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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION



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FORM 10-K



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



For the fiscal year ended: December 31, 2003



| ̈ | 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



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ESB FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|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: None



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



Common Stock, par value $.01 per share

(Title of class)



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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.     x



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.    x



Indicate by
check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2.    Yes  x    No ̈



As of June
30, 2003, the aggregate value of the 9,045,381 shares of Common Stock of the Registrant outstanding on such date, which excludes 1,463,870 shares held by all directors and officers of the Registrant as a group, was approximately $122.1 million. This
amount is based on the closing sales price of $13.50 per share of the Registrants Common Stock on June 30, 2003.



Number of shares of Common Stock outstanding as of February 29, 2004: 10,227,132



DOCUMENTS INCORPORATED BY REFERENCE



|                                                                                     |  |                   
|------------------------------------------------------------------------------------ |  | ------------------
|Documents                                                                            |  | Where Incorporated
|1. Portions of the 2003 Annual Report to Stockholders.                               |  | Part II           
|2. Portions of Proxy Statement for the April 21, 2004 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                                                                                       |  | 1 
|           |  |                                                                                               
|Item 2.    |  | Properties                                                                                     |  | 26
|           |  |                                                                                               
|Item 3.    |  | Legal Proceedings                                                                              |  | 27
|           |  |                                                                                               
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                            |  | 27
|           | 
|PART II    |  |                                                                                               
|           |  |                                                                                               
|Item 5.    |  | Market for Registrants Common Equity and Related Stockholder Matters                          |  | 28
|           |  |                                                                                               
|Item 6.    |  | Selected Financial Data                                                                        |  | 28
|           |  |                                                                                               
|Item 7.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations          |  | 28
|           |  |                                                                                               
|Item 7A.   |  | Quantitative and Qualitative Disclosures about Market Risk                                     |  | 28
|           |  |                                                                                               
|Item 8.    |  | Financial Statements and Supplementary Data                                                    |  | 28
|           |  |                                                                                               
|Item 9.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           |  | 28
|           |  |                                                                                               
|Item 9A.   |  | Controls and Procedures                                                                        |  | 28
|           | 
|PART III   |  |                                                                                               
|           |  |                                                                                               
|Item 10.   |  | Directors and Executive Officers of the Registrant                                             |  | 29
|           |  |                                                                                               
|Item 11.   |  | Executive Compensation                                                                         |  | 29
|           |  |                                                                                               
|Item 12.   |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |  | 29
|           |  |                                                                                               
|Item 13.   |  | Certain Relationships and Related Transactions                                                 |  | 30
|           |  |                                                                                               
|Item 14.   |  | Principal Accountant Fees and Services                                                         |  | 30
|           |  |                                                                                               
|Item 15.   |  | Exhibits, Financial Statements, Schedules, and Reports on Form 8-K                             |  | 31
|           | 
|Signatures |  | 33                                                                                            



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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). On January 23, 2004, ESB Bank
converted from a federal savings bank to a Pennsylvania chartered savings 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, the now inactive PennFirst Capital Trust I (the Trust I) a Delaware statutory business trust established in 1997 to facilitate the issuance of trust preferred securities to the public by the Company, ESB Capital Trust II (the Trust
II) and ESB Statutory Trust III (the Trust III) 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.



As
of December 31, 2003, the Company had consolidated total assets of $1.4 billion and stockholders equity of $96.9 million. For the year ended December 31, 2003, the Company realized consolidated net income and diluted net income per share of
$8.5 million and $0.80, respectively.



The Bank is a Pennsylvania chartered,
Federal Deposit Insurance Corporation (FDIC) insured, stock savings bank, which conducts business through 16 offices in Allegheny, Beaver, Butler and Lawrence counties, Pennsylvania. ESB operates two wholly-owned subsidiaries: (i) AMSCO, Inc., which
engages in the management of certain real estate development partnerships on behalf of the Company and (ii) ESB Financial Services, Inc., a Delaware corporation which holds loans and other investments. During 2003, PennFirst Financial Advisory
Services, Inc. (PFAS) transferred its securities brokerage operations to its parent corporation, ESB Bank.



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 OTS as a savings and loan holding company and for purposes of regulation as a
savings and loan holding company the Bank is deemed to be a savings association. 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 Savings Association Insurance Fund (SAIF). 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.



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##### Table of Contents

Market Area



The Companys primary market area includes Allegheny, Butler, Beaver 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 16 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, 2003, the Companys net loans receivable amounted to
$322.5 million or 23.6% of the Companys total assets. Loans secured by real estate amounted to $276.9 million or 79.8% of total loans receivable. Consumer loans and commercial business loans amounted to $59.2 million or 17.1% and $10.8 million
or 3.1%, 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 and a variety of consumer loans. 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. Moreover, substantially all of the Companys non-mortgage loan portfolio consists of loans made to residents and businesses
located in the Companys primary market area.



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:



|                              |               |      |         |  |       |               |  |      |         |  |               |   |   |      |         |               |       |   |  |   |               |  |       |   |  |   |         |  |       |  
|----------------------------- | ------------- | ---- | ------- |  | ----- | ------------- |  | ---- | ------- |  | ------------- | - | - | ---- | ------- | ------------- | ----- | - |  | - | ------------- |  | ----- | - |  | - | ------- |  | ----- | -
|(Dollar amounts in thousands) |               | 2003 |         |  | 2002  |               |  | 2001 |         |  | 2000          |   |   | 1999 |        
|                              | Dollar Amount |      | %       |  |       | Dollar Amount |  | %    |         |  | Dollar Amount |   | % |      |         | Dollar Amount |       | % |  |   | Dollar Amount |  | %     |  
|Real estate loans:            |               |      |         |  |       |               |  |      |         |  |               |   |   |      |         |               |       |   |  |   |               |  |       |   |  |   |         |  |       |  
|Residential - single family   |               | $    | 142,244 |  | 41.0  | %             |  | $    | 154,438 |  | 43.4          | % |   | $    | 335,838 |               | 62.1  | % |  | $ | 333,726       |  | 61.8  | % |  | $ | 249,801 |  | 60.2  | %
|Residential - multi family    |               |      | 42,057  |  | 12.2  | %             |  |      | 31,661  |  | 8.9           | % |   |      | 29,154  |               | 5.4   | % |  |   | 26,998        |  | 5.0   | % |  |   | 15,035  |  | 3.6   | %
|Commercial                    |               |      | 46,502  |  | 13.4  | %             |  |      | 51,495  |  | 14.5          | % |   |      | 48,869  |               | 9.0   | % |  |   | 48,633        |  | 9.0   | % |  |   | 39,171  |  | 9.4   | %
|Construction                  |               |      | 46,072  |  | 13.3  | %             |  |      | 40,778  |  | 11.5          | % |   |      | 46,072  |               | 8.5   | % |  |   | 51,523        |  | 9.5   | % |  |   | 42,935  |  | 10.4  | %
|                              |               |      |         |  |       |               |  |      |         |  |               |   |   |      |         |               |       |   |  |   |               |  |       |   |  |   |         |  |       |  
|Total real estate loans       |               |      | 276,875 |  | 79.8  | %             |  |      | 278,372 |  | 78.3          | % |   |      | 459,933 |               | 85.0  | % |  |   | 460,880       |  | 85.4  | % |  |   | 346,942 |  | 83.6  | %
|                              |               |      |         |  |       |               |  |      |         | 
|Other loans:                  |               |      |         |  |       |               |  |      |         |  |               |   |   |      |         |               |       |   |  |   |               |  |       |   |  |   |         |  |       |  
|Consumer loans                |               |      | 59,222  |  | 17.1  | %             |  |      | 61,087  |  | 17.2          | % |   |      | 65,815  |               | 12.2  | % |  |   | 68,099        |  | 12.6  | % |  |   | 59,351  |  | 14.3  | %
|Commercial business loans     |               |      | 10,802  |  | 3.1   | %             |  |      | 16,080  |  | 4.5           | % |   |      | 15,264  |               | 2.8   | % |  |   | 10,692        |  | 2.0   | % |  |   | 8,884   |  | 2.1   | %
|                              |               |      |         |  |       |               |  |      |         |  |               |   |   |      |         |               |       |   |  |   |               |  |       |   |  |   |         |  |       |  
|Total other loans             |               |      | 70,024  |  | 20.2  | %             |  |      | 77,167  |  | 21.7          | % |   |      | 81,079  |               | 15.0  | % |  |   | 78,791        |  | 14.6  | % |  |   | 68,235  |  | 16.4  | %
|                              |               |      |         |  |       |               |  |      |         |  |               |   |   |      |         |               |       |   |  |   |               |  |       |   |  |   |         |  |       |  
|Total loans receivable        |               |      | 346,899 |  | 100.0 | %             |  |      | 355,539 |  | 100.0         | % |   |      | 541,012 |               | 100.0 | % |  |   | 539,671       |  | 100.0 | % |  |   | 415,177 |  | 100.0 | %
|                              |               |      |         |  |       |               |  |      |         |  |               |   |   |      |         |               |       |   |  |   |               |  |       |   |  |   |         |  |       |  
|Less:                         |               |      |         |  |       |               |  |      |         |  |               |   |   |      |         |               |       |   |  |   |               |  |       |   |  |   |         |  |       |  
|Allowance for loan losses     |               |      | 4,062   |  |       |               |  |      | 4,237   |  |               |   |   |      | 5,147   |               |       |   |  |   | 4,981         |  |       |   |  |   | 4,823   |  |       |  
|Net deferred fees/discounts   |               |      | 150     |  |       |               |  |      | 88      |  |               |   |   |      | 483     |               |       |   |  |   | 1,380         |  |       |   |  |   | 858     |  |       |  
|Loans in process              |               |      | 20,233  |  |       |               |  |      | 11,890  |  |               |   |   |      | 14,309  |               |       |   |  |   | 21,557        |  |       |   |  |   | 15,732  |  |       |  
|                              |               |      |         |  |       |               |  |      |         |  |               |   |   |      |         |               |       |   |  |   |               |  |       |   |  |   |         |  |       |  
|Net loans receivable          |               | $    | 322,454 |  |       |               |  | $    | 339,324 |  |               |   |   | $    | 521,073 |               |       |   |  | $ | 511,753       |  |       |   |  | $ | 393,764 |  |       |  
|                              |               |      |         |  |       |               |  |      |         |  |               |   |   |      |         |               |       |   |  |   |               |  |       |   |  |   |         |  |       |  



