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, 1995
  
                                         OR
  
           [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                          SECURITIES EXCHANGE ACT OF 1934
  
  For the transition period from: __________________ to __________________ 
  
  Commission file number: 0-10957
  
                           NATIONAL PENN BANCSHARES, INC.
               (Exact name of registrant as specified in its charter)
  
              Pennsylvania                                   23-2215075
    (State or other jurisdiction of                       (I.R.S. Employer
     incorporation or organization)                      Identification No.)
  
               Philadelphia and Reading Avenues, Boyertown, PA 19512
                (Address of principal executive offices) (Zip Code)
  
                                   (610) 367-6001
                (Registrant's telephone number, including area code)
  
                                        N/A
                (Former name, former address and former fiscal year,
                           if changed since last report)
  
          Indicate by check mark whether the Registrant (1) has filed all reports
  required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
  1934 during the preceding 12 months (or for such shorter period that the
  Registrant was required to file such reports), and (2) has been subject to such
  filing requirements for the past 90 days.              Yes X     No 
  
          Indicate the number of shares outstanding of each of the issuer's
  classes of common stock, as of the latest practicable date.
  
                Class                            Outstanding at May 5, 1995
  
   Common Stock ($2.50 par value)                  (No.) 7,136,930 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 .....      8
  
  Part II - Other Information.
  
           Item 1. Legal Proceedings .................................     14
  
           Item 2. Changes in Securities .............................     14
  
           Item 3. Defaults Upon Senior Securities ...................     14
  
           Item 4. Submission of Matters to a Vote of
                   Security Holders ..................................     14
  
           Item 5. Other Information .................................     14
  
           Item 6. Exhibits and Reports on Form 8-K ..................     14
  
  Signatures .........................................................     15
  
  
                                       2
  
  
  <PAGE>
  
                             PART I - FINANCIAL INFORMATION
  
  
  Item 1.  Financial Statements
  
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
  
  <TABLE>
  CONSOLIDATED CONDENSED BALANCE SHEET
  <CAPTION>
                                                             March 31             Dec. 31
  (Dollars in thousands, except per share data)                1995                 1994
                                                           (Unaudited)             (Note)
  <S>                                                     <C>                    <C>
  ASSETS
  Cash and due from banks                                   $34,084               $33,195
  Interest bearing deposits in banks                          1,584                   964
  Federal funds sold                                            ---                   ---
                                                            -------               -------
      Total cash and cash equivalents                        35,668                34,159
  Securities held to maturity
    (approximate market of $92,933 and
    $97,459 at 1995 and 1994, respectively)                  92,704                99,229
  Securities available for sale at market value             145,388               138,873
                                                            -------               -------
      Total Investment Securities                           238,092               238,102
  Loans, net of unearned discount                           848,954               830,612
    Less allowance for possible loan losses                 (19,577)              (19,310)
                                                            -------               -------
      Net loans                                             829,377               811,302
  Other assets                                               52,320                53,611
                                                            -------               -------
      Total Assets                                       $1,155,457            $1,137,174
                                                         ==========            ==========
  
  LIABILITIES AND SHAREHOLDERS' EQUITY
  Non-interest bearing deposits                            $116,280              $121,273
  Interest bearing deposits
    (Includes certificates of deposit in 
     excess of $100: 1995 - $93,828; 
     1994- $65,630)                                         788,673               743,367
                                                            -------               -------
      Total deposits                                        904,953               864,640
  Securities sold under repurchase agreements
    and federal funds purchased                              63,961                50,274
  Short-term borrowings                                       2,156                47,967
  Long-term obligations                                      77,777                77,777
  Accrued interest and other liabilities                     15,021                11,645
                                                            -------               -------
      Total Liabilities                                   1,063,868             1,052,303
  Commitments and contingent liabilities                        ---                   ---
  Shareholders' equity
    Preferred stock, no stated par value;
      authorized 1,000,000 shares, none issued                  ---                   ---
    Common stock, par value $2.50 per share;
      20,000,000 shares authorized; 7,234,507 shares
      issued and 7,136,930 outstanding at March 31,
      1995; 7,234,126 shares issued and 7,135,347
      shares outstanding at December 31, 1994                18,084                18,083
    Additional paid-in-capital                               57,136                57,263
    Retained earnings                                        19,016                16,598
    Valuation adjustment for securities 
      available for sale, net of tax                            229                (4,011)
    Treasury stock (97,577 shares at cost at 
      March 31, 1995 and 98,779 shares  at cost 
      at December 31, 1994)                                  (2,876)               (3,062)
                                                            -------               -------
      Total Shareholders' Equity                             91,589                84,871
                                                            -------               -------
      Total Liabilities and Shareholders' Equity         $1,155,457            $1,137,174
                                                         ==========            ==========
  </TABLE>
  
  The accompanying notes are an integral part of these condensed financial
  statements.
  
  Note: The Balance Sheet at Dec. 31, 1994 has been derived from the audited
        financial statements at that date.
  
