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, 1996
  
                                         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, 1996
  
         Common Stock ($2.50 par value)                 (No.) 7,602,881 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 ................7
  
  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 ............................15
  
  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)                            1996           1995
                                                                        (Unaudited)       (Note)
  <S>                                                                   <C>            <C>    
  ASSETS
  Cash and due from banks                                                   $42,048        $39,195
  Interest bearing deposits in banks                                            918          2,014
  Federal funds sold                                                            ---            ---
                                                                         ----------     ----------
      Total cash and cash equivalents                                        42,966         41,209
  Securities available for sale at market value                             237,293        240,902
  Loans, net of unearned discount                                           978,957        939,065
    Less allowance for possible loan losses                                 (21,340)       (20,366)
                                                                         ----------     ----------
      Net Loans                                                             957,617        918,699
  Other assets                                                               54,107         50,568
                                                                         ----------     ----------
      Total Assets                                                       $1,291,983     $1,251,378
                                                                         ==========     ==========
  
  LIABILITIES AND SHAREHOLDERS' EQUITY
  Non-interest bearing deposits                                            $139,077       $134,968
  Interest bearing deposits
    (Includes certificates of deposit in excess of $100:
    1996 - $96,730; 1995 - $89,881)                                         822,809        779,922
                                                                         ----------     ----------
      Total Deposits                                                        961,886        914,890
  Securities sold under repurchase agreements
    and federal funds purchased                                             143,251        138,550
  Short-term borrowings                                                       8,893          4,370
  Long-term obligations                                                      56,110         71,589
  Accrued interest and other liabilities                                     15,355         15,364
                                                                         ----------     ----------
      Total Liabilities                                                   1,185,495      1,144,763
  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; 7,646,614 
      shares issued and 7,618,381 shares
      outstanding at June 30, 1996; 7,642,413 
      shares issued and 7,594,474 shares outstanding 
      at December 31, 1995                                                   19,106         19,106
    Additional paid-in-capital                                               57,526         57,501
    Retained earnings                                                        29,250         24,646
    Valuation adjustment for securities available for sale, net of tax        1,340          6,579
    Treasury stock (28,233 shares at cost at June 30, 1996 and
      47,939 shares at cost at December 31, 1995)                              (734)        (1,217)
                                                                         ----------     ----------
      Total Shareholders' Equity                                            106,488        106,615
                                                                         ----------     ----------
      Total Liabilities and Shareholders' Equity                         $1,291,983     $1,251,378
                                                                         ==========     ==========
  </TABLE>
  
  
  The  accompanying  notes  are an  integral  part of  these  condensed  financial
  statements.
  Note: The Balance Sheet at Dec. 31, 1995 has been derived from the audited
        financial statements at that date.
  
                                         3
  
  <PAGE>
  <TABLE>
  <CAPTION>
  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
  
                                                               1996         1995         1996          1995
  <S>                                                      <C>          <C>          <C>           <C>     
  INTEREST INCOME
  Loans including fees                                       $ 22,035     $ 20,445     $ 43,927      $ 39,703
  Deposits in banks                                                20           15           29            30
  Federal funds sold                                               13            3          113             5
  Investment securities                                         3,799        3,991        7,517         7,966
                                                             --------     --------     --------      --------
      Total interest income                                    25,867       24,454       51,586        47,704
                                                             --------     --------     --------      --------
  INTEREST EXPENSE
  Deposits                                                      8,527        8,470       16,725        15,873
  Federal funds purchased, borrowed funds and
    securities sold under repurchase agreements                 2,627        2,435        5,698         4,822
                                                             --------     --------     --------      --------
      Total interest expense                                   11,154       10,905       22,423        20,695
                                                             --------     --------     --------      --------
      Net interest income                                      14,713       13,549       29,163        27,009
  Provision for loan losses                                       975          750        1,950         1,500
                                                             --------     --------     --------      --------
      Net interest income after provision
        for loan losses                                        13,738       12,799       27,213        25,509
                                                             --------     --------     --------      --------
  OTHER INCOME
  Trust Services                                                  573          424        1,204           848
  Service charges on deposit accounts                             810          657        1,593         1,297
  Net gains (losses) on sale of securities and mortgages           88           47          (15)          303
  Other                                                           615          497        1,249         1,245
                                                             --------     --------     --------      --------
      Total other income                                        2,086        1,625        4,031         3,693
                                                             --------     --------     --------      --------
  OTHER EXPENSES
  Salaries, wages and employee benefits                         5,434        4,869       10,458         9,850
  Net premises and equipment                                    1,593        1,330        3,397         2,719
  Other operating                                               3,021        3,091        5,642         5,928
                                                             --------     --------     --------      --------
      Total other expenses                                     10,048        9,290       19,497        18,497
                                                             --------     --------     --------      --------
      Income before income taxes                                5,776        5,134       11,747        10,705
  Applicable income tax expense                                 1,783        1,576        3,639         3,230
                                                             --------     --------     --------      --------
      Net income                                                3,993        3,558     $  8,108      $  7,475
                                                             ========     ========     ========      ========
  
  
  PER SHARE OF COMMON STOCK
  Net income                                                 $   0.52     $   0.47     $   1.06      $   0.99
  Dividends paid in cash                                         0.23         0.20         0.45          0.40
  </TABLE>
  
  The  accompanying  notes  are an  integral  part of  these  condensed  financial
  statements.
  
