10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

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

For the fiscal year ended: December 31, 2008

¨ 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 0-19345

ESB FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

Pennsylvania	25-1659846
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
600 Lawrence Avenue, Ellwood City, PA	16117
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (724) 758-5584

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

Common Stock, par value $.01 per share	NASDAQ Stock Market, LLC
(Title of each class)	(Name of each exchange on which registered)

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

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

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

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

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

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 definition of “accelerated filer” , “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨.	Accelerated filer	x.
Non-accelerated filer	¨. (Do not check if a smaller reporting company)	Smaller reporting company	¨.

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

As of June 30, 2008, the aggregate value of the 10,558,242 shares of Common Stock of the Registrant outstanding on such date, which excludes 1,680,153 shares held by all directors and officers of the Registrant as a group, was approximately $102.7 million. This amount is based on the closing sales price of $9.73 per share of the Registrant’s Common Stock on June 30, 2008.

Number of shares of Common Stock outstanding as of March 6, 2009: 12,076,542

DOCUMENTS INCORPORATED BY REFERENCE

Documents	Where Incorporated
1. Portions of the 2008 Annual Report to Stockholders.	Part II
2. Portions of Proxy Statement for the April 22, 2009 Annual Meeting of Stockholders	Parts II and III

ESB FINANCIAL CORPORATION

TABLE OF CONTENTS

PART I
Item 1.	Business	2
Item 1A.	Risk Factors	28
Item 1B.	Unresolved Staff Comments	30
Item 2.	Properties	31
Item 3.	Legal Proceedings	32
Item 4.	Submission of Matters to a Vote of Security Holders	32
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities	33
Item 6.	Selected Financial Data	33
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item7A.	Quantitative and Qualitative Disclosures about Market Risk	33
Item 8.	Financial Statements and Supplementary Data	33
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	33
Item 9A.	Controls and Procedures	34
Item 9B.	Other Information	34
PART III
Item 10.	Directors, Executive Officers and Corporate Governance.	34
Item 11.	Executive Compensation	34
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	34
Item 13.	Certain Relationships and Related Transactions, and Director Independence	35
Item 14.	Principal Accountant Fees and Services	35
Item 15.	Exhibits and Financial Statement Schedules	36
Signatures		38

FORWARD-LOOKING STATEMENTS

In the normal course of business, we, in an effort to help keep our shareholders and the public informed about our operations, may from time to time issue or make certain statements, either in writing or orally, that are or contain forward-looking statements, as that term is defined in the U.S. federal securities laws. Generally, these statements relate to business plans or strategies, projected or anticipated benefits from acquisitions made by or to be made by us, projections involving anticipated revenues, earnings, profitability or other aspects of operating results or other future developments in our affairs or the industry in which we conduct business. Forward-looking statements may be identified by reference to a future period or periods or by the use of forward-looking terminology such as “anticipate,” “believe,” “expect,” “intend,” “plan,” “estimate” or similar expressions.

Although we believe that the anticipated results or other expectations reflected in our forward-looking statements are based on reasonable assumptions, we can give no assurance that those results or expectations will be attained. Forward-looking statements involve risks, uncertainties and assumptions (some of which are beyond our control), and as a result actual results may differ materially from those expressed in forward-looking statements. Factors that could cause actual results to differ from forward-looking statements include, but are not limited to, the following, as well as those discussed elsewhere herein:

• our investments in our businesses and in related technology could require additional incremental spending, and might not produce expected deposit and loan growth and anticipated contributions to our earnings;

• general economic or industry conditions could be less favorable than expected, resulting in a deterioration in credit quality, a change in the allowance for loan and lease losses or a reduced demand for credit or fee-based products and services;

• changes in the interest rate environment could reduce net interest income and could increase credit losses;

• the conditions of the securities markets could change, which could adversely affect, among other things, the value or credit quality of our assets, the availability and terms of funding necessary to meet our liquidity needs and our ability to originate loans and leases;

• changes in the extensive laws, regulations and policies governing financial holding companies and their subsidiaries could alter our business environment or affect our operations;

• the potential need to adapt to industry changes in information technology systems, on which we are highly dependent, could present operational issues or require significant capital spending;

• competitive pressures could intensify and affect our profitability, including as a result of continued industry consolidation, the increased availability of financial services from non-banks, technological developments such as the internet or bank regulatory reform;

• acquisitions may result in one-time charges to income, may not produce revenue enhancements or cost savings at levels or within time frames originally anticipated and may result in unforeseen integration difficulties; and

• acts or threats of terrorism and actions taken by the United States or other governments as a result of such acts or threats, including possible military action, could further adversely affect business and economic conditions in the United States generally and in our principal markets, which could have an adverse effect on our financial performance and that of our borrowers and on the financial markets and the price of our common stock.

You should not put undue reliance on any forward-looking statements. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update them in light of new information or future events except to the extent required by federal securities laws.

1

PART I

Item 1. Business

General

ESB Financial Corporation (the Company) is a Pennsylvania corporation and thrift holding company that provides a wide range of retail and commercial financial products and services to customers in Western Pennsylvania through its wholly owned subsidiary bank, ESB Bank (ESB or the Bank). The Company is also the parent company of PennFirst Financial Services, Inc., a Delaware corporation engaged in the management of certain investment activities on behalf of the Company, ESB Capital Trust II (the Trust II) , ESB Statutory Trust III (the Trust III) and ESB Capital Trust IV (the Trust IV), which are Delaware statutory business trusts established to facilitate the issuance of trust preferred securities to the public by the Company, and THF, Inc., a Pennsylvania corporation established as a title agency to provide residential and commercial loan closing services and title closing services.

As of December 31, 2008, the Company had consolidated total assets of $2.0 billion, total deposits of $877.3 million and stockholders’ equity of $142.4 million. For the year ended December 31, 2008, the Company realized consolidated net income and diluted net income per share of $10.2 million and $0.84, respectively.

The Bank is a Pennsylvania chartered, Federal Deposit Insurance Corporation (FDIC) insured stock savings bank, which conducts business through 23 offices, as of December 31, 2008, in Allegheny, Beaver, Butler, and Lawrence counties, Pennsylvania. ESB operates two wholly-owned subsidiaries: (i) AMSCO, Inc., which engages in the management of certain real estate development partnerships on behalf of the Company and (ii) ESB Financial Services, Inc., a Delaware corporation which holds loans and other investments.

The Bank is a financial intermediary whose principal business consists of attracting deposits from the general public and investing such deposits in real estate loans secured by liens on residential and commercial properties, consumer loans, commercial business loans, securities and interest-earning deposits. In addition, the Company utilizes borrowed funds, primarily advances from the Federal Home Loan Bank (FHLB) of Pittsburgh and repurchase agreements, to fund the Company’s investing activities. The Company invests in securities issued by the U.S. government and agencies and other investments permitted by federal law and regulations.

The Company is subject to examination and regulation by the Office of Thrift Supervision (OTS) as a savings and loan holding company. The Bank is subject to examination and comprehensive regulation by the FDIC and the Pennsylvania Department of Banking (Department). Additionally, the Company is subject to the various reporting and filing requirements of the Securities and Exchange Commission (SEC). Customer deposits with the Bank are insured to the maximum extent provided by law through the Deposit Insurance Fund. The Bank is a member of the FHLB of Pittsburgh, which is one of the twelve regional banks comprising the FHLB system. The Bank is further subject to regulations of the Board of Governors of the Federal Reserve System (Federal Reserve Board), which governs the reserves required to be maintained against deposits and certain other matters.

Competition

The Company and its subsidiaries face substantial competition for both loans and deposits. Numerous financial institutions, some larger and several of which are similar in size and resources to the Company, are competitors of the Company to varying degrees. Competition for loans comes principally from commercial banks, credit unions, mortgage-banking companies and savings banks. The Company competes for loans principally through the interest rates and loan fees that are charged and the efficiency and quality of services provided to borrowers, sellers, real estate brokers and attorneys. The most direct competition for deposits has historically come from commercial banks, credit unions and other depository institutions. The Company faces additional competition for deposits from securities brokers, mutual funds and insurance companies. The Company competes for deposits through pricing, service, the branch network and by offering a wide variety of products and services. Internet banking, offered by both established financial institutions and internet only banks, constitutes another form of competition for the Company. Competition may increase as a result of reduced restrictions on the interstate operations of financial institutions and legislation authorizing the acquisition of savings institutions by bank holding companies. Finally, in addition to the competition for loans and deposits, the Company is affected by the actions of the Federal Reserve Board as it affects interest rates in order to improve the economy.

2

Market Area

The Company’s primary market area includes Allegheny, Beaver, Butler, and Lawrence counties in Western Pennsylvania. The Company’s business is conducted through its corporate office located in Ellwood City, PA, and the Bank’s 23 offices. Substantially all of the Bank’s deposits are received from residents of its principal market area and most loans are secured by properties in Western Pennsylvania.

Lending Activities

General. As of December 31, 2008, the Company’s net loans receivable amounted to $691.3 million or 35.0% of the Company’s total assets. Loans secured by real estate amounted to $520.0 million or 73.5% of total loans receivable. Consumer loans and commercial business loans amounted to $142.8 million or 20.2% and $44.5 million or 6.3%, respectively, of the Company’s total loan portfolio.

The Company’s lending activities are conducted through the Bank. The Company’s loan origination activities have primarily involved the origination of single-family residential loans and, to a lesser extent, multi-family residential mortgage loans, primarily secured by properties in the Company’s market area. In addition, the Company has in recent years increased its involvement in the origination of other types of loans within its primary market area. These loans include construction loans, commercial real estate loans, commercial business loans and a variety of consumer loans. In 2005, in connection with the acquisition of PHSB Financial Corporation (PHSB), the holding company for Peoples Home Savings Bank, the Company began originating indirect automobile loans and credit card loans. During 2006, the Company sold the retail credit card portfolio and ceased originating these loans for its own portfolio. The Company continues to originate and hold credit card loans for its commercial customers. Loans originated in the Company’s market area, both fixed and adjustable rate, are made primarily for retention in the Company’s own portfolio. The Company estimates that approximately 95% of its mortgage loans are secured by properties located in Western Pennsylvania.

The following table sets forth the composition of the Company’s portfolio of loans receivable in dollar amounts and in percentages as of December 31 for the years indicated:

	2008					2007					2006					2005					2004
(Dollar amounts in thousands)	Dollar Amount			%		Dollar Amount			%		Dollar Amount			%		Dollar Amount			%		Dollar Amount		%
Real estate loans:
Residential—single family	$	353,658		50.0	%	$	314,438		49.3	%	$	281,017		46.1	%	$	230,805		40.6	%	$	155,971	41.8	%
Residential—multi family		33,680		4.8	%		33,196		5.2	%		34,382		5.7	%		36,401		6.4	%		35,565	9.6	%
Commercial		76,633		10.8	%		80,141		12.5	%		82,019		13.5	%		69,453		12.2	%		53,446	14.4	%
Construction		55,979		7.9	%		51,391		8.0	%		58,504		9.6	%		71,848		12.7	%		61,061	16.4	%
Total real estate loans		519,950		73.5	%		479,166		75.0	%		455,922		74.9	%		408,507		71.9	%		306,043	82.2	%
Other loans:
Consumer loans		142,823		20.2	%		130,479		20.4	%		132,413		21.7	%		136,296		24.0	%		58,066	15.6	%
Commercial business loans		44,508		6.3	%		29,164		4.6	%		20,620		3.4	%		23,527		4.1	%		8,271	2.2	%
Total other loans		187,331		26.5	%		159,643		25.0	%		153,033		25.1	%		159,823		28.1	%		66,337	17.8	%
Total loans receivable		707,281		100.0	%		638,809		100.0	%		608,955		100.0	%		568,330		100.0	%		372,380	100.0	%
Less:
Allowance for loan losses		6,006					5,414					5,113					4,864					3,940
Net deferred (costs) fees		(2,825	)				(2,576	)				(2,709	)				(2,715	)				248
Loans in process		12,785					11,720					16,909					25,904					24,668
Net loans receivable	$	691,315				$	624,251				$	589,642				$	540,277				$	343,524

3

The following table sets forth the scheduled contractual principal repayments of loans in the Company’s portfolio at December 31, 2008. Demand loans having no stated schedule of repayment and no stated maturity are reported as due within one year:

(Dollar amounts in thousands)	Due in one year or less		Due from one to five years		Due from five to ten years		Due after ten years		Total
Real estate loans	$	35,647	$	89,607	$	90,731	$	303,965	$	519,950
Consumer loans		25,290		66,617		31,859		19,057		142,823
Commercial business loans		25,320		9,952		3,999		5,237		44,508
	$	86,257	$	166,176	$	126,589	$	328,259	$	707,281

Fixed and adjustable rate loans represented $557.4 million or 78.8% and $149.9 million or 21.2%, respectively, of the Company’s total loan portfolio as of December 31, 2008.

The following table sets forth the dollar amount of the Company’s fixed and adjustable rate loans due after one year as of December 31, 2008:

(Dollar amounts in thousands)	Fixed rate		Adjustable rate
Real estate loans	$	383,394	$	100,909
Consumer loans		102,286		15,247
Commercial business loans		13,494		5,694
	$	499,174	$	121,850

Contractual maturities of loans do not reflect the actual term of the Company’s loan portfolio. The average life of mortgage loans is substantially less than their contractual terms because of loan prepayments and enforcement of due-on-sale clauses which give the Company the right to declare a loan immediately payable in the event, among other things, that the borrower sells the real property subject to the mortgage. The average life of mortgage loans tends to increase when current market mortgage rates substantially exceed rates on existing mortgages and conversely, decrease when rates on existing mortgages substantially exceed current market interest rates.

Origination, Purchase and Sale of Loans. The Company originates loans secured by residential and commercial real estate as well as consumer and commercial business loans in its primary lending area, which includes Western Pennsylvania, through loan officers of the Company who evaluate applications received at all of the Company’s locations. Such applications are primarily received through referrals by real estate agents, attorneys and builders, as well as customer walk-ins. The Company also, to a lesser extent, originates loans secured by residential and commercial real estate in its market area through a network of correspondent lenders who offer the Bank’s loan products to a variety of customers throughout Western Pennsylvania. Loans originated through correspondents are underwritten according to the same strict guidelines as loans originated directly by the Company.

Applications are obtained by loan officers who are full-time, salaried employees of the Company as well as through the Company’s mortgage banking correspondent relationships. The processing, underwriting and approval of all loans is performed at the Company’s Ellwood City and Wexford offices. The Company believes this centralized approach to evaluating such loan applications allows it to review, process and approve such applications more efficiently and effectively than would be afforded by a decentralized approach. The Company also believes that this approach enhances its ability to service and monitor these types of loans. The Company’s mortgage banking correspondents originate and process one-to-four family residential mortgage loans for a fee generally equal to up to 1% of the loan amount. Underwriting of these loans is performed by the Company.

As of December 31, 2008, $9.2 million or 1.3% of the Company’s total loans receivable consisted of whole loans and participation interests in loans purchased from other financial institutions.

4

The Company requires that all purchased loans be underwritten in accordance with its underwriting guidelines and standards. The Company reviews the loans, particularly scrutinizing the borrower’s ability to repay the obligation, the appraisal and the loan-to-value ratio. Servicing of loans or loan participations purchased by the Company generally is performed by the seller, with a portion of the interest being paid by the borrower retained by the seller to cover servicing costs. As of December 31, 2008, all of the Company’s purchased loans were serviced by sellers.

The Company’s residential non-construction real estate loans are generally originated under terms, conditions and documentation requirements which permit their sale in the secondary market. The Company in the past has not been an active seller of loans in the secondary market and has chosen, instead, to hold the loans it originates in its own portfolio until maturity. However, from time to time over the past several years, the Company has originated and sold 15 to 30-year fixed rate residential loans, servicing released, as a means of satisfying the demand for such loans within the Company’s primary market area when market interest rates on such loans did not meet the Company’s prevailing asset/liability gap and investment objectives. Any loan held in the available for sale portfolio is subject to a takedown commitment from an investor.

The following table sets forth the Company’s loan activity including originations, purchases, principal repayments, sales, transfers to real estate acquired through foreclosure and other changes for the years ended December 31:

(Dollar amounts in thousands)	2008			2007			2006
Net loans receivable at beginning of period	$	624,251		$	589,642		$	540,277
Originations:
Single-family residential real estate		69,513			60,133			73,582
Multi-familiy residential and commercial real estate		15,721			15,054			13,466
Construction		26,461			11,060			26,309
Consumer		61,966			48,368			53,648
Commercial business		32,997			14,317			17,159
		206,658			148,932			184,164
Repayments on loans		(143,178	)		(114,107	)		(129,261	)
Transfers to real estate acquired through foreclosure		(81	)		(477	)		(1,222	)
Sale of Visa loans		—			—			(2,051	)
Other changes		3,665			261			(2,265	)
Net loans receivable at end of period	$	691,315		$	624,251		$	589,642

Loan Underwriting Policies. The Company’s lending activities are subject to written non-discriminatory underwriting standards and loan procedures prescribed by the Board of Directors and management. Detailed loan applications are obtained to determine the borrower’s ability to repay, and the more significant items on these applications are verified through the use of credit reports, financial statements and confirmations. Property valuations are performed primarily by independent outside appraisers approved by the Board of Directors. The Company has established three levels of lending authority. Loans must be approved by loan officers, the internal loan committee and/or, depending on the amount and characteristics of the loan, the Board of Directors.

Loans may be approved by certain loan officers within designated characteristics and dollar limits, which are established and modified from time to time to reflect expertise and experience. All loans in excess of an individual’s designated limits are referred to the officer with the requisite authority or the Officers’ Loan Committee of the Bank. The President and Chief Executive Officer of the Company has approval authority equal to the Freddie Mac (FHLMC) maximum conforming loan amount as revised from time to time for loans secured by residential real estate and up to $200,000 for all other loan types. Other members of the Officers’ Loan Committee have individual lending authorities that range from $10,000 to the FHLMC maximum conforming loan amount. The Officers’ Loan Committee, which consists of the President and Chief Executive Officer, Group Senior Vice President of Lending and any loan officer designated by the President and approved by the Board of Directors, is authorized to act on individual loan applications up to $2.0 million so long as all of the loans and commitments to the individual applicant do not aggregate above $2.0 million.

The third level of lending authority is reserved for the Board of Directors or the Board’s Executive Committee, which serve as the approval bodies for all individual loans above $2.0 million and loans to individual borrowers with aggregate loans and commitments above $2.0 million.

5

For residential real estate loans, it is the Company’s policy to have a mortgage creating a valid lien on real estate and to obtain a title insurance policy, which ensures that the property is free of prior encumbrances. Borrowers must also obtain hazard insurance policies prior to closing and, when the property is in a flood plain as designated by the Department of Housing and Urban Development, flood insurance policies. Many borrowers are also required to advance funds on a monthly basis together with each payment of principal and interest to a mortgage escrow account from which disbursements for real estate taxes are made.

The Company is permitted by applicable regulations to lend up to 100% of the appraised value of the real property securing a mortgage loan. For loans secured by real property, the Company generally lends up to 80% of the appraised value of such property (the loan-to-value or LTV ratio). The Company also offers several other programs where loans are granted in excess of that limit. The primary program is available on all residential mortgage products, excepting new construction, and permits LTV ratios of up to 97% provided that private mortgage insurance is obtained. Loan programs involving new construction are limited to 95% LTV ratios. Depending on the term and LTV ratio, the Company requires such insurance coverage in amounts equal to 6% to 30% of the principal balance of the loan. On a more limited basis, the Company also offers another program where loans can be granted in excess of the 80% LTV ratio. This program is limited since it does not require private mortgage insurance. Total exposure limits have been established by the Board of Directors. The program is a 100% LTV ratio home equity product. In practice, the Company is currently limiting these loans to 97% LTV ratios. The Company has also offered products for low- and moderate-income borrowers or for properties in low- and moderate-income census tracks which can exceed the 80% LTV ratio. These low- and moderate-income ^ programs were designed to help the Company fulfill its responsibilities under the Community Reinvestment Act. With respect to loans for multi-family and commercial real estate mortgages, the Company generally limits the LTV ratio to 80%.

Under applicable regulations, loans-to-one borrower may not exceed 15% of unimpaired capital and surplus. As of December 31, 2008, ESB was permitted to lend approximately $21.2 million to any one borrower under this standard. Higher limits may be available in certain circumstances. The Company generally will limit its maximum exposure to any one borrower to $13.0 million. As of December 31, 2008, the Company did not have any lending relationships that exceeded the Bank’s regulatory lending limit to one borrower at the time made or committed.

Residential Mortgage and Construction Lending. The Company offers single-family residential mortgage loans with fixed and adjustable rates of interest. As of December 31, 2008, $353.7 million or 50.0% of the total loan portfolio consisted of single-family residential mortgage loans.

Fixed rate residential loans are generally originated by the Company with 10 to 30-year terms. Substantially all of the Company’s long-term, fixed rate residential mortgage loans originated include due-on-sale clauses, which are provisions giving the Company the right to declare a loan immediately due and payable in the event, among other things, that the borrower sells or otherwise disposes of the real property subject to the mortgage. The Company enforces due-on-sale clauses.

In addition to standard fixed rate mortgage loans, the Company offers adjustable rate mortgage loans (ARMs) with 30-year terms, on which the interest rate adjusts based upon changes in various indices which generally reflect market rates of interest. The Company at times has offered one-year ARMs that have an interest rate which adjusts annually according to changes in an index that is based upon the weekly average yield on U.S. Treasury securities adjusted to a constant maturity of one year, as made available by the Federal Reserve Board, plus a margin. The amount of any increase or decrease in the interest rate is limited to 2.0% per year, with a limit of 6.0% over the life of the loan. The Company also offers three, five and seven-year ARM loan products with margins and caps similar to the one-year ARM product whose interest rates are fixed for the first three, five or seven years after the origination date and then reprice periodically based upon an appropriate index. The first rate change on the Company’s seven-year product is capped at a 6.0% increase. The ARMs offered by the Company, as well as many other financial institutions, provide for initial rates of interest below the rates which would prevail if the index used for repricing were applied initially. ARM loans decrease the risks associated with changing market interest rates, but involve certain risks because as interest rates increase, the underlying payments required of the borrower increase, and this could increase the potential for default. At the same time, the marketability of the underlying collateral may be adversely affected by higher interest rates. However, these risks have not had an adverse effect on the Company to date. When one-year ARMs are originated, the customers are qualified at the second year cap rate or 2.0% higher than the initial note rate, whichever is higher.

The Company also grants loans to borrowers, including developers and construction contractors, for the construction of speculative homes and owner-occupied single-family dwellings in the Company’s primary market area. As of December 31, 2008, the Company had $56.0 million or 7.9% of the total loan portfolio outstanding in construction loans. Generally, the loan-to-value ratio for construction loans does not exceed 80%, provided that with respect to construction/permanent loans to individual borrowers for

6

their primary residences, the Company will lend up to 95% subject to private mortgage insurance requirements. The interest rate on the permanent portion of the financing is set upon conversion to the permanent loan, based upon terms agreed to in the loan commitment, including the index to be used, the interest rate margin and the frequency of the adjustment.

The Company finances the purchase of developed lots and pre-sold residential dwellings and speculative homes with various contractors in the Company’s primary market area. These loans do not have a permanent portion as they are short-term loans repaid via the proceeds from the sale of the lots or speculative homes constructed with the loan proceeds. These projects are typically financed under acquisition and development loans or builder lines-of-credit. As of December 31, 2008, acquisition and development loans were extended on 16 projects with $12.2 million outstanding under commitments approved in the aggregate amount of $33.8 million and builder lines-of-credit were extended to 17 builders with $12.8 million outstanding under lines approved in the aggregate amount of $28.1 million.

Commercial Real Estate and Multi-family Residential Mortgage Lending. The Company originates commercial real estate and multi-family residential mortgage loans and has in its portfolio both whole loans and participation interests. As of December 31, 2008, the Company had $110.3 million, or 15.6% of the total loan portfolio, invested in mortgages secured by commercial real estate and multi-family residential properties.

Commercial real estate and multi-family mortgage loans are generally priced at prevailing market interest rates at the time of origination. The commercial real estate loans in the Company’s portfolio are generally secured by apartment buildings, office buildings, small retail shopping centers and other income-producing properties in the Company’s primary market area.

The Company generally will not originate a commercial real estate or multi-family mortgage loan with a loan balance of greater than 80% of the appraised value of the property. The Company generally requires a positive cash flow at least sufficient to cover the debt service by 1.2 times on all commercial real estate loans.

Commercial real estate and multi-family residential mortgage lending entails significant additional risks as compared with single-family residential mortgage lending. These loans typically involve large loan balances concentrated in single borrowers or groups of related borrowers. In addition, the repayment experience on loans secured by income producing properties is typically dependent on the successful operation of the related real estate project and thus may be subject to a greater extent to adverse conditions in the real estate market or in the economy in general.

Consumer Lending. As of December 31, 2008, the Company’s consumer loan portfolio totaled $142.8 million or 20.2% of its total loan portfolio. Under applicable regulations, the Company, through the Bank, may make secured and unsecured consumer loans in an aggregate amount up to 30% of the respective institution’s total assets. The 30% limitation does not include home equity loans (loans secured by the equity in the borrower’s residence but not necessarily for the purpose of improvement), home improvement loans or loans secured by deposit accounts. The Company offers consumer loans in order to provide a broader range of financial services to its customers and because the shorter terms and normally higher interest rates on such loans help the Company maintain a profitable spread between its average loan yield and its cost of funds. The Company has increased its emphasis on the origination of consumer loans within its primary market area during the past several years. Consumer lending originations were augmented through marketing techniques, including the targeting of specific customer profiles through the Company’s branch office locations. The Company has adopted underwriting standards for such lending designed to maintain asset quality. The Company offers a variety of consumer loans, including loans secured by deposit accounts, student education loans, automobile loans, home equity loans and secured and unsecured personal loans. Additionally, through the acquisition of PHSB, the company acquired a significant portfolio of indirect automobile loans in 2005 and continues to originate these types of loans. On all consumer loans originated, the Company’s underwriting standards include a determination of the applicant’s payment history on other debts and an assessment of the borrower’s ability to meet existing obligations and payment on the proposed loan.

As of December 31, 2008, the Company’s largest group of consumer loans was home equity loans. The Company originates both adjustable rate home equity lines-of-credit and fixed rate home equity loans with terms of up to 30 years. As of December 31, 2008, $71.3 million or 49.9% of the Company’s consumer loan portfolio was made up of home equity loans. The Company’s second largest group of consumer loans was indirect automobile and recreational vehicle loans. These loans are made on terms up to six years on both new and used automobiles and are made on terms up to fifteen years on both new and used recreational vehicles. These loans are originated through a network of dealers and are underwritten in accordance with Bank guidelines intended to access the applicant’s ability to repay and the adequacy of the financed vehicles collateral. As of December 31, 2008, $60.9 million or 42.6% of the Company’s consumer loan portfolio was made up of indirect automobile and RV loans.

7

Consumer loans generally have shorter terms and higher interest rates than mortgage loans but generally involve more credit risk than mortgage loans because of the type and nature of the collateral and, in certain cases, the absence of collateral. The Company believes that the generally higher yields earned on consumer loans compensate for the increased credit risk associated with such loans and that consumer loans are important in its efforts to maintain diversity as well as to shorten the average maturity of its loan portfolio.

Commercial Business Lending. Commercial business loans and lines-of-credit of both a secured and unsecured nature are made by the Company for business purposes to municipalities as well as incorporated and unincorporated businesses. Typically, these loans are made for the purchase of equipment, to finance accounts receivable and/or inventory, as well as other business purposes. As of December 31, 2008, commercial business loans amounted to $44.5 million or 6.3% of the Company’s total loan portfolio. Included in the growth in this portfolio is a new relationship the Company established in 2008 to finance receivables and inventory for a local business. The balance of this relationship at December 31, 2008 was approximately $7.6 million.

Loan Servicing. The Company services all loans it has originated for its portfolio. In addition, fees are received for servicing loans which were originated by the Company and sold to third-party investors. As of December 31, 2008, the Company had $25.0 million in loans serviced for third-party investors. Loans purchased are generally serviced by the company which originated the loans. Those companies collect a fee for servicing the loans.

Loan Origination Fees and Other Fees. The Company receives income in the form of loan origination and other fees on both loans originated and on loans purchased in the secondary market. Such loan origination fees and certain related direct loan origination costs are offset and the resulting net amount is deferred and amortized over the life of the related loan as an adjustment to the yield on the loan.

Delinquencies and Classified Assets

Delinquent Loans and Real Estate Acquired Through Foreclosure (REO). Typically, a loan is considered delinquent and a late charge is assessed when the borrower has not made a payment within fifteen days from the payment due date. When a borrower fails to make a required payment on a loan, the Company attempts to cure the deficiency by contacting the borrower. The initial contact with the borrower is made shortly after the seventeenth day following the due date for which a payment was not received. In most cases, delinquencies are cured promptly.

If the delinquency exceeds 60 days, the Company works with the borrower to set up a satisfactory repayment schedule. Loans are considered non-accruing upon reaching 90 days delinquency, although the Company may be receiving partial payments of interest and partial repayments of principal on such loans. When a loan is placed in non-accrual status, previously accrued but unpaid interest is deducted from interest income. The Company institutes foreclosure action on real estate secured loans only if all other remedies have been exhausted. If an action to foreclose is instituted and the loan is not reinstated or paid in full, the property is sold at a judicial or trustee’s sale at which the Company may be the buyer.

Real estate properties acquired through, or in lieu of, mortgage foreclosure are to be sold and are initially recorded at fair value at the date of foreclosure establishing a new cost basis. After foreclosure, management periodically performs valuations and the real estate is carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in loss on foreclosed real estate. The Company generally attempts to sell its REO properties as soon as practical upon receipt of clear title. The original lender typically handles disposition of those REO properties resulting from loans purchased in the secondary market.

As of December 31, 2008, the Company’s non-performing assets, which include non-accrual loans, loans delinquent due to maturity, troubled debt restructuring, REO and repossessed vehicles, amounted to $3.3 million or 0.17% of the Company’s total assets.

Classified Assets. Regulations applicable to insured institutions require the classification of problem assets as “substandard”, “doubtful” or “loss” depending upon the existence of certain characteristics as discussed below. A category designated “special mention” must also be maintained for assets currently not requiring the above classifications but having potential weakness or risk characteristics that could result in future problems. An asset is classified as substandard if not adequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. A substandard asset is characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all the weaknesses inherent in those classified as substandard. In addition, these weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Assets classified as loss are considered uncollectible and of such little value that their continuance as assets is not warranted.

8

The Company’s classification of assets policy requires the establishment of valuation allowances for loan losses in an amount deemed prudent by management. Valuation allowances represent loss allowances that have been established to recognize the inherent risk associated with lending activities.

The Company regularly reviews the problem loans and other assets in its portfolio to determine whether any require classification in accordance with the Company’s policy and applicable regulations. As of December 31, 2008, the Company’s classified and criticized assets amounted to $62.1 million, with $4.3 million classified as substandard, $81,000 classified as doubtful, $64,000 classified as loss and $57.6 million identified as special mention.

The following table sets forth information regarding the Company’s non-performing assets as of December 31, for the years indicated:

(Dollar amounts in thousands)	2008			2007			2006			2005			2004
Non-accrual loans:
Real estate loans	$	1,718		$	1,555		$	1,759		$	1,547		$	1,283
Commercial business loans		—			32			315			1,042			—
Consumer loans		528			440			635			1,058			187
Total non-accrual loans		2,246			2,027			2,709			3,647			1,470
Total as a percentage of total assets		0.11	%		0.11	%		0.14	%		0.19	%		0.11	%
Real estate acquired through foreclosure and repossessed vehicles		832			1,962			1,272			1,356			1,303
Total as a percentage of total assets		0.04	%		0.10	%		0.07	%		0.07	%		0.09	%
Troubled debt restructuring		257			266			268			175			915
Total as a percentage of total assets		0.01	%		0.01	%		0.01	%		0.01	%		0.07	%
Total non-performing assets	$	3,335		$	4,255		$	4,249		$	5,178		$	3,688
Total non-performing assets as a percentage of total assets		0.17	%		0.23	%		0.22	%		0.28	%		0.26	%

Of the $539,000 in real estate acquired through foreclosure at December 31, 2008, $448,000 relates to a spec home and a residential building lot that the Company acquired via judicial sale in July 2006. These properties were acquired as a result of the failure of a customer involved in residential home construction. The Company has contracted to have the unfinished spec home completed and these properties are being marketed through a local real estate agency.

Allowance for Loan Losses. Management establishes reserves for estimated losses on loans based upon its evaluation of the pertinent factors underlying the types and quality of loans in the portfolio. Commercial loans and commercial real estate loans are reviewed on a regular basis with a focus on larger loans along with loans which have experienced past payment or financial deficiencies. Larger commercial loans and commercial real estate loans which are 60 days or more past due are selected for review in accordance with Financial Accounting Standards Board (FASB) Statement No. 114, “Accounting by Creditors for Impairment of a Loan,” as amended by FASB Statement No. 118. These loans are analyzed to determine if they are “impaired”, which means that it is probable that all amounts will not be collected according to the contractual terms of the loan agreement. All loans that are delinquent 90 days and are placed on nonaccrual status are classified on an individual basis. Residential loans 60 days past due, which are still accruing interest are classified as substandard as per the Company’s asset classification policy. The remaining loans are evaluated and classified as groups of loans with similar risk characteristics. The Company allocates allowances based on the factors described below, which conform to the Company’s asset classification policy. In reviewing risk within the Bank’s loan portfolio, management has determined there to be several different risk categories within the loan portfolio. Factors considered in this process included general loan terms, collateral, and availability of historical data to support the analysis. Historical loss percentages for each risk category are calculated and used as the basis for calculating allowance allocations. Certain qualitative factors are then added to the historical allocation percentage to get the adjusted factor to be applied to non classified loans. The following qualitative factors are analyzed:

• Levels of and trends in delinquencies and nonaccruals

9

• Trends in volume and terms

• Changes in lending policies and procedures

• Volatility of losses within each risk category

• Loans and Lending staff acquired through acquisition

• Economic trends

• Concentrations of credit

• Experience depth and ability of management

The company also maintains an unallocated allowance to account for any factors or conditions that may cause a potential loss but are not specifically addressed in the process described above. The Company analyzes its loan portfolio each quarter to determine the appropriateness of its allowance for loan losses. Management believes that the Company’s allowance for losses as of December 31, 2008 of $6.0 million is appropriate to cover inherent losses in the portfolio.

The following table sets forth an analysis of the allowance for losses on loans receivable for the years ended December 31:

(Dollar amounts in thousands)	2008			2007			2006			2005			2004
Balance at beginning of period	$	5,414		$	5,113		$	4,864		$	3,940		$	4,062
Allowance for loan losses of acquired companies		—			—			—			1,406			—
Provision for (recovery of) loan losses		1,406			865			1,113			568			206
Charge-offs
Real estate loans		(294	)		(111	)		(146	)		(401	)		(223	)
Commercial business loans		(12	)		(41	)		(146	)		(78	)		(8	)
Consumer loans		(690	)		(689	)		(730	)		(672	)		(153	)
		(996	)		(841	)		(1,022	)		(1,151	)		(384	)
Recoveries
Real estate loans		7			124			4			8			32
Commercial business loans		3			—			1			—			—
Consumer loans		172			153			153			93			24
		182			277			158			101			56
Balance at end of period	$	6,006		$	5,414		$	5,113		$	4,864		$	3,940
Ratio of net charge-offs to average loans outstanding		0.12	%		0.11	%		0.15	%		0.21	%		0.11	%
Ratio of allowance to total loans at end of period		0.85	%		0.85	%		0.84	%		0.86	%		1.06	%
Balance at end of period applicable to:
Real estate loans	$	3,791		$	3,474		$	3,331		$	2,622		$	3,003
Commercial business loans		663			349			211			283			180
Consumer loans		1,552			1,591			1,571			1,959			757
Balance at end of period	$	6,006		$	5,414		$	5,113		$	4,864		$	3,940

10

The following table sets forth the allocation of the allowance by category and the percent of loans in each category to total loans for the years ended December 31:

	2008				2007				2006				2005				2004
(Dollar amounts in thousands)	$		%		$		%		$		%		$		%		$		%
Residential Real Estate Loans	$	1,934	54.8	%	$	1,734	54.5	%	$	1,519	51.8	%	$	1,143	47.0	%	$	1,474	51.4	%
Commercial Real Estate Loans		1,578	10.8	%		1,486	12.5	%		1,530	13.5	%		1,170	12.2	%		1,059	14.4	%
Construction Loans		279	7.9	%		254	8.0	%		282	9.6	%		309	12.7	%		470	16.4	%
Consumer Loans		1,552	20.2	%		1,591	20.4	%		1,571	21.7	%		1,959	24.0	%		757	15.6	%
Commercial Business Loans		663	6.3	%		349	4.6	%		211	3.4	%		283	4.1	%		180	2.2	%
	$	6,006	100.0	%	$	5,414	100.0	%	$	5,113	100.0	%	$	4,864	100.0	%	$	3,940	100.0	%

Interest-Earning Deposits

The Company maintains daily interest-earning cash accounts at the FHLB of Pittsburgh. The accounts consist generally of excess funds, which are available to meet loan funding requirements, investment and mortgage-backed securities purchases and withdrawal of deposit accounts. The accounts earn interest daily at a rate which approximates the rate on federal funds. Such funds are withdrawable upon demand and are not federally insured. Interest-earning deposits at the FHLB of Pittsburgh totaled $10.7 million as of December 31, 2008.

Investment Activities

General. The Company’s investment activities involve investment in numerous types of investment securities, including U.S. Treasury obligations and securities of various federal agencies, certificates of deposit at insured banks and savings institutions, commercial paper, corporate debt securities, tax-exempt obligations (including primarily municipal obligations of state and local governments), mutual funds and federal funds.

The Company also maintains a portfolio of mortgage-backed securities which are insured or guaranteed by FHLMC, the Federal National Mortgage Association (FNMA) and the Government National Mortgage Association (GNMA). Mortgage-backed securities increase the quality of the Company’s assets by virtue of the guarantees that back them, are more liquid than individual mortgage loans and may be used to collateralize borrowings or other obligations of the Company.

11

The following table summarizes the Company’s investment securities as of the dates indicated:

(Dollar amounts in thousands)	Amortized cost		Unrealized gains		Unrealized losses			Fair value
Available for sale:
December 31, 2008:
Trust preferred securities	$	500	$	—	$	(21	)	$	479
Municipal securities		135,220		1,624		(2,799	)		134,045
Equity securities		676		30		—			706
Corporate bonds		67,883		128		(9,528	)		58,483
	$	204,279	$	1,782	$	(12,348	)	$	193,713
December 31, 2007:
Trust preferred securities	$	500	$	—	$	(16	)	$	484
Municipal securities		107,499		2,374		(172	)		109,701
Equity securities		794		51		(31	)		814
Corporate bonds		59,381		148		(4,982	)		54,547
	$	168,174	$	2,573	$	(5,201	)	$	165,546
December 31, 2006:
Trust preferred securities	$	500	$	—	$	(3	)	$	497
Municipal securities		109,817		4,094		(13	)		113,898
Equity securities		1,555		542		(8	)		2,089
Corporate bonds		65,097		131		(1,294	)		63,934
	$	176,969	$	4,767	$	(1,318	)	$	180,418

12

The following table summarizes the Company’s mortgage-backed securities as of the dates indicated:

(Dollar amounts in thousands)	Amortized cost		Unrealized gains		Unrealized losses			Fair value
Available for sale:
December 31, 2008
GNMA	$	14,538	$	549	$	(3	)	$	15,084
FNMA		409,821		10,189		(13	)		419,997
FHLMC		419,654		10,858		(27	)		430,485
Collateralized mortgage obligations		37,769		472		(714	)		37,527
	$	881,782	$	22,068	$	(757	)	$	903,093
December 31, 2007
GNMA	$	2,685	$	19	$	(6	)	$	2,698
FNMA		457,065		4,323		(1,661	)		459,727
FHLMC		394,214		2,882		(1,358	)		395,738
Collateralized mortgage obligations		36,400		183		(320	)		36,263
	$	890,364	$	7,407	$	(3,345	)	$	894,426
December 31, 2006
GNMA	$	10,720	$	166	$	(26	)	$	10,860
FNMA		513,563		1,645		(6,351	)		508,857
FHLMC		411,327		669		(5,524	)		406,472
Collateralized mortgage obligations		37,976		23		(682	)		37,317
	$	973,586	$	2,503	$	(12,583	)	$	963,506

The following table sets forth the activity in the Company’s mortgage-backed securities for the years ended December 31:

(Dollar amounts in thousands)	2008			2007			2006
Mortgage-backed securities at the beginning of period	$	894,426		$	963,506		$	912,080
Purchases		141,196			122,800			262,671
Sales		—			(49,539	)		(50,046	)
Repayments		(149,227	)		(155,598	)		(161,224	)
Net (amortization) of premium and accretion of discount		(551	)		(886	)		(1,286	)
Change in unrealized gain (loss) on mortgage-backed securities available for sale		17,249			14,143			1,311
Mortgage-backed securities at the end of period	$	903,093		$	894,426		$	963,506
Weighted average yield at the end of the period		5.26	%		5.25	%		5.11	%

Due to prepayments of the underlying loans collateralizing mortgage-backed securities, the actual maturities of the securities are expected to be substantially less than the scheduled maturities.

As a member of the FHLB system, the Bank is required to meet certain minimum levels of liquid assets, which are subject to change from time to time. The Company’s liquidity fluctuates with deposit flows, funding requirements for loans and other assets and the relative returns between liquid investments and various loan products.

The Board of Directors has established an investment policy, which provides for priorities for the Company’s investments with respect to the safety of the principal amount, liquidity, generation of income, management of interest rate risk and capital appreciation. The policy permits investment in various types of liquid assets including, among others, U.S. Treasury and federal agency securities, municipal obligations, investment grade corporate bonds, and federal funds.

13

Sources of Funds

General. The Company’s primary sources of funds for its lending and investment activities are deposits, principal and interest payments on loans and mortgage-backed securities, interest on securities and interest-bearing deposits, advances from the FHLB of Pittsburgh and repurchase agreement borrowings.

