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:      March 31, 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 May 10, 1996
  
  Common Stock ($2.50 par value)                    (No.) 7,605,633 Shares
  
  
  
                                 Page 1 of 15 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 .................................    13
  
           Item 2.    Changes in Securities .............................    13
  
           Item 3.    Defaults Upon Senior Securities ...................    13
  
           Item 4.    Submission of Matters to a Vote of
                      Security Holders ..................................    13
  
           Item 5.    Other Information .................................    13
  
           Item 6.    Exhibits and Reports on Form 8-K ..................    14
  
  Signatures ............................................................    15
  
  
                                          2
  
  <PAGE>
  
  
  PART I - FINANCIAL INFORMATION
  
  Item 1.  Financial Statements
  
  <TABLE>
  <CAPTION>
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
  CONSOLIDATED CONDENSED BALANCE SHEET                                        March 31           Dec. 31
   (Dollars in thousands, except per share data)                                1996               1995
                                                                             (Unaudited)          (Note)
  <S>                                                                      <C>               <C>    
  ASSETS
  Cash and due from banks                                                      $28,479           $39,195
  Interest bearing deposits in banks                                             1,194             2,014
  Federal funds sold                                                            30,000               ---
                                                                            ----------        ----------
      Total cash and cash equivalents                                           59,673            41,209
  Securities available for sale at market value                                239,063           240,902
  Loans, net of unearned discount                                              948,131           939,065
    Less allowance for possible loan losses                                    (20,723)          (20,366)
                                                                            ----------        ----------
      Net loans                                                                927,408           918,699
  Other assets                                                                  53,597            50,568
                                                                            ----------        ----------
      Total Assets                                                          $1,279,741        $1,251,378
                                                                            ==========        ==========
  
  LIABILITIES AND SHAREHOLDERS' EQUITY
  Non-interest bearing deposits                                               $127,230          $134,968
  Interest bearing deposits
    (Includes certificates of deposit in excess of $100:
    1996 - $93,494; 1995- $89,881)                                             810,579           779,922
                                                                            ----------        ----------
      Total deposits                                                           937,809           914,890
  Securities sold under repurchase agreements
    and federal funds purchased                                                154,142           138,550
  Short-term borrowings                                                          5,903             4,370
  Long-term obligations                                                         56,589            71,589
  Accrued interest and other liabilities                                        18,487            15,364
                                                                            ----------        ----------
      Total Liabilities                                                      1,172,930         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; 7,644,584 
      shares issued and 7,613,865 outstanding at 
      March 31, 1996; 7,642,413 shares issued and 7,594,474
      shares outstanding at December 31, 1994                                   19,106            19,106
    Additional paid-in-capital                                                  57,488            57,501
    Retained earnings                                                           27,009            24,646
    Valuation adjustment for securities available for sale, net of tax           3,999             6,579
    Treasury stock (30,719 shares at cost at March 31, 1996 and
      47,939 shares  at cost at December 31, 1995)                                (791)           (1,217)
                                                                            ----------        ----------
      Total Shareholders' Equity                                               106,811           106,615
                                                                            ----------        ----------
      Total Liabilities and Shareholders' Equity                            $1,279,741        $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>
  
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
  UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME
  <TABLE>
  <CAPTION>
                                                                                 Three Months Ended
  (Dollars in thousands, except per share data)                                       March 31
  
                                                                                1996               1995
  <S>                                                                        <C>               <C>    
  INTEREST INCOME
  Loans, including fees                                                        $21,892           $19,258
  Deposits in banks                                                                  9                15
  Federal funds sold                                                               100                 2
  Investment securities                                                          3,718             3,975
                                                                                ------            ------
      Total interest income                                                     25,719            23,250
                                                                                ------            ------
  INTEREST EXPENSE
  Deposits                                                                       8,198             7,403
  Federal funds purchased, borrowed funds and
    securities sold under repurchase agreements                                  3,071             2,387
                                                                                ------            ------
      Total interest expense                                                    11,269             9,790
                                                                                ------            ------
      Net interest income                                                       14,450            13,460
  Provision for loan losses                                                        975               750
                                                                                ------            ------
      Net interest income after provision
        for loan losses                                                         13,475            12,710
                                                                                ------            ------
  OTHER INCOME
  Trust Services                                                                   631               424
  Service charges on deposit accounts                                              783               640
  Net gains (losses) on sale of securities and mortgages                          (103)              256
  Other                                                                            634               748
                                                                                ------            ------
      Total other income                                                         1,945             2,068
                                                                                ------            ------
  OTHER EXPENSES
  Salaries, wages and employee benefits                                          5,024             4,981
  Net premises and equipment                                                     1,804             1,389
  Other operating                                                                2,621             2,837
                                                                                ------            ------
      Total other expenses                                                       9,449             9,207
                                                                                ------            ------
      Income before income taxes                                                 5,971             5,571
  Applicable income tax expense                                                  1,856             1,654
                                                                                ------            ------
      Net income                                                                $4,115            $3,917
                                                                                ======            ======
  
