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 March 31, 2011

¨	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

As of May 9, 2011, the issuer had 1,335,524 shares of common stock, par value $0.10 per share, outstanding.

	Page
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

Consolidated Balance Sheets at March 31, 2011 (Unaudited) and December 31, 2010	3

Consolidated Statements of Income (Unaudited) for the Three Months Ended March 31, 2011 and 2010	4

Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2011 and 2010	5

Notes to Unaudited Consolidated Financial Statements	6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3. Quantitative and Qualitative Disclosures About Market Risk.	30

Item 4. Controls and Procedures.	30

PART II - OTHER INFORMATION

Item 1. Legal Proceedings	30

Item 1A. Risk Factors	31

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	31

Item 3. Defaults Upon Senior Securities.	31

Item 4. (Removed and Reserved)	31

Item 5. Other Information.	31

Item 6. Exhibits.	31

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

North Penn Bancorp, Inc. and Subsidiary

Consolidated Balance Sheets

(In thousands)

	March 31, 2011			December 31, 2010
	(Unaudited)			(Audited)
	(In thousands)
ASSETS:
Cash and due from banks	$	1,931		$	1,778
Interest bearing deposits		233			345
Federal funds sold		18,221			16,072
Total cash and cash equivalents		20,385			18,195
Investment securities, available for sale		13,938			14,580
Equity securities at cost, substantially restricted		1,035			1,087
Loans, net of allowance for loan losses of $1,574 in 2011 and $1,531 in 2010		120,578			120,280
Bank premises and equipment – net		3,767			3,811
Accrued interest receivable		609			580
Cash surrender value of bank-owned life insurance		3,195			3,160
Deferred income taxes		624			705
Prepaid FDIC insurance		384			432
Other real estate owned		929			929
Other assets		232			174
TOTAL ASSETS	$	165,676		$	163,933

LIABILITIES:
Deposits:
Non-interest bearing	$	7,165		$	6,832
Interest bearing		130,588			129,479
Total deposits		137,753			136,311
Other borrowed funds		7,000			7,000
Accrued interest and other liabilities		1,047			1,050
TOTAL LIABILITIES		145,800			144,361

STOCKHOLDERS’ EQUITY:
Preferred stock, no par; 20,000,000 authorized; issued and outstanding, none		-			-
Common stock, par value $0.10; 80,000,000 authorized; 1,581,571shares issued in 2011 and 2010; outstanding: 1,335,524 in 2011(includes 47,366 of unvested restricted stock) and 1,334,844 in 2010 (includes 47,516 of unvested restricted stock)		158			158
Additional paid-in capital		13,764			13,698
Retained earnings		9,069			8,995
Unearned ESOP shares		(818	)		(836	)
Accumulated other comprehensive income		265			119
Treasury stock at cost, shares: 294,293 in 2011 an in 2010		(2,562	)		(2,562	)
TOTAL STOCKHOLDERS’ EQUITY		19,876			19,572
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	165,676		$	163,933

See notes to unaudited consolidated financial statements.

North Penn Bancorp, Inc. and Subsidiary

Unaudited Consolidated Statements of Income

For the Three Months Ended March 31, 2011 and 2010

Unaudited

(in thousands, except per share data)

	2011			2010
INTEREST INCOME
Interest on loans	$	1,729		$	1,737
Interest on tax exempt loans		12			14
Interest on federal funds sold		9			4
Interest on tax exempt investments		67			81
Interest and dividends on investments		64			125
Total interest income		1,881			1,961
INTEREST EXPENSE
Interest on deposits		441			557
Interest on long-term borrowings		81			158
Total interest expense		522			715

NET INTEREST INCOME		1,359			1,246

PROVISION FOR LOAN LOSSES		45			39

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		1,314			1,207

OTHER INCOME
Service charges and fees		31			34
Bank-owned life insurance income		35			37
Other operating income		19			25
Loss on sale of investment securities		(8	)		-
Impairment losses on investment securities					(24	)
TOTAL OTHER INCOME		77			72

OTHER EXPENSE
Salaries and employee benefits		603			583
Occupancy and equipment expense		167			132
FDIC insurance expense		51			54
Professional services expense		154			69
Other operating expenses		187			163
TOTAL OTHER EXPENSE		1,162			1,001

INCOME BEFORE INCOME TAXES		229			278

INCOME TAX EXPENSE		102			56

NET INCOME		127			222

OTHER COMPREHENSIVE INCOME:
Unrealized holding gain arising during period, net of income tax		146			131
COMPREHENSIVE INCOME	$	273		$	353

Weighted average number of shares outstanding		1,287,375			1,342,477
Earnings per share, basic	$	0.10		$	0.17
Earnings per share, diluted	$	0.09		$	0.17
Dividends per share	$	0.04		$	0.09

See notes to unaudited consolidated financial statements.

