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 financial statements and notes 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, 2009 have remained unchanged from the disclosures presented in the Company's Annual Report on Form 10-K for the year ended December 31, 2008 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, 2008, 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 23 branches.

During the three months ended March 31, 2009, the Company reported net income of $3.0 million, a $1.0 million, or 55.1%, increase in earnings over the same period last year. The Company realized a decrease in interest income of approximately $319,000 over the same quarter last year. However, interest expense decreased by approximately $2.4 million during the same period. The result was an increase of 38 basis points in the Company's net interest margin, from the same period last year.

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 repo's with embedded 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 first quarter of 2009, the Company had approximately $70.0 million of wholesale borrowings maturing with a weighted average rate of 5.08% and an original call/maturity of 2.8 years. These borrowings were replaced during the quarter ended March 31, 2009 with borrowings with a weighted average rate of 2.80% and a weighted average call/maturity of 4.1 years. For purposes of determining the average life of the borrowings, the Company utilizes the call date if applicable.

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 embedded in structured repo'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 $3.0 million for the three months ended March 31, 2009, as compared to net income of $2.0 million for the same period in the prior year. The $1.0 million, or 55.1%, increase in net income for the quarter ended March 31, 2009, as compared to the same period in the prior year was primarily attributable to increases in net interest income after provision for loan losses and non-interest income of $2.0 million and $36,000, respectively, partially offset by increases in non-interest expense and provision for income taxes of $484,000 and $459,000, 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 $2.1 million, or 30.5%, to $8.8 million for the three months ended March 31, 2009, compared to $6.8 million for the same period in the prior year. This increase in net interest income was the result of interest expense decreasing by $2.4 million, partially offset by a decrease to interest income of $319,000.

Interest income. Interest income decreased $319,000, or 1.3%, for the three months ended March 31, 2009, compared to the same period in the prior year. This decrease can primarily be attributed to decreases in interest earned on securities available for sale, Federal Home Loan Bank (FHLB) stock and interest earning deposits of $45,000, $402,000 and $55,000, respectively, partially offset by an increase in interest earned on loans receivable of $183,000.

Interest earned on loans receivable increased $183,000, or 1.9%, for the three months ended March 31, 2009, compared to the same period in the prior year. This increase was primarily attributable to an increase in the average balance of loans outstanding of $57.8 million, or 9.0%, to $697.8 million for the three months ended March 31, 2009, compared to $640.0 million for the same period in the prior year, partially offset by a decrease in the yield on loans receivable of 38 basis points to 5.82% at March 31, 2009 from 6.20% at March 31, 2008.

Interest earned on securities decreased $45,000, or 0.3%, for the three months ended March 31, 2009, 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 5.26% for the three months ended March 31, 2009 from 5.36% for the same period in the prior year partially offset by an increase in the average balance of the securities portfolio of $21.4 million, or 2.0%, to $1.1 billion at March 31, 2009.

Interest earned on FHLB stock decreased $402,000, or 100.0%, for the three months ended March 31, 2009, compared to the same period in the prior year. This decrease was primarily the result of the decision by the FHLB of Pittsburgh to suspend dividends on FHLB stock during the fourth quarter of 2008, as well as a decline in the average balance of FHLB stock of $4.2 million, or 13.2%, to $27.5 million at March 31, 2009.

These changes are reflected in the quarterly and year to date 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 $2.4 million, or 13.8%, for the three months ended March 31, 2009, 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 $1.6 million, $662,000 and $169,000, respectively.

Interest incurred on deposits decreased $1.6 million, or 23.9%, for the three months ended March 31, 2009, compared to the same period in the prior year. This decrease was due to a decrease in the cost of interest-bearing deposits to 2.43% from 3.31% for the quarters ended March 31, 2009 and 2008, respectively, partially offset by an increase in the average balance of interest-bearing deposits of $34.2 million, or 4.3%, to $823.3 million for the three months ended March 31, 2009, compared to $789.1 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, the largest component of the Company's interest-bearing liabilities, decreased $662,000, or 6.7%, for the three months ended March 31, 2009 compared to the same period in the prior year. This decrease was primarily attributable to a decrease in the cost of these funds to 4.28% from 4.74%, partially offset by an increase in the average balance of borrowed funds of $35.0 million, or 4.2%, to $878.7 million for the quarter ended March 31, 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. The interest incurred on these borrowings decreased by $169,000, or 20.7%, due primarily to a decrease in the cost of these funds to 5.67% for the quarter ended March 31, 2009 from 6.38% for the same period in the prior year, as well as a decrease in the average balance of $5.1 million, or 10.0%, to $46.4 million at March 31, 2009.

