**At and For the Year Ended December 31,** **2010**  **2009**  **2008**  **2007**  **2006**                      **Performance Ratios:**                    Return on average assets  (0.18)%  0.40%  0.44%  (0.05)%  0.49%                     Return on average equity  (1.39)  2.74   2.70   (0.35)  4.04                      Interest rate spread (1)  3.13   2.99   2.86   2.59   2.45                      Net interest margin (2)  3.32   3.28   3.33   3.17   2.87                      Non-interest expenses to average assets  2.64   2.80   2.60   3.48   2.51                      Efficiency ratio (3)  73.44   77.74   71.43   102.68   79.29                      Average interest-earning assets toaverage interest-bearing liabilities  116.60   117.00   119.98   120.96   114.86                      Average equity to average assets  13.30   14.57   16.26   15.06   12.20                      **Capital Ratios (4):**                    Tier 1 capital to average assets  8.89   9.81   11.25   12.20   11.73                      Tier 1 capital to risk-weighted assets  15.69   16.71   17.80   19.80   17.66                      Total risk-based capital to risk-weighted assets  16.95   17.98   19.05   20.92   18.78                      **Asset Quality Ratios:**                    Allowance for loan losses as a percent oftotal loans  1.62   1.64   1.52   1.10   1.03                      Allowance for loan losses as a percent ofnon-performing loans  36.66   38.06   97.00   143.10   213.09                      Net charge-offs to average outstandingloans during the period  2.53   0.25   0.24   0.08   0.07                      Nonperforming loans as a percentof total loans (5)  4.42   4.32   1.57   0.77   0.48                      Nonperforming assets as a percentof total assets (5)  2.85   3.49   1.52   0.59   0.48                      **Other Data:**                                         Number of offices (6)  65   68   72   72   39                      Number of deposit accounts  283,870   284,531   276,377   284,742   163,140                      Number of loans  60,134   64,690   65,951   62,017   61,478 (1) Represents the difference between the weighted average yield on average interest-earningassets 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 andnon-interest income. (4) Ratios are for Beneficial Bank. (5) Nonperforming loans and assets include accruing loans past due 90 days or more. (6) During 2010, two campuses were opened and five offices were closed as part of the Company’sbranch consolidation plan.
 
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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 communitiessurrounding our offices and to use those deposits to fund loans. We also seek to broadenrelationships with our customers by offering insurance and investment advisory services. We focuson providing our products and services to individuals, businesses and non-profit organizations.The history of Beneficial Bank (the ”Bank”) dates back to 1853. Over the years, we have expandedthrough organic growth and acquisitions, reaching $4.9 billion in assets at December 31, 2010. In2004, the Bank reorganized into the mutual holding company structure, forming Beneficial MutualBancorp, Inc. (the “Company” or “Beneficial”), a federally chartered stock holding company, as itsholding company and Beneficial Savings Bank MHC (the ”MHC”), a federally chartered mutual holdingcompany, as the sole stockholder of the Company. In 2005, we completed the acquisition ofNorthwood Savings Bank, located in the Fishtown area of Philadelphia and acquired the insurancefirm Paul Hertel & Co., Inc. through our subsidiary Beneficial Insurance Services, LLC. Thisacquisition allowed us the opportunity to provide property, casualty, life, health and benefitsinsurance to individual and business customers with a focus on strengthening our fee income andoverall earnings. On July 13, 2007, the Company completed its minority stock offering, raisingapproximately $236.1 million, and simultaneously acquired FMS Financial Corporation, the parentcompany of Farmers & Mechanics Bank (together, “FMS Financial”). FMS Financial, which had totalassets of over $1.2 billion and provided us with an additional source of funds for our rising loanactivity. On October 5, 2007, Beneficial Insurance Services, LLC acquired the business of CLAAgency, Inc. (“CLA”), a full-service property and casualty and professional liability insurancebrokerage company headquartered in Newtown Square, Pennsylvania.The Bank was established to serve the financing needs of the public and has expanded its servicesover 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 provideinsurance services through our wholly owned subsidiary, Beneficial Insurance Services, LLC, andinvestment and non-deposit services through our wholly owned subsidiary Beneficial Advisors, LLC.Our retail market focus includes primarily all of the areas surrounding our 65 banking officeslocated in Bucks, Chester, Delaware, Montgomery and Philadelphia Counties in Pennsylvania andBurlington and Camden Counties in New Jersey, while our lending market also includes other countiesin central and southern New Jersey as well as Delaware. In addition, Beneficial InsuranceServices, LLC operates two offices in Pennsylvania, one in Philadelphia County and one in DelawareCounty. Based on a comprehensive review of all 65 branches to assess proximity to other Banklocations, customer activity, financial performance, future market potential and our growth plans,the Bank will occasionally consolidate branches.During 2010, our financial results were significantly impacted by deterioration in asset quality,particularly in our commercial real estate portfolio. This resulted in a significant level ofprovision for credit losses and caused a net loss for 2010 of $8.9 million compared to net incomeof $17.1 million in 2009. Although some economic measures showed signs of improvement during 2010,credit quality and revenue growth continue to be challenging. The Company believes recovery ofcommercial real estate in our region will take some time causing continued downward pressure onproperty valuation. We expect our provision for credit losses to remain elevated in 2011. TheFederal Reserve Board continued to hold short term interest rates at historic lows throughout theyear. The low rate environment impacted the yield on our investment portfolio as maturinginvestments and liquidity generated by our deposit growth was invested in lower rates. During2010, the U.S. Government continued to help stimulate the economy via increased infrastructurespending and tax credits for certain buyers of residential real estate, automobiles and otherdurable goods which resulted in strong economic growth at the end of 2010 as the gross domesticproduct grew 2.8% during the fourth quarter of 2010. However, the national unemployment rateremained high at 9.4% at December 31, 2010, after fluctuating between 9.5% and 9.9% throughout mostof the year. Elevated unemployment, depressed home values, and continued economic uncertainty hasconstrained consumer consumption. Additionally, capital spending and investing by businesses hasremained sluggish given the slow and uneven economic recovery. This resulted in low loan demandduring 2010 and we expect loan demand to remain low in 2011.We believe that the economic crisis which has adversely impacted our customers and communities hasresulted in a refocus on financial responsibility. We remain committed to the financialresponsibility we have practiced throughout our 158 year history, and we are dedicated to providingfinancial education opportunities to our customers by providing the tools necessary to make wisefinancial decisions. Through any economic cycle, our strong capital profile positions us toadvance our growth strategy by working with our customers to help them save and use credit wisely.It also allows us to continue to dedicate financial and human capital to support organizations thatshare our sense of responsibility to do what’s right for the communities we serve.The Bank’s tier 1 leverage ratio totaled 8.89% at December 31, 2010 compared to 9.81% at December31, 2009. The Bank’s total risk based capital ratio was 16.95% at December 31, 2010 compared to17.98% at December 31, 2009. Our capital levels and ratios are well in excess of the levelsrequired to be considered well-capitalized. We continued to position the Company for any furtherweakening in economic conditions by maintaining our loan loss reserve coverage ratio of 1.62% atDecember 31, 2010 as compared to 1.64% at December 31, 2009, with non-performing assets decreasing14% to $140.4 million at December 31, 2010 as compared to $162.9 million at December 31, 2009.In order to further improve our operating returns, we continue to leverage our position as one ofthe largest and oldest banks headquartered in the Philadelphia metropolitan area. Our customersselect us for banking and other financial services based on our ability to rapidly make decisionsas we are better informed than many of our competitors about the markets we serve. We arefocused on acquiring and retaining customers, and then educating them by aligning our products andservices to their financial needs. We are focused on effectively managing our cost structure to bealigned with the current business environment.
 
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In this challenging economic environment, we are focused on credit risk management and lossprevention. We diligently risk rate our commercial customers to ensure we actively and effectivelymanage our customer relationships and minimize losses. We believe it is important to have a strongbalance sheet and strong healthy capital levels.RECENT INDUSTRY CONSOLIDATIONThe banking industry has experienced significant consolidation in recent years, which is likely tocontinue in future periods. Consolidation may affect the markets in which we operate as competitorsintegrate newly acquired businesses, adopt new business and risk management practices or changeproducts and pricing as they attempt to maintain or grow market share and maximize profitability.Merger activity involving national, regional and community banks and specialty finance companies inthe Philadelphia metropolitan area, has and will continue to impact the competitive landscape inthe markets we serve. Management continually monitors our primary market areas and assesses theimpact of industry consolidation, as well as the practices and strategies of our competitors,including loan and deposit pricing and customer behavior.CURRENT REGULATORY ENVIRONMENTOn July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and ConsumerProtection Act (the Dodd-Frank Act”), which will implement significant changes throughout thefinancial services industry. The elements of the Dodd-Frank Act addressing financial stability arelargely focused on issues related to systemic risks and capital markets-related activities. TheDodd-Frank Act includes a number of specific provisions designed to promote enhanced supervisionand regulation of financial firms and financial markets, protect consumers and investors fromfinancial abuse and provide the government with tools to manage a financial crisis and raiseinternational regulatory standards. The Dodd-Frank Act also restructures the regulation ofdepository institutions. Specifically, under the Dodd-Frank Act, the Office of Thrift Supervisionwill be merged into the Office of the Comptroller of the Currency, which regulates national banks.Savings and loan holding companies will be regulated by the Federal Reserve Board. The Dodd-FrankAct contains various provisions designed to enhance the regulation of depository institutions andprevent the recurrence of a financial crisis such as occurred in 2008 and 2009. In addition, theDodd-Frank Act creates a new federal agency, the Consumer Financial Protection Bureau, toadminister and enforce consumer and fair lending laws, a function that is now performed by thedepository institution regulators. The federal preemption of state laws currently afforded tofederally chartered depository institutions will be reduced as well. The Dodd-Frank Act also willimpose consolidated capital requirements on savings and loan holding companies effective in fiveyears, which will limit our ability to borrow at the holding company and invest the proceeds fromsuch borrowings as capital in the Bank that could be leveraged to support additional growth. Thefull impact of the Dodd-Frank Act on our business and operations will not be known for years untilregulations implementing the legislation are written and adopted. The Dodd-Frank Act may have amaterial impact on our operations, particularly through increased compliance costs resulting frompossible future consumer and fair lending regulationsIn the fourth quarter of 2009, the Federal Reserve Board (“FRB”) announced regulatory changes todebit card and automated teller machine (“ATM”) overdraft practices that were effective July 1,2010. These changes prohibit financial institutions from charging consumers fees for payingoverdrafts on ATM and one-time debit card transactions, unless a consumer consents, or opts in, tothe overdraft service for those types of transactions. We believe that the combination of thesechanges will have an impact that could be material to our non-interest income. The actual impactcould vary due to a variety of factors, including changes in customer behavior.CURRENT INTEREST RATE ENVIRONMENTNet interest income represents a significant portion of the Company’s revenues. Accordingly, theinterest rate environment has a substantial impact on our earnings. During the year ended December31, 2010, our net interest margin increased to 3.32% from 3.28% from the year ended December 31,2009. Asset growth coupled with an improvement in our deposit mix to lower cost deposit categorieswere the primary reasons for this margin expansion. Net interest margin in future periods will beimpacted by several factors such as, but not limited to, our ability to grow and retain low costcore deposits, the future interest rate environment, loan and investment prepayment rates, andchanges in non-accrual loans. We are currently liability sensitive so future increases in interestrates will result in higher interest expense and reduced net interest income.CREDIT RISK ENVIRONMENTThe credit quality of our loan portfolio has a significant impact on our operating results. During2010, the Company experienced considerable deterioration in the value of a number of the Company’slarge commercial real estate properties collateralizing our commercial real estate loans. Thisdeterioration reflected the pronounced slowdown in the commercial real estate market that haslimited traditional refinance and repayment sources. The Company believes the recovery for thecommercial real estate market in its market area will take some time and anticipates continueddownward pressure on property valuations. The commercial real estate conditions led to a provisionfor credit losses of $70.2 million for 2010 compared to $15.7 million for 2009. We continued tostrengthen our credit monitoring efforts in 2010 by expanding resources in our credit and riskmanagement functions and maintaining focus on improving the credit quality of our loan portfolio.
 
