UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549





FORM
10-Q





(Mark
One)


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





For the
quarterly period
ended                        June 30,
2009





 ̈
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For the
transition period from
__________________              to           ______________________





Commission
File Number:   000-52839





NORTH PENN BANCORP,
INC.


(Exact
name of registrant as specified in its charter)





Pennsylvania
              
              26-0261305(State
      or other jurisdiction of
                Incorporation
      or organization)
              
              (IRS
      Employer
                Identification
      No.)





216 Adams Avenue, Scranton,
PA  18503


(Address
of principal executive offices)





(570)
344-6113


(Registrant’s
telephone number)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x  No   ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).   Yes  ̈     No
 ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule12b-2 of the Exchange Act.


(Check
one):


Large
accelerated filer  ̈                                           Accelerated
filer  ̈


Non-accelerated
filer    ̈                                           Smaller
reporting company x


(Do not
check if smaller reporting company)





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes  ̈  No  x





Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practical date: As of August 5, 2009 the issuer had
1,406,171 shares of common stock, par value $0.10 per share,
outstanding.








PART
I - FINANCIAL INFORMATION





PageItem
      1. Financial Statements.Consolidated
      Balance Sheets at June 30, 2009 and December 31, 2008
                
                
                3Consolidated
      Statements of Income for the Three and Six Months Ended June 30, 2009 and
      2008
                
                
                4Consolidated
      Statements of Cash Flows for the Six Months Ended June 30, 2009and
      2008
                
                
                5Notes
      to Unaudited Consolidated Financial Statements
                
                
                6Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
                
                
                15Item
      3. Quantitative and Qualitative Disclosures About Market
    Risk.
                
                
                19Item
      4. Controls and Procedures.
                
                
                19PART
      II - OTHER INFORMATIONItem
      1. Legal Proceedings
                
                
                19Item
      1A.Risk Factors
                
                
                19Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
                
                
                20Item
      3. Defaults Upon Senior Securities.
                
                
                20Item
      4. Submission of Matters to a Vote of Security Holders.
                
                
                20Item
      5. Other Information.
                
                
                20Item
      6. Exhibits.
                
                
                20




2


PART
I – FINANCIAL INFORMATION





Item
1.                      Financial
Statements





North
Penn Bancorp, Inc. and Subsidiary


Consolidated
Balance Sheets





June
      30,
                  2009
                
                
                December
      31,
                  2008(Unaudited)
                
                
                (Audited)(In
      thousands)ASSETS:Cash
      and due from banks
                
                $
                1,669
                
                
                $
                1,604Interest
      bearing deposits
                
                
                110
                
                
                
                43Total
      cash and cash equivalents
                
                
                1,779
                
                
                
                1,647Federal
      funds sold
                
                
                12,111
                
                
                
                627Investment
      securities, available for sale
                
                
                19,866
                
                
                
                20,293Equity
      securities at cost, substantially restricted
                
                
                1,143
                
                
                
                1,090Loans,
      net of allowance for loan losses of $1,205 in 2009 and $1,170 in
      2008
                
                
                106,890
                
                
                
                106,106Loans
      held for sale
                
                
                -
                
                
                
                684Bank
      premises and equipment – net
                
                
                4,025
                
                
                
                4,126Accrued
      interest receivable
                
                
                687
                
                
                
                676Cash
      surrender value of life insurance
                
                
                2,942
                
                
                
                2,864Deferred
      income taxes
                
                
                602
                
                
                
                657Other
      assets
                
                
                213
                
                
                
                220TOTAL
      ASSETS
                
                $
                150,258
                
                
                $
                138,990LIABILITIES:Deposits:Non-interest
      bearing deposits
                
                $
                6,841
                
                
                $
                6,985Interest
      bearing demand deposits
                
                
                47,468
                
                
                
                48,468Interest
      bearing time deposits
                
                
                64,013
                
                
                
                43,700Total
      deposits
                
                
                118,322
                
                
                
                99,153Other
      borrowed funds
                
                
                12,000
                
                
                
                19,648Accrued
      interest and other liabilities
                
                
                866
                
                
                
                891TOTAL
      LIABILITIES
                
                
                131,188
                
                
                
                119,692STOCKHOLDERS’
      EQUITY:Preferred
      stock, no par; 20,000,000 authorized; issued and outstanding,
      none
                
                
                -
                
                
                
                -Common
      stock, par value $0.10; 80,000,000 authorized; 1,581,571shares issued in
      2009 and 2008; outstanding: 1,417,671 in 2009 and 1,478,571 in
      2008
                
                
                158
                
                
                
                158Additional
      paid-in capital
                
                
                13,527
                
                
                
                13,480Retained
      earnings
                
                
                8,033
                
                
                
                7,905Unearned
      ESOP shares
                
                
                (980
                )
                
                
                (980
                )Accumulated
      other comprehensive loss
                
                
                (355
                )
                
                
                (460
                )Treasury
      Stock at cost, shares: 163,900 in 2009 and 103,000 in 2008
                
                
                (1,313
                )
                
                
                (805
                )TOTAL
      STOCKHOLDERS’ EQUITY
                
                
                19,070
                
                
                
                19,298TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                
                $
                150,258
                
                
                $
                138,990





See notes
to unaudited consolidated financial statements.


3


North
Penn Bancorp, Inc. and Subsidiary


Unaudited
Consolidated Statements of Income


For
the Three and Six Months Ended June 30, 2009 and 2008


(In
thousands)





Six
      Months Ended
                  
                  
                  Three
      Months EndedJune
      30,
                    2009
                  
                  
                  June
      30,
                    2008
                  
                  
                  June
      30,
                    2009
                  
                  
                  June
      30,
                    2008INTEREST
      INCOMEInterest
      on loans
                  
                  $
                  3,414
                  
                  
                  $
                  3,399
                  
                  
                  $
                  1,695
                  
                  
                  $
                  1,685Interest
      on federal funds sold
                  
                  
                  3
                  
                  
                  
                  61
                  
                  
                  
                  2
                  
                  
                  
                  29Interest
      on tax exempt investments
                  
                  
                  148
                  
                  
                  
                  143
                  
                  
                  
                  74
                  
                  
                  
                  71Interest
      on investments
                  
                  
                  234
                  
                  
                  
                  154
                  
                  
                  
                  112
                  
                  
                  
                  88Dividends
      on investments
                  
                  
                  15
                  
                  
                  
                  41
                  
                  
                  
                  3
                  
                  
                  
