content: FORM 10-Q
  
                         SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C. 20549
  
  
  (Mark One)
  
  [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
       ACT OF 1934
  
  For the quarterly period ended:      June 30, 1995
  
                                         OR
  
  [ ]  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: 0-10957
  
                           NATIONAL PENN BANCSHARES, INC.
               (Exact name of registrant as specified in its charter)
  
                    Pennsylvania                         23-2215075
       (State or other jurisdiction of                (I.R.S. Employer
        incorporation or organization)               Identification No.)
  
               Philadelphia and Reading Avenues, Boyertown, PA 19512
                (Address of principal executive offices) (Zip Code)
  
                                   (610) 367-6001
                (Registrant's telephone number, including area code)
  
                                        N/A
                (Former name, former address and former fiscal year,
                           if changed since last report)
  
           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  the  number of  shares  outstanding  of each of the  issuer's
  classes of common stock, as of the latest practicable date.
  
                         Class                    Outstanding at August 5, 1995
  
           Common Stock ($2.50 par value)             (No.) 7,187,314 Shares
  
  
  
                                 Page 1 of 16 pages
  
  <PAGE>
  
  
  
                                 TABLE OF CONTENTS
  
  Part I - Financial Information.                                            Page
  
           Item 1.           Financial Statements ..............................3
  
           Item 2.           Management's Discussion and Analysis of
                             Financial Condition and Results of Operations .....8
  
  Part II - Other Information.
  
           Item 1.           Legal Proceedings ................................14
  
           Item 2.           Changes in Securities ............................14
  
           Item 3.           Defaults Upon Senior Securities ..................14
  
           Item 4.           Submission of Matters to a Vote of
                             Security Holders .................................14
  
           Item 5.           Other Information ................................14
  
           Item 6.           Exhibits and Reports on Form 8-K .................14
  
  Signatures ..................................................................16
  
  
                                         2
  
  <PAGE>
  
                             PART I - FINANCIAL INFORMATION
  
  Item 1.  Financial Statements
  
  <TABLE>
  <CAPTION>
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
  CONSOLIDATED CONDENSED BALANCE SHEET                         June 30         Dec. 31
   (Dollars in thousands, except per share data)                 1995           1994
                                                              (Unaudited)      (Note)
  <S>                                                      <C>            <C>
  ASSETS
  Cash and due from banks                                    $    35,609    $    33,195
  Interest bearing deposits in banks                              10,591            964
  Federal funds sold                                               5,000           --
                                                             -----------    -----------
      Total cash and cash equivalents                             51,200         34,159
  Securities held to maturity
    (approximate market of $93,397 and
    $97,459 at 1995 and 1994, respectively)                       91,149         99,229
  Securities available for sale at market value                  157,964        138,873
                                                             -----------    -----------
      Total Investment Securities                                249,113        238,102
  Loans, net of unearned discount                                889,934        830,612
    Less allowance for possible loan losses                      (19,335)       (19,310)
                                                             -----------    -----------
      Net Loans                                                  870,599        811,302
  Other assets                                                    49,960         53,611
                                                             -----------    -----------
      Total Assets                                           $ 1,220,872    $ 1,137,174
                                                             ===========    ===========
  
  LIABILITIES AND SHAREHOLDERS' EQUITY
  Non-interest bearing deposits                              $   125,239    $   121,273
  Interest bearing deposits
    (Includes certificates of deposit in excess of $100:
    1995 - $90,702; 1994 - $65,630)                              783,501        743,367
                                                             -----------    -----------
      Total Deposits                                             908,740        864,640
  Securities sold under repurchase agreements
    and federal funds purchased                                  124,848         50,274
  Short-term borrowings                                            5,581         47,967
  Long-term obligations                                           72,778         77,777
  Accrued interest and other liabilities                          13,401         11,645
                                                             -----------    -----------
      Total Liabilities                                        1,125,348      1,052,303
  Commitments and contingent liabilities                            --             --
  Shareholders' equity
    Preferred stock, no stated par value;
      authorized 1,000,000 shares, none issued                      --             --
    Common stock, par value $2.50 per share;
      20,000,000 shares  authorized; 7,268,450
      shares issued and 7,187,314 shares
      outstanding at June 30, 1995; 7,234,126
      shares issued and 7,135,347 shares
      outstanding at December 31, 1994                            18,084         18,083
    Additional paid-in-capital                                    56,979         57,263
    Retained earnings                                             20,989         16,598
    Valuation adjustment for securities available
       for sale, net of tax                                        1,796         (4,011)
    Treasury stock (81,136 shares at cost at June 30, 1995
      and 98,779 shares at cost at December 31, 1994)             (2,324)        (3,062)
                                                             -----------    -----------
       Total Shareholders' Equity                                 95,524         84,871
                                                             -----------    -----------
       Total Liabilities and Shareholders' Equity            $ 1,220,872    $ 1,137,174
                                                             ===========    ===========
  </TABLE>
  
  
  The  accompanying  notes  are an  integral  part of  these  condensed  financial
  statements.
  
  Note: The Balance  Sheet at Dec. 31, 1994 has been  derived  from the  financial
        statements at that date.
  
                                         3
  
  
  <PAGE>
  
  
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
  UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME
  <TABLE>
  <CAPTION>
                                                           Three Months Ended      Six Months Ended
  (Dollars in thousands, except per share data)                  June 30               June 30
  
                                                             1995       1994        1995      1994
  <S>                                                    <C>        <C>          <C>        <C>
  INTEREST INCOME
  Loans including fees                                     $ 20,445   $ 17,233    $ 39,703   $ 33,608
  Deposits in banks                                              15         24          30         56
  Federal funds sold                                              3          9           5         14
  Investment securities                                       3,991      3,427       7,966      6,232
                                                           --------   --------    --------   --------
      Total interest income                                  24,454     20,693      47,704     39,910
                                                           --------   --------    --------   --------
  INTEREST EXPENSE
  Deposits                                                    8,470      5,398      15,873     10,193
  Federal funds purchased, borrowed funds and
    securities sold under repurchase agreements               2,435      1,278       4,822      2,511
                                                           --------   --------    --------   --------
      Total interest expense                                 10,905      6,676      20,695     12,704
                                                           --------   --------    --------   --------
      Net interest income                                    13,549     14,017      27,009     27,206
  Provision for loan losses                                     750        950       1,500      1,700
                                                           --------   --------    --------   --------
      Net interest income after provision
        for loan losses                                      12,799     13,067      25,509     25,506
                                                           --------   --------    --------   --------
  OTHER INCOME
  Trust Services                                                424        351         848        676
  Service charges on deposit accounts                           657        640       1,297      1,286
  Net gains (losses) on sale of securities and mortgages         47        (91)        303       (312)
  Other                                                         497        590       1,245        986
                                                           --------   --------    --------   --------
      Total other income                                      1,625      1,490       3,693      2,636
                                                           --------   --------    --------   --------
  OTHER EXPENSES
  Salaries, wages and employee benefits                       4,869      4,697       9,850      8,950
  Net premises and equipment                                  1,330      1,524       2,719      2,721
  Other operating                                             3,091      3,429       5,928      5,959
                                                           --------   --------    --------   --------
      Total other expenses                                    9,290      9,650      18,497     17,630
                                                           --------   --------    --------   --------
      Income before income taxes                              5,134      4,907      10,705     10,512
  Applicable income tax expense                               1,576      1,453       3,230      3,255
                                                           --------   --------    --------   --------
      Net income                                              3,558      3,454    $  7,475   $  7,257
                                                           ========   ========    ========   ========
  
  PER SHARE OF COMMON STOCK
  Net income                                               $   0.49   $   0.48    $   1.04   $   1.01
  Dividends paid in cash                                       0.21       0.18        0.42       0.35
  </TABLE>
  
  The  accompanying  notes  are an  integral  part of  these  condensed  financial
  statements.
  
