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 September 30, 2010

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

For the transition period from __________________ to ______________________

Commission File Number: 000-52839

NORTH PENN BANCORP, INC.

(Exact name of registrant as specified in its charter)

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

216 Adams Avenue, Scranton, PA 18503

(Address of principal executive offices)

(570) 344-6113

(Registrant’s telephone number)

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

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 o No o

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 o	Accelerated filer o
Non-accelerated filer o	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 o 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 November 11, 2010 the issuer had 1,288,620 shares of common stock, par value $0.10 per share, outstanding.

PART I - FINANCIAL INFORMATION

		Page
Item 1. Financial Statements.

Consolidated Balance Sheets at September 30, 2010 and December 31, 2009		3

Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2010 and 2009		4

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009		5

Notes to Unaudited Consolidated Financial Statements		6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		20

Item 3. Quantitative and Qualitative Disclosures About Market Risk.		25

Item 4. Controls and Procedures.		25

PART II - OTHER INFORMATION

Item 1. Legal Proceedings		25

Item 1A.Risk Factors		26

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		26

Item 3. Defaults Upon Senior Securities.		26

Item 4. [Removed and Reserved].		26

Item 5. Other Information.		26

Item 6. Exhibits.		26

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

North Penn Bancorp, Inc. and Subsidiary

Consolidated Balance Sheets

(In thousands)

	September 30, 2010			December 31, 2009
	(Unaudited)			(Audited)
	(In thousands)
ASSETS:
Cash and due from banks	$	2,825		$	2,652
Interest bearing deposits		56			560
Federal funds sold		15,888			8,700
Total cash and cash equivalents		18,769			11,912
Investment securities, available for sale		15,497			19,398
Equity securities at cost, substantially restricted		1,143			1,143
Loans, net of allowance for loan losses of $1,667 in 2010 and $1,484 in 2009		119,696			114,546
Bank premises and equipment – net		3,860			3,965
Accrued interest receivable		754			665
Cash surrender value of bank-owned life insurance		3,124			3,015
Deferred income taxes		553			705
Prepaid FDIC insurance		443			604
Other real estate owned		398			88
Other assets		268			286
TOTAL ASSETS	$	164,505		$	156,327

LIABILITIES:
Deposits:
Non-interest bearing	$	7,160		$	8,785
Interest bearing		129,388			115,270
Total deposits		136,548			124,055
Other borrowed funds		7,000			12,000
Accrued interest and other liabilities		1,049			1,002
TOTAL LIABILITIES		144,597			137,057

STOCKHOLDERS’ EQUITY:
Preferred stock, no par; 20,000,000 authorized; issued and outstanding, none		-			-
Common stock, par value $0.10; 80,000,000 authorized; 1,581,571 shares issued ; outstanding: 1,285,148 at September 30, 2010 and 1,330,071 at December 31, 2009		158			158
Additional paid-in capital		13,695			13,580
Retained earnings		9,142			8,541
Unearned ESOP shares		(853	)		(907	)
Accumulated other comprehensive income, (loss)		382			(2	)
Treasury Stock at cost, shares: 296,423 at September 30, 2010 in 2010 and 251,500 at December 31, 2009		(2,616	)		(2,100	)
TOTAL STOCKHOLDERS’ EQUITY		19,908			19,270
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	164,505		$	156,327

See notes to unaudited consolidated financial statements.

North Penn Bancorp, Inc. and Subsidiary

Unaudited Consolidated Statements of Income

For the Three and Nine Months Ended September 30, 2010 and 2009

	Nine Months Ended					Three Months Ended
(In thousands)	September 30, 2010			September 30, 2009		September 30, 2010		September 30, 2009
INTEREST INCOME
Interest on loans	$	5,349		$	5,113	$	1,800	$	1,698
Interest on tax exempt loans		31			1		9		2
Interest on federal funds sold		11			5		4		2
Interest on tax exempt investments		228			222		74		74
Interest and dividends on investments		391			373		117		124
Total interest income		6,010			5,714		2,004		1,900
INTEREST EXPENSE
Interest on deposits		1,502			1,896		476		629
Interest on short-term borrowings		-			10		-		-
Interest on long-term borrowings		408			462		92		154
Total interest expense		1,910			2,368		568		783

NET INTEREST INCOME		4,100			3,346		1,436		1,117

PROVISION FOR LOAN LOSSES		334			135		133		45

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		3,766			3,211		1,303		1,072

OTHER INCOME
Service charges and fees		120			111		37		38
Bank-owned life insurance income		109			118		36		38
Other operating income		65			89		12		35
Gain on sale of securities		8			-		8		-
Gain on sale of loans		123			14		28		-
Impairment losses on investment securities		(24	)		-		-		-
TOTAL OTHER INCOME		401			332		121		111

OTHER EXPENSE
Salaries and employee benefits		1,760			1,616		590		527
Occupancy and equipment expense		428			451		163		146
FDIC insurance expense		165			196		58		43
Professional services expense		205			208		71		56
Other operating expenses		549			545		202		176
TOTAL OTHER EXPENSE		3,107			3,016		1,084		948

INCOME BEFORE INCOME TAXES		1,060			527		340		235

INCOME TAX EXPENSE		235			160		90		90

NET INCOME		825			367		250		145
OTHER COMPREHENSIVE INCOME
Unrealized holding gain arising during period, net of income tax		384			518		237		413
COMPREHENSIVE INCOME	$	1,209		$	885	$	368	$	558

Weighted average number of shares outstanding		1,305,634			1,400,044		1,285,148		1,365,371
Earnings per share, basic	$	0.63		$	0.26	$	0.19	$	0.11
Earnings per share, diluted	$	0.62		$	0.26	$	0.19		0.11
Dividends per share	$	0.17		$	0.09	$	0.04	$	0.03

See notes to unaudited consolidated financial statements.

