National Penn Bancshares DEF 14A Definitive proxy

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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NOTICE OF ANNUAL SHAREHOLDERS' MEETING

Dear National Penn Shareholder:

On Tuesday, April 24, 2007, National Penn Bancshares, Inc. will hold its Annual Meeting of Shareholders at the Sheraton Reading Hotel, Route 422 West and Paper Mill Road, Wyomissing, Pennsylvania. The meeting will begin at 4:00 p.m.

Only shareholders who owned stock at the close of business on March 2, 2007 can attend and vote at the meeting or any postponement or adjournment. At the meeting, we will:

1.	Elect four directors;

2.	Consider and act upon a proposal to amend National Penn’s articles of incorporation to increase the number of authorized common shares to 100 million;

3.	Consider and act upon a proposal to approve an amended and restated Employee Stock Purchase Plan;

4.	Consider and act upon a proposal to ratify the Audit Committee’s selection of National Penn’s independent auditors for 2007; and

5.	Attend to other business, if any, properly presented at the meeting.

Your Board of Directors recommends that you vote in favor of the election of directors, in favor of the amendment to National Penn’s articles of incorporation, in favor of approval of the amended and restated Employee Stock Purchase Plan, and in favor of ratification of the independent auditors selected for 2007, as described in this proxy statement.

At the meeting, we will also report on our 2006 business results and other matters of interest to shareholders.

We are enclosing with this proxy statement a copy of our 2006 Annual Report on Form 10-K. The approximate date this proxy statement and card(s) are being mailed is March 27, 2007.

IMPORTANT: This mailing contains an Admission Ticket. FOR SECURITY PURPOSES, YOU WILL NEED THIS ADMISSION TICKET TO ATTEND THE MEETING.

	By Order of the Board of Directors


March 27, 2007	Sandra L. Spayd
	Secretary

TABLE OF CONTENTS

Notice of Annual Shareholders’ Meeting
Proxy Statement	1
Proposal 1 - Election of Directors	1
Director Information	2
Corporate Governance	3
Board Committees, Meetings and Attendance	9
Director Compensation	10
Compensation Committee Report	12
Compensation Discussion and Analysis	12
Executive Compensation
Summary Compensation Table	23
Grants of Plan-Based Awards Table	25
Outstanding Equity Awards at Year-End Table	26
Options Exercised and Stock Vested Table	28
Pension Benefits Table	29
Non-Qualified Deferred Compensation Table	30
Employment, Change-in-Control and Consulting Agreements	31
Potential Payments Upon Termination of Employment or a
Change-in-Control	35
Stock Ownership	59
Guidelines	59
Directors and Executive Officers	61
Five Percent Shareholders	63
Other Director and Executive Officer Information	63
Related Party Transactions and Policies	63
Section 16(a) Beneficial Ownership Reporting Compliance	64
Proposal 2 - Amendment of Articles of Incorporation to Increase
Authorized Common Stock	64
Proposal 3 - Employee Stock Purchase Plan	65
Equity Compensation Plan Table	69
Proposal 4 - Ratification of Auditors	70
Audit Committee Report	70
Additional Information	72
“Householding” of Proxy Materials and Annual Reports	72
Record Date; Shares Outstanding	73
Quorum	73
Proxies; Right to Revoke	73
Default Voting	73
Voting by Street Name Holders	73
Tabulation of Votes	74
Proxy Solicitation	74
Shareholder Proposals and Nominations	74
Shareholder List	76
Annual Report for 2006	76
Exhibit A - Employee Stock Purchase Plan	A-1

NATIONAL PENN BANCSHARES, INC.

PROXY STATEMENT

This Proxy Statement is furnished in connection with the solicitation of proxies by National Penn Bancshares, Inc. ("National Penn"), on behalf of the Board of Directors, for the 2007 Annual Meeting of Shareholders. This Proxy Statement and the related proxy form are being distributed on or about March 27, 2007.

You can vote your shares by completing and returning the enclosed written proxy card. You can also vote by telephone, toll-free, or online if you have Internet access. Registered shareholders with addresses outside the United States may not be able to vote by telephone. The Internet and telephone voting facilities for shareholders of record are available 24 hours a day until they close at 4:00 p.m. on April 24, 2007. The Internet and telephone voting procedures are described on the enclosed proxy form and are designed to authenticate shareholders by use of a control number and to allow you to confirm that your instructions have been properly recorded. If you vote by telephone or through the Internet, you need not return a proxy card. Whether you vote by proxy card, by telephone or through the Internet, your shares will be voted as you direct.

You can also vote in person at the meeting. Submitting your voting instructions by returning a proxy card or by voting over the telephone or the Internet will not affect your right to attend the meeting and vote.

National Penn declared a 3% stock dividend of its common shares on September 30, 2006. All share and per share information preceding the date of the stock dividend has been proportionately adjusted in this proxy statement.

PROPOSAL 1 - ELECTION OF DIRECTORS

The first proposal scheduled to be voted on at the meeting is the election of four directors. These directors will serve a three-year term as Class II directors. The Board of Directors has nominated

Albert H. Kramer, Kenneth A. Longacre, C. Robert Roth, and Wayne R. Weidner for election as Class II directors. Each of these individuals is currently serving as a National Penn director except Mr. Kramer who is currently serving as a National Penn Bank director.

The Board of Directors recommends a vote FOR all its nominees.

The Board has no reason to believe that any nominee will be unable or unwilling to serve if elected. If a nominee becomes unable or unwilling to accept nomination or election, the Board will either select a substitute nominee or will reduce the size of the Board. If you have submitted a proxy and a substitute nominee is selected, your shares will be voted for the election of the substitute nominee.

National Penn's articles of incorporation provide that the Board shall consist of between eight and twenty directors, the exact number of which shall be set by resolution of the Board, and shall be divided into three classes equal or nearly equal in size as is possible. In accordance with these provisions, the Board has set the size of the Board at 13 directors and the size of Class I and II at four directors and the size of Class III at five directors, effective as of the 2007 annual meeting of shareholders.

Fred D. Hafer and Donald P. Worthington, who are currently serving Class II terms ending in 2007, are not standing for re-election and will no longer serve on the Board effective with the 2007 annual meeting of shareholders. George C. Mason, who is currently serving in Class I with a term ending in 2009, will retire from the Board at the same time, in accordance with National Penn’s bylaws providing for mandatory retirement of directors. The bylaws permit the Board to fill the vacancy to be created in Class I by Mr. Mason’s retirement.

The bylaws permit shareholders to nominate candidates for election as directors. A nomination must be made in compliance with the advance notice and information requirements of the bylaws. National Penn has not received any such notice of a nomination.

In accordance with the bylaws, directors are elected by a plurality of the votes of shares present and entitled to be voted at the meeting. That means the four nominees of the Board will be elected if they receive more affirmative votes than any other nominees. National Penn’s Corporate Governance Guidelines provide that in an uncontested election of directors (where the only nominee are those recommended by the Board), any nominee who receives a greater number of votes “withheld” than votes “for” his or her election is expected to offer his or her resignation. In any such event, the Nominating/Corporate Governance Committee will promptly consider the matter and make a recommendation to the Board, and the Board will decide whether to accept the resignation.

Director Information

The Board is separated into three classes, each with a three-year term. The terms of the persons nominated as Class II directors will expire in 2010. The terms of the continuing Class I directors expire in 2009, and the terms of the continuing Class III directors expire in 2008.

Below is biographical and other information about the nominees for election as Class II directors, and the continuing Class I and Class III directors, as of March 2, 2007.

Nominees as Class II Directors to serve until 2010:

Albert H. Kramer, age 52, has been a director of National Penn Bank since May 2000. Mr. Kramer is Senior Vice President, Operations, of D&E Communications, Inc., a telecommunications firm.

Kenneth A. Longacre, age 73, has been a director since October 2001, and was a director from 1990 through 2000. Mr. Longacre is Chairman of Farm & Home Oil Company.

C. Robert Roth, age 59, has been a director since 1990. Mr. Roth is a Bucks County Magisterial District Judge.

Wayne R. Weidner, age 64, has been a director since 1985. Mr. Weidner is Chairman of National Penn, and was Chief Executive Officer of National Penn prior to 2007. He was Chairman, President and Chief Executive Officer of National Penn from January 2002 until December 2003. He was named President and Chief Executive Officer of National Penn in 2001.

Continuing as Class I Directors to serve until 2009:

J. Ralph Borneman, Jr., age 68, has been a director since 1988. Mr. Borneman is President and CEO of Body-Borneman Insurance & Financial Services, LLC, an insurance agency. Mr. Borneman is also a member of the boards of directors of Erie Indemnity Co. and Erie Family Life Insurance Co.

Glenn E. Moyer, age 55, has been a director since 2002. Mr. Moyer is President and Chief Executive Officer of National Penn and Chairman, President and Chief Executive Officer of National Penn Bank.

Mr. Moyer was President of National Penn and Chief Executive Officer of National Penn Bank from December 2003 through 2006, and had been Executive Vice President of National Penn since April 2001 and President and Chief Operating Officer of National Penn Bank since January 2001.

Robert E. Rigg, age 54, has been a director since 1999. Mr. Rigg is the President of Rigg Darlington Group Inc., an insurance agency. Mr. Rigg was first elected a director when National Penn acquired Elverson National Bank, as provided in the acquisition agreement.

Continuing Class III Directors to serve until 2008:

Thomas A. Beaver, age 54, has been a director since 2005. Mr. Beaver is a senior partner in the business consulting group of Reinsel Kuntz Lesher LLP, a regional accounting, tax and consulting firm.

Robert L. Byers, age 68, has been a director since 2005. Mr. Byers is the founder and Chairman of Byers’ Choice, Ltd., a firm specializing in the handcrafting and retailing of Caroler® figurines (seasonal collectibles). Mr. Byers was a director of FirstService Bank, which was acquired by National Penn in 2003. He was initially elected a director in accordance with the provisions of the FirstService Bank acquisition agreement.

Frederick P. Krott, age 60, has been a director since 2001. Mr. Krott is President of Lamm & Witman Funeral Home, Inc. Mr. Krott was first elected a director when National Penn acquired Community Independent Bank, Inc., as provided in the acquisition agreement.

Patricia L. Langiotti, age 60, has been a director since 1986. Ms. Langiotti is President of Creative Management Concepts, a management consulting firm.

Natalye Paquin, age 46, has been a director since October 2006. Ms. Paquin is Interim President and Chief Operating Officer of The Kimmel Center, which serves as home to performing arts organizations, including The Philadelphia Orchestra.

Corporate Governance

National Penn's governing body is its Board of Directors. The Board is elected by the shareholders to direct and oversee National Penn's management in the long-term interests of shareholders.

Corporate Governance Guidelines

The Board has adopted a set of Corporate Governance Guidelines that, together with National Penn's articles of incorporation, bylaws, and the charters of Board committees, provide a framework for the governance of National Penn. The Guidelines are intended to assist the Board in the exercise of its responsibilities. As the operation of the Board is a dynamic process, these Guidelines are reviewed periodically and are changed by the Board from time to time as deemed appropriate. National Penn's Corporate Guidelines are available on National Penn's website, www.nationalpennbancshares.com. To access the guidelines, select "Governance Documents."

Director Independence

Under the Nasdaq Stock Market’s Marketplace Rules, a Nasdaq-listed company's board of directors must be comprised of a majority of independent directors. The Board has determined, after an initial review and determination by the Nominating/Corporate Governance Committee, that each of Messrs. Beaver, Borneman, Byers, Hafer, Kramer, Krott, Longacre, Rigg, and Roth, Ms. Paquin and

Ms. Langiotti is an independent director, as provided in the Nasdaq Stock Market Marketplace Rules. Specifically, the Board determined that none of these persons has any relationship which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a National Penn director. In making this determination as to Messrs. Kramer and Longacre, the Board considered that in the ordinary course of business transactions occur between National Penn and companies where Messrs. Kramer and Longacre are executive officers. In each case, the amount of the transaction is well below the thresholds set forth in the following Nasdaq Stock Market Marketplace Rules. These rules preclude a determination of independence for any person who:

Is, or during the past three years was, employed by National Penn or by any subsidiary of National Penn;

Accepted, or who has a relative by blood, marriage or adoption or who has the same residence as such director (a "Family Member") who accepted, any payments from National Penn or any subsidiary of National Penn in excess of $60,000 during any period of twelve consecutive months within the past three years, other than:

Compensation for board or committee service as a director of National Penn or a National Penn subsidiary;

·	Compensation paid to a Family Member who is a non-executive employee of National Penn or a National Penn subsidiary; or

·	Benefits under a tax-qualified retirement plan or non-discretionary compensation.

Has a Family Member who is, or during the past three years was, employed by National Penn or by any subsidiary of National Penn as an executive officer;

Is, or has a Family Member who is, a partner in, or a controlling shareholder or an executive officer of, any organization to which National Penn made, or from which National Penn received, payments that exceed 5% of the recipient's consolidated gross revenues for that year, or $200,000, whichever is more, in fiscal year 2006 or any of the past three fiscal years, other than:

·	Payment arising solely from investments in National Penn’s securities; or

·	Payments under non-discretionary charitable contribution matching programs.

Is, or has a Family Member who is, employed as an executive officer of another entity where at any time during the past three years any of the executive officers of National Penn serve on the compensation committee of such other entity;

Is, or has a Family Member who is, a partner in National Penn's independent auditors; or

Was, or has a Family Member who was, a partner or employee of National Penn’s independent registered public accounting firm who worked on National Penn’s audit during any of the past three years.

A majority of Board members are independent directors as defined above, and as defined by the Securities and Exchange Commission and other regulatory authorities. The independent directors periodically meet in executive session without management present.

Lead Independent Director

The Board of Directors annually designates one of the non-employee directors as Lead Independent Director. In February 2007, the Board re-designated Kenneth A. Longacre as Lead Independent Director. Mr. Longacre has served as such since July 2005. As Lead Independent Director, Mr. Longacre coordinates the activities of the other non-employee independent directors, chairs the meetings of the non-employee independent directors in executive session, and coordinates Board meetings, agendas and related matters with Chairman Wayne R. Weidner and President and Chief Executive Officer Glenn E. Moyer.

In February 2007, the Board of Directors, after consideration of the recommendation of the Nominating/Corporate Governance Committee, exempted Mr. Longacre, as Lead Independent Director, from the mandatory retirement provisions of National Penn’s bylaws for a one-year period beginning

April 24, 2007, the meeting date for the 2007 annual meeting of shareholders.

Board Membership Criteria

Each member of the Board must possess the individual qualities of competence, collegiality, integrity, accountability, and high performance standards. Candidates for membership on the Board are selected for their character, judgment, business experience and acumen. Board members are expected to devote the time and effort necessary to be productive members of the Board, including learning the business of National Penn, and doing all that is necessary to attend and actively participate in meetings of the Board and its committees.

Each non-employee director is also expected to, and currently does, meet National Penn's stock ownership guidelines, which require an equity investment in National Penn stock of at least $100,000, except Ms. Paquin who was appointed to the Board in October 2006 and is in the five-year phase-in period provided in the guidelines. See “Stock Ownership - Guidelines” herein.

Board Committees

The Board maintains five standing committees: Executive, Audit, Compensation, Enterprise Risk Management and Nominating/Corporate Governance. Each committee operates under its own separate charter which is approved by the Board. These charters are available on National Penn's website. To access these items, log on to National Penn's website, www.nationalpennbancshares.com, and select "Governance Documents."

A special Board committee, the Internal Audit Director Search Committee, was formed in August 2006 to conduct a search for, and to recommend a candidate for hiring as Internal Audit Director.

Executive Committee. The Executive Committee is authorized to act on behalf of the Board during intervals between meetings of the Board. The Executive Committee can respond quickly to time-sensitive business and legal matters when they arise. The Executive Committee is currently comprised of seven directors.

