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 September 30, 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 24 branches after opening an additional branch in Butler County in July 2009.

During the three months ended September 30, 2009, the Company reported net income of $3.5 million, an increase of approximately $382,000, or 12.2%, over the same period last year. The Company realized a decrease to interest income of approximately $1.2 million over the same quarter last year. However, interest expense decreased by approximately $2.8 million during the same period. The result was an increase of $1.5 million in net interest income and an increase of 37 basis points to the Company's net interest margin.

During the nine months ended September 30, 2009, the Company reported net income of $9.7 million, a $1.4 million, or 17.3%, increase in earnings over the same period last year. The Company realized a decrease to interest income of approximately $2.0 million over the same period last year. However, interest expense decreased by approximately $7.3 million during the same period. The result was an increase of $5.3 million in net interest income and an increase of 37 basis points to the Company's net interest margin.

The increase in income for the quarter and year to date 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 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 nine months ended September 30, 2009, the Company had approximately $211.4 million of wholesale borrowings maturing with a weighted average rate of 5.23% and an original call/maturity of 2.8 years. These borrowings were replaced during the nine months ended September 30, 2009 with $166.0 million of borrowings with a weighted average rate of 2.98% and a weighted average call/maturity of 4.0 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 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 $3.5 million for the three months ended September 30, 2009 as compared to $3.1 million for the same period in the prior year. The $382,000, or 12.2%, increase in net income for the quarter ended September 30, 2009, as compared to the same period in the prior year was primarily attributable to a increase in net interest income after provision for loan losses of $1.7 million, partially offset by decreases in non interest income of $210,000 and increases in non interest expense, provision for income taxes and net income attributable to the non controlling interest of $749,000, $257,000 and $111,000, respectively.

The Company recorded net income of $9.7 million for the nine months ended September 30, 2009, as compared to net income of $8.2 million for the same period in the prior year. The $1.4 million, or 17.3% increase in net income for the nine months ended September 30, 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 of $5.4 million, partially offset by a decrease in non interest income of $583,000 and increases in non interest expense, provision for income taxes and net income attributable to the non controlling interest of $2.7 million, $636,000 and $48,000, 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 $1.5 million, or 18.7%, to $9.8 million for the three months ended September 30, 2009, compared to $8.2 million for the same period in the prior year. This increase in net interest income was the result of interest expense decreasing by $2.8 million, partially offset by a decrease to interest income of $1.2 million.

Net interest income increased by $5.3 million, or 23.3%, to $27.9 million for the nine months ended September 30, 2009 compared to $22.6 million for the same period in the prior year. This increase in net interest income was the result of interest expense decreasing by $7.3 million, partially offset by a decrease to interest income of $2.0 million.

Interest income. Interest income decreased $1.2 million, or 5.1%, for the three months ended September 30, 2009, compared to the same period in the prior year. This decrease can primarily be attributed to decreases in interest earned on loans receivable, securities available for sale, Federal Home Loan Bank (FHLB) stock and interest earning deposits of $391,000, $561,000, $257,000 and $28,000, respectively.

Interest earned on loans receivable decreased $391,000, or 3.9%, for the three months ended September 30, 2009, compared to the same period in the prior year. This decrease was primarily attributable to a decrease in the yield on loans receivable of 21 basis points to 5.83% at September 30, 2009 from 6.04% at September 30, 2008, as well as a decrease in the average balance of loans outstanding of $1.7 million, or 0.25%, to $672.8 million for the three months ended September 30, 2009, compared to $674.5 million for the same period in the prior year.

Interest earned on securities decreased $561,000, or 4.09%, for the three months ended September 30, 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 5.17% for the three months ended September 30, 2009 from 5.31% for the three months ended September 30, 2008, as well as a decrease in the average balance of the securities portfolio of $10.2 million, or 0.95%, to $1.1 billion at September 30, 2009.

Interest earned on FHLB stock decreased $257,000, or 100.0%, for the three months ended September 30, 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.

Interest income decreased $2.0 million, or 2.8%, for the nine months ended September 30, 2009, compared to the same period in the prior year. This decrease can primarily be attributed to decreases in interest earned on loans receivable, securities available for sale, FHLB stock and interest-earning deposits of $219,000, $715,000, $952,000 and $130,000, respectively.

Interest earned on loans receivable decreased $219,000, or 0.7%, for the nine months ended September 30, 2009 compared to the same period in the prior year. This decrease was primarily attributable to a decrease in the yield on loans receivable of 28 basis points to 5.82% at September 30, 2009 from 6.10% at September 30, 2008, partially offset by an increase in the average balance of loans outstanding of $28.2 million, or 4.3%, to $684.2 million for the nine months ended September 30, 2009 as compared to $656.0 million for the same period in the prior year.

