content: FORM 10-Q
  
  SECURITIES AND EXCHANGE COMMISSION
  WASHINGTON, D.C.  20549
  
  (Mark One)
  
             [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                          SECURITIES EXCHANGE ACT OF 1934
  
  For the quarterly period ended:            September 30, 1998
                                  ---------------------------------------
  
  OR
  
            [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE
                          SECURITIES EXCHANGE ACT OF 1934
  
  For the transition period from: _________________ to _________________
  
  
  Commission file number: 0-10957
                          -------
  
                           NATIONAL PENN BANCSHARES, INC.
                           ------------------------------
               (Exact name of registrant as specified in its charter)
  
                  Pennsylvania                            23-2215075
                  ------------                            ----------
        (State or other jurisdiction of                (I.R.S. Employer
         incorporation or organization)                 Identification No.)
  
                Philadelphia and Reading Avenues, Boyertown, PA 19512
                -----------------------------------------------------
                (Address of principal executive offices)      (Zip Code)
  
                                   (610) 367-6001
                ----------------------------------------------------
                (Registrant's telephone number, including area code)
  
                                         N/A
                ----------------------------------------------------
                (Former name, former address and former fiscal year,
                            if changed since last report)
  
       Indicate  by check mark  whether the  Registrant  (1) has filed all reports
  required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
  1934  during  the  preceding  12 months  (or for such  shorter  period  that the
  Registrant was required to file such reports),  and (2) has been subject to such
  filing requirements for the past 90 days. Yes _X_  No___.
  
       Indicate the number of shares  outstanding of each of the issuer's  classes
  of common stock, as of the latest practicable date.
  
                Class                       Outstanding at November 6, 1998
  
   Common Stock (no stated par value) (No.)         13,171,751 Shares
  
  
  <PAGE>
  
  TABLE OF CONTENTS
  
  Part I - Financial Information.                                            Page
  
           Item 1.    Financial Statements..............................      3
  
           Item 2.    Management's Discussion and Analysis of
                      Financial Condition and Results of Operation .....      8
  
           Item 3.    Quantitative and Qualitative Disclosures about
                      Market Risk.......................................     16
  
  Part II - Other Information.
  
           Item 1.    Legal Proceedings ................................     17
  
           Item 2.    Changes in Securities.............................     17
  
           Item 3.    Defaults Upon Senior Securities...................     17
  
           Item 4.    Submission of Matters to a Vote of
                      Security Holders..................................     17
  
           Item 5.    Other Information ................................     17
  
           Item 6.    Exhibits and Reports on Form 8-K..................     17
  
  Signature.............................................................     19
  
                                         2
  <PAGE>
                                         PART I - FINANCIAL INFORMATION
  
  Item 1.  Financial Statements
  <TABLE>
  <CAPTION>
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
  CONSOLIDATED CONDENSED BALANCE SHEET                                           Sept. 30            Dec. 31
   (Dollars in thousands, except per share data)                                   1998               1997
                                                                                (Unaudited)          (Note)
                                                                               -----------        -----------
  <S>                                                                          <C>                <C>        
  ASSETS
  Cash and due from banks                                                      $    39,839        $    40,009
  Interest bearing deposits in banks                                                 1,670              1,089
  Federal funds sold                                                                 4,000                 --
                                                                               -----------        -----------
      Total cash and cash equivalents                                               45,509             41,098
  Trading account securities                                                        21,522                 --
  Investment securities available for sale at market value                         410,442            321,760
  Loans, less allowance for loan losses of $27,769 and
    $25,122 in 1998 and 1997 respectively                                        1,172,151          1,097,662
  Other assets                                                                      84,567             73,858
                                                                               -----------        -----------
      Total Assets                                                               1,734,191          1,534,378
                                                                               ===========        ===========
  