Audit Committee. National Penn's Audit Committee is currently comprised of five directors, all of whom are independent as described under “Director Independence.” In addition to the above Nasdaq independence requirements, the SEC has issued heightened independence standards pursuant to the Sarbanes-Oxley Act of 2002 that apply to audit committee members. These standards provide that a member of a Nasdaq-listed company's audit committee may not, in his or her capacity as a member of the audit committee, the board of directors, or any other board committee:

Accept directly or indirectly any consulting, advisory or other compensatory fee from National Penn or any subsidiary of National Penn, except for certain retirement benefits; or

Be an "affiliated person" of National Penn or any subsidiary of National Penn, as defined by SEC rules.

Each of the members of National Penn's audit committee meets these heightened independence standards.

The SEC and Nasdaq also have requirements regarding financial expertise and sophistication. The Board has determined that Patricia L. Langiotti, President of Creative Management Concepts; Fred D. Hafer, retired Chairman of FirstEnergy Corporation and formerly Chairman, President and Chief Executive Officer of GPU Corporation; and Thomas A. Beaver, a Senior Partner in the business consulting group of Reinsel Kuntz Lesher LLP, a regional accounting, tax and consulting firm, each meet the SEC's definition of "audit committee financial expert" and are "financially sophisticated" under Nasdaq-listed company audit committee rules.

The Audit Committee's duties include:

Appointing, approving compensation for, and providing oversight of, National Penn's independent registered public accounting firm;

Approving all audit and non-audit services to be performed by the independent registered public accounting firm;

Reviewing the scope and results of the audit plans of the independent registered public accounting firm and internal auditors;

Overseeing the scope and adequacy of internal accounting control and record-keeping systems;

Reviewing the objectivity, effectiveness and resources of the internal audit function;

Conferring independently with, and reviewing various reports generated by, the independent registered public accounting firm;

Resolving any disagreements between management and the independent registered public accounting firm; and

Establishing procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.

A more comprehensive description of the duties and responsibilities of the Audit Committee is set forth in its charter. The charter may be accessed on National Penn's website, www.nationalpennbancshares.com, by selecting "Governance Documents."

Compensation Committee. National Penn's Compensation Committee generally reviews, approves and reports to the Board on compensation and related programs and plans. The Compensation Committee is currently comprised of five directors, all of whom are independent, as described under “Director Independence.” The Compensation Committee's duties include:

·	Developing executive compensation philosophy and strategy, including the types and mix of compensation components in the total executive compensation package.

·	Developing procedures used in administering executive compensation.

·	Recommending to the Board of Directors the level of compensation for non-employee directors of National Penn.

·	Approving participation, performance measures, and performance parameters for awards under National Penn’s Long-Term Incentive Compensation Plan, annual Executive and Management Incentive Plans.

·	Reviewing annual performance objectives for the CEO and conduct an annual evaluation of CEO performance.

·	Reviewing and approving guidelines for employment and/or change-in-control agreements for executives.

·	Reviewing and approving all executive officer promotions.

·	Recommending to the Board action regarding compensation for the Chairman and President of National Penn.

The Compensation Committee has authority under its charter to retain outside counsel, compensation consultants, or other experts of its choice, and receives adequate funding from National Penn to engage such advisors. For information on the compensation consultant currently retained by the Committee, see “Compensation Discussion and Analysis” in this proxy statement.

A more comprehensive description of the duties and responsibilities of the Compensation Committee is set forth in its charter. The charter may be accessed on National Penn's website, www.nationalpennbancshares.com, by selecting "Governance Documents."

Enterprise Risk Management Committee. National Penn’s Enterprise Risk Management Committee assists the Board of Directors in providing oversight, direction and authority to management regarding National Penn’s enterprise-wide risk management process. The Enterprise Risk Management Committee is currently comprised of five directors, including the Chairs of the Audit, Compensation and Nominating/Corporate Governance Committees, all of whom are independent, as described under “Director Independence.”

The Enterprise Risk Management Committee charter may be accessed on National Penn’s website, www.nationalpennbancshares.com, by selecting “Governance Documents.”

Nominating/Corporate Governance Committee. National Penn's Nominating/Corporate Governance Committee identifies and recommends nominees for election to the Board, and oversees matters of corporate governance processes, including Board performance. The Nominating/Corporate Governance Committee is currently comprised of four directors, all of whom are independent, as described under "Director Independence."

The Nominating/Corporate Governance Committee's duties include:

Screening and recommending candidates as nominees for election to the Board (see also "Consideration of Director Nominees" below);

Evaluating Board performance—over-all, and individually by director;

Overseeing the orientation of directors;

Reviewing corporate policies such as Code of Conduct, stock ownership of directors and management, insider trading and director attendance; and

·	Ensuring an appropriate structure for management succession and development.

A more comprehensive description of the duties and responsibilities of the Nominating/Corporate Governance Committee is set forth in its charter. The charter may be accessed on National Penn's website, www.nationalpennbancshares.com, by selecting "Governance Documents."

Special Internal Audit Director Search Committee. In August 2006, the Board appointed a special Board committee, the Internal Audit Director Search Committee, comprised of three directors, all of whom are independent as described under “Director Independence.” The special committee’s duty was to conduct a search for, and to make a hiring recommendation to executive management of, a candidate to fill the open position of Director of Internal Audit which had resulted from the untimely death of the individual holding that position. The special Committee completed this task on November 20, 2006.

Consideration of Director Nominees

The Nominating/Corporate Governance Committee selects individuals for nomination to the Board based on the criteria set forth in National Penn’s corporate governance guidelines. Under these criteria, a majority of the directors are to be independent, as described under “Director Independence.”

The Board believes independent directors add balance and diversity to the composition of the Board, and should bring expertise and experience in areas related to important strategic needs of National Penn. Selection is to be made from individuals whose leadership and effectiveness have been demonstrated or whose specialized training or experience will be of value to National Penn. Candidates for the Board are to meet the following qualifications:

·	High-level competence and leadership experience in business or administrative roles.

·	Breadth of knowledge about issues affecting National Penn.

·	Ability and willingness to work on a collegial basis with other National Penn directors and National Penn management, and to contribute special competencies to Board activities.

·	Unquestioned personal integrity.

·	Loyalty to National Penn and concern for its success.

·	Courage to criticize and to apply sound business ethics.

·	Ability to exercise sound and independent judgment.

·	Awareness of a director’s vital part in National Penn’s good corporate citizenship and corporate image.

·	Time available for meetings and consultation on National Penn matters.

The Board endorses the value of seeking qualified directors from diverse backgrounds. The Nominating/Corporate Governance Committee considers from time to time individuals who, in the judgment of the Committee, would be best qualified to serve on the Board. The Committee considers the experience and expertise already present on the Board so as to broaden the collective experience and expertise of the Board. Candidates for membership on the Board may be provided by a director or shareholder, and the Committee may retain professional search firms. Shareholders who wish to suggest candidates as nominees should write to National Penn Bancshares, Inc., Philadelphia and Reading Avenues, Boyertown, PA 19512 (Attention: Corporate Secretary), stating in detail the qualifications of the persons they recommend.

Code of Conduct

National Penn has adopted a Code of Conduct that addresses, among other things, ethical conduct, conflicts of interest, integrity of financial reports, legal compliance and the reporting of violations. The Code applies to all directors, officers and employees. All directors, officers and employees are required annually to affirm their acceptance of, and compliance with, the Code of Conduct. The Code of Conduct may be accessed on National Penn's website, www.nationalpennbancshares.com, by selecting "Governance Documents."

Contacting the Board of Directors

The Board welcomes communications from shareholders and has adopted a procedure for receiving and addressing them. Shareholders may write to either the entire Board or to individual directors. To do so, you should send your communication to National Penn Bancshares, Inc., Philadelphia and Reading Avenues, Boyertown, PA 19512 (Attention: Corporate Secretary). Likewise, e-mail communications should be addressed to the Corporate Secretary at slspayd@natpennbank.com. The Corporate Secretary does not screen letters or e-mails for content, but will forward a letter or e-mail to an individual director or Board committee as the Corporate Secretary feels appropriate if no specific direction is provided.

Board Committees, Meetings and Attendance

The following table summarizes the Board Committees on which each National Penn director serves as of March 2, 2007, and the number of Committee meetings held in 2006.

NON-EMPLOYEE DIRECTOR COMMITTEE TABLE
Name	Audit	Compensation	Enterprise Risk Management	Executive	Nominating/ Corporate Governance	Internal Audit Director Search
Non-Employee Directors:
Thomas A. Beaver	Member		Member
J. Ralph Borneman, Jr.		Chair	Member	Member	Member
Robert L. Byers		Member			Member
Fred D. Hafer (1)	Member	Member				Member
Frederick P. Krott		Member
Patricia L. Langiotti	Chair		Member	Member	Member	Chair
Kenneth A. Longacre		Member	Member	Member	Chair	Member
George C. Mason (2)				Member
Natalye Paquin (3)
Robert E. Rigg	Member
C. Robert Roth	Member		Chair	Member

Employee Directors:
Glenn E. Moyer				Member
Wayne R. Weidner				Chair
Donald P. Worthington (1)

Number of Meetings in 2006	10	6	8	0	5	7

(1) Messrs. Hafer and Worthington are not standing for re-election to the Board at the April 24, 2007 meeting.

(2) Mr. Mason is retiring from the Board as of the April 24, 2007 meeting date.

(3) Ms. Paquin was elected to the Board as of October 25, 2006.

All directors attended at least 75% of the meetings of the full Board and the meetings of the committees on which they served, except Natalye Paquin who was appointed to the Board of Directors in October 2006.

National Penn directors are expected to attend annual meetings of shareholders and, barring unforeseen circumstances, generally do so. Last year's annual meeting was attended by 13 persons serving as National Penn directors at that time.

Director Compensation

The following table sets forth information on compensation of all National Penn directors for 2006 excluding Messrs. Weidner, Moyer and Worthington, who are National Penn employees and not separately compensated for service as directors.

Director Compensation Table

(For fiscal year ended December 31, 2006)

Name (a)	Fees Earned or Paid in Cash ($) (b)(3)		Stock Awards ($) (c)(4)		Option Awards ($) (d) (5)		Non-Equity Incentive Plan Compensation ($) (e)		Change in Pension Value and Non-Qualified Deferred Compensation Earnings ($)(f)(6)		All Other Compensation ($) (g)			Total ($) (h)
Thomas A. Beaver	$	42,750	$	33,916		0		0	$	564		0		$	77,230
John H. Body (1)		15,268		21,187	$	7,842		0		1,284		0			45,581
J. Ralph Borneman, Jr.		50,850		33,916		5,873		0		13,634		0			104,273
Robert L. Byers		41,250		33,916		5,848		0		1,588		0			82,602
Fred D. Hafer		49,000		33,916		5,873		0		5,116		0			93,905
Frederick P. Krott		41,000		33,916		5,873		0		8,940		0			89,729
Patricia L. Langiotti		82,250		33,916		5,873		0		5,584		0			127,623
Kenneth A. Longacre		59,250		33,916		5,873		0		11,054		0			110,093
George C. Mason		24,750		33,916		5,848		0		1,284	$	47,915 (7	)		113,713
Natalye Paquin (2)		4,000		0		0		0		0		0			4,000
Robert E. Rigg		45,500		33,916		5,873		0		6,342		0			91,631
C. Robert Roth		54,350		33,916		5,873		0		0		0			94,139

(1)	Mr. Body retired as a director on April 25, 2006.

(2)	Ms. Paquin was initially elected a director on October 25, 2006.

(3)

Amounts reported are cash retainers, Board fees, and Board standing and special committee fees. Under the Directors’ Fee Plan, each non-employee director may choose to be paid these fees, in lieu of cash, in (a) shares of National Penn common stock, (b) “phantom” National Penn common stock units or (c) deferred cash. “Phantom” National Penn common stock units are credited with dividend equivalents (at National Penn’s cash dividend rate) in the form of additional “phantom” common stock units. All “phantom” common stock units are converted to actual shares of National Penn common stock and issued to an individual upon his or her termination of service as a director or attaining age 65. Deferred cash is credited with interest at a money market rate and is paid out to an individual upon his or her termination of service as a director or attaining age 65.

(4)

Amounts reported are stock award expense for each individual recognized by National Penn in its income statement for 2006 in accordance with SFAS No. 123(R), and thus include amounts from stock awards in and prior to 2006. The grant date fair value of each stock award made in 2006 to each individual is as follows: Thomas A. Beaver: $39,277; John H. Body: $39,277; J. Ralph Borneman Jr.: $39,277; Robert L. Byers: $39,277; Fred D. Hafer: $39,277; Frederick P. Krott: $39,277; Patricia L. Langiotti: $39,277; Kenneth A. Longacre $39,277; George C. Mason: $39,277; Natalye Paquin: None; Robert E. Rigg: $39,277; and C. Robert Roth: $39,277.

As of December 31, 2006, each individual has the following aggregate number of stock awards outstanding (including “performance-restricted” restricted stock or restricted stock units, and additional restricted stock units): Thomas A. Beaver: 1,933; John H. Body: 2,023; J. Ralph Borneman Jr.: 2,023--; Robert L. Byers: 2,023; Fred D. Hafer: 2,023; Frederick P. Krott: 2,023; Patricia L. Langiotti: 1,933; Kenneth A. Longacre 2,023; George C. Mason: 2,023; Natalye Paquin: None; Robert E. Rigg: 2,023; and C. Robert Roth: 1,933.

(5)	Amounts reported are option award expense for each individual recognized by National Penn in its income statement for 2006 in accordance with SFAS No. 123(R), and thus include amounts from option awards in and prior to 2006.

As of December 31, 2006, each individual has the following aggregate number of option awards outstanding: Thomas A. Beaver: 1,133; John H. Body: 15,518; J. Ralph Borneman Jr.: 17,475; Robert L. Byers: 4,532; Fred D. Hafer: 6,381; Frederick P. Krott: 10,079; Patricia L. Langiotti: 16,651; Kenneth A. Longacre: 15,626; George C. Mason: 4,532; Natalye Paquin: None; Robert E. Rigg: 6,381; and C. Robert Roth: 16,651.

(6)

Amounts reported are the interest credited in 2006 on deferred cash balances under the Directors’ Fee Plan and the fair market value of additional “phantom” common stock units and RSUs credited in 2006 on a “phantom” dividend reinvestment of “phantom” stock unit and RSU balances under the Directors’ Fee Plan and the Long-Term Incentive Compensation Plan.

(7)	Amount reported is consulting fee paid in 2006 pursuant to Mr. Mason’s consulting agreement entered into on December 13, 2003, in connection with National Penn’s acquisition of Peoples First, Inc. This consulting agreement terminated on June 10, 2006.

The following table summarizes the compensation arrangements with non-employee directors for 2006 and 2007:

NATIONAL PENN BANCSHARES, INC.
Retainers: Board members must attend in person or by phone 75% of meetings (Board and Committee Meetings combined) to be paid retainer. Committees include: Audit, Executive, Compensation, Directors’ Risk, Nominating/Corporate Governance
Chairperson of Audit Committee Chairperson of Executive Committee (1) Chairperson of Compensation Committee Chairperson of Nominating/Corporate Governance Committee Chairperson of Directors’ Risk Committee Additional Retainer - Lead Independent Director All Other Board Members	$15,000 $12,500 $12,500 $12,500 $12,500 $5,000 $10,000
Meeting Fees (per meeting attended) (Monthly Meetings)	$1,000
Committee Fees (per meeting attended)
Audit Committee members, including Chairperson Audit Committee Meeting by Conference Call Chairperson of Audit Committee also receives fee per phone meeting with accountants Audit Committee Chairperson attendance at Subsidiary Board Meeting Audit Committee Members attendance at Executive Disclosure Committee meeting All Other Committee Members, including Chairperson (Executive, Compensation, Nominating/Corporate Governance and Directors’ Risk) All Other Committee Phone Meetings	$750 $750 $250 $750 $750 $500 $500
Director Education	$750 per day, (includes travel day)
Strategic Planning Meeting: Day #1	$1,000 Board Mtg. Fee $500 Strat. Plan Mtg.
Day #2	$500 Strat. Plan Mtg.

NATIONAL PENN BANK
Board meetings (held quarterly) Phone meeting	$1,000 (2) $1,000

ADVISORY BOARDS (3)
Philadelphia Region Advisory Board Berks County Advisory Board FirstService Bank Peoples First	$250 per mtg. $250 per mtg. $250 per mtg. $10,000/Yr.

