UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549





FORM
10-Q/A


Amendment
No. 1





(Mark
One)


x
            QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the
quarterly period
ended                 September 30,
2008





 ̈
            TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
  ACT





For the
transition period from
__________________                 to    
______________________





Commission
File Number:   000-52839





NORTH PENN BANCORP,
INC.


(Exact
name of small business issuer 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


(Issuer’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 October 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 nine months ended September 30, 2008 and the
consolidated balance sheet as of' September 30, 2008.




This
Quarterly Report on Form 10-Q/A corrects and restates the Company's consolidated
statement of income for the nine months ended September 30, 2008 and the
consolidated balance sheet as of September 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 September 30, 2008 or
modify or update disclosures affected by subsequent events.


2




PART
      I. FINANCIAL INFORMATIONItem 1.
                                                      Financial
      Statements
                                                      4Consolidated
      Balance Sheets at September 30, 2008 and December 31, 2007
                                                      4Consolidated
      Statements of Income for the Three and Nine Months Ended September 30,
      2008 and 2007
                                                      5Consolidated
      Statements of Cash Flows for the Nine Months Ended September 30, 2008 and
      2007
                                                      6Notes
      to Unaudited Consolidated Financial Statements
                                                      7Item
      2.
                                                      Management’s
      Discussion and Analysis or Plan of Operation
                                                      16Item
      3.
                                                      Quantitative
      and Qualitative Disclosures About Market Risk
                                                      19Item
      4.
                                                      Controls
      and Procedures
                                                      20PART
      II OTHER INFORMATION
                                                      21Item
      6.
                                                      Exhibits
                                                      21




3





ITEM I.
FINANCIAL STATEMENTS





North
Penn Bancorp, Inc. and Subsidiary


Consolidated
Balance Sheets


September
      30, 2008
                        
                        
                        December
      31, 2007(Unaudited)
                        
                        
                        (Audited)(In
      thousands)RestatedASSETS:Cash
      and due from banks
                        
                        $
                        2,977
                        
                        
                        $
                        3,071Interest
      bearing deposits
                        
                        
                        41
                        
                        
                        
                        107Total
      cash and cash equivalents
                        
                        
                        3,018
                        
                        
                        
                        3,178Federal
      funds sold
                        
                        
                        4,230
                        
                        
                        
                        -Investment
      securities, available for sale
                        
                        
                        20,245
                        
                        
                        
                        13,366Equity
      securities at cost, substantially restricted
                        
                        
                        781
                        
                        
                        
                        1,060Loans,
      net of allowance for loan losses of $1,192 in 2008 and $1,171 in
      2007
                        
                        
                        98,986
                        
                        
                        
                        97,247Bank
      premises and equipment – net
                        
                        
                        4,095
                        
                        
                        
                        4,159Accrued
      interest receivable
                        
                        
                        675
                        
                        
                        
                        695Cash
      surrender value of life insurance
                        
                        
                        2,135
                        
                        
                        
                        2,137Deferred
      income taxes
                        
                        
                        930
                        
                        
                        
                        466Other
      real estate owned
                        
                        
                        -
                        
                        
                        
                        100Other
      assets
                        
                        
                        158
                        
                        
                        
                        124TOTAL
      ASSETS
                        
                        $
                        135,253
                        
                        
                        $
                        122,532LIABILITIES:Deposits:Non-interest
      bearing deposits
                        
                        $
                        8,858
                        
                        
                        $
                        7,424Interest
      bearing demand deposits
                        
                        
                        53,395
                        
                        
                        
                        32,922Interest
      bearing time deposits
                        
                        
                        40,341
                        
                        
                        
                        43,337Total
      deposits
                        
                        
                        102,594
                        
                        
                        
                        83,683Other
      borrowed funds
                        
                        
                        12,000
                        
                        
                        
                        17,879Accrued
      interest and other liabilities
                        
                        
                        934
                        
                        
                        
                        786TOTAL
      LIABILITIES
                        
                        
                        115,528
                        
                        
                        
                        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
                        
                        
                        13,479
                        
                        
                        
                        13,433Retained
      earnings
                        
                        
                        7,755
                        
                        
                        
                        7,742Unearned
      ESOP shares
                        
                        
                        (1,059
                        )
                        
                        
                        (1,059
                        )Accumulated
      other comprehensive income
                        
                        
                        (608
                        )
                        
                        
                        (90
                        )TOTAL
      STOCKHOLDERS’ EQUITY
                        
                        
                        19,725
                        
                        
                        
                        20,184TOTAL
      LIABILITIES AND STOCKHOLDER’S EQUITY
                        
                        
                        135,253
                        
                        
                        $
                        122,532


See notes
to unaudited consolidated financial statements.