                                         4
  
  
  <PAGE>
  
  
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
  UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
  
  <TABLE>
  <CAPTION>
                                                                         Six Months Ended June 30,
  (Dollars in thousands)
                                                                             1995        1994
  <S>                                                                   <C>          <C>
  CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                                           $   7,475    $   7,257
    Adjustments to reconcile net income to net
        cash provided by (used in) operating activities
      Provision for loan losses                                              1,500        1,700
      Depreciation and amortization                                          1,304        1,091
      Net gains (losses) on sale of securities and mortgages                   303         (312)
      Mortgage loans originated for resale                                  (4,935)     (13,422)
      Sale of mortgage loans originated for resale                           4,935       13,422
      Other                                                                  5,475       (5,674)
                                                                         ---------    ---------
  
        Net cash provided by (used in) operating activities                 16,057        4,062
  
  CASH FLOWS FROM INVESTING ACTIVITIES
    Proceeds from sales of investment securities - available for sale        6,578         --
    Proceeds from maturities of investment securities - 
       held to maturity                                                      3,032       18,689
    Proceeds from maturities of investment securities - 
       available for sale                                                       91
    Purchase of investment securities - available for sale                 (14,905)     (99,680)
    Proceeds from sales of loans                                              --          8,737
    Net increase in loans                                                  (60,797)     (50,837)
    Purchases of premises & equipment                                       (1,957)      (4,228)
                                                                         ---------    ---------
  
        Net cash provided by (used in) investing activities                (67,958)    (127,319)
  
  CASH FLOWS FROM FINANCING ACTIVITIES
    Increase (decrease) in:
      Deposits                                                              44,100      123,787
      Repurchase agreements, fed funds & short-term borrowings              32,188       15,963
      Long-term borrowings & subordinated capital note                      (4,999)      (3,500)
      (Increase) decrease in treasury stock                                    738         (653)
      Issuance of common stock under dividend reinvestment plan               --            777
      Cash dividends                                                        (3,085)      (2,674)
                                                                         ---------    ---------
  
        Net cash provided by (used in) financing activities                 68,942      133,700
  
  Net increase (decrease) in cash and cash equivalents                      17,041       10,443
  
  Cash and cash equivalents at January 1                                    34,159       29,767
                                                                         ---------    ---------
  
  Cash and cash equivalents at June 30                                   $  51,200    $  40,210
                                                                         =========    =========
  </TABLE>
  
  
  The  accompanying  notes  are an  integral  part of  these  condensed  financial
  statements.
  
                                         5
  
  
  
  <PAGE>
  
                NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                    (UNAUDITED)
  
  
  1. The accompanying  unaudited condensed financial statements have been prepared
  in  accordance  with  generally  accepted  accounting   principles  for  interim
  financial  information.  The financial information included herein is unaudited;
  however, such information reflects all adjustments  (consisting solely of normal
  recurring  adjustments) which are, in the opinion of management,  necessary to a
  fair statement of the results for the interim periods.  For further information,
  refer to the consolidated financial statements and footnotes thereto included in
  the Company's Annual Report on Form 10-K for the year ended December 31, 1994.
  
  2. The results of operations  for the  six-month  period ended June 30, 1995 are
  not necessarily indicative of the results to be expected for the full year.
  
  3. Per share data are based on the weighted average number of shares outstanding
  of 7,165,367  and 7,165,367  for 1995 and 1994,  respectively,  and are computed
  after giving retroactive effect to a 5% stock dividend paid on October 31, 1994.
  
  4. On July 26,  1995,  the  Company's  Board of  Directors  declared  a 5% stock
  dividend  payable on October 31, 1995 to shareholders of record on September 29,
  1995.
  
  5. On January 1, 1995 the Company  adopted  Statement  of  Financial  Accounting
  Standards  (SFAS) NO. 114,  "Accounting for Creditors for Impairment of a Loan,"
  as amended by SFAS No. 118, "Accounting for Creditors for Impairment of a Loan -
  Income  Recognition  and  Disclosures."  SFAS No. 114  requires  that a creditor
  measure  impairment  based on the present  value of  expected  future cash flows
  discounted at the loan's  effective  interest  rate,  except that as a practical
  expedient, a creditor may measure impairment based on a loan's observable market
  price,  or the fair value of  collateral  if the loan is  collateral  dependent.
  Regardless of the measurement  method, a creditor must measure  impairment based
  on  the  fair  value  of  the  collateral  when  the  creditor  determines  that
  foreclosure is probable.  SFAS No. 118 allows  creditors to use existing methods
  for recognizing interest income on impaired loans.
  
           The Company has  identified a loan as impaired when it is probable that
  interest and principal will not be collected  according to the contractual terms
  of the loan agreement. The accrual of interest is discontinued in such loans and
  no income is recognized until all recorded amounts of interest and principal are
  recovered in full.
  
  
  
  
                                         6
  
  <PAGE>
  
           Loan  impairment  is measured by  estimating  the expected  future cash
  flows and  discounting  them at the  respective  effective  interest  rate or by
  valuing the underlying  collateral.  The recorded  investment in these loans and
  the valuation for credit losses related to loan impairment are as follows:
  
                                                           June 30,
                                                             1995
  
            Principal amount of impaired loans            $7,249,000
            Accrued interest                                   --
            Deferred loan costs                                --
                                                          ----------
                                                           7,249,000
            Less valuation allowance                       1,193,000
                                                          ----------
                                                          $6,056,000
                                                          ==========
  
           On January 1, 1995 a valuation  for credit  losses  related to impaired
  loans was established.  The activity in this allowance for the six months ending
  June 30, 1995 is as follows:
  
            Valuation allowance at beginning of period   $ 1,913,000
            Provision for loan impairment                    586,000
            Direct charge-offs                              (855,000)
            Recoveries                                       269,000
                                                         -----------
            Valuation allowance at end of period         $ 1,193,000
  
           Total cash collected on impaired loans during the six months ended June
  30, 1995 was $742,000,  of which $269,000 was credited to the principal  balance
  outstanding  on such loans and  $473,000  was  recognized  as  interest  income.
  Interest  that would have been  accrued on impaired  loans  during the first six
  months of 1995 was $326,000.  Interest  income  recognized  during the first six
  months of 1995 was $473,000.
  
  
  
  
  
  
  
  
  
  
                                         7
  
  <PAGE>
  
  Item 2. Management's  Discussion and Analysis of Financial Condition and Results
          of Operations
  
  
           The  following  discussion  and  analysis  is  intended  to  assist  in
  understanding  and evaluating  the major changes in the financial  condition and
  earnings  performance  of the  Company  with a primary  focus on an  analysis of
  operating results.
  
                                FINANCIAL CONDITION
  
           Total assets increased to $1.221 billion,  an increase of $83.7 million
  or 7.4% over the $1.137 billion at December 31, 1994. This increase is reflected
  primarily in the loan category,  the result of the  investment of deposits,  the
  Company's primary source of funds.
  
           Total cash and cash  equivalents  increased  $17.0  million or 49.9% at
  June 30, 1995 when  compared to December 31, 1994.  This  increase was due to an
  increase in due from banks and federal funds sold.
  
           Loans  increased to $889.9  million at June 30,  1995.  The increase of
  $59.3  million or 7.1% compared to December 31, 1994 was primarily the result of
  the investment of deposits.  Loans  originated  for immediate  resale during the
  first six months of the year  amounted to $4.9  million.  The  Company's  credit
  quality is reflected by the annualized ratio of net charge-offs to average total
  loans of .35% for the second  quarter and the level of  non-performing  loans to
  total loans of 1.63% at June 30, 1995. The Company has no  significant  exposure
  to energy and agricultural- related loans.  Non-performing loans at December 31,
  1994 were 1.12% of total loans.
  
           Investments,  the  Company's  secondary use of funds,  increased  $11.0
  million or 4.6% to $249.1 million at June 30, 1995 when compared to December 31,
  1994. The increase was primarily in Mortgage-Backed Securities.
  
           As the primary source of funds, aggregate deposits of $908.7 million at
  June 30, 1995  increased  $44.1  million or 5.1%  compared to December 31, 1994.
  There was a shift in deposit mix during the first six months of 1995 as interest
  bearing  deposits  increased $40.1 million while  non-interest  bearing deposits
  increased $4.0 million.  Certificates of deposit in excess of $100,000 increased
  $25.1 million. In addition to deposits, earning assets are funded to some extent
  through  purchased  funds and  borrowings.  These include  securities sold under
  repurchase  agreements,  federal  funds  purchased,  short-term  borrowings  and
  long-term debt obligations. In the aggregate, these funds totaled $203.2 million
  at June 30, 1995, a $27.2 million or 15.4%  increase  compared to $176.0 million
  December 31, 1994. The increase is reflected in short-term
  
                                         8
  
  <PAGE>
  
  obligations,  primarily  securities sold under repurchase  agreement and federal
  funds purchased.
  