North Penn Bancorp, Inc. and Subsidiary

Unaudited Consolidated Statements of Cash Flows

For the Three Months Ended March 31, 2011 and 2010

(in thousands)

Unaudited

	2011			2010
Operating Activities:
Net income	$	127		$	222
Items not requiring (providing) cash
Depreciation		44			42
Provision for loan losses		45			39
Amortization of securities (net of accretion)		(1	)		15
ESOP expense		33			17
Stock compensation expense		51			36
Increase in cash surrender value of life insurance		(35	)		(37	)
Loss on sale of investment securities		8
Impairment loss on investment securities		-			24

Changes in:
Prepaid FDIC insurance		48			53
Accrued interest income and other assets		(80	)		(88	)
Accrued interest expense and other liabilities		(3	)		117
Net Cash Provided By Operating Activities		237			440

Investing Activities:
Purchase of bank premises and equipment		(2	)		(25	)
Purchase of securities “available for sale”		-			(6	)
Proceeds from sale of securities “available for sale”		763			-
Redemptions of mortgage-backed securities “available for sale”		92			415
Redemption of restricted stock		52			-
Net (increase) in loans to customers		(341	)		(4,304	)
Net Cash Provided by (Used In) Investing Activities		564			(3,920	)

Financing Activities:
Increase(decrease) in deposits		1,442			(1,307	)
Treasury stock purchased		-			(26	)
Cash dividends paid		(53	)		(121	)
Net Cash Provided By (Used In) Financing Activities		1,389			(1,454	)
Net Increase (Decrease) In Cash and Cash Equivalents		2,190			(4,934	)

Cash and Cash Equivalents, January 1		18,195			11,912
Cash and Cash Equivalents, March 31	$	20,385		$	6,978

Supplementary Schedule of Cash Flow Information:
Cash paid during the period for:
Interest	$	731		$	761
Income taxes		32			149

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

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 was effective for the Company on October 1, 2010 and did not 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 did not have a material effect on the Company’s results of operations or financial position.

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.

Newly Issued But Not Yet Effective Accounting Standards

In January 2011, FASB updated ASC Topic 310. “Receivables,” Under the existing effective date in Update 2010-20, public-entity creditors would have provided disclosures about troubled debt restructurings for periods beginning on or after December 15, 2010. The amendments in this Update temporarily defer that effective date, enabling public-entity creditors to provide those disclosures after the Board clarifies the guidance for determining what constitutes a troubled debt restructuring. The deferral in this Update will result in more consistent disclosures about troubled debt restructurings. This amendment does not defer the effective date of the other disclosure requirements in Update 2010-20.

In the proposed Update for determining what constitutes a troubled debt restructuring, the Board proposed that the clarifications would be effective for interim and annual periods ending after June 15, 2011. For the new disclosures about troubled debt restructurings in Update 2010-20, those clarifications would be applied retrospectively to the beginning of the fiscal year in which the proposal is adopted.

In April 2011, FASB issued Accounting Standards Update (Update) 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring. The Update will improve financial reporting by creating greater consistency in the way GAAP is applied for various types of debt restructurings.

The Update clarifies which loan modifications constitute troubled debt restructurings. It is intended to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for disclosure of troubled debt restructurings.

For public companies, the new guidance is effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructurings occurring on or after the beginning of the fiscal year of adoption. For nonpublic entities, the amendments in the Update are effective for annual periods ending on or after December 15, 2012, including interim periods within that annual period. Early application is permitted.

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 2010 have been reclassified to conform to presentations used in the 2011 consolidated financial statements. Such reclassifications had no effect on the company’s consolidated financial position or net income.

2.	Investment Securities

The Bank’s investments in securities are classified in two categories and accounted for as follows:

Securities Held-to-Maturity. Bonds, notes and debentures for which the Bank has the positive intent and ability to hold to maturity are reported at cost, adjusted for amortization of premiums and accretion of discounts.

Securities Available-for-Sale. Securities available-for-sale consist of bonds, notes, debentures and equity securities not classified to be held-to-maturity and are carried at fair value with unrealized holding gains and losses, net of tax, reported as a separate component of other comprehensive income until realized.

Purchase premiums and discounts are recognized in interest income on the straight-line basis over the terms of the securities, which approximates the interest method. Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method and are reported as other income in the statement of income.

The amortized cost and fair value of investment securities at March 31, 2011 and December 31, 2010 are as follows:

Available-for-Sale

March 31, 2011

(In thousands)

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Mortgage-backed securities	$	802	$	45	$	-	$	847
State & political subdivisions		6,952		206		-		7,158
Other bonds		4,495		230		-		4,725
Total debt securities		12,249		481		-		12,730
Equity securities		1,295		70		157		1,208
Total Available-for-Sale	$	13,544	$	550	$	157	$	13,938

Available-for-Sale

December 31, 2010

(In thousands)

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Mortgage-backed securities	$	1,056	$	60	$	-	$	1,116
State & political subdivisions		7,559		65		66		7,558
Other bonds		4,495		238		-		4,733
Total debt securities		13,110		363		66		13,407
Equity securities		1,303		46		176		1,173
Total Available-for-Sale	$	14,413	$	409	$	242	$	14,580

All of the Company’s investment securities were classified as available-for-sale at March 31, 2011 and December 31, 2010.

The gross fair value and unrealized losses of the Company’s investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2011 is as follows:

	Less than 12 months				12 months or longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Agencies	$	-	$	-	$	-	$	-	$	-	$	-
Mortgage-backed		-		-		-		-		-		-
Municipal		-		-		-		-		-		-
Other securities		-		-		-		-		-		-
Equity securities		132		12		595		140		727		152
Total	$	132	$	12	$	595	$	140	$	727	$	152

The above table at March 31, 2011 includes 5 securities that have unrealized losses for less than 12 months and 24 securities that have been in an unrealized loss position for 12 or more months.

The Company 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 44 securities in an unrealized loss position as of March 31, 2011 represent an other-than-temporary (“OTTI”) impairment. The Company has the ability to hold the remaining securities contained in the above table for a time necessary to recover the cost.

