Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark one)


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

For the quarterly period ended June 30, 2009

OR

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

For the transition period from ______________ to _____________

Commission file number: 1-33476


	BENEFICIAL MUTUAL BANCORP, INC.
	(Exact name of registrant as specified in its charter)

United States		56-2480744
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

510 Walnut Street, Philadelphia, Pennsylvania		19106
(Address of principal executive offices)		(Zip Code)

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

	Not Applicable
	(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o

No o

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


Large Accelerated Filer o		Accelerated Filer x

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

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

As of August 7, 2009, there were 81,903,153 shares of the registrant’s common stock outstanding. Of such shares outstanding, 45,792,775 were held by Beneficial Savings Bank MHC and 36,110,378 shares were publicly held.

BENEFICIAL MUTUAL BANCORP, INC.

Table of Contents


		Page No.
Part I. Financial Information

Item 1.	Financial Statements (unaudited)

	Unaudited Consolidated Statements of Financial Condition as of June 30, 2009 and December 31, 2008	1

	Unaudited Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2009 and 2008	2

	Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended June 30, 2009 and 2008	3

	Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2009 and 2008	4

	Notes to Unaudited Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36

Item 4.	Controls and Procedures	38

Part II. Other Information

Item 1.	Legal Proceedings	38

Item 1A.	Risk Factors	38

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38

Item 3.	Defaults Upon Senior Securities	39

Item 4.	Submission of Matters to a Vote of Security Holders	39

Item 5.	Other Information	39

Item 6.	Exhibits	39

Signatures		40

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BENEFICIAL MUTUAL BANCORP, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Financial Condition

(Dollars in thousands, except share amounts)

	June 30, 2009			December 31, 2008
ASSETS
Cash and Cash Equivalents
Cash and due from banks	$	41,989		$	44,380
Interest-bearing deposits at other banks		237			9
Total cash and cash equivalents		42,226			44,389
Investment Securities:
Available-for-sale (amortized cost of $1,044,000 at June 30, 2009 and $1,095,232 at December 31, 2008)		1,066,615			1,114,086
Held-to-maturity (estimated fair value of $59,733 at June 30, 2009 and $77,369 at December 31, 2008)		58,086			76,014
Federal Home Loan Bank stock, at cost		28,068			28,068
Total investment securities		1,152,769			1,218,168

Loans (including loans held for sale measured at fair value of $37,276)		2,694,971			2,424,582
Allowance for loan losses		(43,235	)		(36,905	)

Net loans		2,651,736			2,387,677

Accrued Interest Receivable		17,972			17,543

Bank premises and equipment, net		77,691			78,490
Other Assets:
Goodwill		111,462			111,462
Bank owned life insurance		31,589			30,850
Other intangibles		22,203			23,985
Other assets		78,163			89,486
Total other assets		243,417			255,783
Total Assets	$	4,185,811		$	4,002,050

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits:
Non-interest bearing deposits	$	248,487		$	226,382
Interest-bearing deposits		2,789,529			2,515,297
Total deposits		3,038,016			2,741,679
Borrowed funds		443,611			580,054
Other liabilities		83,940			69,777
Total liabilities		3,565,567			3,391,510
Commitments and Contingencies (Note 15)
Stockholders’ Equity:
Preferred Stock - $.01 par value; 100,000,000 shares authorized, none issued or outstanding as of June 30, 2009 or December 31, 2008		—			—
Common Stock - $.01 par value 300,000,000 shares authorized, 82,264,457 shares issued and outstanding as of June 30, 2009 and December 31, 2008		823			823
Additional paid-in capital		343,885			342,420
Unearned common stock held by the employee savings and stock ownership plan		(26,990	)		(28,510	)
Retained earnings (partially restricted)		301,184			296,106
Accumulated other comprehensive income (loss)		3,817			(299	)
Treasury stock, at cost, 283,204 shares at June 30, 2009 and 0 shares at December 31, 2008		(2,475	)		—
Total stockholders’ equity		620,244			610,540
Total Liabilities and Stockholders’ Equity	$	4,185,811		$	4,002,050

See accompanying notes to the unaudited consolidated financial statements.