North Penn Bancorp, Inc. and Subsidiary

Unaudited Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2010 and 2009

(In thousands)

	2010			2009
Operating Activities:
Net income	$	825		$	367
Items not requiring (providing) cash
Depreciation		135			174
Provision for loan losses		334			135
Deferred income tax benefit		(61	)		-
Amortization of securities (net of accretion)		(7	)		28
ESOP expense		54			51
Stock option expense		115			71
Increase in cash surrender value of life insurance		(109	)		(118	)
Impairment loss on investment securities		24			-
Net realized gain on sale of investment securities		(8	)		-
Net realized gain on sale of loans		(123	)		(14	)
Changes in:
Prepaid FDIC insurance		161			-
Accrued interest receivable and other assets		(71	)		(138	)
Accrued interest expense and other liabilities		(6	)		126
Net Cash Provided By Operating Activities		1,263			682

Investing Activities:
Purchase of bank premises and equipment		(30	)		(32	)
Proceeds from sale of bank premises and equipment		-			-
Proceeds from sale of other real estate		-			-
Purchase of securities “available for sale”		(84	)		(2,749	)
Sales of securities “available for sale”		43			70
Matured or called securities “available for sale”		3,150			2,593
Redemptions of mortgage-backed securities “available for Sale”		1,380			1,589
(Purchase) of restricted stock		-			(53	)
Net increase in loans to customers		(8,673	)		(3,683	)
Proceeds from sale of loans		3,002			698
Net Cash (Used) In Investing Activities		(1,212	)		(1,567	)

Financing Activities:
Increase in deposits		12,493			20,196
Decrease in borrowed funds		(5,000	)		(7,648	)
Treasury stock purchased		(516	)		(931	)
Cash dividends paid		(171	)		(138	)
Net Cash Provided By Financing Activities		6,806			11,479
Net Increase In Cash and Cash Equivalents		6,857			10,594

Cash and Cash Equivalents, January 1		11,912			2,274
Cash and Cash Equivalents, September 30	$	18,769		$	12,868

Supplementary Schedule of Cash Flow Information:
Cash paid during the period for:
Interest	$	2,004		$	2,366
Income taxes		312			112

See notes to unaudited consolidated financial statements.

Notes to Unaudited Consolidated Financial Statements

1. Nature Of Operations And Summary Of Significant Accounting Policies

Nature of Operations

North Penn Bancorp, Inc. (Company) is the holding company for North Penn Bank (Bank). The Company’s common stock is quoted on the OTC Bulletin Board under the symbol “NPBP.OB.” The Bank operates from five offices under a state savings bank charter and provides financial services to individuals and corporate customers primarily in Northeastern Pennsylvania. The Bank’s primary deposit products are savings and demand deposit accounts and certificates of deposit. Its primary lending products are real estate, commercial and consumer loans.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of North Penn Bancorp, Inc., its wholly-owned subsidiary, North Penn Bank and North Penn Bank’s wholly-owned subsidiaries, Norpenco, Inc. and North Penn Settlement Services, LLC. These entities are collectively referred to herein as the Company. All significant intercompany accounts and transactions have been eliminated in consolidation. Norpenco, Inc.’s sole activities are purchasing bank stocks and receiving dividends on such stocks. North Penn Settlement Services, LLC receives non-interest income from providing title search work.

The accounting policies of the Company conform with accounting principles generally accepted in the United States of America and with general practices within the banking industry.

Basis of Presentation

The unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principals for interim financial information. In the opinion of management, all adjustments that are of a normal recurring nature and are considered necessary for a fair presentation have been included. They are not, however, necessarily indicative of the results of consolidated operations for a full year.

Adoption of New Accounting Standards

In September 2009, the FASB amended previous guidance relating to transfers of financial assets that eliminates the concept of a qualifying special purpose entity. This guidance must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. This guidance must be applied to transfers occurring on or after its effective date. Additionally, on and after the effective date, the concept of a qualifying special-purpose entity is no longer relevant for accounting purposes. Therefore, formerly qualifying special-purpose entities should be evaluated for consolidation by reporting entities on and after the effective date in accordance with the applicable consolidation guidance. The disclosure provisions were also amended and apply to transfers that occurred both before and after the effective date of this guidance. The adoption of this update did not have a significant impact on the Company’s financial condition, results of operations or cash flows.

In September 2009, the FASB amended previous guidance for consolidation of variable interest entity guidance by replacing the quantitative-based risks and rewards calculation for determining which enterprise, if any, has a controlling financial interest in a variable interest entity. The amended guidance use an approach that focuses on identifying which enterprise has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. Additional disclosures about an enterprise’s involvement in variable interest entities are also required. This guidance is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Early adoption is prohibited. The adoption of this update did not have a significant impact to the Company’s financial condition, results of operations or cash flows.

FASB ASC Topic 855, “Subsequent Events.” New authoritative accounting guidance under ASC Topic 855, “Subsequent Events,” amends prior guidance. Under this amended guidance, SEC filers are no longer required to disclose the date through which subsequent events have been evaluated in originally issued and revised financial statements. This guidance became effective upon issuance.

Newly Issued But Not Yet Effective Accounting Standards

Accounting Standards Update (ASU) 2009-16, Transfers and Servicing (Topic 860)-Accounting for Transfers of Financial Assets has been issued. ASU 2009-16 will require more information about transfers of financial assets, including securitization transactions, and where entities have continuing exposure to the risks related to transferred financial assets. This standard is effective for the Company October 1, 2010 and is not expected to have a material effect on the Company’s financial statements.

ASC 2009-17, Consolidations (Topic 810)-Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities has been issued. ASU 2009-17 changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. This standard is effective for the Company October 1, 2010 and is not expected to have a material effect on the Company’s financial statements.

ASC 2010-06, Fair Value Measurements and Disclosures (Topic 820):Improving Disclosures about Fair Value Measurements has been issued. In January 2010, the FASB amended previous guidance related to fair value measurements and disclosures, which requires new disclosures for transfers in and out of Levels 1 and 2 and requires a reconciliation to be provided for the activity in Level 3 fair value measurements. A reporting entity should disclose separately the amounts of significant transfers in and out of Levels 1 and 2 and provide an explanation for the transfers. This guidance is effective for interim periods beginning after December 15, 2009, and did not have a material effect on the Company’s results of operations or financial position.

In the reconciliation for fair value measurements using unobservable inputs (Level 3) a reporting entity should present separately information about purchases, sales, issuances, and settlements on a gross basis rather than a net basis. Disclosures relating to purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurement will become effective beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of this standard is not expected to have a material effect on the Company’s results of operations or financial position but it will require expansion of the Company’s future disclosures about fair value measurements.

In February 2010, the FASB issued ASU 2010-09, Subsequent Events (“Topic 855”): Amendments to Certain Recognition and Disclosure Requirements. The amendments remove the requirement for an SEC registrant to disclose the date through which subsequent events were evaluated as this requirement would have potentially conflicted with SEC reporting requirements. Removal of the disclosure requirement is not expected to affect the nature or timing of subsequent events evaluations performed by the Company. This ASU became effective upon issuance.

FASB ASC Topic 310, “Receivables.” New authoritative accounting guidance under Accounting Standard Codification (“ASC”) Topic 310, “Receivables,” clarifies that modifications of loans that are accounted for within a pool under Subtopic 310-30 do not result in the removal of those loans from the pool even if the modification of those loans would otherwise be considered a troubled debt restructuring. An entity will continue to be required to consider whether the pool of assets in which the loan is included is impaired if expected cash flows for the pool change. This guidance becomes effective prospectively for modifications of loans accounted for within pools under Subtopic 310-30 occurring in the first interim or annual period on or after July 15, 2010 with early application permitted. The adoption of this new authoritative guidance under ASC Topic 310 is not expected to have a material impact on the Company’s consolidated financial statements, results of operations or liquidity.