  
  PER SHARE OF COMMON STOCK
  Net income                                                                      0.54              0.52
  Dividends paid in cash                                                          0.22              0.20
  </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>
                                                                              Three Months Ended March 31,
  (Dollars in thousands)
                                                                                  1996             1995
  <S>                                                                         <C>              <C>   
  CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                                                   $4,115           $3,917
    Adjustments to reconcile net income to net
        cash provided by (used in) operating activities
      Provision for loan losses                                                     975              750
      Depreciation and amortization                                                 747              628
      Net gains (losses) on sale of securities and mortgages                       (103)             256
      Mortgage loans originated for resale                                       (7,307)          (1,279)
      Sale of mortgage loans originated for resale                                7,307            1,279
      Other                                                                      (1,135)           2,029
                                                                                -------          -------
  
        Net cash provided by (used in) operating activities                       4,599            7,580
  
  CASH FLOWS FROM INVESTING ACTIVITIES
    Proceeds from sales of investment securities - available for sale               ---            2,525
    Proceeds from maturities of investment securities - held to maturity            ---            6,525
    Proceeds from maturities of investment securities - available for sale       15,518               11
    Purchase of investment securities - available for sale                      (14,852)          (2,527)
    Proceeds from sales of loans                                                    ---              ---
    Net increase in loans                                                        (9,684)         (18,825)
    Purchases of premises & equipment                                              (822)            (657)
                                                                                -------          -------
  
        Net cash provided by (used in) investing activities                      (9,840)         (12,948)
  
  CASH FLOWS FROM FINANCING ACTIVITIES
    Increase (decrease) in:
      Deposits                                                                   22,919           40,313
      Repurchase agreements, fed funds & short-term borrowings                   17,125          (32,124)
      Long-term borrowings                                                      (15,000)             ---
      (Increase) decrease in treasury stock                                         426              186
      Issuance of common stock under dividend reinvestment plan                     (13)             ---
     Cash dividends                                                              (1,752)          (1,498)
                                                                                -------          -------
  
        Net cash provided by (used in) financing activities                      23,705            6,877
  
  Net increase (decrease) in cash and cash equivalents                           18,464            1,509
  
  Cash and cash equivalents at January 1                                         41,209           34,159
                                                                                -------          -------
  
  Cash and cash equivalents at March 31                                         $59,673          $35,668
                                                                                =======          =======
  </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 three month period ended March 31, 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 7,611,681  and 7,547,382  for 1996 and 1995,  respectively,  and are computed
  after giving retroactive effect to a 5% stock dividend paid October 31, 1995.
  
  
                                          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 $1.280 billion,  an increase of $28.4 million or
  2.3% over the $1.251  billion at December 31, 1995.  This  increase is reflected
  primarily in federal funds sold, the result of the  investment of deposits,  the
  Company's primary source of funds.
  
       Total cash and cash  equivalents  increased $18.5 million or 44.8% at March
  31, 1996 when compared to December 31, 1995. As already noted, this increase was
  primarily due to federal funds sold, partially offset by lower cash and due from
  banks and lower interest bearing deposits in banks.
  
       Loans  increased to $927.4  million at March 31, 1996. The increase of $8.7
  million or 1.0%  compared to December 31, 1995 was  primarily  the result of the
  investment of deposits and securities  sold under  agreements to repurchase.  In
  addition,  loans  originated  for  immediate  resale  during  the first  quarter
  amounted to $7.3  million.  The  Company's  credit  quality is  reflected by the
  annualized  ratio of net  charge-offs  to average  total  loans of 0.28% for the
  first  quarter  and the level of  non-accrual  loans to total  loans of 0.85% at
  March  31,  1996.  The  Company  has  no  significant  exposure  to  energy  and
  agricultural-related loans. Non-accrual loans at December 31, 1995 were 0.77% of
  total loans.
  