Deposits. The Company offers a wide variety of deposit accounts with a range of interest rates and terms. The primary types of deposit accounts are regular savings, checking and money market accounts and certificate accounts. The primary source of these deposits is the market area in which the Bank’s offices are located. The Company typically relies on customer service, advertising and existing relationships with customers to attract and retain deposits. Deposit flows are significantly influenced by the general state of the economy, general market interest rates and the effects of competition. The Company typically pays competitive interest rates within the market area but does not seek to match the highest rates paid by competing institutions in its primary market area.

The following table sets forth the distribution of the Company’s deposits by type as of December 31, for the years indicated:

(Dollar amounts in thousands) Type of Account	2008				2007				2006
	Amount		%		Amount		%		Amount		%
Noninterest-bearing deposits	$	65,726	7.5	%	$	55,775	6.6	%	$	54,906	6.7	%
NOW account deposits		105,235	12.0	%		96,566	11.5	%		82,204	10.0	%
Money Market deposits		26,876	3.0	%		25,509	3.0	%		33,007	4.0	%
Passbook account deposits		104,109	11.9	%		98,460	11.7	%		105,009	12.7	%
Time deposits		575,383	65.6	%		566,544	67.2	%		548,518	66.6	%
	$	877,329	100.0	%	$	842,854	100.0	%	$	823,644	100.0	%

The Company had a total of $179.5 million, $149.9 million and $138.8 million in time deposits of $100,000 or more as of December 31, 2008, 2007 and 2006, respectively.

The following table sets forth, by various rate categories, the amount of time deposits outstanding as of December 31, 2008, which mature in the periods presented:

(Dollar amounts in thousands) Range of Rates			1 to 12 months		More than 1 to 2 years		More than 2 to 3 years		More than 3 to 4 years		More than 4 to 5 years		After 5 years		Total
0.00%	to	2.49%	$	74,765	$	2,962	$	2	$	—	$	—	$	—	$	77,729
2.50%	to	4.49%		252,471		51,675		74,347		1,901		5,580		1,414		387,388
4.50%	to	6.49%		71,931		36,195		796		463		881		—		110,266
			$	399,167	$	90,832	$	75,145	$	2,364	$	6,461	$	1,414	$	575,383

14

The following table sets forth, by various rate categories, the amount of time deposit accounts outstanding as of December 31, for the years indicated:

(Dollar amounts in thousands)
Range of Rates			2008		2007		2006
0.00%	to	2.49%	$	77,729	$	21,925	$	30,074
2.50%	to	4.49%		387,388		110,946		157,243
4.50%	to	6.49%		110,266		433,673		361,201
			$	575,383	$	566,544	$	548,518

As of December 31, 2008, the Company had certificates in amounts of $100,000 or more maturing as follows:

(Dollar amounts in thousands)	Amount
Three months or less	$	65,973
More than three through six months		47,792
More than six through twelve months		23,495
More than twelve months		42,258
	$	179,518

The following table sets forth the net deposit flows during the year ended December 31:

(Dollar amounts in thousands)	2008		2007			2006
Increase (decrease) before interest credited and acquisition	$	12,042	$	(8,560	)	$	(34,379	)
Interest credited		22,433		27,770			23,493
Net deposit increase (decrease)	$	34,475	$	19,210		$	(10,886	)

Borrowings. While deposits are the preferred source of funds for the Company’s lending and investment activities and general business purposes, the Company also borrows funds from the FHLB of Pittsburgh and through repurchase agreements with third parties. In addition, the Company participates as an authorized depository for treasury, tax and loan accounts on behalf of the Federal Reserve Bank of Cleveland (FRB of Cleveland). Advances from the FHLB of Pittsburgh are secured by the Company’s stock in the FHLB, a portion of its first mortgage loans and certain investment securities. The FHLB has a variety of different advance programs, each with different interest rates, provisions, maximum sizes and maturities. As of December 31, 2008, the Company had outstanding advances with the FHLB of $525.7 million. The Company has entered into sales of securities under agreements to repurchase (repurchase agreements). Fixed coupon repurchase agreements are treated as financings and the obligations to repurchase securities sold are reflected as a liability of the Company. The dollar amount of securities underlying the agreements remains as an asset of the Company. The securities underlying the agreements are delivered to independent third party brokerage firms who arrange the transaction.

15

The following table sets forth the Company’s borrowings as of December 31, for the years indicated:

(Dollar amounts in thousands)	2008		2007		2006
FHLB advances	$	525,684	$	628,666	$	698,232
Repurchase agreements		337,500		182,000		187,000
ESOP borrowings		1,890		2,835		3,780
Corporate borrowings		14,000		9,000		10,500
Treasury tax and loan note payable		203		143		197
Borrowings for joint ventures		7,231		2,564		—
Junior subordinated notes		46,393		51,519		51,444
	$	932,901	$	876,727	$	951,153

Included in the $525.7 million of FHLB advances at December 31, 2008, is approximately $20.0 million of convertible select advances. These advances reset to the 3-month London Interbank Offer Rate (LIBOR) Index and have various spreads and call dates. At the reset date, if the 3-month LIBOR plus the spread is lower than the contract rate on the advance, the advance will remain at the contracted rate. The FHLB has the right to call any convertible select advance on its call date or quarterly thereafter. Should the advance be called, the Company has the right to pay off the advance without penalty. It has historically been the Company’s position to pay off the advance and replace it with fixed-rate funding.

16

The following table presents certain information regarding aggregate short-term (maturities within one year) borrowings of the Company as of and for the years ended December 31:

(Dollar amounts in thousands)	2008			2007			2006
FHLB advances:
Average balance outstanding for the year	$	230,909		$	255,277		$	284,366
Maximum amount outstanding at any month end during the year		267,550			298,706			350,004
Balance outstanding at year end		249,750			231,870			269,361
Weighted average interest rate during the year		4.63	%		4.20	%		4.02	%
Weighted average interest rate at year end		4.82	%		4.40	%		4.04	%
Repurchase agreements:
Average balance outstanding for the year	$	96,167		$	77,417		$	61,833
Maximum amount outstanding at any month end during the year		112,000			97,000			108,000
Balance outstanding at year end		72,500			97,000			67,000
Weighted average interest rate during the year		4.48	%		4.86	%		4.85	%
Weighted average interest rate at year end		4.55	%		4.93	%		4.98	%
Corporate borrowings:
Average balance outstanding for the year	$	4,500		$	10,375		$	—
Maximum amount outstanding at any month end during the year		9,000			10,500			—
Balance outstanding at year end		—			9,000			—
Weighted average interest rate during the year		5.55	%		5.55	%		0.00	%
Weighted average interest rate at year end		0.00	%		5.55	%		0.00	%
Treasury tax and loan note:
Average balance outstanding for the year	$	165		$	161		$	152
Maximum amount outstanding at any month end during the year		203			201			222
Balance outstanding at year end		203			143			197
Weighted average interest rate during the year		1.59	%		5.04	%		5.02	%
Weighted average interest rate at year end		0.00	%		4.00	%		5.04	%
Total short term borrowings:
Average balance outstanding for the year	$	331,741		$	343,230		$	346,351
Maximum amount outstanding at any month end during the year		357,285			381,380			387,068
Balance outstanding at year end		322,453			338,013			336,558
Weighted average interest rate during the year		4.60	%		4.39	%		4.17	%
Weighted average interest rate at year end		4.76	%		4.58	%		4.23	%

Junior Subordinated Notes. On April 10, 2003, ESB Capital Trust II (Trust II), a statutory business trust established under Delaware law that is a subsidiary of the Company, issued $10.0 million variable rate preferred securities with a stated value and liquidation preference of $1,000 per share. The Company purchased $310,000 of common securities of Trust II. The preferred securities reset quarterly to equal the 3-month LIBOR Index plus 3.25%. Trust II’s obligations under the preferred securities issued are fully and unconditionally guaranteed by the Company. The proceeds from the sale of the preferred securities and the common securities were utilized by the Trust II to invest in $10.3 million of variable rate Subordinated Debt of the Company. The subordinated debt is unsecured and ranks subordinate and junior in right of payment to all indebtedness, liabilities and obligations of the Company. The subordinated debt primarily represents the sole assets of the Trust II. Interest on the preferred securities is cumulative and payable quarterly in arrears. The Company has the right to optionally redeem the Subordinated Debt prior to the maturity date of April 24, 2033, on or after April 24, 2008, at the redemption price, plus accrued and unpaid distributions, if any, at the redemption date. Under the occurrence of certain events, specifically, a tax event, investment company event or capital treatment event as more fully defined in the Indenture dated April 10, 2003, the Company may redeem in whole, but not in part, the subordinated debt at any time within 90 days following the occurrence of such event. Proceeds from any redemption of the subordinated debt would cause a mandatory

17

redemption of the preferred securities and the common securities having an aggregate liquidation amount equal to the principal amount of the subordinated debt redeemed. Unamortized deferred debt issuance costs associated with the preferred securities amounted to $ 0 and $15,000 at December 31, 2008 and 2007, respectively, and are amortized on a level yield basis. On July 23, 2008 the Company redeemed $5.0 million of the preferred securities and $ 155,000 of the common securities of ESB Capital Trust II.

On December 17, 2003, ESB Statutory Trust III (Trust III), a statutory business trust established under Delaware law that is a subsidiary of the Company, issued $5.0 million variable rate preferred securities with a stated value and liquidation preference of $1,000 per share. The Company purchased $155,000 of common securities of Trust III. The preferred securities reset quarterly to equal the 3-month LIBOR Index plus 2.95%. Trust III’s obligations under the preferred securities issued are fully and unconditionally guaranteed by the Company. The proceeds from the sale of the preferred securities and the common securities were utilized by Trust III to invest in $5.2 million of variable rate subordinated debt of the Company. The subordinated debt is unsecured and ranks subordinate and junior in right of payment to all indebtedness, liabilities and obligations of the Company. The subordinated debt primarily represents the sole assets of Trust III. Interest on the preferred securities is cumulative and payable quarterly in arrears. The Company has the right to optionally redeem the subordinated debt prior to the maturity date of December 17, 2033, on or after December 17, 2008, at the redemption price, plus accrued and unpaid distributions, if any, at the redemption date. Under the occurrence of certain events, specifically, a tax event, investment company event or capital treatment event as more fully defined in the Indenture dated December 17, 2003, the Company may redeem in whole, but not in part, the subordinated debt at any time within 90 days following the occurrence of such event. Proceeds from any redemption of the subordinated debt would cause a mandatory redemption of the preferred securities and the common securities having an aggregate liquidation amount equal to the principal amount of the subordinated debt redeemed. Unamortized deferred debt issuance costs associated with the preferred securities amounted to $ 0 and $14,000 at December 31, 2008 and 2007, respectively, and are amortized on a level yield basis.

On February 10, 2005, ESB Capital Trust IV (Trust IV), a statutory business trust established under Delaware law that is a subsidiary of the Company, issued $35.0 million fixed rate preferred securities. The Company purchased $1.1 million of common securities of Trust IV. The preferred securities are fixed at a rate of 6.03% for six years and then are variable with a quarterly reset equal to the 3-month LIBOR Index plus 1.82%. The preferred securities have a stated maturity of thirty years. Trust IV’s obligations under the preferred securities issued are fully and unconditionally guaranteed by the Company. The proceeds from the sale of the preferred securities and the common securities were utilized by Trust IV to invest in $36.1 million of fixed/variable rate subordinated debt of the Company. The subordinated debt is unsecured and ranks subordinate and junior in right of payment to all indebtedness, liabilities and obligations of the Company. The subordinated debt primarily represents the sole assets of Trust IV. Interest on the preferred securities is cumulative and payable quarterly in arrears. The Company has the right to optionally redeem the subordinated debt prior to the maturity date of February 10, 2035, on or after February 10, 2011, at the redemption price, which is equal to the liquidation amount, plus accrued and unpaid distributions, if any, at the redemption date. Under the occurrence of certain events, specifically, a tax event, investment company event or capital treatment event as more fully defined in the Indenture dated February 10, 2005, the Company may redeem in whole, but not in part, the subordinated debt at any time within 90 days following the occurrence of such event. Proceeds from any redemption of the subordinated debt would cause a mandatory redemption of the preferred securities and the common securities having an aggregate liquidation amount equal to the principal amount of the subordinated debt redeemed. The Company did not have any deferred debt issuance costs associated with the preferred securities.

Subsidiaries

As of December 31, 2008, the Company had investments in PennFirst Financial Services, Inc. (PFSI), ESB Capital Trust II (the Trust II), ESB Statutory Trust III (the Trust III), ESB Capital Trust IV (the Trust IV) and THF, Inc., totaling approximately $18.9 million. PFSI, a Delaware corporation, is engaged in the management of certain investment activities on behalf of the Company. The Trust II, Trust III and Trust IV are Delaware statutory business trusts established to facilitate the issuance of trust preferred securities to the public by the Company. THF, Inc. is a Pennsylvania corporation established as a title agency to provide residential and commercial loan closing services.

At December 31, 2008, as a Pennsylvania chartered, FDIC insured stock savings bank ESB was authorized under applicable regulations to have a maximum investment of $13.5 million in service corporations. On that date, ESB had a $12.0 million investment in AMSCO, Inc. (AMSCO), its wholly owned subsidiary.

18

AMSCO was incorporated in 1974 as a wholly owned subsidiary of ESB and is engaged in real estate development and construction of 1-4 family residential units independently or in conjunction with its joint ventures. All of the existing joint ventures are 51% or more owned by AMSCO and the Bank has provided all development and construction financing. These joint ventures have been included in the consolidated financial statements and their operations are reflected within other non-interest income or expense. AMSCO owns a commercial office building partially utilized as a branch office and loan production office for ESB. ESB provided financing for the project. In 1999, the Company opened its newly constructed full service branch office located in Wexford, Allegheny County, PA a quarter mile north of the former branch location. The Company also houses its settlement company THF, Inc. and its financial advisory segment in the Wexford office building. The office space is leased from AMSCO. The Bank’s loans to AMSCO and related interest have been eliminated in consolidation. As of December 31, 2008, AMSCO had total assets, consisting primarily of investments in ten joint ventures, of $39.7 million.

AMSCO’s first joint venture, Madison Woods, consists of a 55% interest in a partnership with a local developer. Madison Woods purchased approximately 57 acres of undeveloped land in Moon Township, Allegheny County, PA in October 1998 and developed the land into a 56-lot subdivision for the purpose of selling the lots for single-family residential construction. ESB provided Madison Woods the capital and financing for the project and Madison Woods has since repaid its loan to ESB. As of December 31, 2008, 4 of the 56 lots remain unsold. On that date, AMSCO had a $134,000 investment in Madison Woods.

The second joint venture, The Links at Deer Run, consists of a 51% interest in a limited liability corporation (LLC) with a local developer/builder. The Links at Deer Run purchased approximately 39 acres of undeveloped land adjacent to a golf course in West Deer Township, Allegheny County, PA in April 2001. The LLC has developed the land and began construction on a total of 80 quadplex, 28 duplex and 6 single-family homes. ESB is providing both development and construction financing for the project. As of December 31, 2008, The Links at Deer Run had outstanding lines of credit with ESB in the amount of $2.7 million with outstanding balances of $1.6 million and development costs of $3.4 million. As of December 31, 2008, 78 units were closed and 10 units remained in various stages of construction. On that date, AMSCO had a $1.4 million investment in The Links at Deer Run.

The third joint venture, McCormick Farms, consists of a 51% interest in a LLC with the local developer involved in Madison Woods. McCormick Farms purchased approximately 147 acres in Moon Township, Allegheny County, PA, in May 2001 and developed the land into a 76-lot subdivision for the purpose of selling the lots for single-family residential construction. ESB is providing the financing for the project. As of December 31, 2008, McCormick Farms had no outstanding loan balances with ESB. As of December 31, 2008, 46 lots were closed and 30 developed lots are remaining. On that date, AMSCO had a $1.4 million investment in McCormick Farms.

The fourth joint venture, Brandy One, consists of a 51% interest in a LLC with a local developer/builder. Brandy One purchased approximately 35 acres of undeveloped land in Connoquenessing Township, Butler County, PA in October 2001. The LLC has begun development work for the purpose of constructing 112 quadplex homes. ESB is providing financing for the project. As of December 31, 2008, Brandy One had outstanding loans with ESB in the amount of $2.6 million with an outstanding balance of $1.1 million. As of December 31, 2008, all 112 units were sold and closed. After completing the development and construction of the 112 units, two parcels of land remained. One of these parcels was sold and the second parcel consisting of 2.2 acres was developed for 15 townhouses known as Napa Ridge. At December 31, 2008, seven of the townhouse units were under construction and one townhouse has been sold. On that date, AMSCO had a $2 thousand investment in Brandy One.

The fifth joint venture, The Vineyards at Brandywine, consists of a 51% interest in a limited partnership (LP) with a local developer/builder. The Vineyards at Brandywine purchased a 100-acre site of undeveloped land adjacent to the Brandy One joint venture project in Connoquenessing Township, Butler County, PA in December 2004. The LP is currently developing 48 single-family home lots in Phase I and constructing single-family detached homes thereon. Current plans for Phase II are to develop 76 quadplex units. As of December 31, 2008, The Vineyards at Brandywine had outstanding lines of credit with ESB in the amount of $1.8 million with outstanding balances of $1.3 million. As of December 31, 2008, 16 of the 48 lots in Phase I were sold. On that date, AMSCO had a $689,000 investment in The Vineyards at Brandywine.

The sixth joint venture, Springfield Partners, consists of a 51% interest in a limited partnership (LP) with a local developer. Springfield Partners purchased a 27 acre site in Cranberry Township, Butler County, in August 2005. The LP began to develop Springfield Manor into a 25 lot single family subdivision. Financing was provided by ESB Bank in the form of a development loan in the amount of $1.5 million. There were no outstanding loan balances at December 31, 2008. At December 31, 2008, all of the 25 lots were sold, and AMSCO had no investment in the partnership.

19

The seventh joint venture, The Meadows at Hampton, consists of a 51% interest in a limited partnership (LP) with a local developer/contractor. The partnership purchased a 42 acre site in June 2005 in Hampton Township, Allegheny County. The partnership will develop the site into 32 duplex building lots and construct 64 duplex units. ESB Bank is providing the financing for the project in the form of two loans, a development loan in the amount of $2.4 million and a line of credit in the amount of $3.0 million for the construction of the units. As of December 31, 2008, 9 units were closed and 5 units remained in various stages of construction. The outstanding loan balances at year-end totaled $4.3 million and AMSCO had an investment of $1.2 million.

The eighth joint venture, Cobblestone Village, consists of a 51% interest in a limited partnership (LP) with a local developer/builder. The partnership purchased a 33 acre site in June 2005 in Adams Township, Butler County. The partnership developed the site into 25 quadplex building lots and construct 25 buildings containing a total of 100 units. ESB Bank is providing financing in the form of two loans, a development loan in the amount of $0.5 million and a line of credit in the amount of $2.5 million for the construction of the buildings. December 31, 2008, 67 units were closed and 17 units remained in various stages of construction. The outstanding loan balances at year-end were $1.8 million and AMSCO had an investment of $905,000.

The ninth joint venture, BelleVue Park, consists of a 51% interest in a limited partnership (LP) with a local developer/builder. The partnership purchased a 121 acre site in September 2007 in Cranberry Township, Butler County. The partnership developed the site into 185 single family lots along with 26 quadplex building lots and construct 26 buildings containing a total of 104 units. ESB Bank is providing financing in the form of three loans. The first loan is a development loan in the amount of $7.6 million to develop the single family lots. ESB has sold 95.7% of this loan to other lenders. The second loan is a development loan in the amount of $5.5 million to develop the quadplex building lots. ESB has sold 86.7% of this loan to other lenders. The third loan is a line of credit in the amount of $2.5 million for the construction of the quadplex buildings. As of December 31, 2008 one single family lot was closed and three quadplex units were closed and 21 units remained in various stages of construction. The outstanding loan balances at year-end totaled $9.3 million and AMSCO had an investment of $3.6 million.

The tenth joint venture, MW 42 Limited Partnership, consists of a 51% interest in a limited partnership (LP) with a local builder. The partnership was formed in October 2007 for the purpose of purchasing lots in the Madison Woods joint venture and constructing single family homes for sale to the general public. ESB Bank is providing the financing for the project in the form of a construction loan in the amount of $320,000 for the construction of the first unit. As of December 31, 2008 there had been no sales activity. The outstanding loan balances at year-end totaled $165,000 and AMSCO had an investment of $54,000.

The Bank’s second wholly owned subsidiary, ESB Financial Services, Inc. (EFS), a Delaware corporation, was founded in July of 2000. EFS is engaged in the management of single-family and commercial real estate loans through a participation agreement with the Bank.

An insured state-chartered bank is required to deduct the amount of investment in, and extensions of credit to, a subsidiary engaged in activities not permissible for national banks. Because the acquisition and development of real estate is not a permissible activity for national banks, the investments in and loans to any subsidiary of the Bank which are engaged in such activities are subject to exclusion from the Bank’s regulatory capital calculation. See “Regulation – Regulation of the Bank – Regulatory Capital Requirements”.

REGULATION

Set forth below is a brief description of certain laws and regulations, which relate to the regulation of the Company and the Bank. The description of these laws and regulations, as well as descriptions of laws and regulations contained elsewhere herein does not purport to be complete and is qualified in its entirety by reference to applicable laws and regulations.

Regulation of the Company

General. The Company is a registered savings and loan holding company pursuant to the Home Owners’ Loan Act, as amended (HOLA). As such, the Company is subject to OTS regulations, examinations, supervision and reporting requirements. As a subsidiary of a savings and loan holding company, ESB is subject to certain restrictions in its dealings with the Company and affiliates thereof.

Activities Restrictions. There are generally no restrictions on the activities of a savings and loan holding company, which controlled only one subsidiary savings association on or before May 4, 1999 (a “grandfathered holding company”). However, if the Director

20

of the OTS determines that there is reasonable cause to believe that the continuation by a savings and loan holding company of an activity constitutes a serious risk to the financial safety, soundness or stability of its subsidiary savings association, the Director may impose such restrictions as it deems necessary to address such risk, including limiting (i) payment of dividends by the savings association; (ii) transactions between the savings association and its affiliates; and (iii) any activities of the savings association that might create a serious risk that the liabilities of the holding company and its affiliates may be imposed on the savings association. Notwithstanding the above rules as to permissible business activities of unitary savings and loan holding companies, if the savings association subsidiary of such a holding company fails to meet the qualified thrift lender (QTL) test, then such unitary holding company also shall become subject to the activities restrictions applicable to multiple savings and loan holding companies and, unless the savings association requalifies as a QTL within one year thereafter, shall register as, and become subject to the restrictions applicable to, a bank holding company. As of December 31, 2008, the Company was a grandfathered holding company.

If a savings and loan holding company acquires control of a second savings association and holds it as a separate institution, the holding company becomes a multiple savings and loan holding company. As a general rule, multiple savings and loan holding companies are subject to restrictions on their activities that are not imposed on a grandfathered holding company. They could not commence or continue any business activity other than: (i) those permitted for a bank holding company under section 4(c) of the Bank Holding Company Act (unless the Director of the OTS by regulation prohibits or limits such 4(c) activities); (ii) furnishing or performing management services for a subsidiary savings association; (iii) conducting an insurance agency or escrow business; (iv) holding, managing, or liquidating assets owned by or acquired from a subsidiary savings association; (v) holding or managing properties used or occupied by a subsidiary savings association; (vi) acting as trustee under deeds of trust; or (vii) those activities authorized by regulation as of March 5, 1987, to be engaged in by multiple savings and loan holding companies.

The HOLA requires every savings association subsidiary of a savings and loan holding company to give the OTS at least 30 days advance notice of any proposed dividends to be made on its guarantee, permanent or other non-withdrawable stock, or else such dividend will be invalid.

Limitations on Transactions with Affiliates. Transactions between savings associations and any affiliate are governed by Section 11 of the HOLA and Sections 23A and 23B of the Federal Reserve Act. An affiliate of a savings association is any company or entity which controls, is controlled by or is under common control with the savings association. In a holding company context, the parent holding company of a savings association (such as the Company) and any companies which are controlled by such parent holding company are affiliates of the savings association. Generally, Section 23A (i) limits the extent to which the savings association or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10% of such association’s capital stock and surplus, and contain an aggregate limit on all such transactions with all affiliates to an amount equal to 20% of such capital stock and surplus. Section 23B applies to “covered transactions” as well as certain other transactions and requires that all transactions be on terms substantially the same, or at least favorable, to the association or subsidiary as those provided to a non-affiliate. The term “covered transaction” includes the making of loans to, purchase of assets from, issuance of a guarantee to an affiliate and similar transactions. Section 23B transactions also apply to the provision of services and the sale of assets by a savings association to an affiliate. In addition to the restrictions imposed by Sections 23A and 23B, Section 11 of the HOLA prohibits a savings association from (i) making a loan or other extension of credit to an affiliate, except for any affiliate which engages only in certain activities which are permissible for bank holding companies, or (ii) purchasing or investing in any stocks, bonds, debentures, notes or similar obligations of any affiliate, except for affiliates which are subsidiaries of the savings association.

In addition, Sections 22(g) and (h) of the Federal Reserve Act place restrictions on loans to executive officers, directors and principal stockholders. Under Section 22(h), loans to a director, an executive officer and to a greater than 10% stockholder of a savings institution (“a principal stockholder”), and certain affiliated interests of either, may not exceed, together with all other outstanding loans to such person and affiliated interests, the savings institution’s loans to one borrower limit (generally equal to 15% of the institution’s unimpaired capital and surplus). Section 22(h) also requires that loans to directors, executive officers and principal stockholders be made on terms substantially the same as offered in comparable transactions to other persons unless the loans are made pursuant to a benefit or compensation program that (i) is widely available to employees of the institution and (ii) does not give preference to any director, executive officer or principal stockholder, or certain affiliated interests of either, over other employees of the savings institution. Section 22(h) also requires prior board approval for certain loans. In addition, the aggregate amount of extensions of credit by a savings institution to all insiders cannot exceed the institution’s unimpaired capital and surplus. Furthermore, Section 22(g) places additional restrictions on loans to executive officers. At December 31, 2008, the Bank was in compliance with the above restrictions.

Restrictions on Acquisitions. Except under limited circumstances, savings and loan holding companies are prohibited from acquiring, without prior approval of the Director of the OTS, (i) control of any other savings association or savings and loan holding

21

company or substantially all the assets thereof or (ii) more than 5% of the voting shares of a savings association or holding company thereof which is not a subsidiary. Except with the prior approval of the Director of the OTS, no director or officer of a savings and loan holding company or person owning or controlling by proxy or otherwise more than 25% of such company’s stock, may acquire control of any savings association, other than a subsidiary savings association, or of any other savings and loan holding company.

The Director of the OTS may only approve acquisitions resulting in the formation of a multiple savings and loan holding company which controls savings associations in more than one state if (i) the multiple savings and loan holding company involved controls a savings association which operated a home or branch office located in the state of the association to be acquired as of March 5, 1987; (ii) the acquirer is authorized to acquire control of the savings association pursuant to the emergency acquisition provisions of the Federal Deposit Insurance Act (FDIA); or (iii) the statutes of the state in which the association to be acquired is located specifically permit institutions to be acquired by the state-chartered banks or savings and loan holding companies located in the state where the acquiring entity is located (or by a holding company that controls such state-chartered savings associations).

The Federal Reserve Board may approve an application by a bank holding company to acquire control of a savings association. A bank holding company that controls a savings association may merge or consolidate the assets and liabilities of the savings association with, or transfer assets and liabilities to, any subsidiary bank, which is a member of the Deposit Insurance Fund (DIF) with the approval of the appropriate federal banking agency and the Federal Reserve Board. As a result of these provisions, there have been a number of acquisitions of savings associations by bank holding companies in recent years.

No company may acquire control of a savings and loan holding company after May 4, 1999, unless the company is engaged only in activities traditionally permitted to a multiple savings and loan holding company or permitted to a financial holding company under section 4(k) of the Bank Holding Company Act. Existing savings and loan holding companies and those formed pursuant to an application filed with the OTS before May 4, 1999 (see “Activities Restrictions” and “grandfathered holding companies” above) may engage in any activity including non-financial or commercial activities provided such companies control only one savings and loan association that meets the QTL test. Corporate reorganizations are permitted, but the transfer of grandfathered unitary thrift holding company status through acquisition is not permitted.

Sarbanes-Oxley Act of 2002. On July 30, 2002, President George W. Bush signed into law the Sarbanes-Oxley Act of 2002, which generally establishes a comprehensive framework to modernize and reform the oversight of public company auditing, improve the quality and transparency of financial reporting by those companies and strengthen the independence of auditors. Among other things, the new legislation (i) created a public company accounting oversight board which is empowered to set auditing, quality control and ethics standards, to inspect registered public accounting firms, to conduct investigations and to take disciplinary actions, subject to SEC oversight and review; (ii) strengthened auditor independence from corporate management by, among other things, limiting the scope of consulting services that auditors can offer their public company audit clients; (iii) heightened the responsibility of public company directors and senior managers for the quality of the financial reporting and disclosure made by their companies; (iv) adopted a number of provisions to deter wrongdoing by corporate management; (v) imposed a number of new corporate disclosure requirements; (vi) adopted provisions which generally seek to limit and expose to public view possible conflicts of interest affecting securities analysts; and (vii) imposed a range of new criminal penalties for fraud and other wrongful acts, as well as extended the period during which certain types of lawsuits can be brought against a company or its insiders.

Regulation of the Bank

General. In January 2004, the Bank converted from a federal chartered savings bank to a Pennsylvania chartered savings bank. As a Pennsylvania chartered savings bank, the Bank is subject to extensive regulation and examination by the Department and by the FDIC, which insures its deposits to the maximum extent permitted by law. The federal and state laws and regulations which are applicable to banks regulate, among other things, the scope of their business, their investments, their reserves against deposits, the timing of the availability of deposited funds and the nature and amount of and collateral for certain loans. There are periodic examinations by the Department and the FDIC to test the Bank’s compliance with various regulatory requirements. This regulation and supervision establishes a comprehensive framework of activities in which an institution can engage and is intended primarily for the protection of the insurance fund and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in such regulation, whether by the Department, the FDIC or the Congress could have a material adverse impact on the Bank and its operations. The Bank is also a member of the FHLB of Pittsburgh and is subject to certain limited regulation by the Federal Reserve Board.

22

Pennsylvania Savings Bank Law. The Pennsylvania Banking Code of 1965, as amended (Banking Code) contains detailed provisions governing the organization, location of offices, rights and responsibilities of directors, officers, employees and members, as well as corporate powers, savings and investment operations and other aspects of the Bank and its affairs. The Banking Code delegates extensive rulemaking power and administrative discretion to the Department so that the supervision and regulation of state-chartered savings banks may be flexible and readily responsive to changes in economic conditions and in savings and lending practices.

One of the purposes of the Banking Code is to provide savings banks with the opportunity to be competitive with each other and with other financial institutions existing under other Pennsylvania laws and other state, federal and foreign laws. A Pennsylvania savings bank may locate or change the location of its principal place of business and establish an office anywhere in Pennsylvania, with the prior approval of the Department.

The Department generally examines each savings bank no less frequently than once every two years. Although the Department may accept the examinations and reports of the FDIC in lieu of the Department’s examination, the present practice is for the Department to conduct individual examinations. The Department may order any savings bank to discontinue any violation of law or unsafe or unsound business practice and may direct any director, trustee, officer, attorney or employee of a savings bank engaged in an objectionable activity, after the Department has ordered the activity to be terminated, to show cause at a hearing before the Department why such person should not be removed.

Interstate Acquisitions. The Interstate Banking Act allows federal regulators to approve mergers between adequately capitalized banks from different states regardless of whether the transaction is prohibited under any state law, unless one of the banks’ home states has enacted a law expressly prohibiting out-of-state mergers before June 1997. The Commonwealth of Pennsylvania has not “opted out” of this interstate merger provision. Therefore, the federal provision permitting interstate acquisitions applies to banks chartered in Pennsylvania. Pennsylvania law, however, retained the requirement that an acquisition of a Pennsylvania institution by a Pennsylvania or a non-Pennsylvania-based holding company must be approved by the Banking Department. The Interstate Act also allows a state to permit out-of-state banks to establish and operate new branches in this state. Pennsylvania law permits an out of state banking institution to establish a branch office in Pennsylvania only if the laws of the state where that institution is located would permit an institution chartered under the laws of Pennsylvania to establish and maintain a branch in such other state on substantially the same terms and conditions.

FDIC Insurance Premiums. The deposits of the Bank are insured by the Deposit Insurance Fund, which is administered by the FDIC. Insured institutions are assigned to one of three capital groups which are based solely on the level of an institution’s capital: “well capitalized,” “adequately capitalized,” and “undercapitalized.” There are also three supervisory groups generally based on an institution’s CAMEL-composite rating. Assessment rates for insured institutions are determined semi-annually by the FDIC and currently range from zero basis points for well-capitalized healthy institutions, such as the Bank, to 43 basis points for undercapitalized institutions with substantial supervisory concerns.

In addition, all institutions with deposits insured by the FDIC are required to pay assessments to fund interest payments on bonds issued by the Financing Corporation, a mixed-ownership government corporation established to recapitalize a predecessor to the Deposit Insurance Fund. The assessment rate for the fourth quarter of 2008 was .00275% of insured deposits and is adjusted quarterly. These assessments will continue until the Financing Corporation bonds mature in 2019.

Under the FDIA, insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged or is engaging in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or written agreement entered into with the FDIC. The management of the Bank does not know of any practice, condition or violation that might lead to termination of deposit insurance.

On February 27, 2009, the FDIC adopted a restoration plan designed to replenish the Deposit Insurance Fund over a period of seven years and to increase the deposit insurance reserve ratio, which decreased to 0.40% of insured deposits on December 31, 2008, to the statutory minimum of 1.15% of insured deposits by December 31, 2015. In order to implement the restoration plan, the FDIC proposes to change both its risk-based assessment system and its base assessment rates. Assessment rates would increase by seven basis points across the range of risk weightings of depository institutions. Changes to the risk-based assessment system would include increasing premiums for institutions that rely significantly on excessive amounts of brokered deposits, including CDARS, increasing premiums for excessive use of secured liabilities, including Federal Home Loan Bank advances, lowering premiums for smaller institutions with very high capital levels, and adding financial ratios and debt issuer ratings to the premium calculations for banks with over $10 billion in assets, while providing a reduction for their unsecured debt. Higher assessments for well-managed and well-capitalized institutions that rely significantly on brokered-deposits will apply only when accompanied by rapid asset growth.

23

On February 27, 2009, the FDIC also adopted an interim rule imposing a 20 basis point emergency special assessment on insured institutions as of June 30, 2009, payable on September 30, 2009 which we anticipate to be approximately $1.8 million. The interim rule also permits the FDIC to impose an additional special assessment after June 30, 2009, of up to 10 basis points, if necessary to maintain public confidence in federal deposit insurance.

Capital Requirements. The FDIC has promulgated regulations and adopted a statement of policy regarding the capital adequacy of state-chartered banks which, like the Bank, are not members of the Federal Reserve System. The FDIC’s capital regulations establish a minimum 3.0% Tier I leverage capital requirement for the most highly-rated state-chartered, non-member banks, with an additional cushion of at least 100 to 200 basis points for all other state-chartered, non-member banks, which effectively will increase the minimum Tier I leverage ratio for such other banks to 4.0% to 5.0% or more. Under the FDIC’s regulation, highest-rated banks are those that the FDIC determines are not anticipating or experiencing significant growth and have well diversified risk, including no undue interest rate risk exposure, excellent asset quality, high liquidity, good earnings and, in general, which are considered a strong banking organization, rated composite 1 under the Uniform Financial Institutions Rating System. Leverage or core capital is defined as the sum of common stockholders’ equity (including retained earnings), noncumulative perpetual preferred stock and related surplus, and minority interests in consolidated subsidiaries, minus all intangible assets other than certain qualifying supervisory goodwill, and certain purchased mortgage servicing rights and purchased credit and relationships.

The FDIC also requires that savings banks meet a risk-based capital standard. The risk-based capital standard for savings banks requires the maintenance of total capital which is defined as Tier I capital and supplementary (Tier 2 capital) to risk weighted assets of 8%. In determining the amount of risk-weighted assets, all assets, plus certain off balance sheet assets, are multiplied by a risk-weight of 0% to 100%, based on the risks the FDIC believes are inherent in the type of asset or item.

The components of Tier I capital are equivalent to those discussed above under the 3% leverage standard. The components of supplementary (Tier 2) capital include certain perpetual preferred stock, certain mandatory convertible securities, certain subordinated debt and intermediate preferred stock and general allowances for loan losses. Allowance for loan losses includable in supplementary capital is limited to a maximum of 1.25% of risk-weighted assets. Overall, the amount of capital counted toward supplementary capital cannot exceed 100% of core capital. At December 31, 2008, the Bank met each of its capital requirements.

A bank which has less than the minimum leverage capital requirement shall, within 60 days of the date as of which it fails to comply with such requirement, submit to its FDIC regional director for review and approval a reasonable plan describing the means and timing by which the bank shall achieve its minimum leverage capital requirement. A bank which fails to file such plan with the FDIC is deemed to be operating in an unsafe and unsound manner, and could subject the bank to a cease-and-desist order from the FDIC. The FDIC’s regulation also provides that any insured depository institution with a ratio of Tier I capital to total assets that is less than 2.0% is deemed to be operating in an unsafe or unsound condition pursuant to Section 8(a) of the FDIA and is subject to potential termination of deposit insurance. However, such an institution will not be subject to an enforcement proceeding thereunder solely on account of its capital ratios if it has entered into and is in compliance with a written agreement with the FDIC to increase its Tier I leverage capital ratio to such level as the FDIC deems appropriate and to take such other action as may be necessary for the institution to be operated in a safe and sound manner. The FDIC capital regulation also provides, among other things, for the issuance by the FDIC or its designee(s) of a capital directive, which is a final order issued to a bank that fails to maintain minimum capital to restore its capital to the minimum leverage capital requirement within a specified time period. Such directive is enforceable in the same manner as a final cease-and-desist order.

The Bank is also subject to more stringent Department capital guidelines. Although not adopted in regulation form, the Department utilizes capital standards requiring a minimum of 6% leverage capital and 10% risk-based capital. The components of leverage and risk-based capital are substantially the same as those defined by the FDIC.

Prompt Corrective Action. Under Section 38 of the FDIA, each federal banking agency is required to implement a system of prompt corrective action for institutions which it regulates. The federal banking agencies (including the FDIC) have adopted substantially similar regulations to implement Section 38 of the FDIA. Under the regulations, a savings bank shall be deemed to be (i) “well capitalized” if it has total risk-based capital of 10.0% or more, has a Tier 1 risk-based ratio of 6.0% or more, has a Tier 1 leverage capital ratio of 5.0% or more and is not subject to any order or final capital directive to meet and maintain a specific capital level for any capital measure, (ii) “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or more, a Tier 1 risk-based capital ratio of 4.0% or more and a Tier 1 leverage capital ratio of 4.0% or more (3.0% under certain circumstances) and does not meet the

24

definition of “well capitalized”, (iii) “undercapitalized” if it has a total risk-based capital ratio that is less than 8.0%, a Tier 1 risk-based capital ratio that is less than 4.0% or a Tier 1 leverage capital ratio that is less than 4.0% (3.0% under certain circumstances), (iv) “significantly undercapitalized” if it has a total risk-based ratio that is less than 6.0%, a Tier 1 risk-based capital ratio that is less than 3.0% or a Tier 1 leverage capital ratio that is less than 3.0%, and (v) “critically undercapitalized” if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%. Section 38 of the FDIA and the regulations promulgated thereunder also specify circumstances under which the FDIC may reclassify a well capitalized savings bank as adequately capitalized and may require an adequately capitalized savings bank or an undercapitalized savings bank to comply with supervisory actions as if it were in the next lower category (except that the FDIC may not reclassify a significantly undercapitalized savings bank as critically undercapitalized). At December 31, 2008, the Bank was in the “well capitalized” category.

Loans-to-One Borrower Limitation. With certain limited exceptions, a Pennsylvania-chartered savings bank may lend to a single or related group of borrowers on an “unsecured” basis an amount equal to no greater than 15% of its capital accounts.

Activities and Investments of Insured State-Chartered Banks. Section 24 of the FDIA generally limits the activities and equity investments of FDIC-insured, state-chartered banks to those that are permissible for national banks. Under regulations dealing with equity investments, an insured state bank generally may not directly or indirectly acquire or retain any equity investment of a type, or in an amount, that is not permissible for a national bank. An insured state bank is not prohibited from, among other things, (i) acquiring or retaining a majority interest in a subsidiary, (ii) investing as a limited partner in a partnership the sole purpose of which is direct or indirect investment in the acquisition, rehabilitation or new construction of a qualified housing project, provided that such limited partnership investments may not exceed 2% of the bank’s total assets, (iii) acquiring up to 10% of the voting stock of a company that solely provides or reinsures directors’, trustees’ and officers’ liability insurance coverage or bankers’ blanket bond group insurance coverage for insured depository institutions, and (iv) acquiring or retaining the voting shares of a depository institution if certain requirements are met.

The FDIC has adopted regulations pertaining to the other activity restrictions imposed upon insured savings banks and their subsidiaries by Section 24. Pursuant to such regulations, insured savings banks engaging in impermissible activities may seek approval from the FDIC to continue such activities. Savings banks not engaging in such activities but that desire to engage in otherwise impermissible activities either directly or through a subsidiary may apply for approval from the FDIC to do so; however, if such bank fails to meet the minimum capital requirements or the activities present a significant risk to the FDIC insurance funds, such application will not be approved by the FDIC. Pursuant to this authority, the FDIC has determined that investments in certain majority-owned subsidiaries of insured state banks do not represent a significant risk to the deposit insurance funds. Investments permitted under that authority include real estate investment activities and securities activities.