                                         3
  
  
  <PAGE>
  
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
  <TABLE>
  UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME
  <CAPTION>
                                                                    Three Months Ended
  (Dollars in thousands, except per share data)                          March 31
  
                                                                1995                1994
  <S>                                                      <C>                 <C>
  INTEREST INCOME
  Loans, including fees                                       $19,258             $16,375
  Deposits in banks                                                15                  32
  Federal funds sold                                                2                   5
  Investment securities                                         3,975               2,805
                                                               ------              ------
      Total interest income                                    23,250              19,217
                                                               ------              ------
  INTEREST EXPENSE
  Deposits                                                      7,403               4,795
  Federal funds purchased, borrowed funds and
    securities sold under repurchase agreements                 2,387               1,233
                                                               ------              ------
      Total interest expense                                    9,790               6,028
                                                               ------              ------
      Net interest income                                      13,460              13,189
  Provision for loan losses                                       750                 750
                                                               ------              ------
      Net interest income after provision
        for loan losses                                        12,710              12,439
                                                               ------              ------
  OTHER INCOME
  Trust Services                                                  424                 325
  Service charges on deposit accounts                             640                 646
  Net gains (losses) on sale of securities 
    and mortgages                                                 256                (221)
  Other                                                           748                 396
                                                               ------              ------
      Total other income                                        2,068               1,146
                                                               ------              ------
  OTHER EXPENSES
  Salaries, wages and employee benefits                         4,981               4,253
  Net premises and equipment                                    1,389               1,197
  Other operating                                               2,837               2,530
                                                               ------              ------
      Total other expenses                                      9,207               7,980
                                                               ------              ------
      Income before income taxes                                5,571               5,605
  Applicable income tax expense                                 1,654               1,802
                                                               ------              ------
      Net income                                               $3,917              $3,803
                                                               ======              ======
  
  PER SHARE OF COMMON STOCK
  Net income                                                     0.55                0.53
  Dividends paid in cash                                         0.21                0.17
  </TABLE>
  
  
  The accompanying notes are an integral part of these condensed financial
  statements.
  
                                               4
  
  <PAGE>
  
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
  <TABLE>
  UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
  <CAPTION>
                                                             Three Months Ended March 31,
  (Dollars in thousands)
                                                                1995              1994
  <S>                                                      <C>               <C>
  CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                                 $3,917             $3,803
    Adjustments to reconcile net income to net
        cash provided by (used in) operating activities
      Provision for loan losses                                   750                750
      Depreciation and amortization                               628                437
      Net gains (losses) on sale of securities 
        and mortgages                                             256               (221)
      Mortgage loans originated for resale                     (1,279)            (7,913)
      Sale of mortgage loans originated for resale              1,279              7,913
      Other                                                     2,029               (823)
                                                               ------             ------
        Net cash provided by (used in) operating 
          activities                                            7,580              3,946
  
  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              8,284
    Proceeds from maturities of investment 
       securities - available for sale                             11                ---
    Purchase of investment securities - available 
       for sale                                                (2,527)           (31,013)
    Proceeds from sales of loans                                  ---                ---
    Net increase in loans                                     (18,825)           (13,662)
    Purchases of premises & equipment                            (657)            (1,151)
                                                               ------             ------
        Net cash provided by (used in) investing 
            activities                                        (12,948)           (37,542)
  
  CASH FLOWS FROM FINANCING ACTIVITIES
    Increase (decrease) in:
      Deposits                                                 40,313              2,319
      Repurchase agreements, fed funds & 
       short-term borrowings                                  (32,124)            34,080
      Long-term borrowings                                        ---                ---
      (Increase) decrease in treasury stock                       186               (250)
      Issuance of common stock under dividend 
       reinvestment plan                                          ---                  9
      Cash dividends                                           (1,498)            (1,301)
                                                               ------             ------
        Net cash provided by (used in) financing
            activities                                          6,877             34,857
  Net increase (decrease) in cash and cash 
       equivalents                                              1,509              1,261
  Cash and cash equivalents at January 1                       34,159             29,767
                                                               ------             ------
  Cash and cash equivalents at March 31                       $35,668            $31,028
                                                              =======            =======
  </TABLE>
  
  
  The  accompanying  notes  are an  integral  part of  these  condensed  financial
  statements.
  
                                         5
  
  <PAGE>
  
  
  
  
          NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
  
  
  1. The accompanying  unaudited condensed financial statements have been prepared
  in  accordance  with  generally  accepted  accounting   principles  for  interim
  financial  information.  The financial information included herein is unaudited;
  however, such information reflects all adjustments  (consisting solely of normal
  recurring  adjustments) which are, in the opinion of management,  necessary to a
  fair statement of the results for the interim periods.  For further information,
  refer to the consolidated financial statements and footnotes thereto included in
  the Company's Annual Report on Form 10-K for the year ended December 31, 1994.
  
  2. The results of operations for the three month period ended March 31, 1995 are
  not necessarily indicative of the results to be expected for the full year.
  
  3. Per share data are based on the weighted average number of shares outstanding
  of 7,139,680  and 7,165,367  for 1995 and 1994,  respectively,  and are computed
  after giving retroactive effect to a 5% stock dividend paid October 31, 1994.
  
  4. On January 1, 1995 the Company  adopted  Statement  of  Financial  Accounting
  Standards  (SFAS) No. 114,  "Accounting for Creditors for Impairment of a Loan,"
  as amended by SFAS No. 118, "Accounting for Creditors for Impairment of a Loan -
  Income  Recognition  and  Disclosures."  SFAS No. 114  requires  that a creditor
  measure  impairment  based on the present  value of  expected  future cash flows
  discounted at the loan's  effective  interest  rate,  except that as a practical
  expedient, a creditor may measure impairment based on a loan's observable market
  price,  or the fair value of  collateral  if the loan is  collateral  dependent.
  Regardless of the measurement  method, a creditor must measure  impairment based
  on  the  fair  value  of  the  collateral  when  the  creditor  determines  that
  foreclosure is probable.  SFAS No. 118 allows  creditors to use existing methods
  for recognizing interest income on impaired loans.
  