           Shareholders'  equity increased $10.6 million or 12.6% at June 30, 1995
  to $95.5  million  compared to the $84.9  million at  December  31,  1994.  This
  increase  was due to the  retention  of  earnings  and the  change in  valuation
  adjustment  for  securities  available for sale.  Cash dividends paid during the
  first six  months  of 1995  increased  $467,000  or 18.4%  compared  to the cash
  dividends paid during the first six months of 1994. Earnings retained during the
  first six  months of 1995 were  59.8%  compared  to 65.1%  during  the first six
  months of 1994.
  
                               RESULTS OF OPERATIONS
  
           Net income for the quarter ended June 30, 1995 was $3.6  million,  3.0%
  more than the $3.5 million  reported for the same period in 1994.  For the first
  six months, net income reached $7.5 million,  or 3.0% more than the $7.3 million
  reported for the first six months of 1994.  The Company's  performance  has been
  and will  continue to be in part  influenced  by the strength of the economy and
  conditions in the real estate market.
  
           Net interest income is the difference between interest income on assets
  and interest  expense on liabilities.  Net interest income decreased $.5 million
  or 3.3% to $13.5 million during the second quarter of 1995 from $14.0 million in
  the second  quarter 1994.  For the  comparative  six month period,  net interest
  income remained constant.  The increase in interest income is a result of growth
  in loan  outstandings  and higher  rates on loans that was  partially  offset by
  growth in deposits and higher rates on deposits and  borrowings.  Interest  rate
  risk is a major concern in forecasting  earnings potential.  The Company's prime
  rate from  January 1, 1995 to January 31,  1995 was 8.50%.  On February 1, 1995,
  the prime rate changed to 9.0%. The Company's prime rate was 6.0% from January 1
  through  March 23,  1994.  From March 24 to April 18,  1994,  the prime rate was
  6.25%. From April 19 to May 17, 1994, the prime rate was 6.75%. On May 18, 1994,
  the prime rate changed to 7.25%. Interest expense during the first six months of
  1995  increased  $8.0 million or 62.9%  compared to the prior year's six months.
  Despite  the  current  rate  environment,  the cost of  attracting  and  holding
  deposited funds is an  ever-increasing  expense in the banking  industry.  These
  increases are the real costs of deposit  accumulation  and retention,  including
  FDIC insurance costs and branch overhead expenses.  Such costs are necessary for
  continued  growth  and to  maintain  and  increase  market  share  of  available
  deposits.
  
           The  provision  for loan and lease  losses is  determined  by  periodic
  reviews of loan quality,  current economic conditions,  loss experience and loan
  growth.  Based on these  factors,  the  provision  for  loan  and  lease  losses
  decreased $200,000 for both the second
  
                                         9
  
  <PAGE>
  
  quarter and the first six months of 1995  compared to the same  periods in 1994.
  The  allowance  for loan and lease losses of $19.3  million at June 30, 1995 and
  December  31,  1994  as  a  percentage   of  total  loans  was  2.2%  and  2.3%,
  respectively.  The Company's net charge-offs of $1,475,000 and $1,350,000 during
  the first six months of 1995 and 1994, respectively,  continues to be comparable
  to  that of the  Company's  peers,  as  reported  in the  Bank  Holding  Company
  Performance Report.
  
           "Total  other  income"  increased  $135,000  or 9.1%  during the second
  quarter of 1995, as a result of gains on the sale of securities and mortgages of
  $138,000,  trust  income of $73,000 and service  charges on deposit  accounts of
  $17,000.  Year to date, other income increased $1,057,000 or 40.1% when compared
  to the first six  months of 1994 as a result of gains on the sale of  securities
  and  mortgages of $615,000,  other income of $259,000,  trust income of $172.000
  and  service  charges on deposit  accounts 0f $11,000.  "Total  other  expenses"
  decreased  $360,000 or 3.7% during the quarter ended June 30, 1995 and increased
  $867,000  or 4.9% for the six  months  period.  Of this  year-to-date  increase,
  salaries and benefits  increased $900,000 or 10.1% due to higher staffing levels
  and the opening of two supermarket branches in 1995.
  
           Income  before  income taxes  increased by $227,000 or 4.6% compared to
  the second  quarter of 1994.  In comparing the first six months of 1995 to 1994,
  income before income taxes  increased  $193,000 or 1.8%.  Income taxes increased
  $123,000 for the quarter and decreased $25,000 the six month period.
  
                      LIQUIDITY AND INTEREST RATE SENSITIVITY
  
           The  primary  functions  of  asset/liability  management  are to assure
  adequate liquidity and maintain an appropriate balance between  interest-earning
  assets and  interest-bearing  liabilities.  Liquidity  management  involves  the
  ability  to meet the cash  flow  requirements  of  customers  who may be  either
  depositors  wanting  to  withdraw  funds or  borrowers  needing  assurance  that
  sufficient funds will be available to meet their credit needs. Funding affecting
  short-term  liquidity,  including  deposits,  repurchase  agreements,  fed funds
  purchased,  and  short-term  borrowings,  increased  $76.3 million from year end
  1994. Long-term borrowings decreased $5.0 million during the first six months of
  1995.
  
           The  goal  of  interest  rate   sensitivity   management  is  to  avoid
  fluctuating  net  interest  margins,  and to  enhance  consistent  growth of net
  interest income through periods of changing  interest rates. Such sensitivity is
  measured  as the  difference  in the  volume of assets  and  liabilities  in the
  existing portfolio that are subject to repricing in a future time period.
  
  
                                         10
  
  <PAGE>
  
           The following table shows  separately the interest rate  sensitivity of
  each category of  interest-earning  assets and  interest-bearing  liabilities at
  June 30, 1995:
  
                                                   Repricing Periods (1)
                                                        One Year
                                            Within       Through        Over
                                           One Year     Five Years   Five Years
                                                     (In Thousands)
  Assets
    Interest-bearing deposits
      at banks                             $  10,591    $    --      $    --
    Investment securities                     59,197       65,222      124,694
    Loans and leases                         369,196      354,331      166,407
    Other assets                               9,319         --         81,250
                                           ---------    ---------    ---------
                                             448,303      419,553      372,351
                                           ---------    ---------    ---------
  Liabilities and equity
    Noninterest-bearing deposits             125,239         --           --
    Interest-bearing deposits                303,125      234,401      245,975
    Borrowed funds                           177,097       13,610       12,500
    Other liabilities                           --           --         32,736
    Hedging instruments                      100,000      (90,000)     (10,000)
    Shareholders' equity                        --           --         95,524
                                           ---------    ---------    ---------
                                             705,461      158,011      376,735
                                           ---------    ---------    ---------
  
  Interest sensitivity gap                  (257,158)     261,542       (4,384)
                                           ---------    ---------    ---------
  
  Cumulative interest rate
      sensitivity gap                      ($257,158)   $   4,384    $    --
                                           =========    =========    =========
  
  (1)      Savings  and  NOW  deposits  are  scheduled  for  repricing   based  on
           historical  deposit decay rate analyses,  as well as historical  moving
           averages of run-off for the Company's deposits in these categories.
  