                  16Total
      interest income
                  
                  
                  3,814
                  
                  
                  
                  3,798
                  
                  
                  
                  1,886
                  
                  
                  
                  1,889INTEREST
      EXPENSEInterest
      on deposits
                  
                  
                  1,267
                  
                  
                  
                  1,427
                  
                  
                  
                  654
                  
                  
                  
                  683Interest
      on short-term borrowings
                  
                  
                  10
                  
                  
                  
                  15
                  
                  
                  
                  (3
                  )
                  
                  
                  -Interest
      on long-term borrowings
                  
                  
                  308
                  
                  
                  
                  310
                  
                  
                  
                  155
                  
                  
                  
                  155Total
      interest expense
                  
                  
                  1,585
                  
                  
                  
                  1,752
                  
                  
                  
                  806
                  
                  
                  
                  838NET
      INTEREST INCOME
                  
                  
                  2,229
                  
                  
                  
                  2,046
                  
                  
                  
                  1,080
                  
                  
                  
                  1,051PROVISION
      FOR LOAN LOSSES
                  
                  
                  90
                  
                  
                  
                  31
                  
                  
                  
                  38
                  
                  
                  
                  -NET
      INTEREST INCOME
                    AFTER
      PROVISION FOR LOAN LOSSES
                  
                  
                  2,139
                  
                  
                  
                  2,015
                  
                  
                  
                  1,042
                  
                  
                  
                  1,051OTHER
      INCOMEService
      charges and fees
                  
                  
                  73
                  
                  
                  
                  66
                  
                  
                  
                  16
                  
                  
                  
                  12Other
      operating income
                  
                  
                  134
                  
                  
                  
                  97
                  
                  
                  
                  90
                  
                  
                  
                  73Gain
      on sale of securities
                  
                  
                  -
                  
                  
                  
                  1
                  
                  
                  
                  -
                  
                  
                  
                  3Net
      gain on sale of loans
                  
                  
                  14
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -TOTAL
      OTHER INCOME
                  
                  
                  221
                  
                  
                  
                  164
                  
                  
                  
                  106
                  
                  
                  
                  88OTHER
      EXPENSESalaries
      and employee benefits
                  
                  
                  1,089
                  
                  
                  
                  1,038
                  
                  
                  
                  585
                  
                  
                  
                  524Occupancy
      and equipment expense
                  
                  
                  305
                  
                  
                  
                  341
                  
                  
                  
                  154
                  
                  
                  
                  175Other
      operating expenses
                  
                  
                  674
                  
                  
                  
                  456
                  
                  
                  
                  448
                  
                  
                  
                  260Loss
      from accounting errors
                  
                  
                  -
                  
                  
                  
                  475
                  
                  
                  
                  -
                  
                  
                  
                  -TOTAL
      OTHER EXPENSE
                  
                  
                  2,068
                  
                  
                  
                  2,310
                  
                  
                  
                  1,187
                  
                  
                  
                  959INCOME(LOSS)
      BEFORE INCOME TAXES
                  
                  
                  292
                  
                  
                  
                  (131
                  )
                  
                  
                  (39
                  )
                  
                  
                  180INCOME
      TAX EXPENSE(BENEFIT)
                  
                  
                  70
                  
                  
                  
                  (80
                  )
                  
                  
                  (37
                  )
                  
                  
                  64NET
      INCOME/(LOSS)
                  
                  
                  222
                  
                  
                  
                  (51
                  )
                  
                  
                  (2
                  )
                  
                  
                  116OTHER
      COMPREHENSIVE INCOME/(LOSS):Unrealized
      holding gain arising during period,
                    net
      of income tax
                  
                  
                  (10
                  )
                  
                  
                  (98
                  )
                  
                  
                  (105
                  )
                  
                  
                  (120
                  )COMPREHENSIVE
      INCOME(LOSS)
                  
                  $
                  212
                  
                  
                  $
                  (149
                  )
                  
                  $
                  (107
                  )
                  
                  $
                  (4
                  )Weighted
      average number of shares outstanding
                  
                  
                  1,417,697
                  
                  
                  
                  1,536,761
                  
                  
                  
                  1,408,559
                  
                  
                  
                  1,536,761Earnings
      per share, basic and diluted
                  
                  $
                  0.16
                  
                  
                  $
                  (0.03
                  )
                  
                  $
                  -
                  
                  
                  $
                  0.08Dividends
      per share
                  
                  $
                  0.06
                  
                  
                  $
                  0.06
                  
                  
                  $
                  0.03
                  
                  
                  $
                  0.03




See notes
to unaudited consolidated financial statements.


4


North
Penn Bancorp, Inc. and Subsidiary


Unaudited
Consolidated Statements of Cash Flows


For
the Six Months Ended June 30, 2009 and 2008


(In
thousands)





2009
                
                
                2008Operating
      Activities:Net
      income/(loss)
                
                $
                222
                
                
                $
                (51
                )Items
      not requiring (providing) cashDepreciation
                
                
                116
                
                
                
                124Provision
      for loan losses
                
                
                90
                
                
                
                31Amortization
      of securities (net of accretion)
                
                
                9
                
                
                
                10Increase
      in cash surrender value of life insurance
                
                
                (78
                )
                
                
                (40
                )Net
      realized gain on securities
                
                
                -
                
                
                
                (1
                )Net
      realized gain on sale of bank premises and equipment
                
                
                -
                
                
                
                (3
                )Net
      realized gain on sale of loans
                
                
                (14
                )
                
                
                -Changes
      in:Accrued
      interest income and other assets
                
                
                (4
                )
                
                
                (145
                )Accrued
      interest expense and other liabilities
                
                
                22
                
                
                
                180Net
      Cash Provided By Operating Activities
                
                
                363
                
                
                
                105Investing
      Activities:Purchase
      of bank premises and equipment
                
                
                (15
                )
                
                
                (131
                )Proceeds
      from sale of bank premises and equipment
                
                
                -
                
                
                
                7Proceeds
      from sale of other real estate
                
                
                -
                
                
                
                100Purchase
      of securities “available for sale”
                
                
                (1,612
                )
                
                
                (4,652
                )Sales
      of securities “available for sale”
                
                
                15
                
                
                
                28Federal
      funds sold, net
                
                
                (11,484
                )
                
                
                (13,745
                )Matured
      or called securities “available for sale”
                
                
                993
                
                
                
                885Redemptions
      of mortgage-backed securities “available
      for   sale”
                