      The  Company has  identified  a loan as  impaired  when it is probable  that
  interest and principal will not be collected  according to the contractual terms
  of the loan agreement. The accrual of interest is discontinued in such loans and
  no income is recognized until all recorded amounts of interest and principal are
  recovered in full.
  
  
                                         6
  
  <PAGE>
  
      Loan impairment is measured by estimating the expected future cash flows and
  discounting  them at the  respective  effective  interest rate or by valuing the
  underlying collateral.  The recorded investment in these loans and the valuation
  for credit losses related to loan impairment are as follows:
  
                                                                 March 31,
                                                                    1995
  
           Principal amount of impaired loans                   $8,853,000
           Accrued interest                                            ---
           Deferred loan costs                                         ---
                                                                   -------
                                                                 8,853,000
           Less valuation allowance                              1,721,000
                                                                 ---------
                                                                $7,132,000
                                                                ==========
  
           On January 1, 1995 a valuation  for credit  losses  related to impaired
  loans was  established.  The activity in this  allowance for the quarter  ending
  March 31, 1995 is as follows:
  
           Valuation allowance at beginning of period           $1,913,000
           Provision for loan impairment                           125,000
           Direct charge-offs                                     (485,000)
           Recoveries                                              168,000
                                                                ----------
  
           Valuation allowance at end of period                 $1,721,000
                                                                ==========
  
  
           Total cash  collected on impaired  loans during the quarter ended March
  31, 1995 was $178,000,  of which $168,000 was credited to the principal  balance
  outstanding  on such  loans and  $10,000  was  recognized  as  interest  income.
  Interest  that would have been accrued on impaired  loans during the quarter was
  $196,000. Interest income recognized during the quarter was $10,000.
  
  
                                         7
  
  <PAGE>
  
  Item 2.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations
  
  
           The  following  discussion  and  analysis  is  intended  to  assist  in
  understanding  and evaluating  the major changes in the financial  condition and
  earnings  performance  of the  Company  with a primary  focus on an  analysis of
  operating results.
  
                                FINANCIAL CONDITION
  
           Total assets increased to $1.155 billion,  an increase of $18.3 million
  or 1.6% over the $1.137 billion at December 31, 1994. This increase is reflected
  primarily in the loan category,  the result of the  investment of deposits,  the
  Company's primary source of funds.
  
           Total cash and cash equivalents increased $1.5 million or 4.4% at March
  31, 1995 when compared to December 31, 1994.  This increase was primarily due to
  interest bearing deposits in banks.
  
           Loans  increased to $849.0  million at March 31, 1995.  The increase of
  $18.3  million or 2.2% compared to December 31, 1994 was primarily the result of
  the investment of deposits.  In addition,  loans originated for immediate resale
  during the first quarter amounted to $1.3 million.  The Company's credit quality
  is reflected by the annualized  ratio of net  charge-offs to average total loans
  of .23% for the first quarter and the level of non-accrual  loans to total loans
  of 1.04% at March 31, 1995.  The Company has no  significant  exposure to energy
  and  agricultural-related  loans.  Non-accrual  loans at December  31, 1994 were
  1.12% of total loans.
  
           Investments,  the  Company's  secondary use of funds,  remained  stable
  through March 31, 1995.
  
           As the primary source of funds, aggregate deposits of $905.0 million at
  March 31, 1995  increased  $40.3  million or 4.7% compared to December 31, 1994.
  There  was a shift in  deposit  mix  during  the first  three  months of 1995 as
  interest  bearing  deposits  increased  $45.3 million and  non-interest  bearing
  deposits  decreased $5.0 million.  Certificates of deposit in excess of $100,000
  increased $28.2 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 $159.0
  million at March 31, 1995 and $187.7  million at December 31, 1994. The decrease
  of $28.8  million  represents an decrease in  short-term  borrowings,  primarily
  securities sold under repurchase agreements and federal funds purchased.
  
  
                                         8
  
  <PAGE>
  
           Shareholders'  equity  increased $6.7 million or 7.9% at March 31, 1995
  to $91.6  million  compared to the $84.9  million at  December  31,  1994.  This
  increase  was due to the  retention  of  earnings  and the  change in  valuation
  adjustment  for  securities  available for sale.  Cash dividends paid during the
  first three  months of 1995  increased  $268,000  or 21.8%  compared to the cash
  dividends paid during the first three months of 1994.  Earnings  retained during
  the first three  months of 1995 were 61.8%  compared  to 67.7%  during the first
  three months of 1994.
  
  
                               RESULTS OF OPERATIONS
  
           Net income for the quarter ended March 31, 1995 was $3.9 million,  3.0%
  more than the $3.8 million  reported for the same period in 1994.  The Company's
  performance  has been and will continue to be in part influenced by the strength
  of the economy and conditions in the real estate market.
  
           Net interest income is the difference between interest income on assets
  and interest  expense on liabilities.  Net interest income increased $.3 million
  or 2.1% to $13.5 million  during the first quarter of 1995 from $13.2 million in
  the first  quarter  1994.  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, 1995 to January 31, 1995 was
  8.5%. On February 1, 1995, the prime rate changed to 9.0%.  The Company's  prime
  rate from  January 1 to March 23, 1994 was 6.0%.  On March 24,  1994,  the prime
  rate changed to 6.25%.  Interest  expense  during the first three months of 1995
  increased  $3.8 million or 62.4%  compared to the prior year three month period.
  In addition to the current  increasing 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 remained constant when compared to
  the first  quarter of 1994.  The  allowance  for loan losses of $19.6 million at
  March 31, 1995 and $19.3  million at December 31, 1994 as a percentage  of gross
  loans was 2.3% for both time periods.  Net  charge-offs of $483,000 and $717,000
  during the first three months of 1995 and 1994,  continues to be  comparable  to
  that of the
  
  
                                         9
  
  <PAGE>
  
  Company's peers, as reported in the Bank Holding Company Performance Report.
  