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 OTTI loss is realized through the statement of income and the remainder of the loss remains in other comprehensive income.

Management evaluates securities for 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 OTTI exists involves a high degree of subjectivity and judgement and is based on the information available to management at a point in time.

When OTTI occurs, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or if it is more likely than not that it 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 if it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the OTTI 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 OTTI shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI 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 OTTI related to the other factors shall be recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI 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 unrealized losses are from 40 bank stocks due to market fluctuation. The Company also reviews investment debt securities on an ongoing basis for the presence of OTTI.

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 March 31, 2011 and December 31, 2010, the Company held $998,000 and $1,050,000, respectively in stock of FHLB-Pittsburgh, and $37,000 in stock of ACBB.

At December 31, 2010, 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.

Loans Receivable

Loans receivable consist of the following at March 31, 2011 and December 31, 2010

(in thousands):	March 31, 2011		December 31, 2010
	(In thousands)
Real estate mortgages:
Construction and land development	$	239	$	338
Residential, 1 – 4 family		42,173		42,785
Residential, multi-family		843		857
Commercial		73,779		72,448
Total real estate mortgages		117,034		116,428
Commercial		3,087		3,149
Consumer		1,985		2,185
Total loans		122,106		121,762
Add: deferred loan costs and fees		46		49
Less: allowance for loan losses		1,574		1,531
Total loans, net	$	120,578	$	120,280

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 Bank lends primarily to customers in its local market area. Most loans are mortgage loans, which include loans secured by commercial and residential real estate and construction loans. Accordingly, lending activities could be affected by changes in the general economy, the regional economy, or real estate values.

From time to time, the Company may agree to modify the contractual terms of a borrower’s loan. In cases where such modifications represent a concession to a borrower experiencing financial difficulty, the modification is considered a troubled debt restructuring. Loans modified in a troubled debt restructuring are placed on non-accrual status until the Company determines the future collection of principal and interest is reasonably assured, which generally requires that the borrower demonstrate a period of performance according to the restructured terms of six months. At both March 31, 2011 and December 31, 2010, there were no loans classified as troubled debt restructurings

The following table presents the classes of loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard, Doubtful and Loss within our internal risk rating system as of March 31, 2011 and December 31, 2010

			Special
March 31, 2011	Pass		Mention		Substandard		Doubtful		Loss		Total

Commercial Real Estate Loans	$	67,336	$	2,874	$	4,412	$	-		-	$	74,622
Commercial Loans		3,087		-		-		-		-		3,087
Total	$	70,423	$	2,874	$	4,412	$	-	$	-	$	77,709

			Special
December 31, 2010	Pass		Mention		Substandard		Doubtful		Loss		Total

Commercial Real Estate Loans	$	66,648	$	2,236	$	4,421	$	-	$	-	$	73,305
Commercial Loans		3,149		-		-		-		-		3,149
Total	$	69,797	$	2,236	$	4,421	$	-	$	-	$	76,454

For the residential real estate loans, construction loans and consumer loans, the Company evaluates credit quality based on the performance of the individual loans. The following table presents the recorded investment in the loan classes as of March 31, 2011 and December 31, 2010,

March 31, 2011	Performing		Nonperforming		Total

Residential real estate loans	$	41,334	$	839	$	42,173
Construction loans		239		-		239
Consumer loans		1,953		32		1,985
Total	$	43,526	$	871	$	44,397

December 31, 2010	Performing		Nonperforming		Total

Residential real estate loans	$	41,832	$	953	$	42,785
Construction loans		338		-		338
Consumer loans		2,167		18		2,185
Total	$	44,337	$	971	$	45,308

The tables below present the recorded investment of loans and leases with delinquency aging and nonaccrual status as of March 31, 2011 and December 31, 2010,

							Greater than				Total Past
							90 Days Past				Due and
			31-60 Days		61-90 Days		Due and still		Non-		Non-		Total
	Current		Past Due		Past Due		accruing		Accrual		Accrual		Loans
March 31, 2011

Real Estate Loans:
Residential	$	39,881	$	1,441	$	11	$	-	$	840	$	2,292	$	42,173
Construction		239		-		-		-		-		-		239
Commercial		72,842		606		179		-		995		1,780		74,622

Commercial Loans		3,087		-		-		-		-		-		3,087
Consumer Loans		1,835		63		48		-		39		150		1,985
Total	$	117,884	$	2,110	$	238	$	-	$	1,874	$	4,222	$	122,106

							Greater than				Total Past
							90 Days Past				Due and
			31-60 Days		61-90 Days		Due and still		Non-		Non-		Total
	Current		Past Due		Past Due		accruing		Accrual		Accrual		Loans
December 31, 2010

Real Estate Loans:
Residential	$	40,519	$	493	$	820	$	-	$	953	$	2,266	$	42,785
Construction		338		-		-		-		-		-		338
Commercial		72,689		296		27		-		293		616		73,305

Commercial Loans		3,149		-		-		-		-		-		3,149
Consumer Loans		2,010		86		71		-		18		175		2,185
Total	$	118,705	$	875	$	918	$	-	$	1,264	$	3,057	$	121,762

4. Reserve 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 March 31, 2011. 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 March 31, 2011 and December 31, 2010:

	March 31,		December 31,
(Dollars in thousands)	2011		2010
Balance at beginning of period	$	1,531	$	1,484
Charge-offs:
Commercial		-		203
Real estate mortgages		2		169
Consumer		-		2
Total		-		374
Recoveries:
Commercial		-		-
Real estate mortgages		-		36
Consumer		-		1
Total		-		37
Net charge-offs		2		337
Provision charged to operations		45		384
Balance at end of period	$	1,574	$	1,531

Loan reserve ratios:
Net loan charge-offs to average loans	-		0.28	%
Allowance as a percentage of total loans	1.29	%	1.26	%

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 March 31, 2011, the Bank had $1.9 million in non-accrual loans as compared with $1.3 million at December 31, 2010. As of March 31, 2011, 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 restructurings.