NATIONAL PENN INVESTORS TRUST COMPANY/ NATIONAL PENN MORTGAGE COMPANY
Board Meetings Phone Meetings	$500 per mtg. $500 per mtg.

(1 )	This position is currently held by Wayne R. Weidner, National Penn Chairman. Mr. Weidner does not receive this retainer.

(2)	During 2006, the National Penn Bank Board meeting fee was $3,000 per meeting.

(3)	National Penn has various advisory boards. The advisory boards listed are the ones on which one or more National Penn directors currently serve.

COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed with National Penn management the section of this proxy statement captioned “Compensation Discussion and Analysis” and recommended to the Board of Directors that this section be included in this proxy statement and in National Penn’s Annual Report on Form 10-K for the year ended December 31, 2006.

	J. Ralph Borneman, Jr., Chair	Frederick P. Krott
	Robert L. Byers	Kenneth A. Longacre
	Fred D. Hafer

COMPENSATION DISCUSSION AND ANALYSIS

This Compensation Discussion & Analysis addresses the following areas:

·	Compensation Committee.

·	Philosophy and objectives of executive compensation.

·	Elements of executive compensation.

·	Executive compensation design and decision-making process.

·	Executive compensation actions and decisions.

This discussion is intended to assist in understanding and evaluating the information set forth in this Proxy Statement in the sections captioned “Executive Compensation” and “Potential Payments upon Termination of Employment or a Change in Control.” These sections provide information on the compensation and benefits provided to National Penn's Chief Executive Officer, Chief Financial Officer, and three other most highly compensated executive officers in 2006. These persons are Chairman and Chief Executive Officer Wayne R. Weidner, Chief Financial Officer Gary L. Rhoads, President Glenn E. Moyer (promoted as part of National Penn’s management succession plan to CEO as of January 1, 2007), and Group Executive Vice Presidents Bruce G. Kilroy and Paul W. McGloin. Under National Penn’s bylaws, the Board of Directors designates either the Chairman or the President as Chief Executive Officer.

Compensation Committee

The Compensation Committee (the “Committee”) of National Penn’s Board of Directors is comprised of five directors--J. Ralph Borneman, Jr. (Chair), Robert L. Byers, Fred D. Hafer, Frederick P. Krott, and Kenneth A. Longacre. Each member is an independent director. See “Corporate Governance - Director Independence.”

Role of Committee

The Committee operates under a written charter reviewed and approved annually by the Board of Directors. A copy of this charter is available at www.nationalpennbancshares.com under Investor Relations: Governance Documents. The charter most recently was reviewed, amended, and approved by the Board on December 20, 2006.

The basic responsibilities of the Committee are to:

·	Develop executive compensation philosophy and strategy, including types and mix of compensation components in the total executive compensation package.

·	Develop procedures used in administering executive compensation.

·	Recommend to the Board of Directors the level of compensation for non-employee directors of National Penn.

·	Approve participation, performance measures, and performance parameters for awards under National Penn’s Long-Term Incentive Compensation Plan, annual Executive and Management Incentive Plans.

·	Review annual performance objectives for the CEO and conduct an annual evaluation of CEO performance.

·	Review and approve guidelines for employment and/or change-in-control agreements for executives.

·	Review and approve all executive officer promotions.

·	Recommend to the Board action regarding compensation for the Chairman and President of National Penn.

Committee Meetings

The Compensation Committee meets as often as necessary but at least three times per year. In 2006 the Committee met six times. The Committee Chair establishes each meeting agenda in conjunction with the CEO and the Corporate Secretary and other staff as appropriate. The Committee meets in executive sessions (without management present) as necessary, particularly when administering any aspect of the compensation program for the Chairman and/or President.

The Committee has authorization to engage outside advisors, including consultants and legal counsel as necessary to properly fulfill its role. The Committee generally has its outside compensation consultant attend its meetings. Materials for each meeting are generally provided in advance to Committee members for review. Materials may include the following:

·	Financial reports relevant to National Penn performance, including reports on performance measures used in various compensation plans.

·	Information on National Penn’s strategic objectives and future period budgets.

·	Tally sheets for various executive officers showing all forms of compensation.

·	Background information regarding any proposed changes to any component of executive or non-employee director compensation.

·	Peer group financial and executive and non-employee director compensation information.

Meeting minutes are presented, with a report by the Committee Chair, to the full Board of Directors for approval at subsequent Board Meetings.

Compensation Consultant

The Committee requests from time to time, usually annually, from various executive compensation consulting firms proposals to serve as the Committee’s compensation consultant. The Committee reviews, selects and hires the consulting firm which it deems best qualified to provide the services sought by the Committee. Generally, the Committee requests the consultant to provide peer executive and non-employee compensation data, expertise, and advice to the Committee on various matters brought before the Committee.

The Committee selected Mosteller & Associates, Inc., a human resource consulting firm, as its compensation consultant for 2005 and 2006, and again for 2007. Mosteller & Associates specializes in executive compensation in the financial services industry and has a client base in the mid-Atlantic region. Under the terms of its engagement, Mosteller & Associates may not perform other work for National Penn unless it is approved in advance by the Committee Chair and deemed not to be in conflict with the Committee’s responsibilities and Mosteller & Associates’ work for the Committee. Other work for National Penn that may be approved generally involves routine human resources assignments with company-wide application. In 2006, Mosteller & Associates carried out a routine salary administration research project for National Penn’s human resources department.

Role of Executives in Establishing Compensation

The Chairman and President each play a significant role in the compensation design and implementation process for all executive officer positions, excluding their own. Their roles include:

·	Making recommendations on performance targets, goals and objectives.

·	Evaluating executive performance.

·	Making recommendations regarding salary levels, corporate titles, base salaries, annual incentive plan categories, long-term incentive compensation awards, general awards, and employment terms for executives.

·	Providing background information for Committee meeting agenda items.

The Chairman and President generally attend Committee meetings, but not executive sessions of the Committee. Periodically, other executive officers may attend Committee meetings as well, generally to provide reports and information on agenda topics.

Philosophy and Strategy of Executive Compensation

The primary philosophy and strategies in National Penn’s executive compensation program are to:

·	Attract and hire new executive team members primarily from within the competitive financial services industry.

·	Retain and motivate executives whose knowledge, skills, and performance are critical to National Penn’s success.

·	Align the interests of executives and shareholders by motivating and rewarding executives for increases in shareholder value.

·	Provide a total compensation package for executive officers that is competitive in the marketplace, but weighted toward variable pay based on overall corporate, business unit and individual performance, and which contributes to and creates shareholder value.

·	Foster a shared commitment and teamwork ethic among executive officers by coordinating company-wide, division, and individual goals.

The Committee reviews, updates and approves annually a statement of its Executive Compensation Philosophy and Strategy (summarized above). The most recent statement was approved on January 24, 2007.

Peer Group for Compensation Comparison

National Penn annually reviews financial services organizations to select peers for comparison in compensation matters. This peer group is comprised of diversified financial services companies, with emphasis on companies located in the mid-Atlantic region with assets in the general range of National Penn’s assets. This peer group changes periodically due to mergers, performance, size, and geography. After peers are selected, the Committee generally benchmarks executives’ base salaries, annual incentive plan targets and levels, long-term incentive compensation targets and levels, all other compensation, and overall company performance results, with the peer group. The primary financial results of the peer group that are considered include return on equity, return on assets, and longer-term earnings per share growth. This direct peer comparison is the primary benchmarking source. However, in the interest of overall market awareness, the Committee receives and reviews other publicly available information and data throughout the year concerning executive compensation.

The peer group selected for comparison in 2006 included the following financial services companies, with assets ranging from approximately $2 billion to over $12 billion:

Chittenden Corp.	Provident Bankshares Corp.
Community Banks, Inc.	S & T Bancorp, Inc.
First Commonwealth Financial Corp.	Sterling Financial Corp.
First Midwest Bancorp., Inc.	Susquehanna Bancshares, Inc.
FNB Corp.	United Bankshares, Inc.
Fulton Financial Corp.	Univest Corp. of PA
Harleysville National Corp.	Valley National Bancorp.
Omega Financial Corporation

Most of the companies in this peer group historically have been mid-to-high performance financial services organizations. National Penn’s historical financial performance, as compared to this group, generally has been a mid-to-upper range performance in terms of:

·	return on equity (net income divided by shareholders’ equity),

·	return on assets (net income divided by total assets), and

·	longer-term earnings per share growth (the increase in earnings per share over a multiple year period).

The Committee targets total executive compensation to be in the middle of this peer group, assuming mid-range financial performance is achieved by National Penn. It seeks to achieve this goal by setting relatively lower-range base pay and providing higher-range annual incentive and long-term incentive opportunities.

Objectives of Executive Compensation Program

All components of executive compensation are designed to enable National Penn to attract, retain, and motivate high-performing executives who can achieve strong, longer-term financial success for National Penn. Performance measures utilized in executive compensation are intended to align award levels with National Penn’s success in achieving annual and long-term business strategies consistent with shareholder return. If National Penn performs well and shareholder value increases, award levels are to be strong. If National Penn underperforms, award levels are to be low or non-existent. The Committee intends for executive compensation to tie executives’ financial interests to those of National Penn’s shareholders.

The base pay structure for executives is designed and implemented to provide regular compensation at a lower-end market competitive level. Base pay plays a role in attracting and retaining executives and also forms the basis for award calculation under the Executive Incentive Plan, an annual performance-based incentive plan, and for employee benefits in the general benefits program at National Penn.

Total compensation is targeted at the mid-range of peer group levels. To achieve this with a base pay program targeted at the lower end of the peer group, the award levels under the Executive Incentive Plan and the long-term incentive compensation program are established at the higher end of the peer group range. The Committee believes that this mix of lower fixed pay and higher variable pay provides a strong motivation for strong executive performance and resultant company performance.

The Executive Incentive Plan provides award levels that vary, based on the level of company performance. Generally, no annual incentive plan awards have been paid in the past unless National Penn, at a minimum, achieves higher earnings per share than in the prior year. This was accomplished in 2006 and is required for awards to be made for 2007. Award levels are targeted at the higher side of peer group award levels for comparable performance. Award levels are based primarily on total company performance with a modest award pool available for exceptional individual performance. The measure for company performance for 2005, 2006, and again in 2007, is growth in earnings per share. Award levels increase in the plan as the performance level increases.

There is an additional component of the Executive Incentive Plan that has executive retention as its primary objective. Each year the Committee determines a percentage of the Executive Incentive Plan awards that must be deferred for five years. This award generally will vest after the five-year period ends, assuming the executive is still in National Penn’s employ. At that time, the deferred amount, plus interest, is matched by National Penn and paid out to the executive.

The objectives of the Long-Term Incentive Compensation Plan (approved by shareholders in 2005) focus on, and seek to reward, long-term financial performance for National Penn, through a direct correlation with shareholder return. Historically, National Penn has granted nonqualified stock options to its executive officers as long-term incentive compensation. The Committee has continued this practice under the Long-Term Incentive Compensation Plan. Its practice is to grant stock options at the end of the year, taking into account an individual’s performance in the year about to end, as well as opportunities for the individual to perform in the year about to begin. A multiple-year vesting cycle is intended to encourage a long-term perspective on performance and a commitment to employment at National Penn. Generally, stock option awards are made at a level toward the top of the range of economic value for long-term incentive compensation awards of the peer group. Other compensation vehicles are also available in National Penn’s Long-Term Incentive Compensation Plan, including other equity-based and non-equity based award types. Overall, the objective of long-term incentive compensation awards is to tie the interests of executive officers directly to increases in shareholder value.

While executive officers are not required to retain all or some portion of shares of National Penn common stock acquired upon the exercise of stock options, they are required to meet stock ownership guidelines as established by the Board of Directors. Messrs. Weidner and Moyer meet the guideline applicable to them (three times base salary) as do Messrs. Rhoads, Kilroy and McGloin (two times base salary). For further information on these guidelines, see the section of this proxy statement captioned “Stock Ownership - Guidelines.”

National Penn also offers supplemental benefits to certain of its executive officers. These supplemental benefits are intended to be market competitive. They provide a level of welfare and retirement benefit higher than that provided generally under the company-wide benefit program. The most significant supplemental benefit is the supplemental executive retirement plan (SERP) benefit for Messrs. Weidner and Moyer. In addition to being market competitive, the objective of these benefits is to restore and supplement the level of retirement benefits provided in National Penn’s defined benefit pension plan and defined contribution 401(k) plan due to limitations in the Internal Revenue Code.

An additional component of the executive relationship with National Penn intended to attract and retain key executive officers is the employment agreement and/or change-in-control agreement. For the CEO, in addition to being market competitive, a comprehensive employment agreement supports a long-term commitment to each other between National Penn and the executive, as well as a long-term perspective in the executive’s leadership of National Penn. It also provides National Penn with valuable non-competition and non-solicitation restrictions on the executive should his employment as CEO terminate under certain conditions. For the CEO as well as other executive officers, a change-in-control benefit supports retention of key executives during potential merger and acquisition discussions and permits such discussions to take place without distraction due to personal concerns, to the potential betterment of shareholders.

Elements of Executive Compensation

The primary elements of executive compensation at National Penn are:

base pay,

·	annual performance-based incentive plan (the Executive Incentive Plan), and

·	a long-term incentive compensation plan (the Long-Term Incentive Compensation Plan).

Additional elements are supplemental benefits, personal benefits, and retirement programs. The objectives of these elements are reviewed above. This section reviews the details of each element.

Base salaries are paid to executive officers on a bi-weekly basis, and are reviewed annually at year-end by the Committee. The Committee determines if any base pay changes should be made for executive officers. Base pay changes for the Chairman and President approved by the Committee are subject to approval by the Board of Directors in executive session. Base pay changes for other executive officers take into account recommendations of the CEO. Any base pay change is normally determined after considering:

·	the executive’s current base pay position relative to the peer group,

·	the individual’s performance for the prior year,

·	how the individual’s current base pay relates to that for other internal positions as a matter of equity and fairness, and

·	the overall base pay increase budgeted by National Penn for that year.

While there is no specific percentile objective for base pay compared to market levels, base pay is intended to be in the lower range of the competitive market levels. There are currently no specific salary grades or levels for any executive officer positions, as market data takes the place of a range.

The Executive Incentive Plan provides the opportunity for annual incentives to be awarded to executive officers for one-year corporate performance. The Committee, with input from the Chairman and President, annually reviews all components of the Plan, including participation, performance measures, award levels, and all other administrative features. At the beginning of the year, the Committee approves design parameters reflecting the needs of the plan and National Penn for each year. The Plan has three levels of participation, Categories A, B, and C:

·	Category A generally includes the Chairman and the President only and has the highest award potential. It is based on company-wide performance only, with a periodic opportunity for the Committee to award an additional incentive amount based on individual performance.

Category B generally includes the CFO and the other most senior executive officers with company-wide managerial responsibilities. Category C generally includes other National Penn senior officers. For Category B participants, the majority of the award opportunity depends on overall corporate performance with a smaller portion depending on individual or functional area performance. For Category C participants, half of the award opportunity is based on overall corporate performance with the other half based on individual or functional area performance.

National Penn’s performance parameter may be one or more financial performance measures. Earnings per share has been the principal measure used since 2004 and is consistent with National Penn’s long-term strategic plan of earnings per share growth. There are generally three to five performance points in the plan:

·	The minimum EPS is the “Threshold” target. Below this target, no award to any participant will be made.

·	There is an “Optimum” EPS target, which is an aggressive target only to be achieved through exceptional performance. Performance above “Optimum” is awarded with additional incentives but at a nominally increasing level.

·	Between “Threshold” and “Optimum” are generally two or more interim target performance levels. These may relate to National Penn’s budgeted EPS for the year or represent another level of performance.

Awards begin at “Threshold” performance and increase to a highly competitive level at “Optimum” performance. Awards are interpolated for any EPS performance level between any target points on the award schedule. Awards for company performance are fixed percentages of base pay and awards for individual and/or functional area performance are paid from a pool determined as a percentage of the overall company award amount. Awards are generally paid in February after the year’s results have been determined.

