UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-Q

(X)  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934

     For the quarterly period ended March 31, 2005

                                       or

(_)  Transition Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934

     For the transition period from              to                .

                                    000-50330
                             ----------------------
                             Commission File Number

                         EAST PENN FINANCIAL CORPORATION
                         -------------------------------
              (Exact name of registrant as specified in it charter)

         Pennsylvania                                   65-1172823
----------------------------------           -----------------------------------
(State or other jurisdiction of              (IRS Employer Identification
 incorporation or organization)               Number)

                 731 Chestnut Street, Emmaus, Pennsylvania 18049
--------------------------------------------------------------------------------
                    (Address of principal executive offices)

                   Registrant's telephone number: 610-965-5959
                                                  ------------

      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 is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

 YES              NO   X
     -----           -----


                      APPLICABLE ONLY TO CORPORATE ISSUERS:

      Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.


6,302,560 shares of common stock, par value $0.625 per share, outstanding as of
April 26, 2005.

<PAGE>
<TABLE>
<CAPTION>

                                EAST PENN FINANCIAL CORPORATION
                                              INDEX
                                 QUARTERLY REPORT ON FORM 10-Q

                                                                                               Page
<S>                                                                                            <C>
Part  I.  FINANCIAL INFORMATION

          Item   1.     Financial Statements

                        Consolidated Balance Sheets                                              3
                           March 31, 2005 (Unaudited) and December 31, 2004

                        Consolidated Statements of Income (Unaudited)                            4
                           Three months ended March 31, 2005
                           and March 31, 2004

                        Consolidated Statements of Stockholders' Equity (Unaudited)              5
                           Three months ended March 31, 2005
                           and March 31, 2004

                        Consolidated Statements of Cash Flows (Unaudited)                        6
                           Three months ended March 31, 2005
                           and March 31, 2004

                        Notes to Interim Consolidated Financial Statements (Unaudited)           7

          Item   2.     Management's Discussion and Analysis of Financial Condition             11
                         and Results of Operations

          Item   3.     Quantitative and Qualitative Disclosures About Market Risk              19

          Item   4.     Controls and Procedures                                                 19

Part II.  OTHER INFORMATION

          Item   1.     Legal Proceedings                                                       20

          Item   2.     Unregistered Sales of Equity Securities and Use of Proceeds             20

          Item   3.     Defaults Upon Senior Securities                                         20

          Item   4.     Submission of Matters to a Vote of Security Holders                     20

          Item   5.     Other Information                                                       20

          Item   6.     Exhibits                                                                20

SIGNATURES                                                                                      22

EXHIBIT INDEX                                                                                   23

</TABLE>

                                              Page 2

<PAGE>

ITEM 1.  FINANCIAL STATEMENTS

                         EAST PENN FINANCIAL CORPORATION
                           CONSOLIDATED BALANCE SHEETS

                                                    March 31,     December 31,
(In thousands, except per share data)                 2005            2004
                                                   (Unaudited)      (Audited)
                                                    ---------       ---------
ASSETS
Cash and due from banks                             $   8,155       $   7,334
Interest bearing deposits                                  29           1,234
Federal funds sold                                         --             214
                                                    ---------       ---------
Cash and cash equivalents                               8,184           8,782
Securities available for sale                          85,828          87,609
Securities held to maturity                             1,039           1,040
                                                    ---------       ---------
 Total securities                                      86,867          88,649
Mortgages held for sale                                 1,996           1,146
Loans, net of unearned income                         250,341         240,669
  Less: allowance for loan losses                      (2,912)         (2,838)
                                                    ---------       ---------
    Total net loans                                   247,429         237,831

Bank premises and equipment, net                        7,876           7,510
Investment in restricted stock                          2,634           2,986
Other real estate owned                                    35              20
Bank owned life insurance                               7,297           7,224
Accrued interest receivable and other assets            5,826           5,266
                                                    ---------       ---------

       Total assets                                 $ 368,144       $ 359,414
                                                    =========       =========

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
   Noninterest bearing                              $  42,053       $  42,029
   Interest bearing                                   255,959         256,236
                                                    ---------       ---------
   Total deposits                                     298,012         298,265
Securities sold under agreements to repurchase          2,696           2,349
Short-term borrowings                                  12,202           3,000
Long-term debt                                         25,000          25,000
Junior subordinated debentures                          8,248           8,248
Accrued interest payable and other liabilities            805             885
                                                    ---------       ---------

         Total liabilities                            346,963         337,747

STOCKHOLDERS' EQUITY
Preferred stock, no par value; authorized
    16,000,000 shares; none issued                         --              --
Common stock, par value $0.625 per share
    authorized 40,000,000 shares; issued 2005
    6,610,852 shares; 2004 6,608,852 shares;
    outstanding 2005  6,302,560 shares; 2004
    6,300,560 shares                                    4,132           4,131
Surplus                                                 9,234           9,225
Retained earnings                                      10,170           9,887
Accumulated other comprehensive income (loss)            (505)            274
Less: Treasury stock - at cost, 308,292 shares         (1,850)         (1,850)
                                                    ---------       ---------
        Total stockholders' equity                     21,181          21,667
                                                    ---------       ---------

        Total liabilities and
           stockholders' equity                     $ 368,144       $ 359,414
                                                    =========       =========

See Notes to Consolidated Financial Statements

                                     Page 3

<PAGE>

                         EAST PENN FINANCIAL CORPORATION
                        CONSOLIDATED STATEMENTS OF INCOME
                   Three Months Ended March 31, 2005 and 2004
                                   (Unaudited)

                                                Three Months Ended
                                                ------------------
(In thousands, except per share data)            2005       2004
                                                ------      ------

Interest income
  Interest and fee income on loans              $3,561      $2,949
  Securities:
     Taxable                                       816         975
     Tax-exempt                                    145         127
  Other                                             28          19
                                                ------      ------
         Total interest income                   4,550       4,070
                                                ------      ------

Interest expense
  Deposits                                       1,010         945
  Federal funds purchased and securities
    sold under agreements to repurchase             55          13
  Long-term debt                                   196         198
  Junior subordinated debentures                   136         136
                                                ------      ------
         Total interest expense                  1,397       1,292
                                                ------      ------

         Net interest income                     3,153       2,778

  Provision for loan losses                        126         154
                                                ------      ------

         Net interest income after
           provision for loan losses             3,027       2,624
                                                ------      ------

Other income
  Customer service fees                            239         221
  Mortgage banking activities, net                 103         114
  Net realized gains on sale of securities          --          17
  Income from investment in life insurance          73          76

  Other income                                     108          81
                                                ------      ------
         Total other income                        523         509
                                                ------      ------

Other expense
  Salaries and wages                               956         908
  Employee benefits                                349         278
  Occupancy                                        213         177
  Equipment                                        193         174
  Other operating expenses                         734         617
                                                ------      ------
         Total other expense                     2,445       2,154
                                                ------      ------

  Income before income taxes                     1,105         979

  Federal income taxes                             255         228
                                                ------      ------

         Net income                             $  850      $  751
                                                ======      ======

Basic and diluted earnings per share            $ 0.13      $ 0.12

Cash dividends per common share                 $ 0.09      $ 0.08


See Notes to Consolidated Financial Statements

                                     Page 4

<PAGE>
<TABLE>
<CAPTION>

                                               EAST PENN FINANCIAL CORPORATION
                                       CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                                 For the Three Months Ended
                                              March 31, 2005 and March 31, 2004
                                                        (Unaudited)

                                                                                   Accumulated
                                                                                      Other
                                           Common                     Retained     Comprehensive    Treasury
(In thousands, except per share data)      Stock         Surplus      Earnings     Income (Loss)      Stock          Total
---------------------------------------------------------------------------------------------------------------------------