  
  LIABILITIES AND SHAREHOLDERS' EQUITY
  Non-interest bearing deposits                                                $   152,855        $   146,772
  Interest bearing deposits
    (Includes certificates of deposit in excess of $100,000 or greater:
    1998 - $141,549; 1997 - $110,447)                                              984,166            968,828
                                                                               -----------        -----------
      Total Deposits                                                             1,137,021          1,115,600
  Securities sold under repurchase agreements
    and federal funds purchased                                                    152,940             77,225
  Short-term borrowings                                                              8,291              6,109
  Long-term obligations                                                            248,481            155,460
  Guaranteed preferred beneficial interests in
     Company's subordinated debentures                                              40,250             40,250
  Accrued interest and other liabilities                                            18,587             16,546
                                                                               -----------        -----------
      Total Liabilities                                                          1,605,570          1,411,190
  Commitments and contingent liabilities                                                --                 --
  Shareholders' equity
    Preferred stock, no stated par value;
      authorized 1,000,000 shares, none issued                                          --                 --
    Common stock, no stated par value;
      authorized 62,500,000 shares; issued and outstanding
      1998 - 13,166,808; 1997 - 13,284,175, net of shares
      in Treasury: 1998 - 0; 1997 - 104,623                                         92,546            101,748
    Retained earnings                                                               25,139             17,337
    Net unrealized gains on securities available for sale                           10,936              7,531
    Treasury stock at cost                                                              --             (3,428)
                                                                               -----------        -----------
  
      Total Shareholders' Equity                                                   128,621            123,188
                                                                               -----------        -----------
      Total Liabilities and Shareholders' Equity                               $ 1,734,191        $ 1,534,378
                                                                               ===========        ===========
  </TABLE>
  
  The  accompanying  notes  are an  integral  part of  these  condensed  financial
  statements.
  
  Note: The Balance Sheet at Dec. 31, 1997 has been derived from the audited
        financial statements at that date.
  
                                          3
  <PAGE>
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
  UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME
  <TABLE>
  <CAPTION>
                                                                     Three Months Ended              Nine Months Ended
  (Dollars in thousands, except per share data)                        September 30                    September 30
                                                                ---------------------------------------------------------
                                                                  1998             1997            1998            1997
                                                                --------         --------        --------        --------
  <S>                                                           <C>              <C>             <C>             <C>     
  INTEREST INCOME
  Loans including fees                                          $ 27,368         $ 26,033        $ 80,059        $ 75,656
  Deposits in banks                                                   48               22              96              66
  Federal funds sold                                                   5               42              29              93
  Trading Assets                                                     315               --             518              --
  Investment securities                                            5,921            4,414          16,844          11,727
                                                                --------         --------        --------        --------
      Total interest income                                       33,657           30,511          97,546          87,542
                                                                --------         --------        --------        --------
  INTEREST EXPENSE
  Deposits                                                        10,968           10,564          32,922          29,663
  Federal funds purchased, borrowed funds and
    securities sold under repurchase agreements                    6,384            3,684          16,340           9,905
                                                                --------         --------        --------        --------
      Total interest expense                                      17,352           14,248          49,262          39,568
                                                                --------         --------        --------        --------
      Net interest income                                         16,305           16,263          48,284          47,974
  Provision for loan losses                                        1,200            1,200           3,600           3,600
                                                                --------         --------        --------        --------
      Net interest income after provision
        for loan losses                                           15,105           15,063          44,684          44,374
                                                                --------         --------        --------        --------
  OTHER INCOME
  Trust and investment management income                             828              683           2,420           2,006
  Service charges on deposit accounts                              1,097            1,013           3,206           2,974
  Net gains (losses) on sale of securities and mortgages            (114)             620             330           1,462
  Trading Revenue                                                    328               --             513              --
  Other                                                            1,934              979           5,306           2,782
                                                                --------         --------        --------        --------
      Total other income                                           4,073            3,295          11,775           9,224
                                                                --------         --------        --------        --------
  OTHER EXPENSES
  Salaries, wages and employee benefits                            7,009            6,563          20,620          19,450
  Net premises and equipment                                       1,997            1,818           5,707           5,544
  Other operating                                                  3,463            3,267          10,551           8,946
                                                                --------         --------        --------        --------
      Total other expenses                                        12,469           11,648          36,878          33,940
                                                                --------         --------        --------        --------
      Income before income taxes                                   6,709            6,710          19,581          19,658
  Applicable income tax expense                                    1,419            1,991           4,463           6,020
                                                                --------         --------        --------        --------
      Net income                                                $  5,290         $  4,719        $ 15,118        $ 13,638
                                                                ========         ========        ========        ========
  
  
  PER SHARE OF COMMON STOCK
  Net income per share - basic                                  $   0.40         $   0.36        $   1.14        $   1.03
  Net income per share - diluted                                    0.39             0.35            1.12            1.01
  Dividends paid in cash                                            0.19             0.17            0.53            0.46
  </TABLE>
  
  The  accompanying  notes  are an  integral  part of  these  condensed  financial
  statements.
  