4


North
Penn Bancorp, Inc. and Subsidiary


Unaudited
Consolidated Statements of Income


For the
Three and Nine Months Ended September 30, 2008 and 2007


(In
thousands)





Nine Months Ended
                          
                          
                          Three Months EndedSeptember 30,
                          
                          
                          September 30,2008
                          
                          
                          2007
                          
                          
                          2008
                          
                          
                          2007RestatedINTEREST INCOMEInterest
      on loans
                          
                          $
                          5,130
                          
                          
                          $
                          5,077
                          
                          
                          
                          1,731
                          
                          
                          $
                          1,678Interest
      on fed funds sold
                          
                          
                          93
                          
                          
                          
                          -
                          
                          
                          
                          32
                          
                          
                          
                          -Interest
      on tax exempt investments
                          
                          
                          216
                          
                          
                          
                          215
                          
                          
                          
                          73
                          
                          
                          
                          72Interest
      on investments
                          
                          
                          278
                          
                          
                          
                          197
                          
                          
                          
                          124
                          
                          
                          
                          67Dividends
      on investments
                          
                          
                          56
                          
                          
                          
                          82
                          
                          
                          
                          15
                          
                          
                          
                          22Total
      interest income
                          
                          
                          5,773
                          
                          
                          
                          5,571
                          
                          
                          
                          1,975
                          
                          
                          
                          1,839INTEREST
      EXPENSEInterest
      on deposits
                          
                          
                          2,089
                          
                          
                          
                          2,123
                          
                          
                          
                          662
                          
                          
                          
                          703Interest
      on short term borrowings
                          
                          
                          15
                          
                          
                          
                          357
                          
                          
                          
                          -
                          
                          
                          
                          121Interest
      on long term borrowings
                          
                          
                          469
                          
                          
                          
                          468
                          
                          
                          
                          159
                          
                          
                          
                          160Total
      interest expense
                          
                          
                          2,573
                          
                          
                          
                          2,948
                          
                          
                          
                          821
                          
                          
                          
                          984NET
      INTEREST INCOME
                          
                          
                          3,200
                          
                          
                          
                          2,623
                          
                          
                          
                          1,154
                          
                          
                          
                          855PROVISION
      FOR LOAN LOSSES
                          
                          
                          31
                          
                          
                          
                          66
                          
                          
                          
                          -
                          
                          
                          
                          6NET
      INTEREST INCOME  AFTER PROVISION FOR LOAN LOSSES
                          
                          
                          3,169
                          
                          
                          
                          2,557
                          
                          
                          
                          1,154
                          
                          
                          
                          849OTHER
      INCOMEService
      charges on deposit accounts
                          
                          
                          103
                          
                          
                          
                          102
                          
                          
                          
                          37
                          
                          
                          
                          30Other
      operating income
                          
                          
                          144
                          
                          
                          
                          156
                          
                          
                          
                          47
                          
                          
                          
                          50Gain
      on sale of loans
                          
                          
                          2
                          
                          
                          
                          79
                          
                          
                          
                          2
                          
                          
                          
                          -Gain
      on sale of securities
                          
                          
                          1
                          
                          
                          
                          41
                          
                          
                          
                          -
                          
                          
                          
                          7TOTAL
      OTHER INCOME
                          
                          
                          250
                          
                          
                          
                          378
                          
                          
                          
                          86
                          
                          
                          
                          87OTHER
      EXPENSESalaries
      and employee benefits
                          
                          
                          1,544
                          
                          
                          
                          1,442
                          
                          
                          
                          506
                          
                          
                          
                          498Occupancy
      and equipment expense
                          
                          
                          502
                          
                          
                          
                          459
                          
                          
                          
                          161
                          
                          
                          
                          155Other
      operating expenses
                          
                          
                          703
                          
                          
                          
                          692
                          
                          
                          
                          247
                          
                          
                          
                          253Loss
      from accounting errors
                          
                          
                          475
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -TOTAL
      OTHER EXPENSE
                          
                          
                          3,224
                          
                          
                          
                          2,593
                          
                          
                          
                          914
                          
                          
                          
                          906INCOME
      BEFORE INCOME TAXES
                          
                          
                          195
                          
                          
                          
                          342
                          
                          
                          
                          326
                          
                          
                          
                          30INCOME
      TAX EXPENSE
                          
                          
                          40
                          
                          
                          
                          104
                          
                          
                          
                          120
                          
                          
                          
                          7NET
      INCOME
                          
                          
                          155
                          
                          
                          
                          238
                          
                          
                          