<S>                                      <C>           <C>           <C>            <C>            <C>            <C>
Balance, December 31, 2003                $  4,130      $  9,218      $  7,645       $    400       ($ 1,850)      $ 19,543
                                                                                                                   --------
 Comprehensive income:
 Net income                                     --            --           751             --             --            751
 Changes in net unrealized gains
   (losses) on securities available
   for sale, net of tax effect                  --            --            --            781             --            781
                                                                                                                   --------

    Total comprehensive income                                                                                        1,532
                                                                                                                   --------

Exercise of 300 common stock options            --             2            --             --             --              2

Cash dividends ($0.08 per share)                --            --          (504)            --             --           (504)
                                          ---------------------------------------------------------------------------------

  Balance, March 31, 2004                 $  4,130      $  9,220      $  7,892       $  1,181       ($ 1,850)      $ 20,573
                                          =================================================================================


Balance, December 31, 2004                $  4,131      $  9,225      $  9,887       $    274       ($ 1,850)      $ 21,667
 Comprehensive income:
 Net income                                     --            --           850             --             --            850

 Changes in net unrealized gains
   (losses) on securities available
   for sale, net of tax effect                  --            --            --           (779)            --           (779)
                                                                                                                   --------

     Total comprehensive income                                                                                          71
                                                                                                                   --------

Exercise of 2,000 common stock
   options                                       1             9            --             --             --             10

Cash dividends ($0.09 per share)                --            --          (567)            --             --           (567)
                                          ---------------------------------------------------------------------------------

  Balance, March 31, 2005                 $  4,132      $  9,234      $ 10,170       ($   505)      ($ 1,850)      $ 21,181
                                          =================================================================================
</TABLE>


See Notes to Consolidated Financial Statements

                                                            Page 5

<PAGE>
<TABLE>
<CAPTION>

                         EAST PENN FINANCIAL CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                   Three Months Ended March 31, 2005 and 2004
                                   (Unaudited)
                                                                 Three Months Ended March 31,
(In thousands)                                                       2005          2004
                                                                   --------       --------
<S>                                                                <C>            <C>
CASH FLOWS from OPERATING ACTIVITIES
  Net income                                                       $    850       $    751
Adjustments to reconcile net income to net cash
    provided by operating activities:
  Provision for loan losses                                             126            154
  Provision for depreciation and amortization                           171            156
  Net amortization of securities premiums and discounts                  55             68
  Net realized gain on sale of securities                                --            (17)
         Proceeds from sale of mortgage loans                         5,759          6,645
  Net gain on sale of loans                                            (103)          (114)
  Loans originated for sale                                          (6,506)        (7,771)
  Earnings on investment in life insurance                              (73)           (76)
  Decrease in accrued interest receivable
     and other assets                                                   129            110
  Increase (decrease) in accrued interest payable
     and other liabilities                                              (80)           181
                                                                   --------       --------

         Net Cash Provided by Operating Activities                      328             99
                                                                   --------       --------

CASH FLOWS from INVESTING ACTIVITIES
  Decrease in interest bearing time deposits                             --            200
  Purchases of available for sale securities                         (2,557)          (200)
  Proceeds from maturities of and principal repayments
     on available for sale securities                                 3,102          2,946
  Proceeds from sales of available for sale securities                   --          3,093
  Proceeds from maturities of and principal repayments
     on held to maturity securities                                       1             --
  Proceeds from the sale of other real estate owned                      --            127
  Net increase in loans                                              (9,739)          (503)
  Net (increase) decrease in restricted stock                           352           (318)
  Purchases of bank premises and equipment                             (537)        (1,409)
  Investment in Berkshire Bank                                         (287)            --
  Purchase of life insurance                                             --         (1,500)
                                                                   --------       --------

         Net Cash Provided by (Used in) Investing Activities         (9,665)         2,436
                                                                   --------       --------

CASH FLOWS from FINANCING ACTIVITIES
  Net increase (decrease) in deposits                                  (253)         3,532
  Net increase in securities sold under
     agreements  to repurchase                                          347            464
  Increase in short-term borrowings                                   9,202             --
  Proceeds from the exercise of stock options                            10              2
  Dividends paid                                                       (567)          (504)
                                                                   --------       --------

         Net Cash Provided by Financing Activities                    8,739          3,494
                                                                   --------       --------

         Net (Increase) Decrease in Cash and Cash Equivalents          (598)         6,029

   Cash and cash equivalents - Beginning                              8,782          8,593
                                                                   --------       --------

    Cash and cash equivalents - Ending                             $  8,184       $ 14,622
                                                                   ========       ========

SUPPLEMENTARY CASH FLOW INFORMATION

  Interest paid                                                    $  1,372       $  1,342
                                                                   ========       ========
  Federal income taxes paid                                        $      0       $      0
                                                                   ========       ========

SUPPLEMENTAL SCHEDULE of NON-CASH INVESTING
   and FINANCING ACTIVITIES

  Other real estate acquired in settlement of loans                $     15       $      0
                                                                   ========       ========
</TABLE>

See Notes to Consolidated Financial Statements

                                     Page 6
<PAGE>

                         EAST PENN FINANCIAL CORPORATION
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2005
                                   (Unaudited)

1.    Basis of Presentation

            East Penn Financial Corporation (the "Company") was incorporated on
      January 27, 2003 for the purpose of forming a bank holding company. On
      July 1, 2003, the Company completed the reorganization and merger with
      East Penn Bank (the "Bank") and its wholly owned subsidiary, East Penn
      Mortgage Company, into the holding company form of ownership. In the
      reorganization, the Bank became a wholly owned banking subsidiary of the
      Company. On July 31, 2003, the Company formed East Penn Statutory Trust I
      (the "Trust"), a Connecticut statutory business trust, for the purpose of
      issuing $8 million in capital pass-through securities to investors.

            The consolidated financial statements include the accounts of the
      Company, and its wholly owned subsidiary, the Bank. All significant
      intercompany accounts and transactions have been eliminated.

            The accompanying unaudited consolidated financial statements have
      been prepared in accordance with accounting principles generally accepted
      in the United States of America for interim financial information.
      Accordingly, they do not include all of the information and footnotes
      required by generally accepted accounting principles for complete
      financial statements. In the opinion of management, all adjustments
      considered necessary for fair presentation have been included.

            Operating results for the three-month period ended March 31, 2005,
      are not necessarily indicative of the results that may be expected for the
      year ended December 31, 2005. For further information, refer to the
      financial statements and footnotes thereto included in the Company's
      Annual Report on Form 10-K for the year ended December 31, 2004.

2.    Investment in Bank

            On September 23, 2003, the Company made an initial purchase of
      141,300 common stock shares of a newly formed de novo bank, named
      Berkshire Bank, located in Wyomissing, Berks County, Pennsylvania. Upon
      the completion of Berkshire's initial stock offering, the Company
      purchased an additional 12,123 shares, which resulted in increasing the
      Company's investment to $1,534,000 of Berkshire Bank's outstanding common
      stock as of December 31, 2003. In consideration of the Company's and its
      director's and officer's combined ownership of Berkshire Bank common
      stock, the aggregate percentage ownership was 19.9% as of the 2003 year
      end, which is in line with the terms of a Stock Subscription and Purchase
      Agreement between the Company and Berkshire Bank. Under this agreement,
      the Company is also entitled to purchase from Berkshire Bank up to 5% of
      additional stock at any time beginning on the date of the warrant and for
      10 years thereafter at an exercise price of $10.00 per share of stock. The
      total number of shares that are subject to purchase under all Company's
      warrants, options or rights shall not exceed 25% of the total number of
      shares of Berkshire Bank common stock.