BENEFICIAL MUTUAL BANCORP, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Operations

(Dollars in thousands, except per share amounts)

	Three Months Ended June 30,						Six Months Ended June 30,

	2009			2008			2009			2008
INTEREST INCOME
Interest and fees on loans	$	33,921		$	32,698		$	67,278		$	65,193
Interest on federal funds sold		—			146			2			507
Interest and dividends on investment securities:
Taxable		12,389			14,657			26,002			29,676
Tax-exempt		650			369			1,206			736
Total interest income		46,960			47,870			94,488			96,112
INTEREST EXPENSE
Interest on deposits:
Interest bearing checking accounts		2,113			1,235			4,096			2,521
Money market and savings deposits		2,703			3,664			6,154			7,421
Time deposits		7,037			10,082			14,984			21,228
Total		11,853			14,981			25,234			31,170
Interest on borrowed funds		4,691			4,832			9,359			9,766
Total interest expense		16,544			19,813			34,593			40,936

Net interest income		30,416			28,057			59,895			55,176

Provision for Loan Losses		7,100			2,300			10,100			2,600

Net interest income after provision for loan losses		23,316			25,757			49,795			52,576
Non-interest Income
Insurance commission and related income		1,715			1,876			4,463			5,141
Service charges and other income		3,111			4,388			6,762			8,330
Impairment charge on securities available-for-sale		—			(473	)		(1,230	)		(473	)
Net gain on sale of investment securities available-for-sale		1,316			143			4,165			271
Total non-interest income		6,142			5,934			14,160			13,269
Non-interest Expense
Salaries and employee benefits		14,007			13,157			28,282			26,150
Pension curtailment gain		—			(7,289	)		—			(7,289	)
Occupancy expense		2,899			2,812			6,102			5,758
Depreciation, amortization and maintenance		2,220			2,047			4,448			4,022
Advertising		1,238			1,214			2,987			2,325
Intangible amortization expense		890			1,654			1,782			3,400
Other		8,498			5,045			14,589			10,166

Total non-interest expense		29,752			18,640			58,190			44,532

(Loss) Income before income taxes		(294	)		13,051			5,765			21,313

Income Tax (Benefit) Expense		(244	)		3,950			687			6,150

Net (Loss) Income	$	(50	)	$	9,101		$	5,078		$	15,163

Earnings per Share – Basic	$	0.00		$	0.11		$	0.07		$	0.19
Earnings per Share – Diluted	$	0.00		$	0.11		$	0.07		$	0.19

Average common shares outstanding - Basic		77,678,961			79,255,114			77,717,407			79,235,030
Average common shares outstanding – Diluted		77,678,961			79,255,114			77,726,194			79,235,030

See accompanying notes to the unaudited consolidated financial statements.

BENEFICIAL MUTUAL BANCORP, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements Changes in Stockholders’ Equity

(Dollars in thousands, except share amounts)


	Number of Shares		Common Stock		Additional Paid in Capital			Common Stock held by KSOP			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity			Comprehensive Income
BEGINNING BALANCE, JANUARY 1, 2008		82,264,460	$	823	$	360,126		$	(30,635	)	$	291,360					$	(1,877	)	$	619,797		$	—

Net income												15,163									15,163			15,163

KSOP shares committed to be released						14			806												820

Net unrealized loss on available-for-sale securities (net of deferred tax of $7,074)																		(13,137	)		(13,137	)		(13,137	)

Reclassification adjustment for net gains included in net income (net of tax of $95)																		131			131			131

Pension and post-retirement benefit plan adjustments (net of tax of $628)																		(1,166	)		(1,166	)		(1,166	)

Immediate recognition of prior service cost and unrealized gain(loss) due to curtailments net of deferred tax $4,175)																		7,754			7,754			7,754

Other						16															16

Total other comprehensive income																								(6,418	)

Comprehensive income																							$	8,745

Cumulative effect of the adoption of EITF 06-4 Split Dollar Life Insurance												(11,800	)								(11,800	)

BALANCE, JUNE 30, 2008		82,264,460	$	823	$	360,156		$	(29,829	)	$	294,723					$	(8,295	)	$	617,578

BEGINNING BALANCE, JANUARY 1, 2009		82,264,457	$	823	$	342,420		$	(28,510	)	$	296,106					$	(299	)	$	610,540

Net Income												5,078									5,078		$	5,078

KSOP shares committed to be released						(44	)		1,520												1,476

Stock option expense						604															604

Restricted stock shares						905															905

Purchase of treasury stock														$	(2,475	)					(2,475	)