A final feature of the Executive Incentive Plan is the mandatory deferral award. Assuming company performance results in awards being made under the Plan and that the Committee has determined a mandatory deferral percentage at the beginning of the year, all Plan participants receive an additional deferred award equal to the pre-determined percentage of their cash award. This amount is deferred on the day when the cash award is paid and remains unvested and deferred, subject to forfeiture, until five years after the deferral date. Interest is credited to the balance at a money market rate. At the end of the deferral

period, the balance in the account is matched by National Penn, and the entire amount is paid to the participant in cash. There is no partial vesting of this award; the participant must be employed continuously during the entire deferral period. The only exceptions are for the participant’s death, disability, retirement at age 60 or later, or a change-in-control of National Penn. In these situations the balance is matched, vested, and paid in accordance with the terms of the Plan.

The Long-Term Incentive Compensation Plan is the third major component of compensation for senior officers at National Penn. This plan was approved by National Penn shareholders in 2005. It provides a variety of long-term compensation vehicles to be awarded by the Committee. These vehicles include:

·	stock options, both qualified (those that qualify as incentive stock options under Section 422 of the Internal Revenue Code) and non-qualified,

·	stock appreciation rights,

·	restricted stock grants,

·	restricted stock units, and

·	other types of multiple-year performance programs.

Each year, the Committee receives recommendations from the Chairman and President and then determines the type or types of vehicles to be awarded. In determining the type of award to be granted, the Committee considers a number of factors including:

·	the number of shares available under the Plan,

·	the economic value of any award compared to awards made in the competitive market,

·	possible dilution to shareholders, and

·	cost to National Penn of any award.

The Committee also determines all other terms of the awards for any year, including any performance parameters/restrictions, any vesting schedule, participation, and the duration of the award. If the awards are equity-related, the Committee determines the number of shares per participant, exercise price (if an option, not less than the closing market price on the date of grant), expiration date, and all other provisions of the award on the date of grant.

The Committee’s practice is to make equity incentive compensation awards under the Plan using a regular process that includes the following:

·	Awards are only made at in-person or telephonic Committee meetings on fixed meeting dates specified at least two weeks in advance.

·	Awards are made to executive officers at the same meeting as for all other officers who are to receive awards.

·	No Committee meeting will be held for the purpose of making awards in any calendar quarter before the date in that quarter on which National Penn publicly releases its financial results for the prior calendar quarter.

·	If the award is a stock option, it will have an exercise price equal to the closing market price of National Penn common stock on the date of grant.

·	All awards will require the affirmative vote of at least a majority of the Committee members.

·	Executive management will communicate the terms of awards to all recipients as quickly as possible after their approval by the Committee.

Historically, non-qualified stock option grants have been awarded to executive officers. Vesting has been established at twenty percent of the award each year over the first five years, and the expiration date has been established at ten years and one month from grant date. Other terms of stock option grants have included immediate vesting in the case of a change in control of National Penn and accelerated vesting for retirement, disability, and death. Every parameter of each grant under this Plan is detailed in an individual agreement with each participant.

The final components of executive compensation are supplemental benefits, personal benefits, and retirement programs.

Supplemental benefits included additional long-term disability coverage for Mr. Weidner, and a supplemental executive retirement plan (SERP) benefit for Messrs. Weidner and Moyer. The disability coverage for Mr. Weidner is primarily to cover the portion of the benefit intended for Mr. Weidner not provided by the all-employee group disability plan because of the maximum limit in that plan. The supplemental executive retirement benefit for Messrs. Weidner and Moyer is a defined benefit amount structured to pay a percentage (65%) of final average base salary as a retirement annuity for 15 years after retirement. This benefit is offset by benefits paid concurrently under National Penn’s defined benefit pension plan.

Personal benefits for 2006 included reimbursements for country club dues and assessments. These memberships principally facilitate job performance but also include personal use which is reimbursed by the individual. National Penn also pays the cost of spousal travel in connection with the attendance of certain executive officers at specified industry events.

·	Retirement programs are provided for National Penn employees generally, consisting of a defined benefit pension plan and a defined contribution 401(k) plan.

Under the Internal Revenue Code, compensation to executives of public companies in excess of $1 million per year is not tax deductible if it is not “performance-based.” To the extent the Committee develops new executive compensation programs, it intends to structure them so that compensation will be deemed “performance based” under this Internal Revenue Code provision.

Executive Compensation Actions and Decisions

Base Salary Changes

At the end of 2005, the Committee reviewed the recommendations of Messrs. Weidner and Moyer for base salary adjustments for other executive officers. Each other executive officer’s performance was noted and internal and external base pay equity was considered. The Committee approved the recommendations for an increase of 3% in base pay for those officers. The Committee, in executive session, reviewed Mr. Weidner’s and Mr. Moyer’s performance as well as internal and external base pay equity and determined a 3% base pay adjustment was appropriate for each of them, subject to approval by the Board of Directors in executive session, which approval was subsequently granted. For Messrs. Weidner and Moyer, the base pay adjustments were effective on January 1, 2006. For each other executive officer, the base pay adjustment was effective on the officer’s annual performance review date in 2006.

At the end of 2006, the Committee reviewed recommendations from Messrs. Weidner and Moyer for base salary adjustments for other executive officers. Executive performance and internal and external base salary equity was reviewed, and a 3.25% average increase was approved, as recommended, with each officer’s increase to take effect on the officer’s annual performance review date. These salary adjustments are consistent with average salary adjustments being made for employees generally at National Penn. In executive session, the Committee reviewed Mr. Weidner’s and Mr. Moyer’s performance plus internal and external base pay equity. National Penn’s management succession plan, in process, affected the base pay decisions for 2007. Under this succession plan approved by the Board of Directors and publicly announced in September 2006, Mr. Weidner, who will retire at the end of 2007, transitioned from Chairman and CEO to Chairman as of January 1, 2007. Coupled with this change was Mr. Moyer’s promotion to CEO also effective January 1, 2007. In recognition of these changes, the Committee approved the Chairman’s base pay for 2007 at $405,579, unchanged from 2006, and the President’s base salary at $385,300, as compared to base pay in 2006 of $324,480. These 2007 base pay amounts for Messrs. Weidner and Moyer were subsequently approved by the Board of Directors in executive session.

At the end of 2006, the Committee also reviewed the practice of reimbursement for country club dues and assessments of certain executive officers. The Committee decided to discontinue this practice, effective January 1, 2007. In conjunction with this change, the Committee approved a tax-adjusted base salary adjustment effective for January 1, 2007 for each affected executive officer, including Messrs. Weidner, Moyer, Kilroy and McGloin. The Board of Directors approved in executive session these salary adjustments for Messrs. Weidner and Moyer.

Executive Incentive Plan

At the beginning of 2006, the Committee approved the awards payable for 2005 under the performance goals and award schedule set by the Committee at the beginning of 2005 under the Executive Incentive Plan. The Committee approved the individual performance and corporate award portions for executive officers recommended by the Chairman and President and decided to award an individual award of 15% of the corporate performance award to the Chairman and President in addition to the corporate award. The Committee approved additional deferral awards under the Plan of 33% of the cash awards, as set at the beginning of 2005. All awards were consistent with the award schedule approved under the Plan in early 2005 for that Plan year.

Also at the beginning of 2006, the Committee approved performance goals and an award schedule under the Executive Incentive Plan for 2006. This again was based on earnings per share targets. The targets (as adjusted for the 3% stock dividend issued on September 30, 2006) were:

·	a “Threshold” target of $1.17,

·	a “Market” target of $1.29,

·	a “National Penn Budget” target of $1.43 to $1.45,

·	a “National Penn” target of $1.46 to $1.48, and

·	an “Optimum” target of $1.57.

For 2006, as compared to 2005, the award levels for each performance target were generally decreased by 12.5%; the individual award discretionary pool was decreased from 20% to 5%; and the deferral award opportunity was decreased from 33% to 10%. All of these adjustments applied to performance levels from “Threshold” up to the “National Penn Budget” target level, at which point the award levels became the same as in the prior year. These adjustments were made in recognition of the difficult operating environment anticipated for the financial services industry in 2006, expected to result in a decrease in peer group performance and therefore, a decrease in peer group award levels for 2006.

In January 2007, the Committee reviewed Plan results for 2006 performance. National Penn achieved EPS performance of $1.33 in 2006 which fell between the “Market” and “National Penn Budget” targets (as adjusted for the 3% stock dividend issued in September 2006). The Committee approved, subject to Board approval in executive session, awards for Messrs. Weidner and Moyer per the Plan’s award schedule (entirely based on National Penn’s 2006 diluted earnings per share), and with mandatory deferral amounts of 10% of the cash awards. The awards to Messrs. Weidner and Moyer were subsequently approved by the Board in executive session. The Committee approved awards for Messrs. Rhoads, Kilroy and McGloin per the Plan’s award schedule (80% based on National Penn’s 2006 diluted EPS and 20% based on the individual’s business unit performance in 2006), with no discretionary individual awards made to them. The Committee also approved mandatory deferral awards for all other Plan participants, including Messrs. Rhoads, Kilroy and McGloin, at 10% of their cash awards. All awards were consistent with the award schedule approved under the Plan in early 2006 for the 2006 Plan year.

Also in January 2007, under the Executive Incentive Plan, the Committee approved the EPS targets and an award schedule for the 2007 plan year. The “Threshold” target is set at 2006 actual performance, and the different target levels reflect “Budget” performance, a “Stretch Budget” performance and an “Optimum” level of EPS achievement.

Long-Term Incentive Compensation Plan

In December 2006, the Committee made incentive compensation awards to key officers, including executive officers, under National Penn’s Long-Term Incentive Compensation Plan. First, the Committee considered whether to continue National Penn’s past practice of making long-term incentive compensation awards in the form of nonqualified stock option grants given that expensing of stock option grants is now required under applicable accounting rules (SFAS No. 123(R)). The Long-Term Plan provides a variety of incentive compensation vehicles in addition to stock options (as discussed earlier). The Committee decided to follow management’s recommendation and to continue with stock option grants, as it believes stock options have contributed to National Penn’s achieving its earnings record since the first use of options in 1987, and they are well understood by the senior management team. In addition, SFAS No. 123(R) generally equalizes the accounting treatment for various incentive vehicles; it does not make incentive vehicles other than stock options a clearly preferred choice.

The Committee then reviewed Mr. Moyer’s recommendations for awards under the plan for officers other than Mr. Weidner and Mr. Moyer. Mr. Moyer’s recommendations were the result of a structured process in which he received input and recommendations from other senior officers, including individual and business unit performance evaluations for 2006, and also taking into account past option grants, options and shares outstanding, potential dilution, National Penn’s overall financial performance and peer group marketplace data. These recommendations were to grant non-qualified stock options for a total of 341,250 shares to 113 officers, including options for 11,500 shares to Mr. Rhoads, options for 11,500 shares to Mr. Kilroy, and options for 12,000 shares to Mr. McGloin. As recommended, the grants would have a five year, 20% per year vesting schedule and a term of 10 years and one month from date of grant. These grants were approved by the Committee on December 4, 2006. Each option has an exercise price of $20.57 per share, the closing market price of National Penn common stock on December 4, 2006.

Also on December 4, 2006, the Committee discussed in executive session the awards to be made to Messrs. Weidner and Moyer. The Committee approved an award to Mr. Weidner of options for 50,000 shares, which was consistent with historic grants for his position. The Committee approved an award to Mr. Moyer of options for 47,500 shares, which was a material increase from prior year grants in recognition of his promotion to CEO effective January 1, 2007. All terms of these two grants were the same as the other grants made on December 4, 2006, as described above.

Retirement Programs

In January 2006, the Board of Directors, acting upon the recommendation of the Committee, approved a restructuring of the retirement benefits package for National Penn employees, as part of an overall strategy for National Penn to remain both a financially strong company and a competitive employer. As a result, National Penn’s defined benefit pension plan was amended effective April 1, 2006 to provide that pension benefits will be based on a 2-part benefit calculation:

·	A benefit earned as of March 31, 2006 under the terms of the pension plan as effective on that date; and

·	A benefit earned from and after April 1, 2006, based on an employee’s plan compensation not to exceed $50,000 per year.

At the same time, National Penn’s Capital Accumulation Plan, a defined contribution 401(k) plan, was amended to add a discretionary profit sharing account initially utilizing the same earnings per share target as National Penn’s Executive Incentive and Management Incentive Plans.

These changes applied to National Penn employees generally, although the cap on compensation considered for benefit accrual under the pension plan adversely affected executive officers more so than other employees.

Employment Agreements

In May 2005, the Committee approved, subject to full Board approval in executive session, amending the employment agreement with Mr. Moyer to increase the term of his supplemental executive retirement plan (SERP) benefit from ten years to fifteen years. This was done in order to provide Mr. Moyer with a SERP benefit generally equivalent to the SERP benefit then held by Mr. Weidner. This also was intended to reinforce National Penn’s retention of Mr. Moyer, given the competitive marketplace and National Penn’s need to address management succession issues. There were also internal equity issues at National Penn that had arisen due to SERP contracts in place with other officers which had been granted to them prior to National Penn’s acquisition of their companies. This amendment was approved by the Board of Directors in executive session and entered into in May 2005.

Also in May 2005, the Committee began a more general review of the employment agreements with Messrs. Weidner and Moyer. This review also addressed the change-in-control agreements with various executive officers, including Messrs. Rhoads, Kilroy and McGloin. In part, this review was initiated due to the newly adopted deferred compensation provisions (Section 409A) of the Internal Revenue Code. Also, there was a need to review the market competitiveness of the employment agreements and to update the analysis of the impact of Internal Revenue Code Section 280G on the change-in-control benefits intended to be provided by these agreements.

The Committee, with subsequent Board approval in executive session, approved Section 409A compliance amendments in January 2006 for the employment agreements with Messrs. Weidner and Moyer. These amendments did not have a material impact on the benefits or terms of these agreements.

The employment agreements with Messrs. Weidner and Moyer each included a severance benefit in the event of “change-in-control.” This benefit was a multiple of “compensation” which, as defined, included all taxable compensation in a multiple-year period preceding the change-in-control, including gains on the exercise of stock options. Accordingly, the potential benefit generated from this calculation was at the high end of the competitive marketplace. In contrast, the Committee’s outside compensation consultant advised that most of the peer group financial services organizations defined “compensation” for change-in-control severance benefits as an average of base pay and annual bonus for a prior year average period and did not include in the computation the appreciation in value of any long-term incentive awards.

Under Section 280G of the Internal Revenue Code, an executive may incur a substantial excise tax liability and the employer may have limited deductibility for the payment of a change-in-control benefit. Because of this tax provision and the definition of “compensation” contained in the employment agreements with Messrs. Weidner and Moyer, their employment agreements also included a “cut-back” provision. If the cash severance amount upon a change-in-control would exceed the Section 280G limit, the amount of cash severance would be reduced to a level within the Section 280G limit (the “cut-back”).

Based on projections and calculations supplied by the Committee’s compensation consultant, the Committee determined that the Chairman’s Section 280G limit had little impact on the benefits intended to be provided to him. This was primarily because of his proximity to retirement. However, the President’s cash severance benefits upon a change-in-control would have been materially reduced, possibly as much as 30-50%, because of the “cut-back” provision in his employment agreement. The Committee determined that this reduction in cash benefit was not the intent of the employment agreement with Mr. Moyer, but also recognized that the definition of “compensation” had the potential to be highly competitive. In May 2006, the Committee and Mr. Moyer agreed to revise the definition of “compensation” to include only base salary and annual bonus in the average pay calculation and to add an additional amount to the cash severance payment, a taxable “gross-up” of the benefit if the 280G limit would negatively impact the cash severance payment. The tax “gross-up” was designed to have the severance amount return to the original design level of 2.99 times average annual compensation. This amendment was approved by the full Board of Directors in executive session and then entered into in June 2006.

