                     |         |            |   |                     |  |   |         |  |   |       | 

GSE and Agency Notes

The Companys
investments in the preceding table in GSE Notes consist of debt obligations of
the Federal National Mortgage Association (FNMA), the Federal Home Loan Bank
(FHLB) and the Federal Farm Credit Bank (FFCB). The Companys investments
in Government Agency Notes consist of debt obligations of the Department of
Housing and Urban Development (HUD). Included in the 12 months or longer are
15 securities with a loss, on average, of .27%. The unrealized losses are due
to current interest rate levels relative to the Companys cost and not credit
quality, and because the Company has the ability and intent to hold those
investments until a recovery of fair value, which may be maturity, the Company
does not consider those investments to be other-than-temporarily impaired at
December 31, 2007.

12

---



Mortgage-Backed Securities

The Companys
investments in the preceding table in mortgage-backed securities consist of
fixed rate GSE mortgage-backed securities and government agency mortgage-backed
securities. Included in the less than 12 months are five securities with a
loss, on average, of .17%. Included in the 12 months or longer are 32
securities with a loss, on average, of 1.84%. The unrealized losses on the
Companys investments in mortgage-backed securities are due to current interest
rate levels relative to the Companys cost. The contractual cash flows of those
investments in GSE mortgage-backed securities are debt obligations of the
Federal Home Loan Mortgage Corporation (FHLMC) and the FNMA. Fannie Mae
issues guaranteed mortgage pass-through certificates or MBS certificates, which
represent the beneficial ownership in a distinct pool of residential mortgage
loans secured by single-family (one-to four-unit) dwellings, or in a pool of
participation interests in loans of that type. Fannie Mae guarantees to the
MBS trust that they will supplement amounts received by the MBS trust as
required to permit timely payments of interest and principle on the
certificates. They alone are responsible for making payments under their
guarantee. The certificates and payments of principle and interest on the
certificates are not guaranteed by the United States, and do not constitute a
debt or obligation of the United States or any of its agencies or
instrumentalities other than Fannie Mae. Freddie Mac issues and guarantees Mortgage
Participation Certificates (or PCs), which are securities that represent
undivided beneficial ownership interests in, and receive payments from, pools
of one-to-four-family residential mortgages that are held in trust for
investors. Freddie Mac guarantees the payment of interest and principle on the
PCs. They alone are responsible for making payments on their guarantee.
Principle and interest payments on the PCs are not guaranteed by and are not
debts or obligations of the United States or any federal agency or
instrumentality other than Freddie Mac. The cash
flows related to government agency mortgage-backed securities are direct
obligations of the U.S. Government. The decline in market value is attributable
to changes in interest rates and not credit quality, and because the Company
has the ability and intent to hold those investments until a recovery of fair
value, which may be maturity, the Company does not consider those investments
to be other-than-temporarily impaired at December 31, 2007.

Municipal and other bonds

The Companys
investments in the preceding table in this category comprise of municipal
bonds, corporate bonds and trust preferred/collateralized debt obligations
(CDOs). The municipals bonds consist of general obligation bonds of entities
located in the state of Pennsylvania. These bonds are rated AAA by S&P
and/or Aaa by Moodys. Other bonds consist of corporate bonds and trust
preferred/CDOs, which are rated investment grade at December 31, 2007. Included
in the less than 12 months are three securities with a loss, on average, of
1.31%. Included in the 12 months or longer are eight securities with a loss, on
average of .51%. The unrealized losses on the Companys municipal and other
bonds are due to current interest rate levels relative to the Companys cost
and not credit quality, and because the Company has the ability and intent to
hold those investments until a recovery of fair value, which may be maturity,
the Company does not consider those investments to be other-than-temporarily
impaired at December 31, 2007.

Collateralized Mortgage Obligations

The Companys
investments in the preceding table in this category consist of collateralized
mortgage obligations issued by the FHLMC, the FNMA, and whole-loan
mortgage-backed securities rated AAA by S&P. Included in the less than 12
months are eight securities with a loss, on average, of 2.07%. Included in the
12 months or longer are 28 securities with a loss, on average, of 2.31%. The
unrealized losses are due to current interest rate levels relative to the
Companys cost and not credit quality, and because the Company has the ability
and intent to hold those investments until a recovery of fair value, which may
be maturity, the Company does not consider those investments to be other-than-temporarily
impaired at December 31, 2007.

Equity Securities

The Companys
investments in the preceding table in equity securities consist of bank issued
common stocks and mutual funds. Included in the less than 12 months are three
securities with a loss position, on average, of 4.3%. The Company evaluated the
near-term prospects of the issuers in relation to the severity and duration of
the impairment. The Company does not consider those investments to be
other-than-temporarily impaired at December 31, 2007.

As with any
type of investment there are risk factors to consider. The risks inherent in
investments in mortgage-backed securities and CMOs include, but are not limited
to, interest rate risk, which would affect the market value of the security,
and prepayment risk, which would affect the cash flow and average life of the
security. All of these risk factors are taken into consideration during
prepurchase analysis of a security.

The following
table sets forth the stated maturities and weighted average yields of the
investment securities at December 31, 2007. Certain securities have adjustable
interest rates and will reprice monthly, quarterly or annually within the
various maturity ranges. Mutual funds and equity securities are not included in
the table, based on lack of maturity. These repricing schedules are not
reflected in the table below. All but approximately $121.6 million of the
securities listed have fixed rates.

13

---



|                                            |  |                  |        |                                    |      |                                     |  |                            |         |                  |      |                            |  |                  |         |                            |      |                  |  |                            |         |  |      |   |  |   |           |  |      |   | 
|------------------------------------------- |  | ---------------- | ------ | ---------------------------------- | ---- | ----------------------------------- |  | -------------------------- | ------- | ---------------- | ---- | -------------------------- |  | ---------------- | ------- | -------------------------- | ---- | ---------------- |  | -------------------------- | ------- |  | ---- | - |  | - | --------- |  | ---- | - | 
|                                            |  | 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, 2007 
  (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                        |  | $                | 68,060 |                                    | 4.42 | %                                   |  | $                          | 32,515  |                  | 5.24 | %                          |  | $                | 66,156  |                            | 5.97 | %                |  | $                          | 20,331  |  | 5.74 | % |  | $ | 187,062   |  | 5.25 | % | 
|Mortgage-backed securities                  |  |                  | 3,125  |                                    | 4.28 |                                     |  |                            | 46,480  |                  | 4.61 |                            |  |                  | 23,161  |                            | 5.22 |                  |  |                            | 590,811 |  | 5.65 |   |  |   | 663,578   |  | 5.55 |   | 
|Municipal and other bonds                   |  |                  | 14,846 |                                    | 3.49 |                                     |  |                            | 9,113   |                  | 4.83 |                            |  |                  | 22,355  |                            | 3.83 |                  |  |                            | 27,913  |  | 5.7  |   |  |   | 74,226    |  | 4.59 |   | 
|                                            |  |                  |        |                                    |      |                                     |  |                            |         |                  |      |                            |  |                  |         |                            |      |                  |  |                            |         |  |      |   |  |   |           |  |      |   | 
|Total available-for-sale                    |  |                  | 86,031 |                                    | 4.04 |                                     |  |                            | 88,108  |                  | 4.87 |                            |  |                  | 111,672 |                            | 5.39 |                  |  |                            | 639,055 |  | 5.66 |   |  |   | 924,866   |  | 5.41 |   | 
|                                            |  |                  |        |                                    |      |                                     |  |                            |         |                  |      |                            |  |                  |         |                            |      |                  |  |                            |         |  |      |   |  |   |           |  |      |   | 
|Securities held to maturity:                |  |                  |        |                                    |      |                                     |  |                            |         |                  |      |                            |  |                  |         |                            |      |                  |  |                            |         |  |      |   |  |   |           |  |      |   | 
|GSE and agency notes                        |  |                  | 5,000  |                                    | 4.63 |                                     |  |                            | 22,498  |                  | 4.05 |                            |  |                  |        |                            |     |                  |  |                            |        |  |     |   |  |   | 27,498    |  | 4.16 |   | 
|Mortgage-backed securities                  |  |                  | 2      |                                    | 8.12 |                                     |  |                            | 19,097  |                  | 4.19 |                            |  |                  | 10,754  |                            | 4.58 |                  |  |                            | 54,634  |  | 5.08 |   |  |   | 84,488    |  | 4.81 |   | 
|                                            |  |                  |        |                                    |      |                                     |  |                            |         |                  |      |                            |  |                  |         |                            |      |                  |  |                            |         |  |      |   |  |   |           |  |      |   | 
|Total held to maturity                      |  |                  | 5,002  |                                    | 4.63 |                                     |  |                            | 41,595  |                  | 4.11 |                            |  |                  | 10,754  |                            | 4.58 |                  |  |                            | 54,634  |  | 5.08 |   |  |   | 111,986   |  | 4.65 |   | 
|                                            |  |                  |        |                                    |      |                                     |  |                            |         |                  |      |                            |  |                  |         |                            |      |                  |  |                            |         |  |      |   |  |   |           |  |      |   | 
|Total                                       |  | $                | 91,033 |                                    | 4.07 | %                                   |  | $                          | 129,703 |                  | 4.62 | %                          |  | $                | 122,426 |                            | 5.32 | %                |  | $                          | 693,689 |  | 5.61 | % |  | $ | 1,036,852 |  | 5.33 | % | 
|                                            |  |                  |        |                                    |      |                                     |  |                            |         |                  |      |                            |  |                  |         |                            |      |                  |  |                            |         |  |      |   |  |   |           |  |      |   | 

Premises and
Equipment.Premises
and equipment totaled $79.0 million at December 31, 2007 as compared to $33.2
million at December 31, 2006. Land increased $13.2 million and bank premises
increased $24.5 million primarily due to our acquisition of FMS Financial. In
addition, construction in progress (CIP) increased $8.1 million primarily as
a result of the transfer of costs relating to the acquisition of $1.9 million
of CIP from FMS Financial, and the new branch offices placed into service in
January 2008, as well as St. Ignatius Senior Housing II.

Deposits.
Our deposit base is comprised of demand deposits, money market and passbook
accounts and time deposits. We consider demand deposits and money market and
passbook accounts to be core deposits. At December 31, 2007, core deposits were
57.72% of total deposits. Deposits increased $787.1 million, or 46.91%, in the
year ended December 31, 2007, as core deposits increased $638.7 million, and
time deposits increased $148.4 million, primarily due to the acquisition of FMS
Financial. Our efforts to grow core deposits have been focused on the promotion
of interest earning checking accounts. We have experienced an increase in our
time deposit accounts as we have selectively competed for certain deposit
maturities by adjusting our rates. However, we believe we are most successful
attracting and retaining deposits by offering superior customer service.

The following
table sets forth the deposits as a percentage of total deposits for the periods
indicated:

|                                            |  |        |           |                               |     |        |  |                               |           |        |     |                               |  |   |           |  |     |   | 
|------------------------------------------- |  | ------ | --------- | ----------------------------- | --- | ------ |  | ----------------------------- | --------- | ------ | --- | ----------------------------- |  | - | --------- |  | --- | - | 
|                                            |  | 2007   |           | 2006                          |     | 2005   | 
|                                            |  |        |           |                               |     |        | 
|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             |  | $      | 242,351   |                               | 10  | %      |  | $                             | 90,040    |        | 5   | %                             |  | $ | 95,777    |  | 5   | % | 
|Interest-earning checking
  accounts        |  |        | 389,812   |                               | 16  |        |  |                               | 162,955   |        | 10  |                               |  |   | 170,712   |  | 10  |   | 
|Money market accounts                       |  |        | 376,300   |                               | 15  |        |  |                               | 281,044   |        | 17  |                               |  |   | 263,973   |  | 16  |   | 
|Savings accounts                            |  |        | 414,398   |                               | 17  |        |  |                               | 250,109   |        | 15  |                               |  |   | 287,444   |  | 18  |   | 
|Time deposits                               |  |        | 1,042,302 |                               | 42  |        |  |                               | 893,906   |        | 53  |                               |  |   | 847,915   |  | 51  |   | 
|                                            |  |        |           |                               |     |        |  |                               |           |        |     |                               |  |   |           |  |     |   | 
|Total                                       |  | $      | 2,465,163 |                               | 100 | %      |  | $                             | 1,678,054 |        | 100 | %                             |  | $ | 1,665,821 |  | 100 | % | 
|                                            |  |        |           |                               |     |        |  |                               |           |        |     |                               |  |   |           |  |     |   | 

14

---



The following
table indicates the amount of certificates of deposit of $100,000 or more by
time remaining until maturity as of December 31, 2007. We have solicited
brokered time deposits as an alternative source of funds. The table below
excludes brokered deposits. At December 31, 2007, we had $5.0 million in
brokered deposits.

|                                             |  |                           |         | 
|-------------------------------------------- |  | ------------------------- | ------- | 
|December
  31, 2007 (Dollars in
  thousands) |  | Certificates
  of Deposit |        
|                                             |  |                           |        
|                                             |  |                           |        
|Maturity
  Period:                           |  |                           |         | 
|Three months or less                         |  | $                         | 71,497  | 
|Over three through six
  months              |  |                           | 71,610  | 
|Over six through twelve
  months             |  |                           | 63,547  | 
|Over twelve months                           |  |                           | 30,607  | 
|                                             |  |                           |         | 
|Total                                        |  | $                         | 237,261 | 
|                                             |  |                           |         | 

The following
table sets forth the time deposits classified by rates at the dates indicated:

|                                           |  |      |           |      |   |         |  |   |         | 
|------------------------------------------ |  | ---- | --------- | ---- | - | ------- |  | - | ------- | 
|At
  December 31,
  (Dollars in thousands) |  | 2007 |           | 2006 |   | 2005    | 
|                                           |  |      |           |      |   |         | 
|                                           |  |      |           |      |   |         | 
|0.00 - 1.00%                               |  | $    | 37        |      | $ | 7       |  | $ | 2,564   | 
|1.01 - 2.00%                               |  |      | 2,376     |      |   | 108     |  |   | 30,389  | 
|2.01 - 3.00%                               |  |      | 80,943    |      |   | 93,997  |  |   | 269,875 | 
|3.01 - 4.00%                               |  |      | 363,417   |      |   | 264,228 |  |   | 404,457 | 
|4.01 - 5.00%                               |  |      | 496,178   |      |   | 267,819 |  |   | 139,222 | 
|5.01 - 6.00%                               |  |      | 99,329    |      |   | 267,687 |  |   | 1,181   | 
|6.01 - 7.00%                               |  |      | 22        |      |   | 60      |  |   | 227     | 
|                                           |  |      |           |      |   |         |  |   |         | 
|Total                                      |  | $    | 1,042,302 |      | $ | 893,906 |  | $ | 847,915 | 
|                                           |  |      |           |      |   |         |  |   |         | 

The following
table sets forth the amount and maturities of time deposits classified by rates
at December 31, 2007:

|                       |  |                      |         |                                   |   |                                      |  |                         |        |       |   |        |  |   |           | 
|---------------------- |  | -------------------- | ------- | --------------------------------- | - | ------------------------------------ |  | ----------------------- | ------ | ----- | - | ------ |  | - | --------- | 
|                       |  | Amount Due           |        
|                       |  |                      |        
|(Dollars in thousands) |  | Less Than
  One Year |         | More Than
  One Year to Two Years |   | More Than
  Two Years to Three Years |  | More Than
  Three Years |        | Total |  
|                       |  |                      |         |                                   |   |                                      |  |                         |        |       |  
|                       |  |                      |         |                                   |   |                                      |  |                         |        |       |  
|0.00 - 1.00%           |  | $                    | 37      |                                   | $ |                                     |  | $                       |       |       | $ |       |  | $ | 37        | 
|1.01 - 2.00%           |  |                      | 1,062   |                                   |   | 1,305                                |  |                         | 9      |       |   |       |  |   | 2,376     | 
|2.01 - 3.00%           |  |                      | 78,191  |                                   |   | 2,674                                |  |                         | 29     |       |   | 49     |  |   | 80,943    | 
|3.01 - 4.00%           |  |                      | 267,993 |                                   |   | 55,042                               |  |                         | 25,882 |       |   | 14,500 |  |   | 363,417   | 
|4.01 - 5.00%           |  |                      | 412,681 |                                   |   | 50,813                               |  |                         | 27,026 |       |   | 5,658  |  |   | 496,178   | 
|5.01 - 6.00%           |  |                      | 97,593  |                                   |   | 1,055                                |  |                         | 401    |       |   | 280    |  |   | 99,329    | 
|6.01 - 7.00%           |  |                      |        |                                   |   |                                     |  |                         | 22     |       |   |       |  |   | 22        | 
|                       |  |                      |         |                                   |   |                                      |  |                         |        |       |   |        |  |   |           | 
|Total                  |  | $                    | 857,557 |                                   | $ | 110,889                              |  | $                       | 53,369 |       | $ | 20,487 |  | $ | 1,042,302 | 
|                       |  |                      |         |                                   |   |                                      |  |                         |        |       |   |        |  |   |           | 

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

|                                                   |  |      |           |      |   |           |   |   |           | 
|-------------------------------------------------- |  | ---- | --------- | ---- | - | --------- | - | - | --------- | 
|Year Ended
  December 31,
  (Dollars in thousands) |  | 2007 |           | 2006 |   | 2005      |  
|                                                   |  |      |           |      |   |           |  
|Beginning balance                                  |  | $    | 1,678,054 |      | $ | 1,665,821 |   | $ | 1,608,585 | 
|Increase (decrease) before
  interest credited     |  |      | 730,866   |      |   | (32,154   | ) |   | 25,191    | 
|Interest credited                                  |  |      | 56,243    |      |   | 44,387    |   |   | 32,045    | 
|Net increase in deposits                           |  |      | 787,109   |      |   | 12,333    |   |   | 57,236    | 
|                                                   |  |      |           |      |   |           |   |   |           | 
|Ending balance                                     |  | $    | 2,465,163 |      | $ | 1,678,054 |   | $ | 1,665,821 | 
|                                                   |  |      |           |      |   |           |   |   |           | 

15

---



Borrowings.We use
borrowings from the Federal Home Loan Bank of Pittsburgh and New York, as well
as repurchase agreements and other sources of borrowings, to supplement our
supply of funds for loans and investments. The following table sets forth the
outstanding borrowings and weighted averages at the dates indicated:

|                                                           |  |      |         |      |   |         |   |   |         |  
|---------------------------------------------------------- |  | ---- | ------- | ---- | - | ------- | - | - | ------- | -
|Year Ended December 31,(Dollars
  in thousands)            |  | 2007 |         | 2006 |   | 2005    |  
|                                                           |  |      |         |      |   |         |   |   |         |  
|Maximum amount outstanding at any month-end during period: |  |      |         |      |   |         |   |   |         |  
|Federal Home Loan Bank advances                            |  | $    | 196,550 |      | $ | 255,697 |   | $ | 340,397 |  
|Repurchase agreements                                      |  |      | 205,594 |      |   | 125,350 |   |   | 92,918  |  
|Federal Home Loan Bank overnight borrowings                |  |      |        |      |   | 70,000  |   |   | 102,507 |  
|Statutory Trust Debenture                                  |  |      | 25,264  |      |   |        |   |   |        |  
|Other                                                      |  |      | 30,796  |      |   | 52,496  |   |   | 2,496   |  
|Average outstanding balance during period:                 |  |      |         |      |   |         |   |   |         |  
|Federal Home Loan Bank advances                            |  | $    | 180,557 |      | $ | 231,604 |   | $ | 324,966 |  
|Repurchase agreements                                      |  |      | 129,741 |      |   | 101,883 |   |   | 45,650  |  
|Federal Home Loan Bank overnight borrowings                |  |      |        |      |   | 9,880   |   |   | 47,634  |  
|Statutory Trust Debenture                                  |  |      | 12,018  |      |   |        |   |   |        |  
|Other                                                      |  |      | 8,702   |      |   | 29,930  |   |   | 2,496   |  
|Weighted average interest rate during period:              |  |      |         |      |   |         |   |   |         |  
|Federal Home Loan Bank advances                            |  |      | 4.94    | %    |   | 4.88    | % |   | 4.67    | %
|Repurchase agreements                                      |  |      | 4.87    |      |   | 4.92    |   |   | 3.77    |  
|Federal Home Loan Bank overnight borrowings                |  |      |        |      |   | 4.63    |   |   | 3.24    |  
|Statutory Trust Debenture                                  |  |      | 7.29    |      |   |        |   |   |        |  
|Other                                                      |  |      | 4.64    |      |   | 5.05    |   |   | 2.40    |  
|Balance outstanding at end of period:                      |  |      |         |      |   |         |   |   |         |  
|Federal Home Loan Bank advances                            |  | $    | 185,750 |      | $ | 196,550 |   | $ | 262,897 |  
|Repurchase agreements                                      |  |      | 185,562 |      |   | 88,600  |   |   | 92,918  |  
|Federal Home Loan Bank overnight borrowings                |  |      |        |      |   |        |   |   | 49,900  |  
|Statutory Trust Debenture                                  |  |      | 25,264  |      |   |         |   |   |         |  
|Other                                                      |  |      | 10,546  |      |   | 9,746   |   |   | 2,496   |  
|Weighted average interest rate at end of period:           |  |      |         |      |   |         |   |   |         |  
|Federal Home Loan Bank advances                            |  |      | 4.81    | %    |   | 5.01    | % |   | 4.68    | %
|Repurchase agreements                                      |  |      | 4.78    |      |   | 4.93    |   |   | 4.43    |  
|Statutory Trust Debenture                                  |  |      | 6.57    |      |   |        |   |   |        |  
|Federal Home Loan Bank overnight borrowings                |  |      |        |      |   |        |   |   | 4.17    |  
|Other                                                      |  |      | 3.57    |      |   | 4.47    |   |   | 2.38    |  
|                                                           |  |      |         |      |   |         |   |   |         |  

Results of Operations for the Years Ended December 31, 2007,
2006 and 2005

Financial
Highlights.We had a loss of ($1.5) million for the year
ended December 31, 2007 compared to net income of $11.6 million for the year
ended December 31, 2006. The decrease reflected a $41.6 million increase in
non-interest expenses, including an expense of $10.0 million incurred in
connection with the establishment of The Beneficial Foundation, which were
partially offset by a $19.7 million increase in net interest income and a $6.8 million
decrease in income tax expense. In 2006, net income decreased $1.6 million to
$11.6 million from $13.2 million for the year ended December 31, 2005. The
decrease reflected a $1.3 million decrease in net interest income and a $2.5
million increase in non-interest expenses, which were partially offset by a
$2.4 million decrease in income tax expense.

16

---



Summary Income Statements

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

|                          |  |      |         |      |   |        |   |   |        |   |                    |         |                    |  |         |   |   |        |   |  |        |   
|------------------------- |  | ---- | ------- | ---- | - | ------ | - | - | ------ | - | ------------------ | ------- | ------------------ |  | ------- | - | - | ------ | - |  | ------ | --
|                          |  |      |         |      |   |        |   |   |        |   | Change
  2007/2006 |         | Change
  2006/2005
|Year Ended December 31,   |  |      |         |      |   |        |   |   |        |   |                    |         |                   
|(Dollars in thousands)    |  | 2007 |         | 2006 |   | 2005   |   | $ |        |   | %                  |         | $                  |  |         | % |  
|                          |  |      |         |      |   |        |   |   |        |   |                    |         |                    |  |         |   |   |        |   |  |        |   
|                          |  |      |         |      |   |        |   |   |        |   |                    |         |                    |  |         |   |   |        |   |  |        |   
|Net interest income       |  | $    | 84,120  |      | $ | 64,430 |   | $ | 65,728 |   | $                  | 19,690  |                    |  | 30.56   | % | $ | (1,298 | ) |  | (1.97  | )%
|Provision for loan losses |  |      | 2,470   |      |   | 1,575  |   |   | 1,703  |   |                    | 895     |                    |  | 56.83   |   |   | (128   | ) |  | (8.00  | ) 
|Non-interest income       |  |      | 13,372  |      |   | 10,531 |   |   | 10,862 |   |                    | 2,841   |                    |  | 26.98   |   |   | (331   | ) |  | (3.00  | ) 
|Non-interest expenses     |  |      | 101,032 |      |   | 59,439 |   |   | 56,961 |   |                    | 41,593  |                    |  | 69.98   |   |   | 2,478  |   |  | 4.35   |   
|Net income                |  |      | (1,545  | )    |   | 11,625 |   |   | 13,200 |   |                    | (13,170 | )                  |  | (113.29 | ) |   | (1,575 | ) |  | (11.93 | ) 
|                          |  |      |         |      |   |        |   |   |        |   |                    |         |                    |  |         |   |   |        |   |  |        |   
|Return on average equity  |  |      | (0.35   | )%   |   | 4.04   | % |   | 4.83   | % |                    |         |                    |  |         |   |   |        |   |  |        |   
|Return on average assets  |  |      | (0.05   | )%   |   | 0.49   | % |   | 0.56   | % |                    |         |                    |  |         |   |   |        |   |  |        |   

Net Interest Income

2007 vs. 2006.Net interest income
increased $19.7 million or 30.56%, to $84.1 million for 2007 from $64.4 million
in 2006. Total interest income increased $30.6 million or 24.01% to $157.9
million for 2007 primarily as a result of increases in interest and dividends
on investments of 68.57% to $38.9 million for 2007 and an increase in interest
and fees on loans of 12.67% to $117.3 million. The increase in income from
interest and fees on loans and interest and dividends on investment securities
was primarily due to an increase in the average balance of loans and
investments and a 31 and 75 basis point increase in the yields, respectively.
Total interest expense increased $10.9 million or 17.30% to $73.8 million for
2007 primarily due to an increase in the average balance of interest bearing
deposits of $282.1 million, and an increase in cost on interest-bearing
deposits of 25 basis points. Deposit increases are partially attributed to the
acquisition of FMS Financial. During 2007, the average balance of our time
deposits increased $44.9 million and the cost on time deposits increased 52
basis points.

2006 vs. 2005.Net interest income
decreased $1.3 million or 1.97%, to $64.4 million for 2006 from $65.7 million
for 2005. Total interest income increased $10.2 million or 8.74% to $127.3
million for 2006 as increases in interest and fees on loans were partially
offset by decreases in interest and dividends on investment securities.
Interest income and fees on loans increased 12.94% to $104.1 million primarily
due to an increase in the average balance of loans and a 49 basis point
increase in the yield. Total interest expense increased $11.5 million or 22.45%
to $63.0 million for 2006 primarily due to an increase in the average balance
of interest-bearing deposits of $29.7 million, and an increase in cost on
interest-bearing deposits of 70 basis points. During 2006, the average balance
of our time deposits increased $96.4 million and the cost on time deposits
increased 85 basis points.

17

---



Analysis of Net Interest Income

The following table sets
forth an analysis of net interest income for the periods indicated:

|                                    |  |      |           |      |   |           |   |   |           |   |                    |         |                    |  |          |   |   |         |   |  |        |  
|----------------------------------- |  | ---- | --------- | ---- | - | --------- | - | - | --------- | - | ------------------ | ------- | ------------------ |  | -------- | - | - | ------- | - |  | ------ | -
|                                    |  |      |           |      |   |           |   |   |           |   | Change
  2007/2006 |         | Change
  2006/2005
|December 31,                        |  |      |           |      |   |           |   |   |           |   |                    |         |                   
|(Dollars in thousands)              |  | 2007 |           | 2006 |   | 2005      |   | $ |           |   | %                  |         | $                  |  |          | % |  
|                                    |  |      |           |      |   |           |   |   |           |   |                    |         |                    |  |         
|                                    |  |      |           |      |   |           |   |   |           |   |                    |         |                    |  |          |   |   |         |   |  |        |  
|Components
  of net interest income |  |      |           |      |   |           |   |   |           |   |                    |         |                    |  |          |   |   |         |   |  |        |  
|Loans                               |  | $    | 117,334   |      | $ | 104,143   |   | $ | 92,208    |   | $                  | 13,191  |                    |  | 12.67    | % | $ | 11,935  |   |  | 12.94  | %
|Investment securities               |  |      | 38,933    |      |   | 23,060    |   |   | 24,455    |   |                    | 15,873  |                    |  | 68.83    |   |   | (1,395  | ) |  | (5.70  | )
|Other interest-earning assets       |  |      | 1,627     |      |   | 123       |   |   | 427       |   |                    | 1,504   |                    |  | 1222.76  |   |   | (304    | ) |  | (71.19 | )
|Total interest income               |  |      | 157,894   |      |   | 127,326   |   |   | 117,091   |   |                    | 30,568  |                    |  | 24.01    |   |   | 10,235  |   |  | 8.74   |  
|Deposits                            |  |      | 57,254    |      |   | 44,619    |   |   | 32,875    |   |                    | 12,635  |                    |  | 28.32    |   |   | 11,744  |   |  | 35.72  |  
|Borrowings                          |  |      | 16,520    |      |   | 18,277    |   |   | 18,488    |   |                    | (1,757  | )                  |  | (9.61    | ) |   | (211    | ) |  | (1.14  | )
|Total interest expense              |  |      | 73,774    |      |   | 62,896    |   |   | 51,363    |   |                    | 10,878  |                    |  | 17.30    |   |   | 11,533  |   |  | 22.45  |  
|Net interest income                 |  |      | 84,120    |      |   | 64,430    |   |   | 65,728    |   |                    | 19,690  |                    |  | 30.56    |   |   | (1,298  | ) |  | (1.97  | )
|                                    |  |      |           |      |   |           |   |   |           |   |                    |         |                    |  |          |   |   |         |   |  |        |  
|Average
  yield and rates paid      |  |      |           |      |   |           |   |   |           |   |                    |         |                    |  |          |   |   |         |   |  |        |  
|Interest-earning assets             |  |      | 5.96      | %    |   | 5.67      | % |   | 5.17      | % |                    | 0.30    | %                  |  | 5.29     | % |   | 0.50    | % |  | 9.67   | %
|Interest-bearing liabilities        |  |      | 3.36      |      |   | 3.21      |   |   | 2.60      |   |                    | 0.15    |                    |  | 4.67     |   |   | 0.61    |   |  | 23.46  |  
|Interest rate spread                |  |      | 2.59      |      |   | 2.45      |   |   | 2.57      |   |                    | 0.16    |                    |  | 6.53     |   |   | (0.12   | ) |  | (4.67  | )
|Net interest margin                 |  |      | 3.17      |      |   | 2.87      |   |   | 2.90      |   |                    | 0.32    |                    |  | 11.15    |   |   | (0.03   | ) |  | (1.03  | )
|                                    |  |      |           |      |   |           |   |   |           |   |                    |         |                    |  |          |   |   |         |   |  |        |  
|Average
  balances                  |  |      |           |      |   |           |   |   |           |   |                    |         |                    |  |          |   |   |         |   |  |        |  
|Loans                               |  |      | 1,864,939 |      |   | 1,740,606 |   |   | 1,678,697 |   |                    | 124,333 |                    |  | 7.14     |   |   | 61,909  |   |  | 3.69   |  
|Investment securities               |  |      | 751,674   |      |   | 504,045   |   |   | 575,600   |   |                    | 247,628 |                    |  | 49.13    |   |   | (71,554 | ) |  | (12.43 | )
|Other interest-earning assets       |  |      | 33,870    |      |   | 2,785     |   |   | 12,461    |   |                    | 31,086  |                    |  | 1,116.34 |   |   | (9,677  | ) |  | (77.65 | )
|Deposits                            |  |      | 1,862,617 |      |   | 1,580,540 |   |   | 1,550,761 |   |                    | 282,077 |                    |  | 17.85    |   |   | 29,778  |   |  | 1.92   |  
|Borrowings                          |  |      | 331,019   |      |   | 373,297   |   |   | 420,746   |   |                    | (42,278 | )                  |  | (11.33   | ) |   | (47,449 | ) |  | (11.28 | )
|                                    |  |      |           |      |   |           |   |   |           |   |                    |         |                    |  |         

Provision for Loan Losses.

Based on our evaluation
of loan loss factors, management made a provision of $2.5 million for the year
ended December 31, 2007, compared to provisions of $1.6 million for the year
ended December 31, 2006 and $1.7 million for the year ended December 31, 2005.
We had $1.5 million in net charge-offs for the year ended December 31, 2007 compared
to net charge-offs of $1.3 million for the year ended December 31, 2006 and
$1.7 million for the year ended December 31, 2005. We used the same methodology
and generally similar assumptions to determine the provision for all three
periods. 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. 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.

The allowance for loan
losses was $23.3 million or 1.10% of total loans outstanding as of December 31,
2007, as compared to $17.4 million, or 1.03% of total loans outstanding as of
December 31, 2006 and $17.1 million, or 0.99% as of December 31, 2005. 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.Non-interest income increased by $2.8
million to $13.4 million in fiscal 2007 primarily due to an increase of
$3.5 million or 62.21% from service charges and other income as well as an
increase of approximately $0.9 million or 22.08% in insurance commission income
compared to 2006, the effect of which was partially offset by a decrease of
$0.4 million in gains on sale of investment securities availablefor-sale. Non-interest income decreased $0.3
million to $10.5 million in 2006. The decrease in non-interest income in 2006
was primarily a result of a decrease in the gain on sales of investment securities
available-for-sale of $0.4 million in 2006 compared to 2005. Offsetting the
decrease in the gain on sale of securities was a $0.3 million increase in
income from insurance commissions, which increased to $4.3 million, or 6.92%,
compared to 2005.

18

---



Non-interest Income Summary

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

|                                                          |  |      |        |      |   |        |  |   |        |  |                    |        |                    |   |  |        |   |   |      |   |  |        |    
|--------------------------------------------------------- |  | ---- | ------ | ---- | - | ------ |  | - | ------ |  | ------------------ | ------ | ------------------ | - |  | ------ | - | - | ---- | - |  | ------ | ---
|                                                          |  |      |        |      |   |        |  |   |        |  | Change
  2007/2006 |        | Change
  2006/2005
|Year Ended December 31,                                   |  |      |        |      |   |        |  |   |        |  |                    |        |                   
|(Dollars in thousands)                                    |  | 2007 |        | 2006 |   | 2005   |  | $ |        |  |                    | %      |                    | $ |  |        | % |  
|                                                          |  |      |        |      |   |        |  |   |        |  |                    |        |                    |   |  |        |   |   |      |   |  |        |    
|                                                          |  |      |        |      |   |        |  |   |        |  |                    |        |                    |   |  |        |   |   |      |   |  |        |    
|Insurance commission income                               |  | $    | 5,223  |      | $ | 4,278  |  | $ | 4,001  |  | $                  | 945    |                    |   |  | 22.09  | % | $ | 277  |   |  | 6.92   | %  
|Services charges and other income                         |  |      | 9,053  |      |   | 5,581  |  |   | 5,791  |  |                    | 3,472  |                    |   |  | 62.21  |   |   | (210 | ) |  | (3.63  | )  
|Impairment charge on securities available-for-sale        |  |      | (1,192 | )    |   |       |  |   |       |  |                    | (1,192 | )                  |   |  | 100.00 |   |   |     |   |  |       |    
|Gains on sale of investment securities available-for-sale |  |      | 288    |      |   | 672    |  |   | 1,070  |  |                    | (384   | )                  |   |  | (57.14 | ) |   | (398 | ) |  | (37.20 | )  
|                                                          |  |      |        |      |   |        |  |   |        |  |                    |        |                    |   |  |        |   |   |      |   |  |        |    
|Total                                                     |  | $    | 13,372 |      | $ | 10,531 |  | $ | 10,862 |  | $                  | 2,841  |                    |   |  | 26.98  | % | $ | (331 | ) |  | (3.05  | ) %
|                                                          |  |      |        |      |   |        |  |   |        |  |                    |        |                    |   |  |        |   |   |      |   |  |        |    

Non-interest Expenses.Non-interest
expense increased $41.6 million, or 69.98%, in 2007 from 2006. The increase in
non-interest expense in 2007 was primarily due to a $10.0 million contribution
to The Beneficial Foundation, severance and benefit expenses related to a
reduction in force totaling $3.9 million, as well as increases in salaries,
employee benefits, advertising expenses and professional fees incurred as a
result of the Companys minority stock offering and acquisition and integration
of FMS Financial. Non-interest expense increased $2.5 million, or 4.35%, in
2006 over 2005. The increase in salaries and employee benefits, as well as
occupancy expense, which accounted for much of the increase, was primarily due
to the opening of one and three branches in 2006 and 2005, respectively.