Net unrealized gain on available-for-sale securities (net of deferred tax of $2,344)																		4,352			4,352			4,352

Reclassification adjustment for net gains included in net income (net of tax of $1,458)																		(2,707	)		(2,707	)		(2,707	)

Reclassification adjustment for other-than-temporary impairment (net of tax benefit of $430)																		800			800			800

Pension, other post-retirement benefit plan adjustments (net of tax of $720)																		1,671			1,671			1,671

Total other comprehensive income																								4,116
Comprehensive income																							$	9,194

BALANCE, JUNE 30, 2009		82,264,457	$	823	$	343,885		$	(26,990	)	$	301,184		$	(2,475	)	$	3,817		$	620,244

See accompanying notes to the unaudited consolidated financial statements .

BENEFICIAL MUTUAL BANCORP, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Cash Flows

(Dollars in thousands)


	Six Months Ended June 30,
	2009			2008
OPERATING ACTIVITIES:
Net income	$	5,078		$	15,163
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for loan losses		10,100			2,600
Depreciation and amortization		3,087			2,782
Intangible amortization		1,782			3,400
Net gain on sale of investments		(4,165	)		(271	)
Impairment of investments		1,230			473
Pension curtailments		—			(7,289	)
Accretion of discount on investments		(1,130	)		(2,929	)
Amortization of premium on investments		251			187
Origination of loans held for sale		—			—
Proceeds from sales of loans		—			—
Deferred income taxes		(2,206	)		2,213
Net loss (gain) from sales of premises and equipment		20			(6	)
Increase in bank owned life insurance		(739	)		(712	)
Amortization of employee stock ownership plan		1,476			820
Stock option and grant expense		1,509			—
Changes in assets and liabilities that provided (used) cash:
Accrued interest receivable		(429	)		1,881
Accrued interest payable		(1,096	)		(773	)
Income taxes payable		(1,664	)		3,872
Other liabilities		17,658			(3,795	)
Other assets		14,000			(20,912	)
Net cash provided by (used in) operating activities		44,762			(3,296	)

INVESTING ACTIVITIES:
Loans originated or acquired		(552,861	)		(399,072	)
Principal repayment on loans		278,412			281,620
Purchases of investment securities available for sale		(164,997	)		(373,512	)
Net (purchases) sales in money market fund		(64,887	)		6,888
Proceeds from sales and maturities of investment securities available for sale		285,010			256,371
Proceeds from maturities, calls or repayments of investment securities held to maturity		17,848			23,741
Purchase of Federal Home Loan Bank stock		—			(3,298	)
Activity in other real estate owned		405			747
Purchases of premises and equipment		(3,302	)		(2,835	)
Proceeds from sale of premises and equipment		28			29
Proceeds from other investing activities		—			201
Net cash used in investing activities		(204,344	)		(209,120	)

FINANCING ACTIVITIES:
Net (decrease) increase in borrowed funds		(136,443	)		64,666
Net increase in checking, savings and demand accounts		361,191			161,400
Net decrease in time deposits		(64,854	)		(25,235	)
Purchase of treasury stock		(2,475	)		—
Net cash provided by financing activities		157,419			200,831

NET DECREASE IN CASH AND CASH EQUIVALENTS		(2,163	)		(11,585	)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		44,389			58,327

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	42,226		$	46,742

SUPPLEMENTAL DISCLOSURES OF CASH FLOW AND NON-CASH INFORMATION:
Cash payments for interest	$	24,129		$	20,642
Cash payments of income taxes	$	5,321		$	2,022
Transfers of loans to other real estate owned	$	289		$	720

See accompanying notes to the unaudited consolidated financial statements .

BENEFICIAL MUTUAL BANCORP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. These financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto contained in the Annual Report on Form 10-K filed by Beneficial Mutual Bancorp, Inc. (the “Company” or “Bancorp”) with the Securities and Exchange Commission on March 27, 2009. The results for the three or six month periods ended June 30, 2009 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2009 or any other period.