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The following table sets forth the scheduled contractual principal repayments of loans in the Companys portfolio at
December 31, 2003. Demand loans having no stated schedule of repayment and no stated maturity are reported as due within one year:



|                              |  |                         |        |                            |   |                            |  |                     |        |       |   |         |  |   |        
|----------------------------- |  | ----------------------- | ------ | -------------------------- | - | -------------------------- |  | ------------------- | ------ | ----- | - | ------- |  | - | -------
|(Dollar amounts in thousands) |  | Due in one year or less |        | Due from one to five years |   | Due from five to ten years |  | Due after ten years |        | Total
|Real estate loans             |  | $                       | 18,161 |                            | $ | 51,121                     |  | $                   | 59,788 |       | $ | 147,805 |  | $ | 276,875
|Consumer loans                |  |                         | 15,038 |                            |   | 28,540                     |  |                     | 11,815 |       |   | 3,829   |  |   | 59,222 
|Commercial business loans     |  |                         | 7,236  |                            |   | 3,066                      |  |                     | 343    |       |   | 157     |  |   | 10,802 
|                              |  |                         |        |                            |   |                            |  |                     |        |       |   |         |  |   |        
|                              |  | $                       | 40,435 |                            | $ | 82,727                     |  | $                   | 71,946 |       | $ | 151,791 |  | $ | 346,899
|                              |  |                         |        |                            |   |                            |  |                     |        |       |   |         |  |   |        



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, 2003:



|                              |  |             |         |                  |   |       
|----------------------------- |  | ----------- | ------- | ---------------- | - | ------
|(Dollar amounts in thousands) |  | Fixed rates |         | Adjustable Rates
|Real estate loans             |  | $           | 185,915 |                  | $ | 72,799
|Consumer loans                |  |             | 29,763  |                  |   | 14,421
|Commercial business loans     |  |             | 2,055   |                  |   | 1,511 
|                              |  |             |         |                  |   |       
|                              |  | $           | 217,733 |                  | $ | 88,731
|                              |  |             |         |                  |   |       



Fixed and adjustable rate loans
represented $243.7 million or 70.3% and $103.2 million or 29.7%, respectively, of the Companys total loan portfolio as of December 31, 2003.



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 real estate and commercial business loans is performed primarily 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 1% of the loan amount. Underwriting of these loans is performed by the Company. Due to the lower average size of the consumer
loans originated by the Company, processing, underwriting, approval and servicing of such loans is generally performed at the branch offices where such loans are originated.



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As of December 31, 2003, $9.2 million or 2.8% of the Companys total loans receivable consisted of whole loans and
participation interests in loans purchased from other financial institutions. These loans are secured by real estate properties located within the U.S. and most were acquired by the Company in conjunction with the Companys four acquisitions of
financial institutions. There was one loan participation purchased by the Company during year ended December 31, 2003.



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, 2003, 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)                                  |  | 2003 |          |   | 2002 |   |          | 2001 | 
|Net loans receivable at beginning of period                    |  | $    | 339,324  |   |      | $ | 521,073  |      |  | $ | 511,753  |  
|                                                               |  |      |         
|Loans associated with acquisition of Workingmens Bank (WSB)    |  |      |         |   |      |   |         |      |  |   | 18,895   |  
|Originations:                                                  |  |      |          |   |      |   |          |      |  |   |          |  
|Single-family residential real estate                          |  |      | 90,668   |   |      |   | 83,594   |      |  |   | 77,709   |  
|Multi-familiy residential and commercial real estate           |  |      | 33,441   |   |      |   | 22,735   |      |  |   | 17,754   |  
|Construction                                                   |  |      | 22,235   |   |      |   | 18,107   |      |  |   | 22,885   |  
|Consumer                                                       |  |      | 36,971   |   |      |   | 32,745   |      |  |   | 30,385   |  
|Commercial business                                            |  |      | 5,271    |   |      |   | 6,066    |      |  |   | 6,832    |  
|                                                               |  |      |          |   |      |   |          |      |  |   |          |  
|                                                               |  |      | 188,586  |   |      |   | 163,247  |      |  |   | 155,565  |  
|Repayments on loans                                            |  |      | (205,733 | ) |      |   | (177,947 | )    |  |   | (160,503 | )
|Loans Securitized                                              |  |      |         |   |      |   | (134,300 | )    |  |   |         |  
|Loans transferred from loans receivable to loans held for sale |  |      |         |   |      |   | (33,100  | )    |  |   |         |  
|Transfers to real estate acquired through foreclosure          |  |      | (275     | ) |      |   | (26      | )    |  |   | (310     | )
|Other changes                                                  |  |      | 552      |   |      |   | 377      |      |  |   | (4,327   | )
|                                                               |  |      |          |   |      |   |          |      |  |   |          |  
|Net loans receivable at end of period                          |  | $    | 322,454  |   |      | $ | 339,324  |      |  | $ | 521,073  |  
|                                                               |  |      |          |   |      |   |          |      |  |   |          |  



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 FHLMC maximum conforming loan amount as revised from time to time for loans secured by residential real
estate and up to $150,000 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



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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 $1.0 million so long as all of the loans and commitments to the individual applicant do not aggregate above $1.0 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 $1.0 million and loans to individual borrowers with aggregate loans and commitments above $1.0 million.



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, including new construction, and permits LTV ratios of
up to 95% provided that private mortgage insurance is obtained. 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 production limits have been established by the Board of Directors. The
program is a 100% LTV ratio home equity product. The Company has also offered products for low- and moderate-income borrowers which can exceed the 80% LTV ratio. These low- and moderate-income borrower 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, 2003, ESB was permitted to lend approximately $13.8 million to any one borrower under this standard. Loans in an amount equal to an additional 10% of unimpaired capital and surplus also may be made to a borrower if
the loans are fully secured by readily marketable securities. Higher limits may be available in certain circumstances. The Company generally will limit its maximum exposure to any one borrower to $10.0 million. As of December 31, 2003, the Company
did not have any lending relationships that exceeded the Banks internal lending limit or the 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, 2003, $142.2 million or 41.0% 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.
One-year ARMs presently originated by the Company 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 five and seven-year products 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



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##### Table of Contents

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, 2003, the Company had
$46.1 million or 13.3% 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 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, 2003, acquisition and development loans were extended on 13 projects with $6.1 million outstanding under commitments approved in the aggregate amount of $12.3 million and builder
lines-of-credit were extended to 19 builders with $14.2 million outstanding under lines approved in the aggregate amount of $31.7 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, 2003, the Company had $88.6 million, or 25.6% 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 requires a positive cash flow at least sufficient to cover the
debt service 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, 2003, the Companys consumer loan portfolio totaled $59.2 million or 17.1% 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 35% of the respective institutions total assets. The 35% 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. 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.



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As of December 31, 2003, the Companys largest group of consumer loans were 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 15 years. As of December 31, 2003, $43.5 million or 73.4% of the Companys consumer loan portfolio was made up of home equity
loans.



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 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, 2003, commercial business loans amounted to $10.8 million or 3.1% of the Companys total loan portfolio.



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, 2003, the Company had $54.0 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 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, 2003, the Companys non-performing assets, which include non-accrual
loans, loans delinquent due to maturity, troubled debt restructuring and REO, amounted to $2.9 million or 0.22% 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.