Non-interest Expense Summary

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

|                                           |  |      |         |      |   |        |  |   |        |  |                    |        |                    |  |        |   |   |       |   |  |       |  
|------------------------------------------ |  | ---- | ------- | ---- | - | ------ |  | - | ------ |  | ------------------ | ------ | ------------------ |  | ------ | - | - | ----- | - |  | ----- | -
|                                           |  |      |         |      |   |        |  |   |        |  | Change
  2007/2006 |        | Change
  2006/2005 | 
|Year Ended December 31,                    |  |      |         |      |   |        |  |   |        |  |                    |        |                    | 
|(Dollars in thousands)                     |  | 2007 |         | 2006 |   | 2005   |  | $ |        |  | %                  |        | $                  |  |        | % |  
|                                           |  |      |         |      |   |        |  |   |        |  |                    |        |                    |  |       
|                                           |  |      |         |      |   |        |  |   |        |  |                    |        |                    |  |       
|Salaries and employee benefits             |  | $    | 51,118  |      | $ | 34,412 |  | $ | 32,589 |  | $                  | 16,706 |                    |  | 48.55  | % | $ | 1,823 |   |  | 5.59  | %
|Contribution to The Beneficial Foundation  |  |      | 9,995   |      |   |       |  |   |       |  |                    | 9,995  |                    |  | 100.00 |   |   |      |   |  |      |  
|Occupancy expense                          |  |      | 9,367   |      |   | 7,566  |  |   | 7,339  |  |                    | 1,801  |                    |  | 23.80  |   |   | 227   |   |  | 3.09  |  
|Depreciation, amortization and maintenance |  |      | 6,970   |      |   | 5,269  |  |   | 5,093  |  |                    | 1,701  |                    |  | 32.28  |   |   | 176   |   |  | 3.46  |  
|Amortization of intangibles                |  |      | 3,434   |      |   | 426    |  |   | 408    |  |                    | 3,008  |                    |  | 706.10 |   |   | 18    |   |  | 4.41  |  
|Advertising                                |  |      | 4,507   |      |   | 2,049  |  |   | 1,994  |  |                    | 2,458  |                    |  | 119.96 |   |   | 55    |   |  | 2.76  |  
|Insurance and protection                   |  |      | 1,911   |      |   | 1,531  |  |   | 1,700  |  |                    | 380    |                    |  | 24.82  |   |   | (169  | ) |  | (9.94 | )
|Professional fees                          |  |      | 2,674   |      |   | 1,439  |  |   | 1,345  |  |                    | 1,235  |                    |  | 85.82  |   |   | 94    |   |  | 6.99  |  
|Printing and supplies                      |  |      | 1,883   |      |   | 1,041  |  |   | 1,034  |  |                    | 842    |                    |  | 80.88  |   |   | 7     |   |  | 0.68  |  
|Correspondent Bank/ATM charges             |  |      | 1,952   |      |   | 1,086  |  |   | 1,030  |  |                    | 866    |                    |  | 79.74  |   |   | 56    |   |  | 5.44  |  
|Postage                                    |  |      | 882     |      |   | 595    |  |   | 544    |  |                    | 287    |                    |  | 48.24  |   |   | 51    |   |  | 9.38  |  
|Other                                      |  |      | 6,339   |      |   | 4,025  |  |   | 3,885  |  |                    | 2,314  |                    |  | 57.49  |   |   | 140   |   |  | 3.60  |  
|                                           |  |      |         |      |   |        |  |   |        |  |                    |        |                    |  |        |   |   |       |   |  |       |  
|Total                                      |  | $    | 101,032 |      | $ | 59,439 |  | $ | 56,961 |  | $                  | 41,593 |                    |  | 69.98  | % | $ | 2,480 |   |  | 4.35  | %
|                                           |  |      |         |      |   |        |  |   |        |  |                    |        |                    |  |        |   |   |       |   |  |       |  
|                                           |  |      |         |      |   |        |  |   |        |  |                    |        |                    |  |        |   |   |       |   |  |       |  

Income Tax Expense.The
provision (benefit) for income taxes was ($4.5) million for 2007, reflecting an
effective tax rate benefit of (74.3%), compared to $2.3 million for 2006,
reflecting an effective tax rate of 16.6%, and compared to $4.7 million for
2005, reflecting an effective tax rate of 26.4%. The change from 2007 to 2006
was primarily due to a decrease in pre-tax book income of $20.0 million
resulting from our acquisition of FMS Financial and the $10.0 million
charitable contribution to The Beneficial Foundation, along with an increased
state tax provision. State taxes increased $0.4 million due to our expanded
presence in New Jersey after the acquisition of FMS Financial. The tax rates
differ from the statutory rate of 35% principally because of tax-exempt
investments, non-taxable income related to bank-owned life insurance and tax
credits received on low income housing partnerships. These credits relate to
investments maintained by the Bank as a limited partner in partnerships that
sponsor affordable housing projects utilizing low-income housing credits
pursuant to Section 42 of the Internal Revenue Code.

19

---



Average Balance Table

The following table
presents 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. In addition, non-accrual loans
are included in the average balances but are not deemed material.

|                                                                          |  |                   |           |                            |      |               |  |                   |        |                            |   |               |      |                   |         |                            |  |               |   |   |           |  |   |         |  |  |        |  
|------------------------------------------------------------------------- |  | ----------------- | --------- | -------------------------- | ---- | ------------- |  | ----------------- | ------ | -------------------------- | - | ------------- | ---- | ----------------- | ------- | -------------------------- |  | ------------- | - | - | --------- |  | - | ------- |  |  | ------ | -
|(Dollars in thousands)                                                    |  |                   |           |                            | 2007 |               |  |                   |        |                            |   |               | 2006 |                   |         |                            |  |               |   |   | 2005      |  |   |         | 
|                                                                          |  |                   |           |                            |      |               |  |                   |        |                            |   |               |      |                   |         |                            |  |               |   |   |           |  |   |         | 
|                                                                          |  | Average
  Balance |           | Interest
  And
  Dividends |      | Yield/
  Cost |  | Average
  Balance |        | Interest
  And
  Dividends |   | Yield/
  Cost |      | Average
  Balance |         | Interest
  And
  Dividends |  | Yield/
  Cost |  
|                                                                          |  |                   |           |                            |      |               |  |                   |        |                            |   |               |      |                   |         |                            |  |               |   |   |           |  |   |         | 
|Assets:                                                                   |  |                   |           |                            |      |               |  |                   |        |                            |   |               |      |                   |         |                            |  |               |   |   |           |  |   |         |  |  |        |  
|Interest-bearing demand deposits                                          |  | $                 | 2,895     |                            | $    | 139           |  |                   | 4.82   | %                          | $ | 2,519         |      | $                 | 93      |                            |  | 3.69          | % | $ | 865       |  | $ | 51      |  |  | 5.90   | %
|Loans                                                                     |  |                   | 1,864,939 |                            |      | 117,334       |  |                   | 6.29   |                            |   | 1,740,606     |      |                   | 104,143 |                            |  | 5.98          |   |   | 1,678,697 |  |   | 92,208  |  |  | 5.49   |  
|Investment securities                                                     |  |                   | 261,642   |                            |      | 12,988        |  |                   | 4.96   |                            |   | 160,493       |      |                   | 6,755   |                            |  | 4.21          |   |   | 144,769   |  |   | 5,201   |  |  | 3.59   |  
|Mortgage-backed securities                                                |  |                   | 331,134   |                            |      | 17,524        |  |                   | 5.21   |                            |   | 200,967       |      |                   | 9,249   |                            |  | 4.60          |   |   | 241,216   |  |   | 10,478  |  |  | 4.34   |  
|Collateralized mortgage obligations                                       |  |                   | 160,819   |                            |      | 8,295         |  |                   | 5.16   |                            |   | 141,163       |      |                   | 7,008   |                            |  | 4.96          |   |   | 189,161   |  |   | 8,771   |  |  | 4.64   |  
|Other interest-earning assets                                             |  |                   | 31,943    |                            |      | 1,613         |  |                   | 5.05   |                            |   | 1,688         |      |                   | 78      |                            |  | 4.62          |   |   | 12,050    |  |   | 382     |  |  | 3.17   |  
|                                                                          |  |                   |           |                            |      |               |  |                   |        |                            |   |               |      |                   |         |                            |  |               |   |   |           |  |   |         | 
|Total interest-earning assets                                             |  |                   | 2,653,372 |                            |      | 157,894       |  |                   | 5.96   |                            |   | 2,247,436     |      |                   | 127,326 |                            |  | 5.67          |   |   | 2,266,758 |  |   | 117,091 |  |  | 5.17   |  
|                                                                          |  |                   |           |                            |      |               |  |                   |        |                            |   |               |      |                   |         |                            |  |               |   |   |           |  |   |         |  |  |        |  
|Non-interest-earning assets                                               |  |                   | 250,516   |                            |      |               |  |                   |        |                            |   | 114,102       |      |                   |         |                            |  |               |   |   | 105,778   |  |   |         |  |  |        |  
|                                                                          |  |                   |           |                            |      |               |  |                   |        |                            |   |               |      |                   |         |                            |  |               |   |   |           |  |   |         |  |  |        |  
|                                                                          |  |                   |           |                            |      | 157,894       |  |                   |        |                            |   |               |      |                   | 127,326 |                            |  |               |   |   |           |  |   | 117,091 |  |  |        |  
|Total Assets                                                              |  |                   | 2,903,888 |                            |      |               |  |                   |        |                            |   | 2,361,538     |      |                   |         |                            |  |               |   |   | 2,372,536 |  |   |         |  |  |        |  
|                                                                          |  |                   |           |                            |      |               |  |                   |        |                            |   |               |      |                   |         |                            |  |               |   |   |           |  |   |         |  |  |        |  
|                                                                          |  |                   |           |                            |      |               |  |                   |        |                            |   |               |      |                   |         |                            |  |               |   |   |           |  |   |         |  |  |        |  
|                                                                          |  |                   |           |                            |      |               |  |                   |        |                            |   |               |      |                   |         |                            |  |               |   |   |           |  |   |         |  |  |        |  
|Liabilities
  and Stockholders Equity:                                   |  |                   |           |                            |      |               |  |                   |        |                            |   |               |      |                   |         |                            |  |               |   |   |           |  |   |         |  |  |        |  
|Interest-earning checking accounts                                        |  |                   | 265,951   |                            |      | 4,250         |  |                   | 1.60   |                            |   | 162,368       |      |                   | 1,747   |                            |  | 1.08          |   |   | 145,005   |  |   | 1,085   |  |  | 0.75   |  
|Money market accounts                                                     |  |                   | 332,523   |                            |      | 10,291        |  |                   | 3.09   |                            |   | 263,703       |      |                   | 6,906   |                            |  | 2.62          |   |   | 316,202   |  |   | 5,973   |  |  | 1.89   |  
|Savings accounts                                                          |  |                   | 332,196   |                            |      | 2,212         |  |                   | 0.67   |                            |   | 267,426       |      |                   | 1,991   |                            |  | 0.74          |   |   | 298,958   |  |   | 2,243   |  |  | 0.75   |  
|Time deposits                                                             |  |                   | 931,970   |                            |      | 40,501        |  |                   | 4.35   |                            |   | 887,043       |      |                   | 33,975  |                            |  | 3.83          |   |   | 790,596   |  |   | 23,574  |  |  | 2.98   |  
|Total interest-bearing deposits                                           |  |                   | 1,862,640 |                            |      | 57,254        |  |                   | 3.07   |                            |   | 1,580,540     |      |                   | 44,619  |                            |  | 2.82          |   |   | 1,550,761 |  |   | 32,875  |  |  | 2.12   |  
|                                                                          |  |                   |           |                            |      |               |  |                   |        |                            |   |               |      |                   |         |                            |  |               |   |   |           |  |   |         |  |  |        |  
|Federal Home Loan Bank advances                                           |  |                   | 180,557   |                            |      | 8,925         |  |                   | 4.94   |                            |   | 231,604       |      |                   | 11,294  |                            |  | 4.88          |   |   | 324,966   |  |   | 15,164  |  |  | 4.67   |  
|Repurchase agreements                                                     |  |                   | 129,741   |                            |      | 6,315         |  |                   | 4.87   |                            |   | 101,883       |      |                   | 5,014   |                            |  | 4.92          |   |   | 45,650    |  |   | 1,722   |  |  | 3.77   |  
|Federal Home Loan Bank overnight borrowings                               |  |                   |          |                            |      |              |  |                   |       |                            |   | 9,880         |      |                   | 457     |                            |  | 4.63          |   |   | 47,634    |  |   | 1,542   |  |  | 3.24   |  
|Statutory Trust Debenture                                                 |  |                   | 12,018    |                            |      | 876           |  |                   | 7.29   |                            |   |              |      |                   |        |                            |  |              |   |   |          |  |   |        |  |  |       |  
|Other borrowings                                                          |  |                   | 8,702     |                            |      | 404           |  |                   | 4.64   |                            |   | 29,930        |      |                   | 1,512   |                            |  | 5.05          |   |   | 2,496     |  |   | 60      |  |  | 2.40   |  
|Total interest-bearing liabilities                                        |  |                   | 2,193,658 |                            |      | 73,744        |  |                   | 3.36   |                            |   | 1,953,833     |      |                   | 62,896  |                            |  | 3.22          |   |   | 1,971,507 |  |   | 51,363  |  |  | 2.61   |  
|                                                                          |  |                   |           |                            |      |               |  |                   |        |                            |   |               |      |                   |         |                            |  |               |   |   |           |  |   |         |  |  |        |  
|Non-interest-bearing deposits                                             |  |                   | 173,855   |                            |      |               |  |                   |        |                            |   | 80,380        |      |                   |         |                            |  |               |   |   | 77,317    |  |   |         |  |  |        |  
|Other non-interest-bearing liabilities                                    |  |                   | 98,974    |                            |      |               |  |                   |        |                            |   | 39,289        |      |                   |         |                            |  |               |   |   | 50,518    |  |   |         |  |  |        |  
|Total liabilities                                                         |  |                   | 2,466,487 |                            |      | 73,744        |  |                   |        |                            |   | 2,073,506     |      |                   | 62,896  |                            |  |               |   |   | 2,099,342 |  |   | 51,363  |  |  |        |  
|                                                                          |  |                   |           |                            |      |               |  |                   |        |                            |   |               |      |                   |         |                            |  |               |   |   |           |  |   |         |  |  |        |  
|Total Stockholders Equity                                                |  |                   | 437,401   |                            |      |               |  |                   |        |                            |   | 288,032       |      |                   |         |                            |  |               |   |   | 273,194   |  |   |         |  |  |        |  
|Total Liabilities and Stockholders Equity                                |  | $                 | 2,903,888 |                            |      |               |  |                   |        |                            | $ | 2,361,538     |      |                   |         |                            |  |               |   | $ | 2,372,536 |  |   |         |  |  |        |  
|                                                                          |  |                   |           |                            |      |               |  |                   |        |                            |   |               |      |                   |         |                            |  |               |   |   |           |  |   |         |  |  |        |  
|Net interest income                                                       |  |                   |           |                            | $    | 84,120        |  |                   |        |                            |   |               |      | $                 | 64,430  |                            |  |               |   |   |           |  | $ | 65,728  |  |  |        |  
|                                                                          |  |                   |           |                            |      |               |  |                   |        |                            |   |               |      |                   |         |                            |  |               |   |   |           |  |   |         |  |  |        |  
|Interest rate spread                                                      |  |                   |           |                            |      |               |  |                   | 2.59   | %                          |   |               |      |                   |         |                            |  | 2.45          | % |   |           |  |   |         |  |  | 2.57   | %
|                                                                          |  |                   |           |                            |      |               |  |                   |        |                            |   |               |      |                   |         |                            |  |               |   |   |           |  |   |         |  |  |        |  
|Net interest margin                                                       |  |                   |           |                            |      |               |  |                   | 3.17   | %                          |   |               |      |                   |         |                            |  | 2.87          | % |   |           |  |   |         |  |  | 2.90   | %
|                                                                          |  |                   |           |                            |      |               |  |                   |        |                            |   |               |      |                   |         |                            |  |               |   |   |           |  |   |         |  |  |        |  
|Average interest-earning assets to average interest-bearing
  liabilities |  |                   |           |                            |      |               |  |                   | 120.96 | %                          |   |               |      |                   |         |                            |  | 114.86        | % |   |           |  |   |         |  |  | 114.80 | %
|                                                                          |  |                   |           |                            |      |               |  |                   |        |                            |   |               |      |                   |         |                            |  |               |   |   |           |  |   |         |  |  |        |  
|                                                                         
|                                                                          |  |                   |           |                            |      |               |  |                   |        |                            |   |               |      |                   |         |                            |  |               |   |   |           |  |   |         |  |  |        |  

20

---



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 December 31, 2007
  Compared to
  Year Ended December 31, 2006 |        | Year Ended December 31, 2006
  Compared to
  Year Ended December 31, 2005
|                                            |  |                                                                             |        |                                                                          
|                                            |  | Increase (Decrease)
  Due to                                                |        |                                                                           |   |       | Increase (Decrease)Due to |        |        |      |  
|                                            |  |                                                                             |        |                                                                           |   |       |                           |        |        |      |  
|(Dollars in thousands)                      |  | Volume                                                                      |        | Rate                                                                      |   | Net   |                           | Volume |        | Rate |   | Net    |  
|                                            |  |                                                                             |        |                                                                           |   |       |                           |        |        |      |   |        |  
|Interest income:                            |  |                                                                             |        |                                                                           |   |       |                           |        |        |      |   |        |   |   |        |   |   |        |  
|Interest-bearing deposits                   |  | $                                                                           | 18     |                                                                           | $ | 28    |                           | $      | 46     |      | $ | 61     |   | $ | (19    | ) | $ | 42     |  
|Loans receivable                            |  |                                                                             | 7,823  |                                                                           |   | 5,369 |                           |        | 13,192 |      |   | 3,704  |   |   | 8,238  |   |   | 11,942 |  
|Investment securities                       |  |                                                                             | 5,021  |                                                                           |   | 1,212 |                           |        | 6,233  |      |   | 662    |   |   | 898    |   |   | 1,560  |  
|Mortgage-backed securities                  |  |                                                                             | 6,889  |                                                                           |   | 1,386 |                           |        | 8,275  |      |   | (1,852 | ) |   | 627    |   |   | (1,224 | )
|Collateralized mortgage obligations         |  |                                                                             | 1,014  |                                                                           |   | 273   |                           |        | 1,287  |      |   | (2,383 | ) |   | 605    |   |   | (1,778 | )
|Other interest-earning assets               |  |                                                                             | 1,528  |                                                                           |   | 7     |                           |        | 1,535  |      |   | (479   | ) |   | 172    |   |   | (307   | )
|                                            |  |                                                                             |        |                                                                           |   |       |                           |        |        |      |   |        |   |   |        |   |   |        |  
|Total interest-earning assets               |  |                                                                             | 22,293 |                                                                           |   | 8,275 |                           |        | 30,568 |      |   | (287   | ) |   | 10,522 |   |   | 10,235 |  
|Interest expense:                           |  |                                                                             |        |                                                                           |   |       |                           |        |        |      |   |        |   |   |        |   |   |        |  
|Interest-earning checking accounts          |  |                                                                             | 1,655  |                                                                           |   | 848   |                           |        | 2,503  |      |   | 187    |   |   | 475    |   |   | 662    |  
|Money market                                |  |                                                                             | 2,130  |                                                                           |   | 1,255 |                           |        | 3,385  |      |   | (1,375 | ) |   | 2,308  |   |   | 933    |  
|Savings accounts                            |  |                                                                             | 431    |                                                                           |   | (210  | )                         |        | 221    |      |   | (235   | ) |   | (17    | ) |   | (2,652 | )
|Time deposits                               |  |                                                                             | 1,952  |                                                                           |   | 4,574 |                           |        | 6,526  |      |   | 3,694  |   |   | 6,707  |   |   | 10,401 |  
|                                            |  |                                                                             |        |                                                                           |   |       |                           |        |        |      |   |        |   |   |        |   |   |        |  
|Total interest-bearing deposits             |  |                                                                             | 6,168  |                                                                           |   | 6,467 |                           |        | 12,636 |      |   | 2,271  |   |   | 9,473  |   |   | 11,744 |  
|                                            |  |                                                                             |        |                                                                           |   |       |                           |        |        |      |   |        |   |   |        |   |   |        |  
|Federal Home Loan Bank advances             |  |                                                                             | (2,523 | )                                                                         |   | 154   |                           |        | (2,369 | )    |   | (4,553 | ) |   | 683    |   |   | (3,870 | )
|Repurchase agreements                       |  |                                                                             | 1,356  |                                                                           |   | (55   | )                         |        | 1,301  |      |   | 2,767  |   |   | 525    |   |   | 3,292  |  
|Federal Home Loan Bank overnight borrowings |  |                                                                             |       |                                                                           |   | (457  | )                         |        | (457   | )    |   | (1,746 | ) |   | 661    |   |   | (1,085 | )
|Statutory Trust Debenture                   |  |                                                                             | 876    |                                                                           |   |      |                           |        | 876    |      |   |        |   |   |        |   |   |        |  
|Other borrowings                            |  |                                                                             | (985   | )                                                                         |   | (123  | )                         |        | (1,108 | )    |   | 1,386  |   |   | 66     |   |   | 1,452  |  
|                                            |  |                                                                             |        |                                                                           |   |       |                           |        |        |      |   |        |   |   |        |   |   |        |  
|Total interest-bearing liabilities          |  |                                                                             | 4,892  |                                                                           |   | 5,986 |                           |        | 10,879 |      |   | 125    |   |   | 11,408 |   |   | 11,533 |  
|Net change in net interest income           |  | $                                                                           | 17,401 |                                                                           | $ | 2,289 |                           | $      | 19,690 |      | $ | (412   | ) | $ | (886   | ) | $ | (1,298 | )
|                                            |  |                                                                             |        |                                                                           |   |       |                           |        |        |      |   |        |   |   |        |   |   |        |  
|                                            |  |                                                                             |        |                                                                           |   |       |                           |        |        |      |   |        |   |   |        |   |  

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 risks, liquidity risks and reputation risk. Operational risks
include risks related to fraud, regulatory compliance, processing errors,
technology 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.
Our strategy for credit risk management focuses on having well-defined credit
policies and uniform underwriting criteria and providing prompt attention to
potential problem loans.

When a borrower fails to
make a required loan payment, we take a number of steps to have the borrower
cure the delinquency and restore the loan to current status, including
contacting the borrower by letter and phone at regular intervals beginning on
the seventh day of delinquency. When the borrower is in default, we may
commence collection proceedings. If a foreclosure action is instituted and the
loan is not brought current, paid in full, or refinanced before the foreclosure
sale, the real property securing the loan generally is sold at foreclosure.
Generally, collection proceedings begin as soon as a consumer loan becomes past
due. When a consumer loan becomes 45 days past due, we institute attempts to
repossess any personal property that secures the loan. Management informs the
Board of Directors monthly of the amount of nonperforming loans to total loans
and regarding charge-offs. More detailed information regarding delinquencies by
loan type is provided to the Board of Directors on a quarterly basis.

21

---



Analysis
of Nonperforming and Classified Assets. We consider
repossessed assets and loans that are 90 days or more past due, except
guaranteed student loans, to be nonperforming assets. Residential real estate
loans are generally placed on nonaccrual status when they become 90 days
delinquent and are not well secured and in the process of collection at which
time the accrual of interest ceases and the allowance for any uncollectible
accrued interest is established and charged against operations. Commercial loans
are placed on non-accrual when the loan is 90 days delinquent unless the credit
is well secured and in the process of collection. Typically, payments received
on a nonaccrual loan are applied to the outstanding principal and interest as
determined at the time of collection of the loan.

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 fair
market value (FMV) or cost, which is the unpaid balance of the loan plus
foreclosure costs, or fair market value at the date of foreclosure less
estimated costs to sell. Holding costs and declines in fair value after
acquisition of the property result in charges against income.

The following table sets forth information with
respect to our nonperforming assets at the dates indicated. We had no troubled
debt restructurings in the periods presented.

|                                                         |  |      |        |      |   |        |   |      |       |      |   |       |   |   |       |  
|-------------------------------------------------------- |  | ---- | ------ | ---- | - | ------ | - | ---- | ----- | ---- | - | ----- | - | - | ----- | -
|December 31, (Dollars in thousands)                      |  | 2007 |        | 2006 |   | 2005   |   | 2004 |       | 2003 |  
|                                                        
|                                                         |  |      |        |      |   |        |   |      |       |      |   |       |   |   |       |  
|Nonaccrual loans:                                        |  |      |        |      |   |        |   |      |       |      |   |       |   |   |       |  
|                                                         |  |      |        |      |   |        |   |      |       |      |   |       |   |   |       |  
|Real estate loans:                                       |  |      |        |      |   |        |   |      |       |      |   |       |   |   |       |  
|One-to-four family                                       |  | $    | 23     |      | $ |       |   | $    |      |      | $ |      |   | $ |      |  
|Commercial real estate                                   |  |      | 4,939  |      |   | 363    |   |      |      |      |   |      |   |   |      |  
|Residential construction                                 |  |      |       |      |   |       |   |      |      |      |   |      |   |   |      |  
|                                                         |  |      |        |      |   |        |   |      |       |      |   |       |   |   |       |  
|Total real estate loans                                  |  |      | 4,962  |      |   | 363    |   |      |      |      |   |      |   |   |      |  
|                                                         |  |      |        |      |   |        |   |      |       |      |   |       |   |   |       |  
|Commercial business loans                                |  |      | 2,500  |      |   |       |   |      |      |      |   |      |   |   |      |  
|                                                         |  |      |        |      |   |        |   |      |       |      |   |       |   |   |       |  
|Consumer loans:                                          |  |      |        |      |   |        |   |      |       |      |   |       |   |   |       |  
|Home equity lines of credit                              |  |      |       |      |   |       |   |      |      |      |   |      |   |   |      |  
|Automobile loans                                         |  |      | 223    |      |   | 171    |   |      | 385   |      |   | 363   |   |   | 500   |  
|Other consumer loans                                     |  |      |       |      |   |       |   |      |      |      |   | 74    |   |   | 26    |  
|                                                         |  |      |        |      |   |        |   |      |       |      |   |       |   |   |       |  
|Total consumer loans                                     |  |      | 223    |      |   | 171    |   |      | 385   |      |   | 437   |   |   | 526   |  
|                                                         |  |      |        |      |   |        |   |      |       |      |   |       |   |   |       |  
|Total nonaccrual loans                                   |  |      | 7,685  |      |   | 534    |   |      | 385   |      |   | 437   |   |   | 526   |  
|                                                         |  |      |        |      |   |        |   |      |       |      |   |       |   |   |       |  
|Accruing loans past due 90 days or more:                 |  |      |        |      |   |        |   |      |       |      |   |       |   |   |       |  
|                                                         |  |      |        |      |   |        |   |      |       |      |   |       |   |   |       |  
|Real estate loans:                                       |  |      |        |      |   |        |   |      |       |      |   |       |   |   |       |  
|One-to-four family                                       |  |      | 3,700  |      |   | 2,425  |   |      | 2,540 |      |   | 3,185 |   |   | 3,374 |  
|Commercial real estate                                   |  |      | 1,343  |      |   | 2,662  |   |      |      |      |   | 52    |   |   | 752   |  
|Residential construction                                 |  |      |       |      |   |       |   |      |      |      |   |      |   |   |      |  
|                                                         |  |      |        |      |   |        |   |      |       |      |   |       |   |   |       |  
|Total real estate loans                                  |  |      | 5,043  |      |   | 5,087  |   |      | 2,540 |      |   | 3,237 |   |   | 4,126 |  
|                                                         |  |      |        |      |   |        |   |      |       |      |   |       |   |   |       |  
|Commercial business loans                                |  |      | 64     |      |   | 83     |   |      |      |      |   | 12    |   |   | 50    |  
|                                                         |  |      |        |      |   |        |   |      |       |      |   |       |   |   |       |  
|Consumer loans:                                          |  |      |        |      |   |        |   |      |       |      |   |       |   |   |       |  
|Home equity lines of credit                              |  |      | 36     |      |   | 54     |   |      | 1     |      |   | 1     |   |   | 41    |  
|Automobile loans                                         |  |      | 117    |      |   | 130    |   |      | 179   |      |   | 102   |   |   | 112   |  
|Other consumer loans                                     |  |      | 3,366  |      |   | 2,263  |   |      | 2,055 |      |   | 2,373 |   |   | 1,845 |  
|                                                         |  |      |        |      |   |        |   |      |       |      |   |       |   |   |       |  
|Total consumer loans                                     |  |      | 3,519  |      |   | 2,447  |   |      | 2,235 |      |   | 2,476 |   |   | 1,998 |  
|                                                         |  |      |        |      |   |        |   |      |       |      |   |       |   |   |       |  
|Total accruing loans past due
  90 days or more          |  |      | 8,626  |      |   | 7,617  |   |      | 4,775 |      |   | 5,725 |   |   | 6,174 |  
|                                                         |  |      |        |      |   |        |   |      |       |      |   |       |   |   |       |  
|Total of nonaccrual and 90
  days or more past due loans |  |      | 16,311 |      |   | 8,151  |   |      | 5,160 |      |   | 6,162 |   |   | 6,700 |  
|                                                         |  |      |        |      |   |        |   |      |       |      |   |       |   |   |       |  
|Real estate owned                                        |  |      | 4,797  |      |   | 2,809  |   |      | 3,146 |      |   | 2,939 |   |   | 3,167 |  
|                                                         |  |      |        |      |   |        |   |      |       |      |   |       |   |   |       |  
|                                                         |  |      |        |      |   |        |   |      |       |      |   |       |   |   |       |  
|Total nonperforming assets                               |  | $    | 21,108 |      | $ | 10,960 |   | $    | 8,306 |      | $ | 9,101 |   | $ | 9,867 |  
|                                                         |  |      |        |      |   |        |   |      |       |      |   |       |   |   |       |  
|                                                         |  |      |        |      |   |        |   |      |       |      |   |       |   |   |       |  
|Total nonperforming loans to total loans                 |  |      | 0.77   | %    |   | 0.48   | % |      | 0.30  | %    |   | 0.39  | % |   | 0.45  | %
|Total nonperforming loans to total assets                |  |      | 0.46   | %    |   | 0.35   | % |      | 0.22  | %    |   | 0.26  | % |   | 0.30  | %
|Total real estate owned to total assets                  |  |      | 0.13   | %    |   | 0.12   | % |      | 0.13  | %    |   | 0.13  | % |   | 0.14  | %
|                                                         |  |      |        |      |   |        |   |      |       |      |   |       |   |   |      

22

---



Interest income that would have been recorded for the
year ended December 31, 2007, had nonaccruing loans been current according to
their original terms, amounted to approximately $0.4 million. No interest
related to nonaccrual loans was included in interest income for the year ended
December 31, 2007.

The increase in nonperforming loans during the year
ended December 31, 2007 includes two loans to affiliates of a
Philadelphia-based builder and development company that filed for Chapter 11
bankruptcy in June 2007.

At December 31, 2007, there were a total of 143 land
acquisition and development loans totaling $161.3 million, which consist of 96
residential land acquisition and development loans totaling $93.3 million and 47 commercial land acquisition and development loans totaling $68.0
million. We continually monitor progress of our loans and communicate on a
regular basis with the borrowers. Site visits are performed as needed.

Federal regulations require us to review and classify
our assets on a regular basis. In addition, the FDIC has the authority to
identify problem assets and, if appropriate, require them to be classified.
There are three classifications for problem assets: substandard, doubtful and
loss. Substandard assets must have one or more defined weaknesses and are
characterized by the distinct possibility that we will sustain some loss if the
deficiencies are not corrected. Doubtful assets have the weaknesses of
substandard assets with the additional characteristic that the weaknesses make
collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable, and there is a high possibility of loss. An
asset classified loss is considered uncollectible and of such little value
that continuance as an asset of the institution is not warranted. The regulations
also provide for a special mention category, described as assets which do not
currently expose us to a sufficient degree of risk to warrant classification
but do possess credit deficiencies or potential weaknesses deserving our close
attention. When we classify an asset as substandard or doubtful we establish a
specific allowance for loan losses. If we classify an asset as loss, we charge
off an amount equal to 100% of the portion of the asset classified loss.

The following table shows the aggregate amounts of our
criticized assets at the dates included:

|                                           |  |      |       |      |   |       |  |   |       | 
|------------------------------------------ |  | ---- | ----- | ---- | - | ----- |  | - | ----- | 
|At
  December 31,
  (Dollars in thousands) |  | 2007 |       | 2006 |   | 2005  | 
|                                          
|                                           |  |      |       |      |   |       |  |   |       | 
|Special mention assets                     |  | $    |      |      | $ |      |  | $ | 1,000 | 
|Substandard assets                         |  |      | 9,295 |      |   | 7,015 |  |   | 1,056 | 
|Doubtful assets                            |  |      | 370   |      |   |      |  |   |      | 
|Loss assets                                |  |      |      |      |   |      |  |   |      | 
|                                           |  |      |       |      |   |       |  |   |       | 
|Total classified assets                    |  | $    | 9,665 |      | $ | 7,015 |  | $ | 2,056 | 
|                                           |  |      |       |      |   |       |  |  

Other than disclosed in the above tables, there are no
other loans that management has serious doubts about the ability of the borrowers
to comply with the present loan repayment terms.

23

---



Loan Delinquencies.The following
  table provides information about delinquencies in our loan portfolio at the
  dates indicated:

|                                     |  |                   |        |                   |   |                   |  |                   |        |                   |   |                   |  |                   |       |                   |   |                   |  |                   |        |  |   |       |  |   |       |  |   |       | 
|------------------------------------ |  | ----------------- | ------ | ----------------- | - | ----------------- |  | ----------------- | ------ | ----------------- | - | ----------------- |  | ----------------- | ----- | ----------------- | - | ----------------- |  | ----------------- | ------ |  | - | ----- |  | - | ----- |  | - | ----- | 
|                                     |  |                  
|                                     |  | 2007              |        | 2006              |   | 2005              |  | 2004              |        | 2003              |  
|                                     |  |                  
|December 31,(Dollars in
  thousands) |  | 30-59DaysPast Due |        | 60-89DaysPast Due |   | 30-59DaysPast Due |  | 60-89DaysPast Due |        | 30-59DaysPast Due |   | 60-89DaysPast Due |  | 30-59DaysPast Due |       | 60-89DaysPast Due |   | 30-59DaysPast Due |  | 60-89DaysPast Due |       
|                                    
|Real estate loans:                   |  |                   |        |                   |   |                   |  |                   |        |                   |   |                   |  |                   |       |                   |   |                   |  |                   |        |  |   |       |  |   |       |  |   |       | 
|One-to-four family                   |  | $                 | 4,943  |                   | $ | 2,243             |  | $                 | 2,712  |                   | $ | 1,281             |  | $                 | 2,474 |                   | $ | 859               |  | $                 | 3,566  |  | $ | 1,611 |  | $ | 4,720 |  | $ | 1,452 | 
|Commercial real estate               |  |                   | 6,274  |                   |   | 1,000             |  |                   | 673    |                   |   | 666               |  |                   | 45    |                   |   | 3                 |  |                   | 2,452  |  |   | 620   |  |   | 399   |  |   | 327   | 
|Residential construction             |  |                   |       |                   |   |                  |  |                   |       |                   |   |                  |  |                   |      |                   |   |                  |  |                   |       |  |   |      |  |   |      |  |   |      | 
|                                     |  |                   |        |                   |   |                   |  |                   |        |                   |   |                   |  |                   |       |                   |   |                   |  |                   |        |  |   |       |  |   |       |  |   |       | 
|Total real estate                    |  |                   | 11,217 |                   |   | 3,243             |  |                   | 3,385  |                   |   | 1,947             |  |                   | 2,519 |                   |   | 862               |  |                   | 6,018  |  |   | 2,231 |  |   | 5,119 |  |   | 1,779 | 
|                                     |  |                   |        |                   |   |                   |  |                   |        |                   |   |                   |  |                   |       |                   |   |                   |  |                   |        |  |   |       |  |   |       |  |   |       | 
|                                     |  |                   |        |                   |   |                   |  |                   |        |                   |   |                   |  |                   |       |                   |   |                   |  |                   |        |  |   |       |  |   |       |  |   |       | 
|Commercial business                  |  |                   | 2,212  |                   |   | 187               |  |                   | 5,700  |                   |   |                  |  |                   | 8     |                   |   | 1                 |  |                   | 427    |  |   | 108   |  |   | 60    |  |   | 49    | 
|                                     |  |                   |        |                   |   |                   |  |                   |        |                   |   |                   |  |                   |       |                   |   |                   |  |                   |        |  |   |       |  |   |       |  |   |       | 
|Consumer:                            |  |                   |        |                   |   |                   |  |                   |        |                   |   |                   |  |                   |       |                   |   |                   |  |                   |        |  |   |       |  |   |       |  |   |       | 
|Home equity lines of credit          |  |                   | 320    |                   |   | 150               |  |                   | 68     |                   |   | 7                 |  |                   | 183   |                   |   | 16                |  |                   | 53     |  |   | 68    |  |   | 151   |  |   | 18    | 
|Automobile loans                     |  |                   | 1,468  |                   |   | 291               |  |                   | 1,028  |                   |   | 217               |  |                   | 1,014 |                   |   | 310               |  |                   | 963    |  |   | 194   |  |   | 799   |  |   | 295   | 
|Other consumer loans                 |  |                   | 2,458  |                   |   | 998               |  |                   | 2,756  |                   |   | 1,147             |  |                   | 2,728 |                   |   | 1,148             |  |                   | 2,700  |  |   | 1,269 |  |   | 2,447 |  |   | 1,144 | 
|                                     |  |                   |        |                   |   |                   |  |                   |        |                   |   |                   |  |                   |       |                   |   |                   |  |                   |        |  |   |       |  |   |       |  |   |       | 
|Total consumer                       |  |                   | 4,246  |                   |   | 1,439             |  |                   | 3,852  |                   |   | 1,371             |  |                   | 3,925 |                   |   | 1,474             |  |                   | 3,716  |  |   | 1,531 |  |   | 3,397 |  |   | 1,457 | 
|                                     |  |                   |        |                   |   |                   |  |                   |        |                   |   |                   |  |                   |       |                   |   |                   |  |                   |        |  |   |       |  |   |       |  |   |       | 
|Total                                |  | $                 | 17,675 |                   | $ | 4,869             |  | $                 | 12,937 |                   | $ | 3,318             |  | $                 | 6,452 |                   | $ | 2,337             |  | $                 | 10,161 |  | $ | 3,870 |  | $ | 8,576 |  | $ | 3,285 | 
|                                     |  |                   |        |                   |   |                   |  |                   |        |                   |   |                   |  |                   |       |                   |   |                   |  |                   |        |  |   |       |  |   |       |  |  

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 adequacy of the allowances for loan losses balance on loans on a
  quarterly basis. When additional allowances are necessary, a provision for
  loan losses is charged to earnings.