Safety and Soundness. The federal banking agencies, including the FDIC, have implemented rules and guidelines concerning standards for safety and soundness required pursuant to Section 39 of the FDIA. In general, the standards relate to (1) operational and managerial matters; (2) asset quality and earnings; and (3) compensation. The operational and managerial standards cover (a) internal controls and information systems, (b) internal audit systems, (c) loan documentation, (d) credit underwriting, (e) interest rate exposure, (f) asset growth, and (g) compensation, fees and benefits. Under the asset quality and earnings standards, the Bank is required to establish and maintain systems to (i) identify problem assets and prevent deterioration in those assets, and (ii) evaluate and monitor earnings and ensure that earnings are sufficient to maintain adequate capital reserves. Finally, the compensation standard states that compensation will be considered excessive if it is unreasonable or disproportionate to the services actually performed by the individual being compensated. The federal banking agencies have also adopted asset quality and earnings standards. If an insured state-chartered bank fails to meet any of the standards promulgated by regulation, then such institution will be required to submit a plan within 30 days to the FDIC specifying the steps it will take to correct the deficiency. In the event that an insured state-chartered bank fails to submit or fails in any material respect to implement a compliance plan within the time allowed by the federal banking agency, Section 39 of the FDIA provides that the FDIC must order the institution to correct the deficiency and may (1) restrict asset growth; (2) require the savings bank to increase its ratio of tangible equity to assets; (3) restrict the rates of interest that the savings institution may pay; or (4) take any other action that would better carry out the purpose of prompt corrective action. The Bank believes that it has been and will continue to be in compliance with each of the standards as they have been adopted by the FDIC.

Regulatory Enforcement Authority. Federal banking regulators have substantial enforcement authority over the financial institutions that they regulate including, among other things, the ability to assess civil money penalties, to issue cease-and-desist or removal orders and to initiate injunctive actions against banking organizations and institution-affiliated parties, as defined. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or

25

in actions may provide the basis for enforcement action, including misleading or untimely reports filed with regulatory authorities. Except under certain circumstances, federal law requires public disclosure of final enforcement actions by the federal banking agencies.

Deposit Insurance Reform. On February 8, 2006, President Bush signed into law legislation that merged the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF) into the DIF, eliminated any disparities in bank and thrift risk-based premium assessments, reduced the administrative burden of maintaining and operating two separate funds and establishes certain new insurance coverage limits and a mechanism for possible periodic increases. The legislation also gave the FDIC greater discretion to identify the relative risks all institutions present to the deposit insurance fund and set risk-based premiums.

Major provisions in the legislation include: maintaining basic deposit and municipal account insurance coverage at $100,000 but providing for a new basic insurance coverage for retirement accounts of $250,000. Insurance coverage for basic deposit and retirement accounts could be increased for inflation every five years in $10,000 increments beginning in 2011; providing the FDIC with the ability to set the designated reserve ratio within a range of between 1.15 percent and 1.50 percent, rather than maintaining 1.25 percent at all times regardless of prevailing economic conditions; providing a one-time assessment credit of $4.7 billion to banks and savings associations in existence on December 31, 1996. The institutions qualifying for the credit may use it to offset future premiums with certain limitations; requiring the payment of dividends of 100% of the amount that the insurance fund exceeds 1.5% of the estimated insured deposits and the payment of 50% of the amount that the insurance fund exceeds 1.35% of the estimated insured deposits (when the reserve is greater than 1.35% but no more than 1.5%).

Federal Home Loan Bank System. ESB Bank is a member of the Federal Home Loan Bank of Pittsburgh, which is one of 12 regional Federal Home Loan Banks. Each Federal Home Loan Bank serves as a reserve or central bank for its members within its assigned region. It is funded primarily from funds deposited by member institutions and proceeds from the sale of consolidated obligations of the Federal Home Loan Bank System. It makes loans to members (i.e., advances) in accordance with policies and procedures established by the board of directors of the Federal Home Loan Bank.

As a member, ESB Bank is required to purchase and maintain stock in the Federal Home Loan Bank of Pittsburgh in an amount equal to the greater of 1% of its aggregate unpaid residential mortgage loans, home purchase contracts or similar obligations at the beginning of each year or 5% of its outstanding advances from the Federal Home Loan Bank. At December 31, 2008, the Bank was in compliance with this requirement.

Federal Reserve Board System. The Federal Reserve Board requires all depository institutions to maintain non-interest bearing reserves at specified levels against their transaction accounts, which are primarily checking and NOW accounts, and non-personal time deposits. The balances maintained to meet the reserve requirements imposed by the Federal Reserve Board may be used to satisfy the liquidity requirements that are imposed by the Pennsylvania Department of Banking. At December 31, 2008, the Bank was in compliance with these reserve requirements.

FEDERAL AND STATE TAXATION

General. The Company and the Bank are subject to federal income taxation in the same general manner as other corporations with some exceptions, including particularly the reserve for bad debts discussed below. The following discussion of federal taxation is intended to only summarize certain pertinent federal income tax matters and is not a comprehensive description of the tax rules applicable to the thrifts.

Method of Accounting. For federal income tax purposes, the Company currently reports its income and expenses on the accrual method of accounting and uses a tax year ending December 31 for filing its federal income tax returns.

Bad Debt Reserves. Prior to 1996, the Bank was permitted under the Code to deduct an annual addition to a reserve for bad debts in determining taxable income, subject to certain limitations. Subsequent to 1995, the Bank’s bad debt deduction is based on actual net charge-offs. Bad debt deductions for income tax purposes are included in taxable income of later years only if the Bank’s base year bad debt reserve is used subsequently for purposes other than to absorb bad debt losses. Because the Bank does not intend to use the reserve for purposes other than to absorb losses, no deferred income taxes have been provided prior to 1987. Retained earnings at December 31, 2007 (the most recent date for which a tax return has been filed) include approximately $17.7 million representing such bad debt deductions for which no deferred income taxes have been provided.

26

Distributions. If the Bank distributes cash or property to its sole stockholder, and the distribution is treated as being from its pre-1987 bad debt reserves, the distribution will cause the Bank to have additional taxable income. A distribution to stockholders is deemed to have been made from pre–1987 bad debt reserves to the extent that (a) the distribution exceeds the Bank’s accumulated earnings and profit subsequent to December 31, 1951 or (b) the distribution is a “non-dividend distribution”. A distribution in respect of stock is a non-dividend distribution to the extent that, for federal income tax purposes, (i) it is in redemption of shares, (ii) it is pursuant to a liquidation of the institution, or (iii) in the case of a current distribution, together with all other such distributions during the taxable year, exceeds the current and post-1951 accumulated earnings and profits of the Bank. The amount of additional taxable income created by a non-dividend distribution is an amount that when reduced by the tax attributable to it is equal to the amount of the distribution.

Minimum Tax. For taxable years beginning after December 31, 1986, the Code imposes an alternative minimum tax at a rate of 20%. The alternative minimum tax generally will apply to a base of regular taxable income plus certain tax preferences (alternative minimum taxable income or AMTI) and will be payable to the extent such AMT tax is in excess of regular income tax. Items of tax preference that constitute AMTI include (a) tax-exempt interest on newly issued (generally, issued on or after August 8, 1986) private activity bonds other than certain qualified bonds and (b) 75% of the excess (if any) of (i) adjusted current earnings as defined in the Code, over (ii) AMTI (determined without regard to this preference and prior to reduction by net operating losses). Net operating losses can offset no more than 90% of AMTI. Certain payments of alternative minimum tax may be used as credits against regular tax liabilities in future years. As of December 31, 2008, the Company has a minimum tax credit carry forward of $3.9 million.

Pennsylvania Taxation. The Company is subject to the Pennsylvania Corporate Net Income Tax and Capital Stock and Franchise Tax. The Corporate Net Income Tax rate is currently 9.99% and is imposed on the Company’s unconsolidated taxable income for federal purposes with certain adjustments. In general, the Capital Stock Tax is a property tax imposed at a rate of 0.289% of a corporation’s capital stock value, which is determined in accordance with a fixed formula based on average net income and net worth.

The Bank is subject to tax under the Pennsylvania Mutual Thrift Institutions Tax Act (MITA), which imposes a tax at a rate of 11.5% of a qualified thrift savings institution’s net earnings, determined in accordance with generally accepted accounting principles, as shown on its books. For fiscal years beginning in 1983, and thereafter, net operating losses may be carried forward and allowed as a deduction for three succeeding years. MITA exempts qualified savings institutions from all other corporate taxes imposed by Pennsylvania for state tax purposes, and from all local taxes imposed by political subdivisions thereof, except taxes on real estate and real estate transfers. Interest earned on U.S. and Commonwealth of Pennsylvania government obligations are partially exempt from MITA income tax.

Other Matters. The Company and its subsidiaries file a consolidated federal income tax return. Tax years 2005, 2006 and 2007 are open under the statute of limitations and subject to review by the Internal Revenue Service.

Personnel

As of December 31, 2008, the Company had 216 full-time and 68 part-time employees, respectively. The employees are not represented by a collective bargaining unit, and the Company considers its relationship with its employees to be good.

Availability of Information

The Company makes available on its website, which is located at www.esbbank.com, its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K on the date which these reports are filed electronically with the SEC and the Company’s Code of Ethics. Investors are encouraged to access these reports and other information about the Company’s business and operations on the website.

27

Item 1A. Risk Factors

In analyzing whether to make or to continue an investment in our securities, investors should consider, among other factors, the following risk factors.

Our results of operations are significantly dependent on economic conditions and related uncertainties.

Commercial banking is affected, directly and indirectly, by domestic and international economic and political conditions and by governmental monetary and fiscal policies. Conditions such as inflation, recession, unemployment, volatile interest rates, real estate values, government monetary policy, international conflicts, the actions of terrorists and other factors beyond our control may adversely affect our results of operations. Changes in interest rates, in particular, could adversely affect our net interest income and have a number of other adverse effects on our operations, as discussed in the immediately succeeding risk factor. Adverse economic conditions also could result in an increase in loan delinquencies, foreclosures and nonperforming assets and a decrease in the value of the property or other collateral which secures our loans, all of which could adversely affect our results of operations. We are particularly sensitive to changes in economic conditions and related uncertainties in Western Pennsylvania because we derive substantially all of our loans, deposits and other business from this area. Accordingly, we remain subject to the risks associated with prolonged declines in national or local economies.

Changes in interest rates could have a material adverse effect on our operations.

The operations of financial institutions such as us are dependent to a large extent on net interest income, which is the difference between the interest income earned on interest-earning assets such as loans and investment securities and the interest expense paid on interest-bearing liabilities such as deposits and borrowings. Changes in the general level of interest rates can affect our net interest income by affecting the difference between the weighted average yield earned on our interest-earning assets and the weighted average rate paid on our interest-bearing liabilities, or interest rate spread, and the average life of our interest-earning assets and interest-bearing liabilities. Changes in interest rates also can affect our ability to originate loans; the value of our interest-earning assets and our ability to realize gains from the sale of such assets; our ability to obtain and retain deposits in competition with other available investment alternatives; the ability of our borrowers to repay adjustable or variable rate loans; and the fair value of the derivatives carried on our balance sheet, derivative hedge effectiveness testing and the amount of ineffectiveness recognized in our earnings. Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions and other factors beyond our control. Although we believe that the estimated maturities of our interest-earning assets currently are well balanced in relation to the estimated maturities of our interest-bearing liabilities (which involves various estimates as to how changes in the general level of interest rates will impact these assets and liabilities), there can be no assurance that our profitability would not be adversely affected during any period of changes in interest rates.

There are increased risks involved with multi-family residential, commercial real estate, commercial business and consumer lending activities.

Our lending activities include loans secured by existing multi-family residential and commercial real estate. In addition, from time to time we originate loans for the construction of multi-family residential real estate and land acquisition and development loans. Multi-family residential, commercial real estate and construction lending generally is considered to involve a higher degree of risk than single-family residential lending due to a variety of factors, including generally larger loan balances, the dependency on successful completion or operation of the project for repayment, the difficulties in estimating construction costs and loan terms which often do not require full amortization of the loan over its term and, instead, provide for a balloon payment at stated maturity. Our lending activities also include commercial business loans to small to medium businesses, which generally are secured by various equipment, machinery and other corporate assets, and a wide variety of consumer loans, including home improvement loans, home equity loans, education loans and loans secured by automobiles, boats, mobile homes, recreational vehicles and other personal property. Although commercial business loans and leases and consumer loans generally have shorter terms and higher interests rates than mortgage loans, they generally involve more risk than mortgage loans because of the nature of, or in certain cases the absence of, the collateral which secures such loans.

Our allowance for losses on loans and leases may not be adequate to cover probable losses.

We have established an allowance for loan losses which we believe is adequate to offset probable losses on our existing loans and leases. There can be no assurance that any future declines in real estate market conditions, general economic conditions or changes in regulatory policies will not require us to increase our allowance for loan and lease losses, which would adversely affect our results of operations.

28

We are subject to extensive regulation which could adversely affect our business and operations.

We and our subsidiaries are subject to extensive federal and state governmental supervision and regulation, which are intended primarily for the protection of depositors. In addition, we and our subsidiaries are subject to changes in federal and state laws, as well as changes in regulations, governmental policies and accounting principles. The effects of any such potential changes cannot be predicted but could adversely affect the business and operations of us and our subsidiaries in the future.

We face strong competition which may adversely affect our profitability.

We are subject to vigorous competition in all aspects and areas of our business from banks and other financial institutions, including savings and loan associations, savings banks, finance companies, credit unions and other providers of financial services, such as money market mutual funds, brokerage firms, consumer finance companies and insurance companies. We also compete with non-financial institutions, including retail stores that maintain their own credit programs and governmental agencies that make available low cost or guaranteed loans to certain borrowers. Certain of our competitors are larger financial institutions with substantially greater resources, lending limits, larger branch systems and a wider array of commercial banking services. Competition from both bank and non-bank organizations will continue.

Our ability to successfully compete may be reduced if we are unable to make technological advances.

The banking industry is experiencing rapid changes in technology. In addition to improving customer services, effective use of technology increases efficiency and enables financial institutions to reduce costs. As a result, our future success will depend in part on our ability to address our customers’ needs by using technology. We cannot assure you that we will be able to effectively develop new technology-driven products and services or be successful in marketing these products to our customers. Many of our competitors have far greater resources than we have to invest in technology.

We and our banking subsidiary are subject to capital and other requirements which restrict our ability to pay dividends.

Our ability to pay dividends to our shareholders depends to a large extent upon the dividends we receive from ESB Bank. Dividends paid by the Bank are subject to restrictions under Pennsylvania and federal laws and regulations. In addition, ESB Bank must maintain certain capital levels, which may restrict the ability of the Bank to pay dividends to us and our ability to pay dividends to our shareholders.

Holders of our common stock have no preemptive rights and are subject to potential dilution.

Our articles of incorporation do not provide any shareholder with a preemptive right to subscribe for additional shares of common stock upon any increase thereof. Thus, upon the issuance of any additional shares of common stock or other voting securities of the Company or securities convertible into common stock or other voting securities, shareholders may be unable to maintain their pro rata voting or ownership interest in us.

Our deposit insurance premium could be substantially higher in the future which would have an adverse effect on our future earnings.

Under the Federal Deposit Insurance Act, the FDIC, absent extraordinary circumstances, must establish and implement a plan to restore the deposit insurance reserve ratio to 1.15% of insured deposits, over a five-year period, at any time that the reserve ratio falls below 1.15%. The recent failures of a large financial institution and several smaller ones have significantly increased the Deposit Insurance Fund’s loss provisions, resulting in a decline in the reserve ratio to 0.40% as of December 31, 2008, 79 basis points below the reserve ratio as of March 31, 2008. The FDIC expects a higher rate of insured institution failures in the next few years, which may result in a continued decline in the reserve ratio.

On February 27, 2009, the FDIC released a seven-year recapitalization plan and a proposal to raise premiums to recapitalize the fund. In order to implement the restoration plan, the FDIC proposed to change both its risk-based assessment system and its base assessment rates. Assessment rates would increase by seven basis points across the range of risk weightings. Changes to the risk-based assessment system would include increasing premiums for institutions that rely significantly on excessive amounts of brokered deposits, increasing premiums for excessive use of secured liabilities, and lowering premiums for smaller institutions with very high capital levels.

29

On February 27, 2009, the FDIC also adopted an interim rule imposing a 20 basis point emergency special assessment on insured institutions as of June 30, 2009, payable on September 30, 2009. The interim rule also permits the FDIC to impose an additional special assessment after June 30, 2009, of up to 10 basis points, if necessary to maintain public confidence in federal deposit insurance.

The actions of the U.S. Government for the purpose of stabilizing the financial markets, or market response to those actions, may not achieve the intended effect, and our results of operations could be adversely effected.

In response to the financial issues affecting the banking system and financial markets and going concern threats to investment banks and other financial institutions, the U.S. Congress recently enacted the Emergency Economic Stabilization Act of 2008 (“EESA”). The EESA provides the U.S. Secretary of the Treasury with the authority to establish a Troubled Asset Relief Program to purchase from financial institutions up to $700 billion of residential or commercial mortgages and any securities, obligations or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before March 14, 2008, as well as any other financial instrument that the U.S. Secretary of the Treasury, after consultation with the Chairman of the Federal Reserve, determines the purchase of which is necessary to promote financial market stability. As of the date hereof, the Treasury has determined not to purchase troubled assets under the program. As part of the EESA, the Treasury Department has developed a Capital Purchase Program to purchase up to $250 billion in senior preferred stock from qualifying financial institutions. The Capital Purchase Program was designed to strengthen the capital and liquidity positions of viable institutions and to encourage banks and thrifts to increase lending to creditworthy borrowers. EESA also increased deposit insurance on most accounts from $100,000 to $250,000 until the end of 2009.

Pursuant to the Federal Deposit Insurance Act, the FDIC also established a Temporary Liquidity Guarantee Program that provides a guarantee for newly-issued senior unsecured debt and non-interest bearing transaction deposit accounts at eligible insured institutions. For non-interest bearing transaction deposit accounts, a 10 basis point annual rate surcharge will be applied to deposit amounts in excess of $250,000. We have elected not to participate in the Capital Purchase Program but will participate in the Temporary Liquidity Guarantee Program. On February 27, 2009 the FDIC modified the Temporary Liquidity Guarantee Program to allow participating entities, with the FDIC’s permission, to also issue mandatory convertible debt.

The U.S. Congress or federal banking regulatory agencies could adopt additional regulatory requirements or restrictions in response to the threats to the financial system and such changes may adversely affect the operations of Company and the Bank. In addition, the EESA may not have the intended beneficial impact on the financial markets or the banking industry. To the extent the market does not respond favorably to the Troubled Asset Relief Program or the program does not function as intended, our prospects and results of operations could be adversely effected.

Item 1B. Unresolved Staff Comments

Not Applicable

30

Item 2. Properties

The following table sets forth certain information with respect to the offices and real property of the Company as of December 31, 2008:

Location	Owned or Leased	Lease Expiration Date	Net Book Value or Annual Rent		Percent of Total Deposits
Corporate Headquarters and ESB Main Office:
Ellwood City Office	Owned	—	$	1,302,023	15.7	%
600 Lawrence Avenue, Ellwood City, PA 16117
ESB Branch Offices:
Aliquippa Office	Owned	—	$	36,725	4.6	%
2301 Sheffield Road, Aliquippa, PA 15001
Ambridge Office	Owned	—	$	73,397	4.3	%
506 Merchant Street, Ambridge, PA 15003
Baldwin Office	Owned	—	$	632,618	4.8	%
5035 Curry Road, Pittsburgh, PA 15236
Beaver Office	Owned	—	$	436,789	4.2	%
701 Corporation Street, Beaver, PA 15009
Beaver Falls Office	Owned	—	$	150,530	2.7	%
1427 Seventh Avenue, Beaver Falls, PA 15010
Beechview Office	Leased	10/31/10	$	30,000	2.0	%
1550 Beechview Avenue, Pittsburgh, PA 15216
Center Township Office	Owned	—	$	700,876	4.2	%
3531 Brodhead Road, Monaca, PA 15061
Chippewa Township Office	Owned	—	$	556,003	4.8	%
2521 Darlington Road, Beaver Falls, PA 15010
Coraopolis Office	Owned	—	$	69,188	2.4	%
900 Fifth Avenue, Coraopolis, PA 15108
Darlington Office	Owned	—	$	182,501	1.1	%
233 Second Street, Darlington, PA 16115
Fox Chapel Office	Owned	—	$	162,588	5.6	%
1060 Freeport Road, Pittsburgh, PA 15238
Franklin Township Office	Owned	—	$	463,559	4.8	%
1793 Mercer Road, Ellwood City, PA 16117
Hopewell Township Office	Owned	—	$	192,933	3.0	%
2293 Broadhead Road, Aliquippa, PA 15001
Neshannock Township Office	Owned	—	$	1,310,144	2.6	%
3360 Wilmington Road, New Castle, PA 16105
New Brighton Office	Owned	—	$	51,575	2.3	%
800 Third Avenue, New Brighton, PA 15066
North Shore Office	Owned	—	$	33,123	3.2	%
807 Middle Street, Pittsburgh, PA 15212
Northern Lights Office	Leased	07/31/19	$	30,000	2.7	%
1555 Beaver Road, Baden, PA 15005
Shenango Township Office	Owned	—	$	1,798,711	10.6	%
2656 Ellwood Road, New Castle, PA 16101
Spring Hill Office	Owned	—	$	345,510	2.5	%
Itin & Rhine Streets, Pittsburgh, PA 15212
Troy Hill Office	Owned	—	$	339,731	3.8	%
1706 Lowrie Street, Pittsburgh, PA 15212
Wexford Office	Owned	—	$	1,121,217	4.4	%
101 Wexford Bayne Road, Wexford, PA 15090
Zelienople Office	Leased	11/30/10	$	28,800	3.7	%
17 Northgate Plaza, Harmony, PA 16037

31

Item 2. Properties – Continued

Location	Owned or Leased	Lease Expiration Date	Net Book Value or Annua Rent		Percent of Total Deposits
Other Properties:
Drive-through Facility	Owned	—	$	23,518	NA
618 Beaver Avenue, Ellwood City, PA 16117
Parking Lot	Owned	—	$	17,639	NA
611 Lawrence Avenue, Ellwood City, PA 16117
Training Center	Owned	—	$	75,218	NA
632 Lawrence Avenue, Ellwood City, PA 16117
Findlay Township Property	Owned	—	$	54,000	NA
Route 30, Clinton, PA 15026
Butler Office under Construction	Owned	—	$	498,745	NA
831 Evans City Road, Renfrew PA 16063
North Shore Property	Leased	02/28/10	$	71,622	NA
One North Shore, Suite 120, Pittsburgh PA 15212
Rental Property	Owned	—	$	182,909	NA
628 Lawrence Avenue, Ellwood City, PA 16117
Rental Property	Owned	—	$	50,835	NA
914 5th Avenue, Coraopolis, PA 15108
Rental Property	Owned	—	$	62,088	NA
926 5th Avenue, Coraopolis, PA 15108

Item 3. Legal Proceedings

The Company is subject to a number of asserted and unasserted potential legal claims encountered in the normal course of business. In the opinion of management, there is no present basis to conclude that the resolution of these claims will have a material adverse impact on the consolidated financial condition or results of operations of the Company

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

Not Applicable

32

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equities

The information required herein is incorporated by reference from the section captioned “Stock and Dividend Information” of the Company’s 2008 Annual Report to Stockholders included as Exhibit 13 hereto (2008 Annual Report).

The following table sets forth information with respect to purchases made by or on behalf of the Company of shares of common stock of the Company during indicated periods.

Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)
October 1-31, 2008	16,550	$	10.04	16,550	207,125
November 1-30, 2008	18,740		10.28	18,740	188,385
December 1-31, 2008	44,834		10.53	44,834	143,551
Totals	80,124	$	10.37	80,124	143,551

(1) On September 19, 2007, the Company announced its current program to repurchase up to 5% of the outstanding shares of common stock of the Company, or 629,400 shares. The program does not have an expiration date and all shares are purchased in the open market or by privately negotiated transactions, as in the opinion of management, market conditions warrant.

Item 6. Selected Financial Data

The information required herein is incorporated by reference from the section captioned “Selected Consolidated Financial Data” of the Company’s 2008 Annual Report.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The information required herein is incorporated by reference from the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s 2008 Annual Report.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

The information required herein is incorporated by reference from the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Asset and Liability Management” of the Company’s 2008 Annual Report.

Item 8. Financial Statements and Supplementary Data

The information required herein is incorporated by reference from the sections captioned “Consolidated Financial Statements,” “Notes to Consolidated Financial Statements,” “Management’s Responsibility for Financial Statements”, “Report on Management’s Assessment of Internal Controls Over Financial Reporting,” “Report of Independent Registered Public Accounting Firm” (which report relates to management’s assessment of internal controls), and the “Report of S R Snodgrass, A.C., Independent Registered Public Accounting Firm” of the Company’s 2008 Annual Report.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable

33

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures. As of December 31, 2008, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, on the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2008.

Disclosure controls and procedures are the controls and other procedures that are designed to ensure that the information required to be disclosed by the Company in its reports filed and submitted under the Securities Exchange Act of 1934, as amended (“Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in its reports filed under the Exchange Act is accumulated and communicated to the Company’s management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Management Report on Internal Control over Financial Reporting. The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Management’s assessment of internal control over financial reporting for the fiscal year ended December 31, 2008 is included in Item 8.

Accountants Report. Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008 has been audited by S R Snodgrass, A.C., an independent registered public accounting firm, as stated in its report included in Item 8.

Changes in Internal Controls Over Financial Reporting. No change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B. Other Information

Not applicable

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required herein is incorporated by reference from the section captioned “Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” of the Company’s Definitive Proxy Statement for the Annual Meeting of Stockholders to be held in April 2009 (“Proxy Statement”).

Item 11. Executive Compensation

The information required herein is incorporated by reference from the section captioned “Compensation of Directors and Executive Officers” of the Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required herein is incorporated by reference from the sections captioned “Beneficial Ownership” of the Proxy Statement.

34

The following information sets forth certain information for all equity compensation plans and individual compensation agreements (whether with employees or non-employees, such as directors) in effect as of December 31, 2008.

Equity Compensation Plan Information

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (1)(2)	Weighted-average exercise price of outstanding options, warrants and rights (1)(2)		Number of securities remaining available for future issuance under equity compensations plans (excluding securities reflected in the first column)(2)
Equity compensation plans approved by security holders	891,002	$	10.45	385,328
Equity compensation plans not approved by security holders	—		—	—
Total	891,002	$	10.45	385,325

(1) Includes outstanding options granted under the 1990 Stock Option Plan and the 1992 Stock Incentive Plan, which were approved by security holders and have expired. No additional options may be granted under these plans.

(2) The table does not include information for equity compensation plans assumed by the Company in connection with acquisitions of the companies which originally established those plans. As of December 31, 2008, no options and 7,500 shares of restricted stock were outstanding which had not yet vested under those assumed plans. No additional options and 12,105 shares of restricted stock may be granted under the assumed plans.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required herein is incorporated by reference from the subsections captioned “Certain Relationships and Related Transactions” and “Election of Directors – Information with respect to Nominees for Director and continuing Directors” of the Proxy Statement.

Item 14. Principal Accountant Fees and Services

The information required herein is incorporated by reference from the sections captioned “Ratification of Selection of Independent Registered Public Accounting Firm – Auditor Fees” and “-Pre-Approval Policy and Procedures” of the Proxy Statement.

35

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)	DOCUMENTS FILED AS PART OF THIS REPORT
	(1)		The following financial statements are incorporated by reference from Item 8 hereof (See Exhibit 13):
			Report of Independent Registered Public Accounting Firm
			Consolidated Statements of Financial Condition as of December 31, 2008 and 2007
			Consolidated Statements of Operations for the years ended December 31, 2008, 2007 and 2006
			Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2008, 2007 and 2006
			Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006
			Notes to Consolidated Financial Statements
	(2)		All schedules for which provision is made in the applicable accounting regulations of the SEC are omitted because of the absence of conditions under which they are required or because the required information is included in the Consolidated Financial Statements and related notes thereto.
	(3)	(a)	The following exhibits are filed as part of this Form 10-K, and this list includes the Exhibit Index.
			No.	Exhibits
			3.1	Amended and Restated Articles of Incorporation (1)
			3.2	Amended and Restated Bylaws (2)
			4	Specimen Common Stock Certificate (3)
			10.1	ESB Financial Corporation Employee Stock Ownership Plan (3)(6)
			10.2	Ellwood Federal Savings Bank 1990 Stock Option Plan (3)(6)
			10.3	PennFirst Bancorp, Inc. 1992 Stock Incentive Plan (4)(6)
			10.4	PennFirst Bancorp, Inc. Amended and Restated 1997 Stock Option Plan (5)(6)
			10.5	ESB Financial Corporation Amended and Restated 2001 Stock Option Plan (5)(6)
			10.6	ESB Financial Corporation Amended and Restated 2005 Stock Incentive Plan (5)(6)
			10.7	Amended and Restated Workingmens Bank Restricted Stock Plan and Trust Agreement (7)(6)
			10.8	Amended and Restated Troy Hill Bancorp, Inc. Recognition and Retention Plan for Officers and Trust Agreement (5)(6)
			10.9	Amended and Restated Troy Hill Bancorp, Inc. Recognition and Retention Plan for Directors and Trust Agreement (5)(6)
			10.10	Amended and Restated Employment Agreement between ESB Financial Corporation and Charlotte A. Zuschlag, dated as of November 20, 2007 (5)(6)
			10.11	Amended and Restated Employment Agreement between ESB Bank and Charlotte A. Zuschlag, dated as of November 20, 2007 (5)(6)
			10.12	Form of Amended and Restated Change in Control Agreement among ESB Financial Corporation, ESB Bank and each of the following Group Senior Vice Presidents of ESB Financial Corporation: Charles P. Evanoski, Frank D. Martz and Todd F. Palkovich (5)(6)
			10.13	Form of Amended and Restated Change in Control Agreement among ESB Financial Corporation, ESB Bank and Richard E. Canonge and certain other Senior Vice Presidents of ESB Financial Corporation and ESB Bank (5)(6)
			10.14	Amended and Restated Supplemental Executive Retirement Plan of ESB Financial Corporation and ESB Bank (5)(6)
			10.15	Amended and Restated ESB Financial Corporation Excess Benefit Plan (5)(6)
			10.16	Form of Amended and Restated Director Retirement Agreement entered into between ESB Financial Corporation, ESB Bank and each director of ESB Financial Corporation (5)(6)
			10.16	Form of Amended and Restated Director Retirement Agreement entered into between ESB Bank and each director of ESB Bank (5)(6)
			13	2008 Annual Report to Shareholders (1)

36

21	Subsidiaries of the Registrant - Reference is made to Item 1. “Business - Subsidiaries” for the required information.
23	Consent of S.R. Snodgrass, A.C. (1)
31.1	Certification of Chief Executive Officer Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002 (1)
31.2	Certification of Chief Financial Officer Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002 (1)
32.1	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (1)
32.2	Certification of the Chief Financial Officer Pursuant Section 906 of the Sarbanes-Oxley Act of 2002 (1)

(1) Filed herewith

(2) Incorporated by reference from the Current Report on Form 8-K filed by the Company with the SEC on December 19, 2007

(3) Incorporated by reference from the Registration Statement on Form S-4 (Registration No. 33-39219) filed by the Company with the SEC on March 1, 1991.

(4) Incorporated by reference from the Annual Report on Form 10-K filed by the Company with the SEC on March 29, 1993.

(5) Incorporated by reference from the Current Report on Form 8-K filed by the Company with the SEC on November 21, 2007.

(6) Management contract or compensatory plan or arrangement.

(7) Incorporated by reference from the Current Report on Form 8-K filed by the Company with the SEC on November 22, 2006.

The Company has no instruments defining the rights of holders of its long-term debt where the amount of securities authorized under any such instrument exceeds 10% of the total assets of the Company and its subsidiaries on a consolidated basis. The Company hereby agrees to furnish a copy of any such instrument, where the amount of securities is less than 10% of total assets of the Company, to the SEC upon request.

(b) See (a)(3) above for all exhibits filed herewith and the exhibit index.

(c) There are no other financial statements and financial statement schedules which were excluded from the 2008 Annual Report, which are required to be included herein.

37

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	ESB FINANCIAL CORPORATION
Date: March 12, 2009	By:	/s/ Charlotte A. Zuschlag
		Charlotte A. Zuschlag
		President and Chief Executive Officer
		(Duly Authorized Representative)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By:	/s/ Charlotte A. Zuschlag	Date: March 12, 2009
	Charlotte A. Zuschlag
	President and Chief Executive Officer, Director (Principal Executive Officer)
By:	/s/ Charles P. Evanoski	Date: March 12, 2009
	Charles P. Evanoski
	Group Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
By:	/s/ William B. Salsgiver	Date: March 12, 2009
	William B. Salsgiver
	Chairman of the Board of Directors
By:	/s/ Herbert S. Skuba	Date: March 12, 2009
	Herbert S. Skuba
	Vice Chairman of the Board of Directors
By:	/s/ Lloyd L. Kildoo	Date: March 12, 2009
	Lloyd L. Kildoo – Director
By:	/s/ Mario J. Manna	Date: March 12, 2009
	Mario J. Manna – Director
By:	/s/ James P. Wetzel, Jr.	Date: March 12, 2009
	James P. Wetzel, Jr. – Director

38

EX-3.1

Exhibit 3.1

AMENDED AND RESTATED

ARTICLES OF INCORPORATION

OF

ESB FINANCIAL CORPORATION

Article 1. Name. The name of the corporation is ESB Financial Corporation (hereinafter referred to as the “Corporation”).

Article 2. Registered Office. The address of the registered office of the Corporation in the Commonwealth of Pennsylvania is 600 Lawrence Avenue, Ellwood City, Pennsylvania 16117.

Article 3. Nature of Business. The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the Business Corporation Law of 1988, as amended, of the Commonwealth of Pennsylvania (the “BCL”). The Corporation is incorporated under the provisions of the BCL.

Article 4. Duration. The term of the existence of the Corporation shall be perpetual.

Article 5. Capital Stock.

A. Authorized Amount. The total number of shares of capital stock which the Corporation has authority to issue is 35,000,000 of which 5,000,000 shall be serial preferred stock, par value $0.01 per share (hereinafter the “Preferred Stock”), and 30,000,000 shall be common stock, par value $0.01 per share (hereinafter the “Common Stock”). Except to the extent required by governing law, rule or regulation, the shares of capital stock may be issued from time to time by the Board of Directors without further approval of stockholders. The Corporation shall have the authority to purchase its capital stock out of funds lawfully available therefor.

B. Common Stock. Except as provided in this Article 5 (or in any resolution or resolutions adopted by the Board of Directors pursuant hereto), the exclusive voting power shall be vested in the Common Stock, with each holder thereof being entitled to one vote for each share of such Common Stock standing in the holder’s name on the books of the Corporation. Subject to any rights and preferences of any class of stock having preference over the Common Stock, holders of Common Stock shall be entitled to such dividends as may be declared by the Board of Directors out of funds lawfully available therefor. Upon any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, holders of Common Stock shall be entitled to receive pro rata the remaining assets of the Corporation after the holders of any class of stock having preference over the Common Stock have been paid in full any sums to which they may be entitled.

C. Authority of Board to Fix Terms of Preferred Stock. The Board of Directors shall have the full authority permitted by law to divide the authorized and unissued shares of Preferred Stock into series and to fix by resolution full, limited, multiple or fractional, or no voting rights, and such designations, preferences, qualifications, privileges, limitations, restrictions, options, conversion rights, and other special or relative rights of the Preferred Stock or any series thereof that may be desired.

D. Uncertificated Shares. Any or all classes and series of shares of the Corporation, or any part thereof, may be represented by uncertificated shares to the extent determined by the Board of Directors, except as required by applicable law, including that shares represented by a certificate that is issued and outstanding shall continue to be represented thereby until the certificate is surrendered to the Corporation or its transfer agent. Within a reasonable time after the issuance or transfer of uncertificated shares, the Corporation

1

shall send to the registered owner thereof a written notice containing the information required by applicable law to be set forth or stated on certificates. Except as otherwise expressly provided by law, the rights and obligations of the holders of shares represented by certificates and the rights and obligations of the holders of uncertificated shares of the same class and series shall be identical.

Article 6. Directors. The business and affairs of the Corporation shall be managed by or under the direction of a Board of Directors.

A. Number. Except as otherwise increased from time to time by the exercise of the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect additional directors, the number of directors of the Corporation shall be determined as stated in the Corporation’s Bylaws, as may be amended from time to time.

B. Classification and Term. The initial directors shall serve until the first annual meeting of stockholders after the effective date of the original Articles of Incorporation of the Corporation. At such first annual meeting, a classified Board of Directors will be elected to succeed the initial directors. The Board of Directors, other than those who may be elected by the holders of any class or series of stock having preference over the Common Stock as to dividends or upon liquidation, shall be divided into three classes as nearly equal in number as possible, with one class to be elected annually at each annual meeting subsequent to the first annual meeting of stockholders. The term of office of the directors elected at the first annual meeting of stockholders shall be as follows:

(1) the term of office of the directors of the first class shall expire at the first annual meeting of stockholders after their election as directors;

(2) the term of office of the directors of the second class shall expire at the second annual meeting of stockholders after their election as directors; and

(3) the term of office of the directors of the third class shall expire at the third annual meeting of stockholders after their election as directors; and, as to the directors of each class, when their respective successors are elected and qualified. At each annual meeting of stockholders subsequent to the first annual meeting of stockholders, the directors elected to succeed those in the class whose terms are expiring shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders and when their respective successors are elected and qualified. Notwithstanding the foregoing, and except as otherwise required by law, whenever the holders of any one or more series of Preferred Stock shall have the right, voting separately as a class, to elect one or more directors of the Corporation, the terms of the director or directors elected by such holders shall expire at the next succeeding annual meeting of stockholders and vacancies created with respect to any directorship of the directors so elected may be filled in the manner specified by the terms of such Preferred Stock.

C. No Cumulative Voting. Stockholders of the Corporation shall not be permitted to cumulate their votes for the election of directors.

D. Vacancies. Except as otherwise fixed pursuant to the provisions of Article 5 hereof relating to the rights of the holders of any class or series of stock having preference over the Common Stock as to dividends or upon liquidation to elect directors, any vacancy occurring in the Board of Directors, including any vacancy created by reason of an increase in the number of directors, shall be filled by a majority vote of the directors then in office, whether or not a quorum is present, or by a sole remaining director, and any director so chosen shall serve until the term of the class to which he was appointed shall expire and until his successor is elected and qualified. When the number of directors is changed, the Board of Directors shall determine the class or classes to which the increased or decreased number of directors shall be apportioned, provided that no decrease in the number of directors shall shorten the term of any incumbent director.

2

E. Removal. Subject to the rights of any class or series of stock having preference over the Common Stock as to dividends or upon liquidation to elect directors, any director (including persons elected by directors to fill vacancies in the Board of Directors) may be removed from office without cause by an affirmative vote of not less than 75% of the total votes eligible to be cast by stockholders at a duly constituted meeting of stockholders called expressly for such purpose and may be removed from office with cause by an affirmative vote of not less than a majority of the total votes eligible to be cast by stockholders. Cause for removal shall exist only if the director whose removal is proposed has been either declared of unsound mind by an order of a court of competent jurisdiction, convicted of a felony or of an offense punishable by imprisonment for a term of more than one year by a court of competent jurisdiction, or deemed liable by a court of competent jurisdiction for gross negligence or misconduct in the performance of such director’s duties to the Corporation. At least 30 days prior to such meeting of stockholders, written notice shall be sent to the director whose removal will be considered at the meeting. Directors may also be removed from office in the manner provided in Sections 1726(b) and 1726(c) of the BCL, or any successors to such sections.

F. Nominations of Directors. Nominations of candidates for election as directors at any annual meeting of stockholders may be made (a) by, or at the direction of, a majority of the Board of Directors or (b) by any stockholder entitled to vote at such annual meeting. Only persons nominated in accordance with the procedures set forth in this Article 6.F shall be eligible for election as directors at an annual meeting. Ballots bearing the names of all the persons who have been nominated for election as directors at an annual meeting in accordance with the procedures set forth in this Article 6.F shall be provided for use at the annual meeting.

Nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation as set forth in this Article 6.F. To be timely, a stockholder’s notice shall be delivered to, or mailed and received at, the principal executive offices of the Corporation not less than 60 days prior to the anniversary date of the immediately preceding annual meeting of stockholders of the Corporation; provided, however, that with respect to the first scheduled annual meeting, notice by the stockholder must be so delivered or received no later than the close of business on the tenth day following the day on which notice of the date of the scheduled annual meeting was mailed, provided further that the notice by the stockholder must be delivered or received no later than the close of business on the fifth day preceding the date of the meeting. Such stockholder’s notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director and as to the stockholder giving the notice (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of Corporation stock which are Beneficially Owned (as defined in Article 10.A(e)) by such person on the date of such stockholder notice, and (iv) any other information relating to such person that is required to be disclosed in solicitations of proxies with respect to nominees for election as directors, pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including, but not limited to, information required to be disclosed by Items 4, 5, 6 and 7 of Schedule 14A and information which would be required to be filed on Schedule 14B with the Securities and Exchange Commission (or any successors of such items or schedules); and (b) as to the stockholder giving the notice (i) the name and address, as they appear on the Corporation’s books, of such stockholder and any other stockholders known by such stockholder to be supporting such nominees and (ii) the class and number of shares of Corporation stock which are Beneficially Owned by such stockholder on the date of such stockholder notice and, to the extent known, by any other stockholders known by such stockholder to be supporting such nominees on the date of such stockholder notice. At the request of the Board of Directors, any person nominated by, or at the direction of, the Board for election as a director at an annual meeting shall furnish to the Secretary of the Corporation that information required to be set forth in a stockholder’s notice of nomination which pertains to the nominee.

