UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C.  20549
 
 FORM
10-Q/A
 Amendment
No. 1
 
 (Mark
One)
 x
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For the
quarterly period
ended             
June 30,
2008
 
 o
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 For the
transition period from
____________________  to  ______________________
 
 Commission
File Number:   000-52839
 
 NORTH PENN BANCORP,
INC.
 (Exact
name of registrant as specified in its charter)
 
 Pennsylvania
                  
                  26-0261305(State
      or other jurisdiction of
                    Incorporation
      or organization)
                  
                  (IRS
      Employer
                    Identification
      No.)
 
 216 Adams Avenue, Scranton,
PA  18503
 (Address
of principal executive offices)
 
 (570)
344-6113
 (Registrant’s
telephone number)
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes  x  No   ̈
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule12b-2 of the Exchange Act.
 (Check
one):
 Large accelerated filer  ̈
                    
                    Accelerated filer  ̈Non-accelerated filer    ̈
                    
                    Smaller reporting company x
 (Do not
check if smaller reporting company)
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes   ̈  No  x
 
 Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practical date: As of August 12, 2008, the issuer had
1,581,571 shares of common stock, par value $0.10 per share,
outstanding.
  
  EXPLANATORY
NOTE
  In the
course of preparing the financial statements for the year ended December 31,
2008, the Company determined that detail listings of residential loans sold and
commercial participations sold did not reconcile to corresponding general ledger
accounts at December 31, 2008. Upon performing further procedures, the Company
found that the cause of the misstatements were intentionally incorrect
accounting entries and reconciliations posted by a former officer of the Company
beginning in early 2008. The Company believes that the incorrect entries were
made to disguise the fact that North Penn Bank's primary correspondent bank
account had not been properly reconciled.  The Company determined that
correction of these errors requires the restatement of the consolidated
statement of income for the six months ended June 30, 2008 and the consolidated
balance sheet as of' June 30, 2008.
  This
Quarterly Report on Form 10-Q/A corrects and restates the Company's consolidated
statement of income for the six months ended June 30, 2008 and the consolidated
balance sheet as of June 30, 2008 to reflect a charge to income to correct the
incorrect accounting entries.
 
 Other
than the restatement, this Form 10-Q/A does not reflect events occurring after
the date of the original Form 10-Q for the quarter ended June 30, 2008 or modify
or update disclosures affected by subsequent events.
  
 
 PagePART
      I - FINANCIAL INFORMATIONItem
      1.
                        Financial
      StatementsConsolidated
      Balance Sheets at June 30, 2008 and December 31, 2007
                        
                        
                        3Consolidated
      Statements of Income for the Three and Six Months Ended June
      30, 2008 and 2007
                        
                        
                        4Consolidated
      Statements of Cash Flows for the Six Months Ended June 30, 2008 and
      2007
                        
                        
                        5Notes
      to Unaudited Consolidated Financial Statements
                        
                        
                        6Item
      2.
                        Management’s
      Discussion and Analysis of Financial Condition and Results
      of  Operations.
                        
                        
                        15Item
      3.
                        Quantitative
      and Qualitative Disclosures About Market Risk
                        
                        
                        18Item
      4.
                        Controls
      and Procedures.
                        
                        
                        19PART
      II
                        OTHER
      INFORMATIONItem
      6.
                        Exhibits.
                        
                        
                        20
  2
  PART I –
FINANCIAL INFORMATION
 
 Item
1.  Financial Statements
 
 North
Penn Bancorp, Inc. and Subsidiary
 Consolidated
Balance Sheets
 June 30,
                      2008
                    
                    
                    December 31,
                      2007(Unaudited)
                    
                    
                    (Audited)(In thousands)RestatedASSETS:Cash
      and due from banks
                    
                    $
                    2,447
                    
                    
                    $
                    3,071Interest
      bearing deposits
                    
                    
                    52
                    
                    
                    
                    107Total
      cash and cash equivalents
                    
                    
                    2,499
                    
                    
                    
                    3,178Federal
      funds sold
                    
                    
                    13,745
                    
                    
                    
                    -Investment
      securities, available for sale
                    
                    
                    16,330
                    
                    
                    
                    13,366Equity
      securities at cost, substantially restricted
                    
                    
                    794
                    
                    
                    
                    1,060Loans,
      net of allowance for loan losses of $1,184 in 2008 and $1,171 in
      2007
                    
                    
                    98,056
                    
                    
                    
                    97,247Bank
      premises and equipment – net
                    
                    
                    4,162
                    
                    
                    
                    4,159Accrued
      interest receivable
                    
                    
                    606
                    
                    
                    
                    695Cash
      surrender value of life insurance
                    
                    
                    2,177
                    
                    
                    
                    2,137Deferred
      income taxes
                    
                    
                    714
                    
                    
                    
                    466Other
      real estate owned
                    
                    
                    -
                    
                    
                    
                    100Other
      assets
                    
                    
                    160
                    
                    
                    
                    124TOTAL
      ASSETS
                    
                    $
                    139,243
                    
                    
                    $
                    122,532LIABILITIES:Deposits:Non-interest
      bearing deposits
                    
                    $
                    7,496
                    
                    
                    $
                    7,424Interest
      bearing demand deposits
                    
                    
                    55,587
                    
                    
                    
                    32,922Interest
      bearing time deposits
                    
                    
                    43,206
                    
                    
                    
                    43,337Total
      deposits
                    
                    
                    106,289
                    
                    
                    
                    83,683Other
      borrowed funds
                    
                    
                    12,000
                    
                    
                    
                    17,879Accrued
      interest and other liabilities
                    
                    
                    993
                    
                    
                    
                    786TOTAL
      LIABILITIES
                    
                    
                    119,282
                    
                    
                    
                    102,348STOCKHOLDERS’
      EQUITYPreferred
      stock, no par; 20,000,000 authorized; issued and outstanding,
      none
                    
                    
                    -
                    
                    
                    
                    -Common
      stock, par value $0.10; 80,000,000 authorized; issued and outstanding,
      1,581,571
                    
                    
                    158
                    
                    
                    
                    158Additional
      paid-in capital
                    
                    
                    13,454
                    
                    
                    
                    13,433Retained
      earnings
                    
                    
                    7,596
                    
                    
                    
                    7,742Unearned
      ESOP shares
                    
                    
                    (1,059
                    )
                    
                    
                    (1,059
                    )Accumulated
      other comprehensive income
                    
                    
                    (188
                    )
                    
                    
                    (90
                    )TOTAL
      STOCKHOLDERS’ EQUITY
                    
                    
                    19,961
                    
                    
                    
                    20,184TOTAL
      LIABILITIES AND STOCKHOLDER’S EQUITY
                    
                    $
                    139,243
                    
                    
                    $
                    122,532
 See notes
to unaudited consolidated financial statements.
  3
  North
Penn Bancorp, Inc. and Subsidiary
 Unaudited
Consolidated Statements of Income
 For the
Three and Six Months Ended June 30, 2008 and 2007
 (In
thousands)
 
 Six
      Months Ended
                          
                          
                          Three
      Months EndedJune
      30,
                          
                          
                          June
      30,
                          
                          
                          June
      30,
                          
                          
                          June
      30,2008
                          
                          
                          2007
                          
                          
                          2008
                          
                          
                          2007RestatedINTEREST
      INCOMEInterest
      on loans
                          
                          $
                          3,399
                          
                          
                          $
                          3,399
                          
                          
                          $
                          1,685
                          
                          
                          $
                          1,709Interest
      on fed funds sold
                          
                          
                          61
                          
                          
                          
                          -
                          
                          
                          
                          29
                          
                          
                          
