Forward Looking Statements

This quarterly report contains forward-looking statements, which can be identified by the use of such words as estimate, project, believe, intend, anticipate, plan, seek, expect and similar expressions. These forward-looking statements include:

• statements of our goals, intentions and expectations;

• statements regarding our business plans and prospects and growth and operating strategies;

• statements regarding the asset quality of our loan and investment portfolios; and

• estimates of our risks and future costs and benefits.

By identifying these forward-looking statements for you in this manner, we are alerting you to the possibility that our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Important factors that could cause our actual results and financial condition to differ from those indicated in the forward-looking statements include, among others, those discussed under "Risk Factors" in Part I, Item 1A of the Company's Annual Report on Form 10-K and Part II, Item 1A of this Report on Form 10-Q, as well as the following factors:

• significantly increased competition among depository and other financial institutions;

• inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments;

• general economic conditions, either nationally or in our market areas, that are worse than expected;

• adverse changes in the securities markets;

• legislative or regulatory changes that adversely affect our business;

• our ability to enter new markets successfully and take advantage of growth opportunities, and the possible short-term dilutive effect of potential acquisitions or de novo branches, if any;

• changes in consumer spending, borrowing and savings habits;

• changes in accounting policies and practices, as may be adopted by the bank regulatory agencies and the Financial Accounting Standards Board; and

• changes in our organization, compensation and benefit plans.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

Overview

The Company consummated its initial stock offering on April 3, 2007 with the sale of 15,870,000 shares of common stock. The Company also contributed 1,110,900 shares of the Company's outstanding common stock, and contributed $1.6 million in cash, to the ESSA Bank & Trust Foundation. Net proceeds of the offering were approximately $155.8 million prior to the contribution to the Foundation.

Comparison of Financial Condition at March 31, 2009 and September 30, 2008

Total Assets. Total assets increased by $57.1 million, or 5.7%, to $1.05 billion at March 31, 2009 from $993.5 million at September 30, 2008. This increase was primarily due to increases in interest-bearing deposits with other institutions, certificates of deposit, investment securities available for sale and net loans receivable.

Interest-Bearing Deposits with Other Institutions. Interest-bearing deposits with other institutions increased $5.1 million, or 120.1%, to $9.3 million at March 31, 2009 from $4.2 million at September 30, 2008. The primary reason for the increase was an increase in the Company's interest-bearing demand deposit account at FHLBank Pittsburgh of $5.1 million. This increase was primarily the result of the Company's need to provide liquidity to fund its stock buyback program.

Certificates of Deposit. The Company invested an additional $2.9 million in certificates of deposit at other FDIC-insured financial institutions in November 2008 and realized maturities of $1.9 million in January 2009.

Investment Securities Available for Sale. Investment securities available for sale increased $8.7 million, or 4.3%, to $212.8 million at March 31, 2009 from $204.1 million at September 30, 2008. The increase was due primarily to an increase of $33.9 million in the Company's portfolio of mortgage-backed securities issued by United States government sponsored agencies or entities and was offset in part by a $25.2 million decrease in the Company's portfolio of United States government agency securities. The growth in the mortgage-backed securities portfolio was due to the reinvestment of the proceeds from United States government agency security maturities, in addition to the investment of approximately $20.0 million in mortgage-backed securities issued by United States government sponsored agencies or entities as part of a leverage strategy to take advantage of the steepening yield curve.

Net Loans. Net loans increased $38.7 million, or 5.5%, to $745.6 million at March 31, 2009 from $706.9 million at September 30, 2008. Loan growth was primarily attributed to growth in residential real estate loans as a result of continued demand in our market area and recent declines in mortgage rates. During this period, residential loans outstanding increased by $40.2 million to $612.2 million, and construction loans outstanding increased by $596,000 to $8.9 million. These increases were partially offset by decreases in home equity loans and lines of credit outstanding of $122,000 to $47.4 million, other loans outstanding of $83,000 to $3.0 million, commercial real estate loans outstanding of $1.8 million to $67.7 million and commercial loans outstanding of $272,000 to $11.7 million.