Our methodology for assessing the appropriateness of
  the allowance for loan losses consists of: (1) a specific valuation allowance
  on identified problem loans; (2) a general valuation allowance on the
  remainder of the loan portfolio; and (3) an unallocated component. 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 evaluate all classified loans and establish a
  specific reserve if a determination is made that full collectibility may not
  be reasonably assured. When this occurs, we consider the estimated fair value
  of the underlying collateral, less selling costs and other market conditions.
  If a shortfall exists, we establish a specific allowance amount.

We establish a general allowance for loans that are
  not evaluated separately for impairment to recognize the inherent losses
  associated with lending activities. This general valuation allowance is
  determined by segregating the loans by loan category and assigning allowance
  percentages to each category. The percentages may be adjusted for significant
  factors that, in managements judgment, affect the collectibility of the
  portfolio as of the evaluation date. These significant risk factors may include
  recent loss experience in particular segments of the portfolio, trends in
  loan volumes, levels and trends in delinquent loans, changes in existing
  general economic and business conditions affecting our primary lending areas,
  as well as other factors such as: concentrations, seasoning of the loan
  portfolio, and bank regulatory examination results. The applied loss factors
  are reevaluated quarterly to ensure their relevance in the current economic
  environment. An unallocated component covers uncertainties that could affect
  our estimate of probable losses.

We identify loans that may need to be charged off as
  a loss by reviewing all delinquent loans, classified loans and other loans
  that management may have concerns about collectibility. 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. Personal loans are
  typically charged off at 120 days delinquent.

The FDIC and Pennsylvania Department of Banking, as
  an integral part of their examination process, periodically review our
  allowance for loan losses. The FDIC and Pennsylvania Department of Banking
  may require us to make additional provisions for loan losses based on
  judgments different from ours.

24

---



At December 31, 2007, our allowance for loan losses
represented 1.10% of total gross loans. The allowance for loan losses increased
34.39% from December 31, 2006 to December 31, 2007, following the provision for
loan losses of $2.5 million. The increase in the allowance reflected increases
in the commercial loan portfolio by 69.32% and the residential portfolio by
72.00%.

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

|                                        |  |                                                        |        |                                              |  |                                                        |        |                                             |  |                                                           |        |                                                |  |  |        |   |  |   |        |  |  |  |        |   |  |  |  |  |  |  | 
|--------------------------------------- |  | ------------------------------------------------------ | ------ | -------------------------------------------- |  | ------------------------------------------------------ | ------ | ------------------------------------------- |  | --------------------------------------------------------- | ------ | ---------------------------------------------- |  |  | ------ | - |  | - | ------ |  |  |  | ------ | - |  |  |  |  |  |  | 
|                                        |  | 2007                                                   |        | 2006                                         |  | 2005                                                  
|                                        |  |                                                        |        |                                              |  |                                                       
|December
  31,(Dollars in
  thousands)  |  | Amount of
  Allowance
  Allocated
  to Loan
  Category |        | Loan
  Category as 
  a % of
  Total
  Loans |  | Amount of
  Allowance
  Allocated
  to Loan
  Category |        | Loan
  Category as
  a % of
  Total
  Loans |  | Amount of
  Allowance 
  Allocated 
  to Loan 
  Category |        | Loan
  Category as 
  a % of 
  Total 
  Loans
|                                        |  |                                                        |        |                                              |  |                                                        |        |                                             |  |                                                           |        |                                                | 
|Real estate loans:                      |  |                                                        |        |                                              |  |                                                        |        |                                             |  |                                                           |        |                                                |  |  |        |   |  |   |        |  |  |  |        |  
|One-to-four family                      |  | $                                                      | 1,763  |                                              |  |                                                        | 22.69  | %                                           |  | $                                                         | 970    |                                                |  |  | 16.61  | % |  | $ | 942    |  |  |  | 17.12  | %
|Commercial real estate                  |  |                                                        | 12,320 |                                              |  |                                                        | 32.80  |                                             |  |                                                           | 8,124  |                                                |  |  | 24.38  |   |  |   | 7,261  |  |  |  | 21.48  |  
|Residential construction                |  |                                                        |       |                                              |  |                                                        | 0.09   |                                             |  |                                                           |       |                                                |  |  | 0.59   |   |  |   |       |  |  |  | 0.96   |  
|                                        |  |                                                        |        |                                              |  |                                                        |        |                                             |  |                                                           |        |                                                |  |  |        |   |  |   |        |  |  |  |        |  
|Total real estate                       |  |                                                        | 14,083 |                                              |  |                                                        | 55.58  |                                             |  |                                                           | 9,094  |                                                |  |  | 41.58  |   |  |   | 8,203  |  |  |  | 39.56  |  
|                                        |  |                                                        |        |                                              |  |                                                        |        |                                             |  |                                                           |        |                                                |  |  |        |   |  |   |        |  |  |  |        |  
|Commercial business                     |  |                                                        | 4,837  |                                              |  |                                                        | 6.45   |                                             |  |                                                           | 1,955  |                                                |  |  | 5.87   |   |  |   | 1,311  |  |  |  | 3.88   |  
|                                        |  |                                                        |        |                                              |  |                                                        |        |                                             |  |                                                           |        |                                                |  |  |        |   |  |   |        |  |  |  |        |  
|Consumer:                               |  |                                                        |        |                                              |  |                                                        |        |                                             |  |                                                           |        |                                                |  |  |        |   |  |   |        |  |  |  |        |  
|Home equity loans and lines of
  credit |  |                                                        | 2,370  |                                              |  |                                                        | 18.48  |                                             |  |                                                           | 2,326  |                                                |  |  | 22.88  |   |  |   | 2,623  |  |  |  | 22.90  |  
|Automobile loans                        |  |                                                        | 1,230  |                                              |  |                                                        | 8.26   |                                             |  |                                                           | 2,532  |                                                |  |  | 13.85  |   |  |   | 3,150  |  |  |  | 15.74  |  
|Other consumer loans                    |  |                                                        | 821    |                                              |  |                                                        | 11.23  |                                             |  |                                                           | 1,304  |                                                |  |  | 15.82  |   |  |   | 1,735  |  |  |  | 17.92  |  
|                                        |  |                                                        |        |                                              |  |                                                        |        |                                             |  |                                                           |        |                                                |  |  |        |   |  |   |        |  |  |  |        |  
|Total consumer                          |  |                                                        | 4,421  |                                              |  |                                                        | 37.97  |                                             |  |                                                           | 6,162  |                                                |  |  | 52.55  |   |  |   | 7,508  |  |  |  | 56.56  |  
|                                        |  |                                                        |        |                                              |  |                                                        |        |                                             |  |                                                           |        |                                                |  |  |        |   |  |   |        |  |  |  |        |  
|Unallocated                             |  |                                                        |       |                                              |  |                                                        |        |                                             |  |                                                           | 157    |                                                |  |  |        |   |  |   | 74     |  |  |  |        |  
|Total allowance for loan
  losses       |  | $                                                      | 23,341 |                                              |  |                                                        | 100.00 | %                                           |  | $                                                         | 17,368 |                                                |  |  | 100.00 | % |  | $ | 17,096 |  |  |  | 100.00 | %
|                                        |  |                                                        |        |                                              |  |                                                        |        |                                             |  |                                                           |        |                                                |  |  |        |   |  |   |        |  |  |  |        |  

|                                        |  |                                                         |        |                                                 |  |                                                      |        |                                           |  |   |        |  |  |  |        |  
|--------------------------------------- |  | ------------------------------------------------------- | ------ | ----------------------------------------------- |  | ---------------------------------------------------- | ------ | ----------------------------------------- |  | - | ------ |  |  |  | ------ | -
|                                        |  | 2004                                                    |        | 2003                                           
|                                        |  |                                                         |        |                                                
|December
  31,(Dollars in
  thousands)  |  | Amount of Allowance 
  Allocated 
  to Loan 
  Category |        | Loan 
  Category as 
  a % of 
  Total 
  Loans |  | Amount of Allowance 
  Allocated 
  to Loan Category |        | Loan Category as a % of 
  Total 
  Loans
|                                       
|Real estate loans:                      |  |                                                         |        |                                                 |  |                                                      |        |                                           |  |   |        |  |  |  |        |  
|One-to-four family                      |  | $                                                       | 894    |                                                 |  |                                                      | 17.75  | %                                         |  | $ | 1,074  |  |  |  | 19.66  | %
|Commercial real estate                  |  |                                                         | 6,905  |                                                 |  |                                                      | 17.95  |                                           |  |   | 5,907  |  |  |  | 13.98  |  
|Residential construction                |  |                                                         |       |                                                 |  |                                                      | 0.67   |                                           |  |   |       |  |  |  | 0.48   |  
|                                        |  |                                                         |        |                                                 |  |                                                      |        |                                           |  |   |        |  |  |  |        |  
|Total real estate                       |  |                                                         | 7,799  |                                                 |  |                                                      | 36.37  |                                           |  |   | 6,981  |  |  |  | 34.12  |  
|                                        |  |                                                         |        |                                                 |  |                                                      |        |                                           |  |   |        |  |  |  |        |  
|Commercial business                     |  |                                                         | 1,201  |                                                 |  |                                                      | 3.12   |                                           |  |   | 892    |  |  |  | 2.11   |  
|                                        |  |                                                         |        |                                                 |  |                                                      |        |                                           |  |   |        |  |  |  |        |  
|Consumer:                               |  |                                                         |        |                                                 |  |                                                      |        |                                           |  |   |        |  |  |  |        |  
|Home equity loans and lines of
  credit |  |                                                         | 2,659  |                                                 |  |                                                      | 22.20  |                                           |  |   | 2,815  |  |  |  | 17.67  |  
|Automobile loans                        |  |                                                         | 3,081  |                                                 |  |                                                      | 16.93  |                                           |  |   | 3,138  |  |  |  | 18.10  |  
|Other consumer loans                    |  |                                                         | 1,752  |                                                 |  |                                                      | 21.38  |                                           |  |   | 2,026  |  |  |  | 28.01  |  
|                                        |  |                                                         |        |                                                 |  |                                                      |        |                                           |  |   |        |  |  |  |        |  
|Total consumer                          |  |                                                         | 7,492  |                                                 |  |                                                      | 60.51  |                                           |  |   | 7,979  |  |  |  | 63.78  |  
|                                        |  |                                                         |        |                                                 |  |                                                      |        |                                           |  |   |        |  |  |  |        |  
|Unallocated                             |  |                                                         | 649    |                                                 |  |                                                      |        |                                           |  |   | 1,092  |  |  |  |        |  
|Total allowance for loan
  losses       |  | $                                                       | 17,141 |                                                 |  |                                                      | 100.00 | %                                         |  | $ | 16,944 |  |  |  | 100.00 | %
|                                        |  |                                                         |        |                                                 |  |                                                      |        |                                           |  |   |        |  |  |  |        |  

Although we believe that we use the best information available to
establish the allowance for loan losses, future adjustments to the allowance
for loan losses may be necessary and our results of operations could be
adversely affected if circumstances differ substantially from the assumptions
used in making the determinations. Furthermore, while we believe we have
established our allowance for loan losses in conformity with generally accepted
accounting principles, there can be no assurance that regulators, in reviewing
our loan portfolio, will not require us to increase our allowance for loan
losses. In addition, because future events affecting borrowers and collateral
cannot be predicted with certainty, there can be no assurance that the existing
allowance for loan losses is adequate or that increases will not be necessary
should the quality of any loans deteriorate as a result of the factors
discussed above. Any material increase in the allowance for loan losses may
adversely affect our financial condition and results of operations.

25

---



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

|                                                                              |  |      |        |      |   |        |   |      |        |      |   |        |   |   |        |  
|----------------------------------------------------------------------------- |  | ---- | ------ | ---- | - | ------ | - | ---- | ------ | ---- | - | ------ | - | - | ------ | -
|Year Ended December 31,(Dollars in thousands)                                 |  | 2007 |        | 2006 |   | 2005   |   | 2004 |        | 2003
|                                                                              |  |      |        |      |   |        |   |      |        |      |   |        |   |   |        |  
|                                                                              |  |      |        |      |   |        |   |      |        |      |   |        |   |   |        |  
|Allowance at beginning of period                                              |  | $    | 17,368 |      | $ | 17,096 |   | $    | 17,141 |      | $ | 16,944 |   | $ | 16,804 |  
|                                                                              |  |      |        |      |   |        |   |      |        |      |   |        |   |   |        |  
|Provision for loan losses                                                     |  |      | 2,470  |      |   | 1,575  |   |      | 1,703  |      |   | 2,400  |   |   | 2,775  |  
|Charge offs:                                                                  |  |      |        |      |   |        |   |      |        |      |   |        |   |   |        |  
|Real estate loans:                                                            |  |      |        |      |   |        |   |      |        |      |   |        |   |   |        |  
|One-to-four family                                                            |  |      | 72     |      |   | 44     |   |      | 76     |      |   | 42     |   |   | 68     |  
|Commercial real estate                                                        |  |      | 477    |      |   |       |   |      | 47     |      |   |       |   |   |       |  
|                                                                              |  |      |        |      |   |        |   |      |        |      |   |        |   |   |        |  
|Total real estate loans                                                       |  |      | 549    |      |   | 44     |   |      | 123    |      |   | 42     |   |   | 68     |  
|                                                                              |  |      |        |      |   |        |   |      |        |      |   |        |   |   |        |  
|Commercial business loans                                                     |  |      | 188    |      |   | 12     |   |      | 110    |      |   | 109    |   |   | 120    |  
|                                                                              |  |      |        |      |   |        |   |      |        |      |   |        |   |   |        |  
|Consumer:                                                                     |  |      |        |      |   |        |   |      |        |      |   |        |   |   |        |  
|Home equity lines of credit                                                   |  |      | 241    |      |   | 81     |   |      | 93     |      |   | 185    |   |   | 134    |  
|Automobile loans                                                              |  |      | 969    |      |   | 1,347  |   |      | 1,427  |      |   | 1,915  |   |   | 1,760  |  
|Other consumer loans                                                          |  |      | 444    |      |   | 813    |   |      | 1,157  |      |   | 904    |   |   | 1,554  |  
|                                                                              |  |      |        |      |   |        |   |      |        |      |   |        |   |   |        |  
|Total consumer loans                                                          |  |      | 1,654  |      |   | 2,241  |   |      | 2,677  |      |   | 3,004  |   |   | 3,448  |  
|                                                                              |  |      |        |      |   |        |   |      |        |      |   |        |   |   |        |  
|Total charge-offs                                                             |  |      | 2,391  |      |   | 2,297  |   |      | 2,910  |      |   | 3,155  |   |   | 3,636  |  
|                                                                              |  |      |        |      |   |        |   |      |        |      |   |        |   |   |        |  
|Recoveries:                                                                   |  |      |        |      |   |        |   |      |        |      |   |        |   |   |        |  
|Real estate loans:                                                            |  |      |        |      |   |        |   |      |        |      |   |        |   |   |        |  
|One-to-four family                                                            |  |      | 1      |      |   | 36     |   |      | 8      |      |   | 59     |   |   | 23     |  
|Commercial real estate                                                        |  |      |       |      |   |       |   |      | 47     |      |   | 76     |   |   | 7      |  
|                                                                              |  |      |        |      |   |        |   |      |        |      |   |        |   |   |        |  
|Total real estate loans                                                       |  |      | 1      |      |   | 36     |   |      | 55     |      |   | 135    |   |   | 30     |  
|                                                                              |  |      |        |      |   |        |   |      |        |      |   |        |   |   |        |  
|Commercial business                                                           |  |      |       |      |   | 1      |   |      | 8      |      |   | 1      |   |   | 20     |  
|                                                                              |  |      |        |      |   |        |   |      |        |      |   |        |   |   |        |  
|Consumer:                                                                     |  |      |        |      |   |        |   |      |        |      |   |        |   |   |        |  
|Home equity lines of credit                                                   |  |      | 137    |      |   | 123    |   |      | 223    |      |   | 90     |   |   | 160    |  
|Automobile loans                                                              |  |      | 504    |      |   | 467    |   |      | 586    |      |   | 510    |   |   | 533    |  
|Other consumer loans                                                          |  |      | 237    |      |   | 367    |   |      | 290    |      |   | 216    |   |   | 258    |  
|                                                                              |  |      |        |      |   |        |   |      |        |      |   |        |   |   |        |  
|Total consumer loans                                                          |  |      | 878    |      |   | 957    |   |      | 1,099  |      |   | 816    |   |   | 951    |  
|                                                                              |  |      |        |      |   |        |   |      |        |      |   |        |   |   |        |  
|Total recoveries                                                              |  |      | 879    |      |   | 994    |   |      | 1,162  |      |   | 952    |   |   | 1,001  |  
|                                                                              |  |      |        |      |   |        |   |      |        |      |   |        |   |   |        |  
|Net charge-offs                                                               |  |      | 1,512  |      |   | 1,303  |   |      | 1,748  |      |   | 2,203  |   |   | 2,635  |  
|                                                                              |  |      |        |      |   |        |   |      |        |      |   |        |   |   |        |  
|Allowance acquired from merger                                                |  |      | 5,015  |      |   |       |   |      |       |      |   |       |   |   |       |  
|                                                                              |  |      |        |      |   |        |   |      |        |      |   |        |   |   |        |  
|Allowance at end of period                                                    |  | $    | 23,341 |      | $ | 17,368 |   | $    | 17,096 |      | $ | 17,141 |   | $ | 16,944 |  
|                                                                              |  |      |        |      |   |        |   |      |        |      |   |        |   |   |        |  
|                                                                              |  |      |        |      |   |        |   |      |        |      |   |        |   |   |        |  
|Allowance to nonperforming loans                                              |  |      | 143.10 | %    |   | 213.09 | % |      | 331.32 | %    |   | 278.17 | % |   | 252.90 | %
|Allowance to total loans outstanding at the end of the
period                 |  |      | 1.10   | %    |   | 1.03   | % |      | 0.99   | %    |   | 1.09   | % |   | 1.13   | %
|Net charge-offs (recoveries) to average loans outstanding during the
  period |  |      | 0.08   | %    |   | 0.07   | % |      | 0.10   | %    |   | 0.14   | % |   | 0.18   | %
|                                                                              |  |      |        |      |   |        |   |      |        |      |   |        |   |   |        |  

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 repricing 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 repricing characteristics (basis risk); and from interest
  rate related options embedded in the banks assets and liabilities (option
  risk).

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

26

---



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 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 were
  changed 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 captures more information and reflects
  the entire asset and liability maturity spectrum. Economic value simulation
  reflects the interest rate sensitivity of assets and liabilities in a more
  comprehensive fashion, reflecting all future time periods. It can identify
  the quantity of interest rate risk as a function of the changes in the
  economic values of assets and liabilities, and the equity of the Company.
  Both types of simulation assist in identifying, measuring, monitoring and
  controlling interest rate risk and are employed by management to ensure that
  variations in interest rate risk exposure will be maintained within policy
  guidelines.

The Asset/Liability Management Committee 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, in order to demonstrate or
  model the specific impact of the interest rate scenario tested on income,
  equity and duration. The model, which incorporates all asset and liability
  rate information, simulates the effect of various interest rate movements on
  income and equity value. The reports identify and measure 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, 2007 and at December 31, 2006. The
  primary interest rate exposure measurement applied to the entire balance
  sheet is the effect on net interest income and earnings of a gradual change
  in market interest rates of plus or minus 200 basis points over a one year
  time horizon, and the effect on economic value of equity of gradual 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, 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 prospective effects of hypothetical interest
  rate changes are based on a number of assumptions, these computations should
  not be relied upon as indicative of actual results. While we believe such
  assumptions to be reasonable, there can be no assurance that assumed
  prepayment rates will approximate actual future mortgage-backed security,
  collateralized mortgage obligation and loan repayment activity. Further the
  computation does not reflect any actions that management may undertake in
  response to changes in interest rates. Management periodically reviews its
  rate assumptions based on existing and projected economic conditions.

27

---



As of December 31, 2007 (Dollars in thousands):

|                             |  |      |         |                 |   |         |  |   |         |  
|---------------------------- |  | ---- | ------- | --------------- | - | ------- |  | - | ------- | -
|                             |  |      |         |                 |   |         |  |   |         |  
|Basis point change in rates  |  | -200 |         | Base
  Forecast |   | +200    | 
|                             |  |      |         |                 |   |         |  |   |         |  
|                             |  |      |         |                 |   |         |  |   |         |  
|Net Interest Income at Risk: |  |      |         |                 |   |         |  |   |         |  
|Net Interest
  Income        |  | $    | 110,881 |                 | $ | 114,328 |  | $ | 114,645 |  
|% change                     |  |      | (3.02   | )%              |   |         |  |   | 0.28    | %
|                             |  |      |         |                 |   |         |  |   |         |  
|Net Income at Risk:          |  |      |         |                 |   |         |  |   |         |  
|Net income                   |  | $    | 22,792  |                 | $ | 25,037  |  | $ | 25,253  |  
|% change                     |  |      | (8.97   | )%              |   |         |  |   | 0.86    | %
|                             |  |      |         |                 |   |         |  |   |         |  
|Economic Value at Risk:      |  |      |         |                 |   |         |  |   |         |  
|Equity                       |  | $    | 587,842 |                 | $ | 681,498 |  | $ | 685,901 |  
|% change                     |  |      | (13.74  | )%              |   |         |  |   | .65     | %

As of December 31, 2007, based on the scenarios
  above, net interest income, net income and economic value would be adversely
  affected over a one-year time horizon in a declining rate environment.

The net interest income at risk results indicate a
  slightly asset sensitive profile, which provides net interest margin benefits
  in rising rate scenarios. The economic value at risk remains limited in
  magnitude and indicates potential moderate exposures in increasing rate environments.

For 2007, our results indicate that we are well
  positioned with limited net interest income and economic value at risk and
  that all interest risk results continue to be within our policy guidelines.

Liquidity
  Management. Liquidity is the ability to meet current
  and future financial obligations of a short-term nature. Our primary sources
  of funds consist of deposit inflows, loan repayments, maturities of and
  payments on investment securities and borrowings from the Federal Home Loan Bank
  of Pittsburgh. While maturities and scheduled amortization of loans and
  securities are predictable sources of funds, deposit flows and mortgage
  prepayments are greatly influenced by general interest rates, economic
  conditions and competition.

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 and (4) the objectives of our asset/liability management policy.

Our most liquid assets are cash and cash
  equivalents. The levels of these assets depend on our operating, financing,
  lending and investing activities during any given period. At December 31,
  2007, cash and cash equivalents totaled $58.3 million. In addition, at
  December 31, 2007, we had arrangements to borrow up to $1.2 billion from the
  Federal Home Loan Banks of Pittsburgh and New York. On December 31, 2007, we
  had $185.8 million of Federal Home Loan Bank advances outstanding.

A significant use of our liquidity is the funding of
  loan originations. At December 31, 2007, we had $217.8 million in loan
  commitments outstanding, which consisted of $62.1 million and $6.8 million in
  commercial and consumer commitments to fund loans, respectively, $95.6
  million and $37.2 million in commercial and consumer unused lines of credit,
  respectively, and $16.0 million in standby letters of credit. Historically,
  many of the commitments expire without being fully drawn; therefore, the
  total commitment amounts do not necessarily represent future cash
  requirements. Another significant use of our liquidity is the funding of
  deposit withdrawals. Certificates of deposit due within one year of December
  31, 2007 totaled $857.6 million, or 82.28% of certificates of deposit. The
  large percentage of certificates of deposit that mature within one year
  reflects customers hesitancy to invest their funds for long periods in the
  recent low interest rate environment. If these maturing deposits do not
  remain with us, we will be required to seek other sources of funds, including
  other certificates of deposit and borrowings. Depending on market conditions,
  we may be required to pay higher rates on such deposits or other borrowings
  than we currently pay on the certificates of deposit due on or before
  December 31, 2008. We have the ability to attract and retain deposits by
  adjusting the interest rates offered.

28

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The following table presents certain of our
  contractual obligations at December 31, 2007:

|                            |  |       |         |                        |   |                      |  |                       |       |                        |   |       |  |   |        | 
|--------------------------- |  | ----- | ------- | ---------------------- | - | -------------------- |  | --------------------- | ----- | ---------------------- | - | ----- |  | - | ------ | 
|                            |  |       |         | Payments due by period |  
|                            |  |       |         |                        |  
|(Dollars in thousands)      |  | Total |         | Less than
  One Year   |   | One to
  Three Years |  | Three to
  Five Years |       | More Than
  Five Years |  
|                            |  |       |         |                        |   |                      |  |                       |       |                        |   |       |  |   |        | 
|                            |  |       |         |                        |   |                      |  |                       |       |                        |   |       |  |   |        | 
|Commitments to fund loans   |  | $     | 68,953  |                        | $ | 62,147               |  | $                     |      |                        | $ |      |  | $ | 6,806  | 
|Unused lines of credit      |  |       | 132,766 |                        |   | 95,547               |  |                       |      |                        |   |      |  |   | 37,219 | 
|Standby letters of credit   |  |       | 16,041  |                        |   | 16,041               |  |                       |      |                        |   |      |  |   |       | 
|Operating lease obligations |  |       | 35,638  |                        |   | 4,641                |  |                       | 9,286 |                        |   | 5,099 |  |   | 16,612 | 
|                            |  |       |         |                        |   |                      |  |                       |       |                        |   |       |  |   |        | 
|Total                       |  | $     | 253,398 |                        | $ | 178,376              |  | $                     | 9,286 |                        | $ | 5,099 |  | $ | 60,637 | 
|                            |  |       |         |                        |   |                      |  |                       |       |                        |   |       |  |   |        | 

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

The following table presents our primary investing
  and financing activities during the periods indicated.

|                                                                                          |  |      |           |      |   |          |   |   |          |  
|----------------------------------------------------------------------------------------- |  | ---- | --------- | ---- | - | -------- | - | - | -------- | -
|Year
  Ended December 31,(Dollars
  in thousands)                                         |  | 2007 |           | 2006 |   | 2005     |  
|                                                                                          |  |      |           |      |   |          |   |   |          |  
|                                                                                          |  |      |           |      |   |          |   |   |          |  
|Investing
  activities:                                                                   |  |      |           |      |   |          |   |   |          |  
|Loan purchases                                                                            |  | $    | (91       | )    | $ | (5,064   | ) | $ | (38,283  | )
|Loan
  originations                                                                       |  |      | (518,897  | )    |   | (502,021 | ) |   | (661,965 | )
|Principal
  repayments on loans                                                           |  |      | 528,703   |      |   | 550,048  |   |   | 544,164  |  
|Purchases of
  investment securities available-for-sale                                   |  |      | 2,255,047 |      |   | (55,779  | ) |   | (61,767  | )
|Purchases of
  investment securities heldto-maturity                                     |  |      |          |      |   | (474     | ) |   | (555     | )
|Proceeds from
  sales and maturities of investment securities available-for-sale          |  |      | 2,189,039 |      |   | 67,130   |   |   | 129,593  |  
|Proceeds from
  maturities, calls or repayments of investment securities held-to-maturity |  |      | 18,167    |      |   | 33,162   |   |   | 42,345   |  
|                                                                                          |  |      |           |      |   |          |   |   |          |  
|Financing
  activities:                                                                   |  |      |           |      |   |          |   |   |          |  
|(Decrease) increase in
  deposits                                                         |  |      | (123,262  | )    |   | 12,925   |   |   | 49,679   |  
|(Decrease) in
  Federal Home Loan Bank advances                                           |  |      | (10,800   | )    |   | (66,347  | ) |   | (82,437  | )
|Increase
  (decrease) in repurchase agreements                                            |  |      | (13,777   | )    |   | (4,318   | ) |   | 78,686   |  
|Increase
  (decrease) in Federal Home Loan Bank overnight borrowings                      |  |      |          |      |   | (49,900  | ) |   | 130      |  
|Increase in
  other borrowings                                                            |  |      | 808       |      |   | 7,250    |   |   |         |  
|                                                                                          |  |      |           |      |   |          |   |   |          |  

Capital
  Management. We are subject to various regulatory
  capital requirements administered by the Federal Deposit Insurance
  Corporation, including a risk-based capital measure. The risk-based capital
  guidelines include both a definition of capital and a framework for
  calculating risk-weighted assets by assigning balance sheet assets and
  off-balance sheet items to broad risk categories. At December 31, 2007, we exceeded
  all of our regulatory capital requirements. We are considered well
  capitalized under regulatory guidelines. See Regulatory Capital Compliance at note 14 to the
  consolidated financial statements.

29

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Our stock offering increased our equity by $328.8
  million. We will manage our capital for maximum stockholder benefit. The
  capital from the offering significantly increased our liquidity and capital
  resources. Over time, the initial level of liquidity will be reduced as net
  proceeds from the stock offering are used for general corporate purposes,
  including the funding of lending activities. Our financial condition and
  results of operations were enhanced by the capital from the offering,
  resulting in increased net interest-earning assets and net income. However,
  the large increase in equity resulting from the capital raised in the
  offering will, initially, have an adverse impact on our return on equity. We
  may use capital management tools such as cash dividends and common share
  repurchases. However, under Office of Thrift Supervision (OTS) regulations,
  we will not be allowed to repurchase any shares during the first year
  following the offering, except: (1) in extraordinary circumstances, we may
  make open market repurchases of up to 5% of our outstanding stock if we
  receive the prior non-objection of the Office of Thrift Supervision of such
  repurchases; (2) repurchases of qualifying shares of a director or if we
  conduct an Office of Thrift Supervision-approved offer to repurchase made to
  all shareholders; (3) if we repurchase to fund a restricted stock award plan
  that has been approved by shareholders; or (4) if we repurchase stock to fund
  a tax-qualified employee stock benefit plan. All repurchases are prohibited,
  however, if the repurchase would reduce the Banks regulatory capital below
  regulatory required levels. On October 2, 2007, the Company announced that
  its Board of Directors authorized the Company to file a waiver request with
  the OTS requesting permission for the Company to repurchase up to five percent
  of the outstanding shares of its common stock during the first year following
  the Companys initial public minority offering.

Off-Balance Sheet
  Arrangements. In the normal course of operations, we
  engage in a variety of financial transactions that, in accordance with
  generally accepted accounting principles, are not recorded in our
  consolidated financial statements. These transactions involve, to varying
  degrees, elements of credit, interest rate and liquidity risk. Such
  transactions are used primarily to manage customers requests for funding and
  take the form of loan commitments and lines of credit. For information about
  our loan commitments and unused lines of credit, see note 19 to the
  consolidated financial statements.

For the year ended December 31, 2007, we did not
  engage in any off-balance sheet transactions reasonably likely to have a
  material effect on our financial condition, results of operations or cash
  flows.

Recent Accounting Pronouncements.

In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No.
  141(R), Business Combinations which replaces SFAS No. 141, Business
  Combinations. This Statement retains the fundamental requirements in SFAS
  No. 141 that the acquisition method of accounting (formerly referred to as
  the purchase method) be used for all business combinations and that an
  acquirer be identified for each business combination. This Statement defines
  the acquirer as the entity that obtains control of one or more businesses in
  the business combination and establishes the acquisition date as of the date
  that the acquirer takes control. This Statement requires an acquirer to
  recognize the assets acquired, the liabilities assumed, and any
  noncontrolling interest in the acquiree at the acquisition date, measured at
  fair values. This Statement requires the acquirer to recognize
  acquisition-related costs and restructuring costs separately from the
  business combination as period expense. This Statement is effective for
  business combinations for which the acquisition is on or after the first
  annual reporting period of the acquisition beginning on or after December 15,
  2008. The adoption of this Statement will impact the accounting and reporting
  of acquisitions after January 1, 2008.

In December 2007, the FASB issued SFAS No. 160
  Noncontrolling Interests in Consolidated Financial Statements  an Amendment
  to Accounting Research Bulletin (ARB) No. 51. This Statement established
  new accounting and reporting standards that require that ownership interests
  in subsidiaries held by parties other than the parent be clearly identified
  and presented in the consolidated statement of financial position within
  equity, but separate from the parents equity. This Statement also requires
  that the amount of consolidated net income attributable to the parent and to
  the noncontrolling interest be clearly identified and presented on the face
  of the consolidated statement of income. In addition, when a subsidiary is
  deconsolidated, any retained noncontrolling equity investment in the former
  subsidiary shall be initially measured at fair value, with the gain or loss
  on the deconsolidation of the subsidiary measured using fair value of any
  noncontroling equity investments rather than the carrying amount of that
  retained investment. SFAS No. 160 also clarifies that changes in parents
  ownership interest in a subsidiary that do not result in deconsolidation are
  equity transactions if the parent retains its expanded disclosure
  requirements regarding the interests of the parent and its noncontrolling
  interest. This Statement is effective for fiscal years on or after December
  15, 2008. Early adoption is prohibited. The Company will evaluate the impact
  of adopting this statement on the Companys consolidated financial
  statements.

In November 2007, the SEC issued Staff Accounting
  Bulletin (SAB) No. 109, Written Loan Commitments Recorded at Fair Value
  through Earnings (SAB 109) This SAB supersedes SAB No. 105, Application
  of Accounting Principles to Loan Commitments (SAB 105), and expressed the
  current view of the staff that, consistent with guidance in SFAS No. 156 and
  159, the expected net future cash flows related to the associated servicing
  of a loan should be included in the measurement of all written loan
  commitments that are accounted for at fair value through earnings.
  Additionally, this SAB expands SAB 105s view that internally developed
  intangible assets should not be recorded as part of the fair value for any
  written loan commitments that are accounted for at fair value through
  earnings. This SAB was effective for fiscal quarters beginning after December
  15, 2007. The Company will adopt SAB 109 for any loan commitments issued or
  modified on or after January 1, 2008.

30

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In June 2007, the Emerging Issues Task Force
  (EITF) issued EITF Issue No. 06-11, Accounting for Income Tax Benefits of
  the Share-Based Payment Awards. The Issue states that a realized income tax
  benefit from dividends or dividend equivalents that are charged to retained
  earnings and are paid to employees for equity classified nonvested equity
  shares, nonvested equity share units, and outstanding equity share options
  should be recognized as an increase to additional paid-in capital. The amount
  recognized in additional paid in capital for the realized income tax benefit
  from dividends on those awards should be included in the pool of excess tax
  benefits available to absorb tax deficiencies on share-based payment awards.
  This Issue was effective for fiscal years beginning after December 15, 2007,
  and interim periods within those fiscal years. The Company will prospectively
  apply this Issue to the applicable dividends declared on or after January 1,
  2008.

In May 2007, the FASB issued FSP No. FIN 48-1,
  Definition of Settlement in FASB FIN 48 (FIN 48). FSP 48-1 amends FIN 48
  to provide guidance on determining whether a tax position is effectively
  settled for the purpose of recognizing previously unrecognized tax benefits.
  The concept of effectively settled replaces the concept of ultimately
  settled originally issued in FIN 48. The tax position can be considered
  effectively settled upon completion of an examination by the taxing
  authority if the entity does not plan to appeal or litigate any aspect of the
  tax position and it is remote that the taxing authority would examine any
  aspect of the tax position. For effectively settled tax positions, the full
  amount of the tax benefit can be recognized. The guidance in FSP No. FIN 48-1
  was effective upon initial adoption of FIN 48. FIN 48 was effective for fiscal
  years beginning after December 15, 2006. The adoption of  FSP No. FIN 48-1 did not
  have a material impact on the Companys financial condition and result of
  operations.

In February 2007, the FASB issued SFAS No. 159, The
  Fair Value Option for Financial Assets and Financial Liabilities, including
  an amendment of FASB Statement No. 115 (SFAS No. 159). SFAS No. 159
  permits entities to choose to measure many financial instruments and certain
  other items at fair value. This statement is effective as of the beginning of
  an entitys first fiscal year that begins after November 15, 2007. Management
  does not plan to use the fair value option the Companys financial condition
  and results of operations.

In September 2006, the FASB issued SFAS
  No. 158, Employers Accounting for Defined Benefit Pension and Other
  Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106,
  and 132(R) (SFAS No. 158), which requires the recognition of a plans
  over-funded or under-funded status as an asset or liability with an
  offsetting adjustment to Accumulated Other Comprehensive Income (Loss)
  (AOCI). SFAS No. 158 requires the determination of the fair values of a
  plans assets at a companys year-end and recognition of actuarial gains and
  losses, prior service costs or credits, and transition assets or obligations
  as a component of AOCI. This statement is effective as of December 31,
  2006. If the provisions of SFAS No. 158 had been applied as of
  December 31, 2005, retained earnings would have been reduced by approximately
  $10.2 million before tax and approximately $6.6 million after tax.
  Additionally, the initial adoption of SFAS No. 158 did not have a significant
  impact on the Companys regulatory capital. For additional information on the
  Companys pension and postretirement plans, see Note 16 of the Consolidated
  Financial Statements.