                          -Interest
      on tax exempt investments
                          
                          
                          143
                          
                          
                          
                          143
                          
                          
                          
                          71
                          
                          
                          
                          71Interest
      on investments
                          
                          
                          154
                          
                          
                          
                          130
                          
                          
                          
                          88
                          
                          
                          
                          66Dividends
      on investments
                          
                          
                          41
                          
                          
                          
                          60
                          
                          
                          
                          16
                          
                          
                          
                          27Total
      interest income
                          
                          
                          3,798
                          
                          
                          
                          3,732
                          
                          
                          
                          1,889
                          
                          
                          
                          1,873INTEREST
      EXPENSEInterest
      on deposits
                          
                          
                          1,427
                          
                          
                          
                          1,420
                          
                          
                          
                          683
                          
                          
                          
                          685Interest
      on short-term borrowings
                          
                          
                          15
                          
                          
                          
                          236
                          
                          
                          
                          -
                          
                          
                          
                          132Interest
      on long-term borrowings
                          
                          
                          310
                          
                          
                          
                          308
                          
                          
                          
                          155
                          
                          
                          
                          155Total
      interest expense
                          
                          
                          1,752
                          
                          
                          
                          1,964
                          
                          
                          
                          838
                          
                          
                          
                          972NET
      INTEREST INCOME
                          
                          
                          2,046
                          
                          
                          
                          1,768
                          
                          
                          
                          1,051
                          
                          
                          
                          901PROVISION
      FOR LOAN LOSSES
                          
                          
                          31
                          
                          
                          
                          60
                          
                          
                          
                          -
                          
                          
                          
                          30NET
      INTEREST INCOME  AFTER PROVISION FOR LOAN LOSSES
                          
                          
                          2,015
                          
                          
                          
                          1,708
                          
                          
                          
                          1,051
                          
                          
                          
                          871OTHER
      INCOMEService
      charges on deposit accounts
                          
                          
                          66
                          
                          
                          
                          72
                          
                          
                          
                          12
                          
                          
                          
                          40Other
      operating income
                          
                          
                          97
                          
                          
                          
                          106
                          
                          
                          
                          73
                          
                          
                          
                          46Gain
      on sale of loans
                          
                          
                          -
                          
                          
                          
                          79
                          
                          
                          
                          -
                          
                          
                          
                          79Gain
      on sale of securities
                          
                          
                          1
                          
                          
                          
                          34
                          
                          
                          
                          3
                          
                          
                          
                          17TOTAL
      OTHER INCOME
                          
                          
                          164
                          
                          
                          
                          291
                          
                          
                          
                          88
                          
                          
                          
                          182OTHER
      EXPENSESalaries
      and employee benefits
                          
                          
                          1,038
                          
                          
                          
                          944
                          
                          
                          
                          524
                          
                          
                          
                          481Occupancy
      and equipment expense
                          
                          
                          341
                          
                          
                          
                          304
                          
                          
                          
                          175
                          
                          
                          
                          155Other
      operating expenses
                          
                          
                          456
                          
                          
                          
                          439
                          
                          
                          
                          260
                          
                          
                          
                          237Loss
      from accounting errors
                          
                          
                          475
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -TOTAL
      OTHER EXPENSE
                          
                          
                          2,310
                          
                          
                          
                          1,687
                          
                          
                          
                          959
                          
                          
                          
                          873(LOSS)/INCOME
      BEFORE INCOME TAXES
                          
                          
                          (131
                          )
                          
                          
                          312
                          
                          
                          
                          180
                          
                          
                          
                          180INCOME
      TAX (BENEFIT)/EXPENSE
                          
                          
                          (80
                          )
                          
                          
                          97
                          
                          
                          
                          64
                          
                          
                          
                          60NET
      (LOSS)/INCOME
                          
                          
                          (51
                          )
                          
                          
                          215
                          
                          
                          
                          116
                          
                          
                          
                          120OTHER
      COMPREHENSIVE INCOME (LOSS):Unrealized
      holding loss arising during period, net of income tax
                          
                          
                          (98
                          )
                          
                          
                          (154
                          )
                          
                          
                          (120
                          )
                          
                          
                          (107
                          )COMPREHENSIVE
      INCOME (LOSS)
                          
                          $
                          (149
                          )
                          
                          $
                          61
                          
                          
                          $
                          (4
                          )
                          
                          $
                          13Weighted
      average number of shares outstanding
                          
                          
                          1,536,761
                          
                          
                          
                          1,449,030
                          
                          
                          
                          1,536,761
                          
                          
                          
                          1,449,030Earnings
      per share, basic and diluted
                          
                          $
                          (0.03
                          )
                          
                          $
                          0.15
                          
                          
                          $
                          0.08
                          
                          
                          $
                          0.08Dividends
      per share
                          
                          $
                          0.06
                          
                          
                          $
                          0.06
                          
                          
                          $
                          0.03
                          
                          
                          $
                          0.03
 See notes
to unaudited consolidated financial statements.
  4
  North
Penn Bancorp, Inc. and Subsidiary
 Unaudited
Consolidated Statements of Cash Flows
 For the
Six Months Ended June 30, 2008 and 2007
 (In
thousands)
 2008
                        
                        
                        2007RestatedOperating
      Activities:Net
      (loss)/income
                        
                        $
                        (51
                        )
                        
                        $
                        215Items
      not requiring (providing) cashDepreciation
                        
                        
                        124
                        
                        
                        
                        135Provision
      for loan losses
                        
                        
                        31
                        
                        
                        
                        60Amortization
      of securities (net of accretion)
                        
                        
                        10
                        
                        
                        
                        7Increase
      in cash surrender value of life insurance
                        
                        
                        (40
                        )
                        
                        
                        (5
                        )Net
      realized gain on securities
                        
                        
                        (1
                        )
                        
                        
                        (34
                        )Net
      realized gain on sale of bank premises and equipment
                        
                        
                        (3
                        )
                        
                        
                        -Net
      realized gain on other real estate owned
                        
                        
                        -
                        
                        
                        
                        (6
                        )Net
      realized gain on sale of loans
                        
                        
                        -
                        
                        
                        
                        (79
                        )Changes
      in:Accrued
      interest income and other assets
                        
                        
                        (145
                        )
                        
                        
                        (224
                        )Accrued
      interest expense and other liabilities
                        
                        
                        180
                        
                        
                        
                        112Net
      Cash Provided by Operating Activities
                        
                        
                        105
                        
                        
                        
                        181Investing
      Activities:Purchase
      bank premises and equipment
                        
                        
                        (131
                        )
                        
                        
                        (42
                        )Proceeds
      from sale of bank premises and equipment
                        
                        
                        7
                        
                        
                        
                        -Proceeds
      from sale of other real estate owned
                        
                        
                        100
                        
                        
                        
                        427Purchase
      of securities “available for sale”
                        
                        
                        (4,652
                        )
                        
                        
                        (198
                        )Sale
      of securities “available for sale”
                        
                        
                        28
                        
                        
                        
                        189Federal
      funds sold, net
                        
                        
                        (13,745
                        )
                        
                        
                        -Matured
      or called securities “available for sale”
                        
                        
                        885
                        
                        
                        
                        -Redemptions
      of mortgage-backed securities “available for sale”
                        
                        
                        618
                        
                        
                        
                        460Net
      sale (purchase) of restricted stock
                        
                        
                        266
                        
                        
                        
                        (3
                        )Net
      increase in loans to customers
                        
                        
                        (840
                        )
                        
                        
                        (3,309
                        )Proceeds
      from sale of loans
                        
                        
                        -
                        
                        
                        