Principles of Consolidation

The unaudited interim consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and two variable interest entities (“VIEs”) where the Company is the primary beneficiary. Specifically, the financial statements include the accounts of Beneficial Bank, the Company’s wholly owned subsidiary (the “Bank”), and the Bank’s wholly owned subsidiaries. The Bank’s wholly owned subsidiaries are as follows: (i) Beneficial Advisors, LLC, which offers non-deposit investment products and services, (ii) Neumann Corporation, a Delaware corporation formed for the purpose of managing certain investments, (iii) Beneficial Insurance Services, LLC, which provides insurance services to individual and business customers and (iv) BSB Union Corporation, a leasing company. All significant intercompany accounts and transactions have been eliminated. In addition, two VIEs are consolidated in the financial statements. The Company monitors revenue from the various services and products offered. The various services and products support each other and are interrelated. Management makes significant operating decisions based upon the analysis of the entire Company and financial performance is evaluated on a company-wide basis. Accordingly, the various financial services and products offered are aggregated into one reportable operating segment: community banking as under SFAS 131 “Disclosures about Segments of an Enterprise and Related Information.”

Use of Estimates in the Preparation of Financial Statements

These unaudited interim consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the allowance for loan losses, goodwill, other intangible assets and income taxes.

NOTE 2 – NATURE OF OPERATIONS

The Company is a federally chartered stock holding company and owns 100% of the outstanding common stock of the Bank, a Pennsylvania chartered stock savings bank. On July 13, 2007, the Company completed its initial minority public offering and acquisition of FMS Financial Corporation and its wholly owned subsidiary, Farmers & Mechanics Bank, which was merged with and into the Bank. Following the consummation of the merger and public offering, the Company had a total of 82,264,457 shares of common stock, par value $.01 per share, issued and outstanding, of which 36,471,682 were held publicly and 45,792,775 were held by Beneficial Savings Bank MHC (the “MHC”). In the event the Company pays dividends to its stockholders, it will also be required to pay dividends to the MHC, unless the MHC receives regulatory approval to waive the receipt of dividends. The Company is authorized to issue a total of four hundred million shares, of which three hundred million shares shall be common stock, par value $0.01 per share, and of which one hundred million shares shall be preferred stock, par value $0.01 per share. Each share of the Company’s common stock has the same relative rights as, and is identical in all respects with, each other share of common stock.

The Bank offers a variety of consumer and commercial banking services to individuals, businesses, and nonprofit organizations through 68 offices throughout the Philadelphia and Southern New Jersey area. The Bank is supervised and regulated by the Pennsylvania Department of Banking and the Federal Deposit Insurance Corporation (the “FDIC”). The Office of Thrift Supervision (the “OTS”) regulates the Company and the MHC. The Bank’s customer deposits are insured up to applicable legal limits by the Deposit Insurance Fund of the FDIC. Insurance services are offered through Beneficial Insurance Services, LLC and wealth management services are offered through Beneficial Advisors, LLC, both wholly owned subsidiaries of the Bank.

NOTE 3 – EARNINGS PER SHARE

The following table presents a calculation of basic and diluted earnings per share for the three and six-month periods ended June 30, 2009 and 2008. Earnings per share is computed by dividing net income available to common shareholders by the weighted average number of shares of common stock outstanding. The difference between common shares issued and basic average shares outstanding, for purposes of calculating basic earnings per share, is a result of subtracting unallocated employee stock ownership plan (“ESOP”) shares and unvested restricted stock shares. See Note 14 for further discussion of stock grants.


(Dollars in thousands, except share and per share amounts)	Three Months Ended June 30,					Six Months Ended June 30,
	2009			2008		2009		2008
Basic and diluted earnings per share:
Net income	$	(50	)	$	9,101	$	5,078	$	15,163
Basic average common shares outstanding		77,678,961			79,255,114		77,717,407		79,235,030
Effect of dilutive securities		—			—		8,787		—
Dilutive average shares outstanding		77,678,961			79,255,114		77,726,194		79,235,030
Net earnings per share:
Basic	$	0.00		$	0.11	$	0.07	$	0.19
Diluted	$	0.00		$	0.11	$	0.07	$	0.19

For the three months ended June 30, 2009, there were 1,919,750 outstanding options and 897,500 restricted stock grants which were anti-dilutive for the earnings per share calculation due to the Company’s net loss position. For the six months ended June 30, 2009 there were 1,919,750 outstanding options that were anti-dilutive and 761,500 restricted stock grants that were anti-dilutive and 136,000 restricted stock grants that were dilutive for the earnings per share calculation. There were no grants or options issued during the three or six-month period ended June 30, 2008.