                                          4
  
  <PAGE>
  
  <TABLE>
  <CAPTION>
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
  UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
  
                                                                              Six Months Ended June 30,
  (Dollars in thousands)
                                                                                 1996            1995
  <S>                                                                        <C>           <C>     
  CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                                                 $  8,108      $  7,475
    Adjustments to reconcile net income to net
        cash provided by (used in) operating activities
      Provision for loan losses                                                   1,950         1,500
      Depreciation and amortization                                               1,554         1,304
      Net gains (losses) on sale of securities and mortgages                        (15)          303
      Mortgage loans originated for resale                                      (11,488)       (4,935)
      Sale of mortgage loans originated for resale                               11,488         4,935
      Other                                                                      (3,848)        5,475
                                                                               --------      --------
  
        Net cash provided by (used in) operating activities                       7,749        16,057
  
  CASH FLOWS FROM INVESTING ACTIVITIES
    Proceeds from sales of investment securities - available for sale            13,780         6,578
    Proceeds from maturities of investment securities - held to maturity             --         3,032
    Proceeds from maturities of investment securities - available for sale       21,680            91
    Purchase of investment securities - available for sale                      (37,090)      (14,905)
    Proceeds from sales of loans                                                     --            --
    Net increase in loans                                                       (40,868)      (60,797)
    Purchases of premises & equipment                                            (1,658)       (1,957)
                                                                               --------      --------
  
        Net cash provided by (used in) investing activities                     (44,156)      (67,958)
  
  CASH FLOWS FROM FINANCING ACTIVITIES
    Increase (decrease) in:
      Deposits                                                                   46,996        44,100
      Repurchase agreements, fed funds & short-term borrowings                    9,224        32,188
      Long-term borrowings                                                      (15,479)       (4,999)
      (Increase) decrease in treasury stock                                         483           738
      Issuance of common stock under dividend reinvestment plan                      25            --
      Cash dividends                                                             (3,085)       (3,085)
                                                                               --------      --------
  
        Net cash provided by (used in) financing activities                      38,164        68,942
  
  Net increase (decrease) in cash and cash equivalents                            1,757        17,041
  
  Cash and cash equivalents at January 1                                         41,209        34,159
                                                                               --------      --------
  
  Cash and cash equivalents at June 30                                         $ 42,966      $ 51,200
                                                                               ========      ========
  </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, 1995.
  
  2. The results of operations  for the  six-month  period ended June 30, 1996 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 7,615,481  and 7,547,382  for 1996 and 1995,  respectively,  and are computed
  after giving retroactive effect to a 5% stock dividend paid on October 31, 1995.
  
  4. On July 24,  1996,  the  Company's  Board of  Directors  declared  a 5% stock
  dividend  payable on October 31, 1996 to shareholders of record on September 27,
  1996.
  
  
  
  
                                          6
  
  <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 $1.292 billion,  an increase of $40.6 million or
  3.2% over the $1.251  billion at December 31, 1995.  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 $1.8 million or 4.3% at June 30,
  1996 when compared to December 31, 1995. This increase was primarily in cash and
  due from banks which was partially  offset by lower interest bearing deposits in
  banks.
  
       Loans  increased to $979.0  million at June 30, 1996. The increase of $39.9
  million or 4.2%  compared to December 31, 1995 was  primarily  the result of the
  investment of deposits and securities sold under agreements to repurchase. Loans
  originated for immediate resale during the first six months of the year amounted
  to $11.5  million.  The Company's  credit quality is reflected by the annualized
  ratio of net  charge-offs  to total loans of .10% through the second quarter and
  the level of  non-accrual  loans to total  loans of .89% at June 30,  1996.  The
  Company has no significant  exposure to energy and  agricultural-related  loans.
  Non-accrual loans at December 31, 1995 were .77% of total loans.
  
       Investments,  the Company's secondary use of funds,  decreased $3.6 million
  or 1.5% to 237.3  million at June 30, 1996 when  compared to December  31, 1995.
  The  decrease  is due to calls and  maturities  of  securities  and the sale and
  amortization  of  mortgage-backed  securities,  partially  offset by  investment
  purchases of $37.1 million.
  
       As the primary  source of funds,  aggregate  deposits of $961.9  million at
  June 30, 1996 increased $47.0 million or 5.1% compared to December 31, 1995. The
  increase  in  deposits  during  the first six  months of 1996 was  primarily  in
  interest  bearing  deposits  which  increased  $42.9 million while  non-interest
  bearing  deposits  increased $4.1 million.  Certificates of deposit in excess of
  $100,000  increased  $6.8 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 aggregate,  these funds totaled
  $208.3 million at June 30, 1996, and $214.5 million at December 31,
  
                                          7
  
  <PAGE>
  
  1995. The decrease of $6.3 million represents a shift from long-term obligations
  to short-term borrowings,  primarily securities sold under repurchase agreements
  and federal funds purchased.
  