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##### Table of Contents

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, 2003, the Companys classified and criticized assets amounted to $8.3 million with $5.2 million classified as substandard, $13,000 classified as doubtful,
$804,000 classified as loss and $2.3 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)                               |  | 2003 |       |   | 2002 |   |       | 2001 |  |   | 2000  |   |  | 1999 |      
|Non-accrual loans:                                          |  |      |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Real estate loans                                           |  | $    | 1,471 |   |      | $ | 2,137 |      |  | $ | 1,344 |   |  | $    | 1,470 |   |  | $ | 2,461 |  
|Consumer and commercial business                            |  |      | 309   |   |      |   | 405   |      |  |   | 1,158 |   |  |      | 1,165 |   |  |   | 1,873 |  
|                                                            |  |      |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Total non-accrual loans                                     |  |      | 1,780 |   |      |   | 2,542 |      |  |   | 2,502 |   |  |      | 2,635 |   |  |   | 4,334 |  
|                                                            |  |      |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Total as a percentage of total assets                       |  |      | 0.13  | % |      |   | 0.19  | %    |  |   | 0.20  | % |  |      | 0.22  | % |  |   | 0.42  | %
|                                                            |  |      |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Real estate acquired through foreclosure                    |  |      | 1,164 |   |      |   | 1,092 |      |  |   | 1,590 |   |  |      | 1,817 |   |  |   | 71    |  
|                                                            |  |      |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Total as a percentage of total assets                       |  |      | 0.09  | % |      |   | 0.08  | %    |  |   | 0.13  | % |  |      | 0.15  | % |  |   | 0.01  | %
|                                                            |  |      |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Total non-performing assets                                 |  | $    | 2,944 |   |      | $ | 3,634 |      |  | $ | 4,092 |   |  | $    | 4,452 |   |  | $ | 4,405 |  
|                                                            |  |      |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Total non-performing assets as a percentage of total assets |  |      | 0.22  | % |      |   | 0.28  | %    |  |   | 0.32  | % |  |      | 0.37  | % |  |   | 0.43  | %
|                                                            |  |      |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  



As of December 31, 2003, REO included
a property valued at $1.1 million. This REO was originated as a commercial mortgage loan on a medical office building. The loan began to experience payment problems in 1997 after the loss of a major tenant that occupied one-third of the building. In
June of 1998, when the delinquencies began to permanently exceed 90 days, the Bank initiated foreclosure proceedings. The borrower filed bankruptcy in September of 1998 and the Bank acquired the title to the property. An appraisal in June of 2000
indicated the value of the property to be approximately $1.7 million and the Bank wrote down the property to a value of approximately $1.5 million due to anticipated costs to carry and dispose of the property. An appraisal in January of 2002
indicated the value of the property to be approximately $1.3 million and the Bank wrote down the property to a value of approximately $1.1 million. During 2003, the Bank was successful in leasing a portion of the building and is currently actively
attempting to lease the remainder of the building to realize its market value and enhance its marketability.



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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; historical loss experience based on volume and types of loans; trend in portfolio volume and composition; level and trend in non-performing assets; detailed analysis of individual
loans for which full collectibility may not be assured; determination of the existence and realizable value of the collateral and guarantees securing such loans; and the current economic conditions affecting the collectibility of loans in the
portfolio. 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 a group. The Company allocates allowances based on the factors described above, which conform to the Companys asset classification policy. The Company analyzes
its loan portfolio each quarter to determine the appropriateness of its allowance for losses. Management believes that the Companys allowance for losses as of December 31, 2003 of $4.1 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)                         |  | 2003 |       |   | 2002 |   |       | 2001 |  |   | 2000  |   |  | 1999 |      
|Balance at beginning of period                        |  | $    | 4,237 |   |      | $ | 5,147 |      |  | $ | 4,981 |   |  | $    | 4,823 |   |  | $ | 4,815 |  
|Allowance for loan losses of acquired companies       |  |      |      |   |      |   |      |      |  |   | 154   |   |  |      | 544   |   |  |   |      |  
|(Recovery of) provision for loan losses               |  |      | (106  | ) |      |   | (410  | )    |  |   | 47    |   |  |      | (55   | ) |  |   | 54    |  
|Charge-offs                                           |  |      |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Real estate loans                                     |  |      |      |   |      |   | (15   | )    |  |   | (2    | ) |  |      | (352  | ) |  |   | (1    | )
|Consumer and commercial business loans                |  |      | (87   | ) |      |   | (527  | )    |  |   | (42   | ) |  |      | (57   | ) |  |   | (54   | )
|                                                      |  |      |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|                                                      |  |      | (87   | ) |      |   | (542  | )    |  |   | (44   | ) |  |      | (409  | ) |  |   | (55   | )
|Recoveries                                            |  |      | 18    |   |      |   | 42    |      |  |   | 9     |   |  |      | 78    |   |  |   | 9     |  
|                                                      |  |      |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Balance at end of period                              |  | $    | 4,062 |   |      | $ | 4,237 |      |  | $ | 5,147 |   |  | $    | 4,981 |   |  | $ | 4,823 |  
|                                                      |  |      |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Ratio of net charge-offs to average loans outstanding |  |      | 0.02  | % |      |   | 0.12  | %    |  |   | 0.01  | % |  |      | 0.07  | % |  |   | 0.01  | %
|                                                      |  |      |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Ratio of allowance to total loans at end of period    |  |      | 1.17  | % |      |   | 1.19  | %    |  |   | 0.95  | % |  |      | 0.92  | % |  |   | 1.16  | %
|                                                      |  |      |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Balance at end of period applicable to:               |  |      |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Real estate loans                                     |  | $    | 2,682 |   |      | $ | 3,031 |      |  | $ | 3,141 |   |  | $    | 2,974 |   |  | $ | 2,370 |  
|Consumer and commercial business loans                |  |      | 1,380 |   |      |   | 1,206 |      |  |   | 2,006 |   |  |      | 2,007 |   |  |   | 2,453 |  
|                                                      |  |      |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Balance at end of period                              |  | $    | 4,062 |   |      | $ | 4,237 |      |  | $ | 5,147 |   |  | $    | 4,981 |   |  | $ | 4,823 |  
|                                                      |  |      |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  



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 $7.2 million as of December 31, 2003.



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.



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##### Table of Contents

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



|                              |  |               |         |                 |   |                  |  |   |            |   |  |   |        
|----------------------------- |  | ------------- | ------- | --------------- | - | ---------------- |  | - | ---------- | - |  | - | -------
|(Dollar amounts in thousands) |  | Amortizedcost |         | Unrealizedgains |   | Unrealizedlosses |  |   | Fair value
|Available for sale:           |  |               |         |                 |   |                  |  |   |            |   |  |   |        
|December 31, 2003:            |  |               |         |                 |   |                  |  |   |            |   |  |   |        
|Trust Preferred securities    |  | $             | 500     |                 | $ |                 |  | $ | (79        | ) |  | $ | 421    
|U.S. Government securities    |  |               | 5,982   |                 |   | 662              |  |   |           |   |  |   | 6,644  
|Municipal securities          |  |               | 93,857  |                 |   | 5,152            |  |   | (326       | ) |  |   | 98,683 
|Equity securities             |  |               | 1,013   |                 |   | 330              |  |   |           |   |  |   | 1,343  
|Corporate Bonds               |  |               | 112,067 |                 |   | 4,973            |  |   | (3,357     | ) |  |   | 113,683
|                              |  |               |         |                 |   |                  |  |   |            |   |  |   |        
|                              |  | $             | 213,419 |                 | $ | 11,117           |  | $ | (3,762     | ) |  | $ | 220,774
|                              |  |               |         |                 |   |                  |  |   |            |   |  |   |        
|December 31, 2002:            |  |               |         |                 |   |                  |  |   |            |   |  |   |        
|Trust Preferred securities    |  | $             | 1,467   |                 | $ | 21               |  | $ | (68        | ) |  | $ | 1,420  
|U.S. Government securities    |  |               | 5,978   |                 |   | 818              |  |   |           |   |  |   | 6,796  
|Municipal securities          |  |               | 94,357  |                 |   | 3,249            |  |   | (62        | ) |  |   | 97,544 
|Equity securities             |  |               | 1,313   |                 |   | 100              |  |   | (5         | ) |  |   | 1,408  
|Corporate Bonds               |  |               | 112,187 |                 |   | 4,754            |  |   | (6,730     | ) |  |   | 110,211
|                              |  |               |         |                 |   |                  |  |   |            |   |  |   |        
|                              |  | $             | 215,302 |                 | $ | 8,942            |  | $ | (6,865     | ) |  | $ | 217,379
|                              |  |               |         |                 |   |                  |  |   |            |   |  |   |        
|December 31, 2001:            |  |               |         |                 |   |                  |  |   |            |   |  |   |        
|Trust Preferred securities    |  | $             | 1,967   |                 | $ |                 |  | $ | (17        | ) |  | $ | 1,950  
|U.S. Government securities    |  |               | 5,975   |                 |   | 318              |  |   |           |   |  |   | 6,293  
|Municipal securities          |  |               | 87,648  |                 |   | 964              |  |   | (680       | ) |  |   | 87,932 
|Equity securities             |  |               | 2,360   |                 |   | 144              |  |   | (253       | ) |  |   | 2,251  
|Corporate Bonds               |  |               | 116,325 |                 |   | 1,974            |  |   | (3,839     | ) |  |   | 114,460
|                              |  |               |         |                 |   |                  |  |   |            |   |  |   |        
|                              |  | $             | 214,275 |                 | $ | 3,400            |  | $ | (4,789     | ) |  | $ | 212,886
|                              |  |               |         |                 |   |                  |  |   |            |   |  |   |        