Deposits. Deposits increased $28.8 million, or 7.8%, to $399.3 million at March 31, 2009 from $370.5 million at September 30, 2008. At March 31, 2009 compared to September 30, 2008 money market accounts increased $25.2 million to $100.0 million, NOW accounts increased $1.4 million to $57.1 million and savings and club accounts increased $4.3 million to $65.7 million. These increases were offset in part during the same period by decreases in non-interest bearing demand accounts of $2.1 million to $22.8 million and certificates of deposit of $10,000 to $153.7 million. Included in the certificates of deposit at March 31, 2009 was a decrease of $3.9 million in brokered certificates of deposit to $7.0 million. The decline in brokered certificates was the result of the Company's decision not to renew maturing certificates based on the cost of renewing those certificates compared to other available funding sources.

Borrowed Funds. Borrowed funds increased by $37.6 million, or 9.1%, to $450.4 million at March 31, 2009, from $412.8 million at September 30, 2008. The increase in borrowed funds was primarily due to the need to fund additional loan growth and to purchase investment securities and certificates of deposit.

Stockholders' Equity. Stockholders' equity decreased by $10.5 million, or 5.3%, to $189.6 million at March 31, 2009 from $200.1 million at September 30, 2008. This decrease was primarily the result of a stock repurchase program the company began in June 2008. As of March 31, 2009, the Company had purchased 2,086,059 shares at an average price of $13.00 per share. Stock repurchases for the six months ended March 31, 2009 totaled $16.7 million. This decrease was partially offset by net income of $3.4 million and increases in unrealized gains on available for sale securities, net of taxes of $2.6 million and allocation of shares held by the Bank's ESOP of $311,000.

Average Balance Sheets for the Three Months Ended March 31, 2009 and 2008

The following tables set forth average balance sheets, average yields and costs,
and certain other information for the periods indicated. All average balances
are daily average balances, the yields set forth below include the effect of
deferred fees and discounts and premiums that are amortized or accreted to
interest income.



                                                                For the Three Months Ended March 31,
                                                          2009                                         2008
                                                        Interest                                    Interest
                                          Average        Income/                       Average       Income/
                                          Balance        Expense      Yield/ Cost      Balance       Expense      Yield/ Cost
                                                                       (dollars in thousands)
Interest-earning assets:
Loans (1)                               $   733,754     $  10,523            5.82 %   $ 652,556     $   9,884            6.08 %
Investment securities
Taxable (2)                                  35,707           309            3.51 %      80,979           937            4.64 %
Exempt from federal income tax(2) (3)         7,217            82            6.98 %       7,408            83            6.81 %

Total investment securities                  42,924           391            4.09 %      88,387         1,020            4.82 %
Mortgage-backed securities                  187,992         2,335            5.04 %     135,600         1,700            5.03 %
Federal Home Loan Bank stock                 20,727            -             0.00 %      16,954           212            4.99 %
Other                                         7,313             1            0.06 %       9,644            75            3.12 %

Total interest-earning assets               992,710        13,250            5.43 %     903,141        12,891            5.74 %
Allowance for loan losses                    (4,963 )                                    (4,407 )
Noninterest-earning assets                   44,874                                      42,736

Total assets                            $ 1,032,621                                   $ 941,470


Interest-bearing liabilities:
NOW accounts                            $    53,844            11            0.08 %   $  53,167            16            0.12 %
Money market accounts                        92,137           404            1.78 %      49,115           379            3.10 %
Savings and club accounts                    61,389            67            0.44 %      62,123            65            0.42 %
Certificates of deposit                     155,183         1,306            3.41 %     179,591         1,987            4.44 %
Borrowed funds                              442,385         4,253            3.90 %     354,823         4,068            4.60 %

Total interest-bearing liabilities          804,938         6,041            3.04 %     698,819         6,515            3.74 %
Non-interest bearing NOW accounts            23,402                                      23,487
Noninterest-bearing liabilities              10,679                                       9,532

Total liabilities                           839,019                                     731,838
Equity                                      193,602                                     209,632

Total liabilities and equity            $ 1,032,621                                   $ 941,470


Net interest income                                     $   7,209                                   $   6,376

Interest rate spread                                                         2.39 %                                      2.00 %
Net interest-earning assets             $   187,772                                   $ 204,322

Net interest margin(4)                                                       2.95 %                                      2.83 %
Average interest-earning assets to
average interest-bearing liabilities                       123.33 %                                    129.24 %

(1) Non-accruing loans are included in the outstanding loan balances.