                        4,440Net
      Cash (Used in) Provided by Investing Activities
                        
                        
                        (17,464
                        )
                        
                        
                        1,964Financing
      Activities:Increase
      (decrease) in deposits
                        
                        
                        22,606
                        
                        
                        
                        (1,963
                        )Decrease
      in borrowed funds
                        
                        
                        (5,879
                        )
                        
                        
                        (1,081
                        )Cash
      dividends paid
                        
                        
                        (47
                        )
                        
                        
                        (87
                        )Net
      Cash Provided by (Used In) Financing Activities
                        
                        
                        16,680
                        
                        
                        
                        (3,131
                        )Net
      Decrease in Cash and Cash Equivalents
                        
                        
                        (679
                        )
                        
                        
                        (986
                        )Cash
      and Cash Equivalents, January 1
                        
                        $
                        3,178
                        
                        
                        $
                        4,116Cash
      and Cash Equivalents, June 30
                        
                        $
                        2,499
                        
                        
                        $
                        3,130Supplementary
      Schedule of Cash Flow Information:Cash
      paid during the period for:Interest
                        
                        $
                        1,663
                        
                        
                        $
                        1,995Income
      taxes
                        
                        
                        91
                        
                        
                        
                        62Non-cash
      investing and financing activities:None
 
 See notes
to unaudited consolidated financial statements.
  5
 
 Notes to
Unaudited Consolidated Financial Statements
 
 1.
              Nature
      Of Operations And Summary Of Significant Accounting
    Policies
  Nature of
Operations
 
 North
Penn Bancorp, Inc. (Company) is the holding company for North Penn Bank
(Bank).  The Company’s common stock is quoted on the OTC Bulletin
Board under the symbol “NPBP.OB”.  The Bank operates from five offices
under a state savings bank charter and provides financial services to
individuals and corporate customers primarily in Northeastern
Pennsylvania.  The Bank’s primary deposit products are savings and
demand deposit accounts and certificates of deposit.  Its primary
lending products are real estate, commercial and consumer loans.
 
 Principles
Of Consolidation
 
 The
accompanying consolidated financial statements include the accounts of North
Penn Bancorp, Inc., its wholly-owned subsidiary, North Penn Bank and North Penn
Bank’s wholly-owned subsidiaries, Norpenco, Inc. and North Penn Settlement
Services, LLC. These entities are collectively referred to herein as the
Company.  All significant intercompany accounts and transactions have
been eliminated in consolidation. Norpenco, Inc.’s sole activities are
purchasing bank stocks and receiving dividends on such stocks. North Penn
Settlement Services, LLC, receives non interest income from providing title
search work.
 
 The
accounting policies of the Company conform with accounting principles generally
accepted in the United States of America and with general practices within the
banking industry.
 
 Basis of
Presentation
 
 The
unaudited consolidated financial statements have been prepared in accordance
with generally accepted accounting principals for interim financial
information.  In the opinion of management, all adjustments that are
of a normal recurring nature and are considered necessary for a fair
presentation have been included.  They are not, however, necessarily
indicative of the results of consolidated operations for a full
year.
 
 Use Of
Estimates
 
 The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period.  Actual results could differ from those
estimates.
  6
 
 Material
estimates that are particularly susceptible to significant change relate to the
determination of the allowance for loan losses on loans and the valuation of
real estate acquired in connection with foreclosures or in the satisfaction of
loans.  In connection with the determination of the allowances for
losses on loans and foreclosed real estate, management periodically obtains
independent appraisals for significant properties.
  Mortgage
Partnership Finance Program
  The Bank
participates in the Mortgage Partnership Finance (MPF) Program of the Federal
Home Loan Bank of Pittsburgh (FHLB).  The program is intended to
provide member institutions with an alternative to holding fixed-rate mortgages
in their loan portfolios or selling them in the secondary market.  An
institution participates in the MPF Program by either originating individual
loans on a “flow” basis as an agent for the FHLB pursuant to the “MPF 100
Program” or by selling, as a principal, closed loans owned by an institution to
the FHLB pursuant to one of the FHLB’s closed-loan programs.  Under
the MPF Program(s), credit risk is shared by the participating institution and
the FHLB by structuring the loss exposure in several layers, with the
participating institution being liable for losses after application of an
initial layer of losses (after any private mortgage insurance) is absorbed by
the FHLB, subject to an agreed-upon maximum amount of such secondary credit
enhancement which is intended to be in an amount equivalent to a “AA” credit
risk rating by a rating agency.  The participating institution may
also be liable for certain first layer losses after a specified period of
time.  The participating institution receives credit enhancement fees
from the FHLB for providing this credit enhancement and continuing to manage the
credit risk of the MPF Program loans.  Participating institutions are
also paid specified servicing fees for servicing the loans.
  Transfers
involving sales with the Bank acting as principal are accounted for in
accordance with SFAS No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities (SFAS 140), with the
recognition of gains and losses on the sale and related mortgage servicing
rights.
  The
credit enhancement feature of the MPF Program is accounted for by the Bank as a
financial guarantee in accordance with FASB Interpretation No. 45, Guarantor’s
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (FIN 45) and reported on the balance sheet
at its initial fair value.  Subsequent changes in the recorded
guarantee amount would result from termination of any portion or all of the
guarantee, additional guarantees being issued or increases in the expected
losses resulting from the guarantee.  Such changes in recorded amounts
are recognized in the consolidated statements of income or as an increase in the
offsetting guarantee fees receivable account in the case of additional
guarantees being issued.
 
 2.           Investment
Securities
 
 The
Bank’s investments in securities are classified in two categories and accounted
for as follows:
 
 Securities
Held-to-Maturity.  Bonds, notes and debentures for which the
Bank has the positive intent and ability to hold to maturity are reported at
cost, adjusted for amortization of premiums and accretion of
discounts.
  7
  Securities
Available-for-Sale.  Securities available-for-sale consist of
bonds, notes, debentures and equity securities not classified to be
held-to-maturity and are carried at fair value with unrealized holding gains and
losses, net of tax, reported as a separate component of other comprehensive
income until realized.
 
 Purchase
premiums and discounts are recognized in interest income on the straight-line
basis over the terms of the securities, which approximates the interest
method.  Declines in the fair value of held-to-maturity and
available-for-sale securities below their cost that are deemed to be other than
temporary are reflected in earnings as realized losses.  Gains and
losses on the sale of securities are recorded on the trade date and are
determined using the specific identification method and are reported as other
income in the statement of income.
 
 The
amortized cost and fair value of investment securities at June 30, 2008 and
December 31, 2007 are as follows:
 
 Available-for-Sale
 June 30,
2008
 (In
thousands)
 
 Amortized
                      Cost
                    
                    
                    Gross
                      Unrealized
                      Gains
                    
                    
                    Gross
                      Unrealized
                      Losses
                    
                    
                    Fair
                      ValueU.S.
      Agency securities
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -Mortgage-backed
      securities
                    
                    
                    4,892
                    
                    
                    
                    1
                    
                    
                    
                    30
                    
                    
                    
                    4,863Municipal
      securities
                    
                    
                    7,526
                    
                    
                    
                    7
                    
                    
                    
                    38
                    
                    
                    
                    7,495Other
      securities
                    
                    
                    3,017
                    
                    
                    
                    31
                    
                    
                    
                    56
                    
                    
                    
                    2,992Total
      debt securities
                    
                    
                    15,435
                    
                    
                    
                    39
                    
                    
                    
                    124
                    
                    
                    
                    15,350Equity
      securities
                    
                    
                    1,181
                    
                    
                    
                    12
                    
                    
                    
                    213
                    
                    
                    