       Investments,  the Company's secondary use of funds, remained stable through
  March 31, 1996.
  
       As the primary  source of funds,  aggregate  deposits of $937.8  million at
  March 31, 1996  increased  $22.9  million or 2.5% compared to December 31, 1995.
  There  was a shift in  deposit  mix  during  the first  three  months of 1996 as
  interest  bearing  deposits  increased  $30.7 million and  non-interest  bearing
  deposits  decreased $7.7 million.  Certificates of deposit in excess of $100,000
  increased  $3.6 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 obligations.  In aggregate, these funds totaled $216.6
  million at March 31, 1996 and $214.5  million at December 31, 1995. The increase
  of $2.1 million represents a shift from long-term obligations to short-term
  
                                          7
  
  <PAGE>
  
  borrowings,  primarily  securities sold under repurchase  agreements and federal
  funds purchased.
  
  
       Shareholders'  equity  increased  slightly  through  March 31,  1996.  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 three  months of 1996  increased  $173,000  or 11.5%  compared to the cash
  dividends paid during the first three months of 1995.  Earnings  retained during
  the first three  months of 1996 were 59.4%  compared  to 61.8%  during the first
  three months of 1995.
  
  
                                RESULTS OF OPERATIONS
  
       Net income for the quarter ended March 31, 1996 was $4.1 million, 5.1% more
  than the $3.9  million  reported  for the same  period  in 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 $1.0 million or
  7.4% to $14.5 million during the first quarter of 1996 from $13.5 million in the
  first  quarter  1995.  The increase was due primarily to an increase in interest
  income,  as a result of growth in loan  outstandings  and higher rates on loans,
  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
  8.5%.  On February 1, 1996,  the prime rate changed to 8.25%.  Interest  expense
  during the first three months of 1996  increased  $1.5 million or 15.1% compared
  to the prior year three month period. 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 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 losses  increased  $225,000 for the first
  three months of 1996 compared to the same period in 1995. The allowance for loan
  losses of $20.7 million at March 31, 1996 and $20.3 million at December 31, 1995
  as a  percentage  of gross  loans was 2.2% at both  dates.  Net  charge-offs  of
  $617,000 and $483,000  during the first three months of 1996 and 1995,  continue
  to be comparable to that of
  
                                          8
  
  <PAGE>
  
  the Company's peers, as reported in the Bank Holding Company Performance Report.
  
       "Total other income" decreased $123,000 or 5.9% during the first quarter of
  1996 as the  result  of  losses  on the  sale of  securities  and  mortgages  of
  $359,000,  and a decrease in other  income of $114,000.  "Total other  expenses"
  increased  $242,000  or 2.6% during the quarter  ended March 31,  1996.  Of this
  amount,  premises  and  equipment  increased  $415,000  or 29.9%  over the first
  quarter of 1995. Salaries and benefits increased $43,000.
  
       Income  before  income taxes  increased by $400,000 or 7.2% compared to the
  first quarter of 1995. Income taxes increased  $202,000,  or 12.2%,  compared to
  the first quarter of 1995.
  
                       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,  federal funds purchased,
  and short-term  borrowings,  increased in the aggregate  $40.0 million from year
  end 1995. Long-term borrowings decreased $15.0 million through the first quarter
  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 March
  31, 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                                         $  1,194          $   --           $   --
    Investment securities                                41,567            79,159          118,337
    Loans and leases                                    401,984           390,753          155,394
         Other assets                                    30,000              --             82,076
                                                      ---------         ---------        ---------
                                                        474,745           469,912          355,807
                                                      ---------         ---------        ---------
  Liabilities and equity
    Non-interest bearing deps.                          127,230              --               --
    Interest bearing deposits                           389,215           188,996          232,368
    Borrowed funds                                      190,157             3,610           22,867
    Other liabilities                                      --                --             39,210
    Hedging instruments                                 100,000           (90,000)         (10,000)
    Shareholders' equity                                   --                --            106,811
                                                      ---------         ---------        ---------
                                                        806,602           102,606          391,256
                                                      ---------         ---------        ---------
  
  Interest sensitivity gap                             (331,857)          367,306          (35,449)
                                                      ---------         ---------        ---------
  
  Cumulative interest rate
      sensitivity gap                                 ($331,857)          $35,449          $  --
                                                      =========         =========          =======
  <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
  interest 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 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
  