       Shareholders'  equity  decreased  slightly  through  June  30,  1996.  This
  decrease was due the change in valuation adjustment for securities available for
  sale,  which  represents the accounting  treatment  required under  Statement of
  Financial  Accounting Standards 115, "Accounting for Certain Investments in Debt
  and Equity Securities," applied to the decrease in market value of the Company's
  investment  portfolio.  Cash  dividends paid during the first six months of 1996
  increased $420,000 or 14.0% compared to the cash dividends paid during the first
  six months of 1995.  Earnings  retained during the first six months of 1996 were
  57.8% compared to 59.8% during the first six months of 1995.
  
                                RESULTS OF OPERATIONS
  
       Net income for the quarter ended June 30, 1996 was $3.9 million, 12.2% more
  than the $3.6 million  reported  for the same period in 1995.  For the first six
  months,  net income  reached  $8.1  million,  or 8.5% more than the $7.5 million
  reported for the first six months of 1995.  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 increased $1.2 million or
  8.6% to $14.7  million  during the second  quarter of 1996 from $13.5 million in
  the second  quarter 1995.  For the  comparative  six month period,  net interest
  income  increased  $2.2 million or 8.0% to $29.2  million from $27.0  million in
  1995. 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, 1996
  to January 31, 1996 was 8.50%.  On February 1, 1996,  the prime rate  changed to
  8.25%.  Interest  expense  during  the first six months of 1996  increased  $1.7
  million or 8.3%  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  increased
  $225,000 for the second quarter
  
                                          8
  
  <PAGE>
  
  and $450,000  first six months of 1996 compared to the same periods in 1995. The
  allowance  for loan and lease losses of $21.3 million at June 30, 1996 and $20.4
  December  31, 1995 as a  percentage  of total loans was 2.2% at both dates.  The
  Company's net charge-offs of $976,000 and $1,475,000 during the first six months
  of 1996  and  1995,  respectively,  continue  to be  comparable  to those of the
  Company's peers, as reported in the Bank Holding Company Performance Report.
  
       "Total other income" increased  $461,000 or 28.4% during the second quarter
  of 1996, as a result of service charges on deposit  accounts of $153,000,  trust
  income of $149,000  and other  income of  $118,000.  Year to date,  other income
  increased  $338,000  or 9.2% when  compared to the first six months of 1995 as a
  result of service  charges on deposit  accounts of $356,000  and trust income of
  $296,000  which  were  partially  offset  by losses  on sale of  securities  and
  mortgages of $318,000.  "Total other expenses" increased $758,000 or 8.2% during
  the quarter  ended June 30, 1996 and  increased  $1,000,000  or 5.4% for the six
  month period. Of this year-to-date  increase,  premises and equipment  increased
  $678,000 or 2.5% and salaries, wages and employee benefits increased $608,000 or
  6.2% due primarily to higher staffing levels.
  
       Income before income taxes  increased by $642,000 or 12.5%  compared to the
  second  quarter  of 1995.  In  comparing  the first six  months of 1996 to 1995,
  income  before income taxes  increased  $42,000 or .4%.  Income taxes  increased
  $207,000 for the quarter and increased $409,000 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  $56.2 million from year end 1995.  Long-term
  borrowings decreased $15.5 million during the first six months of 1996.
  
       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.
  
  
                                          9
  
  <PAGE>
  
  
       The following table shows  separately the interest rate sensitivity of each
  category of interest-earning assets and interest-bearing liabilities at June 30,
  1996:
  
  <TABLE>
  <CAPTION>
                                                      Repricing Periods (1)
                                                            One Year
                                               Within        Through         Over
                                              One Year      Five Years     Five Years
                                                         (In Thousands)
  <S>                                        <C>            <C>            <C>      
  Assets
    Interest-bearing deposits
      at banks                               $     918      $      --      $      --
    Investment securities                       27,554         94,546        115,193
    Loans and leases                           406,382        401,409        171,166
    Other assets                                 7,711             --         88,444
                                             ---------      ---------      ---------
                                               442,565        495,955        374,803
                                             ---------      ---------      ---------
  Liabilities and equity
    Noninterest-bearing deposits               139,077             --             --
    Interest-bearing deposits                  422,000        168,208        232,601
    Borrowed funds                             181,968          3,610         22,676
    Other liabilities                               --             --         36,695
    Hedging instruments                         90,000        (80,000)       (10,000)
    Shareholders' equity                            --             --        106,488
                                             ---------      ---------      ---------
                                               833,045         91,818        388,460
                                             ---------      ---------      ---------
  
  Interest sensitivity gap                    (390,480)       404,137        (13,657)
                                             ---------      ---------      ---------
  
  Cumulative interest rate
      sensitivity gap                        ($390,480)     $  13,657      $      --
                                             =========      =========      =========
  <FN>
  (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.
  </FN>
  </TABLE>
  
       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
  
                                         10
  
  <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
  1996,  with no clear  indication of sustainable  rising or falling rates.  Given
  this assumption,  the Company's asset/liability strategy for 1996 is to maintain
  a  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,
                                                1996         1995
  CAPITAL LEVELS
    Tier 1 leverage ratio                        7.79%       7.59%
    Tier 1 risk-based ratio                     11.10       10.97
    Total risk-based ratio                      12.37       12.23
  
  
  
  CAPITAL PERFORMANCE
    Return on average assets(annualized)         1.29        1.30
    Return on average equity(annualized)        15.00       16.30
    Earnings retained                           57.80       59.30
    Internal capital growth(annualized)          8.79       25.60
  
       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,
  1996,  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
  
                                         11
  
  <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 June 1996, the Company's  Board of Directors  approved the repurchase of
  up to  380,000  shares of its common  stock from time to time in open  market or
  negotiated  transactions.  Repurchased shares will be used for general corporate
  purposes,  including the Company's  dividend  reinvestment plan and stock option
  plans.  To date, a total of 15,500 shares have been  repurchased at an aggregate
  cost of $415,000.
  