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



|                                    |  |                |         |                  |   |                   |  |   |            |   |  |   |        
|----------------------------------- |  | -------------- | ------- | ---------------- | - | ----------------- |  | - | ---------- | - |  | - | -------
|(Dollar amounts in thousands)       |  | Amortized cost |         | Unrealized gains |   | Unrealized losses |  |   | Fair value
|Available for sale:                 |  |                |         |                  |   |                   |  |   |            |   |  |   |        
|                                    |  |                |         |                 
|December 31, 2003                   |  |                |         |                  |   |                   |  |   |            |   |  |   |        
|GNMA                                |  | $              | 66,304  |                  | $ | 2,410             |  |   | (40        | ) |  | $ | 68,674 
|FNMA                                |  |                | 384,537 |                  |   | 3,012             |  |   | (2,426     | ) |  |   | 385,123
|FHLMC                               |  |                | 227,275 |                  |   | 4,410             |  |   | (276       | ) |  |   | 231,409
|Collateralized mortgage obligations |  |                | 22,924  |                  |   | 80                |  |   | (48        | ) |  |   | 22,956 
|                                    |  |                |         |                  |   |                   |  |   |            |   |  |   |        
|                                    |  | $              | 701,040 |                  | $ | 9,912             |  | $ | (2,790     | ) |  | $ | 708,162
|                                    |  |                |         |                  |   |                   |  |   |            |   |  |   |        
|December 31, 2002                   |  |                |         |                  |   |                   |  |   |            |   |  |   |        
|GNMA                                |  | $              | 138,598 |                  | $ | 5,333             |  | $ |           |   |  | $ | 143,931
|FNMA                                |  |                | 241,106 |                  |   | 4,470             |  |   | (35        | ) |  |   | 245,541
|FHLMC                               |  |                | 220,166 |                  |   | 7,147             |  |   |           |   |  |   | 227,313
|Collateralized mortgage obligations |  |                | 30,534  |                  |   | 450               |  |   | (13        | ) |  |   | 30,971 
|                                    |  |                |         |                  |   |                   |  |   |            |   |  |   |        
|                                    |  | $              | 630,404 |                  | $ | 17,400            |  | $ | (48        | ) |  | $ | 647,756
|                                    |  |                |         |                  |   |                   |  |   |            |   |  |   |        
|December 31, 2001:                  |  |                |         |                  |   |                   |  |   |            |   |  |   |        
|GNMA                                |  | $              | 210,465 |                  | $ | 3,022             |  | $ | (56        | ) |  | $ | 213,431
|FNMA                                |  |                | 93,442  |                  |   | 1,032             |  |   | (273       | ) |  |   | 94,201 
|FHLMC                               |  |                | 46,921  |                  |   | 703               |  |   | (164       | ) |  |   | 47,460 
|Collateralized mortgage obligations |  |                | 71,712  |                  |   | 690               |  |   | (98        | ) |  |   | 72,304 
|                                    |  |                |         |                  |   |                   |  |   |            |   |  |   |        
|                                    |  | $              | 422,540 |                  | $ | 5,447             |  | $ | (591       | ) |  | $ | 427,396
|                                    |  |                |         |                  |   |                   |  |   |            |   |  |   |        



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



|                                                                              |  |      |          |   |      |   |          |      |  |   |          |  
|----------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|(Dollar amounts in thousands)                                                 |  | 2003 |          |   | 2002 |   |          | 2001 | 
|Mortgage-backed securities at the beginning of period                         |  | $    | 647,756  |   |      | $ | 427,396  |      |  | $ | 412,614  |  
|                                                                              |  |      |         
|Mortgage-backed securities acquired in connection with the acquisition of WSB |  |      |         |   |      |   |         |      |  |   | 5,011    |  
|Purchases                                                                     |  |      | 462,467  |   |      |   | 340,039  |      |  |   | 156,220  |  
|Securitization                                                                |  |      |         |   |      |   | 134,300  |      |  |   |         |  
|Sales                                                                         |  |      | (19,561  | ) |      |   | (34,895  | )    |  |   | (33,290  | )
|Repayments                                                                    |  |      | (367,859 | ) |      |   | (230,020 | )    |  |   | (118,677 | )
|Net (amortization) of premium and accretion of discount                       |  |      | (4,410   | ) |      |   | (1,561   | )    |  |   | 94       |  
|Change in unrealized gain on mortgage-backed securities available for sale    |  |      | (10,231  | ) |      |   | 12,497   |      |  |   | 5,424    |  
|                                                                              |  |      |          |   |      |   |          |      |  |   |          |  
|Mortgage-backed securities at the end of period                               |  | $    | 708,162  |   |      | $ | 647,756  |      |  | $ | 427,396  |  
|                                                                              |  |      |          |   |      |   |          |      |  |   |          |  
|Weighted average yield at the end of the period                               |  |      | 4.16     | % |      |   | 5.38     | %    |  |   | 6.33     | %
|                                                                              |  |      |          |   |      |   |          |      |  |   |          |  



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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.



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) |  | 2003   |         |   | 2002  |   |        | 2001 |        
|Type of Account               |  | Amount |         | % |       |   | Amount |      | %       |  |       | Amount |  | % |        
|Noninterest-bearing deposits  |  | $      | 21,252  |   | 3.5   | % |        | $    | 19,039  |  | 3.2   | %      |  | $ | 16,126  |  | 2.7   | %
|NOW account deposits          |  |        | 62,780  |   | 10.4  | % |        |      | 45,854  |  | 7.8   | %      |  |   | 43,592  |  | 7.4   | %
|Money Market deposits         |  |        | 57,681  |   | 9.6   | % |        |      | 71,124  |  | 12.1  | %      |  |   | 72,706  |  | 12.3  | %
|Passbook account deposits     |  |        | 100,749 |   | 16.7  | % |        |      | 93,271  |  | 15.8  | %      |  |   | 85,765  |  | 14.5  | %
|Time deposits                 |  |        | 360,584 |   | 59.8  | % |        |      | 360,538 |  | 61.1  | %      |  |   | 373,810 |  | 63.1  | %
|                              |  |        |         |   |       |   |        |      |         |  |       |        |  |   |         |  |       |  
|                              |  | $      | 603,046 |   | 100.0 | % |        | $    | 589,826 |  | 100.0 | %      |  | $ | 591,999 |  | 100.0 | %
|                              |  |        |         |   |       |   |        |      |         |  |       |        |  |   |         |  |       |  



The Company had a total of $82.3
million, $66.3 million and $62.0 million in time deposits of $100,000 or more as of December 31, 2003, 2002 and 2001, respectively.



12



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##### Table of Contents

The following table sets forth, by various rate categories, the amount of time deposits outstanding as of December 31,
2003, which mature in the periods presented:



|                                             |  |                |         |                        |   |                        |  |                        |        |                       |   |               |  |       |       |  |   |       |  |   |        
|-------------------------------------------- |  | -------------- | ------- | ---------------------- | - | ---------------------- |  | ---------------------- | ------ | --------------------- | - | ------------- |  | ----- | ----- |  | - | ----- |  | - | -------
|(Dollar amounts in thousands) Range
of Rates |  | 1 to 12 months |         | More than 1 to 2 years |   | More than 2 to 3 years |  | More than 3 to 4 years |        | More than 4to 5 years |   | After 5 years |  | Total
|0.00% to 2.49%                               |  | $              | 144,937 |                        | $ | 9,141                  |  | $                      | 8,772  |                       | $ | 2,865         |  | $     |      |  | $ |      |  | $ | 165,715
|2.50% to 4.49%                               |  |                | 51,760  |                        |   | 68,091                 |  |                        | 25,106 |                       |   | 17,977        |  |       | 3,383 |  |   | 556   |  |   | 166,873
|4.50% to 6.49%                               |  |                | 7,324   |                        |   | 7,864                  |  |                        | 5,483  |                       |   | 1,825         |  |       | 576   |  |   | 660   |  |   | 23,732 
|6.50% to 8.49%                               |  |                | 667     |                        |   | 3,262                  |  |                        | 335    |                       |   |              |  |       |      |  |   |      |  |   | 4,264  
|                                             |  |                |         |                        |   |                        |  |                        |        |                       |   |               |  |       |       |  |   |       |  |   |        
|                                             |  | $              | 204,688 |                        | $ | 88,358                 |  | $                      | 39,696 |                       | $ | 22,667        |  | $     | 3,959 |  | $ | 1,216 |  | $ | 360,584
|                                             |  |                |         |                        |   |                        |  |                        |        |                       |   |               |  |       |       |  |   |       |  |   |        