           Interest   rate   sensitivity   is  a   function   of   the   repricing
  characteristics of the Company's assets and liabilities.  These  characteristics
  include  the  volume of assets  and  liabilities  repricing,  the  timing of the
  repricing,  and the relative  levels of  repricing.  Attempting  to minimize the
  interest  rate  sensitivity  gaps is a continual  challenge  in a changing  rate
  environment.  Based on the  Company's  gap  position as  reflected  in the above
  table,  current  accepted  theory would indicate that net interest  income would
  increase  in a falling  rate  environment  and would  decrease  in a rising rate
  environment.  An interest rate gap table does not,  however,  present a complete
  picture of the impact of interest  rate changes on net interest  income.  First,
  changes in the general level of interest rates do not affect all categories of
  
                                         11
  
  <PAGE>
  
  assets and liabilities equally or simultaneously. Second, assets and liabilities
  which can contractually reprice within the same period may not, in fact, reprice
  at the same time or to the same extent.  Third,  the table  represents a one-day
  position; variations occur daily as the Company adjusts its interest sensitivity
  throughout the year. Fourth, assumptions must be made to construct such a table.
  For example,  non-interest  bearing  deposits are assigned a repricing  interval
  within  one year,  although  history  indicates  a  significant  amount of these
  deposits  will not move  into  interest  bearing  categories  regardless  of the
  general level of interest rates. Finally, the repricing distribution of interest
  sensitive assets may not be indicative of the liquidity of those assets.
  
           The Company anticipates volatile interest rate levels for the remainder
  of 1995, with no clear indication of sustainable  rising or falling rates. Given
  this  assumption,  the  Company's  asset/liability  strategy for 1995 is to move
  toward a smaller negative gap (interest-bearing liabilities subject to repricing
  equal  interest-earning  assets  subject to repricing) for periods up to a year.
  The impact of a volatile interest rate environment on net interest income is not
  expected to be  significant to the Company's  results of  operations.  Effective
  monitoring of these interest  sensitivity  gaps is the priority of the Company's
  asset/liability management committee.
  
                                  CAPITAL ADEQUACY
  
           The following table sets forth certain capital performance ratios.
  
                                                   June 30,    Dec. 31,
                                                    1995        1994
  CAPITAL LEVELS
    Tier 1 leverage ratio                            7.39%      7.35%
    Tier 1 risk-based ratio                         10.74      10.85
    Total risk-based ratio                          12.01      12.11
  
  
  
  CAPITAL PERFORMANCE
    Return on average assets(annualized)             1.30       1.41
    Return on average equity(annualized)            16.70      17.30
    Earnings retained                               59.80      63.50
    Internal capital growth(annualized)             10.54      11.32
  
           The Company's  capital  ratios above  compare  favorably to the minimum
  required  amounts of Tier 1 and total capital to "risk- weighted" assets and the
  minimum Tier 1 leverage  ratio,  as defined by banking  regulators.  At June 30,
  1995,  the Company was required to have minimum Tier 1 and total capital  ratios
  of 4.0% and 8.0%, respectively, and a minimum Tier 1 leverage ratio of 3.0%. In
  
                                         12
  
  <PAGE>
  
  order for the Company to be considered "well capitalized", as defined by banking
  regulators,  the Company must have Tier 1 and total  capital  ratios of 6.0% and
  10.0%,  respectively,  and a minimum Tier 1 leverage  ratio of 5.0%. The Company
  currently meets the criteria for a well capitalized institution,  and management
  believes that, under current regulations,  the Company will continue to meet its
  minimum capital  requirements in the foreseeable future. At present, the Company
  has no commitments for significant capital expenditures.
  
           The Company is not under any agreement with regulatory  authorities nor
  is  the  Company  aware  of  any  current   recommendations  by  the  regulatory
  authorities  which,  if such  recommendations  were  implemented,  would  have a
  material effect on liquidity, capital resources or operations of the Company.
  
                                   FUTURE OUTLOOK
  
           In  February  1994,  the  Company's  Board of  Directors  approved  the
  repurchase  of up to  200,000  shares  of its  common  stock in open  market  or
  negotiated  transactions.   To  date,  a  total  of  160,000  shares  have  been
  repurchased at an aggregate cost of $4,942,000.
  
           On March 1,  1995,  the  Company  opened its first  supermarket  branch
  banking facility in Muhlenberg,  PA. The second supermarket branch was opened on
  May 3, 1995 in Schnecksville,  PA. The Company considers supermarket branches to
  be a strategic  delivery system for banks in the future and anticipates  opening
  three more during the remainder of 1995.
  
           The Company  will  continue  its work on the  installation  of platform
  automation  during 1995.  Through  platform  automation,  the Company expects to
  increase efficiencies and re-focus its efforts to improve productivity, in order
  to  provide  faster and  improved  service  to our  customers,  at the same time
  reducing costs to contrubute to improved profitability.  The platform automation
  project may lead to in excess of $1 million in capital expenditures.
  
  
  
  
  
  
                                         13
  
  <PAGE>
  
                            PART II - OTHER INFORMATION
  
  
  Item 1.  Legal Proceedings.
  
           None
  
  
  Item 2.  Changes in Securities.
  
           None
  
  
  Item 3.  Defaults Upon Senior Securities.
  
           None
  
  
  Item 4.  Submission of Matters to Vote of Security Holders.
  
           The 1995 annual meeting (the "Meeting") of the shareholders of National
  Penn Bancshares,  Inc. (the  "Registrant") was held on April 25, 1995. Notice of
  the Meeting  was mailed to  shareholders  of record on or about March 24,  1995,
  together with proxy  solicitation  materials prepared in accordance with Section
  14(a) of the Securities  Exchange Act of 1934, as amended,  and the  regulations
  promulgated thereunder.
  
           The Meeting was held for the following purposes:
  
           (1) to elect three Class II directors to hold office for three years
  from the date of election and until their successors are elected and qualified
  (Proposal No. 1); and
  
           (2) to act upon a proposal to approve the Registrant's Non-Employee
  Directors' Stock option Plan (Proposal No. 2).
  
           There was no solicitation in opposition to the nominees of the Board of
  Directors  for election to the Board of  Directors  and all such  nominees  were
  elected.  The  number of votes  cast for or  withheld,  as well as the number of
  abstentions  and broker  non-votes  for each of the nominees for election to the
  Board of Directors were as follows:
  
                                                              Abstentions and
  Nominee                        For             Withheld     Broker Non-Votes
  
  John J. Dau                    5,787,189        28,710            0
  
  Lawrence T. Jilk, Jr.          5,783,200        32,699            0
  
  C. Robert Roth                 5,782,859        33,040            0
  
           There was no  solicitation  in  opposition to Proposal No. 2 to approve
  the  Registrant's  Non-Employee  Director's  Stock Option Plan, and the Plan was
  approved.  The  number of votes  cast for or  against  as well as the  number of
  abstentions and broker non-votes, for the proposal were as follows:
  
  For                Against           Abstentions          Broker Non-votes
  
  4,988,568          668,418             158,913                   0
  
  
  
                                         14
  
  <PAGE>
  
  Item 5.            Other Information.
  
            On May 8, 1995, the  Registrant's  banking  subsidiary,  National Penn
  Bank,  formed a new  banking  division,  1st Main Line  Bank,  located in Paoli,
  Pennsylvania.  1st Main Line Bank initially  opened a loan production  office in
  the Paoli Plaza. On August 2, 1995, the Comptroller of the Currency  approved an
  application for a full-service branch at this location.
  
            National  Penn Bank opened a  full-service  supermarket  branch in the
  King's  Market,  Schnecksville  (Lehigh  County) on May 3, 1995, and in the Weis
  Market,  Cedar Crest (Lehigh County) on July 31, 1995. National Penn Bank closed
  its Fairview Village branch (Montgomery County) on June 18, 1995.
  
            In February 1994,  the  Registrant's  Board of Directors  approved the
  repurchase  of up to  200,000  shares  of its  common  stock in open  market  or
  negotiated  transactions.  At June 30, 1995, a total of 160,000 shares have been
  repurchased at an aggregate cost of $4,942,000.
  
            On July 26, 1995, the Registrant  declared a 5% stock dividend payable
  on October  31,  1995 to  shareholders  of record as of the close of business on
  September 29, 1995.
  
  
  Item 6.          Exhibits and Reports on Form 8-K.
  
            (a)    Exhibits.
  
                   Exhibit 27 - Financial Data Schedule.
  
            (b)    Reports on Form 8-K. The Registrant did not file any Reports on
  Form 8-K during the quarterly period ended June 30, 1995.
  
                                         15
  
  <PAGE>
  
                                     SIGNATURES
  
  
            Pursuant to the requirements of Section 13 of the Securities  Exchange
  Act of 1934, the Registrant has caused this report to be signed on its behalf by
  the undersigned thereunto duly authorized.
  