       The Company  anticipates  that in the  remainder of 1996 the Bank will open
  four new  supermarket  branches  as well as one new  full  service  branch,  the
  opening of which will  coincide  with the  closing of two nearby  branches.  The
  Company  does not expect  these new  branches to start  contributing  to profits
  until 1997 or beyond;  1996 earnings may be somewhat  negatively impacted by the
  initial costs of these new operations.
  
       On January  1, 1996 the FDIC  reduced  insurance  premiums  that  financial
  institutions  pay on commercial  bank deposits to zero from the previous rate of
  $.04 per hundred  dollars of deposits in effect  since May 1, 1995.  The Company
  continues  to pay $.23 per hundred  dollars of deposits  on  approximately  $225
  million of deposits  at branches  acquired  from  Sellersville  Savings and Loan
  Association and Central Pennsylvania Savings Association.  In order for the rate
  on these  deposits to also be lowered,  there is still a chance that in 1996 the
  Company  will have to pay a onetime  assessment  of between  $1  million  and $2
  million to help  recapitalize  the Savings  Association  Insurance Fund ("SAIF")
  segment of the FDIC. A late July 1996  proposal  from  Congress'  House  Banking
  Committee would include utilizing Federal Reserve surplus reserves toward annual
  interest costs of Financing  Corporation  bonds.  This would somewhat reduce the
  potential future annual FDIC insurance costs of commercial banks,  assuming they
  would be responsible  for Financing  Corporation  bond  interest,  but would not
  reduce the  potential  onetime SAIF  recapitalization  fee.  The Company  cannot
  predict if
  
                                         12
  
  <PAGE>
  
  
  this or any other legislation will be enacted,  but expects that any legislation
  recapitalizing SAIF will likely impose additional deposit insurance costs on the
  Company attributable to its acquired SAIF-insured deposits. These costs may have
  a material adverse effect on the Company's earnings when incurred.
  
  
                                         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 1996 annual meeting (the "Meeting") of the shreholders of National Penn
  Bancshares,  Inc. (the  "Registrant")  was held on April 23, 1996. Notice of the
  Meeting  was  mailed  to  shareholders  of record  on or about  March 22,  1996,
  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 to elect four Class III  directors  to hold office for
  three years from the date of election and until their successors are elected and
  qualified.
  
       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:
  <TABLE>
  <CAPTION>
                                                                          Abstentions and
  Nominee                             For               Withheld          Broker Non-Votes
  
  <S>                              <C>               <C>               <C>
  Patricia L. Langiotti               5,424,049         33,066            0
  
  Randall J. Nester                   5,419,112         38,003            0
  
  Harold C. Wegman, D.D.S.            5,428,418         28,697            0
  
  Wayne R. Weidner                    5,428,444         28,671            0
  </TABLE>
  
  
  
  Item 5.   Other Information.
  
       In May and then in July 1996, the Registrant's banking subsidiary, National
  Penn Bank (the  "Bank"),  opened  its fifth and sixth  full-service  supermarket
  branches in the Clemen's  Market,  Exton (Chester  County) and Redner's  Market,
  Trexlertown (Lehigh County), Pennsylvania.
  
       The Registrant anticipates that in the remainder of 1996 the Bank will open
  four more supermarket branches, located in Perkasie (Bucks County),  Dorneyville
  (Lehigh County),  Coopersburg  (Lehigh County),  and Emaus (Lehigh County).  The
  Bank  intends  to close  its  branch  at East Penn  Plaza,  Emaus,  when the new
  supermarket branch in Emaus opens.
  
                                         14
  
  <PAGE>
  
  
       The  Registrant  also  anticipates  that the Bank will open a full  service
  branch in Lansdale (Montgomery County) in September 1996. At that time, the Bank
  expects to close its current branches in Kulpsville (Montgomery County) and West
  Point (Montgomery County).
  
       On May 1, 1996, the Bank closed its Mt. Airy (Philadelphia) branch.
  
       On June  26,  1996,  The  Registrant's  Board  of  Directors  approved  the
  repurchase  of up to 380,000  shares of its common  stock to be used for general
  corporate purposes,  including the Registrant's  dividend  reinvestment plan and
  stock option plans.  The stock repurchase plan authorizes the Registrant to make
  repurchases   from  time  to  time  in  open  market  or  privately   negotiated
  transactions.  A prior  repurchase  program  of  200,000  shares  authorized  in
  February 1994 has been completed.
  
       On July 24, 1996,  the Registrant  declared a 5% stock dividend  payable on
  October  31,  1996 to  shareholders  of record as of the  close of  business  on
  September 27, 1996.
  
  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, 1996.
  