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 |  | 2003 |         | 2002 |   | 2001   
|0.00% to 2.49%                               |  | $    | 165,715 |      | $ | 113,487 |  | $ | 26,980 
|2.50% to 4.49%                               |  |      | 166,873 |      |   | 142,495 |  |   | 122,617
|4.50% to 6.49%                               |  |      | 23,732  |      |   | 59,098  |  |   | 122,478
|6.50% to 8.49%                               |  |      | 4,264   |      |   | 45,458  |  |   | 101,735
|                                             |  |      |         |      |   |         |  |   |        
|                                             |  | $    | 360,584 |      | $ | 360,538 |  | $ | 373,810
|                                             |  |      |         |      |   |         |  |   |        



As of December 31, 2003, the Company
had jumbo certificates in amounts of $100,000 or more maturing as follows:



|                                    |  |        |       
|----------------------------------- |  | ------ | ------
|(Dollar amounts in thousands)       |  | Amount
|Three months or less                |  | $      | 24,649
|More than three through six months  |  |        | 12,256
|More than six through twelve months |  |        | 5,000 
|More than twelve months             |  |        | 1,003 
|                                    |  |        |       
|                                    |  | $      | 42,908
|                                    |  |        |       



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



|                                                             |  |      |        |   |      |   |         |      |  |   |       
|------------------------------------------------------------ |  | ---- | ------ | - | ---- | - | ------- | ---- |  | - | ------
|(Dollar amounts in thousands)                                |  | 2003 |        |   | 2002 |   |         | 2001
|(Decrease) increase before interest credited and acquisition |  | $    | (12    | ) |      | $ | (20,606 | )    |  | $ | 20,615
|Deposits assumed in connection with acquisition of WSB       |  |      |       |   |      |   |        |      |  |   | 39,614
|Interest credited                                            |  |      | 13,232 |   |      |   | 18,433  |      |  |   | 22,857
|                                                             |  |      |        |   |      |   |         |      |  |   |       
|Net deposit increase (decrease)                              |  | $    | 13,220 |   |      | $ | (2,173  | )    |  | $ | 83,086
|                                                             |  |      |        |   |      |   |         |      |  |   |       



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, 2003, the Company had
outstanding advances with the FHLB of $570.2 million.



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##### Table of Contents

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.



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



|                                   |  |      |         |      |   |         |  |   |        
|---------------------------------- |  | ---- | ------- | ---- | - | ------- |  | - | -------
|(Dollar amounts in thousands)      |  | 2003 |         | 2002 |   | 2001   
|FHLB advances                      |  | $    | 570,240 |      | $ | 549,274 |  | $ | 433,815
|Repurchase agreements              |  |      | 47,000  |      |   | 45,600  |  |   | 119,640
|ESOP borrowings                    |  |      |        |      |   | 2,261   |  |   |       
|Treasury tax and loan note payable |  |      | 62      |      |   | 188     |  |   | 188    
|                                   |  |      |         |      |   |         |  |   |        
|                                   |  | $    | 617,302 |      | $ | 597,323 |  | $ | 553,643
|                                   |  |      |         |      |   |         |  |   |        



Included in the $570.2 million of FHLB
advances at December 31, 2003, is approximately $75.5 million of convertible select advances. These advances reset to the 3-month London Interbank Offer Rate Index (LIBOR) 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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##### Table of Contents

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)                               |  | 2003 |         |   | 2002 |   |         | 2001 | 
|FHLB advances:                                              |  |      |         |   |      |   |         |      |  |   |         |  
|Average balance outstanding for the year                    |  | $    | 270,395 |   |      | $ | 196,683 |      |  | $ | 129,872 |  
|Maximum amount outstanding at any month end during the year |  |      | 292,737 |   |      |   | 253,449 |      |  |   | 171,051 |  
|Balance outstanding at year end                             |  |      | 261,955 |   |      |   | 253,449 |      |  |   | 171,051 |  
|Weighted average interest rate during the year              |  |      | 4.10    | % |      |   | 5.35    | %    |  |   | 5.40    | %
|Weighted average interest rate at year end                  |  |      | 3.51    | % |      |   | 4.74    | %    |  |   | 5.14    | %
|                                                            |  |      |        
|Repurchase agreements:                                      |  |      |         |   |      |   |         |      |  |   |         |  
|Average balance outstanding for the year                    |  | $    | 42,325  |   |      | $ | 79,457  |      |  | $ | 87,703  |  
|Maximum amount outstanding at any month end during the year |  |      | 77,000  |   |      |   | 108,640 |      |  |   | 106,000 |  
|Balance outstanding at year end                             |  |      | 37,000  |   |      |   | 34,600  |      |  |   | 98,040  |  
|Weighted average interest rate during the year              |  |      | 2.64    | % |      |   | 4.93    | %    |  |   | 5.62    | %
|Weighted average interest rate at year end                  |  |      | 3.01    | % |      |   | 3.12    | %    |  |   | 5.19    | %
|                                                            |  |      |        
|Treasury tax and loan note:                                 |  |      |         |   |      |   |         |      |  |   |         |  
|Average balance outstanding for the year                    |  | $    | 86      |   |      | $ | 161     |      |  | $ | 140     |  
|Maximum amount outstanding at any month end during the year |  |      | 181     |   |      |   | 188     |      |  |   | 188     |  
|Balance outstanding at year end                             |  |      | 62      |   |      |   | 188     |      |  |   | 188     |  
|Weighted average interest rate during the year              |  |      | 0.96    | % |      |   | 1.48    | %    |  |   | 3.44    | %
|Weighted average interest rate at year end                  |  |      | 0.82    | % |      |   | 1.09    | %    |  |   | 1.64    | %
|                                                            |  |      |        
|Total short term borrowings:                                |  |      |         |   |      |   |         |      |  |   |         |  
|Average balance outstanding for the year                    |  | $    | 312,806 |   |      | $ | 276,301 |      |  | $ | 217,715 |  
|Maximum amount outstanding at any month end during the year |  |      | 369,918 |   |      |   | 362,277 |      |  |   | 277,239 |  
|Balance outstanding at year end                             |  |      | 299,017 |   |      |   | 288,237 |      |  |   | 269,279 |  
|Weighted average interest rate during the year              |  |      | 3.90    | % |      |   | 5.23    | %    |  |   | 5.49    | %
|Weighted average interest rate at year end                  |  |      | 3.45    | % |      |   | 4.54    | %    |  |   | 5.16    | %



Guaranteed Preferred Beneficial
Interest in Subordinated Debt.On December 9, 1997, the Trust I, a statutory business trust established under Delaware law that is a subsidiary of the Company, issued $25.3 million, 8.625% Trust Preferred Securities (Preferred Securities) with a
stated value and liquidation preference of $10 per share. The Trust Is obligations under the Preferred Securities issued are fully and unconditionally guaranteed by the Company.



The proceeds from the sale of the Preferred Securities were utilized by the Trust I to invest in $26.1 million of 8.625% Junior Subordinated
Debentures (the 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 I. 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 31, 2027, on or after
December 31, 2002, at 100% of the stated 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
December 7, 1997, the Company may redeem in whole, but not in part, the Subordinated Debt prior to December 31, 2027.



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.



15



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##### Table of Contents

During the second quarter of 2003, the Company redeemed $5.0 million (liquidation amount) of the Preferred Securities at
a redemption price equal to the liquidation amount of $10.00, plus accrued and unpaid distributions thereon to April 17, 2003. The Company also redeemed $5.2 million principal amount of the Subordinated Debt on April 17, 2003. In connection with
this redemption, the Company took a charge of approximately $189,000, net of tax, representing unamortized issuance costs on the Companys 8.625% Trust Preferred Securities.



Unamortized deferred debt issuance costs associated with the Preferred Securities amounted to $845,000 and $1.1 million as of December 31,
2003 and 2002, respectively, and are amortized on a level-yield basis over the term of the Preferred Securities.



On January 15, 2004, the Company redeemed the remaining $20.0 million (liquidation amount) of the Preferred Securities at a redemption price equal to the liquidation
amount of $10.00, plus accrued and unpaid distributions thereon to January 15, 2004. The Company also redeemed $20.3 million principal amount of the Subordinated Debt on January 15, 2004. In connection with this redemption, the Company took a charge
of approximately $556,000, net of tax, representing unamortized issuance costs on the Companys 8.625% Trust Preferred Securities.



On April 10, 2003, the 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 the Trust II. The Preferred Securities reset quarterly to equal the London Interbank Offer Rate Index
(LIBOR) plus 3.25%. The Trust IIs obligations under the Preferred Securities issued are fully and unconditionally guaranteed by the Company.



The proceeds from the sale of the Preferred Securities and the common securities were utilized by the Trust II to invest in $10.3 million of variable rate Subordinated
Debt of the Company. The Subordinated Debt is unsecured and ranks subordinate and junior in right of payment to all indebtedness, liabilities and obligations of the Company. The Subordinated Debt primarily represents the sole assets of the Trust II.
Interest on the Preferred Securities is cumulative and payable quarterly in arrears. The Company has the right to optionally redeem the Subordinated Debt prior to the maturity date of April 24, 2033, on or after April 24, 2008, at the redemption
price, plus accrued and unpaid distributions, if any, at the redemption date.