            During 2004 Berkshire Bank announced a 5-for-4 stock split, effected
      in the form of a 25% stock dividend, payable July 22, 2004, which resulted
      in the Company receiving an additional 38,355 shares. As part of a
      three-phase stock offering, which began on September 1, 2004 and was
      effective through March 31, 2005, the Company purchased an additional
      57,119 shares of common stock. As of March 31, 2005, the Company's total
      investment in Berkshire Bank was $2,147,000, represented by 248,897
      shares, resulting in a 19.9% aggregate ownership in consideration of the
      combined ownership of the Company, its directors and its officers. The
      investment is carried at cost and is included in the other assets category
      on the balance sheet.

            In August 2003, the Company entered into an agreement that was
      approved by the Federal Reserve

                                     Page 7
<PAGE>

      Bank of Philadelphia in September 2003. This agreement imposes certain
      restrictions where the Company has agreed not to:

      o     solicit proxies with respect to any voting securities of Berkshire
            Bank or influence the manner in which any other shareholder of
            Berkshire Bank votes any voting securities of Berkshire Bank;
      o     cause any voting securities of Berkshire Bank to be subject to a
            voting trust;
      o     cause Berkshire Bank to become a subsidiary of the Company;
      o     have any designated representative serve or act as an officer,
            director, employee or agent of Berkshire Bank;
      o     propose any person for election as a director of Berkshire Bank;
      o     attempt to influence the dividend policies or practices of Berkshire
            Bank; the investment, loan or credit decision policies; the pricing
            of services; personnel decisions; operations activities;
      o     exercise or seek to exercise any controlling influence over the
            management of Berkshire Bank;
      o     enter into any banking or non-banking transactions with Berkshire
            Bank, except that the Company may establish and maintain deposit
            accounts with Berkshire Bank, provided the aggregate balance of all
            such accounts does not exceed $500,000 and that the accounts are
            maintained on substantially the same terms as those prevailing for
            comparable accounts of persons unaffiliated with Berkshire Bank.

            Based upon the limitations imposed by this agreement, the Company is
      considered to be a passive investor.

3.    Investment in East Penn Statutory Trust I

            In January 2003, the Financial Accounting Standards Board issued
      FASB Interpretation No. 46 ("FIN46"), "Consolidation of Variable Interest
      Entities, an Interpretation of ARB No. 51", which was revised in December
      2003. This Interpretation provides guidance for the consolidation of
      variable interest entities (VIEs). The Trust qualifies as a variable
      interest entity under FIN 46. The Trust issued mandatory redeemable
      preferred securities, "Trust Preferred Securities", to third party
      investors and loaned the proceeds to the Company. The Trust holds, as its
      sole asset, subordinated debentures issued by the Company.

            FIN 46 required the Company to deconsolidate the Trust from the
      consolidated financial statements as of March 31, 2004. There has been no
      restatement of prior periods. The impact of this deconsolidation was to
      increase junior subordinated debentures or long-term debt by $8,248,000
      and reduce the mandatory redeemable capital debenture line item by
      $8,000,000, which had represented the Trust Preferred Securities of the
      Trust. The Company's equity interest in the Trust subsidiary of $248,000,
      which had previously been eliminated in the consolidation, is now reported
      in "other assets". For regulatory reporting purposes, the Federal Reserve
      Board has indicated that the Trust Preferred Securities will continue to
      qualify as Tier I Capital subject to previously specified limitations,
      until further notice. If regulators make a determination that Trust
      Preferred Securities can no longer be considered in regulatory capital,
      the securities become callable and the Company may redeem them. The
      adoption of FIN 46 did not have an impact on the Company's results of
      operations or liquidity.

4.    Earnings per Share

            The following table sets forth the computation of basic and diluted
      earnings per share:

<TABLE>
<CAPTION>
                                                                 Three Months Ended
                                                             --------------------------
                                                                      March 31,
                                                                 2005            2004
                                                             --------------------------

     <S>                                                    <C>             <C>
      Net income applicable to common stock                  $  850,000      $  751,000
                                                             ==========================


      Weighted-average common shares outstanding              6,301,116       6,299,170
      Effect of dilutive securities, stock options               20,133          19,961
                                                             --------------------------

      Weighted-average common shares outstanding
           used to calculate diluted earnings per share       6,321,249       6,319,131
                                                             ==========================

      Basic and diluted earnings per share                   $     0.13      $     0.12
                                                             ==========================
</TABLE>

                                     Page 8
<PAGE>

5.    Comprehensive Income

            The components of other comprehensive income (loss) and related tax
      effects for the three months ended March 31, 2005 and 2004 are as follows:

                                                        Three Months Ended
                                                      ---------------------
                                                             March 31,
                                                        2005          2004
                                                      ---------------------
      (In thousands)

      Unrealized holding gains (losses) on

           available for sale securities              ($1,181)      $ 1,200
      Less reclassification adjustments for
           gains (losses) included in net income           --            17
                                                      ---------------------


      Net unrealized gains (losses)                    (1,181)        1,183
      Tax effect                                          402          (402)
                                                      ---------------------


               Net of tax amount                      ($  779)      $   781
                                                      =====================

6.    Stock Option Plan

            The Company has adopted the disclosure-only provisions of Statement
      of Financial Accounting Standards (SFAS) No. 123, "Accounting for
      Stock-Based Compensation". Accordingly, no compensation costs have been
      recognized for options granted in 2005 and 2004. Had compensation costs
      for stock options granted been determined based on the fair value at the
      grant date for awards under the plan consistent with the provisions of
      SFAS No. 123, the Company's net income and earnings per share for the
      quarters ended March 31, 2005 and 2004, would have been reduced to the pro
      forma amounts indicated below:

                                                             Three Months Ended
                                                            --------------------
                                                                 March 31,
                                                              2005        2004
                                                            --------------------
       (In thousands, except per share data)

      Net income as reported                                $   850      $   751
      Total stock-based compensation cost, net of tax,
               that would have been included in the
               determination of net income if the fair
               value based method had been applied
               to all awards                                     --           --
                                                            --------------------


      Pro forma net income                                  $   850      $   751
                                                            ====================

      Basic earnings per share:
               As reported                                  $  0.13      $  0.12
               Pro forma                                    $  0.13      $  0.12

      Diluted earnings per share:
               As reported                                  $  0.13      $  0.12
               Pro forma                                    $  0.13      $  0.12

7.    Guarantees

            The Company does not issue any guarantees that would require
      liability recognition or disclosure, other than its standby letters of
      credit. Standby letters of credit that are written are conditional
      commitments issued by the Bank to guarantee the performance of a customer
      to a third party. Generally, all letters of credit, when issued, have
      expiration dates within one year. The credit risk involved in issuing
      letters of credit is essentially the same as those that are involved in
      extending loan facilities to customers. The Bank, generally, holds
      collateral and/or personal guarantees supporting these commitments. The
      Bank had $881,000 of standby letters of credit as

                                     Page 9
<PAGE>

      of March 31, 2005. Management believes that the proceeds obtained through
      liquidation of collateral and the enforcement of guarantees would be
      sufficient to cover the potential amount of future payments required under
      the corresponding guarantees. The current amount of the liability as of
      March 31, 2005 for guarantees under standby letters of credit is not
      material.

8.    New Accounting Standards

            In December 2004, the Financial Accounting Standards Board ("FASB")
      issued Statement No. 123(R), "Share-Based Payment'. Statement No. 123(R)
      revised Statement No. 123, "Accounting for Stock-Based Compensation", and
      supercedes APB Opinion No. 25, "Accounting for Stock Issued to Employees",
      and its related implementation guidance. Statement No. 123(R) will require
      compensation costs related to share-based payment transactions to be
      recognized in the financial statements (with limited exceptions). The
      amount of compensation cost will be measured based on the grant-date fair
      value of the equity or liability instruments issued. Compensation cost
      will be recognized over the period that an employee provides service in
      exchange for the award.