           "Total  other  income"  increased  $922,000  or 80.5%  during the first
  quarter of 1995 as the result of gains on the sale of  securities  and mortgages
  of $477,000,  other income of $352,000 and trust income of $99,000. "Total other
  expenses" increased $1,227,000 or 15.4% during the quarter ended March 31, 1995.
  Of this amount, salaries and benefits increased $728,000 or 17.1% over the first
  quarter of 1994. Other operating  expenses  increased  $307,000 and premises and
  equipment increased $192,000.
  
           Income before income taxes  decreased by $34,000 or .6% compared to the
  first quarter of 1994. Income taxes decreased $148,000, or 8.2%, for the quarter
  due to a higher level of tax advantaged assets than for the same period in 1994.
  
                      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 $8.2 million
  from year end 1994.  Long-term  borrowings  remained  constant through the first
  quarter of 1995.
  
       The goal of interest rate  sensitivity  management is to avoid  fluctuating
  net interest  margins,  and to enhance  consistent growth of net interest income
  through periods of changing  interest rates. Such sensitivity is measured as the
  difference  in the volume of assets and  liabilities  in the existing  portfolio
  that are subject to repricing in a future time period.
  
  
                                         10
  
  <PAGE>
  
  
  
           The following table shows  separately the interest rate  sensitivity of
  each category of  interest-earning  assets and  interest-bearing  liabilities at
  March 31, 1995:
  
                                                  Repricing Periods (1)
                                                        One Year
                                         Within         Through           Over
                                        One Year       Five Years      Five Years
                                                     (In Thousands)
  Assets
    Interest bearing deposits
      at banks                         $  1,584          $   --           $   --
    Investment securities                54,129         114,750           69,213
    Loans and leases                    346,203         337,608          165,143
    Other assets                          4,369              --           82,035
                                       --------        --------         --------
                                        406,285         452,358          316,391
                                       --------        --------         --------
  Liabilities and equity
    Non-interest bearing deps.          116,280              --               --
    Interest bearing deposits           290,983         224,552          273,138
    Borrowed funds                      117,305          14,089           12,500
    Other liabilities                        --              --           34,598
    Hedging instruments                 100,000         (70,000)         (30,000)
    Shareholders' equity                     --              --           91,589
                                       --------        --------         --------
                                        624,568         168,641          381,825
                                       --------        --------         --------
  
  Interest sensitivity gap             (218,283)        283,717          (65,434)
                                       --------        --------        ---------
  
  Cumulative interest rate
      sensitivity gap                 ($218,283)        $65,434           $   --
                                       ========        ========           ======
  
  (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  extent.  Third,  the  table
  represents a one-day position; variations
  
  
                                         11
  
  <PAGE>
  
  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 1995, with no clear indication of sustainable  rising or falling rates. Given
  this  assumption,  the  Company's  asset/liability  strategy for 1995 is to move
  toward a smaller negative gap (interest-bearing liabilities subject to repricing
  greater than rising 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,
                                                       1995         1994
  CAPITAL LEVELS
    Tier 1 leverage ratio                              7.41%        7.35%
    Tier 1 risk-based ratio                           11.09        10.85
    Total risk-based ratio                            12.36        12.11
  
  CAPITAL PERFORMANCE
    Return on average assets(annualized)               1.38         1.41
    Return on average equity(annualized)              18.20        17.30
    Earnings retained                                 61.76        63.50
    Internal capital growth(annualized)               31.66        11.32
  
           The Company's  capital  ratios above  compare  favorably to the minimum
  required amounts of Tier 1 and total capital to  "risk-weighted"  assets and the
  minimum Tier 1 leverage  ratio, as defined by banking  regulators.  At March 31,
  1995,  the Company was required to have minimum Tier 1 and total capital  ratios
  of 4.0% and 8.0%, respectively,  and a minimum Tier 1 leverage ratio of 3.0%. In
  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
  
  
                                         12
  
  <PAGE>
  
  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
  
           On March 1,  1995,  the  Company  opened its first  supermarket  branch
  banking facility.  The Company considers  supermarket branches to be a strategic
  delivery system for banks in the future and anticipates opening four more during
  the remainder of 1995.
  
           The Company  will  continue  its work on the  installation  of platform
  automation  during 1995.  Through  platform  automation,  the Company expects to
  increase efficiencies and re-focus its efforts to improve productivity, in order
  to  provide  faster and  improved  service  to our  customers,  at the same time
  reducing costs to contribute to improved profitability.  The platform automation
  project may lead to in excess of $1 million in capital expenditures in 1995.
  
  
                                         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.
  
           None
  
  
  Item 5.  Other Information.
  
           On March 1, 1995, the Registrant's  banking  subsidiary,  National Penn
  Bank,  opened  its first  full-service  supermarket  branch in  Muhlenberg  Weis
  Market,  Berks County,  Pennsylvania.  The Registrant  anticipates  that in 1995
  National  Penn  Bank  will  open four  more  supermarket  branches,  located  in
  Schnecksville (Lehigh County), Cedar Crest (Lehigh County),  Coopersburg (Lehigh
  County),  and Bethlehem  (Northampton  County).  The Registrant also anticipates
  that  National  Penn Bank will close its  Fairview  Village  branch  (Montgomery
  County) in June 1995.
  