                                         10
  
  <PAGE>
  
  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 of 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 move
  toward a smaller negative gap (interest-bearing liabilities subject to repricing
  greater than  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.
  <TABLE>
  <CAPTION>
                                                    Mar. 31,        Dec. 31,
                                                      1996            1995
  <S>                                              <C>             <C>  
  CAPITAL LEVELS
    Tier 1 leverage ratio                             7.67%           7.59%
    Tier 1 risk-based ratio                          11.09           10.97
    Total risk-based ratio                           12.35           12.23
  
  
  CAPITAL PERFORMANCE
    Return on average assets(annualized)              1.31            1.30
    Return on average equity(annualized)             16.20           16.30
    Earnings retained                                59.40           59.30
    Internal capital growth(annualized)               9.17           25.60
  </TABLE>
  
       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 March 31,
  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
  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
  
                                         11
  
  <PAGE>
  
  
  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
  
       The Company has just  initiated its Private  Banking  division to serve the
  financial and investment  needs of the professional  market,  is introducing its
  debit card, will open  approximately  six new supermarket  branches in 1996, and
  will install  several new remote ATMs during the remainder of 1996.  The Company
  does not expect these new  initiatives  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 the 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
  must continue 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 also to be lowered, there is 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. On May 7, 1996, Senate Majority Leader Robert Dole rejected using the SAIF
  recapitalization  plan to offset the cost of repealing a federal  gasoline  tax.
  The May 9, 1996 issue of American Banker reports that  administration  officials
  have  vowed  to try  again to pass a SAIF  recapitalization  plan,  possibly  by
  attaching it to the 1997 budget bill now being negotiated by lawmakers.
  
       The Company  cannot  predict if  legislation  will be enacted as previously
  proposed,  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.
  
                                         12
  
  <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.
  
           Not Applicable.
  
  Item 5.  Other Information.
  
       The  registrant's  banking  subisidiary,  National  Penn Bank (the "Bank"),
  opened new  branches in King of Prussia and Malvern  (Chester  County),  and the
  Bank's 1st Main Line Bank Division  opened a new branch in St. Davids  (Delaware
  County), during the first quarter 1996. On April 5, 1996, the Bank opened an ATM
  in the Manayunk Farmers Market (Philadelphia County).
  
       The Registrant anticipates that in the remainder of 1996 the Bank will open
  a full-service branch in Lansdale (Montgomery County) and three more supermarket
  branches,  located in Trexlertown (Lehigh County),  Exton (Chester County),  and
  Perkasie (Bucks County).
  
       During first  quarter  1996,  the Bank created a Private  Banking  Division
  headquartered in Wyomissing (Berks County). Timothy A. Day was named Senior Vice
  President and head of Private Banking.  Also during first quarter 1996, the Bank
  introduced Asset-Based Lending as a new loan product.
  
       On April 24,  1996,  Russell J. Kunkel was named Vice  Chairman of the Bank
  with  responsibility  for Retail  Lending,  Technology,  Operations  and Private
  Banking.  During the first  quarter,  Ronald L.  Bashore  was named  Senior Vice
  President and Commercial Loan Group Head of commercial lending in Berks,  Lehigh
  and Lancaster  Counties,  and Robert H. Moses was appointed  Administrative Vice
  President and Manager of the Bank's Pottstown Commercial Lending Group.
  
       On April 24,  1996,  the  Registrant's  Bylaws were  amended to provide for
  "directors  emeritus",  and John A.  Cenerazzo,  a retiring  Registrant and Bank
  director,  was elected as director emeritus of both the Registrant and the Bank.
  Also on April 24,  1996,  Mr.  Anthony  Armo was elected as new  director of the
  Bank.
  
       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
  negotiaited transactions. At March 31, 1996, a total of 186,340 shares have been
  repurchased at an aggregate cost of $5,613,000.
  
  
                                         13
  
  <PAGE>
  
  Item 6.   Exhibits and Reports on Form 8-K.
  
            (a)  Exhibits.
  
                 Exhibit 3.2 - National Penn Bancshares, Inc. Bylaws, as amended.
  
                 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 March 31, 1996.
  