            On April 14, 2005, the Securities and Exchange Commission ("SEC")
      adopted a new rule that amends the compliance dates for Statement No.
      123(R). Under the new rule, the Company is required to adopt Statement No.
      123(R) in the first annual period beginning after June 15, 2005. The
      Company has not yet determined the method of adoption or the effect of
      adopting Statement No. 123(R), and it has not determined whether the
      adoption will result in amounts that are similar to the current pro forma
      disclosures under Statement No. 123(R).

            In December 2003, the Accounting Standards Executive Committee
      issued Statement of Position 03-3 (SOP 03-3), "Accounting for Certain
      Loans or Debt Securities Acquired in a Transfer." SOP 03-3 addresses
      accounting for differences between contractual cash flows and cash flows
      expected to be collected from an investor's initial investment in loans or
      debt securities acquired in a transfer, including business combinations,
      if those differences are attributable, at least in part, to credit
      quality. SOP 03-3 is effective for loans for debt securities acquired in
      fiscal years beginning after December 15, 2004. The Company adopted the
      provisions of SOP 03-3 on January 1, 2005.

            In March 2005, the SEC issued Staff Accounting Bulletin No. 107
      ("SAB No. 107"), "Share-Based Payment", providing guidance on option
      valuation methods, the accounting for income tax effects of share-based
      payment arrangements upon adoption of SFAS No. 123(R), and the disclosures
      in MD&A subsequent to the adoption. The Company will provide SAB No. 107
      required disclosures upon adoption of SFAS No. 123(R) on July 1, 2005.

                                    Page 10
<PAGE>

ITEM 2.

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                 March 31, 2005

      The following is management's discussion and analysis of the significant
changes in the consolidated results of operations, capital resources and
liquidity presented in the accompanying unaudited consolidated financial
statements for the Company. This discussion should be read in conjunction with
the preceding consolidated financial statements and related footnotes, as well
as, the Company's December 31, 2004 Annual Report on Form 10-K. Current
performance does not guarantee and may not be indicative of similar performance
in the future.

      In addition to historical information, this quarterly report on Form 10-Q
contains forward-looking statements. The forward-looking statements contained in
this report are subject to certain risks, assumptions and uncertainties. Because
of the possibility of change in the underlying assumptions, actual results could
differ materially from those projected in the forward-looking statements.
Additional factors that might cause actual results to differ materially from
those expressed in the forward-looking statements include, but are not limited
to:

      -     operating, legal and regulatory risks,
      -     economic, political and competitive forces affecting the Company's
            services, and
      -     the risk that management's analyses of these risks could be
            incorrect and/or that the strategies developed to address them could
            be unsuccessful.

      The Company's forward-looking statements are relevant only as of the date
on which the statements are made. By making forward-looking statements, the
Company assumes no duty to update them to reflect new, changing or unanticipated
events or circumstances. Readers should carefully review the risk factors
described in other periodic reports and public documents that the Company files
from time to time with the Securities and Exchange Commission.

CRITICAL ACCOUNTING POLICIES

      Disclosure of the Company's significant accounting policies is included in
Note 1 to the consolidated financial statements of the Company's Annual Report
on Form 10-K for the year ended December 31, 2004. Some of these policies are
particularly sensitive requiring significant judgments, estimates and
assumptions to be made by management. Additional information is contained on
pages 12 and 14 of this report for the provision and allowance for loan losses.

OVERVIEW

      Net income for the three months ended March 31, 2005 and 2004 was $850,000
and $751,000. The increase of $99,000, or 13.2%, is attributable to its core
banking business as exemplified by an 8.1% increase in net interest income, a
2.8% increase in other income and an 18.2% decrease in the provision for loan
losses. On a basic and diluted per share basis, net income for the three months
ended March 31, 2005 was $0.13, respectively, as compared with $0.12 for the
three months ended March 31, 2004. Net income as a percentage of average assets
on an annualized basis, also known as return on average assets, increased to
0.95% for the first three months of 2005 from 0.89% for the first three months
of 2004 as a result of increased net income. Net income as a percentage of total
average stockholders' equity on an annualized basis, also known as return on
average equity, was 16.0% and 15.6% for the first three months of 2005 and 2004,
respectively. The increase in this ratio is attributable to an increased level
of net income.

      During the first three months of 2005, the Company's assets grew
$8,730,000, or 2.4%, to $368,144,000 as of March 31, 2005 from $359,414,000 as
of December 31, 2004. This increase is primarily attributable to loans, which
increased to $250,341,000 as of March 31, 2005 from $240,669,000

                                    Page 11
<PAGE>

as of December 31, 2004, offset by a decline of $1,782,000, or 2%, in the
investment securities portfolio, the proceeds of which were reinvested in
funding loans. Total deposits decreased by $253,000, or 0.1%, during the first
three months of 2005 to $298,012,000 as of March 31, 2005 from $298,265,000 as
of December 31, 2004. This compares to an increase of $3,532,000, or 1.3%, to
$283,430,000 at March 31, 2004 from $279,898,000 as of December 31, 2003. The
growth in total deposits during the first three months of 2005 was less than the
growth in deposits during the same period in 2004 as a result of competitive
interest rates in the market, and, to a certain degree, customers' continued
uncertainty as to how to best invest their funds. To compensate for deposit
growth in order to support increased loan demand, short-term borrowings
increased to $12,202,000 as of March 31, 2005 from $3,000,000 as of December 31,
2004.

RESULTS OF OPERATIONS

Net Interest Income

      For the three months ended March 31, 2005, total interest income increased
by $480,000, or 11.8%, to $4,550,000, compared with $4,070,000 for the three
months ended March 31, 2004. This increase is the result of a 6.6% increase in
average interest-earning assets, which grew $20,803,000, to $336,342,000 for the
first three months of 2005, compared with $315,539,000 for the first three
months of 2004. The favorable impact to interest income is due to the growth in
average interest earning assets, primarily due to increased loan volume, which
was funded from the cash flow generated from the investment securities
portfolio, increased short-term borrowings and deposit growth. Further impacting
interest income were increases in the prime rate, which resulted in better than
anticipated yields on interest earning assets, which increased to 5.49% for the
three months ended March 31, 2005 from 5.19% for the same period in 2004.

      Total interest expense increased by $105,000, or 8.1%, to $1,397,000 for
the three months ended March 31, 2005, from $1,292,000 for the three months
ended March 31, 2004. This increase is attributable to the growth of average
interest bearing liabilities, which increased $18,256,000, or 6.5%, to
$299,281,000 for the first three months of 2005 from $281,025,000 for the first
three months of 2004. Growth in deposits and short-term borrowings contributed
to the increase in average interest bearing liabilities. While the interest
expense increased, overall cost of funds modestly increased to 1.89% for the
first three months of 2005 as compared with 1.85% for the same period in 2004.
The increase in the cost of funds was minimized by the Bank's ongoing efforts to
manage its interest rates and their resulting impact on expenses.

      Net interest income increased by $375,000, or 13.5%, to $3,153,000 for the
three months ended March 31, 2005 from $2,778,000 for the three months ended
March 31, 2004. This increase is not only attributable to the growth in the
volume of interest sensitive assets, but also due to the growth in the net
interest rate spread, which increased to 3.59% for the first three months of
2005 from 3.34% for the first three months in 2004. The net interest margin
increased to 3.80% from 3.54% for the three-month periods ending March 31, 2005
and 2004. While short-term interest rates started to increase during the second
half of 2004 into 2005, the Bank strived to minimize possible deterioration of
its net interest rate spread and margin, considering the growth of its interest
sensitive assets and liabilities.

Provision for Loan Losses

      For the three months ended March 31, 2005, the provision for loan losses
was $126,000, an decrease of $28,000, or 18.2%, compared with $154,000 for the
three months ended March 31, 2004. Asset quality continues to be strong in the
first quarter of 2005 and this is exemplified by the fact that less of a
provision was appropriated to the allowance for loan losses.