(2) Held to maturity securities are reported at amortized cost. Available for sale securities are reported at fair value.

(3) Yields on tax exempt securities have been calculated on a fully tax equivalent basis assuming a tax rate of 34%.

(4) Represents the difference between interest earned and interest paid, divided by average total interest earning assets.

                                                                  For the Six Months Ended March 31,
                                                           2009                                         2008
                                                         Interest                                    Interest
                                           Average        Income/                       Average       Income/
                                           Balance        Expense      Yield/ Cost      Balance       Expense      Yield/ Cost
                                                                        (dollars in thousands)
Interest-earning assets:
Loans (1)                                $   725,081     $  21,124            5.84 %   $ 643,559     $  19,667            6.10 %
Investment securities
Taxable (2)                                   40,483           734            3.64 %      83,717         2,008            4.79 %
Exempt from federal income tax(2) (3)          7,072           165            7.05 %       7,378           166            6.76 %

Total investment securities                   47,555           899            4.14 %      91,095         2,174            4.95 %
Mortgage-backed securities                   175,144         4,363            5.00 %     132,514         3,331            5.02 %
Federal Home Loan Bank stock                  20,143           112            1.12 %      16,911           447            5.27 %
Other                                          8,240             8            0.19 %       8,233           161            3.88 %

Total interest-earning assets                976,163        26,506            5.46 %     892,312        25,780            5.78 %
Allowance for loan losses                     (4,841 )                                    (4,333 )
Noninterest-earning assets                    46,266                                      42,803

Total assets                             $ 1,017,588                                   $ 930,782


Interest-bearing liabilities:
NOW accounts                             $    53,523            22            0.08 %   $  53,761            27            0.10 %
Money market accounts                         84,264           878            2.09 %      46,545           783            3.36 %
Savings and club accounts                     61,050           130            0.43 %      62,264           137            0.44 %
Certificates of deposit                      156,823         2,729            3.49 %     185,443         4,189            4.51 %
Borrowed funds                               432,887         8,544            3.96 %     342,411         8,069            4.70 %

Total interest-bearing liabilities           788,547        12,303            3.13 %     690,424        13,205            3.81 %
Non-interest bearing NOW accounts             23,584                                      23,552
Noninterest-bearing liabilities                9,997                                       8,616

Total liabilities                            822,128                                     722,592
Equity                                       195,460                                     208,190

Total liabilities and equity             $ 1,017,588                                   $ 930,782


Net interest income                                      $  14,203                                   $  12,575

Interest rate spread                                                          2.33 %                                      1.97 %
Net interest-earning assets              $   187,616                                   $ 201,888

Net interest margin(4)                                                        2.92 %                                      2.81 %
Average interest-earning assets to
average interest-bearing liabilities                        123.79 %                                    129.24 %

(5) Non-accruing loans are included in the outstanding loan balances.

(6) Held to maturity securities are reported at amortized cost. Available for sale securities are reported at fair value.

(7) Yields on tax exempt securities have been calculated on a fully tax equivalent basis assuming a tax rate of 34%.

(8) Represents the difference between interest earned and interest paid, divided by average total interest earning assets.

Comparison of Operating Results for the Three Months Ended March 31, 2009 and March 31, 2008

Net Income. Net income decreased $117,000, to $1.5 million for the three months ended March 31, 2009 compared to net income of $1.7 million for the comparable period in 2008. The net income of $1.5 million for the three months ending March 31, 2009 included an expense of $538,000 related to the Company's Equity Incentive Plan. As previously announced, the Company's shareholders approved the ESSA Bancorp, Inc. 2007 Equity Incentive Plan at the 2008 Annual Stockholders meeting on May 8, 2008. Awards granted under the Equity Incentive Plan were made on May 23, 2008.

