ESB Financial (ESBF) 10-Q 2010 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15 (d) of the

Securities Exchange Act of 1934

For Quarter Ended: March 31, 2010

Commission File Number: 0-19345

ESB FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

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

(724) 758-5584

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨    Not applicable  x    

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b2 of the Exchange Act)    Yes  ¨    No  x

Number of shares of common stock outstanding as of April 30, 2010:

Common Stock, $0.01 par value	12,030,907 shares
(Class)	(Outstanding)

ESB FINANCIAL CORPORATION

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Statements of Financial Condition as of March 31, 2010 and December 31, 2009 (Unaudited)	1
	Consolidated Statements of Operations for the three months ended March 31, 2010 and 2009 (Unaudited)	2
	Consolidated Statement of Changes in Stockholders’ Equity for the three months ended March 31, 2010 (Unaudited)	3
	Consolidated Statements of Cash Flows for the three months ended March 31, 2010 and 2009 (Unaudited)	4
	Notes to Unaudited Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Results of Operations and Financial Condition	25
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	36
Item 4.	Controls and Procedures	36
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Defaults Upon Senior Securities	37
Item 4.	Removed and Reserved	37
Item 5.	Other Information	37
Item 6.	Exhibits	37
	Signatures	38

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

ESB Financial Corporation and Subsidiaries

Consolidated Statements of Financial Condition

As of March 31, 2010 and December 31, 2009 (Unaudited)

(Dollar amounts in thousands)

	March 31,			December 31,
	2010			2009
Assets
Cash on hand and in banks	$	5,286		$	5,894
Interest-earning deposits		9,668			10,390
Federal funds sold		8			16
Cash and cash equivalents		14,962			16,300
Securities available for sale; cost of $1,059,184 and $1,071,735		1,096,747			1,106,910
Loans receivable, net of allowance for loan losses of $6,135 and $6,027		669,144			671,387
Loans held for sale		49			201
Accrued interest receivable		9,512			10,312
Federal Home Loan Bank (FHLB) stock		27,470			27,470
Premises and equipment, net		12,963			13,043
Real estate acquired through foreclosure, net		666			725
Real estate held for investment		25,704			27,479
Goodwill		41,599			41,599
Intangible assets		1,201			1,313
Bank owned life insurance		29,567			29,381
Securities receivable		13,844			2,947
Prepaid expenses and other assets		11,016			11,610
Total assets	$	1,954,444		$	1,960,677
Liabilities and Stockholders’ Equity
Liabilities:
Deposits	$	979,037		$	944,347
FHLB advances		358,014			420,422
Repurchase agreements		363,000			343,000
Other borrowings		19,133			19,826
Junior subordinated notes		46,393			46,393
Advance payments by borrowers for taxes and insurance		2,641			2,661
Accounts payable for land development		4,007			4,608
Accrued expenses and other liabilities		14,195			14,668
Total liabilities		1,786,420			1,795,925
Stockholders’ Equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized; none issued		—			—
Common stock, $.01 par value, 30,000,000 shares authorized; 13,805,812 shares issued; 12,043,790 and 12,036,553 shares outstanding		138			138
Additional paid-in capital		101,621			101,571
Treasury stock, at cost; 1,762,022 and 1,769,259 shares		(20,205	)		(20,302	)
Unearned Employee Stock Ownership Plan (ESOP) shares		(607	)		(814	)
Retained earnings		63,724			61,660
Accumulated other comprehensive income, net		23,771			22,658
Total ESB Financial Corporation’s stockholders’ equity		168,442			164,911
Noncontrolling interest		(418	)		(159	)
Total stockholders’ equity		168,024			164,752
Total liabilities and stockholders’ equity	$	1,954,444		$	1,960,677

See accompanying notes to unaudited consolidated financial statements.

1

ESB Financial Corporation and Subsidiaries

Consolidated Statements of Operations

For the three months ended March 31, 2010 and 2009 (Unaudited)

(Dollar amounts in thousands, except share data)

	Three Months Ended March 31,
	2010			2009
Interest income:
Loans receivable	$	9,522		$	10,007
Taxable securities available for sale		11,160			12,381
Tax free securities available for sale		1,438			1,299
Deposits with banks and federal funds sold		2			5
Total interest income		22,122			23,692
Interest expense:
Deposits		3,813			4,936
Borrowed funds		6,901			9,277
Junior subordinated notes and guaranteed preferred beneficial interest in subordinated debt		612			648
Total interest expense		11,326			14,861
Net interest income		10,796			8,831
Provision for loan losses		354			310
Net interest income after provision for loan losses		10,442			8,521
Noninterest income:
Fees and service charges		912			926
Net gain on sale of loans		3			52
Increase of cash surrender value of bank owned life insurance		186			236
Net realized loss on derivatives		(319	)		(140	)
Impairment losses on investment securities		(309	)		—
(Loss) income from real estate joint ventures		(444	)		143
Other		145			145
Total noninterest income		174			1,362
Noninterest expense:
Compensation and employee benefits		3,824			3,588
Premises and equipment		703			669
Federal deposit insurance premiums		478			323
Data processing		527			495
Amortization of intangible assets		108			129
Advertising		120			111
Other		915			934
Total noninterest expense		6,675			6,249
Income before income taxes		3,941			3,634
Provision for income taxes		820			597
Net income		3,121			3,037
Less: net (loss) income attributable to the noncontrolling interest		(259	)		5
Net income attributable to ESB Financial Corporation	$	3,380		$	3,032
Net income per share
Basic	$	0.28		$	0.25
Diluted	$	0.28		$	0.25
Cash dividends declared per share	$	0.10		$	0.10
Weighted average shares outstanding		11,965,466			11,939,827
Weighted average shares and share equivalents outstanding		12,019,737			12,028,168

See accompanying notes to unaudited consolidated financial statements.

2

ESB Financial Corporation and Subsidiaries

Consolidated Statement of Changes in Stockholders’ Equity

For the three months ended March 31, 2010 (Unaudited)

(Dollar amounts in thousands)

	Common stock		Additional paid-in capital			Treasury stock			Unearned ESOP shares			Retained earnings			Accumulated other comprehensive income, net of tax		Noncontrolling Interest			Total stockholders’ equity
Balance at January 1, 2010	$	138	$	101,571		$	(20,302	)	$	(814	)	$	61,660		$	22,658	$	(159	)	$	164,752
Comprehensive results:
Net income		—		—			—			—			3,380			—		(259	)		3,121
Other comprehensive results, net		—		—			—			—			—			909		—			909
Reclassification adjustment		—		—			—			—			—			204		—			204
Total comprehensive results		—		—			—			—			3,380			1,113		(259	)		4,234
Cash dividends at $0.10 per share		—		—			—			—			(1,197	)		—		—			(1,197	)
Purchase of treasury stock, at cost (7,888 shares)		—		—			(101	)		—			—			—		—			(101	)
Reissuance of treasury stock for stock option exercises (15,125 shares)		—		—			198			—			(119	)		—		—			79
Compensation expense ESOP		—		106			—			207			—			—		—			313
Additional ESOP shares purchased		—		(78	)		—			—			—			—		—			(78	)
Tax effect of compensatory stock options		—		13			—			—			—			—		—			13
Accrued compensation expense MRP		—		9			—			—			—			—		—			9
Balance at March 31, 2010	$	138	$	101,621		$	(20,205	)	$	(607	)	$	63,724		$	23,771	$	(418	)	$	168,024

See accompanying notes to unaudited consolidated financial statements.

3

ESB Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows

For the three months ended March 31, 2010 and 2009 (Unaudited)

(Dollar amounts in thousands)

	Three months ended
	March 31,
	2010			2009
Operating activities:
Net income	$	3,380		$	3,032
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization for premises and equipment		223			218
Provision for loan losses		354			310
Amortization of premiums and accretion of discounts		449			573
Origination of loans available for sale		(228	)		(4,410	)
Proceeds from sale of loans available for sale		383			4,464
Gain on sale of loans available for sale		(3	)		(52	)
Impairment losses on investment securities		309			—
Amortization of intangible assets		108			129
Compensation expense on ESOP and MRP		322			276
Compensation expense on stock options		71			37
Increases in Bank owned life insurance		(186	)		(236	)
Decrease in accrued interest receivable		800			295
Increase in prepaid expenses and other assets		(1,392	)		(598	)
Increase in accrued expenses and other liabilities		172			1,337
Other		(269	)		10
Net cash provided by operating activities		4,493			5,385
Investing activities:
Loan originations		(41,827	)		(37,710	)
Purchases of:
Securities available for sale		(54,006	)		(44,385	)
Interest rate cap contracts		—			(189	)
Premises and equipment		(146	)		(434	)
Principal repayments of:
Loans receivable		43,258			39,816
Securities available for sale		55,159			43,125
Proceeds from the sale of:
Real estate acquired through foreclosure		259			2
Funding of real estate held for investment		(2,276	)		(1,360	)
Proceeds from real estate held for investment		3,450			1,132
Net cash provided by (used in) investing activities		3,871			(3	)
Financing activities:
Net increase in deposits		34,690			15,261
Proceeds from long-term borrowings		42,993			60,684
Repayments of long-term borrowings		(70,000	)		(70,236	)
Net decrease in short-term borrowings		(16,094	)		(6,594	)
Proceeds received from exercise of stock options		92			71
Dividends paid		(1,204	)		(1,212	)
Payments to acquire treasury stock		(101	)		(747	)
Stock purchased by ESOP		(78	)		(55	)
Net cash used in financing activities		(9,702	)		(2,828	)
Net (decrease) increase in cash equivalents		(1,338	)		2,554
Cash equivalents at beginning of period		16,300			18,893
Cash equivalents at end of period	$	14,962		$	21,447

4

ESB Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows, (Continued)

For the three months ended March 31, 2010 and 2009 (Unaudited)

(Dollar amounts in thousands)

	Three months ended
	March 31,
	2010		2009
Supplemental information:
Interest paid	$	11,164	$	15,077
Income taxes paid		311		304
Supplemental schedule of non-cash investing and financing activities:
Transfers from loans receivable to real estate acquired through foreclosure		167		180
Dividends declared but not paid		1,204		1,191
Securities receivable		10,897		1,655

See accompanying notes to unaudited consolidated financial statements.

5

ESB Financial Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

1. Summary of Significant Accounting Policies

Principles of Consolidation

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

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

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

Basis of Presentation

The accompanying unaudited consolidated financial statements for the interim periods include all adjustments, consisting only of normal recurring accruals, which are necessary, in the opinion of management, to fairly reflect the Company’s financial position and results of operations. Additionally, these consolidated financial statements for the interim periods have been prepared in accordance with instructions for the Securities and Exchange Commission’s Form 10-Q and therefore do not include all information or footnotes necessary for a complete presentation of financial condition, results of operations and cash flows in conformity with U.S. generally accepted accounting principles (GAAP). For further information, refer to the audited consolidated financial statements and footnotes thereto for the year ended December 31, 2009, as contained in the Company’s 2009 Annual Report to Stockholders.