The following table includes the recorded investment and unpaid principal balances for impaired loans with the associated allowance amount, if applicable. Also, presented are the average recorded investments in the impaired loans and the related amount of interest recognized during the time within the periods the loans were impaired

	Real Estate Loans
March 31, 2011							Commercial		Consumer
	Residential		Commercial		Construction		Loans		Loans		Total

Total Loans	$	42,173	$	74,622	$	239	$	3,087	$	1,985	$	122,106

Individually evaluated for impairment		1,300		7,360		-		-		10		8,670
Collectively evaluated for impairment	$	40,873	$	67,262	$	239	$	3,087	$	1,975	$	113,436

	Real Estate Loans
December 31, 2010							Commercial		Consumer
	Residential		Commercial		Construction		Loans		Loans		Total

Total Loans	$	42,785	$	73,305	$	338	$	3,149	$	2,185	$	121,762

Individually evaluated for impairment		1,012		6,860		-		-		12		7,884
Collectively evaluated for impairment	$	41,773	$	66,445	$	338	$	3,149	$	2,173	$	113,878

The following table sets forth the breakdown of the allowance for loan losses by loan category as of March 31, 2011 and December 31, 2010,

	March 31, 2011					December 31, 2010
(Dollars in thousands)	Amount		% of Total Loans			Amount		% of Total Loans
Construction and land development	$	6		0.2	%	$	-		0.3	%
Residential, 1-4 family		527		34.5	%		330		35.1	%
Residential, multi-family		11		0.7	%		-		0.7	%
Commercial real estate		867		60.4	%		1,002		59.5	%
Commercial		39		2.6	%		55		2.6	%
Consumer		25		1.6	%		34		1.8	%
Unallocated		99		0.0	%		110		0.0	%
Total	$	1,574		100.0	%	$	1,531		100.0	%

At March 31, 2011 and December 31, 2010, non-accrual loans, substantially all of which are collateralized, were $1.9 million and $1.3 million respectively. Interest income for the years ending March 31, 2011 would have increased by approximately $179,000, if these loans had earned interest at their full contract rate. The allowance for loan losses allocated to impaired loans was $253,000 at both March 31, 2011 and December 31, 2010.

The following table illustrates information related to the Bank’s nonperforming assets at the dates indicated. The Bank had no troubled debt restructurings or accruing loans past due 90 or more days at the dates presented.

	March 31,			December 31,
Dollars in thousands	2011			2010
Nonaccrual loans	$	1,873		$	1,264
Other real estate owned		929			929
Total nonperforming assets	$	2,793		$	2,193
Total nonperforming loans to total loans		1.53	%		1.04	%
Total nonperforming loans to total assets		1.13	%		0.77	%
Total nonperforming assets to total assets		1.68	%		1.34	%

The table below presents impaired loans and the corresponding reserve for impaired loans as of March 31, 2011 and December 31, 2010,

			Unpaid				Average		Interest
March 31, 2011	Recorded		Principal		Associated		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized

With no specific allowance recorded:
Real Estate Loans:
Residential	$	449	$	449	$	-	$	449	$	13
Construction		-		-		-		-		-
Commercial		6,419		6,419		-		6,328		137

Commercial Loans		-		-		-		-		-
Consumer Loans		-		-		-		-		-
Total		6,868		6,868		-		6,777		150

With an allowance recorded:
Real Estate Loans:
Residential		852		852		123		852		20
Construction		-		-		-		-		-
Commercial		776		776		130		776		9

Commercial Loans		-		-		-		-		-
Consumer Loans		-		-		-		-		-
Total		1,628		1,628		253		1,628		29

Total:
Real Estate Loans:
Residential		1,301		1,301		123		1,301		33
Construction		-		-
Commercial		7,195		7,195		130		7,104		146

Commercial Loans		-		-		-		-		-
Consumer Loans		-		-		-		-		-
Total Impaired Loans	$	8,496	$	8,496	$	253	$	8,405	$	179

			Unpaid				Average		Interest
December 31, 2010	Recorded		Principal		Associated		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized

With no specific allowance recorded:
Real Estate Loans:
Residential	$	160	$	160	$	-	$	427	$	2
Construction		-		-		-		-		-
Commercial		6,080		6,080		-		5,503		98

Commercial Loans		-		-		-		-		-
Consumer Loans		12		12		-		45		-
Total		6,252		6,252		-		5,975		100

With an allowance recorded:
Real Estate Loans:
Residential		852		852		123		647		6
Construction		-		-		-				-
Commercial		780		780		130		1,055		8

Commercial Loans		-		-		-		8		-
Consumer Loans		-		-		-		12		-
Total		1,632		1,632		253		1,722		14

Total:
Real Estate Loans:
Residential		1,012		1,012		123		1,074		8
Construction		-		-
Commercial		6,860		6,860		130		6,558		106

Commercial Loans		-		-		-		8		-
Consumer Loans		12		12		-		57		-
Total Impaired Loans	$	7,884	$	7,884	$	253	$	7,697	$	114

5.	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 June, 2011. At March 31, 2011, this line of credit had a zero balance.