NOTE 4 – INVESTMENT SECURITIES

The amortized cost and estimated fair value of investments in debt and equity securities at June 30, 2009 and December 31, 2008 are as follows.

Investment securities available for sale are summarized in the following table:

(Dollars in thousands)


	June 30, 2009
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Equity securities	$	8,117	$	1,503	$	193	$	9,427
U.S. Government Sponsored Enterprise (“GSE”) and Agency Notes		7,568		88		5	$	7,651
GNMA guaranteed mortgage certificates		11,762		206		5		11,963
Collateralized mortgage obligations		137,631		1,479		1,102		138,008
Other mortgage-backed securities		640,975		24,611		56		665,530
Municipal and other bonds		157,507		958		4,926		153,539
Money market fund		80,440		57		0		80,497
Total	$	1,044,000	$	28,902	$	6,287	$	1,066,615

	December 31, 2008
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Equity securities	$	7,638	$	108	$	—	$	7,746
U.S. Government Sponsored Enterprise and Agency Notes		8,687		17		5		8,699
GNMA guaranteed mortgage certificates		12,796		3		294		12,505
Collateralized mortgage obligations		177,300		1,222		2,149		176,373
Other mortgage-backed securities		767,978		25,342		40		793,280
Municipal and other bonds		105,280		798		6,148		99,930
Mutual funds		15,553		—		—		15,553
Total	$	1,095,232	$	27,490	$	8,636	$	1,114,086

Management evaluates all investments with an unrealized loss in value, whether caused by adverse interest rates, credit movements or some other factor to determine if the loss is other than temporary.

Investment securities held to maturity are summarized in the following table:

(Dollars in thousands)
	June 30, 2009
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value

GNMA guaranteed mortgage certificates	$	707	$	—	$	27	$	680
Other mortgage-backed securities		57,379		1,674		0		59,053
Total	$	58,086	$	1,674	$	27	$	59,733



	December 31, 2008
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value

U.S. Government Sponsored Enterprise and Agency Notes	$	7,500	$	47	$	—	$	7,547
GNMA guaranteed mortgage certificates		728		—		29		699
Other mortgage-backed securities		67,786		1,378		41		69,123
Total	$	76,014	$	1,425	$	70	$	77,369

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. The Company determines whether the unrealized losses are temporary in accordance with EITF 99-20, “Recognition of Interest Income and Impairment on Purchased Retained Beneficial Interests in Securitized Financial Asset” as amended by FSP EITF 99-20-1, “Amendments to the Impairment Guidance of EITF Issue No. 99-20”,when applicable, and FSP SFAS No. 115-1 and SFAS No. 124-1,”The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” and FSP SFAS No. 115-2 and SFAS No. 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments”. The evaluation is based upon factors such as the creditworthiness of the issuers/guarantors, the underlying collateral, if applicable, and the continuing performance of the securities. Management also evaluates other facts and circumstances that may be indicative of an other-than-temporary impairment (“OTTI”) condition. This includes, but is not limited to, an evaluation of the type of security, length of time and extent to which the fair value has been less than cost, and near-term prospects of the issuer.

FSP SFAS No. 115-2 and SFAS No. 124-2 requires the Company to assess whether the credit loss existed by considering whether (1) the Company has the intent to sell the security, (2) it is more likely than not that it will be required to sell the security before recovery, or (3) it does not expect to recover the entire amortized cost basis of the security. The guidance allows the Company to bifurcate the impact on securities where impairment in value was deemed to be other than temporary between the component representing credit loss and the component representing loss related to other factors. The portion of the fair value decline attributable to credit loss must be recognized through a change to earnings. The difference between the fair market value and the credit loss is recognized in other comprehensive income.

Upon adoption of FSP FAS 115-2, a cumulative effect adjustment should be made to reclassify the non-credit portion of any other-than-temporary impairments previously recorded through earnings to accumulated other comprehensive income for investments held as of the beginning of the interim period of adoption. This adjustment should only be made if the entity does not intend to sell and more likely than not will not be required to sell the security before recovery of its amortized cost basis (i.e., the impairment does not meet the new definition of other-than-temporary). The cumulative effect adjustment should be determined based on the difference between the present value of the cash flows expected to be collected and the amortized cost basis of the debt security as of the beginning of the interim period in which the FSP is adopted. The cumulative effect adjustment should include the related tax effects.