In September 2006, the FASB issued SFAS
  No. 157, Fair Value Measurements (SFAS No. 157). SFAS No. 157
  defines fair value, establishes a framework for measuring fair value under
  GAAP and enhances disclosures about fair value measurements. SFAS No. 157
  retains the exchange price notion and clarifies that the exchange price is
  the price that would be received for an asset or paid to transfer a liability
  (an exit price) in an orderly transaction between market participants on the
  measurement date. SFAS No. 157 is effective for the Companys financial
  statements for the year beginning on January 1, 2008, with earlier
  adoption permitted. Management is currently evaluating the effect of SFAS No.
  157 on the Companys financial condition and results of operations.

In September 2006, the Securities and Exchange
  Commission (SEC) issued SAB No. 108 (SAB 108). SAB 108 expresses the
  SEC Staffs views regarding the process of quantifying financial statement
  misstatements. SAB 108 states that in evaluating the materiality of financial
  statement misstatements a corporation must quantify the impact of correcting
  misstatements, including both the carryover and reversing effects of prior
  year misstatements, on the current year financial statements. SAB No. 108 is
  effective January 1, 2007. Under certain circumstances, prior year financial
  statements will not have to be restated and the effects of initially applying
  SAB No. 108 on prior years will be recorded as a cumulative effect adjustment
  to beginning retained earnings, with disclosure of the items included in the
  cumulative effect. The adoption of SAB No. 108 did not have an impact on the
  Companys financial condition and results of operations.

31

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In September 2006, the FASB ratified EITF Issue
  06-4, Accounting for Deferred Compensation and Postretirement Benefit
  Aspects of Endorsement Split-Dollar Life Insurance Arrangements. An
  endorsement split-dollar arrangement is an arrangement whereby an employer owns
  a life insurance policy that covers the life of an employee and using a
  separate agreement endorses a portion of the policy death benefit to the
  insured employees beneficiary. EITF No. 06-4 applies only to those
  endorsement split-dollar arrangements that provide a death benefit
  postretirement. This EITF requires an employer recognize a liability for
  future benefits if, in substance, the benefit exists. The liability would be
  accounted for in accordance with SFAS 106 Employers Accounting for Postretirement
  Benefits Other Than Pensions or Accounting Principles Board (APB) No. 12
  Omnibus Opinion. The EITFs requirement is effective for fiscal years
  beginning after December 15, 2007. Management is currently evaluating
  the effect of EITF 06-4 on the Companys financial condition and results of
  operations.

In September 2006, the Task Force reached a
  conclusion on EITF Issue No. 06-5, Accounting for Purchases of Life
  Insurance  Determining the Amount That Could Be Realized in Accordance with
  FASB Technical Bulletin No. 85-4, Accounting for Purchases of Life Insurance
  (EITF 06-5). EITF 06-5 clarifies certain factors that should be considered
  in the determination of the realizable asset to be reported in the statement
  of financial condition. EITF 06-5 is effective for fiscal years beginning after
  December 15, 2006. The guidance did not have a material impact on the
  Companys consolidated financial statements.

In June 2006, the FASB released FIN 48,
  Accounting for Uncertainty in Income Taxes, an interpretation of FASB
  Statement No. 109 (FIN 48). FIN 48 clarifies the accounting and
  reporting for income taxes where interpretation of the tax law may be
  uncertain. FIN 48 prescribes a comprehensive model for the financial
  statement recognition, measurement, presentation and disclosure of income tax
  uncertainties with respect to positions taken or expected to be taken in
  income tax returns. FIN 48 is effective for fiscal years beginning after
  December 15, 2006. The Company adopted FIN 48 on January 1, 2007 and the
  initial adoption did not have a material impact on the Companys financial
  condition and results of operations as described in Note 15, Income Taxes.

In March 2006, the FASB issued SFAS No. 156,
  Accounting for Servicing of Financial Assets, an amendment of FASB Statement
  No. 133 and 140 (SFAS No. 156), which permits, but does not require,
  an entity to account for one or more classes of servicing rights (i.e.,
  mortgage servicing rights, or MSRs) at fair value, with the changes in fair
  value recorded in the Consolidated Statement of Operations. SFAS No. 156 is
  effective for years beginning after September 15, 2006. The adoption of this
  standard did not have a material impact on the Companys financial condition
  and results of operations.

In February 2006, the FASB issued SFAS No. 155,
  Accounting for Certain Hybrid Instruments (SFAS No. 155), which permits,
  but does not require, fair value accounting for any hybrid financial
  instrument that contains an embedded derivative that would otherwise require
  bifurcation in accordance with SFAS No. 133. The statement also subjects
  beneficial interests issued by securitization vehicles to the requirements of
  SFAS No. 133. The statement is effective for years beginning after
  September 15, 2006. This standard did not have a material impact on the Companys
  financial condition and results of operations.

Effect of Inflation and Changing
  Prices

The consolidated financial statements and related
  financial data presented in this prospectus have been prepared in accordance
  with generally accepted accounting principles, which require the measurement
  of financial position and operating results in terms of historical dollars
  without considering the change in the relative purchasing power of money over
  time due to inflation. The primary impact of inflation on our operations is
  reflected in increased operating costs. Unlike most industrial companies,
  virtually all the assets and liabilities of a financial institution are
  monetary in nature. As a result, interest rates generally have a more
  significant impact on a financial institutions performance than do general
  levels of inflation. Interest rates do not necessarily move in the same
  direction or to the same extent as the prices of goods and services.

32

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REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

To the Board
of Directors and Stockholders of 
Beneficial Mutual Bancorp, Inc. and Subsidiaries 
Philadelphia, Pennsylvania

We have
audited the accompanying consolidated statements of financial condition of
Beneficial Mutual Bancorp, Inc. and subsidiaries (the Company) as of December
31, 2007 and 2006, and the related consolidated statements of operations,
changes in stockholders equity, and cash flows for each of the three years in
the period ended December 31, 2007. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted
our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our
opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of Beneficial Mutual Bancorp, Inc. and
subsidiaries as of December 31, 2007 and 2006, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2007, in conformity with accounting principles generally accepted
in the United States of America.

As discussed
in Note 2, on December 31, 2006, the Company adopted the provisions of the
Statement of Financial Accounting Standards No. 158.

/s/ Deloitte & Touche
LLP

Philadelphia,
Pennsylvania

March 31, 2008

33

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|                                                                                                                                                 
|-------------------------------------------------------------------------------------------------------------------------------------------------
|Beneficial Mutual Bancorp, Inc. and SubsidiariesCONSOLIDATED
  STATEMENTS OF FINANCIAL CONDITION (Dollars in thousands, except per share amounts)
|                                                                                                                                                 
|As of
  December 31, 2007 and 2006                                                                                                               

|                                                                                                                                                                                                                                          |  |      |           |      |   |           |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --------- | ---- | - | --------- | -
|                                                                                                                                                                                                                                          |  | 2007 |           | 2006 |  
|ASSETS                                                                                                                                                                                                                                    |  |      |           |      |   |           |  
|CASH AND CASH EQUIVALENTS                                                                                                                                                                                                                 |  |      |           |      |   |           |  
|Cash and due from banks                                                                                                                                                                                                                   |  | $    | 53,545    |      | $ | 20,320    |  
|Interest-bearing deposits at other banks                                                                                                                                                                                                  |  |      | 4,782     |      |   | 252       |  
|Federal funds sold                                                                                                                                                                                                                        |  |      |          |      |   | 502       |  
|                                                                                                                                                                                                                                          |  |      |           |      |   |           |  
|Total cash and cash equivalents                                                                                                                                                                                                           |  |      | 58,327    |      |   | 21,074    |  
|INVESTMENT SECURITIES:                                                                                                                                                                                                                    |  |      |           |      |   |           |  
|Available-for-sale (amortized cost of $938,835 and $337,338 at
  December 31, 2007 and 2006, respectively)                                                                                                                                |  |      | 949,795   |      |   | 332,940   |  
|Held-to-maturity (estimated fair value of $111,127 and $127,233 at
  December 31, 2007 and 2006, respectively)                                                                                                                            |  |      | 111,986   |      |   | 130,357   |  
|Federal Home Loan Bank stock, at cost                                                                                                                                                                                                     |  |      | 18,814    |      |   | 15,544    |  
|                                                                                                                                                                                                                                          |  |      |           |      |   |           |  
|Total investment securities                                                                                                                                                                                                               |  |      | 1,080,595 |      |   | 478,841   |  
|                                                                                                                                                                                                                                          |  |      |           |      |   |           |  
|LOANS                                                                                                                                                                                                                                     |  |      | 2,120,922 |      |   | 1,688,825 |  
|Allowance for loan losses                                                                                                                                                                                                                 |  |      | (23,341   | )    |   | (17,368   | )
|                                                                                                                                                                                                                                          |  |      |           |      |   |           |  
|Net loans                                                                                                                                                                                                                                 |  |      | 2,097,581 |      |   | 1,671,457 |  
|                                                                                                                                                                                                                                          |  |      |           |      |   |           |  
|ACCRUED INTEREST RECEIVABLE                                                                                                                                                                                                               |  |      | 18,089    |      |   | 11,565    |  
|                                                                                                                                                                                                                                          |  |      |           |      |   |           |  
|BANK PREMISES AND EQUIPMENT, Net                                                                                                                                                                                                          |  |      | 79,027    |      |   | 33,168    |  
|                                                                                                                                                                                                                                          |  |      |           |      |   |           |  
|OTHER ASSETS                                                                                                                                                                                                                              |  |      |           |      |   |           |  
|Goodwill                                                                                                                                                                                                                                  |  |      | 110,335   |      |   | 6,679     |  
|Bank owned life insurance                                                                                                                                                                                                                 |  |      | 29,405    |      |   | 28,003    |  
|Other intangibles                                                                                                                                                                                                                         |  |      | 29,199    |      |   | 1,956     |  
|Other assets                                                                                                                                                                                                                              |  |      | 55,260    |      |   | 47,476    |  
|                                                                                                                                                                                                                                          |  |      |           |      |   |           |  
|Total other assets                                                                                                                                                                                                                        |  |      | 224,199   |      |   | 84,114    |  
|                                                                                                                                                                                                                                          |  |      |           |      |   |           |  
|TOTAL ASSETS                                                                                                                                                                                                                              |  | $    | 3,557,818 |      | $ | 2,300,219 |  
|                                                                                                                                                                                                                                          |  |      |           |      |   |           |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                                      |  |      |           |      |   |           |  
|LIABILITIES:                                                                                                                                                                                                                              |  |      |           |      |   |           |  
|Deposits:                                                                                                                                                                                                                                 |  |      |           |      |   |           |  
|Non-interest bearing deposits                                                                                                                                                                                                             |  | $    | 242,351   |      | $ | 90,040    |  
|Interest-bearing deposits                                                                                                                                                                                                                 |  |      | 2,222,812 |      |   | 1,588,014 |  
|                                                                                                                                                                                                                                          |  |      |           |      |   |           |  
|Total deposits                                                                                                                                                                                                                            |  |      | 2,465,163 |      |   | 1,678,054 |  
|Borrowed funds                                                                                                                                                                                                                            |  |      | 407,122   |      |   | 294,896   |  
|Other liabilities                                                                                                                                                                                                                         |  |      | 65,736    |      |   | 46,854    |  
|                                                                                                                                                                                                                                          |  |      |           |      |   |           |  
|Total liabilities                                                                                                                                                                                                                         |  |      | 2,938,021 |      |   | 2,019,804 |  
|                                                                                                                                                                                                                                          |  |      |           |      |   |           |  
|COMMITMENTS AND CONTINGENCIES (Note 19)                                                                                                                                                                                                   |  |      |           |      |   |           |  
|STOCKHOLDERS EQUITY:                                                                                                                                                                                                                     |  |      |           |      |   |           |  
|Preferred Stock - $.01 par value; 100,000,000 shares authorized, none
  issued or outstanding as of December 31, 2007; none authorized issued or
  outstanding as of December 31, 2006                                                    |  |      |          |      |   |          |  
|Common Stock - $.01 par value 300,000,000 shares authorized,
  82,264,600 shares issued and outstanding as of December 31, 2007; $1.00 par
  value 100,000 shares authorized, 100 shares issued and outstanding as of
  December 31, 2006 |  |      | 823       |      |   |          |  
|Additional paid-in capital                                                                                                                                                                                                                |  |      | 360,126   |      |   |          |  
|Unearned common stock held by employee stock ownership plan                                                                                                                                                                               |  |      | (30,635   | )    |   |          |  
|Retained earnings (partially restricted)                                                                                                                                                                                                  |  |      | 291,360   |      |   | 293,157   |  
|Accumulated other comprehensive loss                                                                                                                                                                                                      |  |      | (1,877    | )    |   | (12,742   | )
|                                                                                                                                                                                                                                          |  |      |           |      |   |           |  
|Total stockholders equity                                                                                                                                                                                                                |  |      | 619,797   |      |   | 280,415   |  
|                                                                                                                                                                                                                                          |  |      |           |      |   |           |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                                |  | $    | 3,557,818 |      | $ | 2,300,219 |  
|                                                                                                                                                                                                                                          |  |      |           |      |   |           |  

See accompanying notes to consolidated
financial statements.

34

---



|                                                                                                                                        
|----------------------------------------------------------------------------------------------------------------------------------------
|Beneficial Mutual Bancorp, Inc. and SubsidiariesCONSOLIDATED
  STATEMENTS OF OPERATIONS (Dollars in thousands, except per share amounts)
|                                                                                                                                        
|For the
  Years Ended December 31, 2007, 2006 and 2005                                                                                  

|                                                          |  |      |            |      |   |            |  |   |            | 
|--------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- |  | - | ---------- | 
|                                                          |  | 2007 |            | 2006 |   | 2005       | 
|INTEREST INCOME                                           |  |      |            |      |   |            |  |   |            | 
|Interest and fees on loans                                |  | $    | 117,334    |      | $ | 104,143    |  | $ | 92,208     | 
|                                                          |  |      |            |      |   |            |  |   |            | 
|Interest on federal funds sold                            |  |      | 1,613      |      |   | 78         |  |   | 382        | 
|Interest and dividends on investment securities:          |  |      |            |      |   |            |  |   |            | 
|Taxable                                                   |  |      | 37,885     |      |   | 22,160     |  |   | 24,087     | 
|Tax-exempt                                                |  |      | 1,062      |      |   | 945        |  |   | 414        | 
|                                                          |  |      |            |      |   |            |  |   |            | 
|                                                          |  |      |            |      |   |            |  |   |            | 
|Total interest income                                     |  |      | 157,894    |      |   | 127,326    |  |   | 117,091    | 
|                                                          |  |      |            |      |   |            |  |   |            | 
|INTEREST EXPENSE                                          |  |      |            |      |   |            |  |   |            | 
|Interest on deposits:                                     |  |      |            |      |   |            |  |   |            | 
|Interest bearing checking accounts                        |  |      | 4,250      |      |   | 1,747      |  |   | 1,085      | 
|Money market and savings deposits                         |  |      | 12,503     |      |   | 8,898      |  |   | 8,215      | 
|Time deposits                                             |  |      | 40,501     |      |   | 33,974     |  |   | 23,575     | 
|                                                          |  |      |            |      |   |            |  |   |            | 
|                                                          |  |      |            |      |   |            |  |   |            | 
|Total                                                     |  |      | 57,254     |      |   | 44,619     |  |   | 32,875     | 
|                                                          |  |      |            |      |   |            |  |   |            | 
|Interest on borrowed funds                                |  |      | 16,520     |      |   | 18,277     |  |   | 18,488     | 
|                                                          |  |      |            |      |   |            |  |   |            | 
|                                                          |  |      |            |      |   |            |  |   |            | 
|Total
  interest expense                                  |  |      | 73,774     |      |   | 62,896     |  |   | 51,363     | 
|                                                          |  |      |            |      |   |            |  |   |            | 
|                                                          |  |      |            |      |   |            |  |   |            | 
|Net interest income                                       |  |      | 84,120     |      |   | 64,430     |  |   | 65,728     | 
|                                                          |  |      |            |      |   |            |  |   |            | 
|PROVISION FOR LOAN LOSSES                                 |  |      | 2,470      |      |   | 1,575      |  |   | 1,703      | 
|                                                          |  |      |            |      |   |            |  |   |            | 
|                                                          |  |      |            |      |   |            |  |   |            | 
|Net
  interest income after provision for loan losses     |  |      | 81,650     |      |   | 62,855     |  |   | 64,025     | 
|                                                          |  |      |            |      |   |            |  |   |            | 
|NON-INTEREST INCOME                                       |  |      |            |      |   |            |  |   |            | 
|Insurance commission income                               |  |      | 5,223      |      |   | 4,278      |  |   | 4,001      | 
|Service charges and other income                          |  |      | 9,053      |      |   | 5,581      |  |   | 5,791      | 
|Impairment charge on securities available-for-sale        |  |      | (1,192     | )    |   |           |  |   |           | 
|Gains on sale of investment securities available-for-sale |  |      | 288        |      |   | 672        |  |   | 1,070      | 
|                                                          |  |      |            |      |   |            |  |   |            | 
|                                                          |  |      |            |      |   |            |  |   |            | 
|Total non-interest income                                 |  |      | 13,372     |      |   | 10,531     |  |   | 10,862     | 
|                                                          |  |      |            |      |   |            |  |   |            | 
|NON-INTEREST EXPENSE                                      |  |      |            |      |   |            |  |   |            | 
|Salaries and employee benefits                            |  |      | 51,118     |      |   | 34,412     |  |   | 32,589     | 
|Contribution to the Foundation                            |  |      | 9,995      |      |   |           |  |   |           | 
|Occupancy expense                                         |  |      | 9,367      |      |   | 7,566      |  |   | 7,339      | 
|Depreciation, amortization and maintenance                |  |      | 6,970      |      |   | 5,269      |  |   | 5,093      | 
|Advertising                                               |  |      | 4,507      |      |   | 2,049      |  |   | 1,994      | 
|Intangible amortization expense                           |  |      | 3,434      |      |   | 426        |  |   | 408        | 
|Other                                                     |  |      | 15,641     |      |   | 9,717      |  |   | 9,538      | 
|                                                          |  |      |            |      |   |            |  |   |            | 
|                                                          |  |      |            |      |   |            |  |   |            | 
|Total non-interest expense                                |  |      | 101,032    |      |   | 59,439     |  |   | 56,961     | 
|                                                          |  |      |            |      |   |            |  |   |            | 
|                                                          |  |      |            |      |   |            |  |   |            | 
|(Loss) income before income taxes                         |  |      | (6,010     | )    |   | 13,947     |  |   | 17,928     | 
|                                                          |  |      |            |      |   |            |  |   |            | 
|                                                          |  |      |            |      |   |            |  |   |            | 
|INCOME TAX (BENEFIT) EXPENSE                              |  |      | (4,465     | )    |   | 2,322      |  |   | 4,728      | 
|                                                          |  |      |            |      |   |            |  |   |            | 
|                                                          |  |      |            |      |   |            |  |   |            | 
|Net (loss) income                                         |  | $    | (1,545     | )    | $ | 11,625     |  | $ | 13,200     | 
|                                                          |  |      |            |      |   |            |  |   |            | 
|                                                          |  |      |            |      |   |            |  |   |            | 
|NET (LOSS) EARNINGS PER SHARE - Basic and Diluted         |  | $    | (0.03      | )    | $ | 0.25       |  | $ | 0.29       | 
|                                                          |  |      |            |      |   |            |  |   |            | 
|Average common shares outstanding - Basic and Diluted     |  |      | 61,374,792 |      |   | 45,792,775 |  |   | 45,792,775 | 
|Dividends per share (1)                                   |  | $    | 0.01       |      | $ |           |  | $ |           | 

(1) Reflects dividends paid to Beneficial
Savings Bank MHC, in April 2007, prior to Beneficial Mutual Bancorps minority
stock offering in July 2007.

See accompanying notes to consolidated
financial statements.

35

---



|                                                                                                                                                               
|---------------------------------------------------------------------------------------------------------------------------------------------------------------
|Beneficial Mutual Bancorp, Inc. and SubsidiariesCONSOLIDATED STATEMENTS OF
  CHANGES IN STOCKHOLDERS EQUITY (Dollars in thousands, except per share
  amounts)
|                                                                                                                                                               
|For the Years Ended December 31, 2007, 2006 and 2005                                                                                                           

|                                                                                                                                   |  |                 |            |             |   |                          |  |                         |         |                  |   |                                            |   |                          |         |                     |   |         |   |   |         |   |   |        |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | ---------- | ----------- | - | ------------------------ |  | ----------------------- | ------- | ---------------- | - | ------------------------------------------ | - | ------------------------ | ------- | ------------------- | - | ------- | - | - | ------- | - | - | ------ | -
|                                                                                                                                   |  | Numberof
Shares |            | CommonStock |   | AdditionalPaid inCapital |  | CommonStockheld
by
ESOP |         | RetainedEarnings |   | AccumulatedOtherComprehensiveIncome
(Loss) |   | TotalStockholdersEquity |         | ComprehensiveIncome |  
|                                                                                                                                   |  |                 |            |             |   |                          |  |                         |         |                  |   |                                            |   |                          |         |                     |  
|BEGINNING BALANCE, JANUARY 1, 2005                                                                                                 |  |                 |            |             |   |                          |  |                         |         |                  |   |                                            |   | $                        | 267,414 |                     | $ | 2,702   |   | $ | 270,116 |   |   |        |  
|                                                                                                                                  
|Net income                                                                                                                         |  |                 |            |             |   |                          |  |                         |         |                  |   |                                            |   |                          | 13,200  |                     |   |         |   |   | 13,200  |   | $ | 13,200 |  
|                                                                                                                                  
|Net unrealized gain on available-for-sale securities arising during
  the year (net of tax benefit of $2,781)                      |  |                 |            |             |   |                          |  |                         |         |                  |   |                                            |   |                          |         |                     |   | (5,166  | ) |   | (5,166  | ) |   | (5,166 | )
|                                                                                                                                  
|Reclassification adjustment for net gains included in net income (net
  of tax of $375)                                            |  |                 |            |             |   |                          |  |                         |         |                  |   |                                            |   |                          |         |                     |   | (696    | ) |   | (696    | ) |   | (696   | )
|                                                                                                                                  
|Other - Increase due to merger with Northwood Savings                                                                              |  |                 |            |             |   |                          |  |                         |         |                  |   |                                            |   |                          | 918     |                     |   |         |   |   | 918     |   |   | 918    |  
|                                                                                                                                   |  |                 |            |             |   |                          |  |                         |         |                  |   |                                            |   |                          |         |                     |   |         |   |   |         |   |   |        |  
|Comprehensive income                                                                                                               |  |                 |            |             |   |                          |  |                         |         |                  |   |                                            |   |                          |         |                     |   |         |   |   |         |   | $ | 8,256  |  
|                                                                                                                                   |  |                 |            |             |   |                          |  |                         |         |                  |   |                                            |   |                          |         |                     |   |         |   |   |         |   |   |        |  
|BALANCE, DECEMBER 31, 2005                                                                                                         |  |                 | 100        |             | $ |                         |  | $                       |        |                  | $ |                                           |   | $                        | 281,532 |                     | $ | (3,160  | ) | $ | 278,372 |   |   |        |  
|                                                                                                                                   |  |                 |            |             |   |                          |  |                         |         |                  |   |                                            |   |                          |         |                     |   |         |   |   |         |   |   |        |  
|                                                                                                                                  
|Net income                                                                                                                         |  |                 |            |             |   |                          |  |                         |         |                  |   |                                            |   | $                        | 11,625  |                     |   |         |   | $ | 11,625  |   | $ | 11,625 |  
|                                                                                                                                  
|Net unrealized gain on available-for-sale securities arising during
  the year (net of deferred tax of $593)                       |  |                 |            |             |   |                          |  |                         |         |                  |   |                                            |   |                          |         |                     |   | 1,101   |   |   | 1,101   |   |   | 1,101  |  
|                                                                                                                                  
|Reclassification adjustment for net gains included in net income (net
  of tax of $235)                                            |  |                 |            |             |   |                          |  |                         |         |                  |   |                                            |   |                          |         |                     |   | (436    | ) |   | (436    | ) |   | (436   | )
|                                                                                                                                   |  |                 |            |             |   |                          |  |                         |         |                  |   |                                            |   |                          |         |                     |   |         |   |   |         |   |   |        |  
|Comprehensive income                                                                                                               |  |                 |            |             |   |                          |  |                         |         |                  |   |                                            |   |                          |         |                     |   |         |   |   |         |   | $ | 12,290 |  
|                                                                                                                                   |  |                 |            |             |   |                          |  |                         |         |                  |   |                                            |   |                          |         |                     |   |         |   |   |         |   |   |        |  
|                                                                                                                                   |  |                 |            |             |   |                          |  |                         |         |                  |   |                                            |   |                          |         |                     |   |         |   |   |         |   |   |        |  
|Adjust to initially apply SFAS No. 158, net of tax                                                                                 |  |                 |            |             |   |                          |  |                         |         |                  |   |                                            |   |                          |         |                     |   | (10,247 | ) |   | (10,247 | ) |   |        |  
|                                                                                                                                   |  |                 |            |             |   |                          |  |                         |         |                  |   |                                            |   |                          |         |                     |   |         |   |   |         |   |   |        |  
|BALANCE, DECEMBER 31, 2006                                                                                                         |  |                 | 100        |             | $ |                         |  | $                       |        |                  | $ |                                           |   | $                        | 293,157 |                     | $ | (12,742 | ) | $ | 280,415 |   |   |        |  
|                                                                                                                                   |  |                 |            |             |   |                          |  |                         |         |                  |   |                                            |   |                          |         |                     |   |         |   |   |         |   |   |        |  
|                                                                                                                                   |  |                 |            |             |   |                          |  |                         |         |                  |   |                                            |   |                          |         |                     |   |         |   |   |         |   |   |        |  
|Net loss                                                                                                                           |  |                 |            |             |   |                          |  |                         |         |                  |   |                                            |   | $                        | (1,545  | )                   | $ |         |   | $ | (1,545  | ) | $ | (1,545 | )
|                                                                                                                                   |  |                 |            |             |   |                          |  |                         |         |                  |   |                                            |   |                          |         |                     |   |         |   |   |         |   |   |        |  
|Stock dividend of 45,792,675 shares to Beneficial Savings Bank MHC                                                                 |  |                 | 45,792,675 |             |   |                          |  |                         |         |                  |   |                                            |   |                          |         |                     |   |         |   |   |         |   |   |        |  
|                                                                                                                                  
|Sale of 23,606,625 shares of common stock in initial public offering
  and issuance of 950,000 shares to The Beneficial Foundation |  |                 | 24,556,625 |             |   | 704                      |  | $                       | 241,166 |                  |   |                                            |   |                          |         |                     |   |         |   |   | 241,870 |   |   |        |  
|                                                                                                                                   |  |                 |            |             |   |                          |  |                         |         |                  |   |                                            |   |                          |         |                     |   |         |   |   |         |   |   |        |  
|Issuance of 11,915,200 shares in connection with FMS Financial
  Corporation acquisition                                           |  |                 | 11,915,200 |             |   | 119                      |  |                         | 119,033 |                  |   |                                            |   |                          |         |                     |   |         |   |   | 119,152 |   |   |        |  
|                                                                                                                                  
|Unallocated ESOP shares committed to employees                                                                                     |  |                 |            |             |   |                          |  |                         |         |                  |   | (32,248                                    | ) |                          |         |                     |   |         |   |   | (32,248 | ) |   |        |  
|                                                                                                                                  
|ESOP shares committed to be released                                                                                               |  |                 |            |             |   |                          |  |                         | (73     | )                |   | 1,613                                      |   |                          |         |                     |   |         |   |   | 1,540   |   |   |        |  
|                                                                                                                                   |  |                 |            |             |   |                          |  |                         |         |                  |   |                                            |   |                          |         |                     |   |         |   |   |         |   |   |        |  
|Net unrealized gain on available-for-sale securities arising during
  the year (net of deferred tax of $3,161)                     |  |                 |            |             |   |                          |  |                         |         |                  |   |                                            |   |                          |         |                     |   | 9,032   |   |   | 9,032   |   |   | 9,032  |  
|                                                                                                                                  
|Reclassification adjustment for net gains included in net income (net
  of tax of $101)                                            |  |                 |            |             |   |                          |  |                         |         |                  |   |                                            |   |                          |         |                     |   | (187    | ) |   | (187    | ) |   | (187   | )
|                                                                                                                                  
|Reclassification adjustment for other-than-temporary impairment (net
  of tax benefit of $417)                                     |  |                 |            |             |   |                          |  |                         |         |                  |   |                                            |   |                          |         |                     |   | 775     |   |   | 775     |   |   | 775    |  
|                                                                                                                                  
|Pension, other post retirement and postemployment benefit plan
  adjustments (net of tax of $670)                                  |  |                 |            |             |   |                          |  |                         |         |                  |   |                                            |   |                          |         |                     |   | 1,245   |   |   | 1,245   |   |   | 1,245  |  
|                                                                                                                                   |  |                 |            |             |   |                          |  |                         |         |                  |   |                                            |   |                          |         |                     |   |         |   |   |         |   |   |        |  
|Comprehensive income                                                                                                               |  |                 |            |             |   |                          |  |                         |         |                  |   |                                            |   |                          |         |                     |   |         |   |   |         |   | $ | 9,320  |  
|                                                                                                                                   |  |                 |            |             |   |                          |  |                         |         |                  |   |                                            |   |                          |         |                     |   |         |   |   |         |   |   |        |  
|Cash dividend                                                                                                                      |  |                 |            |             |   |                          |  |                         |         |                  |   |                                            |   |                          | (252    | )                   |   |         |   |   | (252    | ) |   |        |  
|                                                                                                                                   |  |                 |            |             |   |                          |  |                         |         |                  |   |                                            |   |                          |         |                     |   |         |   |   |         |   |   |        |  
|BALANCE, DECEMBER 31, 2007                                                                                                         |  |                 | 82,264,600 |             | $ | 823                      |  | $                       | 360,126 |                  | $ | (30,635                                    | ) | $                        | 291,360 |                     | $ | (1,877  | ) | $ | 619,797 |   |   |        |  
|                                                                                                                                   |  |                 |            |             |   |                          |  |                         |         |                  |   |                                            |   |                          |         |                     |   |         |   |   |         |   |   |        |  

See accompanying notes to consolidated
financial statements.

36

---



|                                                                                                            
|------------------------------------------------------------------------------------------------------------
|Beneficial Mutual Bancorp, Inc. and SubsidiariesCONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands)
|                                                                                                            
|For the
  Years Ended December 31, 2007, 2006 and 2005                                                      

|                                                                                           |  |      |            |      |   |          |   |   |          |  
|------------------------------------------------------------------------------------------ |  | ---- | ---------- | ---- | - | -------- | - | - | -------- | -
|                                                                                           |  | 2007 |            | 2006 |   | 2005     |  
|                                                                                           |  |      |            |      |   |          |  
|OPERATING ACTIVITIES:                                                                      |  |      |            |      |   |          |   |   |          |  
|Net income (loss)                                                                          |  | $    | (1,545     | )    | $ | 11,625   |   | $ | 13,200   |  
|Adjustments to reconcile net income/(loss)
  to net cash provided by operating activities: |  |      |            |      |   |          |   |   |          |  
|Contribution of stock to The Beneficial
  Foundation                                       |  |      | 9,491      |      |   |         |   |   |         |  
|Provision for loan losses                                                                  |  |      | 2,470      |      |   | 1,575    |   |   | 1,703    |  
|Depreciation and amortization                                                              |  |      | 4,563      |      |   | 3,520    |   |   | 3,522    |  
|Intangible amortization                                                                    |  |      | 3,434      |      |   | 426      |   |   | 408      |  
|Impairment charge                                                                          |  |      | 1,192      |      |   |          |   |   |          |  
|Net gain on sale of investments                                                            |  |      | (288       | )    |   | (672     | ) |   | (1,070   | )
|Accretion of discount                                                                      |  |      | (2,487     | )    |   | (285     | ) |   | (308     | )
|Amortization of premium                                                                    |  |      | 326        |      |   | 417      |   |   | 671      |  
|Origination of loans held for sale                                                         |  |      | (2,664     | )    |   | (8,869   | ) |   | (7,933   | )
|Proceeds from sales of loans                                                               |  |      | 2,941      |      |   | 8,634    |   |   | 9,471    |  
|Deferred income taxes                                                                      |  |      | (10,648    | )    |   | (12,497  | ) |   | (14,045  | )
|Net gain (loss) from sales of premises and
  equipment                                     |  |      | 162        |      |   | (72      | ) |   | (361     | )
|Decrease (increase) in bank owned life insurance                                           |  |      | (1,402     | )    |   | (2,638   | ) |   | 803      |  
|Changes in assets and liabilities that
  provided (used) cash:                             |  |      |            |      |   |          |   |   |          |  
|Accrued interest receivable                                                                |  |      | (216       | )    |   | (1,538   | ) |   | (1,361   | )
|Accrued interest payable                                                                   |  |      | (266       | )    |   | (51      | ) |   | 783      |  
|Income taxes payable                                                                       |  |      | (2,912     | )    |   | 1,522    |   |   | (887     | )
|Other liabilities                                                                          |  |      | 11,190     |      |   | (2,339   | ) |   | 5,615    |  
|Other assets                                                                               |  |      | 1,872      |      |   | 8,483    |   |   | (1,855   | )
|                                                                                           |  |      |            |      |   |          |   |   |          |  
|Net cash provided by
  operating activities                                                |  |      | 15,213     |      |   | 7,241    |   |   | 8,356    |  
|                                                                                           |  |      |            |      |   |          |   |   |          |  
|INVESTING ACTIVITIES:                                                                      |  |      |            |      |   |          |   |   |          |  
|Net
  cash paid in business combination                                                    |  |      | (32,474    | )    |   | (1,000   | ) |   | (6,570   | )
|Loans originated or acquired                                                               |  |      | (518,988   | )    |   | (507,085 | ) |   | (700,248 | )
|Principal repayment on loans                                                               |  |      | 528,703    |      |   | 550,048  |   |   | 544,164  |  
|Purchases of investment securities available for sale                                      |  |      | (2,255,047 | )    |   | (55,779  | ) |   | (61,767  | )
|Purchases of investment securities held to maturity                                        |  |      |           |      |   | (474     | ) |   | (555     | )
|Net
  purchases in money market fund                                                       |  |      | 43,798     |      |   | (2,070   | ) |   | 3        |  
|Proceeds from sales and maturities of investment securities
  available-for-sale           |  |      | 2,189,039  |      |   | 67,130   |   |   | 129,593  |  
|Proceeds from maturities, calls or repayments of investment
  securities held-to-maturity  |  |      | 18,167     |      |   | 33,162   |   |   | 42,345   |  
|Redemption of Federal Home Loan Bank stock                                                 |  |      | 2,707      |      |   | 2,794    |   |   | 5,646    |  
|Net
  decrease/(increase) in other real estate owned                                       |  |      | 2,796      |      |   | 336      |   |   | (207     | )
|Purchases of premises and equipment                                                        |  |      | (11,473    | )    |   | (5,429   | ) |   | (5,936   | )
|Proceeds from sale of premises and equipment                                               |  |      | 370        |      |   | 272      |   |   | 1,163    |  
|Proceeds from other investing activities                                                   |  |      | 53         |      |   |          |   |   |          |  
|                                                                                           |  |      |            |      |   |          |   |   |          |  
|Net cash (used in) provided
  by investing activities                                      |  |      | (32,349    | )    |   | 81,905   |   |   | (52,369  | )
|                                                                                           |  |      |            |      |   |          |   |   |          |  
|FINANCING ACTIVITIES:                                                                      |  |      |            |      |   |          |   |   |          |  
|Net
  decrease in borrowed funds                                                           |  |      | (23,769    | )    |   | (113,315 | ) |   | (3,621   | )
|Net
  decrease in checking, savings and demand accounts                                    |  |      | (19,340    | )    |   | (33,674  | ) |   | (94,807  | )
|Net
  increase/(decrease) in time deposits                                                 |  |      | (103,922   | )    |   | 45,990   |   |   | 144,623  |  
|Cash dividend to parent company                                                            |  |      | (252       | )    |   |         |   |   |         |  
|Proceeds from stock issuance                                                               |  |      | 228,697    |      |   |         |   |   |         |  
|Stock issuance costs                                                                       |  |      | 3,683      |      |   |         |   |   |         |  
|Loan to employee stock ownership plan                                                      |  |      | (30,708    | )    |   |         |   |   |         |  
|                                                                                           |  |      |            |      |   |          |   |   |          |  
|Net cash (used in) provided
  by financing activities                                      |  |      | 54,389     |      |   | (100,999 | ) |   | 46,195   |  
|                                                                                           |  |      |            |      |   |          |   |   |          |  
|NET INCREASE/(DECREASE) IN CASH AND CASH
  EQUIVALENTS                                     |  |      | 37,253     |      |   | (11,853  | ) |   | 575      |  
|CASH AND CASH EQUIVALENTS, BEGINNING OF
  YEAR                                             |  |      | 21,074     |      |   | 32,927   |   |   | 32,352   |  
|                                                                                           |  |      |            |      |   |          |   |   |          |  
|CASH AND CASH EQUIVALENTS, END OF YEAR                                                     |  | $    | 58,327     |      | $ | 21,074   |   | $ | 32,927   |  
|                                                                                           |  |      |            |      |   |          |   |   |          |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW AND
  NON-CASH INFORMATION:                          |  |      |            |      |   |          |   |   |          |  
|Cash payments for interest                                                                 |  | $    | 187,410    |      | $ | 62,950   |   | $ | 50,583   |  
|Cash payments of income taxes                                                              |  |      | 7,239      |      |   | 13,861   |   |   | 19,641   |  
|Transfers of loans to other real estate owned                                              |  |      | 295        |      |   | 339      |   |   | 450      |  
|Issuance of common stock for FMS Financial                                                 |  |      | 119,152    |      |   |         |   |   |         |  
|Fair value of tangible assets acquired                                                     |  |      | 1,073,387  |      |   |         |   |   |         |  
|Goodwill and identifiable intangible assets
  acquired                                     |  |      | 134,332    |      |   |         |   |   |         |  
|Liabilities assumed and note issued                                                        |  |      | 1,055,870  |      |   |         |   |   |         |  

See accompanying notes to
consolidated financial statements.