The Bank 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.

6.	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:

March 31, 2011	Income (Numerator)		Shares (Denominator)		Per-Share Amount
Basic EPS
Income available	$	127,000		1,287,375	$	0.10
Options includable		-		100,987		(0.01	)
Diluted EPS	$	127,000		1,388,362	$	0.09

March 31, 2010	Income (Numerator)		Shares (Denominator)		Per-Share Amount
Basic EPS
Income available	$	222,000		1,329,542	$	0.17
Options includable		-		12,935		-
Diluted EPS	$	222,000		1,342,477	$	0.17

7.	Stock-Based Compensation

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).

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. There were no restricted stock awards made for three months ended March 31, 2011. For the three months ended March 31, 2010, restricted stock grants totaling 750 shares were awarded having a fair value of $7,125. The grants vest over five years.

At March 31, 2011, all stock grants and options authorized by the 2006 Omnibus Stock Option Plan and the 2009 Equity Incentive Plan have been awarded.

The following table reflects the activities related to restricted stock awards outstanding for the three months ended March 31, 2011 and 2010, respectively.

	Three Months Ended March 31,
	2011				2010
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,		63,051	$	8.33		42,337	$	8.94
Granted		-		-		750		9.50
Vested		-		-		-		-
Forfeited and surrendered		-		-		-		-
Outstanding, March 31,		63,051	$	8.33		43,087	$	8.95
Exercisable, March 31,		15,692	$	8.89		6,931	$	9.56

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.

There were no stock options awarded for the three months ended March 31, 2011.

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

	Three Months Ended March 31,
	2011				2010
Stock Options	Number of Options		Weighted Avg Exercise Price		Number of Options		Weighted Avg Exercise Price
Balance, January 1,		157,246	$	9.29		104,637	$	9.44
Granted		-				1,500		9.50
Exercised		-		-		-		-
Forfeited		-		-		-		-
Outstanding, March 31,		157,246	$	9.29		106,137	$	9.44
Exercisable, March 31,		44,226	$	9.45		23,761	$	10.37

The weighted average remaining contractual life of stock options award is 8.26 years

The compensation expense recognized for option and restricted stock awards for the quarters ended March 31, 2011 and 2010 was $51,000 and $36,000, respectively.

As of March 31, 2011 there was approximately $627,000 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.

8.	Guarantees

FASB ASC 460-10 Guarantees FIN 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 ASC 450 Contingencies SFAS Statement No. 5, Accounting for Contingencies (FAS 5) and also requires a guarantor to make significant new disclosures even when the likelihood of making any payments under the guarantee is remote.

In September 2006, the Bank executed a Mortgage Partnership Finance (MPF) Master Commitment (the Commitment) with the FHLBank of Pittsburgh (FHLB) to deliver $10.0 million of mortgage loans and to guarantee the payment of any realized losses that exceed the FHLB’s first loss account for mortgages delivered under the Commitment. The Bank receives credit enhancement fees from the FHLB for providing this guarantee and continuing to manage the credit risk of the MPF Program mortgage loans. The term of the Commitment and guarantee per the Master Commitment is through September 25, 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.

9.	Related-Party Transactions

The Company routinely enters into banking transactions with its directors and officers. Such transactions are made in the ordinary course of business on substantially the same terms and conditions, including interest rates and collateral, as those prevailing at the same time for comparable transactions with other customers, and do not, in the opinion of management, involve more than normal credit risk or present other unfavorable features. A summary of loans to directors and officers and related parties is as follows for the quarter ended March 31, 2011 and the year ended December 31 2010 (dollars in thousands):

	March 31,			December 31,
	2011			2010
Beginning balance	$	977		$	1,067
Additions
Collections		(23	)		(90	)
Ending balance	$	954		$	977

10.	Retirement Plans

Defined Benefit Plan

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 (SFAS) 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.

The Fund covers all employees who have met the stated age and service requirements. A benefit formula provides for retirement benefits that are calculated as a percentage of salary during their working career, as defined. More details can be found in the plan document. 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, 2011 and 2010, the required contributions due were $41,000 and $21,000 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. The Bank matches 100% of contributions up to 6% of the employee’s compensation.

10.	Fair Value Measurements

Effective January 1, 2008, the Company adopted FASB ASC 820 Fair Value Measurements and Disclosures, SFAS No. 157, Fair Value Measurements, which, among other things, requires enhanced disclosures about assets and liabilities carried at fair value.

In April 2009, the Financial Accounting Standards Board (FASB) issued Staff Position FASB ASC 820 Fair Value Measurements and Disclosures (FSP) No. 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (FSP FAS 157-4). The 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 FSP 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 FASB ASC 820-Fair Value Measurements and Disclosures.

This FSP 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 FSP 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 FSP is effective for the Corporation for interim and annual reporting periods ending June 30, 2009 and after.