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.

                                                                      Three months ended March 31,
                                                             2009                                     2008
                                                 Average                 Yield /          Average                 Yield /
(Dollar amounts in thousands)                    Balance     Interest     Rate            Balance     Interest     Rate
Interest-earning assets:
Taxable securities available for sale          $   928,195   $  12,081      5.21 %      $   916,092   $  11,941      5.21 %
Taxable corporate bonds available for sale          45,804         300      2.66 %           46,343         604      5.24 %
Tax-exempt securities available for sale           116,772       1,299      6.74 %(1)       106,912       1,180      6.69 %(1)

                                                 1,090,771      13,680      5.26 %(1)     1,069,347      13,725      5.36 %(1)


Mortgage loans                                     505,493       7,326      5.80 %          470,240       7,135      6.07 %
Other loans                                        171,084       2,473      5.86 %          155,522       2,528      6.54 %
Tax-exempt loans                                    21,191         208      6.03 %(1)        14,220         161      6.90 %(1)

                                                   697,768      10,007      5.82 %(1)       639,982       9,824      6.20 %(1)


Cash equivalents                                    14,070           5      0.14 %           12,563          60      1.92 %
FHLB stock                                          27,470          -       0.00 %           31,647         402      5.11 %

                                                    41,540           5      0.05 %           44,210         462      4.20 %


Total interest-earning assets                    1,830,079      23,692      5.36 %(1)     1,753,539      24,011      5.64 %(1)
Other noninterest-earning assets                   152,041          -         -             150,476          -         -


Total assets                                   $ 1,982,120   $  23,692      4.95 %(1)   $ 1,904,015   $  24,011      5.19 %(1)


Interest-bearing liabilities:
Interest-bearing demand deposits               $   243,763   $     178      0.30 %      $   224,181   $     384      0.69 %
Time deposits                                      579,491       4,758      3.33 %          564,896       6,104      4.35 %

                                                   823,254       4,936      2.43 %          789,077       6,488      3.31 %


FHLB advances                                      507,026       5,812      4.65 %          628,379       7,489      4.79 %
Repurchase Agreements                              335,083       3,213      3.89 %          200,333       2,286      4.59 %
Other borrowings                                    36,601         252      2.79 %           15,022         164      4.39 %

                                                   878,710       9,277      4.28 %          843,734       9,939      4.74 %

Preferred securities- fixed                         36,083         527      5.93 %           36,083         528      5.89 %
Preferred securities- adjustable                    10,310         121      4.76 %           15,446         289      7.53 %

                                                    46,393         648      5.67 %           51,529         817      6.38 %

Total interest-bearing liabilities               1,748,357      14,861      3.45 %        1,684,340      17,244      4.12 %

Noninterest-bearing demand deposits                 69,579          -         -              59,385          -         -
Other noninterest-bearing liabilities               19,798          -         -              24,572          -         -


Total liabilities                                1,837,734      14,861      3.28 %        1,768,297      17,244      3.92 %
Stockholders' equity                               144,386          -         -             135,718          -         -


Total liabilities and equity                   $ 1,982,120   $  14,861      3.04 %      $ 1,904,015   $  17,244      3.64 %


Net interest income                                          $   8,831                                $   6,767


Interest rate spread (difference between
weighted average rate on interest-earning
assets and interest-bearing liabilities)                                    1.91 %(1)                                1.52 %(1)


Net interest margin (net interest income as
a percentage of average interest-earning
assets)                                                                     2.06 %(1)                                1.68 %(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, 2009 and 2008 in terms of: (1) changes in volume of interest-earning assets and interest-bearing liabilities and (2) changes in yields and rates. The tables reflect 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.

                                                Three months ended, March 31,
                                                       2009 versus 2008
                                                  Increase (decrease) due to
       (Dollar amounts in thousands)          Volume           Rate        Total
       Interest income:
       Securities                           $      272       $   (317 )   $    (45 )
       Loans                                       853           (670 )        183
       Cash equivalents                              6            (61 )        (55 )
       FHLB stock                                  (47 )         (355 )       (402 )

       Total interest-earning assets             1,084         (1,403 )       (319 )


       Interest expense:
       Deposits                                    271         (1,823 )     (1,552 )
       FHLB advances                            (1,400 )         (277 )     (1,677 )
       Repurchase agreements                     1,339           (412 )        927
       Other borrowings                            166            (78 )         88
       Preferred securities                        (77 )          (92 )       (169 )

       Total interest-bearing liabilities          299         (2,682 )     (2,383 )


       Net interest income                  $      785       $  1,279     $  2,064

Provision for loan losses. The provision for loan losses increased $89,000 to $310,000 for the quarter ended March 31, 2009, compared to $221,000 for the same period last year. These provisions were part of the normal operations of the Company for the first quarter of 2009. 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, 2009 amounted to $6.1 million, or .87% of the Company's total loan portfolio, as compared to $6.0 million, or .85%, at December 31, 2008. The Company's allowance for losses on loans as a percentage of non-performing loans was 185.6% and 239.9% at March 31, 2009 and December 31, 2008, respectively.