The change-in-control agreements of other executive officers, including Messrs. Rhoads, Kilroy and McGloin, were also amended in 2006 to delete the “cut-back” provision and instead provide a taxable “gross-up” if the change-in-control cash severance benefits would be limited by Section 280G. Because this benefit is calculated at two times average annual compensation for these three officers, well below the Section 280G limit of three times average annual compensation, the likelihood of Section 280G actually affecting the cash severance benefits for these officers is minimal.

Another material amendment to Mr. Moyer’s employment agreement in 2006 was a change to the supplemental executive retirement plan (SERP) benefit. Previously, the SERP provided a predetermined vesting schedule with partial acceleration in vesting for a change-in-control. The Committee noted that other components of executive compensation, such as stock options, were structured to accelerate vesting to 100% upon a change-in-control event. In consideration of consistency and intending to provide a market competitive SERP benefit for Mr. Moyer, the Committee approved, subject to approval by the full Board of Directors meeting in executive session, amending Mr. Moyer’s employment agreement to accelerate the vesting of the SERP benefit 100% upon a change-in-control. This amendment was approved by the full Board of Directors in executive session and then entered into in June 2006.

Summary

The Committee feels that the total executive compensation program is well balanced among the several components, with performance measures which support National Penn’s goals, objectives and strategies. The level of awards in the incentive components are competitive in the marketplace and the other elements of the executive’s compensation relationship with National Penn, such as an employment agreement, are structured to be mutually beneficial to National Penn’s shareholders and to the respective executives.

Summary Compensation Table

The following table summarizes the total compensation for 2006 for National Penn’s Chief Executive Officer, Chief Financial Officer, and three other most highly compensated executive officers in 2006. These persons are Chairman and Chief Executive Officer Wayne R. Weidner, Chief Financial Officer Gary L. Rhoads, President Glenn E. Moyer (promoted as part of National Penn’s management succession plan to CEO as of January 1, 2007), and Group Executive Vice Presidents Bruce G. Kilroy and Paul W. McGloin.

SUMMARY COMPENSATION TABLE

(For fiscal year ended December 31, 2006)

Name and Principal Position (a)	Year (b)		Salary ($) (c)(2)		Bonus ($) (d)(3)		Stock Awards ($) (e)		Option Awards ($) (f)(4)		Non-Equity Incentive Plan Compensation ($) (g)(5)		Change in Pension Value and Non-Qualified Deferred Compensation Earnings ($) (h)(6)		All Other Compensation ($) (i)(7)		Total ($) (j)
Wayne R. Weidner (1) Chairman and Chief Executive Officer		2006		405,579		0		0		364,333		167,346		360,226		81,947		1,379,431
Gary L. Rhoads Group Executive Vice President and Chief Financial Officer		2006		167,422		0		0		64,272		45,433		32,503		24,161		335,7971
Glenn E. Moyer (1) President; also President and Chief Executive Officer of National Penn Bank		2006		324,480		0		0		226,724		133,883		157,430		54,140		898,6637
Bruce G. Kilroy Group Executive Vice President		2006		198,422		0		0		64,272		53,612		22,844		43,846		385,002
Paul W. McGloin Group Executive Vice President		2006		198,206		0		0		64,015		53,182		16,177		21,561		353,141

(1)	On January 1, 2007, in accordance with National Penn’s management succession plan, Mr. Weidner transitioned to Mr. Moyer the position of National Penn Chief Executive Officer.

(2)

Amounts reported do not include automobile and telephone allowances furnished by National Penn to facilitate job performance. While these amounts are included in each individual’s taxable income because they have an inherent personal use component, they are reported in this table under the column captioned “All Other Compensation.”

(3)	No discretionary bonus awards were made for 2006.

(4)	Amounts reported are stock option expense for each individual recognized by National Penn in its income statement for 2006 in accordance with SFAS No. 123(R).

(5) Amounts reported are total awards for each individual for 2006 under the Executive Incentive Plan. Components of these

awards are as follows:

	Company-Wide Financial Performance		Individual Business Unit Financial Performance		10% Mandatory Deferral Award		Total Award
Wayne R. Weidner	$	152,133	$	N/A	$	15,213	$	167,346
Gary L. Rhoads		33,717		7,586		4,130		45,433
Glenn E. Moyer		121,712		N/A		12,171		133,883
Bruce G. Kilroy		39,376		9,362		4,874		53,612
Paul W. McGloin		39,467		8,880		4,835		53,182

(6) Earnings in 2006 on deferred compensation were computed at a market rate and are reported in the table captioned

“Non-Qualified Deferred Compensation.” Amounts reported are the increase in 2006 in the present value of the accumulated

benefit for each individual under National Penn’s defined benefit pension plan, and under supplemental executive retirement

plan (SERP) benefits for Messrs. Weidner and Moyer, as follows:

	Defined Benefit Pension Plan		S E R P		Total
Wayne R. Weidner	$	128,780	$	231,446	$	360,226
Gary L. Rhoads		32,503		N/A		32,503
Glenn E. Moyer		21,592		135,838		157,430
Bruce G. Kilroy		22,844		N/A		22,844
Paul W. McGloin		16,177		N/A		16,177

(7) Amounts reported for each individual are as follows:

	Company “Match” for 401(k) Plan		Imputed Value of Life Insurance Benefits		Automobile and Telephone Allowances		Long-Term Disability Insurance Premiums		Company “Match” in Payout of 2001 Mandatory Deferral Amounts		Reimbursement for Country Club Dues and Assessments (A)		Spousal Travel (B)		Total

Wayne R. Weidner	$	7,500	$	2,561	$	12,600	$	1,512	$	45,770	$	10,200	$	1,804	$	81,947.00
Gary L. Rhoads		4,464		323		360		N/A		18,109		0		905		24,161
Glenn E. Moyer		7,500		889		12,000		N/A		26,551		7,200		0		54,140
Bruce G. Kilroy		5,752		624		8,520		N/A		20,438		7,500		1,012		43,846
Paul W. McGloin		5,725		1,316		8,520		N/A		0		6,000		0		21,561

(A) National Penn reimbursed certain officers for country club dues and assessments in 2006, where club memberships are maintained and used for business entertainment, but may also be used for personal use.

(B) National Penn’s policy is to pay the travel cost for spouses of certain executive officers to attend certain specific industry events.

Grants of Plan-Based Awards Table

The following table shows information on grants during 2006 of Plan-based awards to Messrs. Weidner, Rhoads, Moyer, Kilroy and McGloin.

GRANTS OF PLAN-BASED AWARDS

(For fiscal year ended December 31, 2006)

Name (a)	Grant Date (b)	Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1)			Estimated Future Payments Under Equity Incentive Plan Awards			All Other Stock Awards: No. of Shares of Stock or Units (#) (i)	All Other Option Awards: No. of Securities Underlying Options (#) (j)(2)	Exercise or Base Price of Option Awards ($/Sh) (k)	Grant Date Fair Value of Stock and Option Awards (l)(3)
Name (a)	Grant Date (b)	Threshold ($) (c)	Target ($) (d)	Maximum ($) (e)	Threshold (#) (f)	Target (#) (g)	Maximum (#) (h)			Exercise or Base Price of Option Awards ($/Sh) (k)	Grant Date Fair Value of Stock and Option Awards (l)(3)

Wayne R. Weidner	1/25/06	$70,976	$177,643	$243,347	-	-	-	-	-	-
	12/4/06	-	-	-	-	-	-	-	50,000	$20.57	$318,170

Gary L. Rhoads	1/25/06	$22,308	$50,406	$68,116	-	-	-	-	-	-
	12/4/06	-	-	-	-	-	-	-	11,500	$20.57	$73,179

Glenn E. Moyer	1/25/06	$56,782	$142,117	$194,680	-	-	-	-	-	-
	12/4/06	-	-	-	-	-	-	-	47,500	$20.57	$302,262

Bruce G. Kilroy	1/25/06	$26,052	$58,865	$79,548	-	-	-	-	-	-
	12/4/06	-	-	-	-	-	-	-	11,500	$20.57	$73,179

Paul W. McGloin	1/25/06	$26,112	$59,000	$79,730	-	-	-	-	-	-
	12/4/06	-	-	-	-	-	-	-	12,000	$20.57	$76,361

(1)	Amounts reported are the following percentages of base salary for 2006, based solely on achievement of National Penn’s company-wide financial performance goals for 2006, all as established by the Compensation Committee under National Penn’s Executive Incentive Plan in January 2006:

·	Messrs. Weidner and Moyer - 17.5%, 43.8%, and 60%, respectively.

·	Messrs. Rhoads, Kilroy and McGloin - 13.1%, 29.6%, and 40%, respectively.

These amounts include additional amounts which could be awarded to Messrs. Rhoads, Kilroy and McGloin under the Executive Incentive Plan for individual business unit performance in 2006. No additional amounts could be awarded to Messrs. Weidner or Moyer as their awards are entirely based on National Penn’s achievement of its company-wide financial performance goals for 2006. These amounts also do not include additional amounts subject to mandatory deferral under the Executive Incentive Plan (10% of the individual’s award at “Threshold” or “Market” performance or 33% of the individual’s award at “Maximum” performance).

Amounts actually awarded in January 2007 for 2006 performance are reported in the Summary Compensation Table under the caption “Non-Equity Incentive Plan Compensation”.

For further information on the Executive Incentive Plan, see the “Compensation Discussion and Analysis” portion of this proxy statement.

(2)	Each option becomes exercisable, if the holder remains an employee after the grant date, as follows: 20% per year on the first through fifth anniversary dates of the grant. All options are non-qualified stock options. Each option is transferable under specified conditions.

National Penn's stock compensation plan provides that all options must be granted with an exercise price that equals or exceeds the closing market price of the stock on the date of grant.

If the optionee terminates employment voluntarily other than for retirement at age 60 or later, the non-vested portion of any option will lapse immediately and the unexercised vested portion of any option will lapse no later than three months after termination of employment. If employment terminates upon retirement at age 60 or later, disability, death, or involuntarily but not for “cause”, the nonvested portion of any option will vest immediately and the option, to the extent remaining unexercised, will lapse no later than five years after termination of employment. If employment terminates for "cause," all unexercised options lapse immediately.

(3)

Based upon the Black-Scholes option valuation model, which estimates the present dollar value of National Penn's common stock options to be $6.36 per share under option. The actual value, if any, an executive may realize will depend on the excess of the stock price over the exercise price on the date the option is exercised. Therefore, there is no assurance the value realized will be at or near the value estimated by the Black-Scholes model. The assumptions underlying the Black-Scholes model include: (a) an expected volatility of 34.21%; (b) a risk-free rate of return of 4.44%, which equals the zero-coupon Treasury rate for bonds approximating the expected term of the option as of its grant date; (c) National Penn's average common shares dividend yield of 3.26% on the grant date; (d) an expected term of 8 years; and (e) an expected turnover of 5.0%.

Outstanding Equity Awards at Year-End Table

The following table shows information on outstanding equity awards (consisting entirely of non-qualified stock options) as of December 31, 2006 held by Messrs. Weidner, Rhoads, Moyer, Kilroy and McGloin.

Outstanding Equity Awards at Fiscal Year-End

	Option Awards										Stock Awards (7)
(a) Name	(b) No. of Securities Underlying Unexercised Options (#) Exercisable		(c) No. of Securities Underlying Unexercised Options (#) Unexercisable		(d) Equity Incentive Plan Awards: No. of Securities Underlying Unexercised Unearned Options (#)		(e) Option Exercise Price ($)		(f) Option Expiration Date		(g) No. of Shares or Units of Stock That Have Not Vested (#)		(h) Market Value of Shares or Units of Stock That Have Not Vested ($)		(i) Equity Incentive Plan Awards: No. of Unearned Shares, Units or Other Rights That Have Not Vested (#)		(j) Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)
Wayne R. Weidner		88,655		-		-	$	12.7550		1/11/08		-		-		-		-
		85,109		-		-		15.3854		1/14/09		-		-		-		-
		72,968		-		-		13.2017		1/1/10		-		-		-		-
		69,493		-		-		11.0530		1/7/11		-		-		-		-
		73,103		-		-		13.3675		1/6/12		-		-		-		-
		59,617		14,905¹		-		15.0648		1/3/13		-		-		-		-
		44,554		29,703²		-		20.1010		1/2/14		-		-		-		-
		24,205		36,308³		-		22.1375		1/2/15		-		-		-		-
		10,300		41,200⁴		-		20.0291		1/1/16		-		-		-		-
		-		50,000⁵		-		20.5700		1/4/17		-		-		-		-

Gary L. Rhoads		15,113		-		-	$	12.7550		1/11/08		-		-		-		-
		13,097		-		-		15.3854		1/14/09		-		-		-		-
		14,106		-		-		13.2017		1/1/10		-		-		-		-
		14,393		-		-		11.0530		1/7/11		-		-		-		-
		14,621		-		-		13.3675		1/6/12		-		-		-		-
		12,065		3,017¹		-		15.0648		1/3/13		-		-		-		-
		9,173		6,116²		-		20.1010		1/2/14		-		-		-		-
		5,150		7,725³		-		22.1375		1/2/15		-		-		-		-
		2,266		9,064⁴				20.0291		1/1/16		-		-		-		-
		-		11,500⁵				20.5700		1/4/17

Glenn E. Moyer		9,053⁶		-		-	$	6.7987		2/17/07		-		-		-		-
		18,644⁶		-		-		7.8057		1/2/08		-		-		-		-
		12,090		-		-		13.3878		2/4/09		-		-		-		-
		14,106		-		-		13.2017		1/1/10		-		-		-		-
		19,190		-		-		11.0530		1/7/11		-		-		-		-
		45,691		-		-		13.3675		1/6/12		-		-		-		-
		44,713		11,179¹		-		15.0648		1/3/13		-		-		-		-
		33,420		22,281²		-		20.1010		1/2/14		-		-		-		-
		18,025		27,038³		-		22.1375		1/2/15		-		-		-		-
		7,725		30,900⁴		-		20.0291		1/1/16		-		-		-		-
		-		47,500⁵		-		20.5700		1/4/17		-		-		-		-

Bruce G. Kilroy		14,106		-		-		15.3854		1/14/09		-		-		-		-
		14,106		-		-		13.2017		1/1/10		-		-		-		-
		14,393		-		-		11.0530		1/7/11		-		-		-		-
		14,621		-		-		13.3675		1/6/12		-		-		-		-
		12,065		3,017¹		-		15.0648		1/3/13		-		-		-		-
		9,173		6,116²		-		20.1010		1/2/14		-		-		-		-
		5,150		7,725³		-		22.1375		1/2/15		-		-		-		-
		2,266		9,064⁴		-		20.0291		1/1/16		-		-		-		-
		-		11,500⁵		-		20.5700		1/4/17		-		-		-		-

Paul W. McGloin		9,139		-		-		13.7685		1/6/12		-		-		-		-
		12,065		3,017¹		-		15.0648		1/3/13		-		-		-		-
		9,173		6,116²		-		20.1010		1/2/14		-		-		-		-
		5,150		7,725³		-		22.1375		1/2/15		-		-		-		-
		2,266		9,064⁴		-		20.0291		1/1/16		-		-		-		-
		-		12,000⁵		-		20.5700		1/4/17		-		-		-		-

_____________________________

¹ Stock options vest at the rate of 20% per year, with vesting dates of 12/3/03, 12/3/04, 12/3/05, 12/3/06, and 12/3/07.

²Stock options vest at the rate of 20% per year, with vesting dates of 12/2/04, 12/2/05, 12/2/06, 12/2/07 and 12/2/08.

³ Stock options vest at the rate of 20% per year, with vesting dates of 12/2/05, 12/2/06, 12/2/07, 12/2/08 and 12/2/09.

⁴ Stock options vest at the rate of 20% per year, with vesting dates of 12/1/06, 12/1/07, 12/1/08, 12/1/09 and 12/1/10.

⁵Stock options vest at the rate of 20% per year, with vesting dates of 12/4/07, 12/4/08 12/4/09, 12/4/10, 12/4/11.