                          206
                          
                          
                          
                          23OTHER
      COMPREHENSIVE INCOME (LOSS):Unrealized
      holding gain (loss) arising during period, net of income
    tax
                          
                          
                          (518
                          )
                          
                          
                          (49
                          )
                          
                          
                          (420
                          )
                          
                          
                          105COMPREHENSIVE
      (LOSS)/INCOME
                          
                          $
                          (363
                          )
                          
                          $
                          189
                          
                          
                          
                          (214
                          )
                          
                          $
                          128Weighted
      average number of shares outstanding
                          
                          
                          1,536,761
                          
                          
                          
                          1,449,030
                          
                          
                          
                          1,536,761
                          
                          
                          
                          1,449,030Earnings
      per share, basic and diluted
                          
                          $
                          0.10
                          
                          
                          $
                          0.16
                          
                          
                          $
                          0.13
                          
                          
                          $
                          0.02Dividends
      per share
                          
                          $
                          0.09
                          
                          
                          $
                          0.06
                          
                          
                          $
                          0.03
                          
                          
                          $
                          0.03


See notes
to unaudited consolidated financial statements.


5




North
Penn Bancorp, Inc. and Subsidiary


Unaudited
Consolidated Statements of Cash Flows


For the
Nine Months Ended September 30, 2008 and 2007


(In
thousands)


2008
                  
                  
                  2007RestatedOperating Activities:Net
      income
                  
                  $
                  155
                  
                  
                  $
                  238Items
      not requiring (providing) cashDepreciation
                  
                  
                  192
                  
                  
                  
                  206Provision
      for loan losses
                  
                  
                  31
                  
                  
                  
                  66Amortization
      of securities (net of accretion)
                  
                  
                  15
                  
                  
                  
                  11(Decrease)
      increase in cash surrender value of life insurance
                  
                  
                  (2
                  )
                  
                  
                  24Net
      realized gain on securities
                  
                  
                  (1
                  )
                  
                  
                  (41
                  )Net
      realized gain on sale of bank premise and equipment
                  
                  
                  (2
                  )
                  
                  
                  -Net
      realized gain on other real estate owned
                  
                  
                  -
                  
                  
                  
                  (6
                  )Net
      realized gain on sale of loans
                  
                  
                  (2
                  )
                  
                  
                  (79
                  )Changes
      in:Accrued
      interest income and other assets
                  
                  
                  (212
                  )
                  
                  
                  (566
                  )Accrued
      interest expense and other liabilities
                  
                  
                  151
                  
                  
                  
                  258Net
      Cash Provided by  Operating Activities
                  
                  
                  325
                  
                  
                  
                  111Investing
      Activities:Purchase
      bank premises and equipment
                  
                  
                  (137
                  )
                  
                  
                  (77
                  )Proceeds
      from sale of bank premises and equipment
                  
                  
                  11
                  
                  
                  
                  -Proceeds
      from sale of other real estate owned
                  
                  
                  100
                  
                  
                  
                  427Purchase
      of securities “available for sale”
                  
                  
                  (9,724
                  )
                  
                  
                  (223
                  )Sale
      of securities “available for sale”
                  
                  
                  28
                  
                  
                  
                  213Federal
      funds sold, net
                  
                  
                  (4,230
                  )
                  
                  
                  -Redemptions
      of securities “available for sale”
                  
                  
                  940
                  
                  
                  
                  -Redemptions
      of mortgage-backed securities “available for sale”
                  
                  
                  1,079
                  
                  
                  
                  701Net
      sale of restricted stock
                  
                  
                  279
                  
                  
                  
                  14Net
      increase in loans to customers
                  
                  
                  (2,544
                  )
                  
                  
                  (3,681
                  )Proceeds
      from sale of loans
                  
                  
                  776
                  
                  
                  
                  4,440Net
      Cash (Used in) Provided by Investing Activities
                  
                  
                  (13,422
                  )
                  
                  
                  1,814Financing
      Activities:Net
      increase (decrease) in deposits
                  
                  
                  18,911
                  
                  
                  
                  (1,295
                  )Decrease
      in borrowed funds
                  
                  
                  (5,879
                  )
                  
                  
                  (2,746
                  )Cash
      dividends paid
                  
                  
                  (95
                  )
                  
                  
                  (130
                  )Net
      Cash  Provided by (Used In) Financing Activities
                  
                  
                  12,937
                  
                  
                  
                  (4,171
                  )Net
      Decrease in Cash and Cash Equivalents
                  
                  
                  (160
                  )
                  
                  
                  (2,246
                  )Cash
      and Cash Equivalents, January 1
                  
                  $
                  3,178
                  
                  
                  $
                  4,116Cash
      and Cash Equivalents, September 30
                  
                  $
                  3,018
                  
                  
                  $
                  1,870Supplementary
      Schedule of Cash Flow Information:Cash
      paid during the period for:Interest
                  
                  $
                  2,493
                  
                  
                  $
                  3,072Income
      taxes
                  
                  
                  116
                  
                  
                  
                  64Non-cash
      investing and financing activities:None


See notes
to unaudited consolidated financial statements.