                                         14
  
  <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:  May 15, 1996                         By /s/ Lawrence T. Jilk, Jr.
                                                  --------------------------------
                                                  Lawrence T. Jilk, Jr., President
                                                  and Chief Executive Officer
  
  Dated:  May 15, 1996                         By /s/ Gary L. Rhoads
                                                  --------------------------------
                                                  Gary L. Rhoads, Principal
                                                  Financial Officer
  
  
                                         15
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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:      March 31, 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 May 10, 1996
  
  Common Stock ($2.50 par value)                    (No.) 7,605,633 Shares
  
                                 Page 1 of 15 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 .................................    13
  
           Item 2.    Changes in Securities .............................    13
  
           Item 3.    Defaults Upon Senior Securities ...................    13
  
           Item 4.    Submission of Matters to a Vote of
                      Security Holders ..................................    13
  
           Item 5.    Other Information .................................    13
  
           Item 6.    Exhibits and Reports on Form 8-K ..................    14
  
  Signatures ............................................................    15
  
                                          2
  PART I - FINANCIAL INFORMATION
  
  Item 1.  Financial Statements
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
  CONSOLIDATED CONDENSED BALANCE SHEET                                        March 31           Dec. 31
   (Dollars in thousands, except per share data)                                1996               1995
                                                                             (Unaudited)          (Note)
  ASSETS
  Cash and due from banks                                                      $28,479           $39,195
  Interest bearing deposits in banks                                             1,194             2,014
  Federal funds sold                                                            30,000               ---
                                                                            ----------        ----------
      Total cash and cash equivalents                                           59,673            41,209
  Securities available for sale at market value                                239,063           240,902
  Loans, net of unearned discount                                              948,131           939,065
    Less allowance for possible loan losses                                    (20,723)          (20,366)
                                                                            ----------        ----------
      Net loans                                                                927,408           918,699
  Other assets                                                                  53,597            50,568
                                                                            ----------        ----------
      Total Assets                                                          $1,279,741        $1,251,378
                                                                            ==========        ==========
  
  LIABILITIES AND SHAREHOLDERS' EQUITY
  Non-interest bearing deposits                                               $127,230          $134,968
  Interest bearing deposits
    (Includes certificates of deposit in excess of $100:
    1996 - $93,494; 1995- $89,881)                                             810,579           779,922
                                                                            ----------        ----------
      Total deposits                                                           937,809           914,890
  Securities sold under repurchase agreements
    and federal funds purchased                                                154,142           138,550
  Short-term borrowings                                                          5,903             4,370
  Long-term obligations                                                         56,589            71,589
  Accrued interest and other liabilities                                        18,487            15,364
                                                                            ----------        ----------
      Total Liabilities                                                      1,172,930         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; 7,644,584 
      shares issued and 7,613,865 outstanding at 
      March 31, 1996; 7,642,413 shares issued and 7,594,474
      shares outstanding at December 31, 1994                                   19,106            19,106
    Additional paid-in-capital                                                  57,488            57,501
    Retained earnings                                                           27,009            24,646
    Valuation adjustment for securities available for sale, net of tax           3,999             6,579
    Treasury stock (30,719 shares at cost at March 31, 1996 and
      47,939 shares  at cost at December 31, 1995)                                (791)           (1,217)
                                                                            ----------        ----------
      Total Shareholders' Equity                                               106,811           106,615
                                                                            ----------        ----------
      Total Liabilities and Shareholders' Equity                            $1,279,741        $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
  (Dollars in thousands, except per share data)                                       March 31
  
                                                                                1996               1995
  INTEREST INCOME
  Loans, including fees                                                        $21,892           $19,258
  Deposits in banks                                                                  9                15
  Federal funds sold                                                               100                 2
  Investment securities                                                          3,718             3,975
                                                                                ------            ------
      Total interest income                                                     25,719            23,250
                                                                                ------            ------
  INTEREST EXPENSE
  Deposits                                                                       8,198             7,403
  Federal funds purchased, borrowed funds and
    securities sold under repurchase agreements                                  3,071             2,387
                                                                                ------            ------
      Total interest expense                                                    11,269             9,790
                                                                                ------            ------
      Net interest income                                                       14,450            13,460
  Provision for loan losses                                                        975               750
                                                                                ------            ------
      Net interest income after provision
        for loan losses                                                         13,475            12,710
                                                                                ------            ------
  OTHER INCOME
  Trust Services                                                                   631               424
  Service charges on deposit accounts                                              783               640
  Net gains (losses) on sale of securities and mortgages                          (103)              256
  Other                                                                            634               748
                                                                                ------            ------
      Total other income                                                         1,945             2,068
                                                                                ------            ------
  OTHER EXPENSES
  Salaries, wages and employee benefits                                          5,024             4,981
  Net premises and equipment                                                     1,804             1,389
  Other operating                                                                2,621             2,837
                                                                                ------            ------
      Total other expenses                                                       9,449             9,207
                                                                                ------            ------
      Income before income taxes                                                 5,971             5,571
  Applicable income tax expense                                                  1,856             1,654
                                                                                ------            ------
      Net income                                                                $4,115            $3,917
                                                                                ======            ======
  