      The allowance for loans losses represented 1.16% of total loans at March
31, 2005, compared with 1.18% as of December 31, 2004 and 1.22% as of March 31,
2004. Management performs ongoing assessments of the loan loss reserve in
relation to loan portfolio growth, credit exposure to individual borrowers,
overall trends in the loan portfolio and other relevant factors, and believes
the reserve is reasonable and adequate for the periods presented.

                                    Page 12
<PAGE>

Other Income

      Other income for the first three months ended March 31, 2005 increased
$14,000, or 2.8%, to $523,000 from $509,000 for the first three months ended
March 31, 2004. This increase is due to an $18,000 increase in customer service
fees, and a $28,000 increase in other miscellaneous income, which included
increased fee income from processing a higher than normal volume of credit card
transactions. These increases were offset by a decline of $11,000 in fee income
from mortgage banking activities, a decline of $17,000 from gains on sales of
available for sale securities, since no sales occurred during the first quarter
of 2005, and a $4,000 decline in income from the investment in life insurance.

Other Expenses

      Other expenses, which include salary, occupancy, equipment and all other
expenses incidental to the operation of the Company, increased to $2,445,000 for
the first quarter of 2005 from $2,154,000 for the first quarter of 2004. The
$291,000, or 13.5%, increase is not only due to the Company's continued growth,
but is more specifically attributable to increased occupancy and equipment costs
associated with the renovation, move and full utilization of a 3-story brick
building purchased in 2004.

      Salaries and employee benefit expenses, which make up the largest
component of other expenses, increased $119,000, or 10%, to $1,305,000 for the
first quarter of 2005 from $1,186,000 for the first quarter in 2004. The
increase is primarily attributable to the staff additions and increases in
normal salary and medical benefit costs.

      Occupancy expenses increased $36,000, or 20.3%, to $213,000 for the three
months ended March 31, 2005 from $177,000 for the three months ended March 31,
2004. The increase is due to the costs associated with the renovation of a
3-story brick building located at 18 South 2nd Street, Emmaus, Pennsylvania, to
prepare it for full occupancy by executive, operational, administrative and
lending departments of the Bank.

      Equipment expense increased $19,000, or 10.9%, to $193,000 for the three
months ended March 31, 2005 from $174,000 for the three months ended March 31,
2004. This increase is the result of additional costs and depreciation
associated with equipment purchased to accommodate the Company's growth and its
need to update certain equipment and systems.

      Other operating expenses increased $117,000, or 19%, to $734,000 for the
three months ended March 31, 2005 from $617,000 for the three months ended March
31, 2004. This increase is the result of the Company's growth.

Income Taxes

      Income tax expense was $255,000 for the three months ended March 31, 2005,
an increase of $27,000, or 11.8%, compared with $228,000 for the three months
ended March 31, 2004. This increase is due to a higher level of pre-tax income
with a level amount of tax-exempt income.

Net Income

      Net income for the three months ended March 31, 2005 was $850,000, an
increase of $99,000, or 13.2%, compared with $751,000 for the three months ended
March 31, 2004. The increase in net income is the result of increases of
$375,000 in net interest income, a decrease of $28,000 in the provision for loan
losses, and an increase of $14,000 in other income, offset by increases of
$291,000 in other expenses and $27,000 in taxes. Factors contributing to the
increased level of net income include increased interest income from loan growth
and the impact of increases in short-term interest rates, as well as the Bank's
efforts to manage its cost of funds. Increased other income, derived from
increased customer service fees and credit card processing, further enhanced net
income. Basic and diluted earnings per share for the three

                                    Page 13
<PAGE>

months ended March 31, 2005 were each $0.13 per share compared with $0.12 per
share for the three months ended March 31, 2004.

FINANCIAL CONDITION

Securities

      The Company's securities portfolio is comprised of securities, which not
only provide interest income, including tax-exempt income, but also provide a
source of liquidity, diversify the earning assets portfolio, allow for the
management of risk and tax liability, and provide collateral for repurchase
agreements and public fund deposits. Policies are in place to address various
aspects of managing the portfolio, including but not limited to, concentrations,
liquidity, credit quality, interest rate sensitivity and regulatory guidelines.
Adherence to these policies is monitored by the Company's Asset/Liability
Committee on a monthly basis.

      Although the Company generally intends to hold its investment securities
to maturity, a significant portion of the securities portfolio is classified as
available for sale, with new purchases generally categorized as available for
sale. Securities in the available for sale category are accounted for at fair
value with unrealized appreciation or depreciation, net of tax, reported as a
separate component of stockholders' equity. Securities in the held to maturity
category are accounted for at amortized cost. The Company invests in securities
for the yield they produce and not to profit from trading. The Company holds no
trading securities in its portfolio.

      The securities portfolio at March 31, 2005 was $86,867,000, compared to
$88,649,000 at December 31, 2004, a decrease of $1,782,000, or 2%. The decline
is attributable to prepayments of principal, which have been used to fund loan
demand. Securities available for sale decreased to $85,828,000 at March 31, 2005
from $87,609,000 at December 31, 2004, while securities held to maturity were
$1,039,000 at March 31, 2005 as compared with $1,040,000 at December 31, 2004.

      The carrying value of the available for sale portion of the portfolio at
March 31, 2005 includes an unrealized loss of $765,000 (reflected as accumulated
other comprehensive loss of $505,000 in stockholders' equity, net of deferred
income tax asset of $260,000). This compares with an unrealized gain at December
31, 2004 of $416,000 (reflected as accumulated other comprehensive income of
$274,000 in stockholders' equity, net of deferred income tax liability of
$142,000).

Loans

      The loan portfolio comprises the major component of the Company's earning
assets and generally is the highest yielding asset category. Gross loans
receivable, net of unearned fees and origination costs, increased $9,672,000, or
4%, to $250,341,000 at March 31, 2005 from $240,669,000 at December 31, 2004.
This increase is attributed to increased commercial loan demand. Gross loans
represented 84% of total deposits at March 31, 2005 as compared with 80.7% at
December 31, 2004, since loan growth has outpaced deposit growth.

Credit Risk and Loan Quality

      The Company continues to be prudent in its efforts to minimize credit
risk. The Bank's written lending policy requires underwriting, loan
documentation and credit analysis standards to be met prior to the approval and
funding of any loan. In accordance with that policy, the internal loan review
process monitors the loan portfolio on an ongoing basis. The Credit
Administration area then prepares an analysis of the allowance for loan losses
on a quarterly basis, which is then submitted to the Board of Directors for its
assessment as to the adequacy of the allowance. The allowance for loan losses is
an accumulation of expenses that has been charged against past and present
earnings in anticipation of potential losses in the loan portfolio.

      The allowance for loan losses at March 31, 2005 and December 31, 2004 was
$2,912,000 and $2,838,000, respectively, compared to $2,541,000 at March 31,
2004. The increase in the allowance is

                                    Page 14
<PAGE>

attributable to the growth of the loan portfolio and the shift in the loan mix,
where there has been continued growth in commercial loans, which generally carry
a higher level of credit risk. At March 31, 2005, the allowance for loan losses
represented 1.16% of the gross loan portfolio, compared with 1.18% at December
31, 2004. This compares to 1.22% at March 31, 2004. At March 31, 2005,
management believes the allowance for loan loss reserve to be reasonable and
adequate to meet potential losses.

      Table 1 - "Analysis of Allowance for Loan Loss" - details the activity,
which occurred in the allowance over the first three months of 2005 and 2004.