6





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.





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.


7


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.





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 September 30, 2008 and
December 31, 2007 are as follows:


8





Available-for-Sale


September
30, 2008


(In
thousands)





Amortized
                      Cost
                    
                    
                    Gross
                      Unrealized
                      Gains
                    
                    
                    Gross
                      Unrealized
                      Losses
                    
                    
                    Fair
                      ValueU.S.
      Agency securities
                    
                    $
                    3,000
                    
                    
                    $
                    8
                    
                    
                    $
                    -
                    
                    
                    $
                    3,008Mortgage-backed
      securities
                    
                    
                    5,384
                    
                    
                    
                    -
                    
                    
                    
                    45
                    
                    
                    
                    5,339Municipal
      securities
                    
                    
                    8,531
                    
                    
                    
                    -
                    
                    
                    
                    427
                    
                    
                    
                    8,104Other
      securities
                    
                    
                    3,017
                    
                    
                    
                    -
                    
                    
                    
                    276
                    
                    
                    
                    2,741Total
      debt securities
                    
                    
                    19,932
                    
                    
                    
                    8
                    
                    
                    
                    748
                    
                    
                    
                    19,192Equity
      securities
                    
                    
                    1,234
                    
                    
                    
                    25
                    
                    
                    
                    206
                    
                    
                    
                    1,053Total
      Available for Sale
                    
                    $
                    21,166
                    
                    
                    $
                    33
                    
                    
                    $
                    954
                    
                    
                    $
                    20,245





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 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 September 30, 2008 is as
follows:




Less than 12 months
                                        
                                        
                                        12 months or longer
                                        
                                        
                                        TotalFair Value
                                        
                                        
                                        Unrealized
                                          Losses
                                        
                                        
                                        Fair Value
                                        
                                        
                                        Unrealized
                                          Losses
                                        
                                        
                                        Fair
                                          Value
                                        
                                        
                                        Unrealized
                                          LossesU.S.
      Agencies
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -Mortgage-backed
                                        
                                        
                                        5,111
                                        
                                        
                                        
                                        45
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        5,111
                                        
                                        
                                        
                                        45Municipal
                                        
                                        
                                        8,104
                                        
                                        
                                        
                                        427
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        8,104
                                        
                                        
                                        
                                        427Other
      securities
                                        
                                        
                                        2,741
                                        
                                        
                                        
                                        276
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        2,741
                                        
                                        
                                        
                                        276Equity
      securities
                                        
                                        
                                        302
                                        
                                        
                                        
                                        54
                                        
                                        
                                        
                                        434
                                        
                                        
                                        
                                        152
                                        
                                        
                                        
                                        736
                                        
                                        
                                        
                                        206$
                                        16,258
                                        
                                        
                                        $
                                        802
                                        
                                        
                                        $
                                        434
                                        
                                        
                                        $
                                        152
                                        
                                        
                                        $
                                        16,692
                                        
                                        
                                        $
                                        954




The above
table at September 30, 2008 includes 51 securities that have unrealized losses
for less than 12 months and 24 securities that have been in an unrealized loss
position for 12 or more months. The Company has analyzed its investment
portfolio and determined that the market value fluctuations in these securities
are consistent with the broader market and not a cause for recognition of a
current loss.





The
Company 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 Company have been due to changes in interest rates, and because the
Company has the ability to hold these investments until maturity, the Company
does not consider these investments to be other-than-temporarily impaired at
September 30, 2008.


9


The
Company 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 Company’s ability
to hold these stocks for a reasonable period of time sufficient for a forecasted
recovery of fair value, the management does not consider these investments to be
other-than-temporarily impaired at September 30, 2008.





