ESSA Bancorp (ESSA)

Provision for Loan Losses:

The provision for loan losses decreased $75,000 or 16.7%, to $375,000 for the three months ended September 30, 2009, from $450,000 for the comparable period in 2008. The provision for loan losses increased $600,000 or 66.6%, to $1.5 million for the year ended September 30, 2009, from $900,000 for the comparable period in 2008.

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

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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. The changes in the provision for loan losses for the one-year period ended September 30, 2009, as compared to the comparable 2008 period was in response to this evaluation and to the growth in the Company’s loan portfolio. The decrease in the provision for loan losses for the three months ended September 30, 2009 as compared to the comparable period in 2008 was primarily the result of the addition of specific reserves for two commercial relationships judged to be impaired during the three months ended September 30, 2008.

Provision for Loan Losses:

The provision for loan losses increased $225,000 or 150.0%, to $375,000 for the three months ended June 30, 2009, from $150,000 for the comparable period in 2008. The provision for loan losses increased $675,000 or 150.0%, to $1.1 million for the nine months ended June 30, 2009, from $450,000 for the comparable period in 2008.

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. The increase in the provision for loan losses for both the three and nine month periods ended June 30, 2009, as compared to the comparable 2008 periods was in response to this evaluation and to the growth in the Company’s loan portfolio.

Provision for Loan Losses:

The provision for loan losses increased $225,000 or 150.0%, to $375,000 for the three months ended March 31, 2009, from $150,000 for the comparable period in 2008. The provision for loan losses increased $450,000 or 150.0%, to $750,000 for the six months ended March 31, 2009, from $300,000 for the comparable period in 2008.

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. The increase in the provision for loan losses for both the three and six month periods ended March 31, 2009, as compared to the comparable 2008 periods was in response to this evaluation and to the growth in the Company’s loan portfolio.

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