37

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| |                                                                         
| | ------------------------------------------------------------------------
| | Beneficial Mutual Bancorp, Inc. and
  Subsidiaries                      
| | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                              
| | FOR THE YEARS ENDED DECEMBER 31, 2007, 2006
  and 2005                  
| |                                                                         
| | (All dollar amounts are presented in
  thousands, except per share data)

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | NATURE OF OPERATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Beneficial
  Mutual Bancorp, Inc. (the Company) is a federally chartered stock holding
  company and owns 100% of the outstanding common stock of Beneficial Bank (the
  Bank), a Pennsylvania chartered stock savings bank. On July 13, 2007, the
  Company completed its initial minority public offering and acquisition of FMS
  Financial Corporation, the parent company of Farmers & Mechanics Bank
  (together FMS Financial), which are discussed in more detail below.
  Following the consummation of the merger and public offering, the Company had
  a total of 82,264,600 shares of common stock, par value $0.01 per share,
  issued and outstanding, of which 36,471,825 were held publicly and 45,792,775
  were held by Beneficial Savings Bank MHC (the MHC), the Companys federally
  chartered mutual holding company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | At December
  31, 2006, the Company was wholly owned by the MHC and had 100 shares of
  common stock, par value $1.00 per share, outstanding.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The Bank
  offers a variety of consumer and commercial banking services to individuals,
  businesses, and nonprofit organizations through 72 offices throughout the
  Philadelphia and Southern New Jersey area. The Bank is supervised and
  regulated by the Pennsylvania Department of Banking and the Federal Deposit
  Insurance Corporation (the FDIC). The Office of Thrift Supervision (the
  OTS) regulates the Company and the MHC. The deposits of the Bank are
  insured by the Deposit Insurance Fund of the FDIC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Principles of Consolidation and Basis of
  Presentation The consolidated financial
  statements include the accounts of the Company and its wholly owned
  subsidiaries and two variable interest entities (VIE) where the Company is
  the primary beneficiary. The financial statements include the Bank and its
  wholly owned subsidiaries. The Banks wholly owned subsidiaries are as
  follows: Beneficial Advisors, LLC, which offers non-deposit products, Neumann
  Corporation, a Delaware corporation, which was formed for the purpose of
  managing certain investment securities, Beneficial Insurance Services, LLC,
  which was formed to provide insurance services to individual and business
  customers and BSB Union Corporation, a leasing company. All subsidiaries of
  the Company enhance or support the traditional banking services provided by
  the Bank. All intercompany accounts and transactions have been eliminated. In
  addition, VIEs were consolidated in the financial statements. See Note 23
  for further discussion. Under Statement of Financial Accounting Standards
  (SFAS) No. 131, Disclosures about Segments of an Enterprise and Related
  Information,the Company
  determined it operates in one reporting segment which is community banking.
  While the company monitors revenue on various products and services, the operations
  and financial performance is evaluated on a company wide basis. Accordingly,
  all  financial operations are included in one reportable segment.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Prior to the issuance of its 2006 consolidated financial
statements in
  its Registration Statement on Form S-1 initially filed with the Securities
  and Exchange Commission on March 14, 2007, the Company identified an error in
  the presentation of investment securities, specifically certain money market
  mutual funds. These money market mutual funds had been classified as cash and
  cash equivalents on the consolidated balance sheet as of December 31, 2006.
  The effect of correcting this error in the presentation of money market
  mutual funds was to increase investment securities by $2.1 million and
  decrease cash and cash equivalents by $2.1 million. In addition, the Company
  identified an error in the 2006 presentation of Non-interest bearing
  deposits. The Company determined that certain non-traditional deposit
  accounts should have been classified as non-interest bearing deposits,
  instead of being presented as other liabilities as of December 31, 2006. The
  effect of correcting this error in the presentation of non-traditional
  deposit accounts was to increase non-interest bearing deposits by $10.2
  million and reduce other liabilities by $10.2 million. The Company
has corrected the corresponding presentation in the consolidated
statement of cash flows.                                                                                                                                                                                                            

38

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Use of Estimates in the Preparation of
  Financial Statements These consolidated
  financial statements are prepared in conformity with accounting principles
  generally accepted in the United States of America (GAAP). The preparation
  of the consolidated financial statements in conformity with GAAP requires
  management to make estimates and assumptions that affect the reported amounts
  of assets and liabilities and disclosure of contingent assets and liabilities
  at the date of the financial statements and the reported amounts of income
  and expenses during the reporting period. The significant estimates include
  the allowance for loan losses, goodwill, other intangible assets and deferred
  tax asset valuation allowance. Actual results could differ from those
  estimates and assumptions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | Investment Securities - The Company classifies and accounts for debt
  and equity securities as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | Held-to-Maturity - Debt securities that management has the positive
  intent and ability to hold to maturity are classified as held-to-maturity
  and are recorded at amortized cost. Premiums are amortized and discounts are
  accreted using the interest method over the estimated remaining term of the
  underlying security.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | Available-for-Sale  Debt securities that will be held for indefinite
  periods of time, including equity securities with readily determinable fair
  values, that may be sold in response to changes to market interest or
  prepayment rates, needs for liquidity, and changes in the availability of and
  the yield of alternative investments, are classified as available-for-sale
  and recorded at fair value, with unrealized gains and losses excluded from
  earnings and reported net of tax in other comprehensive income. Realized
  gains and losses on the sale of investment securities are recorded as of
  trade date and reported in the consolidated statements of income and determined
  using the adjusted cost of the specific security sold.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | In accordance with Financial Accounting Standards Board (FASB)
  Staff Position 115-1/124-1, The Meaning of Other-Than-Temporary Impairment
  and its Application to Certain Investments, the Company evaluates its
  securities portfolio for other-than-temporary impairment throughout the year.
  Each investment, which has an indicative market value less than the book
  value is reviewed on a quarterly basis by management. Management considers at
  a minimum the following factors that, both individually or in combination, could
  indicate that the decline is other-than-temporary: (1) the length of time and
  the extent to which the fair value has been less than book value, (2) the
  financial condition and the near-term prospects of the issuer, and (3) the
  intent and ability of the Company to retain its investment in the issuer for
  a period of time sufficient to allow for any anticipated recovery in fair
  value. Among the other factors that are considered in determining intent and
  ability is a review of capital adequacy, interest rate risk profile and
  liquidity position of the Company. Declines in the fair value of
  held-to-maturity and available-for-sale securities below their cost that are
  deemed to be other-than-temporary are reflected in earnings as realized
  losses. During 2007, the Company recorded an other-than-temporary impairment
  charge of $1.2 million as described in Note 6.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | The Company invests in Federal Home Loan Bank of Pittsburgh and New
  York (FHLB) stock as required to support borrowing activities as detailed
  in Note 13. The Company reports its investment in FHLB stock at cost in the
  consolidated statements of financial condition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | Loans  The portfolio consists of personal loans,
  business loans and residential mortgage loans. Personal loans consist
  primarily of home equity loans and automobile loans. Business loans include
  commercial real estate loans. The residential mortgage portfolio includes
  loans secured primarily by first liens on one-to-four family residential
  properties. Loan balances are stated at their principal balances, net of
  unamortized fees/costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | Origination fees, net of certain direct origination costs, on real
  estate and business loans, as well as deferred commission expenses on
  indirect personal loans are deferred and the balance is amortized to income
  as a yield adjustment over the life of the loans using the interest method.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | Personal loans are typically charged off at 120 days delinquent.
  Business loans are placed on nonaccrual when the loan is 90 days delinquent
  unless the credit is well secured and in the process of collection. Business
  loans are charged off when the loan is deemed uncollectible. Residential
  mortgage loans are typically placed on nonaccrual only when the loan becomes
  90 days delinquent and is not well secured and in the process of collection.
  In all cases, loans are placed on nonaccrual or charged off at an earlier
  date if collection of principal or interest is considered doubtful.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | All interest accrued but not collected for loans placed on nonaccrual
  or charged off is charged to interest income. Payments received on nonaccrual
  loans are generally applied first to principal balances and then to interest
  income. Loans are returned to accrual status when all of the principal and
  interest amounts contractually due are reasonably assured of repayment within
  a reasonable time frame.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

39

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Allowance for Loan Losses  The allowance for loan losses is
  determined by management based upon past experience, evaluation of estimated
  loss and impairment in the loan portfolio, current economic conditions and
  other pertinent factors. 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.                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Loans acquired by the Company through a purchase business combination
  are evaluated for possible credit impairment. Reduction to the carrying value
  of the acquired loans as a result of credit impairment is recorded as a
  purchase accounting adjustment. The Company does not carry over the acquired
  companys allowance for loan and lease losses on impaired loans, nor does the Company add to
  its existing allowance for the acquired loans as part of purchase accounting.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | The allowance for loan losses is established through a provision for
  loan losses charged to expense which is based upon past loan and loss
  experience and an evaluation of estimated losses in the current loan
  portfolio, including the evaluation of impaired loans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Under SFAS No. 114, Accounting
  by Creditors for Impairment of a Loan- an amendment of FASB Statements No. 5
  and 15, a loan is considered to be impaired when, based
  upon current information and events, it is probable that the Company will be
  unable to collect all amounts due according to the contractual terms of the
  loan. An insignificant delay or insignificant shortfall in amount of payments
  does not necessarily result in the loan being identified as impaired. The measurement is based either on the present
  value of expected future cash flows discounted at the loans effective
  interest rate, or the fair value of the collateral if the loan is
  collateral-dependent. Impairment losses are included in the provision for
  loan losses.                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Mortgage Banking Activities- The Company originates mortgage loans held for investment and for
  sale. At origination, mortgage loans are identified as either held for sale
  or held for investment. Mortgage loans held for sale are carried at the lower
  of cost or forward committed contracts (which approximates market),
  determined on a net aggregate basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | The Company
  originates mortgage loans for sale to institutional investors. In accordance
  with SFAS No. 156, Accounting for Servicing of Financial Assets- an
  amendment of FASB Statement No. 140, the cost of the loan sold is allocated
  between the servicing rights, the retained portion of the loan and the sold
  portion of the loan based on the relative fair values of each. The fair value
  of the loan servicing rights is determined by valuation techniques. The mortgage servicing rights are reviewed for impairment on
a
  quarterly basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | The
  servicing asset or liability is amortized in proportion to and over the
  period of estimated net servicing income. At December 31, 2007 and 2006,
  mortgage servicing rights totaling $0.5 million and $0.5 million,
  respectively, were included in Other Assets in the consolidated statements of
  financial condition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | At
  December 31, 2007 and 2006, loans serviced for others totaled $70.2 million
  and $71.7 million, respectively. Servicing loans for others consists of
  collecting mortgage payments, maintaining escrow accounts, disbursing
  payments to investors, and processing foreclosures. Loan servicing income is
  recorded when earned and includes servicing fees from investors and certain
  charges collected from borrowers, such as late payment fees. The Company had
  fiduciary responsibility for related escrow and custodial funds aggregating
  approximately $1.0 million and $0.9 million at December 31, 2007 and 2006,
  respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Bank Premises and Equipment  Bank premises and equipment are stated at
  cost less accumulated depreciation. Depreciation is calculated using a
  straight-line method over the estimated useful lives of 10 to 40 years for
  buildings and 3 to 20 years for furniture, fixtures and equipment. Leasehold
  improvements are amortized using the straight-line method over the terms of
  the respective leases or the useful lives of the respective assets, whichever
  is less.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Real Estate Owned Real estate owned includes properties acquired by foreclosure or
  deed in-lieu of foreclosure and premises no longer used in operations. These
  assets are initially recorded at the lower of carrying value of the loan or
  estimated fair value less selling costs at the time of foreclosure and at the
  lower of the new cost basis or net realizable value thereafter. Losses
  arising from foreclosure transactions are charged against the allowance for
  loan losses. The amounts recoverable from real estate owned could differ
  materially from the amounts used in arriving at the net carrying value of the
  assets at the time of foreclosure because of future market factors beyond the
  control of the Company. Costs relating to the development and improvement of
  real estate owned properties are capitalized and those relating to holding
  the property are charged to expense. Real estate owned is periodically
  evaluated for impairment and reductions in carrying value are recognized in
  the consolidated statements of operations.

40

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Income Taxes - Deferred income taxes are recognized for the
  tax consequences of temporary differences by applying enacted statutory tax
  rates applicable to future years to differences between the financial statement
  carrying amounts and the tax basis of existing assets and liabilities. The
  effect on deferred taxes of a change in tax rates is recognized in income in
  the period that includes the enactment date. A deferred tax liability
  is recognized for temporary differences that will result in taxable amounts
  in future years. A deferred tax asset is recognized for temporary differences
  that will result in deductible amounts in future years and for carryforwards.
  A valuation allowance is recognized if, based on the weight of available
  evidence, it is more likely than not that some portion or all of the deferred
  tax asset will not be realized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Goodwill and Other
  Intangibles- Net assets of companies acquired
  in purchase transactions are recorded at fair value at the date of
  acquisition and, as such, the historical cost basis of individual assets and
  liabilities are adjusted to reflect their fair value. Definite lived intangibles
  are amortized on an accelerated or straight-line basis over the period
  benefited. In accordance with SFAS No. 142, goodwill is not amortized but is reviewed for potential impairment
  on an annual basis, or if events or circumstances indicate a potential
  impairment, at the reporting unit level. The impairment test is performed in
  two phases. The first step of the goodwill impairment test compares the fair
  value of the reporting unit with its carrying amount, including goodwill. If
  the fair value of the reporting unit exceeds its carrying amount, goodwill of
  the reporting unit is considered not impaired; however, if the carrying
  amount of the reporting unit exceeds its fair value, an additional procedure
  must be performed. That additional procedure compares the implied fair value
  of the reporting units goodwill in accordance with SFAS No. 142 with the carrying amount of that goodwill. An
  impairment loss is recorded to the extent that the carrying amount of
  goodwill exceeds its implied fair value. In 2007 and 2006, goodwill was
  tested for impairment and no impairment charges were recorded.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Other
  intangible assets subject to amortization are evaluated for impairment in
  accordance with SFAS No. 144 Accounting for the Impairment or Disposal of
  Long-Lived Assets. An impairment loss will be recognized if the carrying
  amount of the intangible asset is not recoverable and exceeds fair value. The
  carrying amount of the intangible is considered not recoverable if it exceeds
  the sum of the undiscounted cash flows expected to result from the use of the
  asset. At December 31, 2007, intangible assets included customer
  relationships and other related intangibles that are amortized on a
  straight-line basis using estimated lives of nine years for customer
  relationships and two to four years for other intangibles.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Cash Surrender Value
  of Life Insurance 
  The Company funds the purchase of insurance policies on the lives of certain
  officers and employees of the Company. The Company has recognized any
  increase in cash surrender value of life insurance, net of insurance costs in
  the consolidated statements of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Comprehensive Income  The Company presents as a component of
  comprehensive income amounts from transactions and other events currently
  excluded from the consolidated statements of operations and recorded directly
  to retained earnings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Postretirement Benefits - The Company currently provides certain
  postretirement benefits to qualified retired employees. These postretirement
  benefits principally pertain to health insurance coverage. The cost of such
  benefits are accrued during the years the employee provides service.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Accounting for Derivatives - The Companys derivative instruments outstanding during the years
  ended December 31, 2007 and 2006 included commitments to fund loans held for
  sale and forward loan sale arrangements. Currently, the Company does not have
  any embedded derivatives that require bifurcation and does not employ hedging
  activities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Consolidation of Variable
  Interest Entities - At December 31, 2007
  and 2006, the assets and liabilities of the Companys investment as a limited partner in partnerships that sponsor
  affordable housing projects utilizing low-income housing tax credits pursuant
  to Section 42 of the Internal Revenue Code (LIHTC investments) have
  been consolidated in accordance with FASB Interpretation No. 46 (Revised
  December 2003), Consolidation of Variable Interest Entities, an
  interpretation of Accounting Research Bulletin (ARB) No. 51. The Companys involvement in variable
interest
  entities is further described in Note 23.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Employee Stock Ownership Plan (ESOP) - The Company
  accounts for its ESOP based on guidance from American Institute of
  Certified Public Accountants (AICPA)
  Statement of Position (SOP) 96-3 Employers Accounting for Employee Stock
  Ownership Plans. Shares are released to participants proportionately as the
  loan is repaid. If the Company declares a dividend, the dividends on the
  allocated shares would be recorded as dividends and charged to retained
  earnings. Dividends declared on common stock held by the ESOP and not
  allocated to the account of a participant can be used to repay the loan.
  Allocation of shares to the ESOP participants is contingent upon the
  repayment of the loan to the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

41

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Cash and Cash Equivalents - For purposes of the consolidated statements
  of cash flows, cash and cash equivalents include cash and balances due from
  banks and federal funds sold.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Recent Accounting
  Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | In December
  2007, the FASB issued SFAS No. 141(R), Business Combinations which replaces
  SFAS No. 141, Business Combinations (SFAS No. 141). This Statement
  retains the fundamental requirements in SFAS No. 141 that the acquisition
  method of accounting (formerly referred to as the purchase method) be used
  for all business combinations and that an acquirer be identified for each
  business combination. This Statement defines the acquirer as the entity that
  obtains control of one or more businesses in the business combination and
  establishes the acquisition date as of the date that the acquirer takes
  control. This Statement requires an acquirer to recognize the assets
  acquired, the liabilities assumed, and any noncontrolling interest in the
  acquiree at the acquisition date, measured at fair values. This Statement
  requires the acquirer to recognize acquisition-related costs and
  restructuring costs separately from the business combination as period
  expense. This Statement is effective for business combinations for which the
  acquisition is on or after the first annual reporting period of the
  acquisition beginning on or after December 15, 2008. The adoption of this
  Statement will impact the accounting and reporting of acquisitions after
  January 1, 2009.                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | In December
  2007, the FASB issued SFAS No. 160 Noncontrolling Interests in Consolidated
  Financial Statements  an Amendment to ARB No. 51. This Statement
  established new accounting and reporting standards that require that
  ownership interests in subsidiaries held by parties other than the parent be
  clearly identified and presented in the consolidated statement of financial
  position within equity, but separate from the parents equity. This Statement
  also requires that the amount of consolidated net income attributable to the
  parent and to the noncontrolling interest be clearly identified and presented
  on the face of the consolidated statement of income. In addition, when a
  subsidiary is deconsolidated, any retained noncontrolling equity investment
  in the former subsidiary shall be initially measured at fair value, with the
  gain or loss on the deconsolidation of the subsidiary measured using fair
  value of any noncontrolling equity investments rather than the carrying
  amount of that retained investment. SFAS No. 160 also clarifies that changes
  in parents ownership interest in a subsidiary that do not result in
  deconsolidation are equity transactions if the parent retains its expanded
  disclosure requirements regarding the interests of the parent and its
  noncontrolling interest. This Statement is effective for fiscal years on or
  after December 15, 2008. Early adoption is prohibited. The Company will
  evaluate the impact of adopting this Statement on the Companys consolidated
  financial statements.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | In November
  2007, the SEC issued Staff Accounting Bulletin (SAB) No. 109, Written Loan
  Commitments Recorded at Fair Value through Earnings (SAB 109). This SAB
  supersedes SAB No. 105, Application of Accounting Principles to Loan
  Commitments (SAB 105), and expresses the current view of the staff that,
  consistent with guidance in SFAS No. 156 and 159, the expected net future
  cash flows related to the associated servicing of a loan should be included
  in the measurement of all written loan commitments that are accounted for at
  fair value through earnings. Additionally, this SAB expands SAB 105s view
  that internally-developed intangible assets should not be recorded as part of
  the fair value for any written loan commitments that are accounted for at
  fair value through earnings. This SAB was effective for fiscal quarters
  beginning after December 15, 2007. The Company will adopt SAB 109 for any
  loan commitments issued or modified on or after January 1, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | In June
  2007, the Emerging Issues Task Force (EITF) issued EITF Issue No. 06-11,
  Accounting for Income Tax Benefits of the Share-Based Payment Awards. The
  Issue states that a realized income tax benefit from dividends or dividend
  equivalents that are charged to retained earnings and are paid to employees
  for equity classified nonvested equity shares, nonvested equity share units,
  and outstanding equity share options should be recognized as an increase to
  additional paid-in capital. The amount recognized in additional paid-in
  capital for the realized income tax benefit from dividends on those awards
  should be included in the pool of excess tax benefits available to absorb tax
  deficiencies on share-based payment awards. This Issue was effective for
  fiscal years beginning after December 15, 2007, and interim periods within
  those fiscal years. The Company will prospectively apply this Issue to the
  applicable dividends declared on or after January 1, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

42

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In May 2007,
  the FASB issued FSP No. FIN 48-1, Definition of Settlement in FASB FIN 48.
  FSP No. 48-1 amends FIN 48 to provide guidance on determining whether a tax
  position is effectively settled for the purpose of recognizing previously
  unrecognized tax benefits. The concept of effectively settled replaces the
  concept of ultimately settled originally issued in FIN 48. The tax position
  can be considered effectively settled upon completion of an examination by
  the taxing authority if the entity does not plan to appeal or litigate any
  aspect of the tax position and it is remote that the taxing authority would
  examine any aspect of the tax position. For effectively settled tax
  positions, the full amount of the tax benefit can be recognized. The guidance
  in FSP No. FIN 48-1 was effective upon initial adoption of FIN 48. FIN 48 was
  effective for fiscal years beginning after December 15, 2006. The adoption of
  FIN 48-1 did not have a material impact on the Companys financial condition
  and results of operations.                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | In February
  2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
  Assets and Financial Liabilities, including an amendment of FASB Statement
  No. 115 (SFAS No. 159). SFAS No. 159 permits entities to choose to measure
  many financial instruments and certain other items at fair value. This
  statement is effective as of the beginning of an entitys first fiscal year
  that begins after November 15, 2007. Management adopted SFAS No. 159 on
  January 1, 2008 but has not elected to fair value any of the Companys
  financial assets and financial liabilities that are not currently required to
  be measured at fair value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | In September
  2006, the FASB issued SFAS No. 158, Employers Accounting for Defined
  Benefit Pension and Other Postretirement Plans, an amendment of FASB
  Statements No. 87, 88, 106, and 132(R), which requires the recognition
  of a plans over-funded or under-funded status as an asset or liability with
  an offsetting adjustment to Accumulated Other Comprehensive Income (Loss)
  (AOCI). SFAS No. 158 requires the determination of the fair values of a
  plans assets at a companys year-end and recognition of actuarial gains and
  losses, prior service costs or credits, and transition assets or obligations
  as a component of AOCI. This statement is effective as of December 31,
  2006. Additionally, the initial adoption of SFAS No. 158 did not have a
  significant impact on the Companys regulatory capital.                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | In September
  2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No.
  157). SFAS No. 157 defines fair value, establishes a framework for measuring
  fair value under GAAP and enhances disclosures about fair value measurements.
  SFAS No. 157 retains the exchange price notion and clarifies that the
  exchange price is the price that would be received for an asset or paid to
  transfer a liability (an exit price) in an orderly transaction between market
  participants on the measurement date. SFAS No. 157 is effective for the
  Companys financial statements for the year beginning on January 1,
  2008, with earlier adoption permitted. Management is currently evaluating the
  effect of SFAS No. 157 on the Companys financial condition and results of
  operations.                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | In September
  2006, the Securities and Exchange Commission (SEC) issued Staff Accounting
  Bulletin No. 108 (SAB 108). SAB No. 108 expresses the SEC Staffs
  views regarding the process of quantifying financial statement misstatements.
  SAB 108 states that in evaluating the materiality of financial statement
  misstatements a corporation must quantify the impact of correcting
  misstatements, including both the carryover and reversing effects of prior
  year misstatements, on the current year financial statements. SAB 108 is effective
  January 1, 2007. Under certain circumstances, prior year financial statements
  will not have to be restated and the effects of initially applying SAB 108 on
  prior years will be recorded as a cumulative effect adjustment to beginning
  retained earnings, with disclosure of the items included in the cumulative
  effect. The adoption of SAB 108 did not have an impact on the Companys
  financial condition and results of operations.                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | In September
  2006, the FASB ratified EITF Issue No. 06-4, Accounting for Deferred
  Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar
  Life Insurance Arrangements (EITF No. 06-4) An endorsement split-dollar
  arrangement is an arrangement whereby an employer owns a life insurance
  policy that covers the life of an employee and using a separate agreement
  endorses a portion of the policy death benefit to the insured employees
  beneficiary. EITF 06-4 applies only to those endorsement split-dollar
  arrangements that provide a death benefit postretirement. This EITF requires
  an employer recognize a liability for future benefits if, in substance, the
  benefit exists. The liability would be accounted for in accordance with SFAS
  No. 106 Employers Accounting for Postretirement Benefits Other Than
  Pensions (SFAS No. 106) or Accounting Principles Board (APB) No. 12
  Omnibus Opinion. The EITFs requirement is effective for fiscal years
  beginning after December 15, 2007. Management is currently evaluating
  the effect of EITF 06-4 on the Companys financial condition and results of
  operations.

43

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In September
  2006, the Task Force reached a conclusion on EITF Issue No. 06-5, Accounting
  for Purchases of Life Insurance  Determining the Amount That Could Be
  Realized in Accordance with FASB Technical Bulletin No. 85-4, Accounting for
  Purchases of Life Insurance (EITF 06-5). EITF 06-5 clarifies certain
  factors that should be considered in the determination of the realizable
  asset to be reported in the statement of financial condition. EITF 06-5 is
  effective for fiscal years beginning after December 15, 2006. The guidance
  did not have an impact on the Companys consolidated financial statements.                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | In June
  2006, the FASB released FASB Interpretation No. 48, Accounting for
  Uncertainty in Income Taxes, an interpretation of FASB Statement
  No. 109 (FIN 48). FIN 48 clarifies the accounting and reporting for
  income taxes where interpretation of the tax law may be uncertain. FIN 48
  prescribes a comprehensive model for the financial statement recognition,
  measurement, presentation and disclosure of income tax uncertainties with
  respect to positions taken or expected to be taken in income tax returns. FIN
  48 is effective for fiscal years beginning after December 15, 2006. The
  Company adopted FIN 48 on January 1, 2007 and the initial adoption did not
  have a material impact on the Companys financial condition and results of
  operations.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | In March
  2006, the FASB issued SFAS No. 156, Accounting for Servicing of
  Financial Assets, an amendment of FASB Statement No. 133 and 140 (SFAS
  No. 156), which permits, but does not require, an entity to account for one
  or more classes of servicing rights (i.e., mortgage servicing rights, or
  MSRs) at fair value, with the changes in fair value recorded in the
  consolidated statement of operations. SFAS No. 156 is effective for years
  beginning after September 15, 2006. The adoption of this standard did not
  have a material impact on the Companys financial condition and results of
  operations.                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | In February
  2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid
  Instruments (SFAS No. 155), which permits, but does not require, fair
  value accounting for any hybrid financial instrument that contains an
  embedded derivative that would otherwise require bifurcation in accordance with
  SFAS No. 133. The statement also subjects beneficial interests issued by
  securitization vehicles to the requirements of SFAS No. 133. The
  statement is effective for years beginning after September 15, 2006. This
  standard did not have a material impact on the Companys financial condition
  and results of operations.                                                                                                                                    

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3. | MINORITY STOCK OFFERING AND MERGERS AND
  ACQUISITIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | On October
  13, 2006, the Company announced that it had signed a definitive merger
  agreement with FMS Financial. Under the terms of the agreement, which was
  approved by the Boards of Directors of both companies, the Company conducted
  a minority stock offering to the qualifying Bank depositors and the public
  and immediately thereafter acquired FMS Financial. Upon completion of the
  merger, Farmers & Mechanics Bank was merged with and into the Bank. The
  transaction closed on July 13, 2007. FMS was acquired to increase the Banks
  deposit base and its loan portfolio, and provide the Bank with greater access
  to customers in New Jersey, particularly in Burlington County, New Jersey.

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In
  connection with the Companys acquisition of FMS Financial, FMS Financial
  shareholders received $28.00 per share in the form of stock, cash or a
  combination of cash and stock, subject to the election and proration
  procedures set forth in the merger agreement. There were 11,915,200 shares of
  Company common stock and $64.2 million in cash issued to former FMS Financial
  shareholders upon the consummation of the acquisition. The total purchase
  price was approximately $186.8 million, including $119.2 million in stock
  consideration, $64.1 million in cash consideration, and $3.5 million in
  direct acquisition costs.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | The Company
  is authorized to issue a total of four hundred million shares, of which three
  hundred million shares shall be common stock, par value $0.01 per share, and
  of which one hundred million shares shall be preferred stock, par value $0.01
  per share. Each share of the Companys common stock has the same relative
  rights as, and is identical in all respects with, each other share of common
  stock.                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | In the event
  the Company pays dividends to its stockholders, it will also be required to
  pay dividends to the MHC, unless the MHC elects to waive the receipt of
  dividends. The Company declared a dividend of $0.3 million on April 13, 2007.                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | The Company
  also established The Beneficial Foundation (the Foundation), a charitable
  foundation, in connection with the offering. The Foundation was funded by a
  combination of 950,000 shares of Company common stock and $0.5 million in
  cash, resulting in a pre-tax non-interest expense charge of $10.0 million.                                                                                                                                                                                                                                                                                                                            

44

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The acquisition of FMS
  Financial resulted in an increase of $1.2 billion to the Companys assets,
  including increases of $579.0 million of investment securities, $438.0
  million of net loans, $100.0 million of goodwill, $41.3 million of bank
  premises and equipment and $23.2 million of core deposit intangible. Total
  liabilities increased $1.1 billion, including increases of $910.4 million of
  deposits, $110.7 million of securities sold under agreements to repurchase
  and $25.3 million of subordinated debentures.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | In
  accordance with the purchase method of accounting, the Companys results of
  operations and cash flows for the fiscal year ended December 31, 2007 only
  reflect the former FMS Financials results for the approximate six month period between
  July 13, 2007 and the fiscal year end date of December 31, 2007.                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | Presented
  below are the Companys pro forma condensed consolidated statements of operations
  which have been prepared as if the stock offering and business combination
  with FMS Financial had been consummated as of the beginning of each of the
  years ended December 31, 2007 and 2006.                                                                                                                                                                                                                                              

|                                                        |  |      |            |      |   |            |  
|------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | -
|                                                        |  | 2007 |            | 2006 |  
|                                                        |  |      |            |      |  
|                                                        |  |      |            |      |   |            |  
|Total interest income                                   |  | $    | 191,811    |      | $ | 196,021    |  
|Total interest expense                                  |  |      | 88,064     |      |   | 90,493     |  
|                                                        |  |      |            |      |   |            |  
|Net interest income                                     |  |      | 103,747    |      |   | 105,528    |  
|Provision for loan losses                               |  |      | 2,500      |      |   | 1,905      |  
|                                                        |  |      |            |      |   |            |  
|Net interest income after
  provision for loan losses   |  |      | 101,247    |      |   | 103,623    |  
|Total non-interest income                               |  |      | 16,282     |      |   | 17,694     |  
|Total non-interest expense                              |  |      | 123,651    |      |   | 103,949    |  
|                                                        |  |      |            |      |   |            |  
|                                                        |  |      |            |      |   |            |  
|(Loss) income before income taxes                       |  |      | (6,122     | )    |   | 17,368     |  
|                                                        |  |      |            |      |   |            |  
|Income tax (benefit) expense                            |  |      | (3,934     | )    |   | 4,653      |  
|                                                        |  |      |            |      |   |            |  
|Net (loss) income                                       |  | $    | (2,188     | )    | $ | 12,715     |  
|                                                        |  |      |            |      |   |            |  
|Net (loss) earnings per
  share  Basic and Diluted     |  | $    | (0.03      | )    | $ | (0.16      | )
|Average common shares
  outstanding  Basic and Diluted |  |      | 79,113,729 |      |   | 79,113,729 |  

| |                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------
| | The
  following table summarizes the estimated fair value of FMS Financial assets
  acquired and liabilities assumed at July 13, 2007:

|                                         |  |      |           | 
|---------------------------------------- |  | ---- | --------- | 
|                                         |  | 2007 |          
|Cash and due from banks                  |  | $    | 41,382    | 
|Interest-bearing deposits                |  |      | 35        | 
|Investment securities available for sale |  |      | 579,018   | 
|FHLB stock                               |  |      | 5,977     | 
|Net loans                                |  |      | 438,002   | 
|Premises and equipment                   |  |      | 41,313    | 
|Core deposit intangible                  |  |      | 23,215    | 
|Goodwill                                 |  |      | 100,049   | 
|Other assets                             |  |      | 7,932     | 
|                                         |  |      |           | 
|Total assets acquired                    |  |      | 1,236,923 | 
|                                         |  |      |           | 
|                                         |  |      |           | 
|Deposits                                 |  |      | 910,371   | 
|Repurchase agreement                     |  |      | 110,739   | 
|Statutory debenture                      |  |      | 25,256    | 
|Other liabilities                        |  |      | 7,242     | 
|                                         |  |      |           | 
|Total liabilities acquired               |  |      | 1,053,608 | 
|                                         |  |      |           | 
|                                         |  |      |           | 
|Net assets acquired                      |  | $    | 183,315   | 
|                                         |  |      |           | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | At December
  31, 2007, purchase price allocations had not been finalized for all items
  related to the FMS Financial merger. The Companys total value of assets that
  do not have finalized purchase price allocations is $7.4 million which
  includes other real estate in New Jersey of $4.6 million, construction in
  process of $1.9 million and leasehold improvements of $0.9 million. Additionally,
  two acquired impaired loans of $1.7 million are being evaluated under the
  cost recovery method under AICPA SOP
  03-3 Accounting for Certain Loans or Debt Securities Acquired in a Transfer
  (SOP 03-3). In subsequent periods, the nature and amount of any
  material adjustments made to the initial allocation of the purchase price
  shall be disclosed.

45

---



|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   | On October
  5, 2007, the Banks wholly owned subsidiary, Beneficial Insurance Services,
  LLC, acquired the business of CLA Agency, Inc., a full-service property and
  casualty and professional liability insurance brokerage company headquartered
  in Newtown Square, Pennsylvania. The acquisition was accounted for under the
  purchase method of accounting for business combinations in accordance with
  SFAS No. 141. Consideration for the purchase consisted of cash, a portion of
  which is contingent upon the achievement of certain earnings targets. We
  recognized goodwill and other intangibles as presented in Note 10, Goodwill
  and Other Intangibles. The acquisition of CLA is considered immaterial for
  purposes of the disclosures required for SFAS No. 141.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|4. | EARNINGS PER SHARE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | As described
  in Note 3, on July 13, 2007, in connection with the closing of the minority
  stock offering, the Company issued 82,264,600 shares of common stock. On July
  13, 2007, the 100 shares of the Companys common stock previously issued to
  the MHC in connection with the Banks mutual holding company reorganization
  in 2004 were replaced with 45,792,775 shares, representing 55.67% of the
  shares of the Companys outstanding common stock. The remaining shares were
  sold to the public, issued to former FMS Financial shareholders in connection
  with the Companys acquisition of FMS Financial and contributed to the
  Foundation.                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The replacement
  of the MHC shares is analogous to a stock split or significant stock
  dividend. Therefore, the earnings per share information is calculated by
  giving retroactive application to the periods presented of the weighted
  average number of MHC shares outstanding on the minority offerings July 13,
  2007 closing date.                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The
  following table presents a calculation of basic and diluted earnings per
  share for the years ended December 31, 2007, 2006 and 2005, respectively.
  Earnings per share is computed by dividing net income available to common
  shareholders by the weighted average number of shares of common stock
  outstanding.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

|                                                     |  |                                 |            |      |   |            |  |   |            | 
|---------------------------------------------------- |  | ------------------------------- | ---------- | ---- | - | ---------- |  | - | ---------- | 
|                                                     |  | For the Year Ended December 31, |           
|                                                     |  |                                 |            |      |   |            |  |   |            | 
|                                                     |  | 2007                            |            | 2006 |   | 2005       | 
|                                                     |  |                                 |            |      |   |            |  |   |            | 
|Basic and
  diluted (loss) earnings per share:       |  |                                 |            |      |   |            |  |   |            | 
|Net (loss) income available
  to common shareholders |  | $                               | (1,545     | )    | $ | 11,625     |  | $ | 13,200     | 
|                                                     |  |                                 |            |      |   |            |  |   |            | 
|Average common shares
  outstanding                  |  |                                 | 61,374,792 |      |   | 45,792,775 |  |   | 45,792,775 | 
|                                                     |  |                                 |            |      |   |            |  |   |            | 
|Net (loss) earnings per
  share                      |  | $                               | (0.03      | )    | $ | 0.25       |  | $ | 0.29       | 

|   |                                                                                                                                                                                                                                                                                                              
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|5. | CASH AND DUE FROM BANKS                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                              
|   | The Bank is required to maintain average reserve balances in
  accordance with federal requirements. Cash and due from banks in the
  consolidated statements of financial condition include $7.7 million and $2.6
  million at December 31, 2007 and 2006, respectively, relating to this
  requirement.    
|   |                                                                                                                                                                                                                                                                                                              
|   | Cash and due from banks also includes fiduciary funds of $1.3 million
  and $1.4 million at December 31, 2007 and 2006, respectively, relating to
  insurance services.                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                              
|   | At December 31, 2007, $2.8 million of proceeds from a sale of other
  real estate owned was held by a Qualified Intermediary to be used for the
  acquisition of a property, which related to
  the Company entering into a Like-Kind Exchange transaction under Section 1031
  of the Internal Revenue Code.