FSP SFAS 115-2 and SFAS 124-2 were adopted by the Company for the quarter ended June 30, 2009. As there were no impairments taken on the Company’s debt securities as of December 31, 2008 and March 31, 2009, no cumulative adjustment to retained earnings was recorded.

For the quarter ended June 30, 2009, the Company updated its assessment of the unrealized losses with respect to the securities and whether the losses were temporary in nature. Upon completion of this review, the Company did not recognize any other-than-temporary impairment for these securities during the three months ended June 30, 2009.

The following table provides information on the gross unrealized losses and fair market value of the Company’s investments with unrealized losses that are not deemed to be other than temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2009 and December 31, 2008:

(Dollars in thousands)
	June 30, 2009
	Less than 12 months				12 months or longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses

GSE and Agency Notes	$	521	$	5	$	—	$	—	$	521	$	5
Mortgage-backed securities		22,226		61		680		27		22,906		88
Municipal and other bonds		15,583		147		20,983		4,779		36,566		4,926
Collateralized mortgage obligations		16,533		157		73,756		945		90,289		1,102
Subtotal, debt securities		54,863		370		95,419		5,751		150,282		6,121
Equity securities		1,103		193		—		—		1,103		193
Mutual funds		—		—		—		—		—		—
Total temporarily impaired securities	$	55,966	$	563	$	95,419	$	5,751	$	151,385	$	6,314




	December 31, 2008
	Less than 12 months				12 months or longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses

GSE and Agency Notes	$	522	$	5	$	—	$	—	$	522	$	5
Mortgage-backed securities		33,551		375		699		29		34,250		404
Municipal and other bonds		23,465		5,895		3,843		253		27,308		6,148
Collateralized mortgage obligations		78,951		1,367		55,768		782		134,719		2,149
Total temporarily impaired securities	$	136,489	$	7,642	$	60,310	$	1,064	$	196,799	$	8,706

The following summarizes, by security type, the basis for the conclusion that the applicable investments within the Company’s available-for-sale and held-to-maturity portfolio were not other than temporarily impaired.

United States Government Sponsored Enterprise and Agency Notes

The Company’s investments in the preceding table in United States government sponsored enterprise notes consist of a government guaranteed debt obligation of the Department of Housing and Urban Development (“HUD”). The unrealized loss is due to current interest rate levels relative to the Company’s cost and not credit quality, and because the Company does not intend to sell the investment and it is unlikely that the Company will be required to sell the investment before recovery of its amortized cost, which may be maturity, the Company does not consider this investment to be other than temporarily impaired at June 30, 2009.

Mortgage-Backed Securities

The Company’s investments in the preceding table in mortgage-backed securities consist of a GSE mortgage-backed security and government agency mortgage-backed securities. The unrealized losses are due to current interest rate levels relative to the Company’s cost. The contractual cash flows of the investment in the GSE mortgage-backed security are debt obligations of Freddie Mac. Freddie Mac is currently under the conservatorship of the Federal Housing Finance Agency (“FHFA”). The contractual cash flows for this investment are guaranteed by an agency of the U.S. government. The cash flows related to government agency mortgage-backed securities are direct obligations of the U.S. Government. Accordingly, the Company expects to recover its full payment of principal of the investments. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is unlikely that the Company will be required to sell the investments before recovery of their amortized cost, which may be maturity, the Company does not consider these investments to be other than temporarily impaired at June 30, 2009.

Municipal and Other Bonds

The Company’s investments in the preceding table in municipal and other bonds are comprised of municipal bonds, a foreign bond and trust preferred/collateralized debt obligations (“CDOs”) backed by bank trust preferred capital securities.

The municipal bonds consist of Pennsylvania school district general obligation bonds and obligations issued by the Pennsylvania Housing Finance Agency and were in an unrealized loss position, on average, of 1.3% at June 30, 2009. Those bonds are rated investment grade at June 30, 2009. The decline in market value is attributable to widening of spreads and changes in the ratings of bond insurers and not related to credit. The Company expects to recover its full payment of principal and interest of the investments. The Company does not intend to sell the investments and it is unlikely that the Company will be required to sell the investments before recovery of their amortized cost, which may be maturity, the Company does not consider these investments to be other than temporarily impaired at June 30, 2009.