                                         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 9, 1996                           By /s/ Wayne R. Weidner
                                                      ---------------------
                                                      Wayne R. Weidner, Executive
                                                      Vice President
  
  Dated:  August 9, 1996                           By /s/ Gary L. Rhoads
                                                      -------------------
                                                      Gary L. Rhoads, Principal
                                                      Financial Officer
  
  
                                         16
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metadata_filer: {"company-data": {"conformed-name": "NATIONAL PENN BANCSHARES INC", "cik": "0000700733", "assigned-sic": "6021", "irs-number": "232215075", "state-of-incorporation": "PA", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "10-Q", "act": "34", "file-number": "000-10957", "film-number": "96610017"}, "business-address": {"street1": "POST OFFICE BOX 547", "city": "BOYERTOWN", "state": "PA", "zip": "19512", "phone": "6103696341"}, "mail-address": {"street1": "POST OFFICE BOX 547", "street2": "POST OFFICE BOX 547", "city": "BOYERTOWN", "state": "PA", "zip": "19512"}}
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, 1996
  
                                         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, 1996
  
         Common Stock ($2.50 par value)                 (No.) 7,602,881 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 ................7
  
  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 ............................15
  
  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)                            1996           1995
                                                                        (Unaudited)       (Note)
  ASSETS
  Cash and due from banks                                                   $42,048        $39,195
  Interest bearing deposits in banks                                            918          2,014
  Federal funds sold                                                            ---            ---
                                                                         ----------     ----------
      Total cash and cash equivalents                                        42,966         41,209
  Securities available for sale at market value                             237,293        240,902
  Loans, net of unearned discount                                           978,957        939,065
    Less allowance for possible loan losses                                 (21,340)       (20,366)
                                                                         ----------     ----------
      Net Loans                                                             957,617        918,699
  Other assets                                                               54,107         50,568
                                                                         ----------     ----------
      Total Assets                                                       $1,291,983     $1,251,378
                                                                         ==========     ==========
  
  LIABILITIES AND SHAREHOLDERS' EQUITY
  Non-interest bearing deposits                                            $139,077       $134,968
  Interest bearing deposits
    (Includes certificates of deposit in excess of $100:
    1996 - $96,730; 1995 - $89,881)                                         822,809        779,922
                                                                         ----------     ----------
      Total Deposits                                                        961,886        914,890
  Securities sold under repurchase agreements
    and federal funds purchased                                             143,251        138,550
  Short-term borrowings                                                       8,893          4,370
  Long-term obligations                                                      56,110         71,589
  Accrued interest and other liabilities                                     15,355         15,364
                                                                         ----------     ----------
      Total Liabilities                                                   1,185,495      1,144,763
  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; 7,646,614 
      shares issued and 7,618,381 shares
      outstanding at June 30, 1996; 7,642,413 
      shares issued and 7,594,474 shares outstanding 
      at December 31, 1995                                                   19,106         19,106
    Additional paid-in-capital                                               57,526         57,501
    Retained earnings                                                        29,250         24,646
    Valuation adjustment for securities available for sale, net of tax        1,340          6,579
    Treasury stock (28,233 shares at cost at June 30, 1996 and
      47,939 shares at cost at December 31, 1995)                              (734)        (1,217)
                                                                         ----------     ----------
      Total Shareholders' Equity                                            106,488        106,615
                                                                         ----------     ----------
      Total Liabilities and Shareholders' Equity                         $1,291,983     $1,251,378
                                                                         ==========     ==========
  The  accompanying  notes  are an  integral  part of  these  condensed  financial
  statements.
  Note: The Balance Sheet at Dec. 31, 1995 has been derived from the audited
        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
  
                                                               1996         1995         1996          1995
  INTEREST INCOME
  Loans including fees                                       $ 22,035     $ 20,445     $ 43,927      $ 39,703
  Deposits in banks                                                20           15           29            30
  Federal funds sold                                               13            3          113             5
  Investment securities                                         3,799        3,991        7,517         7,966
                                                             --------     --------     --------      --------
      Total interest income                                    25,867       24,454       51,586        47,704
                                                             --------     --------     --------      --------
  INTEREST EXPENSE
  Deposits                                                      8,527        8,470       16,725        15,873
  Federal funds purchased, borrowed funds and
    securities sold under repurchase agreements                 2,627        2,435        5,698         4,822
                                                             --------     --------     --------      --------
      Total interest expense                                   11,154       10,905       22,423        20,695
                                                             --------     --------     --------      --------
      Net interest income                                      14,713       13,549       29,163        27,009
  Provision for loan losses                                       975          750        1,950         1,500
                                                             --------     --------     --------      --------
      Net interest income after provision
        for loan losses                                        13,738       12,799       27,213        25,509
                                                             --------     --------     --------      --------
  OTHER INCOME
  Trust Services                                                  573          424        1,204           848
  Service charges on deposit accounts                             810          657        1,593         1,297
  Net gains (losses) on sale of securities and mortgages           88           47          (15)          303
  Other                                                           615          497        1,249         1,245
                                                             --------     --------     --------      --------
      Total other income                                        2,086        1,625        4,031         3,693
                                                             --------     --------     --------      --------
  OTHER EXPENSES
  Salaries, wages and employee benefits                         5,434        4,869       10,458         9,850
  Net premises and equipment                                    1,593        1,330        3,397         2,719
  Other operating                                               3,021        3,091        5,642         5,928
                                                             --------     --------     --------      --------
      Total other expenses                                     10,048        9,290       19,497        18,497
                                                             --------     --------     --------      --------
      Income before income taxes                                5,776        5,134       11,747        10,705
  Applicable income tax expense                                 1,783        1,576        3,639         3,230
                                                             --------     --------     --------      --------
      Net income                                                3,993        3,558     $  8,108      $  7,475
                                                             ========     ========     ========      ========
  