           In February  1994,  the  Registrant's  Board of Directors  approved the
  repurchase  of up to  200,000  shares  of its  common  stock in open  market  or
  negotiated transactions.  At March 31, 1995, a total of 152,440 shares have been
  repurchased at an aggregate cost of $4,737,000.
  
  
  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 report on
  Form 8-K during the quarterly period ended March 31, 1995.
  
  
                                         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 5, 1995                         By /s/ Lawrence T. Jilk, Jr.
                                                 --------------------------
                                                 Lawrence T. Jilk, Jr., President
                                                 and Chief Executive Officer
  
  Dated:  May 5, 1995                         By /s/ Gary L. Rhoads
                                                 -------------------
                                                 Gary L. Rhoads, Principal
                                                 Financial Officer
  
  
                                         15
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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": "95536004"}, "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:      March 31, 1995
  
                                         OR
  
           [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                          SECURITIES EXCHANGE ACT OF 1934
  
  For the transition period from: __________________ to __________________ 
  
  Commission file number: 0-10957
  
                           NATIONAL PENN BANCSHARES, INC.
               (Exact name of registrant as specified in its charter)
  
              Pennsylvania                                   23-2215075
    (State or other jurisdiction of                       (I.R.S. Employer
     incorporation or organization)                      Identification No.)
  
               Philadelphia and Reading Avenues, Boyertown, PA 19512
                (Address of principal executive offices) (Zip Code)
  
                                   (610) 367-6001
                (Registrant's telephone number, including area code)
  
                                        N/A
                (Former name, former address and former fiscal year,
                           if changed since last report)
  
          Indicate by check mark whether the Registrant (1) has filed all reports
  required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
  1934 during the preceding 12 months (or for such shorter period that the
  Registrant was required to file such reports), and (2) has been subject to such
  filing requirements for the past 90 days.              Yes X     No 
  
          Indicate the number of shares outstanding of each of the issuer's
  classes of common stock, as of the latest practicable date.
  
                Class                            Outstanding at May 5, 1995
  
   Common Stock ($2.50 par value)                  (No.) 7,136,930 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 .....      8
  
  Part II - Other Information.
  
           Item 1. Legal Proceedings .................................     14
  
           Item 2. Changes in Securities .............................     14
  
           Item 3. Defaults Upon Senior Securities ...................     14
  
           Item 4. Submission of Matters to a Vote of
                   Security Holders ..................................     14
  
           Item 5. Other Information .................................     14
  
           Item 6. Exhibits and Reports on Form 8-K ..................     14
  
  Signatures .........................................................     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)                1995                 1994
                                                           (Unaudited)             (Note)
  ASSETS
  Cash and due from banks                                   $34,084               $33,195
  Interest bearing deposits in banks                          1,584                   964
  Federal funds sold                                            ---                   ---
                                                            -------               -------
      Total cash and cash equivalents                        35,668                34,159
  Securities held to maturity
    (approximate market of $92,933 and
    $97,459 at 1995 and 1994, respectively)                  92,704                99,229
  Securities available for sale at market value             145,388               138,873
                                                            -------               -------
      Total Investment Securities                           238,092               238,102
  Loans, net of unearned discount                           848,954               830,612
    Less allowance for possible loan losses                 (19,577)              (19,310)
                                                            -------               -------
      Net loans                                             829,377               811,302
  Other assets                                               52,320                53,611
                                                            -------               -------
      Total Assets                                       $1,155,457            $1,137,174
                                                         ==========            ==========
  
  LIABILITIES AND SHAREHOLDERS' EQUITY
  Non-interest bearing deposits                            $116,280              $121,273
  Interest bearing deposits
    (Includes certificates of deposit in 
     excess of $100: 1995 - $93,828; 
     1994- $65,630)                                         788,673               743,367
                                                            -------               -------
      Total deposits                                        904,953               864,640
  Securities sold under repurchase agreements
    and federal funds purchased                              63,961                50,274
  Short-term borrowings                                       2,156                47,967
  Long-term obligations                                      77,777                77,777
  Accrued interest and other liabilities                     15,021                11,645
                                                            -------               -------
      Total Liabilities                                   1,063,868             1,052,303
  Commitments and contingent liabilities                        ---                   ---
  Shareholders' equity
    Preferred stock, no stated par value;
      authorized 1,000,000 shares, none issued                  ---                   ---
    Common stock, par value $2.50 per share;
      20,000,000 shares authorized; 7,234,507 shares
      issued and 7,136,930 outstanding at March 31,
      1995; 7,234,126 shares issued and 7,135,347
      shares outstanding at December 31, 1994                18,084                18,083
    Additional paid-in-capital                               57,136                57,263
    Retained earnings                                        19,016                16,598
    Valuation adjustment for securities 
      available for sale, net of tax                            229                (4,011)
    Treasury stock (97,577 shares at cost at 
      March 31, 1995 and 98,779 shares  at cost 
      at December 31, 1994)                                  (2,876)               (3,062)
                                                            -------               -------
      Total Shareholders' Equity                             91,589                84,871
                                                            -------               -------
      Total Liabilities and Shareholders' Equity         $1,155,457            $1,137,174
                                                         ==========            ==========
  The accompanying notes are an integral part of these condensed financial
  statements.
  