                                             NATIONAL PENN BANCSHARES, INC.
                                                    (Registrant)
  
  
  Dated:  August 7, 1995                     By /s/ Lawrence T. Jilk, Jr.
                                                --------------------------
                                                Lawrence T. Jilk, Jr., President
                                                and Chief Executive Officer
  
  Dated:  August 7, 1995                     By /s/ Gary L. Rhoads
                                                -------------------
                                                Gary L. Rhoads, Principal
                                                Financial Officer
  
  
                                         16
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text: FORM 10-Q
  
                         SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C. 20549
  
  (Mark One)
  
  [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
       ACT OF 1934
  
  For the quarterly period ended:      June 30, 1995
  
                                         OR
  
  [ ]  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: 0-10957
  
                           NATIONAL PENN BANCSHARES, INC.
               (Exact name of registrant as specified in its charter)
  
                    Pennsylvania                         23-2215075
       (State or other jurisdiction of                (I.R.S. Employer
        incorporation or organization)               Identification No.)
  
               Philadelphia and Reading Avenues, Boyertown, PA 19512
                (Address of principal executive offices) (Zip Code)
  
                                   (610) 367-6001
                (Registrant's telephone number, including area code)
  
                                        N/A
                (Former name, former address and former fiscal year,
                           if changed since last report)
  
           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  the  number of  shares  outstanding  of each of the  issuer's
  classes of common stock, as of the latest practicable date.
  
                         Class                    Outstanding at August 5, 1995
  
           Common Stock ($2.50 par value)             (No.) 7,187,314 Shares
  
                                 Page 1 of 16 pages
  TABLE OF CONTENTS
  
  Part I - Financial Information.                                            Page
  
           Item 1.           Financial Statements ..............................3
  
           Item 2.           Management's Discussion and Analysis of
                             Financial Condition and Results of Operations .....8
  
  Part II - Other Information.
  
           Item 1.           Legal Proceedings ................................14
  
           Item 2.           Changes in Securities ............................14
  
           Item 3.           Defaults Upon Senior Securities ..................14
  
           Item 4.           Submission of Matters to a Vote of
                             Security Holders .................................14
  
           Item 5.           Other Information ................................14
  
           Item 6.           Exhibits and Reports on Form 8-K .................14
  
  Signatures ..................................................................16
  
                                         2
  PART I - FINANCIAL INFORMATION
  
  Item 1.  Financial Statements
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
  CONSOLIDATED CONDENSED BALANCE SHEET                         June 30         Dec. 31
   (Dollars in thousands, except per share data)                 1995           1994
                                                              (Unaudited)      (Note)
  ASSETS
  Cash and due from banks                                    $    35,609    $    33,195
  Interest bearing deposits in banks                              10,591            964
  Federal funds sold                                               5,000           --
                                                             -----------    -----------
      Total cash and cash equivalents                             51,200         34,159
  Securities held to maturity
    (approximate market of $93,397 and
    $97,459 at 1995 and 1994, respectively)                       91,149         99,229
  Securities available for sale at market value                  157,964        138,873
                                                             -----------    -----------
      Total Investment Securities                                249,113        238,102
  Loans, net of unearned discount                                889,934        830,612
    Less allowance for possible loan losses                      (19,335)       (19,310)
                                                             -----------    -----------
      Net Loans                                                  870,599        811,302
  Other assets                                                    49,960         53,611
                                                             -----------    -----------
      Total Assets                                           $ 1,220,872    $ 1,137,174
                                                             ===========    ===========
  
  LIABILITIES AND SHAREHOLDERS' EQUITY
  Non-interest bearing deposits                              $   125,239    $   121,273
  Interest bearing deposits
    (Includes certificates of deposit in excess of $100:
    1995 - $90,702; 1994 - $65,630)                              783,501        743,367
                                                             -----------    -----------
      Total Deposits                                             908,740        864,640
  Securities sold under repurchase agreements
    and federal funds purchased                                  124,848         50,274
  Short-term borrowings                                            5,581         47,967
  Long-term obligations                                           72,778         77,777
  Accrued interest and other liabilities                          13,401         11,645
                                                             -----------    -----------
      Total Liabilities                                        1,125,348      1,052,303
  Commitments and contingent liabilities                            --             --
  Shareholders' equity
    Preferred stock, no stated par value;
      authorized 1,000,000 shares, none issued                      --             --
    Common stock, par value $2.50 per share;
      20,000,000 shares  authorized; 7,268,450
      shares issued and 7,187,314 shares
      outstanding at June 30, 1995; 7,234,126
      shares issued and 7,135,347 shares
      outstanding at December 31, 1994                            18,084         18,083
    Additional paid-in-capital                                    56,979         57,263
    Retained earnings                                             20,989         16,598
    Valuation adjustment for securities available
       for sale, net of tax                                        1,796         (4,011)
    Treasury stock (81,136 shares at cost at June 30, 1995
      and 98,779 shares at cost at December 31, 1994)             (2,324)        (3,062)
                                                             -----------    -----------
       Total Shareholders' Equity                                 95,524         84,871
                                                             -----------    -----------
       Total Liabilities and Shareholders' Equity            $ 1,220,872    $ 1,137,174
                                                             ===========    ===========
  The  accompanying  notes  are an  integral  part of  these  condensed  financial
  statements.
  
  Note: The Balance  Sheet at Dec. 31, 1994 has been  derived  from the  financial
        statements at that date.
  
                                         3
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
  UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME
  Three Months Ended      Six Months Ended
  (Dollars in thousands, except per share data)                  June 30               June 30
  
                                                             1995       1994        1995      1994
  INTEREST INCOME
  Loans including fees                                     $ 20,445   $ 17,233    $ 39,703   $ 33,608
  Deposits in banks                                              15         24          30         56
  Federal funds sold                                              3          9           5         14
  Investment securities                                       3,991      3,427       7,966      6,232
                                                           --------   --------    --------   --------
      Total interest income                                  24,454     20,693      47,704     39,910
                                                           --------   --------    --------   --------
  INTEREST EXPENSE
  Deposits                                                    8,470      5,398      15,873     10,193
  Federal funds purchased, borrowed funds and
    securities sold under repurchase agreements               2,435      1,278       4,822      2,511
                                                           --------   --------    --------   --------
      Total interest expense                                 10,905      6,676      20,695     12,704
                                                           --------   --------    --------   --------
      Net interest income                                    13,549     14,017      27,009     27,206
  Provision for loan losses                                     750        950       1,500      1,700
                                                           --------   --------    --------   --------
      Net interest income after provision
        for loan losses                                      12,799     13,067      25,509     25,506
                                                           --------   --------    --------   --------
  OTHER INCOME
  Trust Services                                                424        351         848        676
  Service charges on deposit accounts                           657        640       1,297      1,286
  Net gains (losses) on sale of securities and mortgages         47        (91)        303       (312)
  Other                                                         497        590       1,245        986
                                                           --------   --------    --------   --------
      Total other income                                      1,625      1,490       3,693      2,636
                                                           --------   --------    --------   --------
  OTHER EXPENSES
  Salaries, wages and employee benefits                       4,869      4,697       9,850      8,950
  Net premises and equipment                                  1,330      1,524       2,719      2,721
  Other operating                                             3,091      3,429       5,928      5,959
                                                           --------   --------    --------   --------
      Total other expenses                                    9,290      9,650      18,497     17,630
                                                           --------   --------    --------   --------
      Income before income taxes                              5,134      4,907      10,705     10,512
  Applicable income tax expense                               1,576      1,453       3,230      3,255
                                                           --------   --------    --------   --------
      Net income                                              3,558      3,454    $  7,475   $  7,257
                                                           ========   ========    ========   ========
  
  PER SHARE OF COMMON STOCK
  Net income                                               $   0.49   $   0.48    $   1.04   $   1.01
  Dividends paid in cash                                       0.21       0.18        0.42       0.35
  The  accompanying  notes  are an  integral  part of  these  condensed  financial
  statements.
  