                    980Total
      Available for Sale
                    
                    $
                    16,616
                    
                    
                    $
                    51
                    
                    
                    $
                    337
                    
                    
                    $
                    16,330
 
 Available-for-Sale
 December
31, 2007
 (In
thousands)
 
 Amortized
                    Cost
                  
                  
                  Gross
                    Unrealized
                    Gains
                  
                  
                  Gross
                    Unrealized
                    Losses
                  
                  
                  Fair
                    ValueU.S.
      Agency securities
                  
                  $
                  385
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  385Mortgage-backed
      securities
                  
                  
                  4,521
                  
                  
                  
                  -
                  
                  
                  
                  41
                  
                  
                  
                  4,480Municipal
      securities
                  
                  
                  7,026
                  
                  
                  
                  37
                  
                  
                  
                  2
                  
                  
                  
                  7,061Other
      securities
                  
                  
                  500
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  500Total
      debt securities
                  
                  
                  12,432
                  
                  
                  
                  37
                  
                  
                  
                  43
                  
                  
                  
                  12,426Equity
      securities
                  
                  
                  1,071
                  
                  
                  
                  22
                  
                  
                  
                  153
                  
                  
                  
                  940Total
      Available for Sale
                  
                  $
                  13,503
                  
                  
                  $
                  59
                  
                  
                  $
                  196
                  
                  
                  $
                  13,366
 
 The
Company’s investment securities were all classified as available for sale at
June 30, 2008 and December 31, 2007.
 
 The gross
fair value and unrealized losses of the Bank’s investments, aggregated by
investment category and length of time that individual securities have been in a
continuous unrealized loss position at June 30, 2008 is as
follows:
  8
 
 Less than 12 months
                          
                          
                          12 months or longer
                          
                          
                          TotalFair
                            Value
                          
                          
                          Unrealized
                            Losses
                          
                          
                          Fair
                            Value
                          
                          
                          Unrealized
                            Losses
                          
                          
                          Fair
                            Value
                          
                          
                          Unrealized
                            LossesU.S.
      Agencies
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -Mortgage-backed
                          
                          
                          4,050
                          
                          
                          
                          30
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          4,050
                          
                          
                          
                          30Municipal
                          
                          
                          5,436
                          
                          
                          
                          38
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          5,436
                          
                          
                          
                          38Other
      securities
                          
                          
                          2,012
                          
                          
                          
                          56
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          2,012
                          
                          
                          
                          56Equity
      securities
                          
                          
                          298
                          
                          
                          
                          51
                          
                          
                          
                          532
                          
                          
                          
                          162
                          
                          
                          
                          830
                          
                          
                          
                          213$
                          11,796
                          
                          
                          $
                          175
                          
                          
                          $
                          532
                          
                          
                          $
                          162
                          
                          
                          $
                          12,328
                          
                          
                          $
                          337
 
 The above
table at June 30, 2008 includes 17 securities that have unrealized losses for
less than 12 months and 25 securities that have been in an unrealized loss
position for 12 or more months.
 
 The Bank
invests in debt securities of the U.S. government, U.S. agencies, U.S. sponsored
agencies, obligations of states and political subdivisions and corporate
obligations.  Changes in market value of all debt securities can
result from changes in interest rates.  Changes in credit quality can
affect securities of states and political subdivisions and corporate
obligations.  The changes in market value of the debt securities held
by the Bank have been due to changes in interest rates, and because the Bank has
the ability to hold these investments until maturity, the Bank does not consider
these investments to be other-than-temporarily impaired at June 30,
2008.
 
 The Bank
invests in equity securities of other banks through its subsidiary, Norpenco,
Inc.  Management has evaluated the near-term prospects of the issuers
with unrealized losses, in relation to the severity and duration of the
impairment.  Based on that evaluation, and the Bank’s ability to hold
these stocks for a reasonable period of time sufficient for a forecasted
recovery of fair value, management does not consider these investments to be
other-than-temporarily impaired at June 30, 2008.
 
 3.           Loans
 
 June 30,
                      2008
                    
                    
                    December 31,
                      2007(In
      thousands)RestatedReal
      estate mortgages:Construction
      and land development
                    
                    $
                    97
                    
                    
                    $
                    154Residential,
      1 – 4 family
                    
                    
                    45,393
                    
                    
                    
                    45,593Residential,
      multi-family
                    
                    
                    1,421
                    
                    
                    
                    1,446Commercial
                    
                    
                    45,129
                    
                    
                    
                    41,685Total
      real estate mortgages
                    
                    
                    92,040
                    
                    
                    
                    88,878Commercial
                    
                    
                    1,023
                    
                    
                    
                    2,157Consumer
                    
                    
                    6,177
                    
                    
                    
                    7,383Total
      loans
                    
                    
                    99,240
                    
                    
                    
                    98,418Allowance
      for loan loss
                    
                    
                    1,184
                    
                    
                    
                    1,171Total
      loans, net
                    
                    $
                    98,056
                    
                    
                    $
                    97,247
 
 Loans are
stated at the principal amount outstanding, net of any unearned income, deferred
loan fees and the allowance for loan losses. Interest on mortgage and commercial
loans is calculated at the time of payment based on the current outstanding
balance of the loan.  Interest on consumer loans is recognized on the
simple interest method.
  9
 
 The
allowance for loan losses is increased by charges to income and decreased by
charge-offs (net of recoveries).  Management’s periodic evaluation of
the adequacy of the allowance is based on the Bank’s past loan loss experience,
known and inherent losses in the portfolio, adverse situations that may affect
the borrower’s ability to pay, the estimated value of any underlying collateral
and current economic conditions.
 
 Uncollectible
interest on loans that are contractually past due 90 days or more is credited to
an allowance established through management’s periodic
evaluation.  The allowance is established by a charge to interest
income equal to all interest previously accrued, and income is subsequently
recognized only to the extent that cash payments are received until, in
management’s judgment, the borrower’s ability to make periodic interest and
principal payments is back to normal, in which case the loan is returned to
accrual status.
 
 Allowance
for Loan Losses
 
 The Bank
determines the provision for loan losses through a quarterly analysis of the
loan portfolio.  Factors such as changes in the nature and volume of
the portfolio, overall portfolio quality, concentrations of credit risk, review
of specific problem loans, current economic conditions and trends that affect
the ability of borrowers to pay, and prior loss experience within the various
loan categories are considered when reviewing the risks of the
portfolio.  Part of management’s review includes risk ratings of
commercial loans, and the engagement of an external loan review of all loans
over $400,000, insider loans and delinquent loans.
 
 The
following table sets forth the year-end balances of and changes in the allowance
for loan losses, as well as certain related ratios, as of June 30 and December
31 for the year indicated:
 
 June 30,
                      
                      
                      December
                        31,(Dollars in thousands)
                      
                      2008
                      
                      
                      2007Balance
      at beginning of period
                      
                      $
                      1,171
                      
                      
                      $
                      1,121Charge-offs:Commercial
                      
                      
                      -
                      
                      
                      
                      -Real
      estate mortgages
                      
                      
                      3
                      
                      
                      
                      -Consumer
                      
                      
                      25
                      
                      
                      
                      45Total
                      
                      
                      28
                      
                      
                      
                      45Recoveries:Commercial
                      
                      
                      -
                      
                      
                      
                      -Real
      estate mortgages
                      
                      
                      -
                      
                      
                      
                      -Consumer
                      
                      
                      10
                      
                      
                      
                      9Total
                      
                      
                      10
                      
                      
                      
                      9Net
      charge-offs
                      
                      
                      18
                      
                      
                      
                      36Provision
      charged to operations
                      
                      
                      31
                      
                      
                      
                      86Balance
      at end of period
                      
                      $
                      1,184
                      
                      
                      $
                      1,171
  10
  4.           Other
Borrowings
 
 The Bank
has a line of credit agreement with FHLBank of Pittsburgh for short term
borrowings varying from one day to three years.  Advances on this line
must be secured by “qualifying collateral” as defined in the agreement and bear
interest at fixed or variable rates as determined at the date advances are
made.  The line expires in June, 2011.  As of June 30, 2008,
this line of credit had a zero balance.
 