Additional new authoritative accounting guidance (Accounting Standards Update (“ASU”) No. 2010-20) under ASC Topic 310, “Receivables,” requires significant new disclosures about the allowance for credit losses and the credit quality of financing receivables. The requirements are intended to enhance transparency regarding credit losses and the credit quality of loan and lease receivables. Under this statement, allowance for credit losses and fair value are to be disclosed by portfolio segment, while credit quality information, impaired financing receivables and non-accrual status are to be presented by class of financing receivable. Disclosure of the nature and extent, the financial impact and segment information of troubled debt restructurings will also be required. The disclosures are to be presented at the level of disaggregation that management uses when assessing and monitoring the portfolio’s risk and performance. This ASU is effective for interim and annual reporting periods after December 15, 2010. The Company will include these disclosures in the notes to the financial statements beginning December 31, 2010.

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.

Reclassifications

Certain amounts in the consolidated financial statements for 2009 have been reclassified to conform to presentations used in the 2010 consolidated financial statements. Such reclassifications had no effect on the company’s consolidated financial position or net income.

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 September 30, 2010 and December 31, 2009 are as follows:

Available-for-Sale

September 30, 2010

(In thousands)

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Agency securities	$	-	$	-	$	-	$	-
Mortgage-backed securities		1,270		70		-		1,340
State & political subdivisions		7,559		440		-		7,999
Other bonds		4,490		308		-		4,798
Total debt securities		13,319		818		-		14,137
Equity securities		1,624		40		304		1,360
Total Available-for-Sale	$	14,943	$	858	$	304	$	15,497

Available-for-Sale

December 31, 2009

(In thousands)

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Agency securities	$	1,500	$	18	$	-	$	1,518
Mortgage-backed securities		2,662		89		-		2,751
State & political subdivisions		8,719		142		6		8,855
Other bonds		4,969		164		43		5,090
Total debt securities		17,850		413		49		18,214
Equity securities		1,591		15		422		1,184
Total Available-for-Sale	$	19,441	$	428	$	471	$	19,398

All of the Company’s investment securities were classified as available-for-sale at September 30, 2010 and December 31, 2009.

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 September 30, 2010, are as follows:

	Less than 12 months				12 months or longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
U.S. Agencies	$	-	$	-	$	-	$	-	$	-	$	-
Mortgage-backed		-		-		-		-		-		-
Municipal		-		-		-		-		-		-
Other securities		-		-		-		-		-		-
Equity securities		293		35		660		266		953		301
Total	$	293	$	35	$	660	$	266	$	953	$	301

The above table at September 30, 2010 includes 10 securities that have unrealized losses for less than 12 months and 33 securities that have been in an unrealized loss position for 12 or more months.

The Company invests in various forms of agency debt including mortgage backed securities and callable debt. The mortgage backed securities are issued by FHLMC (Federal Home Loan Mortgage Company) of FNMA (Federal National Mortgage Association). The municipal securities consist of general obligations and revenue bonds. The equity securities consist of stocks in other bank holding companies. The fair market value of the above securities is influenced by market interest rates, prepayment speeds on mortgage securities, bid to offer spreads in the market place and credit premiums for various types of agency debt. These factors change continuously and therefore the market value of these securities may be higher or lower that the Company’s carrying value at any measurement date. Management does not believe any of their 43 securities in an unrealized position as of September 30, 2010 represents an other-than-temporary impairment. The Company has the ability to hold the remaining securities contained in the above table for a time necessary to recover the cost.

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. Investment securities classified as available-for-sale or held-to-maturity are generally evaluated for OTTI under FASB ASC 320 (SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities). In determining OTTI under the FASB ASC 320 model, management considers many factors, including (1) the length of time and the extent to which the fair value has been less than cost , (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions; and (4) whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgement and is based on the information available to management at a point in time.

When other-than-temporary impairment occurs, the amount of the other-than-temporary impairment recognized in earnings depends on whether an entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss. If an entity intends to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the other-than-temporary impairment shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current-period loss, the other-than-temporary impairment shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total other-than-temporary impairment related to the other factors shall be recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the other-than-temporary impairment recognized in earnings shall become the new amortized cost basis of the investment.

The Company’s investment in equity securities consists entirely of bank stocks. The Company invests in equity securities of other banks through its subsidiary, Norpenco, Inc The unrealized losses are from forty three bank stocks due to market fluctuation. The Company also reviews investment debt securities on an ongoing basis for the presence of other than temporary impairment OTTI. An impairment that is an “other-than-temporary-impairment” is a decline in the fair value of an investment below its amortized cost attributable to factors that indicate the decline will not be recovered over the anticipated holding period of the investment. Other-than-temporary-impairments result in reducing the security’s carrying value by the amount of credit loss. The credit component of the other-than-temporary impairment loss is realized through the statement of income and the remainder of the loss remains in other comprehensive income. After our March 31, 2010 review, we concluded that two securities were impaired. OTTI losses of $24,000 on these securities were recognized during the first quarter 2010. In accordance, with FASB ASC 320, the impairment was deemed credit related and run entirely through the statement of income.

Restricted Securities

Restricted equity securities consist of stock in Federal Home Loan Bank of Pittsburgh (“FHLB-Pittsburgh”) and Atlantic Central Bankers Bank (“ACBB”) and do not have a readily determinable fair value because their ownership is restricted, and they can be sold back only to the FHLB-Pittsburgh, ACBB, or to another member institution. Therefore, these securities are classified as restricted equity investment securities, carried at cost, and evaluated for impairment. At both September 30, 2010 and December 31, 2009, the Company held $1,106,000 in stock of FHLB-Pittsburgh, and $37,000 in stock of ACBB.

At December 31, 2009, the Company evaluated its holding of restricted stock for impairment and deemed the stock to not be impaired due to the expected recoverability of cost, which equals the value reflected within the Company’s consolidated financial statements. The decision was based on several items ranging from the estimated true economic losses embedded within FHLB’s mortgage portfolio to the FHLB’s liquidity position and credit rating. The Company utilizes the impairment framework outlined in GAAP to evaluate stock for impairment.