  Note: The Balance Sheet at Dec. 31, 1994 has been derived from the 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
  
                                                                1995                1994
  INTEREST INCOME
  Loans, including fees                                       $19,258             $16,375
  Deposits in banks                                                15                  32
  Federal funds sold                                                2                   5
  Investment securities                                         3,975               2,805
                                                               ------              ------
      Total interest income                                    23,250              19,217
                                                               ------              ------
  INTEREST EXPENSE
  Deposits                                                      7,403               4,795
  Federal funds purchased, borrowed funds and
    securities sold under repurchase agreements                 2,387               1,233
                                                               ------              ------
      Total interest expense                                    9,790               6,028
                                                               ------              ------
      Net interest income                                      13,460              13,189
  Provision for loan losses                                       750                 750
                                                               ------              ------
      Net interest income after provision
        for loan losses                                        12,710              12,439
                                                               ------              ------
  OTHER INCOME
  Trust Services                                                  424                 325
  Service charges on deposit accounts                             640                 646
  Net gains (losses) on sale of securities 
    and mortgages                                                 256                (221)
  Other                                                           748                 396
                                                               ------              ------
      Total other income                                        2,068               1,146
                                                               ------              ------
  OTHER EXPENSES
  Salaries, wages and employee benefits                         4,981               4,253
  Net premises and equipment                                    1,389               1,197
  Other operating                                               2,837               2,530
                                                               ------              ------
      Total other expenses                                      9,207               7,980
                                                               ------              ------
      Income before income taxes                                5,571               5,605
  Applicable income tax expense                                 1,654               1,802
                                                               ------              ------
      Net income                                               $3,917              $3,803
                                                               ======              ======
  
  PER SHARE OF COMMON STOCK
  Net income                                                     0.55                0.53
  Dividends paid in cash                                         0.21                0.17
  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)
                                                                1995              1994
  CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                                 $3,917             $3,803
    Adjustments to reconcile net income to net
        cash provided by (used in) operating activities
      Provision for loan losses                                   750                750
      Depreciation and amortization                               628                437
      Net gains (losses) on sale of securities 
        and mortgages                                             256               (221)
      Mortgage loans originated for resale                     (1,279)            (7,913)
      Sale of mortgage loans originated for resale              1,279              7,913
      Other                                                     2,029               (823)
                                                               ------             ------
        Net cash provided by (used in) operating 
          activities                                            7,580              3,946
  
  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              8,284
    Proceeds from maturities of investment 
       securities - available for sale                             11                ---
    Purchase of investment securities - available 
       for sale                                                (2,527)           (31,013)
    Proceeds from sales of loans                                  ---                ---
    Net increase in loans                                     (18,825)           (13,662)
    Purchases of premises & equipment                            (657)            (1,151)
                                                               ------             ------
        Net cash provided by (used in) investing 
            activities                                        (12,948)           (37,542)
  
  CASH FLOWS FROM FINANCING ACTIVITIES
    Increase (decrease) in:
      Deposits                                                 40,313              2,319
      Repurchase agreements, fed funds & 
       short-term borrowings                                  (32,124)            34,080
      Long-term borrowings                                        ---                ---
      (Increase) decrease in treasury stock                       186               (250)
      Issuance of common stock under dividend 
       reinvestment plan                                          ---                  9
      Cash dividends                                           (1,498)            (1,301)
                                                               ------             ------
        Net cash provided by (used in) financing
            activities                                          6,877             34,857
  Net increase (decrease) in cash and cash 
       equivalents                                              1,509              1,261
  Cash and cash equivalents at January 1                       34,159             29,767
                                                               ------             ------
  Cash and cash equivalents at March 31                       $35,668            $31,028
                                                              =======            =======
  The  accompanying  notes  are an  integral  part of  these  condensed  financial
  statements.
  
                                         5
  NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
  
  1. The accompanying  unaudited condensed financial statements have been prepared
  in  accordance  with  generally  accepted  accounting   principles  for  interim
  financial  information.  The financial information included herein is unaudited;
  however, such information reflects all adjustments  (consisting solely of normal
  recurring  adjustments) which are, in the opinion of management,  necessary to a
  fair statement of the results for the interim periods.  For further information,
  refer to the consolidated financial statements and footnotes thereto included in
  the Company's Annual Report on Form 10-K for the year ended December 31, 1994.
  
  2. The results of operations for the three month period ended March 31, 1995 are
  not necessarily indicative of the results to be expected for the full year.
  
  3. Per share data are based on the weighted average number of shares outstanding
  of 7,139,680  and 7,165,367  for 1995 and 1994,  respectively,  and are computed
  after giving retroactive effect to a 5% stock dividend paid October 31, 1994.
  
  4. On January 1, 1995 the Company  adopted  Statement  of  Financial  Accounting
  Standards  (SFAS) No. 114,  "Accounting for Creditors for Impairment of a Loan,"
  as amended by SFAS No. 118, "Accounting for Creditors for Impairment of a Loan -
  Income  Recognition  and  Disclosures."  SFAS No. 114  requires  that a creditor
  measure  impairment  based on the present  value of  expected  future cash flows
  discounted at the loan's  effective  interest  rate,  except that as a practical
  expedient, a creditor may measure impairment based on a loan's observable market
  price,  or the fair value of  collateral  if the loan is  collateral  dependent.
  Regardless of the measurement  method, a creditor must measure  impairment based
  on  the  fair  value  of  the  collateral  when  the  creditor  determines  that
  foreclosure is probable.  SFAS No. 118 allows  creditors to use existing methods
  for recognizing interest income on impaired loans.
  
      The  Company has  identified  a loan as  impaired  when it is probable  that
  interest and principal will not be collected  according to the contractual terms
  of the loan agreement. The accrual of interest is discontinued in such loans and
  no income is recognized until all recorded amounts of interest and principal are
  recovered in full.
  