                
                1,182
                
                
                
                618(Purchase)
      redemption of restricted stock
                
                
                (53
                )
                
                
                266Net
      increase in loans to customers
                
                
                (874
                )
                
                
                (840
                )Proceeds
      from sale of loans
                
                
                698
                
                
                
                -Net
      Cash Used In Investing Activities
                
                
                (11,150
                )
                
                
                (17,464
                )Financing
      Activities:Increase
      in deposits
                
                
                19,169
                
                
                
                22,606Decrease
      in borrowed funds
                
                
                (7,648
                )
                
                
                (5,879
                )Treasury
      stock purchased
                
                
                (508
                )
                
                
                -Cash
      dividends paid
                
                
                (94
                )
                
                
                (47
                )Net
      Cash Provided By Financing Activities
                
                
                10,919
                
                
                
                16,680Net
      Increase (Decrease) In Cash and Cash Equivalents
                
                
                132
                
                
                
                (679
                )Cash
      and Cash Equivalents, January 1
                
                
                1,647
                
                
                
                3,178Cash
      and Cash Equivalents, June 30
                
                $
                1,779
                
                
                $
                2,499Supplementary
      Schedule of Cash Flow Information:Cash
      paid during the period for:Interest
                
                $
                1,539
                
                
                $
                1,663Income
      taxes
                
                
                79
                
                
                
                91Non-cash
      investing and financing activities:Unrealized
      gains (losses) on securities
                
                $
                160
                
                
                $
                (149
                )








See notes
to unaudited consolidated financial statements.


5


Notes
to Unaudited Consolidated Financial Statements





1.
            Nature
      of Operations and Summary of Significant Accounting
    Policies





Nature
of Operations





North
Penn Bancorp, Inc. (Company) is the holding company for North Penn Bank (Bank);
a Pennsylvania state chartered savings bank.  The Company’s common
stock is quoted on the OTC Bulletin Board under the symbol
“NPBP.OB.”  The Bank operates from five offices 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.





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.


6


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
Company’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
Company 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 June 30, 2009 and
December 31, 2008 are as follows:


7


Available-for-Sale


June
30, 2009


(In
thousands)





Amortized
                    Cost
                  
                  
                  Gross
                    Unrealized
                    Gains
                  
                  
                  Gross
                    Unrealized
                    Losses
                  
                  
                  Fair
                    ValueU.S.
      Agency securities
                  
                  $
                  2,500
                  
                  
                  $
                  37
                  
                  
                  $
                  -
                  
                  
                  $
                  2,537Mortgage-backed
      securities
                  
                  
                  3,393
                  
                  
                  
                  65
                  
                  
                  
                  -
                  
                  
                  
                  3,458State
      & political subdivisions
                  
                  
                  8,524
                  
                  
                  
                  67
                  
                  
                  
                  23
                  
                  
                  
                  8,568Other
      bonds
                  
                  
                  4,440
                  
                  
                  
                  11
                  
                  
                  
                  275
                  
                  
                  
                  4,176Total
      debt securities
                  
                  
                  18,857
                  
                  
                  
                  180
                  
                  
                  
                  298
                  
                  
                  
                  18,739Equity
      securities
                  
                  
                  1,547
                  
                  
                  
                  4
                  
                  
                  
                  424
                  
                  
                  
                  1,127Total
      Available-for-Sale
                  
                  $
                  20,404
                  
                  
                  $
                  184
                  
                  
                  $
                  722
                  
                  
                  $
                  19,866





Available-for-Sale


December
31, 2008


(In
thousands)





Amortized
                    Cost
                  
                  
                  Gross
                    Unrealized
                    Gains
                  
                  
                  Gross
                    Unrealized
                    Losses
                  
                  
                  Fair
                    ValueU.S.
      Agency securities
                  
                  $
                  3,000
                  
                  
                  $
                  16
                  
                  
                  $
                  -
                  
                  
                  $
                  3,016Mortgage-backed
      securities
                  
                  
                  5,074
                  
                  
                  
                  68
                  
                  
                  
                  -
                  
                  
                  
                  5,142State
      & political subdivisions
                  
                  
                  8,529
                  
                  
                  
                  20
                  
                  
                  
                  338
                  
                  
                  
                  8,211Other
      bonds
                  
                  
                  3,017
                  
                  
                  
                  38
                  
                  
                  
                  189
                  
                  
                  
                  2,866Total
      debt securities
                  
                  
                  19,620
                  
                  
                  
                  142
                  
                  
                  
                  527
                  
                  
                  
                  19,235Equity
      securities
                  
                  
                  1,371
                  
                  
                  
                  11
                  
                  
                  
                  324
                  
                  
                  
                  1,058Total
      Available-for-Sale
                  
                  $
                  20,991
                  
                  
                  $
                  153
                  
                  
                  $
                  851
                  
                  
                  $
                  20,293





All of
the Company’s investment securities were classified as available-for-sale at
June 30, 2009 and December 31, 2008.





The gross
fair value and unrealized losses of the Company’s investment securities,
aggregated by investment category and length of time that individual securities
have been in a continuous unrealized loss position at June 30, 2009, are 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
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Municipal
                  
                  
                  3,721
                  
                  
                  
                  (23
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,721
                  
                  
                  
                  (23
                  )Other
      securities
                  
                  
                  2,674
                  
                  
                  
                  (255
                  )
                  
                  
                  1,007
                  
                  
                  
                  (20
                  )
                  
                  
                  3,681
                  
                  
                  
                  (275
                  )Equity
      securities
                  
                  
                  485
                  
                  
                  
                  (89
                  )
                  
                  
                  554
                  
                  
                  
                  (335
                  )
                  
                  
                  1,039
                  
                  
                  
                  (424
                  )Total
                  
                  $
                  6,880
                  
                  
                  $
                  (367
                  )
                  
                  $
                  1,561
                  
                  
                  $
                  (355
                  )
                  
                  $
                  8,441
                  
                  
                  $
                  (722
                  )





The above
table at June 30, 2009 includes 32 securities that have unrealized losses for
less than 12 months and 35 securities that have been in an unrealized loss
position for 12 or more months.





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.  Because the changes in market value of debt securities
is due to changes in interest rates, and since the Company does not intend to
sell the securities and it is more likely than not that the Company will not
have to sell the securities before recovery of their cost basis, the Company
does not consider these investments to be other-than-temporarily impaired at
June 30, 2009.