The Board of Directors may reject any nomination by a stockholder not timely made in accordance with the requirements of this Article 6.F. If the Board of Directors, or a designated committee thereof, determines that the information provided in a stockholder’s notice does not satisfy the informational requirements of this Article 6.F in any material respect, the Secretary of the Corporation shall promptly notify such stockholder of the deficiency in the notice. The stockholder shall have an opportunity to cure the deficiency by providing additional information to the Secretary within such period of time, not to exceed five days from the date such deficiency

3

notice is given to the stockholder, as the Board of Directors or such committee shall reasonably determine. If the deficiency is not cured within such period, or if the Board of Directors or such committee reasonably determines that the additional information provided by the stockholder, together with information previously provided, does not satisfy the requirements of this Article 6.F in any material respect, then the Board of Directors may reject such stockholder’s nomination. The Secretary of the Corporation shall notify a stockholder in writing whether his nomination has been made in accordance with the time and informational requirements of this Article 6.F. Notwithstanding the procedures set forth in this paragraph, if neither the Board of Directors nor such committee makes a determination as to the validity of any nominations by a stockholder, the presiding officer of the annual meeting shall determine and declare at the annual meeting whether the nomination was made in accordance with the terms of this Article 6.F. If the presiding officer determines that a nomination was made in accordance with the terms of this Article 6.F, he shall so declare at the annual meeting and ballots shall be provided for use at the meeting with respect to such nominee. If the presiding officers determines that a nomination was not made in accordance with the terms of this Article 6.F, he shall so declare at the annual meeting and the defective nomination shall be disregarded.

Notwithstanding the foregoing, and except as otherwise required by law, whenever the holders of any one or more series of Preferred Stock shall have the right, voting separately as a class, to elect one or more directors of the Corporation, the provisions of this Article 6.F shall not apply with respect to the director or directors elected by such holders of Preferred Stock.

G. Discharge of Duties. In discharging the duties of their respective positions, the Board of Directors, committees of the Board of Directors and individual directors shall, in considering the best interests of the Corporation, consider the effects of any action upon the employees of the Corporation and its subsidiaries, the depositors and borrowers of any insured institution subsidiary, the communities in which offices or other establishments of the Corporation or any subsidiary are located and all other pertinent factors.

Article 7. Preemptive Rights. No holder of the capital stock of the Corporation shall be entitled as such, as a matter of right, to subscribe for or purchase any part of any new or additional issue of stock of any class whatsoever of the Corporation, or of securities convertible into stock of any class whatsoever, whether now or hereafter authorized, or whether issued for cash or other consideration or by way of a dividend.

Article 8. Indemnification, etc. of Officers, Directors, Employees and Agents.

A. Personal Liability of Directors. A director of the Corporation shall not be personally liable for monetary damages for any action taken, or any failure to take any action, as a director except to the extent that by law a director’s liability for monetary damages may not be limited.

B. Indemnification. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, including actions by or in the right of the Corporation, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines, excise taxes and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding to the full extent permissible under Pennsylvania law.

C. Advancement of Expenses. Reasonable expenses incurred by a director, officer, or employee or agent of the Corporation in defending a civil or criminal action, suit or proceeding described in Article 8.B may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such person to repay such amount if it shall ultimately be determined that the person is not entitled to be indemnified by the Corporation.

4

D. Other Rights. The indemnification and advancement of expenses provided by or pursuant to this Article 8 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any insurance or other agreement, vote of stockholders or directors or otherwise, both as to actions in their official capacity and as to actions in another capacity while holding an office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person.

E. Insurance. The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article 8.

F. Security Fund; Indemnity Agreements. By action of the Board of Directors (notwithstanding their interest in the transaction), the Corporation may create and fund a trust fund or fund of any nature, and may enter into agreements with its officers, directors, employees and agents for the purpose of securing or insuring in any manner its obligation to indemnify or advance expenses provided for in this Article 8.

G. Modification. The duties of the Corporation to indemnify and to advance expenses to any person as provided in this Article 8 shall be in the nature of a contract between the Corporation and each such person, and no amendment or repeal of any provision of this Article 8, and no amendment or termination of any trust or other fund created pursuant to Article 8.F hereof, shall alter to the detriment of such person the right of such person to the advancement of expenses or indemnification related to a claim based on an act or failure to act which took place prior to such amendment, repeal or termination.

H. Proceeding. Initiated by Indemnified Persons. Notwithstanding any other provision of this Article 8, the Corporation shall not indemnify a director, officer, employee or agent for any liability incurred in an action, suit or proceeding initiated by (which shall not be deemed to include counter-claims or affirmative defenses) or participated in as an intervenor or amicus curiae by the person seeking indemnification unless such initiation of or participation in the action, suit or proceeding is authorized, either before or after its commencement, by the affirmative vote of a majority of the directors then in office.

Article 9. Meetings of Stockholders and Stockholder Proposals.

A. Definitions

(a) Acquire. The term “Acquire” includes every type of acquisition, whether effected by purchase, exchange, operation of law or otherwise.

(b) Acting in Concert. The term “Acting in Concert” means (a) knowing participation in a joint activity or conscious parallel action towards a common goal whether or not pursuant to an express agreement, or (b) a combination or pooling of voting or other interests in the securities of an issuer for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise.

(c) Affiliate. An “Affiliate” of, or a Person “affiliated with,” a specified Person, means a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Person specified.

(d) Associate. The term “Associate” when used to indicate a relationship with any Person means:

(i) Any corporation or organization (other than the Corporation or a Subsidiary of the Corporation), or any subsidiary or parent thereof, of which such Person is a director, officer or partner or is, directly or indirectly, the Beneficial Owner of 10% or more of any class of equity securities;

5

(ii) Any trust or other estate in which such Person has a 10% or greater beneficial interest or as to which such Person serves as trustee or in a similar fiduciary capacity, provided, however, such term shall not include any employee stock benefit plan of the Corporation or a Subsidiary of the Corporation in which such Person has a 10% or greater beneficial interest or serves as a trustee or in a similar fiduciary capacity;

(iii) Any relative or spouse of such Person (or any relative of such spouse) who has the same home as such Person or who is a director or officer of the Corporation or a Subsidiary of the Corporation (or any subsidiary or parent thereof); or

(iv) Any investment company registered under the Investment Company Act of 1940 for which such Person or any Affiliate or Associate of such Person serves as investment advisor.

(e) Beneficial Owner (including Beneficially Owned). A Person shall be considered the “Beneficial Owner” of any shares of stock (whether or not owned of record):

(i) With respect to which such Person or any Affiliate or Associate of such Person directly or indirectly has or shares (A) voting power, including the power to vote or to direct the voting of such shares of stock, and/or (B) investment power, including the power to dispose of or to direct the disposition of such shares of stock;

(ii) Which such Person or any Affiliate or Associate of such Person has (A) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, and/or (B) the right to vote pursuant to any agreement, arrangement or understanding (whether such right is exercisable immediately or only after the passage of time); or

(iii) Which are Beneficially Owned within the meaning of (i) or (ii) of this Article 9.A(e) by any other Person with which such first-mentioned Person or any of its Affiliates or Associates either (A) has any agreement, arrangement or understanding, written or oral, with respect to acquiring, holding, voting or disposing of any shares of stock of the Corporation or any Subsidiary of the Corporation or acquiring, holding or disposing of all or substantially all, or any Substantial Part, of the assets or business of the Corporation or a Subsidiary of the Corporation, or (B) is Acting in Concert. For the purpose only of determining whether a Person is the Beneficial Owner of a percentage specified in this Article 9 of the outstanding Voting Shares, such shares shall be deemed to include any Voting Shares which may be issuable pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants, options or otherwise and which are deemed to be Beneficially Owned by such Person pursuant to the foregoing provisions of this Article 9.A(e), but shall not include any other Voting Shares which may be issuable in such manner.

(f) Offer. The term “Offer” shall mean every offer to buy or acquire, solicitation of an offer to sell, tender offer or request or invitation for tender of, a security or interest in a security for value; provided that the term “Offer” shall not include (i) inquiries directed solely to the management of the Corporation and not intended to be communicated to stockholders which are designed to elicit an indication of management’s receptivity to the basic structure of a potential acquisition with respect to the amount of cash and or securities, manner of acquisition and formula for determining price, or (ii) non-binding expressions of understanding or letters of intent with the management of the Corporation regarding the basic structure of a potential acquisition with respect to the amount of cash and or securities, manner of acquisition and formula for determining price.

6

(g) Person. The term “Person” shall mean any individual, partnership, corporation, association, trust, group or other entity. When two or more Persons act as a partnership, limited partnership, syndicate, association or other group for the purpose of acquiring, holding or disposing of shares of stock, such partnership, syndicate, associate or group shall be deemed a “Person.”

(h) Substantial Part. The term “Substantial Part” as used with reference to the assets of the Corporation or of any Subsidiary means assets having a value of more than 10% of the total consolidated assets of the Corporation and its Subsidiaries as of the end of the Corporation’s most recent fiscal year ending prior to the time the determination is being made.

(i) Subsidiary. “Subsidiary” means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Person in question.

(j) Voting Shares. “Voting Shares” shall mean shares of the Corporation entitled to vote generally in an election of directors.

B. Certain Determinations With Respect to Article 9. A majority of the directors shall have the power to determine for the purposes of this Article 9, on the basis of information known to them and acting in good faith: (A) the number of Voting Shares of which any Person is the Beneficial Owner, (B) whether a Person is an Affiliate or Associate of another, (C) whether a Person has an agreement, arrangement or understanding with another as to the matters referred to in the definition of “Beneficial Owner” as hereinabove defined, and (D) such other matters with respect to which a determination is required under this Article 9.

C. Directors, Officers or Employees. Directors, officers or employees of the Corporation or any Subsidiary thereof shall not be deemed to be a group with respect to their individual acquisitions of any class of equity securities of the Corporation solely as a result of their capacities as such.

D. Special Meetings of Stockholders. Except as otherwise required by law, special meetings of the stockholders of the Corporation may be called only by (i) the Board of Directors pursuant to a resolution approved by the affirmative vote of a majority of the directors then in office, (ii) the Chairman of the Board or (iii) the President.

E. Action Without a Meeting. Any action permitted to be taken by the stockholders at a meeting may be taken without a meeting if consent in writing setting forth the action so taken shall be signed by all of the stockholders who would be entitled to vote at a meeting for such purpose and filed with the Secretary of the Corporation as part of the corporate records.

F. Stockholder Proposals. At an annual meeting of stockholders, only such new business shall be conducted, and only such proposals shall be acted upon, as shall have been brought before the annual meeting by, or at the direction of, (a) the Board of Directors or (b) any stockholder of the Corporation who complies with all the requirements set forth in this Article 9.F.

Proposals, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation as set forth in this Article 9.F. For stockholder proposals to be included in the Corporation’s proxy materials, the stockholder must comply with all the timing and informational requirements of Rule 14a-8 of the Exchange Act (or any successor regulation). With respect to stockholder proposals to be considered at the annual meeting of stockholders but not included in the Corporation’s proxy materials, the stockholder’s notice shall be delivered to, or mailed and received at, the principal executive offices of the Corporation not less than 60 days prior to the anniversary date of the immediately preceding annual meeting of stockholders of the Corporation; provided, however, that with respect to the first scheduled annual meeting, such written notice shall be received by the Corporation not later than the close of business on the tenth day following the day on which notice of the meeting was mailed to stockholders, provided further that the written notice must be received by the Corporation no later than the close of business on the fifth day preceding the date of the meeting. Such stockholder’s notice shall set forth as to each matter the stockholder proposes to bring before the annual meeting (a) a brief description of the proposal desired to

7

be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the Corporation’s books, of the stockholder proposing such business and, to the extent known, any other stockholders known by such stockholder to be supporting such proposal, (c) the class and number of shares of the Corporation stock which are Beneficially Owned by the stockholder on the date of such stockholder notice and, to the extent known, by any other stockholders known by such stockholder to be supporting such proposal on the date of such stockholder notice, and (d) any financial interest of the stockholder in such proposal (other than interests which all stockholders would have).

The Board of Directors may reject any stockholder proposal not timely made in accordance with the terms of this Article 9.F. If the Board of Directors, or a designated committee thereof, determines that the information provided in a stockholder’s notice does not satisfy the informational requirements of this Article 9.F in any material respect, the Secretary of the Corporation shall promptly notify such stockholder of the deficiency in the notice. The stockholder shall have an opportunity to cure the deficiency by providing additional information to the Secretary within such period of time not to exceed five days from the date such deficiency notice is given to the stockholder as the Board of Directors or such committee shall reasonably determine. If the deficiency is not cured within such period, or if the Board of Directors or such committee determines that the additional information provided by the stockholder, together with information previously provided, does not satisfy the requirements of this Article 9.F in any material respect, then the Board of Directors may reject such stockholder’s proposal. The Secretary of the Corporation shall notify a stockholder in writing whether his proposal has been made in accordance with the time and informational requirements of this Article 9.F. Notwithstanding the procedures set forth in this paragraph, if neither the Board of Directors nor such committee makes a determination as to the validity of any stockholder proposal, the presiding officer of the annual meeting shall determine and declare at the annual meeting whether the stockholder proposal was made in accordance with the terms of this Article 9.F. If the presiding officer determines that a stockholder proposal was made in accordance with the terms of this Article 9.F, he shall so declare at the annual meeting and ballots shall be provided for use at the meeting with respect to any such proposal. If the presiding officer determines that a stockholder proposal was not made in accordance with the terms of this Article 9.F, he shall so declare at the annual meeting and any such proposal shall not be acted upon at the annual meeting.

This provision shall not prevent the consideration and approval or disapproval at the annual meeting of reports of officers, directors and committees of the Board of Directors, but in connection with such reports, no new business shall be acted upon at such annual meeting unless stated, filed and received as herein provided.

Article 10. Amendment of Articles and Bylaws.

A. Articles. The Corporation reserves the right to amend, alter, change or repeal any provision contained in these Articles of Incorporation, in the manner now or hereafter prescribed by law, and all rights conferred upon stockholders herein are granted subject to this reservation. No amendment, addition, alteration, change or repeal of these Articles of Incorporation shall be made unless it is first approved by the Board of Directors of the Corporation pursuant to a resolution adopted by the affirmative vote of a majority of the directors then in office, and thereafter is approved by the holders of a majority (except as provided below) of the shares of the Corporation entitled to vote generally in an election of directors, voting together as a single class, as well as such additional vote of the Preferred Stock as may be required by the provisions of any series thereof. Notwithstanding anything contained in these Articles of Incorporation to the contrary, the affirmative vote of the holders of at least 75% of the shares of the Corporation entitled to vote generally in an election of directors, voting together as a single class, as well as such additional vote of the Preferred Stock as may be required by the provisions of any series thereof, shall be required to amend, adopt, alter, change or repeal any provision inconsistent with Articles 6, 7, 8, 9 and 10.

B. Bylaw. The Board of Directors or stockholders may adopt, alter, amend or repeal the Bylaws of the Corporation. Such action by the Board of Directors shall require the affirmative vote of a majority of the directors then in office at any regular or special meeting of the Board of Directors. Such action by the stockholders shall require the affirmative vote of the holders of a majority of the shares of the Corporation entitled to vote generally in an election of directors, voting together as a single class, as well as such

8

additional vote of the Preferred Stock as may be required by the provisions of any series thereof, provided that the affirmative vote of the holders of at least 75% of the shares of the Corporation entitled to vote generally in an election of directors, voting together as a single class, as well as such additional vote of the Preferred Stock as may be required by the provisions of any series thereof, shall be required to amend, adopt, alter, change or repeal any provision inconsistent with Sections 2.3, 4.1, 4.2, 4.3 and 4.4 of the Bylaws and Articles VIII and XII of the Bylaws.

Article 11. Control Share Acquisitions. Subchapter G, “Control Share Acquisitions,” of Chapter 25 of the 1988 Business Corporation Law of the Commonwealth of Pennsylvania shall not apply to the Corporation.

These Articles of Incorporation were amended and restated by action of the Board of Directors on December 18, 2007 and approved by the stockholders of the Corporation on April 16, 2008.

9

EX-13

Exhibit 13

Annual Report

2008

ESB Financial Corporation

VALUES WE SHARE

Our Purpose:	C	USTOMER SATISFACTION
		— Strive to exceed customer expectations
		— Listen, understand and respond to customer needs — Serve in a friendly, professional, caring way, adding that personal touch — Earn confidence and loyalty of customers through exceptional service
Our Foundation:	I	NTEGRITY
		— Uncompromising, adhere to highest professional and personal ethics
		— Accept responsibility, fulfill commitments and maintain credibility — Actions founded on honesty, fairness and trust — Do what’s right
Our Goal:	E	XCELLENCE
		— Approach responsibilities with passion and commitment
		— Consistently endeavor to do the best job possible — Committed to the concept of rising expectations and continual improvement — Set challenging goals, learn from mistakes, demonstrate innovation and creativity and attention to detail
Our Style:	T	EAMWORK
		— Value diversity and the contributions of others
		— Share information and expertise — Build trust and relationships through open candid communication — Enthusiastically work together to achieve common goals
Our Responsibility:	C	OMMUNITY INVOLVEMENT
		— Give time, skills and resources to improve our communities
		— Be a positive role model; strive to make a difference
Our Strength:	L	EADERSHIP
		— Lead by example in both words and actions
		— Stimulate and relish opportunities for positive change — Recognize performance, effectively plan and communicate, demand quality — Respect others and encourage a balanced life approach

Table of Contents
	Consolidated Financial Highlights	2
	Letter to Shareholders	4
	Selected Consolidated Financial Data	6
	Management’s Discussion and Analysis of Financial Condition and Results of Operations	7

Consolidated Financial Statements	28
Notes to Consolidated Financial Statements	33
Report of Independent Registered Public Accounting Firm	69
Management’s Reports to ESB Financial Corporation Shareholders	71
Stock and Dividend Information	72
Corporate Information	75
Board of Directors	76
Corporate Officers, Advisory Board and Bank Officers	77

Office Locations and Financial Services Managers inside back cover

	Company Profile
		ESB Financial Corporation (NASDAQ: ESBF), a publicly traded financial services company, provides a wide range of retail and commercial financial products and services to customers in Western Pennsylvania through its wholly owned subsidiary, ESB Bank.
		ESB Bank is a Pennsylvania chartered, FDIC insured stock savings bank which, as of December 31, 2008, conducted business through 23 offices in Allegheny, Beaver, Butler and Lawrence counties, Pennsylvania. To compliment retail and commercial operations conducted through its bank offices, the Company invests in U.S. Government, municipal and mortgage-backed securities through its subsidiary savings bank and through its investment subsidiary, PennFirst Financial Services, Inc., a Delaware corporation.
	Mission Statement
		The mission of ESB Financial Corporation and its subsidiaries is to effectively provide for the financial service needs of our customers and community while creating value for our shareholders. Our mission will be accomplished by growing in a profitable and controlled manner; by identifying and meeting the financial needs of our customers; by offering quality products and services that are competitively priced and serviced by a knowledgeable, attentive and friendly staff; and by creating a positive work environment that maximizes the alignment of customer and employee objectives.

Consolidated Financial Highlights

(Dollar amounts in thousands, except share data)

	As of or for the year ended December 31,
	2008	2007	Change
Total assets	$1,974,839	$1,880,235	5%
Securities available for sale	1,096,806	1,059,972	3%
Loans receivable, net	691,315	624,251	11%
Total deposits	877,329	842,854	4%
Borrowed funds, including junior subordinated notes	932,901	876,727	6%
Stockholders’ equity	142,384	132,845	7%
Net interest income	31,143	24,983	25%
Net income	10,215	7,661	33%
Net income per share (diluted)	$0.84	$0.61	38%
Cash dividends declared per share	$0.40	$0.40	-
Return on average assets	0.53%	0.40%	33%
Return on average stockholders’ equity	7.88%	5.98%	32%

ESB Financial Corporation 2 2008 Annual Report

Consolidated Financial Highlights (continued)

ESB Financial Corporation 3 2008 Annual Report

Letter to Shareholders

Dear Fellow Shareholders:

I am pleased to present the Company’s Annual Report for the year 2008 and to report that ESB Financial Corporation achieved solid financial results in what was clearly a demanding year for the banking industry. Our performance in this difficult and uncertain operating environment reflects the quality of our organization, the dedication of our employees, the guidance by our Board of Directors, and the focused commitment to our fundamental strategies that have delivered consistent results to our shareholders since 1990.

Under these difficult circumstances, the Company posted earnings per diluted share of $0.84 on net income of $10.2 million for the year ended December 31, 2008, compared to earnings of $0.61 per diluted share on net income of $7.7 million for the year ended December 31, 2007.

Throughout our 93-year history, ESB has continually and successfully responded to change. However, we believe that sticking to basics and maintaining our commitment to the strategies that have made us a leading financial service provider remains a solid roadmap for continued growth and success. In this regard our priorities have not changed and remain:

• Focusing on per share results and working diligently to maintain our reputation as a company that creates superior shareholder value;

• Being financially conservative and managing our Company to the highest ethical standards;

• Growing the Company in a controlled and safe manner;

• Maintaining strong credit quality;

• Continuing to strive to exceed our customer expectations for quality products and services;

• Continuing to make investments in human capital, technology and physical infrastructure to ensure our long-term success;

• Continuing to provide a productive work environment that maximizes the alignment of customer and employee objectives and

• Seeking and consummating acquisition opportunities when practical.

Dividends

I am also pleased to report that during 2008, the Company maintained the current payout of $0.10 per share quarterly cash dividend, which extends our record of paying cash dividends to 74 consecutive quarters. As in previous years, the Board of Directors approved a Common Stock Repurchase Program and, for the year, the Company repurchased approximately 334,000 shares with a market value of $3.4 million.

Branch Office Expansion

In November 2008, the Company broke ground to construct its 24^th office in Renfrew, Connoquenessing Township, Butler, Pennsylvania. The office is expected to open during the second quarter of 2009. This full service facility will afford our customers a large lobby, safe deposit boxes, six teller windows, three drive thru lanes, a full service 24-hour ATM machine and a night drop box.

ESB Financial Corporation 4 2008 Annual Report

Letter to Shareholders (continued)

More than the Money

At ESB, we define success more broadly than just financial results. We also define it by our community involvement, both financially and through volunteerism, and our commitment and adherence to our Mission Statement, Values We Share Statement and Code of Ethics policy, which sets forth the guidance on the way we do business. We are committed to our customers, to the highest ethical behavior, to our communities, and to continued improvement in every aspect of our business. We invite you to review these essential documents which are easily accessible through our website www.esbbank.com. Through our “Casual for Charity Day” program, nearly $28,000 was donated in 2008 to organizations including The American Diabetes Association, The American Heart Association, The American Red Cross, The Ellwood City Library and Girls Hope.

In Appreciation

We offer special thanks to Charles Delman in recognition of his retirement from the Board in April of 2008. We thank Chuck for over 50 years of service, contributions, guidance and accomplishments to the Company, the Bank, and its predecessors. His leadership, keen insights, and his corporate governance skills will be missed, as will be his good humor. He has provided exemplary service to our Bank, our community, and our shareholders and we extend our cordial best wishes to him in his retirement.

The Year Ahead

With a sound corporate strategy, the hard work and dedication of our employees and the guidance provided by our Board of Directors, I am confident that we have a sound foundation to sustain our performance, to seize new business opportunities, and to initiate new programs that will enhance service to our customers and continue to provide value to our shareholders. As always, we would like to thank all of our customers and our shareholders for their consistent support and we look forward to opportunities for further growth and profitability in 2009.

I would like to express my appreciation to the directors, officers and employees of ESB who have all contributed to our success over the past year. We are very fortunate to have such a talented and dedicated group of individuals who are committed to serving the needs of our customers.

We invite our shareholders to join us at our annual shareholders’ meeting to be held Wednesday, April 22^nd, at 4:00 p.m. at the Connoquenessing Country Club, 1512 Mercer Road, Ellwood City, PA. Your attendance will be very much appreciated.

Sincerely,

Charlotte A. Zuschlag

President and Chief Executive Officer

ESB Financial Corporation 5 2008 Annual Report

Selected Consolidated Financial Data

(Dollar amounts in thousands, except share data)

	As of December 31,
Financial Condition Data	2008		2007		2006		2005(1)		2004
Total assets	$	1,974,839	$	1,880,235	$	1,922,722	$	1,852,779	$	1,394,515
Securities		1,096,806		1,059,972		1,143,924		1,117,063		929,794
Loans receivable, net		691,315		624,251		589,642		540,277		343,524
Deposits		877,329		842,854		823,644		834,530		580,346
Borrowed funds, including subordinated debt		932,901		876,727		951,153		869,242		702,773
Stockholders’ equity		142,384		132,845		128,535		126,877		97,801
Stockholders’ equity per common share		$11.74		$10.71		$10.00		$9.58		$9.16
	For the year ended December 31,
Operations Data	2008		2007		2006		2005(1)		2004
Net interest income	$	31,143	$	24,983	$	28,667	$	30,530	$	25,229
Provision for loan losses		1,406		865		1,113		568		206
Net interest income after provision for loan losses		29,737		24,118		27,554		29,962		25,023
Noninterest income		5,277		7,216		7,786		3,142		6,960
Noninterest expense		23,251		23,273		23,407		23,115		20,157
Income before income taxes		11,763		8,061		11,933		9,989		11,826
Provision for income taxes		1,548		400		1,317		810		1,836
Net income	$	10,215	$	7,661	$	10,616	$	9,179	$	9,990
Net income per common share:
Basic		$0.85		$0.62		$0.84		$0.73		$0.98
Diluted		$0.84		$0.61		$0.83		$0.71		$0.94
		As of or for the year ended December 31,
Other Data	2008		2007		2006		2005(1)		2004
Performance Ratios (for the year ended)
Return on average assets		0.53%		0.40%		0.56%		0.52%		0.73%
Return on average equity		7.88%		5.98%		8.55%		7.16%		10.38%
Average equity to average assets		6.72%		6.74%		6.57%		7.28%		6.99%
Interest rate spread (2)		1.73%		1.38%		1.63%		1.93%		2.04%
Net interest margin (2)		1.90%		1.57%		1.79%		2.06%		2.15%
Efficiency ratio		55.21%		63.88%		57.27%		55.84%		56.71%
Noninterest expense to average assets		1.20%		1.22%		1.24%		1.31%		1.47%
Dividend payout ratio (3)		47.62%		65.57%		48.19%		56.34%		42.55%
Asset Quality Ratios (as of year end)
Non-performing loans to total loans		0.35%		0.36%		0.49%		0.67%		0.64%
Non-performing assets to total assets		0.17%		0.23%		0.22%		0.28%		0.26%
Allowance for loan losses to total loans		0.85%		0.85%		0.84%		0.86%		1.06%
Allowance for loan losses to non-performing loans		239.95%		236.21%		171.75%		127.26%		165.20%
Capital Ratios (as of year end)
Stockholders’ equity to assets		7.21%		7.07%		6.69%		6.85%		7.01%
Tangible stockholders’ equity to tangible assets		4.77%		4.78%		4.71%		4.72%		6.13%

(1) Selected consolidated financial data for 2005 reflects increases due to the acquisition of PHSB Financial Corporation.

(2) Interest income utilized in calculation is on a fully tax equivalent basis, which is deemed to be the most prevalent industry standard for measuring interest rate spread and net interest margin.

(3) Dividend payout ratio calculation utilizes diluted net income per share for all periods.

ESB Financial Corporation 6 2008 Annual Report

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Overview

ESB Financial Corporation (the Company) is a Pennsylvania corporation and thrift holding company that provides a wide range of retail and commercial financial products and services to customers in Western Pennsylvania through its wholly-owned subsidiary, ESB Bank (ESB or the Bank). The Company is also the parent company of PennFirst Financial Services, Inc., a Delaware corporation engaged in the management of certain investment activities on behalf of the Company, ESB Capital Trust II (Trust II), ESB Statutory Trust III (Trust III) and ESB Capital Trust IV (Trust IV), Delaware statutory business trusts established to facilitate the issuance of trust preferred securities to the public by the Company, and THF, Inc., a Pennsylvania corporation established as a title agency to provide residential and commercial loan closing services and title closing services.

ESB is a Pennsylvania chartered, Federal Deposit Insurance Corporation (FDIC) insured stock savings bank, which, at December 31, 2008, conducted business through 23 offices in Allegheny, Beaver, Butler and Lawrence counties, Pennsylvania. ESB operates two wholly-owned subsidiaries: (i) AMSCO, Inc., which engages in the management of certain real estate development partnerships on behalf of the Company, and (ii) ESB Financial Services, Inc., a Delaware corporation which holds loans and other investments.

ESB is a financial intermediary whose principal business consists of attracting deposits from the general public and investing such deposits in real estate loans secured by liens on residential and commercial properties, consumer loans, commercial business loans, securities and interest-earning deposits.

The Company is subject to examination and regulation by the Office of Thrift Supervision as a savings and loan holding company. The Bank is subject to examination and comprehensive regulation by the FDIC and the Pennsylvania Department of Banking. ESB is a member of the Federal Home Loan Bank (FHLB) of Pittsburgh, which is one of the twelve regional banks comprising the FHLB System. ESB is further subject to regulations of the Board of Governors of the Federal Reserve System, which governs the reserves required to be maintained against deposits and certain other matters.

During the year ended December 31, 2008, the Company reported net income of $10.2 million, an increase of $2.6 million, or 33.3%, compared to the year ended December 31, 2007. The income for the year reflects the Company’s sustained efforts to manage the net interest margin during the recent difficult interest rate environment which included either a flat or inverted yield curve without compromising asset quality or future earnings potential. The results of these efforts are an improvement to our net interest margin of 33 basis points during 2008. The increase to the net interest margin was driven by a decrease to interest expense of $7.5 million, or 10.3%, partially offset by a decrease to interest income of $1.3 million, or 1.4%.

The Company is continuing efforts to improve the net interest margin by employing strategies to decrease the cost of funds, while attempting to increase the yield from the investment portfolio. The Company employs a strategy of purchasing cash-flowing fixed and variable rate mortgage-backed securities funded by wholesale borrowings, which are comprised of FHLB advances and repurchase agreements.

The Company has utilized a wholesale strategy since its initial public offering in 1990. The Company manages this strategy through its interest rate risk management on a macro level. The wholesale strategy operates with a lower cost of operations, although with lower interest rate spreads and, therefore, at a lower margin than the retail operations of the Company. This strategy historically produces wider margins during periods of lower short-term interest rates, reflected in a steep yield curve and can be susceptible to net interest margin strain in rapidly rising rates and rapidly declining rates as well as a sustained inverted yield curve. During 2008, this wholesale leverage strategy accounted for $5.3 million, on a tax equivalent basis, of the Company’s tax equivalent net interest income of $34.0 million.

ESB Financial Corporation 7 2008 Annual Report

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

Management continues to pursue methods of insulating this wholesale strategy from significant fluctuations in interest rates by: (1) incorporating a laddered maturity schedule of up to five years on the wholesale borrowings; (2) purchasing interest rate caps; (3) providing structure in the investment portfolio in the form of corporate bonds and municipals securities; (4) utilizing cash flows from fixed and adjustable rate mortgage-backed securities; and (5) including the Company’s securities in the available for sale portfolio thereby creating the flexibility to change the composition of the portfolio through restructuring as management deems it necessary due to interest rate fluctuations. Management believes that this insulation affords them the ability to react to measured changes in interest rates and restructure the Company’s balance sheet accordingly. This strategy is continually evaluated by management on an ongoing basis.

In addition to managing the net interest margin in the current rate environment, management was diligent in controlling operating expenses in 2008. Operating expenses decreased a nominal $22,000 from 2007 levels. Finally, management was successful in maintaining asset quality as the Company has only been minimally impacted by the sub prime mortgage and credit issues that are currently affecting the financial industry. Our percentage of non performing loans to total loans was 0.35% at December 31, 2008 compared to 0.36% at December 31, 2007 and our non performing assets to total assets was 0.17% at December 31, 2008 compared to 0.23% at December 31, 2007.

This Management Discussion and Analysis section of the Annual Report contains certain forward-looking statements (as defined in the Private Securities Litigation Reform Act of 1995). In the normal course of business, we, in an effort to help keep our shareholders and the public informed about our operations, may from time to time issue or make certain statements, either in writing or orally, that are or contain forward-looking statements, as that term is defined in the U.S. federal securities laws. Generally, these statements relate to business plans or strategies, projected or anticipated benefits from acquisitions made by or to be made by us, projections involving anticipated revenues, earnings, profitability or other aspects of operating results or other future developments in our affairs or the industry in which we conduct business. Forward-looking statements may be identified by reference to a future period or periods or by the use of forward-looking terminology such as “anticipate,” “believe,” “expect,” “intend,” “plan,” “estimate” or similar expressions.

Although we believe that the anticipated results or other expectations reflected in our forward-looking statements are based on reasonable assumptions, we can give no assurance that those results or expectations will be attained. Forward-looking statements involve risks, uncertainties and assumptions (some of which are beyond our control), and as a result actual results may differ materially from those expressed in forward-looking statements. Factors that could cause actual results to differ from forward-looking statements include, but are not limited to, the following, as well as those discussed elsewhere herein:

• our investments in our businesses and in related technology could require additional incremental spending, and might not produce expected deposit and loan growth and anticipated contributions to our earnings;

• general economic or industry conditions could be less favorable than expected, resulting in a deterioration in credit quality, a change in the allowance for loan and lease losses or a reduced demand for credit or fee-based products and services;

• changes in the interest rate environment could reduce net interest income and could increase credit losses;

• the conditions of the securities markets could change, which could adversely affect, among other things, the value or credit quality of our assets, the availability and terms of funding necessary to meet our liquidity needs and our ability to originate loans and leases;

ESB Financial Corporation 8 2008 Annual Report

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

• changes in the extensive laws, regulations and policies governing financial holding companies and their subsidiaries could alter our business environment or affect our operations;

• the potential need to adapt to industry changes in information technology systems, on which we are highly dependent, could present operational issues or require significant capital spending;

• competitive pressures could intensify and affect our profitability, including as a result of continued industry consolidation, the increased availability of financial services from non-banks, technological developments such as the internet or bank regulatory reform;

• acquisitions may result in one-time charges to income, may not produce revenue enhancements or cost savings at levels or within time frames originally anticipated and may result in unforeseen integration difficulties; and

• acts or threats of terrorism and actions taken by the United States or other governments as a result of such acts or threats, including possible military action, could further adversely affect business and economic conditions in the United States generally and in our principal markets, which could have an adverse effect on our financial performance and that of our borrowers and on the financial markets and the price of our common stock.

You should not put undue reliance on any forward-looking statements. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update them in light of new information or future events except to the extent required by federal securities laws.

Significant Financial Events in 2008

In July 2008, the Company redeemed $5.0 million of trust preferred securities of ESB Capital Trust II with proceeds from a $14.0 million loan with First Tennessee Bank National Association (“First Tennessee”), with a fixed interest rate of 6.30%. The remainder of the First Tennessee loan was used to repay an existing loan with First Tennessee with a remaining balance of $9.0 million, which had an interest rate of 5.55% and was due on December 31, 2008.

Significant Financial Events in 2007

In April 2007, the Company terminated its cash flow hedge by selling the interest rate caps and repaying the associated borrowings. The loss on the sale of the interest rate caps of approximately $690,000 was offset by gains of approximately $706,000 recognized on the sale of securities. The Company expects this transaction to positively impact the net interest margin over the next two to three years.

Critical Accounting Policies and Estimates

The Company’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles and follow general practices within the industry in which it operates. Application of these principles requires management to make estimates, assumptions and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions and judgments. Certain policies inherently have a greater reliance on the use of estimates, assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Estimates, assumptions and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future

ESB Financial Corporation 9 2008 Annual Report

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. The fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third-party sources, when available. When third-party information is not available, valuation adjustments are estimated in good faith by management primarily through the use of internal cash flow modeling techniques.

The Company’s most significant accounting policies are presented in Note 1 to the consolidated financial statements. These policies along with the disclosures presented in the other financial statement notes and in this financial review, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions and estimates underlying those amounts, management has identified the determination of the fair value of securities, the allowance for loan losses and the valuation of goodwill and intangible assets to be the accounting areas that require the most subjective or complex judgments.

Securities

Securities are reported at fair value adjusted for premiums and discounts which are recognized in interest income using the interest method over the period to maturity. Declines in the fair value of individual securities below their amortized cost, and that are deemed to be other than temporary, will be written down to current market value and included in earnings as realized losses. For a discussion on the determination of an other than temporary decline, please refer to Note 1 of the consolidated financial statements. Management systematically evaluates securities for other than temporary declines in fair value on a quarterly basis. The Company had impairment charges of approximately $303,000 on four of its equity investments in small banks that had experienced a decline in their market value for the last several quarters. Additionally, the Company took an impairment charge of approximately $553,000 on a $2.5 million collateralized debt obligation that is comprised of sixteen financial institutions. The Company utilized a discounted cash flow method which under Financial Accounting Standards (FAS) No. 157 Fair Value Measurements is a level three pricing method. During this analysis, the Company determined that two of these financial institutions are currently deferring interest payments. These two financial institutions and one other of the remaining sixteen also have a Tier 1 Risk Ratio at or less than the required well capitalized institution level of 6%, the non performing assets to loans plus real estate owned ratio was greater than 10% and all lost money in the most recent quarter. In addition to these factors, the bond was downgraded to below investment grade by the Moody’s Rating Service during the fourth quarter. The Company believes at this time that the remaining financial institutions are currently financially stable but will continue to monitor this bond into 2009 to determine if additional other than temporary charges are necessary.

Allowance for loan losses

The allowance for loan losses is increased by charges to income and decreased by charge-offs (net of recoveries). The Company’s periodic evaluation of the adequacy of the allowance for loan losses is determined by management through evaluation of the loss exposure on individual non-performing, delinquent and high-dollar loans; review of economic conditions and business trends; historical loss experience and growth and composition of the loan portfolio, as well as other relevant factors.

A quantitative analysis is utilized to support the adequacy of the allowance for loan losses. This analysis includes review of historical charge-off rates for loan categories, fluctuations and trends in the amount of classified loans and economic factors. Significant to this analysis are any changes in observable trends that may be occurring relative to loans to assess potential weaknesses within the credit. Current economic factors and trends in risk ratings are considered in the determination and allocation of the allowance for loan losses.

ESB Financial Corporation 10 2008 Annual Report

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

The allowance for loan losses at December 31, 2008 was $6.0 million, compared to $5.4 million at December 31, 2007, allocated as follows: $2.0 million, or 33.9%, for residential loans, $1.8 million, or 29.2%, for commercial real estate, $663,000, or 11.0%, for commercial business loans, and $1.6 million, or 25.9%, for consumer loans. The variance in the allowance from 2008 to 2007 is primarily the result of an increase in the allowance related to the growth in real estate loans and commercial loans.

Goodwill and other intangible assets

FAS No. 142 “Goodwill and Other Intangible Assets”, establishes standards for the amortization of acquired intangible assets and the non-amortization and impairment assessment of goodwill. At December 31, 2008, the Company had $1.8 million of core deposit intangible assets subject to amortization and $41.6 million in goodwill, which was not subject to periodic amortization.

Goodwill arising from business combinations represents the value attributable to unidentifiable intangible elements in the business acquired. The Company’s goodwill relates to value inherent in the banking business and the value is dependent upon the Company’s ability to provide quality, cost effective services in a competitive market place. As such, goodwill value is supported ultimately by revenue that is driven by the volume of business transacted. A decline in earnings as a result of a lack of growth or the inability to deliver cost effective services over sustained periods can lead to impairment of goodwill that could adversely impact earnings in future periods.

FAS No. 142 requires an annual evaluation of goodwill for impairment. The fair value of the Company and the implied fair value of goodwill at the respective reporting unit level are estimated using the market value approach utilizing industry comparable information. The Companies implied fair value of goodwill is based on a four step approach utilizing the last twelve months earnings per share, stated book value, tangible book value and total deposits to the most recent deal values supplied by a third party. At December 31, 2008, the Company concluded that the recorded value of goodwill was not impaired as a result of the evaluation.

Income taxes

The Company files a consolidated federal income tax return. Deferred tax assets and liabilities are computed based on the difference between the financial statement and the income tax basis of assets and liabilities using the enacted marginal tax rates. Deferred income taxes or benefits are based on changes in the deferred tax asset or liability from period to period. Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which such items are expected to be realized or settled. As changes in tax rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

Changes in Financial Condition

General.    The Company’s total assets increased $94.6 million, or 5.0%, to $2.0 billion at December 31, 2008 from $1.9 billion at December 31, 2007. This increase was primarily composed of net increases in securities available for sale, loans receivable, accrued interest receivable and bank owned life insurance of $36.8 million, $67.1 million, $413,000 and $483,000, respectively, partially offset by decreases in cash and cash equivalents, Federal Home Loan Bank (FHLB) stock, premises and equipment, real estate acquired through foreclosure, real estate held for investment, intangible assets and prepaid expenses and other assets of $365,000, $4.0 million, $288,000, $1.2 million, $1.7 million, $655,000 and $2.0 million, respectively.

The increase in the Company’s total assets reflects a corresponding increase in total liabilities of $85.1 million, or 4.9%, to $1.8 billion at December 31, 2008 compared to $1.8 billion at December 31, 2007 and an increase in total stockholders’ equity of $9.5 million, or 7.2%, to $142.4 million at December 31, 2008 from $132.8 million at December 31, 2007. The increase in total liabilities was primarily due to increases in deposits, repurchase

ESB Financial Corporation 11 2008 Annual Report

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

agreements, other borrowings, advance payments by borrowers for taxes and insurance and accrued expenses and other liabilities of $34.5 million, $155.5 million, $8.8 million, $237,000 and $238,000, respectively, partially offset by decreases to FHLB advances, junior subordinated notes and accounts payable for land development of $103.0 million, $5.1 million and $6.1 million, respectively. The net increase in total stockholders’ equity can be attributed primarily to increases in additional paid in capital, retained earnings and accumulated other comprehensive income of $157,000, $5.0 million and $6.2 million, respectively as well as decreases in unearned employee stock ownership plan (ESOP) of $899,000. These items were partially offset by an increase in treasury stock of $2.7 million.

Cash on hand, Interest-earning deposits and Federal funds sold.    Cash on hand, interest-earning deposits and federal funds sold represent cash equivalents which decreased a combined $365,000, or 1.9%, to $18.9 million at December 31, 2008 from $19.3 million at December 31, 2007. Deposits from customers into savings and checking accounts, loan and security repayments and proceeds from borrowed funds typically increase these accounts. Decreases result from customer withdrawals, new loan originations, security purchases and repayments of borrowed funds.