                                         6
  Loan impairment is measured by estimating the expected future cash flows and
  discounting  them at the  respective  effective  interest rate or by valuing the
  underlying collateral.  The recorded investment in these loans and the valuation
  for credit losses related to loan impairment are as follows:
  
                                                                 March 31,
                                                                    1995
  
           Principal amount of impaired loans                   $8,853,000
           Accrued interest                                            ---
           Deferred loan costs                                         ---
                                                                   -------
                                                                 8,853,000
           Less valuation allowance                              1,721,000
                                                                 ---------
                                                                $7,132,000
                                                                ==========
  
           On January 1, 1995 a valuation  for credit  losses  related to impaired
  loans was  established.  The activity in this  allowance for the quarter  ending
  March 31, 1995 is as follows:
  
           Valuation allowance at beginning of period           $1,913,000
           Provision for loan impairment                           125,000
           Direct charge-offs                                     (485,000)
           Recoveries                                              168,000
                                                                ----------
  
           Valuation allowance at end of period                 $1,721,000
                                                                ==========
  
           Total cash  collected on impaired  loans during the quarter ended March
  31, 1995 was $178,000,  of which $168,000 was credited to the principal  balance
  outstanding  on such  loans and  $10,000  was  recognized  as  interest  income.
  Interest  that would have been accrued on impaired  loans during the quarter was
  $196,000. Interest income recognized during the quarter was $10,000.
  
                                         7
  Item 2.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations
  
           The  following  discussion  and  analysis  is  intended  to  assist  in
  understanding  and evaluating  the major changes in the financial  condition and
  earnings  performance  of the  Company  with a primary  focus on an  analysis of
  operating results.
  
                                FINANCIAL CONDITION
  
           Total assets increased to $1.155 billion,  an increase of $18.3 million
  or 1.6% over the $1.137 billion at December 31, 1994. This increase is reflected
  primarily in the loan category,  the result of the  investment of deposits,  the
  Company's primary source of funds.
  
           Total cash and cash equivalents increased $1.5 million or 4.4% at March
  31, 1995 when compared to December 31, 1994.  This increase was primarily due to
  interest bearing deposits in banks.
  
           Loans  increased to $849.0  million at March 31, 1995.  The increase of
  $18.3  million or 2.2% compared to December 31, 1994 was primarily the result of
  the investment of deposits.  In addition,  loans originated for immediate resale
  during the first quarter amounted to $1.3 million.  The Company's credit quality
  is reflected by the annualized  ratio of net  charge-offs to average total loans
  of .23% for the first quarter and the level of non-accrual  loans to total loans
  of 1.04% at March 31, 1995.  The Company has no  significant  exposure to energy
  and  agricultural-related  loans.  Non-accrual  loans at December  31, 1994 were
  1.12% of total loans.
  
           Investments,  the  Company's  secondary use of funds,  remained  stable
  through March 31, 1995.
  
           As the primary source of funds, aggregate deposits of $905.0 million at
  March 31, 1995  increased  $40.3  million or 4.7% compared to December 31, 1994.
  There  was a shift in  deposit  mix  during  the first  three  months of 1995 as
  interest  bearing  deposits  increased  $45.3 million and  non-interest  bearing
  deposits  decreased $5.0 million.  Certificates of deposit in excess of $100,000
  increased $28.2 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 $159.0
  million at March 31, 1995 and $187.7  million at December 31, 1994. The decrease
  of $28.8  million  represents an decrease in  short-term  borrowings,  primarily
  securities sold under repurchase agreements and federal funds purchased.
  
                                         8
  Shareholders'  equity  increased $6.7 million or 7.9% at March 31, 1995
  to $91.6  million  compared to the $84.9  million at  December  31,  1994.  This
  increase  was due to the  retention  of  earnings  and the  change in  valuation
  adjustment  for  securities  available for sale.  Cash dividends paid during the
  first three  months of 1995  increased  $268,000  or 21.8%  compared to the cash
  dividends paid during the first three months of 1994.  Earnings  retained during
  the first three  months of 1995 were 61.8%  compared  to 67.7%  during the first
  three months of 1994.
  
                               RESULTS OF OPERATIONS
  
           Net income for the quarter ended March 31, 1995 was $3.9 million,  3.0%
  more than the $3.8 million  reported for the same period in 1994.  The Company's
  performance  has been and will continue to be in part influenced by the strength
  of the economy and conditions in the real estate market.
  
           Net interest income is the difference between interest income on assets
  and interest  expense on liabilities.  Net interest income increased $.3 million
  or 2.1% to $13.5 million  during the first quarter of 1995 from $13.2 million in
  the first  quarter  1994.  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, 1995 to January 31, 1995 was
  8.5%. On February 1, 1995, the prime rate changed to 9.0%.  The Company's  prime
  rate from  January 1 to March 23, 1994 was 6.0%.  On March 24,  1994,  the prime
  rate changed to 6.25%.  Interest  expense  during the first three months of 1995
  increased  $3.8 million or 62.4%  compared to the prior year three month period.
  In addition to the current  increasing 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 remained constant when compared to
  the first  quarter of 1994.  The  allowance  for loan losses of $19.6 million at
  March 31, 1995 and $19.3  million at December 31, 1994 as a percentage  of gross
  loans was 2.3% for both time periods.  Net  charge-offs of $483,000 and $717,000
  during the first three months of 1995 and 1994,  continues to be  comparable  to
  that of the
  
                                         9
  Company's peers, as reported in the Bank Holding Company Performance Report.
  
           "Total  other  income"  increased  $922,000  or 80.5%  during the first
  quarter of 1995 as the result of gains on the sale of  securities  and mortgages
  of $477,000,  other income of $352,000 and trust income of $99,000. "Total other
  expenses" increased $1,227,000 or 15.4% during the quarter ended March 31, 1995.
  Of this amount, salaries and benefits increased $728,000 or 17.1% over the first
  quarter of 1994. Other operating  expenses  increased  $307,000 and premises and
  equipment increased $192,000.
  