One bond in a loss position for less than 12 months was a foreign bond, which was at an unrealized loss of 0.4% at June 30, 2009. Other bonds that were in a loss position for greater than 12 months consisted of three trust preferred CDOs with an unrealized loss, on average, of 20.2% at June 30, 2009. There has been little secondary market trading for trust preferred CDOs, as a weakened economy and high levels of credit losses in the banking industry have led to illiquidity in the market for these types of securities. The trust preferred CDOs in this category are all senior tranches. The senior tranches of trust preferred CDOs are generally protected from defaults by over-collateralization. The Company expects the issuers to continue to perform according to the terms of the contracts. Only a limited number of issuers have contractually deferred their interest payments. Accordingly, the Company expects to recover its current principal of the investments and because the Company does not intend to sell the investments and it is unlikely that the Company will be required to sell the investments before recovery of their amortized cost, which may be maturity, the Company does not consider these investments to be other than temporarily impaired at June 30, 2009.

Collateralized Mortgage Obligations

In the preceding table, the Company’s investments in this category consist of collateralized mortgage obligations (“CMOs”) issued by Freddie Mac, Fannie Mae and non-agency (whole loan) mortgage-backed securities. The decline in market value of whole loan CMOs is attributable to the widening of credit spreads in the whole loan CMO market. The majority of securities in this category were issued in 2003 and 2004 with 15-year and 20-year collateral with a current weighted average loan to value ratio of less than 50% for the portfolio. The Company expects the full payment of principal and because the Company does not intend to sell the investments and it is unlikely that the Company will be required to sell the investments before recovery of their amortized cost, which may be maturity, the Company does not consider these investments to be other than temporarily impaired at June 30, 2009.

Equities and Mutual Funds

In the preceding table, the Company’s investments in this category consist of bank-issued common stocks. Commons stocks that were in a loss position for less than 12 months consist of five bank-issued common stocks, with a loss, on average, of 14.9% at June 30, 2009. The Company evaluated the near-term prospects of the issuers in relation to the severity and duration of impairment and, because the Company has the ability and intent to hold the investments until a recovery of fair value, the Company does not consider these investments to be other than temporarily impaired at June 30, 2009.

NOTE 5 – LOANS

The Company provides loans to borrowers throughout the continental United States. The majority of these loans are to borrowers located in the Mid-Atlantic region. The ultimate repayment of these loans is dependent, to a certain degree, on the economy of this region. The U.S. and global economic environment has changed considerably from 2007. While the Company did not engage in subprime lending, the slowdown in housing activity and decline in home values associated with the subprime mortgage crisis has led to wider credit disruptions throughout the financial services industry, bankruptcy or failure of financial services companies, sharp declines in stock indices and significant government intervention in the banking and insurance industries. The economy remains in a weakened condition from quarter to quarter, and it does not appear likely that economic growth will rebound sharply in the coming months. This will further strain the financial condition of both households and businesses.

The Company proactively manages credit risk in its loan portfolio and employs a comprehensive loan review process.

Major classifications of loans at June 30, 2009 and December 31, 2008 are summarized as follows:

(Dollars in thousands)
	June 30, 2009			December 31, 2008
Real estate loans:
One-to-four family	$	577,552		$	508,097
Commercial real estate		902,666			787,748
Residential construction		9,952			6,055
Total real estate loans		1,490,170			1,301,900

Commercial business loans		331,732			320,640

Consumer loans:
Home equity loans and lines of credit		334,169			362,381
Auto loans		144,637			142,097
Other consumer loans		391,032			293,106
Total consumer loans		869,838			797,584
Total loans		2,691,740			2,420,124

Net deferred loan fees and costs		3,231			4,458
Allowance for loan losses		(43,235	)		(36,905	)
Loans, net	$	2,651,736		$	2,387,677

A large increase in loan categories occurred in consumer loans due to the purchase of 100% participation interest in government guaranteed student loans at a discount. These loans carry with them a greater than 95% guarantee of repayment as well as a return of excess interest in a declining interest rate environment.