      Table 1 - Analysis of Allowance for Loan Loss (1)
      -----------------------------------------------------------------------
       (in thousands)
                                                         2005           2004
                                                       -------        -------
      Balance, beginning of year                       $ 2,838        $ 2,403
      Provision charged to operating expense               126            154
      Charge-offs:
        Commercial                                         (36)             0
        Real estate                                          0              0
        Consumer                                           (18)           (22)
                                                       -------        -------
        Total charge-offs                                  (54)           (22)

      Recoveries:
        Commercial                                                          3
        Consumer                                             2              3
                                                       -------        -------
        Total recoveries                                     2              6

      Net (charge-offs)                                    (52)           (16)
                                                       -------        -------
                                                       $ 2,912        $ 2,541
                                                       =======        =======

      Net (charge-offs) recoveries to average
           net loans                                    (0.02)%        (0.01)%

      (1) Bank's loan portfolio is entirely domestic
      -----------------------------------------------------------------------

      The Bank's lending policy is executed through the assignment of tiered
loan limit authorities to individual officers of the Bank, the Officer's Loan
Committee, the Board Loan Committee and the Board of Directors. Although the
Bank maintains sound credit policies, certain loans may deteriorate for a
variety of reasons. The Bank's policy is to place all loans on a non-accrual
status upon becoming 90 days delinquent in their payments, unless there is a
documented and reasonable expectation of the collection of the delinquent
amount. Loans are reviewed monthly as to their status, and on a quarterly basis,
a Watch List of potentially troubled loans is prepared and presented to the
Board of Directors. Management is not aware of any material potential loan
problems that have not been disclosed in this report.

      Table 2 - "Asset Quality Ratios" - summarizes pertinent asset quality
ratios at March 31, 2005 and December 31, 2004.

      Table 2 - Asset Quality Ratios
      --------------------------------------------------------------------------
                                                       3/31/05          12/31/04

      Non-accrual loans/Total loans                       0.37%            0.41%
      Non-performing assets (1) /Total loans              0.42%            0.45%
      Net charge-offs/Average loans                       0.02%            0.03%
      Allowance/Total loans                               1.16%            1.18%
      Allowance/Non-accrual  loans                      312.45%          287.83%
      Allowance/Non-performing loans (1)                290.04%          267.48%

      (1) - Includes non-accrual loans.
      --------------------------------------------------------------------------

      At March 31, 2005, the Company had other real estate owned as acquired
through foreclosure, in the amount of $35,000, an increase of $15,000 from
$20,000 at December 31, 2004. The Company expects to dispose of the remaining
properties with minimal or no loss.

                                    Page 15
<PAGE>

      Loan concentrations are considered to exist when the total amount of loans
to any one or a multiple number of borrowers engaged in similar activities or
having similar characteristics exceeds 10% of loans outstanding in any one
category. The majority of the Bank's lending is made within its primary market
area, which includes Emmaus and the East Penn community in Lehigh County,
Pennsylvania.

Bank Owned Life Insurance

      The Company has Bank Owned Life Insurance ("BOLI") for a chosen group of
employees, namely officers, where the Bank is the owner and beneficiary of the
policies. The Bank's deposits and proceeds from the sale of investment
securities funded the BOLI. Earnings from the BOLI are recognized as other
income. The BOLI is profitable from the appreciation of the cash surrender
values of the pool of insurance, and its tax advantage to the Company. This
profitability is used to offset a portion of current and future employee benefit
costs and a Nonqualified Supplemental Executive Retirement Plan for the
Company's Chief Executive Officer.

      The Company had $7,297,000 and $7,224,000 in BOLI as of March 31, 2005 and
December 31, 2004. Although the BOLI is an asset that may be liquidated, it is
the Company's intention to hold this pool of insurance because it provides
tax-exempt income that lowers the Company's tax liability, while enhancing its
overall capital position.

Investment in Bank

      On September 23, 2003, the Company purchased 141,300 shares for $1,413,000
of common stock outstanding of a newly formed de novo bank, named Berkshire
Bank, located in Wyomissing, Berks County, Pennsylvania. On October 22, 2003,
the Company purchased an additional 12,123 shares for $121,000, which resulted
in increasing the Company's investment to $1,534,000, or 18.3%, of Berkshire
Bank's outstanding common stock as of December 31, 2003. In consideration of the
Company's and its director's and officer's combined ownership of Berkshire Bank
common stock, the aggregate percentage ownership was 19.9% as of the 2003 year
end, which is in line with the terms of a Stock Subscription and Purchase
Agreement between the Company and Berkshire Bank.

      During 2004 Berkshire Bank announced a 5-for-4 stock split, effected in
the form of a 25% stock dividend, payable July 22, 2004, which resulted in the
Company receiving an additional 38,355 shares. On September 1, 2004, Berkshire
Bank commenced a three-phase common stock offering effective through March 31,
2005. The offering price of the stock during the first two phases was $10.50 per
share through October 31, 2004 and $11.00 per share thereafter. In order to
maintain its level of investment in Berkshire Bank, the Company purchased an
additional 30,618 shares at $10.50 per share and 26,501 shares at $11.00 per
share, respectively. As of March 31, 2005, the Company's total investment in
Berkshire Bank was $2,147,000, represented by 248,897 shares, resulting in a
19.9% aggregate ownership. The investment is carried at cost and is included in
the other assets category on the balance sheet.

Deposits

      Deposits are the major source of the Company's funds for lending and
investment purposes. Total deposits at March 31, 2005 were $298,012,000, a
decrease of $253,000, or 0.1%, from total deposits of $298,265,000 at December
31, 2004. The decrease in deposits is due a decline of $4,506,000 in interest
bearing deposits offset by increases of $24,000 in non-interest bearing demand
deposit accounts, $1,551,000 in savings accounts and $2,678,000 in certificates
of deposit. While deposit growth was limited, there was a shifting between
deposit categories where funds were placed into higher priced deposits. By
managing the timing of deposit rate increases, the Company was able to minimize
the impact of increased costs as is exemplified by the fact that the cost of
funds from deposits increased to 1.60% as of March 31, 2005 from 1.57% as of
December 31, 2004.

Securities Sold under Agreements to Repurchase

      Securities sold under agreements to repurchase increased $347,000, or
14.8%, to $2,696,000 at

                                    Page 16

<PAGE>

March 31, 2005 from $2,349,000 at December 31, 2004. Securities sold under
agreements to repurchase generally mature in one business day and roll over
under a continuing contract.

Short-Term Borrowings

      There was an outstanding balance of $12,202,000 in federal funds purchased
and other overnight borrowings at March 31, 2005 as compared with $3,000,000 at
December 31, 2004. The Bank has a $5,000,000 federal funds line of credit with
its main correspondent bank, Atlantic Central Bankers Bank, Camp Hill,
Pennsylvania ("ACBB") as well as a short-term line of credit of $25 million with
the Federal Home Loan Bank of Pittsburgh ("FHLB"), which is part of the maximum
borrowing capacity of $174,590,000. Because loan growth outpaced deposit growth
during the first three months of 2005, overnight borrowings were used as an
alternate source of funding loan growth.

Long-Term Debt and Borrowing Capacity

      The Bank had $25 million outstanding in fixed rate term loans at March 31,
2005 and December 31, 2004 with the FHLB. The $25 million borrowing is comprised
of the following fixed rate borrowings (in thousands):

                    Maturity             Amount           Rate
                -----------------       -------           -----
                November 28, 2005        $5,000           2.20%
                November 28, 2006         6,000           2.80%
                November 28, 2007         7,000           3.43%
                November 28, 2008         7,000           3.78%
                                        -------           -----

                         Total          $25,000           3.13%
                                        =======           =====

      The Bank has a total maximum borrowing capacity for both short and
long-term borrowings of approximately $174,590,000 with the FHLB, out of which
$7,902,000 represents short-term, overnight borrowings and $25 million
represents fixed rate term loans, which were outstanding at March 31, 2005, and
resulted in an unused borrowing capacity of approximately $142,000,000.