  PER SHARE OF COMMON STOCK
  Net income                                                 $   0.52     $   0.47     $   1.06      $   0.99
  Dividends paid in cash                                         0.23         0.20         0.45          0.40
  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)
                                                                                 1996            1995
  CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                                                 $  8,108      $  7,475
    Adjustments to reconcile net income to net
        cash provided by (used in) operating activities
      Provision for loan losses                                                   1,950         1,500
      Depreciation and amortization                                               1,554         1,304
      Net gains (losses) on sale of securities and mortgages                        (15)          303
      Mortgage loans originated for resale                                      (11,488)       (4,935)
      Sale of mortgage loans originated for resale                               11,488         4,935
      Other                                                                      (3,848)        5,475
                                                                               --------      --------
  
        Net cash provided by (used in) operating activities                       7,749        16,057
  
  CASH FLOWS FROM INVESTING ACTIVITIES
    Proceeds from sales of investment securities - available for sale            13,780         6,578
    Proceeds from maturities of investment securities - held to maturity             --         3,032
    Proceeds from maturities of investment securities - available for sale       21,680            91
    Purchase of investment securities - available for sale                      (37,090)      (14,905)
    Proceeds from sales of loans                                                     --            --
    Net increase in loans                                                       (40,868)      (60,797)
    Purchases of premises & equipment                                            (1,658)       (1,957)
                                                                               --------      --------
  
        Net cash provided by (used in) investing activities                     (44,156)      (67,958)
  
  CASH FLOWS FROM FINANCING ACTIVITIES
    Increase (decrease) in:
      Deposits                                                                   46,996        44,100
      Repurchase agreements, fed funds & short-term borrowings                    9,224        32,188
      Long-term borrowings                                                      (15,479)       (4,999)
      (Increase) decrease in treasury stock                                         483           738
      Issuance of common stock under dividend reinvestment plan                      25            --
      Cash dividends                                                             (3,085)       (3,085)
                                                                               --------      --------
  
        Net cash provided by (used in) financing activities                      38,164        68,942
  
  Net increase (decrease) in cash and cash equivalents                            1,757        17,041
  
  Cash and cash equivalents at January 1                                         41,209        34,159
                                                                               --------      --------
  
  Cash and cash equivalents at June 30                                         $ 42,966      $ 51,200
                                                                               ========      ========
  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, 1995.
  
  2. The results of operations  for the  six-month  period ended June 30, 1996 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 7,615,481  and 7,547,382  for 1996 and 1995,  respectively,  and are computed
  after giving retroactive effect to a 5% stock dividend paid on October 31, 1995.
  
  4. On July 24,  1996,  the  Company's  Board of  Directors  declared  a 5% stock
  dividend  payable on October 31, 1996 to shareholders of record on September 27,
  1996.
  
                                          6
  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 $1.292 billion,  an increase of $40.6 million or
  3.2% over the $1.251  billion at December 31, 1995.  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 $1.8 million or 4.3% at June 30,
  1996 when compared to December 31, 1995. This increase was primarily in cash and
  due from banks which was partially  offset by lower interest bearing deposits in
  banks.
  
       Loans  increased to $979.0  million at June 30, 1996. The increase of $39.9
  million or 4.2%  compared to December 31, 1995 was  primarily  the result of the
  investment of deposits and securities sold under agreements to repurchase. Loans
  originated for immediate resale during the first six months of the year amounted
  to $11.5  million.  The Company's  credit quality is reflected by the annualized
  ratio of net  charge-offs  to total loans of .10% through the second quarter and
  the level of  non-accrual  loans to total  loans of .89% at June 30,  1996.  The
  Company has no significant  exposure to energy and  agricultural-related  loans.
  Non-accrual loans at December 31, 1995 were .77% of total loans.
  
       Investments,  the Company's secondary use of funds,  decreased $3.6 million
  or 1.5% to 237.3  million at June 30, 1996 when  compared to December  31, 1995.
  The  decrease  is due to calls and  maturities  of  securities  and the sale and
  amortization  of  mortgage-backed  securities,  partially  offset by  investment
  purchases of $37.1 million.
  
       As the primary  source of funds,  aggregate  deposits of $961.9  million at
  June 30, 1996 increased $47.0 million or 5.1% compared to December 31, 1995. The
  increase  in  deposits  during  the first six  months of 1996 was  primarily  in
  interest  bearing  deposits  which  increased  $42.9 million while  non-interest
  bearing  deposits  increased $4.1 million.  Certificates of deposit in excess of
  $100,000  increased  $6.8 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 aggregate,  these funds totaled
  $208.3 million at June 30, 1996, and $214.5 million at December 31,
  
                                          7
  1995. The decrease of $6.3 million represents a shift from long-term obligations
  to short-term borrowings,  primarily securities sold under repurchase agreements
  and federal funds purchased.
  