  PER SHARE OF COMMON STOCK
  Net income                                                                      0.54              0.52
  Dividends paid in cash                                                          0.22              0.20
  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
  Three Months Ended March 31,
  (Dollars in thousands)
                                                                                  1996             1995
  CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                                                   $4,115           $3,917
    Adjustments to reconcile net income to net
        cash provided by (used in) operating activities
      Provision for loan losses                                                     975              750
      Depreciation and amortization                                                 747              628
      Net gains (losses) on sale of securities and mortgages                       (103)             256
      Mortgage loans originated for resale                                       (7,307)          (1,279)
      Sale of mortgage loans originated for resale                                7,307            1,279
      Other                                                                      (1,135)           2,029
                                                                                -------          -------
  
        Net cash provided by (used in) operating activities                       4,599            7,580
  
  CASH FLOWS FROM INVESTING ACTIVITIES
    Proceeds from sales of investment securities - available for sale               ---            2,525
    Proceeds from maturities of investment securities - held to maturity            ---            6,525
    Proceeds from maturities of investment securities - available for sale       15,518               11
    Purchase of investment securities - available for sale                      (14,852)          (2,527)
    Proceeds from sales of loans                                                    ---              ---
    Net increase in loans                                                        (9,684)         (18,825)
    Purchases of premises & equipment                                              (822)            (657)
                                                                                -------          -------
  
        Net cash provided by (used in) investing activities                      (9,840)         (12,948)
  
  CASH FLOWS FROM FINANCING ACTIVITIES
    Increase (decrease) in:
      Deposits                                                                   22,919           40,313
      Repurchase agreements, fed funds & short-term borrowings                   17,125          (32,124)
      Long-term borrowings                                                      (15,000)             ---
      (Increase) decrease in treasury stock                                         426              186
      Issuance of common stock under dividend reinvestment plan                     (13)             ---
     Cash dividends                                                              (1,752)          (1,498)
                                                                                -------          -------
  
        Net cash provided by (used in) financing activities                      23,705            6,877
  
  Net increase (decrease) in cash and cash equivalents                           18,464            1,509
  
  Cash and cash equivalents at January 1                                         41,209           34,159
                                                                                -------          -------
  
  Cash and cash equivalents at March 31                                         $59,673          $35,668
                                                                                =======          =======
  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 three month period ended March 31, 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 7,611,681  and 7,547,382  for 1996 and 1995,  respectively,  and are computed
  after giving retroactive effect to a 5% stock dividend paid October 31, 1995.
  
                                          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 $1.280 billion,  an increase of $28.4 million or
  2.3% over the $1.251  billion at December 31, 1995.  This  increase is reflected
  primarily in federal funds sold, the result of the  investment of deposits,  the
  Company's primary source of funds.
  
       Total cash and cash  equivalents  increased $18.5 million or 44.8% at March
  31, 1996 when compared to December 31, 1995. As already noted, this increase was
  primarily due to federal funds sold, partially offset by lower cash and due from
  banks and lower interest bearing deposits in banks.
  
       Loans  increased to $927.4  million at March 31, 1996. The increase of $8.7
  million or 1.0%  compared to December 31, 1995 was  primarily  the result of the
  investment of deposits and securities  sold under  agreements to repurchase.  In
  addition,  loans  originated  for  immediate  resale  during  the first  quarter
  amounted to $7.3  million.  The  Company's  credit  quality is  reflected by the
  annualized  ratio of net  charge-offs  to average  total  loans of 0.28% for the
  first  quarter  and the level of  non-accrual  loans to total  loans of 0.85% at
  March  31,  1996.  The  Company  has  no  significant  exposure  to  energy  and
  agricultural-related loans. Non-accrual loans at December 31, 1995 were 0.77% of
  total loans.
  