Net Interest Income. Net interest income increased $833,000 or 13.1%, to $7.2 million for the three months ended March 31, 2009 from $6.4 million for the comparable period in 2008. The increase was primarily attributable to an increase of 39 basis points in the Company's interest rate spread to 2.39% for the three months ended March 31, 2009, from 2.00% for the comparable period in 2008, which was offset in part by a decrease in average net earning assets of $16.6 million for the three months ended March 31, 2009 as compared to average net earning assets for the comparable period in 2008.

Interest Income. Interest income increased $359,000 or 2.8%, to $13.3 million for the three months ended March 31, 2009 from $12.9 million for the comparable 2008 period. The increase resulted primarily from an $89.6 million increase in average interest-earning assets, partially offset by a 31 basis point decrease in average yield on interest earning assets. The average yield on interest earning assets was 5.43% for the three months ended March 31, 2009, as compared to 5.74% for the comparable 2008 period. Loans increased on average $81.2 million between the two periods along with increases in the average balance of mortgage backed securities of $52.4 million. In addition, average Federal Home Loan Bank stock increased $3.8 million. These increases were offset in part by decreases in the average balances of investment securities of $45.5 million and average other interest earning assets of $2.3 million. The primary reason for the increase in mortgage backed securities was the partial reinvestment of borrowing proceeds, maturing certificates of deposit and investment securities into these assets. Average Federal Home Loan Bank stock increased as a result of the Bank's increase in borrowings from the FHLBank Pittsburgh. As a member of the Federal Home Loan Bank System, the Bank maintains an investment in the capital stock of the FHLBank Pittsburgh in an amount not less than 70 basis points of the outstanding unused FHLB borrowing capacity or 1/20 of its outstanding FHLB borrowings, whichever is greater, as calculated throughout the year. On December 23, 2008, the FHLBank Pittsburgh notified its members, including the Company, that it was suspending the payment of dividends on its capital stock and the repurchase of excess capital stock until further notice.

Interest Expense. Interest expense decreased $474,000 or 7.3%, to $6.0 million for the three months ended March 31, 2009 from $6.5 million for the comparable 2008 period. The decrease resulted from a 70 basis point decrease in the overall cost of interest bearing liabilities to 3.04% for the three months ended March 31, 2009 from 3.74% for the comparable 2008 period, partially offset by a $106.1 million increase in average interest-bearing liabilities. Average interest bearing deposits increased $18.6 million and average borrowed funds increased $87.6 million. Average interest bearing deposits increased primarily as a result of a $43.0 million increase in average money market accounts offset, in part, by a $24.4 million decrease in average certificates of deposit.

Provision for Loan Losses. In evaluating the level of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect a borrower's ability to repay, the estimated value of any underlying collateral, peer group information and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are subject to interpretation and revision as more information becomes available or as future events occur. After an evaluation of these factors, and after considering the growth in the Company's loan portfolio, management made a provision for loan losses of $375,000 for the three months ended March 31, 2009 as compared to $150,000 for the three months ended March 31, 2008. The allowance for loan losses was $5.2 million, or 0.69% of loans outstanding, at March 31, 2009, compared to $4.4 million, or 0.66% of loans outstanding at March 31, 2008.

Non-interest Income. Non-interest income decreased $63,000 or 4.8%, to $1.3 million from $1.3 million for the comparable period in 2008. The primary reasons for the decrease were declines in service fees on deposit accounts of $101,000 which were partially offset by increases in service charges and fees on loans of $25,000 and trust and investment fees of $14,000. The primary reason for the decrease in service fees on deposit accounts was a decrease of $78,000 in non-sufficient funds income.

Non-interest Expense. Non-interest expense increased $706,000, or 13.6%, to $5.9 million for the three months ended March 31, 2009 from $5.2 million for the comparable period in 2008. The primary reasons for the increases were increases in compensation and employee benefits of $580,000, occupancy and equipment expenses of $35,000 and other expenses of $112,000. Compensation and employee benefits increased primarily as a result of an expense of $538,000 for the three months ended March 31, 2009, related to the Company's equity incentive plan. As previously announced, the Company's stockholders approved the ESSA Bancorp, Inc. 2007 Equity Incentive Plan at the 2008 Annual Meeting of Stockholders on May 8, 2008. Awards granted under the Equity Incentive Plan were made on May 23, 2008. Occupancy and equipment expense increased primarily as a result of an increase in general repairs and maintenance of $34,000. Other expenses increased primarily as a result of increases in FDIC insurance of $46,000 and REO expense of $19,000.