⁶ Stock options issued in substitution for Elverson National Bank stock options, in accordance with the acquisition agreement dated July 21, 1998. On January 23, 2007, Mr. Moyer exercised the stock options for 9,053 shares with an expiration date of February 17, 2007, pursuant to a plan adopted on October 25, 2006 in accordance with SEC Rule 10b5-1 and approved by National Penn’s Board of Directors under its insider trading policy.

⁷ No stock awards are outstanding for any of these persons.

Options Exercised and Stock Vested

The following table shows information about option exercises and stock awards vested during 2006 for Messrs. Weidner, Rhoads, Moyer, Kilroy and McGloin.

OPTIONS EXERCISED AND STOCK VESTED

(For fiscal year ended December 31, 2006)

	Option Awards				Stock Awards
Name (a)	No. of Shares Acquired on Exercise (#) (b)		Value Realized on Exercise ($) (c) (1)		No. of Shares Acquired on Vesting (#) (d) (2)		Value Realized on Vesting ($) (e)

Wayne R. Weidner		77,572	$	945,138		-		-
Gary L. Rhoads		11,413		162,194		-		-
Glenn E. Moyer		-		-		-		-
Bruce G. Kilroy		-		-		-		-
Paul W. McGloin		-		-		-		-

(1) Represents the total market value of the underlying common shares on the date of exercise minus the total exercise price for the options exercised.

(2) No stock awards have been made to any of these persons.

Pension Benefits Table

The following table shows information on pension and supplemental non-qualified retirement benefits for Messrs. Weidner, Rhoads, Moyer, Kilroy and McGloin.

PENSION BENEFITS

(For fiscal year ended December 31, 2006)

Name (a)	Plan Name (b)		No. of Years Credited Service (#) (c)		Present Value of Accumulated Benefit ($) (d)		Payments During Last Fiscal Year ($) (e)

Wayne R. Weidner		Supplemental Executive Retirement Plan (1)		44	$	2,320,181		-0-
		Defined Benefit Pension Plan (2)		43.5	$	1,219,276		-0-

Gary L. Rhoads		Defined Benefit Pension Plan (2)		33.4	$	293,893		-0-

Glenn E. Moyer		Supplemental Executive Retirement Plan (1)		11	$	754,207		-0-
		Defined Benefit Pension Plan (2)		7	$	111,480		-0-

Bruce G. Kilroy		Defined Benefit Pension Plan (2)		8.9	$	126,073		-0-

Paul W. McGloin		Defined Benefit Pension Plan (2)		4.8	$	71,569		-0-

(1)

Messrs. Weidner and Moyer each have a supplemental executive retirement plan (SERP) benefit as part of their employment agreements with National Penn. Each of these SERP provisions provides for a retirement annuity for 15 years for up to 65% of the individual’s final average base salary, depending on the number of years served by the individual. When the individual, reaches age 65, the SERP will become fully vested (in Mr. Weidner’s case, after 45 years of credited service; in Mr. Moyer’s case, after 21 years of credited service). As of December 31, 2006, Mr. Weidner is 44/45 vested in his SERP benefit and Mr. Moyer is 11/21 vested in his SERP benefit. Depending on the circumstances of termination, Mr. Moyer’s SERP benefit may be accelerated in its vesting or be terminated. See “Potential Payments upon Termination of Employment or a Change in Control” in this proxy statement. Any concurrent payments to either individual under National Penn’s defined benefit pension plan would be credited toward the SERP payments. Mr. Moyer’s employment agreement provides that deferred benefit pension plan payments and SERP payments must commence at the same time.

(2)

National Penn has a non-contributory, defined benefit pension plan generally covering employees of National Penn and its subsidiaries who have reached 20½ years of age and completed 1,000 hours of service. The plan provides retirement benefits under pension trust agreements. The benefits are based on years of service and the employee’s compensation during the highest five consecutive years during the last ten consecutive years of employment. Effective April 1, 2006, National Penn amended the defined benefit pension plan to substitute a formula capping the maximum annual participating salary at $50,000. Prior to the April 1, 2006 amendment, salary considered in determining a participant’s benefit was capped at $210,000 under applicable provisions of the Internal Revenue Code.

Non-Qualified Deferred Compensation Table

The following table shows information on non-qualified deferred compensation in 2006 for Messrs. Weidner, Rhoads, Moyer, Kilroy and McGloin.

NON-QUALIFIED

DEFERRED COMPENSATION (1)

(For fiscal year ended December 31, 2006)

Name (a)	Executive Contributions in Last FY ($) (b) (2)(4)		Registrant Contributions in Last FY ($) (c) (3)(4)		Aggregate Earnings in Last FY ($) (d) (5)		Aggregate Withdrawals/ Distributions ($) (e) (6)		Aggregate Balance at Last FYE ($) (f) (7)
Wayne R. Weidner		-0-	$	75,469	$	13,184	$	42,052	$	307,707
Gary L. Rhoads		-0-		20,959		4,068		16,638		94,947
Glenn E. Moyer		-0-		60,378		10,399		24,394		242,657
Bruce G. Kilroy	$	18,352		24,469		10,497		18,777		245,004
Paul W. McGloin		-0-		24,526		5,075		-0-		118,461

(1)

National Penn’s Executive Incentive Plan is the only means available to executive officers to defer compensation other than National Penn’s Capital Accumulation Plan, a defined contribution 401(k) plan. For information on the Executive Incentive Plan, see “Compensation Discussion and Analysis” in this proxy statement.

(2)

Amounts reported are voluntary deferrals of incentive compensation awards for 2005 under the Executive Incentive Plan, which awards were determined in January 2006 at the close of Plan year 2005. Amounts reported would have been paid in cash in early 2006 but for the deferral election of the individual. Any percentage of an individual’s incentive compensation award payable in cash is subject to deferral at the election of the individual. No other compensation is subject to potential deferral by an individual.

(3)	Amounts reported are the five-year mandatory deferrals of incentive compensation awards for 2005 under the Executive Incentive Plan. These amounts were equal to one-third of the total cash incentive compensation awards for 2005 under that Plan.

(4)	For Messrs. Weidner Moyer, Kilroy and McGloin, who were covered by the Summary Compensation Table in the proxy statement for the 2006 annual meeting of shareholders, these amounts were included in the “bonus” amounts reported for them in that table.

(5)

Amounts reported are interest amounts credited to deferred compensation account balances during 2006. Interest was accrued at a money market rate, adjusted quarterly by National Penn, equal to the average of the money market rates offered by three major investment banking companies. During 2006, the annual interest rate was as follows: 1st quarter - 3.85 percent; 2nd quarter - 4.32 percent; 3rd quarter - 4.67 percent; and 4th quarter - 4.76 percent.

(6)

Amounts reported are the amounts of deferred compensation, plus accrued interest, paid out in January 2006 under the Executive Incentive Plan. This deferred compensation is the mandatory deferral award under the Executive Incentive Plan for Plan year 2000. When paid out, these amounts were “matched” 100% by National Penn.

(7)

Amounts reported include the following amounts previously reported in the Summary Compensation Table in proxy statements for prior years: Mr. Weidner--$286,282; Mr. Moyer--$225,829; Mr. Kilroy--$204,426; and Mr. McGloin--$110,102. Mr. Rhoads was not covered by the Summary Compensation Tables in prior proxy statements. Amounts reported do not include amounts awarded in January 2007 for Plan year 2006 and reported under the “Non-Equity Incentive Plan Compensation” column in the Summary Compensation Table in this proxy statement.

Employment, Change-in-Control and Consulting Agreements

Wayne R. Weidner. Wayne R. Weidner, Chairman of National Penn, has an employment agreement with National Penn and National Penn Bank. This employment agreement superseded a 1989 agreement that provided Mr. Weidner with a supplemental executive retirement plan (“SERP”) benefit and a "change-in-control" benefit. The employment agreement continues through December 28, 2007.

Mr. Weidner's annual base compensation under the agreement is $425,529, effective January 1, 2007. Mr. Weidner is eligible for annual merit salary increases and awards of stock options, and he is entitled to participate in National Penn's Executive Incentive Plan and to participate in all health insurance and benefit plans, group insurance, pension or profit sharing plans or other plans providing benefits to National Penn employees generally. Mr. Weidner is also entitled to life insurance coverage and long-term disability insurance coverage paid for by National Penn, and the receipt of an automobile allowance of at least $850 per month.

The employment agreement continues the SERP benefit initially provided to Mr. Weidner in 1989. This is a retirement annuity for 15 years for up to 65% of his final average base salary, depending on the number of years he serves, based on his start date with National Penn 44 years ago and a normal retirement date at age 65 (45 years later). Any concurrent payments under National Penn's pension plan are credited toward the annuity payments.

Mr. Weidner's employment agreement also contains a "change-in-control" benefit. This benefit is exercisable by Mr. Weidner at any time within three years after a "change-in-control" of National Penn occurs. A “change-in-control” is deemed to have occurred:

·	If any person or group acquires beneficial ownership of National Penn’s securities representing 24.99% or more of the combined voting power of National Penn’s securities then outstanding;

·	If there is a merger, consolidation or other reorganization of National Penn Bank, except where the resulting entity is controlled, directly or indirectly, by National Penn;

If there is a merger, consolidation or other reorganization of National Penn, except where shareholders of National Penn immediately prior to consummation of any such transaction continue to hold at least sixty-one percent (61%) of combined voting power of the outstanding voting securities of the legal entity resulting from or existing after any such transaction, and at least sixty-one percent (61%) of the members of the Board of Directors of the legal entity resulting from or existing after any such transaction are former members of National Penn’s Board of Directors;

·	If there is a sale, exchange, transfer or other disposition of substantially all of the assets of National Penn Bank to another entity, except to an entity controlled, directly or indirectly, by National Penn;

·	If there is a sale, exchange, transfer or other disposition of substantially all of the assets of National Penn to another entity, or a corporate division involving National Penn; or

·	If there is a contested proxy solicitation of the shareholders of National Penn which results in the contesting party obtaining the ability to cast 25% or more of the votes entitled to be cast in an election of directors of National Penn.

National Penn may terminate the employment agreement at any time with or without "cause." “Cause” means either:

·	The executive’s conviction of, or pleas of guilty or nolo contendere to, a felony or a crime of falsehood or involving moral turpitude; or

Willful failure by the executive to substantially perform his duties to National Penn, other than a failure resulting from the executive’s incapacity as a result of disability, which willful failure results in demonstrable material injury and damage to National Penn, and which willful failure continues uncured after thirty (30) days notice containing specific written instructions relating to the matter.

The employment agreement may also be terminated by Mr. Weidner at any time, and will terminate by its terms upon Mr. Weidner’s disability or death. The employment agreement also contains non-solicitation, non-competition and non-disclosure provisions.

For information on payments to, and benefits for, Mr. Weidner upon termination of employment or a change-in-control of National Penn, see “Potential Payments upon Termination of Employment or a Change-in-Control” in this proxy statement.

Glenn E. Moyer. Glenn E. Moyer, President and Chief Executive Officer of National Penn and National Penn Bank, has an employment agreement with National Penn and National Penn Bank. This agreement superseded a 1999 agreement that provided Mr. Moyer with a "change-in-control" benefit.

The employment agreement provides for Mr. Moyer to continue service in his current executive position. The current term of the agreement is for three years from December 18, 2006 through December 17, 2009. Unless terminated, the employment agreement is automatically extended by adding one year to the term of the agreement at the end of each year, until Mr. Moyer reaches the age of 62, after which there will be no further extensions.

Mr. Moyer's annual base compensation under the agreement is $395,275, effective January 1, 2007. Mr. Moyer is eligible for annual merit salary increases and awards of stock options, and he is entitled to participate in National Penn's Executive Incentive Plan and to participate in all health insurance and benefit plans, group insurance, pension or profit sharing plans or other plans providing benefits to National Penn employees generally. Mr. Moyer is also entitled to life insurance coverage and long-term disability insurance coverage paid for by National Penn, and the receipt of an automobile allowance of at least $850 per month.

The employment agreement also provides Mr. Moyer with a supplemental executive retirement benefit plan (“SERP”) benefit. This is a retirement annuity for 15 years for up to 65% of his final average base salary, depending on the number of years he serves, based on his start date 11 years ago with National Penn (including service with Elverson National Bank, acquired by National Penn in 1999), and a normal retirement date at age 65 (21 years later). Payments due to him under National Penn's pension plan will be credited toward the annuity payments.

Mr. Moyer's employment agreement also contains a "change-in-control" benefit. This benefit is exercisable by Mr. Moyer at any time within three years after a "change-in-control" of National Penn occurs.

A “change-in-control” is deemed to have occurred:

·	If any person or group acquires beneficial ownership of National Penn’s securities representing 24.99% or more of the combined voting power of National Penn’s securities then outstanding;

·	If there is a merger, consolidation or other reorganization of National Penn Bank, except where the resulting entity is controlled, directly or indirectly, by National Penn;

If there is a merger, consolidation or other reorganization of National Penn except where shareholders of National Penn, immediately prior to consummation of any such transaction continue to hold at least sixty-one percent (61%) of combined voting power of the outstanding voting securities of the legal entity resulting from or existing after any such transaction, and at least sixty-one percent (61%) of the members of the Board of Directors of the legal entity resulting from or existing after any such transaction are former members of National Penn’s Board of Directors;

·	If there is a sale, exchange, transfer or other disposition of substantially all of the assets of National Penn Bank to another entity, except to an entity controlled, directly or indirectly, by National Penn;

·	If there is a sale, exchange, transfer or other disposition of substantially all of the assets of National Penn to another entity, or a corporate division involving National Penn; or

·	If there is a contested proxy solicitation of the shareholders of National Penn which results in the contesting party obtaining the ability to cast 25% or more of the votes entitled to be cast in an election of directors of National Penn.

National Penn may terminate the employment agreement at any time with or without "cause." “Cause” means either:

·	The executive’s conviction of, or pleas of guilty or nolo contendere to, a felony or a crime of falsehood or involving moral turpitude; or

The employment agreement may also be terminated by Mr. Moyer at any time and will terminate by its terms upon Mr. Moyer’s disability or death. The employment agreement also contains non-solicitation, non-competition and non-disclosure provisions.

For information on payments to, and benefits for, Mr. Moyer upon termination of employment or a change-in-control of National Penn, see “Potential Payments upon Termination of Employment or a Change-in-Control” in this proxy statement.

Gary L. Rhoads, Bruce G. Kilroy and Paul W. McGloin. Gary L. Rhoads, Group Executive Vice President and Chief Financial Officer of National Penn, Bruce G. Kilroy, National Penn Group Executive Vice President-Financial Services/Enterprisewide Image, and Paul W. McGloin, National Penn Group Executive Vice President and Chief Lending Officer have "change-in-control" agreements with National Penn and National Penn Bank.

The benefits provided by these agreements become payable if two events occur. First, there must be a "change-in-control" of National Penn or National Penn Bank. A “change-in-control” is deemed to have occurred:

·	If any person or group acquires beneficial ownership of National Penn’s securities representing 24.99% or more of the combined voting power of National Penn’s securities then outstanding;

·	If there is a merger, consolidation or other reorganization of National Penn Bank, except where the resulting entity is controlled, directly or indirectly, by National Penn;

If there is a merger, consolidation or other reorganization of National Penn, except where shareholders of National Penn immediately prior to consummation of any such transaction continue to hold a majority of combined voting power of the outstanding voting securities of the legal entity resulting from or existing after any such transaction, and a majority of the members of the Board of Directors of the legal entity resulting from or existing after any such transaction are former members of National Penn’s Board of Directors;

·	If there is a sale, exchange, transfer or other disposition of substantially all of the assets of National Penn Bank to another entity, except to an entity controlled, directly or indirectly, by National Penn;

·	If there is a sale, exchange, transfer or other disposition of substantially all of the assets of National Penn to another entity, or a corporate division involving National Penn; or

·	If there is a contested proxy solicitation of the shareholders of National Penn which results in the contesting party obtaining the ability to cast 25% or more of the votes entitled to be cast in an election of directors of National Penn.

Second, the executive's employment must be terminated without “cause” or the executive must resign after an adverse change in the terms of his or her employment.