The results of operations for the three month period ended March 31, 2010 is not necessarily indicative of the results that may be expected for the entire year. Certain amounts previously reported have been reclassified to conform to the current periods’ reporting format, such reclassifications did not have an effect on stockholders’ equity or net income.

The accounting principles followed by the Company and the methods of applying these principles conform with GAAP and with general practice within the banking industry. In preparing the consolidated financial statements management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the Statement of Financial Condition date and revenues and expenses for the period. Actual results could differ significantly from those estimates.

Operating Segments

An operating segment is defined as a component of an enterprise that engages in business activities that generate revenue and incur expense, the operating results of which are reviewed by management. At March 31, 2010, the Company was doing business through 24 full service banking branches, one loan production office and its various other subsidiaries. Loans and deposits are primarily generated from the areas where banking branches are located. The Company derives its income predominantly from interest on loans and securities and to a lesser extent, non-interest income. The Company’s principal expenses are interest paid on deposits and borrowed funds and normal operating costs. The Company’s operations are principally in the banking industry. Consistent with internal reporting, the Company’s operations are reported in one operating segment, which is community banking.

6

ESB Financial Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements—(Continued)

Stock Based Compensation

During the three months ended March 31, 2010 and March 31, 2009, the Company recorded approximately $71,000 and $37,000, respectively, in compensation expense and a tax benefit of $4,800 and $3,300 respectively, related to its share-based compensation awards that are expected to vest in 2010. As of March 31, 2010, there was approximately $563,000 of unrecognized compensation cost related to unvested share-based compensation awards granted. That cost is expected to be recognized over the next four years.

As required by GAAP, cash flows from the tax benefits resulting from tax deductions in excess of the compensation cost recognized for stock-based awards (excess tax benefits) are classified as financing cash flows.

Financial Instruments

When the Company establishes a derivative position, it is recorded in accordance with GAAP on the Consolidated Statement of Financial Condition as either assets or liabilities at fair value through adjustments to either the hedged items, accumulated other comprehensive income or current earnings. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.

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

As part of its overall interest rate risk management activities, the Company utilizes derivative instruments to manage its exposure to various types of interest rate risk. These derivative instruments consist of interest rate caps and interest rate swaps. There were seven interest rate cap contracts and two interest rate swap contracts outstanding as of March 31, 2010.

At March 31, 2010 there were seven interest rate cap contracts outstanding with notional amounts totaling $70.0 million. These derivative instruments are not hedged and therefore adjustments to fair value are recorded in current earnings.

During the second and third quarters of fiscal 2009, the Company entered into two interest rate swap contracts to manage its exposure to interest rate risk. This interest rate swap transaction involved the exchange of the Company’s interest payment on $35.0 million in junior subordinated notes which become floating rate notes in 2011 for a fixed rate interest payment without the exchange of the underlying principal amount. Entering into interest rate derivatives potentially exposes the Company to the risk of counterparties’ failure to fulfill their legal obligations including, but not limited to, potential amounts due or payable under each derivative contract. Notional principal amounts are often used to express the volume of these transactions, but the amounts potentially subject to credit risk are much smaller.

This hedge relationship fails to qualify for the assumption of no ineffectiveness (short cut method) as defined by GAAP. Therefore, consistent with the GAAP requirements and with the risk management objective of hedging the variability of expected future cash flows, the Company accounts for this hedge relationship as a cash flow hedge.

7

ESB Financial Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements—(Continued)

The cumulative change in fair value of the hedging derivative, to the extent that it is expected to be offset by the cumulative change in anticipated interest cash flows from the hedged exposure, will be deferred and reported as a component of accumulated other comprehensive income. Any hedge ineffectiveness will be charged to current earnings. Consistent with the risk management objective and the hedge accounting designation, management measured the degree of hedge effectiveness by comparing the cumulative change in anticipated interest cash flows from the hedged exposure over the hedging period to the cumulative change in anticipated cash flows from the hedging derivative. Management will utilize the “Change in Variable Cash Flows Method” to compute the cumulative change in anticipated interest cash flows from the hedged exposure. To the extent that the cumulative change in anticipated cash flows from the hedging derivative offsets from 80% to 125% of the cumulative change in anticipated interest cash flows from the hedged exposure, the hedge will be deemed effective. The Company will use the Change in Variable Cash Flows Method to measure ineffectiveness. Under this method, the calculation of ineffectiveness, as required under GAAP, will be done by using the change in the variable cash flows of the hedging derivative and the hedged exposure. That is, the swap will be recorded at fair value on the balance sheet and other comprehensive income will be adjusted to an amount that reflects the cumulative change in fair value of the hedging derivative. Management will determine the ineffectiveness of the hedging relationship by comparing the cumulative change in anticipated interest cash flows from the hedged exposure over the hedging period to the cumulative change in anticipated cash flows from the hedging derivative. Any difference between these two measures will be deemed hedge ineffectiveness and recorded in current earnings. As of March 31, 2010 the hedge instrument was deemed to be effective, therefore, no amounts were charged to current earnings. The Company does not expect to reclassify any hedge-related amounts from accumulated other comprehensive income to earnings over the next twelve months.

The pay fixed interest rate swap contract outstanding at March 31, 2010 is being utilized to hedge $35.0 million in floating rate junior subordinated notes. Below is a summary of the interest rate swap contract and the terms at March 31, 2010:

	Notional		Effective	Pay		Receive		Maturity	Unrealized
(Dollars in thousands)	Amount		Date	Rate		Rate (*)		Date	Gain	Loss
Cash Flow Hedge	$	20,000	2/10/2011	4.18	%	0.29	%	2/10/2018	—	$	452
Cash Flow Hedge		15,000	2/10/2011	3.91	%	0.29	%	2/10/2018	—		84
	$	35,000							—	$	536

* Variable receive rate based upon contract rates in effect at March 31, 2010

Recent Accounting and Regulatory Pronouncements

In April 2010, the FASB issued ASU 2010-13,Compensation – Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades. ASU 2010-13 provides guidance on the classification of a share-based payment award as either equity or a liability. A share-based payment that contains a condition that is not a market, performance, or service condition is required to be classified as a liability. ASU 2010-13 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010 and is not expected to have a significant impact on the Company’s financial statements.

In March 2010, the FASB issued ASU 2010-11,Derivatives and Hedging. ASU 2010-11 provides clarification and related additional examples to improve financial reporting by resolving potential ambiguity about the breadth of the embedded credit derivative scope exception in ASC 815-15-15-8. ASU 2010-11 is effective at the beginning of the first fiscal quarter beginning after June 15, 2010. The Company is currently evaluating the impact the adoption of this standard will have on the Company’s financial position or results of operation.

8

ESB Financial Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements—(Continued)

In February 2010, the FASB issued ASU 2010-08,Technical Corrections to Various Topics. ASU 2010-08 clarifies guidance on embedded derivatives and hedging. ASU 2010-08 is effective for interim and annual periods beginning after December 15, 2009. The adoption of this guidance did not have a material impact on the Company’s financial position or results of operation.

In January 2010, the FASB issued ASU 2010-01,Equity (Topic 505): Accounting for Distributions to Shareholders with Components of Stock and Cash – a consensus of the FASB Emerging Issues Task Force. ASU 2010-01 clarifies that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in EPS prospectively and is not a stock dividend. ASU 2010-01 is effective for interim and annual periods ending on or after December 15, 2009 and should be applied on a retrospective basis. The adoption of this guidance did not have a material impact on the Company’s financial position or results of operation.

In January 2010, the FASB issued ASU 2010-02,Consolidation (Topic 810): Accounting and reporting for Decreases in Ownership of a Subsidiary – a Scope Clarification. ASU 2010-02 amends Subtopic 810-10 to address implementation issues related to changes in ownership provisions including clarifying the scope of the decrease in ownership and additional disclosures. ASU 2010-02 is effective beginning in the period that an entity adopts Statement 160. If an entity has previously adopted Statement 160, ASU 2010-02 is effective beginning in the first interim or annual reporting period ending on or after December 15, 2009 and should be applied retrospectively to the first period Statement 160 was adopted. The adoption of this guidance did not have a material impact on the Company’s financial position or results of operation.

In January 2010, the FASB issued ASU 2010-04,Accounting for Various Topics – Technical Corrections to SEC Paragraphs. ASU 2010-04 makes technical corrections to existing SEC guidance including the following topics: accounting for subsequent investments, termination of an interest rate swap, issuance of financial statements - subsequent events, use of residential method to value acquired assets other than goodwill, adjustments in assets and liabilities for holding gains and losses, and selections of discount rate used for measuring defined benefit obligation. ASU 2010-04 is effective January 15, 2010. The adoption of this guidance did not have a material impact on the Company’s financial position or results of operation.

In January 2010, the FASB issued ASU 2010-05,Compensation – Stock Compensation (Topic 718): Escrowed Share Arrangements and the Presumption of Compensation. ASU 2010-05 updates existing guidance to address the SEC staff’s views on overcoming the presumption that for certain shareholders escrowed share arrangements represent compensation. ASU 2010-05 is effective January 15, 2010. The adoption of this guidance did not have a material impact on the Company’s financial position or results of operation.

In January 2010, the FASB issued ASU No. 2010-06,Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. ASU 2010-06 amends Subtopic 820-10 to clarify existing disclosures, require new disclosures, and includes conforming amendments to guidance on employers’ disclosures about postretirement benefit plan assets. ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. The Company has presented the necessary disclosures in footnote 9 “Fair Value” and is currently evaluating the impact of the remaining disclosures.

In December 2009, the FASB issued ASU 2009-16,Accounting for Transfer of Financial Assets. ASU 2009-16 provides guidance to improve the relevance, representational faithfulness, and comparability of the information that an entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. ASU 2009-16 is effective for annual periods beginning after November 15, 2009 and for interim periods within those fiscal years. The adoption of this guidance did not have a significant impact on the Company’s financial statements.

9

ESB Financial Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements—(Continued)

In December 2009, the FASB issued ASU 2009-17,Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. The objective of ASU 2009-17 is to improve financial reporting by enterprises involved with variable interest entities and to provide more relevant and reliable information to users of financial statements. ASU 2009-17 is effective for annual periods beginning after November 15, 2009 and for interim periods within those fiscal years. The adoption of this guidance did not have a material impact on the Company’s financial position or results of operation.

In October 2009, the FASB issued ASU 2009-15, Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing. ASU 2009-15 amends Subtopic 470-20 to expand accounting and reporting guidance for own-share lending arrangements issued in contemplation of convertible debt issuance. ASU 2009-15 is effective for fiscal years beginning on or after December 15, 2009 and interim periods within those fiscal years for arrangements outstanding as of the beginning of those fiscal years. The adoption of this guidance did not have a significant impact on the Company’s financial statements.