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Although the U.S. economy has shown some sign of improvement, unemployment remains high andcommercial real estate conditions are still weak. We expect that property values will remainvolatile until underlying market fundamentals improve consistently. In 2011, a significant portionof our commercial real estate and commercial construction portfolios contractually matures(approximately 33%). We expect that market conditions coupled with the large amount of commercialmaturities will result in an elevated provision for credit losses in 2011.***Income*****.**Our primary source of pre-tax income is net interest income. Net interest income is thedifference between the income we earn on our loans and investments and the interest we pay on ourdeposits and borrowings. Changes in levels of interest rates affect our net interest income.During 2010, we increased net interest income, widened our net interest margin and improved ouroperating efficiency. The increase in the margin was primarily due to growth in interest earningassets coupled with a reduction in deposit and borrowing cost. In 2011, we will continue to befocused on improving our core profitability as we manage through the current credit environment.A secondary source of income is non-interest income, which is revenue we receive from providingproducts and services. Traditionally, the majority of our non-interest income has come fromservice charges (mostly on deposit accounts). Our non-interest income increased during 2010primarily due to additional service charge and other income, insurance and advisory income, tradingsecurities profits and a decrease in an impairment charge for securities available-for-sale. Wecontinue to seek to increase non-interest income by expanding the insurance and investment productswe offer to our customers.***Allowance for Loan Losses*****.**The allowance for loan losses is a valuation allowance for probablelosses inherent in the loan portfolio. We evaluate the need to establish allowances against losseson loans on a quarterly basis. When additional allowances are necessary, a provision for loanlosses is charged to earnings.***Expenses.***The non-interest expenses we incur in operating our business consist of salaries andemployee benefits expenses, equity plans, occupancy expenses, depreciation, amortization andmaintenance expenses and other miscellaneous expenses, such as advertising, insurance, professionalservices and printing and supplies expenses.Our largest non-interest expense is salaries and employee benefits, which consist primarily ofsalaries 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 haveincreased in recent periods as we continue recruit talented employees to help the Company achieveits growth objectives and increase our credit and risk management function.We recorded a non-recurring curtailment gain in 2008 related to pension plan modifications. Theafter-tax impact of this curtailment gain was $4.7 million.Occupancy expenses, which are the fixed and variable costs of buildings and equipment, consistprimarily of furniture and equipment expenses, maintenance, real estate taxes and costs ofutilities.Federal Deposit Insurance Corporation (FDIC) insurance expense increased significantly during 2010and 2009. Beginning in late 2008, the economic environment caused higher levels of bank failures,which dramatically increased Federal Deposit Insurance Corporation resolution costs and led to asignificant reduction in the Deposit Insurance Fund. As a result, the Federal Deposit InsuranceCorporation has significantly increased the initial base assessment rates paid by financialinstitutions for deposit insurance. During the third quarter of 2009, the base assessment rateincreased by 1.65 basis points. During 2009, a special assessment was imposed on all insuredinstitutions due to recent bank and savings association failures. The emergency assessmentamounted to 5 basis points on each institution’s assets minus Tier 1 capital as of June 30, 2009,subject to a maximum equal to 10 basis points times the institution’s assessment base. Based onour assets and Tier 1 capital as of June 30, 2009, our special assessment was approximately $1.9million. On February 7, 2011, the Federal Deposit Insurance Corporation approved a final rule thatimplemented changes to the deposit insurance assessment system mandated by the Dodd-Frank Act. Thefinal rule, which will take effect for the quarter beginning April 1, 2011, requires that the baseon which deposit insurance assessments are charged be revised from one that is based on domesticdeposits to one that is based on average consolidated total assets minus average tangible equity.Under the final rule, insured depository institutions are required to report their averageconsolidated total assets on a daily basis, using the regulatory accounting methodology establishedfor reporting total assets. For purposes of the final rule, tangible equity is defined as Tier 1capital. Prior to the April 1, 2011 effective date of the final rule, the Federal DepositInsurance Corporation will continue to calculate the assessment base from adjusted domesticdeposits. We expect that this final rule will result in lower deposit insurance assessments forthe Bank in 2011, however this may increase in the future as a result of the increase in theassessment base.Other non-interest expenses have continued to increase as a result of additional costs incurredfrom internet banking, debit card rewards program, loan expenses, professional fees and other realestate owned expenses and losses.**Critical Accounting Policies**In the preparation of our consolidated financial statements, we have adopted various accountingpolicies that govern the application of accounting principles generally accepted in the UnitedStates. Our significant accounting policies are described in Note 2 to the Consolidated FinancialStatements included in this Annual Report.
 
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Certain accounting policies involve significant judgments and assumptions by us that have amaterial impact on the carrying value of certain assets and liabilities. We consider theseaccounting policies to be critical accounting policies. The judgments and assumptions we use arebased on historical experience and other factors, which we believe to be reasonable under thecircumstances. Actual results could differ from these judgments and estimates under differentconditions, resulting in a change that could have a material impact on the carrying values of ourassets and liabilities and our results of operations.***Allowance for Loan Losses*****.**We consider the allowance for loan losses to be a critical accountingpolicy. The allowance for loan losses is determined by management based upon portfolio segment,past experience, evaluation of estimated loss and impairment in the loan portfolio, currenteconomic conditions and other pertinent factors. Management also considers risk characteristics byportfolio segments including, but not limited to, renewals and real estate valuations. Theallowance for loan losses is maintained at a level that management considers adequate to providefor estimated losses and impairment based upon an evaluation of known and inherent risk in the loanportfolio. Loan impairment is evaluated based on the fair value of collateral or estimated netrealizable value. While management uses the best information available to make such evaluations,future adjustments to the allowance may be necessary if economic conditions differ substantiallyfrom the assumptions used in making the evaluations.The allowance for loan losses (“ALLL”) is established through a provision for loan losses chargedto expense which is based upon past loan and loss experience and an evaluation of estimated lossesin the current loan portfolio, including the evaluation of impaired loans. Determining the amountof the allowance for loan losses necessarily involves a high degree of judgment. Among thematerial estimates required to establish the allowance are: overall economic conditions; value ofcollateral; strength of guarantors; loss exposure at default; the amount and timing of future cashflows on impaired loans; and determination of loss factors to be applied to the various elements ofthe portfolio. All of these estimates are susceptible to significant change. Management reviewsthe level of loss experience, current economic conditions and other factors related to thecollectability of the loan portfolio. Although we believe that we use the best informationavailable to establish the allowance for loan losses, future adjustments to the allowance may benecessary if economic conditions differ substantially from the assumptions used in making theevaluation. 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 loanlosses. Such agencies may require us to recognize adjustments to the allowance based on judgmentsabout information available to them at the time of their examination. During 2010, we experiencedsignificant charge-offs, primarily related to the commercial loan portfolio as a result ofconsiderable deterioration in the collateral value of commercial real estate. Our financialresults are affected by the changes in and the absolute level of the ALLL. This process involvesour analysis of complex internal and external variables, and it requires that we exercise judgmentto estimate an appropriate ALLL. As a result of the uncertainty associated with this subjectivity,we cannot assure the precision of the amount reserved, should we experience sizeable loan or leaselosses in any particular period. For example, changes in the financial condition of individualborrowers, economic conditions, or the condition of various markets in which collateral may be soldcould require us to significantly decrease or increase the level of the ALLL. Such an adjustmentcould materially affect net income as a result of the change in provision for credit losses. Forexample, a change in the estimate resulting in a 5% to 10% difference in the allowance would haveresulted in an additional provision for credit losses of $3.5 million to $7.0 million as ofDecember 31, 2010. During 2010, we experienced increases in delinquencies and net charge-offs incommercial real estate loans due to the weakness in the commercial real estate market. The ALLLconsidered these market conditions in deriving the estimated ALLL; however, given the continuedeconomic difficulties, the ultimate amount of loss could vary from that estimate. See Note 6 to theConsolidated Financial Statements included in this Annual Report for additional discussion of theCompany’s loan portfolio.***Goodwill and Intangible Assets.***The purchase method of accounting for business combinationsrequires the Company to make use of estimates and judgments to allocate the purchase price paid foracquisitions to the fair value of the assets acquired and liabilities assumed. The excess of thepurchase price of an acquired business over the fair value of the identifiable assets andliabilities represents goodwill. Goodwill totaled $110.5 million at December 31, 2010.Goodwill and other indefinite lived intangible assets are not amortized on a recurring basis, butrather are subject to periodic impairment testing. The impairment test for goodwill requires theCompany to compare the fair value of business reporting units to their carrying value includingassigned goodwill on an annual basis. In addition, goodwill is tested more frequently if changes incircumstances or the occurrence of events indicate impairment potentially exists.The goodwill impairment analysis estimates the fair value of equity using discounted cash flowanalyses which require assumptions, as well as guideline company and guideline transactioninformation, where available. The inputs and assumptions specific to each reporting unit areincorporated in the valuations including projections of future cash flows, discount rates, the fairvalue of tangible and intangible assets and liabilities, and applicable valuation multiples basedon the guideline information. We assess the reasonableness of the estimated fair value of thereporting units by giving consideration to our market capitalization over a reasonable period oftime. Based on our latest annual impairment analysis of goodwill, we believe that the fair valuefor all reporting units is substantially in excess of the respective reporting unit’s carryingvalue.During 2009, overall economic conditions and increased competition significantly impacted thefinancial results of the insurance brokerage business. As a result, the Company conducted animpairment evaluation of the goodwill specifically related to the insurance brokerage business,which indicated a decline in value, causing the Company to record an impairment charge of $1.0million. The Company performs an annual impairment test as of year end.
 
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Other intangible assets subject to amortization are evaluated for impairment in accordance withauthoritative guidance. An impairment loss will be recognized if the carrying amount of theintangible asset is not recoverable and exceeds fair value. Thecarrying amount of the intangible is not considered recoverable if it exceeds the sum of theundiscounted cash flows expected to result from the use of the asset. Intangible assets includedcustomer relationships and other related intangibles that are amortized on a straight-line basisusing estimated lives of nine to 13 years for customer relationships and two to four years forother intangibles. At December 31, 2010 the fair value of other intangible assets exceeded thecarrying amount and no impairment was recorded.***Income Taxes***. We are subject to the income tax laws of the various jurisdictions where we conductbusiness and estimate income tax expense based on amounts expected to be owed to these various taxjurisdictions. The estimated income tax expense/(benefit) is reported in the ConsolidatedStatements of Operations. The evaluation pertaining to the tax expense and related tax asset andliability balances involves a high degree of judgment and subjectivity around the ultimatemeasurement and resolution of these matters.Accrued taxes represent the net estimated amount due to or to be received from tax jurisdictionseither currently or in the future and are reported in other assets on the Consolidated Statementsof Financial Position. We assess the appropriate tax treatment of transactions and filing positionsafter considering statutes, regulations, judicial precedent and other pertinent information andmaintain tax accruals consistent with our evaluation. Changes in the estimate of accrued taxesoccur periodically due to changes in tax rates, interpretations of tax laws, the status ofexaminations by the tax authorities and newly enacted statutory, judicial and regulatory guidancethat could impact the relative merits of tax positions. These changes, when they occur, impactaccrued taxes and can materially affect our operating results. We regularly evaluate our uncertaintax positions and estimate the appropriate level of reserves related to each of these positions.As of December 31, 2010, the Company’s net deferred tax assets were $31.9 million. We regularlyevaluate the realizability of deferred tax asset positions. In determining whether a valuationallowance is necessary, we consider the level of taxable income in prior years to the extent thatcarrybacks are permitted under current tax laws, as well as estimates of future pre-tax and taxableincome and tax planning strategies that would, if necessary, be implemented. We currently maintaina valuation allowance for certain state net operating losses, charitable contribution carryoversand other-than-temporary impairments that management believes it is more likely than not that suchdeferred tax assets will not be realized. We expect to realize our remaining deferred tax assetsover the allowable carryback and/or carryforward periods. Therefore, no valuation allowance isdeemed necessary against our remaining federal or remaining state deferred tax assets as ofDecember 31, 2010. However, if an unanticipated event occurred that materially changed pre-tax andtaxable income in future periods, an increase in the valuation allowance may become necessary. Foradditional information, refer to Note 14 “Income Taxes,” to the Consolidated Financial Statements.***Postretirement Benefits***. Several variables affect the annual cost for our defined benefitretirement programs. The main variables are: (1) size and characteristics of the employeepopulation, (2) discount rate, (3) expected long-term rate of return on plan assets, (4)recognition of actual asset returns, and (5) other actuarial assumptions. Below is a briefdescription of these variables and the effect they have on our pension costs.*Size and Characteristics of the Employee Population*Pension cost is directly related to the number of employees covered by the plans, and otherfactors including salary, age, years of employment, and benefit terms. Effective June 30, 2008,plan participants ceased to accrue additional benefits under the existing pension benefit formulaand their accrued benefits were frozen.*Discount Rate*The discount rate is used to determine the present value of future benefit obligations. Thediscount rate for each plan is determined by matching the expected cash flows of each plan to ayield curve based on long-term, high quality fixed income debt instruments available as of themeasurement date, December 31, 2010. The discount rate for each plan is reset annually or uponoccurrence of a triggering event on the measurement date to reflect current market conditions.If we were to assume a 0.25% increase/decrease in the discount rate for all retirement andother postretirement plans, and keep all other assumptions constant, the benefit cost woulddecrease/increase by approximately $0.2 million.*Expected Long-term Rate of Return on Plan Assets*Based on historical experience, market projections, and the target asset allocation set forthin the investment policy for the retirement plans, the pre-tax expected rate of return on planassets was 8.0% for both 2010 and 2009. This expected rate of return is dependent upon the assetallocation decisions made with respect to plan assets.Annual differences, if any, between expected and actual returns are included in theunrecognized net actuarial gain or loss amount. We generally amortize any unrecognized netactuarial gain or loss in excess of 10% in net periodic pension expense over the average futureservice of active employees, which is approximately seven years, or average future lifetime forplans with no active participants that are frozen. See Note 15, “Pension and Postretirement BenefitPlans,” to the Consolidated Financial Statements for details on changes in the pension benefitobligation and the fair value of plan assets.If we were to assume a 0.25% increase/decrease in the expected long-term rate of return forthe retirement and other postretirement plans, holding all other actuarial assumptions constant,the benefit cost would decrease/increase by approximately $0.1 million.
 