       Investments,  the Company's secondary use of funds, remained stable through
  March 31, 1996.
  
       As the primary  source of funds,  aggregate  deposits of $937.8  million at
  March 31, 1996  increased  $22.9  million or 2.5% compared to December 31, 1995.
  There  was a shift in  deposit  mix  during  the first  three  months of 1996 as
  interest  bearing  deposits  increased  $30.7 million and  non-interest  bearing
  deposits  decreased $7.7 million.  Certificates of deposit in excess of $100,000
  increased  $3.6 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 obligations.  In aggregate, these funds totaled $216.6
  million at March 31, 1996 and $214.5  million at December 31, 1995. The increase
  of $2.1 million represents a shift from long-term obligations to short-term
  
                                          7
  borrowings,  primarily  securities sold under repurchase  agreements and federal
  funds purchased.
  
       Shareholders'  equity  increased  slightly  through  March 31,  1996.  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 three  months of 1996  increased  $173,000  or 11.5%  compared to the cash
  dividends paid during the first three months of 1995.  Earnings  retained during
  the first three  months of 1996 were 59.4%  compared  to 61.8%  during the first
  three months of 1995.
  
                                RESULTS OF OPERATIONS
  
       Net income for the quarter ended March 31, 1996 was $4.1 million, 5.1% more
  than the $3.9  million  reported  for the same  period  in 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 $1.0 million or
  7.4% to $14.5 million during the first quarter of 1996 from $13.5 million in the
  first  quarter  1995.  The increase was due primarily to an increase in interest
  income,  as a result of growth in loan  outstandings  and higher rates on loans,
  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
  8.5%.  On February 1, 1996,  the prime rate changed to 8.25%.  Interest  expense
  during the first three months of 1996  increased  $1.5 million or 15.1% compared
  to the prior year three month period. 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 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 losses  increased  $225,000 for the first
  three months of 1996 compared to the same period in 1995. The allowance for loan
  losses of $20.7 million at March 31, 1996 and $20.3 million at December 31, 1995
  as a  percentage  of gross  loans was 2.2% at both  dates.  Net  charge-offs  of
  $617,000 and $483,000  during the first three months of 1996 and 1995,  continue
  to be comparable to that of
  
                                          8
  the Company's peers, as reported in the Bank Holding Company Performance Report.
  
       "Total other income" decreased $123,000 or 5.9% during the first quarter of
  1996 as the  result  of  losses  on the  sale of  securities  and  mortgages  of
  $359,000,  and a decrease in other  income of $114,000.  "Total other  expenses"
  increased  $242,000  or 2.6% during the quarter  ended March 31,  1996.  Of this
  amount,  premises  and  equipment  increased  $415,000  or 29.9%  over the first
  quarter of 1995. Salaries and benefits increased $43,000.
  
       Income  before  income taxes  increased by $400,000 or 7.2% compared to the
  first quarter of 1995. Income taxes increased  $202,000,  or 12.2%,  compared to
  the first quarter of 1995.
  
                       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,  federal funds purchased,
  and short-term  borrowings,  increased in the aggregate  $40.0 million from year
  end 1995. Long-term borrowings decreased $15.0 million through the first quarter
  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 March
  31, 1996:
  Repricing Periods (1)
                                                                        One Year
                                                        Within           Through            Over
                                                       One Year         Five Years       Five Years
                                                                      (In Thousands)
  Assets
    Interest bearing deposits
      at banks                                         $  1,194          $   --           $   --
    Investment securities                                41,567            79,159          118,337
    Loans and leases                                    401,984           390,753          155,394
         Other assets                                    30,000              --             82,076
                                                      ---------         ---------        ---------
                                                        474,745           469,912          355,807
                                                      ---------         ---------        ---------
  Liabilities and equity
    Non-interest bearing deps.                          127,230              --               --
    Interest bearing deposits                           389,215           188,996          232,368
    Borrowed funds                                      190,157             3,610           22,867
    Other liabilities                                      --                --             39,210
    Hedging instruments                                 100,000           (90,000)         (10,000)
    Shareholders' equity                                   --                --            106,811
                                                      ---------         ---------        ---------
                                                        806,602           102,606          391,256
                                                      ---------         ---------        ---------
  
  Interest sensitivity gap                             (331,857)          367,306          (35,449)
                                                      ---------         ---------        ---------
  
  Cumulative interest rate
      sensitivity gap                                 ($331,857)          $35,449          $  --
                                                      =========         =========          =======
  (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
  interest 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 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
  