In September 2009, the FASB issued new guidance impacting Topic 820. This creates a practical expedient to measure the fair value of an alternative investment that does not have a readily determinable fair value. This guidance also requires certain additional disclosures. This guidance is effective for interim and annual periods ending after December 15, 2009. The Company has presented the necessary disclosures in Footnote 9 “Fair Value”.

2. Securities

The Company’s securities available for sale portfolio is summarized as follows:

(Dollar amounts in thousands)	Amortized		Unrealized		Unrealized			Fair
	cost		gains		losses			value
March 31, 2010:
Trust preferred securities	$	46,976	$	34	$	(7,863	)	$	39,147
Municipal securities		150,523		5,009		(265	)		155,267
Equity securities		1,018		294		(34	)		1,278
Corporate bonds		84,481		4,342		(15	)		88,808
Mortgage-backed securities		776,186		36,723		(662	)		812,247
	$	1,059,184	$	46,402	$	(8,839	)	$	1,096,747
December 31, 2009:
Trust preferred securities	$	47,272	$	66	$	(6,761	)	$	40,577
Municipal securities		145,642		5,014		(562	)		150,094
Equity securities		775		189		(57	)		907
Corporate bonds		84,332		4,052		(203	)		88,181
Mortgage-backed securities		793,714		34,322		(885	)		827,151
	$	1,071,735	$	43,643	$	(8,468	)	$	1,106,910

10

ESB Financial Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements—(Continued)

The following table shows the Company’s investments gross unrealized losses and fair value aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2010:

As of March 31, 2010

(Dollar amounts in thousands)	Less than 12 Months					12 Months or more					Total
	# of Securities	Fair Value		Unrealized losses		# of Securities	Fair Value		Unrealized losses		# of Securities	Fair Value		Unrealized losses
Trust Preferred Securities	—	$	—	$	—	9	$	36,509	$	7,863	9	$	36,509	$	7,863
Municipal securities	—		—		—	9		10,754		265	9		10,754		265
Equity Securities	—		—		—	3		330		34	3		330		34
Corporate bonds	—		—		—	1		3,779		15	1		3,779		15
Mortgage-backed securities	15		59,255		234	4		6,667		428	19		65,922		662
	15	$	59,255	$	234	26	$	58,039	$	8,605	41	$	117,294	$	8,839

The following table shows the Company’s investments gross unrealized losses and fair value aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2009:

As of December 31, 2009

(Dollar amounts in thousands)	Less than 12 Months					12 Months or more					Total
	# of Securities	Fair Value		Unrealized losses		# of Securities	Fair Value		Unrealized losses		# of Securities	Fair Value		Unrealized losses
Trust Preferred Securities	—	$	—	$	—	9	$	37,608	$	6,761	9	$	37,608	$	6,761
Municipal securities	1		2,222		54	13		16,336		508	14		18,558		562
Equity Securities	—		—		—	4		350		57	4		350		57
Corporate bonds	1		2,996		33	1		3,613		170	2		6,609		203
Mortgage-backed securities	13		53,402		494	5		10,289		391	18		63,691		885
	15	$	58,620	$	581	32	$	68,196	$	7,887	47	$	126,816	$	8,468

The Company primarily invests in mortgage-backed securities, variable and fixed rate corporate bonds, municipal bonds, government bonds and to a lesser extent equity securities. The policy of the Company is to recognize an other than temporary impairment on equity securities where the fair value has been significantly below cost for three consecutive quarters. Declines in the fair value of the trust preferred securities and corporate bonds that can be attributed to specific adverse conditions affecting the credit quality of the investment would be recorded as other than temporary impairment losses, and charged to earnings. In order to determine if a decline in fair value is other than temporary, the Company reviews corporate ratings of the investment, analyst reports and SEC filings of the issuers. For fixed maturity investments with unrealized losses due to interest rates where the Company expects to recover the entire amortized cost basis of the security, declines in value below cost are not assumed to be other than temporary. The Company reviews its position quarterly and has asserted that at March 31, 2010, the declines outlined in the above table represent temporary declines due to changes in interest rates and are not reflections of an impairment in the credit quality of the securities, additionally, the Company does not intend to sell the investment and it is not more likely than not that the Company will be required to sell the investment before recovery of its amortized cost basis.

The Company reviews investment debt securities on an ongoing basis for the presence of other than temporary impairment (OTTI) with formal reviews performed quarterly. Credit-related OTTI losses on individual securities were recognized during the first quarter in earnings while noncredit-related OTTI on securities not expected to be sold is recognized in accumulated other comprehensive income. The $309,000 credit-related OTTI recognized during the first quarter 2010 consisted of $298,000 solely related to securities having a book value of $1.1 million, as well as $11,000 on one of the Company’s equity

11

ESB Financial Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements—(Continued)

investments in community banks that had experienced a decline in its market value for the last several quarters. There were no noncredit-related OTTI on these investments recognized in OCI during the first quarter.

One pooled trust preferred security has been determined to be other than temporarily impaired due solely to credit related factors. This security is a collateralized debt obligation currently comprised of trust preferred securities of 16 financial institutions and has a Moody’s rating of Ca, which is below investment grade. The total impairment for the security since December 2008 is $1.4 million leaving a remaining book value of $1.1 million. The Company utilized a discounted cash flow method to determine the amount of impairment. During this analysis, the Company determined that six of these financial institutions are currently deferring interest payments. In addition, two financial institutions have defaulted. Currently eight of the sixteen financial institutions are performing. All six financial institutions that are deferring interest payments as of March 2010 either lost money or broke even for the most recently reported quarter. Two of the six financial institutions on deferral had a Tier 1 Risk Ratio at or less than the required well capitalized institution level under prompt corrective action provisions of 6%. Also, there were six financial institutions (including four of the six deferrals) within this pool that the non-performing assets to loans plus real estate owned ratio was greater than 10%. In addition, there is one institution that is not deferring interest payments but has a non-performing assets to loans plus real estate owned ratio greater than 30% and had a decrease in Tier 1 capital during the most recently reported quarter of approximately 2.00%.

Because of the subprime crisis current markets for variable rate corporate trust preferred securities are illiquid. This includes the Company’s nine stand alone trust preferred securities and the Company’s one pooled trust preferred security. The Company used a discounted cash flow method to price these securities due to the lack of liquidity for resale of this investment type and the absence of reliable pricing information. This method is described more fully in footnote nine, “Fair Value”.

The following table summarizes scheduled maturities of the Company’s securities as of March 31, 2010 and December 31, 2009 excluding equity securities which have no maturity dates:

(Dollar amounts in thousands)	Available for sale
	Weighted		Amortized		Fair
	Average Yield		cost		value
Due in one year or less	8.00	%	$	21,268	$	22,142
Due from one year to five years	4.97	%		65,601		68,498
Due from five to ten years	4.63	%		110,027		116,570
Due after ten years	4.62	%		861,270		888,259
	4.71	%	$	1,058,166	$	1,095,469

(Dollar amounts in thousands)	Available for sale
	Weighted		Amortized		Fair
	Average Yield		cost		value
Due in one year or less	11.44	%	$	3,882	$	4,145
Due from one year to five years	5.48	%		68,954		71,716
Due from five to ten years	4.71	%		126,635		132,081
Due after ten years	4.76	%		871,489		898,061
	4.83	%	$	1,070,960	$	1,106,003
		��

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

12

ESB Financial Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements—(Continued)

3. Loans Receivable

The Company’s loans receivable as of the respective dates are summarized as follows:

	March 31,			December 31,
(Dollar amounts in thousands)	2010			2009
Mortgage loans:
Residential - single family	$	328,130		$	329,984
Residential - multi family		37,171			37,664
Commercial real estate		84,822			84,409
Construction		54,436			51,109
Subtotal mortgage loans		504,559			503,166
Other loans:
Consumer loans:
Home equity loans		72,277			73,195
Dealer auto and RV loans		55,084			56,876
Other loans		10,544			10,421
Commercial business		41,533			43,377
Subtotal other loans		179,438			183,869
Total Loans Receivable		683,997			687,035
Less:
Allowance for loan losses		6,135			6,027
Deferred loan fees and net discounts		(2,243	)		(2,334	)
Loans in process		10,961			11,955
Net Loans Receivable	$	669,144		$	671,387
Loans Held for Sale
Residential - single family	$	49		$	201

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

(Dollar amounts in thousands)	2010			2009
Balance, January 1,	$	6,027		$	6,006
Provision for loan losses		354			310
Charge offs		(272	)		(222	)
Recoveries		26			52
Balance March 31,	$	6,135		$	6,146

13

ESB Financial Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements—(Continued)

4. Deposits

The Company’s deposits as of the respective dates are summarized as follows:

(Dollar amounts in thousands)	March 31, 2010				December 31, 2009
Type of accounts	Amount		%		Amount		%
Noninterest-bearing deposits	$	71,512	7.3	%	$	68,404	7.2	%
NOW account deposits		116,411	11.9	%		110,379	11.8	%
Money Market deposits		31,967	3.3	%		32,256	3.4	%
Passbook account deposits		131,830	13.5	%		119,556	12.7	%
Time deposits		627,317	64.0	%		613,752	64.9	%
	$	979,037	100.0	%	$	944,347	100.0	%
Time deposits mature as follows:
Within one year	$	441,541	70.4	%	$	410,882	66.9	%
After one year through two years		81,048	12.9	%		120,073	19.6	%
After two years through three years		59,441	9.5	%		43,791	7.1	%
After three years through four years		8,226	1.3	%		6,953	1.1	%
After four years through five years		33,740	5.4	%		29,181	4.8	%
Thereafter		3,321	0.5	%		2,872	0.5	%
	$	627,317	100.0	%	$	613,752	100.0	%

14

ESB Financial Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements—(Continued)

5. Borrowed Funds

The Company’s borrowed funds as of the respective dates are summarized as follows:

(Dollar amounts in thousands)	March 31, 2010				December 31, 2009
	Weighted				Weighted
	average				average
	rate		Amount		rate		Amount
FHLB advances:
Due within 12 months	4.44	%	$	125,000	4.61	%	$	180,400
Due beyond 12 months but within 2 years	2.58	%		52,550	2.87	%		71,866
Due beyond 2 years but within 3 years	2.95	%		21,755	2.80	%		30,684
Due beyond 3 years but within 4 years	3.46	%		100,265	3.71	%		69,027
Due beyond 4 years but within 5 years	3.23	%		37,876	3.24	%		47,876
Due beyond 5 years	3.86	%		20,568	3.86	%		20,569
			$	358,014			$	420,422
Repurchase agreements:
Due within 12 months	2.06	%	$	28,000	2.02	%	$	28,000
Due beyond 12 months but within 2 years	2.98	%		45,000	2.65	%		20,000
Due beyond 2 years but within 3 years	3.42	%		140,000	3.74	%		75,000
Due beyond 3 years but within 4 years	3.45	%		60,000	3.34	%		120,000
Due beyond 4 years but within 5 years	3.37	%		10,000	2.86	%		20,000
Due beyond 5 years	4.38	%		80,000	4.38	%		80,000
			$	363,000			$	343,000
Other borrowings:
ESOP borrowings
Due within 12 months	4.25	%	$	709	4.25	%	$	945
Corporate borrowings
Due within 12 months	6.30	%	$	1,400	6.30	%	$	1,400
Due beyond 12 months but within 2 years	6.30	%		1,400	6.30	%		1,400
Due beyond 2 years but within 3 years	6.30	%		1,400	6.30	%		1,400
Due beyond 3 years but within 4 years	6.30	%		1,400	6.30	%		1,400
Due beyond 4 years but within 5 years	6.30	%		1,400	6.30	%		1,400
Due beyond 5 years	6.30	%		5,600	6.30	%		5,600
			$	12,600			$	12,600
Treasury tax and loan note payable
Due within 12 months	—		$	181	—		$	135
Borrowings for joint ventures
Due beyond 2 years but within 3 years	3.75	%	$	5,643	3.75	%	$	6,146
Junior subordinated notes
Due beyond 5 years	5.44	%	$	46,393	5.44	%	$	46,393

Included in the $358.0 million of FHLB advances at March 31, 2010 is a $10.0 million convertible select advance. This advance resets to the three month LIBOR index plus a spread. At the reset date, if the three month LIBOR plus the spread is lower than the contract rate on the advance, the advance will remain at the contracted rate. The FHLB has the right to call this convertible select advance on the call date or quarterly thereafter. In addition, the Company has $20.0 million in structured FHLB advances in which the rate is fixed for four years, and after four years on a specified date, the FHLB has the one time right (European Call) to call the advance. If the FHLB does not call these advances on the specified date, the rate remains the same for the remaining term. Should these advances be called, the Company has the right to pay off the advances without penalty. The Company also has $50.0 million in structured advances with imbedded caps

15

ESB Financial Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements—(Continued)

at various strike rates based on the 3 month LIBOR rate. If during the term of the advance, the 3 month LIBOR rate exceeds the strike rate, the interest rate on the structured advance is reduced by the difference between the rate and the strike rate. Additionally, the Company has $20.0 in putable borrowings. The Company has the one-time option to terminate these advances on the put date. If the Company does not terminate these advances on the specified date, the rate remains the same for the remaining term.

Included in the $363.0 million of Repurchase Agreements (REPOs) are $80.0 million in structured REPOs with imbedded caps at various strike rates based on the 3 month LIBOR rate. The terms and conditions of $20.0 million of these structured REPOs are that the rate is fixed for the entire term of the REPO and the terms and conditions of $60.0 million of these structured REPOs are that the rate is fixed for three years and after 3 years, on a specified date the counterparty has the one time right (European Call) to call the REPO. If the counterparty does not call the REPO on the specified date, the rate remains the same for the remaining two years. These structured REPOs also include an imbedded cap for the first three year period with a strike rate to the 3 month LIBOR rate. If during the first three years, the 3 month LIBOR rate exceeds the strike rate, the interest rate on the structured REPO is reduced by the difference between the rate and the strike rate. In addition, the Company has $25.0 million in structured REPOs with double, or $50.0 million notional amount of imbedded caps, at a strike rate of 3.75% based on the 3 month LIBOR rate. The terms and conditions of these structured REPOs are that the rate is fixed for five years and after 5 years, on a specified date the counterparty has the one time right (European Call) to call the REPO. If the counterparty does not call the REPO on the specified date, the rate remains the same for the remaining five years. These structured REPOs also include a double imbedded cap for the first five year period with a strike rate to the 3 month LIBOR rate. If during the first five years, the 3 month LIBOR rate exceeds the strike rate, the interest rate on the structured REPO is reduced by two times the difference between the rate and the strike rate. At no point shall the interest rate on these structured REPOs with imbedded caps be less than zero.

Also included in the $363.0 million of REPOs is a $25.0 million structured REPO in which the Company pays a fixed rate of interest. At the reset date and every quarterly period thereafter, the counterparty has the right to terminate the transaction. In addition, the Company has $30.0 million in structured REPOs in which the rate is fixed for four years, and after four years on a specified date, the counterparty has the one time right (European Call) to call the REPO. If the counterparty does not call the REPO on the specified date, the rate remains the same for the remaining term. It has historically been the Company’s position to pay off any borrowings and replace them with fixed rate funding if converted by the counterparty.

The junior subordinated notes have various maturities, interest rate structures and call dates. The characteristics of these notes are detailed in the following paragraphs.

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

16

ESB Financial Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements—(Continued)

from a $14.0 million loan with First Tennessee Bank National Association (“First Tennessee”). The remainder of the First Tennessee loan was used to repay an existing loan with First Tennessee with a remaining balance of $9.0 million, which had an interest rate of 5.55% and was due on December 31, 2008. No unamortized deferred debt issuance costs remain on this issuance.

On December 17, 2003, ESB Statutory Trust (Trust III), a statutory business trust established under Delaware law that is a subsidiary of the Company, issued $5.0 million variable rate preferred securities with a stated value and liquidation preference of $1,000 per share. The Company purchased $155,000 of common securities of Trust III. The preferred securities reset quarterly to equal the LIBOR Index plus 2.95%. Trust III’s obligations under the preferred securities issued are fully and unconditionally guaranteed by the Company. The proceeds from the sale of the preferred securities and the common securities were utilized by Trust III to invest in $5.2 million of variable rate subordinated debt of the Company. The subordinated debt is unsecured and ranks subordinate and junior in right of payment to all indebtedness, liabilities and obligations of the Company. The subordinated debt primarily represents the sole assets of Trust III. Interest on the preferred securities is cumulative and payable quarterly in arrears. The Company has the right to optionally redeem the subordinated debt prior to the maturity date of December 17, 2033, on or after December 17, 2008, at the redemption price, plus accrued and unpaid distributions, if any, at the redemption date. Under the occurrence of certain events, specifically, a tax event, investment company event or capital treatment event as more fully defined in the Indenture dated December 17, 2003; the Company may redeem in whole, but not in part, the subordinated debt at any time within 90 days following the occurrence of such event. Proceeds from any redemption of the subordinated debt would cause a mandatory redemption of the preferred securities and the common securities having an aggregate liquidation amount equal to the principal amount of the subordinated debt redeemed. No unamortized deferred debt issuance costs remain on this issuance.

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

17

ESB Financial Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements—(Continued)

6. Net Income Per Share

The following table summarizes the Company’s net income per share:

(Amounts, except earnings per share, in thousands)	Three Months		Three Months
	Ended		Ended
	March 31, 2010		March 31, 2009
Net income	$	3,380	$	3,032
Weighted-average common shares outstanding		11,965		11,940
Basic earnings per share	$	0.28	$	0.25
Weighted-average common shares outstanding		11,965		11,940
Common stock equivalents due to effect of stock options		55		88
Total weighted-average common shares and equivalents		12,020		12,028
Diluted earnings per share	$	0.28	$	0.25

The shares controlled by the Company’s Employee Stock Ownership Plan (ESOP) 74,349 and 152,687 at March 31, 2010 and March 31, 2009, respectively, are not considered in the weighted average shares outstanding until the shares are committed for allocation to an employee’s individual account.

Options to purchase 79,980 shares at $15.35 per diluted share expiring November 2013 and 83,710 shares at $14.50 per diluted share expiring November 2014 were outstanding as of March 31, 2010 but were not included in the computation of diluted earnings per share because the options’ exercise price was greater than the average market price of the common shares.

Options to purchase 91,632 shares at $10.83 per diluted share expiring November 2012, 80,310 shares at $15.35 per diluted share expiring November 2013, 84,040 shares at $14.50 per diluted share expiring November 2014, 78,300 shares at $12.20 per diluted share expiring May 2015, 16,110 shares at $12.40 per diluted share expiring May 2015, 89,730 shares at $10.75 per diluted share, expiring November 2016, 91,150 shares at $10.11 per diluted share, expiring November 2017 and 91,030 shares at $10.30 per diluted share, expiring November 2018 were outstanding as of March 31, 2009 but were not included in the computation of diluted earnings per share because the options’ exercise price was greater than the average market price of the common shares.

7. Comprehensive Income

In accordance with GAAP the Company has developed the following table, which includes the tax effects of the components of other comprehensive income. Other comprehensive income consists of fair value adjustments on securities available for sale, realized gains or losses on securities available for sale, the net fair value adjustment on derivatives and the amortization of pension and post retirement benefits. Other comprehensive income and related tax effects for the indicated periods, consists of:

	Three Months			Three Months
	Ended			Ended
(Dollar amounts in thousands)	March 31, 2010			March 31, 2009
Net Income:	$	3,121		$	3,037
Other comprehensive income (loss)- net of tax
Fair value adjustment on securities available for sale, net of tax expense of $707 in 2010 and $2,264 in 2009.		1,372			4,395
Securities losses reclassified into earnings, net of tax benefit of $105 in 2010		204			—
Pension and postretirement amortization, net of tax expense of $16 in 2010 and $13 in 2009		31			26
Fair value adjustment on derivatives, net of tax benefit of $255 in 2010		(494	)		—
Other comprehensive income - net of tax		1,113			4,421
Comprehensive income		4,234			7,458
Comprehensive loss (income) attributable to the noncontrolling interest		259			(5	)
Comprehensive income attributable to ESB Financial Corporation	$	4,493		$	7,453

18

ESB Financial Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements—(Continued)

8. Retirement Plans

Supplemental Executive Retirement Plan and Directors’ Retirement Plan

The Company has adopted a Supplemental Executive Benefit Plan (SERP) in order to provide supplemental retirement and death benefits for certain key employees of the Company. Under the SERP, participants shall receive an annual retirement benefit following retirement at age 65 equal to 25% of the participant’s final average pay multiplied by a ratio, ranging from 1.25% to 25.0%, based on the participant’s total years of service. Final average pay is based upon the participant’s last three year’s compensation. The maximum ratio of 25% requires twenty or more years of credited service and the minimum ratio of 1.25% requires one year of credited service. Benefits under the plan are payable in either a lump sum or ten equal annual payments and a lesser benefit is payable upon early retirement at age 50 with at least twelve years of service. If a participant dies prior to retirement, the participant’s estate will receive a lump sum payment equal to the net present value of future benefit payments under the plan. At March 31, 2010 the participants in the plan had credited service under the SERP ranging from 19 to 31 years.