3. Loans

	September 30, 2010		December 31, 2009
Real estate mortgages:	(In thousands)
Construction and land development	$	116	$	327
Residential, 1 – 4 family		44,043		47,439
Residential, multi-family		869		908
Commercial		70,866		60,269
Total real estate mortgages		115,894		108,943
Commercial		2,943		3,368
Consumer		2,526		3,719
Total loans		121,363		116,030
Allowance for loan losses		1,667		1,484
Total loans, net	$	119,696	$	114,546

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.

Non-performing loans consist of loans where the principal, interest, or both, is 90 or more days past due and loans that have been placed on non-accrual. Income recognition of interest is discontinued when, in the opinion of management, the payment of such interest becomes doubtful. 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. The allowance for loan losses is established through provisions for losses charged to earnings. Loan losses are charged against the allowance when management believes that the collection of principal is unlikely. Recoveries of loans previously charged-off are credited to the allowance when realized. The allowance for loan losses is the amount that management has determined to be necessary to absorb probable incurred loan losses inherent in the existing portfolio. Management’s evaluations, which are subject to periodic review by the Bank’s regulators, are made using a consistently applied methodology that takes into consideration such factors as the Company’s past loan loss experience, changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans and collateral values, and current economic conditions. 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. Modifications to the methodology used in the allowance for loan losses evaluation may be necessary in the future based on further deterioration in economic and real estate market conditions, new information obtained regarding known problem loans, regulatory guidelines and examinations, the identification of additional problem loans, and other factors.

Management considers the allowance for loan losses adequate to cover the estimated losses inherent in the Bank’s loan portfolio as of September 30, 2010. Management believes it has established the allowance in accordance with accounting principles generally accepted in the United States and will consider future additions to the allowance that may be necessary based on changes in economic and other conditions. Additionally, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses. Such agencies may require the recognition of adjustments to the allowances based on their judgments of information available to them at the time of their examinations.

Management realizes that general economic trends greatly affect loan losses. The recent downturn in the real estate market has resulted in increased loan delinquencies, defaults and foreclosures, and we believe that these trends are likely to continue. Assurances cannot be made either (1) that further charges to the allowance account will not be significant in relation to the normal activity or (2) that further evaluation of the loan portfolio based on prevailing conditions may not require sizable additions to the allowance and charges to provision expense.

The following table sets forth the period-end balances of and changes in the allowance for loan losses as of September 30, 2010 and September 30, 2009.

	Three months ended				Nine months ended
	September 30,				September 30,
(Dollars in thousands)
	2010		2009		2010		2009
Balance at beginning of period	$	1,564	$	1,205	$	1,484	$	1 ,170

Charge-offs:
Commercial		-		-		39		50
Real estate mortgages		30		-		113		-
Consumer		-		7		-		22
Total	$	30	$	7	$	152	$	72

Recoveries:
Commercial		-		-		-		-
Real estate mortgages		-		-		-		-
Consumer		-		-		1		10
Total		-		-		1		10
Net charge-offs		30		7		151		62
Provision charged to operations		133		45		334		135
Balance at end of period	$	1,667	$	1,243	$	1,667	$	1,243

The Bank manages asset quality and controls credit risk through diversification of the loan portfolio and the application of policies designed to foster sound underwriting and loan monitoring practices. The Bank’s senior officers are responsible for monitoring asset quality, establishing credit policies and procedures subject to approval by the Board of Directors, ensuring the policies and procedures are followed and adjusting policies as appropriate.

Non-performing assets include non-performing loans and foreclosed real estate held for sale. Non-performing loans consist of loans where the principal, interest, or both, is 90 or more days past due and loans that have been placed on non-accrual. Income recognition of interest is discontinued when, in the opinion of management, the payment of such interest becomes doubtful. A loan is generally classified as non-accrual when principal or interest has been in default for 90 days or more or because of deterioration in the financial condition of the borrower such that payment in full of principal or interest is not expected. Loans past due 90 days or more and still accruing interest are loans that are generally well secured and in the process of collection. When loans are placed on non-accrual, accruing interest is no longer posted to earnings. At September 30, 2010, the Bank had $1.8 million in non-accrual loans as compared with $1.8 million at December 31, 2009 and $1.5 million at September 30, 2009. As of September 30, 2010, for purposes of accounting and reporting in accordance with FASB ASC 310-40 Receivables – Troubled Debt Restructuring by Creditors (SFAS 15), the Bank had no significant troubled debt restructuring. As of September 30, 2010, for purposes of accounting and reporting in accordance with FASB ASC 310-10.35 Receivables – Subsequent Measurement (SFAS 114), the Bank had $1.8 million in “impaired” loans.

The following table presents information regarding non-accrual mortgage, consumer and other loans, and foreclosed real estate as of the dates indicated:

(Dollars in thousands)	September 30		December, 31
	2010		2009
Non-accrual commercial		-	$	42
Non-accrual commercial mortgage	$	1,006		960
Non-accrual residential mortgage		817		768
Non-accrual consumer		23		4
Total non-performing loans	$	1,846	$	1,774
Foreclosed real estate		398		88
Total non-performing assets	$	2,244	$	1,862

Loss reserve ratios:
Net loan charge-offs to average loans	0.12	%	0.15	%
Allowance as a percentage of total loans	1.37	%	1.28	%

4. Other Borrowings

The Bank has a line of credit agreement with the Federal Home Loan Bank of Pittsburgh for short term borrowings varying from one day to three years. Advances on this line must be secured by “qualifying collateral” as defined in the agreement and bear interest at fixed or variable rates as determined at the date advances are made. The line expires in September, 2011. At September 30, 2010, this line of credit had a $0 balance.

On July 19, 2010, the Company redeemed its maturing $5,000,000 borrowing with the Federal Home Loan Bank of Pittsburgh. The advance had a fixed rate of 6.19%. The Bank also has a $7,000,000 borrowing with the Federal Home Loan Bank of Pittsburgh at a fixed rate of 4.34%, which was issued in July of 2005, and matures in July of 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 FASB – ASC 260-10 Earnings per share SFAS No. 128, Earnings Per Share. Diluted earnings per share include common shares issuable upon exercise of employee stock options as follows:

	Nine Months Ended				Three Months Ended
	September 30,				September 30,
	2010		2009		2010		2009
Income (Numerator)	$	825,000	$	367,000	$	250,000	$	145,000
Shares (Denominator)
Basic shares outstanding		1,305,634		1,400,044		1,285,148		1,365,371
Effective of dilutive shares		19,423		-		19,639		-
Diluted shares outstanding		1,325,057		1,400,044		1,304,787		1,365,371

Earnings per share
Basic	$	.63	$	.26	$	.19	$	.11
Diluted	$	.62	$	.26	$	.19	$	.11

6. Stock-Based Compensation

Stock-based compensation is accounted for in accordance with FASB - ASC 718-10, Compensation –Stock Compensation. 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 this standard, 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 FASB ASC 505-50 Equity Based Payments to Non-Employees, the compensation expense for non-employees is recognized on the grant date, or when applicable, the service period, using the straight-line method.