8


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 Bank’s ability to
hold these stocks for a reasonable period of time sufficient for a forecasted
recovery of cost, management does not consider these investments to be
other-than-temporarily impaired at June 30, 2009.




3.
            Loans





June 30,
                                2009
                              
                              
                              December 31,
                                2008(In
      thousands)Real
      estate mortgages:Construction
      and land development
                              
                              $
                              118
                              
                              
                              $
                              546Residential,
      1 – 4 family
                              
                              
                              45,901
                              
                              
                              
                              44,986Residential,
      multi-family
                              
                              
                              1,125
                              
                              
                              
                              1,147Commercial
                              
                              
                              54,119
                              
                              
                              
                              53,448Total
      real estate mortgages
                              
                              
                              101,263
                              
                              
                              
                              100,127Commercial
                              
                              
                              2,386
                              
                              
                              
                              1,796Consumer
                              
                              
                              4,446
                              
                              
                              
                              5,353Total
      loans
                              
                              
                              108,095
                              
                              
                              
                              107,276Allowance
      for loan losses
                              
                              
                              1,205
                              
                              
                              
                              1,170Total
      loans, net
                              
                              $
                              106,890
                              
                              
                              $
                              106,106





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.


9


The
following table sets forth the period-end balances of and changes in the
allowance for loan losses as of June 30, 2009 and December 31,
2008:





June
      30,
                    
                    
                    December
      31,(Dollars
      in thousands)
                    
                    2009
                    
                    
                    2008Balance
      at beginning of period
                    
                    $
                    1,170
                    
                    
                    $
                    1,171Charge-offs:Commercial
                    
                    
                    50
                    
                    
                    
                    -Real
      estate mortgages
                    
                    
                    -
                    
                    
                    
                    3Consumer
                    
                    
                    15
                    
                    
                    
                    47Total
                    
                    
                    65
                    
                    
                    
                    50Recoveries:Commercial
                    
                    
                    -
                    
                    
                    
                    -Real
      estate mortgages
                    
                    
                    -
                    
                    
                    
                    -Consumer
                    
                    
                    10
                    
                    
                    
                    18Total
                    
                    
                    10
                    
                    
                    
                    18Net
      charge-offs
                    
                    
                    55
                    
                    
                    
                    32Provision
      charged to operations
                    
                    
                    90
                    
                    
                    
                    31Balance
      at end of period
                    
                    $
                    1,205
                    
                    
                    $
                    1,170





4.
            Other
      Borrowings





The Bank
has a line of credit agreement with the FHLB 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 June 30, 2009, this line of credit had
a zero balance.





The Bank
has a $5.0 million borrowing with the FHLB at a fixed rate of 6.19%, which was
issued in July, 2000, and matures July, 2010.  The loan requires
monthly interest payments, with the principal due at maturity.





The Bank
also has a $7.0 million borrowing with the FHLB at a fixed rate of 4.34%, which
was issued in July, 2005, and matures in July, 2015.  This loan
requires quarterly interest payments, with the principal due at
maturity.





5.
            Earnings
      Per Share





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 at June 30, 2009, includes
common shares issuable upon exercise of employee stock options as
follows:


10





Six
      Months Ended
                      June
      30,
                    
                    
                    Three
      Months Ended
                      June
      30,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008Income
      (Numerator)
                    
                    $
                    222,000
                    
                    
                    $
                    (51,000
                    )
                    
                    $
                    (2,000
                    )
                    
                    $
                    116,000Shares
      (Denominator)Basic
      shares outstanding
                    
                    
                    1,417,697
                    
                    
                    
                    1,536,761
                    
                    
                    
                    1,408,559
                    
                    
                    
                    1,536,761Effective
      of dilutive shares
                    
                    
                    -
                    
                    
                    
                    1,467
                    
                    
                    
                    -
                    
                    
                    
                    1,467Diluted
      shares outstanding
                    
                    
                    1,417,697
                    
                    
                    
                    1,538,228
                    
                    
                    
                    1,408,559
                    
                    
                    
                    1,538,228Earnings
      per shareBasic
                    
                    $
                    .16
                    
                    
                    $
                    (0.03
                    )
                    
                    $
                    -
                    
                    
                    $
                    0.08Diluted
                    
                    $
                    .16
                    
                    
                    $
                    (0.03
                    )
                    
                    $
                    -
                    
                    
                    $
                    0.08





6.
              Omnibus
      Stock Option Plan




Stock-based
compensation is accounted for in accordance with SFAS No. 123(R),Share-Based Payment. The
Company establishes fair value for its equity awards to determine their
cost. The Company recognizes the related expense for employees over the
appropriate vesting period, or when applicable, service period, using the
straight-line method. However, consistent with SFAS No. 123(R), the amount of
stock-based compensation recognized at any date must at least equal the portion
of the grant date value of the award that is vested at that date and as a result
it may be necessary to recognize the expense using a ratable method. In
accordance with Emerging Issues Task Force (EITF) Issue No. 96-18, Accounting for Equity Instruments
That Are Issued to Other Than Employees, the compensation expense for
non-employees is recognized on the grant date, or when applicable, the service
period, using the straight-line method.




The
Company’s 2006 Omnibus Stock Option Plan (the Plan) authorizes the issuance of
shares of common stock pursuant to awards that may be granted in the form of
stock options and restricted stock awards. Under the Plan, the Company reserved
101,865 shares of common stock for future issuance. The purpose of the Plan is
to attract and retain personnel for positions of substantial responsibility and
to provide additional incentive to certain officers, directors, advisory
directors, employees and other persons to promote the success of the Company.
Under the Plan, options expire ten years after the date of grant, unless
terminated earlier under the option terms. A committee of non-employee directors
has the authority to determine the conditions upon which the options granted
will vest. Options are granted at the then fair market value of the Company’s
stock.





On May
26, 2009, the Company’s stockholders approved the Company’s 2009 Equity
Incentive Plan (the 2009 plan).  The Company has reserved 119,000
shares of common stock for future issuance upon the grant or exercise of awards
made pursuant to the plan.  Of the 119,000 shares, 85,000 is the
maximum number of shares of common stock which may be issued upon the exercise
of options to purchase shares of common stock, while 34,000 is the maximum that
may be distributed upon the vesting of stock awards.  No awards have
been made to date under the 2009 plan.