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

19

ESB Financial Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements—(Continued)

The following table illustrates the components of the net periodic pension cost for the SERP and Directors Retirement Plan as of March 31, 2010 and 2009:

(Dollar amounts in thousands)	SERP
	Three Months		Three Months
	Ended		Ended
	March 31, 2010		March 31, 2009
Components of net periodic pension cost
Service cost	$	15	$	12
Interest cost		31		26
Amortization of unrecognized gains and losses		14		8
Amortization of prior service cost		11		10
Net periodic pension cost	$	71	$	56
(Dollar amounts in thousands)	Directors’ Retirement Plan
	Three Months		Three Months
	Ended		Ended
	March 31, 2010		March 31, 2009
Components of net periodic pension cost
Service cost	$	6	$	7
Interest cost		11		12
Amortization of prior service cost		22		22
Net periodic pension cost	$	39	$	41

9. Fair Value

GAAP requires, among other things, enhanced disclosures about assets and liabilities carried at fair value. Disclosures follow a hierarchal framework associated with the level of pricing observability utilized in measuring assets and liabilities at fair value. The three broad levels are as follows:

Level I: Quoted prices are available in the active markets for identical assets or liabilities as of the reported date.

Level II: Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed.

Level III: Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

20

ESB Financial Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements—(Continued)

The following table presents the assets and liabilities reported on the consolidated statements of financial condition at their fair value on a recurring basis as of March 31, 2010 and December 31, 2009 by level within the fair value hierarchy. As required by GAAP, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

	As of March 31, 2010
(Dollar amounts in thousands)	Level 1		Level II		Level III		Total
Assets:
Securities available for sale
Trust preferred securities	$	—	$	1,540	$	37,607	$	39,147
Municipal securities		—		155,267		—		155,267
Equity securities		1,278		—		—		1,278
Corporate bonds		—		88,808		—		88,808
Mortgage backed securities		—		812,247		—		812,247
Total securities available for sale	$	1,278	$	1,057,862	$	37,607	$	1,096,747
Other Assets
Interest rate caps	$	—	$	654	$	—	$	654
Total other assets	$	—	$	654	$	—	$	654
Liabilities
Other Liabilities
Interest rate swaps	$	—	$	536	$	—	$	536
Total other liabilities	$	—	$	536	$	—	$	536
	As of December 31, 2009
(Dollar amounts in thousands)	Level 1		Level II		Level III		Total
Assets:
Securities available for sale
Trust preferred securities	$	—	$	1,574	$	39,003	$	40,577
Municipal securities		—		150,094		—		150,094
Equity securities		907		—		—		907
Corporate bonds		—		88,181		—		88,181
Mortgage backed securities		—		827,151		—		827,151
Total securities available for sale	$	907	$	1,067,000	$	39,003	$	1,106,910
Other Assets
Interest rate caps	$	—	$	466	$	—	$	466
Interest rate swaps		—		213		—		213
Total other assets	$	—	$	679	$	—	$	679

Due to recent uncertainties in the credit markets broadly, and the lack of both trading and new issuance of floating rate trust preferred securities, market price indications generally reflect the lack of liquidity in these markets. Due to this lack of practical quoted prices, fair value for floating rate trust preferred securities has been determined using a discounted cash-flow technique. Cash flows are estimated based upon the contractual terms of each instrument. Market rates have been calculated based upon the five year historical discount margin for these instruments from August 2002 through August 2007, when the market was more liquid. These market rates were then adjusted for credit spreads and liquidity risk given the current markets. Credit spreads are based upon the Moody’s rating for each bond and range from 30 to 150 basis points. Liquidity risk adjustments ranged from 30 to 95 basis points where the securities of the 10 largest banks in the United States are assigned 30 basis points and banks outside of the top 10 were given a higher liquidity risk adjustment. Approximately $18.8 million or 49.9% of the $37.6 million in floating rate trust preferred securities represent investments in three of the four largest banks in the United States.

The following table presents the changes in the Level III fair-value category for the periods ended March 31, 2010 and 2009. The Company classifies financial instruments in Level III of the fair-value hierarchy when there is reliance on at least one significant unobservable input to the valuation model. In addition to these unobservable inputs, the valuation models for Level III financial instruments typically also rely on a number of inputs that are readily observable either directly or indirectly.

21

ESB Financial Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements—(Continued)

Fair value measurements using significant unobservable inputs (Level III)

	Securities available for  sale March 31,
	2010			2009
Beginning balance January 1,	$	39,003		$	38,211
Total net realized/unrealized gains (losses)
Included in earnings:
Interest income on securities		4			3
Net realized loss on securities available for sale		(298	)		—
Included in other comprehensive income		(1,102	)		(1,673	)
Transfers in and/or out of Level III		—			—
Purchases, issuances and settlements		—			—
Ending balance, March 31,	$	37,607		$	36,541

The following table summarizes changes in unrealized gains and losses recorded in earnings for the three month period ended March 31, 2010 and 2009 for Level III assets and liabilities that are still held at March 31, 2010 and 2009.

	Securities available for sale
	March 31,
	2010			2009
Interest income on securities	$	4		$	3
Net realized loss on securities available for sale		(298	)		—
Total	$	(294	)	$	3

The following table presents the assets and liabilities reported on the consolidated statements of financial condition at their fair value on a non-recurring basis as of March 31, 2010 and December 31, 2009 by level within the fair value hierarchy. As required by GAAP, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

22

ESB Financial Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements—(Continued)

	As of March 31, 2010
(Dollar amounts in thousands)	Level 1		Level II		Level III		Total
Assets:
Impaired Loans	$	—	$	—	$	916	$	916
Loans held for sale		—		49		—		49
Real estate acquired through foreclosure		—		—		666		666
Servicing assets		—		—		26		26
	As of December 31, 2009
(Dollar amounts in thousands)	Level 1		Level II		Level III		Total
Assets:
Impaired Loans	$	—	$	—	$	1,039	$	1,039
Loans held for sale		—		201		—		201
Real estate acquired through foreclosure		—		—		725		725
Servicing assets		—		—		29		29

10. Financial Instruments

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

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

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

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

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

Loan commitments – The fair value of loan commitments at March 31, 2010 and December 31, 2009 approximated the carrying value of those commitments at those dates.

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

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

Bank owned life insurance (BOLI) – The fair value of BOLI at March 31, 2010 and December 31, 2009 approximated the cash surrender value of the policies at those dates.

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

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

23

ESB Financial Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements—(Continued)

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

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

The following table sets forth the carrying amount and fair value of the Company’s financial instruments included in the consolidated statements of financial condition as of the respective dates below:

(Dollar amounts in thousands)	March 31, 2010				December 31, 2009
	Carrying		Fair		Carrying		Fair
	amount		value		amount		value
Financial assets:
Cash and cash equivalents	$	14,962	$	14,962	$	16,300	$	16,300
Securities		1,096,747		1,096,747		1,106,910		1,106,910
Loans receivable and held for sale		669,193		689,842		671,588		690,024
Accrued interest receivable		9,512		9,512		10,312		10,312
FHLB stock		27,470		27,470		27,470		27,470
Bank owned life insurance		29,567		29,567		29,381		29,381
Interest rate cap contracts		654		654		466		466
Interest rate swap contracts		—		—		213		213
Financial liabilities:
Deposits		979,037		989,177		944,347		954,568
Borrowed funds		740,147		767,581		783,248		808,984
Junior subordinated notes		46,393		28,771		46,393		31,195
Advance payment by borrowers for taxes and insurance		2,641		2,641		2,661		2,661
Accrued interest payable		3,344		3,344		3,182		3,182
Interest rate swap contracts		536		536		—		—

24

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

The following discussion and analysis provides further detail to the financial condition and results of operations of the Company. The section should be read in conjunction with the notes and financial statements presented elsewhere in this report.

The Company’s critical accounting policies involving the significant judgments and assumptions used in the preparation of the Consolidated Financial Statements as of March 31, 2010 have remained unchanged from the disclosures presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 under the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Forward-looking statements in this report relating to the Company’s plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The information contained in this report should be read in conjunction with ESB’s most recent annual report filed with the Securities and Exchange Commission on Form 10-K for the year ended December 31, 2009, which is available at the SEC’s website,www.sec.gov, or at ESB’s website,www.esbbank.com. Investors are cautioned that forward-looking statements, which are not historical fact, involve risks and uncertainties that could cause actual results to differ materially from those contemplated by such statements, including without limitation, the effect of changing regional and national economic conditions; changes in interest rates, spreads on earning assets and interest-bearing liabilities, and associated interest rate sensitivity; sources of liquidity available to the parent company and its related subsidiary operations; potential future credit losses and the credit risk of commercial, real estate, and consumer loan customers and their borrowing activities; actions of the Federal Reserve Board, Federal Deposit Insurance Corporation, the Securities and Exchange Commission, and other regulatory bodies; potential legislative and federal and state regulatory actions and reform; competitive conditions in the financial services industry; rapidly changing technology affecting financial services, and/or other external developments materially impacting the Company’s operational and financial performance. The Company does not assume any duty to update forward-looking statements.

OVERVIEW

ESB Financial Corporation is a Pennsylvania corporation and thrift holding company that provides a wide array of retail and commercial financial products and services to customers in Western Pennsylvania through its wholly-owned subsidiary ESB Bank. ESB Bank currently operates 24 branches.

During the three months ended March 31, 2010 the Company reported net income of $3.4 million, an increase of approximately $348,000, or 11.5%, over the same period last year. The Company realized a decrease to interest income of approximately $1.5 million over the same quarter last year. However, interest expense decreased by approximately $3.5 million during the same period. The result was an increase of $2.0 million in net interest income and an increase of 52 basis points to the Company’s net interest margin.

The increase in income for the quarter reflects management’s sustained efforts to manage the net interest margin during the recent difficult interest rate environment which included either a flat or inverted yield curve.

The Company is continuing efforts to improve the net interest margin by employing strategies to minimize the impact on the cost of funds, while attempting to increase the yield from the investment portfolio. The Company employs a strategy of purchasing cash-flowing fixed and variable rate mortgage-backed securities funded by the wholesale borrowings, which are comprised of FHLB advances and repurchase agreements. This is referred to as the Company’s wholesale strategy. As part of the wholesale strategy the Company uses a laddered maturity schedule of two to five years on the wholesale borrowings. Recently, as part of its ongoing interest rate risk strategy, the Company purchased structured repurchase agreements (repo’s) with imbedded interest rate caps. These interest rate caps will aid in insulating the Company’s net interest margin against a rapid rise in interest rates which can cause significant pressure to the Company’s interest rate margin. During the three months ended March 31, 2010 the Company had approximately $70.0 million of wholesale borrowings maturing with a weighted average rate of 5.21% and an original call/maturity of 3.8 years. These borrowings were replaced during the three months ended March 31, 2010 with $43.0 million of borrowings with a weighted average rate of 2.89% and a weighted average call/maturity of 3.8 years. For purposes of determining the average life of the borrowings, the Company utilizes the call date if applicable.