 The Bank
also has a $5,000,000 borrowing with FHLBank of Pittsburgh at a fixed rate of
6.19%, which was issued in July of 2000, and matures July of
2010.  The loan requires monthly interest payments, with the principal
due at maturity.
 
 The Bank
also has a $7,000,000 borrowing with FHLBank of Pittsburgh at a fixed rate of
4.34%, which was issued in July of 2005, and matures July of
2015.  The loan requires quarterly interest payments, with the
principal due at maturity.
 
 5.
              Earnings
      Per Share- As Restated
 
 Basic
earnings per share is computed on the weighted average number of common shares
outstanding during each year, adjusted for unearned shares of the ESOP, as
prescribed in Statement of Financial Accounting Standards No. 128, Earnings Per
Share (SFAS 128).   Diluted earnings per share includes common
shares issuable upon exercise of employee stock options as follows:
 
 Six Months Ended
                      June 30,
                    
                    
                    Three Months Ended
                      June 30,2008
                    
                    
                    2007
                    
                    
                    2008
                    
                    
                    2007Numerator
                    
                    $
                    (51,000
                    )
                    
                    $
                    215,000
                    
                    
                    $
                    116,000
                    
                    
                    $
                    120,000DenominatorBasic
      shares outstanding
                    
                    
                    1,536,761
                    
                    
                    
                    1,449,030
                    
                    
                    
                    1,536,761
                    
                    
                    
                    1,449,030Effective
      of dilutive shares
                    
                    
                    1,467
                    
                    
                    
                    1,225
                    
                    
                    
                    1,467
                    
                    
                    
                    1,225Diluted
      shares outstanding
                    
                    
                    1,538,228
                    
                    
                    
                    1,450,255
                    
                    
                    
                    1,538,228
                    
                    
                    
                    1,450,255Earnings
      per shareBasic
                    
                    $
                    (0.03
                    )
                    
                    $
                    0.15
                    
                    
                    $
                    0.08
                    
                    
                    $
                    0.08Diluted
                    
                    $
                    (0.03
                    )
                    
                    $
                    0.15
                    
                    
                    $
                    0.08
                    
                    
                    $
                    0.08
 
 6.           Omnibus
Stock Option Plan
  Stock
Awards. In May of 2006, the Company's stockholders approved the 2006 Omnibus
Stock Option Plan, under which the Company reserved 101,685 shares of common
stock for future issuance. The Plan provides for grants of stock options and
restricted stock awards. Only present and future employees and directors are
eligible to receive incentive awards under the 2006 Omnibus Plan.  The
Company believes that such awards better align the interests of its employees
with its stockholders.
  The
exercise price and vesting are determined by the Board of Directors at the date
of grant. Options generally vest over five years, and expire ten years after the
date of grant. Certain option and stock awards provide for accelerated vesting
if there is a change in control (as defined in the Plan).
 
 Stock
Grants.  Restricted stock grants totaling 5,323 shares were awarded on
September 26, 2006 having a fair value of $54,000.  The grants vest
over five years.  The market value as of the grant date of the
restricted stock grants is charged to expense as the grants
vest.
  11





Restricted
stock grants totaling 20,994 shares were awarded on May 28, 2008 having a fair
value of $173,000.  The grants vest over five years.  The
market value as of the grant date of the restricted stock grants is charged to
expense as the grants vest.





Stock
Options.  Stock options covering 29,484 shares of common stock were
awarded on September 26, 2006.  The option awards were granted with an
exercise price equal to the average price of the last trade date.  The
stock options vest and therefore become exercisable on a pro rata basis annually
over five years from the date awarded, commencing September 26, 2007. The
options are available to be exercised for a period of ten years after the date
awarded.




The fair
value of each option grant was estimated to be $3.86 on the date of grant using
the Black-Scholes option pricing model with the following assumptions used for
grants during the applicable period:




Dividend
      Yield (per share)
            
            $
            0.12Volatility
      (%)
            
            
            3.76
            %Risk-free
      Interest Rate (%)
            
            
            4.76
            %Expected
      Life
            
            10
      years




An
additional set of stock options covering 3,766 shares were awarded on October
23, 2007. The option awards were granted with an exercise price equal to the
average price of the last trade date.  The stock options vest and
therefore become exercisable on a pro rata basis annually over five years from
the date awarded, commencing October 27, 2008. The options are available to be
exercised for a period of ten years after the date awarded.





The fair
value of each option grant was estimated to be $3.64 on the date of grant using
the Black-Scholes option pricing model with the following assumptions used for
grants during the applicable period:




Dividend
      Yield (per share)
            
            $
            0.12Volatility
      (%)
            
            
            19.00
            %Risk-free
      Interest Rate (%)
            
            
            4.01
            %Expected
      Life
            
            10
      years





A third
set of stock options covering 34,997 shares were awarded on May 28, 2008. The
option awards were granted with an exercise price equal to the average price of
the last trade date.  The stock options vest and therefore become
exercisable on a pro rata basis annually over five years from the date awarded,
commencing May 28, 2009. The options are available to be exercised for a period
of ten years after the date awarded.





The fair
value of each option grant was estimated to be $3.18 on the date of grant using
the Black-Scholes option pricing model with the following assumptions used for
grants during the applicable period:





Dividend
      Yield (per share)
                  
                  $
                  0.12Volatility
      (%)
                  
                  
                  29.24
                  %Risk-free
      Interest Rate (%)
                  
                  
                  1.89
                  %Expected
      Life
                  
                  10
      years





During
the six months ended June 30, 2008, the Company recorded approximately $22,000
in expense included in “Salaries and employee benefits” on the accompanying
financial statements. As of June 30, 2008, there was approximately $393,000 of
total unrecognized compensation cost related to unvested options and grants.
That cost is expected to be recognized over a weighted-average period of 5
years. The Company plans on obtaining shares to be issued upon exercise of stock
options through authorized common stock.




12





Number
                      ofShares
                    
                    
                    Weighted -
                      Average
                      Exercise Price
                    
                    
                    Weighted –
                      Average
                      Remaining
                      Contractual TermOutstanding,
      January 1, 2008
                    
                    
                    33,250
                    
                    
                    $
                    10.19
                    
                    
                    
                    -Granted
                    
                    
                    34,997
                    
                    
                    $
                    8.25
                    
                    
                    
                    -Exercised
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Forfeited
      or expired
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Outstanding,
      June 30, 2008
                    
                    
                    68,247
                    
                    
                    $
                    9.19
                    
                    
                    
                    9.2Exercisable,
      June 30, 2008
                    
                    
                    5,896
                    
                    
                    $
                    10.21
                    
                    
                    
                    8.3




Stock Options
                    
                    
                    Restricted StockNonvested
      shares
                    
                    Number
                      of Shares
                    
                    
                    Weighted-
                      Average
                      Grant-Date
                      Fair Value
                    
                    
                    Number
                      of
                      Shares
                    
                    
                    Weighted-
                      Average
                      Grant-Date
                      Fair ValueNonvested,
      January 1, 2008
                    
                    
                    27,354
                    
                    
                    $
                    3.83
                    
                    
                    
                    4,258
                    
                    
                    $
                    10.21Granted
                    
                    
                    34,997
                    
                    
                    $
                    3.18
                    
                    
                    
                    20,994
                    
                    
                    $
                    8.25Vested
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Forfeited
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Nonvested,
      June 30, 2008
                    
                    
                    62,351
                    
                    
                    $
                    3.47
                    
                    
                    
                    25,252
                    
                    
                    $
                    8.58




7.
              Guarantees




FASB
Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45),
requires certain guarantees to be recorded at fair value as a liability at
inception and when a loss is probable and reasonably estimable, as those terms
are defined in FASB Statement No. 5, Accounting for Contingencies (FAS
5).  FIN 45 also requires a guarantor to make significant new
disclosures even when the likelihood of making any payments under the guarantee
is remote.