46

---



|   |                                                                                                                                           
|-- | ------------------------------------------------------------------------------------------------------------------------------------------
|6. | INVESTMENT SECURITIES                                                                                                                     
|   |                                                                                                                                           
|   | The
  amortized cost and estimated fair value of investments in debt and equity
  securities at December 31, 2007 and 2006 are as follows:

|                                                              |  |                           |         |                            |   |                             |  |                          |        |   |   |         | 
|------------------------------------------------------------- |  | ------------------------- | ------- | -------------------------- | - | --------------------------- |  | ------------------------ | ------ | - | - | ------- | 
|                                                              |  |                           |        
|                                                              |  | Available-for-Sale - 2007 |        
|                                                              |  |                           |        
|                                                              |  | Amortized
  Cost          |         | Gross
  Unrealized
  Gains |   | Gross
  Unrealized
  Losses |  | Estimated
  Fair
  Value |       
|                                                              |  |                           |         |                            |   |                             |  |                          |       
|Equity
  securities                                           |  | $                         | 9,391   |                            | $ | 437                         |  | $                        | (26    | ) | $ | 9,802   | 
|U.S. Government Sponsored Enterprise
(GSE) and Agency Notes |  |                           | 184,756 |                            |   | 2,437                       |  |                          | (130   | ) |   | 187,063 | 
|GNMA
  guaranteed mortgage certificates                       |  |                           | 17,299  |                            |   | 89                          |  |                          |       |   |   | 17,388  | 
|Collateralized
  mortgage obligations                         |  |                           | 206,842 |                            |   | 1,873                       |  |                          | (2,709 | ) |   | 206,006 | 
|Other
  mortgage-backed securities                            |  |                           | 431,500 |                            |   | 8,987                       |  |                          | (303   | ) |   | 440,184 | 
|Municipal
  and other bonds                                   |  |                           | 74,330  |                            |   | 288                         |  |                          | (392   | ) |   | 74,226  | 
|Mutual
  funds                                                |  |                           | 14,717  |                            |   | 432                         |  |                          | (23    | ) |   | 15,126  | 
|                                                              |  |                           |         |                            |   |                             |  |                          |        |   |   |         | 
|                                                              |  |                           |         |                            |   |                             |  |                          |        |   |   |         | 
|Total                                                         |  | $                         | 938,835 |                            | $ | 14,543                      |  | $                        | (3,583 | ) | $ | 949,795 | 
|                                                              |  |                           |         |                            |   |                             |  |                          |        |   |   |         | 

|                                                                |  |                         |         |                            |   |                             |  |                          |        |   |   |         | 
|--------------------------------------------------------------- |  | ----------------------- | ------- | -------------------------- | - | --------------------------- |  | ------------------------ | ------ | - | - | ------- | 
|                                                                |  |                         |        
|                                                                |  | Held-to-Maturity - 2007 |        
|                                                                |  |                         |        
|                                                                |  | Amortized
  Cost        |         | Gross
  Unrealized
  Gains |   | Gross
  Unrealized
  Losses |  | Estimated
  Fair
  Value |       
|                                                                |  |                         |         |                            |   |                             |  |                          |        |   |   |         | 
|U.S. Government Sponsored Enterprise
  (GSE) and Agency Notes |  | $                       | 27,498  |                            | $ | 33                          |  | $                        | (44    | ) | $ | 27,487  | 
|GNMA guaranteed mortgage certificates                           |  |                         | 771     |                            | $ | 0                           |  |                          | (26    | ) |   | 745     | 
|Other mortgage-backed securities                                |  |                         | 83,717  |                            |   | 485                         |  |                          | (1,307 | ) |   | 82,895  | 
|                                                                |  |                         |         |                            |   |                             |  |                          |        |   |   |         | 
|                                                                |  |                         |         |                            |   |                             |  |                          |        |   |   |         | 
|Total                                                           |  | $                       | 111,986 |                            | $ | 518                         |  | $                        | (1,377 | ) | $ | 111,127 | 
|                                                                |  |                         |         |                            |   |                             |  |                          |        |   |   |         | 

47

---



|                                        |  |                           |         |                            |   |                             |  |                          |        |   |   |         | 
|--------------------------------------- |  | ------------------------- | ------- | -------------------------- | - | --------------------------- |  | ------------------------ | ------ | - | - | ------- | 
|                                        |  |                           |        
|                                        |  | Available-for-Sale - 2006 |        
|                                        |  |                           |        
|                                        |  | Amortized
  Cost          |         | Gross
  Unrealized
  Gains |   | Gross
  Unrealized
  Losses |  | Estimated
  Fair
  Value |       
|                                        |  |                           |         |                            |   |                             |  |                          |       
|Equity securities                       |  | $                         | 6,453   |                            | $ | 1,252                       |  | $                        | (66    | ) | $ | 7,639   | 
|GSE and Agency Notes                    |  |                           | 72,644  |                            |   | 6                           |  |                          | (864   | ) |   | 71,786  | 
|GNMA guaranteed mortgage
  certificates |  |                           | 26,438  |                            |   | 24                          |  |                          | (114   | ) |   | 26,348  | 
|Collateralized mortgage
  obligations   |  |                           | 144,339 |                            |   | 118                         |  |                          | (4,057 | ) |   | 140,400 | 
|Other mortgage-backed
  securities      |  |                           | 53,759  |                            |   | 203                         |  |                          | (1,000 | ) |   | 52,962  | 
|Municipal and other bonds               |  |                           | 31,632  |                            |   | 192                         |  |                          | (92    | ) |   | 31,732  | 
|Mutual funds                            |  |                           | 2,073   |                            |   |                            |  |                          |       |   |   | 2,073   | 
|                                        |  |                           |         |                            |   |                             |  |                          |        |   |   |         | 
|                                        |  |                           |         |                            |   |                             |  |                          |        |   |   |         | 
|Total                                   |  | $                         | 337,338 |                            | $ | 1,795                       |  | $                        | (6,193 | ) | $ | 332,940 | 
|                                        |  |                           |         |                            |   |                             |  |                          |        |   |   |         | 

|                                        |  |                         |         |                            |   |                             |  |                          |        |   |   |         | 
|--------------------------------------- |  | ----------------------- | ------- | -------------------------- | - | --------------------------- |  | ------------------------ | ------ | - | - | ------- | 
|                                        |  |                         |        
|                                        |  | Held-to-Maturity - 2006 |        
|                                        |  |                         |        
|                                        |  | Amortized
  Cost        |         | Gross
  Unrealized
  Gains |   | Gross
  Unrealized
  Losses |  | Estimated
  Fair
  Value |       
|                                        |  |                         |         |                            |   |                             |  |                          |       
|GSE and Agency Notes                    |  | $                       | 27,499  |                            | $ |                            |  | $                        | (619   | ) | $ | 26,880  | 
|GNMA guaranteed mortgage
  certificates |  |                         | 912     |                            |   |                            |  |                          | (31    | ) |   | 881     | 
|Other mortgage-backed
  securities      |  |                         | 101,946 |                            |   | 352                         |  |                          | (2,826 | ) |   | 99,472  | 
|                                        |  |                         |         |                            |   |                             |  |                          |        |   |   |         | 
|                                        |  |                         |         |                            |   |                             |  |                          |        |   |   |         | 
|Total                                   |  | $                       | 130,357 |                            | $ | 352                         |  | $                        | (3,476 | ) | $ | 127,233 | 
|                                        |  |                         |         |                            |   |                             |  |                          |        |   |   |         | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| | The Company
  sold available-for-sale securities of $384.9 million, $8.7 million and $32.0
  million resulting in gross realized gains of $0.9 million, $0.8 million and
  $1.2 million and gross realized losses of $0.6 million, $0.2 million and $0.1
  million in 2007, 2006 and 2005, respectively.  The tax provision applicable to these net realized gains
  amounted to $(0.9) million, $0.2 million and $0.4 million, respectively.                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | 
| | Due to the
  condition of financial institutions in the fourth quarter of 2007 and the evaluation of the near term prospects of the issuers in relation to the severity of the decline, the
  Company recorded a charge related to the value of common equity
  securities of various financial services companies that were deemed to be
  other-than-temporarily-impaired.  The
  Company has recognized an other-than-temporary impairment for these
  securities of $1.2 million in 2007.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | At December
  31, 2007, the Company owned 2 investments totaling $1.7 million that the
  Company carries at cost. The Company has the ability and intent to hold these
  investments and there were no indications that these investments were
  other-than-temporarily impaired at December 31, 2007.                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | Investments
  that have been in a continuous unrealized loss position for periods of less
  than 12 months and 12 months or longer at December 31, 2007 and 2006 are
  summarized in the following table:                                                                                                                                                                                                                                                                                    

48

---



|                                      |  |                     |        |                     |   |            |  |                     |         |            |   |                     |  |   |         |  |   |       | 
|------------------------------------- |  | ------------------- | ------ | ------------------- | - | ---------- |  | ------------------- | ------- | ---------- | - | ------------------- |  | - | ------- |  | - | ----- | 
|                                      |  | 2007                |       
|                                      |  |                     |       
|                                      |  | Less than 12 months |        | 12 months or longer |   | Total      | 
|                                      |  |                     |        |                     |   |            | 
|                                      |  | Fair Value          |        | Unrealized
  Losses |   | Fair Value |  | Unrealized
  Losses |         | Fair Value |   | Unrealized
  Losses | 
|                                     
|GSE and Agency Notes                  |  | $                   |       |                     | $ |           |  | $                   | 63,979  |            | $ | 174                 |  | $ | 63,979  |  | $ | 174   | 
|Mortgage-backed securities            |  |                     | 8,357  |                     |   | 14         |  |                     | 87,931  |            |   | 1,621               |  |   | 96,288  |  |   | 1,635 | 
|Municipal and other bonds             |  |                     | 28,293 |                     |   | 376        |  |                     | 3,075   |            |   | 16                  |  |   | 31,368  |  |   | 392   | 
|Collateralized mortgage obligations   |  |                     | 37,414 |                     |   | 408        |  |                     | 97,324  |            |   | 2,300               |  |   | 134,738 |  |   | 2,708 | 
|                                      |  |                     |        |                     |   |            |  |                     |         |            |   |                     |  |   |         |  |   |       | 
|Subtotal, debt securities             |  |                     | 74,064 |                     |   | 798        |  |                     | 252,309 |            |   | 4,111               |  |   | 326,373 |  |   | 4,909 | 
|Equity securities                     |  |                     | 750    |                     |   | 26         |  |                     |        |            |   |                    |  |   | 750     |  |   | 26    | 
|Mutual Funds                          |  |                     | 347    |                     |   | 24         |  |                     |        |            |   |                    |  |   | 347     |  |   | 24    | 
|                                      |  |                     |        |                     |   |            |  |                     |         |            |   |                     |  |   |         |  |   |       | 
|Total temporarily impaired securities |  | $                   | 75,161 |                     | $ | 848        |  | $                   | 252,309 |            | $ | 4,111               |  | $ | 327,470 |  | $ | 4,959 | 
|                                      |  |                     |        |                     |   |            |  |                     |         |            |   |                     |  |   |         |  |   |       | 

|                                      |  |                     |        |                     |   |            |  |                     |         |            |   |                     |  |   |         |  |   |       | 
|------------------------------------- |  | ------------------- | ------ | ------------------- | - | ---------- |  | ------------------- | ------- | ---------- | - | ------------------- |  | - | ------- |  | - | ----- | 
|                                      |  | 2006                |       
|                                      |  |                     |       
|                                      |  | Less than 12 months |        | 12 months or longer |   | Total      | 
|                                      |  |                     |        |                     |   |            | 
|                                      |  | Fair Value          |        | Unrealized
  Losses |   | Fair Value |  | Unrealized
  Losses |         | Fair Value |   | Unrealized
  Losses | 
|                                     
|GSE and Agency Notes                  |  | $                   | 6,859  |                     | $ | 17         |  | $                   | 73,385  |            | $ | 1,466               |  | $ | 80,244  |  | $ | 1,483 | 
|Other mortgage-backed securities      |  |                     | 9,869  |                     |   | 30         |  |                     | 126,346 |            |   | 3,941               |  |   | 136,215 |  |   | 3,971 | 
|Municipal and other bonds             |  |                     | 4,804  |                     |   | 16         |  |                     | 5,891   |            |   | 76                  |  |   | 10,695  |  |   | 92    | 
|Collateralized mortgage obligations   |  |                     |       |                     |   |           |  |                     | 116,164 |            |   | 4,057               |  |   | 116,164 |  |   | 4,057 | 
|                                      |  |                     |        |                     |   |            |  |                     |         |            |   |                     |  |   |         |  |   |       | 
|Subtotal, debt securities             |  |                     | 21,532 |                     |   | 63         |  |                     | 321,786 |            |   | 9,540               |  |   | 343,318 |  |   | 9,603 | 
|Equity securities                     |  |                     | 1,434  |                     |   | 66         |  |                     |        |            |   |                    |  |   | 1,434   |  |   | 66    | 
|                                      |  |                     |        |                     |   |            |  |                     |         |            |   |                     |  |   |         |  |   |       | 
|Total temporarily impaired securities |  | $                   | 22,966 |                     | $ | 129        |  | $                   | 321,786 |            | $ | 9,540               |  | $ | 344,752 |  | $ | 9,669 | 
|                                      |  |                     |        |                     |   |            |  |                     |         |            |   |                     |  |   |         |  |   |       | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | GSE and Agency Notes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | The Companys
  investments in the preceding table in GSE Notes consist of debt obligations
  of the Federal National Mortgage Association (FNMA), the Federal Home Loan
  Bank (FHLB) and the Federal Farm Credit Bank (FFCB). The Companys investments
  in Government Agency Notes consist of debt obligations of the Department of
  Housing and Urban Development (HUD).
  Included in the 12 months or longer are 15 securities with a loss,
  on average, of .27%.  The unrealized
  losses are due to current interest rate levels relative to the Companys cost
  and not credit quality, and because the Company has the ability and intent to
  hold those investments until a recovery of fair value, which may be maturity, the
  Company does not consider those investments to be other-than-temporarily
  impaired at December 31, 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Mortgage-Backed Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | The
  Companys investments in the preceding table in mortgage-backed securities
  consist of fixed rate GSE mortgage-backed securities and government agency
  mortgage-backed securities.  Included
  in the less than 12 months are five securities with a loss, on average, of
  .17%.  Included in the 12 months or
  longer are 32 securities with a loss, on average, of 1.84%.  The unrealized losses on the Companys
  investments in mortgage-backed securities are due to current interest rate
  levels relative to the Companys cost.
  The contractual cash flows of those investments in GSE mortgage-backed
  securities are debt obligations of the Federal Home Loan Mortgage Corporation
  (FHLMC) and the FNMA.  Fannie Mae
  issues guaranteed mortgage pass-through certificates or MBS certificates, which
  represent the beneficial ownership in a distinct pool of residential mortgage
  loans secured by single-family (one-to four-unit) dwellings, or in a pool of
  participation interests in loans of that type. Fannie Mae guarantees to the MBS
  trust that they will supplement amounts received by the MBS trust as required
  to permit timely payments of interest and principle on the certificates. They
  alone are responsible for making payments under their guarantee. The certificates
  and payments of principle and interest on the certificates are not guaranteed
  by the United States, and do not constitute a debt or obligation of the United
  States or any of its agencies or instrumentalities other than Fannie Mae.
  Freddie Mac issues and guarantees Mortgage Participation Certificates (or PCs),
  which are securities that represent undivided beneficial ownership interests
  in, and receive payments from, pools of one-to-four-family residential
  mortgages that are held in trust for investors. Freddie Mac guarantees the
  payment of interest and principle on the PCs. They alone are responsible for
  making payments on their guarantee. Principle and interest payments on the
  PCs are not guaranteed by and are not debts or obligations of the United
  States or any federal agency or instrumentality other than Freddie Mac.  The cash flows related to
  government agency mortgage-backed securities are direct obligations of the
  U.S. Government.  The decline in
  market value is attributable to changes in interest rates and not credit
  quality, and because the Company has the ability and intent to hold those
  investments until a recovery of fair value, which may be maturity, the
  Company does not consider those investments to be other-than-temporarily
  impaired at December 31, 2007.

49

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Municipal and other bonds                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | The
  Companys investments in the preceding table in this category consist of
  municipal bonds, corporate bonds and trust preferred/collateralized debt
  obligations (CDOs). The municipal bonds consist of general obligation
  bonds of entities located in the state of Pennsylvania. These bonds are rated
  AAA by S&P and/or Aaa by Moodys.
  Other bonds consist of corporate bonds and trust preferred/CDOs, which
  are rated investment grade at December 31, 2007.  Included in the less than 12 months are three securities with a
  loss, on average, of 1.31%.  Included
  in the 12 months or longer are eight securities with a loss, on average of
  .51%.  The unrealized losses on the
  Companys municipal and other bonds are due to current interest rate levels
  relative to the Companys cost and not credit quality, and because the
  Company has the ability and intent to hold those investments until a recovery
  of fair value, which may be maturity, the Company does not consider those investments
  to be other-than-temporarily impaired at December 31, 2007.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Collateralized Mortgage Obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | The
  Companys investments in the preceding table in this category consist of
  collateralized mortgage obligations issued by the FHLMC, the FNMA, and
  whole-loan mortgage-backed securities rated AAA by S&P.  Included in the less than 12 months are
  eight securities with a loss, on average, of 2.07%.  Included in the 12 months or longer are 28 securities with a
  loss, on average, of 2.31%.  The unrealized
  losses are due to current interest rate levels relative to the Companys cost
  and not credit quality, and because the Company has the ability and intent to
  hold those investments until a recovery of fair value, which may be maturity,
  the Company does not consider those investments to be other-than-temporarily
  impaired at December 31, 2007.                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Equity Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | The
  Companys investments in the preceding table in equity securities consist of
  bank issued common stocks and mutual funds.
  Included in the less than 12 months are three securities with a loss
  position, on average, of 4.3%.  The
  Company evaluated the near-term prospects of the issuers in relation to the
  severity and duration of the impairment.
  The Company does not consider those investments to be
  other-than-temporarily impaired at December 31, 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

50

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The amortized cost and estimated fair value of debt securities at December 31, 2007 and 2006, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay
obligations.

|+                                      |  |                  |         |                        |   |                  |  |                        |         |  |   |         | 
|-------------------------------------- |  | ---------------- | ------- | ---------------------- | - | ---------------- |  | ---------------------- | ------- |  | - | ------- | 
|                                       |  | 2007             |         | 2006                   |  
|                                       |  |                  |         |                        |  
|                                       |  | Amortized
  Cost |         | Estimated
  Fair Value |   | Amortized
  Cost |  | Estimated
  Fair Value |        
|                                       |  |                  |         |                        |   |                  |  |                        |        
|Available-for-sale:                    |  |                  |         |                        |   |                  |  |                        |         |  |   |         | 
|Due in one year or less                |  | $                | 82,907  |                        | $ | 82,906           |  | $                      | 18,966  |  | $ | 18,964  | 
|Due after one year through five years  |  |                  | 44,417  |                        |   | 44,467           |  |                        | 61,138  |  |   | 60,287  | 
|Due after five years through ten years |  |                  | 90,323  |                        |   | 92,431           |  |                        | 26,716  |  |   | 26,760  | 
|Due after ten years                    |  |                  | 248,281 |                        |   | 247,492          |  |                        | 141,795 |  |   | 137,907 | 
|Mortgage-backed securities             |  |                  | 448,799 |                        |   | 457,571          |  |                        | 80,197  |  |   | 79,311  | 
|                                       |  |                  |         |                        |   |                  |  |                        |         |  |   |         | 
|                                       |  |                  |         |                        |   |                  |  |                        |         |  |   |         | 
|Total                                  |  | $                | 914,727 |                        | $ | 924,867          |  | $                      | 328,812 |  | $ | 323,229 | 
|                                       |  |                  |         |                        |   |                  |  |                        |         |  |   |         | 
|                                       |  |                  |         |                        |   |                  |  |                        |         |  |   |         | 
|Held-to-maturity:                      |  |                  |         |                        |   |                  |  |                        |         |  |   |         | 
|Due in one year or less                |  | $                | 5,000   |                        | $ | 5,013            |  | $                      |        |  | $ |        | 
|Due after one year through five years  |  |                  | 22,498  |                        |   | 22,474           |  |                        | 27,499  |  |   | 26,880  | 
|Due after five years through ten years |  |                  |        |                        |   |                 |  |                        |        |  |   |        | 
|Due after ten years                    |  |                  |        |                        |   |                 |  |                        |        |  |   |        | 
|Mortgage-backed securities             |  |                  | 84,488  |                        |   | 83,640           |  |                        | 102,858 |  |   | 100,353 | 
|                                       |  |                  |         |                        |   |                  |  |                        |         |  |   |         | 
|                                       |  |                  |         |                        |   |                  |  |                        |         |  |   |         | 
|Total                                  |  | $                | 111,986 |                        | $ | 111,127          |  | $                      | 130,357 |  | $ | 127,233 | 
|                                       |  |                  |         |                        |   |                  |  |                        |         |  |   |         | 

|   |                                                                                                                                                                                                                                                                                                                                                          
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   | The Company
  pledges securities to secure its Treasury Tax and Loan account. At December
  31, 2007, securities with an amortized cost of $7.1 million and an estimated
  fair value of $7.2 million were pledged. At December 31, 2006, securities
  with an amortized cost of $4.3 million and an estimated fair value of $4.2
  million were pledged.
|   |                                                                                                                                                                                                                                                                                                                                                          
|7. | LOANS                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                          
|   | The Company
  provides loans to borrowers, of which the majority of these loans are to
  borrowers located in the Mid-Atlantic region. The ultimate repayment of these
  loans is dependent to a certain degree on the economy of this region.                                                                                                           

51

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| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | Major
  classifications of loans at December 31, 2007 and 2006 are summarized as
  follows:

|                                      |  |      |           |      |   |           |  
|------------------------------------- |  | ---- | --------- | ---- | - | --------- | -
|                                      |  | 2007 |           | 2006 |  
|                                      |  |      |           |      |  
|Real estate loans:                    |  |      |           |      |   |           |  
|One-to-four family                    |  | $    | 479,817   |      | $ | 278,970   |  
|Commercial real estate                |  |      | 693,733   |      |   | 409,702   |  
|Residential construction              |  |      | 1,958     |      |   | 9,967     |  
|                                      |  |      |           |      |   |           |  
|Total real estate loans               |  |      | 1,175,508 |      |   | 698,639   |  
|                                      |  |      |           |      |   |           |  
|                                      |  |      |           |      |   |           |  
|Commercial business loans             |  |      | 136,345   |      |   | 98,612    |  
|                                      |  |      |           |      |   |           |  
|Consumer loans:                       |  |      |           |      |   |           |  
|Home equity loans and lines of credit |  |      | 390,762   |      |   | 384,370   |  
|Auto loans                            |  |      | 174,769   |      |   | 232,675   |  
|Other consumer loans                  |  |      | 237,442   |      |   | 265,878   |  
|                                      |  |      |           |      |   |           |  
|Total consumer loans                  |  |      | 802,973   |      |   | 882,923   |  
|                                      |  |      |           |      |   |           |  
|Total loans                           |  |      | 2,114,826 |      |   | 1,680,174 |  
|                                      |  |      |           |      |   |           |  
|                                      |  |      |           |      |   |           |  
|Net deferred loan costs               |  |      | 6,096     |      |   | 8,651     |  
|Allowance for loan losses             |  |      | (23,341   | )    |   | (17,368   | )
|                                      |  |      |           |      |   |           |  
|Loans, net                            |  | $    | 2,097,581 |      | $ | 1,671,457 |  
|                                      |  |      |           |      |   |           |  

| |                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------
| | The activity
  in the allowance for loan losses for the years ended December 31, 2007, 2006
  and 2005, is as follows:

|                           |  |      |        |      |   |        |   |   |        |  
|-------------------------- |  | ---- | ------ | ---- | - | ------ | - | - | ------ | -
|                           |  | 2007 |        | 2006 |   | 2005   |  
|                           |  |      |        |      |   |        |  
|                           |  |      |        |      |   |        |   |   |        |  
|Balance, beginning of year |  | $    | 17,368 |      | $ | 17,096 |   | $ | 17,141 |  
|Provision for loan losses  |  |      | 2,470  |      |   | 1,575  |   |   | 1,703  |  
|Allowance purchased        |  |      | 5,015  |      |   |       |   |   |       |  
|Charge-offs                |  |      | (2,391 | )    |   | (2,297 | ) |   | (2,910 | )
|Recoveries                 |  |      | 879    |      |   | 994    |   |   | 1,162  |  
|                           |  |      |        |      |   |        |   |   |        |  
|                           |  |      |        |      |   |        |   |   |        |  
|Balance, end of year       |  | $    | 23,341 |      | $ | 17,368 |   | $ | 17,096 |  
|                           |  |      |        |      |   |        |   |   |        |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The provision
  for loan losses charged to expense is based upon past loan and loss
  experiences and an evaluation of estimated losses in the current loan and
  lease portfolio, including the evaluation of impaired loans. A loan is
  considered to be impaired when, based upon current information and events, it
  is probable that the Company will be unable to collect all amounts due
  according to the contractual terms of the loan. An insignificant delay or
  insignificant shortfall in amount of payments does not necessarily result in
  a loan being identified as impaired. For this purpose, delays less than 90
  days are considered to be insignificant. As of December 31, 2007 and 2006,
  100% of the impaired loan balance was measured for impairment based on the
  fair value of the loans collateral. Impairment losses are included in the
  provision for loan losses. Large groups of smaller balance homogeneous loans
  are collectively evaluated for impairment, except for those loans
  restructured under a troubled debt restructuring. Loans collectively
  evaluated for impairment include personal loans and most residential mortgage
  loans, and are not included in the following paragraph.The recorded
  investment in impaired loans not requiring an allowance for loan losses was
  $2.9 million at December 31, 2007 and $3.8 million at December 31, 2006. The
  recorded investment in impaired loans requiring an allowance for loan losses
  was $5.2 million and $3.3 million at December 31, 2007 and 2006,
  respectively. At December 31, 2007 and 2006, the related allowance for loan
  losses associated with those loans was $2.7 million and $0.1 million,
  respectively. For the years ended December 31, 2007, 2006 and 2005, the
  average recorded investment in these impaired loans was $7.8 million, $3.3
  million and $0.02, respectively and the interest income recognized on
  impaired loans was $0.3 million for 2007, $0.3 million for 2006 and $0 for
  2005.

52

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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   | Nonperforming
  loans (which includes nonaccrual loans and loans past 90 days or more and
  still accruing) at December 31, 2007 and 2006 amounted to approximately $16.3
  million and $8.2 million, respectively. The loans include impaired loans
  acquired in a business combination that are accounted for under SOP 03-3. As
  of December 31, 2007, the impaired balance pertaining to loans accounted for
  under AICPA SOP 03-3 was $0.8 million.                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Nonaccrual
  loans at December 31, 2007 and 2006 amounted to approximately $7.7 million
  and $0.5 million, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Interest
  income on impaired loans other than nonaccrual loans is recognized on an
  accrual basis. Interest income on nonaccrual loans is recognized only as collected.                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | In the ordinary course of business, the Company has granted loans
  to executive officers and directors and their affiliates amounting to $0.4
  million, $0.6 million and $0.8 million at December 31, 2007, 2006 and 2005,
  respectively. The amount of repayments in respect to such loans during the
  years ended December 31, 2007, 2006 and 2005 totaled $0.5 million, $0.6
  million and $0.7 million, respectively. There were $0.3 million, $0.3 million
  and $0 of new related party loans granted during fiscal years 2007, 2006 and
  2005, respectively.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|8. | ACCRUED INTEREST RECEIVABLE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The
  following table provides selected information on accrued interest receivable
  at December 31, 2007 and 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                     

|                                  |  |        |        |            |  |        |   |            |        |  |  |        |  
|--------------------------------- |  | ------ | ------ | ---------- |  | ------ | - | ---------- | ------ |  |  | ------ | -
|                                  |  | 2007   |        | 2006       | 
|                                  |  |        |        |            | 
|                                  |  | Amount |        | % of Total |  | Amount |   | % of Total |       
|                                  |  |        |        |            |  |        |   |            |       
|                                  |  |        |        |            |  |        |   |            |       
|Interest-Bearing Deposits         |  | $      | 8      |            |  | 0.05   | % | $          | 28     |  |  | 0.24   | %
|                                  |  |        |        |            |  |        |   |            |        |  |  |        |  
|Investment Securities             |  |        | 7,178  |            |  | 39.68  | % |            | 2,646  |  |  | 22.88  | %
|                                  |  |        |        |            |  |        |   |            |        |  |  |        |  
|Loans                             |  |        | 10,903 |            |  | 60.27  | % |            | 8,891  |  |  | 76.88  | %
|                                  |  |        |        |            |  |        |   |            |        |  |  |        |  
|                                  |  |        |        |            |  |        |   |            |        |  |  |        |  
|Total Accrued Interest Receivable |  | $      | 18,089 |            |  | 100.00 | % | $          | 11,565 |  |  | 100.00 | %
|                                  |  |        |        |            |  |        |   |            |        |  |  |        |  

|   |                                                                                 
|-- | --------------------------------------------------------------------------------
|9. | PREMISES AND EQUIPMENT                                                          
|   |                                                                                 
|   | Premises and
  equipment at December 31, 2007 and 2006 consist of the following:

|                                          |  |      |         |      |   |         |  
|----------------------------------------- |  | ---- | ------- | ---- | - | ------- | -
|                                          |  | 2007 |         | 2006 |  
|                                          |  |      |         |      |   |         |  
|Land                                      |  | $    | 17,012  |      | $ | 3,764   |  
|Bank premises                             |  |      | 42,828  |      |   | 18,366  |  
|Furniture, fixtures and equipment         |  |      | 22,957  |      |   | 21,123  |  
|Leasehold improvements                    |  |      | 10,674  |      |   | 10,082  |  
|Construction in progress                  |  |      | 9,870   |      |   | 1,778   |  
|                                          |  |      |         |      |   |         |  
|                                          |  |      |         |      |   |         |  
|Total                                     |  |      | 103,341 |      |   | 55,113  |  
|Accumulated depreciation and amortization |  |      | (24,314 | )    |   | (21,945 | )
|                                          |  |      |         |      |   |         |  
|                                          |  |      |         |      |   |         |  
|Total                                     |  | $    | 79,027  |      | $ | 33,168  |  
|                                          |  |      |         |      |   |         |  

| |                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Depreciation
  and amortization expense amounted to $4.6 million, $3.5 million and $3.5
  million for the years ended December 31, 2007, 2006 and 2005, respectively.

53

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10. | GOODWILL AND OTHER INTANGIBLES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | Goodwill and
  other intangible assets arising from the Companys acquisition of Paul Hertel
  & Co., Inc., FMS Financial and CLA Agency, Inc. (CLA), during 2007 and
  2006 were accounted for in accordance with SFAS No. 142 As required under
  SFAS No. 142, goodwill is not amortized but rather reviewed for impairment at
  least annually. The other intangibles are amortizing intangibles, which
  primarily consist of a core deposit intangible, which is amortized over an
  estimated useful life of ten years. As of December 31, 2007, the core deposit
  intangible net of accumulated amortization totaled $20.3 million. The other
  amortizing intangibles, which include customer lists, trademarks and
  agreements not to compete, vary in estimated useful lives from two to 13
  years.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | See Note 3,
  Minority Stock Offering and Mergers and Acquisitions for information
  regarding goodwill acquired in 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | The following table summarizes the
  changes in goodwill and intangibles as of the dates indicated:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

|                                       |  |          |         |                           |   |                                      |   |   |       |  
|-------------------------------------- |  | -------- | ------- | ------------------------- | - | ------------------------------------ | - | - | ----- | -
|                                       |  | Goodwill |         | Core Deposit
  Intangible |   | Customer
  Relationships
  and other |  
|                                       |  |          |         |                           |   |                                      |  
|Balance at December 31, 2005           |  | $        | 6,679   |                           | $ |                                     |   | $ | 2,382 |  
|Amortization                           |  |          |        |                           |   |                                     |   |   | (426  | )
|                                       |  |          |         |                           |   |                                      |   |   |       |  
|Balance at December 31, 2006           |  |          | 6,679   |                           |   |                                     |   |   | 1,956 |  
|Additions and adjustments:             |  |          |         |                           |   |                                      |   |   |       |  
|FMS Financial Corporation acquisistion |  |          | 100,049 |                           |   | 23,215                               |   |   |       |  
|CLA acquisition                        |  |          | 3,607   |                           |   |                                      |   |   | 7,461 |  
|Amortization                           |  |          |        |                           |   | (2,921                               | ) |   | (512  | )
|                                       |  |          |         |                           |   |                                      |   |   |       |  
|Balance at December 31, 2007           |  | $        | 110,335 |                           | $ | 20,294                               |   | $ | 8,905 |  
|                                       |  |          |         |                           |   |                                      |   |   |       |  

| |                                                                                  
| | ---------------------------------------------------------------------------------
| | The
  following table summarizes intangible assets at December 31, 2007 and 2006:

|                                |  |       |        |                            |   |        |   |       |        |                            |   |       |  |   |      |   |   |       | 
|------------------------------- |  | ----- | ------ | -------------------------- | - | ------ | - | ----- | ------ | -------------------------- | - | ----- |  | - | ---- | - | - | ----- | 
|                                |  | 2007  |        | 2006                       |  
|                                |  |       |        |                            |  
|                                |  | Gross |        | Accumulated
  Amortization |   | Net    |   | Gross |        | Accumulated
  Amortization |   | Net   | 
|                                |  |       |        |                            |   |        |   |       |        |                            |   |       | 
|Amortizing Intangibles:         |  |       |        |                            |   |        |   |       |        |                            |   |       |  |   |      |   |   |       | 
|Core Deposits                   |  | $     | 23,215 |                            | $ | (2,921 | ) | $     | 20,294 |                            | $ |      |  | $ |     |   | $ |      | 
|                                |  |       |        |                            |   |        |   |       |        |                            |   |       |  |   |      |   |   |       | 
|Customer Relationship and Other |  |       | 10,251 |                            |   | (1,346 | ) |       | 8,905  |                            |   | 2,790 |  |   | (834 | ) |   | 1,956 | 
|                                |  |       |        |                            |   |        |   |       |        |                            |   |       |  |   |      |   |   |       | 
|Total Amortizing                |  | $     | 33,466 |                            | $ | (4,267 | ) | $     | 29,199 |                            | $ | 2,790 |  | $ | (834 | ) | $ | 1,956 | 
|                                |  |       |        |                            |   |        |   |       |        |                            |   |       |  |   |      |   |   |       | 

| |                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Aggregate
  amortization expense was $3.4 million, $0.4 million, and $0.4 million for the
  years ended December 31, 2007, 2006 and 2005, respectively. Amortization
  expense for the next five years is expected to be as follows:

|                    |  |   |        | 
|------------------- |  | - | ------ | 
|2008                |  | $ | 5,172  | 
|2009                |  |   | 3,525  | 
|2010                |  |   | 3,479  | 
|2011                |  |   | 3,417  | 
|2012                |  |   | 2,798  | 
|2013 and thereafter |  |   | 10,808 | 

| |                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | For purposes
  of impairment testing, the goodwill and intangibles are to be assigned to a
  reporting unit and segment. There was no impairment as of December 31, 2007
  and 2006.

