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|  Corporate                      Profile                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| East                      Penn Financial Corporation, headquartered in Emmaus, Pennsylvania,                      was                      organized on July 1, 2003. East Penn Bank, a wholly owned subsidiary                      of                      East Penn Financial Corporation, opened for business on November                      1, 1991                      as a local community bank dedicated to serving the financial                      needs of                      consumers and small businesses. East Penn Bank, with nine banking                      locations, remains committed to providing excellent customer                      service and                      quality financial products to customers throughout the Lehigh                      Valley.                        |

| Financial Highlights                                                                                                                                                            |   |     |        |   |   |   |    |   |   |   |    |   |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|-------------|--------|--------|--------|---------|--------|--------|--------|---------|--------|--------|
| *(Dollar*s                                  *i*n *thousands*, *excep*t *branc*h                                  *dat*a *an*d *pe*r *shar*e                                  *data*) |   |     |        |   |   |   |    |   |   |   |    |   |   |
|                                                                                                                                                                                 |   |     |        |   |   |   |    |   |   |   |    |   |   |
| at                                  December 31,                                                                                                                                     |   | **2006** |        |   | 2005   |   |    | 2004   |   |   | 2003    |   |   | 2002 |   |
| Total                                  assets                                                                                                                                        |   | **$**    | **439,452** |   |   | $      | 404,229 |   |   | $      | 359,414 |   |   | $ | 337,939 |   |   | $ | 272,077 |   |
| Net                                  loans, including available for sale                                                                                                             |   |     | **319,915** |   |   |   | 291,392 |   |   |   | 238,977 |   |   |   | 205,569 |   |   |   | 178,183 |   |
| Investment                                  securities                                                                                                                               |   |     | **70,392**  |   |   |   | 75,213  |   |   |   | 88,649  |   |   |   | 105,085 |   |   |   | 63,247 |   |
| Deposits                                                                                                                                                                             |   |     | **372,631** |   |   |   | 324,306 |   |   |   | 298,265 |   |   |   | 279,898 |   |   |   | 243,640 |   |
| Long-term                                  debt                                                                                                                                      |   |     | **24,000**  |   |   |   | 40,000  |   |   |   | 25,000  |   |   |   | 25,000 |   |   |   | — |   |
| Junior                                  subordinated debentures                                                                                                                      |   |     | **8,248**   |   |   |   | 8,248   |   |   |   | 8,248   |   |   |   | — |   |   |   | — |   |
| Mandatory                                  redeemable capital debentures                                                                                                             |   |     | **—** |   |   |   | — |   |   |   | — |   |   |   | 8,000 |   |   |   | — |   |
| Stockholders’                                  equity                                                                                                                          |   |     | **25,161**  |   |   |   | 22,841  |   |   |   | 21,667  |   |   |   | 19,543 |   |   |   | 19,664 |   |
| Number                                  of branches                                                                                                                                  |   |     | **9**       |   |   |   | 8       |   |   |   | 7       |   |   |   | 7 |   |   |   | 7 |   |
|                                                                                                                                                                                 |   |     |        |   |   |   |    |   |   |   |    |   |   |   |   |   |   |   |   |   |
| for                                  the years ended December 31,                                                                                                                    |   |     |        |   |   |   |    |   |   |   |    |   |   |   |   |   |   |   |   |   |
| Net                                  income                                                                                                                                          |   | **$**    | **3,611**   |   |   | $      | 3,503   |   |   | $      | 3,250   |   |   | $ | 2,809 |   |   | $ | 2,403 |   |
| Basic                                  earnings per share                                                                                                                            |   | **$**    | **0.57**    |   |   | $      | 0.56    |   |   | $      | 0.52    |   |   | $ | 0.43 |   |   | $ | 0.36 |   |
| Diluted                                  earnings per share                                                                                                                          |   | **$**    | **0.57**    |   |   | $      | 0.55    |   |   | $      | 0.51    |   |   | $ | 0.43 |   |   | $ | 0.36 |   |
| Cash                                  dividends per common share                                                                                                                     |   | **$**    | **0.22**    |   |   | $      | 0.19    |   |   | $      | 0.16    |   |   | $ | 0.10 |   |   | $ | 0.06 |   |
| Dividend                                  payout ratio                                                                                                                               |   |     | **38.38**   | **%**  |   |   | 34.20   | %      |   |   | 31.02   | %      |   |   | 23.26 | % |   |   | 16.66 | % |
| Return                                  on average equity                                                                                                                            |   |     | **15.64**   | **%**  |   |   | 15.86   | %      |   |   | 16.07   | %      |   |   | 13.96 | % |   |   | 13.35 | % |
| Return                                  on average assets                                                                                                                            |   |     | **0.87**    | **%**  |   |   | 0.92    | %      |   |   | 0.93    | %      |   |   | 0.95 | % |   |   | 0.95 | % |
| Nonperforming                                  loans to total loans                                                                                                                  |   |     | **0.13**    | **%**  |   |   | 0.21    | %      |   |   | 0.44    | %      |   |   | 0.21 | % |   |   | 0.51 | % |

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                         |   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------|--------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |    **Brent                  L. Peters**                       |   |
|  To                  Our Shareholders: On                  November 1, 2006, we celebrated the 15th anniversary of the opening                  of                  East Penn Bank. In those 15 years, we have grown to $440 million                  in assets                  with nine banking locations in Lehigh, Berks and Northampton Counties.                  We                  believe we have been able to achieve this growth while maintaining                  our                  dedication to customer service, community banking and providing                  value to                  you, our shareholders.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                         |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   Chairman,                  President and Chief Executive Officer |
|                  It                  goes without saying that 2006 was a challenging time for the banking                  community and East Penn Bank was not an exception. We too were                  pressured                  by a flat to inverted yield curve, interest margin compression                  and very                  competitive pricing for both loans and deposits. With these challenges,                  we                  are pleased to report that our total assets increased 8.7% to $439,452,000                  as of 2006 year end. In addition, we were able to increase net                  income 3.1%                  to $3,611,000 for December 31, 2006. Although the net interest                  margin                  declined to 3.63% in 2006 from 3.80% in 2005, our total net interest                  income increased to $13,308,000 or 4.2% over the prior year. This                  growth                  in net interest income was attributable to loan growth of 10.1%                  and the                  reduction of $16,000,000 or a 40% reduction of outstanding borrowings,                  both of which were funded by the vibrant deposit growth of 14.9%.                  Our                  bottom line was further helped by an 8.8% increase in other income                  and by                  limiting the growth of 2006 expenses to 7.4%. We are very pleased                  with the                  expense control since it includes the cost of opening a new branch                  during                  May at 502 State Avenue, Emmaus. These results for 2006 resulted                  in a                  return on average assets of 0.87% and a return on average equity                  of                  15.64%. We believe we have maintained our earning momentum in tandem                  with                  enhancing shareholder value. As                  a shareholder, you have received cash dividends of $0.22 per share                  of                  common stock during 2006. This is a significant increase from the                  first                  cash dividend of $0.05 per share which was paid in 2001. These                  financial                  results were accomplished through our continued focus on core banking                  activity and by adhering to our operating strategy of managing                  the net                  interest margin, overhead costs and asset quality. The                  expectations are for continued earnings challenges during 2007.                  To help                  ease the pressure on earnings, the Bank has recently introduced                  the East                  Penn Financial Services Division. This division will fill an existing                  gap                  in bank services and will enable our customers to address their                  investment                  and retirement needs. These investment products will help to diversify                  the                  Bank’s income stream going forward. Thank                  you for your continued support of our efforts to bring quality                  community                  banking to the Lehigh Valley.  Brent                  L. Peters*Chairman*,                  *Presiden*t *an*d *Chie*f *Executiv*e                  *Office*r   |                                                                         |

| **East                Penn Financial Corporation**        1  |
|------------------------------------------------------------------------------------------------------|

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*Celebrating*

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| The                    Lehigh Valley is an area comprised of Lehigh and Northampton                    Counties in                    eastern Pennsylvania located approximately one hour north of                    Philadelphia                    and one and a half hours west of New York City. Its early inhabitants                    were                    mainly of German descent that came to Pennsylvania for promise                    of                    religious freedom. To most people, the Lehigh Valley’s German or                    Pennsylvania Dutch heritage conjures up visions of covered bridges,                    hex                    signs on barns, shoofly pies and funnel cakes. More importantly,                    these                    early settlers strongly influenced our way of life by founding                    churches,                    farming the rich land and establishing businesses. They were                    instrumental                    in transforming the Lehigh Valley into an attractive place to                    live, work                    and raise families. This success, along with easy access to major                    metropolitan areas in the North East, drew a multitude of people                    to the                    valley. The population has grown to over 1 million residents,                    making the                    Lehigh Valley the 3rd largest area in Pennsylvania. The valley                    now                    represents a rich, diverse community who bring multicultural                    excitement to                    the area. So, along with                    remembering |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|    2                         **East Penn Financial                    Corporation**      |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

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*Our        Heritage*

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| the                    history of farming each year at the Allentown Fair, we celebrate                    with our                    Latino neighbors at the Puerto Rican Cultural Coalition’s annual                    BorinquenFest. We cheer for our favorite athletes and dancers                    at the                    Celtic Classic and savor the international climate provided each                    year at                    Musikfest. We appreciate the history of our cities with their                    business,                    educational and recreational opportunities. As we enjoy the beauty                    of the                    Rose Garden in bloom or appreciate the vintage cars at a show                    in the park,                    we thank our forefathers for having the vision to dedicate open                    land for                    our use. We believe it is our corporate responsibility to improve                    upon the                    high quality of life given to us by our ancestors. That’s why East Penn                    Bank sponsors many local business, community and fine arts events.                    We                    financially support, volunteer for and enjoy the variety of people,                    places                    and events that are unique to our area. Through our involvement,                    we                    celebrate all that makes the Lehigh Valley beautifully diverse—we                    celebrate our heritage. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **East                    Penn Financial                    Corporation**       3  |
|-----------------------------------------------------------------------------------------------------------------------|

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**Directors      and Officers**

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| Board                    of Directors                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| **Dale                    A. Dries***President                    Dries**Do-I**t**Cente**r* **Thomas                    R. Gulla***Privat*e                    *Investo*r **Allen                    E. Kiefer***Owne*r*Allen                    E. Kiefer Investment Services* **Brent                    L. Peters***President                    and**Chief                    Executive Officer**East                    Penn Financial Corporation*  | **Forrest                    A. Rohrbach***President                    and**Chief                    Executive Officer**FA**R**Industries**,**Inc**.* **Gordon                    K. Schantz***Presiden*t*Th*e                    *But*z *Company*, *Inc*. **Linn                    H. Schantz***Private                    Investor* **Donald                    R. Schneck***President**Ar**t**Schnec**k**Optica**l**Compan**y*  | **Peter                    L. Shaffer***Owner*,                    *Shaffe*r & *Associate*s*Certifie*d                    *Publi*c *Accountant*s **Konstantinos                    A. Tantaros***Develope*r                    *an*d *Owne*r*Tantaros*,                    *Inc*. **F.                    Geoffrey Toonder, M.D., P.C.***Retire*d                    *Cardio-Thoraci*c *an*d*Vascula*r                    *Surgeo*n **Donald                    S. Young***Attorne*y                    *a*t *La*w  |

*Bac*
*row*
*lef*
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*right*

*Fron*
*row*
*lef*
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*right*

| **Officers**                                                                                                                                                                                                                                                         |                                                                                                                                    |                                                                                                                                                                                                          |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                 |                                                                                                                                    |                                                                                                                                                                                                          |
| **Brent                    L. Peters***Chairma*n                    *o*f *th*e *Boar*d*Presiden*t                    *an*d*Chie*f                    *Executiv*e *Office*r **Forrest                    A. Rohrbach***Vic*e                    *Chairma*n  | **Donald                    R. Schneck***Vic*e                    *Chairma*n **Bruce                    R. Keil***Secretary*  | **Debra                    K. Peters***Vic*e                    *Presiden*t **Theresa                    M. Wasko***Treasure*r                    *an*d *Chie*f *Financia*l                    *Office*r |

|    4                       **East Penn Financial                  Corporation**      |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|

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**MANAGEMENT’S      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF      EAST      PENN FINANCIAL CORPORATION**

**FOR      THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004**

**Critical      Accounting Policies and Estimates**

*Accounting      for Stock issued to Employees*
*Accounting      for Stock Based Compensation *
*Accounting      for Stock-Based Compensation Transition and Disclosure*
*Share-Based      Payment *

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**OVERVIEW**

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**RESULTS      OF OPERATIONS**

**Net      Interest Income and Net Interest Margin**

**2006      Compared to 2005**

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**2005      Compared to 2004**

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**Table      1**

**TABLE      1**

**AVERAGE      BALANCES, RATES AND INTEREST INCOME AND EXPENSE**

| **Year                Ended December 31,**                                                               |   | **2006**    |        | **2005**     |   | **2004**       |   |
|----------------------------------------------------------------------------------------------------------|--------|-------------|-------------|--------------|--------|----------------|--------|
|                                                                                                     |   | **Average** |        |         |   |           |   |  **Average** |   |   |   |   |   | **Average** |   |   |   |   |   |
| **(Dollars                in Thousands)**                                                                |   | **Balance** |        | **Interest** |   | **Yield/Rate** |   | **Balance** |   | **Interest** |   | **Yield/Rate** |   | **Balance** |   | **Interest** |   | **Yield/Rate** |   |
| **Assets**                                                                                               |   |        |        |         |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Interest                Earning Assets**                                                               |   |        |        |         |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities:                                                                                              |   |        |        |         |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Taxable                securities (2)                                                                    |   | **$**       | **53,315**  |         | **$**  | **2,394**      |   |   | **4.49** | **%** | $ | 69,102 |   | $ | 3,061 |   |   | 4.43 | % | $ | 82,890 |   | $ | 3,551 |   |   | 4.28 | % |
| Tax-exempt                securities(1)(2)                                                               |   |        | **18,674**  |         |   | **1,188**      |   |   | **6.36** | **%** |   | 15,427 |   |   | 956 |   |   | 6.20 | % |   | 12,487 |   |   | 785 |   |   | 6.29 | % |
| Total                securities                                                                          |   |        | **71,989**  |         |   | **3,582**      |   |   | **4.98** | **%** |   | 84,529 |   |   | 4,017 |   |   | 4.75 | % |   | 95,377 |   |   | 4,336 |   |   | 4.55 | % |
| Total                loans(1)(3)(4)(5)                                                                   |   |        | **308,481** |         |   | **20,559**     |   |   | **6.66** | **%** |   | 265,265 |   |   | 16,540 |   |   | 6.24 | % |   | 224,259 |   |   | 12,963 |   |   | 5.78 | % |
| Other                interest earning assets                                                             |   |        | **9,226**   |         |   | **493**        |   |   | **5.34** | **%** |   | 5,245 |   |   | 185 |   |   | 3.53 | % |   | 4,189 |   |   | 80 |   |   | 1.91 | % |
| Total                Interest Earning Assets                                                             |   |        | **389,696** |         |   | **24,634**     |   |   | **6.32** | **%** |   | 355,039 |   |   | 20,742 |   |   | 5.84 | % |   | 323,825 |   |   | 17,379 |   |   | 5.37 | % |
| **Non-Interest                Earning Assets**                                                           |   |        |        |         |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unrealized                gains (losses) on available for sale securities                                |   |        | **(1,877**  | **)**        |   |           |   |   |   |   |   | (220 | ) |   |   |   |   |   |   |   | 390 |   |   |   |   |   |   |   |
| Allowance                for loan losses                                                                 |   |        | **(3,212**  | **)**        |   |           |   |   |   |   |   | (2,990 | ) |   |   |   |   |   |   |   | (2,646 | ) |   |   |   |   |   |   |
| Other                assets                                                                              |   |        | **31,752**  |         |   |           |   |   |   |   |   | 30,043 |   |   |   |   |   |   |   |   | 27,101 |   |   |   |   |   |   |   |
|                                                                                                     |   |        |        |         |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Total                Assets**                                                                          |   | **$**       | **416,359** |         |   |           |   |   |   |   | **$** | 381,872 |   |   |   |   |   |   |   | $ | 348,670 |   |   |   |   |   |   |   |
|                                                                                                     |   |        |        |         |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Liabilities                and Stockholders’ Equity**                                            |   |        |        |         |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Interest                Bearing Liabilities**                                                          |   |        |        |         |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                                |   |        |        |         |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                bearing demand deposits                                                          |   | **$**       | **108,337** |         | **$**  | **1,707**      |   |   | **1.58** | **%** | $ | 116,978 |   | $ | 1,616 |   |   | 1.38 | % | $ | 118,950 |   | $ | 1,292 |   |   | 1.09 | % |
| Savings                deposits                                                                          |   |        | **41,741**  |         |   | **424**        |   |   | **1.02** | **%** |   | 42,684 |   |   | 409 |   |   | 0.96 | % |   | 43,076 |   |   | 362 |   |   | 0.84 | % |
| Time                deposits                                                                             |   |        | **148,988** |         |   | **6,417**      |   |   | **4.31** | **%** |   | 103,725 |   |   | 3,227 |   |   | 3.11 | % |   | 85,241 |   |   | 2,037 |   |   | 2.39 | % |
| Total                interest bearing deposits                                                           |   |        | **299,066** |         |   | **8,548**      |   |   | **2.86** | **%** |   | 263,387 |   |   | 5,252 |   |   | 1.99 | % |   | 247,267 |   |   | 3,691 |   |   | 1.49 | % |
| Federal                funds purchased and securities sold under agreements to                repurchase |   |        | **7,760**   |         |   | **235**        |   |   | **3.03** | **%** |   | 7,428 |   |   | 169 |   |   | 2.28 | % |   | 7,020 |   |   | 83 |   |   | 1.18 | % |
| Long-term                debt                                                                            |   |        | **31,646**  |         |   | **1,148**      |   |   | **3.63** | **%** |   | 37,740 |   |   | 1,290 |   |   | 3.42 | % |   | 25,068 |   |   | 797 |   |   | 3.18 | % |
| Junior                subordinated and mandatory redeemable capital debentures                           |   |        | **8,000**   |         |   | **544**        |   |   | **6.80** | **%** |   | 8,000 |   |   | 544 |   |   | 6.80 | % |   | 8,000 |   |   | 544 |   |   | 6.80 | % |
| Total                Interest Bearing Liabilities                                                        |   |        | **346,472** |         |   | **10,475**     |   |   | **3.02** | **%** |   | 316,555 |   |   | 7,255 |   |   | 2.29 | % |   | 287,355 |   |   | 5,115 |   |   | 1.78 | % |
|                                                                                                     |   |        |        |         |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Non-Interest                Bearing Liabilities**                                                      |   |        |        |         |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Demand                deposits                                                                           |   |        | **44,454**  |         |   |                |   |   |   |   |   | 41,496 |   |   |   |   |   |   |   |   | 39,664 |   |   |   |   |   |   |   |
| Other                liabilities                                                                         |   |        | **2,346**   |         |   |                |   |   |   |   |   | 1,721 |   |   |   |   |   |   |   |   | 1,428 |   |   |   |   |   |   |   |
|                                                                                                     |   |        |        |         |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Stockholders’                Equity**                                                            |   |        | **23,087**  |         |   |           |   |   |   |   |   | 22,100 |   |   |   |   |   |   |   |   | 20,223 |   |   |   |   |   |   |   |
|                                                                                                     |   |        |        |         |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Total                Liabilities and Stockholders’ Equity**                                      |   | **$**       | **416,359** |         |   |           |   |   |   |   | $ | 381,872 |   |   |   |   |   |   |   | $ | 348,670 |   |   |   |   |   |   |   |
|                                                                                                     |   |        |        |         |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                Interest Income                                                                       |   |        |        |         | **$**  | **14,159**     |   |   |   |   |   |   |   | $ | 13,487 |   |   |   |   |   |   |   | $ | 12,264 |   |   |   |   |
| Net                Interest Spread                                                                       |   |        |        |         |   |           |   |   | **3.30** | **%** |   |   |   |   |   |   |   | 3.55 | % |   |   |   |   |   |   |   | 3.59 | % |
| Net                Interest Margin                                                                       |   |        |        |         |   |           |   |   | **3.63** | **%** |   |   |   |   |   |   |   | 3.80 | % |   |   |   |   |   |   |   | 3.79 | % |

|  | (1) | Yields                    on tax-exempt assets have been calculated on a fully tax equivalent                    basis                    assuming a tax rate of                    34%. |
|--|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Held                to maturity securities and available for sale securities are reported                at                amortized cost. All yields are                annualized. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | Non-accruing                loans are included in the outstanding loan balances. |
|--------|-----|----------------------------------------------------------------------------------|

|   | (4) | For                yield calculation purposes, non-accruing loans are included in the                average                loan balances. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------|

|   | (5) | Interest                income on loans includes net amortized revenues (costs) on loans                totaling                ($85,000) for 2006, ($116,000) for 2005 and ($93,000) for                2004. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Table      2**