In
September 2006, the Bank executed a Mortgage Partnership Finance (MPF) Master
Commitment (the Commitment) with the FHLBank of Pittsburgh (FHLB) to deliver
$10.0 million of mortgage loans and to guarantee the payment of any realized
losses that exceed the FHLB’s first loss account for mortgages delivered under
the Commitment.  The Bank receives credit enhancement fees from the
FHLB for providing this guarantee and continuing to manage the credit risk of
the MPF Program mortgage loans.  The term of the Commitment and
guarantee per the Master Commitment is through September 25, 2008. The maximum
potential amount of future payments that the Bank is required to make under the
guarantee is $250,000. Under the Commitment, the Bank agrees to service the
loans and therefore, is responsible for any necessary foreclosure
proceedings.  Any future recoveries on any losses would not be paid by
the FHLB under the Commitment.  The Bank has not experienced any
losses under these guarantees.


13





8.           
 Related-Party Transactions





The
Company routinely enters into banking transactions with its directors and
officers.  Such transactions are made in the ordinary course of
business on substantially the same terms and conditions, including interest
rates and collateral, as those prevailing at the same time for comparable
transactions with other customers, and do not, in the opinion of management,
involve more than normal credit risk or present other unfavorable
features.  A summary of loans to directors and officers and related
parties is as follows for the quarter ended June 30, 2008 and the year ended
December 31, 2007 (dollars in thousands):





2008
                    
                    
                    2007Beginning
      balance
                    
                    $
                    1,334
                    
                    
                    $
                    922Additions
                    
                    
                    596
                    
                    
                    
                    539Collections
                    
                    
                    (607
                    )
                    
                    
                    (127
                    )Ending
      balance
                    
                    $
                    1,323
                    
                    
                    $
                    1,334




9.
            Restatement
      of Previously Issued Financial
Statements




Subsequent
to the original filing of the Company's June 30, 2008 Form 10-Q, management
concluded that detail listings of residential loans sold and commercial
participations sold did not reconcile to corresponding general ledger accounts.
Upon further review, the Company found that the cause of the misstatements were
intentionally incorrect accounting entries and reconciliations posted by a
former officer of the Company beginning in early 2008. The Company determined
that correction of these errors requires the restatement of the consolidated
balance sheet as of June 30, 2008 and the consolidated statement of income for
the six months ended June 30, 2008 as follows:




(in thousands, except per share data)
                        
                        As Previously
                          Reported
                        
                        
                        As Corrected
                        
                        
                        Effect of
                          ChangeAs of June 30,
      2008Consolidated
      Balance SheetsLoans,
      net
                        
                        $
                        98,531
                        
                        
                        $
                        98,056
                        
                        
                        $
                        (475
                        )Deferred
      income taxes
                        
                        
                        516
                        
                        
                        
                        714
                        
                        
                        
                        198Total
      assets
                        
                        
                        139,520
                        
                        
                        
                        139,243
                        
                        
                        
                        (277
                        )Retained
      earnings
                        
                        
                        7,873
                        
                        
                        
                        7,596
                        
                        
                        
                        (277
                        )Total
      stockholders equity
                        
                        
                        20,238
                        
                        
                        
                        19,961
                        
                        
                        
                        (277
                        )Total
      liabilities and stockholders equity
                        
                        
                        139,520
                        
                        
                        
                        139,243
                        
                        
                        
                        (277
                        )For
      the six months ended June 30, 2008Consolidated
      Statements of IncomeLoss
      due to accounting errors
                        
                        $
                        -
                        
                        
                        $
                        475
                        
                        
                        $
                        475Total
      other expense
                        
                        
                        1,835
                        
                        
                        
                        2,310
                        
                        
                        
                        475Income/(loss)
      before income taxes
                        
                        
                        344
                        
                        
                        
                        (131
                        )
                        
                        
                        (475
                        )Income
      tax expense/(benefit)
                        
                        
                        118
                        
                        
                        
                        (80
                        )
                        
                        
                        (198
                        )Net
      income/(loss)
                        
                        
                        226
                        
                        
                        
                        (51
                        )
                        
                        
                        (277
                        )Comprehensive
      income/(loss)
                        
                        
                        128
                        
                        
                        
                        (149
                        )
                        
                        
                        (277
                        )Earnings/(loss)
      per share, basic and diluted
                        
                        
                        0.15
                        
                        
                        
                        (0.03
                        )
                        
                        
                        (0.18
                        )




14




Item
      2.
            Management’s
      Discussion and Analysis or Plan of
Operation.





Forward-Looking
Statements





North
Penn Bancorp, Inc. makes forward-looking statements in this
report.  These forward-looking statements may include: statements of
goals, intentions and expectations; estimates of risks and of future costs and
benefits; assessments of probable loan losses; assessments of market risk; and
statements of the ability to achieve financial and other
goals.  Forward-looking statements are typically identified by words
such as “believe,” “expect,” “anticipate,” “intend,” “outlook,” “estimate,”
“forecast,” “project” and other similar words and expressions. Forward-looking
statements are subject to numerous assumptions, risks and uncertainties, which
change over time. Forward-looking statements speak only as of the date they are
made. The Company does not assume any duty and does not undertake to update its
forward-looking statements.  Because forward-looking statements are
subject to assumptions and uncertainties, actual results or future events could
differ, possibly materially, from those that the Company anticipated in its
forward-looking statements, and future results could differ materially from
historical performance.





The
Company’s forward-looking statements are subject to the following principal
risks and uncertainties: general economic conditions and trends, either
nationally or locally; conditions in the securities markets; changes in interest
rates; changes in deposit flows, and in the demand for deposit and loan products
and other financial services; changes in real estate values; changes in the
quality or composition of the Company’s loan or investment portfolios; changes
in competitive pressures among financial institutions or from non-financial
institutions; the Company’s ability to retain key members of management; changes
in legislation, regulation, and policies; and a variety of other matters which,
by their nature, are subject to significant uncertainties.  The
Company provides greater detail regarding some of these factors in its Form
10-KSB for the year ended December 31, 2006, including in the Risk Factors
section of that report.  The Company’s forward-looking statements may
also be subject to other risks and uncertainties, including those that it may
discuss elsewhere in this report or in its other filings with the
SEC.





Financial
Condition- As Restated





Our
balance sheet grew $16.7 million, or 13.6%, to $139.2 million at June 30, 2008
from $122.5 million at December 31, 2007.  This growth was due to a
large increase in our deposits, which we used to pay down overnight borrowings,
purchase investments, and invest in federal funds sold.