Securities.    The Company’s securities and loan portfolios represent its two largest balance sheet asset classifications. The Company’s securities portfolio increased a net $36.8 million, or 3.5%, to $1.1 billion at December 31, 2008. During 2008, the Company recorded purchases of available for sale securities of $190.0 million consisting primarily of $117.8 million of fixed-rate mortgage-backed securities, $23.4 million of adjustable-rate mortgage backed securities, $30.3 million of municipal bonds, $18.3 million of corporate bonds and $184,000 of equity securities. The portfolio increased by $9.3 million due to increases in market value. These fair value adjustments represent temporary fluctuations resulting from changes in market rates in relation to average yields in the available for sale portfolio. If securities are held to their respective maturity dates, no fair value gain or loss is realized. Offsetting these increases were repayments and maturities of securities of $161.1 million, premium amortizations of $446,000 and realized losses of $856,000.

Loans receivable.    The loans receivable category consists primarily of single family mortgage loans used to purchase or refinance personal residences located within the Company’s market area and commercial real estate loans used to finance properties that are used in the borrowers’ businesses or to finance investor-owned rental properties, and to a lesser extent commercial and consumer loans. Net loans receivable increased $67.1 million, or 10.7%, to $691.3 million at December 31, 2008 from $624.2 million at December 31, 2007. Included in this increase were increases in mortgage loans and other loans of $40.8 million, or 8.5%, and $27.7 million, or 17.3%, respectively, partially offset by increases in the allowance for loan losses and loans in process of approximately $592,000, or 10.9%, and $1.1 million, or 9.1%, respectively. Additionally, the increase in net loans receivable was the result of originations of $206.7 million, partially offset by repayments of $143.2 million that occurred on both fixed and adjustable rate loans. The yield on the loan portfolio decreased to 6.07% at December 31, 2008 from 6.31% at December 31, 2007.

Non-performing assets.    Non-performing assets include non-accrual loans, repossessed vehicles, real estate acquired through foreclosure (REO) and troubled debt restructuring (TDR). Non-performing assets decreased to $3.3 million, or 0.17%, of total assets at December 31, 2008 from $4.3 million, or 0.23%, of total assets at December 31, 2007. Non-performing assets consisted of non-performing loans, REO, repossessed vehicles and TDR of $2.2 million, $539,000, $293,000 and $257,000, respectively, at December 31, 2008 and $2.0 million, $1.7 million, $270,000 and $266,000, respectively, at December 31, 2007. The decrease to REO was due to the sale of two of the three unfinished spec homes that the Company acquired via judicial sale in 2006. The Company has contracted to have the one remaining unfinished spec home completed and this home is being marketed through a local real estate agency.

ESB Financial Corporation 12 2008 Annual Report

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

Accrued interest receivable.    Accrued interest receivable increased by $413,000, or 4.3%, to $10.1 million at December 31, 2008 as compared to $9.6 million at December 31, 2007. This increase was a result of increases in the balances on the loans receivable and securities available for sale portfolios, partially offset by decreases in the yields on both portfolios.

FHLB stock.    FHLB stock decreased $4.0 million, or 12.7%, to $27.5 million at December 31, 2008 from $31.5 million at December 31, 2007. The decrease is the result of a decrease in the outstanding balance of the FHLB advances to $525.7 million at December 31, 2008 from $628.7 million at December 31, 2007. The Bank is required to maintain an investment in capital stock of the FHLB of approximately 5.0% of its outstanding notes payable to the FHLB of Pittsburgh, however the FHLB Bank of Pittsburgh has currently restricted future redemptions of its stock, therefore the investment could be greater than 5.0%.

Premises and equipment.    Premises and equipment decreased $288,000, or 2.4%, to $11.7 million at December 31, 2008 from $11.9 million at December 31, 2007. The decrease was primarily related to depreciation on existing equipment being greater than purchases in 2008. During 2008, the Company began construction of its second Butler County office. The Company incurred costs of approximately $298,000 in 2008 related to this construction and plans to complete the project in 2009.

Real estate held for investment.    The Company’s real estate held for investment decreased $1.7 million, or 4.7%, to $34.6 million at December 31, 2008 from $36.3 million at December 31, 2007. This decrease is the result of sales activity in the joint ventures in which the Company has a 51% ownership. For a complete description of the existing projects see “Item 1. Business –Subsidiaries” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

Intangible assets.    Intangible assets decreased $655,000, or 26.4%, to $1.8 million at December 31, 2008 from $2.5 million at December 31, 2007. The decrease primarily resulted from amortization of the core deposit intangible created through acquisitions of approximately $601,000. Additionally, the mortgage servicing asset, resulting from the loan sale and securitization in 2002 experienced amortization of approximately $23,000 and incurred a write-down of approximately $32,000 in 2008.

Prepaid expenses and other assets.    Prepaid expenses and other assets decreased $2.0 million, or 14.9%, to $11.6 million at December 31, 2008 from $13.6 million at December 31, 2007. The decrease resulted primarily from decreases to deferred tax asset, investment in ESB Capital Trust III, miscellaneous receivables and advanced cost for joint ventures of $2.3 million, $155,000, $166,000 and $52,000, respectively, partially offset by increases in the fair value of interest rate cap contracts and various prepaid accounts for taxes, insurance and utilities of $157,000 and $498,000, respectively.

Bank owned life insurance.    Bank owned life insurance (BOLI) is universal life insurance, purchased by the Bank, on the lives of the Bank’s employees. The beneficial aspects of these universal life insurance policies are tax-free earnings and a tax-free death benefit, which are realized by ESB as the owner of the policies. The Company purchased the $15.0 million universal life insurance policies on December 29, 1998. In 2001, the policy was increased by the addition of Workingmens Savings Bank’s BOLI of $1.3 million in connection with their acquisition and an addition to the original policy of $3.5 million. The cash surrender value of the BOLI as of December 31, 2008 was $28.5 million.

Deposits.    The Company considers various sources when evaluating funding needs, including but not limited to deposits, which are a significant source of funds totaling $877.3 million, or 48.0%, of the Company’s total funding sources at December 31, 2008. Total deposits increased $34.5 million, or 4.1%, to $877.3 million at December 31, 2008 from $842.9 million at December 31, 2007. For the year, the Company’s interest-bearing demand and savings deposits increased $15.7 million, or 7.1%, time deposits increased $8.8 million, or 1.6%, and

ESB Financial Corporation 13 2008 Annual Report

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

noninterest-bearing deposits increased $10.0 million, or 17.8%. The increase to core deposits of approximately $25.6 million is primarily due to the Company’s ongoing campaign to increase these types of accounts. The Company continues to be diligent in monitoring the rates being offered by regional banks in the Company’s market area and offering special time deposit rates to remain competitive.

Advance payments by borrowers for taxes and insurance.     Advance payments by borrowers for taxes and insurance increased $237,000, or 9.2%, to $2.8 million at December 31, 2008 from $2.6 million at December 31, 2007 due to the increase in the net loans receivable as well as changes in assessed values of the properties held as collateral.

Borrowed funds.    The Company utilizes short and long-term borrowings as another source of funding used for asset growth and liquidity needs. These borrowings primarily include FHLB advances and repurchase agreement borrowings. Borrowed funds increased $56.2 million, or 6.4%, to $932.9 million at December 31, 2008 from $876.7 million at December 31, 2007. FHLB advances decreased $103.0 million, or 16.4%, repurchase agreements increased $155.5 million, or 85.4%, other borrowings increased $8.8 million, or 60.4%, and junior subordinated notes decreased $5.1 million, or 9.9%. The Company is reviewing its continued utilization of advances from the FHLB as a source of funding based upon recent decisions by the FHLB to suspend the dividend on, and restrict the repurchase of, FHLB stock.

Accounts payable for land development.    Accounts payable for land development decreased by $6.1 million to $6.6 million at December 31, 2008. This account represents the unpaid portion of the development costs for the Company’s joint ventures. The decrease is primarily due to ongoing construction activity at the Company’s existing joint venture projects and that the Company did not begin any new projects in 2008.

Stockholders’ equity.    Stockholders’ equity increased by $9.5 million, or 7.2%, to $142.4 million at December 31, 2008 from $132.8 million at December 31, 2007. The net increase in total stockholders’ equity can be attributed primarily to increases in additional paid in capital, retained earnings and accumulated other comprehensive income of $157,000, $5.0 million and $6.2 million, respectively as well as decreases in unearned employee stock ownership plan (ESOP) of $899,000. These items were partially offset by an increase in treasury stock of $2.7 million.

Results of Operations

General.    The Company reported net income of $10.2 million, $7.7 million and $10.6 million in 2008, 2007 and 2006, respectively.

Average Balance Sheet and Yield/Rate Analysis.     The following table sets forth, for the periods indicated, information concerning the total dollar amounts of interest income from interest-earning assets and the resultant average yields, the total dollar amounts of interest expense on interest-bearing liabilities and the resultant average costs, net interest income, interest rate spread and the net interest margin earned on average interest-earning assets. For purposes of this table, average balances are calculated using monthly averages and the average loan balances include non-accrual loans and exclude the allowance for loan losses, and interest income includes accretion of net deferred loan fees. Yields on tax-exempt securities and loans (tax-exempt for federal income tax purposes) are shown on a fully tax equivalent basis utilizing a federal tax rate of 34%.

ESB Financial Corporation 14 2008 Annual Report

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

(Dollar amounts in thousands)	2008					Year ended December 31, 2007					2006
	Average Balance		Interest		Yield / Rate	Average Balance		Interest		Yield / Rate	Average Balance		Interest		Yield / Rate
Interest-earning assets:
Taxable securities available for sale	$	922,276	$	48,140	5.22%	$	950,433	$	48,848	5.14%	$	982,294	$	48,790	4.97%
Taxable adjustable corporate bonds available for sale		46,325		1,960	4.23%		48,604		3,090	6.36%		51,270		3,062	5.97%
Tax-exempt securities available for sale		109,786		4,844	6.68%		109,024		4,927	6.85%		112,506		5,328	7.18%
		1,078,387		54,944	5.33%		1,108,061		56,865	5.36%		1,146,070		57,180	5.23%
Mortgage loans		485,950		29,142	6.00%		451,331		27,785	6.16%		412,968		25,166	6.09%
Other loans		163,179		10,210	6.26%		148,375		9,897	6.67%		147,463		9,468	6.42%
Tax-exempt loans		16,098		683	6.43%		11,977		586	7.41%		12,796		595	7.05%
		665,227		40,035	6.07%		611,683		38,268	6.31%		573,227		35,229	6.20%
Cash equivalents		15,665		157	1.00%		17,727		464	2.62%		14,093		348	2.47%
FHLB stock		29,649		1,122	3.78%		33,052		1,987	6.01%		34,709		1,714	4.94%
		45,314		1,279	2.82%		50,779		2,451	4.83%		48,802		2,062	4.23%
Total interest-earning assets		1,788,928		96,258	5.54%		1,770,523		97,584	5.67%		1,768,099		94,471	5.52%
Other noninterest-earning assets		141,204		-	-		129,907		-	-		123,171		-	-
Total assets	$	1,930,132	$	96,258	5.13%	$	1,900,430	$	97,584	5.28%	$	1,891,270	$	94,471	5.16%
Interest-bearing liabilities:
Interest-bearing demand deposits	$	238,426	$	1,350	0.57%	$	224,099	$	1,779	0.79%	$	235,197	$	1,470	0.63%
Time deposits		558,076		21,058	3.77%		557,808		25,927	4.65%		528,435		21,882	4.14%
		796,502		22,408	2.81%		781,907		27,706	3.54%		763,632		23,352	3.06%
FHLB advances		578,565		27,671	4.78%		657,267		31,274	4.76%		709,690		30,854	4.35%
Repurchase agreements		266,771		11,262	4.22%		188,458		9,371	4.97%		148,292		7,114	4.80%
Other borrowings		18,785		811	4.32%		14,410		776	5.39%		18,297		1,058	5.78%
		864,121		39,744	4.60%		860,135		41,421	4.82%		876,279		39,026	4.45%
Preferred securities- fixed		36,083		2,111	5.85%		36,083		2,111	5.85%		36,083		2,118	5.87%
Preferred securities- adjustable		13,094		852	6.51%		15,399		1,363	8.85%		15,324		1,308	8.54%
		49,177		2,963	6.03%		51,482		3,474	6.75%		51,407		3,426	6.66%
Total interest-bearing liabilities		1,709,800		65,115	3.81%		1,693,524		72,601	4.29%		1,691,318		65,804	3.89%
Noninterest-bearing demand deposits		66,258		-	-		58,549		-	-		55,857		-	-
Other noninterest-bearing liabilities		24,389		-	-		20,237		-	-		19,909		-	-
Total liabilities		1,800,447		65,115	3.62%		1,772,310		72,601	4.10%		1,767,084		65,804	3.72%
Stockholders’ equity		129,685		-	-		128,120		-	-		124,186		-	-
Total liabilities and equity	$	1,930,132	$	65,115	3.37%	$	1,900,430	$	72,601	3.82%	$	1,891,270	$	65,804	3.48%
Net interest income			$	31,143				$	24,983				$	28,667
Interest rate spread (difference between weighted average rate on interest-earning assets and interest-bearing liabilities)					1.73%					1.38%					1.63%
Net interest margin (net interest income as a percentage of average interest-earning assets)					1.90%					1.57%					1.79%

ESB Financial Corporation 15 2008 Annual Report

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

Analysis of Changes in Net Interest Income.    The following table analyzes the changes in interest income and interest expense in terms of: (i) changes in volume of interest-earning assets and interest-bearing liabilities and (ii) changes in yield and rates. The table reflects the extent to which changes in the Company’s interest income and interest expense are attributable to changes in rate (change in rate multiplied by prior year volume), changes in volume (changes in volume multiplied by prior year rate) and changes attributable to the combined impact of volume/rate (change in rate multiplied by change in volume). The changes attributable to the combined impact of volume/rate are allocated on a consistent basis between the volume and rate variances.

(Dollar amounts in thousands)	2008 vs. 2007						2007 vs. 2006
	Increase (decrease) due to						Increase (decrease) due to
	Volume		Rate		Total		Volume		Rate		Total
Interest income:
Securities	$	(1,514)	$	(407)	$	(1,921)	$	(1,925)	$	1,610	$	(315)
Loans		3,261		(1,494)		1,767		2,397		642		3,039
Cash equivalents		(49)		(258)		(307)		94		22		116
FHLB stock		(188)		(677)		(865)		(85)		358		273
Total interest-earning assets		1,510		(2,836)		(1,326)		481		2,632		3,113
Interest expense:
Deposits		508		(5,806)		(5,298)		570		3,784		4,354
FHLB advances		(3,763)		160		(3,603)		(2,374)		2,794		420
Repurchase agreements		3,463		(1,572)		1,891		1,989		268		2,257
Other borrowings		207		(172)		35		(213)		(69)		(282)
Subordinated debt		(151)		(360)		(511)		5		43		48
Total interest-bearing liabilities		264		(7,750)		(7,486)		(23)		6,820		6,797
Net interest income	$	1,246	$	4,914	$	6,160	$	504	$	(4,188)	$	(3,684)

2008 Results Compared to 2007 Results

General.    The Company reported net income of $10.2 million and $7.7 million for 2008 and 2007, respectively. The $2.6 million, or 33.3%, increase in net income between 2008 and 2007 can primarily be attributed to a decrease in interest expense of $7.5 million, partially offset by decreases in interest income and noninterest income of $1.3 million and $1.9 million, respectively, and increases in provision for loan losses and provision for income taxes of $541,000 and $1.1 million, respectively.

Net interest income.    Net interest income, the primary source of revenue for the Company, is determined by the Company’s interest rate spread, which is defined as the difference between income on earning assets and the cost of funds supporting those assets, and the relative amounts of interest earning assets and interest bearing liabilities. Management periodically adjusts the mix of assets and liabilities, as well as the rates earned or paid on those assets and liabilities in order to manage and improve net interest income. The level of interest rates and changes in the amount and composition of interest earning assets and liabilities affect the Company’s net interest income. Historically from an interest rate risk perspective, it has been management’s perception that differing interest rate environments can cause sensitivity to the Company’s net interest income, these being extended low long-term interest rates or rapidly rising short-term interest rates as well as a sustained inverted yield curve. Net interest income increased by $6.2 million, or 24.7%, to $31.1 million for 2008, compared to $25.0 million for 2007. This increase in net interest income can be attributed to a decrease in interest expense of $7.5 million, or 10.3%, which was only partially offset by a decrease in interest income of $1.3 million, or 1.4%. The decrease to interest expense reflects a 48 basis point decrease in cost of funds to 3.67% for 2008 from 4.14% for 2007.

ESB Financial Corporation 16 2008 Annual Report

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

Interest income.    Interest income decreased $1.3 million, or 1.4%, to $96.3 million for 2008, compared to $97.6 million for 2007. This decrease in interest income can be attributed to decreases in interest earned on securities available for sale, FHLB stock and cash equivalents of $1.9 million, $865,000, and $307,000, respectively. Cash equivalents include cash on hand and in banks, interest-earning deposits and federal funds sold. Partially offsetting these decreases was an increase in interest earned on loans receivable of $1.8 million.

Interest earned on loans receivable increased $1.8 million, or 4.6%, to $40.0 million for 2008, compared to $38.3 million for 2007. This increase was attributable to an increase in the average balance of loans outstanding of $53.5 million, or 8.8%, to $665.2 million for the year ended December 31, 2008, as compared to $611.7 million for the year ended December 31, 2007. Partially offsetting this increase was a decrease in the yield on the portfolio to 6.07% at December 31, 2008 as compared to 6.31% at December 31, 2007. The increase in loans outstanding is primarily attributed to growth in the residential mortgage loan portfolio.

Interest earned on securities decreased $1.9 million, or 3.4%, to $54.9 million for 2008 compared to $56.9 million for 2007. This decrease was primarily attributable to a decrease in the average balance of securities of $29.7 million, or 2.7%, and a decline in the tax equivalent yield on the portfolio of 3 basis points to 5.33% for 2008, compared to 5.36% for 2007.

Income from FHLB stock decreased $865,000, or 43.5%, to $1.1 million for 2008, compared to $2.0 million for 2007. This decrease can be primarily attributed to a decline in the yield on the FHLB stock of 223 basis points to 3.78% for 2008 compared to 6.01% for 2007, as well as a decline in the average balance of FHLB stock of $3.4 million to $29.6 million at December 31, 2008 from $33.1 million at December 31, 2007.

Interest earned on cash equivalents decreased $307,000, or 66.2%, to $157,000 for 2008, compared to $464,000 for 2007 as the yield decreased to 1.00% for 2008, compared to 2.62% for 2007 and the average balance decreased $2.1 million to $15.7 million at December 31, 2008 compared to $17.7 million at December 31, 2007.

Interest expense.    Interest expense decreased $7.5 million, or 10.3%, to $65.1 million for 2008, compared to $72.6 million for 2007. This decrease in interest expense can be attributed to decreases in interest incurred on deposits, borrowed funds and junior subordinated notes of $5.3 million, $1.7 million and $511,000, respectively.

Interest incurred on deposits decreased $5.3 million, or 19.1%, to $22.4 million for 2008, compared to $27.7 million for 2007. This decrease was primarily attributable to a decrease in the cost of interest earning deposits to 2.81% in 2008 from 3.54% in 2007, partially offset by an increase of $14.6 million, or 1.9%, in the average balance of interest-bearing deposits to $796.5 million for 2008 as compared to $781.9 million for 2007. The Company manages its cost of interest-bearing deposits by diligently monitoring the interest rates on its products as well as the rates being offered by its competition through weekly interest rate committee meetings and utilizing rate surveys and hence subsequently adjusting rates accordingly.

Interest incurred on borrowings, which includes FHLB advances and repurchase agreements, the largest components of the Company’s interest-bearing liabilities, decreased $1.7 million, or 4.0%, to $39.7 million for 2008, compared to $41.4 million for 2007. This decrease was primarily attributable to a decrease in the cost of these funds to 4.60% for 2008 compared to 4.82% for 2007, partially offset by an increase in the average balance of borrowed funds of $4.0 million, or 0.5%, to $864.1 million for 2008, compared to $860.1 million for 2007. The Company, as part of its wholesale strategy, continues to manage its cost of funds through its policy of laddering the maturities of borrowings up to a five year period. This strategy allows the Company the flexibility to alter its borrowing structure quarterly. During 2008, the Company replaced approximately $297.1 million of maturing wholesale borrowings at a weighted average rate of 4.50% and an original call/maturity of 3.6 years with borrowings of approximately $340.9 million at a weighted average rate of 3.73% and an average call/maturity of 3.9 years, which caused a decrease in the cost of these borrowings by 77 basis points. For purposes of determining the average life of the borrowings, the Company utilizes the call date if applicable.

ESB Financial Corporation 17 2008 Annual Report

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

Interest expense on junior subordinated notes decreased $511,000, or 14.7%, to $3.0 million at December 31, 2008 from $3.5 million at December 31, 2007. This decrease was primarily attributable to a decrease in the cost of these funds to 6.03% for 2008, compared to 6.75% for 2007 as well as a decrease in the average balance of these funds of $2.3 million, or 4.5%, to $49.2 million for 2008, compared to $51.5 million for 2007.

Provision for loan losses.    The Company records provisions for loan losses to bring the total allowance for loan losses to a level deemed adequate to cover probable losses in the loan portfolio. In determining the appropriate level of allowance for loan losses, management considers historical loss experience, the financial condition of borrowers, economic conditions (particularly as they relate to markets where the Company originates loans), the status of non-performing assets, the estimated underlying value of the collateral and other factors related to the collectibility of the loan portfolio. The provision for loan losses increased $541,000 to $1.4 million for the year ended December 31, 2008 compared to $865,000 in the prior year. These provisions were part of the normal operations of the Company for 2008. As a result of the provision for loan losses during 2008 and 2007, the Company’s allowance for loan losses amounted to $6.0 million, or 0.86%, of the Company’s total loan portfolio at December 31, 2008, compared to $5.4 million, or 0.85%, at December 31, 2007. The Company’s allowance for loan losses as a percentage of non-performing loans at December 31, 2008 and December 31, 2007 was 239.95% and 236.11%, respectively.

Noninterest income.    Noninterest income decreased $1.9 million, or 26.9%, to $5.3 million for 2008, compared to $7.2 million for 2007. This decrease can be attributed to decreases in net realized gain on sale of securities available for sale and income from real estate joint ventures of $1.5 million and $725,000, respectively, partially offset by increases in fees of $129,000.

Net realized loss recognized on both investments and derivatives increased by $1.6 million to reflect an overall loss of $1.5 million for 2008 as compared to a loss of $96,000 for 2007. In 2007, the Company terminated its cash flow hedge resulting in the loss on sale of derivatives. During 2008, the Company incurred pre-tax impairment charges of approximately $303,000 on four of its equity investments in small banks that had experienced a decline in their market value for the last several quarters. Additionally, the Company took a pre-tax impairment charge of approximately $553,000 on a $2.5 million collateralized debt obligation that is comprised of sixteen financial institutions. For additional information see Note 2 of the consolidated financial statements. Additionally, the net realized loss on derivatives for 2008 of $616,000 was due to a market value devaluation of the Company’s interest rate caps.

Income from real estate joint ventures decreased $725,000, or 39.7%, to $1.1 million for 2008 compared to $1.8 million for 2007. Included in this decrease was a pre-tax write-down of approximately $398,000 at one of the Company’s joint venture projects. This write-down was due to construction costs on existing units that exceeded expectations and projected increased costs to finish the project.

Fees and service charges increased $129,000, or 3.4%, to $3.9 million for 2008, compared to $3.8 million for 2007. These increases are primarily attributed to increase in fees on our checking and savings products of approximately $120,000, including an increase of $197,000 to fees on NOW accounts primarily due to increased participation in our platinum overdraft program and ESB Rewards program for debit card holders. The platinum overdraft program is a service provided by the Bank which enables customers limited ability to overdraft their checking accounts without the Bank returning the check. The ESB Rewards program offers customers the ability to earn points, based on debit card usage, which can be redeemed for prizes. Offsetting the increase to fees related to checking and savings products were decreases to various loan fees of approximately $82,000, which included a write-down of approximately $32,000 on the servicing asset related to the securitization of loans that the Company completed in 2002.

ESB Financial Corporation 18 2008 Annual Report

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

Noninterest expense.    Noninterest expenses decreased $22,000, or 0.1%, to $23.3 million for 2008. This decrease can be primarily attributed to decreases in amortization of intangible assets and minority interest of $114,000 and $397,000, respectively. Partially offsetting these decreases were increases in compensation and employee benefits, premises and equipment and data processing of $360,000, $55,000 and $46,000, respectively.

Amortization of intangible assets decreased $114,000, or 15.9%, to $601,000 for 2008, compared to $715,000 for 2007. The decrease was to the normal amortization of the core deposit intangible of prior acquisitions. Amortization is expected to total $494,000, $413,000, $332,000, $251,000, $169,000 and $95,000 for the years 2009, 2010, 2011, 2012, 2013 and thereafter, respectively.

Minority interest decreased $397,000, or 65.5%, to $209,000 for 2008, compared to $606,000 for 2007. This decrease was directly related to the decrease in income from real estate joint ventures and represents the portion of the profits on the consolidated joint ventures earned by the partners.

Compensation and employee benefits increased $360,000, or 2.7%, to $13.6 million for 2008, compared to $13.2 million in 2007. This increase was related to normal salary adjustments between the years of approximately $207,000 as well as increases to stock option expense, retirement plan expense and various taxes and insurance of $69,000, $62,000 and $22,000, respectively.

Premises and equipment increased $55,000, or 2.2%, to $2.5 million at December 31, 2008. This increase is primarily due to normal operating increases between the years.

Data processing expense increased $46,000, or 2.4%, to $2.0 million for 2008, compared to $1.9 million for 2007. This increase is primarily related to enhancements to the technology for the teller and sales platforms.

Provision for income taxes.    The provision for income taxes increased $1.1 million, or 287.0%, to $1.5 million for 2008 as compared to $400,000 in 2007. The effective tax rate for 2008 was 13.2% compared to 5.0% for 2007. This was primarily due to the $3.7 million, or 45.9%, increase in pre-tax income.

2007 Results Compared to 2006 Results

General.    The Company reported net income of $7.7 million and $10.6 million for 2007 and 2006, respectively. The $2.9 million, or 27.8%, decrease in net income between 2007 and 2006 can primarily be attributed to an increase in interest expense of $6.8 million and a decrease in noninterest income of $570,000, partially offset by an increase in interest income of $3.1 million and decreases in provision for loan losses, noninterest expense and provision for income taxes of $248,000, $134,000 and $917,000, respectively.

Net interest income.    Net interest income, the primary source of revenue for the Company, is determined by the Company’s interest rate spread, which is defined as the difference between income on earning assets and the cost of funds supporting those assets, and the relative amounts of interest earning assets and interest bearing liabilities. Management periodically adjusts the mix of assets and liabilities, as well as the rates earned or paid on those assets and liabilities in order to manage and improve net interest income. The level of interest rates and changes in the amount and composition of interest earning assets and liabilities affect the Company’s net interest income. Historically from an interest rate risk perspective, it has been management’s perception that differing interest rate environments can cause sensitivity to the Company’s net interest income, these being extended low long-term interest rates or rapidly rising short-term interest rates as well as a sustained inverted yield curve. As a result of the inverted yield curve net interest income decreased by $3.7 million, or 12.9%, to $25.0 million for 2007, compared to $28.7 million for 2006. This decrease in net interest income can be attributed to an increase in interest expense of $6.8 million, or 10.3%, which was only partially offset by an increase in interest income of $3.1 million, or 3.3%. The increase to interest expense reflects a steadily rising cost of funds as the Company continues to operate in an increasingly competitive rate environment.

ESB Financial Corporation 19 2008 Annual Report

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

Interest income.    Interest income increased $3.1 million, or 3.3%, to $97.6 million for 2007, compared to $94.5 million for 2006. This increase in interest income can be attributed to an increase in interest earned on loans receivable, FHLB stock and cash equivalents of $3.0 million, $273,000, and $116,000, respectively. Cash equivalents include cash on hand and in banks, interest-earning deposits and federal funds sold. Partially offsetting these increases was a decrease in interest earned on securities available for sale of $315,000.

Interest earned on loans receivable increased $3.0 million, or 8.6%, to $38.3 million for 2007, compared to $35.2 million for 2006. This increase was attributable to an increase in the average balance of loans outstanding of $38.5 million, or 6.7%, to $611.7 million for the year ended December 31, 2007, as compared to $573.2 million for the year ended December 31, 2006. Additionally, the yield on the portfolio increased to 6.31% at December 31, 2007 as compared to 6.20% at December 31, 2006. The increase in loans is primarily attributed to growth in the residential mortgage loan portfolio.

Interest earned on securities decreased $315,000, or 0.6%, to $56.9 million for 2007 compared to $57.2 million for 2006. This decrease was primarily attributable to a decrease in the average balance of securities of $38.0 million, or 3.3%, partially offset by an increase in the tax equivalent yield on the portfolio of 13 basis points to 5.36% for 2007, compared to 5.23% for 2006. The reduction to the average balance of the securities portfolio is due to the Company’s investment strategy for 2007 which was to de-leverage a portion of its wholesale strategy by using repayments on securities to repay short term borrowings. This strategy was intended to reduce the Company’s total assets while strengthening its capital position. The Company continued to purchase a limited blend of fixed and adjustable rate product when the ten year treasury bond was in a favorable position.

Income from FHLB stock increased $273,000, or 15.9%, to $2.0 million for 2007, compared to $1.7 million for 2006. This increase can be primarily attributed to an increase in the yield of 107 basis points on FHLB stock to 6.01% for 2007 compared to 4.94% for 2006, partially offset by a decrease in the average balance of $1.6 million to $33.1 million at December 31, 2007 from $34.7 million at December 31, 2006.

Interest earned on cash equivalents increased $116,000, or 33.3%, to $464,000 for 2007, compared to $348,000 for 2006 as the average balance increased $3.6 million to $17.7 million at December 31, 2007 compared to $14.1 million at December 31, 2006 and the yield increased to 2.62% for 2007, compared to 2.47% for 2006.

Interest expense.    Interest expense increased $6.8 million, or 10.3%, to $72.6 million for 2007, compared to $65.8 million for 2006. This increase in interest expense can be attributed to increases in interest incurred on deposits, borrowed funds and junior subordinated notes of $4.4 million, $2.4 million and $48,000, respectively.

Interest incurred on deposits increased $4.4 million, or 18.7%, to $27.7 million for 2007, compared to $23.4 million for 2006. This increase was primarily attributable to an increase in the cost of deposits to 3.54% in 2007 from 3.06% in 2006, and to a lesser extent, an increase of $18.3 million, or 2.4%, in the average balance of interest-bearing deposits to $781.9 million for 2007 as compared to $763.6 million for 2006. The Company manages its cost of interest-bearing deposits by diligently monitoring the interest rates on its products as well as the rates being offered by its competition through weekly interest rate committee meetings and utilizing rate surveys and hence subsequently adjusting rates accordingly.

Interest incurred on borrowings, which includes FHLB advances and repurchase agreements, the largest components of the Company’s interest-bearing liabilities, increased $2.4 million, or 6.1%, to $41.4 million for 2007, compared to $39.0 million for 2006. This increase was primarily attributable to an increase in the cost of these funds to 4.82% for 2007 compared to 4.45% for 2006 partially offset by a decrease in the average balance of borrowed funds of $16.1 million, or 1.8%, to $860.1 million for 2007, compared to $876.3 million for 2006. The Company, as part of its wholesale strategy, continues to manage its cost of funds through its policy of laddering the maturities of borrowings up to a five year period. This strategy allows the Company the flexibility to alter its

ESB Financial Corporation 20 2008 Annual Report

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

borrowing structure quarterly. During 2007, the Bank had maturing long-term borrowings, defined as borrowings with original terms greater than one year, of $238.7 million at an average rate of 3.75% replaced with borrowings of $230.0 million at an average rate of 4.78% which caused an increase in the cost of those borrowings by 103 basis points.

Interest expense on junior subordinated notes increased $48,000, or 1.4%, to $3.5 million at December 31, 2007 from $3.4 million at December 31, 2006. This increase was primarily attributable to an increase in the cost of these funds to 6.75% for 2007, compared to 6.66% for 2006.

Provision for loan losses.    The provision for loan losses decreased $248,000 to $865,000 for the year ended December 31, 2007 compared to $1.1 million for the same period last year. These provisions were part of the normal operations of the Company for 2007. As a result of the provision for loan losses during 2007 and 2006, the Company’s allowance for loan losses amounted to $5.4 million, or 0.85%, of the Company’s total loan portfolio at December 31, 2007, compared to $5.1 million, or 0.84%, at December 31, 2006. The Company’s allowance for loan losses as a percentage of non-performing loans at December 31, 2007 and December 31, 2006 was 236.21% and 171.75%, respectively.

Noninterest income.    Noninterest income decreased $570,000, or 7.3%, to $7.2 million for 2007, compared to $7.8 million for 2006. This decrease can be attributed to decreases to net gain on sale of loans, net realized gain on sale of securities available for sale and income from real estate joint ventures of $179,000, $576,000 and $75,000, respectively, partially offset by increases in fees and service charges, cash surrender value of bank owned life insurance and other income of $89,000, $97,000 and $74,000, respectively.

Net gain on sale of loans decreased $179,000 to $7,000 for 2007, compared to $186,000 for 2006. During 2006 the Company sold its credit card portfolio which resulted in a gain of approximately $177,000. The portfolio had a balance of approximately $2.0 million and was sold at a 10% premium, with the exception of the Company’s business accounts, delinquent accounts and a recourse reserve.

Net realized gain (loss) on sale of investments increased by $114,000 and net loss on sale of derivatives increased by $690,000 to reflect an overall loss of $96,000 for 2007 as compared to a gain of $480,000 for 2006. In 2007 the Company terminated its cash flow hedge. During 2006, the Company restructured approximately $73.8 million of its investment portfolio consisting of both fixed and adjustable rate mortgage-backed securities as well as municipal bonds. The proceeds were reinvested primarily into twenty and thirty year fixed rate mortgage-backed securities and, to a lesser extent, adjustable rate mortgage-backed securities.

Income from real estate joint ventures decreased a nominal $75,000, or 3.9%, to $1.8 million for 2007 compared to $1.9 million for 2006.

Fees and service charges increased a nominal $89,000, or 2.4%, to $3.8 million for 2007, compared to $3.7 million for 2006. These increases are primarily attributed to increase in fees on our checking and savings products of approximately $148,000, or 5.8%, over last year. Included in the $148,000 increase in fees was an increase of $411,000 to fees on NOW accounts primarily due to increased participation in our platinum overdraft program and ESB Rewards program for debit card holders, partially offset by decreases to ATM fees of $263,000. The platinum overdraft program is a service provided by the Bank which enables customers limited ability to overdraft their checking accounts without the Bank returning the check.

Noninterest expense.    Noninterest expenses decreased $134,000, or 0.6%, to $23.3 million for 2007, compared to $23.4 million for 2006. This decrease can be primarily attributed to decreases in amortization of intangible assets, minority interest and other expenses of $117,000, $31,000 and $133,000, respectively. Partially offsetting these decreases was an increase in data processing of $170,000.

ESB Financial Corporation 21 2008 Annual Report

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

Amortization of intangible assets decreased $117,000, or 14.1%, to $715,000 for 2007, compared to $832,000 for 2006. The decrease was to the normal amortization of the core deposit intangible of prior acquisitions. Amortization is expected to total $601,000, $494,000, $413,000, $332,000, $251,000 and $264,000 for the years 2008, 2009, 2010, 2011, 2012 and thereafter, respectively.

Minority interest decreased $31,000, or 4.9%, to $606,000 for 2007, compared to $637,000 for 2006. This decrease is directly related to the decrease in income from real estate joint ventures and represents the portion of the profits on the consolidated joint ventures earned by the partners.

Miscellaneous other expenses which consist primarily of professional fees, forms and supplies, bank charges, postage, insurance expenses, organizational dues, ATM expenses and net carrying costs associated with real estate owned decreased by $133,000, or 3.4%, to $3.8 million for 2007 as compared to $4.0 million for 2006. The decrease is primarily related to decreases in provision for losses associated with real estate owned.

Data processing expense increased $170,000, or 9.8%, to $1.9 million for 2007, compared to $1.7 million for 2006. This increase is primarily related to increases in software service contracts, depreciation and data processing fees of $52,000, $14,000 and $99,000, respectively.

Provision for income taxes.    The provision for income taxes decreased $917,000, or 69.6%, to $400,000 for 2007 as compared to $1.3 million in 2006. The effective tax rate for 2007 was 5.0% compared to 11.0% for 2006. This is primarily due to the $3.9 million, or 32.5%, decrease in pre-tax income. The tax rate was further decreased by approximately 7.2% as a result of the percentage of tax-free income in 2007 as compared to 2006.

Asset and Liability Management

The primary objective of the Company’s asset and liability management function is to maximize the Company’s net interest income while simultaneously maintaining an acceptable level of interest rate risk given the Company’s operating environment, capital and liquidity requirements, performance objectives and overall business focus. The principal determinant of the exposure of the Company’s earnings to interest rate risk is the timing difference between the repricing or maturity of interest-earning assets and the repricing or maturity of its interest-bearing liabilities. The Company’s asset and liability management policies are designed to decrease interest rate sensitivity primarily by shortening the maturities of interest-earning assets while at the same time extending the maturities of interest-bearing liabilities. The Board of Directors of the Company continues to believe in strong asset/liability management in order to insulate the Company from material and prolonged increases in interest rates. As a result of this policy, the Company emphasizes a larger, more diversified portfolio of residential mortgage loans in the form of mortgage-backed securities. Mortgage-backed securities generally increase the quality of the Company’s assets by virtue of the insurance or guarantees that back them, are more liquid than individual mortgage loans and may be used to collateralize borrowings or other obligations of the Company.

The Company’s Board of Directors has established an Asset and Liability Management Committee consisting of outside directors, the President and Chief Executive Officer, Group Senior Vice President/Chief Financial Officer, Group Senior Vice President/Operations and Group Senior Vice President/Lending. This committee, which meets quarterly, generally monitors various asset and liability management policies and strategies, which were implemented by the Company over the past few years. These strategies have included: (i) an emphasis on the investment in adjustable-rate and shorter duration mortgage-backed securities, (ii) an emphasis on the origination of single-family residential adjustable-rate mortgages (ARMs), residential construction loans and commercial real estate loans, which generally have adjustable or floating interest rates and/or shorter maturities than traditional single-family residential loans, and consumer loans, which generally have shorter terms and higher interest rates than mortgage loans, (iii) increase the duration of the liability base of the Company by extending the maturities of savings deposits, borrowed funds and repurchase agreements and (iv) the purchase of

ESB Financial Corporation 22 2008 Annual Report

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

off-balance sheet interest rate caps and structured borrowings with imbedded caps which help to insulate the Bank’s interest rate risk position from increases in interest rates.

As of December 31, 2008, the implementation of these asset and liability initiatives resulted in the following: (i) $204.9 million or 29.0% of the Company’s total loan portfolio had adjustable interest rates or maturities of 12 months or less; (ii) $90.1 million or 24.0% of the Company’s portfolio of single-family residential mortgage loans (including residential construction loans) consisted of ARMs, (iii) $273.5 million or 30.3% of the Company’s portfolio of mortgage-backed securities were secured by ARMs and (iv) the Company had $40.0 million in notional amount of interest rate caps and $85.0 million in structured borrowings with $110.0 million in notional amount of imbedded caps.

Interest Rate Sensitivity Gap Analysis

The implementation of the foregoing asset and liability initiatives and strategies, combined with other external factors such as demand for the Company’s products and economic and interest rate environments in general, has resulted in the Company historically being able to maintain a one-year interest rate sensitivity gap ranging between 0.0% of total assets to a negative 20.0% of total assets. The one-year interest rate sensitivity gap is defined as the difference between the Company’s interest-earning assets, which are scheduled to mature or reprice within one year and its interest-bearing liabilities, which are scheduled to mature or reprice within one year. At December 31, 2008, the Company’s interest-earning assets maturing or repricing within one year totaled $521.2 million while the Company’s interest-bearing liabilities maturing or repricing within one-year totaled $820.0 million, providing a deficiency of interest-earning assets over interest-bearing liabilities of $298.8 million or a negative 15.1% of total assets. At December 31, 2008, the percentage of the Company’s assets to liabilities maturing or repricing within one year was 63.6%. The Company strives to maintain its one-year interest rate sensitivity gap between a range of 0.0% and a negative 20.0% of total assets.

The following table presents the amounts of interest-earning assets and interest-bearing liabilities outstanding as of December 31, 2008 which are expected to mature, prepay or reprice in each of the future time periods presented:

(Dollar amounts in thousands)	Due in six months or less		Due within six months to one year		Due within one to three years		Due within three to five years		Due in over five years		Total
Total interest-earning assets	$	355,605	$	165,571	$	519,332	$	293,663	$	483,624	$	1,817,795
Total interest-bearing liabilities		571,879		248,149		527,470		221,904		233,606		1,803,008
Maturity or repricing gap during the period	$	(216,274)	$	(82,578)	$	(8,138)	$	71,759	$	250,018	$	14,787
Cumulative gap	$	(216,274)	$	(298,852)	$	(306,990)	$	(235,231)	$	14,787
Ratio of gap during the period to total assets		(10.95%)		(4.18%)		(0.41%)		3.63%		12.66%
Ratio of cumulative gap to total assets		(10.95%)		(15.13%)		(15.55%)		(11.91%)		0.75%
Total assets											$	1,974,839

The one-year interest rate sensitivity gap has been the most common industry standard used to measure an institution’s interest rate risk position. In recent years, in addition to utilizing interest rate sensitivity gap analysis, the Company has increased its emphasis on the utilization of interest rate sensitivity simulation analysis to evaluate and manage interest rate risk.

ESB Financial Corporation 23 2008 Annual Report

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

Interest Rate Sensitivity Simulation Analysis

The Company also utilizes income simulation modeling in measuring its interest rate risk and managing its interest rate sensitivity. The Asset and Liability Management Committee of the Company believes that simulation modeling enables the Company to more accurately evaluate and manage the possible effects on net interest income due to the exposure to changing market interest rates, the slope of the yield curve and different loan and mortgage-backed security prepayment and deposit decay assumptions under various interest rate scenarios.