“Cause” means either:

·	The executive’s conviction of, or pleas of guilty or nolo contendere to, a felony or a crime of falsehood or involving moral turpitude; or

·	Willful failure by the executive to substantially perform his duties to National Penn, other than a failure resulting from the executive’s incapacity as a result of disability, which willful failure results in demonstrable material injury and damage to National Penn.

Adverse changes in the terms of employment are:

·	Reduction in the executive’s title or responsibilities;

·	Reduction in the executive’s compensation or benefits (except for a reduction for all employees generally);

·	Reassignment of the executive beyond a thirty-minute commute from Boyertown, Pennsylvania; or

·	Increased travel requirements for the executive.

For information on payments to, and benefits for, Messrs. Rhoads, Kilroy and McGloin upon termination of employment or a change-in-control of National Penn, see “Potential Payments upon Termination of Employment or a Change-in-Control” in this proxy statement.

Donald P. Worthington. On September 24, 2002, National Penn and National Penn Bank entered into an employment agreement with Donald P. Worthington, former Executive Vice President of FirstService Bank, under which he would become an Executive Vice President of National Penn Bank and President of the FirstService Bank Division of National Penn Bank. The agreement honors and continues an employment agreement entered into between FirstService and Mr. Worthington in 2001. The agreement retained the original five-year term of the FirstService employment agreement and its one-year extension provisions. As extended, the term of the agreement will end on March 24, 2009.

Effective February 1, 2007, Mr. Worthington’s salary is $211,584. Under his employment agreement, his salary is subject to review and increase, but not to decrease. Mr. Worthington is also entitled under the agreement to participate in National Penn's Executive Incentive Plan, and to participate in all health insurance and benefit plans, group insurance, pension or profit sharing plans or other plans providing benefits to National Penn employees generally. Mr. Worthington is also entitled to life insurance coverage and long-term disability insurance coverage paid for by National Penn, and the receipt of an automobile allowance of at least $600 per month.

If Mr. Worthington is terminated without cause, National Penn will be required to continue his base salary, medical benefits and disability insurance benefits for the remainder of the term of the agreement. However, if Mr. Worthington secures new full-time employment, his wages from that new employment will be offset from the salary continuation payments otherwise payable under the employment agreement. Following any termination of Mr. Worthington, he is prohibited, for a period of two years, from engaging in any activity competitive with National Penn within 50 miles of the principal business location of National Penn, and from soliciting or otherwise interfering with National Penn's relationship with any client, supplier, employee, agent or representative of National Penn.

Mr. Worthington's employment agreement includes a change in control benefit that would entitle him, under certain circumstances, to a lump sum cash payment in the amount of 150% of his average annual compensation for the five years preceding a change in control of National Penn, limited to the maximum amount deductible by National Penn under Section 280G of the Internal Revenue Code.

In Mr. Worthington's agreement, National Penn has also agreed to honor the supplemental executive retirement plan entered into between Mr. Worthington and FirstService. The plan provides for a lifetime annuity to Mr. Worthington equal to 60% of his then current base compensation upon retirement, commencing at any time after he reaches age 70. Once retirement benefits commence under the supplemental executive retirement plan, they will be increased annually by the lesser of 4% or the annual percentage change in the consumer price index for the preceding year. If Mr. Worthington dies, his wife will be entitled to a lifetime spousal death benefit under this plan equal to 80% of the benefit that otherwise would have then been payable to Mr. Worthington but for his death. The merger of FirstService with National Penn triggered a provision of Mr. Worthington's supplemental executive retirement plan prohibiting any termination of his benefits under that plan for any reason. Any benefits paid to Mr. Worthington under National Penn's defined benefit pension plan will be offset against any benefits payable under the supplemental executive retirement plan.

George C. Mason. George C. Mason, former chairman of the board of Peoples First, Inc., served from June 10, 2004 through June 10, 2006, as a consultant to National Penn and National Penn Bank under a consulting agreement dated as of December 17, 2003. This agreement was entered into concurrently with National Penn’s execution of the acquisition agreement relating to Peoples First, and became effective on the date closing of the acquisition occurred. Under this agreement, Mr. Mason provides general consulting and advisory services relating to National Penn’s business, and was paid a total of $230,000 over the two-year period.

Potential Payments Upon Termination of Employment or a Change-In-Control

The following discussion presents information on the various payments and benefits that each of Messrs. Weidner, Rhoads, Moyer, McGloin and Kilroy (the five executive officers whose compensation is discussed in the “Compensation Discussion and Analysis” and “Executive Compensation” sections of this proxy statement) would have been entitled to receive if his last day of employment with National Penn had been December 31, 2006 under the various circumstances presented.

Potential payments and benefits would arise under:

·	Employment agreements, including change-in-control and supplemental executive retirement plan (SERP) provisions - Messrs. Weidner and Moyer.

·	Change-in-control agreements - Messrs. Rhoads, McGloin, and Kilroy.

·	Various National Penn compensation plans and programs.

Circumstances that could give rise to potential payments and benefits include:

·	Voluntary termination of employment.

·	Involuntary termination without “cause.”

·	Involuntary termination for “cause.”

·	Permanent disability.

Death.

·	Change-in-control of National Penn, with or without adverse employment action.

Depending on the circumstances, payments and benefits may include:

·	Salary, including payments reflecting normal payroll cycle.

·	Incentive plan payments.

·	Gain on exercise of stock options.

·	Pension plan payments.

·	Supplemental executive retirement plan (SERP) payments.

·	Long-term disability payments or coverage.

·	Health insurance coverage.

·	Paid life insurance benefit.

·	Automobile allowance.

·	Change-in-control payments.

Some of the potential payments and benefits are directly related to the market price of National Penn common stock. The closing stock price on December 31, 2006 was $20.25 per share. This price is used to quantify these potential payments and benefits in the following discussion.

This discussion should be read in conjunction with the information provided in the “Compensation Discussion and Analysis” and “Executive Compensation” sections of this proxy statement, which include detailed information on the relevant employment agreements, change-in-control agreements, and other National Penn compensation plans and programs.

WAYNE R. WEIDNER

Background

Mr. Weidner currently serves as Chairman of National Penn. Prior to January 1, 2007, Mr. Weidner also served as Chief Executive Officer of National Penn and as Chairman of National Penn Bank. Mr. Weidner has been an employee of National Penn or National Penn Bank for over 44 years, and has served as an executive officer of National Penn or National Penn Bank for over 30 years.

Mr. Weidner has an employment agreement with National Penn and National Penn Bank that was entered into in January 2003 and amended in 2006. He also participates in various National Penn compensation plans and programs. For a description of the terms of Mr. Weidner’s employment agreement and National Penn’s various compensation plans and programs in which he participates, see the Summary Compensation Table included in the “Executive Compensation” section of this proxy statement.

If Mr. Weidner’s last day of employment with National Penn and National Penn Bank had been December 31, 2006, he would have been entitled to the following payments and benefits under the terms of his employment agreement and the various compensation plans and programs in which he participates, depending on the circumstances of his termination of employment.

Voluntary Termination/Retirement

· Salary - Mr. Weidner would have been paid for time worked through the termination date, December 31, 2006, a daily amount of $1,560 for five days, or a total of $7,800.

· Deferred Incentive Plan Payments - Mr. Weidner would have been paid all mandatory deferred incentive plan awards from plan years 2001 through 2005, plus interest, plus 100% “matching” payments. These payments would have been made over the five-year period beginning January 2007 and ending January 2011, each payment relating to the plan year that ended five years previously. As of December 31, 2006, before additional interest to the date of each payment, these amounts total $615,413.

· Incentive Plan Award for 2006 - For plan year 2006, Mr. Weidner would have been paid the incentive plan cash award of $152,133, with the additional amount of $15,213 subject to mandatory deferral under the plan, in the discretion of the Compensation Committee, subject to approval by the Board of Directors.

· Gain on Exercise of Stock Options - All unvested stock options would have vested at December 31, 2006. Including stock options already vested, the potential gain at December 31, 2006 on the exercise of the stock options for 700,120 shares (the difference between each option’s exercise price and the December 31, 2006 market price of National Penn common stock) would have been $3,143,901.

· Pension Plan Payments - Mr. Weidner would have been entitled to receive his vested benefit under the National Penn defined benefit pension plan. This benefit would have been paid out of pension plan assets, in accordance with the pension plan’s payment provisions and Mr. Weidner’s payment election. As of December 31, 2006, the present value of the pension plan’s accumulated benefit obligation to Mr. Weidner was $1,219,276.

· Supplemental Executive Retirement Plan (SERP) Payments - Mr. Weidner would have been entitled to receive monthly payments of $19,584 from National Penn over a 15-year period beginning January 1, 2007. As of December 31, 2006, the present value of Mr. Weidner’s accumulated SERP benefit was $2,320,181. Pension plan payments, if any, made concurrently with SERP payments would have been credited against, and reduced dollar-for-dollar, the SERP payments.

· Long-Term Disability Payments or Coverage - None. This benefit would have ceased as of December 31, 2006.

· Health Insurance Coverage - None. This benefit would have ceased as of December 31, 2006.

· Paid Life Insurance Benefit - Under National Penn’s bank-owned life insurance split dollar agreement relating to Mr. Weidner, Mr. Weidner would have been entitled to a continued life insurance benefit for the rest of his life in an amount equal to his annual base salary at December 31, 2006 of $405,579.

· Automobile Allowance - None. This benefit would have ceased as of December 31, 2006.

Involuntary Termination without “Cause”

· Salary - Mr. Weidner would have been entitled to continued regular payments of his base salary through the remaining term of his employment agreement, namely, through December 28, 2007, or a total of $425,529.

· Pension Plan Payments - Mr. Weidner would have been entitled to receive his vested benefit under the National Penn defined benefit pension plan. This benefit would have been paid out of pension plan assets in accordance with the pension plan’s payment provision and Mr. Weidner’s payment election. As of December 31, 2006, the present value of the pension plan’s accumulated benefit obligation to Mr. Weidner was $1,219,276.

· Long-Term Disability Payments or Coverage - Mr. Weidner would have been entitled to receive continued long-term disability coverage for one year from the termination date, namely, through December 31, 2007.

· Health Insurance Coverage - Mr. Weidner would have been entitled to receive reimbursement from National Penn for the cost of “COBRA” health care insurance coverage through the December 28, 2007 expiration date of his employment agreement.

· Paid Life Insurance Benefit - Under Mr. Weidner’s employment agreement, Mr. Weidner would have been entitled to receive a continued life insurance benefit equal to two times his annual base salary or a total of $851,058 through the remaining term of his employment agreement, namely, through December 28, 2007. Thereafter, under National Penn’s bank-owned life insurance split dollar agreement relating to Mr. Weidner, Mr. Weidner would have been entitled to receive a continued life insurance benefit equal to his annual base salary or $425,529.

· Automobile Allowance - Mr. Weidner would have been entitled to receive an automobile allowance through December 31, 2007, or a total of approximately $11,400.

Involuntary Termination for “Cause”

· Salary - Mr. Weidner would have been paid for time worked through the termination date, December 31, 2006, a daily amount of $1,560 for five days, or a total of $7,800.

· Incentive Plan Award for 2006 - None. No incentive plan award would have been paid or deferred for plan year 2006.

· Gain on Exercise of Stock Options - None. All stock options, whether vested or unvested, would have lapsed and been forfeited.

· Pension Plan Payments - Mr. Weidner would have been entitled to receive his vested benefit under the National Penn defined benefit pension plan. This benefit would have been paid out of pension plan assets in accordance with the pension plan’s payment provisions and Mr. Weidner’s payment election. As of December 31, 2006, the present value of the pension plan’s accumulated benefit obligation to Mr. Weidner was $1,219,276.

· Supplemental Executive Retirement Plan (SERP) Payments - None. All SERP payments would have been forfeited.

· Long-Term Disability Payments or Coverage - None. This benefit would have ceased as of December 31, 2006.

· Health Insurance Coverage - None. This benefit would have ceased as of December 31, 2006.

· Paid Life Insurance Benefit - Under National Penn’s bank-owned life insurance split dollar agreement relating to Mr. Weidner, Mr. Weidner would have been entitled to receive a continued life insurance benefit for the rest of his life in an amount equal to his annual base salary of $425,529.

· Automobile Allowance - None. This benefit would have ceased as of December 31, 2006.

Permanent Disability

· Pension Plan Payments - Mr. Weidner would have been entitled to receive his vested benefit under the National Penn defined benefit pension plan. This benefit would have been paid out of pension plan assets in accordance with the pension plan’s payment provisions and Mr. Weidner’s payment election. As of December 31, 2006, the present value of the pension plan’s accumulated benefit obligation to Mr. Weidner was $1,219,276.

· Long-Term Disability Payments or Coverage - Mr. Weidner would have continued to receive regular payments of base salary through December 28, 2007 or a total of $425,529, and thereafter regular payments for up to 24 months under a disability insurance policy in amounts equal to 60% of his base salary, but not to exceed $20,000 per month and subject to certain offsets as provided in the policy.

· Automobile Allowance - Mr. Weidner would have been entitled to receive an automobile allowance through December 31, 2007, or a total of approximately $11,400.

Death

· Salary - Mr. Weidner’s estate or designated beneficiary would have been entitled to receive payment of his base salary through the remaining term of his employment agreement, namely, through December 28, 2007, or a total of $425,529. This payment would have been made in one lump sum on or before January 30, 2007.

· Deferred Incentive Plan Payments - Mr. Weidner’s estate or designated beneficiary would have been paid all mandatory deferred incentive plan awards from plan years 2001 through 2005, plus interest, plus 100% “matching” payments. These payments would have been made in one lump sum on or before March 31, 2007. As of December 31, 2006, these amounts total $615,413.

· Incentive Plan Award for 2006 - For plan year 2006, Mr. Weidner’s estate or designated beneficiary would have been paid the incentive plan cash award of $152,133, and paid the $15,213 additional mandatory deferral amount, in the discretion of the Compensation Committee, subject to approval by the Board of Directors.

· Pension Plan Payments - Mr. Weidner’s estate or designated beneficiary would have been entitled to receive the death benefit provided by National Penn’s defined benefit pension plan of $1,121,874. This benefit would have been paid out of pension plan assets in accordance with governing provisions of the pension plan.

· Supplemental Executive Retirement Plan (SERP) Payments - Mr. Weidner’s estate or designated beneficiary would have been entitled to receive monthly payments of $19,584 from National Penn over a 15-year period beginning January 1, 2007. As of December 31, 2006, the present value of Mr. Weidner’s accumulated SERP benefit was $2,320,181.

· Long-Term Disability Payments or Coverage - None. This benefit would have ceased as of December 31, 2006.

· Health Insurance Coverage - Mr. Weidner’s health insurance coverage in effect as of December 31, 2006 would have continued for a maximum period of six months.

· Paid Life Insurance Benefit - Under National Penn’s bank-owned life insurance split dollar agreement relating to Mr. Weidner, Mr. Weidner’s estate or designated beneficiary would have been entitled to receive a life insurance policy payment equal to two times his annual base salary at December 31, 2006 or a total of $811,158.

· Automobile Allowance - None. This benefit would have ceased as of December 31, 2006.

Change in Control of National Penn (With or without Adverse Employment Action)

· Salary - Mr. Weidner would have been paid for time worked through the termination date, December 31, 2006, a daily amount of $1,560 for five days, or a total of $7,800.

· Deferred Incentive Plan Payments - Mr. Weidner would have been paid all mandatory deferred incentive plan awards from plan years 2001 through 2005, plus interest, plus 100% “matching” payments. These payments would have been made in one lump sum within 30 days of the change in control of National Penn, namely, on or before January 30, 2007. As of December 31, 2006, these amounts total $615,413.

· Incentive Plan Award for 2006 - For plan year 2006, Mr. Weidner would have been paid the incentive plan cash award of $152,133, and paid the $15,213 additional mandatory deferral amount, in the discretion of the Compensation Committee, subject to approval by the Board of Directors.

· Long-Term Disability Payments or Coverage - None. This benefit would have ceased as of December 31, 2006.

· Health Insurance Coverage - None. This benefit would have ceased as of December 31, 2006.