**TABLE      2**

**RATE      VOLUME ANALYSIS OF NET INTEREST INCOME**

**FOR      THE YEARS ENDED DECEMBER 31,**

|                                                                                                     |   | **2006                vs. 2005** |      | **2005                vs. 2004** |   |
|----------------------------------------------------------------------------------------------------------|--------|----------------------------------|-----------|----------------------------------|--------|
| **(Dollars                In Thousands)**                                                                |   | **Increase/(Decrease)**          |      | **Increase/(Decrease)**          |   |
|                                                                                                     |   | **Volume**                       |      | **Rate**                         |   | **Total** |   | **Volume** |   | **Rate** |   | **Total** |   |
|                                                                                                     |   |                             |      |                             |   |   |   |   |   |   |   |   |   |
| **Interest-Earning                Assets:**                                                              |   |                             |      |                             |   |   |   |   |   |   |   |   |   |
| Interest                bearing** **due                from banks and federal funds sold            |   | **$**                            | **183**   |                             | **$**  | **125** |   | **$** | **308** |   | $ | 24 |   | $ | 81 |   | $ | 105 |   |
| Securities                (1)                                                                            |   |                             | **(637**  | **)**                            |   | **202** |   |   | **(435** | **)** |   | (524 | ) |   | 205 |   |   | (319 | ) |
| Loans                (1) (2)                                                                        |   |                             | **2,825** |                             |   | **1,194** |   |   | **4,019** |   |   | 2,500 |   |   | 1,077 |   |   | 3,577 |   |
| **Net                Change in Interest Income**                                                         |   |                             | **2,371** |                             |   | **1,521** |   |   | **3,892** |   |   | 2,001 |   |   | 1,362 |   |   | 3,363 |   |
|                                                                                                     |   |                             |      |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Interest-Bearing                Liabilities:**                                                         |   |                             |      |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                bearing demand deposits                                                          |   |                             | **(101**  | **)**                            |   | **192** |   |   | **91** |   |   | (21 | ) |   | 345 |   |   | 324 |   |
| Savings                deposits                                                                          |   |                             | **(9**    | **)**                            |   | **24** |   |   | **15** |   |   | (3 | ) |   | 50 |   |   | 47 |   |
| Time                deposits                                                                             |   |                             | **1,696** |                             |   | **1,494** |   |   | **3,190** |   |   | 497 |   |   | 693 |   |   | 1,190 |   |
| Federal                funds purchased and securities sold under agreements to                repurchase |   |                             | **8**     |                             |   | **58** |   |   | **66** |   |   | 5 |   |   | 81 |   |   | 86 |   |
| Long-term                borrowings                                                                      |   |                             | **(229**  | **)**                            |   | **87** |   |   | **(142** | **)** |   | 429 |   |   | 64 |   |   | 493 |   |
|                                                                                                     |   |                             |      |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Net                Change in Interest Expense**                                                        |   |                             | **1,365** |                             |   | **1,855** |   |   | **3,220** |   |   | 908 |   |   | 1,232 |   |   | 2,140 |   |
|                                                                                                     |   |                             |      |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **CHANGE                IN NET INTEREST INCOME:**                                                        |   | **$**                            | **1,006** |                             |   | **($334** | **)** | **$** | **672** |   | $ | 1,093 |   | $ | 130 |   | $ | 1,223 |   |

|   | (1) | Yields                on tax-exempt assets have been computed on a fully tax-equivalent                basis                assuming a tax rate of 34%. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Interest                income includes net amortized revenues (costs) on loans of ($85,000),                ($116,000) and ($93,000) in 2006, 2005 and 2004,                respectively. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Provision      for Loan Losses**

|   | - | an                ongoing review of delinquent, classified and non-accrual loans, large                loans and overall portfolio quality and                trends; |
|--------|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | - | analytical                review of loan charge-off experience, delinquency rates and other                relevant                historical and peer statistical ratios; |
|--------|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | - | management’s                judgment with respect to the composition and nature of the portfolio,                concentrations of credit, regulatory recommendations and current                and                projected economic and business conditions and their impact on the                existing portfolio; and |
|--------|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | - | observations                  derived from examinations and reviews of the portfolio by regulatory                  examiners and independent auditors. |
|--------|---|---------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Table      3**

**TABLE      3**

**SUMMARY      OF LOAN LOSS EXPERIENCE**

|                                                                          |   | **Years                Ended December 31,** |        |
|-------------------------------------------------------------------------------|--------|---------------------------------------------|-------------|
| **(Dollars                In Thousands)**                                     |   | **2006**                                    |        | **2005** |   | **2004** |   | **2003** |   | **2002** |   |
| Amount                of loans receivable outstanding at end of period        |   | **$**                                       | **322,800** |     | **$** | 293,387 |     | $ | 240,669 |      | $ | 207,016 |     | $ | 176,987 |   |
|                                                                          |   |                                        |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Average                loans receivable                                       |   | **$**                                       | **307,877** |   | $ | 263,958 |   | $ | 222,833 |   | $ | 188,444 |   | $ | 168,012 |   |
|                                                                          |   |                                        |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Allowance                for loan losses:**                                 |   |                                        |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Beginning                balance                                              |   | **$**                                       | **3,072**   |   | $ | 2,838 |   | $ | 2,403 |   | $ | 2,167 |   | $ | 1,843 |   |
| Charge-offs:                                                                  |   |                                        |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                loans                                               |   |                                        | -           |   |   | (47 | ) |   | - |   |   | (94 | ) |   | (5 | ) |
| Real                estate loans                                              |   |                                        | **(128**    | **)** |   | (36 | ) |   | - |   |   | - |   |   | - |   |
| Consumer                loans                                                 |   |                                        | **(110**    | **)** |   | (123 | ) |   | (                80 | ) |   | (56 | ) |   | (44 | ) |
| Total                charge-offs                                              |   |                                        | **(238**    | **)** |   | (206 | ) |   | (80 | ) |   | (150 | ) |   | (49 | ) |
| Recoveries                                                                    |   |                                        | **35**      |   |   | 20 |   |   | 17 |   |   | 6 |   |   | 6 |   |
| Net                charge-offs                                                |   |                                        | **(203**    | **)** |   | (186 | ) |   | (63 | ) |   | (144 | ) |   | (43 | ) |
| Provision                for loan losses                                      |   |                                        | **389**     |   |   | 420 |   |   | 498 |   |   | 380 |   |   | 367 |   |
| Ending                balance                                                 |   | **$**                                       | **3,258**   |   | $ | 3,072 |   | $ | 2,838 |   | $ | 2,403 |   | $ | 2,167 |   |
|                                                                          |   |                                        |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Ratios:**                                                                   |   |                                        |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                charge-offs to average loans                               |   |                                        | **0.07**    | **%** |   | 0.07 | % |   | 0.03 | % |   | 0.08 | % |   | 0.03 | % |
|                                                                          |   |                                        |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                charge-offs to the provision for loan losses               |   |                                        | **52.19**   | **%** |   | 44.29 | % |   | 12.65 | % |   | 37.89 | % |   | 11.72 | % |
|                                                                          |   |                                        |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance                for loan losses to loans receivable at end of period |   |                                        | **1.01**    | **%** |   | 1.05 | % |   | 1.18 | % |   | 1.16 | % |   | 1.22 | % |

**Allocation      of the Allowance for Loan Losses**

**Table      4**

**TABLE      4**

**ALLOCATION      OF THE ALLOWANCE FOR LOAN LOSSES**

|                                          |   | **2006**   |      | **2005**                   |   | **2004**   |         | **2003**                   |   | **2002**   |   |
|-----------------------------------------------|--------|------------|-----------|----------------------------|--------|------------|--------------|----------------------------|--------|------------|--------|
|                                          |   |       |      | **%                Gross** |   |       |         | **%                Gross** |   |       |   | **%                Gross** |   |   |   | **%                Gross** |   |   |   | **%                Gross** |   |
| **(Dollars                In Thousands)**     |   | **Amount** |      | **Loans**                  |   | **Amount** |         | **Loans**                  |   | **Amount** |   | **Loans** |   | **Amount** |   | **Loans** |   | **Amount** |   | **Loans** |   |
| Commercial                loans               |   | **$**      | **2,917** |                       |   | 69.4%      |    | $                          | 2,691  |       |   | 70.2% |   | $ | 2,279 |   |   | 65.3% |   | $ | 1,798 |   |   | 61.8% |    | $ | 1,507 |   |   | 59.2% |   |
| Real                estate - residential      |   |       | **99**    |                       |   | 13.9%      |         |                       | 109    |       |   | 13.0% |   |   | 180 |   |   | 15.2% |   |   | 194 |   |   | 15.4% |   |   | 203 |   |   | 16.4% |   |
| Real                estate - construction     |   |       | **15**    |                       |   | 0.3%       |         |                       | 17     |       |   | 0.9% |   |   | 33 |   |   | 1.4% |   |   | 66 |   |   | 4.0% |   |   | 73 |   |   | 4.1% |   |
| Home                equity and consumer loans |   |       | **227**   |                       |   | 16.4%      |         |                       | 255    |       |   | 15.9% |   |   | 349 |   |   | 18.1% |   |   | 345 |   |   | 18.8% |   |   | 384 |   |   | 20.3% |   |
|                                          |   |       |      |                       |   |       |         |                       |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                         |   | **$**      | **3,258** |                       |   | 100.0%     |         | $                          | 3,072  |       |   | 100.0% |   | $ | 2,838 |   |   | 100.0% |   | $ | 2,403 |   |   | 100.0% |   | $ | 2,167 |   |   | 100.0% |   |

----

**Non-Interest      Income**

**2006      Compared to 2005**

**2005      Compared to 2004**

----

**Non-Interest      Expenses**

|   | - | occupancy                and equipment expenses, |
|--------|---|--------------------------------------------------|

|   | - | stationary,                printing and supplies, |
|--------|---|---------------------------------------------------|

|   | - | advertising                and promotion costs, |
|--------|---|-------------------------------------------------|

|   | - | data                processing and ATM outside service                providers, |
|--------|---|----------------------------------------------------------------------------------|

|   | - | professional                fees for legal, accounting and consulting                services, |
|--------|---|------------------------------------------------------------------------------------------------|

|   | - | shareholder                related services, |
|--------|---|----------------------------------------------|

|   | - | costs                associated with the due diligence process of extending and maintaining                loans and the collection process, |
|--------|---|----------------------------------------------------------------------------------------------------------------------------------------------|

|   | - | Pennsylvania                Bank Shares tax and FDIC assessment,                and |
|--------|---|-------------------------------------------------------------------------------------|

|   | - | other                types of expenses incurred as part of the normal course of operation                of                the Company. |
|--------|---|-----------------------------------------------------------------------------------------------------------------------------------------|

**2006      Compared to 2005**

**2005      Compared to 2004**

----

**Income      Taxes**

**Net      Income**

**2006      Compared to 2005**

**2005      Compared to 2004**

----

**FINANCIAL      CONDITION**

**Securities**

----

**Table      5**

**TABLE      5**

**SECURITIES**

| (**Dollars              In Thousands)**                    |   | **December                31,** |       |
|------------------------------------------------------------|--------|---------------------------------|------------|
|                                                       |   | **2006**                        |       | **2005** |   | **2004** |   |
| Available                for sale securities:              |   |                            |       |   |   |   |   |
| U.S.                Government agencies and corporations   |   | **$**                           | **966**    |   | $ | 963 |   | $ | 982 |   |
| State                and political subdivisions            |   |                            | **22,082** |   |   | 19,134 |   |   | 19,134 |   |
| Mortgage-backed                and asset-backed securities |   |                            | **39,446** |   |   | 46,276 |   |   | 59,952 |   |
| Other                                                      |   |                            | **7,260**  |   |   | 7,164 |   |   | 6,903 |   |
| Equity                securities                           |   |                            | **638**    |   |   | 638 |   |   | 638 |   |
|                                                       |   |                            | **70,392** |   |   | 74,175 |   |   | 87,609 |   |
| Held                to maturity securities:                |   |                            |       |   |   |   |   |   |   |   |
| State                and political subdivisions            |   |                            | **-**      |   |   | 998 |   |   | 997 |   |
| Mortgage-backed                securities                  |   |                            | **-**      |   |   | 40 |   |   | 43 |   |
|                                                       |   |                            | -          |   |   | 1,038 |   |   | 1,040 |   |
|                                                       |   |                            |       |   |   |   |   |   |   |   |
| Total                securities                            |   | **$**                           | **70,392** |   | $ | 75,213 |   | $ | 88,649 |   |

**Table      6**

**TABLE      6**

**MATURITIES      AND WEIGHTED AVERAGE YIELDS OF SECURITIES**

| **(Dollars                In Thousands)**                |   | **Within****one                year** |    | **After                one****but                within****five                years** |   | **After                five****but                within****ten                years** |   | **After****ten                years** |      |
|----------------------------------------------------------|--------|---------------------------------------|---------|----------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------|--------|---------------------------------------|-----------|
|                                                     |   | **Amount**                            |    | **Yield**                                                                              |   | **Amount**                                                                             |   | **Yield**                             |      | **Amount** |   | **Yield** |   | **Amount** |   | **Yield** |   |
| U.S.                Government agencies and corporations |   | **$**                                 | **-**   |                                                                                   |   | **-**                                                                                  |   | **$**                                 | **1,000** |   |   | **4.05%** |   | **$** | **-** |   |   | **-** |   | **$** | **-** |   |   | **-** |   |
| State                and political subdivisions (1) |   |                                  | **-**   |                                                                                   |   | **-**                                                                                  |   |                                  | **-**     |   |   | **-** |   |   | **3,648** |   |   | **5.31**%**** |   |   | **18,342** |   |   | **6.60%** |   |
| Mortgage                backed securities                |   |                                  | **-**   |                                                                                   |   | **-**                                                                                  |   |                                  | **4,526** |   |   | **4.59%** |   |   | **7,164** |   |   | **4.44%** |   |   | **29,009** |   |   | **4.78%** |   |
| Other                securities                          |   |                                  | **-**   |                                                                                   |   | **-**                                                                                  |   |                                  | **4,160** |   |   | **5.28%** |   |   | **500** |   |   | **4.11%** |   |   | **2,631** |   |   | **5.30%** |   |
| Equity                securities                         |   |                                  | **643** |                                                                                   |   | **3.72**%****                                                                          |   |                                  | **-**     |   |   | **-** |   |   | **-** |   |   | **-** |   |   | **-** |   |   | **-** |   |
|                                                     |   |                                  |    |                                                                                   |   |                                                                                   |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                securities                          |   | **$**                                 | **643** |                                                                                   |   | **3.72**%****                                                                          |   | **$**                                 | **9,686** |   |   | **4.83%** |   | **$** | **11,312** |   |   | **4.71%** |   | **$** | **49,982** |   |   | **5.48%** |   |

|  | (1) | Yields                on tax-exempt securities have been computed on a fully tax-equivalent                basis. |
|--|-----|-------------------------------------------------------------------------------------------------------------------|

**Loans**

----

----

**Table      7**

**TABLE      7**

**TOTAL      LOANS OUTSTANDING**

|                                      |   | **DECEMBER                31,** |        |
|-------------------------------------------|--------|---------------------------------|-------------|
| **(Dollars                In Thousands)** |   | **2006**                        |        | **%                of****total** |   | **2005** |   | **%                of****total** |   | **2004** |   | **%                of****total** |   | **2003** |   | **%                of****total** |   | **2002** |   | **%                of****total** |   |
|                                      |   |                            |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                                |   | **$**                           | **74,386**  |   |   | **23.0%** | **  ** | $ | 67,117 |   |   | 22.9% |    | $ | 50,066 |   |   | 20.8% |   | $ | 43,760 |   |   | 21.1% |   | $ | 44,622 |   |   | 25.2% |   |
| Commercial                real estate     |   |                            | **123,902** |   |   | **38.4%** |   |   | 117,614 |   |   | 40.1% |   |   | 91,480 |   |   | 38.0% |   |   | 73,708 |   |   | 35.6% |   |   | 56,556 |   |   | 32.0% |   |
| Residential                real estate    |   |                            | **44,914**  |   |   | **13.9%** |   |   | 38,162 |   |   | 13.0% |   |   | 36,470 |   |   | 15.2% |   |   | 31,923 |   |   | 15.4% |   |   | 29,014 |   |   | 16.4% |   |
| Real                estate, construction  |   |                            | **1,016**   |   |   | **0.3%** |   |   | 2,662 |   |   | 0.9% |   |   | 3,382 |   |   | 1.4% |   |   | 8,240 |   |   | 4.0% |   |   | 7,305 |   |   | 4.1% |   |
| Tax                exempt                 |   |                            | **25,805**  |   |   | **8.0%** |   |   | 21,200 |   |   | 7.2% |   |   | 15,593 |   |   | 6.5% |   |   | 10,632 |   |   | 5.1% |   |   | 3,598 |   |   | 2.0% |   |
| Home                equity                |   |                            | **48,039**  |   |   | **14.9%** |   |   | 40,749 |   |   | 13.9% |   |   | 38,070 |   |   | 15.8% |   |   | 33,552 |   |   | 16.2% |   |   | 31,139 |   |   | 17.6% |   |
| Other                consumer             |   |                            | **4,738**   |   |   | **1.5%** |   |   | 5,883 |   |   | 2.0% |   |   | 5,608 |   |   | 2.3% |   |   | 5,201 |   |   | 2.6% |   |   | 4,753 |   |   | 2.7% |   |
|                                      |   | **$**                           | **322,800** |   |   | **100.0%** |   | $ | 293,387 |   |   | 100.0% |   | $ | 240,669 |   |   | 100.0% |   | $ | 207,016 |   |   | 100.0% |   | $ | 176,987 |   |   | 100.0% |   |