Mandatory Redeemable Capital and Junior Subordinated Debentures

      As of March 31, 2005, the Company had $8,248,000 outstanding in junior
subordinated debentures, which were issued on July 31, 2003 to investors as
capital trust pass-through securities by East Penn Statutory Trust I ("Trust"),
a wholly owned subsidiary of the Company. The securities have a fixed rate of
6.80% through September 17, 2008. The capital securities are redeemable by the
Company on or after September 17, 2008, at par, or earlier, if the deduction of
related interest for federal income taxes is prohibited, classification as Tier
I Capital is no longer allowed, or certain other contingencies arise. The
capital securities must be redeemed upon final maturity of the subordinated
debentures on September 17, 2033. Proceeds totaling $4.3 million were
contributed to the capital at the Bank. The Company chose to utilize the
multi-issuer trust preferred alternative, which proved to be a less expensive
and more flexible resource of regulatory capital.

Asset/Liability Management

      The management of interest rate risk involves measuring and analyzing the
maturity and repricing of interest-earning assets and interest bearing
liabilities at specific points in time. The imbalance between interest-earning
assets and interest bearing liabilities is commonly referred to as the interest
rate gap. The interest rate gap is one measure of the risk inherent in the
existing balance sheet as it relates to potential changes in net interest
income. Maintaining an appropriate balance between interest-earning assets and
interest bearing liabilities is a means of monitoring and possibly avoiding
material fluctuations in the net interest margin during periods of changing
interest rates.

      The Company's overall sensitivity to interest rate risk is low due to its
non-complex balance sheet. The Company manages its balance sheet with the intent
of stabilizing net interest income and net economic

                                    Page 17
<PAGE>

value under a broad range of interest rate environments. The Company has the
ability to effect various strategies to manage interest rate risk, which
include, but are not limited to, selling newly originated residential mortgage
loans, controlling the volume mix of fixed/variable rate commercial loans and
securities, increasing/ decreasing deposits via interest rate changes, borrowing
from the FHLB, and buying/selling securities. Adjustments to the mix of assets
and liabilities are made periodically in an effort to give the Company
dependable and steady growth in net interest income, while at the same time,
managing the related risks.

Liquidity

      Liquidity represents the Company's ability to efficiently manage cash
flows at reasonable rates to support possible commitments to borrowers or the
demands of depositors. Liquidity is essential to compensate for fluctuations in
the balance sheet and provide funds for growth and normal operating
expenditures. Liquidity needs may be met by converting assets into cash or
obtaining sources of additional funding.

      Liquidity from asset categories is provided through cash, amounts due from
banks, interest-bearing deposits with banks and federal funds sold, which were
$8,184,000 at March 31, 2005, compared to $8,782,000 at December 31, 2004.
Additional asset liquidity sources include principal and interest payments from
securities in the Company's investment portfolio and cash flow from its
amortizing loan portfolio. Longer-term liquidity needs may be met by selling
securities available for sale, selling loans or raising additional capital. At
March 31, 2005, management indicated that there was $72,662,000 in liquid
securities as compared with $72,232,000 at December 31, 2004. Liquid securities
increased by $430,000 since year-end due to the need to pledge additional
securities as collateral for the public fund deposit account balances, which
similarly increased from year end.

      Liability liquidity sources include attracting deposits at competitive
rates. Deposits at March 31, 2005 were $298,012,000, compared to $298,265,000 at
December 31, 2004. In addition, the Bank has federal fund lines of credit with
its main correspondent bank, ACBB, and with the FHLB, which are reliable sources
for short and long-term funds.

      The Company's financial statements do not reflect various off-balance
sheet commitments that are made in the normal course of business, which may
involve some liquidity risk. Off-balance sheet arrangements are discussed in
detail below.

      Management is of the opinion that its liquidity position, at March 31,
2005, is adequate to respond to fluctuations "on" and "off" the balance sheet.
In addition, management knows of no trends, demands, commitments, events or
uncertainties that may result in, or that are reasonably likely to result in the
Company's inability to meet anticipated or unexpected liquidity needs.

Off-Balance Sheet Arrangements

      The Company's financial statements do not reflect various off-balance
sheet arrangements that are made in the normal course of business. These
commitments consist mainly of loans approved but not yet funded, unused lines of
credit and letters of credit made in accordance with the same standards as
on-balance sheet instruments. Unused commitments at March 31, 2005 were
$88,130,000, which consisted of $63,655,000 in unfunded commitments to existing
loans, $10,635,000 to grant new loans, $12,959,000 in unused lines for overdraft
privilege and $881,000 in letters of credit. Because these instruments have
fixed maturity dates, and because many of them will expire without being drawn
upon, they do not generally present a significant liquidity risk to the Company.
Management believes that any amounts actually drawn upon can be funded in the
normal course of operations. The Company has no investment in or financial
relationship with any unconsolidated entities that are reasonably likely to have
a material effect on liquidity or the availability of capital resources.

Capital

      The following Table 3 presents the risk-based and leverage capital amounts
and ratios at March 31, 2005 for the Company and the Bank.

                                    Page 18
<PAGE>
<TABLE>
<CAPTION>
                                                                                                  To be Well Capitalized
                                                                                                       under Prompt
                                                                         For Capital Adequacy       Corrective Action
                                                      Actual                   Purposes                 Provisions
                                              --------------------      --------------------     -----------------------
                                               Amount        Ratio        Amount      Ratio        Amount         Ratio
                                              --------       -----      ---------    -------     ----------      -------
                                                                       (Dollars in Thousands)
<S>                                             <C>            <C>         <C>           <C>         <C>            <C>
As of March 31, 2005:
     Total capital (to risk-weighted assets):
         Company                               $32,590        12.1  %   =>$21,556      =>8.0   %     N/A           N/A   %
         East Penn Bank                         30,098        11.3       =>18,668      =>8.0      =>$26,669      =>10.0
     Tier 1 capital (to risk-weighted assets):
         Company                                28,907        10.7       =>10,779      =>4.0         N/A           N/A
         East Penn Bank                         27,186        10.2       =>10,668      =>4.0       =>16,001       =>6.0
     Tier 1 capital (to average assets):
         Company                                28,907         8.0       =>14,486      =>4.0         N/A           N/A
         East Penn Bank                         27,186         7.6       =>14,388      =>4.0       =>17,986       =>5.0
</TABLE>

      These capital ratios continue to remain at levels, which are considered to
be "well-capitalized" as defined by regulatory guidelines.

      Banking laws and regulations limit the amount of cash dividends that may
be paid without prior approval from the Company's regulatory agencies. In
abidance with such requirements, on January 21, 2005, the Board of Directors
authorized and declared a semi-annual cash dividend for 2005 in the amount of
$0.09 per share, payable on February 28, 2005 to all shareholders of record as
of February 4, 2005. The payment of this semi-annual cash dividend decreased
retained earnings by $567,000.

      Restrictions under the Pennsylvania Banking Code of 1965 are placed on the
size of a Bank's investment in fixed assets as a percentage of equity.
Presently, the Bank exceeds the allowable limit of 25% of equity, as defined by
the Pennsylvania Department of Banking. The Bank's fixed assets as a percentage
of equity decreased to 36.3% at March 31, 2005, as compared with 38.3% at March
31, 2004. This decrease is due to the increase in stockholders' equity, which
offset any increases in fixed assets. Generally, the Bank contacts the
Department of Banking prior to the acquisition of material dollar fixed asset
additions to obtain the Department's approval. On an ongoing basis, compliance
with this section of the Banking Code is expected to occur through normal
depreciation adjustments and retention of earnings.

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

      In the normal course of conducting business activities, the Company is
exposed to market risk, principally interest risk. Interest risk arises from
market driven fluctuations in interest rates that affect cash flows, income,
expense and values of financial instruments. The asset/liability committee,
using policies and procedures approved by the Board of Directors, is responsible
for managing the rate sensitivity position.

      No material changes in the market risk strategy occurred during the
current period. No material changes have been noted in the Company's equity
value at risk. A detailed discussion of market risk is provided in the Form 10-K
for the period ended December 31, 2004.


ITEM 4.