The activity in the allowance for loan losses for the six months ended June 30, 2009 and 2008 and the twelve months ended December 31, 2008, is as follows:

(Dollars in thousands)
	June 30,						December 31, 2008
	2009			2008			December 31, 2008
Balance, beginning of year	$	36,905		$	23,341		$	23,341
Provision for loan losses		10,100			2,600			18,901
Charge-offs		(4,163	)		(3,721	)		(5,963	)
Recoveries		393			319			626
Balance, end of period	$	43,235		$	22,539		$	36,905

The provision for loan losses charged to expense is based upon past loan loss experience and an evaluation of estimated losses in the current loan portfolio, including the evaluation of impaired loans under “SFAS No. 114, Accounting by Creditors for Impairment of a Loan – an amendment of Financial Accounting Standards Board (“FASB”) Statements No. 5 and 15” and “SFAS No. 118, Accounting by Creditors for Impairment of a Loan -Income Recognition and Disclosures – an amendment of FASB Statement No. 114.” A loan is considered to be impaired when, based upon current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan. An insignificant delay or insignificant shortfall in amount of payments does not necessarily result in a loan being identified as impaired. For this purpose, delays less than 90 days are considered to be insignificant. Impairment losses are included in the provision for loan losses. Large groups of homogeneous loans are collectively evaluated for impairment, except for those loans restructured under a troubled debt restructuring. Loans collectively evaluated for impairment include personal loans and most residential mortgage loans, and are not included in the following data.

Components of Impaired Loans

(Dollars in thousands)

	June 30, 2009		December 31, 2008
Impaired loans with related allowance for loan losses calculated under SFAS No. 114	$	28,861	$	14,079
Impaired loans with no related allowance for loan losses calculated under SFAS No. 114		38,287		5,138
Total impaired loans	$	67,148	$	19,217

Valuation allowance related to impaired loans	$	15,118	$	8,707

Analysis of Impaired Loans

(Dollars in thousands)

	For the Six Months Ended June 30,
	2009		2008
Average impaired loans	$	33,788	$	5,939
Interest income recognized on impaired loans		185		—
Cash basis interest income recognized on impaired loans		24		—

NOTE 6 – BANK PREMISES AND EQUIPMENT

Bank premises and equipment at June 30, 2009 and December 31, 2008 are summarized as follows:

(Dollars in thousands)
	June 30, 2009			December 31, 2008
Land	$	15,793		$	16,030
Bank premises		52,223			51,943
Furniture, fixtures and equipment		24,904			24,036
Leasehold improvements		10,676			10,629
Construction in progress		2,408			2,022
Total		106,004			104,660
Accumulated depreciation and amortization		(28,313	)		(26,170	)
Total	$	77,691		$	78,490

NOTE 7 – GOODWILL AND OTHER INTANGIBLES

Goodwill and other intangible assets arising from the acquisition of CLA Agency, Inc. (“CLA”) and FMS were accounted for in accordance with SFAS No. 142 “Goodwill and Intangibles Assets.” As required under SFAS No. 142, goodwill is not amortized but rather reviewed for impairment at least annually. The other intangibles are amortizing intangibles, which primarily consist of a core deposit intangible, which is amortized over an estimated useful life of ten years. As of June 30, 2009, the core deposit intangible net of accumulated amortization totaled $14.9 million. The other amortizing intangibles, which include customer lists, vary in estimated useful lives from two to thirteen years.

Goodwill and other intangibles at June 30, 2009 and December 31, 2008 are summarized as follows:

(Dollars in thousands)
	Goodwill		Core Deposit Intangible			Customer Relationships and other
Balances at December 31,2008	$	111,462	$	16,157		$	7,828
Amortization		—		(1,287	)		(495	)
Balances at June 30, 2009	$	111,462	$	14,870		$	7,333


	June 30, 2009							December 31, 2008
	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
Amortizing Intangibles:
Core deposits	$	23,215	$	(8,345	)	$	14,870	$	23,215	$	(7,058	)	$	16,157
Customer Relationships and other		10,251		(2,918	)		7,333		10,251		(2,423	)		7,828
Total	$	33,466	$	(11,263	)	$	22,203	$	33,466	$	(9,481	)	$	23,985

NOTE 8 – DEPOSITS

Deposits at June 30, 2009 and December 31, 2008 are summarized as follows:

(Dollars in thousands)
	June 30, 2009		December 31, 2008
Non-interest bearing deposits	$	248,487	$	226,382
Interest earning checking accounts		784,442		546,133
Money market accounts		617,279		534,012
Savings accounts		411,818		394,308
Time deposits		975,990		1,040,844
Total deposits	$	3,038,016	$	2,741,679

NOTE 9 – BORROWED FUNDS