##### Table of Contents





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  









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##### Table of Contents

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                                                                                                           



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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



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##### Table of Contents

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



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##### Table of Contents

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) |  | DollarAmount |         |   | %    |       |   | DollarAmount |   |         | %    |  |       | DollarAmount |  |   | %       |   |  | DollarAmount |   |  | % |         |   | DollarAmount |       | % | 
|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 |  |       |  
|                              |  |              |         |   |      |       |   |              |   |         |      |  |       |              |  |   |         |   |  |              |   |  |   |         |   |              |       |   |  |   |         |  |       |  



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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 oneyear or less |        | Due from oneto five years |   | Due from fiveto ten years |  | Due afterten 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) |  | Fixedrate |         | Adjustablerate
|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.



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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



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##### Table of Contents

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



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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



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##### Table of Contents

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



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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



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##### Table of Contents

| |  |  | 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



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##### Table of Contents

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



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



|                              |  |               |         |                 |   |                  |  |   |           |   |  |   |        
|----------------------------- |  | ------------- | ------- | --------------- | - | ---------------- |  | - | --------- | - |  | - | -------
|(Dollar amounts in thousands) |  | Amortizedcost |         | Unrealizedgains |   | Unrealizedlosses |  |   | Fairvalue
|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



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##### Table of Contents

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



|                                    |  |               |         |                 |   |                  |  |   |           |   |  |   |        
|----------------------------------- |  | ------------- | ------- | --------------- | - | ---------------- |  | - | --------- | - |  | - | -------
|(Dollar amounts in thousands)       |  | Amortizedcost |         | Unrealizedgains |   | Unrealizedlosses |  |   | Fairvalue
|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



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##### Table of Contents

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 12months |  | More than 1to 2 years |  | More than 2to 3 years |         | More than 3to 4 years |   | More than 4to 5 years |  | After 5years |        | 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



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##### Table of Contents

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



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##### Table of Contents

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.



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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



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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.



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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.



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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



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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



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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.



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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.



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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



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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



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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.



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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.



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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.



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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.



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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



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##### Table of Contents

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                                     |  | OwnedorLeased |  | LeaseExpirationDate |  | Net BookValue orAnnual Rent |           | Percentof TotalDeposits |     
|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        |  |               |  |                     |  |                             |           |                         |      |  



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##### Table of Contents

Item 2. Properties  Continued



|                                                |  |               |  |                     |  |                            |         |                         |   
|----------------------------------------------- |  | ------------- |  | ------------------- |  | -------------------------- | ------- | ----------------------- | --
|Location                                        |  | OwnedorLeased |  | LeaseExpirationDate |  | Net BookValue orAnnua Rent |         | Percentof TotalDeposits
|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



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##### Table of Contents

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 ofShares Purchased |  | Average PricePaid per Share |       | Total Number ofShares as Part ofPublicly AnnouncedPlans or Programs |        | Maximum Number ofShares that May Yet BePurchased
Underthe 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



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##### Table of Contents

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



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##### Table of Contents

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 beissued upon exercise ofoutstanding options,warrants and rights (1)(2) |  | Weighted-average exerciseprice of outstandingoptions, warrants andrights (1)(2) |       | Number of securitiesremaining availablefor future issuanceunder equitycompensations
plans(excluding securitiesreflected in the firstcolumn)(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



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##### Table of Contents

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)                                                                                                                                                                                                                  



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##### Table of Contents

| |  |  |  |  |  |      |  |                                                                                                                                                                          
| |  |  |  |  |  | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  |  |  |  | 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



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##### Table of Contents

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