Controls and Procedures

                                    Page 19
<PAGE>

      (a)   Evaluation of disclosure controls and procedures

            As of March 31, 2005, the Company carried out an evaluation, under
            the supervision and with the participation of the Company's
            management, including the Company's Chief Executive Officer and
            Chief Financial Officer, of the effectiveness of the design and
            operation of the Company's disclosure controls and procedures
            pursuant to Exchange Act Rule 13a-15(e). Based upon that evaluation,
            the Chief Executive Officer and Chief Financial Officer concluded
            that the Company's disclosure controls and procedures are effective
            in timely alerting them to material information relating to the
            Company (including its consolidated subsidiary) required to be
            included in the Company's periodic filings.

      (b)   Changes in internal control over financial reporting

            The Company made no significant changes in its internal control over
            financial reporting or in other factors that could significantly
            affect these controls during the quarter ended March 31, 2005,
            including any corrective actions with regard to significant
            deficiencies and material weaknesses.

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings
-------

                  In the opinion of the Company, after review with legal
            counsel, there are no proceedings pending to which the Company is a
            party or to which its property is subject, which, if determined
            adversely to the Company, would be material in relation to the
            Company's financial condition. There are no proceedings pending
            other than ordinary, routine litigation incident to the business of
            the Company. In addition, no material proceedings are pending or are
            known to be threatened or contemplated against the Company by
            governmental authorities.

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

                  Nothing to report.

Item 3.  Defaults upon Senior Securities
-------

                  Nothing to report.

Item 4.  Submission of Matters to a Vote of Security Holders
-------

                  Nothing to report.

Item 5.  Other Information
-------

                  Nothing to report.

Item 6.  Exhibits
------

                  3(i)  Registrant's Articles of Incorporation, as amended, are
                        incorporated herein by reference to Annex B to the
                        Registrant's Registration Statement on Form S-4
                        (Registration No. 333-103673) as filed with the
                        Securities and Exchange Commission on March 7, 2003.

                  3(ii) Registrant's By-Laws are incorporated herein by
                        reference to Annex C to the Registrant's Registration
                        Statement on Form S-4 (Registration No. 333-103673) as
                        filed with the Securities and Exchange Commission on
                        March 7, 2003.

                                    Page 20
<PAGE>

                  10.1  East Penn Financial Corporation's 1999 Stock Incentive
                        Plan for the benefit of officers and key employees is
                        incorporated by reference to Exhibit 10.2 to the
                        Registrant's Registration Statement on Form S-4
                        (Registration No. 333-103673) as filed with the
                        Securities and Exchange Commission on March 7, 2003.

                  10.2  East Penn Financial Corporation's 1999 Independent
                        Directors Stock Option Plan for the benefit of
                        non-employee directors is incorporated by reference to
                        Exhibit 10.1 to the Registrant's Registration Statement
                        on Form S-4 (Registration No. 333-103673) as filed with
                        the Securities and Exchange Commission on March 7, 2003.

                  10.3  Executive Employment Agreement between East Penn Bank
                        and Brent L. Peters, dated April 12, 2001, is
                        incorporated by reference to Exhibit 10.3 to the
                        Registrant's Registration Statement on Form S-4
                        (Registration No. 333-103673) as filed with the
                        Securities and Exchange Commission on March 7, 2003.

                  10.4  The Supplemental Executive Retirement Plan ("SERP")
                        between East Penn Bank and Brent L. Peters, dated May
                        31, 2001, is incorporated herein by reference to Exhibit
                        10.4 to the Registrant's Registration Statement on Form
                        S-4 (Registration No. 333-103673) as filed with the
                        Securities and Exchange Commission on March 7, 2003.

                  10.5  East Penn Financial Corporation's Dividend Reinvestment
                        and Stock Purchase Plan is incorporated by reference to
                        the Registrant's Registration Statement on Form S-3
                        (Registration No. 333-116754) as filed with the
                        Securities and Exchange Commission on June 23, 2004.

                  11    Statement re: Computation of per share earnings is
                        incorporated by reference herein to Note 4 on page 8 of
                        this Form 10-Q.

                  31.1  Certification of Chief Executive Officer pursuant to
                        Rule 13a-15(e)/15d-15(e).

                  31.2  Certification of Chief Financial Officer pursuant to
                        Rule 13a-15(e)/15d-15(e).

                  32.1  Certification of Chief Executive Officer pursuant to
                        Section 1350 of the Sarbanes Oxley Act of 2002.

                  32.2  Certification of Chief Financial Officer pursuant to
                        Section 1350 of the Sarbanes Oxley Act of 2002.

                                    Page 21

<PAGE>

SIGNATURES

      Pursuant to the requirements of Section 12 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.


                               EAST PENN FINANCIAL CORPORATION
                                (Registrant)



                               By:  /s/ Brent L. Peters
                                    -------------------------------------------
                                    Brent L. Peters
                                    President and Chief Executive Officer
                                    (Principal Executive Officer)

                               Date:  May 10, 2005





                               By:  /s/ Theresa M. Wasko
                                    -------------------------------------------
                                    Theresa M. Wasko
                                    Treasurer and Chief Financial Officer
                                    (Principal Financial and Accounting Officer)

                               Date:  May 10, 2005



                                    Page 22

<PAGE>

                                  Exhibit Index

3(i)  Registrant's Articles of Incorporation, as amended, are incorporated by
      reference to Annex B to the Registrant's Registration Statement on Form
      S-4 (Registration No. 333-103673) as filed with the Securities and
      Exchange Commission on March 7, 2003.

3(ii) Registrant's By-Laws are incorporated by reference to Annex C to the
      Registrant's Registration Statement on Form S-4 (Registration No.
      333-103673) as filed with the Securities and Exchange Commission on March
      7, 2003.

10.1  East Penn Financial Corporation's 1999 Stock Incentive Plan for the
      benefit of officers and key employees is incorporated by reference to
      Exhibit 10.3 to the Registrant's Registration Statement on Form S-4
      (Registration No. 333-103673) as filed with the Securities and Exchange
      Commission on March 7, 2003.

10.2  East Penn Financial Corporation's 1999 Independent Directors Stock Option
      Plan for the benefit of non-employee directors is incorporated by
      reference to Exhibit 10.2 to the Registrant's Registration Statement on
      Form S-4 (Registration No. 333-103673) as filed with the Securities and
      Exchange Commission on March 7, 2003.

10.3  Executive Employment Agreement between East Penn Bank and Brent L. Peters,
      dated April 12, 2001, is incorporated by reference to Exhibit 10.1 to the
      Registrant's Registration Statement on Form S-4 (Registration No.
      333-103673) as filed with the Securities and Exchange Commission on March
      7, 2003.

10.4  Supplemental Executive Retirement Plan ("SERP") between East Penn Bank and
      Brent L. Peters, dated May 31, 2001, is incorporated by reference to
      Exhibit 10.4 to the Registrant's Registration Statement on Form S-4
      (Registration No. 333-103673) as filed with the Securities and Exchange
      Commission on March 7, 2003.

10.5  East Penn Financial Corporation's Dividend Reinvestment and Stock Purchase
      Plan is incorporated by reference to the Registrant's Registration
      Statement on Form S-3 (Registration No. 333-116754) as filed with the
      Securities and Exchange Commission on June 23, 2004.

11    Statement re: Computation of per share earnings is incorporated by
      reference herein to Note 4 on page 8 of this Form 10-Q.

31.1  Certification of Chief Executive Officer pursuant to Rule
      13a-15(e)/15d-15(e).

31.2  Certification of Chief Financial Officer pursuant to Rule
      13a-15(e)/15d-15(e).

32.1  Certification of Chief Executive Officer pursuant to Section 1350 of the
      Sarbanes Oxley Act of 2002.

32.2  Certification of Chief Financial Officer pursuant to Section 1350 of the
      Sarbanes Oxley Act of 2002.


                                    Page 23