3.            
Loans





September
      30,
                                2008
                              
                              
                              December
      31,
                                2007(In
      thousands)RestatedReal
      estate mortgages:Construction
      and land development
                              
                              $
                              409
                              
                              
                              $
                              154Residential,
      1 – 4 family
                              
                              
                              45,789
                              
                              
                              
                              45,593Residential,
      multi-family
                              
                              
                              1,409
                              
                              
                              
                              1,446Commercial
                              
                              
                              46,005
                              
                              
                              
                              41,685Total
      real estate mortgages
                              
                              
                              93,612
                              
                              
                              
                              88,878Commercial
                              
                              
                              922
                              
                              
                              
                              2,157Consumer
                              
                              
                              5,644
                              
                              
                              
                              7,383Total
      loans
                              
                              
                              100,178
                              
                              
                              
                              98,418Allowance
      for loan loss
                              
                              
                              1,192
                              
                              
                              
                              1,171Total
      loans, net
                              
                              $
                              98,986
                              
                              
                              $
                              97,247





The
Company's lending is primarily residential and commercial secured mortgage
loans, in Northeastern Pennsylvania, based upon conservative underwriting
standards.





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.





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 risks 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.


10





The
following table sets forth the changes in the allowance for loan losses for the
nine months ended September 30, 2008 and for the year ended December 31, 2007 as
indicated:





September 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
                    
                    
                    18
                    
                    
                    
                    9Total
                    
                    
                    18
                    
                    
                    
                    9Net
      charge-offs
                    
                    
                    10
                    
                    
                    
                    36Provision
      charged to operations
                    
                    
                    31
                    
                    
                    
                    86Balance
      at end of period
                    
                    $
                    1,192
                    
                    
                    $
                    1,171




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. At September 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:





Nine Months Ended
                      September 30,
                    
                    
                    Three Months Ended
                      September 30,2008
                    
                    
                    2007
                    
                    
                    2008
                    
                    
                    2007Numerator
                    
                    $
                    155,000
                    
                    
                    $
                    238,000
                    
                    
                    $
                    206,000
                    
                    
                    $
                    23,000DenominatorBasic
      shares outstanding
                    
                    
                    1,536,761
                    
                    
                    
                    1,449,030
                    
                    
                    
                    1,536,761
                    
                    
                    
                    1,449,030Effective
      of dilutive shares
                    
                    
                    728
                    
                    
                    
                    1,092
                    
                    
                    
                    728
                    
                    
                    
                    1,092Diluted
      shares outstanding
                    
                    
                    1,537,489
                    
                    
                    
                    1,450,122
                    
                    
                    
                    1,537,489
                    
                    
                    
                    1,450,122Earnings
      per shareBasic
                    
                    $
                    0.10
                    
                    
                    $
                    0.16
                    
                    
                    $
                    0.13
                    
                    
                    $
                    0.02Diluted
                    
                    $
                    0.10
                    
                    
                    $
                    0.16
                    
                    
                    $
                    0.13
                    
                    
                    $
                    0.02




11


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.





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




12





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 nine months ended September 30, 2008, the Company recorded approximately
$46,000 in expense included in “Salaries and employee benefits” on the
accompanying financial statements. As of September 30, 2008, there was
approximately $369,000 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.




Number
                        of
      Shares
                      
                      
                      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
                      
                      
                      (4,368
                      )
                      
                      $
                      10.21
                      
                      
                      
                      -Outstanding,
      September 30, 2008
                      
                      
                      63,879
                      
                      
                      $
                      9.12
                      
                      
                      
                      9.0Exercisable,
      September 30, 2008
                      
                      
                      10,919
                      
                      
                      $
                      10.21
                      
                      
                      
                      8.0




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
                          
                          
                          (5,023
                          )
                          
                          $
                          3.86
                          
                          
                          
                          (874
                          )
                          
                          $
                          10.21Forfeited
                          
                          
                          (3,494
                          )
                          
                          $
                          3.86
                          
                          
                          
                          (765
                          )
                          
                          $
                          10.21Nonvested,
      September 30, 2008
                          
                          
                          53,834
                          
                          
                          $
                          3.40
                          
                          
                          
                          23,613
                          
                          
                          $
                          8.47




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.


13




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, 2009. The maximum
potential amount of future payments that the Bank is required to make under the
guarantee is $450,000. 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.





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 September 30, 2008 and the year
ended December 31, 2007 (dollars in thousands):





2008
                      
                      
                      2007Beginning
      balance
                      
                      $
                      1,334
                      
                      
                      $
                      922Additions
                      
                      
                      596
                      
                      
                      
                      539Collections
                      
                      
                      (745
                      )
                      
                      
                      (127
                      )Ending
      balance
                      
                      $
                      1,185
                      
                      
                      $
                      1,334




9.           
Fair Value Measurements (SFAS No. 157)




Effective
January 1, 2008, the Company adopted SFAS No. 157, which, among other things,
requires enhanced disclosures about assets and liabilities carried at fair
value. SFAS No. 157 establishes a hierarchal disclosure framework associated
with the level of pricing observability utilized in measuring assets and
liabilities at fair value. The three broad levels defined by SFAS No. 157
hierarchy are as follows:





Level I:
Quoted prices are available in active markets for identical assets or
liabilities as of the record date.