11


A summary
of the status of the Company’s stock options as of June 30, 2009 is as
follows:





Number of
                  Shares
                
                
                Weighted
                  Average
                  Exercise PriceOutstanding,
      January 1, 2009
                
                
                62,879
                
                
                $
                9.11Granted
                
                
                1,000
                
                
                $
                8.50Exercised
                
                
                -
                
                
                
                -Forfeited
                
                
                -
                
                
                
                -Outstanding,
      June 30, 2009
                
                
                63,879
                
                
                $
                9.10Exercisable,
      June 30, 2009
                
                
                17,598
                
                
                $
                9.43





The
following table summarizes all stock options outstanding as of June 30,
2009:





OptionsOutstandingDateIssued
                    
                    Numberof
                      Shares
                    
                    
                    Weighted
                      Average
                      ExercisePrice
                    
                    
                    Weighted
                      Average
                      Remaining
                      ContractualLifeSeptember
      26, 2006
                    
                    
                    25,116
                    
                    
                    $
                    10.19
                    
                    
                    
                    7.3October
      23, 2007
                    
                    
                    3,766
                    
                    
                    $
                    9.95
                    
                    
                    
                    8.3May
      28, 2008
                    
                    
                    33,977
                    
                    
                    $
                    8.25
                    
                    
                    
                    8.9May
      11, 2009
                    
                    
                    1,000
                    
                    
                    $
                    8.50
                    
                    
                    
                    9.8





A summary
of non-vested shares as of June 30, 2009 is as follows:





Options:
                                
                                
                                
                                
                                
                                Awards:Number
                                  of
                                  Shares
                                
                                
                                Weighted
                                  Average
                                  Grant
                                  Date Fair
                                  Value
                                
                                
                                Number
                                  of
                                  Shares
                                
                                
                                Weighted
                                  Average
                                  Grant
                                  Date Fair
                                  ValueNonvested,
      January 1, 2009
                                
                                
                                52,080
                                
                                
                                $
                                3.40
                                
                                
                                
                                22,992
                                
                                
                                $
                                8.47Issued
                                
                                
                                1,000
                                
                                
                                
                                2.70
                                
                                
                                
                                500
                                
                                
                                
                                8.50Vested
                                
                                
                                (6,799
                                )
                                
                                
                                3.18
                                
                                
                                
                                (4,075
                                )
                                
                                
                                8.25Forfeited
                                
                                
                                -
                                
                                
                                
                                
                                
                                
                                
                                -Nonvested,
      June 30, 2009
                                
                                
                                46,281
                                
                                
                                $
                                3.42
                                
                                
                                
                                19,417
                                
                                
                                $
                                8.52





The
compensation expense recognized for awards under the Company’s equity plans at
June 30, 2009 and 2008 was $47,000 and $22,000, respectively.





As of
June 30, 2009, there was approximately $301,000 of total unrecognized
compensation cost related to options and nonvested stock awards granted under
the Company’s equity plans.  The cost of the options and stock awards
is expected to be recognized over a weighted-average period of five
years.


12


7.
            Guarantees




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




In
September 2006, the Bank executed a Mortgage Partnership Finance (MPF) Master
Commitment (the Commitment) with the 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 six-months ended June 30, 2009 and the year ended
December 31, 2008 (dollars in thousands):





2009
                      
                      
                      2008Beginning
      balance
                      
                      $
                      1,327
                      
                      
                      $
                      1,334Additions
                      
                      
                      2
                      
                      
                      
                      647Collections
                      
                      
                      (47
                      )
                      
                      
                      (654
                      )Ending
      balance
                      
                      $
                      1,282
                      
                      
                      $
                      1,327





9.
            Retirement
      Plans





The
Company participates in the Financial Institution Retirement Fund (the Fund)
administered by the Pentegra Group.  The Fund operates as a
multi-employer plan for accounting purposes under Statement of Financial
Accounting Standards No. 87 Employers’ Accounting for Pensions.  As
such, the annual pension expense to be recorded is defined as the amount of the
required annual contribution.





In
February, 2009, the Bank’s Board of Directors authorized the freezing of
benefits within the defined benefit plan as of April 1, 2009.  For the
plan years ending June 30, 2008 and 2007, the required contributions due were
$94,000 and $138,000 respectively.





In March,
2009, the Board of Directors approved an increase in matching employees’
contributions within the Bank’s existing 401k plan from 50% of the first 6% to
100% of the first 6% as of April 1, 2009.  It is estimated that the
increased cost of higher matching will be approximately $26,000 for
2009.





10.
            Fair
      Value Measurements




Effective
January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements,
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:


13


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




Investments
available for sale are recorded at fair value on a recurring
basis.  Loans held for sale are recorded at fair value on a
nonrecurring basis based on the lower of cost or market.




The
following required disclosure of the estimated fair value of financial
instruments has been determined by the Company using available market
information and appropriate valuation methodologies.  However,
considerable judgment is necessarily required to interpret market data to
develop the estimates of fair value.  Accordingly, the estimates
presented herein are not necessarily indicative of the amounts the Company could
realize in a current market exchange.  The use of different market
assumptions and/or estimation methodologies may have a material effect in the
estimated fair value amounts.




The
methods and assumptions used to estimate the fair values of each class of
financial instrument are as follows:




Cash and cash
equivalents:  The carrying amount of cash and cash equivalents
approximate their fair value.




Available-for-sale and
held-for-maturity securities:Fair values for securities are
based on bid prices received from securities dealers.  Restricted
equity securities are carried at cost, which approximates fair
value.




Loans:The fair
values of all loans are estimated by the net present value of the future
expected cash flows.




Deposit
liabilities:  The fair value of demand deposits, NOW accounts,
savings accounts, and money market deposits is estimated by the net present
value of the future expected cash flows.  For certificates of deposit,
the discount rates used to reflect the Bank’s current market
pricing.  The discount rates for non-maturity deposits are the current
book rate of the deposit.




Other
borrowing:  The fair value of the other borrowing is estimated
using the rates currently offered for similar borrowing.




Accrued
interest:  The carrying amounts of accrued interest approximate
their fair values.




Off-balance-sheet
instruments:  Commitments to extend credit are generally short-term
and are priced to market at the time of funding.  Therefore, the
estimated fair value of these financial instruments is nominal prior to
funding.




The
following table presents the assets reported on the consolidated balance sheets
at their fair value as of June 30, 2009 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.  There were no changes
during 2009 in Level III assets.