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*Recognition of Actual Asset Returns*Accounting guidance allows for the use of an asset value that smoothes investment gains andlosses over a period up to five years. However, we have elected to use a preferable method indetermining pension cost. This method uses the actual market value of the plan assets. Therefore,we will experience more variability in the annual pension cost, as the asset values will be morevolatile than companies who elected to “smooth” their investment experience.*Other Actuarial Assumptions*To estimate the projected benefit obligation, actuarial assumptions are required with respectto factors such as mortality rate, turnover rate, retirement rate and disability rate. Thesefactors do not tend to change significantly over time, so the range of assumptions, and theirimpact on pension cost, is generally limited. We annually review the assumptions used based onhistorical and expected future experience.In addition to our defined benefit programs we offer a defined contribution plan (“401(k)Plan”) covering substantially all of our employees. During 2008, in conjunction with freezingbenefit accruals under the defined benefit program, we enhanced our 401(k) Plan and combined itwith a recently formed Employee Stock Ownership Plan (‘ESOP”) to form the Employee Savings andStock Ownership Plan (“KSOP”). While the KSOP is one plan, the two separate components of the401(k) Plan and ESOP remain. Under the KSOP we make basic and matching contributions as well asadditional contributions for certain employees based on age and years of service. We may also makediscretionary contributions. Each participant’s account is credited with shares of the Company’sstock or cash based on compensation earned during the year. For additional information, refer toNote 16 “Employee Savings and Stock Ownership Plan” to the Consolidated Financial Statements.**Business Strategy**Our business strategy is to continue to operate and grow a profitable community-oriented financialinstitution. We plan to achieve this by executing our strategy of:**•** Differentiating Beneficial Bank as an education company;**•** Expanding our franchise through the opening of additional campuses in our market area andselectively pursuing acquisition opportunities;**•** Pursuing opportunities to grow in the small business market;**•** Continuing to use consistent, disciplined underwriting practices to maintain the quality ofour loan portfolio;**•** Growing non-interest income by expanding the products and services we offer our customers,including the expansion of our insurance and investment services as well as growing andacquiring fee-based businesses; and**•** Actively managing non-interest expense to strategically reduce costs and improve ouroperating efficiency***Differentiating Beneficial as an education company***We are committed to educating our customers and providing them with the tools necessary to makewise financial decisions. We want to re-engineer the customer experience to educate at every touchpoint. We want to ensure the customer walks away knowing more financially than they did prior toour interaction. We build conversations and financial plans around customers’ needs, life stagesand priorities. During 2010, we opened two new campuses in Cherry Hill, New Jersey that exemplifiedour commitment to education by providing free financial workshops, a learning library, knowledgebar and a little learner’s center.***Expanding our franchise through the opening of additional branch offices and by selectivelypursuing acquisition opportunities***We regularly evaluate our network of banking offices to optimize the penetration of our market areain the most efficient way. We will occasionally open or consolidate banking offices. As discussedabove, we opened two new campuses in Cherry Hill, New Jersey in 2010.We are also enhancing our internet banking platform and began offering Finance Works in 2010. Werecently completed our mobile banking product offering which will roll out in the first half of2011.We believe that changes in the regulatory environment as well as continued economic challenges forthe banking industry will create acquisition opportunities for Beneficial. The Company is wellpositioned to execute on our growth strategies and pursue selective acquisition opportunities dueto our strong capital position.
 
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***Pursuing opportunities to grow in the small business market***We have a diversified loan portfolio which includes small business commercial real estate and smallbusiness commercial business loans. At December 31, 2010, we had $156.0 million small businessloans representing 5.58% of total loans. Small business loansprovide diversification to our loan portfolio and, because these loans are based upon rate indicesthat are higher than those used for one-to-four family loans, they improve the interest sensitivityof our assets. In 2010, we re-structured our lending teams and created a dedicated team of smallbusiness lenders who work with our branches and are focused solely on small business lending. Weintend to expand this team and grow our small business loan portfolio in future years.***Continuing to use consistent, disciplined underwriting practices to maintain the quality of ourloan portfolio***We believe that maintaining high asset quality is a key to long-term financial success. Wecontinued to strengthen our credit monitoring efforts in 2010 by expanding our loan reviewdepartment to maintain quality in our portfolio. We have sought to grow and diversify our loanportfolio within our local market area while closely monitoring any nonperforming assets. Weconsistently apply underwriting standards that we believe are prudent and disciplined and wediligently monitor collection efforts. We maintain our philosophy of managing large loan exposuresthrough our consistent, disciplined approach to lending, and our proactive approach to managingexisting credits. During 2010, the Company saw considerable deterioration in the value ofcollateral securing a number of large collateral dependent loans. Additionally, the Company saw apronounced slowdown in the commercial real estate market, limiting traditional refinance andrepayment sources. As a result, the Company charged-off the collateral deficiency on all criticizedloans during the year. We continue to add resources to our credit and risk management functionsand are focused on improving the credit 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 and investment services as well as growing and acquiringfee-based businesses***We are seeking to expand the non-traditional financial products that we offer to serve theinsurance and investment needs of our customers. In 2005, Beneficial Insurance Services, LLC, awholly 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 benefitsinsurance services to individuals and business customers. Additionally, on October 5, 2007,Beneficial Insurance Services, LLC acquired the business of CLA, a full-service property andcasualty and professional liability insurance brokerage company headquartered in Newtown Square,Pennsylvania. We intend to continue to seek opportunities to expand the products and services wemake available to our customers.***Actively managing non-interest expense to strategically reduce costs and improve our operatingefficiency***We are seeking to reduce non-interest expense by implementing a cost control program that includesassessing the cost structure throughout the organization and identifying long term savingopportunities. We are targeting reductions in all discretionary expense areas and striving toimprove our operating efficiency.**Balance Sheet Analysis*****Securities.***At December 31, 2010, our investment securities portfolio excluding Federal Home LoanBank (“FHLB”) stock was $1.6 billion, or 33.1% of total assets. At December 31, 2010, 50.8% of theinvestment portfolio was invested in United States government sponsored enterprise (“GSE”) notesecurities issued by the FHLB, Federal Home Loan Mortgage Corporation (“Freddie Mac”) and theFederal National Mortgage Association (“Fannie Mae”). At December 31, 2010, 34.5% of theinvestment portfolio was invested in mortgage-backed securities issued by the Freddie Mac andFannie Mae and the Government National Mortgage Association (“GNMA”); including collateralizedmortgage obligations (“CMO”) securities issued by Freddie Mac, Fannie Mae, and GNMA. Privateissuer CMOs totaled $56.5 million, or 3.5% of the Bank’s securities portfolio at December 31, 2010.At December 31, 2010, 0.9% of the investment portfolio was invested in pooled trust preferredsecurities. The remainder was invested primarily in municipal bonds, equity securities, mutualfunds and money market funds. During 2010, the Company invested excess cash primarily into GSE andagency step-up notes. These investments have scheduled interest rate increases throughout the lifeof the investment and are typically subject to a call feature. The purchase of these investmentswere intended to position the Company’s balance sheet for rising interest rates.
 
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The following table sets forth the cost and fair value of investment securities at December 31,2010, 2009 and 2008.                           **2010**  **2009**  **2008** **December 31,** **Amortized**  **Fair**  **Amortized**  **Fair**  **Amortized**  **Fair** (Dollars in thousands) **Cost**  **Value**  **Cost**  **Value**  **Cost**  **Value**                          Securities available-for-sale:                        GSE and agency notes $840,011  $827,895  $209,135  $208,334  $8,687  $8,699                          Mortgage-backed securities:                        GNMA guaranteed mortgage certificates  8,776   8,989   10,214   10,394   12,796   12,505 Other mortgage-backed securities  459,139   485,457   680,018   706,245   767,978   793,281 Collateralized mortgage obligations  89,047   91,460   138,857   140,308   177,300   176,373                    Total mortgage-backed securities  556,962   585,906   829,089   856,947   958,074   982,159                                             Municipal and other bonds                        Municipal bonds  99,069   99,132   188,980   189,957   79,542   79,976 Pooled trust preferred securities  16,989   14,522   21,379   18,797   25,113   19,328 Corporate bonds  —   —   —   —   125   125 Foreign bonds  —   —   —   —   500   501                    Total municipal and other bonds  116,058   113,654   210,359   208,754   105,280   99,930                                             Equity securities  3,029   3,235   5,427   6,062   7,638   7,746 Money market fund  11,123   11,301   6,660   7,009   15,553   15,553                    Total securities available-for-sale  1,527,183   1,541,991   1,260,670   1,287,106   1,095,232   1,114,087                                             Securities held-to-maturity:                        GSE and agency notes  —   —   —   —   7,500   7,547                          Mortgage-backed securities:                        GNMA guaranteed mortgage certificates  639   609   685   655   728   699 Other mortgage-backed securities  30,876   32,943   45,359   47,284   67,786   69,123                    Total mortgage-backed securities  31,515   33,552   46,044   47,939   68,514   69,822                                             Municipal bonds  54,594   54,595   1,465   1,413   —   — Foreign bonds  500   501   500   501   —   —                                             Total municipal and other bonds  55,094   55,096   1,965   1,914   —   —                    Total securities held-to-maturity  86,609   88,648   48,009   49,853   76,014   77,369                                             Total investment securities $1,613,792  $1,630,639  $1,308,679  $1,336,959  $1,171,246  $1,191,456                    Mortgage-backed securities are a type of asset-backed security that is secured by a mortgage,or a collection of mortgages. These securities usually pay periodic payments that are similar tocoupon payments. Furthermore, the mortgage must have originated from regulated and authorizedfinancial institutions. The contractual cash flows of investments in government sponsoredenterprises’ mortgage-backed securities are debt obligations of Freddie Mac and Fannie Mae. Bothcompanies are currently under the conservatorship of the Federal Housing Finance Agency (FHFA). Thecash 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 ofmortgage-backed security that create separate pools of pass-through rates for different classes ofbondholders with varying cash flow structures, called tranches. The repayments from the pool ofpass-through securities are used to retire the bonds in the order specified by the bonds’prospectus. At December 31, 2010, we had no investments in a single company or entity (other thanUnited States government sponsored enterprise securities) that had an aggregate book value inexcess of 10% of our equity.At December 31, 2010 and 2009, securities totaling $791.0 million and $380.5 million were in anunrealized loss position and the unrealized losses on these securities totaled $16.1 million and$5.1 million, respectively. When evaluating for impairment, the Company’s management considers theduration and extent to which fair value is less than cost, the credit worthiness and near-termprospects of the issuer, the likelihood of recovering the Company’s investment, whether the Companyhas the intent to sell the investment or that it is more likely than not that the Company will berequired to sell the investment before recovery and other available information to determine thenature of the decline in market value of the securities.
 
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At December 31, 2010, the unrealized losses in the portfolio were mainly attributed to increases inU.S. Treasury rates experienced during the fourth quarter and were not due to the credit quality ofthe investments. As the Company does not intendto sell the investments, and it is not likely the Company will be required to sell the investmentsprior to recovery, the Company does not consider the investments to be other than temporarilyimpaired at December 31, 2010. During 2010, the Company recorded an impairment loss of $88 thousandrelated to a $300 thousand equity security that had been in an unrealized loss position for lessthan 12 months and for which management had deemed it unlikely that the market value would increasein the near future. During 2009, the Company deemed several common equity securities to be otherthan temporarily impaired which resulted in a $1.6 million impairment on these securities.The following table sets forth the stated maturities and weighted average yields of investmentsecurities at December 31, 2010. Certain securities have adjustable interest rates and will repricemonthly, quarterly, semi-annually or annually within the various maturity ranges. Mutual funds,money market funds and equity securities are not included in the table based on lack of a maturitydate. The investment portfolio consists of $1.53 billion of fixed rate securities and $80.7 millionin adjustable rate securities at December 31, 2010.                                                   **More than One Year**  **More than Five Years**         **One Year or Less**  **to Five Years**  **to Ten Years**  **More than Ten Years**  **Total**       **Weighted**      **Weighted**      **Weighted**      **Weighted**      **Weighted** **December 31, 2010** **Carrying**  **Average**  **Carrying**  **Average**  **Carrying**  **Average**  **Carrying**  **Average**  **Carrying**  **Average** (Dollars in thousands) **Value**  **Yield**  **Value**  **Yield**  **Value**  **Yield**  **Value**  **Yield**  **Value**  **Yield** Securities available-for-sale:                                        GSE and agency notes $—   0.00% $135,851   1.23% $692,044   1.58% $—   0.00% $827,895   1.53%                                         Mortgage-backed securities  5,231   4.09   1,911   4.61   70,292   5.04   508,472   4.73   585,906   4.76 Municipal and other bonds  2,093   3.88   16,579   4.27   27,265   4.04   53,195   4.29   99,132   4.21 Pooled trust preferred  —   0.00   —   0.00   —   0.00   14,522   1.16   14,522   1.16 Certificates of Deposit  313   0.87   —   0.00   —   0.00   —   0.00   313   0.87                                Total available-for-sale  7,637   3.90   154,341   1.60   789,601   1.97   576,189   4.60   1,527,768   2.94%                                         Securities held to maturity:                                                                                 Mortgage-backed securities  —   0.00   1,948   4.28   14,406   4.30   15,161   5.75   31,515   5.00 Foreign bonds  —   0.00   500   1.76   —   0.00   —   0.00   500   1.76 Municipal bonds  52,214   1.48   1,630   2.42   625   5.17   125   6.00   54,594   1.56                                Total held to maturity  52,214   1.48   4,078   3.23   15,031   4.34   15,286   5.75   86,609   2.81                                Total $59,851   1.79% $158,419   1.64% $804,632   2.02% $591,475   4.63% $1,614,377   2.93%                               ***Loans*****.**At December 31, 2010, total loans were $2.8 billion, or 56.7% of total assets,compared to $2.8 billion, or 59.7% of total assets at December 31, 2009. The commercial andresidential loan portfolio experienced moderate growth during the year, which was partially offsetby a decline in the consumer loan portfolio primarily in home equity and lines of credit loans.During 2010, the commercial loan portfolio, primarily commercial real estate loans, experiencedhigh charge-off levels as a result of deterioration in the value of collateral securing a number oflarge collateral dependent real estate loans. Some economic measures are showing signs ofimprovement, however we believe the recovery for commercial real estate in our market area willtake some time causing continued downward pressure on property valuations. The Company ischarging-off the collateral deficiency on all of its classified collateral dependent loans oncethey are 90 days delinquent across all loan portfolios given our outlook for commercial real estatein our market area.
 