FASB ASC 820-Fair Value Measurements and Disclosures establishes a hierarchal disclosure framework associated with the level of pricing observables utilized in measuring assets and liabilities at fair value. The three broad levels defined by SFAS No. 157 hierarchy are as follows:

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

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

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

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 is 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 March 31, 2011 by level within the fair value hierarchy. As required by FASB ASC 820 Fair Value Measurements and Disclosures, 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 2011 in Level III assets.

Fair Value of Financial Instruments

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

	March 31, 2011				December 31, 2010
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial Assets:
Cash and cash equivalents	$	20,385	$	20,385	$	18,195	$	18,195
Investments available for sale		13,938		13,938		14,580		14,580
Restricted equity securities		1,035		1,035		1,087		1,087
Loans		122,106		122,924		121,762		122,594
Accrued interest receivable		609		609		580		580
Total financial assets		158,073		158,891		156,204		157,036

Financial liabilities:
Deposits		137,753		135,516		136,311		134,148
Other borrowings		7,000		7,650		7,000		7,638
Accrued interest payable		218		218		226		226
Total financial liabilities		144,971		143,384		143,537		142,012
Off-balance sheet liabilities:
Commitments to extend credit	$	7,417	$	7,417	$	5,251	$	5,251

11.	Stockholder’s Equity

Changes in stockholders’ equity for the period ended March 31, 2010 were as follows:

(In thousands, except per share amounts)	Common Stock		Additional Paid-in Capital		Retained Earnings			Unearned ESOP Shares			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total
Balance, January 1, 2010	$	158	$	13,580	$	8,541		$	(907	)	$	(2	)	$	(2,100	)	$	19,270
Comprehensive (loss):
Net income		-		-		222			-			-			-			222
Unrealized losses on securities, net of income taxes		-		-		-			-			131			-				)
Comprehensive income																		353
ESOP shares released		-				-			18			-			-			18
Restricted Stock Awards		-		36		-			-			-			-			36
Purchase of Treasury Stock															(26	)		(26	)
Cash dividend - $0.09 per share		-		-		(121	)		-			-			-			(121	)
Balance,March 31, 2010	$	158	$	13,616	$	8,642		$	(889	)	$	129		$	(2,126	)	$	19,530

Changes in stockholders’ equity for the period ended March 31, 2011 were as follows:

(In thousands, except per share amounts)	Common Stock		Additional Paid-in Capital		Retained Earnings			Unearned ESOP Shares			Accumulated Other Comprehensive Income (Loss)		Treasury Stock			Total
Balance, January 1, 2011	$	158	$	13,698	$	8,995		$	(836)		$	119	$	(2,562)		$	19,572
Comprehensive income:
Net income		-		-		127			-			-		-			127
Unrealized gains on securities, net of income taxes		-		-		-			-			146		-			146
Comprehensive income																	273
ESOP shares released		-		15		-			18			-		-			33
Restricted Stock Awards		-		51		-			-			-		-			51
Cash dividend - $0.04 per share		-		-		(53	)		-			-		-			(53	)
Balance, March 31, 2011	$	158	$	13,764	$	9,069		$	(818	)	$	265	$	(2,562	)	$	19,876

12.	Pending Acquisition

On December 14, 2010, the Company and Norwood Financial Corp. (“Norwood Financial”), the parent company of Wayne Bank, entered into an Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which the Company will merge with and into Norwood Financial. Concurrent with the merger, it is expected that the Bank will merge with and into Wayne Bank.

Under the terms of the Merger Agreement, each outstanding share of North Penn common stock will be converted into either the right to receive $19.12 in cash or 0.6829 shares of Norwood Financial common stock. In addition, the elections of the Company’s stockholders will be subject to the requirement that $12,194,000 of the merger consideration (which includes amounts paid in cancellation of existing stock options) be paid in cash and that the remainder be paid in Norwood Financial common stock. All of the Company’s stock options, whether or not vested, will be canceled at the effective time of the merger in exchange for a cash payment equal to the difference between $19.12 and the exercise price of the stock option.

The transaction has received all required regulatory and shareholder approvals. The merger is currently expected to be completed on May 31, 2011.

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

Cautionary Statement for Purposes of the Private Securities Litigation Reform Act of 1995

Forward-Looking Statements

North Penn Bancorp, Inc. makes forward-looking statements in this report and we may from time to time make other statements, regarding our outlook or expectations for earnings, revenues, expenses and/or other matters regarding or affecting North Penn Bancorp that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. 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. We do not assume any duty and do not undertake to update our 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 we anticipated in our forward-looking statements and future results could differ materially from our historical performance.

Our forward-looking statements are subject to the following principal risks and uncertainties. We provide greater detail regarding some of these factors elsewhere in other documents filed with the SEC. Our forward-looking statements may also be subject to other risks and uncertainties, including those discussed elsewhere in this Report or in our other filings with the SEC.

Our business and operating results are affected by business and economic conditions generally or specifically in the principal markets in which we do business. We are affected by changes in our customers’ and counterparties’ financial performance, customer preferences and behavior, values of real estate and other collateral, and levels of economic and business activity, among other things.

The values of our assets and liabilities, as well as our overall financial performance, are also affected by changes in interest rates or in valuations in the debt and equity markets. Actions by the Federal Reserve and other government agencies, including those that impact money supply and market interest rates, can affect our activities and financial results.

Competition can have an impact on customer acquisition, growth and retention, as well as on our credit spreads and product pricing, which can affect market share, deposits and revenues.