54

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|    |                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------
|11. | OTHER ASSETS                                                                                        
|    |                                                                                                     
|    | The
  following table provides selected information on other assets at December 31,
  2007 and 2006:

|                                                                          |  |      |        |      |   |        | 
|------------------------------------------------------------------------- |  | ---- | ------ | ---- | - | ------ | 
|                                                                          |  | 2007 |        | 2006 |  
|                                                                          |  |      |        |      |  
|Unconsolidated investments in affordable
  housing and other partnerships |  | $    | 7,111  |      | $ | 5,004  | 
|Cash surrender value of life insurance                                    |  |      | 13,235 |      |   | 12,392 | 
|Prepaid assets                                                            |  |      | 2,525  |      |   | 2,304  | 
|Net deferred tax asset                                                    |  |      | 16,485 |      |   | 11,954 | 
|Other real estate                                                         |  |      | 4,797  |      |   | 2,809  | 
|All other assets                                                          |  |      | 11,107 |      |   | 13,013 | 
|                                                                          |  |      |        |      |   |        | 
|Total other assets                                                        |  | $    | 55,260 |      | $ | 47,476 | 
|                                                                          |  |      |        |      |   |        | 

|    |                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------
|12. | DEPOSITS                                                                                                    
|    |                                                                                                             
|    | At December 31,
  2007 and 2006, the weighted average cost of deposits were 3.07% and 2.82%,
  respectively.
|    |                                                                                                             
|    | Time deposit accounts outstanding at December 31, 2007 and
  2006, mature as follows:                       

|                |  |      |           |      |   |         | 
|--------------- |  | ---- | --------- | ---- | - | ------- | 
|                |  | 2007 |           | 2006 |  
|                |  |      |           |      |  
|                |  |      |           |      |  
|0 to 6 months   |  | $    | 579,287   |      | $ | 520,725 | 
|7 to 12 months  |  |      | 278,269   |      |   | 225,369 | 
|13 to 24 months |  |      | 110,890   |      |   | 115,109 | 
|Over 25 months  |  |      | 73,856    |      |   | 32,703  | 
|                |  |      |           |      |   |         | 
|                |  |      |           |      |   |         | 
|                |  | $    | 1,042,302 |      | $ | 893,906 | 
|                |  |      |           |      |   |         | 

| |                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The
  aggregate amount of certificate accounts in denominations of one hundred thousand dollars or
  more totaled $237.3 million and $163.9 million at December 31, 2007 and 2006,
  respectively. Deposits in excess of one hundred thousand dollars are not generally insured by
  the Deposit Insurance Fund of the FDIC.
| |                                                                                                                                                                                                                                                                                                                             
| | Deposits
  consisted of the following major classifications at December 31, 2007 and
  2006:                                                                                                                                                                                                                                

|                                   |  |      |           |                     |  |       |   |                     |           |  |  |       |  
|---------------------------------- |  | ---- | --------- | ------------------- |  | ----- | - | ------------------- | --------- |  |  | ----- | -
|                                   |  | 2007 |           | % of total
  assets |  | 2006  |   | % of total
  assets |          
|                                   |  |      |           |                     |  |       |   |                    
|                                   |  |      |           |                     |  |       |   |                     |          
|Non interest-bearing deposits      |  | $    | 242,351   |                     |  | 6.81  | % | $                   | 90,040    |  |  | 3.91  | %
|Interest-earning checking accounts |  |      | 389,812   |                     |  | 10.96 | % |                     | 162,955   |  |  | 7.08  | %
|Money market accounts              |  |      | 376,300   |                     |  | 10.58 | % |                     | 281,044   |  |  | 12.22 | %
|Savings accounts                   |  |      | 414,398   |                     |  | 11.65 | % |                     | 250,109   |  |  | 10.87 | %
|Time deposits                      |  |      | 1,042,302 |                     |  | 29.30 | % |                     | 893,906   |  |  | 38.86 | %
|                                   |  |      |           |                     |  |       |   |                     |           |  |  |       |  
|                                   |  |      |           |                     |  |       |   |                     |           |  |  |       |  
|Total deposits                     |  | $    | 2,465,163 |                     |  | 69.29 | % | $                   | 1,678,054 |  |  | 72.95 | %
|                                   |  |      |           |                     |  |       |   |                     |           |  |  |       |  

55

---



|    |                                         
|--- | ----------------------------------------
|13. | BORROWED FUNDS                          
|    |                                         
|    | A summary of
  borrowings is as follows:

|                          |  |              |         |      |   |         | 
|------------------------- |  | ------------ | ------- | ---- | - | ------- | 
|                          |  | December 31, |        
|                          |  |              |        
|                          |  | 2007         |         | 2006 |  
|                          |  |              |         |      |  
|                          |  |              |         |      |  
|Federal Funds purchased   |  | $            | 8,050   |      | $ | 7,250   | 
|FHLB advances             |  |              | 185,750 |      |   | 196,550 | 
|Repurchase agreements     |  |              | 185,562 |      |   | 88,600  | 
|FHLB overnight borrowings |  |              |        |      |   |        | 
|Statutory trust debenture |  |              | 25,264  |      |   |        | 
|Other                     |  |              | 2,496   |      |   | 2,496   | 
|                          |  |              |         |      |   |         | 
|Total borrowings          |  | $            | 407,122 |      | $ | 294,896 | 
|                          |  |              |         |      |   |         | 

| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | Advances from the FHLB bear
  fixed interest rates with remaining periods until maturity, summarized as
  follows:

|                                       |  |              |         |      |   |         | 
|-------------------------------------- |  | ------------ | ------- | ---- | - | ------- | 
|                                       |  | December 31, |        
|                                       |  |              |        
|                                       |  | 2007         |         | 2006 |  
|                                       |  |              |         |      |  
|                                       |  |              |         |      |  
|Due in one year or less                |  | $            | 51,000  |      | $ | 43,300  | 
|Due after one year through five years  |  |              | 104,750 |      |   | 118,250 | 
|Due after five years through ten years |  |              | 30,000  |      |   | 35,000  | 
|                                       |  |              |         |      |   |         | 
|Total                                  |  | $            | 185,750 |      | $ | 196,550 | 
|                                       |  |              |         |      |   |         | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Included as
  FHLB advances at December 31, 2007 and 2006 in the above table are FHLB
  borrowings whereby the FHLB has the option at predetermined times to convert
  the fixed interest rate to an adjustable rate tied to the London Interbank
  Offered Rate (LIBOR). If the FHLB converts the interest rate, the Company
  would have the option to prepay these advances without penalty. These
  advances are included in the periods in which they mature. At December 31,
  2007, $124.8 million, or 67.19% of the FHLB advances, are convertible at the
  option of the FHLB, of which $109.8 million are convertible in 2008.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | FHLB
  advances are collateralized under a blanket collateral lien agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | The Company
  enters into sales of securities under agreements to repurchase. These
  agreements are recorded as financing transactions, and the obligation to
  repurchase is reflected as a liability in the consolidated statements of
  financial condition. The dollar amount of securities underlying the
  agreements remains recorded as an asset and carried in the Companys
  securities portfolio.                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | At December
  31, 2007 and 2006, outstanding repurchase agreements were $185.6 million and
  $88.6 million, respectively, with a weighted average maturity of 4.03 and
  2.14 years, respectively, and a weighted average cost of 4.77% and 4.93%,
  respectively. The average balance of repurchase agreements during the year ended
  December 31, 2007 and 2006 was $129.7 million and $101.9 million,
  respectively. The maximum amount outstanding at any month end period during
  2007 and 2006 was $205.6 million, and $125.4 million, respectively.                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | At December
  31, 2007 and 2006, outstanding repurchase agreements were secured by GSE
  Notes and GSE Mortgage-Backed Securities. At December 31, 2007 and 2006, the
  market value of the securities held as collateral for repurchase agreements
  was $239.4 million and $93.6 million, respectively.                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | The Company
  assumed FMS Financials obligation to the FMS Statutory Trust II (the
  Trust) as part of the acquisition of FMS Financial on July 13, 2007. The
  Companys debentures to the Trust as of December 31, 2007 were $25.8 million.
  The fair value of the debenture was recorded as of the acquisition date at
  $25.3 million. The difference between market value and the Companys
  debenture is being amortized as interest expense over the expected life of
  the debt.                                                                                                                                             

56

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | The Trust
  issued $25.8 million of floating rate capital securities and $0.8 million of
  common securities to the Company. The Trusts capital securities are fully
  guaranteed by the Companys debenture to the Trust. The Company has recorded
  its investment in the capital securities in the other asset section of the
  statement of condition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | As of
  December 31, 2007, the rate was 6.57%. The debentures are redeemable at the
  Companys option any time after June 2011. The redemption of the debentures
  would result in the mandatory redemption of the Trusts capital and common
  securities at par. The statutory trust debenture is wholly owned by the
  Company, however under FIN 46 it is not a consolidated entity.                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|14. | REGULATORY CAPITAL REQUIREMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | The Bank is
  subject to various regulatory capital requirements administered by state and
  federal banking agencies. Failure to meet minimum capital requirements can
  initiate certain mandatory and possibly additional discretionary, actions by
  regulators that, if undertaken, could have a direct material effect on the
  Banks financial statements. Under capital adequacy guidelines and the
  regulatory framework for prompt corrective action, the Bank must meet
  specific capital guidelines that involve quantitative measures of the Banks
  assets, liabilities and certain off-balance-sheet items as calculated under
  regulatory accounting practices. The Banks capital amounts and
  classification are also subject to qualitative judgments by the regulators
  about components, risk weightings, and other factors.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | Quantitative measures
  established by regulation to ensure capital adequacy require the Bank to
  maintain minimum amounts and ratios (set forth in the table below) of total
  and Tier 1 capital (as defined in the regulations) to risk weighted assets
  (as defined), and of Tier 1 capital (as defined) to average assets (as
  defined). Management believes that, as of December 31, 2007 and 2006, the
  Bank met all capital adequacy requirements to which it was subject.                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | As of
  December 31, 2007, the most recent date for which information is available,
  the FDIC categorized the Bank as well capitalized under the regulatory
  framework for prompt corrective action. To be categorized as well
  capitalized, the Bank must maintain minimum total risk-based, Tier 1
  risk-based, and Tier 1 leverage ratios as set forth in the table. There are
  no conditions or events that management believes have changed the Banks
  categorization since the most recent notification from the FDIC.                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | The Banks
  actual capital amounts and ratios (under rules established by the FDIC) are
  presented in the following table:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

|                                         |  |                |         |                                 |  |                                                                      |   |       |   |                |  |       |      |   |  |   |         |  |  |       |   | 
|---------------------------------------- |  | -------------- | ------- | ------------------------------- |  | -------------------------------------------------------------------- | - | ----- | - | -------------- |  | ----- | ---- | - |  | - | ------- |  |  | ----- | - | 
|                                         |  | Actual         |         | For Capital
  Adequacy Purposes |  | To Be Well Capitalized
  Under Prompt Corrective
  Action Provisions |  
|                                         |  |                |         |                                 |  |                                                                      |  
|                                         |  | Capital Amount |         | Ratio                           |  | Capital Amount                                                       |   | Ratio |   | Capital Amount |  | Ratio |     
|                                         |  |                |         |                                 |  |                                                                      |   |       |   |                |  |       |     
|As of December 31, 2007:                 |  |                |         |                                 |  |                                                                      |   |       |   |                |  |       |      |   |  |   |         |  |  |       |   | 
|Tier 1 Capital (to average assets)       |  | $              | 412,551 |                                 |  | 12.20                                                                | % |       | $ | 101,485        |  |       | 3.00 | % |  | $ | 169,141 |  |  | 5.00  | % | 
|Tier 1 Capital (to risk weighted assets) |  |                | 412,551 |                                 |  | 19.80                                                                | % |       |   | 83,348         |  |       | 4.00 | % |  |   | 125,021 |  |  | 6.00  | % | 
|Total Capital (to risk weighted assets)  |  |                | 435,892 |                                 |  | 20.92                                                                | % |       |   | 166,695        |  |       | 8.00 | % |  |   | 208,369 |  |  | 10.00 | % | 
|                                         |  |                |         |                                 |  |                                                                      |   |       |   |                |  |       |      |   |  |   |         |  |  |       |   | 
|As of December 31, 2006:                 |  |                |         |                                 |  |                                                                      |   |       |   |                |  |       |      |   |  |   |         |  |  |       |   | 
|Tier 1 Capital (to average assets)       |  | $              | 273,711 |                                 |  | 11.73                                                                | % |       | $ | 70,027         |  |       | 3.00 | % |  | $ | 116,712 |  |  | 5.00  | % | 
|Tier 1 Capital (to risk weighted assets) |  |                | 273,711 |                                 |  | 17.66                                                                | % |       |   | 61,983         |  |       | 4.00 | % |  |   | 92,974  |  |  | 6.00  | % | 
|Total Capital (to risk weighted assets)  |  |                | 291,079 |                                 |  | 18.78                                                                | % |       |   | 123,965        |  |       | 8.00 | % |  |   | 154,956 |  |  | 10.00 | % | 

57

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | The Companys
  capital at December 31, 2007 and 2006 for financial statement purposes was
  greater than the Tier 1 Capital amounts by $207.3 million and $6.7 million,
  respectively, due to the inclusion for regulatory capital purposes of
  unrealized losses on securities available-for-sale, the accumulated other
  comprehensive loss adjustments related to  SFAS No. 158 and the
  exclusion of goodwill and other intangibles. The amounts in the above table
  are for the Bank only.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|15. | INCOME TAXES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | The Company files
  a consolidated federal income tax return. The Company uses the specific
  charge-off method for computing  bad debts.                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | The provision for income taxes for the
  years ended December 31, 2007, 2006 and 2005 includes the following:                                                                                                                                                                                                                                                                                                                                                                                        

|                                         |  |      |         |      |   |         |   |   |         |  
|---------------------------------------- |  | ---- | ------- | ---- | - | ------- | - | - | ------- | -
|                                         |  | 2007 |         | 2006 |   | 2005    |  
|                                         |  |      |         |      |   |         |  
|                                         |  |      |         |      |   |         |  
|Current federal taxes                    |  | $    | 5,765   |      | $ | 14,773  |   | $ | 17,539  |  
|Current state and local taxes            |  |      | 418     |      |   | 46      |   |   | 1,234   |  
|Deferred federal and state taxes benefit |  |      | (10,648 | )    |   | (12,497 | ) |   | (14,045 | )
|                                         |  |      |         |      |   |         |   |   |         |  
|                                         |  |      |         |      |   |         |   |   |         |  
|Total                                    |  | $    | (4,465  | )    | $ | 2,322   |   | $ | 4,728   |  
|                                         |  |      |         |      |   |         |   |   |         |  

58

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| |                                                                                                                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During 2007,
  the Company established the Foundation as described in Note 3, and
  contributed a total of $10.0 million. Under current federal income tax
  regulations, charitable contribution deductions are limited to 10% of taxable
  income. Accordingly, the $10.0 million contribution created a carry forward
  for income tax purposes and a deferred tax asset for financial statement
  purposes.
| |                                                                                                                                                                                                                                                                                                                                                                                                                
| | Items that
  gave rise to significant portions of the deferred tax accounts, calculated at
  35%, at December 31, 2007 and 2006, are as follows:                                                                                                                                                                                                                                                               

|                                        |  |      |        |      |   |        |  
|--------------------------------------- |  | ---- | ------ | ---- | - | ------ | -
|                                        |  | 2007 |        | 2006 |  
|                                        |  |      |        |      |  
|                                        |  |      |        |      |  
|Deferred tax assets:                    |  |      |        |      |   |        |  
|Reserve for bad debts                   |  | $    | 7,601  |      | $ | 5,668  |  
|Pension liabilities                     |  |      | 7,446  |      |   | 6,485  |  
|Postretirement benefits                 |  |      | 4,039  |      |   | 3,827  |  
|Available-for-sale securities           |  |      |       |      |   | 1,343  |  
|Contribution carryforward               |  |      | 2,534  |      |   |       |  
|Purchase accounting                     |  |      | 2,939  |      |   |       |  
|Deferred compensation                   |  |      | 1,839  |      |   | 573    |  
|Lease accounting                        |  |      | 527    |      |   | 514    |  
|Impairment of securities                |  |      | 417    |      |   |       |  
|State net operating loss carryover      |  |      | 1,277  |      |   | 1,012  |  
|Other                                   |  |      | 1,341  |      |   | 46     |  
|                                        |  |      |        |      |   |        |  
|                                        |  |      | 29,960 |      |   | 19,468 |  
|                                        |  |      |        |      |   |        |  
|Less: Valuation Allowance               |  |      | (1,221 | )    |   | (1,003 | )
|                                        |  |      |        |      |   |        |  
|Total                                   |  |      | 28,739 |      |   | 18,465 |  
|                                        |  |      |        |      |   |        |  
|Deferred tax liabilities:               |  |      |        |      |   |        |  
|Automobile leasing activities           |  |      | 783    |      |   | 4,449  |  
|Available-for-sale securities           |  |      | 3,889  |      |   |       |  
|Property                                |  |      | 106    |      |   | 465    |  
|Intangibles                             |  |      | 5,460  |      |   | 131    |  
|Prepaid expenses and deferred loan fees |  |      | 1,522  |      |   | 1,055  |  
|Mortgage servicing rights               |  |      | 166    |      |   | 164    |  
|Other                                   |  |      | 328    |      |   | 247    |  
|                                        |  |      |        |      |   |        |  
|                                        |  |      |        |      |   |        |  
|Total                                   |  |      | 12,254 |      |   | 6,511  |  
|                                        |  |      |        |      |   |        |  
|                                        |  |      |        |      |   |        |  
|Net deferred tax asset                  |  | $    | 16,485 |      | $ | 11,954 |  
|                                        |  |      |        |      |   |        |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company
  adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income
  Taxes, an interpretation of FASB Statement No. 109 (FIN 48) on January 1,
  2007. FIN 48 clarifies the accounting and reporting for income taxes where
  interpretation of the tax law may be uncertain. FIN 48 prescribes a
  comprehensive model for the financial statement recognition, measurement,
  presentation and disclosure of income tax uncertainties with respect to
  positions taken or expected to be taken in income tax returns. The initial
  adoption did not have a material impact on the Companys financial condition
  and results of operations. At the adoption date of January 1, 2007, the
  Company had a liability for uncertain tax positions of $0.1 million, which
  represents the total amount of unrecognized tax benefits that, if recognized,
  would affect the effective tax rate. The Company recognizes, when applicable,
  interest and penalties related to unrecognized tax positions in the provision
  for income taxes in the consolidated statement of income. As of January 1,
  2007, the Company had approximately $0.04 million of accrued interest and
  penalties, which were included in the liability for uncertain tax positions.
  The tax years 2004 through 2007 remain subject to examination by Federal, Pennsylvania,
  New Jersey and Philadelphia taxing authorities.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | The
  following table provides a reconciliation of the beginning and ending amounts
  of the Companys unrecognized tax benefits in 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

59

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|                                                                      |  |      |      |  
|--------------------------------------------------------------------- |  | ---- | ---- | -
|                                                                      |  | 2007 |     
|                                                                      |  |      |     
|                                                                      |  |      |     
|Unrecognized tax benefits January 1, 2007                             |  | $    | 135  |  
|Increase/(Decrease) as a result of tax position taken in prior year   |  |      |     |  
|Increase/(Decrease) as a result of tax position taken during the year |  |      |     |  
|Decreases realting to settlemtents with taxing authorities            |  |      |     |  
|Reductions as a result of a lapse of applicable statute of limitation |  |      | (135 | )
|                                                                      |  |      |      |  
|                                                                      |  |      |      |  
|Unrecognized tax benefits at December 31, 2007                        |  | $    |     |  
|                                                                      |  |      |      |  

| |                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A
  reconciliation of income tax computed at the statutory federal income tax
  rate to the expense included in the consolidated statements of income is as
  follows:

|                                              |  |      |        |      |  |        |       |   |        |   |  |        |   |   |        |   |  |       |  
|--------------------------------------------- |  | ---- | ------ | ---- |  | ------ | ----- | - | ------ | - |  | ------ | - | - | ------ | - |  | ----- | -
|                                              |  | 2007 |        | 2006 |  | 2005   |      
|                                              |  |      |        |      |  |        |      
|                                              |  |      |        |      |  |        |      
|Tax at statutory rate                         |  | $    | (2,104 | )    |  | (35.00 | )%    | $ | 4,881  |   |  | 35.00  | % | $ | 6,275  |   |  | 35.00 | %
|Increase (reduction) in taxes resulting from: |  |      |        |      |  |        |       |   |        |   |  |        |   |   |        |   |  |       |  
|Tax-exempt income                             |  |      | (1,003 | )    |  | (16.70 | )     |   | (957   | ) |  | (6.90  | ) |   | (698   | ) |  | (3.90 | )
|State and local income tax                    |  |      | 272    |      |  | 4.50   |       |   | 30     |   |  | 0.20   |   |   | 802    |   |  | 4.50  |  
|Employee benefit programs                     |  |      | 38     |      |  | 0.70   |       |   | 85     |   |  | 0.60   |   |   | 67     |   |  | 0.40  |  
|Federal income tax credits                    |  |      | (1,681 | )    |  | (28.00 | )     |   | (1,586 | ) |  | (11.40 | ) |   | (1,528 | ) |  | (8.50 | )
|Other                                         |  |      | 13     |      |  | 0.20   |       |   | (131   | ) |  | (0.90  | ) |   | (190   | ) |  | (1.10 | )
|                                              |  |      |        |      |  |        |       |   |        |   |  |        |   |   |        |   |  |       |  
|                                              |  |      |        |      |  |        |       |   |        |   |  |        |   |   |        |   |  |       |  
|Total                                         |  | $    | (4,465 | )    |  | (74.30 | )%(1) | $ | 2,322  |   |  | 16.60  | % | $ | 4,728  |   |  | 26.40 | %
|                                              |  |      |        |      |  |        |       |   |        |   |  |        |   |   |        |   |  |       |  

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | (1)     Not meaningful.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | The Company
  believes that it is more likely than not that the deferred tax assets, net of
  a valuation allowance, will be realized through taxable earnings or
  alternative tax strategies. The ultimate realization of deferred tax assets
  is dependent upon the generation of future taxable income during periods in
  which those temporary differences become deductible. Based on the level of
  historical taxable income and projections for future taxable income over the
  periods in which the deferred tax assets are deductible; the Company believes
  the net deferred tax assets are more likely than not to be realized.                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | Pursuant
  to SFAS No. 109, the Company is not required to provide deferred taxes on its
  tax loan loss reserve as of December 31, 1987. The amount of this reserve on
  which no deferred taxes have been provided is approximately $2.3 million.
  This reserve could be recognized as taxable income and create a current
  and/or deferred tax liability using the income tax rates then in effect if
  one of the following occur: (1) the Companys retained earnings represented
  by this reserve are used for distributions in liquidation or for any other
  purpose other than to absorb losses from bad debts; (2) the company fails to
  qualify as a Bank, as provided by the Internal Revenue Code; or (3) there is
  a change in federal tax law.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|16. | BENEFIT PLANS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | The Bank has
  noncontributory defined benefit pension plans (Plans) covering most of its
  employees. Additionally, the Company sponsors nonqualified supplemental
  employee retirement plans for certain participants. The Bank also provides
  certain postretirement benefits to qualified retired employees. These
  postretirement benefits principally pertain to certain health insurance
  coverage. Information relating to these employee benefits program are
  included in the tables that follow.                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | During 2007, the Bank assumed sponsorship
  of Farmers & Mechanics Pension Plan (FMS Plan) in conjunction with the
  FMS Financial merger as described in Note 1 and Note 3. As of December 31,
  2007, the projected benefit obligation and fair value of assets of the FMS
  Plan were $15.0 million and $12.1 million, respectively, and is included in
  the following data.                                                                                                                                                                                                                                                                                                                                                                                

60

---



| |                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------
| | The following tables present a reconciliation of beginning and ending balances of benefit
  obligations and assets at December 31, 2007 and 2006:

|                                          |  |                  |        |                           |   |        |   |      |        |   |   |        |  
|----------------------------------------- |  | ---------------- | ------ | ------------------------- | - | ------ | - | ---- | ------ | - | - | ------ | -
|                                          |  | Pension Benefits |        | Postretirement
  Benefits |  
|                                          |  | 2007             |        | 2006                      |   | 2007   |   | 2006 |       
|                                          |  |                  |        |                           |   |        |   |      |       
|Change in Benefit Obligation              |  |                  |        |                           |   |        |   |      |        |   |   |        |  
|Benefit obligation at beginning of year   |  | $                | 63,120 |                           | $ | 52,816 |   | $    | 10,935 |   | $ | 9,486  |  
|FMS Plan                                  |  |                  | 16,332 |                           |   |       |   | $    | 644    |   |   |       |  
|Service cost                              |  |                  | 2,452  |                           |   | 1,492  |   |      | 220    |   |   | 180    |  
|Interest cost                             |  |                  | 4,110  |                           |   | 3,501  |   |      | 686    |   |   | 621    |  
|Participants contributions               |  |                  |       |                           |   |       |   |      | 13     |   |   | 7      |  
|Actuarial (gain)/loss                     |  |                  | (2,773 | )                         |   | 7,008  |   |      | (187   | ) |   | 873    |  
|Benefits paid                             |  |                  | (5,446 | )                         |   | (1,697 | ) |      | (361   | ) |   | (232   | )
|                                          |  |                  |        |                           |   |        |   |      |        |   |   |        |  
|Benefit obligation at end of year         |  | $                | 77,795 |                           | $ | 63,120 |   | $    | 11,950 |   | $ | 10,935 |  
|                                          |  |                  |        |                           |   |        |   |      |        |   |   |        |  
|                                          |  |                  |        |                           |   |        |   |      |        |   |   |        |  
|Change in Assets                          |  |                  |        |                           |   |        |   |      |        |   |   |        |  
|Fair value of assets at beginning of year |  | $                | 44,486 |                           | $ | 40,676 |   | $    |       |   | $ |       |  
|FMS Plan                                  |  |                  | 15,572 |                           |   |       |   |      |       |   |   |       |  
|Actual return on assets                   |  |                  | 1,870  |                           |   | 4,998  |   |      |       |   |   |       |  
|Employer contribution                     |  |                  | 844    |                           |   | 509    |   |      | 348    |   |   | 225    |  
|Participants contributions               |  |                  |       |                           |   |       |   |      | 13     |   |   | 7      |  
|Benefits paid                             |  |                  | (5,446 | )                         |   | (1,697 | ) |      | (361   | ) |   | (232   | )
|                                          |  |                  |        |                           |   |        |   |      |        |   |   |        |  
|Fair value of assets at end of year       |  | $                | 57,326 |                           | $ | 44,486 |   | $    |       |   | $ |       |  
|                                          |  |                  |        |                           |   |        |   |      |        |   |   |        |  

| |                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------
| | The following table presents a reconciliation of the funded status of the pension benefits at
  December 31, 2007 and 2006:

|                             |  |      |        |      |   |        |  |  |  |  |  |  | 
|---------------------------- |  | ---- | ------ | ---- | - | ------ |  |  |  |  |  |  | 
|                             |  | 2007 |        | 2006 |   |        |  |  |  |  | 
|                             |  |      |        |      |   |        |  |  |  |  | 
|Projected benefit obligation |  | $    | 77,795 |      | $ | 63,120 |  |  |  |  |  |  | 
|Fair value of plan assets    |  |      | 57,326 |      |   | 44,486 |  |  |  |  |  |  | 
|                             |  |      |        |      |   |        |  |  |  |  |  |  | 
|Accrued pension costs        |  | $    | 20,469 |      | $ | 18,634 |  |  |  |  |  |  | 
|                             |  |      |        |      |   |        |  |  |  |  |  |  | 

Amounts recognized in
accumulated other comprehensive income at December 31, 2007:

|                      |  |                    |       |                           |   |       |  | 
|--------------------- |  | ------------------ | ----- | ------------------------- | - | ----- |  | 
|                      |  | Pension
  Benefits |       | Postretirement
  Benefits |   |      
|                      |  |                    |       |                           |   |       |  | 
|Net loss              |  | $                  | 6,565 |                           | $ | 1,063 |  | 
|Prior service cost    |  |                    | 94    |                           |   | 535   |  | 
|Transition obligation |  |                    |      |                           |   | 745   |  | 

| |                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The
  Companys total accumulated pension benefit obligations at December 31, 2007
  and December 31, 2006 were $54.4 million and $46.8 million, respectively.

61

---



| |                                                                                 
| | --------------------------------------------------------------------------------
| | Significant
  assumptions as of December 31, 2007, 2006 and 2005 are as follows:

|                                                                      |  |                  |      |                         |  |      |      |      |  |      |      |      |  |  |      |   |  |  |      |   |  |  |      |   | 
|--------------------------------------------------------------------- |  | ---------------- | ---- | ----------------------- |  | ---- | ---- | ---- |  | ---- | ---- | ---- |  |  | ---- | - |  |  | ---- | - |  |  | ---- | - | 
|                                                                      |  | Pension Benefits |      | Postretirement Benefits | 
|                                                                      |  | 2007             |      | 2006                    |  | 2005 |      | 2007 |  | 2006 |      | 2005 | 
|                                                                      |  |                  |      |                         |  |      |      |      |  |      |      |      | 
|Discount rate for periodic pension cost                               |  |                  | 6.00 | %                       |  |      | 6.75 | %    |  |      | 6.75 | %    |  |  | 6.00 | % |  |  | 6.75 | % |  |  | 6.75 | % | 
|Discount rate for benefit obligation                                  |  |                  | 6.50 | %                       |  |      | 6.00 | %    |  |      | 6.75 | %    |  |  | 6.50 | % |  |  | 6.00 | % |  |  | 6.75 | % | 
|Rate of increase in compensation levels and social security wage base |  |                  | 5.50 | %                       |  |      | 5.50 | %    |  |      | 5.50 | %    |  |  |      |   |  |  |      |   |  |  |      |   | 
|Expected long-term rate of return on plan assets                      |  |                  | 8.00 | %                       |  |      | 8.00 | %    |  |      | 8.00 | %    |  |  |      |   |  |  |      |   |  |  |      |   | 

| |                                                     
| | ----------------------------------------------------
| | The components of net
  pension cost are as follows:

|                                         |  |                  |        |                         |   |        |   |      |        |      |   |       |  |   |       |  |   |       | 
|---------------------------------------- |  | ---------------- | ------ | ----------------------- | - | ------ | - | ---- | ------ | ---- | - | ----- |  | - | ----- |  | - | ----- | 
|                                         |  | Pension Benefits |        | Postretirement Benefits |  
|                                         |  | 2007             |        | 2006                    |   | 2005   |   | 2007 |        | 2006 |   | 2005  | 
|                                         |  |                  |        |                         |   |        |   |      |        |      |   |       | 
|Component
  of Net Periodic Benefit Cost |  |                  |        |                         |   |        |   |      |        |      |   |       | 
|Service cost                             |  | $                | 2,435  |                         | $ | 1,491  |   | $    | 1,409  |      | $ | 260   |  | $ | 180   |  | $ | 181   | 
|Interest cost                            |  |                  | 4,128  |                         |   | 3,501  |   |      | 3,305  |      |   | 647   |  |   | 621   |  |   | 620   | 
|Expected return on assets                |  |                  | (3,998 | )                       |   | (3,186 | ) |      | (3,193 | )    |   |      |  |   |      |  |   |      | 
|Amortization of transition obligation    |  |                  |       |                         |   |       |   |      |       |      |   | 164   |  |   | 164   |  |   | 164   | 
|Amortization of prior service cost       |  |                  | 36     |                         |   | 36     |   |      | 36     |      |   | 187   |  |   | 188   |  |   | 188   | 
|Recognized net actuarial loss            |  |                  | 425    |                         |   | 111    |   |      | 91     |      |   | 68    |  |   |      |  |   | 34    | 
|                                         |  |                  |        |                         |   |        |   |      |        |      |   |       |  |   |       |  |   |       | 
|Net periodic pension cost                |  | $                | 3,026  |                         | $ | 1,953  |   | $    | 1,648  |      | $ | 1,326 |  | $ | 1,153 |  | $ | 1,187 | 
|                                         |  |                  |        |                         |   |        |   |      |        |      |   |       |  |   |       |  |   |       | 

| |                                                                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | For benefit
  obligation measurement purposes, the annual rate of increase in the per
  capita cost of postretirement health care costs was: before age 65 - 2007,
  rates decrease from 10.0 percent to 6.0 percent for 2011 and remain level
  thereafter, and after age 65 - 2007 rates decrease from 12.0 percent to 6.0
  percent for 2013 and remain level thereafter.
| |                                                                                                                                                                                                                                                                                                                                                                             
| | The impact of a 1.0% increase
  and decrease in assumed health care cost trend for each future year would be
  as follows:                                                                                                                                                                                                                                                  

|                                                |  |               |     |               |   |       | 
|----------------------------------------------- |  | ------------- | --- | ------------- | - | ----- | 
|                                                |  | 1.0% Increase |     | 1.0% Decrease |  
|Accumulated postretirement benefit
  obligation |  | $             | 292 |               | $ | (327) | 
|Service and interest cost                       |  |               | 31  |               |   | (29)  | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The
  estimated net loss and prior service costs for the pension benefits that will
  be amortized from accumulated other comprehensive income into net periodic
  pension costs over the next fiscal year are $0.1 million and $0.05 million,
  respectively. The estimated transition, net loss and prior service cost for
  postretirement benefits that will be amortized from accumulated other
  comprehensive income into periodic pension cost over the next fiscal year are
  $0.2 million, $0.04 million and $0.2 million, respectively.

62

---



| |                                                                                                           
| | ----------------------------------------------------------------------------------------------------------
| | Future
  benefit payments for all pension and post retirement plans are estimated to
  be paid as follows:

|                 |  |                          |        |  |           |  |   |       | 
|---------------- |  | ------------------------ | ------ |  | --------- |  | - | ----- | 
|Pension Benefits |  | Post Retirement Benefits |       
|                 |  |                          |       
|2008             |  | $                        | 2,463  |  | 2008      |  | $ | 428   | 
|2009             |  |                          | 2,628  |  | 2009      |  |   | 480   | 
|2010             |  |                          | 2,786  |  | 2010      |  |   | 553   | 
|2011             |  |                          | 2,971  |  | 2011      |  |   | 624   | 
|2012             |  |                          | 3,129  |  | 2012      |  |   | 680   | 
|2013-2017        |  |                          | 23,673 |  | 2013-2017 |  |   | 4,460 | 

| |                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------
| | The
  weighted-average asset allocations of the Plans at December 31, 2007 and
  2006, by asset category are as follows:

|                                 |  |                               |     |              |  |            |     |   |  |  |           |  |  |  |  |  | 
|-------------------------------- |  | ----------------------------- | --- | ------------ |  | ---------- | --- | - |  |  | --------- |  |  |  |  |  | 
|                                 |  | Plan Assets
  at December 31, |     | Target Asset | 
|                                 |  | 2007                          |     | 2006         |  | Allocation |    
|                                 |  |                               |     |              | 
|Equity securities                |  |                               | 75  | %            |  |            | 72  | % |  |  | 70% - 80% | 
|Cash and fixed income securities |  |                               | 25  | %            |  |            | 28  | % |  |  | 20% - 30% | 
|                                 |  |                               |     |              |  |            |     |   |  |  |           |  |  |  |  |  | 
|Total                            |  |                               | 100 | %            |  |            | 100 | % |  |  |           |  |  |  |  |  | 
|                                 |  |                               |     |              |  |            |     |   |  |  |           |  |  |  |  |  | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | The Plans
  invest in various securities including U.S. government securities, corporate
  debt instruments, mortgage-backed securities, common stocks and mutual funds.
  Plan assets are managed in accordance with investment guidelines approved by
  the Board of Directors. Expected future rates of return are determined by
  management based on factors such as asset allocation and actual returns over
  time.                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | The Companys funding policy is to contribute annually an amount, as
  determined by consulting actuaries and approved by the Board of Directors,
  which can be deducted for federal income tax purposes. In 2007 and 2006, $0.5
  million and $0.3 million, respectively, was contributed to the Plans under
  the Banks funding policy. For 2008, the Bank expects to contribute $0.9
  million to the Plans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | The Company also maintains contributory savings plans
  (401(k) plans) covering substantially all of its employees. The Company may
  make contributions out of current or retained earnings. The Company made
  contributions of $0.4 million, $0.3 million and $0.2 million in 2007, 2006
  and 2005, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | During 2005, the Company adopted FASB Staff Position
  FAS 106-2 relating to the Medicare Prescription Drug, Improvement, and
  Modernization Act of 2003 (the Act). The Act established a prescription
  drug benefit under Medicare, known as Medicare Part D and a federal subsidy
  to sponsors of retiree health care benefit plans that provide a benefit that
  is at least actuarially equivalent to Medicare Part D. The benefit obligation
  was measured at December 31, 2005 to reflect the effects of the Act, which
  resulted in a reduction of the Companys benefit obligation of $0.9 million.                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | The Company provides life insurance benefits to eligible employees under an
  endorsement split-dollar life insurance program. At December 31, 2007 and
  2006, $11.7 million and $10.4 million, respectively, in cash surrender value relating to this program
  was recognized in Other Assets in the consolidated statements of financial
  condition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|17. | EMPLOYEE STOCK OWNERSHIP PLAN                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | In
  connection with the Companys initial public offering, the Bank implemented
  an Employee Stock Ownership Plan (ESOP), which provides retirement benefits
  for substantially all full-time employees who were employed at the date of
  the initial public offering and are at least twenty-one years of age. Other
  salaried employees will be eligible after they have completed one year of
  service and have attained the age of 21. The Company makes annual
  contributions to the ESOP equal to the ESOPs debt service or equal to the
  debt service less the dividends received by the ESOP on unallocated shares.
  The ESOP purchased 3,224,772 shares of Company common stock in the Companys
  minority offering using funds provided by a loan from the Company and the
  cost of those shares is accordingly shown as a reduction of stockholders
  equity.