**Table      8**

**TABLE      8**

**LOAN      MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES**

**COMMERCIAL      AND CONSTRUCTION LOANS**

**December      31, 2006**

| **(Dollars                In Thousands)**            |   | **1                year**  |       | **1                year thru** |                           | **After**                  |                       |      |        |
|------------------------------------------------------|--------|----------------------------|------------|--------------------------------|--------------------------------|----------------------------|----------------------------|-----------|-------------|
|                                                 |   | **or                less** |       | **5                years**     |                           | **5                years** |                       | **Total** |        |
| **Maturity                of Loans Receivable:**     |   |                       |       |                           |                           |                       |                       |      |        |
| Commercial                                           |   | **$**                      | **41,874** |                           | **$**                          | **31,634**                 |                       | **$**     | **124,780** |   | **$** | **198,288** |   |
| Real                estate, construction             |   |                       | **1,016**  |                           |                           | **-**                      |                       |      | **-**       |   |   | **1,016** |   |
| **Total**                                            |   | **$**                      | **42,890** |                           | **$**                          | **31,634**                 |                       | **$**     | **124,780** |   | **$** | **199,304** |   |
|                                                 |   |                       |       |                           |                           |                       |                       |      |        |   |   |   |   |
|                                                 |   |                       |       |                           | **1                year thru** |                       | **After**                  |      |        |   |   |
|                                                      |   |                       |       |                           | **5                years**     |                       | **5                years** |      |        |   |   |
| Fixed                interest rates                  |   |                       |       |                           | **$**                          | **20,664**                 |                       | **$**     | **7,558**   |   |   |   |   |
| Floating                or adjustable interest rates |   |                       |       |                           |                           | **10,970**                 |                       |      | **117,222** |   |   |   |   |
| **Total                Loans Receivable**            |   |                       |       |                           | **$**                          | **31,634**                 |                       | **$**     | **124,780** |   |   |   |   |

**Credit      Risk and Loan Quality **

----

**Table      9**

**TABLE      9**

**ASSET      QUALITY RATIOS**

|                                                                                                |   | **December                31,** |       |
|-----------------------------------------------------------------------------------------------------|--------|---------------------------------|------------|
| **(Dollars                in thousands)**                                                           |   | **2006**                        |       | **2005** |   | **2004** |   | **2003** |   | **2002** |   |
|                                                                                                |   |                            |       |   |   |   |   |   |   |   |   |
| Non-accruing                loans                                                                   |   | **$**                           | **429**    |   | $ | 610 |   | $ | 986 |   | $ | 395 |   | $ | 689 |   |
| Accruing                loans past due 90 days or more                                              |   |                            | **4**      |   |   | 18 |   |   | 75 |   |   | 39 |   |   | 207 |   |
| Total                Nonperforming Loans                                                            |   |                            | **433**    |   |   | 628 |   |   | 1,061 |   |   | 434 |   |   | 896 |   |
|                                                                                                |   |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other                real estate                                                                    |   |                            | **-**      |   |   | 27 |   |   | 20 |   |   | 276 |   |   | 359 |   |
| Total                Nonperforming Assets                                                           |   | **$**                           | **433**    |   | $ | 655 |   | $ | 1,081 |   | $ | 710 |   | $ | 1,255 |   |
|                                                                                                |   |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-accrual                loans:                                                                   |   |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                income that would have been recorded on non-accruing loans                  |   | **$**                           | **49**     |   | $ | 51 |   | $ | 54 |   | $ | 45 |   | $ | 77 |   |
|                                                                                                |   |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                income for above loans included in net income for the                period |   | **$**                           | **21**     |   | $ | 52 |   | $ | 51 |   | $ | 12 |   | $ | 34 |   |
|                                                                                                |   |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ratios:                                                                                             |   |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Nonperforming                loans to total loans                                                   |   |                            | **0.13**   | **%** |   | 0.21 | % |   | 0.44 | % |   | 0.21 | % |   | 0.51 | % |
|                                                                                                |   |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance                for loan losses to nonperforming loans                                     |   |                            | **752.42** | **%** |   | 488.39 | % |   | 267.48 | % |   | 553.69 | % |   | 241.58 | % |
|                                                                                                |   |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Nonperforming                assets to total assets                                                 |   |                            | **0.10**   | **%** |   | 0.16 | % |   | 0.30 | % |   | 0.21 | % |   | 0.46 | % |
|                                                                                                |   |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commitments                to lend additional funds to nonperforming loan customers                 |   | **$**                           | **0**      |   | $ | 0 |   | $ | 0 |   | $ | 0 |   | $ | 0 |   |
|                                                                                                |   |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Restructured                loans                                                                   |   | **$**                           | **0**      |   | $ | 0 |   | $ | 0 |   | $ | 0 |   | $ | 0 |   |

----

**Bank      Owned Life Insurance**

**Investment      in Bank**

*de      novo*

|   | · | 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; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | cause                any voting securities of Berkshire Bank to be subject to a voting                trust; |
|--------|--------|--------------------------------------------------------------------------------------------------------------|

|   | · | cause                Berkshire Bank to become a subsidiary of the                Company; |
|--------|--------|-------------------------------------------------------------------------------------------|

|   | · | have                any designated representative serve or act as an officer, director,                employee or agent of Berkshire                Bank; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | propose                any person for election as a director of Berkshire Bank; |
|--------|--------|---------------------------------------------------------------------------------|

|   | · | attempt                to influence the dividend policies or practices of Berkshire Bank;                the                investment, loan or credit decision policies; the pricing of services;                personnel decisions or operations                activities; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | exercise                or seek to exercise any controlling influence over the management                of                Berkshire Bank; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | 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. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Deposits**

| Non-interest                bearing demand deposits |   |   | 4.2   | %  |
|-----------------------------------------------------|--------|--------|-------|----|
| Interest-bearing                demand deposits     |   |   | (11.1 | %) |
| Savings                deposits                     |   |   | (7.1  | %) |
| Time                deposits                        |   |   | 51.4  | %  |

----

**Table      10**

**TABLE      10**

**AVERAGE      DEPOSITS BY MAJOR CLASSIFICATION**

|                                  |   | **Year                Ended December 31** |        |
|---------------------------------------|--------|-------------------------------------------|-------------|
|                                  |   | **2006**                                  |        | **2005** |   | **2004** |   |
| (Dollars                In Thousands) |   | **Average**                               |        | **Average** |   | **Average** |   | **Average** |   | **Average** |   | **Average** |   |
|                                  |   | **Amount**                                |        | **Rate** |   | **Amount** |   | **Rate** |   | **Amount** |   | **Rate** |   |
| Interest-bearing:                     |   |                                      |        |   |   |   |   |   |   |   |   |   |   |
| Demand                deposits        |   | **$**                                     | **108,337** |   |   | **1.58%** | **  ** | $ | 116,978 |   |   | 1.38% |    | $ | 118,950 |   |   | 1.09% |   |
| Savings                deposits       |   |                                      | **41,741**  |   |   | **1.02%** |   |   | 42,684 |   |   | 0.96% |   |   | 43,076 |   |   | 0.84% |   |
| Time                deposits          |   |                                      | **148,988** |   |   | **4.31%** |   |   | 103,725 |   |   | 3.11% |   |   | 85,241 |   |   | 2.39% |   |
| Non-interest                bearing:  |   |                                      |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Demand                deposits        |   |                                      | **44,453**  |   |   | **0.00%** |   |   | 41,496 |   |   | 0.00% |   |   | 39,664 |   |   | 0.00% |   |
| Total                                 |   | **$**                                     | **343,519** |   |   | **2.49%** |   | $ | 304,883 |   |   | 1.72% |   | $ | 286,931 |   |   | 1.29% |   |

**Table      11**

**TABLE      11**

**DEPOSIT      MATURITIES**

| (Dollars                In Thousands)                   |   | **Time**         |       | **Other** |   |      |   |
|---------------------------------------------------------|--------|------------------|------------|-----------|--------|-----------|--------|
|                                                    |   | **Certificates** |       | **Time**  |   | **Total** |   |
| Three                months or less                     |   | **$**            | **8,183**  |      | **$**  | **0**     |   | **$** | **8,183** |   |
| Over                three months but within six months  |   |             | **25,679** |      |   | **0**     |   |   | **25,679** |   |
| Over                six months but within twelve months |   |             | **5,620**  |      |   | **0**     |   |   | **5,620** |   |
| Over                twelve months                       |   |             | **528**    |      |   | **0**     |   |   | **528** |   |
| Total                                                   |   | **$**            | **40,010** |      | **$**  | **0**     |   | **$** | **40,010** |   |

**Securities      Sold under Agreements to Repurchase**

**Short-Term      Borrowings**

**Long-Term      Debt and Borrowing Capacity**

----

| **Maturity**                     |   | **Amount** |       | **Rate** |   |          |   |
|----------------------------------|--------|------------|------------|----------|--------|---------------|--------|
|                             |   |       |       |     |   |          |   |
| May                7, 2007       |   |       | **5,000**  |     |   | **3.89**%**** |   |   |   |   |
| November                28, 2007 |   |       | **7,000**  |     |   | **3.43%**     |   |   |   |   |
| May                5, 2008       |   |       | **5,000**  |     |   | **4.03%**     |   |   |   |   |
| November                28, 2008 |   |       | **7,000**  |     |   | **3.78%**     |   |   |   |   |
|                             |   |       |       |     |   |          |   |   |   |   |
| Total                            |   | **$**      | **24,000** |     |   | **3.75%**     |   |   | weighted                average |   |

**Mandatory      Redeemable Capital and Junior Subordinated Debentures**

**Liquidity**

----

**Contractual      Obligations**

**Table      12**

----

**TABLE      12**

**CONTRACTUAL      OBLIGATIONS**

|                                                               |   | **December                31, 2006** |        |
|--------------------------------------------------------------------|--------|--------------------------------------|-------------|
|                                                               |   | **Less                Than**         |        |   |   |   |   | **Over** |   |   |   |
|                                                               |   | **1                Year**            |        | **1                - 3 Years** |   | **3                - 5 Years** |   | **5                Years** |   | **Total** |   |
|                                                               |   | **(In                Thousands)**    |        |
|                                                               |   |                                 |        |   |   |   |   |   |   |   |   |
| Time                deposits                                       |   | **$**                                | **144,212** |   | **$** | **37,107** |   | **$** | **2,443** |   | **$** | **183** |   | **$** | **183,945** |   |
| Long-term                debt                                      |   |                                 | **12,000**  |   |   | **12,000** |   |   | **-** |   |   | **-** |   |   | **24,000** |   |
| Junior                subordinated debentures                      |   |                                 | **-**       |   |   | **8,248** |   |   | **-** |   |   | **-** |   |   | **8,248** |   |
| Nonqualified                supplemental executive retirement plan |   |                                 | **115**     |   |   | **143** |   |   | **71** |   |   | **223** |   |   | **552** |   |
| Premises                commitments                                |   |                                 | **850**     |   |   | **-** |   |   | **-** |   |   | **-** |   |   | **850** |   |
| Operating                leases                                    |   |                                 | **250**     |   |   | **487** |   |   | **394** |   |   | **872** |   |   | **2,003** |   |
| Total                                                              |   | **$**                                | **157,427** |   | **$** | **57,985** |   | **$** | **2,908** |   | **$** | **1,278** |   | **$** | **219,598** |   |

**Off-Balance      Sheet Arrangements**

**Stockholders’      Equity and Capital Requirements/Ratios**

|   | · | 2006                net income of $3,611,000; |
|--------|--------|-----------------------------------------------|

|   | · | the                exercise of 1,000 options, which amounted to $6,000, and a $2,000                income                tax benefit to the Company because of the option exercise, resulted                in                adding $8,000 to capital; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | a                $19,000 addition to capital surplus to account for the expense associated                with the issuance of 13,000 options during 2006; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | a                decrease of $68,000 in the unrealized holding loss on securities                available                for sale, net of taxes, as required by FAS 115, increased stockholders’                equity. At December 31, 2006, the amount of the Company’s unrealized loss                from available for sale securities that affected stockholders’ equity was                ($812,000) as compared with an unrealized loss of ($880,000) at December                31, 2005. Should interest rates continue to increase in the future,                stockholders’ equity could potentially decrease due to the increased                amount of unrealized losses on available for sale securities. On                the other                hand, should interest rates decline in the future, stockholders’ equity                could increase as a result of unrealized gains on securities available                for                sale. FAS 115 requires banks to report securities classified as “available                for sale” at fair value, with unrealized gains or losses, net of deferred                income taxes, reported as a separate component of stockholders’ equity.                The FAS 115 adjustment is not included in the Company’s calculation of                regulatory capital ratios in accordance with regulatory                requirements. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | the                payment of a semi-annual cash dividend to shareholders for $1,386,000                in                2006 reduced stockholders’ equity. The first part of the dividend was                $0.11 per share and was paid on February 28, 2006. The second half                of the                dividend was $0.11 per share and was paid August 31, 2006. The total                2006                cash dividend of $0.22 per share compares with the total semi-annual                cash                dividend of $0.19 per share, or $1,198,000 that was paid by the                Company                in 2005. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Table      13 **

**TABLE      13**

**CAPITAL      RATIOS**

|                                                          |   | **December                31,** |       |
|---------------------------------------------------------------|--------|---------------------------------|------------|
| (Dollars                In Thousands)                         |   | **2006**                        |       | **2005** |   |
|                                                          |   |                            |       |   |   |
| Tier                I capital                                 |   | **$**                           | **33,961** |   | $ | 31,617 |   |
| Tier                II, allowable portion of:                 |   |                            |       |   |   |   |   |
| Allowance                for loan losses                      |   |                            | **3,258**  |   |   | 3,072 |   |
| Excess                mandatory redeemable capital debentures |   |                            | **-**      |   |   | 96 |   |
|                                                          |   |                            |       |   |   |   |   |
| Total                capital                                  |   | **$**                           | **37,219** |   | $ | 34,785 |   |
|                                                          |   |                            |       |   |   |   |   |
| Tier                I risk-based capital ratio                |   |                            | **10.0**   | **%** |   | 10.2 | % |
|                                                          |   |                            |       |   |   |   |   |
| Total                risk-based capital ratio                 |   |                            | **10.9**   | **%** |   | 11.2 | % |
|                                                          |   |                            |       |   |   |   |   |
| Tier                I leverage ratio                          |   |                            | **7.8**    | **%** |   | 8.0 | % |

| Note: | Unrealized                gains or losses on securities available for sale are excluded from                regulatory capital components of risk-based capital and leverage                ratios. |
|-------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Effects      of Inflation**

----

**Regulatory      Activity**

**QUANTITATIVE      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

----

----

----

**Table      14**

**TABLE      14**

**INTEREST      RATE SENSITIVITY GAP**

|                                                       |   |                                            |         |                      |   |         |   |       |          | **One                Year** |   |
|------------------------------------------------------------|--------|-------------------------------------------------|--------------|---------------------------|--------|--------------|--------|------------|---------------|-----------------------------|--------|
|                                                       |   | **Maturity/Repricing                Intervals** |         | **Earnings**              |   | **Income**   |   |
| **(Dollars                In Thousands)**                  |   |                                            |         | **2                - 12** |   |         |   | **Change** |          | **Statement**               |   |
|                                                  |   | **One                Month**                    |         | **Months**                |   | **Total**    |   | **Ratio**  |          | **Gap**                     |   |
| Interest                Sensitive Assets:                  |   |                                            |         |                      |   |         |   |       |          |                        |   |
| Interest-bearing                deposits with banks        |   | **$**                                           | **18**       |                      | **$**  | **-**        |   | **$**      | **18**        |                        |   | **88.00** | **%  ** | **$** | **16** |   |
| Federal                funds sold                          |   |                                            | **15,151**   |                      |   | **-**        |   |       | **15,151**    |                        |   | **100.00** | **%** |   | **15,151** |   |
| Securities                (1)                              |   |                                            |         |                      |   |         |   |       |          |                        |   |   |   |   |   |   |
| Fixed                rate                                  |   |                                            | **-**        |                      |   | **-**        |   |       | **-**         |                        |   | **100.00** | **%** |   | **-** |   |
| Variable                rate                               |   |                                            | **1,740**    |                      |   | **4,597**    |   |       | **6,336**     |                        |   | **90.00** | **%** |   | **5,703** |   |
| Loans                (2)                                   |   |                                            |         |                      |   |         |   |       |          |                        |   |   |   |   |   |   |
| Fixed                rate                                  |   |                                            | **1,003**    |                      |   | **9,449**    |   |       | **10,452**    |                        |   | **100.00** | **%** |   | **10,452** |   |
| Variable                rate                               |   |                                            | **57,732**   |                      |   | **11,734**   |   |       | **69,467**    |                        |   | **100.00** | **%** |   | **69,467** |   |
| Mortgages                held for sale                     |   |                                            | **373**      |                      |   | **-**        |   |       | **373**       |                        |   | **100.00** | **%** |   | **373** |   |
| Total                                                      |   |                                            | **76,017**   |                      |   | **25,780**   |   |       | **101,797**   |                        |   |   |   |   | **101,161** |   |
|                                                       |   |                                            |         |                      |   |         |   |       |          |                        |   |   |   |   |   |   |
| Interest                Sensitive Liabilities:             |   |                                            |         |                      |   |         |   |       |          |                        |   |   |   |   |   |   |
| Interest-bearing                demand deposits            |   |                                            | **28,987**   |                      |   | **-**        |   |       | **28,987**    |                        |   | **0.00** | **%** |   | **-** |   |
| NOW                accounts                                |   |                                            | **10,374**   |                      |   | **-**        |   |       | **10,374**    |                        |   | **0.00** | **%** |   | **-** |   |
| Money                market accounts                       |   |                                            | **63,549**   |                      |   | **-**        |   |       | **63,549**    |                        |   | **30.00** | **%** |   | **19,065** |   |
| Savings                deposits                            |   |                                            | **39,024**   |                      |   | **-**        |   |       | **39,024**    |                        |   | **30.00** | **%** |   | **11,707** |   |
| Club                accounts                               |   |                                            | **-**        |                      |   | **94**       |   |       | **94**        |                        |   | **0.00** | **%** |   | **-** |   |
| Time                deposits                               |   |                                            | **10,966**   |                      |   | **133,766**  |   |       | **144,732**   |                        |   | **75.00** | **%** |   | **108,549** |   |
| Securities                sold under repurchase agreements |   |                                            | **6,749**    |                      |   | **-**        |   |       | **6,749**     |                        |   | **100.00** | **%** |   | **6,749** |   |
| Other                borrowings                            |   |                                            | -            |                      |   | **12,000**   |   |       | **12,000**    |                        |   | **100.00** | **%** |   | **12,000** |   |
| Total                                                      |   |                                            | **159,649**  |                      |   | **145,860**  |   |       | **305,509**   |                        |   |   |   |   | **158,070** |   |
|                                                       |   |                                            |         |                      |   |         |   |       |          |                        |   |   |   |   |   |   |
| Gap                                                        |   | $                                          | **(83,632**  | **)**                     | $      | **(120,080** | **)**  | $     | **($203,712** | **)**                       |   |   |   | $  | **(56,909** | **)** |
|                                                       |   |                                            |         |                      |   |         |   |       |          |                        |   |   |   |   |   |   |
| Cumulative                Gap                              |   | $                                          | **($83,632** | **)**                     | $      | **(203,712** | **)**  |       |          |                        |   |   |   |   |   |   |
|                                                       |   |                                            |         |                      |   |         |   |       |          |                        |   |   |   |   |   |   |
| Cumulative                Gap /                            |   |                                            |         |                      |   |         |   |       |          |                        |   |   |   |   |   |   |
| Total                Earning Assets                        |   |                                            | **(20.33%**  | **)**                     |   | **(49.52%**  | **)**  |       |          |                        |   |   |   |   | **(                13.83%** | **)** |
|                                                       |   |                                            |         |                      |   |         |   |       |          |                        |   |   |   |   |   |   |
| Total                Earning Assets                        |   | **$**                                           | **411,382**  |                      |   |         |   |       |          |                        |   |   |   |   |   |   |

| Note: | Table                14 does not incorporate cash flow generated from principal prepayments                from the securities and loan portfolios, which then may be reinvested                in                other interest-earning assets, thus having a more positive impact                of                lowering the negative gap. |
|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (1) | Held                to maturity and available for sale securities are being shown as                one                total. Available for sale securities are shown at fair market value                and                held to maturity securities are shown at amortized                cost. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Excludes                non-accrual loans. |
|--------|-----|--------------------------------------------|