As with gap analysis and earnings simulation modeling, assumptions about the timing and variability of cash flows are critical in economic value of equity (EVE) valuation analysis. Particularly important are the assumptions driving mortgage prepayments and the assumptions about expected attrition of the core deposit portfolios. These assumptions are based on the Company’s historical experience and industry standards and are applied consistently across the different rate risk measures.

The Company has established the following guidelines for assessing interest rate risk:

Net interest income simulation.    Given a 200 basis point parallel and gradual increase or decrease in market interest rates, the Company strives to maintain the change in net interest income to no more than approximately 10% for a one-year period.

Economic Value of Equity (EVE).    EVE is the net present value of the Company’s existing assets and liabilities. Given a 200 basis point immediate and permanent increase or decrease in market interest rates, the Company strives to maintain the EVE increase or decrease to no more than approximately 50% of stockholders equity.

The following table presents the simulated impact of a 100 basis point or 200 basis point upward or downward shift of market interest rates on net interest income, return on average equity, diluted earnings per share and the change in EVE. This analysis was done assuming that the interest-earning asset and interest-bearing liability levels at December 31, 2008 remained constant. The impact of the market rate movements was developed by simulating the effects of rates changing gradually over a one-year period from the December 31, 2008 levels for net interest income, return on average equity and diluted earnings per share. The impact of market rate movements was developed by simulating the effects of an immediate and permanent change in rates at December 31, 2008 for the change in EVE. The impact of the rate change for net interest income is compared to the base amount which can fluctuate from period to period. The base amount of net income at December 31, 2008, increased from December 31, 2007.

	Increase		Decrease
	+100 BP	+200 BP	-100 BP	-200 BP
Net interest income - increase (decrease)	0.55%	0.17%	(1.53%)	N/A
Return on average equity - increase (decrease)	1.11%	0.60%	(2.62%)	N/A
Diluted earnings per share - increase (decrease)	1.07%	0.49%	(2.79%)	N/A
EVE - increase (decrease)	(12.06%)	(29.72%)	(22.03%)	N/A

The following table presents the simulated impact of a 100 basis point or 200 basis point upward or downward shift of market interest rates on net interest income, return on average equity, diluted earnings per share and the change in EVE. This analysis was done assuming that the interest-earning asset and interest-bearing liability levels at December 31, 2007 remained constant. The impact of the market rate movements was developed by simulating the effects of rates changing gradually over a one-year period from the December 31, 2007 levels for

ESB Financial Corporation 24 2008 Annual Report

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

net interest income, return on average equity and diluted earnings per share. The impact of market rate movements was developed by simulating the effects of an immediate and permanent change in rates at December 31, 2007 for the change in EVE:

	Increase		Decrease
	+100 BP	+200 BP	-100 BP	-200 BP
Net interest income - increase (decrease)	(1.24%)	(2.91%)	(0.48%)	(4.43%)
Return on average equity - increase (decrease)	(2.24%)	(5.83%)	(1.05%)	(9.12%)
Diluted earnings per share - increase (decrease)	(2.45%)	(5.98%)	(1.22%)	(9.51%)
EVE - increase (decrease)	(25.19%)	(56.52%)	9.15%	5.25%

Liquidity and Capital Resources

The Company’s goal in liquidity management is to ensure that sufficient cash flow exists to address deposit fluctuation, loan demand and debt service requirements. Liquidity is the availability of funds, or assurance that funds will be available, to honor all cash outflow commitments as they come due. These commitments are generally met through cash inflows. The Company’s primary sources of funds generally have been deposits obtained through the offices of the Bank, borrowings from the FHLB, repurchase agreement borrowings and amortization and prepayments of outstanding loans and maturing investment securities. While payments of principal and interest on loans and other investments are relatively predictable sources of funds, deposit flows are much less predictable since they are greatly influenced by the level of interest rates, the state of the economy, competition and industry conditions. Liquidity risk is the risk of not being able to obtain funds at a reasonable price within a reasonable period of time to meet financial commitments when due. The Company measures its liquidity position on an ongoing basis and estimates how funding requirements are likely to evolve over time. Liquidity management is integral to other key elements such as capital adequacy, asset quality and profitability and is a fundamental component in the safe and sound management of the Company. The Company supports the process of liquidity planning by assessing potential future liquidity needs and taking into account various possible changes in economic, market, political, regulatory and other external or internal conditions. Such planning involves identifying known, expected and potential cash outflows and weighing alternative business management strategies to ensure adequate cash inflows. The Board of Directors has approved a Liquidity Policy and has designated the ALCO to oversee compliance of this policy. The ALCO has assigned responsibility of the management and supervision of the overall liquidity to the Investment Committee.

Net cash provided by operating activities totaled $15.6 million for the year ended December 31, 2008. Net cash provided by operating activities was primarily comprised of net income of $10.2 million and depreciation for premises and equipment, provision for loan losses, amortization of premiums, proceeds from sale of loans available for sale, loss on sale of securities available for sale, amortization of intangible assets, compensation expense on ESOP and MRP and compensation expense on stock options of $946,000, $1.4 million, $1.7 million, $366,000, $856,000, $601,000, $862,000 and $175,000, respectively, partially offset by origination of loans held for sale of $364,000 and increases in BOLI, accrued interest receivable and prepaid expenses and other assets of $1.1 million, $413,000 and $264,000, respectively.

Funds used in investing activities totaled $98.6 million during the year ended December 31, 2008. Primary uses of funds included $206.7 million for loan originations and purchase, purchases of securities available for sale, interest rate cap contracts, FHLB stock and premises and equipment of $190.0 million, $774,000, $7.0 million and $672,000, respectively, as well as $17.2 million for funding of real estate held for investment. These uses were offset by sources of funds from repayments of loans and securities available for sale of $143.2 million and

ESB Financial Corporation 25 2008 Annual Report

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

$161.1 million, respectively, proceeds from real estate acquired through foreclosure, bank owned life insurance and real estate held for investment of $1.2 million, $645,000 and $6.5 million, respectively, as well as redemption of FHLB stock of $11.0 million.

Funds provided by financing activities totaled $82.6 million for the year ended December 31, 2008. The primary sources of funds included an increase in deposits, proceeds from long-term borrowings and proceeds from exercise of stock options of $34.5 million, $346.8 million and $286,000, respectively. Offsetting these sources were uses of funds for repayments of long and short term borrowings, redemption of junior subordinated notes, funding dividends paid and the purchase of treasury stock of $285.5 million, $5.2 million, $4.9 million and $3.4 million, respectively.

At December 31, 2008, the total approved loan commitments outstanding amounted to $25.7 million. At the same date, commitments under unused lines of credit and credit card lines amounted to $76.4 million and the unadvanced portion of construction loans approximated $12.8 million. Certificates of deposit scheduled to mature in one year or less at December 31, 2008 totaled $399.2 million.

Historically, the Company used its sources of funds primarily to meet its ongoing commitments to pay maturing savings certificates and savings withdrawals, fund loan commitments and maintain a substantial portfolio of investment securities. The Company has been able to generate sufficient cash through the retail deposit market, its traditional funding source, and through FHLB advances and other borrowings, to provide the cash utilized in investing activities. Management believes that the Company currently has adequate liquidity available to respond to liquidity demands.

The Company’s contractual obligations at December 31, 2008 are as follows:

(Dollar amounts in thousands)		Payment due by period
Contractual Obligations	Total	Less than 1 year	1-3 Years	3-5 Years	More than 5 years
Long-term debt obligations (1)	$     892,198	$     284,095	$     240,611	$     214,058	$     153,434
Time deposits (1)	216,879	40,663	165,977	8,825	1,414
Operating lease obligations	687	167	154	91	275
Supplemental executive retirement plan	3,363	85	170	170	2,938
Directors’ retirement plan	819	64	201	224	330
Total Contractual Obligations	$  1,113,946	$     325,074	$     407,113	$     223,368	$     158,391

(1) Excludes Interest

The sources of liquidity and capital resources discussed above are believed by management to be sufficient to fund outstanding loan commitments and meet other obligations.

Current regulatory requirements specify that ESB and similar institutions must maintain, tier one leverage capital equal to 3.0% of adjusted total assets and total capital equal to 8.0% of risk-weighted assets. The Office of the Comptroller of the Currency and the FDIC have adopted more stringent core capital requirements which require that all banks, except for the most highly rated banks, have at least an additional 100 to 200 basis points over those levels to be considered well capitalized. Therefore, an absolute minimum leverage ratio of not less than 4.0% must be maintained by those banks that are not highly rated or that are anticipating or experiencing

ESB Financial Corporation 26 2008 Annual Report

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (continued)

significant growth. The FDIC reserves the right to apply this higher standard to any insured financial institution when considering an institution’s capital adequacy. At December 31, 2008, ESB was in compliance with all regulatory capital requirements with tier one leverage capital and risk-based capital ratios of 7.2% and 14.2%, respectively.

Impact of Inflation and Changing Prices

The consolidated financial statements of the Company and related notes presented herein have been prepared in accordance with U.S. generally accepted accounting principles which require the measurement of financial condition and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation.

Unlike most industrial companies, substantially all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution’s performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services since such prices are affected by inflation to a larger degree than interest rates. In the current interest rate environment, liquidity and the maturity structure of the Company’s assets and liabilities are critical to the maintenance of acceptable performance levels.

Recent Accounting and Regulatory Pronouncements

The Company’s discussion of recent accounting and regulatory pronouncements can be found in Note 1 of the Company’s consolidated financial statements.

ESB Financial Corporation 27 2008 Annual Report

Consolidated Statements of Financial Condition

(Dollar amounts in thousands, except share data)

	December 31,
	2008			2007
Assets
Cash on hand and in banks	$	6,680		$	5,229
Interest-earning deposits		11,032			13,795
Federal funds sold		1,181			234
Cash and cash equivalents		18,893			19,258
Securities available for sale; cost of $1,086,061 and $1,058,538		1,096,806			1,059,972
Loans receivable, net of allowance for loan losses of $6,006 and $5,414		691,315			624,251
Accrued interest receivable		10,052			9,639
Federal Home Loan Bank (FHLB) stock		27,470			31,450
Premises and equipment, net		11,657			11,945
Real estate acquired through foreclosure, net		539			1,692
Real estate held for investment		34,594			36,318
Goodwill		41,599			41,599
Intangible assets		1,830			2,485
Bank owned life insurance		28,481			27,998
Prepaid expenses and other assets		11,603			13,628
Total assets	$	1,974,839		$	1,880,235
Liabilities and Stockholders’ Equity
Liabilities:
Deposits	$	877,329		$	842,854
FHLB advances		525,684			628,666
Repurchase agreements		337,500			182,000
Other borrowings		23,324			14,542
Junior subordinated notes		46,393			51,519
Advance payments by borrowers for taxes and insurance		2,816			2,579
Accrued expenses and other liabilities		12,788			12,550
Accounts payable for land development		6,621			12,680
Total liabilities		1,832,455			1,747,390
Stockholders’ Equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized; none issued		-			-
Common stock, $.01 par value, 30,000,000 shares authorized;
13,805,812 and 13,806,812 shares issued;
12,123,076 and 12,407,064 shares outstanding		138			138
Additional paid-in capital		101,041			100,884
Treasury stock, at cost; 1,682,736 and 1,399,748 shares		(19,371	)		(16,688	)
Unearned Employee Stock Ownership Plan (ESOP) shares		(1,672	)		(2,571	)
Retained earnings		55,789			50,818
Accumulated other comprehensive income, net		6,459			264
Total stockholders’ equity		142,384			132,845
Total liabilities and stockholders’ equity	$	1,974,839		$	1,880,235

See accompanying notes to consolidated financial statements.

ESB Financial Corporation 28 2008 Annual Report

Consolidated Statements of Operations

(Dollar amounts in thousands, except share data)

	Year ended December 31,
	2008			2007			2006
Interest income:
Loans receivable	$	40,035		$	38,268		$	35,229
Taxable securities available for sale		50,100			51,938			51,852
Tax-exempt securities available for sale		4,844			4,927			5,328
FHLB stock		1,122			1,987			1,714
Interest-earning deposits and federal funds sold		157			464			348
Total interest income		96,258			97,584			94,471
Interest expense:
Deposits		22,408			27,706			23,352
FHLB advances and repurchase agreements		39,744			41,421			39,026
Junior subordinated notes		2,963			3,474			3,426
Total interest expense		65,115			72,601			65,804
Net interest income		31,143			24,983			28,667
Provision for loan losses		1,406			865			1,113
Net interest income after provision for loan losses		29,737			24,118			27,554
Noninterest income:
Fees and service charges		3,916			3,787			3,698
Net gain on sale of loans		2			7			186
Increase of cash surrender value of bank owned life insurance		1,128			1,104			1,007
Net realized (loss) gain on securities available for sale		(856	)		594			480
Net realized loss on derivatives		(616	)		(690	)		-
Income from real estate joint ventures		1,102			1,827			1,902
Other		601			587			513
Total noninterest income		5,277			7,216			7,786
Noninterest expense:
Compensation and employee benefits		13,596			13,236			13,249
Premises and equipment		2,520			2,465			2,443
Federal deposit insurance premiums		119			98			21
Data processing		1,952			1,906			1,736
Amortization of intangible assets		601			715			832
Minority interest		209			606			637
Advertising		442			424			450
Other		3,812			3,823			4,039
Total noninterest expense		23,251			23,273			23,407
Income before provision for income taxes		11,763			8,061			11,933
Provision for income taxes		1,548			400			1,317
Net income	$	10,215		$	7,661		$	10,616
Net income per share:
Basic	$	0.85		$	0.62		$	0.84
Diluted	$	0.84		$	0.61		$	0.83
Cash dividends declared per share	$	0.40		$	0.40		$	0.40
Weighted average shares outstanding		12,044,075			12,403,495			12,670,216
Weighted average shares and share equivalents outstanding		12,124,485			12,529,668			12,849,602

See accompanying notes to consolidated financial statements.

ESB Financial Corporation 29 2008 Annual Report

Consolidated Statements of Changes in Stockholders’ Equity

(Dollar amounts in thousands, except share data)

	Common stock		Additional paid-in capital			Treasury stock			Unearned ESOP shares			Retained earnings			Accumulated other comprehensive income (loss), net of tax			Total stockholders’ equity
Balance at January 1, 2006	$	138	$	100,453			$    (7,434)			$    (4,494)			$    43,479		$	(5,265	)	$	126,877
Comprehensive results:
Net income		-		-			-			-			10,616			-			10,616
Other comprehensive results, net		-		-			-			-			-			890			890
Reclassification adjustment		-		-			-			-			-			(317	)		(317	)
Total comprehensive results		-		-			-			-			10,616			573			11,189
Cumulative effect of change in accounting for post-retirement benefits, net of taxes of $288		-		-			-			-			-			(560	)		(560	)
Cash dividends at $0.40 per share		-		-			-			-			(5,027	)		-			(5,027	)
Purchase of treasury stock, at cost (441,395 shares)		-		-			(5,311	)		-			-			-			(5,311	)
Reissuance of treasury stock for stock option exercises (46,949 shares)		-		-			619			-			(442	)		-			177
Compensation expense on ESOP		-		54			-			982			-			-			1,036
Tax effect of compensatory stock options		-		45			-			-			-			-			45
Effect of compensation expense for stock options		-		61			-			-			-			-			61
Forfeitures of MRP shares		-		-			-			-			-			-			-
Accrued compensation expense MRP		-		48			-			-			-			-			48
Balance at December 31, 2006		138		100,661			(12,126	)		(3,512	)		48,626			(5,252	)		128,535
Comprehensive results:
Net income		-		-			-			-			7,661			-			7,661
Other comprehensive results, net		-		-			-			-			-			5,908			5,908
Reclassification adjustment		-		-			-			-			-			(392	)		(392	)
Total comprehensive results		-		-			-			-			7,661			5,516			13,177
Cash dividends at $0.40 per share		-		-			-			-			(4,946	)		-			(4,946	)
Purchase of treasury stock, at cost (508,834 shares)		-		-			(5,374	)		-			-			-			(5,374	)
Reissuance of treasury stock for stock option exercises (63,193 shares)		-		-			812			-			(523	)		-			289
Compensation expense on ESOP		-		(26	)		-			941			-			-			915
Tax effect of compensatory stock options		-		97			-			-			-			-			97
Effect of compensation expense for stock options		-		102			-			-			-			-			102
Accrued compensation expense MRP		-		50			-			-			-			-			50
Balance at December 31, 2007		138		100,884			(16,688	)		(2,571	)		50,818			264			132,845
Comprehensive results:
Net income		-		-			-			-			10,215			-			10,215
Other comprehensive results, net		-		-			-			-			-			5,630			5,630
Reclassification adjustment		-		-			-			-			-			565			565
Total comprehensive results		-		-			-			-			10,215			6,195			16,410
Cash dividends at $0.40 per share		-		-			-			-			(4,783	)		-			(4,783	)
Purchase of treasury stock, at cost (334,273 shares)		-		-			(3,410	)		-			-			-			(3,410	)
Reissuance of treasury stock for stock option exercises (51,285 shares)		-		-			727			-			(461	)		-			266
Compensation expense on ESOP		-		(75	)		-			899			-			-			824
Tax effect of compensatory stock options		-		20			-			-			-			-			20
Effect of compensation expense for stock options		-		175			-			-			-			-			175
Accrued compensation expense MRP		-		37			-			-			-			-			37
Balance at December 31, 2008	$	138	$	101,041		$	(19,371	)	$	(1,672	)	$	55,789		$	6,459		$	142,384

See accompanying notes to consolidated financial statements.

ESB Financial Corporation 30 2008 Annual Report

Consolidated Statements of Cash Flows

(Dollar amounts in thousands)

	Year ended December 31,
	2008			2007			2006
Operating activities:
Net income	$	10,215		$	7,661		$	10,616
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation for premises and equipment		946			1,027			1,036
Provision for loan losses		1,406			865			1,113
Amortization of premiums		1,681			1,885			2,248
Origination of loans held for sale		(364	)		(193	)		(573	)
Proceeds from sale of loans held for sale		366			390			392
Gain on sale of loans held for sale		(2	)		(7	)		(9	)
Net realized loss (gain) on securities available for sale		856			(594	)		(480	)
Loss on sale of derivatives		-			690			-
Amortization of intangible assets		601			715			832
Compensation expense on ESOP and MRP		861			965			1,084
Compensation expense on stock options		175			102			61
Increases in bank owned life insurance		(1,128	)		(1,104	)		(1,007	)
(Increase) decrease in accrued interest receivable		(413	)		232			(181	)
Increases in deferred tax asset		(971	)		(1,380	)		(499	)
Decrease (increase) in prepaid expenses and other assets		707			2,716			(314	)
Increase (decrease) in accrued expenses and other liabilities		63			(1,646	)		(2,925	)
Other		620			104			708
Net cash provided by operating activities		15,619			12,428			12,102
Investing activities:
Loan originations and purchases		(206,658	)		(148,932	)		(184,164	)
Purchases of:
Securities available for sale		(189,968	)		(150,282	)		(285,810	)
Interest rate cap contracts		(774	)		-			-
FHLB stock		(7,047	)		(9,201	)		(9,579	)
Premises and equipment		(672	)		(1,758	)		(1,271	)
Principal repayments of:
Loans receivable		143,178			114,107			129,261
Securities available for sale		161,144			165,098			184,660
Proceeds from the sale of:
Securities available for sale		-			76,973			73,900
Loans available for sale		-			-			2,228
Real estate acquired through foreclosure		1,212			157			1,156
Premises and equipment		-			-			94
Proceeds from bank owned life insurance		645			631			-
Redemption of FHLB stock		11,027			12,094			8,145
Funding of real estate held for investment		(17,154	)		(21,708	)		(8,174	)
Proceeds from real estate held for investment		6,513			12,326			11,313
Net cash (used in) provided by investing activities		(98,554	)		49,505			(78,241	)
Financing activities:
Net increase (decrease) in deposits		34,475			19,210			(10,886	)
Proceeds from long-term borrowings		346,766			252,328			301,570
Repayments of long-term borrowings		(273,015	)		(230,945	)		(209,823	)
Net decrease in short-term borrowings		(12,451	)		(95,884	)		(9,911	)
Redemption of junior subordinated notes		(5,155	)		-			-
Proceeds received from exercise of stock options		286			386			222
Dividends paid		(4,926	)		(5,097	)		(5,236	)
Payments to acquire treasury stock		(3,410	)		(5,374	)		(5,311	)
Net cash provided by (used in) financing activities		82,570			(65,376	)		60,625
Net decrease in cash and cash equivalents		(365	)		(3,443	)		(5,514	)
Cash and cash equivalents at beginning of period		19,258			22,701			28,215
Cash and cash equivalents at end of period	$	18,893		$	19,258		$	22,701

Continued

ESB Financial Corporation 31 2008 Annual Report

Consolidated Statements of Cash Flows (continued)

(Dollar amounts in thousands)

	Year ended December 31,
	2008		2007		2006
Supplemental information:
Interest paid	$	65,163	$	73,020	$	64,968
Income taxes paid		2,278		1,507		1,997
Supplemental schedule of non-cash investing and financing activities:
Transfers from loans receivable to real estate acquired through foreclosure		81		477		1,222
Dividends declared but not paid		1,212		1,255		1,253

See accompanying notes to consolidated financial statements.

ESB Financial Corporation 32 2008 Annual Report

Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies

Principles of Consolidation

ESB Financial Corporation (the Company) is a publicly traded Pennsylvania thrift holding company. The consolidated financial statements include the accounts of the Company and its direct and indirect wholly owned subsidiaries, ESB Bank (ESB or the Bank), PennFirst Financial Services, Inc., THF, Inc. (THF), AMSCO, Inc. (AMSCO) and ESB Financial Services, Inc. ESB is a Pennsylvania chartered Federal Deposit Insurance Corporation (FDIC) insured stock savings bank.

AMSCO is engaged in real estate development and construction of 1- 4 family residential units independently or in conjunction with its joint ventures. The Bank has provided all development and construction financing. The joint ventures which are 51% owned or greater by AMSCO have been included in the consolidated financial statements and are reflected within other noninterest income or expense. The Bank’s loans to AMSCO and related interest have been eliminated in consolidation.

In addition to the elimination of the loans and interest to the joint ventures described above, all other significant intercompany transactions and balances have been eliminated in consolidation.

Basis of Presentation

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make some estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Certain amounts previously reported have been reclassified to conform to the current year financial statement presentation. The reclassification had no effect on net income.

Operating Segments

An operating segment is defined as a component of an enterprise that engages in business activities that generate revenue and incur expense, the operating results of which are reviewed by management and for which discrete financial information is available. At December 31, 2008, the Company was doing business through 23 full service banking branches, one loan production office, and its various other subsidiaries. Loans and deposits are primarily generated from the areas where banking branches are located. The Company derives its income predominantly from interest on loans and securities and to a lesser extent, noninterest income. The Company’s principal expenses are interest paid on deposits and borrowed funds and normal operating costs. The Company’s operations are principally in the savings and loan industry. Consistent with internal reporting, the Company’s operations are reported in one operating segment, which is community banking.

Cash Equivalents

Cash equivalents include cash on hand and in banks, interest-earning deposits with original maturities of 90 days or less and federal funds sold. The Board of Governors of the Federal Reserve System imposes certain reserve requirements on all depository institutions. These reserves are maintained in the form of vault cash or as a noninterest bearing balance with the Federal Reserve Bank. Required reserves at the Federal Reserve Bank averaged $691,000 and $626,000 during the year 2008 and 2007, respectively.

Securities Available for Sale and Held for Maturity

Securities include investments primarily in bonds, notes and to a lesser extent equity securities and are classified as either available for sale or held to maturity at the time of purchase based on management’s

ESB Financial Corporation 33 2008 Annual Report

Notes to Consolidated Financial Statements (continued)

1. Summary of Significant Accounting Policies (continued)

intent. Such intent includes consideration of the interest rate environment, prepayment risk, credit risk, maturity and repricing characteristics, liquidity considerations, investment and asset/liability management policies and other pertinent factors. Unrealized holding gains and losses, net of applicable income taxes, on available for sale securities are reported as accumulated other comprehensive income until realized. Gains and losses on the sale of securities are determined using the specific identification method and are included in operations in the period sold.

Declines in the fair value of equity securities below their cost that are determined to be other than temporary result in the security being written down to fair value on an individual basis. Any related write-downs are included in operations as realized losses.

Declines in the fair value of marketable debt securities that are determined to be other than temporary due to a decline in the credit of the issuer are written down to fair value accordingly, with a resulting charge to realized loss and an adjustment to the cost basis of the security. With respect to the other-than-temporary impairments of marketable debt securities where the decline in the market value is solely attributable to an increase in market interest rates, this would not trigger an other-than-temporary impairment charge if the Company has the intent and ability to hold the debt security until recovery. At each reporting date, management will re-challenge their intent and ability to hold such debt security until recovery and document the basis for this assertion. To the extent that market conditions have changed and management can no longer assert that they have the intent and ability to hold a debt security until the market value recovers, the Company will recognize an other-than-temporary impairment at that time.

Yields and carrying values for certain mortgage-backed securities are subject to normal interest rate and prepayment risks. Premiums and discounts on securities are recognized in interest income using the interest method over the period to maturity.

Loans Receivable

Loans receivable, for which management has the intent and the Company has the ability to hold for the foreseeable future or until maturity or payoff, are reported at their outstanding unpaid principal balances reduced by any charge-offs and net of any deferred fees or costs on loans originated, unamortized premiums or discounts on loans purchased and the allowance for loan losses.

Interest income on loans is accrued and credited to operations as earned. Interest income is not accrued for loans delinquent 90 days or greater. Interest on impaired loans is discontinued when, in management’s opinion, the borrower may be unable to meet contractual payments. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest receipts on nonaccrual and impaired loans are recognized as interest revenue or applied to principal when management believes the ultimate collectibility of principal is in doubt.

Discounts and premiums on purchased loans are recognized in interest income using the interest method over the remaining period to contractual maturity, adjusted for prepayments. Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment to the yield of the related loan over the loan’s period to maturity. Loans originated and intended for sale are carried at the lower of cost or estimated market value in the aggregate.

Impaired loans are commercial and commercial real estate loans for which it is probable the Company will not be able to collect all amounts due according to the contractual terms of the loan agreement. The Company individually evaluates such loans for impairment and does not aggregate loans by major risk

ESB Financial Corporation 34 2008 Annual Report

Notes to Consolidated Financial Statements (continued)

1. Summary of Significant Accounting Policies (continued)

classifications. The definition of impaired loans is not the same as the definition of nonaccrual loans, although the two categories overlap. The Company may choose to place a loan on nonaccrual status due to payment delinquency or uncertain collectibility, while not classifying the loan as impaired. Factors considered by management in determining impairment include payment status and collateral value. The amount of impairment for these types of impaired loans is determined by the difference between the present value of the expected cash flows related to the loan, using current interest rates, and its recorded value, or, as a practical expedient in the case of collateralized loans, the difference between the fair value of the collateral and the recorded amount of the loans. When foreclosure is probable, impairment is measured based on the fair value of the collateral.

Mortgage loans on one-to four family properties and all consumer loans are large groups of smaller balance homogeneous loans and are measured for impairment collectively. Loans that experience insignificant payment delays, which are defined as less than 90 days, generally are not classified as impaired. Management determines the significance of payment delays on a case-by-case basis, taking into consideration all circumstances surrounding the loan and the borrower including the length of the delay, the borrower’s prior payment record and the amount of shortfall in relation to the principal and interest owed.

The allowance for loan losses is maintained at a level believed to be adequate by management to absorb probable losses inherent in the portfolio and is based on the size and current risk characteristics of the loan portfolio, an assessment of individual problem loans and actual loss experience, current economic events in specific industries and other pertinent factors such as regulatory guidance and general economic conditions. Determination of the allowance is inherently subjective as it requires significant estimates, including the amounts and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience and consideration of current economic trends, all of which may be susceptible to significant change. Loan losses are charged off against the allowance, while recoveries of amounts previously charged off are credited to the allowance. A provision for loan losses is charged to operations based on management’s periodic evaluation of the factors previously mentioned, as well as other pertinent factors. Evaluations are conducted quarterly, during which loans may be charged off upon reaching various stages of delinquency and depending upon the loan type. The components of the allowance for loan losses represent an estimation pursuant to Statement of Financial Accounting Standards (FAS) No. 5, Accounting for Contingencies or FAS No. 114, Accounting by Creditors for Impairment of a Loan.

Real Estate Acquired Through Foreclosure

Real estate properties acquired through foreclosure are initially recorded at the lower of cost or fair value at the date of foreclosure, establishing a new cost basis. After foreclosure, management periodically performs valuations and the real estate is carried at the lower of cost or fair value less estimated costs to sell. Revenue and expenses from operations of the properties, gains and losses on sales and additions to the valuation allowance are included in operating results.

Premises and Equipment

Land is carried at cost. Premises, furniture and equipment, and leasehold improvements are carried at cost less accumulated depreciation or amortization. Depreciation is calculated on a straight-line basis over the estimated useful lives of the related assets, which are twenty-five to fifty years for buildings and three to ten years for furniture and equipment. Amortization of leasehold improvements is computed using the straight-line method over the term of the related lease.

ESB Financial Corporation 35 2008 Annual Report

Notes to Consolidated Financial Statements (continued)

1. Summary of Significant Accounting Policies (continued)

Goodwill and Intangible Assets

Goodwill consisted of $41.6 million at December 31, 2008 and 2007, respectively. The Company adopted the provisions of FAS No. 142 Goodwill and Intangible Assets, under which the Company ceased amortizing goodwill and instead evaluates goodwill for impairment. This impairment assessment is performed at least annually. The fair value of the Company and the implied fair value of goodwill at the respective reporting unit level were estimated as of October 31, 2008 using the market value approach, utilizing industry comparable information. The Company concluded that the recorded value of goodwill was not impaired as a result of the evaluation. Core deposit intangible was $1.8 million and $2.4 million at December 31, 2008 and 2007, respectively. The core deposit intangible assets are amortized on a sum of the year’s digit basis over the estimated useful life, generally up to ten years. Amortization of finite lived assets is expected to total, $494,000, $413,000, $332,000, $251,000, $169,000 and $95,000 for the years 2009, 2010, 2011, 2012, 2013 and thereafter, respectively.

Mortgage Servicing Assets

The servicing asset recorded in connection with the whole loan sale and securitization of a portion of the Company’s 1- 4 family residential mortgage loan portfolio during 2002 was $1.2 million. At December 31, 2008, the remaining balance and fair value of the servicing asset was $52,000, which is recorded in other assets. Servicing assets are amortized in proportion to, and over the period of, estimated net servicing revenues. Impairment of servicing assets is based on fair value of those assets, estimated using discounted cash flows and prepayment assumptions for the market area of the servicing portfolio. For purposes of measuring impairment, the servicing asset is stratified based on interest rate. The amount of impairment recognized is the amount by which the capitalized servicing asset for a stratum exceeds the fair value of that stratum. There was an impairment valuation of $32,000 at December 31, 2008. No impairment valuation existed at December 31, 2007 and 2006, respectively. The amortization taken on the servicing asset for the year ended December 31, 2008 and 2007 was $23,000 and $31,000, respectively. The Company had total loans serviced for others of $24.8 million, $23.2 million and $25.2 million at December 31, 2008, 2007 and 2006, respectively.

Income Taxes

Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

Bank-Owned Life Insurance (BOLI)

The Company owns insurance on the lives of a certain group of key employees. The policies were purchased to help offset the increases in the costs of various fringe benefit plans including healthcare. The cash surrender value of these policies is included as an asset on the consolidated statements of financial condition, and any increases in cash surrender value are recorded as noninterest income on the consolidated statement of income. In the event of the death of an insured individual under these policies, the Company would receive a death benefit.

Financial Instruments

Statement of FAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended and interpreted, establishes accounting and reporting standards for derivative instruments, including certain

ESB Financial Corporation 36 2008 Annual Report

Notes to Consolidated Financial Statements (continued)

1. Summary of Significant Accounting Policies (continued)

derivative instruments embedded in other contracts, and for hedging activities. As required by FAS No. 133, the Company records all derivatives on the consolidated statement of financial condition at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.

For derivatives designated as fair value hedges, changes in the fair value of the derivative and the hedged item related to the hedged risk are recognized in earnings. For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income (outside of earnings) and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. The Company assesses the effectiveness of each hedging relationship by comparing the changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the designated hedged item or transaction. For derivatives not designated as hedges, changes in fair value are recognized in earnings.

In April 2007, the Company terminated its cash flow hedge by selling the interest rate caps and repaying the associated borrowings. The loss on the sale of the interest rate caps of approximately $690,000 was offset by gains of approximately $706,000 recognized on the sale of securities. The Company expects this transaction to positively impact the net interest margin over the next two to three years.

Stock-Based Compensation

The Company accounts for stock compensation based on the grant-date fair value of all share-based payment awards that are expected to vest, including employee share options to be recognized as employee compensation expense over the requisite service period.

During the years ended December 31, 2008, 2007 and 2006, the Company recorded $180,000, $102,000 and $61,000, respectively, in compensation expense and tax benefits of $22,000, $11,000 and $7,000, respectively, related to our share-based compensation awards. As of December 31, 2008, there was approximately $97,000 of unrecognized compensation cost related to unvested share-based compensation awards granted in 2006. That cost is expected to be recognized over the next two years. Additionally, there was approximately $138,000 of unrecognized compensation cost related to unvested share-based compensation awards granted in 2007. That cost is expected to be recognized over the next three years. Finally, there was approximately $198,000 of unrecognized compensation cost related to unvested share-based compensation awards granted in 2008. That cost is expected to be recognized over the next four years.

FAS 123R Share Based Payment requires that the cash flows from the tax benefits resulting from tax deductions in excess of the compensation cost recognized for stock-based awards (excess tax benefits) be classified as financing cash flows. Accordingly, $20,000, $97,000 and $45,000 in excess tax benefits has been classified as a financing cash inflow for the years ended December 31, 2008, 2007 and 2006 in the Consolidated Statement of Cash Flows.

For purposes of computing results, the Company estimated the fair values of stock options using the Black-Scholes option-pricing model. The model requires the use of subjective assumptions that can materially affect fair value estimates. Therefore, the pro forma results are estimates of results of operations as if compensation expense had been recognized for the stock option plans. The fair value of each option is

ESB Financial Corporation 37 2008 Annual Report

Notes to Consolidated Financial Statements (continued)

1. Summary of Significant Accounting Policies (continued)

amortized into compensation expense on a straight line basis between the grant date for the option and each vesting date. The fair value of each stock option granted was estimated using the following weighted-average assumptions:

	2008	2007	2006
Assumptions
Volatility	36.29%	35.80%	34.85%
Interest Rates	3.29%	3.63%	4.70%
Dividend Yields	3.88%	3.96%	3.72%
Weighted Average Life (in years)	6.9	6.6	5.4

The weighted average fair value of each stock option granted for 2008, 2007 and 2006 was $2.78, $2.69 and $2.93, respectively. The total intrinsic value of options exercised during the years ended December 31, 2008, 2007 and 2006, was $259,000, $281,000 and $179,000, respectively.

Net Income Per Share

The following table summarizes the Company’s net income per share for the years ended December 31:

(Amounts in thousands, except per share data)
	2008		2007		2006
Net income	$	10,215	$	7,661	$	10,616
Weighted-average common shares outstanding		12,044		12,403		12,670
Basic earnings per share	$	0.85	$	0.62	$	0.84
Weighted-average common shares outstanding		12,044		12,403		12,670
Common stock equivalents due to effect of stock options		80		127		180
Total weighted-average common shares and equivalents		12,124		12,530		12,850
Diluted earnings per share	$	0.84	$	0.61	$	0.83

The unallocated shares controlled by the ESOP of 152,687 and 234,809 at December 31, 2008 and December 31, 2007, respectively, are not considered in the weighted average shares outstanding until the shares are committed for allocation to an employee’s individual account.

Options to purchase 91,632 shares of common stock at a weighted average exercise price of $10.83 per share expiring November 2012, 80,310 shares of common stock at a weighted average exercise price of $15.35 per share expiring November 2013, 84,040 shares of common stock at a weighted average exercise price of $14.50 per share expiring November 2014, 78,300 shares of common stock at a weighted average exercise price of $12.20 per share expiring June 2015, 16,110 shares of common stock at a weighted average exercise price of $12.40 per share expiring June 2015 and 89,730 shares of common stock at a weighted average exercise price of $10.75 per share expiring November 2016 were outstanding as of December 31, 2007 but were not included in the computation of diluted earnings per share for 2008 because the options’ exercise price was greater than the average market price of the common shares.

ESB Financial Corporation 38 2008 Annual Report

Notes to Consolidated Financial Statements (continued)

1. Summary of Significant Accounting Policies (continued)

Options to purchase 97,092 shares of common stock at a weighted average exercise price of $10.83 per share expiring November 2012, 85,010 shares of common stock at a weighted average exercise price of $15.35 per share expiring November 2013, 88,740 shares of common stock at a weighted average exercise price of $14.50 per share expiring November 2014, 82,300 shares of common stock at a weighted average exercise price of $12.20 per share expiring June 2015, 16,660 shares of common stock at a weighted average exercise price of $12.40 per share expiring June 2015 and 94,480 shares of common stock at a weighted average exercise price of $10.75 per share expiring November 2016 were outstanding as of December 31, 2007 but were not included in the computation of diluted earnings per share for 2007 because the options’ exercise price was greater than the average market price of the common shares.

Options to purchase 88,910 shares of common stock at a weighted average exercise price of $15.35 per share expiring November 2013, 89,790 shares of common stock at a weighted average exercise price of $14.50 per share expiring November 2014, 82,300 shares of common stock at a weighted average exercise price of $12.20 per share expiring June 2015 and 17,760 shares of common stock at a weighted average exercise price of $12.40 per share expiring June 2015 were outstanding as of December 31, 2006 but were not included in the computation of diluted earnings per share for 2006 because the options’ exercise price was greater than the average market price of the common shares.

Effect of Recent Accounting and Regulatory Pronouncements

In December 2007, the FASB issued FAS No. 141 (revised 2007), Business Combinations (“FAS 141(R)), which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in an acquiree, including the recognition and measurement of goodwill acquired in a business combination. FAS No. 141(R) is effective for fiscal years beginning on or after December 15, 2008. Earlier adoption is prohibited. The adoption of this standard is not expected to have a material effect on the Company’s results of operations or financial position.

In December 2007, the FASB issued FAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51. FAS No. 160 amends ARB No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary, which is sometimes referred to as minority interest, is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. Among other requirements, this statement requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. FAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. Earlier adoption is prohibited. The adoption of this standard is not expected to have a material effect on the Company’s results of operations or financial position.

In March 2008, the FASB issued FAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, to require enhanced disclosures about derivative instruments and hedging activities. The new standard has revised financial reporting for derivative instruments and hedging activities by requiring more transparency about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under FAS No. 133, Accounting for Derivative Instruments and Hedging Activities; and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. FAS No. 161 requires disclosure of the fair values of derivative instruments and their gains and losses in a tabular format. It also requires entities to provide more

ESB Financial Corporation 39 2008 Annual Report

Notes to Consolidated Financial Statements (continued)

1. Summary of Significant Accounting Policies (continued)

information about their liquidity by requiring disclosure of derivative features that are credit risk-related. Further, it requires cross-referencing within footnotes to enable financial statement users to locate important information about derivative instruments. FAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encourage. The adoption of this standard is not expected to have a material effect on the Company’s results of operations or financial position.

In June 2008, the FASB ratified Emerging Issues Task Force (EITF) Issue No. 08-4, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjusted Conversion Ratios. This Issue provides transition guidance for conforming changes made to EITF Issue No. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjusted Conversion Ratios, that resulted from EITF Issue No. 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments, and FAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liability and Equity. The conforming changes are effective for financial statements issued for fiscal years ending after December 15, 2008, with earlier application permitted. The adoption of this FSP is not expected to have a material effect on the Company’s results of operations or financial position.

In February 2007, the FASB issued FASB Staff Position (FSP) No. FAS 158-1, Conforming Amendments to the Illustrations in FASB Statements No. 87, No. 88, and No. 106 and to the Related Staff Implementation Guides. This FSP provides conforming amendments to the illustrations in FAS Statements No. 87, 88, and 106 and to related staff implementation guides as a result of the issuance of FAS Statement No. 158. The conforming amendments made by this FSP are effective as of the effective dates of Statement No. 158. The unaffected guidance that this FSP codifies into Statements No. 87, 88, and 106 does not contain new requirements and therefore does not require a separate effective date or transition method. The adoption of this FSP is not expected to have a material effect on the Company’s results of operations or financial position.

In February 2008, the FASB issued FSP No. FAS 140-3, Accounting for Transfers of Financial Assets and Repurchase Financing Transactions. This FSP concludes that a transferor and transferee should not separately account for a transfer of a financial asset and a related repurchase financing unless (a) the two transactions have a valid and distinct business or economic purpose for being entered into separately and (b) the repurchase financing does not result in the initial transferor regaining control over the financial asset. The FSP is effective for financial statements issued for fiscal years beginning on or after November 15, 2008, and interim periods within those fiscal years. The adoption of this FSP is not expected to have a material effect on the Company’s results of operations or financial position.

In April 2008, the FASB issued FSP No. 142-3, Determination of the Useful Life of Intangible Assets (“FSP 142-3”). FSP 142-3 amends the factors that should be considered in developing assumptions about renewal or extension used in estimating the useful life of a recognized intangible asset under FAS No. 142, Goodwill and Other Intangible Assets. This standard is intended to improve the consistency between the useful life of a recognized intangible asset under FAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under FAS No. 141R and other GAAP. FSP 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008. The measurement provisions of this standard will apply only to intangible assets of the Company acquired after the effective date. The adoption of this FSP is not expected to have a material effect on the Company’s results of operations or financial position.

In May 2008, the FASB issued FSP No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement). This FSP provides guidance on the accounting for certain types of convertible debt instruments that may be settled in cash upon conversion. Additionally, this FSP specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when

ESB Financial Corporation 40 2008 Annual Report

Notes to Consolidated Financial Statements (continued)

1. Summary of Significant Accounting Policies (continued)

interest cost is recognized in subsequent periods. The FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The adoption of this FSP is not expected to have a material effect on the Company’s results of operations or financial position.