Legal and regulatory developments could have an impact on our ability to operate our businesses or our financial condition or results of operations or our competitive position or reputation. Reputational impacts, in turn, could affect matters such as business generation and retention, our ability to attract and retain management, liquidity and funding. These legal and regulatory developments could include: (a) the unfavorable resolution of legal proceedings or regulatory and other governmental inquiries; (b) increased litigation risk from recent regulatory and other governmental developments; (c) the results of the regulatory examination process, our failure to satisfy the requirements of agreements with governmental agencies, and regulators’ future use of supervisory and enforcement tools; (d) legislative and regulatory reforms, including changes to laws and regulations involving financial institutions, tax, pension, and the protection of confidential customer information; and (e) changes in accounting policies and principles.

Our business and operating results are affected by our ability to identify and effectively manage risks inherent in our businesses, including, where appropriate, through the effective use of third-party insurance and capital management and asset/liability techniques.

Our ability to anticipate and respond to technological changes can have an impact on our ability to respond to customer needs and to meet competitive demands.

Our business and operating results can be affected by widespread natural disasters, terrorist activities or international hostilities, either as a result of the impact on the economy and financial and capital markets generally or on us or on our customers, suppliers or other counterparties specifically.

Recent and future legislation and regulatory actions responding to instability and volatility in the credit market may significantly affect our operations, financial condition and earnings. Future legislative or regulatory actions could impair our rights against borrowers, result in increased credit losses, and significantly increase our operating expenses.

While the degree of volatility in the financial markets has abated from the levels experienced in 2008 – 2009 uncertainty persists that may adversely affect us and the financial services industry as a whole. A sluggish economy and high unemployment continue to impact commercial and consumer delinquencies dampening consumer confidence while the high level of mortgage foreclosures continue to press on the real estate markets. The continued economic pressure on businesses and consumers has affected and will likely further affect our business, financial condition and results of operations.

Critical Accounting Policies

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. We believe that the critical accounting policies upon which our financial condition and results of operation depend, and which involve the most complex subjective decisions or assessments, are included in the discussion entitled “Critical Accounting Policies” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010, and all amendments thereto, as filed with the Securities and Exchange Commission. There are no material changes to the critical accounting policies disclosed in the Annual Report on Form 10-K.

Statement of Changes in Financial Condition

General. Our total assets increased $1.7 million, or 1.1%, from $163.9 million at December 31, 2010 to $165.7 million at March 31, 2011. Significant changes in asset totals from December 31, 2010 to March 31, 2011 included an increase of $2.1 million in Federal funds sold, while net loans increased $298,000. Total liabilities increased $1.4 million or 1.0% to $145.8 million at March 31, 2011 as compared to $144.4 million at December 31, 2010 due to a $1.4 million increase in total deposits. Stockholders’ equity increased $304,000 or 1.6% to $19.9 million at March 31, 2011 as compared with $19.6 million at December 31, 2010. 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. Our loan portfolio increased a net of $298,000 or 0.2%, since December 31, 2010. Commercial real estate loans have increased $1.3 million, from $72.4 million at December 31, 2010 to $73.4 million at March 31, 2011. 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 $200,000 from $2.2 million at December 31, 2010 to $2.0 million at March 31, 2011, as the Bank has chosen not to aggressively pursue that segment of loans. Residential mortgages decreased $626,000 million from December 31, 2010, as demand has slowed.

Investment securities decreased $642,000, or 4.4%, to $13.9 million at March 31, 2011 from $14.6 million at December 31, 2010. We intend 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 $43,000 during the first quarter of 2011. For the three month period ending March 31, 2011, charge-offs totaled $2,000. 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 1.29% at March 31, 2011 and 1.26% at December 31, 2010. 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 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 $1.9 million at March 31, 2011, compared to $1.3 million at December 31, 2010. The ratio of non-performing loans to total loans was 1.53% and 1.04% at March 31, 2011 and December 31, 2010, respectively.

Liabilities. Total deposits increased $1.4 million, or 1.1%, to $137.8 million at March 31, 2011 from $136.3 million at December 31, 2010. The primary reason for the increase in deposits was that NOW accounts and savings accounts increased $1.9 million or 15.9% and $1.2 million or 2.5% respectively, since December 31, 2010. The increase in NOW accounts and savings accounts were partially offset by a decrease of $2.2 million in time deposits. The Bank has tried to lessen its dependency on more volatile and rate sensitive certificates of deposit and has focused more on growing core deposits, particularly non-interest-bearing deposits

Stockholders’ Equity. Stockholders’ equity increased $304,000 or 1.6% to $19.9 million at March 31, 2011 as compared with $19.6 million at December 31, 2010. Net income for the period and improvement in accumulated other comprehensive loss were the primary reasons for the increase.

Comparison of Results of Operations for the Three Month Periods Ended March 31, 2011 and 2010

General. The Company’s net income for the three months ended March 31, 2011 was $127,000, a decrease of $95,000 from net income of $222,000 for the three months ended March 31, 2010. The primary reason for the increase was increased professional fees due to the pending acquisition of North Penn Bancorp by Norwood Financial. The Company was able to offset increases in non-interest expenses, with an increase in net interest income. Net interest income is the difference between interest earned on securities and loans, less the interest paid on deposits and borrowed funds.