       Shareholders'  equity  decreased  slightly  through  June  30,  1996.  This
  decrease was due the change in valuation adjustment for securities available for
  sale,  which  represents the accounting  treatment  required under  Statement of
  Financial  Accounting Standards 115, "Accounting for Certain Investments in Debt
  and Equity Securities," applied to the decrease in market value of the Company's
  investment  portfolio.  Cash  dividends paid during the first six months of 1996
  increased $420,000 or 14.0% compared to the cash dividends paid during the first
  six months of 1995.  Earnings  retained during the first six months of 1996 were
  57.8% compared to 59.8% during the first six months of 1995.
  
                                RESULTS OF OPERATIONS
  
       Net income for the quarter ended June 30, 1996 was $3.9 million, 12.2% more
  than the $3.6 million  reported  for the same period in 1995.  For the first six
  months,  net income  reached  $8.1  million,  or 8.5% more than the $7.5 million
  reported for the first six months of 1995.  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 increased $1.2 million or
  8.6% to $14.7  million  during the second  quarter of 1996 from $13.5 million in
  the second  quarter 1995.  For the  comparative  six month period,  net interest
  income  increased  $2.2 million or 8.0% to $29.2  million from $27.0  million in
  1995. 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, 1996
  to January 31, 1996 was 8.50%.  On February 1, 1996,  the prime rate  changed to
  8.25%.  Interest  expense  during  the first six months of 1996  increased  $1.7
  million or 8.3%  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  increased
  $225,000 for the second quarter
  
                                          8
  and $450,000  first six months of 1996 compared to the same periods in 1995. The
  allowance  for loan and lease losses of $21.3 million at June 30, 1996 and $20.4
  December  31, 1995 as a  percentage  of total loans was 2.2% at both dates.  The
  Company's net charge-offs of $976,000 and $1,475,000 during the first six months
  of 1996  and  1995,  respectively,  continue  to be  comparable  to those of the
  Company's peers, as reported in the Bank Holding Company Performance Report.
  
       "Total other income" increased  $461,000 or 28.4% during the second quarter
  of 1996, as a result of service charges on deposit  accounts of $153,000,  trust
  income of $149,000  and other  income of  $118,000.  Year to date,  other income
  increased  $338,000  or 9.2% when  compared to the first six months of 1995 as a
  result of service  charges on deposit  accounts of $356,000  and trust income of
  $296,000  which  were  partially  offset  by losses  on sale of  securities  and
  mortgages of $318,000.  "Total other expenses" increased $758,000 or 8.2% during
  the quarter  ended June 30, 1996 and  increased  $1,000,000  or 5.4% for the six
  month period. Of this year-to-date  increase,  premises and equipment  increased
  $678,000 or 2.5% and salaries, wages and employee benefits increased $608,000 or
  6.2% due primarily to higher staffing levels.
  
       Income before income taxes  increased by $642,000 or 12.5%  compared to the
  second  quarter  of 1995.  In  comparing  the first six  months of 1996 to 1995,
  income  before income taxes  increased  $42,000 or .4%.  Income taxes  increased
  $207,000 for the quarter and increased $409,000 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  $56.2 million from year end 1995.  Long-term
  borrowings decreased $15.5 million during the first six months of 1996.
  
       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.
  
                                          9
  The following table shows  separately the interest rate sensitivity of each
  category of interest-earning assets and interest-bearing liabilities at June 30,
  1996:
  Repricing Periods (1)
                                                            One Year
                                               Within        Through         Over
                                              One Year      Five Years     Five Years
                                                         (In Thousands)
  Assets
    Interest-bearing deposits
      at banks                               $     918      $      --      $      --
    Investment securities                       27,554         94,546        115,193
    Loans and leases                           406,382        401,409        171,166
    Other assets                                 7,711             --         88,444
                                             ---------      ---------      ---------
                                               442,565        495,955        374,803
                                             ---------      ---------      ---------
  Liabilities and equity
    Noninterest-bearing deposits               139,077             --             --
    Interest-bearing deposits                  422,000        168,208        232,601
    Borrowed funds                             181,968          3,610         22,676
    Other liabilities                               --             --         36,695
    Hedging instruments                         90,000        (80,000)       (10,000)
    Shareholders' equity                            --             --        106,488
                                             ---------      ---------      ---------
                                               833,045         91,818        388,460
                                             ---------      ---------      ---------
  
  Interest sensitivity gap                    (390,480)       404,137        (13,657)
                                             ---------      ---------      ---------
  
  Cumulative interest rate
      sensitivity gap                        ($390,480)     $  13,657      $      --
                                             =========      =========      =========
  (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
  
                                         10
  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
  1996,  with no clear  indication of sustainable  rising or falling rates.  Given
  this assumption,  the Company's asset/liability strategy for 1996 is to maintain
  a  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,
                                                1996         1995
  CAPITAL LEVELS
    Tier 1 leverage ratio                        7.79%       7.59%
    Tier 1 risk-based ratio                     11.10       10.97
    Total risk-based ratio                      12.37       12.23
  
  CAPITAL PERFORMANCE
    Return on average assets(annualized)         1.29        1.30
    Return on average equity(annualized)        15.00       16.30
    Earnings retained                           57.80       59.30
    Internal capital growth(annualized)          8.79       25.60
  
       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,
  1996,  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
  
                                         11
  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 June 1996, the Company's  Board of Directors  approved the repurchase of
  up to  380,000  shares of its common  stock from time to time in open  market or
  negotiated  transactions.  Repurchased shares will be used for general corporate
  purposes,  including the Company's  dividend  reinvestment plan and stock option
  plans.  To date, a total of 15,500 shares have been  repurchased at an aggregate
  cost of $415,000.
  