Stock Awards. In May of 2006, the Company's stockholders approved the 2006 Omnibus Stock Option Plan, under which the Company reserved 101,685 shares of common stock for future issuance. The Plan provides for grants of stock options and restricted stock awards. Only present and future employees and directors are eligible to receive incentive awards under the 2006 Omnibus Plan. The Company believes that such awards better align the interests of its employees with its stockholders.

On May 26, 2009, the Company’s stockholders approved the 2009 Equity Incentive Plan. The Board of Directors has reserved a total of 119,000 shares of common stock for issuance upon the grant or exercise of awards made pursuant to the 2009 Plan. The Plan provides for grants of stock options and restricted stock awards. All of the Company’s employees, officers, and directors are eligible to participate in the 2009 Plan.

The exercise price and vesting of both plans are determined by the Board of Directors at the date of grant. Options generally vest over five years, and expire ten years after the date of grant. Certain option and stock awards provide for accelerated vesting if there is a change in control (as defined in the Plan).

At September 30, 2010, all stock grants and options authorized by the 2006 Omnibus Stock Option Plan and the 2009 Equity Incentive Plan have been awarded.

Stock Grants. Restricted stock awards are considered fixed awards as the number of shares and fair value is known at the date of grant and fair value over the requisite service period, generally five years. Compensation expense for this plan is being recorded over the 60-month vesting period and is based on the market value of the Company’s stock as of the date the awards were made. On May 4, 2010, restricted stock grants totaling 750 shares were awarded having a fair value of $7,125. On August 24, 2010, restricted stock grants totaling 19,774 were awarded having a fair market value of $188,842. There were 500 restricted stock awards made and subsequently forfeited for nine months ended September 30, 2009.

Information regarding the Company’s restricted stock (all unvested) and changes during the nine months ended September 30, 2010 and 2009, respectively.

	Nine Months Ended September 30,
	2010				2009
Stock Grants	Number of Shares		Weighted Avg Fair Value at Grant Date		Number of Shares			Weighted Avg Fair Value at Grant Date
Balance, January 1,		42,528	$	8.81		24,976		$	8.66
Granted		20,524		9.55		500			8.50
Forfeited and surrendered		-		-		(500	)		8.50
Outstanding, September 30,		63,052	$	9.06		24,976		$	8.66

There were 12,070 vested shares of restricted stock awards at September 30, 2010 and 7,123 vested shares of restricted stock at September 30, 2009.

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

On March 4, 2010, the Company issued stock options covering 1,500 shares. The option awards were granted with an exercise price equal to the average price on the last trade date. The stock options vest and therefore become exercisable on a pro rata basis annually over five years from the date awarded, commencing March 4, 2011. The options are available to be exercised for a period of ten years after the date awarded.

The fair value of each option grant was estimated to be $2.74 on the date of grant using the Black-Scholes option pricing model with the following assumptions used for grants during the applicable period:

Dividend Yield (per share)		1.60	%
Volatility (%)		29.24	%
Risk-free Interest Rate (%)		2.84	%
Expected Life	6.5 yea		rs

On August 24, 2010, the Company issued stock options covering 1,500 shares. The option awards were granted with an exercise price equal to the average price on the last trade date. The stock options vest and therefore become exercisable on a pro rata basis annually over five years from the date awarded, commencing March 4, 2011. The options are available to be exercised for a period of ten years after the date awarded. There were no stock options awarded for the three month ended September 30, 2009.

Dividend Yield (per share)		1.68	%
Volatility (%)		28.84	%
Risk-free Interest Rate (%)		1.73	%
Expected Life	6.5 yea		rs

	Nine Months Ended September 30,
	2010				2009
Stock Options	Number of Options		Weighted Avg Exercise Price		Number of Options		Weighted Avg Exercise Price
Balance, January 1,		104,637	$	9.14		63,265	$	9.71
Granted		52,995		9.55		1,000		8.50
Exercised		-		-		-		-
Forfeited		-		-		1,000		8.50
Outstanding, September 30,		157,632	$	9.28		63,265	$	9.27
Exercisable, September 30,		35,584	$	9.53		23,008	$	9.68

The weighted average remaining contractual life of stock options award is 8.74 years.

The compensation expense recognized for option and stock grant awards for the nine month period ending September 30, 2010 and 2009 was $115,000 and $71,000, respectively.

As of September 30, 2010, there was approximately $727,000 of total unrecognized compensation cost related to options and unvested stock awards. The cost of the options and stock awards is expected to be recognized over a weighted-average period of five years.

7. Guarantees

Mortgage Partnership Finance Program

The Bank participates in the Mortgage Partnership Finance (MPF) Program of the Federal Home Loan Bank of Pittsburgh (FHLB). The program is intended to provide member institutions with an alternative to holding fixed-rate mortgages in their loan portfolios or selling them in the secondary market. An institution participates in the MPF Program by either originating individual loans on a “flow” basis as an agent for the FHLB pursuant to the “MPF 100 Program” or by selling, as a principal, closed loans owned by an institution to the FHLB pursuant to one of the FHLB’s closed-loan programs. Under the MPF Program(s), credit risk is shared by the participating institution and the FHLB by structuring the loss exposure in several layers, with the participating institution being liable for losses after application of an initial layer of losses (after any private mortgage insurance) is absorbed by the FHLB, subject to an agreed-upon maximum amount of such secondary credit enhancement which is intended to be in an amount equivalent to a “AA” credit risk rating by a rating agency. The participating institution may also be liable for certain first layer losses after a specified period of time. The participating institution receives credit enhancement fees from the FHLB for providing this credit enhancement and continuing to manage the credit risk of the MPF Program loans. Participating institutions are also paid specified servicing fees for servicing the loans.

Transfers involving sales with the Bank acting as principal are accounted for in accordance with FASB ASC 860-10 Transfers and Servicing (SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities) 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 ASC 460-10 Guarantees (FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others) 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.

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 nine-months ended September 30, 2010 and the year ended December 31, 2009 (dollars in thousands):

	2010			2009
Beginning balance	$	1,067		$	1,327
Additions		-			-
Collections		(65	)		(260	)
Ending balance	$	1,002		$	1,067

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 FASB ASC 715 Compensation Retirement Benefits. 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, 2010 and June 30, 2009, the required contributions due were $21,000 and $48,000 respectively.

401(k) Plan

The Bank also sponsors a 401(k) Plan (the Plan). The Plan covers all employees who meet age and service requirements. Participants in the Plan are permitted to make contributions up to 20% of their compensation. 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.