14


Assets
measured at fair value on a recurring basis (in thousands):




June 30, 2009Level I
                        
                        
                        Level II
                        
                        
                        Level III
                        
                        
                        TotalAssets:Securities
      available-for-sale
                        
                        $
                        1,091
                        
                        
                        $
                        18,739
                        
                        
                        $
                        36
                        
                        
                        $
                        19,866





11.
            Subsequent
      Events




In
connection with preparation of these financial statements, the Company has
evaluated events and transaction through August 14, 2009, which is the date the
financial statements were available to be issued.





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





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-K
for the year ended December 31, 2008, 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





Our total
assets increased $11.3 million, or 8.1%, from $139.0 million at December 31,
2008 to $150.3 million at June 30, 2009.  Significant changes in asset
totals from December 31, 2008 to June 30, 2009 included an increase of $11.5
million in Federal funds sold.





Our
overall loan portfolio increased a net of $800,000 or .7%, since December 31,
2008.  Consumer loans decreased $907,000 from $5.4 million at December
31, 2008 to $4.4 million at June 30, 2009, as the Bank has chosen not to
aggressively pursue that segment of loans. Commercial real estate loans have
increased $671,000 from $53.4 million at December 31, 2008 to $54.1 million at
June 30, 2009. Residential mortgages increased $893,000 from December 31, 2008,
and commercial loans not secured by real estate increased
$590,000.


15


Investment
securities decreased $427,000, or 2.1%, to $19.9 million from $20.3 million
since December 31, 2008. The Company had securities in the amount of $500,000
called and $493,000 matured during the first six months. The Company also
purchased $188,000 in equity securities and $1.4 million in corporate bonds,
during 2009.





The
allowance for loan loss increased $35,000 during the six months ended June 30,
2009. The provision for loan losses amounted to $90,000 for the first six months
of 2009. Subtracting from the provision were charge-offs of $50,000 for a
commercial loan and $15,000 for consumer loans.  The Bank was able to
recover approximately $10,000 during the same period. Management assesses the
adequacy of the allowance for loan losses through a quarterly analysis of the
loan portfolio and upon management’s continuing analysis of the factors
underlying the quality of the loan portfolio. The ratio of the Bank’s allowance
for loan losses to total loans was 1.11% at June 30, 2009 and 1.09% at December
31, 2008. We are carefully monitoring credit quality so that we can respond
quickly to any deterioration with action to include strong collection efforts
and increased allowance for loan loss protection.





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
$1.3 million at June 30, 2009, compared to $1.1 million at December 31, 2008.
The ratio of non-performing loans to total loans was 1.17% and 1.03% at June 30,
2009 and December 31, 2008, respectively.





Total
deposits increased $19.1 million, or 19.3%, to $118.3 million at June 30, 2009
from $99.2 million at December 31, 2008. Non-interest bearing deposits decreased
slightly to $6.8 million at June 30, 2009 from $7.0 million at December 31,
2008, while time deposits increased $20.3 million to $64.0 million at June 30,
2009 from $43.7 million at December 31, 2008. Interest bearing demand deposits
decreased $1.0 million, or 2.1%.  The significant growth in new money
consisted primarily of thirteen month time deposits.  A slight premium
rate was initially offered due to anticipated growth in commercial real estate
loans.  The opportunity to cross sell lower cost deposit products also
factored into this strategy.  When it became apparent that the growth
in the time deposit product exceeded our expectations of the growth in loan, we
eliminated the slight premium in that rate previously
offered.  However, the robust deposit growth continued due to customer
orientation away from the stock market and problematic larger
institutions.  Deposit growth has since abated and we anticipate that
loans in our pipeline will eventually reduce the excess funds we currently are
experiencing.





Borrowings
decreased $7.6 million, or 38.9%, from $19.6 million at December 31, 2008 to
$12.0 million at June 30, 2009. The Company fully paid down our overnight
borrowings, leaving only two long term borrowings at FHLB.





Results
of Operations





Comparison
of the Three Month and Six Month Periods Ended June 30, 2009 and
2008





Net
income for the six months ended June 30, 2009 totaled $222,000, compared to a
loss of $51,000 for the same period in 2008.  The net loss in the
first half of 2008 resulted from a $475,000 pre-tax loss due to accounting
errors within the Bank’s primary correspondent bank account.  For the
three months ending June 30, 2009, the Company had a loss of $2,000 compared to
the net income of $116,000 for the quarter ended June 30, 2008.  The
net loss for the second quarter of 2009 resulted from the FDIC special
assessment of $67,000 and additional FDIC premiums compared to 2008 of
approximately $30,000.  Salaries and benefits are $61,000 higher in
2009 due to additional pay period in June 2009.  An additional $21,000
was charged-off due to accounting errors in prior years.


16


Net
interest income increased $183,000 or 8.9%, to $2.2 million for the first half
of 2009 from $2.0 million for the same period in 2008.  Net interest
income for the second quarter ended June 30, 2009 increased $29,000, or 2.8%, as
compared to the quarter ended June 30, 2008.





The
Company’s interest income for the three and six months ended June 30, 2009
continued to remain at a level consistent with that of 2008.  Loan
interest and fee income is at the same amount for the six months ended June 30,
2009 and 2008.  Loan growth for the six months has been enough to
offset the ordinary runoff.  Interest income from federal funds sold
was $3,000 for the six months ended June 30, 2009, and during the same period in
2008, the Company realized $61,000.  The reduction is due to the
miniscule rates that are paid for federal funds during this
period.  Interest on investments increased $80,000 or 51.9%, to
$234,000, from $154,000 at the same period in 2008.





For the
six months ended June 30, 2009, interest expense decreased $167,000, or 9.5%, to
$1.6 million in 2009 from $1.8 million in 2008.  Interest expense
during the second quarter decreased $32,000, or 3.8%, to $806,000 in 2009 from
$838,000 in 2008.  For the six months ended June 30, interest on
deposits decreased $160,000, or 11.2%, from $1.4 million to $1.3 million in 2009
due to lower interest rates.  Interest on deposits for the second
quarter of 2009 decreased $29,000, or 4.2% to $654,000.  This was an
effect of lower rates being offset by greater volumes.  Interest on
borrowings remained consistent with the second quarter 2008.





Other
income for the second quarter increased $18,000, or 20.5%, to $106,000 in 2009
from $88,000 in 2008.  The increase in other income was primarily
attributable to higher income from bank owned life insurance.  Total
other expenses increased $228,000 or 23.8% to $1.2 million in 2009 from $959,000
in 2008.  Salaries and employee benefits increased $61,000 or 11.6% to
$585,000 in 2009 from $524,000 in 2008.  Occupancy and equipment
expense decreased $21,000, or 12%, to $154,000 in 2009 from $175,000 in 2008,
while other expenses increased $188,000 or 72.3% to $448,000 in 2009 from
$260,000 in 2008.  The increase in expense was mainly due to the
increased and special FDIC assessments.