25

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

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

RESULTS OF OPERATIONS

Earnings Summary.The Company recorded net income of $3.4 million for the three months ended March 31, 2010 as compared to $3.0 million for the same period in the prior year. The $348,000, or 11.5%, increase in net income for the quarter ended March 31, 2010 as compared to the same period in the prior year was primarily due to an increase in net interest income after provision for loan losses of $1.9 million and a decrease to the net income attributable to noncontrolling interest of $264,000, partially offset by a decrease in non-interest income of $1.2 million, as well as increases in non-interest expense and provision for income taxes of $426,000 and $223,000, respectively.

Net interest income. Net interest income, the primary source of revenue for the Company, is determined by the Company’s interest rate spread, which is defined as the difference between income on earning assets and the cost of funds supporting those assets, and the relative amounts of interest earning assets and interest bearing liabilities. Management periodically adjusts the mix of assets and liabilities, as well as the rates earned or paid on those assets and liabilities in order to manage and improve net interest income. The level of interest rates and changes in the amount and composition of interest earning assets and liabilities affect the Company’s net interest income. Historically from an interest rate risk perspective, it has been management’s perception that differing interest rate environments can cause sensitivity to the Company’s net interest income, these being extended low long-term interest rates or rapidly rising short-term interest rates as well as a sustained inverted yield curve.

Net interest income increased $2.0 million, or 22.3%, to $10.8 million for the three months ended March 31, 2010, compared to $8.8 million for the same period in the prior year. This increase in net interest income was the result of interest expense decreasing by $3.5 million, partially offset by a decrease in interest income of $1.6 million.

Interest income. Interest income decreased $1.6 million, or 6.6%, for the three months ended March 31, 2010, compared to the same period in the prior year. This decrease can primarily be attributed to decreases in interest earned on loans receivable and securities available for sale of $485,000 and $1.1 million, respectively.

Interest earned on loans receivable decreased $485,000, or 4.9%, for the three months ended March 31, 2010, compared to the same period in the prior year. This decrease was primarily attributable to a decrease in the average balance of loans outstanding of $21.2 million, or 3.0%, to $676.5 million for the three months ended March 31, 2010, compared to $697.8 million for the same period in the prior year, as well as a decrease in the yield on the portfolio of 11 basis points to 5.71% for the three months ended March 31, 2010, compared to 5.82% for the same period in the prior year.

26

Interest earned on securities decreased $1.1 million, or 7.9%, for the three months ended March 31, 2010, compared to the same period in the prior year. This decrease was primarily the result of a decrease in the tax equivalent yield on securities to 4.99% for the three months ended March 31, 2010 from 5.26% for the three months ended March 31, 2009, as well as a decrease in the average balance of the securities portfolio of $20.7 million, or 1.9%, to $1.1 billion at March 31, 2010.

These changes are reflected in the quarterly rate volume tables presented below which depicts that the decreases to the expense associated with the Company’s interest bearing liabilities are the primary sources of the overall increase to net interest income.

Interest expense. Interest expense decreased $3.5 million, or 23.8%, for the three months ended March 31, 2010, compared to the same period in the prior year. This decrease in interest expense can be attributed to decreases in interest incurred on deposits, borrowed funds and junior subordinated notes of $1.1 million, $2.4 million and $36,000, respectively.

Interest incurred on deposits decreased $1.1 million, or 22.8%, for the three months ended March 31, 2010, compared to the same period in the prior year. This decrease was due to a decrease in the cost of interest-bearing deposits to 1.74% from 2.43% for the quarters ended March 31, 2010 and 2009, respectively, partially offset by an increase in the average balance of interest-bearing deposits of $65.4 million, or 7.9% to $888.7 million for the three months ended March 31, 2010, compared to $823.3 million for the same period in the prior year. The Company manages its cost of interest bearing deposits by diligently monitoring the interest rates on its products as well as the rates being offered by its competition through weekly interest rate committee meetings and utilizing rate surveys and hence subsequently adjusting rates accordingly.

Interest incurred on borrowed funds decreased $2.4 million, or 25.6%, for the three months ended March 31, 2010 compared to the same period in the prior year. This decrease was primarily attributable to a decrease in the cost of these funds to 3.65% from 4.28%, as well as a decrease in the average balance of $111.7 million, or 12.7%, for the quarters ended March 31, 2010 and 2009.

In addition to the wholesale strategy at the Bank, the Company manages its cost of borrowings through the use of debt associated with the issuance of trust preferred securities. During the quarter ended March 31, 2010, the interest incurred on these borrowings decreased by $36,000, or 5.6%, due to a decrease in the cost of these funds to 5.35% from 5.67% for the same period in the prior year.

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

27

(Dollar amounts in thousands)	Three months ended March 31,
	2010						2009
	Average				Yield /		Average				Yield /
	Balance		Interest		Rate		Balance		Interest		Rate
Interest-earning assets:
Taxable securities available for sale	$	810,629	$	9,765	4.82	%	$	928,195	$	12,081	5.21	%
Taxable corporate bonds available for sale		131,630		1,394	4.29	%		45,804		300	2.66	%
Tax-exempt securities available for sale		127,861		1,439	6.82	%(1)		116,772		1,299	6.74	%(1)
		1,070,120		12,598	4.99	%(1)		1,090,771		13,680	5.26	%(1)
Mortgage loans		492,879		7,003	5.68	%		505,493		7,326	5.80	%
Other loans		164,926		2,324	5.71	%		171,084		2,473	5.86	%
Tax-exempt loans		18,741		195	6.38	%(1)		21,191		208	6.03	%(1)
		676,546		9,522	5.71	%(1)		697,768		10,007	5.82	%(1)
Cash equivalents		13,284		2	0.06	%		14,070		5	0.14	%
FHLB stock		27,470		—	—			27,470		—	—
		40,754		2	0.02	%		41,540		5	0.05	%
Total interest-earning assets		1,787,420		22,122	5.15	%(1)		1,830,079		23,692	5.36	%(1)
Other noninterest-earning assets		174,082		—	—			152,041		—	—
Total assets	$	1,961,502	$	22,122	4.69	%(1)	$	1,982,120	$	23,692	4.95	%(1)
Interest-bearing liabilities:
Interest-bearing demand deposits	$	268,158	$	210	0.32	%	$	243,763	$	178	0.30	%
Time deposits		620,502		3,603	2.36	%		579,491		4,758	3.33	%
		888,660		3,813	1.74	%		823,254		4,936	2.43	%
FHLB advances		394,352		3,668	3.77	%		507,026		5,812	4.65	%
Repurchase Agreements		346,333		3,021	3.54	%		335,083		3,213	3.89	%
Other borrowings		26,341		212	3.26	%		36,601		252	2.79	%
		767,026		6,901	3.65	%		878,710		9,277	4.28	%
Preferred securities- fixed		36,083		528	5.93	%		36,083		527	5.93	%
Preferred securities- adjustable		10,310		84	3.30	%		10,310		121	4.76	%
		46,393		612	5.35	%		46,393		648	5.67	%
Total interest-bearing liabilities		1,702,079		11,326	2.70	%		1,748,357		14,861	3.45	%
Noninterest-bearing demand deposits		73,605		—	—			69,579		—	—
Other noninterest-bearing liabilities		16,614		—	—			19,798		—	—
Total liabilities		1,792,298		11,326	2.56	%		1,837,734		14,861	3.28	%
Stockholders’ equity		169,204		—	—			144,386		—	—
Total liabilities and equity	$	1,961,502	$	11,326	2.34	%	$	1,982,120	$	14,861	3.04	%
Net interest income			$	10,796					$	8,831
Interest rate spread (difference between weighted average rate on interest-earning assets and interest-bearing liabilities)					2.45	%(1)					1.91	%(1)
Net interest margin (net interest income as a percentage of average interest-earning assets)					2.58	%(1)					2.06	%(1)

(1) The yield on earning assets and the net interest margin are presented on a fully taxable-equivalent (FTE) and annualized basis. The FTE basis adjusts for the tax benefit of income on certain tax-exempt investments and tax-exempt loans using the federal statutory rate of 34% for each period presented. ESB believes this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts.

Analysis of Changes in Net Interest Income. The following table analyzes the changes in interest income and interest expense, between the three month periods ended March 31, 2010 and 2009 in terms of: (1) changes in volume of interest-earning assets and interest-bearing liabilities and (2) changes in yields and rates. The table reflects the extent to which changes in the Company’s interest income and interest expense are attributable to changes in rate (change in rate multiplied by prior period volume), changes in volume (changes in volume multiplied by prior period rate) and changes attributable to the combined impact of volume/rate (change in rate multiplied by change in volume). The changes attributable to the combined impact of volume/rate are allocated on a consistent basis between the volume and rate variances. Changes in interest income on securities reflects the changes in interest income on a fully tax equivalent basis.

28

(Dollar amounts in thousands)	Three months ended, March  31, 2010 versus 2009 Increase (decrease) due to
	Volume			Rate			Total
Interest income:
Securities	$	(255	)	$	(827	)	$	(1,082	)
Loans		(301	)		(184	)		(485	)
Cash equivalents		—			(3	)		(3	)
FHLB stock		—			—			—
Total interest-earning assets		(556	)		(1,014	)		(1,570	)
Interest expense:
Deposits		368			(1,490	)		(1,122	)
FHLB advances		(1,160	)		(985	)		(2,145	)
Repurchase agreements		105			(297	)		(192	)
Other borrowings		(78	)		38			(40	)
Preferred securities		—			(36	)		(36	)
Total interest-bearing liabilities		(765	)		(2,770	)		(3,535	)
Net interest income	$	209		$	1,756		$	1,965

Provision for loan losses. The provision for loan losses increased $44,000 to $354,000 for the quarter ended March 31, 2010, compared to $310,000 for the same period last year. These provisions were part of the normal operations of the Company for the first quarter of 2010. In determining the appropriate level of allowance for loan losses, management considers historical loss experience, the financial condition of borrowers, economic conditions (particularly as they relate to markets where the Company originates loans), the status of non-performing assets, the estimated underlying value of the collateral and other factors related to the collectability of the loan portfolio. The Company’s total allowance for losses on loans at March 31, 2010 amounted to $6.1 million, or 0.90% of the Company’s total loan portfolio, as compared to $6.0 million, or 0.88%, at December 31, 2009. The Company’s allowance for losses on loans as a percentage of non-performing loans was 125.31% and 147.58% at March 31, 2010 and December 31, 2009, respectively.

Non-interest income. Non-interest income decreased $1.2 million, or 87.2%, for the three months ended March 31, 2010 compared to the same period in the prior year. This decrease can be attributed to decreases in net gain on sale of loans, cash surrender value of BOLI and income from real estate joint ventures of $49,000, $50,000 and $587,000, respectively, as well as increases in net realized loss on derivatives and net realized loss on securities available for sale of $179,000 and $309,000, respectively.