Level II:
Pricing inputs are other than quoted prices in active markets, which are either
directly or indirectly observable as of the reported date. The nature of these
assets and liabilities include items for which quoted prices are available but
traded less frequently, and items that are fair valued using other financial
instruments, the parameters of which can be directly observed.





Level
III: Assets and liabilities that have little to no pricing observability as of
the reported date. These items do not have two-way markets and are measured
using management’s best estimate of fair value, where the inputs into the
determination of fair value require significant management judgment or
estimation





The
following table presents the assets reported on the consolidated statements of
financial condition at their fair value as of September 30, 2008 by level within
the fair value hierarchy. As required by SFAS No. 157, financial assets and
liabilities are classified in their entirety based on the lowest level of input
that is significant to the fair value measurement.


14




September
      30, 2008Level
      I
                  
                  
                  Level
      II
                  
                  
                  Level
      III
                  
                  
                  TotalAssets:Securities
      available-for-sale
                  
                  $
                  20,209
                  
                  
                  $
                  -
                  
                  
                  $
                  36
                  
                  
                  $
                  20,245





10.           Restatement
of Previously Issued Financial Statements




Subsequent
to the original filing of the Company's September 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 September 30, 2008 and the consolidated statement of income
for the three months ended September 30, 2008 as follows:





(in
      thousands, except per share data)
                              
                              As
      Previously
                                Reported
                              
                              
                              As Corrected
                              
                              
                              Effect
      of
                                ChangeAs
      of September 30, 2008Consolidated
      Balance SheetsLoans,
      net
                              
                              $
                              99,461
                              
                              
                              $
                              98,986
                              
                              
                              $
                              (475
                              )Deferred
      income taxes
                              
                              
                              732
                              
                              
                              
                              930
                              
                              
                              
                              198Total
      assets
                              
                              
                              135,530
                              
                              
                              
                              135,253
                              
                              
                              
                              (277
                              )Retained
      earnings
                              
                              
                              8,032
                              
                              
                              
                              7,755
                              
                              
                              
                              (277
                              )Total
      stockholders equity
                              
                              
                              20,002
                              
                              
                              
                              19,725
                              
                              
                              
                              (277
                              )Total
      liabilities and stockholders equity
                              
                              
                              135,530
                              
                              
                              
                              135,253
                              
                              
                              
                              (277
                              )For
      the nine months ended September 30, 2008Consolidated
      Statements of IncomeLoss
      due to accounting errors
                              
                              $
                              0
                              
                              
                              $
                              475
                              
                              
                              
                              475Total
      other expense
                              
                              
                              2,749
                              
                              
                              
                              3,224
                              
                              
                              
                              475Income/(loss)
      before income taxes
                              
                              
                              670
                              
                              
                              
                              195
                              
                              
                              
                              (475
                              )Income
      tax expense/(benefit)
                              
                              
                              238
                              
                              
                              
                              40
                              
                              
                              
                              (198
                              )Net
      income/(loss)
                              
                              
                              432
                              
                              
                              
                              155
                              
                              
                              
                              (277
                              )Comprehensive
      income/(loss)
                              
                              
                              (86
                              )
                              
                              
                              (363
                              )
                              
                              
                              (277
                              )Earnings/(loss)
      per share, basic and diluted
                              
                              
                              0.28
                              
                              
                              
                              0.10
                              
                              
                              
                              (0.18
                              )


15


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, 2007, 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





The
Company’s total assets increased $12.8 million, or 10.4%, to $135.3 million at
September 30, 2008 from $122.5 million at December 31, 2007.  The
increase was the result of purchasing investment securities, increasing our
federal funds sold position and an increase in net loans. Asset growth during
the period was funded by an increase in deposits.





Investment
securities increased $6.9 million, or 51.9%, to $20.2 million at September 30,
2008 from $13.3 million at December 31, 2007. During the nine months ended
September 30, 2008, the Company purchased $3.0 million in corporate securities,
$3.0 million in government securities, $2.0 million in mortgage-backed
securities, and $1.6 million in municipal securities. The growth in securities
during the nine months ended September 30, 2008 was offset by the maturing of a
corporate bond and a mortgage-backed security, the calling of a federal agency
bond and typical pay downs of mortgage-backed securities. The Company also
purchased $191,000 in equity securities and sold two equity securities worth
$28,000 during the nine months ended September 30, 2008.