                                         4
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
  UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
  Six Months Ended June 30,
  (Dollars in thousands)
                                                                             1995        1994
  CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                                           $   7,475    $   7,257
    Adjustments to reconcile net income to net
        cash provided by (used in) operating activities
      Provision for loan losses                                              1,500        1,700
      Depreciation and amortization                                          1,304        1,091
      Net gains (losses) on sale of securities and mortgages                   303         (312)
      Mortgage loans originated for resale                                  (4,935)     (13,422)
      Sale of mortgage loans originated for resale                           4,935       13,422
      Other                                                                  5,475       (5,674)
                                                                         ---------    ---------
  
        Net cash provided by (used in) operating activities                 16,057        4,062
  
  CASH FLOWS FROM INVESTING ACTIVITIES
    Proceeds from sales of investment securities - available for sale        6,578         --
    Proceeds from maturities of investment securities - 
       held to maturity                                                      3,032       18,689
    Proceeds from maturities of investment securities - 
       available for sale                                                       91
    Purchase of investment securities - available for sale                 (14,905)     (99,680)
    Proceeds from sales of loans                                              --          8,737
    Net increase in loans                                                  (60,797)     (50,837)
    Purchases of premises & equipment                                       (1,957)      (4,228)
                                                                         ---------    ---------
  
        Net cash provided by (used in) investing activities                (67,958)    (127,319)
  
  CASH FLOWS FROM FINANCING ACTIVITIES
    Increase (decrease) in:
      Deposits                                                              44,100      123,787
      Repurchase agreements, fed funds & short-term borrowings              32,188       15,963
      Long-term borrowings & subordinated capital note                      (4,999)      (3,500)
      (Increase) decrease in treasury stock                                    738         (653)
      Issuance of common stock under dividend reinvestment plan               --            777
      Cash dividends                                                        (3,085)      (2,674)
                                                                         ---------    ---------
  
        Net cash provided by (used in) financing activities                 68,942      133,700
  
  Net increase (decrease) in cash and cash equivalents                      17,041       10,443
  
  Cash and cash equivalents at January 1                                    34,159       29,767
                                                                         ---------    ---------
  
  Cash and cash equivalents at June 30                                   $  51,200    $  40,210
                                                                         =========    =========
  The  accompanying  notes  are an  integral  part of  these  condensed  financial
  statements.
  
                                         5
  NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                    (UNAUDITED)
  
  1. The accompanying  unaudited condensed financial statements have been prepared
  in  accordance  with  generally  accepted  accounting   principles  for  interim
  financial  information.  The financial information included herein is unaudited;
  however, such information reflects all adjustments  (consisting solely of normal
  recurring  adjustments) which are, in the opinion of management,  necessary to a
  fair statement of the results for the interim periods.  For further information,
  refer to the consolidated financial statements and footnotes thereto included in
  the Company's Annual Report on Form 10-K for the year ended December 31, 1994.
  
  2. The results of operations  for the  six-month  period ended June 30, 1995 are
  not necessarily indicative of the results to be expected for the full year.
  
  3. Per share data are based on the weighted average number of shares outstanding
  of 7,165,367  and 7,165,367  for 1995 and 1994,  respectively,  and are computed
  after giving retroactive effect to a 5% stock dividend paid on October 31, 1994.
  
  4. On July 26,  1995,  the  Company's  Board of  Directors  declared  a 5% stock
  dividend  payable on October 31, 1995 to shareholders of record on September 29,
  1995.
  
  5. On January 1, 1995 the Company  adopted  Statement  of  Financial  Accounting
  Standards  (SFAS) NO. 114,  "Accounting for Creditors for Impairment of a Loan,"
  as amended by SFAS No. 118, "Accounting for Creditors for Impairment of a Loan -
  Income  Recognition  and  Disclosures."  SFAS No. 114  requires  that a creditor
  measure  impairment  based on the present  value of  expected  future cash flows
  discounted at the loan's  effective  interest  rate,  except that as a practical
  expedient, a creditor may measure impairment based on a loan's observable market
  price,  or the fair value of  collateral  if the loan is  collateral  dependent.
  Regardless of the measurement  method, a creditor must measure  impairment based
  on  the  fair  value  of  the  collateral  when  the  creditor  determines  that
  foreclosure is probable.  SFAS No. 118 allows  creditors to use existing methods
  for recognizing interest income on impaired loans.
  
           The Company has  identified a loan as impaired when it is probable that
  interest and principal will not be collected  according to the contractual terms
  of the loan agreement. The accrual of interest is discontinued in such loans and
  no income is recognized until all recorded amounts of interest and principal are
  recovered in full.
  
                                         6
  Loan  impairment  is measured by  estimating  the expected  future cash
  flows and  discounting  them at the  respective  effective  interest  rate or by
  valuing the underlying  collateral.  The recorded  investment in these loans and
  the valuation for credit losses related to loan impairment are as follows:
  
                                                           June 30,
                                                             1995
  
            Principal amount of impaired loans            $7,249,000
            Accrued interest                                   --
            Deferred loan costs                                --
                                                          ----------
                                                           7,249,000
            Less valuation allowance                       1,193,000
                                                          ----------
                                                          $6,056,000
                                                          ==========
  
           On January 1, 1995 a valuation  for credit  losses  related to impaired
  loans was established.  The activity in this allowance for the six months ending
  June 30, 1995 is as follows:
  
            Valuation allowance at beginning of period   $ 1,913,000
            Provision for loan impairment                    586,000
            Direct charge-offs                              (855,000)
            Recoveries                                       269,000
                                                         -----------
            Valuation allowance at end of period         $ 1,193,000
  
           Total cash collected on impaired loans during the six months ended June
  30, 1995 was $742,000,  of which $269,000 was credited to the principal  balance
  outstanding  on such loans and  $473,000  was  recognized  as  interest  income.
  Interest  that would have been  accrued on impaired  loans  during the first six
  months of 1995 was $326,000.  Interest  income  recognized  during the first six
  months of 1995 was $473,000.
  
                                         7
  Item 2. Management's  Discussion and Analysis of Financial Condition and Results
          of Operations
  
           The  following  discussion  and  analysis  is  intended  to  assist  in
  understanding  and evaluating  the major changes in the financial  condition and
  earnings  performance  of the  Company  with a primary  focus on an  analysis of
  operating results.
  
                                FINANCIAL CONDITION
  
           Total assets increased to $1.221 billion,  an increase of $83.7 million
  or 7.4% over the $1.137 billion at December 31, 1994. This increase is reflected
  primarily in the loan category,  the result of the  investment of deposits,  the
  Company's primary source of funds.
  
           Total cash and cash  equivalents  increased  $17.0  million or 49.9% at
  June 30, 1995 when  compared to December 31, 1994.  This  increase was due to an
  increase in due from banks and federal funds sold.
  
           Loans  increased to $889.9  million at June 30,  1995.  The increase of
  $59.3  million or 7.1% compared to December 31, 1994 was primarily the result of
  the investment of deposits.  Loans  originated  for immediate  resale during the
  first six months of the year  amounted to $4.9  million.  The  Company's  credit
  quality is reflected by the annualized ratio of net charge-offs to average total
  loans of .35% for the second  quarter and the level of  non-performing  loans to
  total loans of 1.63% at June 30, 1995. The Company has no  significant  exposure
  to energy and agricultural- related loans.  Non-performing loans at December 31,
  1994 were 1.12% of total loans.
  
           Investments,  the  Company's  secondary use of funds,  increased  $11.0
  million or 4.6% to $249.1 million at June 30, 1995 when compared to December 31,
  1994. The increase was primarily in Mortgage-Backed Securities.
  
           As the primary source of funds, aggregate deposits of $908.7 million at
  June 30, 1995  increased  $44.1  million or 5.1%  compared to December 31, 1994.
  There was a shift in deposit mix during the first six months of 1995 as interest
  bearing  deposits  increased $40.1 million while  non-interest  bearing deposits
  increased $4.0 million.  Certificates of deposit in excess of $100,000 increased
  $25.1 million. In addition to deposits, earning assets are funded to some extent
  through  purchased  funds and  borrowings.  These include  securities sold under
  repurchase  agreements,  federal  funds  purchased,  short-term  borrowings  and
  long-term debt obligations. In the aggregate, these funds totaled $203.2 million
  at June 30, 1995, a $27.2 million or 15.4%  increase  compared to $176.0 million
  December 31, 1994. The increase is reflected in short-term
  
                                         8
  obligations,  primarily  securities sold under repurchase  agreement and federal
  funds purchased.
  