Real estate joint venture income decreased $587,000 for the three months ended March 31, 2010 compared to the three months ended March 31, 2009. The Company has a 51% ownership in its real estate joint ventures. The Company has a mixture of joint ventures in which it participates either in land development only or construction of units. This decrease is the result of an impairment charge to land acquisition and development costs of approximately $852,000 at one of the Company’s joint ventures, as a result of a recent appraisal of the property. This charge was partially offset by increased sales over the same period last year.

Net realized loss on securities available for sale increased $309,000 for the three months ended March 31, 2010 compared to the same period in the prior year. The Company took impairment charges of approximately $298,000 on a $2.5 million collateralized debt obligation that is comprised of sixteen financial institutions, as well as $11,000 on one of its equity investments in community banks that had experienced a decline in its market value for the last several quarters.

29

Non-interest expense. Non-interest expense increased $426,000, or 6.8%, to $6.7 million for the three months ended March 31, 2010 as compared to $6.2 million for the same period in the prior year. This increase was primarily related to increases in compensation and employee benefits and federal deposit insurance premiums of $236,000 and $155,000, respectively.

Compensation and employee benefits increased by $236,000, or 6.6%, to $3.8 million for the quarter ended March 31, 2010, as compared to the same quarter in the prior year. The increases were primarily due to normal salary adjustments between the periods as well as increases to the compensation expense related to stock options and the ESOP.

Federal deposit insurance premiums increased by $155,000 for the quarter ended March 31, 2010, as compared to the same quarter in the prior year. These increases are primarily due to increases in the quarterly rates assessed by the Federal Deposit Insurance Corporation as well as an increase in deposits.

Provision for income taxes. The provision for income taxes increased $223,000 to $820,000 for the three months ended March 31, 2010, compared to $597,000 for the same period in the prior year. This increase in provision for income taxes is indicative of the increases to pre-tax income between the quarters and reflects an effective tax rate of 19.5% for the quarter ended March 31, 2010 as compared to 16.4% for the same period in the prior year.

CHANGES IN FINANCIAL CONDITION

General. The Company’s total assets decreased by $6.2 million, or 0.3%, during the three month period to $1.95 billion at March 31, 2010. Cash and cash equivalents, securities available for sale, loans receivable, loans held for sale, accrued interest receivable, premises and equipment, real estate acquired through foreclosure, real estate held for investment and intangible assets decreased by $1.3 million, $10.2 million, $2.2 million, $152,000, $800,000, $80,000, $59,000, $1.8 million and $112,000, respectively. These decreases were partially offset by increases to prepaid expenses and other assets and bank owned life insurance of $10.3 million and $186,000, respectively. Total liabilities decreased $9.5 million, or 0.5%, to $1.79 billion at March 31, 2010 and stockholders’ equity increased $3.3 million, or 2.0%, to $168.0 million at March 31, 2010 as compared to $164.8 million at December 31, 2009. The decrease in total liabilities was primarily the result of decreases in borrowings, accrued expenses and other liabilities and accounts payable for land development of $43.1 million, $473,000 and $601,000, respectively, partially offset by increases in deposits of $34.7 million. The increase to stockholders’ equity was primarily the result of increases in retained earnings and accumulated other comprehensive income of $2.1 million and $1.1 million, respectively, and decreases in unearned employee stock ownership plan shares and treasury stock of $207,000 and $97,000, respectively, partially offset by a decrease in the non-controlling interest of $259,000.

Cash on hand, Interest-earning deposits and Federal funds sold. Cash on hand, interest-earning deposits and federal funds sold represent cash equivalents. Cash equivalents decreased a combined $1.3 million, or 8.2%, to $15.0 million at March 31, 2010 from $16.3 million at December 31, 2009. These accounts are typically increased by deposits from customers into saving and checking accounts, loan and security repayments and proceeds from borrowed funds. Decreases result from customer withdrawals, new loan originations, security purchases and repayments of borrowed funds.

Securities.The Company’s securities portfolio decreased by $10.2 million, or 0.9%, to $1.1 billion at March 31, 2010. During the three months ended March 31, 2010, the Company recorded purchases of available for sale securities of $54.0 million, consisting of purchases of fixed-rate mortgage backed securities of $36.5 million, adjustable-rate mortgage backed securities of $12.4 million, $4.9 million of municipal bonds and $254,000 of equity securities. The portfolio increased by $2.4 million due to increases in market value. These fair value adjustments represent temporary fluctuations resulting from changes in market rates in relation to average yields in the available for sale portfolio. Offsetting this increase were repayments and maturities of securities of $66.1 million, premium amortizations of $191,000 and realized losses of $309,000.

The Company’s investment strategy for 2010 is to utilize the cash flows from the mortgage backed security and investment portfolios for the funding of loans and for reinvestment into similar investment products to maintain or improve the Company’s interest rate sensitivity. The Company intends to also purchase corporate or municipal bonds to provide structure should a low interest rate environment prevail. As an additional step to aid interest rate

30

sensitivity the Company secured $155.0 million of wholesale borrowings with embedded interest rate caps totaling $180.0 million, to help insulate the net interest margin against a rapid rise in short term interest rates and $70.0 million, notional amount, of interest rate caps that are unhedged and marked to market quarterly impacting the income statement since 2008. In the first three months of 2010, this resulted in $319,000 of non-interest expense due to decreases in the fair value of these interest rate caps.

Quarterly, the Company reviews its securities portfolio for other-than-temporary impairment. This review includes an assessment of the following factors; the rating of the security, the length of time that the decline in fair value has existed, the financial condition of the issuer and the issuer’s ability to continue to pay interest or dividends, whether the decline can be attributed to specific adverse conditions in the geographic area or industry, the extent that fair value is below cost and management’s ability to hold the investment for a period of time to allow for recovery.

As of March 31, 2010, the Company had securities with unrealized losses for greater than twelve months of $8.6 million, as more fully described in footnote two to the unaudited consolidated financial statements on page ten. Included in the $8.6 million was $7.9 million of unrealized losses attributed to the Company’s floating rate trust preferred securities. Management’s conclusion after reviewing all of the factors, with the exception of the Company’s $2.5 million collateralized debt obligation, is that although the market value of these securities is below book value and will most likely remain so until the economic environment changes, we believe it to be a function of widening credit spreads that have affected the corporate bond market in general as the economy has weakened and is not a reflection of the issuers’ credit worthiness. Therefore, although some of the bonds exhibit a few of the indicators of an other-than-temporary impairment, the majority of the evidence indicates that no impairment exists at this time and the decline is due to the widening credit spreads as well as the current interest rate environment. Finally, the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, and considers the securities an important part of managing its interest rate risk profile.

Loans receivable.The loans receivable category consists primarily of single family mortgage loans used to purchase or refinance personal residences located within the Company’s market area and commercial real estate loans used to finance properties that are used in the borrowers businesses or to finance investor-owned rental properties, and to a lesser extent commercial and consumer loans. Net loans receivable decreased $2.2 million, or 0.3%, to $669.1 million at March 31, 2010 from $671.4 million at December 31, 2009. Included in this decrease were decreases in other loans of $4.4 million, or 2.4%, partially offset by an increase in mortgage loans of $1.4 million, or 0.3%, and a decrease in allowance for loan losses, deferred loan fees and loans in process of a combined $795,000, or 5.1%, during the three months ended March 31, 2010.

Loans held for sale.Loans held for sale decreased $152,000, or 75.6%, at March 31, 2010. During the three month period the Company originated loans held for sale of approximately $228,000 and sold approximately $383,000, with a resulting gain of approximately $3,000.

Non-performing assets.Nonperforming assets consist of nonaccrual loans, repossessed automobiles, real estate acquired through foreclosure (REO) and troubled debt restructuring (TDR). A loan is placed on nonaccrual status when, in the judgment of management, the probability of collection of interest is deemed insufficient to warrant further accrual. When a loan is placed on nonaccrual status, previously accrued but uncollected interest is deducted from interest income. The Company does not accrue interest on loans past due 90 days or more.

Non-performing assets amounted to $5.7 million, or 0.29%, of total assets at March 31, 2010 compared to $5.0 million, or 0.25%, of total assets at December 31, 2009. The increase in non-performing assets of approximately $765,000 was primarily the result of increases in non-performing loans of $814,000 partially offset by a decrease in REO of $58,000. The $814,000 increase in non-performing loans was primarily due to increases in non-performing 1-4 family mortgages and commercial real estate of $966,000 and $59,000, respectively, partially offset by decreases in non-performing consumer and commercial loans of $54,000 and $157,000, respectively.

FHLB Stock.FHLB stock remained the same at $27.5 million at March 31, 2010 and December 31, 2009. The Bank is required to maintain an investment in capital stock of the FHLB of Pittsburgh in an amount not less than 5.0% of its outstanding notes payable to the FHLB of Pittsburgh; however the FHLB Bank of Pittsburgh has currently restricted future redemptions of its stock, therefore the investment could be greater than 5.0% of such notes.

31

Real Estate Held for Investment.The Company’s real estate held for investment decreased by $1.8 million or 6.5%, to $25.7 million at March 31, 2010 from $27.5 million at December 31, 2009. This decrease was the result of sales activity in the joint ventures in which the Company has a 51% ownership, offset by construction activity within those joint ventures as well as a $852,000 write down of land acquisition and development costs at one of the Company’s joint venture projects.

Intangible assets. Intangible assets decreased $112,000, or 8.5%, to $1.2 million at March 31, 2010 from $1.3 million at December 31, 2009. The decrease primarily resulted from normal amortization of the core deposit intangible of acquisitions. Amortization is expected to total $413,000, $332,000, $251,000, $170,000, $88,000 and $7,000 for the years 2010, 2011, 2012, 2013, 2014 and 2015, respectively.

Securities Receivable.Securities receivable increased $10.9 million, to $13.8 million at March 31, 2010 from $2.9 million at December 31, 2009. This account reflects recent payments of principal and interest on the securities portfolio that are due to the Company but not yet received. The increase is consistent with an overall increase in repayments on the securities portfolio.

Deposits.The Company considers various sources when evaluating funding needs, including but not limited to deposits, which are a significant source of funds. Deposits totaled $979.0 million, or 55.5%, of the Company’s total funding sources at March 31, 2010. Total deposits increased $34.7 million, or 3.7%, to $979.0 million at March 31, 2010 from $944.3 million at December 31, 2009. Interest-bearing demand deposits increased $18.0 million and time deposits increased $13.6 million, respectively, during the three months ended March 31, 2010, while non-interest bearing deposits increased approximately $3.1 million during the same period. The increase to interest-bearing demand deposits is primarily due to the Company’s ongoing campaign to increase commercial, public and personal checking accounts.