----

**Report      of Independent Registered Public Accounting Firm **

----

***East      Penn Financial Corporation***

----

**Consolidated      Balance Sheets**

|                                                                                                                                                                                                                                              |   | **December                31,**                      |        |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------|-------------|
|                                                                                                                                                                                                                                              |   | **2006**                                             |        | **2005** |   |
|                                                                                                                                                                                                                                              |   | **(In                Thousands, Except Share Data)** |        |
| **Assets**                                                                                                                                                                                                                                        |
| Cash                and due from banks                                                                                                                                                                                                            |   | **$**                                                | **7,785**   |   | $ | 10,609 |   |
| Interest                bearing deposits                                                                                                                                                                                                          |   |                                                 | **18**      |   |   | 20 |   |
| Federal                funds sold                                                                                                                                                                                                                 |   |                                                 | **15,151**  |   |   | - |   |
|                                                                                                                                                                                                                                              |   |                                                 |        |   |   |   |   |
| Cash                and Cash Equivalents                                                                                                                                                                                                          |   |                                                 | **22,954**  |   |   | 10,629 |   |
|                                                                                                                                                                                                                                              |   |                                                 |        |   |   |   |   |
| Interest                bearing time deposits                                                                                                                                                                                                     |   |                                                 | **-**       |   |   | 500 |   |
| Securities                available for sale                                                                                                                                                                                                      |   |                                                 | **70,392**  |   |   | 74,175 |   |
| Securities                held to maturity, fair value 2006 $0; 2005 $1,124                                                                                                                                                                       |   |                                                 | **-**       |   |   | 1,038 |   |
| Mortgage                loans held for sale                                                                                                                                                                                                       |   |                                                 | **373**     |   |   | 1,077 |   |
| Loans                receivable, net of allowance for loan losses 2006 $3,258; 2005                $3,072                                                                                                                                         |   |                                                 | **319,542** |   |   | 290,315 |   |
| Bank                premises and equipment, net                                                                                                                                                                                                   |   |                                                 | **9,820**   |   |   | 9,320 |   |
| Investment                in restricted stock                                                                                                                                                                                                     |   |                                                 | **2,230**   |   |   | 3,115 |   |
| Investment                in life insurance                                                                                                                                                                                                       |   |                                                 | **7,788**   |   |   | 7,506 |   |
| Accrued                interest receivable and other assets                                                                                                                                                                                       |   |                                                 | **6,353**   |   |   | 6,554 |   |
|                                                                                                                                                                                                                                              |   |                                                 |        |   |   |   |   |
| **Total                Assets**                                                                                                                                                                                                                   |   | **$**                                                | **439,452** |   | $ | 404,229 |   |
|                                                                                                                                                                                                                                              |   |                                                 |        |   |   |   |   |
| **Liabilities                and Stockholders’ Equity**                                                                                                                                                                                     |
| **Liabilities**                                                                                                                                                                                                                                   |   |                                                 |        |   |   |   |   |
| Deposits:                                                                                                                                                                                                                                         |   |                                                 |        |   |   |   |   |
| Non-interest                bearing                                                                                                                                                                                                               |   | **$**                                                | **46,110**  |   | $ | 44,257 |   |
| Interest-bearing                                                                                                                                                                                                                                  |   |                                                 | **326,521** |   |   | 280,049 |   |
|                                                                                                                                                                                                                                              |   |                                                 |        |   |   |   |   |
| Total                Deposits                                                                                                                                                                                                                     |   |                                                 | **372,631** |   |   | 324,306 |   |
|                                                                                                                                                                                                                                              |   |                                                 |        |   |   |   |   |
| Securities                sold under agreements to repurchase                                                                                                                                                                                     |   |                                                 | **6,749**   |   |   | 3,650 |   |
| Short-term                borrowings                                                                                                                                                                                                              |   |                                                 | **-**       |   |   | 3,923 |   |
| Long-term                debt                                                                                                                                                                                                                     |   |                                                 | **24,000**  |   |   | 40,000 |   |
| Junior                subordinated debentures                                                                                                                                                                                                     |   |                                                 | **8,248**   |   |   | 8,248 |   |
| Accrued                interest payable and other liabilities                                                                                                                                                                                     |   |                                                 | **2,663**   |   |   | 1,261 |   |
|                                                                                                                                                                                                                                              |   |                                                 |        |   |   |   |   |
| **Total                Liabilities**                                                                                                                                                                                                              |   |                                                 | **414,291** |   |   | 381,388 |   |
|                                                                                                                                                                                                                                              |   |                                                 |        |   |   |   |   |
| **Stockholders’                Equity**                                                                                                                                                                                                     |   |                                                 |        |   |   |   |   |
| Preferred                stock, no par value; authorized shares 16,000,000; none                issued                                                                                                                                            |   |                                                 | **-**       |   |   | - |   |
| Common                stock, par value $0.625 per share; authorized 40,000,000 shares;                issued                2006 6,613,554 shares; 2005 6,612,554 shares; outstanding 2006 6,305,262                shares; 2005 6,304,262 shares |   |                                                 | **4,134**   |   |   | 4,133 |   |
| Surplus                                                                                                                                                                                                                                           |   |                                                 | **9,272**   |   |   | 9,246 |   |
| Retained                earnings                                                                                                                                                                                                                  |   |                                                 | **14,417**  |   |   | 12,192 |   |
| Accumulated                other comprehensive loss                                                                                                                                                                                               |   |                                                 | **(812**    | **)** |   | (880 | ) |
| Treasury                stock, at cost 2006 and 2005 308,292 shares                                                                                                                                                                               |   |                                                 | **(1,850**  | **)** |   | (1,850 | ) |
|                                                                                                                                                                                                                                              |   |                                                 |        |   |   |   |   |
| **Total                Stockholders’ Equity**                                                                                                                                                                                               |   |                                                 | **25,161**  |   |   | 22,841 |   |
|                                                                                                                                                                                                                                              |   |                                                 |        |   |   |   |   |
| **Total                Liabilities and Stockholders’ Equity**                                                                                                                                                                               |   | **$**                                                | **439,452** |   | $ | 404,229 |   |

*See      notes to consolidated financial statements.*

----

***East      Penn Financial Corporation***

----

**Consolidated      Statements of Income**
** **

|                                                                                                     |   | **Years                Ended December 31,**                            |       |
|----------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------|------------|
|                                                                                                     |   | **2006**                                                               |       | **2005** |   | **2004** |   |
|                                                                                                     |   | **(In                Thousands, Except****Share                Data)** |       |
| **Interest                Income**                                                                       |   |                                                                   |       |
| Loans                receivable, including fees                                                          |   | **$**                                                                  | **20,112** |   | $ | 16,149 |   | $ | 12,693 |   |
| Securities:                                                                                              |   |                                                                   |       |   |   |   |   |   |   |   |
| Taxable                                                                                                  |   |                                                                   | **2,394**  |   |   | 3,061 |   |   | 3,551 |   |
| Tax                exempt                                                                                |   |                                                                   | **784**    |   |   | 631 |   |   | 524 |   |
| Other                                                                                                    |   |                                                                   | **493**    |   |   | 185 |   |   | 80 |   |
|                                                                                                     |   |                                                                   |       |   |   |   |   |   |   |   |
| **Total                Interest Income**                                                                 |   |                                                                   | **23,783** |   |   | 20,026 |   |   | 16,848 |   |
|                                                                                                     |   |                                                                   |       |   |   |   |   |   |   |   |
| **Interest                Expense**                                                                      |   |                                                                   |       |   |   |   |   |   |   |   |
| Deposits                                                                                                 |   |                                                                   | **8,548**  |   |   | 5,251 |   |   | 3,691 |   |
| Federal                funds purchased and securities sold under agreements to                repurchase |   |                                                                   | **235**    |   |   | 169 |   |   | 83 |   |
| Long-term                debt                                                                            |   |                                                                   | **1,148**  |   |   | 1,291 |   |   | 797 |   |
| Debentures                                                                                               |   |                                                                   | **544**    |   |   | 544 |   |   | 544 |   |
|                                                                                                     |   |                                                                   |       |   |   |   |   |   |   |   |
| **Total                Interest Expense**                                                                |   |                                                                   | **10,475** |   |   | 7,255 |   |   | 5,115 |   |
|                                                                                                     |   |                                                                   |       |   |   |   |   |   |   |   |
| **Net                Interest Income**                                                                   |   |                                                                   | **13,308** |   |   | 12,771 |   |   | 11,733 |   |
|                                                                                                     |   |                                                                   |       |   |   |   |   |   |   |   |
| **Provision                for Loan Losses**                                                             |   |                                                                   | **389**    |   |   | 420 |   |   | 498 |   |
|                                                                                                     |   |                                                                   |       |   |   |   |   |   |   |   |
| **Net                Interest Income after Provision for Loan Losses**                                   |   |                                                                   | **12,919** |   |   | 12,351 |   |   | 11,235 |   |
|                                                                                                     |   |                                                                   |       |   |   |   |   |   |   |   |
| **Other                Income**                                                                          |   |                                                                   |       |   |   |   |   |   |   |   |
| Customer                service fees                                                                     |   |                                                                   | **1,579**  |   |   | 1,422 |   |   | 967 |   |
| Mortgage                banking activities                                                               |   |                                                                   | **177**    |   |   | 357 |   |   | 511 |   |
| Net                realized gains on sales of securities available for sale                              |   |                                                                   | **-**      |   |   | 135 |   |   | 47 |   |
| Income                from investment in life insurance                                                  |   |                                                                   | **282**    |   |   | 281 |   |   | 299 |   |
| Net                gain on sale of foreclosed real estate                                                |   |                                                                   | **14**     |   |   | 22 |   |   | 61 |   |
| Net                gain on sale of credit card portfolio                                                 |   |                                                                   | **302**    |   |   | - |   |   | - |   |
| Other                                                                                                    |   |                                                                   | **378**    |   |   | 294 |   |   | 245 |   |
|                                                                                                     |   |                                                                   |       |   |   |   |   |   |   |   |
| **Total                Other Income**                                                                    |   |                                                                   | **2,732**  |   |   | 2,511 |   |   | 2,130 |   |
|                                                                                                     |   |                                                                   |       |   |   |   |   |   |   |   |
| **Other                Expenses**                                                                        |   |                                                                   |       |   |   |   |   |   |   |   |
| Salaries                and employee benefits                                                            |   |                                                                   | **5,989**  |   |   | 5,397 |   |   | 4,928 |   |
| Occupancy                                                                                                |   |                                                                   | **1,126**  |   |   | 964 |   |   | 755 |   |
| Equipment                                                                                                |   |                                                                   | **876**    |   |   | 824 |   |   | 729 |   |
| Other                                                                                                    |   |                                                                   | **3,116**  |   |   | 3,160 |   |   | 2,681 |   |
|                                                                                                     |   |                                                                   |       |   |   |   |   |   |   |   |
| **Total                Other Expenses**                                                                  |   |                                                                   | **11,107** |   |   | 10,345 |   |   | 9,093 |   |
|                                                                                                     |   |                                                                   |       |   |   |   |   |   |   |   |
| **Income                before Income Taxes**                                                            |   |                                                                   | **4,544**  |   |   | 4,517 |   |   | 4,272 |   |
|                                                                                                     |   |                                                                   |       |   |   |   |   |   |   |   |
| **Income                Tax Expense**                                                                    |   |                                                                   | **933**    |   |   | 1,014 |   |   | 1,022 |   |
|                                                                                                     |   |                                                                   |       |   |   |   |   |   |   |   |
| **Net                Income**                                                                            |   | **$**                                                                  | **3,611**  |   | $ | 3,503 |   | $ | 3,250 |   |
|                                                                                                     |   |                                                                   |       |   |   |   |   |   |   |   |
| **Earnings                per Share**                                                                    |   |                                                                   |       |   |   |   |   |   |   |   |
| Basic                                                                                                    |   | **$**                                                                  | **0.57**   |   | $ | 0.56 |   | $ | 0.52 |   |
|                                                                                                     |   |                                                                   |       |   |   |   |   |   |   |   |
| Diluted                                                                                                  |   | **$**                                                                  | **0.57**   |   | $ | 0.55 |   | $ | 0.51 |   |

*See      notes to consolidated financial      statements*

----

***East      Penn Financial Corporation***

----

**Consolidated      **
**Statements      of Stockholders’ Equity**

**Years      Ended December 31, 200**
**6,      2005 and 2004**

|                                                                                                                                                                  |   | **Common****Stock**                                                         |      | **Surplus**        |   | **Retained****Earnings** |               | **Accumulated                  Other Comprehensive Income (Loss)** |       |  **Treasury****Stock** |   | **Total** |               |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------|-----------|--------------------|--------|--------------------------|--------------------|--------------------------------------------------------------------|------------|-----------------------------|--------|-----------|--------------------|
|                                                                                                                                                                  |   | **(In                  Thousands****,                  Except Share Data)** |      |
|                                                                                                                                                                  |   |                                                                        |      |
| **Balance                  - December 31, 2003**                                                                                                                      |   | $                                                                           | 4,130     |     | $      | 9,218                    |     | $                                                                  | 7,645      |              | $      | 400       |     | $ | (1,850 | )    | $ | 19,543 |   |
|                                                                                                                                                                  |   |                                                                        |      |               |   |                     |               |                                                               |       |                        |   |      |               |   |   |   |   |   |   |
| Comprehensive                  income:                                                                                                                                |   |                                                                        |      |               |   |                     |               |                                                               |       |                        |   |      |               |   |   |   |   |   |   |
| Net                  income                                                                                                                                           |   |                                                                        | -         |               |   | -                        |               |                                                               | 3,250      |                        |   | -         |               |   | - |   |   | 3,250 |   |
| Change                  in unrealized gains (losses) on securities available for sale,                  net of                  reclassification adjustment and taxes |   |                                                                        | -         |               |   | -                        |               |                                                               | -          |                        |   | (126      | )                  |   | - |   |   | (126 | ) |
|                                                                                                                                                                  |   |                                                                        |      |               |   |                     |               |                                                               |       |                        |   |      |               |   |   |   |   |   |   |
| **Total                  Comprehensive Income**                                                                                                                       |   |                                                                        |      |               |   |                     |               |                                                               |       |                        |   |      |               |   |   |   |   | 3,124 |   |
|                                                                                                                                                                  |   |                                                                        |      |               |   |                     |               |                                                               |       |                        |   |      |               |   |   |   |   |   |   |
| Exercise                  of stock options (1,400 shares)                                                                                                             |   |                                                                        | 1         |               |   | 7                        |               |                                                               | -          |                        |   | -         |               |   | - |   |   | 8 |   |
| Cash                  dividend of $0.16 per share                                                                                                                     |   |                                                                        | -         |               |   | -                        |               |                                                               | (1,008     | )                           |   | -         |               |   | - |   |   | (1,008 | ) |
|                                                                                                                                                                  |   |                                                                        |      |               |   |                     |               |                                                               |       |                        |   |      |               |   |   |   |   |   |   |
| **Balance                  - December 31, 2004**                                                                                                                      |   |                                                                        | 4,131     |               |   | 9,225                    |               |                                                               | 9,887      |                        |   | 274       |               |   | (1,850 | ) |   | 21,667 |   |
|                                                                                                                                                                  |   |                                                                        |      |               |   |                     |               |                                                               |       |                        |   |      |               |   |   |   |   |   |   |
| Comprehensive                  income:                                                                                                                                |   |                                                                        |      |               |   |                     |               |                                                               |       |                        |   |      |               |   |   |   |   |   |   |
| Net                  income                                                                                                                                           |   |                                                                        | -         |               |   | -                        |               |                                                               | 3,503      |                        |   | -         |               |   | - |   |   | 3,503 |   |
| Change                  in unrealized gains (losses) on securities available for sale,                  net of                  reclassification adjustment and taxes |   |                                                                        | -         |               |   | -                        |               |                                                               | -          |                        |   | (1,154    | )                  |   | - |   |   | (1,154 | ) |
|                                                                                                                                                                  |   |                                                                        |      |               |   |                     |               |                                                               |       |                        |   |      |               |   |   |   |   |   |   |
| **Total                  Comprehensive Income**                                                                                                                       |   |                                                                        |      |               |   |                     |               |                                                               |       |                        |   |      |               |   |   |   |   | 2,349 |   |
|                                                                                                                                                                  |   |                                                                        |      |               |   |                     |               |                                                               |       |                        |   |      |               |   |   |   |   |   |   |
| Exercise                  of stock options (3,702 shares)                                                                                                             |   |                                                                        | 2         |               |   | 21                       |               |                                                               | -          |                        |   | -         |               |   | - |   |   | 23 |   |
| Cash                  dividend of $0.19 per share                                                                                                                     |   |                                                                        | -         |               |   | -                        |               |                                                               | (1,198     | )                           |   | -         |               |   | - |   |   | (1,198 | ) |
|                                                                                                                                                                  |   |                                                                        |      |               |   |                     |               |                                                               |       |                        |   |      |               |   |   |   |   |   |   |
| **Balance                  - December 31, 2005**                                                                                                                      |   |                                                                        | 4,133     |               |   | 9,246                    |               |                                                               | 12,192     |                        |   | (880      | )                  |   | (1,850 | ) |   | 22,841 |   |
|                                                                                                                                                                  |   |                                                                        |      |               |   |                     |               |                                                               |       |                        |   |      |               |   |   |   |   |   |   |
| Comprehensive                  income:                                                                                                                                |   |                                                                        |      |               |   |                     |               |                                                               |       |                        |   |      |               |   |   |   |   |   |   |
| Net                  income                                                                                                                                           |   |                                                                        | **-**     |               |   | **-**                    |               |                                                               | **3,611**  |                        |   | **-**     |               |   | **-** |   |   | **3,611** |   |
| Change                  in unrealized gains (losses) on securities available for sale,                  net of                  reclassification adjustment and taxes |   |                                                                        | **-**     |               |   | **-**                    |               |                                                               | **-**      |                        |   | **68**    |               |   | **-** |   |   | **68** |   |
|                                                                                                                                                                  |   |                                                                        |      |               |   |                     |               |                                                               |       |                        |   |      |               |   |   |   |   |   |   |
| **Total                  Comprehensive Income**                                                                                                                       |   |                                                                        |      |               |   |                     |               |                                                               |       |                        |   |      |               |   |   |   |   | **3,679** |   |
|                                                                                                                                                                  |   |                                                                        |      |               |   |                     |               |                                                               |       |                        |   |      |               |   |   |   |   |   |   |
| Income                  tax benefit of stock options exercised                                                                                                        |   |                                                                        | **-**     |               |   | **2**                    |               |                                                               | **-**      |                        |   | **-**     |               |   | **-** |   |   | **2** |   |
| Exercise                  of stock options (1,000 shares)                                                                                                             |   |                                                                        | **1**     |               |   | **5**                    |               |                                                               | **-**      |                        |   | **-**     |               |   | **-** |   |   | **6** |   |
| Expense                  of issuing 13,000 options                                                                                                                    |   |                                                                        | **-**     |               |   | **19**                   |               |                                                               | **-**      |                        |   | **-**     |               |   | **-** |   |   | **19** |   |
| Cash                  dividend of $0.22 per share                                                                                                                     |   |                                                                        | **-**     |               |   | **-**                    |               |                                                               | **(1,386** | **)**                       |   | **-**     |               |   | **-** |   |   | **(1,386** | **)** |
|                                                                                                                                                                  |   |                                                                        |      |               |   |                     |               |                                                               |       |                        |   |      |               |   |   |   |   |   |   |
| **Balance                  - December 31, 2006**                                                                                                                      |   | **$**                                                                       | **4,134** |               | **$**  | **9,272**                |               | **$**                                                              | **14,417** |                        | **$**  | **(812**  | **)**              | **$** | **(1,850** | **)** | **$** | **25,161** |   |