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The following table shows the loan portfolio at the dates indicated:                                         **December 31,** **2010**  **2009**  **2008**  **2007**  **2006** (Dollars in thousands) **Amount**  **Percent**  **Amount**  **Percent**  **Amount**  **Percent**  **Amount**  **Percent**  **Amount**  **Percent**                                          Commercial Loans:                                        Commercial real estate $600,734   21.5% $599,849   21.5% $543,647   22.4% $516,361   24.3% $407,452   24.1%Commercial business loans  441,881   15.8   438,778   15.7   319,593   13.2   135,880   6.4   98,070   5.8 Commercial construction  268,314   9.6   264,734   9.5   241,527   10.0   175,008   8.3   —   0.0                                Total commercial loans  1,310,929   46.9   1,303,361   46.7   1,104,767   45.6   827,249   39.0   505,522   29.9                                          Residential Loans:                                        Residential real estate  687,565   24.6   647,687   23.3   507,901   20.9   479,505   22.6   278,763   16.5 Residential construction  11,157   0.4   11,938   0.4   6,055   0.2   1,959   0.1   9,967   0.6                                Total real estate loans  698,722   25.0   659,625   23.7   513,956   21.1   481,464   22.7   288,730   17.1                                          Consumer Loans:                                        Home equity & lines of credit  288,875   10.3   314,467   11.3   363,592   15.0   392,188   18.5   386,414   22.9 Personal  94,036   3.4   112,142   4.0   133,258   5.5   149,596   7.0   169,871   10.0 Education  249,696   8.9   257,021   9.2   163,882   6.8   90,399   4.3   85,698   5.1 Automobile  154,144   5.5   143,503   5.1   145,127   6.0   180,026   8.5   252,590   15.0                                Total consumer loans  786,751   28.1   827,133   29.6   805,859   33.3   812,209   38.3   894,573   53.0                                Total loans  2,796,402   100.0%  2,790,119   100.0%  2,424,582   100.0%  2,120,922   100.0%  1,688,825   100.0%                                         Allowance for losses  (45,366)      (45,855)      (36,905)      (23,341)      (17,368)                                        Loans, net $2,751,036      $2,744,264      $2,387,677      $2,097,581      $1,671,457                                         **Loan Maturity**The following tables set forth certain information at December 31, 2010 regarding the dollar amountof loan principal repayments becoming due during the periods indicated. The tables do not includeany estimate of prepayments which significantly shorten the average life of all loans and may causeour actual repayment experience to differ from that shown below. Demand loans having no statedschedule of repayments and no stated maturity are reported as due in one year or less. The amountsshown below exclude applicable loans in process and include net deferred loan costs. Ouradjustable-rate mortgage loans generally do not provide for downward adjustments below the initialdiscounted contract rate. When market interest rates rise, as has occurred in recent periods, theinterest rates on these loans may increase based on the contract rate (the index plus the margin)exceeding the initial interest rate floor.                      **Home**                              **Residential**      **Equity &**                **December 31, 2010** **Commercial**  **Commercial**  **Commercial**  **Real**  **Residential**  **Lines of**              **Total** **(Dollars in thousands)** **Real Estate**  **Business**  **Construction**  **Estate**  **Construction**  **Credit**  **Personal**  **Auto**  **Education**  **Loans**                                          Amounts due in:                                         One year or less $77,201  $81,319  $212,119  $2,414  $10,846  $57,746  $3,224  $9,468  $56  $454,393  More than 1-5 years  66,240   93,848   30,473   11,848   311   49,417   9,347   103,693   1,025   366,202  More than 5-10 years  34,635   46,646   21,724   92,811   —   82,154   34,714   40,952   23,920   377,556  More than 10 years  422,658   220,068   3,998   580,492   —   99,558   46,751   31   224,695   1,598,251                                Total $600,734  $441,881  $268,314  $687,565  $11,157  $288,875  $94,036  $154,144  $249,696  $2,796,402                                
 
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The following table sets forth all loans at December 31, 2010 that are due after December 31,2011 and have either fixed interest rates or floating or adjustable interest rates:                   **Floating or**    (Dollars in thousands) **Fixed Rates**  **Adjustable Rates**  **Total**              Commercial real estate $63,981  $459,552  $523,533 Commercial business  72,729   287,833   360,562 Commercial construction  21,724   34,471   56,195 Residential real estate  620,729   64,422   685,151 Residential construction  —   311   311 Home equity and lines of credit  231,129   —   231,129 Personal  90,812   —   90,812 Automobile  144,676   —   144,676 Education  225,669   23,971   249,640           Total $1,471,449  $870,560  $2,342,009           **Loan Activity**The following table shows loans originated, purchased and sold during the periods indicated:                     **Year Ended December 31,**               (Dollars in thousands) **2010**  **2009**  **2008**  **2007**  **2006**                      Total loans at beginning of period $2,790,119  $2,424,582  $2,120,922  $1,688,825  $1,733,153 Originations:                    Commercial:                    Commercial real estate  72,176   66,842   114,126   211,386   141,578 Commercial business  131,865   202,947   237,148   53,861   44,588 Commercial construction  141,644   116,391   144,312   62,161   43,668                 Total commercial loans  345,685   386,180   495,586   327,408   229,834                      Residential;                    Residential real estate  191,805   183,666   100,403   33,988   27,306 Residential construction  12,031   8,940   8,462   1,959   8,978                 Total real estate loans  203,836   192,606   108,865   35,947   36,284                      Consumer:                    Home equity and lines of credit  62,978   45,780   61,962   62,285   87,377 Automobile  76,639   71,090   53,722   52,329   92,926 Personal  43,853   52,894   86,557   24,898   37,757 Education  —   16,425   39,564   18,694   26,712                 Total consumer loans  183,470   186,189   241,805   158,206   244,772                 Total loans originated  732,991   764,975   846,256   521,561   510,890                      Loans acquired from FMS Financial  —   —   —   443,016   —                      Purchases  9,888   201,681   38,356   91   5,064                      Less:                    Principal payments and repayments  720,508   560,617   580,166   529,335   551,351 Loan sales  —   37,272   —   2,941   8,592 Transfers to foreclosed real estate  16,088   3,230   786   295   339                 Total loans at end of period $2,796,402  $2,790,119  $2,424,582  $2,120,922  $1,688,825                 
 
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***Deposits*****.**Our deposit base is comprised of demand deposits, money market and passbook accountsand time deposits. Deposits increased $433.1 million, or 12.3% to $3.9 billion at December 31,2010. Increases in core deposits totaled $524.5 million and now represent 78% of our total depositportfolio. Approximately $310.0 million of the increase in core deposits was related to municipalchecking account growth with the majority of the remaining increases occurring in savings accounts.The Company has experienced significant growth in municipal checking over the past three yearsprimarily due to the recruitment of an experienced team in our New Jersey market. Municipalchecking accounts consisted of approximately 1,447 accounts with an average balance of $769thousand and represented 27.2% of the deposit base at December 31, 2010.The following table sets forth the deposits as a percentage of total deposits for the periodsindicated:                           **2010**  **2009**  **2008**       **Percent of**      **Percent of**      **Percent of** **At December 31,**     **Total**      **Total**      **Total** (Dollars in thousands) **Amount**  **Deposits**  **Amount**  **Deposits**  **Amount**  **Deposits**                          Non-interest bearing deposits $282,050   7.2% $242,412   6.9% $226,382   8.3%Interest-earning checking accounts  420,873   10.7   359,977   10.3   307,556   11.2 Municipal checking accounts  1,072,574   27.2   762,538   21.7   238,577   8.7 Money market accounts  622,050   15.8   665,757   19.0   534,012   19.5 Savings accounts  696,629   17.7   532,511   15.2   394,308   14.4 Time deposits  848,128   21.4   946,052   26.9   1,040,844   37.9                    Total $3,942,304   100.0% $3,509,247   100.0% $2,741,679   100.0%                   The Company is required to pledge securities to secure municipal deposits. At December 31,2010 and 2009, the Company had pledged $863.4 million and $567.7 million, respectively, ofsecurities to secure these deposits.The following table sets forth the time remaining until maturity for certificate of deposits of$100,000 or more at December 31, 2010. The Company had $23.2 million in brokered deposits atDecember 31, 2010, which are included in the table shown below:     **December 31, 2010** **Certificates** (Dollars in thousands) **of Deposit**  **Maturity Period:**    Three months or less $55,249 Over three through six months  29,569 Over six through twelve months  68,290 Over twelve months  46,153     Total $199,261     The following table sets forth the deposit activity for the periods indicated:             **Year Ended December 31,**         (Dollars in thousands) **2010**  **2009**  **2008** Beginning balance $3,509,247  $2,741,679  $2,465,163 Increase before interest credited  398,774   719,416   216,969 Interest credited  34,283   48,152   59,547           Net increase in deposits  433,057   767,568   276,516           Ending balance $3,942,304  $3,509,247  $2,741,679           ***Borrowings.***We have the ability to utilize advances from the FHLB of Pittsburgh to supplementour liquidity. As a member, we are required to own capital stock in the FHLB and are authorizedto apply for advances on the security of such stock and certain mortgage loans and other assets,provided certain standards related to creditworthiness have been met. Advances are made underseveral different programs, each having its own interest rate and range of maturities. We alsoutilize securities sold under agreements to repurchase and overnight repurchase agreements, alongwith the Federal Reserve Bank’s discount window and Federal Funds lines with correspondent banks tosupplement our supply of investable funds and to meet deposit withdrawal requirements. To secureour borrowings, we generally pledge securities and/or loans. The types of securities pledged forborrowings include, but are not limited to, agency GSE notes and agency mortgage-backed securities.The types of loans pledged for borrowings include, but are not limited to, one-to four-family realestate mortgage loans.
 