· Automobile Allowance - None. This benefit would have ceased as of December 31, 2006.

· Change-in-Control Payment - Mr. Weidner would have been paid an amount equal to 299% of his average taxable compensation (W-2 income) from National Penn for the years 2001 through 2005, or a total of $3,853,466, subject to reduction, dollar-for-dollar, to the extent necessary, if any, to reduce the payment to an amount that would not incur liability under the excise tax provisions of the Internal Revenue Code that may apply to change-in-control payments.

Material Conditions or Obligations to Payments or Benefits

· Non-Competition/Non-Solicitation - If Mr. Weidner should voluntarily terminate employment prior to the end of the term of his employment agreement on December 28, 2007, then for the remainder of the term of the agreement, he may not:

-	Engage in any capacity in the commercial or retail banking business in competition with National Penn within a 50-mile radius of National Penn’s executive offices; or

-	Solicit any National Penn customer (other than a family member) for business, or any National Penn employee for employment, on behalf of another company.

· Non-Disclosure - During the term of Mr. Weidner’s employment agreement and for three years thereafter, Mr. Weidner may not disclose any National Penn proprietary data or confidential information, except as may be required by law.

GARY L. RHOADS

Background

Mr. Rhoads currently serves as Group Executive Vice President, Treasurer and Chief Financial Officer of National Penn and as Cashier and Chief Financial Officer of National Penn Bank. Mr. Rhoads has served as an employee of National Penn or National Penn Bank for over 34 years and as an executive officer of National Penn or National Penn Bank since 1986.

Mr. Rhoads has a change-in-control agreement with National Penn and National Penn Bank that was entered into in 1997 and last amended in 2006. He also participates in various National Penn compensation plans and programs. For a description of the terms of Mr. Rhoads’ change-in-control agreement and National Penn’s various compensation plans and programs in which he participates, see the Summary Compensation Table included in the “Executive Compensation” section of this proxy statement.

If Mr. Rhoads’ last day of employment with National Penn and National Penn Bank had been December 31, 2006, he would have been entitled to the following payments and benefits under the terms of his change-in-control agreement and the various compensation plans and programs in which he participates, depending on the circumstances of his termination or employment.

Voluntary Termination

· Salary - Mr. Rhoads would have been paid for time worked through the termination date, December 31, 2006, a daily amount of $655 for five days, or a total of $3,275.

· Deferred Incentive Plan Payments - None. All mandatory deferred incentive plan awards, interest, and “matching” payments from National Penn would have been forfeited.

· Incentive Plan Award for 2006 - For plan year 2006, Mr. Rhoads would have been paid the incentive plan cash award of $41,304, with the additional amount of $4,130 subject to mandatory deferral under the plan, in the discretion of the Compensation Committee.

· Gain on Exercise of Stock Options - All unvested stock options would have lapsed and been forfeited at December 31, 2006. The potential gain at December 31, 2006 on the exercise of previously vested stock options for 99,984 shares (the difference between each option’s exercise price and the December 31, 2006 market price of National Penn common stock) would have been $573,835.

· Pension Plan Payments - Mr. Rhoads would have been entitled to receive his vested benefit under the National Penn defined benefit pension plan. This benefit would have been paid out of pension plan assets, in accordance with the pension plan’s payment provisions and Mr. Rhoads’ payment election. As of December 31, 2006, the present value of the pension plan’s accumulated benefit obligation to

Mr. Rhoads was $293,893.

· Long-Term Disability Payments or Coverage - None. This benefit would have ceased as of December 31, 2006.

· Health Insurance Coverage - None. This benefit would have ceased as of December 31, 2006.

· Paid Life Insurance Benefit - None. This benefit would have ceased as of December 31, 2006.

Involuntary Termination without “Cause”

· Salary - Mr. Rhoads would have been paid for time worked through the termination date, December 31, 2006, a daily amount of $655 for five days, or a total of $3,275.

· Deferred Incentive Plan Payments - None. All mandatory deferred incentive plan awards, interest, and “matching” payments from National Penn would have been forfeited.

· Incentive Plan Award for 2006 - For plan year 2006, Mr. Rhoads would have been paid the incentive plan cash award of $41,304, with the additional amount of $4,130 subject to mandatory

deferral under the plan, in the discretion of the Compensation Committee.

· Gain on Exercise of Stock Options - Unvested stock options granted in 2005 and 2006 would have vested at December 31, 2006. All other unvested stock options would have lapsed and been forfeited at December 31, 2006. The potential gain at December 31, 2006 on the exercise of vested stock options for 120,548 shares (the difference between each option’s exercise price and the December 31, 2006 market price of National Penn common stock) would have been $575,837.

· Long-Term Disability Payments or Coverage - None. This benefit would have ceased as of December 31, 2006.

· Health Insurance Coverage - None. This benefit would have ceased as of December 31, 2006.

· Paid Life Insurance Benefit - None. This benefit would have ceased as of December 31, 2006.

Involuntary Termination for “Cause”

· Salary - Mr. Rhoads would have been paid for time worked through the termination date, December 31, 2006, a daily amount of $655 for five days, or a total of $3,275.

· Deferred Incentive Plan Payments - None. All mandatory deferred incentive plan awards, interest, and “matching” payments from National Penn would have been forfeited.

· Incentive Plan Award for 2006 - None. No incentive plan award would have been paid or deferred for plan year 2006.

· Gain on Exercise of Stock Options - None. All stock options, whether vested or unvested, would have lapsed and been forfeited.

· Long-Term Disability Payments or Coverage - None. This benefit would have ceased as of December 31, 2006.

· Health Insurance Coverage - None. This benefit would have ceased as of December 31, 2006.

· Paid Life Insurance Benefit - None. This benefit would have ceased as of December 31, 2006.

Permanent Disability

· Salary - Mr. Rhoads would have been paid for time worked through the termination date, December 31, 2006, a daily amount of $655 for five days, or a total of $3,275.

· Deferred Incentive Plan Payments - Mr. Rhoads would have been paid all mandatory deferred incentive plan awards from plan years 2001 through 2005, plus interest, plus 100% “matching” payments. These payments would have been made over the five-year period beginning January 2007 and ending January 2011, each payment relating to the plan year that ended five years previously. As of

December 31, 2006, before additional interest to the date of each payment, these amounts total $189,894.

· Gain on Exercise of Stock Options - All unvested stock options would have vested at December 31, 2006. Including stock options already vested, the potential gain at December 31, 2006 on the exercise of the stock options for 137,406 shares (the difference between each option’s exercise price and the December 31, 2006 market price of National Penn common stock) would have been $592,392.

· Pension Plan Payments - Mr. Rhoads would have been entitled to receive his vested benefit under the National Penn defined benefit pension plan. This benefit would have been paid out of pension plan assets in accordance with the pension plan’s payment provisions and Mr. Rhoads’ payment election. As of December 31, 2006, the present value of the pension plan’s accumulated benefit obligation to

Mr. Rhoads was $293,893.

· Long-Term Disability Payments or Coverage - Mr. Rhoads would have continued to receive regular payments of base salary through June 30, 2007 or a total of $85,145, and thereafter regular payments for a maximum period through May 12, 2020 (age 66) under a disability insurance policy in amounts equal to 60% of base salary, but not to exceed $20,000 per month and subject to certain offsets as provided in the policy.

· Health Insurance Coverage - Health insurance coverage in effect as of December 31, 2006 would have continued, subject to cost-sharing requirements, until June 30, 2007.

· Paid Life Insurance Benefit - Under National Penn’s bank-owned life insurance split dollar agreement relating to Mr. Rhoads, Mr. Rhoads would have been entitled to receive a continued life insurance benefit until reaching age 65 in an amount equal to two times his base salary or $340,579, and thereafter in an amount equal to his base salary of $170,290.

Death

· Salary - Mr. Rhoads’ estate or designated beneficiary would have been paid for time worked through the termination date, December 31, 2006, a daily amount of $655 for five days, or a total of $3,275.

· Deferred Incentive Plan Payments - Mr. Rhoads’ estate or designated beneficiary would have been paid all mandatory deferred incentive plan awards from plan years 2001 through 2005, plus interest, plus 100% “matching” payments. These payments would have been made in one lump sum on or before March 31, 2007. As of December 31, 2006, these amounts total $189,894.

· Incentive Plan Award for 2006 - For plan year 2006, Mr. Rhoads’ estate or designated beneficiary would have been paid the incentive plan cash award of $41,304, and paid the $4,130 additional mandatory deferral amount, in the discretion of the Compensation Committee.

· Gain on Exercise of Stock Options - All unvested stock options would have vested at December 31, 2006. Including stock options already vested, the potential gain on the exercise of the stock options for 137,406 shares (the difference between each option’s exercise price and the December 31, 2006 market price of National Penn common stock) would have been $592,392.

· Pension Plan Payments - Mr. Rhoads’ estate or designated beneficiary would have been entitled to receive the death benefit provided by National Penn’s defined benefit pension plan of $236,103. This benefit would have been paid out of pension plan assets.

· Long-Term Disability Payments or Coverage - None. This benefit would have ceased as of December 31, 2006.

· Health Insurance Coverage - Health insurance coverage in effect as of December 31, 2006 would have continued for a maximum period of six months.

· Paid Life Insurance Benefit - Mr. Rhoads’ estate or designated beneficiary would have been entitled to receive a life insurance payment equal to two times his annual base salary or a total of $341,000.

Change in Control of National Penn

(with Adverse Employment Action)

· Salary - Mr. Rhoads would have been paid for time worked through the termination date, December 31, 2006, a daily amount of $655 for five days, or a total of $3,275.

· Deferred Incentive Plan Payments - Mr. Rhoads would have been paid all mandatory deferred incentive plan awards from plan years 2001 through 2005, plus interest, plus 100% “matching” payments. These payments would have been made in one lump sum within 30 days of the change in control of National Penn and subsequent adverse job action, namely, on or before January 30, 2007. As of December 31, 2006, these amounts total $189,894.

· Incentive Plan Award for 2006 - For plan year 2006, Mr. Rhoads would have been paid the incentive plan cash award of $41,304, and paid the $4,130 additional mandatory deferral amount, in the discretion of the Compensation Committee.

· Gain on Exercise of Stock Options - All unvested stock options would have vested at December 31, 2006. Including stock options already vested, the potential gain at December 31, 2006 on the exercise of the stock options for 137,406 shares (the difference between each option’s exercise price and the December 31, 2006 market price of National Penn common stock) would have been $592,392.

Mr. Rhoads was $293,893.

· Long-Term Disability Payments or Coverage - None. This benefit would have ceased as of December 31, 2006.

· Health Insurance Coverage - None. This benefit would have ceased as of December 31, 2006.

· Paid Life Insurance Benefit - None. This benefit would have ceased as of December 31, 2006.

· Change in-Control (with Adverse Employment Action) Payments - Mr. Rhoads would have been paid an amount equal to 200% of his average taxable compensation (W-2 income) from National Penn for the years 2001 through 2005, or a total of $656,647, plus the additional amount necessary, if any, to cover the income tax liability imposed on Mr. Rhoads under the excise tax provisions of the Internal Revenue Code that may apply to change-in-control payments.

GLENN E. MOYER

Background

Mr. Moyer currently serves as President and Chief Executive Officer of National Penn and as Chairman, President and Chief Executive Officer of National Penn Bank. Mr. Moyer has served as an executive officer of National Penn or National Penn Bank since January 1999.

Mr. Moyer has an employment agreement with National Penn and National Penn Bank that was entered into in December 2002 and amended in 2005 and in 2006. He also participates in various National Penn compensation plans and programs. For a description of the terms of Mr. Moyer’s employment agreement and National Penn’s various compensation plans and programs in which he participates, see the Summary Compensation Table included in the “Executive Compensation” section of this proxy statement.

If Mr. Moyer’s last day of employment with National Penn and National Penn Bank had been December 31, 2006, he would have been entitled to the following payments and benefits under the terms of his employment agreement and the various compensation plans and programs in which he participates, depending on the circumstances of his termination or employment.

Voluntary Termination

· Salary - Mr. Moyer would have been paid for time worked through the termination date, December 31, 2006, a daily amount of $1,248 for five days, or a total of $6,240.

· Deferred Incentive Plan Payments - None. All mandatory deferred incentive plan awards, interest, and “matching” payments from National Penn would have been forfeited.

· Incentive Plan Award for 2006 - For plan year 2006, Mr. Moyer would have been paid the incentive plan cash award of $121,712, with the additional amount of $12,171 subject to mandatory deferral under the plan, in the discretion of the Compensation Committee, subject to approval by the Board of Directors.

· Gain on Exercise of Stock Options - All unvested stock options would have lapsed and been forfeited at December 31, 2006. The potential gain at December 31, 2006 on the exercise of previously vested stock options for 222,657 shares (the difference between each option’s exercise price and the December 31, 2006 market price of National Penn common stock) would have been $1,265,664.

· Pension Plan Payments - Mr. Moyer would have been entitled to receive his vested benefit under the National Penn defined benefit pension plan. This benefit would have been paid out of pension plan assets, in accordance with the pension plan’s payment provisions and Mr. Moyer’s payment election. As of December 31, 2006, the present value of the pension plan’s accumulated benefit obligation to Mr. Moyer was $111,480.

· Supplemental Executive Retirement Plan (SERP) Payments - None. This benefit would have ceased as of December 31, 2006.

· Long-Term Disability Payments or Coverage - None. This benefit would have ceased as of December 31, 2006.

· Health Insurance Coverage - None. This benefit would have ceased as of December 31, 2006.

· Paid Life Insurance Benefit - Under National Penn’s bank-owned life insurance split dollar agreement relating to Mr. Moyer, Mr. Moyer would have been entitled to receive a continued life insurance benefit for the rest of his life in an amount equal to his annual base salary at December 31, 2006 of $324,480.

· Automobile Allowance - None. This benefit would have ceased as of December 31, 2006.

Involuntary Termination without “Cause”

· Salary - Mr. Moyer would have been entitled to continued regular payments of his base salary through the remaining term of his employment agreement, namely, through December 17, 2009, or a total of $1,185,825.

· Deferred Incentive Plan Payments - None. All mandatory deferred incentive plan awards, interest, and “matching” payments from National Penn would have been forfeited.

· Gain on Exercise of Stock Options - Unvested options granted in 2005 and 2006 would have vested at December 31, 2006. All other unvested stock options would have lapsed and been forfeited at December 31, 2006. The potential gain at December 31, 2006 on the exercise of vested stock options for 301,057 shares (the difference between each option’s exercise price and the December 31, 2006 market price of National Penn common stock) would have been $1,272,488.

· Supplemental Executive Retirement Plan (SERP) Payments - The SERP benefit would have been calculated, on a partially accelerated basis, as if Mr. Moyer were 58 years old. Accordingly, Mr. Moyer would have been entitled to receive monthly payments of $11,207 from National Penn over a 15-year period beginning January 1, 2007. As of December 31, 2006, the present value of Mr. Moyer’s accumulated SERP benefit, on this partially accelerated basis, was $1,108,286. Pension plan payments made concurrently with SERP payments would have been credited against, and reduced dollar-for-dollar, the SERP payments.

· Long-Term Disability Payments or Coverage - Mr. Moyer would have been entitled to receive continued long-term disability coverage for one year from the termination date, namely, through December 31, 2007.

· Health Insurance Coverage - Mr. Moyer would have been entitled to receive reimbursement from National Penn for the cost of “COBRA” health care insurance coverage through the December 17, 2009 expiration date of his employment agreement.

· Paid Life Insurance Benefit - Under Mr. Moyer’s employment agreement, Mr. Moyer would have been entitled to receive a continued life insurance benefit equal to two times his annual base salary or a total of $790,550 through the remaining term of his employment agreement, namely, through December 17, 2009. Thereafter, under National Penn’s bank-owned life insurance split dollar agreement relating to Mr. Moyer, Mr. Moyer would have been entitled to receive a continued life insurance benefit for the rest of his life in an amount equal to his annual base salary of $395,275.

· Automobile Allowance - Mr. Moyer would have been entitled to receive an automobile allowance through December 31, 2007, or a total of approximately $10,800.