For the
six months ended June 30, other income increased $57,000 or 34.8% to $221,000 in
2009 from $164,000 in 2008.  The majority of the increase is due to
the $14,000 gain on the sale of loans and the higher income from bank owned life
insurance.  Total other expenses decreased $242,000, or 10.5%, to $2.1
million in 2009 compared to 2.3 million in 2008.  Salaries and
employee benefits increased $51,000, or 4.9%, while occupancy and equipment
expense decreased $36,000, or 10.6%, to $305,000 in 2009 from $341,000 in
2008.  Other expenses increased $197,000 or 43.2% to $653,000 in 2009
from $456,000 in 2008.  The 2009 other expense category was negatively
impacted by the increase in FDIC assessments.





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.   Since management believes the amounts
are not recoverable, a loss was recorded in the amount of $475,000 in the first
quarter of 2008.





Liquidity
and Capital Resources





The
Bank’s primary sources of funds are deposits, principal and interest payments on
loans, FHLB advances and proceeds from mortgage loan sales.  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.


17


The
Bank’s cash and cash equivalents increased $132,000 for the six months ended
June 30, 2009.  During that period, cash was primarily provided from
earnings and customer deposits and primarily used to pay down overnight
borrowings, purchase investments, and invest in federal funds sold.





North
Penn Bank's capital ratios at June 30, 2009 and December 31, 2008 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 capitaladequacy
                                                                                                    purposes
                                                                                                  
                                                                                                  To be wellcapitalized
                                                                                                    under prompt
                                                                                                    correctiveaction
                                                                                                    provisionsAmount
                                                                                                  
                                                                                                  
                                                                                                  Ratio
                                                                                                  
                                                                                                  Amount
                                                                                                  
                                                                                                  Ratio
                                                                                                  
                                                                                                  Amount
                                                                                                  
                                                                                                  RatioAt
      June 30, 2009:Total
      Capital (to Risk-Weighted Assets):North
      Penn Bank
                                                                                                  
                                                                                                  $
                                                                                                  16,961
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  15.30
                                                                                                  %
                                                                                                  ≥$
      8,868
                                                                                                  
                                                                                                  ≥8.0%
                                                                                                  
                                                                                                  ≥$11,085
                                                                                                  
                                                                                                  ≥10.0%Tier
      1 Capital (to Risk-Weighted Assets):North
      Penn Bank
                                                                                                  
                                                                                                  $
                                                                                                  15,756
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  14.21
                                                                                                  %
                                                                                                  ≥$
      4,434
                                                                                                  
                                                                                                  ≥4.0%
                                                                                                  
                                                                                                  ≥$
      6,651
                                                                                                  
                                                                                                  ≥6.0%Tier
      1 Capital (to Average Assets):North
      Penn Bank
                                                                                                  
                                                                                                  $
                                                                                                  15,756
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  10.79
                                                                                                  %
                                                                                                  ≥$
      5,844
                                                                                                  
                                                                                                  ≥4.0%
                                                                                                  
                                                                                                  ≥$
      7,304
                                                                                                  
                                                                                                  ≥5.0%Risk-Weighted
      Assets:
                                                                                                  
                                                                                                  $
                                                                                                  110,852Average
      Assets:
                                                                                                  
                                                                                                  $
                                                                                                  146,089Reconciliation
      of GAAP Capital to Regulatory CapitalTotal
      Equity Capital June 30, 2009
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  15,822Plus:
      Unrealized Gain/Loss on   Investments
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  (65
                                                                                                  )Less:
      Disallowed Servicing Rights
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  (1
                                                                                                  )Total
      Tier 1 Capital June 30, 2009
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  15,756Plus:
      Allowance for loan losses
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  1,205Total
      Risk-based Capital June 30, 2009
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  16,961At
      December 31, 2008:Total
      Capital (to Risk-Weighted Assets):North
      Penn Bank
                                                                                                  
                                                                                                  $
                                                                                                  16,706
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  15.05
                                                                                                  %
                                                                                                  ≥$8,878
                                                                                                  
                                                                                                  ≥8.0%
                                                                                                  
                                                                                                  ≥$11,098
                                                                                                  
                                                                                                  ≥10.0%Tier
      1 Capital (to Risk-Weighted Assets):North
      Penn Bank
                                                                                                  
                                                                                                  $
                                                                                                  15,536
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  14.00
                                                                                                  %
                                                                                                  ≥$4,439
                                                                                                  
                                                                                                  ≥4.0%
                                                                                                  
                                                                                                  ≥$
      6,659
                                                                                                  
                                                                                                  ≥6.0%Tier
      1 Capital (to Average Assets):North
      Penn Bank
                                                                                                  
                                                                                                  $
                                                                                                  15,536
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  11.57
                                                                                                  %
                                                                                                  ≥$5,370
                                                                                                  
                                                                                                  ≥4.0%
                                                                                                  
                                                                                                  ≥$
      6,713
                                                                                                  
                                                                                                  ≥5.0%Risk-Weighted
      Assets:
                                                                                                  
                                                                                                  $
                                                                                                  110,977Average
      Assets:
                                                                                                  
                                                                                                  $
                                                                                                  134,261Reconciliation
      of GAAP Capital to Regulatory CapitalTotal
      Equity Capital December 31, 2008
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  15,390Plus:
      Unrealized Gain/Loss on Investments
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  147Less:
      Disallowed Servicing Rights
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  (1
                                                                                                  )Total
      Tier 1 Capital December 31, 2008
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  15,536Plus:
      Allowance for loan losses
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  1,170Total
      Risk-based Capital December 31, 2008
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  16,706




18


Stock
Repurchase Plan





On April
28, 2009, the Company’s Board of Directors authorized the completion of the
previous 10% stock repurchase plan (29,657 shares) and the repurchase of up to
142,341 shares of the Company’s outstanding common stock, or approximately 10%
of outstanding shares.  The current repurchase authorization will
remain in effect until all shares have been repurchased or until the Company
terminates the authorization.  Purchases under the program will be
conducted solely through a Rule 10b5-1 repurchase plan with Stifel, Nicolaus
& Company, Incorporated and will be based upon the parameters of the Rule
10b5-1 repurchase plan.   The Rule 10b5-1 repurchase plan allows
the Company to repurchase its shares during periods when it would normally not
be active in the market due to its internal trading blackout
period.