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The following table sets forth the outstanding borrowings and weighted averages at the datesindicated:             **Year Ended December 31,**         (Dollars in thousands) **2010**  **2009**  **2008** Maximum amount outstanding at any month-end during period:            Federal Home Loan Bank advances $169,750  $174,750  $225,750 Repurchase agreements  235,000   240,145   240,273 Federal Home Loan Bank overnight borrowings  —   —   151,255 Federal Reserve Bank of Philadelphia overnight borrowings  —   94,650   96,250 Statutory trust debenture  25,317   25,299   25,282 Other  —   35,896   72,446 Average outstanding balance during period:            Federal Home Loan Bank advances  134,628  174,599  190,684 Repurchase agreements  217,493   239,511   215,992 Federal Home Loan Bank overnight borrowings  274   —   30,746 Federal Reserve Bank of Philadelphia overnight borrowings  555   9,348   4,417 Statutory trust debenture  25,308   25,290   25,273 Other  1,276   6,249   17,987 Weighted average interest rate during period:            Federal Home Loan Bank advances  3.81%  4.22%  4.34%Repurchase agreements  4.36   4.38   4.38 Federal Home Loan Bank overnight borrowings  —   —   1.04 Federal Reserve Bank of Philadelphia overnight borrowings  0.75   0.5   0.50 Statutory trust debenture  2.05   2.71   5.04 Other  0.20   3.13   2.36 Balance outstanding at end of period:            Federal Home Loan Bank advances  113,000   169,750   174,750 Repurchase agreements  135,000   235,000   240,177 Federal Home Loan Bank overnight borrowings  —   —   — Federal Reserve Bank of Philadelphia overnight borrowings  —   —   96,250 Statutory trust debenture  25,317   25,299   25,282 Other  —   3,571   43,595 Weighted average interest rate at end of period:            Federal Home Loan Bank advances  3.37%  4.13%  4.18%Repurchase agreements  3.74   4.38   4.39 Federal Home Loan Bank overnight borrowings  —   —   — Federal Reserve Bank of Philadelphia overnight borrowings  —   —   0.50 Statutory trust debenture  1.88   1.83   3.58 Other  —   3.97   3.57 **Results of Operations for the Years Ended December 31, 2010, 2009 and 2008*****Financial Highlights.***The Company recorded a net loss of $9.0 million for the year ended December31, 2010 compared to net income of $17.1 million for the year ended December 31, 2009 and netincome of $16.5 million for the year ended December 31, 2008. The net loss recorded for the yearended December 31, 2010 was primarily due to higher provisions for loan losses to account fordeclining collateral values. The provision for loan losses increased to $70.2 million for the yearended December 31, 2010 compared to $15.7 million and $18.9 million for the years ended December31, 2009 and 2008, respectively. Net interest income increased $20.3 million to $147.6 million atDecember 31, 2010 compared to $127.3 million at December 31, 2009.**Summary Income Statements**The following table sets forth the income summary for the periods indicated:                             **Year Ended December 31,**             **Change 2010/2009**  **Change 2009/2008** (Dollars in thousands) **2010**  **2009**  **2008**  **$**  **%**  **$**  **%**                              Net interest income $147,618  $127,342  $114,011  $20,276   15.92% $13,331   11.69%Provision for loan losses  70,200   15,697   18,901   54,503   347.22%  (3,204)  (16.95%)Non-interest income  27,220   26,847   23,604   373   1.39%  3,243   13.74%Non-interest expenses  128,390   119,866   98,303   8,524   7.11%  21,563   21.94%Net (loss) income  (8,963)  17,089   16,546   (26,052)  (152.45)%  543   3.28%                             Return on average equity  (1.39)%  2.74%  2.70%                Return on average assets  (0.18)%  0.40%  0.44%                
 
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***Net Interest Income*****Average Balance Table**The following table presents information regarding average balances of assets and liabilities, thetotal dollar amounts of interest income and dividends from average interest-earning assets, thetotal dollar amounts of interest expense on average interest-bearing liabilities, and the resultingannualized average yields and costs. The yields and costs for the periods indicated are derived bydividing 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 notmaterial. In addition, non-accrual loans are included in the average balances but are not deemedmaterial.                                       **2010**  **2009**  **2008**       **Interest**          **Interest**          **Interest**    **Year ended December 31,** **Average**  **And**  **Yield/**  **Average**  **And**  **Yield/**  **Average**  **And**  **Yield/** (Dollars in thousands) **Balance**  **Dividends**  **Cost**  **Balance**  **Dividends**  **Cost**  **Balance**  **Dividends**  **Cost** **Assets:**                                    Interest-bearing demanddeposits $—  $—   0.00% $—  $—   0.00% $2,765  $29   1.05%Loans  2,794,245   146,753   5.25   2,650,116   140,183   5.29   2,239,274   132,645   5.92 Trading securities  7,804   85   1.10   139   1   0.72             Overnight investments  172,712   437   0.25   47,734   113   0.23             Investment securities  679,860   15,270   2.25   210,254   6,292   2.99   219,089   9,827   4.48 Mortgage-backed securities  645,830   30,047   4.65   792,130   39,644   5.00   755,659   40,693   5.39 CMOs  118,292   4,769   4.03   150,824   6,521   4.32   187,508   9,209   4.91 Other interest-earning assets  27,306   153   0.56   28,068   220   0.78   20,001   523   2.61                                Total interest-earning assets  4,446,049   197,514   4.44   3,879,265   192,974   4.97   3,424,296   192,926   5.63 Non-interest-earning assets  419,041           401,583           349,990                                            Total Assets $4,865,090          $4,280,848          $3,774,286                                                                                **Liabilities and Stockholders’Equity:**                                    Interest-earning checking $1,305,741   10,541   0.81  $840,578   9,052   1.08  $441,591   5,490   1.24 Money market  622,762   4,981   0.80   611,930   8,402   1.37   491,449   12,307   2.50 Savings  623,819   4,526   0.73   427,478   2,671   0.62   404,346   2,742   0.68 Time deposits  881,287   14,710   1.68   980,641   26,724   2.73   1,031,525   38,603   3.74                                Total interest-bearing deposits  3,433,609   34,758   1.01   2,860,627   46,849   1.64   2,368,911   59,142   2.50 FHLB advances  134,628   5,123   3.81   174,599   7,373   4.22   190,684   8,276   4.34 Repurchase agreements  217,493   9,488   4.36   239,511   10,481   4.38   215,992   9,459   4.38 Federal reserve overnightborrowings  555   4   0.75   9,348   47   0.50   4,417   22   0.50 FHLB overnight borrowings  274   2   0.61   —   —   0.00   30,746   319   1.04 Fed funds purchased  983   2   0.25                         Statutory trust debenture  25,308   519   2.05   25,290   686   2.71   25,273   1,274   5.04 Other borrowings  293   0   0.00   6,249   196   3.14   17,987   423   2.36                                   3,813,143   49,896   1.31   3,315,624   65,632   1.98   2,854,010   78,915   2.77 Non-interest-bearing deposits  268,702           239,871           301,052         Other non-interest-bearingliabilities  136,196           101,461           5,588                                           Total liabilities  4,218,041   49,896       3,656,956   65,632       3,160,650   78,915                                          Total stockholders’ equity  647,049           623,892           613,636          Total liabilities andstockholders’ equity $4,865,090          $4,280,848          $3,774,286                                           Net interest income     $147,618          $127,342          $114,011                                       Interest rate spread          3.13%          2.99%          2.87%                                  Net interest margin          3.32%          3.28%          3.33%                                  Average interest-earning assetsto average interest-bearingliabilities          116.60%          117.00%          119.98%                                  
 
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***Rate/Volume Analysis*****.**The following table sets forth the effects of changing rates and volumeson 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 tochanges in volume (changes in volume multiplied by prior rate). The net column represents the sumof the prior columns. Changes attributable to changes in both rate and volume that cannot besegregated have been allocated proportionally based on the changes due to rate and the changes dueto volume.                           **Year Ended 12/31/2010**  **Year Ended 12/31/2009**   **Compared to**  **Compared to**   **Year Ended 12/31/2009**  **Year Ended 12/31/2008**   **Increase (Decrease)**  **Increase (Decrease)**   **Due to**  **Due to** (Dollars in thousands) **Volume**  **Rate**  **Net**  **Volume**  **Rate**  **Net** Interest income:                        Interest-bearing deposits $—  $—  $—  $(29) $—  $(29)Loans receivable  7,570   (1,000)  6,570   21,732   (14,194)  7,538 Trading securities  83   1   84   1   —   1 Overnight investments  316   8   324   113   —   113 Investment securities  10,548   (1,570)  8,978   (264)  (3,271)  (3,535)Mortgage-backed securities  (6,807)  (2,790)  (9,597)  1,825   (2,874)  (1,049)Collateralized mortgage obligations  (1,312)  (440)  (1,752)  (1,586)  (1,102)  (2,688)Other interest-earning assets  (4)  (63)  (67)  63   (366)  (303)                   Total interest-earning assets  10,394   (5,854)  4,540   21,855   (21,807)  48 Interest expense:                        Interest-earning checking accounts  3,755   (2,266)  1,489   4,297   (735)  3,562 Money market  87   (3,508)  (3,421)  1,654   (5,559)  (3,905)Savings accounts  1,425   430   1,855   145   (216)  (71)Time deposits  (1,658)  (10,356)  (12,014)  (1,387)  (10,492)  (11,879)                   Total interest-bearing deposits  3,609   (15,700)  (12,091)  4,709   (17,002)  (12,293)                         FHLB advances  (1,521)  (729)  (2,250)  (679)  (224)  (903)Repurchase agreements  (961)  (32)  (993)  1,029   (7)  1,022 Federal Reserve overnight borrowings  (63)  20   (43)  47   —   47 FHLB overnight borrowings  2   —   2   (319)  —   (319)Fed Funds purchased  2   —   2   —   —   — Statutory trust debenture  —   (167)  (167)  —   (588)  (588)Other borrowings  —   (196)  (196)  (507)  258   (249)                   Total interest-bearing liabilities  1,068   (16,804)  (15,736)  4,280   (17,563)  (13,283)Net change in net interest income $9,326  $10,950  $20,276  $17,575  $(4,244) $13,331                    ***2010 vs. 2009.***Net interest income increased $20.3 million or 15.9% to $147.6 million for 2010from $127.3 million in 2009. Total interest income increased $4.5 million, or 2.4% to $197.5million for 2010 as a result of increases in interest on loans of 4.7% to $146.8 million. Theincrease in income from interest and fees on loans was primarily due to an increase in the averagebalance of loans of 5.4% to $2.8 billion at December 31, 2010 from $2.7 billion at December 31,2009. Total interest expense decreased $15.7 million or 24.0% to $49.9 million for 2010 due to adecrease of 63 basis points in interest paid on deposits as a result of a shift from higherinterest time deposits to lower interest savings and demand deposits coupled with a decrease in theaverage balance and rate on borrowings. During 2010, the average balance of our time depositsdecreased $99.3 million and the cost on time deposits decreased 105 basis points.***2009 vs. 2008.***Net interest income increased $13.3 million or 11.7% to $127.3 million for 2009from $114.0 million in 2008. Total interest income increased $48 thousand, or only 0.02% to $193.0million for 2009 as a result of increases in interest and fees on loans and dividends on tax-exemptinvestment securities offset by a decline in interest on taxable investment securities. Theincrease in income from interest and fees on loans was primarily due to an increase in the averagebalance of loans of 18.35% to $2.7 billion. Total interest expense decreased $13.3 million or16.83% to $65.6 million for 2009 due to a decline in interest rates. During 2009, the averagebalance of our time deposits decreased $50.9 million and the cost on time deposits decreased 101basis points.
 
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***Provision for Loan Losses.***A provision for credit losses of $70.2 million was recorded for the year ended December 31, 2010compared to $15.7 million and $18.9 million for the years ended December 31, 2009 and 2008,respectively. The increase in the provision for loan losses recorded for year ended December 31,2010 was primarily driven by increased reserves required for commercial real estate loans given thecontinued deterioration in the value of collateral for these loans as the overall economicenvironment in the Company’s market area struggles to recover. Net charge-offs during year endedDecember 31, 2010 were $70.7 million, compared to $6.7 million and $5.3 million during the yearsended December 31, 2009 and 2008, respectively. The Company charges-off any collateral deficiencyon all collateral dependent classified loans once they are 90 days delinquent. Education loansgreater than 90 days delinquent continue to accrue interest as these loans are guaranteed by thegovernment and have little risk of credit loss. The provision for loan losses was determined bymanagement to be an amount necessary to maintain a balance of allowance for loan losses at a levelthat considers all known and current losses in the loan portfolio as well as potential losses dueto unknown factors such as the economic environment. Changes in the provision were based onmanagement’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 delinquentloans, and changes in general economic and business conditions.The allowance for loan losses was $45.4 million, or 1.62% of total loans outstanding, as ofDecember 31, 2010 compared to $45.9 million, or 1.64% of total loans outstanding, as of December31, 2009 and $36.9 million, or 1.52% of total loans outstanding, as of December 31, 2008. Ananalysis of the changes in the allowance for loan losses is presented under “*RiskManagement—Analysis and Determination of the Allowance for Loan Losses”*below.***Non-interest Income.***For the year ended December 31, 2010, non-interest income increased $373thousand to $27.2 million from $26.8 million. This increase was primarily the result of additionaldebit card fees, increases in insurance and advisory income, additional trading securities profits,an increase in the cash surrender value of life insurance and a decrease in impairment charges onsecurities available for sale, partially offset by a decrease in gains on sale of investmentsecurities available for sale of $4.1 million.**Non-interest Income Summary**The following table sets forth a summary of non-interest income for the periods indicated:                             **Year Ended December 31,**             **Change 2010/2009**  **Change 2009/2008** (Dollars in thousands) **2010**  **2009**  **2008**  **$**  **%**  **$**  **%**                              Insurance commission income $8,658  $8,133  $10,090  $525   6.5%  ($1,957)  (19.4)%Services charges and other income  15,934   13,743   15,973   2,191   15.9   (2,230)  (14.0) Impairment charge on securitiesavailable-for-sale  (88)  (1,587)  (3,216)  1,499   (94.5)  1,629   (50.7) Gains on sale of investmentsecurities available-for-sale  2,390   6,530   757   (4,140)  (63.4)  5,773   762.6  Trading securities profits  326   28   —   298   1,064.3   28   100.0                        Total $27,220  $26,847  $23,604  $373   1.4% $3,243   13.7%                      
 