Net loans
increased $1.8 million, or 1.8%, to $99.0 million at September 30, 2008, from
$97.2 million at December 31, 2007. The bank sold $750,000 of residential
mortgages during the third quarter of 2008 to alleviate interest rate risk
associated with individual mortgages and reinvested the funds in commercial
loans. Our commercial loan portfolio increased $4.3 million, or 10.3%, to $46.0
million at September 30, 2008, from $41.7 million at December 31,
2007.


16


The Bank
recorded no loan loss provision expense for the three months and $31,000 for the
nine months ended September 30, 2008. The Bank had three consumer loans totaling
$25,000 and mortgages of $3,000 charged off during the year. Management assesses
the adequacy of the allowance for loan losses based on evaluating known and
inherent risks 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
$191,000 at September 30, 2008, compared to $378,000 at December 31,
2007.  The improvement was in non-accruing residential mortgages which
decreased by $187,000.  The ratio of the Bank’s allowance for loan
losses to total loans was 1.19% at September 30, 2008, unchanged from 1.19% at
December 31, 2007. The ratio of the Bank’s allowance for loan losses to non
performing loans was 624.1% at September 30, 2008 and 309.8% at December 31,
2007.





Total
deposits increased $18.9 million, or 22.6%, to $102.6 million at September 30,
2008 from $83.7 million at December 31, 2007. Non-interest bearing deposits
increased $1.5 million or 20.3%, interest bearing demand deposits increased
$20.5 million or 62.3%, while time deposits decreased $3.0 million, or 6.9%. The
increase in interest bearing demand deposits is due to growth in our Signature
Savings account as well as continued growth in municipal deposits.





Other
borrowings decreased $5.9 million, or 33.0%, to $12.0 million at September 30,
2008 from $17.9 million at December 31, 2007, due to pay downs in our overnight
borrowing from FHLBank of Pittsburgh. Borrowings are primarily being used to
fund loan growth when deposit growth is inadequate and repayment is made when
deposit growth exceeds loan demand.





Results
of Operations- As Restated





Comparison
of the Three and Nine Month Periods Ended September 30, 2008 and
2007





Net
income for the third quarter of 2008 increased $183,000, or 795.7%, to $206,000,
compared to $23,000 in 2007. Net income for the nine months ended September 30,
2008 decreased $83,000, or 34.9%, to $155,000 compared to $238,000 in
2007.  Net income for the nine month period was adversely impacted by
a pre-tax charge of $475,000 resulting from accounting errors within the Bank’s
primary correspondent bank account.





Net
interest income for the third quarter increased $299,000, or 35.0%, to $1.2
million in 2008, from $855,000 in 2007. For the nine months ended September 30,
2008, net interest income increased $577,000, or 22.0%, to $3.2 million in 2008
from $2.6 million in 2007.


17


Interest
income for the third quarter of 2008 increased $136,000, or 7.4%, compared to
2007.  Interest income for the nine months ended September 30, 2008
increased $200,000, or 3.6%, to $5.8 million compared to $5.6 million for
September 30, 2007.  Interest on loans remained relatively unchanged
for the quarter and nine months ended September 30, 2008 compared to the same
period in 2007. For the nine months ended September 30, 2008 and 2007, interest
on loans amounted to approximately $5.1 million for both periods. Interest
income from federal funds sold was $93,000 for the nine months ended September
30, 2008. During the same period in 2007, the Company did not have interest
income from federal funds sold. Interest on investments increased $51,000 or
31.7%, to $212,000 from $161,000 during the third quarter, and $56,000 or 11.3%,
to $550,000 from $494,000 for the nine months ended September 30, 2008. This
additional interest income was due to investment purchases made during the
year.





Interest
expense during the third quarter decreased $163,000, or 16.6%, to $821,000 in
2008 from $984,000 in 2007.  For the nine months ended September 30,
2008, interest expense decreased $300,000, or 10.3%, to $2.6 million in 2008
from $2.9 million in 2007.  Interest on deposits for the third quarter
decreased $42,000 or 6.0%, to $661,000 in 2008, from $703,000 in 2007, due to
decreases in the average volume and rate of time deposits. For the nine months
ended September 30, interest on deposits remained relatively unchanged at $2.1
million in both 2008 and 2007.  Interest on short term borrowed funds
decreased $121,000, or 100.0%, for the third quarter of 2008 and $342,000, or
95.8%, for the nine months ended September 30, 2008 due to significant decreases
in the volume of overnight borrowings.