*See        notes to consolidated financial        statements*

----

***East      Penn Financial Corporation***

----

**Consolidated      Statements of Cash Flows**

|                                                                                                                |   | **Years                Ended December 31,** |        |
|---------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|-------------|
|                                                                                                                |   | **2006**                                    |        | **2005** |   | **2004** |   |
|                                                                                                                |   | **(In                Thousands)**           |        |
| **Cash                Flows from Operating Activities**                                                             |   |                                        |        |
| Net                income                                                                                           |   | **$**                                       | **3,611**   |   | $ | 3,503 |   | $ | 3,250 |   |
| Adjustments                to reconcile net income to net cash provided by operating                activities:     |   |                                        |        |   |   |   |   |   |   |   |
| Provision                for loan losses                                                                            |   |                                        | **389**     |   |   | 420 |   |   | 498 |   |
| Provision                for depreciation                                                                           |   |                                        | **885**     |   |   | 811 |   |   | 654 |   |
| Compensation                expense for stock options                                                               |   |                                        | **19**      |   |   | - |   |   | - |   |
| Net                amortization of securities premiums and discounts                                                |   |                                        | **155**     |   |   | 230 |   |   | 308 |   |
| Net                realized gains on sale of foreclosed real estate                                                 |   |                                        | **(14**     | **)** |   | (22 | ) |   | (61 | ) |
| Net                realized gains from sale of available for sale securities                                        |   |                                        | **38**      |   |   | (135 | ) |   | (47 | ) |
| Net                realized gains from sale of held to maturity securities                                          |   |                                        | **(38**     | **)** |   | - |   |   | - |   |
| Net                realized commission from sale of credit card portfolio                                           |   |                                        | **(302**    | **)** |   | - |   |   | - |   |
| Deferred                income taxes                                                                                |   |                                        | **(174**    | **)** |   | (85 | ) |   | 129 |   |
| Proceeds                from sale of mortgage loans                                                                 |   |                                        | **11,675**  |   |   | 27,272 |   |   | 33,620 |   |
| Net                gain on sale of loans                                                                            |   |                                        | **(177**    | **)** |   | (357 | ) |   | (511 | ) |
| Loans                originated for sale                                                                            |   |                                        | **(10,794** | **)** |   | (26,846 | ) |   | (33,299 | ) |
| Earnings                on investment in life insurance                                                             |   |                                        | **(282**    | **)** |   | (281 | ) |   | (299 | ) |
| (Increase)                decrease in accrued interest receivable and  other                assets             |   |                                        | **316**     |   |   | (293 | ) |   | (242 | ) |
| Increase                (decrease) in accrued interest payable and other                liabilities                 |   |                                        | **1,404**   |   |   | 376 |   |   | (101 | ) |
|                                                                                                                |   |                                        |        |   |   |   |   |   |   |   |
| **Net                Cash Provided by Operating Activities**                                                        |   |                                        | **6,711**   |   |   | 4,593 |   |   | 3,899 |   |
|                                                                                                                |   |                                        |        |   |   |   |   |   |   |   |
| **Cash                Flows from Investing Activities**                                                             |   |                                        |        |   |   |   |   |   |   |   |
| (Increase)                decrease in interest bearing time deposits                                                |   |                                        | **500**     |   |   | (500 | ) |   | 200 |   |
| Purchases                of available for sale securities                                                           |   |                                        | **(10,192** | **)** |   | (6,613 | ) |   | (11,174 | ) |
| Proceeds                from maturities of and principal repayments on available for sale                securities |   |                                        | **8,749**   |   |   | 13,951 |   |   | 20,307 |   |
| Proceeds                from sales of available for sale securities                                                 |   |                                        | **5,136**   |   |   | 4,250 |   |   | 6,840 |   |
| Proceeds                from maturities of and principal repayments on held to maturity                securities   |   |                                        | **39**      |   |   | 2 |   |   | 11 |   |
| Proceeds                from sales of held to maturity securities                                                   |   |                                        | **1,037**   |   |   | - |   |   | - |   |
| Proceeds                from sale of other real estate owned                                                        |   |                                        | **41**      |   |   | 57 |   |   | 317 |   |
| Net                proceeds from sale of credit card portfolio                                                      |   |                                        | **1,952**   |   |   | - |   |   | - |   |
| Net                increase in loans                                                                                |   |                                        | **(31,266** | **)** |   | (52,946 | ) |   | (33,716 | ) |
| Net                (increase) decrease in restricted stock                                                          |   |                                        | **885**     |   |   | (129 | ) |   | (890 | ) |
| Purchases                of bank premises and equipment                                                             |   |                                        | **(1,385**  | **)** |   | (2,621 | ) |   | (1,983 | ) |
| Investment                in Berkshire Bank                                                                         |   |                                        | **(3**      | **)** |   | (287 | ) |   | (326 | ) |
| Purchase                of investment in life insurance                                                             |   |                                        | **-**       |   |   | - |   |   | (1,500 | ) |
|                                                                                                                |   |                                        |        |   |   |   |   |   |   |   |
| **Net                Cash Used in Investing Activities**                                                            |   |                                        | **(24,507** | **)** |   | (44,836 | ) |   | (21,914 | ) |
|                                                                                                                |   |                                        |        |   |   |   |   |   |   |   |
| **Cash                Flows from Financing Activities**                                                             |   |                                        |        |   |   |   |   |   |   |   |
| Net                increase in deposits                                                                             |   |                                        | **48,325**  |   |   | 26,041 |   |   | 18,367 |   |
| Net                increase (decrease) in securities sold under agreements to                repurchase             |   |                                        | **3,099**   |   |   | 1,301 |   |   | (2,163 | ) |
| Increase                (decrease) in short-term borrowings                                                         |   |                                        | **(3,923**  | **)** |   | 923 |   |   | 3,000 |   |
| Proceeds                from long-term debt                                                                         |   |                                        | **-**       |   |   | 15,000 |   |   | - |   |
| Repayment                of long-term debt                                                                          |   |                                        | **(16,000** | **)** |   | - |   |   | - |   |
| Proceeds                from exercise of stock options                                                              |   |                                        | **6**       |   |   | 23 |   |   | 8 |   |
| Dividends                paid                                                                                       |   |                                        | **(1,386**  | **)** |   | (1,198 | ) |   | (1,008 | ) |
|                                                                                                                |   |                                        |        |   |   |   |   |   |   |   |
| **Net                Cash Provided by Financing Activities**                                                        |   |                                        | **30,121**  |   |   | 42,090 |   |   | 18,204 |   |
|                                                                                                                |   |                                        |        |   |   |   |   |   |   |   |
| **Net                Increase in Cash and Cash Equivalents**                                                        |   |                                        | **12,325**  |   |   | 1,847 |   |   | 189 |   |
|                                                                                                                |   |                                        |        |   |   |   |   |   |   |   |
| **Cash                and Cash Equivalents - Beginning**                                                            |   |                                        | **10,629**  |   |   | 8,782 |   |   | 8,593 |   |
|                                                                                                                |   |                                        |        |   |   |   |   |   |   |   |
| **Cash                and Cash Equivalents - Ending**                                                               |   | **$**                                       | **22,954**  |   | $ | 10,629 |   | $ | 8,782 |   |

*See        notes to consolidated financial        statements*

----

***East      Penn Financial Corporation***

----

**Consolidated      Statements of Cash Flows**

|                                                                                                  |   | **Years                Ended December 31,** |      |
|-------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|-----------|
|                                                                                                  |   | **2006**                                    |      | **2005** |   | **2004** |   |
|                                                                                                  |   | **(In                Thousands)**           |      |
| **Supplementary                Cash Flow Information**                                                |   |                                        |      |
| Interest                paid                                                                          |   | **$**                                       | **9,267** |   | $ | 6,828 |   | $ | 5,170 |   |
|                                                                                                  |   |                                        |      |   |   |   |   |   |   |   |
| Federal                income taxes paid                                                              |   | **$**                                       | **815**   |   | $ | 1,150 |   | $ | 1,056 |   |
|                                                                                                  |   |                                        |      |   |   |   |   |   |   |   |
| **Supplemental                Schedule of Noncash Investing and Financing                Activities** |   |                                        |      |   |   |   |   |   |   |   |
| Other                real estate acquired in settlement of loans                                      |   | **$**                                       | **-**     |   | $ | 42 |   | $ | - |   |

*See        notes to consolidated financial        statements*

----

***East      Penn Financial Corporation***

----

**Notes      to Consolidated Financial Statements**

**Note      1 - Summary of Significant Accounting Policies**

**Nature      of Operations and Basis of Presentation**

**Estimates**

----

***East      Penn Financial Corporation***

----

**Notes      to Consolidated Financial Statements**

**Note      1 - Summary of Significant Accounting Policies (Continued)**

**Estimates      (Continued) **

**Significant      Concentrations of Credit Risk**

**Presentation      of Cash Flows**

**Securities**

----

***East      Penn Financial Corporation***

----

**Notes      to Consolidated Financial Statements**

**Note      1 - Summary of Significant Accounting Policies (Continued)**

**Securities      (Continued) **

**Mortgage      Loans Held for Sale**

**Loans      Receivable**

**Allowance      for Loan Losses**

----

***East      Penn Financial Corporation***

----

**Notes      to Consolidated Financial Statements**

**Note      1 - Summary of Significant Accounting Policies (Continued)**

**Allowance      for Loan Losses (Continued)**

**Premises      and Equipment**

|                                              |   | **Years**                              |
|---------------------------------------------------|--------|----------------------------------------|
| Land                improvements                  |   | 12                - 15                 |
| Building                and building improvements |   | 5                -                39.5 |
| Furniture,                fixtures and equipment  |   | 3                -                7    |
| Computer                equipment and software    |   | 3                -                5    |

**Foreclosed      Assets**

----

***East      Penn Financial Corporation***

----

**Notes      to Consolidated Financial Statements**

**Note      1 - Summary of Significant Accounting Policies (Continued)**

**Transfers      of Financial Assets**

**Bank      Owned Life Insurance**

**Advertising      Costs**

**Income      Taxes**

**Off-Balance      Sheet Financial Instruments**

**Earnings      per Common Share**

----

***East      Penn Financial Corporation***

----

**Notes      to Consolidated Financial Statements**

**Note      1 - Summary of Significant Accounting Policies (Continued)**

**Earnings      per Common Share (Continued) **

|                                                                    |   | **Income                Numerator**                      |      | **Common                Shares Denominator** |   | **EPS**   |   |
|-------------------------------------------------------------------------|--------|----------------------------------------------------------|-----------|----------------------------------------------|--------|-----------|--------|
|                                                                    |   | **(In                Thousands, Except per Share Data)** |      |
| **2006:**                                                               |   |                                                     |      |                                         |   |      |   |
| Basic                EPS                                                |   | **$**                                                    | **3,611** |                                         |   | **6,304** |   | **$** | **0.57** |   |
| Dilutive                effect of potential common stock, stock options |   |                                                     | **-**     |                                         |   | **18**    |   |   | **-** |   |
| Diluted                EPS                                              |   | **$**                                                    | **3,611** |                                         |   | **6,322** |   | **$** | **0.57** |   |
|                                                                    |   |                                                     |      |                                         |   |      |   |   |   |   |
| **2005:**                                                               |   |                                                     |      |                                         |   |      |   |   |   |   |
| Basic                EPS                                                |   | $                                                        | 3,503     |                                         |   | 6,303     |   | $ | 0.56 |   |
| Dilutive                effect of potential common stock, stock options |   |                                                     | -         |                                         |   | 20        |   |   | (0.01 | ) |
| Diluted                EPS                                              |   | $                                                        | 3,503     |                                         |   | 6,323     |   | $ | 0.55 |   |
|                                                                    |   |                                                     |      |                                         |   |      |   |   |   |   |
| **2004:**                                                               |   |                                                     |      |                                         |   |      |   |   |   |   |
| Basic                EPS                                                |   | $                                                        | 3,250     |                                         |   | 6,300     |   | $ | 0.52 |   |
| Dilutive                effect of potential common stock, stock options |   |                                                     | -         |                                         |   | 18        |   |   | (0.01 | ) |
| Diluted                EPS                                              |   | $                                                        | 3,250     |                                         |   | 6,318     |   | $ | 0.51 |   |

**Comprehensive      Income**

|                                                                                             |   | **2006**                          |    | **2005** |   | **2004** |   |
|--------------------------------------------------------------------------------------------------|--------|-----------------------------------|---------|----------|--------|----------|--------|
|                                                                                             |   | **(In                Thousands)** |    |
| Unrealized                holding                gains (losses) on available for sale securities |   | **$**                             | **103** |     | $      | (1,616   | )      | $ | (144 | ) |
| Less                reclassification adjustment for gains realized in net                income  |   |                              | **-**   |     |   | (135     | )      |   | (47 | ) |
| **Net                Unrealized Gains (Losses)**                                                 |   |                              | **103** |     |   | (1,751   | )      |   | (191 | ) |
| Tax                effect                                                                        |   |                              | **35**  |     |   | 597      |   |   | 65 |   |
| **Net                of Tax Amount**                                                             |   | **$**                             | **68**  |     | $      | (1,154   | )      | $ | (126 | ) |

----

***East      Penn Financial Corporation***

----

**Notes      to Consolidated Financial Statements**

**Note      1 - Summary of Significant Accounting Policies (Continued)**

**Stock-Based      Compensation**

*Accounting      for Stock issued to Employees*
*Accounting      for Stock Based Compensation *
*Accounting      for Stock-Based Compensation Transition and Disclosure*
*Share-Based      Payment *

*pro      forma*

|                                                                                                                                                                                                                                                                 |   | **2005**                                                      |      | **2004** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------|-----------|----------|--------|
|                                                                                                                                                                                                                                                                 |   | **(In                  Thousands, Except per Share Amounts)** |      |
| Net                  income as reported                                                                                                                                                                                                                              |   | **$**                                                         | **3,503** |     | $      | 3,250 |   |
| 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 |   |                                                          | **(87**   | **)**    |   | (195 | ) |
|                                                                                                                                                                                                                                                                 |   |                                                          |      |     |   |   |   |
| Pro                  forma net income                                                                                                                                                                                                                                |   | **$**                                                         | **3,416** |     | $      | 3,055 |   |
|                                                                                                                                                                                                                                                                 |   |                                                          |      |     |   |   |   |
| Basic                  earnings per share:                                                                                                                                                                                                                           |   |                                                          |      |     |   |   |   |
| As                  reported                                                                                                                                                                                                                                         |   | **$**                                                         | **0.56**  |     | $      | 0.52 |   |
| Pro                  forma                                                                                                                                                                                                                                           |   | **$**                                                         | **0.54**  |     | $      | 0.48 |   |
|                                                                                                                                                                                                                                                                 |   |                                                          |      |     |   |   |   |
| Diluted                  earnings per share:                                                                                                                                                                                                                         |   |                                                          |      |     |   |   |   |
| As                  reported                                                                                                                                                                                                                                         |   | **$**                                                         | **0.55**  |     | $      | 0.51 |   |
| Pro                  forma                                                                                                                                                                                                                                           |   | **$**                                                         | **0.54**  |     | $      | 0.48 |   |