       The Company  anticipates  that in the  remainder of 1996 the Bank will open
  four new  supermarket  branches  as well as one new  full  service  branch,  the
  opening of which will  coincide  with the  closing of two nearby  branches.  The
  Company  does not expect  these new  branches to start  contributing  to profits
  until 1997 or beyond;  1996 earnings may be somewhat  negatively impacted by the
  initial costs of these new operations.
  
       On January  1, 1996 the FDIC  reduced  insurance  premiums  that  financial
  institutions  pay on commercial  bank deposits to zero from the previous rate of
  $.04 per hundred  dollars of deposits in effect  since May 1, 1995.  The Company
  continues  to pay $.23 per hundred  dollars of deposits  on  approximately  $225
  million of deposits  at branches  acquired  from  Sellersville  Savings and Loan
  Association and Central Pennsylvania Savings Association.  In order for the rate
  on these  deposits to also be lowered,  there is still a chance that in 1996 the
  Company  will have to pay a onetime  assessment  of between  $1  million  and $2
  million to help  recapitalize  the Savings  Association  Insurance Fund ("SAIF")
  segment of the FDIC. A late July 1996  proposal  from  Congress'  House  Banking
  Committee would include utilizing Federal Reserve surplus reserves toward annual
  interest costs of Financing  Corporation  bonds.  This would somewhat reduce the
  potential future annual FDIC insurance costs of commercial banks,  assuming they
  would be responsible  for Financing  Corporation  bond  interest,  but would not
  reduce the  potential  onetime SAIF  recapitalization  fee.  The Company  cannot
  predict if
  
                                         12
  this or any other legislation will be enacted,  but expects that any legislation
  recapitalizing SAIF will likely impose additional deposit insurance costs on the
  Company attributable to its acquired SAIF-insured deposits. These costs may have
  a material adverse effect on the Company's earnings when incurred.
  
                                         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 1996 annual meeting (the "Meeting") of the shreholders of National Penn
  Bancshares,  Inc. (the  "Registrant")  was held on April 23, 1996. Notice of the
  Meeting  was  mailed  to  shareholders  of record  on or about  March 22,  1996,
  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 to elect four Class III  directors  to hold office for
  three years from the date of election and until their successors are elected and
  qualified.
  
       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
  Patricia L. Langiotti               5,424,049         33,066            0
  
  Randall J. Nester                   5,419,112         38,003            0
  
  Harold C. Wegman, D.D.S.            5,428,418         28,697            0
  
  Wayne R. Weidner                    5,428,444         28,671            0
  Item 5.   Other Information.
  
       In May and then in July 1996, the Registrant's banking subsidiary, National
  Penn Bank (the  "Bank"),  opened  its fifth and sixth  full-service  supermarket
  branches in the Clemen's  Market,  Exton (Chester  County) and Redner's  Market,
  Trexlertown (Lehigh County), Pennsylvania.
  
       The Registrant anticipates that in the remainder of 1996 the Bank will open
  four more supermarket branches, located in Perkasie (Bucks County),  Dorneyville
  (Lehigh County),  Coopersburg  (Lehigh County),  and Emaus (Lehigh County).  The
  Bank  intends  to close  its  branch  at East Penn  Plaza,  Emaus,  when the new
  supermarket branch in Emaus opens.
  
                                         14
  The  Registrant  also  anticipates  that the Bank will open a full  service
  branch in Lansdale (Montgomery County) in September 1996. At that time, the Bank
  expects to close its current branches in Kulpsville (Montgomery County) and West
  Point (Montgomery County).
  
       On May 1, 1996, the Bank closed its Mt. Airy (Philadelphia) branch.
  
       On June  26,  1996,  The  Registrant's  Board  of  Directors  approved  the
  repurchase  of up to 380,000  shares of its common  stock to be used for general
  corporate purposes,  including the Registrant's  dividend  reinvestment plan and
  stock option plans.  The stock repurchase plan authorizes the Registrant to make
  repurchases   from  time  to  time  in  open  market  or  privately   negotiated
  transactions.  A prior  repurchase  program  of  200,000  shares  authorized  in
  February 1994 has been completed.
  
       On July 24, 1996,  the Registrant  declared a 5% stock dividend  payable on
  October  31,  1996 to  shareholders  of record as of the  close of  business  on
  September 27, 1996.
  
  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, 1996.
  
                                         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 9, 1996                           By /s/ Wayne R. Weidner
                                                      ---------------------
                                                      Wayne R. Weidner, Executive
                                                      Vice President
  
  Dated:  August 9, 1996                           By /s/ Gary L. Rhoads
                                                      -------------------
                                                      Gary L. Rhoads, Principal
                                                      Financial Officer
  
                                         16