           Income before income taxes  decreased by $34,000 or .6% compared to the
  first quarter of 1994. Income taxes decreased $148,000, or 8.2%, for the quarter
  due to a higher level of tax advantaged assets than for the same period in 1994.
  
                      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 $8.2 million
  from year end 1994.  Long-term  borrowings  remained  constant through the first
  quarter of 1995.
  
       The goal of interest rate  sensitivity  management is to avoid  fluctuating
  net interest  margins,  and to enhance  consistent growth of net interest income
  through periods of changing  interest rates. Such sensitivity is measured as the
  difference  in the volume of assets and  liabilities  in the existing  portfolio
  that are subject to repricing in a future time period.
  
                                         10
  The following table shows  separately the interest rate  sensitivity of
  each category of  interest-earning  assets and  interest-bearing  liabilities at
  March 31, 1995:
  
                                                  Repricing Periods (1)
                                                        One Year
                                         Within         Through           Over
                                        One Year       Five Years      Five Years
                                                     (In Thousands)
  Assets
    Interest bearing deposits
      at banks                         $  1,584          $   --           $   --
    Investment securities                54,129         114,750           69,213
    Loans and leases                    346,203         337,608          165,143
    Other assets                          4,369              --           82,035
                                       --------        --------         --------
                                        406,285         452,358          316,391
                                       --------        --------         --------
  Liabilities and equity
    Non-interest bearing deps.          116,280              --               --
    Interest bearing deposits           290,983         224,552          273,138
    Borrowed funds                      117,305          14,089           12,500
    Other liabilities                        --              --           34,598
    Hedging instruments                 100,000         (70,000)         (30,000)
    Shareholders' equity                     --              --           91,589
                                       --------        --------         --------
                                        624,568         168,641          381,825
                                       --------        --------         --------
  
  Interest sensitivity gap             (218,283)        283,717          (65,434)
                                       --------        --------        ---------
  
  Cumulative interest rate
      sensitivity gap                 ($218,283)        $65,434           $   --
                                       ========        ========           ======
  
  (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  extent.  Third,  the  table
  represents a one-day position; variations
  
                                         11
  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 1995, with no clear indication of sustainable  rising or falling rates. Given
  this  assumption,  the  Company's  asset/liability  strategy for 1995 is to move
  toward a smaller negative gap (interest-bearing liabilities subject to repricing
  greater than rising 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,
                                                       1995         1994
  CAPITAL LEVELS
    Tier 1 leverage ratio                              7.41%        7.35%
    Tier 1 risk-based ratio                           11.09        10.85
    Total risk-based ratio                            12.36        12.11
  
  CAPITAL PERFORMANCE
    Return on average assets(annualized)               1.38         1.41
    Return on average equity(annualized)              18.20        17.30
    Earnings retained                                 61.76        63.50
    Internal capital growth(annualized)               31.66        11.32
  
           The Company's  capital  ratios above  compare  favorably to the minimum
  required amounts of Tier 1 and total capital to  "risk-weighted"  assets and the
  minimum Tier 1 leverage  ratio, as defined by banking  regulators.  At March 31,
  1995,  the Company was required to have minimum Tier 1 and total capital  ratios
  of 4.0% and 8.0%, respectively,  and a minimum Tier 1 leverage ratio of 3.0%. In
  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
  
                                         12
  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
  
           On March 1,  1995,  the  Company  opened its first  supermarket  branch
  banking facility.  The Company considers  supermarket branches to be a strategic
  delivery system for banks in the future and anticipates opening four more during
  the remainder of 1995.
  
           The Company  will  continue  its work on the  installation  of platform
  automation  during 1995.  Through  platform  automation,  the Company expects to
  increase efficiencies and re-focus its efforts to improve productivity, in order
  to  provide  faster and  improved  service  to our  customers,  at the same time
  reducing costs to contribute to improved profitability.  The platform automation
  project may lead to in excess of $1 million in capital expenditures in 1995.
  
                                         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.
  
           None
  
  Item 5.  Other Information.
  
           On March 1, 1995, the Registrant's  banking  subsidiary,  National Penn
  Bank,  opened  its first  full-service  supermarket  branch in  Muhlenberg  Weis
  Market,  Berks County,  Pennsylvania.  The Registrant  anticipates  that in 1995
  National  Penn  Bank  will  open four  more  supermarket  branches,  located  in
  Schnecksville (Lehigh County), Cedar Crest (Lehigh County),  Coopersburg (Lehigh
  County),  and Bethlehem  (Northampton  County).  The Registrant also anticipates
  that  National  Penn Bank will close its  Fairview  Village  branch  (Montgomery
  County) in June 1995.
  
           In February  1994,  the  Registrant's  Board of Directors  approved the
  repurchase  of up to  200,000  shares  of its  common  stock in open  market  or
  negotiated transactions.  At March 31, 1995, a total of 152,440 shares have been
  repurchased at an aggregate cost of $4,737,000.
  
  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 report on
  Form 8-K during the quarterly period ended March 31, 1995.
  
                                         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 5, 1995                         By /s/ Lawrence T. Jilk, Jr.
                                                 --------------------------
                                                 Lawrence T. Jilk, Jr., President
                                                 and Chief Executive Officer
  
  Dated:  May 5, 1995                         By /s/ Gary L. Rhoads
                                                 -------------------
                                                 Gary L. Rhoads, Principal
                                                 Financial Officer
  
                                         15