Investment
securities increased a net of $3.0 million, or 22.6%, to $16.3 million at June
30, 2008 from $13.3 million since December 31, 2007. During the six months ended
June 30, 2008, the Company purchased $3.0 million in corporate securities,
$995,000 in mortgage-backed securities, and $500,000 in municipal securities.
The growth in securities during the six months ended June 30, 2008 was offset by
the maturing of a corporate bond, the calling of a federal agency bond and
typical pay downs of mortgage-backed securities. The Company also purchased
$137,000 in equity securities and sold two equity securities worth $28,000
during the six months ended June 30, 2008.





Net loans
increased $800,000, or 0.8%, to $98.1 million at June 30, 2008 from $97.2
million at December 31, 2007.  The growth was primarily in the
commercial real estate area, offset by reductions in the consumer loan
segment.


15





The
provision for loan loss increased $31,000 for the six months ended June 30,
2008.  The Bank had $3,000 in mortgage loans and $25,000 in consumer
loans charged-off during the first six months of 2008. The Bank was also able to
recover $10,000 during the same period. Management assesses the adequacy of the
allowance for loan losses based on evaluating known and inherent losses in the
loan portfolio and upon management’s continuing analysis of the factors
underlying the quality of the loan portfolio.





While
management believes that, based on information currently available, the
allowance for loan losses is sufficient to cover losses inherent in its loan
portfolio at this time, no assurance can be given that the level of the
allowance for loan losses is sufficient to cover future possible loan losses
incurred by the Bank or that future adjustments to the allowance for loan losses
will not be necessary if economic and other conditions differ substantially from
the economic and other conditions used by management to determine the current
level of the allowance for loan losses.  Management may in the future
increase the level of the allowance for loan losses as a percentage of total
loans and non-performing loans in the event it increases the level of commercial
or consumer lending as a percentage of its total loan portfolio.  In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the allowance for loan losses.  Such
agencies may require the Bank to provide additions to the allowance based upon
judgments different from management.





Non-performing
loans, which are loans past due 90 days or more and non-accruing loans, totaled
$221,000 at June 30, 2008, compared to $378,000 at December 31,
2007.  The improvement was primarily in non-accruing residential
mortgages.   The ratio of the Bank’s allowance for loan losses to
total loans was 1.19% at June 30, 2008 and December 31, 2007.





Our
deposits increased $22.6 million, or 27.0%, to $106.3 million at June 30, 2008
from $83.7 million at December 31, 2008.  Non-interest bearing
deposits increased slightly; to $7.5 million at June 30, 2008 from $7.4 million
at December 31, 2007, while time deposits decreased by roughly the same amount,
to $43.2 million at June 30, 2008 from $43.3 million at December 31, 2007.
Interest bearing demand deposits increased $22.6 million, or 68.8%. The increase
in interest bearing demand deposits is due to growth in our Signature Savings
account as well as continued growth in municipal deposits.





The
Company’s borrowings decreased $5.9 million, or 33.0%, to $12.0 million at June
30, 2008 from $17.9 million at December 31, 2007. The difference in borrowing
was attributable to paying off our overnight line of credit with FHLBank of
Pittsburgh. The remaining balance is comprised of two long term notes with
FHLBank of Pittsburgh.





Results
of Operations- As Restated





Comparison
of the Three and Six Month Periods Ended June 30, 2008 and 2007





Net loss
for the six months ended June 30, 2008 totaled $51,000, a decrease of $266,000,
or 123.7%, over the same period in 2007. The loss was the result of a $475,000
pre-tax charge resulting from accounting errors within the Bank’s primary
correspondent bank account. Net income for the three months ended June 30, 2008
decreased $4,000, or 3.3 %, to $116,000 compared to the quarter ended June 30,
2007.  The quarterly income for 2007 was bolstered by a gain on the
sale of mortgage loans.





Net
interest income increased $278,000 or 15.4%, to $2.0 million for the first half
of 2008 from $1.8 million for the same period in 2007. Net interest income for
the second quarter ended June 30, 2008 increased $150,000, or 16.6%, to $1.1
million from $901,000 for the quarter ended June 30, 2007.


16





The
Company’s interest income for the three and six months ended June 30, 2008
continued to remain at a level consistent with that of 2007. Loan interest and
fee income is at the same amount for the six months ended June 30, 2008 and
2007.  We were able to increase the volume of loans to balance out
what was sold off in 2007. Interest income from federal funds sold was $61,000
for the six months ended June 30, 2008. During the same period in 2007, the
Company did not have interest income from federal funds
sold.  Interest on investments increased $24,000 or 18.5%, to $154,000
during the second quarter, from $130,000 at the same period in 2007. The
increase is due to the securities purchased during the first half of the
year.





For the
six months ended June 30, 2008, interest expense decreased $212,000, or 10.6%,
to $1.8 million in 2008 from $2.0 million in 2007.  Interest expense
during the second quarter decreased $134,000, or 13.8%, to $838,000 in 2008 from
$972,000 in 2007.  For the six months ended June 30, interest on
deposits remained consistent at $1.4 million for both 2008 and
2007.  Interest on deposits for the second quarter of 2008 also
remained consistent with the second quarter of 2007. This was an effect of lower
rates being offset by much greater volumes.  Interest on short term
borrowings decreased $132,000, for the second quarter of 2008 and $221,000 or
93.6%, for the six months ended June 30, 2008 due to the decreases in the volume
of our overnight borrowings.





Other
income for the second quarter decreased $94,000, or 51.6%, to $88,000 in 2008
from $182,000 in 2007.  Other income for the second quarter of 2007
included a one time gain on the sale of loans.  Total other expenses
increased $86,000, or 9.9%, to $959,000 in 2008 from $873,000 in
2007.  Salaries and employee benefits increased $43,000, or 8.9%, to
$524,000 in 2008 from $481,000 in 2007.  Occupancy and equipment
expense increased $20,000, or 12.9%, to $175,000 in 2008 from $155,000 in 2007,
while other expenses increased $23,000, or 9.7%, to $260,000 in 2008 from
$237,000 in 2007.





For the
six months ended June 30, other income decreased $127,000 or 43.6%, to $164,000
in 2008 from $291,000 in 2007.  The majority of this decrease was
related to the one time gain on loan sales during 2007.  Total other
expenses increased $643,000, or 36.9%, to $2.3 million in 2008 from $1.7 million
in 2007.  Salaries and employee benefits increased $94,000, or 10.0%,
to $1.0 million in 2008 from $944,000 in 2007, while occupancy and equipment
expense increased $37,000, or 12.2%, to $341,000 in 2008 from $304,000 in
2007.  Other expenses increased $17,000, or 3.9%, to $456,000 in 2008
from $439,000 in 2007.  Continuing to negatively impact total other
expense was $475,000 in losses due to accounting errors.





Liquidity
and Capital Resources- As Restated





The
Bank’s primary sources of funds are deposits, principal and interest payments on
loans and FHLBank advances. While maturities and scheduled amortization of loans
are predictable sources of funds, deposit flows and mortgage prepayments are
greatly influenced by general interest rates, economic conditions, and
competition.  The Bank’s regulators require the Bank to maintain
sufficient liquidity to ensure its safe and sound operation.





Cash and
cash equivalents decreased $679,000 for the six months ended June 30,
2008.  During that period, cash was primarily provided from earnings
and customer deposits, and was primarily used to pay down overnight
borrowing.