10. Fair Value Measurements

Effective January 1, 2008, the Company adopted FASB ASC 820 Fair Value Measurements and Disclosures, which, among other things, requires enhanced disclosures about assets and liabilities carried at fair value. This standard defines fair value as the price that would be received to sell the asset or transfer the liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. Additional guidance is provided on determining when the volume and level of activity for the asset or liability has significantly decreased. The Standard also includes guidance on identifying circumstances when a transaction may not be considered orderly.

A list of factors is provided that a reporting entity should evaluate to determine whether there has been a significant decrease in the volume and level of activity for the asset or liability in relation to normal market activity for the asset or liability. When the reporting entity concludes there has been a significant decrease in the volume and level of activity for the asset or liability, further analysis of the information from that market is needed and significant adjustments to the related prices may be necessary to estimate fair value in accordance with this standard.

This Standard also clarifies that when there has been a significant decrease in the volume and level of activity for the asset or liability, some transactions may not be orderly. In those situations, the entity must evaluate the weight of the evidence to determine whether the transaction is orderly. The Standard provides a list of circumstances that may indicate that a transaction is not orderly. A transaction price that is not associated with an orderly transaction is given little, if any, weight when estimating fair value. This Standard is effective for the Corporation for interim and annual reporting periods ending September 30, 2009 and after.

FASB ASC 820-Fair Value Measurements and Disclosures 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 the Standard’s hierarchy are as follows:

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

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

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

Investments available for sale are recorded at fair value on a recurring basis. Other real estate owned is recorded at fair value on a non-recurring basis. Values are estimated using Level 3 inputs, 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: The fair value of letters of credit is based on fees currently charged for similar agreements.

The following table presents the assets reported on the consolidated balance sheets at their fair value as of September 30, 2010 and December 31, 2009 by level within the fair value hierarchy. As required by FASB ASC 820 Fair Value Measurements and Disclosures, 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 2010 in Level III assets.

The estimated fair values of the Company’s financial instruments are as follows (in thousands):

	September 30, 2010				December 31, 2009
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial Assets:
Cash and cash equivalents	$	18,770	$	18,770	$	11,912	$	11,912
Investments available for sale		15,497		15,497		19,398		19,398
Restricted equity securities		1,143		1,143		1,143		1,143
Loans		119,696		122,627		114,546		114,483
Accrued interest receivable		754		754		665		665
Total financial assets	$	155,860	$	158,791	$	147,664	$	147,601

Financial liabilities:
Deposits	$	136,569	$	136,065	$	124,055	$	122,608
Other borrowings		7,000		7,732		12,000		12,378
Accrued interest payable		232		232		1,002		1,002
Total financial liabilities	$	143,801	$	144,029	$	137,057	$	135,988
Off-balance sheet liabilities:		-		-		-		-
Commitments to extend credit	$	6,492	$	6,492	$	5,251	$	5,251

11. Stockholder’s Equity

Changes in stockholders’ equity for the nine month period ended September 30, 2010 were as follows:

(In thousands, except per share amounts)	Common Stock		Additional Paid-in Capital		Retained Earnings			Unearned ESOP Shares			Accum- ulated Other Comp- rehensive Income (Loss)			Treasury Stock			Total
Balance, January 1, 2010	$	158	$	13,580	$	8,541		$	(907	)	$	(2	)	$	(2,100)		$	19,270
Comprehensive income:
Net income		-		-		825			-			-			-			825
Unrealized losses on securities, net of income taxes		-		-		-			-			384			-			384
Comprehensive income																		1,209
ESOP shares released		-				-			54			-			-			54
Restricted Stock Awards		-		115		-			-			-			-			115
Purchase of Treasury Stock															(516	)		(516	)
Cash dividend - $0.17 per share		-		-		(224	)		-			-			-			(224	)
Balance,September 30, 2010	$	158	$	13,695	$	9,142		$	(853	)	$	382		$	(2,616	)	$	19,908

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

Forward-Looking Statements

This Quarterly Report on Form 10-Q, as well as other periodic reports filed with the Securities and Exchange Commission, and written or oral communications made from time to time by or on behalf of North Penn and its subsidiaries (the “Company”), may contain statements relating to future events or future results of the Company that are considered “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “estimate,” “intend” and “potential,” or words of similar meaning, or future or conditional verbs such as “should,” “could,” or “may.” Forward-looking statements include statements of our goals, intentions and expectations; statements regarding our business plans, prospects, growth and operating strategies; statements regarding the quality of our loan and investment portfolios; and estimates of our risks and future costs and benefits.

Forward-looking statements reflect our expectation or prediction of future conditions, events or results based on information currently available. These forward-looking statements are subject to significant risks and uncertainties that may cause actual results to differ materially from those in such statements. These risk and uncertainties include, but are not limited to, the risks identified herein and in Item 1A of the Annual Report on Form 10-K filed on March 31, 2010 and the following:

general business and economic conditions nationally or in the markets we serve could adversely affect, among other things, real estate prices, unemployment levels, and consumer and business confidence, which could lead to decreases in the demand for loans, deposits and other financial services that we provide and increases in loan delinquencies and defaults;

changes or volatility in the capital markets and interest rates may adversely impact the value of securities, loans, deposits and other financial instruments and the interest rate sensitivity of our balance sheet as well as our liquidity;

our liquidity requirements could be adversely affected by changes in our assets and liabilities;

our investment securities portfolio is subject to credit risk, market risk, and liquidity risk as well as changes in the estimates we use to value certain of the securities in our portfolio;

the effect of legislative or regulatory developments including changes in laws concerning taxes, banking, securities, insurance and other aspects of the financial services industry;

competitive factors among financial services companies, including product and pricing pressures and our ability to attract, develop and retain qualified banking professionals;

the effect of changes in accounting policies and practices, as may be adopted by the Financial Accounting Standards Board, the Securities and Exchange Commission, the Public Company Accounting Oversight Board and other regulatory agencies; and

the effect of fiscal and governmental policies of the United States federal government.

Forward-looking statements speak only as of the date of this report. We do not undertake to update forward-looking statements to reflect circumstances or events that occur after the date of this report or to reflect the occurrence of unanticipated events except as required by federal securities laws.