----

***East      Penn Financial Corporation***

----

**Notes      to Consolidated Financial Statements**

**Note      1 - Summary of Significant Accounting Policies (Continued)**

**Stock-Based      Compensation (Continued)**

**Segment      Reporting**

**New      Accounting Standards**

----

***East      Penn Financial Corporation***

----

**Notes      to Consolidated Financial Statements**

**Note      1 - Summary of Significant Accounting Policies (Continued)**

**New      Accounting Standards (Continued)**

----

***East      Penn Financial Corporation***

----

**Notes      to Consolidated Financial Statements**

**Note      2 - Securities **

|                                                       |   | **Amortized                Cost** |       | **Gross                Unrealized Gains** |   | **Gross                Unrealized Losses** |   | **Fair                Value** |       |
|------------------------------------------------------------|--------|-----------------------------------|------------|-------------------------------------------|--------|--------------------------------------------|--------|-------------------------------|------------|
|                                                       |   | **(In                Thousands)** |       |
| **Available                for Sale Securities:**          |   |                              |       |                                      |   |                                       |   |                          |       |
| **December                31, 2006:**                      |   |                              |       |                                      |   |                                       |   |                          |       |
| U.S.                Government agencies and corporations   |   | **$**                             | **1,000**  |                                      | **$**  | **-**                                      |   | **$**                         | **(34**    | **)** | **$** | **966** |   |
| States                and political subdivisions           |   |                              | **21,990** |                                      |   | **167**                                    |   |                          | **(75**    | **)** |   | **22,082** |   |
| Mortgage-backed                and asset-backedsecurities  |   |                              | **40,699** |                                      |   | **6**                                      |   |                          | **(1,259** | **)** |   | **39,446** |   |
| Other                                                      |   |                              | **7,291**  |                                      |   | **76**                                     |   |                          | **(107**   | **)** |   | **7,260** |   |
| Equity                securities                           |   |                              | **643**    |                                      |   | **12**                                     |   |                          | **(17**    | **)** |   | **638** |   |
|                                                       |   |                              |       |                                      |   |                                       |   |                          |       |   |   |   |   |
|                                                       |   | **$**                             | **71,623** |                                      | **$**  | **261**                                    |   | **$**                         | **(1,492** | **)** | **$** | **70,392** |   |
|                                                       |   |                              |       |                                      |   |                                       |   |                          |       |   |   |   |   |
| **Available                for Sale Securities:**          |   |                              |       |                                      |   |                                       |   |                          |       |   |   |   |   |
| **December                31, 2005:**                      |   |                              |       |                                      |   |                                       |   |                          |       |   |   |   |   |
| U.S.                Government agencies and corporations   |   | $                                 | 1,000      |                                      | $      | -                                          |   | $                             | (37        | ) | $ | 963 |   |
| States                and political subdivisions           |   |                              | 19,009     |                                      |   | 354                                        |   |                          | (229       | ) |   | 19,134 |   |
| Mortgage-backed                and asset-backed securities |   |                              | 47,543     |                                      |   | 6                                          |   |                          | (1,273     | ) |   | 46,276 |   |
| Other                                                      |   |                              | 7,316      |                                      |   | 31                                         |   |                          | (183       | ) |   | 7,164 |   |
| Equity                securities                           |   |                              | 643        |                                      |   | 8                                          |   |                          | (13        | ) |   | 638 |   |
|                                                       |   |                              |       |                                      |   |                                       |   |                          |       |   |   |   |   |
|                                                       |   | $                                 | 75,511     |                                      | $      | 399                                        |   | $                             | (1,735     | ) | $ | 74,175 |   |
|                                                       |   |                              |       |                                      |   |                                       |   |                          |       |   |   |   |   |
| **Held                to Maturity Securities:**            |   |                              |       |                                      |   |                                       |   |                          |       |   |   |   |   |
| **December                31, 2006:**                      |   | **$**                             | **-**      |                                      | **$**  | **-**                                      |   | **$**                         | **-**      |   | **$** | **-** |   |
| States                and political subdivisions           |   |                              | **-**      |                                      |   | **-**                                      |   |                          | **-**      |   |   | **-** |   |
| Asset-backed                securities                     |   |                              | **-**      |                                      |   | **-**                                      |   |                          | **-**      |   |   | **-** |   |
|                                                       |   |                              |       |                                      |   |                                       |   |                          |       |   |   |   |   |
|                                                       |   | $                                 | -          |                                      | **$**  | **-**                                      |   | **$**                         | **-**      |   | **$** | **-** |   |
|                                                       |   |                              |       |                                      |   |                                       |   |                          |       |   |   |   |   |
| **December                31, 2005:**                      |   |                              |       |                                      |   |                                       |   |                          |       |   |   |   |   |
| States                and political subdivisions           |   | $                                 | 998        |                                      | $      | 86                                         |   | $                             | -          |   | $ | 1,084 |   |
| Asset-backed                securities                     |   |                              | 40         |                                      |   | -                                          |   |                          | -          |   |   | 40 |   |
|                                                       |   |                              |       |                                      |   |                                       |   |                          |       |   |   |   |   |
|                                                       |   | $                                 | 1,038      |                                      | $      | 86                                         |   | $                             | -          |   | $ | 1,124 |   |

----

***East      Penn Financial Corporation***

----

**Notes      to Consolidated Financial Statements**

**Note      2 - Securities (Continued)**

|                                                       |   | **Available                for Sale** |       |
|------------------------------------------------------------|--------|---------------------------------------|------------|
|                                                       |   | **Amortized                Cost**     |       | **Fair                Value** |   |
|                                                       |   | **(In                Thousands)**     |       |
| Due                in one year or less                     |   | **$**                                 | **250**    |   | **$** | **250** |   |
| Due                after one year through five years       |   |                                  | **5,160**  |   |   | **5,052** |   |
| Due                after five years through ten years      |   |                                  | **3,898**  |   |   | **3,840** |   |
| Due                after ten years                         |   |                                  | **20,973** |   |   | **21,166** |   |
|                                                       |   |                                  |       |   |   |   |   |
|                                                       |   |                                  | **30,281** |   |   | **30,308** |   |
| Mortgage-backed                and asset-backed securities |   |                                  | **40,699** |   |   | **39,446** |   |
| Equity                securities                           |   |                                  | **643**    |   |   | **638** |   |
|                                                       |   |                                  |       |   |   |   |   |
|                                                       |   | **$**                                 | **71,623** |   | **$** | **70,392** |   |

----

***East      Penn Financial Corporation***

----

**Notes      to Consolidated Financial Statements**

**Note      2 - Securities (Continued)**

|                                                       |   | **Less                than 12 Months** |      | **12                Months or More** |   | **Total**         |   |
|------------------------------------------------------------|--------|----------------------------------------|-----------|--------------------------------------|--------|-------------------|--------|
|                                                       |   | **Fair****Value**                      |      | **Unrealized                Losses** |   | **Fair****Value** |   | **Unrealized                Losses** |   | **Fair****Value** |   | **Unrealized                Losses** |   |
|                                                       |   | **(In                Thousands)**      |      |
| **December                31, 2006:**                      |   |                                   |      |                                 |   |              |   |   |   |   |   |   |   |
| U.S.                Government agencies and corporations   |   | **$**                                  | **-**     |                                 | **$**  | **-**             |   | **$** | **966** |   | **$** | **(34** | **)** | **$** | **966** |   | **$** | **(34** | **)** |
| State                and political subdivisions            |   |                                   | **2,787** |                                 |   | **(2**            | **)**  |   | **2,447** |   |   | **(72** | **)** |   | **5,234** |   |   | **(74** | **)** |
| Mortgage-backed                and asset-backed securities |   |                                   | **1,619** |                                 |   | **(11**           | **)**  |   | **36,600** |   |   | **(1,248** | **)** |   | **38,219** |   |   | **(1,259** | **)** |
| Other                                                      |   |                                   | **1,099** |                                 |   | **(33**           | **)**  |   | **3,836** |   |   | **(74** | **)** |   | **4,935** |   |   | **(107** | **)** |
| Equity                securities                           |   |                                   | **-**     |                                 |   | **-**             |   |   | **482** |   |   | **(18** | **)** |   | **482** |   |   | **(18** | **)** |
|                                                       |   |                                   |      |                                 |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                       |   | **$**                                  | **5,505** |                                 | **$**  | **(46**           | **)**  | **$** | **44,331** |   | **$** | **(1,446** | **)** | **$** | **49,836** |   | **$** | **(1,492** | **)** |
|                                                       |   |                                   |      |                                 |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **December                31, 2005:**                      |   |                                   |      |                                 |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S.                Government agencies and corporations   |   | $                                      | -         |                                 | $      | -                 |   | $ | 963 |   | $ | (37 | ) | $ | 963 |   | $ | (37 | ) |
| State                and political subdivisions            |   |                                   | 4,154     |                                 |   | (58               | )      |   | 4,006 |   |   | (171 | ) |   | 8,160 |   |   | (229 | ) |
| Mortgage-backed                and asset-backed securities |   |                                   | 16,647    |                                 |   | (348              | )      |   | 28,763 |   |   | (925 | ) |   | 45,410 |   |   | (1,273 | ) |
| Other                                                      |   |                                   | 3,420     |                                 |   | (153              | )      |   | 838 |   |   | (30 | ) |   | 4,258 |   |   | (183 | ) |
| Equity                securities                           |   |                                   | -         |                                 |   | -                 |   |   | 487 |   |   | (13 | ) |   | 487 |   |   | (13 | ) |
|                                                       |   |                                   |      |                                 |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                       |   | $                                      | 24,221    |                                 | $      | (559              | )      | $ | 35,057 |   | $ | (1,176 | ) | $ | 59,278 |   | $ | (1,735 | ) |

----

***East      Penn Financial Corporation***

----

**Notes      to Consolidated Financial Statements**

**Note      3 - Loans Receivable and Allowance for Loan Losses**

|                                     |   | **2006**                          |        | **2005** |   |
|------------------------------------------|--------|-----------------------------------|-------------|----------|--------|
|                                     |   | **(In                Thousands)** |        |
| Commercial                               |   | **$**                             | **74,386**  |     | $      | 67,117 |   |
| Commercial                real estate    |   |                              | **123,902** |     |   | 117,614 |   |
| Residential                real estate   |   |                              | **44,914**  |     |   | 38,162 |   |
| Real                estate, construction |   |                              | **1,016**   |     |   | 2,662 |   |
| Tax                exempt                |   |                              | **25,805**  |     |   | 21,200 |   |
| Home                equity               |   |                              | **48,039**  |     |   | 40,749 |   |
| Other                consumer            |   |                              | **4,738**   |     |   | 5,883 |   |
|                                     |   |                              |        |     |   |   |   |
|                                     |   |                              | **322,800** |     |   | 293,387 |   |
| Allowance                for loan losses |   |                              | **(3,258**  | **)**    |   | (3,072 | ) |
|                                     |   |                              |        |     |   |   |   |
|                                     |   | **$**                             | **319,542** |     | $      | 290,315 |   |

|                                     |   | **Years                Ended December 31,** |      |
|------------------------------------------|--------|---------------------------------------------|-----------|
|                                     |   | **2006**                                    |      | **2005** |   | **2004** |   |
|                                     |   | **(In                Thousands)**           |      |
| Balance,                beginning        |   | **$**                                       | **3,072** |   | $ | 2,838 |   | $ | 2,403 |   |
| Provision                for loan losses |   |                                        | **389**   |   |   | 420 |   |   | 498 |   |
| Loans                charged off         |   |                                        | **(238**  | **)** |   | (206 | ) |   | (80 | ) |
| Recoveries                               |   |                                        | **35**    |   |   | 20 |   |   | 17 |   |
|                                     |   |                                        |      |   |   |   |   |   |   |   |
| Balance,                ending           |   | **$**                                       | **3,258** |   | $ | 3,072 |   | $ | 2,838 |   |

----

***East      Penn Financial Corporation***

----

**Notes      to Consolidated Financial Statements**

**Note      3 - Loans Receivable and Allowance for Loan Losses      (Continued)**

**Note      4 - Bank Premises and Equipment**

|                                               |   | **2006**                          |       | **2005** |   |
|----------------------------------------------------|--------|-----------------------------------|------------|----------|--------|
|                                               |   | **(In                Thousands)** |       |
| Land                                               |   | **$**                             | **2,210**  |     | $      | 2,210 |   |
| Land                improvements                   |   |                              | **268**    |     |   | 268 |   |
| Buildings                and building improvements |   |                              | **7,636**  |     |   | 6,840 |   |
| Furniture,                fixtures and equipment   |   |                              | **3,491**  |     |   | 3,077 |   |
| Computer                equipment and software     |   |                              | **909**    |     |   | 781 |   |
|                                               |   |                              |       |     |   |   |   |
|                                               |   |                              | **14,514** |     |   | 13,176 |   |
| Accumulated                depreciation            |   |                              | **(4,694** | **)**    |   | (3,856 | ) |
|                                               |   |                              |       |     |   |   |   |
|                                               |   | **$**                             | **9,820**  |     | $      | 9,320 |   |

----

***East      Penn Financial Corporation***

----

**Notes      to Consolidated Financial Statements**

**Note      5 - Investment in Bank**

*de      novo*

----

***East      Penn Financial Corporation***

----

**Notes      to Consolidated Financial Statements**

**Note      6 - Deposits **

|                                        |   | **2006**                          |        | **2005** |   |
|---------------------------------------------|--------|-----------------------------------|-------------|----------|--------|
|                                        |   | **(In                Thousands)** |        |
| Demand,                non-interest bearing |   | **$**                             | **46,110**  |     | $      | 44,257 |   |
| Demand,                interest bearing     |   |                              | **102,937** |     |   | 115,844 |   |
| Savings                                     |   |                              | **39,118**  |     |   | 42,385 |   |
| Time,                $100,000 and over      |   |                              | **40,010**  |     |   | 20,093 |   |
| Time,                other                  |   |                              | **144,456** |     |   | 101,727 |   |
|                                        |   |                              |        |     |   |   |   |
|                                        |   | **$**                             | **372,631** |     | $      | 324,306 |   |

| 2007       |   | **$**  | **144,706** |   |
|------------|--------|--------|-------------|--------|
| 2008       |   |   | **34,419**  |   |
| 2009       |   |   | **2,688**   |   |
| 2010       |   |   | **1,720**   |   |
| 2011       |   |   | **723**     |   |
| Thereafter |   |   | **210**     |   |
|       |   |   |        |   |
|       |   | **$**  | **184,466** |   |

**Note      7 - Securities Sold under Agreements to Repurchase**

|                                                                 |   | **2006**                                  |      | **2005** |   | **2004** |   |
|----------------------------------------------------------------------|--------|-------------------------------------------|-----------|----------|--------|----------|--------|
|                                                                 |   | **(Dollars                in Thousands)** |      |
| Balance                outstanding at December 31,                   |   | **$**                                     | **6,749** |     | $      | 3,650    |   | $ | 2,349 |   |
| Weighted                average interest rate at the end of the year |   |                                      | **2.2**   | **%**    |   | 2.1      | %      |   | 0.7 | % |
| Average                daily balance during the year                 |   | **$**                                     | **5,333** |     | $      | 3,322    |   | $ | 4,066 |   |
| Weighted                average interest rate during the year        |   |                                      | **2.2**   | **%**    |   | 1.3      | %      |   | 0.7 | % |
| Maximum                month-end balance during the year             |   | **$**                                     | **6,749** |     | $      | 4,250    |   | $ | 5,165 |   |

----

***East      Penn Financial Corporation***

----

**Notes      to Consolidated Financial Statements**

**Note      8 - Borrowings **

| **Maturity**                     |   | **Rate** |   | **2006**                                  |   | **2005**   |   |
|----------------------------------|--------|----------|--------|-------------------------------------------|--------|------------|--------|
|                             |   |     |   | **(Dollars                in Thousands)** |   |
| February                6, 2006  |   |     | 3.55   |                                      | **$**  | **-**      |   | $ | 5,000 |   |
| May                5, 2006       |   |     | 3.64   |                                      |   | **-**      |   |   | 5,000 |   |
| November                28, 2006 |   |     | 2.80   |                                      |   | **-**      |   |   | 6,000 |   |
| May                7, 2007       |   |     | 3.89   |                                      |   | **5,000**  |   |   | 5,000 |   |
| November                28, 2007 |   |     | 3.43   |                                      |   | **7,000**  |   |   | 7,000 |   |
| May                5, 2008       |   |     | 4.03   |                                      |   | **5,000**  |   |   | 5,000 |   |
| November                28, 2008 |   |     | 3.78   |                                      |   | **7,000**  |   |   | 7,000 |   |
|                             |   |     |   |                                      |   |       |   |   |   |   |
| **Total**                        |   |     |   |                                      | **$**  | **24,000** |   | $ | 40,000 |   |

**Note      9 - Mandatory Redeemable Capital and Junior Subordinated      Debentures**

----

***East      Penn Financial Corporation***

----

**Notes      to Consolidated Financial Statements**

**Note      10 - Lease Commitments and Total Rental Expense**

| 2007       |   | **$**  | **261,000**   |   |
|------------|--------|--------|---------------|--------|
| 2008       |   |   | **245,000**   |   |
| 2009       |   |   | **242,000**   |   |
| 2010       |   |   | **200,000**   |   |
| 2011       |   |   | **192,000**   |   |
| Thereafter |   |   | **872,000**   |   |
|       |   |   |          |   |
|       |   | **$**  | **2,012,000** |   |

**Note      11 - Stockholders’ Equity**

----

***East      Penn Financial Corporation***

----

**Notes      to Consolidated Financial Statements**

**Note      11 - Stockholders’ Equity (Continued)**

|                                          |   | **2006**    |        | **2005**                                     |   | **2004**    |   |
|-----------------------------------------------|--------|-------------|-------------|----------------------------------------------|--------|-------------|--------|
|                                          |   | **Options** |        | **Weighted****Average****Exercise****Price** |   | **Options** |   | **Weighted****Average****Exercise****Price** |   | **Options** |   | **Weighted****Average****Exercise****Price** |   |
|                                          |   |        |        |                                         |   |        |   |   |   |   |   |   |   |
| Outstanding,                beginning of year |   |        | **201,598** |                                         | **$**  | **8.16**    |   |   | 206,200 |   | $ | 8.06 |   |   | 84,100 |   | $ | 7.15 |   |
| Granted                                       |   |        | **13,000**  |                                         | **$**  | **9.00**    |   |   | 11,000 |   | $ | 9.25 |   |   | 129,250 |   | $ | 8.69 |   |
| Exercised                                     |   |        | **(1,000**  | **)**                                        | **$**  | **5.80**    |   |   | (3,702 | ) | $ | 6.20 |   |   | (1,400 | ) | $ | 5.80 |   |
| Forfeited                                     |   |        | **(10,350** | **)**                                        | **$**  | **8.40**    |   |   | (11,900 | ) | $ | 8.22 |   |   | (5,750 | ) | $ | 8.54 |   |
|                                          |   |        |        |                                         |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Outstanding,                end of year       |   |        | **203,248** |                                         | **$**  | **8.21**    |   |   | 201,598 |   | $ | 7.65 |   |   | 206,200 |   | $ | 8.06 |   |
|                                          |   |        |        |                                         |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Exercisable,                at end of year    |   |        | **203,248** |                                         | **$**  | **8.21**    |   |   |   |   |   |   |   |   |   |   |   |   |   |

**Note      12 - Employee Benefit Plans**

**Note      13 - Other Operating Expenses**

|                                           |   | **2006**                          |    | **2005** |   | **2004** |   |
|------------------------------------------------|--------|-----------------------------------|---------|----------|--------|----------|--------|
|                                           |   | **(In                Thousands)** |    |
|                                           |   |                              |    |
| Advertising                and sales promotion |   | **$**                             | **288** |     | $      | 388      |   | $ | 207 |   |
| Professional                fees               |   |                              | **368** |     |   | 322      |   |   | 291 |   |
| Postage                                        |   |                              | **201** |     |   | 188      |   |   | 194 |   |
| Telephone                                      |   |                              | **206** |     |   | 258      |   |   | 222 |   |
| ATM                fees                        |   |                              | **288** |     |   | 375      |   |   | 324 |   |