Net Interest Income. For the three months ended March 31, 2011, the Company increased net interest income by $113,000 or 9.1% to $1.4 million as compared to $1.2 million for the same period in 2010. Interest income on loans decreased $10,000 or 0.6% to $1.7 million over the three months ended March 31, 2011 versus the same period in 2010. Interest and dividend income on investment securities decreased $75,000 or 36.4% for the three months ended March 31, 2011 versus the same period in 2010. The decrease was due to managed run-off in the investment portfolio.

Interest expense decreased $193,000, or 27.0%, from $715,000 for the three months ended March 31, 2010 to $522,000 for the same period in 2011. Interest on deposits decreased $116,000 or 20.8%, from $557,000 for the three months ended March 31, 2010 to $441,000 in 2011 due to substantially lower rates on deposits. Interest on borrowed funds decreased $77,000 or 48.7% from $158,000 for the three months ended March 31, 2010 to $81,000 in 2011 due to Company’s redemption of $5,000,000 FHLB debt in July 2010.

Provision for Loan Loss. For the three months ending March 31, 2011, the Company recorded a provision for loan loss in the amount of $45,000, compared to $39,000 for the three months ended March 31, 2010. The Company had charge-offs of $2,000 for the three months ending March 31, 2011 as opposed to no charge-offs for the same period in 2010. The allowance for loan losses as a percent of total loans was 1.29% at March 31, 2011 compared to 1.26% at December 31, 2010.

Non-Interest Income. Non-interest income increased $5,000 or 6.9% to $77,000 for the three months ended March 31, 2011 as compared to $72,000 for the same period in 2010. The increase in non-interest income for the three months ending March 31, 2011 over the comparable 2010 period was primarily caused by an other-than-temporary impairment charge on two equity securities of $24,000 for the three months ending March 31, 2010. Service charges and fees decreased $3,000 over the same periods. The primary reason for the decrease was a decline in returned check fees. For the three months ended March 31, 2011, the Company recorded a loss on sale of equity securities of $8,000 and did not record any gains or losses on sale of other real estate or loans. For the three months ended March 31, 2010, the company did report any gains or losses on equity securities, other real estate or loans.

Non-Interest Expense. For the three months ended March 31, 2011, non-interest expense increased $161,000 or 16.1% to $1.2 million as compared with $1.0 million for the three months ended March 31, 2010. The primary reasons for the increase were an $85,000 increase in professional fees due to the pending acquisition of North Penn Bancorp by Norwood Financial. Salary and employee benefits increased $20,000 due to normal merit increases and higher ESOP compensation due to increased level of the Company’s stock price.

Income taxes. The Bank recorded income tax expense for the three months ended March 31, 2011 of $102,000 as opposed to $56,000 for the same period in 2010. The primary reason for the increase was the application of Alternative Minimum Tax credits for the three months ended March 31, 2010.

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.

North Penn Bank's capital ratios at March 31, 2011 and December 31, 2010 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 March 31, 2011:
Total Capital (to Risk-Weighted Assets):
North Penn Bank	$	19,297		14.89	%	>$	10,366	>8.0	%	>$	12,958	>10.0	%
Tier 1 Capital (to Risk-Weighted Assets):
North Penn Bank	$	17,723		13.68	%	>$	5,183	>4.0	%	>$	7,775	>6.0	%
Tier 1 Capital (to Average Assets):
North Penn Bank	$	17,723		10.81	%	>$	6,561	>4.0	%	>$	8,201	>5.0	%
Risk-Weighted Assets:	$	123,905
Average Assets:	$	151,314
Reconciliation of GAAP Capital to Regulatory Capital
Total Equity Capital March 31, 2011			$	18,079
Plus: Unrealized Gain/Loss on Investments				(352	)
Less: Disallowed Servicing Rights				(4	)
Total Tier 1 Capital March 31, 2011			$	17,723
Plus: Allowance for loan losses				1,574
Total Risk-based Capital March 31, 2011			$	19,297

At December 31, 2010:
Total Capital (to Risk-Weighted Assets):
North Penn Bank	$	18,982		14.75	%	>$	10,298	>8.0	%	>$	12,873	>10.0	%
Tier 1 Capital (to Risk-Weighted Assets):
North Penn Bank	$	17,450		13.56	%	>$	5,149	>4.0	%	>$	7,724	>6.0	%
Tier 1 Capital (to Average Assets):
North Penn Bank	$	17,450		11.68	%	>$	5,370	>4.0	%	>$	6,713	>5.0	%
Risk-Weighted Assets:	$	128,725
Average Assets:	$	163,322
Reconciliation of GAAP Capital to Regulatory Capital
Total Equity Capital December 31, 2010			$	17,704
Plus: Unrealized Gain/Loss on Investments				(249
Less: Disallowed Servicing Rights				(5	)
Total Tier 1 Capital December 31, 2010			$	17,450
Plus: Allowance for loan losses				1,532
Total Risk-based Capital December 31, 2010			$	18,982

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 Exchange Act 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 March 31, 2011 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, 2010, which could materially affect our business, financial condition or future results. At March 31, 2011 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.

The Company did not repurchase any shares of its common stock in the quarter ended March 31, 2011.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. [Removed and Reserved]

Item 5Other 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 Registration Statement on Form SB-2 (File No. 333-143601))
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		Section 1350 Certification of Chief Executive Officer
32.2		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:	May 13, 2011	/s/ Frederick L. Hickman
		Frederick L. Hickman President and Chief Executive Officer

Dated:	May 13, 2011	/s Joseph F. McDonald
		Joseph F. McDonald Chief Financial Officer

North Penn Bancorp Inc 10-Q