In June 2008, the FASB issued FASB Staff Position (FSP) No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities, to clarify that instruments granted in share-based payment transactions can be participating securities prior to the requisite service having been rendered. A basic principle of the FSP is that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are to be included in the computation of EPS pursuant to the two-class method. The provisions of this FSP are effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. All prior-period EPS data presented (including interim financial statements, summaries of earnings, and selected financial data) are required to be adjusted retrospectively to conform with the provisions of the FSP. The adoption of this FSP is not expected to have a material effect on the Company’s results of operations or financial position.

In December 2008, the FASB issued FASB Staff Position (FSP) No. FAS 132(R)-1, Employers’ Disclosures about Postretirement Benefit Plan Assets. This FSP amends FASB Statement No. 132 (revised 2003), Employers’ Disclosures about Pensions and Other Postretirement Benefits, to improve an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. The disclosures about plan assets required by the FSP are to be provided for fiscal years ending after December 15, 2009. The adoption of this FSP is not expected to have a material effect on the Company’s results of operations or financial position.

2. Securities

The following table summarizes the Company’s securities as of December 31:

(Dollar amounts in thousands)	Amortized cost		Unrealized gains		Unrealized losses		Fair value
December 31, 2008:
Trust preferred securities	$	500	$	-	$	(21)	$	479
Municipal securities		135,220		1,624		(2,799)		134,045
Equity securities		676		30		-		706
Corporate bonds		67,883		128		(9,528)		58,483
Mortgage-backed securities		881,782		22,068		(757)		903,093
	$	1,086,061	$	23,850	$	(13,105)	$	1,096,806
December 31, 2007:
Trust preferred securities	$	500	$	-	$	(16)	$	484
Municipal securities		107,499		2,374		(172)		109,701
Equity securities		794		51		(31)		814
Corporate bonds		59,381		148		(4,982)		54,547
Mortgage-backed securities		890,364		7,407		(3,345)		894,426
	$	1,058,538	$	9,980	$	(8,546)	$	1,059,972

ESB Financial Corporation 41 2008 Annual Report

Notes to Consolidated Financial Statements (continued)

2. Securities (continued)

The proceeds from the sale of securities as of December 31, 2007 and 2006 were $77.0 million and $73.9 million, respectively. There were no security sales in 2008. Gross realized gains and gross realized losses on sales of securities available for sale were $1.7 million and $944,000, respectively, in 2007 and $1.7 million and respectively, in 2006. In addition, there were gross unrealized losses on sales of interest rate caps of $690,000 in 2007. Impairment charges on available for sale securities of $856,000 and $141,000 were recorded for the years ended 2008 and 2007, respectively, on corporate bonds and equity securities that were deemed to be other-than temporarily impaired, no impairment charges were taken in the year ended December 31, 2006. The Company had pre-tax impairment charges of approximately $303,000 on four of its equity investments in small banks that had experienced a decline in their market value for the last several quarters of 2008.

Additionally, the Company took an impairment charge of approximately $553,000 on a $2.5 million collateralized debt obligation that is comprised of sixteen financial institutions. The Company utilized a discounted cash flow method which under FAS No. 157 is a level three pricing method. During this analysis, the Company determined that two of these financial institutions are currently deferring interest payments. These two financial institutions and one other of the remaining sixteen also have Tier 1 Risk Ratio at or less than the required well capitalized institution level of 6%, the non-performing assets to loans plus real estate owned ratio was greater than 10% and all had negative earnings in the most recent quarter. In addition to these factors, the bond was downgraded to below investment grade by the Moody’s Rating Service during the fourth quarter. The Company believes at this time that the remaining financial institutions are currently financially stable but will continue to monitor this bond into 2009 to determine if any additional other than temporary charges are necessary.

At December 31, 2008 and 2007, the Company did not have any municipal bonds, corporate bonds, equities or trust preferred securities whose book value exceeded 10% of equity.

The following table shows the Company’s investments’ gross unrealized losses and fair value aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2008:

As of December 31, 2008
(Dollar amounts in thousands)	Less than 12 Months					12 Months or more					Total
	# of Securities	Fair Value		Unrealized losses		# of Securities	Fair Value		Unrealized losses		# of Securities	Fair Value		Unrealized losses
Trust Preferred Securities	-	$	-	$	-	1	$	479	$	21	1	$	479	$	21
Municipal securities	53		43,714		1,830	23		20,571		969	76		64,285		2,799
Corporate bonds	4		12,598		1,458	8		35,785		8,070	12		48,383		9,528
Mortgage-backed securities	6		9,535		359	12		18,625		398	18		28,160		757
	63	$	65,847	$	3,647	44	$	75,460	$	9,458	107	$	141,307	$	13,105

ESB Financial Corporation 42 2008 Annual Report

Notes to Consolidated Financial Statements (continued)

2. Securities (continued)

The following table shows the Company’s investments’ gross unrealized losses and fair value aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2007:

As of December 31, 2007
(Dollar amounts in thousands)	Less than 12 Months					12 Months or more					Total
	# of Securities	Fair Value		Unrealized losses		# of Securities	Fair Value		Unrealized losses		# of Securities	Fair Value		Unrealized losses
Trust Preferred Securities	-	$	-	$	-	1	$	484	$	16	1	$	484	$	16
Municipal securities	14		12,475		141	2		1,742		31	16		14,217		172
Equity Securities	3		302		12	1		138		19	4		440		31
Corporate bonds	1		2,456		44	8		38,903		4,938	9		41,359		4,982
Mortgage-backed securities	2		5,346		25	129		391,413		3,320	131		396,759		3,345
	20	$	20,579	$	222	141	$	432,680	$	8,324	161	$	453,259	$	8,546

The Company primarily invests in mortgage-backed securities, variable and fixed rate corporate bonds, municipal bonds, government bonds and to a lesser extent equity securities. The policy of the Company is to recognize an other than temporary impairment on equity securities where the fair value has been significantly below cost for three consecutive quarters. Declines in the fair value of the corporate bonds that can be attributed to specific adverse conditions affecting the credit quality of the investment would be recorded as other than temporary impairment losses, and charged to earnings. In order to determine if a decline in fair value is other than temporary, the Company reviews corporate ratings of the investment, analyst reports and SEC filings of the issuers. For fixed maturity investments with unrealized losses due to interest rates where the Company has the positive intent and ability to hold the investment for a period of time sufficient to allow a market recovery, declines in value below cost are not assumed to be other than temporary. The Company reviews its position quarterly and has asserted that at December 31, 2008, the declines outlined in the above table represent temporary declines due to changes in interest rates and are not reflections of an impairment in the credit quality of the securities, additionally, the Company does have the intent and ability to hold those securities either to maturity or to allow a market recovery.

The following table summarizes scheduled maturities of the Company’s securities as of December 31, 2008, excluding equity securities which have no maturity dates:

(Dollar amounts in thousands)	Available for sale
	Weighted     Average Yield		Amortized cost		Fair value
Due in one year or less	7.00	%	$	1	$	1
Due from one year to five years	4.34	%		12,885		13,331
Due from five to ten years	4.76	%		111,235		112,243
Due after ten years	5.19	%		961,264		970,525
	5.13	%	$	1,085,385	$	1,096,100

For purposes of the maturity table, mortgage-backed securities, which are not due at a single maturity date, have been allocated over maturity groupings based on weighted-average contractual maturities of underlying collateral. The mortgage-backed securities may mature earlier than their weighted-average contractual maturities because of principal prepayments.

ESB Financial Corporation 43 2008 Annual Report

Notes to Consolidated Financial Statements (continued)

2. Securities (continued)

Securities, with carrying values of $106.9 million and $92.0 million as of December 31, 2008 and 2007, respectively, were pledged to secure public deposits and for other purposes required or permitted by law.

3. Loans Receivable

The following table summarizes the Company’s loans receivable as of December 31:

(Dollar amounts in thousands)	2008			2007
Mortgage loans:
Residential - single family	$	353,658		$	314,438
Residential - multi family		33,680			33,196
Commercial real estate		76,633			80,141
Construction		55,979			51,391
Subtotal mortgage loans		519,950			479,166
Other loans:
Consumer loans
Home equity loans		71,271			67,550
Dealer auto and RV loans		60,896			51,593
Other loans		10,656			11,336
Commercial business		44,508			29,164
Subtotal other loans		187,331			159,643
Total Loans Receivable		707,281			638,809
Less:
Allowance for loan losses		6,006			5,414
Deferred loan fees and net discounts		(2,825	)		(2,576	)
Loans in process		12,785			11,720
Net Loans Receivable	$	691,315		$	624,251

Non-performing loans, which include non-accrual loans and troubled debt restructuring, were $2.5 million and $2.3 million at December 31, 2008 and 2007, respectively.

For non-performing loans, the interest income that would have been recorded under the original terms of such loans and the interest income actually recognized for the years ended December 31 are summarized below:

(Dollar amounts in thousands)	2008		2007		2006
Interest income that would have been recorded	$	207	$	171	$	236
Interest income recognized		122		88		113
Interest income foregone	$	85	$	83	$	123

The Company is not committed to lend additional funds to debtors whose loans are on non-accrual status.

ESB Financial Corporation 44 2008 Annual Report

Notes to Consolidated Financial Statements (continued)

3. Loans Receivable (continued)

The following table is a summary of the loans considered to be impaired as of December 31:

(Dollar amounts in thousands)	2008		2007		2006
Impaired loans with an allocated allowance	$	260	$	419	$	670
Impaired loans without an allocated allowance		363		440		365
Total impaired loans	$	623	$	859	$	1,035
Allocated allowance on impaired loans	$	33	$	20	$	88
Portion of impaired loans on non-accrual		623		859		1,035
Average impaired loans		684		688		1,409
Income recognized on impaired loans		69		82		56

The following is a summary of the changes in the allowance for loan losses:

(Dollar amounts in thousands)
		Totals
Balance, January 1, 2006	$	4,864
Provision for loan losses		1,113
Charge offs		(1,022	)
Recoveries		158
Balance, December 31, 2006		5,113
Provision for loan losses		865
Charge offs		(841	)
Recoveries		277
Balance, December 31, 2007		5,414
Provision for loan losses		1,406
Charge offs		(996	)
Recoveries		182
Balance, December 31, 2008	$	6,006

FAS No. 114 does not apply to large groups of smaller balance homogenous loans that are collectively evaluated for impairment. The Company collectively reviews all residential real estate and consumer loans for impairment.

At December 31, 2008 and 2007, the Company conducted its business through 23 offices in Allegheny, Beaver, Butler and Lawrence counties, Pennsylvania which also serves as its primary lending area. Management does not believe it has significant concentrations of credit risk to any one group of borrowers given its underwriting and collateral requirements.

4. Investment Required by Regulation

The Company’s subsidiary bank is a member of the FHLB System. As a member, the Bank maintains an investment in the capital stock of the FHLB of Pittsburgh, at cost, in an amount not less than 1.0% of the unpaid principal balances of residential mortgage loans, 0.3% of total assets or approximately 5.0% of outstanding advances, if any due to the FHLB, whichever is greater, as calculated periodically by the FHLB. Purchases and redemptions of FHLB stock are made directly with the FHLB at par. The FHLB Bank of Pittsburgh has currently restricted future redemptions of its stock, therefore the investment could be greater than 5.0%.

ESB Financial Corporation 45 2008 Annual Report

Notes to Consolidated Financial Statements (continued)

5. Premises and Equipment

Premises and equipment at December 31 are summarized by major classification as follows:

(Dollar amounts in thousands)	2008		2007
Land	$	2,880	$	2,880
Buildings and improvements		16,285		15,925
Leasehold improvements		835		836
Furniture, fixtures and equipment		9,318		9,089
		29,318		28,730
Less accumulated depreciation and amortization		17,661		16,785
	$	11,657	$	11,945

Depreciation expense for the years December 31, 2008, 2007 and 2006 were $946,000, $1.0 million, and $1.0 million, respectively.

The Company is obligated under non-cancelable long term operating lease agreements for certain branch offices. These lease agreements, each having renewal options and none expiring later than 2010, have approximate aggregate rentals of $166,777, $108,590, $45,253, $45,253, $45,253 and $275,289 for the years ended December 31, 2009, 2010, 2011, 2012, 2013 and thereafter, respectively. Rent expense for the years ended December 31, 2008, 2007 and 2006 was $119,000, $131,000 and $169,000, respectively.

6. Deposits

The following table summarizes the Company’s deposits as of December 31:

(Dollar amounts in thousands)	2008			2007
Type of accounts	Amount		%	Amount		%
Noninterest-bearing deposits	$	65,726	7.5%	$	55,775	6.6%
NOW account deposits		105,235	12.0%		96,566	11.5%
Money Market deposits		26,876	3.0%		25,509	3.0%
Passbook account deposits		104,109	11.9%		98,460	11.7%
Time deposits		575,383	65.6%		566,544	67.2%
	$	877,329	100.0%	$	842,854	100.0%
Time deposits mature as follows:
Within one year	$	399,167	45.5%	$	438,957	52.1%
After one year through two years		90,832	10.3%		78,601	9.3%
After two years through three years		75,145	8.6%		41,979	5.0%
After three years through four years		2,364	0.3%		4,305	0.5%
After four years through five years		6,461	0.7%		1,491	0.2%
Thereafter		1,414	0.2%		1,211	0.1%
	$	575,383	65.6%	$	566,544	67.2%

The Company had a total of $179.5 million and $149.9 million in time deposits of $100,000 or more at December 31, 2008 and 2007, respectively.

ESB Financial Corporation 46 2008 Annual Report

Notes to Consolidated Financial Statements (continued)

6. Deposits (continued)

Interest expense by type of deposit account for the year ended December 31 is as follows:

(Dollar amounts in thousands)	2008		2007		2006
NOW account deposits	$	796	$	1,235	$	752
Money Market deposits		133		128		215
Passbook account deposits		421		417		503
Time deposits		21,058		25,926		21,882
	$	22,408	$	27,706	$	23,352

ESB Financial Corporation 47 2008 Annual Report

Notes to Consolidated Financial Statements (continued)

7. Borrowed Funds

Borrowed funds, which include FHLB advances, repurchase agreements, ESOP borrowings, corporate borrowings and treasury tax and loan notes payable, as of December 31 are summarized as follows:

(Dollar amounts in thousands)	2008			2007
	Weighted     average rate	Amount		Weighted     average rate	Amount
FHLB advances:
Due within 12 months	4.82%	$	249,750	4.40%	$	231,870
Due beyond 12 months but within 2 years	4.98%		165,000	5.15%		231,750
Due beyond 2 years but within 3 years	3.32%		51,866	4.98%		165,000
Due beyond 3 years but within 4 years	3.59%		10,000	-		-
Due beyond 4 years but within 5 years	3.83%		29,027	-		-
Due beyond 5 years	3.85%		20,041	1.00%		46
		$	525,684		$	628,666
Repurchase agreements:
Due within 12 months	4.55%	$	72,500	4.93%	$	97,000
Due beyond 12 months but within 2 years	5.02%		10,000	5.16%		50,000
Due beyond 2 years but within 3 years	3.56%		10,000	5.02%		10,000
Due beyond 3 years but within 4 years	3.74%		75,000	-		-
Due beyond 4 years but within 5 years	3.47%		90,000	-		-
Due beyond 5 years	4.38%		80,000	4.28%		25,000
		$	337,500		$	182,000
Other borrowings:
ESOP borrowings
Due within 12 months	5.25%	$	945	5.25%	$	945
Due beyond 12 months but within 2 years	5.25%		945	5.25%		945
Due beyond 2 years but within 3 years	-		-	5.25%		945
		$	1,890		$	2,835
Corporate borrowings
Due within 12 months	6.30%	$	1,400	5.55%	$	9,000
Due beyond 12 months but within 2 years	6.30%		1,400	-		-
Due beyond 2 years but within 3 years	6.30%		1,400	-		-
Due beyond 3 years but within 4 years	6.30%		1,400	-		-
Due beyond 4 years but within 5 years	6.30%		1,400	-		-
Due beyond 5 years	6.30%		7,000	-		-
		$	14,000		$	9,000
Treasury tax and loan note payable	-	$	203	4.00%	$	143
Borrowings for joint ventures	3.75%	$	7,231	7.75%	$	2,564
Junior subordinated notes
Due beyond 5 years	5.94%	$	46,393	6.65%	$	51,519

ESB Financial Corporation 48 2008 Annual Report

Notes to Consolidated Financial Statements (continued)

7. Borrowed Funds (continued)

Included in the $525.7 million of FHLB advances at December 31, 2008 is approximately $20.0 million of convertible select advances. These advances reset to the three month LIBOR index and have various spreads and call dates. At the reset date, if the three month LIBOR plus the spread is lower than the contract rate on the advance, the advance will remain at the contracted rate. The FHLB has the right to call these convertible select advances on the call date or quarterly thereafter. Also included in the $525.7 million of FHLB advances is $20.0 million in structured advances in which the rate is fixed for four years, and after four years on a specified date, the FHLB has the one time right (European Call) to call the advance. If the FHLB does not call these advances on the specified date, the rate remains the same for the remaining term. Should these advances be called, the Company has the right to pay off the advances without penalty.

Included in the $337.5 million of repurchase agreements (REPOs) are $60.0 million in structured REPOs with embedded caps at various strike rates based on the 3 month LIBOR rate. The terms and conditions of these structured REPOs are that the rate is fixed for three years and after 3 years, on a specified date the counterparty has the one time right (European Call) to call the REPO. If the counterparty does not call the REPO on the specified date, the rate remains the same for the remaining two years. These structured REPOs also include an embedded cap for the first three year period with a strike rate to the 3 month LIBOR rate. If during the first three years, the 3 month LIBOR rate exceeds the strike rate, the interest rate on the structured REPO is reduced by the difference between the rate and the strike rate. In addition, the Company has $25.0 million in structured REPOs with double, or $50.0 million notional amount of embedded caps, at a strike rate of 3.75% based on the 3 month LIBOR rate. The terms and conditions of these structured REPOs are that the rate is fixed for five years and after 5 years, on a specified date the counterparty has the one time right (European Call) to call the REPO. If the counterparty does not call the REPO on the specified date, the rate remains the same for the remaining five years. These structured REPOs also include a double embedded cap for the first five year period with a strike rate to the 3 month LIBOR rate. If during the first five years, the 3 month LIBOR rate exceeds the strike rate, the interest rate on the structured REPO is reduced by two times the difference between the rate and the strike rate. At no point shall the interest rate on these structured REPOs with embedded caps be less than zero.

Also included in the $337.5 million of REPOs is a $25.0 million structured REPO in which the Company pays a fixed rate of interest. After two years starting in April 2009 and every quarterly period thereafter, the counterparty has the right to terminate the transaction. Also included in the $337.5 million of REPOs are $30.0 million in structured REPOs in which the rate is fixed for four years, and after four years on a specified date, the counterparty has the one time right (European Call) to call the REPO. If the counterparty does not call the REPO on the specified date, the rate remains the same for the remaining term. It has historically been the Company’s position to pay off any borrowings and replace them with fixed rate funding if converted by the counterparty.

FHLB Advances are secured by FHLB stock, qualifying residential mortgage loans and mortgage-backed securities to the extent that the fair value of such pledged collateral must be at least equal to the advances outstanding. At December 31, 2008, the Company had a maximum borrowing capacity with the FHLB of $734.0 million, with $208.3 million available for use.

The Company enters into sales of securities under agreements to repurchase. Such repurchase agreements are treated as borrowed funds. The dollar amount of the securities underlying the agreements remain in their respective asset accounts.

Repurchase agreements are collateralized by various securities that are either held in safekeeping at the FHLB or delivered to the dealer who arranged the transaction, and the Company maintains control of these securities.

ESB Financial Corporation 49 2008 Annual Report

Notes to Consolidated Financial Statements (continued)

7. Borrowed Funds (continued)

The market value of such securities exceeded the amortized cost of the securities sold under agreements to repurchase. The market value of the securities as of December 31, 2008 was $399.6 million with an amortized cost of $388.7 million. The market value of the securities as of December 31, 2007 was $201.4 million with an amortized cost of $200.2 million. The average maturity date of the mortgage backed securities sold under agreements to repurchase was greater than 90 days for the year ended December 31, 2008 and 2007.

As of December 31, 2008, and 2007, the Company had repurchase agreements outstanding with Citigroup of $165.0 million and $182.0 million, respectively. As of December 31, 2008 the Company had repurchase agreements outstanding with Barclays, Credit Suisse and PNC of $70.0 million, $97.5 million and $5.0 million, respectively.

As of December 31, 2008, the Company had repurchase agreements with Citigroup with $25.3 million at risk with a weighted average maturity of 41 months, repurchase agreements with Barclays Capital with $13.8 million at risk with a weighted average maturity of 70 months, repurchase agreements with Credit Suisse with $21.6 million at risk with a weighted average maturity of 56 months and repurchase agreements with PNC with $1.4 million at risk with a weighted average maturity of 39 months.

Borrowings under repurchase agreements averaged $273.3 million, $188.3 million and $151.0 million during 2008, 2007 and 2006, respectively. The maximum amount outstanding at any month-end was $337.5 million, $202.0 million and $193.0 million during 2008, 2007 and 2006, respectively.

The Company, through ESB, has an agreement with the Federal Reserve Bank of Cleveland whereby ESB is an authorized treasury tax loan depository. Under the terms of the note agreement, funds deposited to the Company’s treasury tax and loan account (limited to $150,000 per deposit) accrue interest at a rate of .25% below the overnight federal funds rate.

On April 10, 2003, ESB Capital Trust II (Trust II), a statutory business trust established under Delaware law that is a subsidiary of the Company, issued $10.0 million variable rate preferred securities with a stated value and liquidation preference of $1,000 per share. The Company purchased $310,000 of common securities of Trust II. The preferred securities reset quarterly to equal the three month LIBOR index plus 3.25%. Trust II’s obligations under the preferred securities issued are fully and unconditionally guaranteed by the Company. The proceeds from the sale of the preferred securities and the common securities were utilized by the Trust II to invest in $10.3 million of variable rate subordinated debt of the Company. The subordinated debt is unsecured and ranks subordinate and junior in right of payment to all indebtedness, liabilities and obligations of the Company. The subordinated debt primarily represents the sole assets of the Trust II. Interest on the preferred securities is cumulative and payable quarterly in arrears. The Company has the right to optionally redeem the Subordinated Debt prior to the maturity date of April 24, 2033, on or after April 24, 2008, at the redemption price, plus accrued and unpaid distributions, if any, at the redemption date. Under the occurrence of certain events, specifically, a tax event, investment company event or capital treatment event as more fully defined in the Indenture dated April 10, 2003, the Company may redeem in whole, but not in part, the subordinated debt at any time within 90 days following the occurrence of such event. Proceeds from any redemption of the subordinated debt would cause a mandatory redemption of the preferred securities and the common securities having an aggregate liquidation amount equal to the principal amount of the subordinated debt redeemed. Unamortized deferred debt issuance costs associated with the preferred securities amounted to $0 and $15,000 at December 31, 2008 and December 31, 2007, respectively, and are amortized on a level yield basis. On July 23, 2008 the Company redeemed $5.0 million of the preferred securities of ESB Capital Trust II with proceeds from a $14.0 million loan with First

ESB Financial Corporation 50 2008 Annual Report

Notes to Consolidated Financial Statements (continued)

7. Borrowed Funds (continued)

Tennessee Bank National Association (“First Tennessee”), with a fixed interest rate of 6.30%. The remainder of the First Tennessee loan was used to repay an existing loan with First Tennessee with a remaining balance of $9.0 million, which had an interest rate of 5.55% and was due on December 31, 2008.

On December 17, 2003, ESB Statutory Trust (Trust III), a statutory business trust established under Delaware law that is a subsidiary of the Company, issued $5.0 million variable rate preferred securities with a stated value and liquidation preference of $1,000 per share. The Company purchased $155,000 of common securities of Trust III. The preferred securities reset quarterly to equal the three month LIBOR Index plus 2.95%. Trust III’s obligations under the preferred securities issued are fully and unconditionally guaranteed by the Company. The proceeds from the sale of the preferred securities and the common securities were utilized by Trust III to invest in $5.2 million of variable rate subordinated debt of the Company. The subordinated debt is unsecured and ranks subordinate and junior in right of payment to all indebtedness, liabilities and obligations of the Company. The subordinated debt primarily represents the sole assets of Trust III. Interest on the preferred securities is cumulative and payable quarterly in arrears. The Company has the right to optionally redeem the subordinated debt prior to the maturity date of December 17, 2033, on or after December 17, 2008, at the redemption price, plus accrued and unpaid distributions, if any, at the redemption date. Under the occurrence of certain events, specifically, a tax event, investment company event or capital treatment event as more fully defined in the Indenture dated December 17, 2003, the Company may redeem in whole, but not in part, the subordinated debt at any time within 90 days following the occurrence of such event. Proceeds from any redemption of the subordinated debt would cause a mandatory redemption of the preferred securities and the common securities having an aggregate liquidation amount equal to the principal amount of the subordinated debt redeemed. Unamortized deferred debt issuance costs associated with the preferred securities amounted to $0 and $13,750 at December 31, 2008 and December 31, 2007, respectively, and are amortized on a level yield basis.

On February 10, 2005, ESB Capital Trust IV (Trust IV), a statutory business trust established under Delaware law that is a subsidiary of the Company, issued $35.0 million fixed/variable rate preferred securities. The Company purchased $1.1 million of common securities of Trust IV. The preferred securities are fixed at a rate of 6.03% for six years and then are variable with a quarterly reset equal to the three month LIBOR index plus 1.82%. The preferred securities have a stated maturity of thirty years. Trust IV’s obligations under the preferred securities issued are fully and unconditionally guaranteed by the Company. The proceeds from the sale of the preferred securities and the common securities were utilized by Trust IV to invest in $36.1 million of fixed/variable rate subordinated debt of the Company. The subordinated debt is unsecured and ranks subordinate and junior in right of payment to all indebtedness, liabilities and obligations of the Company. The subordinated debt primarily represents the sole assets of Trust IV. Interest on the preferred securities is cumulative and payable quarterly in arrears. The Company has the right to optionally redeem the subordinated debt prior to the maturity date of February 10, 2035, on or after February 10, 2011, at the redemption price, which is equal to the liquidation amount, plus accrued and unpaid distributions, if any, at the redemption date. Under the occurrence of certain events, specifically, a tax event, investment company event or capital treatment event as more fully defined in the Indenture dated February 10, 2005, the Company may redeem in whole, but not in part, the subordinated debt at any time within 90 days following the occurrence of such event. Proceeds from any redemption of the subordinated debt would cause a mandatory redemption of the preferred securities and the common securities having an aggregate liquidation amount equal to the principal amount of the subordinated debt redeemed. The Company did not have any deferred debt issuance costs associated with the preferred securities.

ESB Financial Corporation 51 2008 Annual Report

Notes to Consolidated Financial Statements (continued)

8. Income Taxes

The provision for income taxes for the years ended December 31, is comprised of the following:

(Dollar amounts in thousands)	2008			2007			2006
Current expense:
Federal	$	2,559		$	1,738		$	1,815
State		(40	)		42			1
		2,519			1,780			1,816
Deferred benefit:
Federal		(971	)		(1,380	)		(499	)
	$	1,548		$	400		$	1,317

In addition to income taxes applicable to income before taxes in the consolidated statements of operations, the following income tax amounts were recorded to stockholders’ equity during the years ended December 31:

(Dollar amounts in thousands)	2008			2007			2006
Net gain on securities available for sale	$	(3,166	)	$	(3,099	)	$	(137	)
Net loss on interest rate cap contracts		-			-			32
Cumulative effect of change in accounting for post-retirement benefits		-			-			288
Compensation expense for tax purposes in excess of amounts recognized for financial statement purposes		20			97			45
	$	(3,146	)	$	(3,002	)	$	228

ESB Financial Corporation 52 2008 Annual Report

Notes to Consolidated Financial Statements (continued)

8. Income Taxes (continued)

The tax effects of temporary differences between the financial reporting basis and income tax basis of assets and liabilities that are included in the net deferred tax asset as of December 31 relate to the following:

(Dollar amounts in thousands)	2008		2007
Deferred tax assets:
Allowances for losses on loans and real estate owned	$	2,042	$	1,841
General business credit		1,999		1,961
Minimum tax credit carry forward		3,880		3,787
Writedown of debt		349		58
Real estate acquired through foreclosure, net		65		159
State net operating loss carryover		235		235
Defined benefit plans		326		352
Other		1,099		865
Gross deferred tax assets		9,995		9,258
Deferred tax liabilities:
Investment in securities available for sale		3,653		487
Accretion of discounts		27		15
Core deposit intangible		605		809
Purchase price adjustments		218		284
Mortgage servicing rights		2		4
Other		232		180
Gross deferred tax liabilities		4,737		1,779
Net deferred tax asset	$	5,258	$	7,479

As of December 31, 2008 and 2007, the Company determined that it was not required to establish a valuation allowance for deferred tax assets in accordance with FAS No. 109 Accounting for Income Taxes since it is more likely than not that the deferred tax asset will be realized through carry-back to taxable income in prior years, future reversals of existing taxable temporary differences and, to a lesser extent, future taxable income.

The general business credit of $2.0 million will be available to reduce future federal income tax up to the year 2028. The alternative minimum tax credit of $3.9 million is available to reduce future regular income taxes over an indefinite period.

The deferred tax assets relating to the federal and state net operating loss carryforwards were recorded as part of the purchase price allocation of the acquisition of PHSB Financial Corporation and its wholly owned subsidiary Peoples Home Savings Bank during 2005. The state net operating loss carryforward of $3.6 million expires in 2024. These net operating losses were generated by Peoples Home Savings Bank and PHSB Financial Corporation in their final tax returns.

ESB Financial Corporation 53 2008 Annual Report

Notes to Consolidated Financial Statements (continued)

8. Income Taxes (continued)

A reconciliation between the provision for income taxes and the amount computed by multiplying operating results before income taxes by the statutory federal income tax rate of 34% for the years ended December 31 is as follows:

	2008	2007	2006
Tax at statutory rate	34.0%	34.0%	34.0%
(Decrease) increase resulting from:
Tax free income, net of interest disallowance	(13.6%)	(20.0%)	(14.6%)
State income taxes, net of Federal income tax benefit	(0.2%)	0.3%	-
Earnings of BOLI	(3.3%)	(4.7%)	(2.9%)
Other, net	(3.7%)	(4.6%)	(5.5%)
Effective rate	13.2%	5.0%	11.0%

The Company and its subsidiaries file a consolidated federal income tax return. Prior to 1996, the Bank was permitted under the Internal Revenue Code to deduct an annual addition to a reserve for bad debts in determining taxable income, subject to certain limitations. Subsequent to 1995, the Bank’s bad debt deduction is based on actual net charge-offs. Bad debt deductions for income tax purposes are included in taxable income of later years only if the Bank’s base year bad debt reserve is used subsequently for purposes other than to absorb bad debt losses. Because the Bank does not intend to use the reserve for purposes other than to absorb losses, no deferred income taxes have been provided prior to 1987. Retained earnings at December 31, 2007 (the most recent date for which a tax return has been filed) include approximately $17.7 million, representing such bad debt deductions for which no deferred income taxes have been provided.

The Company adopted the provisions of FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement 109, effective January 1, 2007. FIN No. 48 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. FIN No. 48 also provides guidance on the accounting for and disclosure of unrecognized tax benefits, interest and penalties. Adoption of FIN No. 48 did not have a significant impact on the Company’s financial statements.

9. Employee Benefit Plans

Retirement Savings Plan

The Company has a defined contribution employee retirement plan for the benefit of substantially all employees. The plan provides for regular employer payments that match each participating employee’s contribution to their individual tax-deferred retirement account. Employees can contribute up to 100% of

ESB Financial Corporation 54 2008 Annual Report

Notes to Consolidated Financial Statements (continued)

9. Employee Benefit Plans (continued)

their compensation, less required deductions, to the plan, and the Company matches 100% of the first 1% and 50% of the remaining 2% through 6% of employee contributions in stock of the Company. The Company contributed $243,000, $248,000 and $239,000 to the plan during 2008, 2007 and 2006, respectively.

Employee Stock Ownership Plan

The Company has a tax qualified Employee Stock Ownership Plan (ESOP) for the benefit of its employees. Employees begin to participate in the plan January 1 of the year following their date of hire. Participants become 25% vested in their accounts after two years of service, 50% after three years of service, 75% after four years of service and 100% after five years of service or, if earlier, upon death, disability or attainment of normal retirement age.

The purchase of shares of the Company’s stock by the ESOP is funded by a loan. Unreleased ESOP shares collateralize the loan payable, and the cost of these shares is recorded as a contra-equity account in stockholders’ equity of the Company. The ESOP’s loan payable bears a weighted-average interest rate of 5.25% and matures within the next 3 years. Shares released as debt payments are made by the ESOP to the loan. The ESOP’s sources of repayment of the loans can include dividends, if any, on the unallocated stock held by the ESOP and discretionary contributions from the Company to the ESOP and earnings thereon.

Dividends received on unallocated ESOP shares during 2008, 2007 and 2006 amounted to $85,712, $119,697 and $155,207, respectively. All of the unallocated dividends were used for debt service on the loan. The Company contributed $1.1 million, $1.0 million and $1.0 million for the years ended December 31, 2008, 2007 and 2006, respectively. The ESOP incurred interest on the loan of $130,000, $180,000 and $230,000 for the years ended December 31, 2008, 2007 and 2006, respectively.

The Company accounts for the ESOP in accordance with, the American Institute of Certified Public Accountants issued Statement of Position (SOP) No. 93-6, “Employers’ Accounting for Employee Stock Ownership Plans”, which prescribes comprehensive accounting guidance for ESOPs. The major requirements of SOP No. 93-6 provide, among other provisions, that compensation is recognized under the shares released method and compensation expense is equal to the fair value of the shares committed to be released and unallocated ESOP shares are excluded from outstanding shares for purposes of computing EPS.

During 2008, 2007 and 2006, the Company recognized compensation expense related to the ESOP of $901,000, $915,000 and $1.0 million, respectively.

As of December 31, 2008 and 2007, the ESOP held a total of 1,632,179 and 1,604,618 shares, respectively, of the Company’s stock, and there were 152,687 and 234,809 unallocated shares, respectively, with a fair value of $1.6 million and $2.3 million, respectively. During 2008 and 2007, 82,122 and 85,914 shares were released for allocation, respectively.

Stock Option Plans

The Company maintains various stock option plans (Option Plans), which provide for the grant of stock options to directors, officers and other key employees. The Option Plans provide for the grant of both incentive stock options and compensatory stock options. Stock options are granted at an exercise price equal

ESB Financial Corporation 55 2008 Annual Report

Notes to Consolidated Financial Statements (continued)

9. Employee Benefit Plans (continued)

to the market price at the date of grant, the options vest over a specified time and are exercisable on the date they vest and have a maximum term of ten years. These terms are discretionary. Stock option activities under the Option Plans for the years ended December 31 are as follows:

	2008				2007				2006
	Options		Weighted Average Exercise Price/Share		Options		Weighted Average Exercise Price/Share		Options		Weighted Average Exercise Price/Share
Outstanding at beginning of year	948,150		$	10.21	945,104		$	9.89	921,401		$	9.55
Granted	91,030			10.30	95,150			10.11	95,345			10.75
Exercised	(51,285	)		6.82	(63,193	)		6.41	(46,949	)		6.35
Forfeited	(96,893	)		9.93	(28,911	)		7.61	(24,693	)		7.22
Outstanding at end of year	891,002			10.45	948,150			10.21	945,104			9.89
Exercisable at end of year	730,596		$	10.47	815,342		$	10.19	868,960		$	9.89

The weighted-average fair values of options granted during 2008, 2007 and 2006 utilizing the Black-Scholes Valuation Model were $2.78, $2.69 and $2.93, respectively.

The following table summarizes certain characteristics of issued stock options as of December 31, 2008:

Year Issued	Options     Outstanding	Exercise Price		Average Remaining Contractual Life (in years)
1999	91,407		7.37	0.5
2000	95,534		6.01	1.4
2001	81,759		7.83	2.9
2002	91,632		10.83	3.9
2003	80,310		15.35	4.9
2004	84,040		14.50	5.9
2005	78,300		12.20	6.3
2005	16,110		12.40	6.3
2006	89,730		10.75	7.9
2007	91,150		10.11	8.9
2008	91,030		10.30	9.9
	891,002	$	10.45	5.3

Management Recognition Plan

In connection with previous acquisitions, the Company acquired shares of stock held in trust for potential future distribution to management and key employees for compensation purposes. As of December 31, 2008, there were 12,105 shares held in the Management Recognition Plan (MRP) trust.

ESB Financial Corporation 56 2008 Annual Report

Notes to Consolidated Financial Statements (continued)

9. Employee Benefit Plans (continued)

In November 2001, the Company awarded 13,000 shares to eligible individuals, 2,600 shares vested on the date of the grant. The remaining 10,400 shares vested over a four year period ending in 2005. This grant was adjusted for two 20% stock splits that occurred on October 25, 2002 and May 15, 2003.

In May 2004, the Company awarded 31,450 shares to eligible individuals, 4,820 shares vested on the date of the grant, 17,255 shares subsequently vested and 1,780 shares have been forfeited and the remaining 11,155 shares will vest over a scheduled vesting period ending in 2011.

In May 2005, the Company awarded 700 shares to eligible individuals, 75 shares vested on the date of the grant, 225 shares subsequently vested and the remaining 400 shares will vest over a scheduled vesting period ending in 2011.

Compensation expense recognized in 2008, 2007 and 2006 was $37,000, $49,000 and $49,000, respectively. The Company is expected to recognize compensation expense of $35,000, $35,000 and $35,000 for the years 2009, 2010 and 2011, respectively.

The following is a summary of the changes in the stock for the MRP during the year ended December 31, 2008:

	Granted May 2004		Granted May 2005
	Shares		Shares
Nonvested restricted stock as of January 1, 2008	14,620		475
Granted	0		0
Vested	(4,145	)	(75	)
Forfeited	680		0
Nonvested restricted stock as of December 31, 2008	11,155		400

Excess Benefit Plan

The Company has adopted an excess benefit plan for the purpose of permitting an executive officer, and any other employees of the Company who may be designated pursuant to the plan, to receive certain benefits that the executive officer and any other employees of the Company otherwise would be eligible to receive under the Company’s retirement and profit sharing plan and ESOP but for the limitations set forth in Section 401(a)(17), 402(g) and 415 of the Internal Revenue Code of 1986, as amended (the “Code”). Pursuant to the excess benefit plan, during any plan year the Company shall make matching contributions on behalf of the participant in an amount equal to the amount of matching contributions that would have been made by the Company on behalf of the participant but for limitations in the Code, less the actual amount of matching contributions actually made by the Company on behalf of the participant. Finally, the excess benefit plan generally provides that during any plan year a participant shall receive a supplemental ESOP allocation in an amount equal to the amount which would have been allocated to the participant but for limitations in the Code, less the amount actually allocated to the participant pursuant to the ESOP. The supplemental benefits to be received by a participant pursuant to the excess benefit plan shall be credited to an account maintained pursuant to the plan within 180 days after the end of each plan year. In connection with its adoption of the excess benefit plan, the Company established a trust which currently holds 43,850 shares of common stock to fund its obligation under the excess benefit plan.

Supplemental Executive Retirement Plan and Directors’ Retirement Plan

The Company has adopted a Supplemental Executive Benefit Plan (SERP) in order to provide supplemental retirement and death benefits for certain key employees of the Company. Under the SERP, participants shall

ESB Financial Corporation 57 2008 Annual Report

Notes to Consolidated Financial Statements (continued)

9. Employee Benefit Plans (continued)

receive an annual retirement benefit following retirement at age 65 equal to 25% of the participant’s final average pay multiplied by a target retirement benefit percentage. Final average pay is based upon the participant’s last three year’s compensation and the target benefit percentage is equal to the fraction resulting from the participant’s years of credited service divided by 20, this targeted percentage is capped at 100%. Benefits under the plan are payable in ten equal annual payments and a lesser benefit is payable upon early retirement at age 50 with at least twelve years of service. If a participant dies prior to retirement, the participant’s estate will receive a lump sum payment equal to the net present value of future benefit payments under the plan. At December 31, 2008, the participants in the plan had credited service under the SERP ranging from 18 to 30 years.

The Company and the Bank have adopted the ESB Financial Corporation Directors’ Retirement Plan and entered into director retirement agreements with each director of the Company and the Bank. The plan provides that any retiring director with a minimum of five or more years of service with the Company or the Bank and a minimum of 10 total years of service, including years of service with any bank acquired by the Company or the Bank, that remains in continuous service as a board member until age 75 will be entitled to receive an annual retirement benefit equal to his or her director’s fees earned during the last full calendar year prior to his or her retirement date, multiplied by a ratio, ranging from 25% to 80%, based on the director’s total years of service. The maximum ratio of 80% of fees requires 20 or more years of service and the minimum ratio of 25% of fees requires 10 years of service. Retirement benefits may also be payable under the plan if a director retires from service as a director prior to attaining age 75. Two directors are currently receiving monthly benefits under the plan.