Interest earned on securities decreased $715,000, or 1.7%, for the nine months ended September 30, 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 of 8 basis points to 5.23% at September 30, 2009 as compared to 5.31% at September 30, 2008, partially offset by an increase in the average balance of the securities portfolio of $5.0 million, or 0.5%, to $1.1 billion at September 30, 2009.

Interest earned on FHLB stock decreased $952,000, or 100.0%, for the nine months ended September 30, 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.

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 $2.8 million, or 17.4%, for the three months ended September 30, 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 $790,000, $1.9 million and $80,000, respectively.

Interest incurred on deposits decreased $790,000, or 15.4%, for the three months ended September 30, 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 2.01% from 2.55% for the quarters ended September 30, 2009 and 2008, respectively, partially offset by an increase in the average balance of interest-bearing deposits of $58.3 million, or 7.3%, to $856.6 million for the three months ended September 30, 2009, compared to $798.3 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 $1.9 million or 18.9%, for the three months ended September 30, 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 4.02% from 4.60%, as well as a decrease in the average balance of $64.7 million, or 7.4%, for the quarters ended September 30, 2009 and 2008.

Interest expense decreased $7.3 million, or 14.8%, for the nine months ended September 30, 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 $3.5 million, $3.5 million and $375,000, respectively.

Interest incurred on deposits decreased $3.5 million, or 20.1%, for the nine months ended September 30, 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 2.20% from 2.89% for the nine months ended September 30, 2009 and 2008, respectively, partially offset by an increase in the average balance of interest-bearing deposits of $40.9 million, or 5.2%, to $836.0 million for the nine months ended September 30, 2009, compared to $795.1 million for the same period in the prior year.

Interest incurred on borrowed funds decreased $3.5 million, or 11.6%, for the nine months ended September 30, 2009 compared to the same period in the prior year. This decrease was primarily attributable to a decrease in the cost of these funds between the periods to 4.15% from 4.64%, as well as a decrease in the average balance of $8.9 million, or 1.0%, to $846.1 million for the nine months ended September 30, 2009, compared to $855.0 million for the same period in the prior year.

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 September 30, 2009, the interest incurred on these borrowings decreased by $80,000, or 11.4%, due primarily to a decrease in the cost of these funds to 5.32% from 5.91% for the same period in the prior year as well as a decline in the average balance of $855,000, or 1.8%. For the nine months ended September 30, 2009, the interest incurred on these borrowings decreased by $375,000, or 16.5% due primarily to a decrease in the cost of these funds to 5.49% for the nine months ended September 30, 2009 from 6.08% for the same period in the prior year, as well as a decline in the average balance of $3.7 million, or 7.4%.

Average Balance Sheet and Yield/Rate Analysis. The following tables set 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 September 30,
                                                              2009                                       2008
                                                  Average                 Yield /            Average                 Yield /
(Dollar amounts in thousands)                     Balance     Interest     Rate              Balance     Interest     Rate

Interest-earning assets:
Taxable securities available for sale           $   821,290   $  10,382      5.06 %        $   902,954   $  11,769      5.21 %
Taxable corporate bonds available for sale          127,663       1,415      4.40 %             67,787         730      4.28 %
Tax-exempt securities available for sale            122,230       1,362      6.75 % (1)        110,676       1,221      6.69 % (1)

                                                  1,071,183      13,159      5.17 % (1)      1,081,417      13,720      5.31 % (1)


Mortgage loans                                      480,772       7,004      5.83 %            492,216       7,378      6.00 %
Other loans                                         174,008       2,531      5.77 %            166,233       2,586      6.19 %
Tax-exempt loans                                     18,030         198      6.60 % (1)         16,054         160      6.00 % (1)

                                                    672,810       9,733      5.83 % (1)        674,503      10,124      6.04 % (1)


Cash equivalents                                     26,137           6      0.09 %             18,184          34      0.72 %
FHLB stock                                           27,470          -         -                29,311         257      3.50 %

                                                     53,607           6      0.04 %             47,495         291      2.44 %


Total interest-earning assets                     1,797,600      22,898      5.27 % (1)      1,803,415      24,135      5.51 % (1)
Other noninterest-earning assets                    166,808          -         -               133,088          -         -


Total assets                                    $ 1,964,408   $  22,898      4.82 % (1)    $ 1,936,503   $  24,135      5.13 % (1)