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***Non-interest Expenses.***Non-interest expense increased $8.5 million, or 7.1%, to $128.4 million forthe year ended December 31, 2010 compared to the year ended December 31, 2009. The increases wereprimarily due to increases in salaries and benefits from normal merit increases, as well as growthin the number of employees. The Company also had increases in expenses for internet banking, debitcard rewards programs and other real estate owned. For the year ended December 31, 2010 theCompany’s efficiency ratio improved to 73.4% compared to 77.7% for the year ended December 31,2009.**Non-interest Expense Summary**The following table sets forth an analysis of non-interest expense for the periods indicated:                                           **Change 2010/2009**  **Change 2009/2008** (Dollars in thousands) **2010**  **2009**  **2008**  **$**  **%**  **$**  **%** Salaries and employee benefits $61,048  $58,251  $45,395  $2,797   4.8% $12,856   28.3%Occupancy expense  11,815   11,992   11,693   (177)  (1.5)  299   2.6 Depreciation, amortization andmaintenance  9,260   8,822   8,225   438   5.0   597   7.3 Amortization of intangibles  3,511   3,555   5,213   (44)  (1.2)  (1,658)  (31.8)Advertising  5,898   5,889   6,300   9   0.2   (411)  (6.5)Insurance  1,767   1,943   2,235   (176)  (9.1)  (292)  (13.1)Professional fees  4,731   4,046   4,300   685   16.9   (254)  (5.9)Printing and supplies  2,362   2,314   2,361   48   2.1   (47)  (2.0)Correspondent Bank  2,819   2,952   2,780   (133)  (4.5)  172   6.2 Postage  1,329   1,241   1,142   88   7.1   99   8.7 Impairment of goodwill  —   976   —   (976)  (100.0)  976   100.0 FDIC Assessment  5,606   5,633   341   (27)  (0.5)  5,292   1,551.9 Internet Banking  1,862   1,478   520   384   26.0   958   184.2 Debit Card Rewards  969   210   —   759   361.4   210   100.0 OREO Losses & Expenses  1,008   337   200   671   199.1   137   68.5 Loan Expenses  2,727   2,573   1,117   154   6.0   1,456   130.4 Other  11,678   7,654   6,481   4,024   52.6   1,173   18.2                         Total $128,390  $119,866  $98,303  $8,524   7.1  $21,563   21.9                         ***Income Tax Expense.***The benefit for income taxes was $14.8 million for 2010, reflecting aneffective rate of 62.26%, compared to a provision for income taxes of $1.5 million for 2009,reflecting an effective tax rate of 8.25%, and an income tax provision of $3.9 million for 2008,reflecting an effective tax rate of 19.0%. The change from 2009 to 2010 is primarily due to achange in pre-tax book income from a profit of $18.6 million in 2009 to a pre-tax loss of $23.8million in 2010. The $42.4 million decrease in pre-tax earnings for the year ended December 31,2010 was primarily due to higher provisions for loan losses. The provision for loan losses was$70.2 million in 2010 as compared to $15.7 million for the year ended December 31, 2009. Statetaxes decreased $2.4 million in 2010 to a benefit of $1.9 million from a provision of $0.5 millionin 2009. The tax rates differ from the statutory rate of 35% principally because of tax-exemptinvestments, non-taxable income related to bank-owned life insurance and tax credits received onaffordable housing partnerships. These tax credits relate to investments maintained by the Companyas a limited partner in partnerships that sponsor affordable housing projects utilizing low-incomehousing credits pursuant to Section 42 of the Internal Revenue Code.As of December 31, 2010, the Company had net deferred tax assets totaling $31.9 million. Thesedeferred tax assets can only be realized if the Company generates taxable income in the future. Weregularly evaluate the realizability of deferred tax asset positions. In determining whether avaluation allowance is necessary, we consider the level of taxable income in prior years to theextent that carrybacks are permitted under current tax laws, as well as estimates of future pre-taxand taxable income and tax planning strategies that would, if necessary, be implemented. Wecurrently maintain a valuation allowance for certain state net operating losses, charitablecontribution carryovers and other-than-temporary impairments, that management believes it is morelikely than not that such deferred tax assets will not be realized. We expect to realize ourremaining deferred tax assets over the allowable carryback and/or carryforward periods. Therefore,no valuation allowance is deemed necessary against our remaining federal or remaining statedeferred tax assets as of December 31, 2010. However, if an unanticipated event occurred thatmaterially changed pre-tax and taxable income in future periods, an increase in the valuationallowance may become necessary and it could be material to our financial statements.
 
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**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 riskis the risk of not collecting the interest and/or the principal balance of a loan or investmentwhen it is due. Interest rate risk is the potential reduction of interest income as a result ofchanges in interest rates. Market risk arises from fluctuations in interest rates that may resultin changes in the values of financial instruments, such as available-for-sale securities that areaccounted for at fair value. Other risks that we face are operational risks, liquidity risks andreputation risk. Operational risks include risks related to fraud, regulatory compliance,processing errors, technology and disaster recovery. Liquidity risk is the possible inability tofund obligations to depositors, lenders or borrowers. Reputation risk is the risk that negativepublicity or press, whether true or not, could cause a decline in our customer base or revenue.**Credit Risk Management.**During 2009, we established a Loan Review Department that is responsiblefor completing a risk based review of credits prior to loan approval, managing risk ratingassignments for our commercial loan portfolio, as well as monitoring and analyzing our loanportfolio on an ongoing basis. Representatives of the Loan Department report to the Board ofDirectors on a quarterly basis.Our strategy for credit risk management focuses on having well-defined credit policies and uniformunderwriting criteria and providing prompt attention to potential problem loans. In addition, newloan credits are reviewed on a weekly basis by an in-house Loan Committee, which is comprised ofmembers of senior management including representatives of the the Company’s Risk Management,Finance and Lending Departments. Additionally, loan review analysis of the portfolio is providedby our Loan Review Department, which provides reports associated with loan quality and risk ratingrecommendations to senior management and the Board of Directors at a portfolio level as well asrelative to individual lender portfolios.When a borrower fails to make a required loan payment, we take a number of steps to have theborrower cure the delinquency and restore the loan to current status, including contacting theborrower by letter and phone at regular intervals beginning on the seventh day of delinquency, orwhen during the course of monitoring the loan, an event of default is indentified. When theborrower is in default, we continue to escalate collection proceedings. If a foreclosure action isinstituted and the loan is not brought current, paid in full, or refinanced before the foreclosuresale, the real property securing the loan generally is secured by the Company at foreclosure, andthe Company proceeds with activities aimed to liquidate the collateral while optimizing return tothe Company. Generally, collection proceedings begin as soon as a consumer loan becomes past dueor when an event of default is identified. When a consumer loan becomes 45 days past due, weinstitute attempts to repossess any personal property that secures the loan. Management informsthe Board of Directors monthly of the amount of delinquent, classified and charged-off loans. Moredetailed information regarding delinquencies by loan type is provided to the Board of Directors ona quarterly basis.**Analysis of Nonperforming, Classified Assets and Troubled Debt Restructured.**We considerrepossessed assets and loans that are 90 days or more past due, except guaranteed student loans, tobe nonperforming assets. All loans are placed on nonaccrual status when they become 90 daysdelinquent at which time the accrual of interest ceases and any collateral deficiency is chargedoff. Typically, payments received on a nonaccrual loan are applied to the outstanding principalbalance of the loan.Real estate that we acquire as a result of foreclosure or by deed-in-lieu of foreclosure isclassified as real estate owned until it is sold. When property is acquired, it is recorded at thelower of its cost or fair market value (“FMV”) less estimated costs to sell. Holding costs anddeclines in fair value after acquisition of the property result in charges against income.The Bank considers a loan a troubled debt restructured (“TDR”) when the borrower is experiencingfinancial difficulty and we grant a concession that we would not otherwise consider but for theborrower’s financial difficulties. A TDR includes a modification of debt terms or assets receivedin satisfaction of the debt (includes foreclosure or deed in lieu of foreclosure) or a combinationof types. The Bank evaluates selective criteria to determine if a borrower is experiencingfinancial difficulty including the ability of the borrower to obtain funds from sources other thanthe Bank at market rates. The Bank considers all TDR loans as impaired loans and they are put onnon-accrual status The Bank will not consider the loan a TDR if the loan modification was a resultof a customer retention program.Once a loan has been classified as a TDR and has been put on non-accrual status, it will only beput back on accruing status when the following criteria are met; 1) the ultimate collectability ofall amounts contractually due on the loan being considered for accrual status are not in doubt, and2) there is a period of satisfactory payment performance by the borrower (either immediately beforeor after the restructuring) before the loan is returned to accrual status. Generally, a period ofsatisfactory payment performance by the borrower is at least six months for a monthly amortizingloan; but could be a longer period of time depending on the facts and circumstances, including thevalue of the loan collateral and consideration of guarantees. For loans in which the principalamortization schedule is extended or where interest payments are deferred and capitalized; theperiod of satisfactory payment performance is assessed in detail as the six month period notedabove will most likely not be long enough to support placing the loan back on accruing status.
 
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The following table sets forth information with respect to our nonperforming assets at the datesindicated. We had 24 TDR’s at December 31, 2010 totaling $26.7 million, 18 at December 31, 2009totaling $33.3 million and five at December 31, 2008 totaling $16.4 million and none for the otherperiods presented. All TDRs are included in non-accrual loans at December 31, 2010. Managementmonitors the activity and performance of non performing assets on a weekly basis.                     **December 31,**               (Dollars in thousands) **2010**  **2009**  **2008**  **2007**  **2006**  **Nonaccrual loans:**                    Real estate loans:                    One-to-four family $13,414  $1,226  $13  $23  $— Commercial real estate  60,288   64,317   15,394   4,939   363 Residential construction  308   —   —   —   —                 Total real estate loans  74,010   65,543   15,407   4,962   363                      Commercial business loans  21,634   6,356   1,175   2,500   —                      Consumer loans:                    Home equity lines of credit  —   —   248   —   — Automobile loans  70   274   224   223   171 Other consumer loans  89   134   109   —   —                 Total consumer loans  159   408   581   223   171                 Total nonaccrual loans  95,803   72,307   17,163   7,685   534                      **Accruing loans past due 90 days or more:**                    Real estate loans:                    One-to-four family  44   4,405   6,192   3,700   2,425 Commercial real estate  —   5,222   4,104   1,343   2,662 Residential construction  —   —   —   —   —                 Total real estate loans  44   9,627   10,296   5,043   5,087                      Commercial business loans  —   1,448   2,889   64   83                      Consumer loans:                    Home equity lines of credit  —   12   —   36   54 Automobile loans  —   176   114   117   130 Other consumer loans (1)  27,888   36,912   7,584   3,366   2,263                 Total consumer loans  27,888   37,100   7,698   3,519   2,447                 Total accruing loans past due 90 days or more  27,932   48,175   20,883   8,626   7,617                 Total non-performing loans  123,735   120,482   38,046   16,311   8,151                      Real estate owned  16,694   9,061   6,297   4,797   2,809                      Troubled debt restructurings  —   33,337   16,442   —   —                                      Total nonperforming assets $140,429  $162,880  $60,785  $21,108  $10,960                                      Total nonperforming loans to total loans  4.42%  4.32%  1.57%  0.77%  0.48%Total nonperforming loans to total assets  2.51%  2.58%  0.95%  0.46%  0.35%Total nonperforming assets to total assets  2.85%  3.49%  1.52%  0.59%  0.48%Total real estate owned to total assets  0.34%  0.19%  0.16%  0.13%  0.12%(1) Includes government guaranteed student loans of $27.9 million and $33.2 million at December 31,2010 and 2009, respectively.Non performing assets, including loans 90 days past due and still accruing, decreased to $140.4million, or 2.85% of total assets at December 31, 2010 from $162.9 million, or 3.49% of totalassets at December 31, 2009 as a result of the charge-offs recorded during the year ended December31, 2010. Net charge-offs for the year ended December 31, 2010 were $70.7 million compared to $6.7million during the year ended December 31, 2009. The Company charges-off the collateral deficiencyon all collateral dependent classified loans once they are 90 days delinquent. Non performingassets at December 31, 2010 and 2009, included $27.9 million, or 19.9%, and $33.2 million, or 20.4%,respectively, of government guaranteed student loans where Beneficial has little risk of creditloss. The Company continues to rigorously review our loan portfolio to ensure that the collateralvalues remain sufficient to support the outstanding balances.Interest income that would have been recorded for the year ended December 31, 2010, hadnon-accruing loans been current according to their original terms, amounted to approximately $4.0million.
 