           Shareholders'  equity increased $10.6 million or 12.6% at June 30, 1995
  to $95.5  million  compared to the $84.9  million at  December  31,  1994.  This
  increase  was due to the  retention  of  earnings  and the  change in  valuation
  adjustment  for  securities  available for sale.  Cash dividends paid during the
  first six  months  of 1995  increased  $467,000  or 18.4%  compared  to the cash
  dividends paid during the first six months of 1994. Earnings retained during the
  first six  months of 1995 were  59.8%  compared  to 65.1%  during  the first six
  months of 1994.
  
                               RESULTS OF OPERATIONS
  
           Net income for the quarter ended June 30, 1995 was $3.6  million,  3.0%
  more than the $3.5 million  reported for the same period in 1994.  For the first
  six months, net income reached $7.5 million,  or 3.0% more than the $7.3 million
  reported for the first six months of 1994.  The Company's  performance  has been
  and will  continue to be in part  influenced  by the strength of the economy and
  conditions in the real estate market.
  
           Net interest income is the difference between interest income on assets
  and interest  expense on liabilities.  Net interest income decreased $.5 million
  or 3.3% to $13.5 million during the second quarter of 1995 from $14.0 million in
  the second  quarter 1994.  For the  comparative  six month period,  net interest
  income remained constant.  The increase in interest income is a result of growth
  in loan  outstandings  and higher  rates on loans that was  partially  offset by
  growth in deposits and higher rates on deposits and  borrowings.  Interest  rate
  risk is a major concern in forecasting  earnings potential.  The Company's prime
  rate from  January 1, 1995 to January 31,  1995 was 8.50%.  On February 1, 1995,
  the prime rate changed to 9.0%. The Company's prime rate was 6.0% from January 1
  through  March 23,  1994.  From March 24 to April 18,  1994,  the prime rate was
  6.25%. From April 19 to May 17, 1994, the prime rate was 6.75%. On May 18, 1994,
  the prime rate changed to 7.25%. Interest expense during the first six months of
  1995  increased  $8.0 million or 62.9%  compared to the prior year's six months.
  Despite  the  current  rate  environment,  the cost of  attracting  and  holding
  deposited funds is an  ever-increasing  expense in the banking  industry.  These
  increases are the real costs of deposit  accumulation  and retention,  including
  FDIC insurance costs and branch overhead expenses.  Such costs are necessary for
  continued  growth  and to  maintain  and  increase  market  share  of  available
  deposits.
  
           The  provision  for loan and lease  losses is  determined  by  periodic
  reviews of loan quality,  current economic conditions,  loss experience and loan
  growth.  Based on these  factors,  the  provision  for  loan  and  lease  losses
  decreased $200,000 for both the second
  
                                         9
  quarter and the first six months of 1995  compared to the same  periods in 1994.
  The  allowance  for loan and lease losses of $19.3  million at June 30, 1995 and
  December  31,  1994  as  a  percentage   of  total  loans  was  2.2%  and  2.3%,
  respectively.  The Company's net charge-offs of $1,475,000 and $1,350,000 during
  the first six months of 1995 and 1994, respectively,  continues to be comparable
  to  that of the  Company's  peers,  as  reported  in the  Bank  Holding  Company
  Performance Report.
  
           "Total  other  income"  increased  $135,000  or 9.1%  during the second
  quarter of 1995, as a result of gains on the sale of securities and mortgages of
  $138,000,  trust  income of $73,000 and service  charges on deposit  accounts of
  $17,000.  Year to date, other income increased $1,057,000 or 40.1% when compared
  to the first six  months of 1994 as a result of gains on the sale of  securities
  and  mortgages of $615,000,  other income of $259,000,  trust income of $172.000
  and  service  charges on deposit  accounts 0f $11,000.  "Total  other  expenses"
  decreased  $360,000 or 3.7% during the quarter ended June 30, 1995 and increased
  $867,000  or 4.9% for the six  months  period.  Of this  year-to-date  increase,
  salaries and benefits  increased $900,000 or 10.1% due to higher staffing levels
  and the opening of two supermarket branches in 1995.
  
           Income  before  income taxes  increased by $227,000 or 4.6% compared to
  the second  quarter of 1994.  In comparing the first six months of 1995 to 1994,
  income before income taxes  increased  $193,000 or 1.8%.  Income taxes increased
  $123,000 for the quarter and decreased $25,000 the six month period.
  
                      LIQUIDITY AND INTEREST RATE SENSITIVITY
  
           The  primary  functions  of  asset/liability  management  are to assure
  adequate liquidity and maintain an appropriate balance between  interest-earning
  assets and  interest-bearing  liabilities.  Liquidity  management  involves  the
  ability  to meet the cash  flow  requirements  of  customers  who may be  either
  depositors  wanting  to  withdraw  funds or  borrowers  needing  assurance  that
  sufficient funds will be available to meet their credit needs. Funding affecting
  short-term  liquidity,  including  deposits,  repurchase  agreements,  fed funds
  purchased,  and  short-term  borrowings,  increased  $76.3 million from year end
  1994. Long-term borrowings decreased $5.0 million during the first six months of
  1995.
  
           The  goal  of  interest  rate   sensitivity   management  is  to  avoid
  fluctuating  net  interest  margins,  and to  enhance  consistent  growth of net
  interest income through periods of changing  interest rates. Such sensitivity is
  measured  as the  difference  in the  volume of assets  and  liabilities  in the
  existing portfolio that are subject to repricing in a future time period.
  
                                         10
  The following table shows  separately the interest rate  sensitivity of
  each category of  interest-earning  assets and  interest-bearing  liabilities at
  June 30, 1995:
  
                                                   Repricing Periods (1)
                                                        One Year
                                            Within       Through        Over
                                           One Year     Five Years   Five Years
                                                     (In Thousands)
  Assets
    Interest-bearing deposits
      at banks                             $  10,591    $    --      $    --
    Investment securities                     59,197       65,222      124,694
    Loans and leases                         369,196      354,331      166,407
    Other assets                               9,319         --         81,250
                                           ---------    ---------    ---------
                                             448,303      419,553      372,351
                                           ---------    ---------    ---------
  Liabilities and equity
    Noninterest-bearing deposits             125,239         --           --
    Interest-bearing deposits                303,125      234,401      245,975
    Borrowed funds                           177,097       13,610       12,500
    Other liabilities                           --           --         32,736
    Hedging instruments                      100,000      (90,000)     (10,000)
    Shareholders' equity                        --           --         95,524
                                           ---------    ---------    ---------
                                             705,461      158,011      376,735
                                           ---------    ---------    ---------
  
  Interest sensitivity gap                  (257,158)     261,542       (4,384)
                                           ---------    ---------    ---------
  
  Cumulative interest rate
      sensitivity gap                      ($257,158)   $   4,384    $    --
                                           =========    =========    =========
  
  (1)      Savings  and  NOW  deposits  are  scheduled  for  repricing   based  on
           historical  deposit decay rate analyses,  as well as historical  moving
           averages of run-off for the Company's deposits in these categories.
  
           Interest   rate   sensitivity   is  a   function   of   the   repricing
  characteristics of the Company's assets and liabilities.  These  characteristics
  include  the  volume of assets  and  liabilities  repricing,  the  timing of the
  repricing,  and the relative  levels of  repricing.  Attempting  to minimize the
  interest  rate  sensitivity  gaps is a continual  challenge  in a changing  rate
  environment.  Based on the  Company's  gap  position as  reflected  in the above
  table,  current  accepted  theory would indicate that net interest  income would
  increase  in a falling  rate  environment  and would  decrease  in a rising rate
  environment.  An interest rate gap table does not,  however,  present a complete
  picture of the impact of interest  rate changes on net interest  income.  First,
  changes in the general level of interest rates do not affect all categories of
  
                                         11
  assets and liabilities equally or simultaneously. Second, assets and liabilities
  which can contractually reprice within the same period may not, in fact, reprice
  at the same time or to the same extent.  Third,  the table  represents a one-day
  position; variations occur daily as the Company adjusts its interest sensitivity
  throughout the year. Fourth, assumptions must be made to construct such a table.
  For example,  non-interest  bearing  deposits are assigned a repricing  interval
  within  one year,  although  history  indicates  a  significant  amount of these
  deposits  will not move  into  interest  bearing  categories  regardless  of the
  general level of interest rates. Finally, the repricing distribution of interest
  sensitive assets may not be indicative of the liquidity of those assets.
  