Other
income for the third quarter decreased $1,000, or 1.1%, to $86,000, in 2008,
from $87,000 in 2007. Total other expenses increased $8,000, or 0.9%, to
$914,000 in 2008 from $906,000 in 2007.  Salaries and employee
benefits increased $8,000, or 1.6%, to $506,000 in 2008, from $498,000 in 2007.
Occupancy and equipment expense increased $6,000 or 3.9%, to $161,000 in 2008,
from $155,000 in 2007, while other operating expenses increased $6,000 or 2.4%,
to $247,000 in 2008 from $253,000 in 2007.





For the
nine months ended September 30, other income decreased $128,000, or 33.9%, to
$250,000 in 2008 from $378,000 in 2007, due to a larger gain recognized in 2007
on the sale of loans and securities. Total other expenses increased $631,000, or
24.3%, to $3.2 million in 2008 from $2.6 million in 2007.  Salaries
and employee benefits increased $102,000 or 7.3%, to $1.5 million in 2008 from
$1.4 million in 2007, due to increases in employee benefits and costs related to
our stock award program. Occupancy and equipment expense increased $43,000, or
9.4%, to $502,000 in 2008 from $459,000 in 2007, while other operating expenses
increased $11,000, or 1.6%, to $703,000 in 2008 from $692,000 in
2007.  Negatively impacting total other expense was $475,000 in losses
due to accounting errors.





Applicable
taxes for the third quarter increased $113,000 to $120,000 in 2008 from $7,000
in 2007. For the nine months ended September 30, 2008, taxes decreased $64,000
or 61.5%, to $40,000 in 2008 from $104,000 in 2007, largely due to the decrease
in federal and state taxable income.





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.





The
Bank’s cash and cash equivalents decreased $160,000 for the nine months ended
September 30, 2008.  During that period, cash was primarily provided
from earnings and customer deposits and primarily used to pay down overnight
borrowings, purchase investment securities and fund new loans.


18


North
Penn Bank’s capital ratios at September 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:





Actual
                                                  
                                                  
                                                  For capital adequacy
                                                    purposes
                                                  
                                                  
                                                  To be well capitalized
                                                    under prompt corrective
                                                    action provisionsAmount
                                                  
                                                  
                                                  Ratio
                                                  
                                                  
                                                  Amount
                                                  
                                                  
                                                  Ratio
                                                  
                                                  
                                                  Amount
                                                  
                                                  
                                                  RatioAt
      September 30, 2008:Total
      Capital (to Risk-Weighted Assets):North
      Penn Bank
                                                  
                                                  $
                                                  16,232
                                                  
                                                  
                                                  
                                                  15.59
                                                  %
                                                  
                                                  $
                                                  ≥ 8,327
                                                  
                                                  
                                                  
                                                  ≥8.0
                                                  %
                                                  
                                                  $
                                                  ≥10,409
                                                  
                                                  
                                                  
                                                  ≥10.0
                                                  %Tier
      1 Capital (to Risk-Weighted Assets):North
      Penn Bank
                                                  
                                                  $
                                                  15,040
                                                  
                                                  
                                                  
                                                  14.45
                                                  %
                                                  
                                                  $
                                                  ≥
      4,163
                                                  
                                                  
                                                  
                                                  ≥4.0
                                                  %
                                                  
                                                  $
                                                  ≥
      6,245
                                                  
                                                  
                                                  
                                                  ≥6.0
                                                  %Tier
      1 Capital (to Average Assets):North
      Penn Bank
                                                  
                                                  $
                                                  15,040
                                                  
                                                  
                                                  
                                                  11.17
                                                  %
                                                  
                                                  $
                                                  ≥
      5,384
                                                  
                                                  
                                                  
                                                  ≥4.0
                                                  %
                                                  
                                                  $
                                                  ≥
      6,730
                                                  
                                                  
                                                  
                                                  ≥5.0
                                                  %Risk-Weighted
      Assets:
                                                  
                                                  $
                                                  104,086Average
      Assets:
                                                  
                                                  $
                                                  134,594Reconciliation
      of GAAP Capital to Regulatory CapitalTotal
      Equity Capital September 30, 2008
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  $
                                                  14,980Plus:
      Unrealized Gain/Loss on Investments
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  (426
                                                  )Less:
      Disallowed Servicing Rights
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  (365
                                                  )Less:
      Disallowed Servicing Rights
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  (1
                                                  )Total
      Tier Capital September 30, 2008
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  $
                                                  15,040Plus:
      Allowance for loan losses
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  1,192Total
      Risk-based Capital September 30, 2008
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  $
                                                  16,232At
      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.


19


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
September 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
September 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 September 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
September 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.


20


PART II –
OTHER INFORMATION




Item
      6.
            Exhibits





Exhibits





31.1
            Rule
      13a-14(a) /15d-14(a) Certification





32.1
            Section
      1350 Certification


21


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.





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





22