Under the occurrence of certain events, specifically, a tax event, investment company event or capital treatment event as more fully defined in the Indenture dated April 10, 2003, the Company may redeem in whole, but not in part, the
Subordinated Debt at any time within 90 days following the occurrence of such event.



Proceeds from any redemption of the Subordinated Debt would cause a mandatory redemption of the Preferred Securities and the common securities having an aggregate liquidation amount equal to the principal amount of the Subordinated Debt
redeemed.



Unamortized deferred debt issuance costs associated with the
Preferred Securities amounted to $255,000 at December 31, 2003 and are amortized on a level yield basis over five years.



On December 17, 2003, the 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 the Trust III. The Preferred Securities reset quarterly to equal the London Interbank Offer Rate Index
(LIBOR) plus 2.95%. The 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 the 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 the 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.



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##### Table of Contents

Unamortized deferred debt issuance costs associated with the Preferred Securities amounted to $155,000 at December 31,
2003 and are amortized on a level yield basis over five years.



The Company
determined that the provisions of Financial Interpretation (FIN) No. 46 required deconsolidation of its special purpose entities consisting of three subsidiary grantor trusts. As of December 31, 2003, the grantor trusts were deconsolidated.
Deconsolidation of the trusts did not have a significant impact on the Companys financial condition, results of operations or cash flows.



Subsidiaries



As of December 31, 2003, the Company had investments in PennFirst Financial Services, Inc. (PFSI), PennFirst Capital Trust I (the Trust I), ESB Capital Trust II (the Trust II), ESB Statutory Trust III (the Trust III)
and THF, Inc., totaling approximately $38.0 million. PFSI, a Delaware corporation, is engaged in the management of certain investment activities on behalf of the Company. The Trust I, Trust II and Trust III 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, 2003, as a federal savings bank ESB was authorized under applicable
regulations to have a maximum investment of $26.3 million in service corporations, exclusive of the additional 1% of assets investment permitted for community or inner-city purposes but inclusive of the ability to make conforming loans to its
subsidiaries. On that date, ESB had a $4.8 million investment in AMSCO, Inc. (AMSCO), one of its three wholly owned subsidiaries.



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. Three of the existing joint ventures are 51% owned by AMSCO and the Bank has provided all development and construction financing. The three joint ventures have been included in the
consolidated financial statements and their operations are reflected within other non-interest income or expense. The Banks loans to AMSCO and related interest have been eliminated in consolidation. As of December 31, 2003, AMSCO had total
assets, consisting primarily of investments in five joint ventures, of $14.7 million.



The first joint venture, ESB Bank Building Associates, consists of a 99% interest in a partnership with a businessman in Wexford, PA, which owns a commercial office building partially utilized as a branch office and loan production office
for ESB. ESB provided financing for the project. On January 19, 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 PFAS in the Wexford office building. The office space is leased from ESB Bank Building Associates. As of December 31, 2003, AMSCO had a $302,000 investment in ESB Bank
Building Associates.



The second joint venture, Madison Woods, consists of a
40% interest in a partnership with two local developers. 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, 2003, 13 of the 56 lots remain unsold. On that
date, AMSCO had a $263,000 investment in Madison Woods.



The third 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, 2003, The Links at Deer Run had outstanding loans with ESB in the amount of $2.5 million and development costs of $4.4 million. As of December 31, 2003, 39 units were closed and 75 units remained in various stages of planning or
construction. On that date, AMSCO had a $1.6 million investment in The Links at Deer Run.



The fourth joint venture, McCormick Farms, consists of a 51% interest in a LLC with one of the local developers 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, 2003, McCormick Farms had
outstanding loans with ESB in the amount of $1.3 million and development costs of $3.3 million. As of December 31, 2003, 14 lots were closed and 62 remain in various stages of planning or development. On that date, AMSCO had a $1.4 million
investment in McCormick Farms.



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The fifth 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 Conoquennessing 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, 2003, Brandy One had outstanding loans with ESB in the amount of $2.6 million and development costs $4.0 million. As of December 31, 2003, 42 units were closed and 70 remain in various stages of planning or construction. On that
date, AMSCO had a $1.1 million investment in Brandy One.



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 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 their respective 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. Certain federal
banking laws have been recently amended.



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 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.



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.



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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, 2003, 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 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 Bank Insurance Fund (BIF) 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.



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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, 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. Certain of the new legislations more
significant reforms are noted below.



| |  | The new legislation creates 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 the Securities and Exchange Commissions (SEC) oversight and review. The new board will be funded by mandatory fees paid by all public companies. The new
legislation also improves the Financial Accounting Standards Board, giving it full financial independence from the accounting industry.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The new legislation strengthens auditor independence from corporate management by, among other things, limiting the scope of consulting services that auditors can offer their public
company audit clients.
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| |  | The new legislation heightens the responsibility of public company directors and senior managers for the quality of the financial reporting and disclosure made by their companies.
Among other things, the new legislation provides for a strong public company audit committee that will be directly responsible for the appointment, compensation and oversight of the work of the public company auditors.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The new legislation contains a number of provisions to deter wrongdoing. Chief Executive Officers (CEO) and Chief Financial Officers (CFO) will have to certify that
company financial statements fairly present the companys financial condition. If a misleading financial statement later resulted in a restatement, the CEO and CFO must forfeit and return to the company any bonus, stock or stock option
compensation received in the twelve months following the misleading report. The new legislation also prohibits any company officer or director from attempting to mislead or coerce an auditor. Among other reforms, the new legislation empowers the SEC
to bar certain persons from serving as officers or directors of a public company; prohibits insider trades during pension fund blackout periods; directs the SEC to adopt rules requiring attorneys to report securities law violations; and
requires that civil penalties imposed by the SEC go into a disgorgement fund to benefit harmed investors.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The new legislation imposes a range of new corporate disclosure requirements. Among other things, the new legislation requires public companies to report all off-balance-sheet
transactions and conflicts, as well as to present any pro forma disclosures in a way that is not misleading and in accordance with requirements to be established by the SEC. The new legislation also accelerated the required reporting of insider
transactions, which now generally must be reported by the end of the second business day following a covered transaction; requires that annual reports filed with the SEC include a statement by management asserting that it is responsible for creating
and maintaining adequate internal controls and assessing the effectiveness of those controls; and requires companies to disclose whether or not they have adopted an ethics code for senior financial officers, and, if not, why not, and whether the
audit committee includes at least one financial expert, a term which is defined by the SEC in accordance with specified requirements. The new legislation also requires the SEC, based on certain enumerated factors, to regularly and
systematically review corporate filings.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The new legislation contains provisions which generally seek to limit and expose to public view possible conflicts of interest affecting securities analysts.
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| |  | Finally, the new legislation imposes a range of new criminal penalties for fraud and other wrongful acts, as well as extends the period during which certain types of lawsuits can be
brought against a company or its insiders.
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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 their operations. The Bank is also a member of the FHLB of Pittsburgh and is subject to certain limited regulation by the Federal Reserve Board.



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 not 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 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. This act also allows a state to permit out-of-state banks to establish and operate new branches in this state. The Commonwealth of Pennsylvania has opted in to
this interstate merger provision. Therefore, the prior requirement that interstate acquisitions would only be permitted when another state had reciprocal legislation that allowed acquisitions by Pennsylvania-based bank holding companies
has been eliminated. The new Pennsylvania legislation, 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.



Insurance of Accounts. The deposits of the Bank are insured up to
$100,000 per insured member (as defined by law and regulation) by the SAIF, administered by the FDIC and are backed by the full faith and credit of the U.S. Government. As insurer, the FDIC is authorized to conduct examinations of, and to require
reporting by, FDIC-insured institutions. It also may prohibit any FDIC-insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious threat to the FDIC.



The FDIC may terminate the deposit insurance of any insured depository institution, including
the Bank, if it determines after a hearing that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, order or any
condition imposed by an agreement with the FDIC. It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance, if the institution has no tangible capital. If insurance of accounts is
terminated, the accounts at the institution at the time of the termination, less subsequent withdrawals, shall continue to be insured for a period of six months to two years, as determined by the FDIC. Management is aware of no existing
circumstances, which could result in termination of the Banks deposit insurance.



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Under current FDIC regulations, SAIF 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- which are defined in the same manner as the regulations establishing the prompt corrective
action system discussed below. These three groups are then divided into three subgroups, which reflect varying levels of supervisory concern, from those which are considered to be healthy to those which are considered to be of substantial
supervisory concern. The matrix so created results in nine assessment risk classifications, with rates during the last six months of 2003 ranging from zero for well capitalized, healthy institutions, such as ESB, to 27 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 the predecessor
to the SAIF. The current assessment rate is .0154% of insured deposits and is adjusted quarterly. These assessments will continue until the Financing Corporation bonds mature in 2019.