----

***East      Penn Financial Corporation***

----

**Notes      to Consolidated Financial Statements**

**Note      14 - Income Taxes**

|     |   | **2006**                          |      | **2005** |   | **2004** |   |
|----------|--------|-----------------------------------|-----------|----------|--------|----------|--------|
|     |   | **(In                Thousands)** |      |
|     |   |                              |      |
| Current  |   | **$**                             | **1,107** |     | $      | 1,099    |   | $ | 893 |   |
| Deferred |   |                              | **(174**  | **)**    |   | (85      | )      |   | 129 |   |
|     |   |                              |      |     |   |     |   |   |   |   |
|     |   | **$**                             | **933**   |     | $      | 1,014    |   | $ | 1,022 |   |

|                                                |   | **2006**                                  |      | **2005**                                    |   | **2004**   |   |
|-----------------------------------------------------|--------|-------------------------------------------|-----------|---------------------------------------------|--------|------------|--------|
|                                                |   | **Amount**                                |      | **%                of****Pretax****Income** |   | **Amount** |   | **%                of****Pretax****Income** |   | **Amount** |   | **%                of****Pretax****Income** |   |
|                                                |   | **(Dollars                in Thousands)** |      |
|                                                |   |                                      |      |                                        |   |       |   |   |   |   |   |   |   |
| Federal                income tax at statutory rate |   | **$**                                     | **1,545** |                                        |   | 34%        |   | $ | 1,536 |   |   | 34% |   | $ | 1,452 |   |   | 34% |   |
| Tax-exempt                interest                  |   |                                      | **(530**  | **)**                                       |   | **(11**    | **)**  |   | (432 | ) |   | (10 | ) |   | (333 | ) |   | (8 | ) |
| Income                from life insurance           |   |                                      | **(97**   | **)**                                       |   | **(2**     | **)**  |   | (96 | ) |   | (2 | ) |   | (102 | ) |   | (2 | ) |
| Other                                               |   |                                      | **15**    |                                        |   | **-**      |   |   | 6 |   |   | - |   |   | 5 |   |   | - |   |
|                                                |   |                                      |      |                                        |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                |   | **$**                                     | **933**   |                                        |   | 21%        |   | $ | 1,014 |   |   | 22% |   | $ | 1,022 |   |   | 24% |   |

----

***East      Penn Financial Corporation***

----

**Notes      to Consolidated Financial Statements**

**Note      14 - Income Taxes (Continued)**

|                                                              |   | **2006**                          |      | **2005** |   |
|-------------------------------------------------------------------|--------|-----------------------------------|-----------|----------|--------|
|                                                              |   | **(In                Thousands)** |      |
| Deferred                tax assets:                               |   |                              |      |     |   |
| Allowance                for loan losses                          |   | **$**                             | **1,048** |     | $      | 994 |   |
| Deferred                compensation                              |   |                              | **119**   |     |   | 84 |   |
| Bank                premises and equipment                        |   |                              | **97**    |     |   | 11 |   |
| Unrealized                losses on securities available for sale |   |                              | **419**   |     |   | 456 |   |
| Other                                                             |   |                              | **6**     |     |   | 6 |   |
|                                                              |   |                              |      |     |   |   |   |
| **Total                Deferred Tax Assets**                      |   |                              | **1,689** |     |   | 1,551 |   |
|                                                              |   |                              |      |     |   |   |   |
| Deferred                tax liabilities:                          |   |                              |      |     |   |   |   |
| Prepaid                expenses                                   |   |                              | **(128**  | **)**    |   | (157 | ) |
| Deferred                loan costs                                |   |                              | **(238**  | **)**    |   | (220 | ) |
| Other                                                             |   |                              | **(12**   | **)**    |   | - |   |
|                                                              |   |                              |      |     |   |   |   |
| **Total                Deferred Tax Liabilities**                 |   |                              | **(378**  | **)**    |   | (377 | ) |
|                                                              |   |                              |      |     |   |   |   |
| **Net                Deferred Tax Assets**                        |   | **$**                             | **1,311** |     | $      | 1,174 |   |

**Note      15 - Transactions with Executive Officers, Directors and Principal      Stockholders**

----

***East      Penn Financial Corporation***

----

**Notes      to Consolidated Financial Statements**

**Note      16 - Financial Instruments with Off-Balance Sheet Risk**

|                                                      |   | **2006**                          |       | **2005** |   |
|-----------------------------------------------------------|--------|-----------------------------------|------------|----------|--------|
|                                                      |   | **(In                Thousands)** |       |
| Commitments                to grant loans                 |   | **$**                             | **5,286**  |     | $      | 6,519 |   |
| Unfunded                commitments under lines of credit |   |                              | **66,114** |     |   | 74,095 |   |
| Standby                letters of credit                  |   |                              | **4,791**  |     |   | 684 |   |
|                                                      |   |                              |       |     |   |   |   |
|                                                      |   | **$**                             | **76,191** |     | $      | 81,298 |   |

----

***East      Penn Financial Corporation***

----

**Notes      to Consolidated Financial Statements**

**Note      17 - Regulatory Matters**

|                                                                                                                                                            |   | **Actual**                                                                            |       |   | **For                                                            Capital Adequacy Purposes** |   |      | **To                                                            be Well Capitalized under****Prompt                                                            Corrective Action Provisions** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------|------------|--------|----------------------------------------------------------------------------------------------|--------|-----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                            |   | **Amount**                                                                            |       |   | **Ratio**                                                                                    |   |      | **Amount**                                                                                                                                                                                    |   |   | **Ratio** |   |   | **Amount** |   |   | **Ratio** |   |
|                                                                                                                                                            |   | **(Dollars                                                            in Thousands)** |       |
| **As                                                            of December 31, 2006:**                                                                    |   |                                                                                  |       |   |                                                                                         |   |      |                                                                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
| Total                                                            capital (to risk-weighted                                                            assets):  |   |                                                                                  |       |   |                                                                                         |   |      |                                                                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
| Consolidated                                                                                                                                                    |   | **$**                                                                                 | **37,219** |   |                                                                                         |   | **10.91** | **%**                                                                                                                                                                                         |   | **$** | **> 27,300** |   |   |   | **>8.0** | **%** |   | **N/A** |   |   | **N/A** |   |
| East                                                            Penn Bank                                                                                       |   |                                                                                  | **34,450** |   |                                                                                         |   | **10.18** |                                                                                                                                                                                          |   |   | **> 27,081** |   |   |   | **>8.0** |   |   | **$** | **>33,851** |   |   | **>10.0** | **%** |
| Tier                                                            1 capital (to risk-weighted                                                            assets): |   |                                                                                  |       |   |                                                                                         |   |      |                                                                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consolidated                                                                                                                                                    |   |                                                                                  | **33,961** |   |                                                                                         |   | **9.95**  |                                                                                                                                                                                          |   |   | **> 13,650** |   |   |   | **>4.0** |   |   | **N/A** |   |   | **N/A** |   |
| East                                                            Penn Bank                                                                                       |   |                                                                                  | **31,192** |   |                                                                                         |   | **9.21**  |                                                                                                                                                                                          |   |   | **> 13,540** |   |   |   | **>4.0** |   |   |   | **>20,310** |   |   | **>6.0** |   |
| Tier                                                            1 capital (to average                                                            assets):       |   |                                                                                  |       |   |                                                                                         |   |      |                                                                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consolidated                                                                                                                                                    |   |                                                                                  | **33,961** |   |                                                                                         |   | **7.79**  |                                                                                                                                                                                          |   |   | **> 17,430** |   |   |   | **>4.0** |   |   | **N/A** |   |   | **N/A** |   |
| East                                                            Penn Bank                                                                                       |   |                                                                                  | **31,192** |   |                                                                                         |   | **7.21**  |                                                                                                                                                                                          |   |   | **> 17,315** |   |   |   | **>4.0** |   |   |   | **>21,644** |   |   | **>5.0** |   |
|                                                                                                                                                            |   |                                                                                  |       |   |                                                                                         |   |      |                                                                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **As                                                            of December 31, 2005:**                                                                    |   |                                                                                  |       |   |                                                                                         |   |      |                                                                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                                            capital (to risk-weighted                                                            assets):  |   |                                                                                  |       |   |                                                                                         |   |      |                                                                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consolidated                                                                                                                                                    |   | $                                                                                     | 34,785     |   |                                                                                         |   | 11.19     | %                                                                                                                                                                                             |   | $ | **> **24,873 |   |   |   | >8.0 | % |   | N/A |   |   | N/A |   |
| East                                                            Penn Bank                                                                                       |   |                                                                                  | 32,192     |   |                                                                                         |   | 10.44     |                                                                                                                                                                                          |   |   | **> **24,665 |   |   |   | >8.0 |   |   |   | >30,831 |   |   | >10.0 | % |
| Tier                                                            1 capital (to risk-weighted                                                            assets): |   |                                                                                  |       |   |                                                                                         |   |      |                                                                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consolidated                                                                                                                                                    |   |                                                                                  | 31,617     |   |                                                                                         |   | 10.17     |                                                                                                                                                                                          |   |   | **> **12,437 |   |   |   | >4.0 |   |   | N/A |   |   | N/A |   |
| East                                                            Penn Bank                                                                                       |   |                                                                                  | 29,120     |   |                                                                                         |   | 9.45      |                                                                                                                                                                                          |   |   | **> **12,332 |   |   |   | >4.0 |   |   |   | >18,499 |   |   | >6.0 |   |
| Tier                                                            1 capital (to average                                                            assets):       |   |                                                                                  |       |   |                                                                                         |   |      |                                                                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consolidated                                                                                                                                                    |   |                                                                                  | 31,617     |   |                                                                                         |   | 7.97      |                                                                                                                                                                                          |   |   | **> **15,863 |   |   |   | >4.0 |   |   | N/A |   |   | N/A |   |
| East                                                            Penn Bank                                                                                       |   |                                                                                  | 29,120     |   |                                                                                         |   | 7.40      |                                                                                                                                                                                          |   |   | **>**** **15,750 |   |   |   | >4.0 |   |   |   | >19,688 |   |   | >5.0 |   |

----

***East      Penn Financial Corporation***

----

**Notes      to Consolidated Financial Statements**

**Note      17 - Regulatory Matters (Continued)**

**Note      18 - Fair Value of Financial Instruments**

**Cash      and Cash Equivalents and Interest-Bearing Time Deposits**

**Securities**

**Investment      in Restricted Stock**

**Mortgage      Loans Held for Sale**

----

***East      Penn Financial Corporation***

----

**Notes      to Consolidated Financial Statements**

**Note      18 - Fair Value of Financial Instruments (Continued)**

**Loans      Receivable**

**Accrued      Interest Receivable**

**Deposits      and Securities Sold under Agreements to Repurchase**

**Long-Term      Debt, Short-Term Borrowings, and Junior Subordinated      Debentures**

**Accrued      Interest Payable**

**Off-Balance      Sheet Instruments**

----

***East      Penn Financial Corporation***

----

**Notes      to Consolidated Financial Statements**

**Note      18 - Fair Value of Financial Instruments (Continued)**

|                                                          |   | **2006**                          |        | **2005**          |   |
|---------------------------------------------------------------|--------|-----------------------------------|-------------|-------------------|--------|
|                                                          |   | **Carrying****Amount**            |        | **Fair****Value** |   | **Carrying****Amount** |   | **Fair****Value** |   |
|                                                          |   | **(In                Thousands)** |        |
| Financial                assets:                              |   |                              |        |              |   |   |   |   |   |
| Cash                and cash equivalents                      |   | **$**                             | **22,954**  |              | **$**  | **22,954** |   | $ | 10,629 |   | $ | 10,629 |   |
| Interest                bearing time deposits                 |   |                              | **-**       |              |   | **-** |   |   | 500 |   |   | 500 |   |
| Securities                                                    |   |                              | **70,392**  |              |   | **70,392** |   |   | 75,213 |   |   | 75,299 |   |
| Mortgage                loans held for sale                   |   |                              | **373**     |              |   | **373** |   |   | 1,077 |   |   | 1,077 |   |
| Loans                receivable, net of allowance             |   |                              | **319,542** |              |   | **320,640** |   |   | 290,315 |   |   | 286,797 |   |
| Investment                in restricted stock                 |   |                              | **2,230**   |              |   | **2,230** |   |   | 3,115 |   |   | 3,115 |   |
| Accrued                interest receivable                    |   |                              | **1,842**   |              |   | **1,842** |   |   | 1,674 |   |   | 1,674 |   |
|                                                          |   |                              |        |              |   |   |   |   |   |   |   |   |   |
| Financial                liabilities:                         |   |                              |        |              |   |   |   |   |   |   |   |   |   |
| Deposits                                                      |   |                              | **372,631** |              |   | **371,958** |   |   | 324,306 |   |   | 323,185 |   |
| Securities                sold under agreements to repurchase |   |                              | **6,749**   |              |   | **6,741** |   |   | 3,650 |   |   | 3,650 |   |
| Short-term                borrowings                          |   |                              | **-**       |              |   | **-** |   |   | 3,923 |   |   | 3,923 |   |
| Long-term                debt                                 |   |                              | **24,000**  |              |   | **23,604** |   |   | 40,000 |   |   | 39,332 |   |
| Junior                subordinated debentures                 |   |                              | **8,248**   |              |   | **8,124** |   |   | 8,248 |   |   | 8,316 |   |
| Accrued                interest payable                       |   |                              | **2,051**   |              |   | **2,051** |   |   | 842 |   |   | 842 |   |
|                                                          |   |                              |        |              |   |   |   |   |   |   |   |   |   |
| Off-balance                sheet financial instruments:       |   |                              |        |              |   |   |   |   |   |   |   |   |   |
| Commitments                to extend credit                   |   |                              | **-**       |              |   | **-** |   |   | - |   |   | - |   |
| Outstanding                letters of credit                  |   |                              | **-**       |              |   | **-** |   |   | - |   |   | - |   |

----

***East      Penn Financial Corporation***

----

**Notes      to Consolidated Financial Statements**

**Note      19 - Parent Company Only Financial Information**

**Balance      Sheets**

|                                                                    |   | **December 31,**                 |       |
|-------------------------------------------------------------------------|--------|---------------------------------------|------------|
|                                                                    |   | **2006**                              |       | **2005** |   |
|                                                                    |   | **(In                    Thousands)** |       |
| **Assets**                                                              |   |                                  |       |   |   |
|                                                                    |   |                                  |       |   |   |
| Cash                    and cash equivalents                            |   | **$**                                 | **44**     |   | $ | 21 |   |
| Securities                    available for sale                        |   |                                  | **155**    |   |   | 151 |   |
| Investment                    in subsidiaries                           |   |                                  | **30,383** |   |   | 28,243 |   |
| Other                    assets                                         |   |                                  | **2,845**  |   |   | 2,691 |   |
|                                                                    |   |                                  |       |   |   |   |   |
| **Total                    Assets**                                     |   | **$**                                 | **33,427** |   | $ | 31,106 |   |
|                                                                    |   |                                  |       |   |   |   |   |
| **Liabilities                    and Stockholders’ Equity**       |   |                                  |       |   |   |   |   |
|                                                                    |   |                                  |       |   |   |   |   |
| Liabilities:                                                            |   |                                  |       |   |   |   |   |
| Junior                    subordinated debentures                       |   | **$**                                 | **8,248**  |   | $ | 8,248 |   |
| Other                    liabilities                                    |   |                                  | **18**     |   |   | 17 |   |
|                                                                    |   |                                  |       |   |   |   |   |
| **Total                    Liabilities**                                |   |                                  | **8,266**  |   |   | 8,265 |   |
|                                                                    |   |                                  |       |   |   |   |   |
| Stockholders’                    equity:                          |   |                                  |       |   |   |   |   |
| Common                    stock                                         |   |                                  | **4,134**  |   |   | 4,133 |   |
| Surplus                                                                 |   |                                  | **9,272**  |   |   | 9,246 |   |
| Retained                    earnings                                    |   |                                  | **14,417** |   |   | 12,192 |   |
| Accumulated                    other comprehensive loss                 |   |                                  | **(812**   | **)** |   | (880 | ) |
| Treasury                    stock                                       |   |                                  | **(1,850** | **)** |   | (1,850 | ) |
|                                                                    |   |                                  |       |   |   |   |   |
| **Total                    Stockholders’ Equity**                 |   |                                  | **25,161** |   |   | 22,841 |   |
|                                                                    |   |                                  |       |   |   |   |   |
| **Total                    Liabilities and Stockholders’ Equity** |   | **$**                                 | **33,427** |   | $ | 31,106 |   |

----

***East      Penn Financial Corporation***

----

**Notes      to Consolidated Financial Statements**

**Note      19 - Parent Company Only Financial Information (Continued)**

**Statement**
**s      of Income**

|                                                                                                                                                 |   | **Years                  Ended December 31,** |      |
|------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|-----------|
|                                                                                                                                                 |   | **2006**                                      |      | **2005** |   | **2004** |   |
|                                                                                                                                                 |   | **(In                  Thousands)**           |      |
| Interest                  on securities                                                                                                              |   | **$**                                         | **2**     |   | $ | 2 |   | $ | 1 |   |
| Dividends                  from bank subsidiary                                                                                                      |   |                                          | **1,929** |   |   | 1,913 |   |   | 2,021 |   |
| Interest                  expense                                                                                                                    |   |                                          | **(544**  | **)** |   | (544 | ) |   | (544 | ) |
| Other                  expenses                                                                                                                      |   |                                          | **(48**   | **)** |   | (48 | ) |   | (48 | ) |
|                                                                                                                                                 |   |                                          |      |   |   |   |   |   |   |   |
| **Income                  before Income Tax Benefit and Equity in Undistributed Net Income                  of                  Banking Subsidiary** |   |                                          | **1,339** |   |   | 1,323 |   |   | 1,430 |   |
|                                                                                                                                                 |   |                                          |      |   |   |   |   |   |   |   |
| Income                  tax benefits                                                                                                                 |   |                                          | **197**   |   |   | 200 |   |   | 33 |   |
|                                                                                                                                                 |   |                                          |      |   |   |   |   |   |   |   |
| **Income                  before Equity in Undistributed Net Income of                  Subsidiary**                                                 |   |                                          | **1,536** |   |   | 1,523 |   |   | 1,463 |   |
|                                                                                                                                                 |   |                                          |      |   |   |   |   |   |   |   |
| Equity                  in undistributed net income of subsidiary                                                                                    |   |                                          | **2,075** |   |   | 1,980 |   |   | 1,787 |   |
|                                                                                                                                                 |   |                                          |      |   |   |   |   |   |   |   |
| **Net                  Income**                                                                                                                      |   | **$**                                         | **3,611** |   | $ | 3,503 |   | $ | 3,250 |   |