Borrowed funds. The Company utilizes short and long-term borrowings as another source of funding used for asset growth and liquidity needs. These borrowings include FHLB advances, repurchase agreements, junior subordinated notes, borrowings from the Federal Reserve and corporate debt. Borrowed funds decreased $43.1 million, or 5.2%, to $786.5 million at March 31, 2010 from $829.6 million at December 31, 2009. FHLB advances decreased $62.4 million, or 14.8%, repurchase agreements increased $20.0 million, or 5.8%, other borrowings decreased approximately $693,000, or 3.5%, while junior subordinated notes remained the same at $46.4 million during the three months ended March 31, 2010. Borrowed funds and deposits are two of the primary sources of funds for the Company. As part of its general business practice, the Company seeks out the most competitive rate on the products and will adjust the mix of FHLB advances and repurchase agreements accordingly.

Accounts payable for land development.The accounts payable for land development decreased by $601,000 to $4.0 million at March 31, 2010 from $4.6 million at December 31, 2009. This account represents the unpaid portion of the development costs for the Company’s joint ventures.

Accrued Expenses and Other Liabilities. Accrued expenses and other liabilities decreased by $473,000, or 3.2%, to $14.2 million at March 31, 2010 from $14.7 million at December 31, 2009. This decrease was due to decreases in various accrued and liability accounts.

Stockholders’ equity.Stockholders’ equity increased $3.3 million, or 2.0%, to $168.0 million at March 31, 2010 from $164.8 million at December 31, 2009. The increase to stockholders’ equity was primarily the result of increases to accumulated other comprehensive income and retained earnings of $1.1 million and $2.1 million, respectively, and decreases in unearned employee stock ownership plan shares of $207,000 and treasury stock of $97,000, partially offset by a decrease in the non-controlling interest of $259,000.

32

ASSET AND LIABILITY MANAGEMENT

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

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

As of March 31, 2010, the implementation of these asset and liability initiatives resulted in the following: (i) $228.8 million or 28.2% of the Company’s portfolio of mortgage-backed securities were secured by ARMs; (ii) $202.1 million or 29.5% of the Company’s total loan portfolio had adjustable interest rates or maturities of 12 months or less and $72.3 million or 20.6% of the Company’s portfolio of single-family residential mortgage loans (including residential construction loans) consisted of ARMs, (iii) the weighted average call/maturity of the Company’s FHLB advances and repurchase agreements was 3.6 years and (iv) the Company had $70.0 million in notional amount of interest rate caps and $155.0 million in structured borrowings with $180.0 million in notional amount of embedded caps.

The implementation of the foregoing asset and liability initiatives and strategies, combined with other external factors such as demand for the Company’s products and economic and interest rate environments in general, has resulted in the Company historically being able to maintain a one-year interest rate sensitivity gap ranging between 0.0% of total assets to a negative 20.0% of total assets. The one-year interest rate sensitivity gap is defined as the difference between the Company’s interest-earning assets, which are scheduled to mature or reprice within one year and its interest-bearing liabilities, which are scheduled to mature or reprice within one year. At March 31, 2010, the Company’s interest-earning assets maturing or repricing within one year totaled $653.2 million while the Company’s interest-bearing liabilities maturing or repricing within one-year totaled $770.8 million, providing a deficiency of interest-earning assets over interest-bearing liabilities of $117.6 million or a negative 6.0% of total assets. At March 31, 2010, the percentage of the Company’s assets to liabilities maturing or repricing within one year was 84.7%. The Company strives to maintain its one-year interest rate sensitivity gap between a range of 0.0% and a negative 20.0% of total assets.

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

33

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

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

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

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

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

The following table presents the simulated impact of a 100 basis point or 200 basis point upward or downward shift of market interest rates on net interest income, return on average equity, diluted earnings per share and the change in EVE. This analysis was done assuming that the interest-earning asset and interest-bearing liability levels at March 31, 2010 remained constant. The impact of the market rate movements was developed by simulating the effects of rates changing gradually over a one-year period from the March 31, 2010 levels for net interest income, return on average equity and diluted earnings per share. The impact of market rate movements was developed by simulating the effects of an immediate and permanent change in rates at March 31, 2010 for the change in EVE. The impact of the rate change for net interest income is compared to the base amount which can fluctuate from period to period.

	Increase				Decrease
	+100		+200		-100		-200
	BP		BP		BP		BP
Net interest income - increase (decrease)	2.38	%	4.02	%	(2.67	)%	N/A
Return on average equity - increase (decrease)	3.99	%	6.65	%	(4.50	)%	N/A
Diluted earnings per share - increase (decrease)	4.01	%	6.90	%	(4.65	)%	N/A
EVE - increase (decrease)	(10.22	)%	(20.31	)%	(9.13	)%	N/A

The following table presents the simulated impact of a 100 basis point or 200 basis point upward or downward shift of market interest rates on net interest income, return on average equity, diluted earnings per share and the change in EVE. This analysis was done assuming that the interest-earning asset and interest-bearing liability levels at December 31, 2009 remained constant. The impact of the market rate movements was developed by simulating the effects of rates changing gradually over a one-year period from the December 31, 2009 levels for net interest income, return on average equity and diluted earnings per share. The impact of market rate movements was developed by simulating the effects of an immediate and permanent change in rates at December 31, 2009 for the change in EVE:

	Increase				Decrease
	+100		+200		-100		-200
	BP		BP		BP		BP
Net interest income - increase (decrease)	2.31	%	3.70	%	(0.49	)%	N/A
Return on average equity - increase (decrease)	3.85	%	6.12	%	(0.79	)%	N/A
Diluted earnings per share - increase (decrease)	3.95	%	6.30	%	(0.76	)%	N/A
EVE - increase (decrease)	(7.87	)%	(19.35	)%	(5.62	)%	N/A

34

LIQUIDITY

The Company’s primary sources of funds generally have been deposits obtained through the offices of the Bank, borrowings from the FHLB, repurchase agreement borrowings and amortization and prepayments of outstanding loans and maturing investment securities.

Net cash provided by operating activities totaled $4.5 million for the quarter ended March 31, 2010. Net cash provided by operating activities was primarily comprised of net income of $3.4 million and slight variances in other operating activities. Other operating activities included the proceeds from the sale of loans available for sale of $383,000 and origination of loans available for sale of $228,000.

Funds provided by investing activities totaled $3.8 million during the year ended March 31, 2010. Primary uses of funds included $41.8 million for loan originations, purchases of securities available for sale of $54.0 million as well as $2.3 million for funding of real estate held for investment. These uses were partially offset by sources of funds from repayments of loans and securities available for sale of $43.3 million and $55.2 million, respectively and proceeds from real estate held for investment $3.5 million.

Funds used in financing activities totaled $9.7 million for the year ended March 31, 2010. The primary uses of funds were for repayments of long and short term borrowings, funding dividends paid and the purchase of treasury stock of $46.1 million, $1.2 million and $101,000. Partially offsetting these uses were sources of funds including an increase in deposits and proceeds from long-term borrowings of $34.7 million and $3.0 million, respectively.

The Company’s primary sources of funds are deposits, amortization, repayments and maturities of existing loans, mortgage-backed securities and investment securities, funds from operations, and funds obtained through FHLB advances and other borrowings. At March 31, 2010, the total approved loan commitments outstanding amounted to $6.7 million. At the same date, commitments under unused lines of credit and credit card lines amounted to $85.5 million and the unadvanced portion of construction loans approximated $11.0 million. Certificates of deposit scheduled to mature in one year or less at March 31, 2010 totaled $441.5 million.

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

On March 16, 2010 the Company’s Board of Directors declared a cash dividend of $0.10 per share of common stock payable April 23, 2010, to shareholders of record at the close of business on March 31, 2010. Dividends are subject to determination and declaration by the Board of Directors, which take into account the Company’s financial condition, statutory and regulatory restrictions, general economic conditions and other factors. There can be no assurance that dividends will in fact be paid on the common stock in future periods or that, if paid, such dividends will not be reduced or eliminated.

REGULATORY CAPITAL REQUIREMENTS

Current regulatory requirements specify that the Bank and similar institutions must maintain leverage capital equal to 4% of adjusted total assets and risk-based capital equal to 8% of risk-weighted assets. The Federal Deposit Insurance Corporation (FDIC) may require higher core capital ratios if warranted, and institutions are to maintain

35

capital levels consistent with their risk exposures. The FDIC reserves the right to apply this higher standard to any insured financial institution when considering an institution’s capital adequacy. At March 31, 2010, ESB Bank was in compliance with all regulatory capital requirements with leverage and risk-based capital ratios of 7.5% and 14.2%, respectively.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Quantitative and qualitative disclosures about market risk are presented at December 31, 2009 in Item 7A of the Company’s Annual Report on Form 10-K, filed with the SEC on March 12, 2010. Management believes there have been no material changes in the Company’s market risk since December 31, 2009.

Item 4. Controls and Procedures

As of March 31, 2010, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), on the effectiveness of the design and operation of the Company’s disclosure controls and procedures. 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 March 31, 2010. There have been no significant changes in the Company’s internal controls over financial reporting or in other factors that could significantly affect internal controls during the quarter.

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.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The Company and its subsidiaries are involved in various legal proceedings occurring in the ordinary course of business. It is the opinion of management, after consultation with legal counsel, that these matters will not materially affect the Company’s consolidated financial position or results of operations.

Item 1A. Risk Factors

There are no material changes to the risk factors included in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

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

(a) – (b)	Not applicable
(c)	The following table sets forth information with respect to purchases made by or on behalf of the Company of shares of common stock of the Company during the indicated periods.

36

				Total Number of
				Shares Purchased as	Maximum Number of
	Total Number	Average		Part of Publicly	Shares that May Yet Be
	of Shares	Price Paid		Announced Plans or	Purchased Under the
Period	Purchased	per Share		Programs	Plans or Programs (1)
January 1-31, 2010	—	$	—	—	511,400
February 1-28, 2010	2,897		12.31	2,897	508,503
March 1-31, 2010	4,991		13.17	4,991	503,512
Totals	7,888	$	12.85	7,888	503,512

(1) On May 20, 2009, the Company announced a new program to repurchase up to 5% of the outstanding shares of common stock of the Company, or 600,000 shares, of the Company’s outstanding common stock. The program began upon the completion of the existing plan. The program does not have an expiration date and all shares are purchased in the open market or by privately negotiated transactions, as in the opinion of management, market conditions warrant.

Item 3. Defaults Upon Senior Securities

None.

Item 4. (Removed and Reserved)

Item 5. Other Information

None.

Item 6. Exhibits

(a) Exhibits:

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
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
32.1	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
32.2	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)

37

Signatures

Pursuant to the requirements 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: May 10, 2010	By:	/S/    CHARLOTTE A. ZUSCHLAG
		Charlotte A. Zuschlag
		President and Chief Executive Officer
Date: May 10, 2010	By:	/S/    CHARLES P. EVANOSKI
		Charles P. Evanoski
		Group Senior Vice President and Chief Financial Officer