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,
2003, 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.



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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 association 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 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 association as adequately capitalized and
may require an adequately capitalized savings association or an undercapitalized savings association 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 association as critically undercapitalized). At December 31, 2003, ESB was in the well capitalized category.



Loans-to-One Borrower Limitation. Under federal regulations, 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 15% of its unimpaired capital and surplus. An additional amount may be lent, equal to 10% of unimpaired capital and surplus, if such loan is secured by readily marketable
collateral, which is defined to include certain securities and bullion, but generally does not include real estate.



Activities and Investments of Insured State-Chartered Banks. Section 24 of the FDIA, as amended by the Federal Deposit Insurance Corporation Improvement Act of
1991, 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 final 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



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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 institution 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. FIRREA included substantial enhancement to the enforcement powers available to federal banking regulators. 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 inactions 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.



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, 2002 (the most recent date for which a tax return has been filed) include approximately $15.2 million representing such bad debt deductions for which no deferred income taxes have been
provided.



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 AMTI 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, 2002, the Company has a
minimum tax credit carry forward of $1,245,339.



24



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##### Table of Contents

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 0.749% 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 exempt from MITA income tax.



Other Matters. The Company and its subsidiaries file a consolidated federal income tax return. Tax years 2000, 2001 and 2002 are open under the statute of
limitations and subject to review by the Internal Revenue Service.



Personnel



As of December 31, 2003, the Company had 183
full-time and 78 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, 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.



25



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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, 2003:



|                                                                     |  |               |  |                     |  |                             |           |                         |      |  
|-------------------------------------------------------------------- |  | ------------- |  | ------------------- |  | --------------------------- | --------- | ----------------------- | ---- | -
|Location                                                             |  | OwnedorLeased |  | LeaseExpirationDate |  | Net BookValue orAnnual Rent |           | Percentof TotalDeposits |     
|Corporate Headquarters and ESB Main Office:                          |  |               |  |                     |  |                             |           |                         |      |  
|Ellwood City Office 600 Lawrence Avenue, Ellwood City, PA 16117      |  | Owned         |  |                    |  | $                           | 1,860,435 |                         | 24.1 | %
|ESB Branch Offices:                                                  |  |               |  |                     |  |                             |           |                         |      |  
|Aliquippa Office 2301 Sheffield Road, Aliquippa, PA 15001            |  | Owned         |  |                    |  | $                           | 74,949    |                         | 7.2  | %
|Ambridge Office 506 Merchant Street, Ambridge, PA 15003              |  | Owned         |  |                    |  | $                           | 76,951    |                         | 8.7  | %
|Baldwin Office 5035 Curry Road, Pittsburgh, PA 15236                 |  | Owned         |  |                    |  | $                           | 734,236   |                         | 5.2  | %
|Beechview Office 1609 Broadway Avenue, Pittsburgh, PA 15216          |  | Owned         |  |                    |  | $                           | 137,659   |                         | 3.0  | %
|Brighton Heights Office 3619 California Avenue, Pittsburgh PA 15212  |  | Owned         |  |                    |  | $                           | 58,592    |                         | 1.0  | %
|Center Township Office 3531 Brodhead Road, Monaca, PA 15061          |  | Owned         |  |                    |  | $                           | 795,075   |                         | 3.4  | %
|Coraopolis Office 900 Fifth Avenue, Coraopolis, PA 15108             |  | Owned         |  |                    |  | $                           | 69,561    |                         | 2.5  | %
|Fox Chapel Office 1060 Freeport Road, Pittsburgh, PA 15238           |  | Owned         |  |                    |  | $                           | 213,910   |                         | 7.1  | %
|Franklin Township Office 1793 Mercer Road, Ellwood City, PA 16117    |  | Owned         |  |                    |  | $                           | 531,427   |                         | 5.9  | %
|North Shore Office 807 Middle Street, Pittsburgh, PA 15212           |  | Owned         |  |                    |  | $                           | 28,288    |                         | 2.3  | %
|Shenango Township Office 2656 Ellwood Road, New Castle, PA 16101     |  | Leased        |  | 04/30/04            |  | $                           | 50,160    |                         | 9.4  | %
|Spring Hill Office Itin & Rhine Streets, Pittsburgh, PA 15212        |  | Owned         |  |                    |  | $                           | 435,266   |                         | 4.4  | %
|Springdale Office 849 Pittsburgh Street, Springdale, PA 15144        |  | Owned         |  |                    |  | $                           | 249,613   |                         | 0.9  | %
|Troy Hill Office 1706 Lowrie Street, Pittsburgh, PA 15212            |  | Owned         |  |                    |  | $                           | 395,725   |                         | 6.7  | %
|Wexford Office 101 Wexford Bayne Road, Wexford, PA 15090             |  | Owned         |  |                    |  | $                           | 1,267,829 |                         | 3.9  | %
|Zelienople Office Northgate Plaza, Zelienople, PA 16063              |  | Leased        |  | 11/30/07            |  | $                           | 15,800    |                         | 4.2  | %
|Other Properties:                                                    |  |               |  |                     |  |                             |           |                         |      |  
|Drive-through Facility 618 Beaver Avenue, Ellwood City, PA 16117     |  | Owned         |  |                    |  | $                           | 23,518    |                         | NA   |  
|North Shore Property One North Shore, Suite 120, Pittsburgh PA 15212 |  | Leased        |  | 11/30/10            |  | $                           | 78,916    |                         | NA   |  
|Neshannock Property 3360 Wilmington Road, New Castle, PA 16105       |  | Owned         |  |                    |  | $                           | 209,100   |                         | NA   |  
|Parking Lot 611 Lawrence Avenue, Ellwood City, PA 16117              |  | Owned         |  |                    |  | $                           | 17,639    |                         | NA   |  
|Findlay Township Property Route 30, Clinton, PA 15026                |  | Owned         |  |                    |  | $                           | 54,000    |                         | NA   |  



26



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##### Table of Contents

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.



27



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##### Table of Contents

PART II



Item 5. Market for Registrants Common Equity and Related Stockholder Matters



The information required herein is incorporated by reference from the section captioned Stock and Dividend Information of the Companys 2003 Annual
Report to Stockholders attached hereto as Exhibit 13 (2003 Annual Report).



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 2003 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 2003 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 2003 Annual Report.



Item 8. Financial Statements and Supplementary Data



The information required herein is incorporated by reference from the Companys 2003 Annual Report. The Consolidated Financial Statements, the Notes to Consolidated Financial Statements, Managements
Responsibility for Financial Statements, and the Report of Ernst & Young LLP, Independent Auditors are set forth on pages 25 to 59 of the Annual Report and incorporated herein by reference in this Form 10-K.



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



Not applicable.



Item 9A. Controls and Procedures



As of
December 31, 2003, an evaluation was performed under the supervision and with the participation of the Companys management, including the CEO and CFO, 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 CEO and CFO, concluded that the Companys disclosure controls and
procedures were effective as of December 31, 2003. There have been no significant changes in the Companys internal controls or in other factors that could significantly affect internal controls subsequent to December 31, 2003.



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.



28



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##### Table of Contents

PART III



Item 10. Directors and Executive Officers of the Registrant



The information required herein is incorporated by reference from the section captioned Election of Directors of the Companys Proxy Statement (Proxy Statement) for the Annual Meeting of Stockholders
to be held on April 21, 2004.



Item 11. Executive Compensation



The
information required herein is incorporated by reference from the section captioned Executive Compensation 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 section captioned Beneficial Ownership of the Proxy Statement.



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, 2003:



|                                                           |  |                                                                                                 |  |                                                                                     |      |                                                                                                                                                        |        
|---------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------- | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------ | -------
|Plan Category                                              |  | Number of Securitiesto be issued upon exercise ofoutstanding options,warrants and rights(1) (2) |  | Weighted-average exercise price of outstanding
options,warrants and rights. (1) (2) |      | Number of securities remaining available for future issuance under equity compensations plans (excluding securities reflected in the first column) (2)
|Equity compensation plans approved by security holders     |  | 911,449                                                                                         |  | $                                                                                   | 8.38 |                                                                                                                                                        | 180,032
|Equity compensation plans not approved by security holders |  |                                                                                                |  |                                                                                     |     |                                                                                                                                                        |       
|                                                           |  |                                                                                                 |  |                                                                                     |      |                                                                                                                                                        |        
|Total                                                      |  | 911,449                                                                                         |  | $                                                                                   | 8.38 |                                                                                                                                                        | 180,032
|                                                           |  |                                                                                                 |  |                                                                                     |      |                                                                                                                                                        |        

---

|(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, 2003, a total of 110,012 shares of Common Stock were issuable with a weighted-average exercise price of $3.78 upon exercise of outstanding options and 7,488 shares of restricted stock were outstanding which had not yet
vested under those assumed plans. No additional options and 41,926 shares of restricted stock may be granted under the assumed plans.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Item 13. Certain Relationships and Related Transactions



The information required herein is incorporated by reference from the subsection captioned Executive Compensation  Indebtedness of Management of the Proxy Statement.