           The Company anticipates volatile interest rate levels for the remainder
  of 1995, with no clear indication of sustainable  rising or falling rates. Given
  this  assumption,  the  Company's  asset/liability  strategy for 1995 is to move
  toward a smaller negative gap (interest-bearing liabilities subject to repricing
  equal  interest-earning  assets  subject to repricing) for periods up to a year.
  The impact of a volatile interest rate environment on net interest income is not
  expected to be  significant to the Company's  results of  operations.  Effective
  monitoring of these interest  sensitivity  gaps is the priority of the Company's
  asset/liability management committee.
  
                                  CAPITAL ADEQUACY
  
           The following table sets forth certain capital performance ratios.
  
                                                   June 30,    Dec. 31,
                                                    1995        1994
  CAPITAL LEVELS
    Tier 1 leverage ratio                            7.39%      7.35%
    Tier 1 risk-based ratio                         10.74      10.85
    Total risk-based ratio                          12.01      12.11
  
  CAPITAL PERFORMANCE
    Return on average assets(annualized)             1.30       1.41
    Return on average equity(annualized)            16.70      17.30
    Earnings retained                               59.80      63.50
    Internal capital growth(annualized)             10.54      11.32
  
           The Company's  capital  ratios above  compare  favorably to the minimum
  required  amounts of Tier 1 and total capital to "risk- weighted" assets and the
  minimum Tier 1 leverage  ratio,  as defined by banking  regulators.  At June 30,
  1995,  the Company was required to have minimum Tier 1 and total capital  ratios
  of 4.0% and 8.0%, respectively, and a minimum Tier 1 leverage ratio of 3.0%. In
  
                                         12
  order for the Company to be considered "well capitalized", as defined by banking
  regulators,  the Company must have Tier 1 and total  capital  ratios of 6.0% and
  10.0%,  respectively,  and a minimum Tier 1 leverage  ratio of 5.0%. The Company
  currently meets the criteria for a well capitalized institution,  and management
  believes that, under current regulations,  the Company will continue to meet its
  minimum capital  requirements in the foreseeable future. At present, the Company
  has no commitments for significant capital expenditures.
  
           The Company is not under any agreement with regulatory  authorities nor
  is  the  Company  aware  of  any  current   recommendations  by  the  regulatory
  authorities  which,  if such  recommendations  were  implemented,  would  have a
  material effect on liquidity, capital resources or operations of the Company.
  
                                   FUTURE OUTLOOK
  
           In  February  1994,  the  Company's  Board of  Directors  approved  the
  repurchase  of up to  200,000  shares  of its  common  stock in open  market  or
  negotiated  transactions.   To  date,  a  total  of  160,000  shares  have  been
  repurchased at an aggregate cost of $4,942,000.
  
           On March 1,  1995,  the  Company  opened its first  supermarket  branch
  banking facility in Muhlenberg,  PA. The second supermarket branch was opened on
  May 3, 1995 in Schnecksville,  PA. The Company considers supermarket branches to
  be a strategic  delivery system for banks in the future and anticipates  opening
  three more during the remainder of 1995.
  
           The Company  will  continue  its work on the  installation  of platform
  automation  during 1995.  Through  platform  automation,  the Company expects to
  increase efficiencies and re-focus its efforts to improve productivity, in order
  to  provide  faster and  improved  service  to our  customers,  at the same time
  reducing costs to contrubute to improved profitability.  The platform automation
  project may lead to in excess of $1 million in capital expenditures.
  
                                         13
  PART II - OTHER INFORMATION
  
  Item 1.  Legal Proceedings.
  
           None
  
  Item 2.  Changes in Securities.
  
           None
  
  Item 3.  Defaults Upon Senior Securities.
  
           None
  
  Item 4.  Submission of Matters to Vote of Security Holders.
  
           The 1995 annual meeting (the "Meeting") of the shareholders of National
  Penn Bancshares,  Inc. (the  "Registrant") was held on April 25, 1995. Notice of
  the Meeting  was mailed to  shareholders  of record on or about March 24,  1995,
  together with proxy  solicitation  materials prepared in accordance with Section
  14(a) of the Securities  Exchange Act of 1934, as amended,  and the  regulations
  promulgated thereunder.
  
           The Meeting was held for the following purposes:
  
           (1) to elect three Class II directors to hold office for three years
  from the date of election and until their successors are elected and qualified
  (Proposal No. 1); and
  
           (2) to act upon a proposal to approve the Registrant's Non-Employee
  Directors' Stock option Plan (Proposal No. 2).
  
           There was no solicitation in opposition to the nominees of the Board of
  Directors  for election to the Board of  Directors  and all such  nominees  were
  elected.  The  number of votes  cast for or  withheld,  as well as the number of
  abstentions  and broker  non-votes  for each of the nominees for election to the
  Board of Directors were as follows:
  
                                                              Abstentions and
  Nominee                        For             Withheld     Broker Non-Votes
  
  John J. Dau                    5,787,189        28,710            0
  
  Lawrence T. Jilk, Jr.          5,783,200        32,699            0
  
  C. Robert Roth                 5,782,859        33,040            0
  
           There was no  solicitation  in  opposition to Proposal No. 2 to approve
  the  Registrant's  Non-Employee  Director's  Stock Option Plan, and the Plan was
  approved.  The  number of votes  cast for or  against  as well as the  number of
  abstentions and broker non-votes, for the proposal were as follows:
  
  For                Against           Abstentions          Broker Non-votes
  
  4,988,568          668,418             158,913                   0
  
                                         14
  Item 5.            Other Information.
  
            On May 8, 1995, the  Registrant's  banking  subsidiary,  National Penn
  Bank,  formed a new  banking  division,  1st Main Line  Bank,  located in Paoli,
  Pennsylvania.  1st Main Line Bank initially  opened a loan production  office in
  the Paoli Plaza. On August 2, 1995, the Comptroller of the Currency  approved an
  application for a full-service branch at this location.
  
            National  Penn Bank opened a  full-service  supermarket  branch in the
  King's  Market,  Schnecksville  (Lehigh  County) on May 3, 1995, and in the Weis
  Market,  Cedar Crest (Lehigh County) on July 31, 1995. National Penn Bank closed
  its Fairview Village branch (Montgomery County) on June 18, 1995.
  
            In February 1994,  the  Registrant's  Board of Directors  approved the
  repurchase  of up to  200,000  shares  of its  common  stock in open  market  or
  negotiated  transactions.  At June 30, 1995, a total of 160,000 shares have been
  repurchased at an aggregate cost of $4,942,000.
  
            On July 26, 1995, the Registrant  declared a 5% stock dividend payable
  on October  31,  1995 to  shareholders  of record as of the close of business on
  September 29, 1995.
  
  Item 6.          Exhibits and Reports on Form 8-K.
  
            (a)    Exhibits.
  
                   Exhibit 27 - Financial Data Schedule.
  
            (b)    Reports on Form 8-K. The Registrant did not file any Reports on
  Form 8-K during the quarterly period ended June 30, 1995.
  
                                         15
  SIGNATURES
  
            Pursuant to the requirements of Section 13 of the Securities  Exchange
  Act of 1934, the Registrant has caused this report to be signed on its behalf by
  the undersigned thereunto duly authorized.
  
                                             NATIONAL PENN BANCSHARES, INC.
                                                    (Registrant)
  
  Dated:  August 7, 1995                     By /s/ Lawrence T. Jilk, Jr.
                                                --------------------------
                                                Lawrence T. Jilk, Jr., President
                                                and Chief Executive Officer
  
  Dated:  August 7, 1995                     By /s/ Gary L. Rhoads
                                                -------------------
                                                Gary L. Rhoads, Principal
                                                Financial Officer
  
                                         16