The following table sets forth the obligation and funded status as of December 31:

(Dollar amounts in thousands)	Directors’ Retirement Plan						SERP
	December 31,						December 31,
	2008			2007			2008			2007
Change in benefit obligation
Benefit obligation at beginning of year	$	803		$	577		$	1,781		$	1,541
Service Cost		34			7			48			51
Interest Cost		45			33			102			96
Amendments		22			226			-			-
Actuarial losses (gains)		(4	)		(11	)		60			93
Benefits paid		(35	)		(29	)		(45	)		-
Benefit obligation at end of year		865			803			1,946			1,781
Change in plan assets
Fair value of plan assets at beginning of year		-			-			-			-
Employer contributions		35			29			45			-
Benefits paid		(35	)		(29	)		(45	)		-
Fair value of plan assets at end of year		-			-			-			-
Funded Status	$	(865	)	$	(803	)	$	(1,946	)	$	(1,781	)
Amounts recognized in accumulated other comprehensive income consist of:
Net loss	$	23		$	12		$	199		$	176
Prior service cost		194			251			217			244
Total	$	217		$	263		$	416		$	420

ESB Financial Corporation 58 2008 Annual Report

Notes to Consolidated Financial Statements (continued)

9. Employee Benefit Plans (continued)

The accumulated benefit obligation for the directors’ retirement plan was $818 and $753 at December 31, 2008 and 2007, respectively and for the SERP was $1.7 million and $1.5 million at December 31, 2008 and 2007, respectively. Information for pension plans with an accumulated benefit obligation in excess of plan assets at December 31 is as follows:

(Dollar amounts in thousands)	Directors’ Retirement Plan				SERP
	December 31,				December 31,
	2008		2007		2008		2007
Projected benefit obligation	$	865	$	803	$	1,946	$	1,781
Accumulated benefit obligation		818		753		1,678		1,518
Fair value of plan assets		-		-		-		-

(Dollar amounts in thousands)	Directors’ Retirement Plan						SERP
	December 31,						December 31,
	2008		2007		2006		2008		2007		2006
Net Periodic Pension Cost
Service cost	$	34	$	7	$	12	$	48	$	51	$	56
Interest cost		45		33		31		102		96		97
Amortization of transition obligation		-		-		-		65		58		74
Amortization of prior service cost		87		63		63		-		-		-
Net periodic pension cost	$	166	$	103	$	106	$	215	$	205	$	227

The estimated net loss and prior service cost for the SERP and directors’ retirement plan plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year are $44,691 and $86,945, respectively.

The weighted average assumptions used to determine benefit obligations and net periodic pension cost at the measurement dates were as follows:

	Directors’ Retirement Plan		SERP
	2008	2007	2008	2007
Discount rate	5.50%	6.00%	5.50%	6.00%
Rate of compensation increase	n/a	n/a	4.00%	4.00%

The long-term rate of return on plan assets gives consideration to returns currently being earned on plan assets, as well as future rates expected to be earned.

The Company expects to contribute $64,111 to the directors’ retirement plan in 2009.

At December 31, 2008 the projected benefit payments for the directors’ retirement plan were $64,111, $87,651, $113,248, $112,952, $111,478 and $330,443 for years 2009, 2010, 2011, 2012, 2013 and thereafter, respectively. At December 31, 2008, the projected benefit payments for the SERP were $85,000, $85,000, $85,000, $85,000, $85,000 and $3.0 million for years 2009, 2010, 2011, 2012, 2013 and thereafter. The projected payments were calculated using the same assumptions as those used to calculate the benefit obligations listed above.

ESB Financial Corporation 59 2008 Annual Report

Notes to Consolidated Financial Statements (continued)

10. Other Comprehensive Income (loss)

In complying with FAS No. 130, “Reporting Comprehensive Income”, the Company has developed the following table which includes the tax effects of the components of other comprehensive (loss) income. Other comprehensive (loss) income consists of net unrealized gain (loss) on securities available for sale and the net fair value adjustment on derivatives. Other comprehensive income and related tax effects for the years ended December 31 consists of:

(Dollar amounts in thousands)	2008			2007			2006
Net Income:	$	10,215		$	7,661		$	10,616
Other Comprehensive income (loss) - net of tax (benefit) expense
Fair value adjustment on securities available for sale, net of tax expense of $2,875 in 2008, $3,302 in 2007 and $368 in 2006		5,581			6,409			715
Securities losses (gains) reclassified into earnings, net of tax benefit (expense) of $291 in 2008, ($202) in 2007 and ($163) in 2006		565			(392	)		(317	)
Pension and postretirement amortization, net of tax expense of $52 in 2008 and $41 in 2007		101			80			-
Adjustment to minimum pension liability of the SERP plan, net of tax (benefit) expense of ($26) in 2008, ($105) in 2007 and $43 in 2006		(52	)		(203	)		84
Fair value adjustment on derivatives, net of tax (benefit) of ($195) in 2007 and ($32) in 2006		-			(378	)		(63	)
Other Comprehensive income		6,195			5,516			419
Comprehensive income	$	16,410		$	13,177			$        11,035

11. Commitments and Contingencies

In the ordinary course of business, the Company has various outstanding commitments and contingent liabilities that are not reflected in the accompanying consolidated financial statements. In addition, the Company is involved in certain claims and legal actions arising in the ordinary course of business. The outcome of these claims and actions are not presently determinable; however, in the opinion of the Company’s management, after consulting legal counsel, the ultimate disposition of these matters will not have a material adverse effect on the Company’s financial position. The following table presents the notional amount of the Company’s off-balance sheet financial instruments as of December 31:

(Dollar amounts in thousands)	2008		2007
Loans in process and commitments:
Fixed interest rate	$	12,802	$	12,180
Variable interest rate		25,677		27,040
Lines of credit (unfunded):
Commercial		29,158		23,912
Consumer		47,251		45,352
Letters of credit:
Standby		6,592		13,240
Interest Rate Cap Contracts		40,000		-

ESB Financial Corporation 60 2008 Annual Report

Notes to Consolidated Financial Statements (continued)

11. Commitments and Contingencies (continued)

Commitments to extend credit involve, to a varying degree, elements of credit and interest rate risk in excess of amounts recognized in the consolidated statement of financial condition. The Company’s exposure to credit loss in the event of non-performance by the other party for commitments to extend credit is represented by the contractual amount of these commitments, less any collateral value obtained. The Company uses the same credit policies in making commitments as for on-balance sheet instruments. The Company’s distribution of commitments to extend credit approximates the distribution of loans receivable outstanding. The fair value of the off balance sheet items approximated the carrying value of those items at those dates.

12. Fair Value

Effective January 1, 2008, the Company adopted FAS No. 157 Fair Value Measurement, which, among other things, requires enhanced disclosures about assets and liabilities carried at fair value. FAS No. 157 establishes a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring assets and liabilities at fair value. The three broad levels defined by FAS No. 157 hierarchy are as follows:

Level I:	Quoted prices are available in the active markets for identical assets or liabilities as of the reported date.
Level II:	Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed.
Level III:	Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

The following table presents the assets and liabilities reported on the consolidated statements of financial condition at their fair value on a recurring basis as of December 31, 2008 by level within the fair value hierarchy. As required by FAS No. 157, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

(Dollar amounts in thousands)	December 31, 2008
	Level I		Level II		Level III		Total
Assets:
Securities available for sale	$	706	$	1,057,889	$	38,211	$	1,096,806
Interest Rate Caps	$	-	$	157	$	-	$	157

Securities available for sale: With the exception of floating rate trust preferred securities, fair values for securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges or matrix pricing, which is a mathematical technique which is widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities.

ESB Financial Corporation 61 2008 Annual Report

Notes to Consolidated Financial Statements (continued)

12. Fair Value (continued)

Due to recent uncertainties in the credit markets broadly, and the lack of both trading and new issuance of floating rate trust preferred securities, market price indications generally reflect the lack of liquidity in these markets. Due to this lack of practical quoted prices, fair value for floating rate trust preferred securities has been determined using a discounted cash-flow technique. Cash flows are estimated based upon the contractual terms of each instrument. Market rates have been calculated based upon the five year historical discount margin for these instruments from August 2002 through August 2007, when the market was more liquid. These market rates were then adjusted for credit spreads and liquidity risk given the current markets. Credit spreads are based upon the Moody’s rating for each bond and range from 25 to 125 basis points. Liquidity risk adjustments ranged from 50 to 100 basis points where the securities of the 15 largest banks in the United States are assigned 50 basis points. Approximately $18.6 million or 48.5% of the $38.2 million in floating rate trust preferred securities represent investments in three of the four largest banks in the United States.

Interest Rate Caps: Fair values of interest rate cap contracts are based on dealer quotes. The following table presents the changes in the Level III fair-value category for the year ended December 31, 2008. The Company classifies financial instruments in Level III of the fair-value hierarchy when there is reliance on at least one significant unobservable input to the valuation model. In addition to these unobservable inputs, the valuation models for Level III financial instruments typically also rely on a number of inputs that are readily observable either directly or indirectly.

Fair Value Measurements Using Significant Unobservable Inputs (Level III)

(Dollar amounts in thousands)	Securities available for sale
Beginning Balance January 1, 2008	$	-
Total net realized/unrealized gains (losses)
Included in earnings:
Interest income on securities		3
Net realized loss on securities available for sale		(553)
Included in other comprehensive income		(348)
Transfers in and/or out of Level III		39,109
Purchases, issuances and settlements		-
Ending Balance, December 31, 2008	$	38,211

The following table summarizes changes in unrealized gains and losses recorded in earnings for the year ended December 31, 2008, for Level III assets and liabilities that are still held at December 31, 2008.

(Dollar amounts in thousands)	Securities available for sale
Interest income on securities	$	3
Net realized loss on securities available for sale		(553)
	$	(550)

ESB Financial Corporation 62 2008 Annual Report

Notes to Consolidated Financial Statements (continued)

12. Fair Value (continued)

The following table presents the assets and liabilities reported on the consolidated statements of financial condition at their fair value on a non-recurring basis as of December 31, 2008 by level within the fair value hierarchy. As required by SFAS No. 157, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

(Dollar amounts in thousands)	December 31, 2008
	Level I		Level II		Level III		Total
Assets:
Impaired loans	$	-	$	-	$	590	$	590

Impaired Loans: Fair values of impaired loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

13. Financial Instruments

In the ordinary course of business, the Company has entered into off-balance sheet financial instruments, consisting of commitments to extend credit, commitments under line of credit lending arrangements and letters of credit. Such financial instruments are recorded in the financial statements when they are funded or related fees are received.

The following methods and assumptions were used in estimating fair values of financial instruments.

Cash and cash equivalents – The carrying amounts of cash equivalents approximate their fair values.

Securities – With the exception of floating rate trust preferred securities, fair values for securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges or matrix pricing, which is a mathematical technique which is widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities.

Loans receivable – Fair values for loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair values of impaired loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

Loan commitments – The fair value of loan commitments at December 31, 2008 and 2007 approximated the carrying value of those commitments at those dates.

Accrued interest receivable and payable – The carrying amounts of accrued interest approximate their fair values.

FHLB stock – FHLB stock is restricted for trading purposes, and thus, the carrying value approximates fair value.

Bank owned life insurance (BOLI) – The fair value of BOLI at December 31, 2008 and 2007 approximated the cash surrender value of the policies at those dates.

Interest rate cap contracts – Fair values of interest rate cap contracts are based on dealer quotes.

Deposits – The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date. Fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies current market interest rates to a schedule of aggregated expected monthly maturities.

Borrowed funds and subordinated debt – For variable rate borrowings, fair values are based on carrying values. For fixed rate borrowings, fair values are based on the discounted value of contractual cash flows and on the Company’s current incremental borrowing rates for similar types of borrowing arrangements. Fair values of structured borrowings are based on dealer quotes.

ESB Financial Corporation 63 2008 Annual Report

Notes to Consolidated Financial Statements (continued)

13. Financial Instruments (continued)

Advance payments by borrowers for taxes and insurance – The fair value of the advance payments by borrowers for taxes and insurance approximated the carrying value of those commitments at those dates.

The following table sets forth the carrying amount and fair value of the Company’s financial instruments included in the consolidated statement of financial condition as of December 31:

(Dollar amounts in thousands)	2008				2007
	Carrying amount		Fair value		Carrying amount		Fair value
Financial assets:
Cash and cash equivalents	$	18,893	$	18,893	$	19,258	$	19,258
Securities		1,096,806		1,096,806		1,059,972		1,059,972
Loans receivable and held for sale		691,315		711,324		624,251		630,400
Accrued interest receivable		10,052		10,052		9,639		9,639
FHLB stock		27,470		27,470		31,450		31,450
Bank owned life insurance		28,481		28,481		27,998		27,998
Interest rate cap contracts		157		157		-		-
Financial liabilities:
Deposits		877,329		886,647		842,854		848,216
Borrowed funds		886,508		925,396		825,208		834,013
Junior subordinated notes		46,393		66,402		51,519		50,045
Advance payment by borrowers for taxes and insurance		2,816		2,816		2,579		2,579
Accrued interest payable		5,119		5,119		5,168		5,168

14. Regulatory Matters and Insurance of Accounts

The Company’s subsidiary bank, ESB Bank, is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements could result in certain mandatory—and possibly additional discretionary – actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and their related classification for the Bank are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy requires the Bank to maintain minimum amounts and ratios (set forth in the table below) of total capital (as defined in the regulations), tier 1 leverage capital (as defined) and tier 1 risk-based capital (as defined). As of December 31, 2008, the Bank meets all capital adequacy requirements to which it is subject.

As of December 31, 2008 and 2007 the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total, tier 1 leverage and tier 1 risk-based capital ratios as set forth in the following table. As of December 31, 2008, there are no conditions or events since that notification that have changed the categorization.

Tier 1 leverage capital level in the following table is presented as a percentage of total adjusted assets (as defined in the regulations); total capital and tier 1 risk based capital levels are shown as a percentage of risk-weighted assets (as defined).

ESB Financial Corporation 64 2008 Annual Report

Notes to Consolidated Financial Statements (continued)

14. Regulatory Matters and Insurance of Accounts (continued)

The minimum required regulatory capital percentages to be well capitalized under prompt corrective action provisions is 5%, 6% and 10% for tier 1 leverage, tier I risk-based and total capital ratios, respectively.

Congress has temporarily increased FDIC deposit insurance from $100,000 to $250,000 per depositor through December 31, 2009. Prior to the increase, the FDIC through the Deposit Insurance Fund insured deposits of account holders up to $100,000 per insured depositor. To provide for this insurance, the Bank must pay an annual premium.

The following table sets forth certain information concerning regulatory capital of the Bank:

(Dollar amounts in thousands)	Actual			For Capital Adequacy Purposes:			To Be Well Capitalized Under Prompt Corrective Action Provisions:
	Amount		Ratio	Amount		Ratio	Amount		Ratio
As of December 31, 2008:
Total Capital	$	141,208	14.87%	$	75,955	8.00%	$	94,944	10.00%
(to Risk Weighted Assets)
Tier 1 Leverage Capital	$	135,202	7.19%	$	75,222	4.00%	$	94,028	5.00%
(to Adjusted Tangible Assets)
Tier 1 Risk Based Capital	$	135,202	14.24%	$	37,978	4.00%	$	56,966	6.00%
(to Risk Weighted Assets)
As of December 31, 2007:
Total Capital	$	138,612	15.60%	$	71,082	8.00%	$	88,853	10.00%
(to Risk Weighted Assets)
Tier 1 Leverage Capital	$	133,195	7.33%	$	72,699	4.00%	$	90,874	5.00%
(to Adjusted Tangible Assets)
Tier 1 Risk Based Capital	$	133,195	14.99%	$	35,541	4.00%	$	53,312	6.00%
(to Risk Weighted Assets)

ESB Financial Corporation 65 2008 Annual Report

Notes to Consolidated Financial Statements (continued)

15. Quarterly Financial Data (unaudited)

Quarterly earnings per share data may vary from annual earnings due to rounding.

(Dollar amounts in thousands, except share data)	First     Quarter		Second     Quarter			Third     Quarter		Fourth     Quarter
2008:
Interest income	$	24,011	$	23,662		$	24,135	$	24,450
Interest expense		17,244		16,047			15,914		15,910
Net interest income		6,767		7,615			8,221		8,540
Provision for loan losses		221		290			409		486
Net interest income after provision for loan losses		6,546		7,325			7,812		8,054
Net realized loss on securities available for sale		-		-			-		(856	)
Other noninterest income		1,326		2,512			1,531		764
Noninterest expense		5,779		5,899			5,628		5,945
Income before income taxes		2,093		3,938			3,715		2,017
Provision for income taxes		138		777			591		42
Net income	$	1,955	$	3,161		$	3,124	$	1,975
Net income per share
Basic	$	0.16	$	0.26		$	0.26	$	0.16
Diluted	$	0.16	$	0.26		$	0.26	$	0.16
2007:
Interest income	$	24,314	$	24,271		$	24,552	$	24,447
Interest expense		17,764		17,952			18,437		18,448
Net interest income		6,550		6,319			6,115		5,999
Provision for loan losses		326		185			156		198
Net interest income after provision for loan losses		6,224		6,134			5,959		5,801
Net realized (loss) gain on securities available for sale		-		(2	)		28		(122	)
Other noninterest income		1,816		1,944			2,055		1,497
Noninterest expense		5,998		5,918			5,895		5,462
Income before income taxes		2,042		2,158			2,147		1,714
Provision for income taxes		109		148			116		27
Net income	$	1,933	$	2,010		$	2,031	$	1,687
Net income per share
Basic	$	0.15	$	0.16		$	0.16	$	0.14
Diluted	$	0.15	$	0.16		$	0.16	$	0.14

ESB Financial Corporation 66 2008 Annual Report

Notes to Consolidated Financial Statements (continued)

16. ESB Financial Corporation – Condensed Financial Statements (Parent Company Only)

Following are condensed financial statements for the parent company as of and for the years ended December 31:

Condensed Statements of Financial Condition
(Dollar amounts in thousands)				2008			2007
Assets:
Interest-earning deposits				$	1,812		$	647
Securities available for sale					3,062			2,204
Equity in net assets of subsidiaries					200,531			199,373
Other assets					5,117			5,418
Total assets				$	210,522		$	207,642
Liabilities and stockholders’ equity:
Subordinated debt, net				$	46,393		$	51,519
Payable to subsidiaries					4,150			9,250
Accrued expenses and other liabilities					17,595			14,028
Stockholders’ equity					142,384			132,845
Total liabilities and stockholders’ equity				$	210,522		$	207,642
Condensed Statements of Operations
(Dollar amounts in thousands)	2008			2007			2006
Income:
Equity in undistributed net income of subsidiaries	$	(3,407	)	$	1,553		$	5,935
Dividends from subsidiaries		16,500			9,000			7,500
Management fee income, from subsidiaries		24			24			24
Net realized (loss) gain on sale of securities available for sale		(303	)		274			47
Interest and other income		175			266			306
Total income		12,989			11,117			13,812
Expense:
Interest expense, to subsidiary		4,017			4,787			4,975
Compensation and employee benefits		243			181			70
Other		335			140			162
Total expense		4,595			5,108			5,207
Income before benefit from income taxes		8,394			6,009			8,605
Benefit from income taxes		(1,821	)		(1,652	)		(2,011	)
Net income	$	10,215		$	7,661		$	10,616

ESB Financial Corporation 67 2008 Annual Report

Notes to Consolidated Financial Statements (continued)

16. ESB Financial Corporation – Condensed Financial Statements (Parent Company Only) (continued)

Condensed Statements of Cash Flows
(In thousands)	2008			2007			2006
Operating activities:
Net income	$	10,215		$	7,661		$	10,616
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed net income of subsidiaries		3,407			(1,553	)		(5,935	)
Net realized loss (gain) on securities available for sale		303			(274	)		(47	)
Compensation expense on ESOP/MRP		861			965			1,084
Other, net		(549	)		5,059			3,278
Net cash provided by operating activities		14,237			11,858			8,996
Investing activities:
Purchases of securities		(184	)		(206	)		-
Principal repayments of securities		388			446			513
Proceeds from the sale of securities available for sale		-			1,241			-
Net cash provided by investing activities		204			1,481			513
Financing activities:
(Decrease) increase in loan to subsidiaries		(5,100	)		(3,500	)		750
Amortization of deferred debt issuance costs		29			75			75
Redemption of junior subordinated notes		(5,155	)		-			-
Proceeds from long term borrowings		5,000			-			-
Proceeds received from exercise of stock options		286			386			222
Dividends paid		(4,926	)		(5,097	)		(5,236	)
Payments to acquire treasury stock		(3,410	)		(5,374	)		(5,311	)
Net cash used in financing activities		(13,276	)		(13,510	)		(9,500	)
Increase (decrease) in cash equivalents		1,165			(171	)		9
Cash equivalents at beginning of period		647			818			809
Cash equivalents at end of period	$	1,812		$	647		$	818

ESB Financial Corporation 68 2008 Annual Report

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

ESB Financial Corporation

We have audited ESB Financial Corporation and subsidiaries’ internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. ESB Financial Corporation management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report on Management’s Assessment of Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, ESB Financial Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Audit Report of ESB Financial Corporation and our report dated March 9, 2009, expressed an unqualified opinion.

Wexford, Pennsylvania

March 9, 2009

ESB Financial Corporation 69 2008 Annual Report

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

ESB Financial Corporation

We have audited the consolidated statements of financial condition of ESB Financial Corporation (the “Company”) and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of operation, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2008. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of ESB Financial Corporation and subsidiaries as of December 31, 2008 and 2007, and the consolidated results of their operations and cash flows for each of the years in the three-year period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), ESB Financial Corporation and subsidiaries’ Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 9, 2009, expressed an unqualified opinion on the effectiveness of ESB Financial Corporation’s internal control over financial reporting.

As discussed in Note 13 to the consolidated financial statements, effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements.

Wexford, Pennsylvania

March 9, 2009

ESB Financial Corporation 70 2008 Annual Report

Management’s Reports to ESB Financial Corporation Shareholders

Management’s Report on Financial Statements and Practices

ESB Financial Corporation is responsible for the preparation, integrity, and fair presentation of the consolidated financial statements included in this annual report. The consolidated financial statements and notes included in this annual report have been prepared in conformity with United States generally accepted accounting principles and necessarily include some amounts that are based on management’s best estimates and judgments.

The system of internal control over financial reporting as it relates to the financial statements is evaluated for effectiveness by management and tested for reliability through a program of internal audits. Actions are taken to correct potential deficiencies as they are identified. Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that a control could be circumvented or overridden and misstatements due to error or fraud may occur and not be detected. Also, because of changes in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation.

The Audit Committee, consisting entirely of independent directors, meets regularly with management, internal auditors and the independent registered public accounting firm, and reviews audit plans and results, as well as management’s actions taken in discharging responsibilities for accounting, financial reporting, and internal control. S.R. Snodgrass, independent registered public accounting firm, and the internal auditors have direct and confidential access to the Audit Committee at all times to discuss the results of their examinations.

Report on Management’s Assessment of Internal Control Over Financial Reporting

We, as management of ESB Financial Corporation, are responsible for establishing and maintaining effective internal control over financial reporting that is designed to produce reliable financial statements in conformity with United States generally accepted accounting principles. Management assessed the Corporation’s system of internal control over financial reporting as of December 31, 2008, in relation to criteria for effective internal control over financial reporting as described in “Internal Control – Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concludes that, as of December 31, 2008, its system of internal control over financial reporting is effective and meets the criteria of the “Internal Control – Integrated Framework”. S.R. Snodgrass, independent registered public accounting firm, has issued an attestation report on management’s assessment of the Corporation’s internal control over financial reporting.

Charlotte A. Zuschlag

President and Chief Executive Officer

Charles P. Evanoski

Group Senior Vice President and Chief Financial Officer

March 9, 2009

ESB Financial Corporation 71 2008 Annual Report

Stock and Dividend Information

Listings and Markets

ESB Financial Corporation common stock is traded on the NASDAQ Global Select Stock Market under the symbol “ESBF”. Some of the listed market makers for the Company’s common stock include:

Janney Montgomery Scott LLC	Keefe, Bruyette & Woods, Inc.
60 State Street, 35th Floor	787 7th Avenue, 4th Flr
Boston, MA 02109	New York, NY 10019
Telephone: (617) 557-2984	Telephone: (800) 966-1559
Stifel Nicolaus & Co., Inc.	UBS Financial Services
18 Columbia Turnpike	One North Wacker Drive, 35th Flr
Florham Park NJ 07932	Chicago, IL 60606
Telephone: (800) 342-2325	Telephone: (800) 525-4313

Number of Stockholders and Shares Outstanding

As of December 31, 2008, there were 2,692 registered stockholders of record and 12,123,626 shares of common stock outstanding entitled to vote, receive dividends and considered outstanding for financial reporting purposes. The number of stockholders of record does not include the number of persons or entities who hold their stock in nominee or “street” name.

Dividend Reinvestment Plan

Common stockholders may have cash dividends reinvested to purchase additional shares. Participants may also make optional cash purchases of common stock through the reinvestment plan and pay no brokerage commissions or fees. To obtain a plan prospectus and authorization card call (800) 368-5948.

Registrar and Transfer Agent

Registrar and Transfer Company

10 Commerce Drive

Cranford, NJ 07016

Cash Dividends

The Company has paid regular quarterly cash dividends since its inception in June 1990. During the past two years ended December 31, 2007, the Company declared cash dividends with the following record and payment dates:

Record Date	Payment Date	Cash Dividends per Share
December 31, 2008	January 23, 2009	$0.10
September 30, 2008	October 24, 2008	$0.10
June 30, 2008	July 25, 2008	$0.10
March 31, 2008	April 25, 2008	$0.10
December 31, 2007	January 25, 2008	$0.10
September 28, 2007	October 25, 2007	$0.10
June 29, 2007	July 25, 2007	$0.10
March 30, 2007	April 25, 2007	$0.10

ESB Financial Corporation 72 2008 Annual Report

Stock and Dividend Information (continued)

Stock Splits and Dividends

The Company has declared the following stock splits or dividends since its inception:

Record Date	Payment Date	Percentage Issued
May 1, 2003	May 15, 2003	20%
September 30, 2002	October 25, 2002	20%
May 18, 2001	May 30, 2001	20%
May 17, 2000	May 31, 2000	10%
May 15, 1998	May 29, 1998	10%
July 31, 1997	August 25, 1997	10%
December 31, 1994	January 25, 1995	20%
December 31, 1993	January 25, 1994	20%
May 12, 1993	June 7, 1993	20%
December 31, 1992	January 25, 1993	20%
June 30, 1992	July 25, 1992	20%
December 31, 1991	January 25, 1992	20%

Stock Price Information

The bid and ask price of the Company’s common stock were $10.90 and $10.24, respectively, as of January 30, 2009.

The following table sets forth the high and low sale market prices of the Company’s common stock as of and during the quarterly periods presented:

	Market Price
	High		Low		Close
2008 Quarter Ended
December 31	$	10.95	$	7.28	$	10.74
September 30		10.97		8.50		9.40
June 30		11.31		9.33		9.73
March 31		10.42		9.30		9.92
2007 Quarter Ended
December 31	$	10.78	$	9.90	$	10.00
September 30		11.10		9.57		10.60
June 30		11.31		10.60		11.03
March 31		11.50		10.65		10.88

ESB Financial Corporation 73 2008 Annual Report

Stock and Dividend Information (continued)

Performance Graph

The following graph compared the yearly cumulative total return on the common stock over a five-year measurement period with the yearly cumulative total return on the stocks included in (i) the NASDAQ – Total US companies and (ii) the SNL Securities All Banks and Thrifts Index. All of these cumulative returns are computed assuming the reinvestment of dividends at the frequency with which dividends were paid during the applicable year.

Performance Graph provided by SNL Financial.

ESB Financial Corporation 74 2008 Annual Report

Corporate Information

Annual Meeting

The annual meeting of the Company’s stockholders will be held at 4:00 p.m., on Wednesday, April 22, 2009, at the Connoquenessing Country Club, 1512 Mercer Road, Ellwood City, PA 16117.

Stockholder and Investor Information

Copies of annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and related stockholder literature are available upon written request without charge to stockholders. Requests should be addressed to Frank D. Martz, Group Senior Vice President of Operations and Corporate Secretary, ESB Financial Corporation, 600 Lawrence Avenue, Ellwood City, PA 16117.

We make available on our website www.esbbank.com, our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, on the date which we electronically file these reports with the Securities and Exchange Commission, as well as our code of ethics. Investors are encouraged to access these reports and the other information about our business and operations on our web site.

Equal Employment Opportunity

ESB Financial Corporation has adopted an affirmative action program to assure equal opportunity for every employee and hires, trains, promotes, compensates and makes all other employment decisions without regard to race, color, religion, sex, age, national origin, disability or veteran status.

Corporate Headquarters

ESB Financial Corporation

600 Lawrence Avenue

Ellwood City, PA 16117

Phone: (724) 758-5584

Subsidiary Companies

ESB Bank	PennFirst Financial Services, Inc.
ESB Financial Services, Inc.	ESB Capital Trust II
AMSCO, Inc.	ESB Statutory Trust III
AMS Ventures, LLC	ESB Capital Trust IV
Madison Woods Joint Venture	THF, Inc d/b/a Elite Settlement Services
The Links at Deer Run Associates, LLC
McCormick Farms, LLC
Brandy One, LLC
The Vineyards at Brandywine, LP
Cobblestone Village, LP
The Meadows at Hampton, LP
Springfield Partners, LP
BelleVue Park
MW 42

Independent Registered Public Accounting Firm	Special Counsel
S.R. Snodgrass, A.C.	Elias, Matz, Tiernan & Herrick L.L.P.
2100 Corporate Drive, Suite 400	734 15th Street, NW
Wexford, PA 15090	Washington, DC 20005

ESB Financial Corporation 75 2008 Annual Report

Board of Directors

ESB FINANCIAL CORPORATION

William B. Salsgiver	Mario J. Manna
Chairman of the Board	Retired Tax Collector - Borough of Coraopolis
A Principal - Perry Homes
Herbert S. Skuba	Lloyd L. Kildoo
Vice Chairman of the Board	Supervisor & Funeral Director - Glenn-Kildoo Funeral Homes
Retired Director, President & CEO - Ellwood City Hospital
Charlotte A. Zuschlag	James P. Wetzel, Jr.
President & Chief Executive Officer	Retired President & CEO - PHSB Financial Corporation

ESB BANK

William B. Salsgiver	Lloyd L. Kildoo
Chairman of the Board	Supervisor & Funeral Director - Glenn-Kildoo Funeral Homes
A Principal - Perry Homes
Herbert S. Skuba	Mario J. Manna
Vice Chairman of the Board	Retired Tax Collector - Borough of Coraopolis
Retired Director, President & CEO - Ellwood City Hospital
Charlotte A. Zuschlag	Joseph W. Snyder
President & Chief Executive Officer	Sourcing Agent - Equitable Resources, Inc.
Raymond K. Aiken	Jefrey F. Wall
Retired President & COO - Lockhart Chemical Co.	Business Manager - Rochester Area School District
Joseph D. Belas	James P. Wetzel, Jr.
Retired Director - PHSB Financial Corporation	Retired President & CEO - PHSB Financial Corporation
Johanna C. Guehl
Owner - Law Offices of Johanna C. Guehl
Affiliate - Kathy L. Hess & Associates, CPA’s

ESB BANK - DIRECTOR EMERITUS

Guy Dille, CPA	Edward W. Preskar, RA
Retired Chief Financial Officer - Williams & Company, Inc.	Retired Director of Facilities - School District of Pittsburgh

ESB Financial Corporation 76 2008 Annual Report

Corporate Officers, Advisory Board and Bank Officers

ESB FINANCIAL CORPORATION	ESB BANK, (continued)
William B. Salsgiver	Vice Presidents
Chairman of the Board	Deborah A. Allen
Charlotte A. Zuschlag	Kathleen A. Bender
President & Chief Executive Officer	Charlotte M. Bolinger
	Thomas E. Campbell
Group Senior Vice Presidents	Louis C. Frischkorn
Charles P. Evanoski - Chief Financial Officer	Nancy A. Glitsch
Frank D. Martz - Operations & Corporate Secretary	Deborah S. Goehring
Todd F. Palkovich - Lending	Peter J. Greco
	Paul F. Hoyson
Senior Vice Presidents	Brian W. Hulme
Robert A. Ackerman - Audit & Loan Review	Mary Ann Leonardo
Richard E. Canonge - Treasurer	Sally A. Mannarino
Robert J. Colalella - Marketing	Larry Mastrean
John W. Donaldson II - Lending	John J. Mottes
Teresa Krukenberg - Business Development	Joseph R. Pollock, III
Ronald J. Mannarino - Asset/Liability Management	Pamela K. Zikeli
Mark A. Platz - Information Technology
Ronald E. Pompeani - Lending	Assistant Vice Presidents
Marilyn Scripko - Lending & CRA Officer	Theresa M. Adler
John T. Stunda - Human Resources	Susan B. Antolic
Bonita L. Wadding - Controller	Kelley J. Avena
	Janet S. Barletta
ESB BANK, ADVISORY BOARD	James D. Bish
Joseph W. DeNardo	Amy E. Dicks
Retired Chief Meteorologist for WTAE-TV	Judy L. Diesing
George C. Dorsch	Susan C. Fisher
Retired Engineer -	Theresa A. Gerst
Dept. of Transportation, Commonwealth of Pennsylvania	Christine L. Gillin
Dr. Allan Gastfriend	Margaret A. Haefele
Retired Dentist	G. Fred Knopp, Jr.
Charles W. Hergenroeder	Penny K. Koch
Partner - Hergenroeder, Rega, Sommer, LLC	David L. Kramer
Watson F. McGaughey, Jr.	Kyle R. Krupa
Retired President - McGaughey Buses, Inc.	Mary C. Magestro
Donald R. Miller	Barbara E. Martinelli
Retired President - Miller & Sons Chevrolet	Beth A. McClymonds
	Kristin E. McKelvey
ESB BANK	Marianne L. Mills
William B. Salsgiver	Ann R. Nelson
Chairman of the Board	Jonathan D. Newell
Charlotte A. Zuschlag	Deborah F. Pagley
President & Chief Executive Officer	James P. Perenovich
	Timothy S. Robinson
Group Senior Vice Presidents	Cynthia L. Scaramazza
Charles P. Evanoski	Jackie A. Smith
Frank D. Martz	Kathy A. Smyth
Todd F. Palkovich	Sharon L. Speicher
	Karla L. Spinelli
Senior Vice Presidents	Joyce A. Stellitano
Robert A. Ackerman	Robert Tatka
Richard E. Canonge	Volynda Teets
Robert J. Colalella	Janice L. Voynik
John W. Donaldson II
Teresa Krukenberg	Assistant Secretaries
Ronald J. Mannarino	Linda A. MacMurdo
Mark A. Platz	Dana M. Martz
Ronald E. Pompeani	Robin Scheffler
Marilyn Scripko
John T. Stunda	THF, Inc.
Bonita L. Wadding	Rocco Abbatangelo - President

ESB Financial Corporation 77 2008 Annual Report

Board of Directors

Board of Directors of ESB Bank are seated from left, William B. Salsgiver, Lloyd L. Kildoo, Mario J. Manna, Jefrey F. Wall and Johanna C. Guehl. Standing from the left are Herbert S. Skuba, Charlotte A. Zuschlag, Joseph W. Snyder, James P. Wetzel, Raymond K. Aiken and Joseph D. Belas.

ESB Financial Corporation 78 2008 Annual Report

A Very Special Thank You

The ESB Financial Corporation family would like to extend a very special thank you to Charles Delman who retired this year from our Board of Directors.

His career in banking spanned over fifty years. He held the position of President of Economy Savings Bank from 1971 to 1992 and Chairman, President and CEO of ESB Bancorp from 1989 to 1994. As a director of both the Company and the Bank for over thirty years his commitment and contributions to the Company are deeply appreciated.

Accept our best wishes Chuck and our sincere gratitude for the over fifty years of devoted service to ESB Financial Corporation!

ESB Financial Corporation 79 2008 Annual Report

Office Locations and Financial Services Managers

ALIQUIPPA	CORAOPOLIS	NEW BRIGHTON
Janet Barletta	Jackie Smith	G. Fredd Knopp Jr
Financial Services Manager	Financial Services Manager	Financial Services Manager
Phone: 724-378-4436	Phone: 412-264-8862	Phone: 724-846-4920
Fax: 724-378-1204	Fax: 412-264-5960	Fax: 724-846-7805
2301 Sheffield Road	900 Fifth Avenue	800 Third Avenue
Aliquippa, PA 15001	Coraopolis, PA 15108	New Brighton, PA 15066
AMBRIDGE	DARLINGTON	NORTH SHORE
Sharon Speicher	Christine Gillin	Jan Orr
Financial Services Manager	Financial Services Manager	Assistant Financial Services Manager
Phone: 724-266-5002	Phone: 724-827-8500	Phone: 412-231-7297
Fax: 724-266-6178	Fax: 724-827-8502	Fax: 412-231-4097
506 Merchant Street	233 Second Street, PO Box 305	807 Middle Street
Ambridge, PA 15003	Darlington, PA 16115	Pittsburgh, PA 15212
BALDWIN	ELLWOOD CITY	NORTHERN LIGHTS
Theresa Gerst	Pamela Zikeli	David Kramer
Financial Services Manager	Regional Financial Services Manager	Financial Services Manager
Phone: 412-655-8670	Phone: 724-758-5584	Phone: 724-869-2193
Fax: 412-655-8116	Fax: 724-758-0576	Fax: 724-869-2196
5035 Curry Road	600 Lawrence Avenue	1555 Beaver Road
Pittsburgh, PA 15236	Ellwood City, PA 16117	Baden, PA 15005
BEAVER	FOX CHAPEL	SHENANGO TOWNSHIP
Larry Mastrean	Joyce Stellitano	Charlotte Bolinger
Regional Financial Services Manager	Financial Services Manager	Assistant Regional Financial Services Manager
Phone: 724-775-1052	Phone: 412-782-6500	Phone: 724-654-7781
Fax: 724-775-6687	Fax: 412-782-1279	Fax: 724-654-1643
701 Corporation Street	1060 Freeport Road	2656 Ellwood Road
Beaver, PA 15009	Pittsburgh, PA 15238	New Castle, PA 16101
BEAVER FALLS	FRANKLIN TOWNSHIP	SPRING HILL
Susan Fisher	Thomas Campbell	Marianne Mills
Financial Services Manager	Assistant Regional Financial Services Manager	Financial Services Manager
Phone: 724-847-4004	Phone: 724-752-2500	Phone: 412-231-0819
Fax: 724-846-0718	Fax: 724-752-2502	Fax: 412-231-0822
1427 Seventh Avenue	1793 Mercer Road	Itin & Rhine Streets
Beaver Falls, PA 15010	Ellwood City, PA 16117	Pittsburgh, PA 15212
BEECHVIEW	HOPEWELL TOWNSHIP	TROY HILL
Barbara Martinelli	Karla Spinelli	Margaret Haefele
Financial Services Manager	Financial Services Manager	Financial Services Manager
Phone: 412-344-7211	Phone: 724-378-0505	Phone: 412-231-8238
Fax: 412-344-7213	Fax: 724-378-0530	Fax: 412-231-1910
1550 Beechview Avenue	2293 Broadhead Road	1706 Lowrie Street
Pittsburgh, PA 15216	Aliquippa, PA 15001	Pittsburgh, PA 15212
CENTER TOWNSHIP	NESHANNOCK TOWNSHIP	WEXFORD
Judy Diesing	Cynthia Scaramazza	Deborah Allen
Financial Services Manager	Financial Services Manager	Regional Financial Services Manager
Phone: 724-774-0332	Phone: 724-658-8825	Phone: 724-934-8989
Fax: 724-774-7869	Fax: 724-658-5483	Fax: 724-934-3026
3531 Broadhead Road	3360 Wilmington Road	101 Wexford-Bayne Road
Monaca, PA 15061	New Castle, PA 16105	Wexford, PA 15090
CHIPPEWA TOWNSHIP	NEW IN 2009	ZELIENOPLE
Deborah Goehring		Kelley Avena
Assistant Regional Financial Services Manager	Butler Branch	Financial Services Manager
Phone: 724-846-6200	831 Evans City Road	Phone: 724-452-6500
Fax: 724-846-6242	Renfrew, PA 16053	Fax: 724-452-6503
2521 Darlington Road	724-789-0057	17 Northgate Plaza Unit 22
Beaver Falls, PA 15010		Harmony, PA 16037

Coming Soon Summer 2009

Our New Butler Branch

ESB FINANCIAL CORPORATION

600 Lawrence Avenue

Ellwood City, Pennsylvania 16117

Phone: (724) 758-5584

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statement (Form S-8 Nos. 33-43001, 33-49234, 333-27613, 333-31464, 333-31379, 333-61002, 333-95725, and 333-125062 and Form S-3 No. 333-101514) of ESB Financial Corporation of our reports dated March 9, 2009, relating to our audit of the consolidated financial statements and internal control over financial reporting, which appears in the 2008 Annual Report to Shareholders of ESB Financial Corporation, on Form 10-K for the year ended December 31, 2008.

/s/ S.R. Snodgrass, A.C.

Wexford, PA

March 12, 2009

EX-31.1

Exhibit 31.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

PURSUANT TO RULES 13a-14 AND 15d-14 OF THE SECURITIES EXCHANGE ACT OF 1934

AND SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Charlotte A. Zuschlag, certify that:

1. I have reviewed this annual report on Form 10-K of ESB Financial Corporation (the “Registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this annual report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals;

c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosed controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent function):

a) All significant deficiencies in the design and material weakness in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: March 12, 2009	By:	/s/ Charlotte A. Zuschlag
		Charlotte A. Zuschlag
		President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER

PURSUANT TO RULES 13a-14 AND 15d-14 OF THE SECURITIES EXCHANGE ACT OF 1934

AND SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Charles P. Evanoski, certify that:

1. I have reviewed this annual report on Form 10-K of ESB Financial Corporation (the “Registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this annual report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and we have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals;

c. Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosed controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent function):

a. All significant deficiencies in the design and material weakness in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: March 12, 2009	By:	/s/ Charles P. Evanoski
		Charles P. Evanoski
		Group Senior Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350)

The undersigned executive officer of ESB Financial Corporation (the “Registrant”) hereby certifies that the Registrant’s Form 10-K for the year ended December 31, 2008 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained therein fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

By:	/s/ Charlotte A. Zuschlag
	Charlotte A. Zuschlag
	President and Chief Executive Officer

Date: March 12, 2009

Note: A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to ESB Financial Corporation and will be retained by ESB Financial Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350)

The undersigned executive officer of ESB Financial Corporation (the “Registrant”) hereby certifies that the Registrant’s Form 10-K for the year ended December 31, 2008 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained therein fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

By:	/s/ Charles P. Evanoski
	Charles P. Evanoski
	Group Senior Vice President and
	Chief Financial Officer

Date: March 12, 2009

Note: A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to ESB Financial Corporation and will be retained by ESB Financial Corporation and furnished to the Securities and Exchange Commission or its staff upon request.