Income Taxes. Income tax expense decreased $44,000 to $660,000 for the three months ended March 31, 2009 from $704,000 for the comparable 2008 period. The decrease was primarily a result of the decrease in income before taxes of $161,000 for the three months ended March 31, 2009. The effective tax rate was 30.1% for the three months ended March 31, 2009, compared to 29.9% for the 2008 period.

Comparison of Operating Results for the Six Months Ended March 31, 2009 and March 31, 2008

Net Income. Net income increased $16,000, to $3.4 million for the six months ended March 31, 2009 compared to net income of $3.4 million for the comparable period in 2008. The net income of $3.4 million for the six months ending March 31, 2009 included a one time tax benefit of $317,000 related to the Company's other than temporary impairment (OTTI) charge taken in the previous fiscal year. The OTTI charge related to Fannie Mae perpetual preferred stock held in the Company's available for sale securities portfolio. The 2009 period also included an expense of $1.1 million related to the Company's Equity Incentive Plan.

Net Interest Income. Net interest income increased $1.6 million or 13.0%, to $14.2 million for the six months ended March 31, 2009 from $12.6 million for the comparable period in 2008. The increase was primarily attributable to an increase of 36 basis points in the Company's interest rate spread to 2.33% for the six months ended March 31, 2009, from 1.97% for the comparable period in 2008, which was offset in part by a decrease in average net earning assets of $14.3 million for the six months ended March 31, 2009 as compared to average net earning assets for the comparable period in 2008.

Interest Income. Interest income increased $726,000 or 2.8%, to $26.5 million for the six months ended March 31, 2009 from $25.8 million for the comparable 2008 period. The increase resulted primarily from an $83.9 million increase in average interest-earning assets, partially offset by a 32 basis point decrease in average yield on interest earning assets. The average yield on interest earning assets was 5.46% for the six months ended March 31, 2009, as compared to 5.78% for the comparable 2008 period. Loans increased on average $81.5 million between the two periods along with increases in the average balance of mortgage backed securities of $42.6 million. In addition, average Federal Home Loan Bank stock increased $3.2 million and average other interest earning assets were unchanged with an average balance of $8.2 million. These increases were offset in part by a decrease in the average balances of investment securities of $43.5 million. The primary reason for the increase in mortgage backed securities was the partial reinvestment of borrowing proceeds, maturing certificates of deposit and investment securities into these assets. Average Federal Home Loan Bank stock increased as a result of the Bank's increase in borrowings from the FHLBank Pittsburgh. As a member of the Federal Home Loan Bank System, the Bank maintains an investment in the capital stock of the FHLBank Pittsburgh in an amount not less than 70 basis points of the outstanding unused FHLB borrowing capacity or 1/20 of its outstanding FHLB borrowings, whichever is greater, as calculated throughout the year. On December 23, 2008, the FHLBank Pittsburgh notified its members, including the Company, that it was suspending the payment of dividends on its capital stock and the repurchase of excess capital stock until further notice.

Interest Expense. Interest expense decreased $902,000, to $12.3 million for the six months ended March 31, 2009 from $13.2 million for the comparable 2008 period. The decrease resulted from a 69 basis point decrease in the overall cost of interest bearing liabilities to 3.13% for the six months ended March 31, 2009 from 3.81% for the comparable 2008 period, partially offset by a $98.1 million increase in average interest-bearing liabilities. Average interest bearing deposits increased $7.6 million and average borrowed funds increased $90.5 million. Average interest bearing deposits increased primarily as a result of an increase of $37.7 million in average money market accounts offset, in part, by a $28.6 million decrease in average certificates of deposit.

Provision for Loan Losses. In evaluating the level of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect a borrower's ability to repay, the estimated value of any underlying collateral, . . .