----

***East      Penn Financial Corporation***

----

**Notes      to Consolidated Financial Statements**

**Note      19 - Parent Company Only Financial Information (Continued)**

**Statements      of Cash Flows**

|                                                                                                            |   | **Years                Ended December 31,** |       |
|-----------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|------------|
|                                                                                                            |   | **2006**                                    |       | **2005** |   | **2004** |   |
|                                                                                                            |   | **(In                Thousands)**           |       |
| **Cash                Flows from Operating Activities**                                                         |   |                                        |       |   |   |   |   |
| Net                income                                                                                       |   | **$**                                       | **3,611**  |   | $ | 3,503 |   | $ | 3,250 |   |
| Adjustments                to reconcile net income to net cash provided by operating                activities: |   |                                        |       |   |   |   |   |   |   |   |
| Undistributed                net income of subsidiary                                                           |   |                                        | **(2,075** | **)** |   | (1,980 | ) |   | (1,787 | ) |
| Compensation                expense for stock options                                                           |   |                                        | **19**     |   |   | - |   |   | - |   |
| Increase                (decrease) in other liabilities                                                         |   |                                        | **3**      |   |   | (3 | ) |   | - |   |
| (Increase)                decrease in other assets                                                              |   |                                        | **(152**   | **)** |   | (117 | ) |   | 40 |   |
|                                                                                                            |   |                                        |       |   |   |   |   |   |   |   |
| **Net                Cash Provided by Operating Activities**                                                    |   |                                        | **1,406**  |   |   | 1,403 |   |   | 1,503 |   |
|                                                                                                            |   |                                        |       |   |   |   |   |   |   |   |
| **Cash                Flows from Investing Activities**                                                         |   |                                        |       |   |   |   |   |   |   |   |
| Purchase                of available for sale securities                                                        |   |                                        | **-**      |   |   | - |   |   | (143 | ) |
| Investment                in Berkshire Bank                                                                     |   |                                        | **(3**     | **)** |   | (287 | ) |   | (326 | ) |
|                                                                                                            |   |                                        |       |   |   |   |   |   |   |   |
| **Net                Cash Used in Investing Activities**                                                        |   |                                        | **(3**     | **)** |   | (287 | ) |   | (469 | ) |
|                                                                                                            |   |                                        |       |   |   |   |   |   |   |   |
| **Cash                Flows from Financing Activities**                                                         |   |                                        |       |   |   |   |   |   |   |   |
| Proceeds                from the exercise of stock options                                                      |   |                                        | **6**      |   |   | 23 |   |   | 8 |   |
| Payment                of cash dividend                                                                         |   |                                        | **(1,386** | **)** |   | (1,198 | ) |   | (1,008 | ) |
|                                                                                                            |   |                                        |       |   |   |   |   |   |   |   |
| **Net                Cash Used in Financing Activities**                                                        |   |                                        | **(1,380** | **)** |   | (1,175 | ) |   | (1,000 | ) |
|                                                                                                            |   |                                        |       |   |   |   |   |   |   |   |
| **Net                Increase (Decrease) in Cash and Cash Equivalents**                                         |   |                                        | **23**     |   |   | (59 | ) |   | 34 |   |
|                                                                                                            |   |                                        |       |   |   |   |   |   |   |   |
| **Cash                and Cash Equivalents - Beginning**                                                        |   |                                        | **21**     |   |   | 80 |   |   | 46 |   |
|                                                                                                            |   |                                        |       |   |   |   |   |   |   |   |
| **Cash                and Cash Equivalents - Ending**                                                           |   | **$**                                       | **44**     |   | $ | 21 |   | $ | 80 |   |

----

***East      Penn Financial Corporation***

----

**Notes      to Consolidated Financial Statements**

**Note      20 - Quarterly Consolidated Financial Data (Unaudited)**

|                                                     |   | **Three                Months Ended** |       |
|----------------------------------------------------------|--------|---------------------------------------|------------|
| **2006**                                                 |   | **March                31**           |       | **June                30** |   | **September                30** |   |  **December                31** |   |
|                                                     |   |                                  |       |   |   |   |   |   |   |
| Interest                income                           |   | **$**                                 | **5,542**  |   | **$** | **5,742** |   | **$** | **6,165** |   | **$** | **6,334** |   |
| Interest                expense                          |   |                                  | **(2,246** | **)** |   | **(2,410** | **)** |   | **(2,780** | **)** |   | **(3,039** | **)** |
|                                                     |   |                                  |       |   |   |   |   |   |   |   |   |   |   |
| **Net                Interest Income**                   |   |                                  | **3,296**  |   |   | **3,332** |   |   | **3,385** |   |   | **3,295** |   |
|                                                     |   |                                  |       |   |   |   |   |   |   |   |   |   |   |
| Provision                for loan losses                 |   |                                  | **(90**    | **)** |   | **(119** | **)** |   | **(90** | **)** |   | **(90** | **)** |
| Net                gain on sale of credit card portfolio |   |                                  | **-**      |   |   | **-** |   |   | **-** |   |   | **302** |   |
| Other                expenses, net of other income       |   |                                  | **(2,158** | **)** |   | **(2,152** | **)** |   | **(2,174** | **)** |   | **(2,193** | **)** |
|                                                     |   |                                  |       |   |   |   |   |   |   |   |   |   |   |
| **Income                before Income Taxes**            |   |                                  | **1,048**  |   |   | **1,061** |   |   | **1,121** |   |   | **1,314** |   |
|                                                     |   |                                  |       |   |   |   |   |   |   |   |   |   |   |
| Income                tax expense                        |   |                                  | **(218**   | **)** |   | **(212** | **)** |   | **(221** | **)** |   | **(282** | **)** |
|                                                     |   |                                  |       |   |   |   |   |   |   |   |   |   |   |
| **Net                Income**                            |   | **$**                                 | **830**    |   | **$** | **849** |   | **$** | **900** |   | **$** | **1,032** |   |
|                                                     |   |                                  |       |   |   |   |   |   |   |   |   |   |   |
| Earnings                per common share:                |   |                                  |       |   |   |   |   |   |   |   |   |   |   |
| Basic                                                    |   | **$**                                 | **0.13**   |   | **$** | **0.13** |   | **$** | **0.14** |   | **$** | **0.16** |   |
|                                                     |   |                                  |       |   |   |   |   |   |   |   |   |   |   |
| Diluted                                                  |   | **$**                                 | **0.13**   |   | **$** | **0.13** |   | **$** | **0.14** |   | **$** | **0.16** |   |

|                                               |   | **Three                Months Ended** |   |
|----------------------------------------------------|--------|---------------------------------------|--------|
| **2005**                                           |   | **March                31**           |   | **June                30** |   | **September                30** |   |  **December                31** |   |
|                                               |   |                                  |   |   |   |   |   |   |   |
| Interest                income                     |   | $                                     | 4,550  |   | $ | 4,861 |   | $ | 5,194 |   | $ | 5,421 |   |
| Interest                expense                    |   |                                  | (1,397 | ) |   | (1,713 | ) |   | (2,003 | ) |   | (2,142 | ) |
|                                               |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| **Net                Interest Income**             |   |                                  | 3,153  |   |   | 3,148 |   |   | 3,191 |   |   | 3,279 |   |
|                                               |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Provision                for loan losses           |   |                                  | (126   | ) |   | (126 | ) |   | (84 | ) |   | (84 | ) |
| Other                expenses, net of other income |   |                                  | (1,922 | ) |   | (1,799 | ) |   | (1,947 | ) |   | (2,166 | ) |
|                                               |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| **Income                before Income Taxes**      |   |                                  | 1,105  |   |   | 1,223 |   |   | 1,160 |   |   | 1,029 |   |
|                                               |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Income                tax expense                  |   |                                  | (255   | ) |   | (287 | ) |   | (261 | ) |   | (211 | ) |
|                                               |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| **Net                Income**                      |   | $                                     | 850    |   | $ | 936 |   | $ | 899 |   | $ | 818 |   |
|                                               |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Earnings                per common share:          |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                              |   | $                                     | 0.13   |   | $ | 0.15 |   | $ | 0.14 |   | $ | 0.13 |   |
|                                               |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Diluted                                            |   | $                                     | 0.13   |   | $ | 0.15 |   | $ | 0.14 |   | $ | 0.13 |   |

----

**SHAREHOLDER          RETURN PERFORMANCE GRAPH**

|  ***East                  Penn Financial                  Corporation*** |
|-------------------------------------------------------------------------------|

|                                             |   |  ***Period                  Ending***   |   |
|--------------------------------------------------|--------|--------------------------------------------------------|--------|
| ***Index***                                      |   | **12/31/01**                                           |   | **12/31/02** |   | **12/31/03** |   | **12/31/04** |   | **12/31/05** |   | **12/31/06** |   |
| East                  Penn Financial Corporation |   |                                                   | 100.00 |   |   | 102.72 |   |   | 175.68 |   |   | 172.18 |   |   | 183.95 |   |   | 165.94 |   |
| NASDAQ                  Composite                |   |                                                   | 100.00 |   |   | 68.76 |   |   | 103.67 |   |   | 113.16 |   |   | 115.57 |   |   | 127.58 |   |
| SNL                  $250M-$500M Bank Index      |   |                                                   | 100.00 |   |   | 128.95 |   |   | 186.31 |   |   | 211.46 |   |   | 224.51 |   |   | 234.58 |   |
| SNL                  Mid Cap Bank                |   |                                                   | 100.00 |   |   | 103.10 |   |   | 137.65 |   |   | 168.40 |   |   | 156.46 |   |   | 166.87 |   |

----

----

**Directors        and Officers**

----

| Notice                                                            of Annual Meeting The                                                            2007 Annual Meeting of                                                            Shareholders will be                                                            held on Thursday, May                                                            10, 2007                                                            at 7:00 p.m., Eastern                                                            Time, at: Allen                                                            Organ Company3370                                                              Route 100 Macungie,                                                                Pennsylvania 18062                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |  The                                                            fol­lowing market values                                                            are based on trades known                                                            by the Company to                                                            have taken place. The                                                            prices do not include                                                            retail markups or markdowns                                                            or                                                            any commissions to brokerdealers. The                                                            following table sets                                                            forth the Company’s common stock prices                                                            for each                                                            quarter of 2006 and 2005                                                            to the extent available,                                                            as reported by                                                            NASDAQ.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |     |  Dividend                                                            Reinvestment and Voluntary                                                            Cash Contribution Plan The                                                            Dividend Reinvestment                                                            and Voluntary Cash Contribution                                                            Plan (the “Plan”)                                                            provides shareholders                                                            with a convenient way                                                            to purchase additional                                                            shares                                                            of the Company’s common stock by having                                                            cash dividends automatically                                                              reinvested and by making                                                              cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |               |  **2006**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |  2005 |   |   | contributions                                                            to the Plan. A description                                                            of    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | Quarter                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | **High**           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | **Low** |   |   | High |   |   | Low |   |   | the Plan                                                                may be obtained by                                                                contacting: |
| Transfer                                                              Agent                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | First                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |               | **$**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | **9.50** |   |   | **$** | **8.56** |   |   | $ | 9.50 |   |   | $ | 8.40 |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | Second                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | **9.15** |   |   |   | **8.51** |   |   |   | 9.30 |   |   |   | 8.55 |   |   | Theresa                                                                M. Wasko  |
| Registrar                                                            & Transfer Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | Third                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | **9.00** |   |   |   | **8.09** |   |   |   | 9.25 |   |   |   | 8.50 |   |   | Treasurer                                                            and Chief Financial Officer |
| 10                                                            Commerce Drive                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | Fourth                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | **8.85** |   |   |   | **7.66** |   |   |   | 9.49 |   |   |   | 8.39 |   |   | East                                                              Penn Financial Corporation |
| Cranford,                                                            New Jersey 07016-3572Investor                                                            RelationsTelephone:                                                            800-368-5948Website:                                                            www.rtco.com Form                                                            10-K Request The                                                            Form 10-K Report filed                                                            with theSecurities                                                            and Exchange Commissionmay                                                            be obtained, without                                                            charge,by                                                            writing to:Theresa                                                            M. WaskoTreasurer                                                            and Chief Financial OfficerEast                                                            Penn Financial Corporation22                                                            South 2nd StreetP.O.                                                            Box 869Emmaus,                                                            Pennsylvania 18049Email:                                                            twasko@eastpennbank.com Stock                                                            Information Common                                                            stock is the only class                                                            of stock presently issued                                                            and outstanding. East                                                            Penn Financial Corporation’s common stock is traded                                                            on the NASDAQ Capital                                                            Market under the symbol“EPEN.” |   |   Trades                                                            occurring during 2007                                                            up to March 12, 2007                                                            ranged from a high of                                                            $8.48 per                                                            share to a low of $6.51                                                            per share, with the last                                                            trade as of March 12,                                                            2007 at $7.62 per share.  Dividend                                                            Information During                                                            2006, the Company paid                                                            a semi­annual cash dividend,                                                            the first of which                                                            was in the amount of                                                            $0.11 per share, payable                                                            February 28, 2006 to                                                            all                                                            shareholders of record                                                            as of February 3, 2006.                                                            The second cash dividend                                                            paid in 2006 was in the                                                            amount of $0.11 per share,                                                            payable August 31, 2006                                                            to all shareholders of                                                            record as of August 11,                                                            2006. During 2005, the                                                            Company paid a semi­annual cash dividend,                                                            the first of which was                                                            for                                                            $0.09 per share payable                                                            February 28, 2005 to                                                            all shareholders of record                                                            as                                                            of February 4, 2005.                                                            The second half of the                                                            semi­annual dividend was                                                            $0.10 per share payable                                                            August 31, 2005 with                                                            a record date of August                                                            10,                                                            2005. |               | 22                                                          South 2nd StreetP.O.                                                            Box 869Emmaus,                                                            Pennsylvania 18049Email:                                                            twasko@eastpennbank.com Common                                                              Stock The                                                              Company has forty million                                                              shares of $0.625 par                                                              value common stock                                                              authorized. At March                                                              12, 2007, 6,305,262                                                              shares of the Company’s common                                                              stock were outstanding                                                              to approximately 2,600                                                              shareholders. Preferred                                                              Stock The                                                              Company has sixteen                                                              million shares of preferred                                                              stock authorized, with                                                              no                                                              par value, none of                                                              which have been                                                              issued. |

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| Locations | Bank                          Staff |   |   |
|-----------|-------------------------------------|--------|--------|

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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              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|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------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| Administration                      Building22                      S. Second StreetEmmaus,                      PA 18049610-965-5959administration@eastpennbank.com Emmaus731                      Chestnut StreetP.O.                      Box 869Emmaus,                      PA 18049610-965-5959emmaus@eastpennbank.com Trexlertown6890                      Hamilton BoulevardTrexlertown,                      PA 18087610-530-9221trexlertown@eastpennbank.com Macungie201                      W. Main StreetMacungie,                      PA 18062610-965-0611macungie@eastpennbank.com Cedar                      Crest1251                      S. Cedar Crest BoulevardAllentown,                      PA 18103610-433-6300cedarcrest@eastpennbank.com Fogelsville861                      N. Route 100Fogelsville,                      PA18051                      610-336-4445fogelsville@eastpennbank.com Mertztown951                      State StreetMertztown,                      PA 19539610-641-0041mertztown@eastpennbank.com Emmaus                      High School500                      Macungie AvenueEmmaus,                      PA 18049484-232-6550emmaushs@eastpennbank.com Bethlehem/Route                      5124510                      Bath PikeBethlehem,                      PA 18017610-641-1400route512@eastpennbank.com State                      Avenue502                      State AvenueEmmaus,                      PA 18049610-965-5959stateave@eastpennbank.com | Adams,                      Evan P.Aldrich,                      Guy B.Amaya,                      Joan K.Anderson,                      Edward T.Barto,                      William A.Bastian,                      Carol A.Bauer,                      Connie M.Bauer,                      Karen E. Bedek,                      Patricia A. Beitler,                      Yasmine Bell,                      Susan J. Benic,                      David M. Betz,                      Anthony J. Blank,                      Jennifer L. Blasser,                      Denise E. Bobowski,                      Chelsea F.Boyer,                      Larry J. Brokate,                      David H. Bucks,                      Denise G. Burke,                      Michael A. Carnrike,                      Rebecca S. Cave,                      ScottCeliberti,                      Tonia K. Cetrulo,                      Natalie J. Christian,                      Lesa R. Christman,                      Marie E. Cole,                      Michael C.Cooper,                      Nancy J. Dekhtawala,                      Rahul P. Dewalt,                      Brittany A. Dietrich,                      Robin A. Dilcher,                      Carol A. Dunlap,                      MaryEckrode,                      Catherine Egge,                      Pamela B. Eisenhard,                      Renee M. Eyer,                      Michele M. Fegely,                      Susan M. Fetterman,                      Benjamin W. Fidelibus,                      Alfred J. Fillman,                      Gary E. Fillman,                      Vera E. Fromm,                      Janet A. Gilly,                      Lorraine G. Gloss,                      Cynthia L. Gracely,                      Janice A. | Gramberg,                      David A. Granger,                      Holly L.Grenz,                      Madeline Grube,                      Audrey J. Guisewhite,                      Dorothy A. Haley,                      Elizabeth T. Hamerschock,                      Jennifer M. Hamm,                      Brian D.Hartman,                      Catherine M. Hartranft,                      Robert E. Hastoy­Bluske,                      Andree L. Herman,                      Debbra E. Hess,                      Katie J. Hinnerschietz,                      Delores E. Hittinger,                      Krista A. Holben,                      Barbara R. Horn,                      Mary E.Keil,                      Bruce R. Keller,                      Ronald K. Kern,                      Robert B. Kohler,                      Donald M. Kohler,                      Pamela M. Konek,                      Karen J. Leapoal,                      Jeffrey A. Leapoal,                      Kyle A. Levendusky,                      Steven M. Lipics,                      Carole I. Love,                      Bethany R. Lucik,                      Debra L. Marks,                      Kimberly A. McHale,                      Sally A.Mease,                      Jordan T. Michael,                      Sharon M. Miller,                      Judith K. Miller,                      Samantha J. Miller,                      Sarah A. Moll,                      Tanya M.Morley,                      Cynthia L. Morrison,                      Kara D. Morrow,                      Jason S.Musselman,                      Anna Ortiz,                      Noelia Oswald,                      Joanne L.Pascoe,                      Stephen J. Paul,                      Patricia V. Pavkovic,                      Kenneth J. | Paxton-Hill,                      Rhonda L. Peiffer,                      Lynne M. Peters,                      Brent L. Peters,                      Debra K. Pfleiger,                      Amy E.Pfleiger,                      Kelly J. Price,                      Deborah A. Reinert,                      Karin L. Reiss,                      Wendy J. Reitnauer,                      Diana G. Renninger,                      Edwin F. Riccaboni,                      Bonita L. Rodenbach,                      Leon A. Rupp,                      Frederick D. Sabol,                      Brian M.Schapitl,                      Doloris E. Schoedler,                      Gayle L. Scott,                      Kyle C.Shah,                      Nita C. Shah,                      Ravi C. Shollenberger,                      Lisa A. Simmers,                      David W. Skibicki,                      Susan A.Skinner,                      Darlene J. Smith,                      Amanda J.Smith,                      Kimberly T.Soltysiak,                      Donna L. Strauss,                      Johnna L. Stumpp,                      Patricia A. Sunder,                      Nina M. Tantaros,                      Daniel K. Tostevin,                      Robert L. Trexler,                      Jodi L.Vanim,                      Jamie S.Wanamaker,                      Eileen L. Washburn,                      Kim N.Wasko,                      Theresa M. Weaver,                      Alecia R. Webb,                      Olin S.Weiss,                      Linda D. Wharton,                      Claire R.Williams,                      Cariann M. Williams,                      Joan A.Wilson,                      Bonnie K. Woodbridge,                      Timothy P.Zwally,                      Ruth Ann |

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