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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 beclassified. The Bank’s credit review process includes a risk classification of all commercial andresidential loans that includes pass, special mention, substandard and doubtful. A loan isclassified as pass when payments are current and it is performing under the original contractualterms and conditions. A loan is classified as special mention when the borrower exhibits potentialcredit weakness or a downward trend which, if not checked or corrected, will weaken the asset orinadequately protect the Bank’s position. While potentially weak, the borrower is currentlymarginally acceptable; no loss of principal or interest is envisioned. A loan is classified assubstandard when the borrower has a well defined weakness or weaknesses that jeopardize the orderlyliquidation of the debt. A substandard loan is inadequately protected by the current net worth andpaying capacity of the obligor, normal repayment from this borrower is in jeopardy, and there is adistinct possibility that a partial loss of interest and/or principal will occur if thedeficiencies are not corrected. A loan is classified as doubtful when a borrower has all weaknessesinherent in a loan classified as substandard with the added provision that (1) the weaknesses makecollection of debt in full on the basis of currently existing facts, conditions and values highlyquestionable and improbable (2) serious problems exist to the point where a partial loss ofprincipal is likely; or (3) the possibility of loss is extremely high, but because of certainimportant, reasonably specific pending factors which may work to the advantage and strengthening ofthe assets, its classification as an estimated loss is deferred until its more exact status may bedetermined. Pending factors include proposed merger, acquisition, or liquidation procedures,capital injection, perfecting liens and additional refinancing plans. The Company charges-off thecollateral deficiency on all loans classified as substandard for loan loss related to that asset.In all cases, loans are placed on nonaccrual when 90 days past due or earlier if collection ofprincipal or interest is considered doubtful.The following table summarizes classified assets of all portfolio types at the dates indicated:                 **At December 31,**            (Dollars in thousands) **2010**  **2009**  **2008**  **2007**                  Special mention assets $42,643  $40,809  $42,233  $— Substandard assets  81,354   65,617   41,739   9,295 Doubtful assets  29,003   51,482   13,351   370              Total classified assets $153,000  $157,908  $97,323  $9,665              ***Credit Risk Management.***The objective of the Company’s credit risk management strategy is toquantify and manage credit risk on a segmented portfolio basis, as well as to limit the risk ofloss resulting from an individual customer default. The Company’s credit risk management strategyis based on three core principles: conservatism, diversification and monitoring. The Companybelieves that effective credit risk management begins with conservative lending practices. Thesepractices include conservative exposure limits and conservative underwriting, documentation andcollection standards. The Company’s credit risk management strategy also emphasizes diversificationon an industry and customer level as well as regular credit examinations and weekly managementreviews of large credit exposures and credits experiencing deterioration of credit quality. TheBoard of Directors has granted loan approval authority to certain officers or groups of officers upto prescribed limits, based on the officer’s experience and tenure. Generally, all commercialloans less than $10.0 million must be approved by a Loan Committee, which is comprised of personnelfrom the Credit, Finance and Lending departments. Individual loans or lending relationships withaggregate exposure of more than $10.0 million must be approved by the Senior Loan Committee, whichis comprised of senior Bank officers and five non-employee directors. All loans or lendingrelationships in excess of $20.0 million must be approved by the Senior Loan Committee of theCompany’s Board, as well as the Executive Committee of the Board, which includes six non-employeedirectors. Underwriting activities are centralized. The Credit Risk Review function, withinEnterprise Risk Management, provides objective assessments of the quality of underwriting anddocumentation, the accuracy of risk grades and the charge-off, nonaccrual and reserve analysisprocess. The Company’s credit review process and overall assessment of required allowances is basedon quarterly assessments of the probable estimated losses inherent in the loan portfolio. TheCompany uses these assessments to promptly identify potential problem loans within the portfolio,maintain an adequate reserve and take any necessary charge-offs. The Company charges off thecollateral deficiency on all collateral dependent loans once they become 90 days delinquent.Generally, all consumer loans are charged off once they become 90 days delinquent except foreducation loans as they are guaranteed by the government and there is little risk of loss. Inaddition to the individual review of larger commercial loans that exhibit probable or observedcredit weaknesses, the commercial credit review process includes the use of a risk grading system.The enhanced risk rating system is consistent with Basel II expectations and allows for precisionin the analysis of commercial credit risk. Historical portfolio performance metrics, currenteconomic conditions and delinquency monitoring are factors used to assess the credit risk in theCompany’s homogenous commercial, residential and consumer loan portfolio.***Analysis and Determination of the Allowance for Loan Losses*****.**The allowance for loan losses is avaluation allowance for probable losses inherent in the loan portfolio. We evaluate the adequacyof the allowances for loan losses balance on loans on a quarterly basis. When additionalallowances 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 onthe remainder of the loan portfolio; and (3) an unallocated component. Although we determine theamount of each element of the allowance separately, the entire allowance for loan losses isavailable to absorb losses in the loan portfolio.
 
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We evaluate all classified loans and establish a specific reserve if a determination is made thatfull collectability may not be reasonably assured. When this occurs, we consider the estimatedfair value of the underlying collateral, less selling costs and other market conditions. If ashortfall exists, we establish a specific allowance amount. For commercial real estate loans thatare collateral dependent, any collateral deficiency is charged-off after a loan is delinquent by 90days.We establish a general allowance for loans that are not evaluated separately for impairment torecognize the inherent losses associated with lending activities. This general valuation allowanceis determined by segregating the loans by loan category and assigning allowance percentages to eachcategory. The percentages may be adjusted for significant factors that, in management’s judgment,affect the collectability of the portfolio as of the evaluation date. These significant riskfactors may include recent loss experience in particular segments of the portfolio, trends in loanvolumes, levels and trends in delinquent loans, changes in existing general economic and businessconditions 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 factorsare reevaluated quarterly to ensure their relevance in the current economic environment. Anunallocated 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 collectability. Forindividually reviewed loans, the borrower’s inability to make payments under the terms of the loanas well as a shortfall in collateral value may result in a write down to management’s estimate ofnet realizable value.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 Bankingmay require us to make additional provisions for loan losses based on judgments different fromours.For the year ended December 31, 2010, a provision for loan losses of $70.2 million was recorded,and the allowance for loan losses at December 31, 2010 was $45.4 million, or 1.6% of total loansoutstanding, compared to $45.9 million, or 1.6% of total loans outstanding, at December 31, 2009.This allowance represents management’s estimate of the amount necessary to cover known and inherentlosses in the loan portfolio.The following table sets forth the breakdown of the allowance for loan losses by loan category atthe dates indicated:                                           **2010**  **2009**  **2008**  **2007**  **2006**       Loan      Loan      Loan      Loan      Loan   Allowance  Category  Allowance  Category  Allowance  Category  Allowance  Category  Allowance  Category   Allocated  as a %  Allocated  as a %  Allocated  as a %  Allocated  as a % of  Allocated  as a % of   to Loan  of Total  to Loan  of Total  to Loan  of Total  to Loan  Total  to Loan  Total (Dollars in thousands) Portfolio  Loans  Portfolio  Loans  Portfolio  Loans  Portfolio  Loans  Portfolio  Loans Commercial:                                        Commercial real estate $14,793   21.5% $9,842   21.5% $15,748   22.4% $9,202   24.3% $8,124   24.1%Commercial business loans  14,407   15.8   20,515   15.7   7,185   13.2   4,837   6.4   1,955   5.8 Commercial construction  9,296   9.6   4,344   9.5   6,996   10.0   3,118   8.3   —   0.0                                Total Commercial  38,496   46.9   34,701   46.7   29,929   45.6   17,157   39.0   10,079   29.9 Residential:                                        Residential real estate  1,854   24.6   5,460   23.3   3,152   20.9   1,763   22.6   970   16.5 Residential construction  30   0.4   97   0.4   37   0.2   —   0.1   —   0.6                                Total real estate loans  1,884   25.0   5,557   23.7   3,189   21.1   1,763   22.7   970   17.1                                          Consumer:                                        Home equity & lines of credit  2,136   10.3   2,169   11.3   1,400   15.0   2,370   18.5   2,326   22.9 Personal  977   3.4   1,041   4.0   849   5.5   726   7.0   1,295   10.0 Education  297   8.9   903   9.2   737   6.8   95   4.3   9   5.1 Automobile  1,026   5.5   1,484   5.1   801   6.0   1,230   8.5   2,532   15.0                                Total consumer  4,436   28.1   5,597   29.4   3,787   33.3   4,421   38.3   6,162   53.0                                Unallocated  550       —       —       —       157                                         Total allowance for loanlosses $45,366   100.0% $45,855   100.0% $36,905   100.0% $23,341   100.0% $17,368   100.0%                                    
 
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Commercial Portfolio. The total allowance for loan losses related to the commercial portfolioof $38.5 million at December 31, 2010 (2.9% of commercial loans) is consistent with $34.7 millionat December 31, 2009 (2.7% of commercial loans). However at December 31, 2009, the commercialreserves included $15.7 million of specific reserves required for impaired loans, which totaled$29.3 million, and $19.0 million of reserves for the remaining commercial loan portfolio. Duringthe year ended December 31, 2010, we recorded a partial charge-off for all of our classifiedcommercial loans with a collateral deficiency which totaled $66.3 million given our outlook forcommercial real estate. We also charge off any collateral deficiency for non-performing commercialloans once a loan is 90 days past due. As a result, the entire reserve balance at December 31,2010 consists of reserves against the pass rated and special mention commercial loan portfolio. Theincrease in reserves from prior year-end is due to the weakening in commercial real estatepreviously discussed.Residential Loans. The allowance for the residential loan estate portfolio was $1.9 million atDecember 31, 2010 and $5.5 million at December 31, 2009. The decrease in the allowance was due tocharge-offs of only $918 thousand experienced during the year on the residential loan portfolio.Despite an increase in non-accruing residential loans, the actual charge-offs were not significantas the collateral values on these properties had remained relatively sufficient to support theloan. The Company expects that the difficult housing environment, as well as general economicconditions, will continue to impact the residential loan portfolio which may result in higher losslevels.Consumer Loans. The allowance for the consumer loan portfolio decreased from $5.6 million atDecember 31, 2009 to $4.4 million at December 31, 2010. The decrease in the reserve balance is dueto an increase in charge-offs experienced in the home equity loan portfolio from last year. Theallowance as a percentage of consumer loans was 0.6% at December 31, 2010 and 0.7% at December 31,2009.Unallocated Allowance. The unallocated allowance for loan losses was $550 thousand at December 31,2010 and $0 at December 31, 2009. Management continuously evaluates its allowance methodologyhowever, the unallocated allowance is subject to changes each reporting period due to certaininherent but undetected losses which are probable of being realized within the loan portfolio.Although we believe that we use the best information available to establish the allowance for loanlosses, future adjustments to the allowance for loan losses may be necessary and our results ofoperations could be adversely affected if circumstances differ substantially from the assumptionsused in making the determinations. Furthermore, while we believe we have established our allowancefor loan losses in conformity with generally accepted accounting principles, there can be noassurance that regulators, in reviewing our loan portfolio, will not require us to increase ourallowance for loan losses. In addition, because future events affecting borrowers and collateralcannot be predicted with certainty, there can be no assurance that the existing allowance for loanlosses is adequate or that increases will not be necessary should the quality of any loansdeteriorate as a result of the factors discussed above. Any material increase in the allowance forloan losses may adversely affect our financial condition and results of operations.
 
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The following table sets forth an analysis of the activity in the allowance for loan lossesfor the periods indicated:                     **Year Ended December 31,**               (Dollars in thousands) **2010**  **2009**  **2008**  **2007**  **2006**                      Allowance at beginning of period $45,855  $36,905  $23,341  $17,368  $17,096                      Provision for loan losses  70,200   15,697   18,901   2,470   1,575 Charge offs:                    Real estate loans:                    One-to-four family  918   6   35   72   44 Commercial real estate  51,841   2,851   921   477   —                 Total real estate loans  52,759   2,857   956   549   44                      Commercial business loans  14,505   1,870   2,753   188   12                      Consumer:                    Home equity lines of credit  2,106   544   433   241   81 Automobile loans  1,090   1,340   1,282   969   1,347 Other consumer loans  1,182   1,092   539   444   813                 Total consumer loans  4,378   2,976   2,254   1,654   2,241                 Total charge-offs  71,642   7,703   5,963   2,391   2,297                      Recoveries:                    Real estate loans:                    One-to-four family  2   4   3   1   36 Commercial real estate  162   —   —   —   —                 Total real estate loans  164   4   3   1   36                      Commercial business  171   212   —   —   1                      Consumer:                    Home equity lines of credit  71   137   128   137   123 Automobile loans  339   355   355   504   467 Other consumer loans  208   248   140   237   367                 Total consumer loans  618   740   623   878   957                 Total recoveries  953   956   626   879   994                 Net charge-offs  70,689   6,747   5,337   1,512   1,303                 Allowance acquired from merger  —   —   —   5,015   —                 Allowance at end of period $45,366  $45,855  $36,905  $23,341  $17,368                                      Allowance to nonperforming loans  36.66%  38.06%  97.00%  143.10%  213.09%Allowance to total loans  1.62%  1.64%  1.52%  1.10%  1.03%Net charge-offs to average loans  2.53%  0.25%  0.24%  0.08%  0.07%***Interest Rate Risk Management.***Interest rate risk is defined as the exposure to current andfuture earnings, and capital that arises from adverse movements in interest rates. Depending on abank’s asset/liability structure, adverse movements in interest rates could be either rising orfalling interest rates. For example, a bank with predominantly long-term fixed-rate loans, andshort-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 benegatively 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 instrumentswith otherwise similar repricing characteristics (basis risk); and from interest rate relatedoptions 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 interestrates affects our net income and the market value of our portfolio equity in a positive or negativeway, and to execute strategies to maintain interest rate risk within established limits. Theresults at December 31, 2010 and 2009 indicate an acceptable level of risk. The 2010 and 2009results indicate a profile which reflects interest rate risk exposures in both rising and decliningrate environments for both net interest income and economic value.
 