Statement of Changes in Financial Condition

General. Total assets increased $8.2 million, or 5.2%, from $156.3 million at December 31, 2009 to $164.5 million at September 30, 2010. Significant changes in asset totals from December 31, 2009 to September 30, 2010 included an increase in cash and cash equivalents of $6.9 million, while net loans increased $5.2 million. Total liabilities increased $7.5 million or 5.5% to $144.6 million at September 30, 2010 as compared to $137.1 million at December 31, 2009 due to a $12.5 million increase in total deposits. The increase in liabilities was partially offset by our repayment of a $5.0 million Federal Home Loan Bank advance. The advance had a fixed rate coupon of 6.19%. Stockholders’ equity increased $638,000 or 3.3% to $19.9 million at September 30, 2010 as compared with $19.3 million at December 31, 2009. The primary reason for the increase in stockholders’ equity was earnings for the period and an increase in accumulated other comprehensive income due to an increase in the market value of available for sale investment securities.

Assets. Net loans increased $5.2 million or 4.5%, since December 31, 2009. Commercial real estate loans have increased $10.6 million, from $60.3 million at December 31, 2009 to $70.9 million at September 30, 2010. Substantially all of the Company’s commercial real estate loans are secured by properties located in the Bank’s primary market area. Consumer loans decreased $1.2 million from $3.7 million at December 31, 2009 to $2.5 million at September 30, 2010, as the Bank has chosen not to aggressively pursue that segment of loans. Residential mortgage loans decreased $3.4 million from December 31, 2009, primarily due to sale of $2.9 million in residential mortgage loans.

Investment securities decreased $3.9 million, or 20.1%, to $15.5 million at September 30, 2010 from $19.4 million at December 31, 2009. Our intent is to maintain a level of investment securities that is sufficient to maintain pledging and collateralized borrowing requirements while also temporarily deploying excess liquidity.

Allowance for Loan Losses. The allowance for loan loss increased $183,000 or 12.3% during the nine months ending September 30, 2010. For the nine month period ending September 30, 2010, there were charge-offs of $152,000 and recoveries of $1,000. Management assesses the adequacy of the allowance for loan losses based on evaluating known and inherent losses in the loan portfolio and upon management’s continuing analysis of the factors underlying the quality of the loan portfolio. The ratio of the Bank’s allowance for loan losses to total loans was 1.37% at September 30, 2010 and 1.28% at December 31, 2009. We are continually 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 Assets. On loans where the collection of principal or interest payments is doubtful, the accrual of interest income ceases (“non-accrual” loans). On loans 90 days or more past due as to principal and interest payments, the Company’s policy, with certain limited exceptions, is to discontinue accruing interest. On occasion, this action may be taken earlier if the financial condition of the borrower raises significant concern with regard to the borrower’s ability to service the debt in accordance with the terms of the loan agreement. Interest income is not accrued on these loans until the borrowers’ financial condition and payment record demonstrate an ability to service the debt. Real estate that is acquired as a result of foreclosure is classified as other real estate owned. Other real estate owned is recorded at the lower of cost or fair value less estimated selling costs. Costs associated with acquiring and improving a foreclosed property may be capitalized to the extent that the carrying value does not exceed fair value less estimated selling costs. Holding costs are charged to expense. Gains and losses on the sale of other real estate owned are credited or charged to operations, as incurred.

Non-performing loans totaled $1.8 million at both September 30, 2010 and December 31, 2009. The ratio of non-performing loans to total loans was 1.52% and 1.53% at September 30, 2010 and December 31, 2009, respectively.

Liabilities. Total deposits increased $12.5 million, or 10.1%, to $136.5 million at September 30, 2010 from $124.1 million at December 31, 2009. The primary reason for the increase is a reflection of our attractive deposit products and the economic environment causing consumers to be conservative in their approach to investing. Time deposits decreased $8.6 million or 13.1% to $57.3 million at September 30, 2010 from $65.9 million at December 31, 2009. The decrease in time deposits was offset by an increase in core deposits of $21.1 million or 36.2% to $79.2 million at September 30, 2010 from $58.1 million at December 31, 2009. Core deposits consist of all deposits other than certificates of deposit. Management has attempted to lessen its dependency on more volatile and rate sensitive certificates of deposit and has focused more on growing core deposits. The increase in liabilities was partially offset by our repayment of a $5.0 million Federal Home Loan Bank advance. The advance had a fixed rate coupon of 6.19%.

Stockholders’ Equity. Stockholders’ equity increased $638,000 or 3.3% to $19.9 million at September 30, 2010 as compared with $19.3 million at December 31, 2009. Net income for the period and improvement in accumulated other comprehensive loss were the primary reasons for the increase. The increase was partially offset by our continuing purchases of Treasury Stock and payment of cash dividends

Results of Operations

Comparison of the Three Month and Nine Month Periods Ended September 30, 2010 and 2009

General. For the three months ended September 30, 2010, net income increased $105,000 to $250,000 when compared to net income of $145,000 for the same period in 2009. The primary reason for the increase resulted from a $319,000 increase in net interest income for the three months ended September 30, 2010 as compared to the same period in 2009.

Net income for the nine months ended September 30, 2010 totaled $825,000, an increase of $458,000 or 125% as compared to a net income of $367,000 for the same period in 2009. The primary reason for the increase was an increase in net interest income and control of non-interest expense. The increase in net income was partially offset by an increase in provision for loan loss.

Net interest income. Net interest income for the third quarter ended September 30, 2010 increased $319,000, or 28.6%, as compared to the third quarter ended September 30, 2009. Net interest income increased $754,000 or 22.5%, to $4.1 million for the nine months ended September 30, 2010 from $3.3 million for the comparable 2009 period.

For the three month period ended September 30, 2010, interest income increased $104,000 or 5.5% to $2.0 million as compared with $1.9 million for the comparable period in 2009. The Company’s interest income for the nine month period ended September 30, 2010 increased $296,000 or 5.2% to $6.0 million as compared with $5.7 million for the same period in 2009. Increased volume of loans was the primary reason for the increase in interest income.

For the three months ended September 30, 2010, total interest expense was $568,000 which was a decrease of $215,000 or 27.5% from the three month period ended September 30, 2009. Total interest expense for the nine months ended September 30, 2010 was $1.9 million, a decrease of $458,000 or 19.3%, compared to $2.4 million for the same period in 2009. The decrease in interest expense reflects the Company’s continued focus on improvements in deposit mix. This strategy along with the repayment of the FHLB advance of $5.0 million in July 2010, contributed almost entirely to the decline in interest expense for both periods.

Provision for Loan Loss. The Company’s provision for loan and lease losses is based on interrelated factors such as the composition of and risk in our loan portfolio, the level of non-accruing and delinquent loans and the related collateral, as well as economic considerations. For the three months ended September 30, 2010, the provision for loan losses was $133,000, an $88,000 or 196% increase over the $45,000 provision for the same period in 2009. The provision charged to current earnings was $334,000 for the nine months ended September 30, 2010, a $199,000 or 147.4% increase as compared to a provision for loan losses of $135,000 for the nine months ended September 30, 2009. The increase for both periods is primarily due to the Company’s increasing commercial portfolio deterioration of two related loans which materialized in July 2010.