63

---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | At December 31, 2007, shares allocated and committed to be released
  were 161,239. ESOP shares that were unallocated totaled 2,902,295 and had a
  fair market value of $28.2 million at that date. ESOP compensation expense
  for the year ended December 31, 2007 was $1.6 million, representing the fair
  market value of shares allocated or committed to be released during the year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|18. | REDUCTION IN FORCE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | On October
  12, 2007, the Company announced that its Board of Directors had approved
  plans to reduce the Banks workforce in an effort to restructure the Banks
  management team and workforce. In connection with taking these steps, the
  Board of Directors approved severance plans, including the adoption of the
  Severance Pay Plan for Eligible Employees of the Bank, pursuant to which
  employees terminated as result of the reduction in force received certain
  severance benefits. The termination of employees and payment of benefits
  under the severance agreements resulted in $3.9 million of charges during the
  fourth quarter of 2007, consisting of the payment to or accrual of severance
  benefits for 40 employees. At December 31, 2007, $3.0 million of the
  reduction in force charge was unpaid. In the first quarter ended in 2008,
  $2.9 million of the remaining $3.0 million at December 31, 2007 was paid. The
  reduction in force costs are classified within salary and employee benefits
  expense on the consolidated statement of operations.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|19. | COMMITMENTS AND CONTINGENCIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | The Company
  leases a number of offices in its regular operations. Rental expense under
  such leases aggregated $4.3 million, $4.1 million and $4.0 million for the
  years ended December 31, 2007, 2006 and 2005, respectively. At December 31,
  2007, the Company was committed under noncancelable operating lease
  agreements for minimum rental payments to lessors as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

|           |  |   |        | 
|---------- |  | - | ------ | 
|2008       |  | $ | 4,641  | 
|2009       |  |   | 4,685  | 
|2010       |  |   | 4,601  | 
|2011       |  |   | 2,880  | 
|2012       |  |   | 2,219  | 
|Thereafter |  |   | 16,612 | 
|           |  |   |        | 
|           |  | $ | 35,638 | 
|           |  |   |        | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In the normal course of business, there are various outstanding
  commitments and contingent liabilities, such as commitments to extend credit,
  which are not reflected in the consolidated financial statements. The Company
  has established specific reserves related to these commitments and
  contingencies that are not material to the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | At December 31, 2007 and 2006, the Company had outstanding
  commitments to purchase or make loans aggregating approximately $69.0 million
  and $55.1 million, respectively and commitments to customers on available
  lines of credit of $132.9 million and $58.3 million, respectively at
  competitive rates. Commitments are issued in accordance with the same
  policies and underwriting procedures as settled loans. We have a reserve for
  our commitments and contingencies of $.05 million and $0 at year end December
  31, 2007 and 2006, respectively.                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | Periodically,
  there have been various claims and lawsuits against us, such as claims to
  enforce liens, condemnation proceedings on properties in which we hold
  security interests, claims involving the making and servicing of real
  property loans and other issues incident to our business. We are not a party
  to any pending legal proceedings that we believe would have a material
  adverse effect on our financial condition, results of operations or cash
  flows.                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | The Company is a member of the VISA USA Network. On October 3, 2007,
  Visa announced it had completed restructuring transactions in preparation for
  its initial public offering (IPO) expected to occur in the first quarter of
  2008. As part of the restructuring, the Companys indemnification obligation
  was modified to include only certain known litigation as of the date of
  restructuring. This modification triggered a requirement to fair value the
  indemnification obligation in accordance with FIN 45 Guarantors Accounting
  and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
  Indebtedness of Others (FIN 45). The Company determined that its potential
  indemnification obligations based on its proportionate share of ownership in
  VISA USA is not material at December 31, 2007.

64

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|20. | INTEREST RATE RISK                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | Interest
  rate risk refers to potential changes in net income and the economic value of
  equity resulting from changes in interest rates, product spreads and mismatches
  in the repricing between interest rate sensitive assets and liabilities. The
  goal of the Companys interest rate risk management is to monitor, limit and
  control the effects of these changes on the Companys earnings and economic
  value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | The
  Company also monitors interest rate risk by utilizing a model that analyzes
  net income at risk and economic value of equity. The economic value of equity
  analysis measures the effect on the balance sheet of gradual shifts in
  interest rate risks in either direction. The net income at risk analysis
  simulates the effect on the income statement of gradual increases and
  decreases in market rates over the next twelve months. These results are
  compared to the results obtained in a flat interest rate scenario. The Companys
  interest rate risk policy indicates that the level of interest rate risk is
  unacceptable if the immediate 200 basis point change would result in the loss
  of 30% or more of the economic value of equity or the gradual change in
  interest rates results in a loss of 20% or more of the value of forecasted
  net income.                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | At December
  31, 2007 and 2006, the Company had average interest-earning assets of
  approximately $2.7 billion and $2.3 billion, respectively, having a weighted
  average yield of 5.96% and 5.67%, respectively, and average interest-bearing
  liabilities of approximately $2.2 billion and $2.0 billion, respectively with
  a weighted average cost of 3.21% and 2.60%, respectively. The Companys
  assets that earned interest at fixed and variable interest rates were funded
  primarily with liabilities that have interest rates that are fixed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | The results
  at December 31, 2007 and 2006 indicate an acceptable level of risk. The net
  interest income at risk results indicate a slightly asset sensitive profile,
  which provides net interest margin benefits in rising rate scenarios. The
  economic value at risk remains limited in magnitude and indicates potential
  moderate exposures in increasing rate environments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|21. | DERIVATIVE FINANCIAL INSTRUMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | The Company
  had no derivative instruments outstanding at December 31, 2007. The Companys
  derivative instruments outstanding at December 31, 2006 included commitments
  to fund loans available-for-sale and forward loan sale agreements. The
  Company originates single-family residential loans for sale pursuant to a
  program with FNMA. At the time the interest rate is locked in by the
  borrower, the Company concurrently enters into a forward loan sale agreement
  with respect to the sale of such loan at a set price in an effort to manage
  the interest rate risk inherent in the locked loan commitment. Any change in
  the fair value of the loan commitment after the borrower locks in the
  interest rate is substantially offset by the corresponding change in the fair
  value of the forward loan sale agreement related to such loan. The period
  from the time the borrower locks in the interest rate to the time the Bank
  funds the loan and sells it to FNMA is generally within 60 days.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | At December
  31, 2007 and 2006, the Company had $0 and $0.03 million, respectively, of
  loan commitments outstanding related to loans being originated for sale of
  which all were subject to interest rate locks. Also, at December 31, 2007 and
  2006, the Company had entered into $0 and $0.03 million, respectively, of
  forward loan sale agreements related to loan commitments with interest rate
  locks. The Company concluded that the fair value of these derivative
  instruments involving loan commitments was not material to the consolidated
  statements of the financial condition and operations of the Company as of and
  for the years ended December 31, 2007 and 2006.                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

65

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|22. | FAIR VALUE OF FINANCIAL INSTRUMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | The estimated fair values of the Companys financial instruments have
  been determined by the Company using available market information and
  appropriate valuation methodologies. However, considerable judgment is
  required to interpret market data to develop the estimates of fair value.
  Accordingly, the estimates presented herein are not necessarily indicative of
  the amounts the Company could realize in a current market exchange. The use
  of different market assumptions and/or estimation methodologies may have a
  material effect on the estimated fair value amounts.

|                                  |  |                   |           |              |           |                   |  |              |           |           |   |           | 
|--------------------------------- |  | ----------------- | --------- | ------------ | --------- | ----------------- |  | ------------ | --------- | --------- | - | --------- | 
|                                  |  | 2007              |           | 2006         |          
|                                  |  |                   |          
|                                  |  |                   |           |              | Estimated |                   |  |              |           | Estimated |  
|                                  |  | Carrying
  Amount |           | Fair
  Value |           | Carrying
  Amount |  | Fair
  Value |          
|                                  |  |                   |           |              |           |                   |  |              |           |           |   |           | 
|Assets:                           |  |                   |           |              |           |                   |  |              |           |           |   |           | 
|Cash and cash equivalents         |  | $                 | 53,545    |              | $         | 53,545            |  | $            | 20,572    |           | $ | 20,572    | 
|Investment securities             |  |                   | 1,085,377 |              |           | 1,097,638         |  |              | 479,343   |           |   | 473,644   | 
|Loans - net                       |  |                   | 2,120,922 |              |           | 2,126,821         |  |              | 1,671,457 |           |   | 1,646,826 | 
|                                  |  |                   |           |              |           |                   |  |              |           |           |   |           | 
|Liabilities:                      |  |                   |           |              |           |                   |  |              |           |           |   |           | 
|Checking deposits                 |  |                   | 618,953   |              |           | 618,953           |  |              | 242,817   |           |   | 242,817   | 
|Money market and savings accounts |  |                   | 790,497   |              |           | 790,497           |  |              | 531,153   |           |   | 531,153   | 
|Time deposits                     |  |                   | 1,042,302 |              |           | 1,050,573         |  |              | 893,906   |           |   | 898,368   | 
|Borrowed funds                    |  |                   | 407,122   |              |           | 415,493           |  |              | 294,896   |           |   | 294,230   | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Cash
  and Cash Equivalents- For cash and cash equivalents, the carrying
  amount is a reasonable estimate of fair value.                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Investments - The fair value of investment securities,
  mortgage-backed securities and collateralized mortgage obligations is based
  on quoted market prices, dealer quotes, and prices obtained from independent
  pricing services. The fair value of Federal Home Loan Bank stock is not determinable
  since there is no active market for the stock.                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Loans Receivable - The fair value of loans is estimated
  using national or regional average lending rates. The source of the rates
  varies by product. FNMA rates are used for residential lending, the Federal
  Reserve Bank E2 release rates are used for commercial lending, and BankRate
  Monitor rates are used for consumer lending. These rates are not further
  adjusted for credit risk. Management believes that the risk factor embedded
  in the entry-value interest rates result in a fair valuation of loans.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Checking and Money Market
  Deposits, Savings Accounts, and Time Deposits - The fair value of checking and money market
  deposits and savings accounts is the amount reported in the consolidated
  financial statements. The fair value of time deposits is based on a present
  value estimate using rates currently offered for deposits of similar
  remaining maturity.                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Borrowed Funds - The fair value of borrowed funds is based on
  a present value estimate using rates currently offered.                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Commitments to Extend Credit
  and Letters of Credit - The majority of the Companys commitments to extend credit and
  letters of credit carry current market interest rates if converted to loans.
  Because commitments to extend credit and letters of credit are generally
  unassignable by either the Company or the borrower, they only have value to
  the Company and the borrower. The estimated fair value approximates the
  recorded deferred fee amounts, which are not significant.                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | The fair value estimates presented herein are based on pertinent
  information available to management as of December 31, 2007 and 2006.
  Although management is not aware of any factors that would significantly
  affect the estimated fair value amounts, such amounts have not been
  comprehensively revalued for purposes of these consolidated financial
  statements since December 31, 2007 and 2006, and therefore, current estimates
  of fair value may differ significantly from the amounts presented herein.    

66

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|    |                                                                                                                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|23. | VARIABLE INTEREST ENTITIES                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                 
|    | The Company
  is involved with various entities in the normal course of business that may
  be deemed to be Variable Interest Entities (VIE). The Company has
  consolidated two VIEs, one in 2005 and another in 2007, for which the Company
  was determined to be the primary beneficiary.
|    |                                                                                                                                                                                                                                                                                                 
|    | At December
  31, 2007 and 2006, the aggregate assets and liabilities of the VIEs that the
  Company consolidated in the financial statements are as follows:                                                                                                                                   

Consolidated VIEs-Primary Beneficiary

|                              |  | Aggregate |        | Aggregate   |  
|----------------------------- |  | --------- | ------ | ----------- | -
|                              |  | Assets    |        | Liabilities |  
|                              |  |           |        |             |  
|December 31, 2007             |  |           |        |             |  
|                              |  |           |        |             |  
|Affordable
  housing projects |  | $         | 11,566 |             | $
|                             
|December 31, 2006             |  |           |        |             |  
|                              |  |           |        |             |  
|Affordable housing projects   |  | $         | 7,910  |             | $

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | The Company
  makes certain equity investments in various limited partnerships that sponsor
  affordable housing projects utilizing the Low Income Housing Tax Credit
  pursuant to Section 42 of the Internal Revenue Code. The purpose of these
  investments is to achieve a satisfactory return on capital, to facilitate
  affordable housing project offerings and to assist the Company in achieving
  goals associated with the Community Reinvestment Act. The primary activities
  of the limited partnerships include the identification, development and
  operation of housing that is leased to qualifying residential tenants.
  Generally, these types of investments are funded through a combination of
  debt and equity. The Company consolidated two partnerships in 2007 and one in
  2005 for which it owns the majority of limited partnership interests. As a
  limited partner, the Companys credit and investment are protected from any
  liabilities that occur within the low income housing operations.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | The Company
  also holds interests in other VIEs that have not been consolidated because
  the Company is not considered the primary beneficiary. The Companys total
  investment in these VIEs was $5.7 million and $3.8 million as of 2007 and
  2006, respectively, which are accounted for under the equity or cost methods
  of accounting as applicable to the individual investments. These investments were included in Other Assets in the consolidated statements of
  financial condition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|24. | RELATED PARTY TRANSACTIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | At December
  31, 2007 and 2006, certain directors, executive officers, principal holders
  of the Companys common stock, associates of such persons, and affiliated
  companies of such persons were indebted, including undrawn commitments to
  lend, to the Bank in the aggregate amount of $0.4
  million and $0.6 million, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | Commitments
  to lend to related parties as of December 31, 2007 and 2006  were comprised of $0 and $0.6 million, respectively, to
  directors and $0.01 million and $0.03 million, respectively, to executive
  officers. The commitments are in the form of loans and guarantees for various
  business and personal interests. This indebtedness was incurred in the
  ordinary course of business on substantially the same terms, including
  interest rate and collateral, as those prevailing at the time of comparable
  transactions with unrelated parties. This indebtedness does not involve more
  than the normal risk of repayment or present other unfavorable features.                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | None of the
  Companys affiliates, officers, directors or employees has an interest in or
  receives renumeration from any special purpose entities or qualified special
  purpose entities which the Company transacts business.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | The Company
  maintains a written policy and procedures covering related party
  transactions. These procedures cover transactions such as employee-stock
  purchase loans, personal lines of credit, residential secured loans,
  overdrafts, letter of credit and increases in indebtedness. Such transactions
  are subject to the Banks normal underwriting and approval procedures. Prior
  to the loan closing, the Banks Senior Loan Committee must approve and
  determine whether the transaction requires approval from or a post
  notification be sent to the Companys Board of Directors.                                                                                                                                                                                                                                                                                                                                                                                                                              

67

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|    |                                                                    
|--- | -------------------------------------------------------------------
|25. | PARENT COMPANY FINANCIAL INFORMATION                               
|    |                                                                    
|    | Beneficial
  Mutual Bancorp, Inc.                                  
|    | CONDENSED
  STATEMENTS OF FINANCIAL CONDITION - PARENT COMPANY ONLY
|    | (Dollars
  in thousands, except per share amounts)                 

| |                                                                                                                                                                                                                                           |  |              |         |      |   |         |  
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | ---- | - | ------- | -
| |                                                                                                                                                                                                                                           |  | December 31, |        
| |                                                                                                                                                                                                                                           |  |              |        
| |                                                                                                                                                                                                                                           |  | 2007         |         | 2006 |  
| |                                                                                                                                                                                                                                           |  |              |         |      |  
| | ASSETS                                                                                                                                                                                                                                    |  |              |         |      |   |         |  
| | Cash on deposit at the
  Bank                                                                                                                                                                                                             |  | $            | 4,491   |      | $ | 4,547   |  
| | Interest-bearing deposit
  at the Bank                                                                                                                                                                                                    |  |              | 44,960  |      |   |        |  
| | Interest-bearing deposits at non-affiliated banks                                                                                                                                                                                         |  |              | 107     |      |   | 100     |  
| | Investment in the Bank                                                                                                                                                                                                                    |  |              | 562,569 |      |   | 268,469 |  
| | Investment in Statutory Trust                                                                                                                                                                                                             |  |              | 774     |      |   |        |  
| | Investment securities
  available-for-sale                                                                                                                                                                                                |  |              | 11,698  |      |   | 7,639   |  
| | Loan Receivable from the
  Bank (interest earning)                                                                                                                                                                                        |  |              | 15,500  |      |   |        |  
| | Receivable from the Bank                                                                                                                                                                                                                  |  |              | 288     |      |   |        |  
| | Accrued Interest from the
  Bank                                                                                                                                                                                                          |  |              | 186     |      |   |        |  
| | Deferred Income Taxes                                                                                                                                                                                                                     |  |              | 3,147   |      |   |        |  
| | Other assets                                                                                                                                                                                                                              |  |              | 1,480   |      |   | 35      |  
| |                                                                                                                                                                                                                                           |  |              |         |      |   |         |  
| | TOTAL ASSETS                                                                                                                                                                                                                              |  | $            | 645,200 |      | $ | 280,790 |  
| |                                                                                                                                                                                                                                           |  |              |         |      |   |         |  
| | LIABILITIES
  AND SHAREHOLDERS EQUITY                                                                                                                                                                                                    |  |              |         |      |   |         |  
| | LIABILITIES:                                                                                                                                                                                                                              |  |              |         |      |   |         |  
| | Payable to the Bank                                                                                                                                                                                                                       |  |              |        |      |   | 1       |  
| | Accrued and other liabilities                                                                                                                                                                                                             |  |              | 68      |      |   | 374     |  
| | Accrued Interest Payable                                                                                                                                                                                                                  |  |              | 71      |      |   |        |  
| | Statutory Trust Debenture                                                                                                                                                                                                                 |  |              | 25,264  |      |   |        |  
| |                                                                                                                                                                                                                                           |  |              |         |      |   |         |  
| | Total liabilities                                                                                                                                                                                                                         |  |              | 25,403  |      |   | 375     |  
| | COMMITMENTS AND
  CONTINGENCIES                                                                                                                                                                                                           |  |              |         |      |   |         |  
| | STOCKHOLDERS EQUITY                                                                                                                                                                                                                      |  |              |         |      |   |         |  
| | Preferred Stock - $.01 par value; 100,000,000
shares authorized, none
  issued or outstanding as of December 31, 2007; none authorized issued or
  outstanding as of December 31, 2006                                                    |  |              |         |      |   |         |  
| | Common Stock - $.01 par value 300,000,000 shares
authorized,
  82,264,600 shares issued and outstanding as of December 31, 2007; $1.00 par
  value 100,000 shares authorized, 100 shares issued and outstanding as of
  December 31, 2006 |  |              | 823     |      |   |        |  
| | Additional paid-in capital                                                                                                                                                                                                                |  |              | 360,126 |      |   |        |  
| | Unearned common stock held by employee stock
ownership plan                                                                                                                                                                               |  |              | (30,635 | )    |   |        |  
| | Retained earnings                                                                                                                                                                                                                         |  |              | 291,360 |      |   | 293,157 |  
| | Accumulated other
  comprehensive loss                                                                                                                                                                                                    |  |              | (1,877  | )    |   | (12,742 | )
| |                                                                                                                                                                                                                                           |  |              |         |      |   |         |  
| | Total stockholders equity                                                                                                                                                                                                                |  |              | 619,797 |      |   | 280,415 |  
| |                                                                                                                                                                                                                                           |  |              |         |      |   |         |  
| | TOTAL LIABILITIES AND
  STOCKHOLDERS EQUITY                                                                                                                                                                                              |  | $            | 645,200 |      | $ | 280,790 |  
| |                                                                                                                                                                                                                                           |  |              |         |      |   |         |  

68

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|                                                          
|----------------------------------------------------------
|Beneficial
  Mutual Bancorp, Inc.                         
|CONDENSED
  STATEMENTS OF OPERATIONS - PARENT COMPANY ONLY
|(Dollars
  in thousands, except per share amounts)        

|                                                                                                 |  |              |         |      |   |        |   |   |        | 
|------------------------------------------------------------------------------------------------ |  | ------------ | ------- | ---- | - | ------ | - | - | ------ | 
|                                                                                                 |  | December 31, |        
|                                                                                                 |  |              |        
|                                                                                                 |  | 2007         |         | 2006 |   | 2005   |  
|                                                                                                 |  |              |         |      |   |        |  
|INCOME                                                                                           |  |              |         |      |   |        |   |   |        | 
|Dividends from the Bank                                                                          |  | $            |        |      | $ | 7,368  |   | $ | 1,000  | 
|Interest on interest-bearing deposits with the
Bank                                              |  |              | 271     |      |   |       |   |   |       | 
|Interest from non-affilated banks                                                                |  |              | 4       |      |   | 4      |   |   | 1      | 
|Interest and dividends on investment
securities                                                  |  |              | 245     |      |   | 49     |   |   | 52     | 
|Interest on loan to the Bank                                                                     |  |              | 186     |      |   |       |   |   |       | 
|Realized gain/(loss) on securities
available-for-sale                                            |  |              | (915    | )    |   | (57    | ) |   | 77     | 
|Other income                                                                                     |  |              | 26      |      |   |       |   |   |       | 
|                                                                                                 |  |              |         |      |   |        |   |   |        | 
|Total income                                                                                     |  |              | (183    | )    |   | 7,364  |   |   | 1,130  | 
|                                                                                                 |  |              |         |      |   |        |   |   |        | 
|EXPENSES                                                                                         |  |              |         |      |   |        |   |   |        | 
|Expenses paid to the Bank                                                                        |  |              | 4       |      |   | 12     |   |   | 11     | 
|Interest expense                                                                                 |  |              | 876     |      |   |       |   |   |       | 
|Charitable contributions                                                                         |  |              | 10,000  |      |   | 5      |   |   |       | 
|Other expenses                                                                                   |  |              | 546     |      |   | 11     |   |   | 12     | 
|                                                                                                 |  |              |         |      |   |        |   |   |        | 
|Total expenses                                                                                   |  |              | 11,426  |      |   | 28     |   |   | 23     | 
|(Loss)
  income before income tax benefit and equity in undistributed net income of
  affiliates |  |              | (11,609 | )    |   | 7,392  |   |   | 1,153  | 
|Income tax (benefit)
  expense                                                                   |  |              | 3,695   |      |   | (31    | ) |   | 32     | 
|                                                                                                 |  |              |         |      |   |        |   |   |        | 
|Equity in undistributed
  net income of the Bank                                                 |  |              | 6,369   |      |   | 4,258  |   |   | 12,125 | 
|                                                                                                 |  |              |         |      |   |        |   |   |        | 
|                                                                                                 |  |              |         |      |   |        |   |   |        | 
|Net (loss) income                                                                                |  | $            | (1,545  | )    | $ | 11,625 |   | $ | 13,200 | 
|                                                                                                 |  |              |         |      |   |        |   |   |        | 

69

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|                                                          
|----------------------------------------------------------
|Beneficial
  Mutual Bancorp, Inc.                         
|CONDENSED
  STATEMENTS OF CASH FLOWS - PARENT COMPANY ONLY
|(Dollars
  in thousands, except per share amounts)        

|                                                                                           |  |              |          |      |   |        |   |   |         |  
|------------------------------------------------------------------------------------------ |  | ------------ | -------- | ---- | - | ------ | - | - | ------- | -
|                                                                                           |  | December 31, |         
|                                                                                           |  |              |         
|                                                                                           |  | 2007         |          | 2006 |   | 2005   |  
|                                                                                           |  |              |          |      |   |        |  
|OPERATING ACTIVITIES:                                                                      |  |              |          |      |   |        |   |   |         |  
|Net income (loss)                                                                          |  | $            | (1,545   | )    | $ | 11,625 |   | $ | 13,200  |  
|Adjustments to reconcile net income/(loss) to net
cash provided by
  operating activities: |  |              |          |      |   |        |   |   |         |  
|Contribution of stock to The Beneficial
Foundation                                         |  |              | 9,491    |      |   |       |   |   |        |  
|Equity in undistributed net earnings of
subsidiaries                                       |  |              | (6,369   | )    |   | (4,258 | ) |   | (12,125 | )
|Investment securities (gains) losses                                                       |  |              | (277     | )    |   | 57     |   |   | (77     | )
|Impairment on equity securities                                                            |  |              | 1,192    |      |   |       |   |   |        |  
|Accrued interest receivable                                                                |  |              | 1,496    |      |   | (4     | ) |   |        |  
|Accrued interest payable                                                                   |  |              | (74      | )    |   |       |   |   |        |  
|Net intercompany transactions                                                              |  |              | 968      |      |   |       |   |   |        |  
|Amortization of debt                                                                       |  |              | 8        |      |   |       |   |   |        |  
|Deferred income taxes                                                                      |  |              | (2,948   | )    |   |       |   |   |        |  
|Changes in assets and liabilities that provided
(used) cash:                               |  |              |          |      |   |        |   |   |         |  
|Other liabilities                                                                          |  |              | 68       |      |   | (62    | ) |   | 16      |  
|Other assets                                                                               |  |              | (426     | )    |   | (29    | ) |   |        |  
|                                                                                           |  |              |          |      |   |        |   |   |         |  
|Net
  cash provided by operating activities                                                |  |              | 1,584    |      |   | 7,329  |   |   | 1,014   |  
|                                                                                           |  |              |          |      |   |        |   |   |         |  
|INVESTING ACTIVITIES:                                                                      |  |              |          |      |   |        |   |   |         |  
|Dividends of investment securities from the
Bank                                           |  |              |          |      |   | (3,768 | ) |   |         |  
|Purchases of investment securities
available-for-sale                                      |  |              | (9,431   | )    |   | 436    |   |   | 335     |  
|Proceeds from sales and maturities of investment
securities
  available-for-sale           |  |              | 5,577    |      |   | (508   | ) |   | (380    | )
|Net change in money market account balance                                                 |  |              | (1,896   | )    |   |        |   |   |         |  
|Cash paid in business combination                                                          |  |              | (62,913  | )    |   |        |   |   |         |  
|Investment in the Bank                                                                     |  |              | (77,888  | )    |   |        |   |   |         |  
|Advance to the Bank                                                                        |  |              | (10,000  | )    |   |        |   |   |         |  
|                                                                                           |  |              |          |      |   |        |   |   |         |  
|Net cash used in investing activities                                                      |  |              | (156,551 | )    |   | (3,840 | ) |   | (45     | )
|                                                                                           |  |              |          |      |   |        |   |   |         |  
|FINANCING ACTIVITIES:                                                                      |  |              |          |      |   |        |   |   |         |  
|Cash proceeds from stock offering                                                          |  |              | 232,379  |      |   |       |   |   |        |  
|Cash dividends                                                                             |  |              | (252     | )    |   |       |   |   |        |  
|Loan to employee stock ownership plan                                                      |  |              | (32,248  | )    |   |       |   |   |        |  
|                                                                                           |  |              |          |      |   |        |   |   |         |  
|Net cash used in financing activities                                                      |  |              | 199,879  |      |   |       |   |   |        |  
|                                                                                           |  |              |          |      |   |        |   |   |         |  
|NET INCREASE IN CASH AND CASH EQUIVALENTS                                                  |  |              | 44,912   |      |   | 3,489  |   |   | 969     |  
|                                                                                           |  |              |          |      |   |        |   |   |         |  
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                               |  |              | 4,647    |      |   | 1,158  |   |   | 89      |  
|                                                                                           |  |              |          |      |   |        |   |   |         |  
|                                                                                           |  |              |          |      |   |        |   |   |         |  
|CASH AND CASH EQUIVALENTS, END OF YEAR                                                     |  | $            | 49,559   |      | $ | 4,647  |   | $ | 1,158   |  
|                                                                                           |  |              |          |      |   |        |   |   |         |  

70

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|    |                                                                           
|--- | --------------------------------------------------------------------------
|26. | CONSOLIDATED
  SUMMARY OF QUARTERLY EARNINGS (UNAUDITED)                  
|    |                                                                           
|    | (Dollars in thousands, except per share amounts)                          
|    | The following table presents summarized quarterly data for
  2007 and 2006

|                                                    |  |               |        |               |   |               |  |               |        |              |   |        |   |   |         |  
|--------------------------------------------------- |  | ------------- | ------ | ------------- | - | ------------- |  | ------------- | ------ | ------------ | - | ------ | - | - | ------- | -
|                                                    | 
|2007                                                |  | 1st
  Quarter |        | 2nd
  Quarter |   | 3rd
  Quarter |  | 4th
  Quarter |        | Total
  Year |  
|                                                    | 
|                                                    |  |               |        |               |   |               |  |               |        |              |   |        |   |   |         |  
|Total interest income                               |  | $             | 31,381 |               | $ | 32,208        |  | $             | 46,511 |              | $ | 47,793 |   | $ | 157,894 |  
|Total interest expense                              |  |               | 15,994 |               |   | 15,682        |  |               | 20,393 |              |   | 21,705 |   |   | 73,774  |  
|                                                    |  |               |        |               |   |               |  |               |        |              |   |        |   |   |         |  
|Net interest income                                 |  |               | 15,387 |               |   | 16,526        |  |               | 26,118 |              |   | 26,088 |   |   | 84,120  |  
|Provision for loan losses                           |  |               | 300    |               |   |              |  |               |       |              |   | 2,170  |   |   | 2,470   |  
|                                                    |  |               |        |               |   |               |  |               |        |              |   |        |   |   |         |  
|Net interest income after provision for loan losses |  |               | 15,087 |               |   | 16,526        |  |               | 26,118 |              |   | 23,918 |   |   | 81,650  |  
|Total non-interest income                           |  |               | 2,844  |               |   | 2,690         |  |               | 3,779  |              |   | 4,058  |   |   | 13,372  |  
|Total non-interest expense                          |  |               | 15,982 |               |   | 17,080        |  |               | 35,411 |              |   | 32,559 |   |   | 101,032 |  
|                                                    |  |               |        |               |   |               |  |               |        |              |   |        |   |   |         |  
|(Loss) income before income taxes                   |  |               | 1,949  |               |   | 2,136         |  |               | (5,514 | )            |   | (4,583 | ) |   | (6,010  | )
|Income tax (benefit) expense                        |  |               | 200    |               |   | 225           |  |               | (475   | )            |   | (4,415 | ) |   | (4,465  | )
|                                                    |  |               |        |               |   |               |  |               |        |              |   |        |   |   |         |  
|                                                    |  |               |        |               |   |               |  |               |        |              |   |        |   |   |         |  
|Net (loss) income                                   |  | $             | 1,749  |               | $ | 1,911         |  | $             | (5,039 | )            | $ | (168   | ) | $ | (1,545  | )
|                                                    |  |               |        |               |   |               |  |               |        |              |   |        |   |   |         |  
|                                                    |  |               |        |               |   |               |  |               |        |              |   |        |   |   |         |  
|Basic and diluted earnings per common share (1)     |  | $             | 0.03   |               | $ | 0.03          |  | $             | (0.08  | )            | $ | (0.00  | ) | $ | (0.03   | )
|                                                    |  |               |        |               |   |               |  |               |        |              |   |        |   |   |         |  

|                                                    |  |               |        |               |   |               |  |               |        |              |   |        |  |   |         | 
|--------------------------------------------------- |  | ------------- | ------ | ------------- | - | ------------- |  | ------------- | ------ | ------------ | - | ------ |  | - | ------- | 
|                                                    | 
|2006                                                |  | 1st
  Quarter |        | 2nd
  Quarter |   | 3rd
  Quarter |  | 4th
  Quarter |        | Total
  Year |  
|                                                    | 
|                                                    |  |               |        |               |   |               |  |               |        |              |   |        |  |   |         | 
|Total interest income                               |  | $             | 30,491 |               | $ | 31,323        |  | $             | 32,476 |              | $ | 33,037 |  | $ | 127,326 | 
|Total interest expense                              |  |               | 14,416 |               |   | 15,243        |  |               | 16,464 |              |   | 16,773 |  |   | 62,896  | 
|                                                    |  |               |        |               |   |               |  |               |        |              |   |        |  |   |         | 
|Net interest income                                 |  |               | 16,075 |               |   | 16,080        |  |               | 16,012 |              |   | 16,264 |  |   | 64,430  | 
|Provision for loan losses                           |  |               | 600    |               |   | 600           |  |               | 375    |              |   |       |  |   | 1,575   | 
|                                                    |  |               |        |               |   |               |  |               |        |              |   |        |  |   |         | 
|Net interest income after provision for loan losses |  |               | 15,475 |               |   | 15,480        |  |               | 15,637 |              |   | 16,264 |  |   | 62,855  | 
|Total non-interest income                           |  |               | 3,068  |               |   | 2,442         |  |               | 2,435  |              |   | 2,586  |  |   | 10,531  | 
|Total non-interest expense                          |  |               | 14,846 |               |   | 14,907        |  |               | 14,588 |              |   | 15,098 |  |   | 59,439  | 
|                                                    |  |               |        |               |   |               |  |               |        |              |   |        |  |   |         | 
|Income before income taxes                          |  |               | 3,697  |               |   | 3,015         |  |               | 3,484  |              |   | 3,752  |  |   | 13,947  | 
|Income tax  expense                                 |  |               | 927    |               |   | 576           |  |               | 502    |              |   | 317    |  |   | 2,322   | 
|                                                    |  |               |        |               |   |               |  |               |        |              |   |        |  |   |         | 
|                                                    |  |               |        |               |   |               |  |               |        |              |   |        |  |   |         | 
|Net  income                                         |  | $             | 2,770  |               | $ | 2,439         |  | $             | 2,982  |              | $ | 3,435  |  | $ | 11,625  | 
|                                                    |  |               |        |               |   |               |  |               |        |              |   |        |  |   |         | 
|                                                    |  |               |        |               |   |               |  |               |        |              |   |        |  |   |         | 
|Basic and diluted earnings per common share (1)     |  | $             | 0.06   |               | $ | 0.05          |  | $             | 0.07   |              | $ | 0.08   |  | $ | 0.25    | 
|                                                    |  |               |        |               |   |               |  |               |        |              |   |        |  |   |         | 

|(1) | EPS is computed
  independently for each period. The sum of the individual quarters may not be
  equal to the annual EPS.
|--- | -------------------------------------------------------------------------------------------------------------------------

************************************

71

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INVESTOR
AND CORPORATE INFORMATION

Market
for Common Equity and Related Stockholder Matters

The
Companys common stock is listed on the Nasdaq Global Select Market (Nasdaq)
under the trading symbol BNCL.  The
following table sets forth the high and low sales prices of the Companys
common stock from July 16, 2007, the first day of trading of the Companys
common stock, through December 31, 2007, as reported by Nasdaq.  The Company has not paid any dividends to
its stockholders to date.  See Item
1, BusinessRegulation
and SupervisionRestrictions on Dividends.   As of March 21 2008, the Company had
approximately 3,111 holders of record of common stock.

|               |  |      |       |     |   |      | 
|-------------- |  | ---- | ----- | --- | - | ---- | 
|2007:          |  | High |       | Low |  
|               |  |      |       |     |  
|               |  |      |       |     |   |      | 
|First Quarter  |  |      | N/A   |     |   | N/A  | 
|Second Quarter |  |      | N/A   |     |   | N/A  | 
|Third Quarter  |  | $    | 9.75  |     | $ | 8.70 | 
|Fourth Quarter |  | $    | 10.02 |     | $ | 9.29 | 

72

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Stock
Performance Graph

The following graph 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 July
16, 2007, the first day of trading of the Companys common stock.  Cumulative total return assumes reinvestment
of all dividends.

[PERFORMANCE GRAPH]

|                                |  |               |          |  |          |       |          |   |          |  |          |        |          |   |          |  |   |        |  |   |        | 
|------------------------------- |  | ------------- | -------- |  | -------- | ----- | -------- | - | -------- |  | -------- | ------ | -------- | - | -------- |  | - | ------ |  | - | ------ | 
|                                |  | Period Ending |         
|                                |  |              
|Index                           |  |               | 07/16/07 |  | 07/31/07 |       | 08/31/07 |   | 09/30/07 |  | 10/31/07 |        | 11/30/07 |   | 12/31/07
|                               
|Beneficial Mutual Bancorp, Inc. |  | $             | 100.00   |  | $        | 99.67 |          | $ | 103.15   |  | $        | 105.86 |          | $ | 104.34   |  | $ | 105.86 |  | $ | 105.54 | 
|NASDAQ Composite                |  |               | 100.00   |  |          | 94.40 |          |   | 96.26    |  |          | 100.15 |          |   | 106.00   |  |   | 98.65  |  |   | 98.33  | 
|SNL Mid-Atlantic Thrift Index   |  |               | 100.00   |  |          | 93.91 |          |   | 101.01   |  |          | 102.71 |          |   | 99.42    |  |   | 93.98  |  |   | 90.79  | 

73

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