Item
3.   Quantitative and Qualitative Disclosure About Market
Risk





Not
applicable as the Company is a smaller reporting company.





Item
4.   Controls and Procedures





The
Company’s management, including the Company’s principal executive officer and
principal financial officer, have evaluated the effectiveness of the Company’s
“disclosure controls and procedures,” as such term is defined in Rule 13a-15(e)
promulgated under the Securities Exchange Act of 1934, as amended, (the
“Exchange Act”). Based upon their evaluation, the principal executive officer
and principal financial officer concluded that, as of the end of the period
covered by this report, the Company’s disclosure controls and procedures were
effective for the purpose of ensuring that the information required to be
disclosed in the reports that the Company files or submits under the Exchange
Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s
management, including its principal executive and principal financial officers,
as appropriate to allow timely decisions regarding required
disclosure.





As a
result of the loss from accounting errors in 2008, management has made, or has
begun the process of developing various improvements to the Company’s internal
control over financial reporting.  The Audit Committee of the Board of
Directors and all members of the senior management team through the Financial
Statement Disclosure Committee have taken an active role in evaluating and
planning for improvement to policy, procedures and controls in the accounting
and financial reporting areas.  The reconcilement function has been
reevaluated and specific responsibilities, the frequency and review process are
in place.  Access rights to various accounting functions within the
Bank’s core processing/accounting system are being
reevaluated.  Management oversight has been enhanced over the general
ledger entry function, both as to ensuring that proposed entries are reviewed
for propriety and authority level, as well as review of accounting reports that
result after the entries have been processed.  A comprehensive policy
is in process which will provide guidance to accounting personnel, senior
management and the Audit Committee.




PART
II – OTHER INFORMATION





Item
1.   Legal Proceedings.





The
Company is not involved in any pending legal proceedings other than routine
legal proceedings occurring in the ordinary course of business. Such routine
legal proceedings, in the aggregate, are believed by management to be immaterial
to the Company’s financial condition or results of operations.


19


Item
1A .  Risk Factors





In
addition to the other information set forth in this report, you should carefully
consider the factors discussed in our Annual Report on Form 10-K for the year
ended December 31, 2008, which could materially affect our business, financial
condition or future results. At June 30, 2009 the risk factors of the Company
have not changed materially from those reported in our Annual Report on Form
10-K. However, the risks described in our Annual Report on Form 10-K are not the
only risks that we face. Additional risks and uncertainties not currently known
to us or that we currently deem to be immaterial also may materially adversely
affect our business, financial condition and/or operating results.





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





Period
                
                (a)
                  Total number of
                  Shares
                  Purchased
                
                
                (b)
                  Average Price
                  Paid per Share
                
                
                (c)
                  Total Number of
                  Shares Purchased as
                  Part of Publicly
                  Announced Plans or
                  Programs (1)
                
                
                (d)
                  Maximum Number of
                  Shares that May Yet Be
                  Purchased Under the Plans
                  or ProgramsApril
      1, 2009
                  Through
                  April
      30, 2009
                
                
                -
                
                
                
                -
                
                
                
                128,500
                
                
                
                171,998May
      1, 2009
                  through
                  May
      31, 2009
                
                
                4,000
                
                
                $
                8.50
                
                
                
                132,500
                
                
                
                167,998June
      1, 2009
                  through
                  June
      30, 2009
                
                
                31,400
                
                
                $
                8.63
                
                
                
                163,900
                
                
                
                136,598Total
                
                
                35,400
                
                
                $
                8.57





(1) On
October 1, 2008, the Company announced a repurchase program of 158,157 shares,
approximately 10% of all shares outstanding. On April 28, 2009, the North Penn
Bancorp., Inc.’s Board of Directors authorized the completion of the previous
10% stock repurchase plan (29,657 shares) and the repurchase of up to 142,341
shares of the Company’s outstanding common stock, or approximately 10% of
outstanding shares.





Item 3.  Defaults Upon Senior
Securities.





None.





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





The
annual Meeting of Shareholders of North Penn Bancorp, Inc. on May 26,
2009.


The
results of the items submitted for a vote are as follows:


The
following two Directors were elected for a term of three years, expiring in
2012-





Name
                        
                        Votes
      for
                        
                        
                        Votes
      withheldHerbert
      C. Kneller
                        
                        
                        997,172
                        
                        
                        
                        158,896Frank
      H. Mechler
                        
                        
                        1,003,302
                        
                        
                        
                        152,766





The
approval of the North Penn Bancorp, Inc’s 2009 Equity Incentive
Plan.





Votes
      for:
                        
                        
                        567,330Votes
      against:
                        
                        
                        231,684Votes
      abstained:
                        
                        
                        50,970





The
ratification of the appointment of McGrail Merkel Quinn & Associates as the
independent  registered public accounting firm of North Penn Bancorp,
Inc. for the fiscal year ending December 31, 2009.





Votes for:
                        
                        
                        1,115,293Votes against:
                        
                        
                        29,456Votes
      abstained:
                        
                        
                        11,319





Item 5   Other
Information.





None





Item
6.   Exhibits.





3.1
              Articles
      of Incorporation of North Penn Bancorp, Inc. (Incorporated herein by
      reference to Exhibit 3.1 to the Company’s Registration Statement on
      Form SB-2 (File
No. 333-143601))


3.2
              Bylaws
      of North Penn Bancorp, Inc. (Incorporated herein by reference to
      Exhibit 3.2 to the Company’s form 10-K filed with the commission on
      March 31, 2009)


4
            Specimen
      Stock Certificate(Incorporated herein by reference to Exhibit 4 to
      the Company’s Registration Statement on Form SB-2 (File
      No. 333-143601))


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


31.2
            Rule
      13a-14(a) /15d-14(a) Chief Financial Officer
  Certification


32.1
              Section1350
      Certification of Chief Executive
Officer


32.2
                Section
      1350 Certification of Chief Financial
Officer


20


SIGNATURES





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





North
      Penn Bancorp, IncDated:
                              August
      14, 2009
                              
                              /s/
      Frederick L. HickmanFrederick
      L. Hickman
                                President
      and Chief Executive OfficerDated:
                              August
      14, 2009
                              
                              /s
      Robin R. WeikelRobin
      R. Weikel
                                Chief
      Financial Officer




21