Non-Interest Income. Non-interest income increased $10,000 or 9.0% to $121,000 for the three months ended September 30, 2010 compared to $111,000 for the three months ended September 30, 2009. For the nine months ended September 30, 2010, non-interest income totaled $401,000, an increase of $69,000 or 20.8% compared to the same period in 2009. The increase in non-interest income for the three and nine months ended September 2010 compared to the same periods in 2009 was primarily attributed to a pre-tax gains from the sale of mortgage loans. The increase in non-interest income for the nine months ending September 30, 2010 over the comparable 2009 period was partially offset by an other-than-temporary impairment charge on two equity securities of $24,000 that occurred during the first quarter of 2010.

Non-Interest Expense. Non-interest expense increased $136,000 or 14.3%, to $1.1 million for the three months ended September 30, 2010 compared to $948,000 million for the three months ended September 30, 2009. For the nine months ended September 30, 2010, non-interest expense totaled $3.1 million, a $91,000 or 3.0% increase over the same period in 2009.

The primary reason for the increase in non-interest expense in both periods was an increase in salary and employee benefits. Salary and employee benefits increased $63,000 and $144,000 for the three and nine month periods in 2010, respectively over the same periods in 2009. Occupancy and furniture expense, professional fees and all other expenses collectively increased $58,000 for the three month period ending September 30, 2010 as compared with same period in 2009 and decreased $22,000 for the nine month period ending September 30, 2010 as compared with same period in 2009. FDIC insurance expense decreased $15,000 for the three month period ended September 30, 2010 as compared with the same period in 2009 and decreased $31,000 for the nine month period ending September 30, 2010 as compared with same period in 2009.

Income Taxes, The Company’s income tax expense was $90,000 for the three months ended September 30, 2010 and also for the comparable three month period in 2009. The Company’s income tax expense increased $75,000 or 46.9% to $235,000 for the nine months ended September 30, 2010 compared to $160,000 for the same period in 2009. The primary reason for the increase was primarily due to higher levels of income before tax.

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.

The Bank’s cash and cash equivalents increased $6.9 million for the nine months ended September 30, 2009. During that period, cash was primarily provided from earnings and customer deposits and primarily used to pay down borrowings, fund the loan portfolio, and invest in federal funds sold.

North Penn Bank's capital ratios at September 30, 2010 and December 31, 2009 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:

								To be well capitalized
								under prompt
						For capital adequacy		corrective action
	Actual					purposes		provisions
	Amount		Ratio			Amount	Ratio	Amount	Ratio
At September 30, 2010:
Total Capital (to Risk-Weighted Assets):
North Penn Bank	$	18,959		14.77	%	> 10,272	>8.0%	>$12,841	>10.0	%
Tier 1 Capital (to Risk-Weighted Assets):
North Penn Bank	$	17,353		13.51	%	>$ 5,136	>4.0%	>$ 7,704	>6.0	%
Tier 1 Capital (to Average Assets):
North Penn Bank	$	17,353		10.82	%	>$ 6,415	>4.0%	>$ 8,019	>5.0	%
Risk-Weighted Assets:	$	128,405
Average Assets:	$	160,383
Reconciliation of GAAP Capital to Regulatory
Capital
Total Equity Capital September 30, 2010			$	17,897
Plus: Unrealized Gain/Loss on
Investments				(539	)
Less: Disallowed Servicing Rights				(5	)
Total Tier 1 Capital September 30, 2010			$	17,353
Plus: Allowance for loan losses				1,606
Total Risk-based Capital September 30, 2010			$	18,959

At December 31, 2009:

Total Capital (to Risk-Weighted Assets):

North Penn Bank

18,151

15.05

>$8,878

>8.0%

>$11,098

>10.0

Tier 1 Capital (to Risk-Weighted Assets):

North Penn Bank	$	16,667		14.00	%	>$4,439	>4.0%	>$ 6,659	>6.0%
Tier 1 Capital (to Average Assets):
North Penn Bank	$	16,667		11.57	%	>$5,370	>4.0%	>$ 6,713	>5.0%
Risk-Weighted Assets:	$	120,425
Average Assets:	$	146,866
Reconciliation of GAAP Capital to Regulatory
Capital
Total Equity Capital December 31, 2009			$	16,670
Plus: Unrealized Gain/Loss on
Investments				(2	)
Less: Disallowed Servicing Rights				(1	)
Total Tier 1 Capital December 31, 2009			$	16,667
Plus: Allowance for loan losses				1,484
Total Risk-based Capital December 31, 2009			$	18,151

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Not applicable as the Company is a smaller reporting company.

Item 4. Controls and Procedures

North Penn Bancorp, Inc., under the supervision and with the participation of its management, including its Chief Executive Officer and the Principal Accounting Officer, evaluated the effectiveness of the design and operation of North Penn’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, North Penn’s Chief Executive Officer and Principal Accounting Officer concluded that North Penn’s disclosure controls and procedures were effective. There were no significant changes to North Penn’s disclosure controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

Exchange Act Rule 13a-15(e) defines “disclosure controls and procedures” as controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to the issuer’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

There have been no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2010 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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.

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, 2009 and our quarterly report on Form 10-Q for the quarter ended June 30, 2010, which could materially affect our business, financial condition or future results. At September 30, 2010 the risk factors of the Company have not changed materially from those previously reported. However, the risks described in our Annual Report on Form 10-K and prior quarterly reports on Form 10-Q 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.

On October 1, 2008, North Penn Bancorp, Inc. announced that its Board of Directors authorized a stock repurchase plan for up to 158,157 shares of the Company’s outstanding common stock.

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 initial program was subsequently completed during the second quarter of 2009. The Company’s average cost per share of shares under this program was $7.99.

The Company completed its second repurchase authorization in June 2010. As of September 30, 2010, all 142,341 shares have been purchased at an average cost per share of $9.50.

There were no stock repurchases during the quarter ended September 30, 2010.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. [Removed and reserved]

Item 5 Other Information.

None

Item 6. Exhibits.

31.1		Rule 13a-14(a) /15d-14(a) Chief Executive Officer Certification
31.1		Rule 13a-14(a) /15d-14(a) Chief Financial Officer Certification
32.1		Section 1350 Certification of Chief Executive Officer
32.1		Section 1350 Certification of Chief Financial Officer

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, Inc

Dated: November 15, 2010		/s/ Frederick L. Hickman
		Frederick L. Hickman President and Chief Executive Officer


Dated: November 15, 2010		/s Joseph F. McDonald
		Joseph F. McDonald Chief Financial Officer

North Penn Bancorp Inc 10-Q