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***Model Simulation Analysis.***The Company views interest rate risk from two different perspectives.The traditional accounting perspective, which defines and measures interest rate risk as the changein net interest income and earnings caused by a change in interest rates, provides the best view ofshort-term interest rate risk exposure. The Company also views interest rate risk from an economicperspective, which defines and measures interest rate risk as the change in the market value ofportfolio equity caused by changes in the values of assets and liabilities, which fluctuated due tochanges in interest rates. The market value of portfolio equity, also referred to as the economicvalue of equity, is defined as the present value of future cash flows from existing assets, minusthe present value of future cash flows from existing liabilities.These two perspectives give rise to income simulation and economic value simulation, each of whichpresents a unique picture of our risk of any movement in interest rates. Income simulationidentifies the timing and magnitude of changes in income resulting from changes in prevailinginterest rates over a short-term time horizon (usually one year). Economic value simulationcaptures more information and reflects the entire asset and liability maturity spectrum. Economicvalue simulation reflects the interest rate sensitivity of assets and liabilities in a morecomprehensive fashion, reflecting all future time periods. It can identify the quantity ofinterest 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 thatvariations in interest rate risk exposure will be maintained within policy guidelines.The Asset/Liability Management Committee (“ALCO”) produces reports on a quarterly basis, whichcompare baseline (no interest rate change) current positions showing forecasted net income, theeconomic 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 futurecash flows. These baseline forecasts are subjected to a series of interest rate changes, in orderto demonstrate or model the specific impact of the interest rate scenario tested on income, equityand duration. The model, which incorporates all asset and liability rate information, simulatesthe effect of various interest rate movements on income and equity value. The reports identify andmeasure our interest rate risk exposure present in our current asset/liability structure. If theresults produce quantifiable interest rate risk exposure beyond our limits, then the testing willhave served as a monitoring mechanism to allow us to initiate asset/liability strategies designedto reduce and therefore control interest rate risk.The tables below set forth an approximation of our interest rate risk exposure. The simulationuses projected repricing of assets and liabilities at December 31, 2010 and December 31, 2009. Theprimary interest rate exposure measurement applied to the entire balance sheet is the effect on netinterest income and earnings of a gradual change in market interest rates of plus or minus 200basis points over a one year time horizon, and the effect on economic value of equity of gradualchange in market interest rates of plus or minus 200 basis points for all projected future cashflows. Various assumptions are made regarding the prepayment speed and optionality of loans,investments and deposits, which are based on analysis, market information. The assumptionsregarding optionality, such as prepayments of loans and the effective maturity of non-maturitydeposit products are documented periodically through evaluation under varying interest ratescenarios.Because prospective effects of hypothetical interest rate changes are based on a number ofassumptions, these computations should not be relied upon as indicative of actual results. Whilewe believe such assumptions to be reasonable, there can be no assurance that assumed prepaymentrates will approximate actual future prepayment activity on mortgage-backed securities,collateralized mortgage obligations and loans. Further, the computation does not reflect anyactions that management may undertake in response to changes in interest rates. Managementperiodically reviews its rate assumptions based on existing and projected economic conditions.As of December 31, 2010 (Dollars in thousands):             **Basis point change in rates** **-200**  **Base Forecast**  **+200**              ***Net Interest Income at Risk:***            Net Interest Income $134,797  $155,296  $145,525 % change  (13.20)%      (6.29)%             ***Economic Value at Risk:***            Equity $668,044  $686,050  $524,800 % change  (2.62)%      (23.50)%As of December 31, 2009 (Dollars in thousands):             **Basis point change in rates** **-200**  **Base Forecast**  **+200**              ***Net Interest Income at Risk:***            Net Interest Income $155,463  $158,508  $155,032 % change  (1.92)%      (2.19)%             ***Economic Value at Risk:***            Equity $586,859  $593,075  $470,299 % change  (1.05)%      (20.70)%
 
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As of December 31, 2010 and 2009, based on the scenarios above, net interest income andeconomic value of equity would be negatively impacted by a 200 basis point increase in interestrates. The current historically low interest rate environment reduces the reliability of themeasurement of a 200 basis point decline in interest rates; as such a decline would result innegative interest rates. The Company has established an interest rate floor of zero percent forpurposes of measuring interest rate risk. Such a floor in our income simulation results in areduction in our net interest margin as more of our liabilities than our assets are impacted by thezero percent floor. In addition, economic value of equity is also reduced in a declining rateenvironment due to the negative impact to deposit premium values.Overall, our 2010 results indicate that we are adequately positioned with limited net interestincome and economic value at risk and that all interest rate risk results continue to be within ourpolicy guidelines.**Liquidity Risk*****.***Liquidity risk is the risk of being unable to meet obligations as they come due at a reasonablefunding cost. We mitigate this risk by attempting to structure our balance sheet prudently and bymaintaining diverse borrowing resources to fund potential cash needs. For example, we structure ourbalance sheet so that we fund less liquid assets, such as loans, with stable funding sources, suchas retail deposits, long-term debt, wholesale deposits, and capital. We assess liquidity needsarising from asset growth, maturing obligations, and deposit withdrawals, considering operations inboth the normal course of business and times of unusual events. In addition, we consider ouroff-balance sheet arrangements and commitments that may impact liquidity in certain businessenvironments.Our ALCO measures liquidity risks, sets policies to manage these risks, and reviews adherence tothose policies at its monthly meetings. For example, we manage the use of short-term unsecuredborrowings as well as total wholesale funding through policies established and reviewed by ALCO. Inaddition, the Executive Committee of our Board sets liquidity limits and reviews current andforecasted liquidity positions at each of its regularly scheduled meetings.We have contingency funding plans that assess liquidity needs that may arise from certain stressevents such as rapid asset growth and financial market disruptions. Our contingency plans alsoprovide for continuous monitoring of net borrowed funds dependence and available sources ofcontingent liquidity. These sources of contingent liquidity include capacity to borrow at theFederal Reserve discount window and from the FHLB system and the ability to sell, pledge or borrowagainst unencumbered securities in the Company’s investment portfolio. As of December 31, 2010, thepotential liquidity from these three sources totaled $1.7 billion, which is an amount we believecurrently exceeds any contingent liquidity needs.*Uses of Funds*. Our primary uses of funds include the extension of loans and credit, the purchaseof investment securities, working capital, and debt and capital service. In addition, contingentuses of funds may arise from events such as financial market disruptions.*Sources of Funds*. Our primary sources of funds include a large, stable deposit base. Coredeposits, primarily gathered from our retail branch network, are our largest and mostcost-effective source of funding. During 2010 and 2009, the Company experienced strong core depositgrowth. Core deposits totaled $3.1 billion as of December 31, 2010, up from $2.6 billion as ofDecember 31, 2009. The Company used core deposit growth to replace borrowings, contributing to theCompany’s strong liquidity position. We also maintain access to a diversified base of wholesalefunding sources. These uncommitted sources include Fed funds purchased from other banks, securitiessold under agreements to repurchase, brokered certificates of deposit, and FHLB advances. Aggregatewholesale funding totaled $273 million as of December 31, 2010 reduced from $433 million as ofDecember 31, 2009. In addition, at December 31, 2010, we had arrangements to borrow up to $1.3billion from the Federal Home Loan Bank of Pittsburgh and the Federal Reserve Bank of Philadelphia.On December 31, 2010, we had $113.0 million of Federal Home Loan Bank advances outstandingand $178.9 million of Federal Home Loan Bank Letters of Credit outstanding.A significant use of our liquidity is the funding of loan originations. At December 31, 2010, wehad $311.9 million in loan commitments outstanding, which consisted of $73.1 million and $34.1million in commercial and consumer commitments to fund loans, respectively, $112.0 million and$64.8 million in commercial and consumer unused lines of credit, respectively, and $27.8 million instandby 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 ofdeposit due within one year of December 31, 2010 totaled $622.8 million, or 73.4% of certificatesof deposit. The large percentage of certificates of deposit that mature within one year reflectscustomers’ hesitancy to invest their funds for long periods in the recent low interest rateenvironment. If these maturing deposits do not remain with us, we will be required to seek othersources of funds, including other certificates of deposit and borrowings. Depending on marketconditions, we may be required to pay higher rates on such deposits or other borrowings than wecurrently pay on the certificates of deposit due on or before December 31, 2011. We have theability to attract and retain deposits by adjusting the interest rates offered.
 
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The following table presents certain of our contractual obligations at December 31, 2010:                           **Payments due**       **by period**       **Less than**  **One to**  **Three to**  **More Than Five** (Dollars in thousands) **Total**  **One Year**  **Three Years**  **Five Years**  **Years**                      Commitments to fund loans $107,217  $107,217  $—  $—  $— Unused lines of credit  176,848   111,980   —   —   64,868 Standby letters of credit  27,849   27,849   —   —   — Operating lease obligations  36,877   5,290   10,083   5,485   16,019                 Total $348,791  $252,336  $10,083  $5,485  $80,887                 Our primary investing activities are the origination and purchase of loans and the purchase ofsecurities. Our primary financing activities consist of activity in deposit accounts andborrowings. Deposit flows are affected by the overall level of interest rates, the interest ratesand products offered by us and our local competitors and other factors. We generally manage thepricing of our deposits to be competitive. Occasionally, we offer promotional rates on certaindeposit products to attract deposits.In the third quarter of 2009, the FDIC, in response to the need to replenish DIF balances thatdeclined as a result of recent bank failures, announced details of a plan to restore DIF balances.The restoration plan, as subsequently approved, required all FDIC insured banks to prepay theirrisk-based assessments for the years 2010, 2011, and 2012. The assessments, usually due quarterly,were instead required to be estimated for the three future years and paid prior to December 31,2009. In conjunction with the adoption of this rule, the FDIC also approved a three-basis pointincrease in assessment rates effective on January 1, 2011. Our estimate of three future years ofassessments under this restoration plan was $18.8 million with the estimated assessment for 2010calculated at current rates. We paid that assessment to the FDIC on December 29, 2009 andconcurrently recorded a prepaid asset in that amount within other assets in the ConsolidatedBalance Sheets. We anticipate funding any differences between our prepayment and actual amounts dueeach quarter using our existing available liquidity.The Company is a separate legal entity from the Bank and must provide for its own liquidity. Inaddition to its operating expenses, the Company is responsible for paying any dividends declared toits shareholders. The Company’s primary source of income is dividends received from the Bank. Theamount of dividends that the Bank may declare and pay to the Company is generally restricted underPennsylvania law to the retained earnings of the Bank. At December 31, 2010, the Company hadliquid assets of $90.3 million.***Capital Management.***We are subject to various regulatory capital requirements administered by theFederal Deposit Insurance Corporation, including a risk-based capital measure. The risk-basedcapital guidelines include both a definition of capital and a framework for calculatingrisk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad riskcategories. At December 31, 2010, we exceeded all of our regulatory capital requirements. We areconsidered “well capitalized” under regulatory guidelines. See “*Regulatory Capital Compliance*” atNote 13 to the consolidated financial statements.At December 31, 2010, the Bank’s ratio of Tier 1 Capital to risk-weighted assets equaled 8.89%, or$432.4 million, well above the ratio necessary to be considered well capitalized under the FederalPrompt Corrective Action Regulations. We will manage our capital for maximum stockholder benefit.While the significant increase in equity which resulted from our initial public stock offering inJuly 2007 adversely impacts our return on equity, our financial condition and results of operationswere enhanced by the capital from the offering, resulting in increased net interest-earning assetsand net income. Further, in the current economic environment, our strong capital position leavesthe Company well-positioned to meet our customers’ needs and to execute on our growth strategies.We may use capital management tools such as cash dividends and common share repurchases. InSeptember 2008, we announced the adoption of a stock repurchase program that enables the Company toacquire up to 1,823,584 shares, or 5.0% of the Company’s outstanding common stock not held by theMHC. Such repurchases may be conducted through open market purchases or privately negotiatedtransactions when, at management’s discretion, it is determined that market conditions and otherfactors warrant the repurchase of the Company’s stock. Repurchased shares will be held inTreasury. At December 31, 2010, 1,549,904 shares had been repurchased under this program.***Off-Balance Sheet Arrangements*****.**In the normal course of operations, we engage in a variety offinancial transactions that, in accordance with generally accepted accounting principles, are notrecorded in our consolidated financial statements. These transactions involve, to varying degrees,elements of credit, interest rate and liquidity risk. Such transactions are used primarily tomanage 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 18 to theconsolidated financial statements. For the year ended December 31, 2010, we did not engage in anyoff-balance sheet transactions reasonably likely to have a material effect on our financialcondition, results of operations or cash flows.**Recent Accounting Pronouncements.**See summary of significant accounting pronouncement in Note 2 of the Company’s financialstatements.
 
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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**To the Board of Directors and Stockholders of