Item 14. Principal Accountant Fees and Services



The information required herein is incorporated by reference from the section captioned Relationship With Independent Auditors of the Proxy Statement



30



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##### Table of Contents

PART IV



Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K



|    |  |                                        |  |                                                                                                                                                                                                                                                                                                  |  |  |  |                                                                                                                                                                          
|--- |  | -------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 Auditors                                                                                                                                                                                                                                                                  
|    |  |                                       
|    |  |                                        |  | Consolidated Statements of Financial Condition as of December 31, 2003 and 2002                                                                                                                                                                                                                 
|    |  |                                       
|    |  |                                        |  | Consolidated Statements of Operations for the years ended December 31, 2003, 2002 and 2001                                                                                                                                                                                                      
|    |  |                                       
|    |  |                                        |  | Consolidated Statements of Changes in Stockholders Equity for the years ended December 31, 2003, 2002 and 2001                                                                                                                                                                                 
|    |  |                                       
|    |  |                                        |  | Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001                                                                                                                                                                                                      
|    |  |                                       
|    |  |                                        |  | 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  (a)                                                                                                                                                                                                                                                                                           |  |  |  | Amended and Restated Articles of Incorporation (1)                                                                                                                       
|    |  |                                        |  | 3  (b)                                                                                                                                                                                                                                                                                           |  |  |  | Bylaws(1)                                                                                                                                                                
|    |  |                                        |  | 4                                                                                                                                                                                                                                                                                                |  |  |  | Specimen Common Stock Certificate (2)                                                                                                                                    
|    |  |                                        |  | 10(a)                                                                                                                                                                                                                                                                                            |  |  |  | 1990 Stock Option Plan (2)(8)                                                                                                                                            
|    |  |                                        |  | 10(b)                                                                                                                                                                                                                                                                                            |  |  |  | Employee Stock Ownership Plan (2)(8)                                                                                                                                     
|    |  |                                        |  | 10(c)                                                                                                                                                                                                                                                                                            |  |  |  | Management Development and Recognition Plan and Trust Agreement (2)(8)                                                                                                   
|    |  |                                        |  | 10(d)                                                                                                                                                                                                                                                                                            |  |  |  | 1992 Stock Incentive Plan (3)(8)                                                                                                                                         
|    |  |                                        |  | 10(e)                                                                                                                                                                                                                                                                                            |  |  |  | 1997 Stock Option Plan (4)(8)                                                                                                                                            
|    |  |                                        |  | 10(f)                                                                                                                                                                                                                                                                                            |  |  |  | 2001 Stock Option Plan (5)(8)                                                                                                                                            
|    |  |                                        |  | 10(g)                                                                                                                                                                                                                                                                                            |  |  |  | Amended Employment Agreement between the Company and Charlotte A. Zuschlag dated December 1, 2002 (6)(8)                                                                 
|    |  |                                        |  | 10(h)                                                                                                                                                                                                                                                                                            |  |  |  | Amended Employment Agreement between the Bank and Charlotte A. Zuschlag dated December 1, 2002 (6)(8)                                                                    
|    |  |                                        |  | 10(i)                                                                                                                                                                                                                                                                                            |  |  |  | Amended Change in Control Agreement among the Company and the Bank and Charles P. Evanoski dated December 1, 2002 (6)(8)                                                 
|    |  |                                        |  | 10(j)                                                                                                                                                                                                                                                                                            |  |  |  | Amended Change in Control Agreement among the Company and the Bank and Frank D. Martz dated December 1, 2002 (6)(8)                                                      
|    |  |                                        |  | 10(k)                                                                                                                                                                                                                                                                                            |  |  |  | Amended Change in Control Agreement among the Company and the Bank and Todd F. Palkovich dated December 1, 2002 (6)(8)                                                   
|    |  |                                        |  | 10(l)                                                                                                                                                                                                                                                                                            |  |  |  | Amended Change in Control Agreement among the Company and the Bank and Robert C. Hilliard dated December 1, 2002 (6)(8)                                                  
|    |  |                                        |  | 10(m)                                                                                                                                                                                                                                                                                            |  |  |  | Amended Change in Control Agreement among the Company and the Bank and Thomas F. Angotti dated December 1, 2002 (6)(8)                                                   
|    |  |                                        |  | 10(n)                                                                                                                                                                                                                                                                                            |  |  |  | Supplemental Executive Retirement Plan (6)(8)                                                                                                                            
|    |  |                                        |  | 10(o)                                                                                                                                                                                                                                                                                            |  |  |  | Excess Benefit Plan (6)(8)                                                                                                                                               
|    |  |                                        |  | 10(p)                                                                                                                                                                                                                                                                                            |  |  |  | Directors Retirement Plan (6)(8)                                                                                                                                        
|    |  |                                        |  | 13                                                                                                                                                                                                                                                                                               |  |  |  | 2003 Annual Report to Stockholders (7)                                                                                                                                   
|    |  |                                        |  | 21                                                                                                                                                                                                                                                                                               |  |  |  | Subsidiaries of the Registrant - Reference is made to Item 1. Business - Subsidiaries for the required information.                                                    
|    |  |                                        |  | 23                                                                                                                                                                                                                                                                                               |  |  |  | Consent of Ernst & Young LLP (7)                                                                                                                                         
|    |  |                                        |  | 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 (7)
|    |  |                                        |  | 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 (7)
|    |  |                                        |  | 32.1                                                                                                                                                                                                                                                                                             |  |  |  | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (7)                                                                   



31



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##### Table of Contents

| |  |  |  |      |  |     |  |                                                                                                                                                      
| |  |  |  | ---- |  | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  |  | 32.2 |  |     |  | Certification of the Chief Financial Officer Pursuant Section 906 of the Sarbanes-Oxley Act of 2002 (7)                                              
| |  |  |  |      |  | (1) |  | Incorporated by reference from the Current Report on Form 8-K filed by the Company with the SEC on March 27, 1991.                                   
| |  |  |  |      |  | (2) |  | 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.
| |  |  |  |      |  | (3) |  | Incorporated by reference from the Annual Report on Form 10-K filed by the Company with the SEC on March 29, 1993.                                   
| |  |  |  |      |  | (4) |  | Incorporated by reference from the Annual Report on Form 10-K filed by the Company with the SEC on March 30, 1998.                                   
| |  |  |  |      |  | (5) |  | Incorporated by reference from the definitive Proxy Statement filed by the Company with the SEC on March 16, 2001.                                   
| |  |  |  |      |  | (6) |  | Incorporated by reference from the annual report on Form 10K filed by the Company with the SEC on March 27, 2003.                                    
| |  |  |  |      |  | (7) |  | Filed herewith                                                                                                                                       
| |  |  |  |      |  | (8) |  | Management contract or compensatory plan or arrangement.                                                                                             



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) | The Company filed a Form 8-K dated October 21, 2003 to furnish its third quarter 2003 earnings release. The Company filed a Form 8-K dated December 17, 2003, to report the
declaration of a cash dividend of $0.10 per common share payable on January 23, 2004 to stockholders of record at the close of business on December 31, 2003.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|(d) | There are no other financial statements and financial statement schedules which were excluded from the 2003 Annual Report, which are required to be included herein.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



32



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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, 2004 |  | 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, 2004
|    |  | Charlotte A. Zuschlag                                   |  |                     
|    |  | President and Chief Executive Officer, Director         |  |                     
|    |  | (Principal Executive Officer)                           |  |                     
|    |  |                                                        
|By: |  | /s/ Charles P. Evanoski                                 |  | Date: March 12, 2004
|    |  | Charles P. Evanoski                                     |  |                     
|    |  | Group Senior Vice President and Chief Financial Officer |  |                     
|    |  | (Principal Financial and Accounting Officer)            |  |                     
|    |  |                                                        
|By: |  | /s/ William B. Salsgiver                                |  | Date: March 12, 2004
|    |  | William B. Salsgiver                                    |  |                     
|    |  | Chairman of the Board of Directors                      |  |                     
|    |  |                                                        
|By: |  | /s/ Herbert S. Skuba                                    |  | Date: March 12, 2004
|    |  | Herbert S. Skuba                                        |  |                     
|    |  | Vice Chairman of the Board of Directors                 |  |                     
|    |  |                                                        
|By: |  | /s/ George William Blank, Jr.                           |  | Date: March 12, 2004
|    |  | George William Blank, Jr.  Director                    |  |                     
|    |  |                                                        
|By: |  | /s/ Charles Delman                                      |  | Date: March 12, 2004
|    |  | Charles Delman  Director                               |  |                     
|    |  |                                                        
|By: |  | /s/ Lloyd L. Kildoo                                     |  | Date: March 12, 2004
|    |  | Lloyd L. Kildoo  Director                              |  |                     
|    |  |                                                        
|By: |  | /s/ Mario J. Manna                                      |  | Date: March 12, 2004
|    |  | Mario J. Manna  Director                               |  |                     



33