Non-interest income. Non-interest income increased $36,000, or 2.7%, for the three months ended March 31, 2009, compared to the same period in the prior year. This increase can be attributed to increases in income from fees and service charges, net gain on sale of loans and other income of $71,000, $52,000 and $18,000, respectively, partially offset by decreases in cash surrender value of BOLI and income from joint ventures of $52,000 and $53,000, respectively.

Fees and service charges increased $71,000, or 8.3%, to $926,000 for the three months ended March 31, 2009 compared to $855,000 for the same period in the prior year. These increases can be attributed to increases in fees on NOW accounts due to the Company's overdraft protection program and debit card transaction fees.

Net gain on sale of loans increased $52,000, or 100.0% for the three months ended March 31, 2009 compared to March 31, 2008.

The cash surrender value of BOLI decreased $52,000, or 18.1%, to $236,000 for the three months ended March 31, 2009 compared to $288,000 for the same period in the prior year.

Income from real estate joint ventures decreased $53,000, or 27.0%, to $143,000 for the quarter ended March 31, 2009 compared to $196,000 for the quarter ended March 31, 2008. The Company has a 51% ownership in its ten 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.

Non-interest expense. Non-interest expense increased $484,000, or 8.4%, to $6.2 million for the three months ended March 31, 2009 as compared to $5.8 million for the same period in the prior year. This increase was primarily related to increases in compensation and employee benefits, federal deposit insurance premiums, data processing and advertising of $170,000, $299,000, $16,000 and $38,000, respectively, partially offset by decreases in premises and equipment and amortization of intangible assets of $13,000 and $28,000, respectively.

Compensation and employee benefits increased by $170,000, or 5.0%, to $3.6 million for the quarter ended March 31, 2009, as compared to the same quarter in the prior year. The increases were due to normal salary adjustments between the periods.

Federal deposit insurance premiums increased $299,000, to $323,000 for the quarter ended March 31, 2009 as compared to $24,000 for the same period in the prior year. This increase is primarily attributable to an increase in the rates charged to financial institutions by the FDIC.

Amortization of intangible assets decreased $28,000, or 17.8%, for the quarter ended March 31, 2009 as compared to the same period in the prior year. The decrease primarily resulted from decreases to the normal amortization of the core deposit intangible of the Company's acquisitions.

Provision for income taxes. The provision for income taxes increased $459,000 to $597,000 for the three months ended March 31, 2009, compared to $138,000 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 16.4% for the quarter ended March 31, 2009 as compared to 6.6% for the same period in the prior year.

CHANGES IN FINANCIAL CONDITION

General. The Company's total assets increased by $5.9 million, or 0.3%, to $2.0 billion at March 31, 2009. Cash and cash equivalents, securities available for sale, premises and equipment, real estate acquired through foreclosure, prepaid expenses and other assets and bank owned life insurance increased by $2.6 million, $6.1 million, $213,000, $139,000, $208,000 and $236,000, respectively. These increases were offset by decreases to loans receivable, accrued interest receivable, real estate held for investment and intangible assets of $3.0 million, $295,000, $156,000 and $133,000, respectively. Total liabilities increased $63,000 to $1.8 billion at March 31, 2009 and stockholders' equity increased $5.8 million, or 4.1%, to $148.9 million at March 31, 2009 as compared to $143.1 million at December 31, 2008. The increase in total liabilities was primarily the result of increases in deposits and accrued expenses and other liabilities of $15.3 million and $1.4 million, respectively, which were partially offset by decreases in borrowings and accounts payable for land development of $16.1 million and $384,000, respectively. The increase to stockholders' equity was primarily the result of increases in accumulated other comprehensive income and retained earnings of $4.4 million and $1.8 million, respectively, and a decrease in unearned employee stock ownership plan shares of $218,000, partially offset by a net increase in treasury stock of $610,000.

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 increased a combined $2.6 million, or 13.5%, to $21.4 million at March 31, 2009 from $18.9 million at December 31, 2008. 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.

. . .