Interest-bearing liabilities:
Interest-bearing demand deposits                $   261,422   $     197        -           $   249,341   $     354      0.56 %
Time deposits                                       595,196       4,136      2.76 %            548,979       4,769      3.46 %

                                                    856,618       4,333      2.01 %            798,320       5,123      2.55 %


FHLB advances                                       439,029       4,794      4.33 %            563,827       6,864      4.84 %
Repurchase Agreements                               343,500       3,160      3.65 %            288,167       2,992      4.13 %
Other borrowings                                     26,167         232      3.52 %             21,352         233      4.34 %

                                                    808,696       8,186      4.02 %            873,346      10,089      4.60 %

Preferred securities- fixed                          36,083         528      5.81 %             36,083         528      5.82 %
Preferred securities- adjustable                     10,310          94      3.62 %             11,165         174      6.20 %

                                                     46,393         622      5.32 %             47,248         702      5.91 %

Total interest-bearing liabilities                1,711,707      13,141      3.05 %          1,718,914      15,914      3.68 %

Noninterest-bearing demand deposits                  70,328          -         -                69,289          -         -
Other noninterest-bearing liabilities                21,528          -         -                24,934          -         -


Total liabilities                                 1,803,563      13,141      2.89 %          1,813,137      15,914      3.49 %
Stockholders' equity                                160,845          -         -               123,366          -         -


Total liabilities and equity                    $ 1,964,408   $  13,141      2.65 %        $ 1,936,503   $  15,914      3.27 %


Net interest income                                           $   9,757                                  $   8,221


Interest rate spread (difference between
weighted average rate on interest-earning
assets and interest-bearing liabilities)                                     2.22 % (1)                                 1.83 % (1)


Net interest margin (net interest income as a
percentage of average interest-earning
assets)                                                                      2.37 % (1)                                 2.00 % (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.

                                                                      Nine months ended September 30,
                                                              2009                                       2008
                                                  Average                 Yield /            Average                 Yield /
(Dollar amounts in thousands)                     Balance     Interest     Rate              Balance     Interest     Rate

Interest-earning assets:
Taxable securities available for sale           $   857,918   $  32,943      5.12 %        $   896,703   $  34,946      5.20 %
Taxable corporate bonds available for sale          101,569       3,300      4.34 %             68,874       2,419      4.69 %
Tax-exempt securities available for sale            119,744       4,003      6.75 % (1)        108,614       3,595      6.69 % (1)

                                                  1,079,231      40,246      5.23 % (1)      1,074,191      40,960      5.31 % (1)


Mortgage loans                                      491,472      21,416      5.81 %            479,953      21,667      6.02 %
Other loans                                         173,259       7,505      5.79 %            161,205       7,599      6.30 %
Tax-exempt loans                                     19,501         609      6.33 % (1)         14,848         483      6.59 % (1)

                                                    684,232      29,530      5.82 % (1)        656,006      29,749      6.10 % (1)


Cash equivalents                                     21,220          16      0.10 %             16,897         146      1.15 %
FHLB stock                                           27,470          -         -                30,292         952      4.20 %

                                                     48,690          16      0.04 %             47,189       1,098      3.11 %


Total interest-earning assets                     1,812,153      69,792      5.31 % (1)      1,777,386      71,807      5.55 % (1)
Other noninterest-earning assets                    159,224          -         -               142,594          -         -


Total assets                                    $ 1,971,377   $  69,792      4.88 % (1)    $ 1,919,980   $  71,807      5.13 % (1)


Interest-bearing liabilities:
Interest-bearing demand deposits                $   253,603   $     564      0.30 %        $   236,959   $   1,065      0.60 %
Time deposits                                       582,441      13,195      3.03 %            558,146      16,145      3.86 %

                                                    836,044      13,759      2.20 %            795,105      17,210      2.89 %


FHLB advances                                       469,108      15,881      4.53 %            590,322      21,289      4.82 %
Repurchase Agreements                               344,528       9,638      3.74 %            247,389       7,868      4.25 %
Other borrowings                                     32,463         736      3.03 %             17,313         558      4.31 %

                                                    846,099      26,255      4.15 %            855,024      29,715      4.64 %

Preferred securities- fixed                          36,083       1,583      5.87 %             36,083       1,583      5.86 %
Preferred securities- adjustable                     10,310         322      4.18 %             14,022         697      6.64 %

                                                     46,393       1,905      5.49 %             50,105       2,280      6.08 %

Total interest-bearing liabilities                1,728,536      41,919      3.24 %          1,700,234      49,205      3.87 %
. . .