North
Penn Bank’s capital ratios at June 30, 2008 and December 31, 2007 as well as the
required minimum ratios for capital adequacy purposes and to be well capitalized
under the prompt corrective action provisions as defined by the FDIC are
summarized as follows:


17





Actual
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              For capital adequacy
                                                                                                                                                                purposes
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              To be well capitalized
                                                                                                                                                                under prompt
                                                                                                                                                                corrective action
                                                                                                                                                                provisionsAmount
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              Ratio
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              Amount
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              Ratio
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              Amount
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              RatioAt
      June 30,
      2008:Total
      Capital (to Risk-Weighted Assets):North
      Penn Bank
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              16,306
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              15.80
                                                                                                                                                              %
                                                                                                                                                              
                                                                                                                                                              >$
                                                                                                                                                              18,258
                                                                                                                                                              
                                                                                                                                                              >
                                                                                                                                                              8.0
                                                                                                                                                              %
                                                                                                                                                              
                                                                                                                                                              >$
                                                                                                                                                              10,322
                                                                                                                                                              
                                                                                                                                                              >
                                                                                                                                                              10.0
                                                                                                                                                              %Tier
      1 Capital (to Risk-Weighted Assets):North
      Penn Bank
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              15,122
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              14.65
                                                                                                                                                              %
                                                                                                                                                              
                                                                                                                                                              >$
                                                                                                                                                              4,130
                                                                                                                                                              
                                                                                                                                                              >
                                                                                                                                                              4.0
                                                                                                                                                              %
                                                                                                                                                              
                                                                                                                                                              >$
                                                                                                                                                              6,193
                                                                                                                                                              
                                                                                                                                                              >
                                                                                                                                                              6.0
                                                                                                                                                              %Tier
      1 Capital (to Average Assets):North
      Penn Bank
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              15,122
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              11.77
                                                                                                                                                              %
                                                                                                                                                              
                                                                                                                                                              >$
                                                                                                                                                              5,137
                                                                                                                                                              
                                                                                                                                                              >
                                                                                                                                                              4.0
                                                                                                                                                              %
                                                                                                                                                              
                                                                                                                                                              >$
                                                                                                                                                              6,422
                                                                                                                                                              
                                                                                                                                                              >
                                                                                                                                                              5.0
                                                                                                                                                              %Risk-Weighted
      Assets:
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              103,222Average
      Assets:
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              128,433Reconciliation
      of GAAP Capital to Regulatory CapitalTotal
      Equity Capital June 30, 2008
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              15,134Plus:
      Unrealized Gain/Loss on Investments
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (11
                                                                                                                                                              )Less:
      Disallowed Servicing Rights
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (1
                                                                                                                                                              )Total
      Tier Capital June 30, 2008
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              15,122Plus:
      Allowance for loan losses
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              1,184Total
      Risk-based Capital June 30, 2008
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              16,306At
      December 31,
      2007:Total
      Capital (to Risk-Weighted Assets):North
      Penn Bank
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              16,319
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              16.97
                                                                                                                                                              %
                                                                                                                                                              
                                                                                                                                                              >$
                                                                                                                                                              7,695
                                                                                                                                                              
                                                                                                                                                              >
                                                                                                                                                              8.0
                                                                                                                                                              %
                                                                                                                                                              
                                                                                                                                                              >$
                                                                                                                                                              9,619
                                                                                                                                                              
                                                                                                                                                              >
                                                                                                                                                              10.0
                                                                                                                                                              %Tier
      1 Capital (to Risk-Weighted Assets):North
      Penn Bank
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              15,148
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              15.75
                                                                                                                                                              %
                                                                                                                                                              
                                                                                                                                                              >$
                                                                                                                                                              3,847
                                                                                                                                                              
                                                                                                                                                              >
                                                                                                                                                              4.0
                                                                                                                                                              %
                                                                                                                                                              
                                                                                                                                                              >$
                                                                                                                                                              5,771
                                                                                                                                                              
                                                                                                                                                              >
                                                                                                                                                              6.0
                                                                                                                                                              %Tier
      1 Capital (to Average Assets):North
      Penn Bank
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              15,148
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              12.71
                                                                                                                                                              %
                                                                                                                                                              
                                                                                                                                                              >$
                                                                                                                                                              4,766
                                                                                                                                                              
                                                                                                                                                              >
                                                                                                                                                              4.0
                                                                                                                                                              %
                                                                                                                                                              
                                                                                                                                                              >$
                                                                                                                                                              5,958
                                                                                                                                                              
                                                                                                                                                              >
                                                                                                                                                              5.0
                                                                                                                                                              %Risk-Weighted
      Assets:
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              96,186Average
      Assets:
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              119,156Reconciliation
      of GAAP Capital to Regulatory CapitalTotal
      Equity Capital December 31, 2007
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              15,190Plus:
      Unrealized Gain/Loss on Investments
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (41
                                                                                                                                                              )Less:
      Disallowed Servicing Rights
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (1
                                                                                                                                                              )Total
      Tier Capital December 31, 2007
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              15,148Plus:
      Allowance for loan losses
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              1,171Total
      Risk-based Capital December 31, 2007
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              16,319





Related
Parties





The
Company does not have any material transactions involving related persons or
entities, other than traditional banking transactions, which are made on the
same terms and conditions as those prevailing at the time for comparable
transactions with unrelated parties.





Item
      3.
            Quantitative
      and Qualitative Disclosure About Market
Risk





Not
applicable as the Company is a smaller reporting company.


18





Item
      4.
            Controls
      and Procedures- As Restated





The
Company maintains disclosure controls and procedures as required under Rule
13a-15 promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), that are designed to ensure that information required to be
disclosed in our Exchange Act reports is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms, and
that such information is accumulated and communicated to the Company's
management, including its Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosures. At
June 30, 2008, the Company's management, with the participation of the Chief
Executive Officer and Chief Financial Officer, carried out an evaluation of the
effectiveness of the Company's disclosure controls and procedures. Based on that
evaluation. the Company's Chief Executive Officer and Chief Financial Officer
initially concluded that the Company's disclosure controls and procedures were
effective. As a result of the restatement described in the Explanatory Note,
management has since concluded that the Company did not maintain effective
controls to ensure that an employee acting alone cannot record journal entries
and reconcile significant accounts.  This control deficiency resulted
in intentionally incorrect accounting entries that were not initially identified
by the Company’s internal control and that require the restatement of the
Company's financial statements for the quarter ended June 30, 2008. Because of
this control deficiency, management has reevaluated its assessment for that
period and concluded that the Company's disclosure controls and procedures were
not effective as of June 30, 2008.





The
Company reviews its disclosure controls and procedures, which includes its
internal controls over financial reporting, on an ongoing basis and may from
time to time make changes aimed at enhancing their effectiveness. As previously
reported, no such control enhancements occurred during the quarter ended June
30, 2008 that have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial reporting.




The Audit
Committee of the Board of Directors and senior management met with the firm that
provides its internal audit services to review the design of the Company’s
internal controls in light of recent events.  Specific areas discussed
and that will be implemented included the following: an increase in segregation
and rotation of duties; a complete review of access rights to the bank’s data
processing system; and increased management oversight and review of certain
general ledger entries.  It was also decided that a “Financial
Statement Disclosure Committee” would be instituted, the purpose for which is to
review the process and accuracy of financial statement preparation prior to
filing.  This committee will consist of the Company’s five most senior
officers including the following: Chief Executive Officer, Chief Financial
Officer, Chief Lending Officer, Senior Commercial Lender and Chief Technology
and Risk Officer.




19




PART II –
OTHER INFORMATION




Item
      6.
            Exhibits




31.1
                
                Rule
      13a-14(a) /15d-14(a) Certification32.1
                
                Section
      1350 Certification




20


SIGNATURES





In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be so signed on its behalf by the undersigned, thereunto duly
authorized.





New
      North Penn Bancorp, IncDated:
              March 31,
      2009
              
              /s/   Frederick L.
      HickmanFrederick
      L. Hickman
                President
      and
                Chief
      Executive Officer
                (Acting
      Principal Financial Officer)




21