                                         10
  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 of 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 move
  toward a smaller negative gap (interest-bearing liabilities subject to repricing
  greater than  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.
  Mar. 31,        Dec. 31,
                                                      1996            1995
  CAPITAL LEVELS
    Tier 1 leverage ratio                             7.67%           7.59%
    Tier 1 risk-based ratio                          11.09           10.97
    Total risk-based ratio                           12.35           12.23
  
  CAPITAL PERFORMANCE
    Return on average assets(annualized)              1.31            1.30
    Return on average equity(annualized)             16.20           16.30
    Earnings retained                                59.40           59.30
    Internal capital growth(annualized)               9.17           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 March 31,
  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
  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
  
                                         11
  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
  
       The Company has just  initiated its Private  Banking  division to serve the
  financial and investment  needs of the professional  market,  is introducing its
  debit card, will open  approximately  six new supermarket  branches in 1996, and
  will install  several new remote ATMs during the remainder of 1996.  The Company
  does not expect these new  initiatives  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 the 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
  must continue 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 also to be lowered, there is 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. On May 7, 1996, Senate Majority Leader Robert Dole rejected using the SAIF
  recapitalization  plan to offset the cost of repealing a federal  gasoline  tax.
  The May 9, 1996 issue of American Banker reports that  administration  officials
  have  vowed  to try  again to pass a SAIF  recapitalization  plan,  possibly  by
  attaching it to the 1997 budget bill now being negotiated by lawmakers.
  
       The Company  cannot  predict if  legislation  will be enacted as previously
  proposed,  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.
  
                                         12
  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.
  
           Not Applicable.
  
  Item 5.  Other Information.
  
       The  registrant's  banking  subisidiary,  National  Penn Bank (the "Bank"),
  opened new  branches in King of Prussia and Malvern  (Chester  County),  and the
  Bank's 1st Main Line Bank Division  opened a new branch in St. Davids  (Delaware
  County), during the first quarter 1996. On April 5, 1996, the Bank opened an ATM
  in the Manayunk Farmers Market (Philadelphia County).
  
       The Registrant anticipates that in the remainder of 1996 the Bank will open
  a full-service branch in Lansdale (Montgomery County) and three more supermarket
  branches,  located in Trexlertown (Lehigh County),  Exton (Chester County),  and
  Perkasie (Bucks County).
  
       During first  quarter  1996,  the Bank created a Private  Banking  Division
  headquartered in Wyomissing (Berks County). Timothy A. Day was named Senior Vice
  President and head of Private Banking.  Also during first quarter 1996, the Bank
  introduced Asset-Based Lending as a new loan product.
  
       On April 24,  1996,  Russell J. Kunkel was named Vice  Chairman of the Bank
  with  responsibility  for Retail  Lending,  Technology,  Operations  and Private
  Banking.  During the first  quarter,  Ronald L.  Bashore  was named  Senior Vice
  President and Commercial Loan Group Head of commercial lending in Berks,  Lehigh
  and Lancaster  Counties,  and Robert H. Moses was appointed  Administrative Vice
  President and Manager of the Bank's Pottstown Commercial Lending Group.
  
       On April 24,  1996,  the  Registrant's  Bylaws were  amended to provide for
  "directors  emeritus",  and John A.  Cenerazzo,  a retiring  Registrant and Bank
  director,  was elected as director emeritus of both the Registrant and the Bank.
  Also on April 24,  1996,  Mr.  Anthony  Armo was elected as new  director of the
  Bank.
  
       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
  negotiaited transactions. At March 31, 1996, a total of 186,340 shares have been
  repurchased at an aggregate cost of $5,613,000.
  
                                         13
  Item 6.   Exhibits and Reports on Form 8-K.
  
            (a)  Exhibits.
  
                 Exhibit 3.2 - National Penn Bancshares, Inc. Bylaws, as amended.
  
                 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 March 31, 1996.
  
                                         14
  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:  May 15, 1996                         By /s/ Lawrence T. Jilk, Jr.
                                                  --------------------------------
                                                  Lawrence T. Jilk, Jr., President
                                                  and Chief Executive Officer
  
  Dated:  May 15, 1996                         By /s/ Gary L. Rhoads
                                                  --------------------------------
                                                  Gary L. Rhoads, Principal
                                                  Financial Officer
  
                                         15