                                          4
  <PAGE>
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
  CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
  
  <TABLE>
  <CAPTION>
  NINE MONTHS ENDED SEPTEMBER 30, 1998
    (Dollars in thousands)                                                               Net Unrealized
                                                                                         Gain (Loss) on
                                                                     Additional            Securities   Compre-
                                                 Common Stock         Paid-in    Retained   Available   hensive   Treasury
                                              Shares    Par Value     Capital    Earnings   for Sale    Income      Stock     Total
  
  <S>                                      <C>           <C>         <C>        <C>         <C>       <C>        <C>        <C>     
  Balance at December 31, 1997              10,606,726    $20,085     $81,663    $17,337     $7,531        --     ($3,428)   $123,188
  Comprehensive income:
    Net income                                      --         --          --     15,118         --    15,118          --     $15,118
    Unrealized gains(losses) on
      securities available for sale,
      net of taxes and
      reclassification adjustment
      (see disclosure)                              --         --          --         --      3,405     3,933          --      $3,405
                                                                                                      -------
  Comprehensive income                                                                                $19,051
                                                                                                      =======
  Conversion to no par value stock                  --     80,113     (80,113)        --         --                    --          --
  5 for 4 stock split                        2,677,449
  Shares issued under stock option plan          3,721         19          --         --         --                    --         $19
  Cash dividends declared                           --         --          --     (7,316)        --                    --     ($7,316)
  Effect of treasury stock transactions       (121,088)    (7,671)     (1,550)        --         --                 3,428     ($5,793)
                                            ----------    -------     -------    -------    -------                 -----    --------
  Balance at September 30, 1998             13,166,808    $92,546          $0    $25,139    $10,936                    $0    $128,621
                                            ==========    =======     =======    =======    =======                 =====    ========
  
  
  Disclosure of reclassification amount:
    Unrealized holding loss
        arising during period                                                                          $3,933
    Less: reclassification adjustment
        for gains included in net income                                                                 (528)
                                                                                                       ------ 
    Net unrealized loss on securities                                                                  $3,405
                                                                                                       ======
  
  
  NINE MONTHS ENDED SEPTEMBER 30, 1997
    (Dollars in thousands)                                                               Net Unrealized
                                                                                         Gain (Loss) on
                                                                     Additional            Securities   Compre-
                                                 Common Stock         Paid-in    Retained   Available   hensive   Treasury
                                              Shares    Par Value     Capital    Earnings   for Sale    Income      Stock     Total
  
  Balance at December 31, 1996               8,002,648    $20,085     $83,707     $7,357     $4,398        --       ($826)   $114,721
  Comprehensive income:
    Net income                                      --         --          --     13,638         --    13,638          --     $13,638
    Unrealized gains(losses) on
      securities available for sale,
      net of taxes and
      reclassification adjustment
      (see disclosure)                              --         --          --         --       (787)    1,129          --       ($787)
                                                                                                      -------
  Comprehensive income                                                                                $14,767
                                                                                                      =======
  Conversion to no par value stock                  --     83,268     (83,268)        --         --                    --
  4 for 3 stock split                        2,677,497
  Cash dividends declared                           --         --          --     (6,422)        --                    --     ($6,422)
  Effect of treasury stock transactions         (5,139)      (792)       (439)        --         --                  (294)    ($1,525)
                                            ----------   --------     -------    -------    -------               -------    --------
  Balance at September 30, 1997             10,675,006   $102,561          $0    $14,573     $3,611               ($1,120)   $119,625
                                            ==========   ========     =======    =======    =======               =======    ========
  
  
  Disclosure of reclassification amount:
    Unrealized holding loss arising
       during period                                                                                   $1,129
    Less: reclassification adjustment
       for gains included in net income                                                                  (342)
                                                                                                       ------
    Net unrealized loss on securities                                                                    $787
                                                                                                       ======
  </TABLE>
  
    The accompanying notes are an integral part of these statements.
  
                                          5
  <PAGE>
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
  UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
  <TABLE>
  <CAPTION>
                                                                              Nine Months Ended September 30,
  (Dollars in thousands)
                                                                                  1998            1997
                                                                                --------        --------
  <S>                                                                            <C>            <C>    
  CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                                                   $15,118        $13,638
    Adjustments to reconcile net income to net
        cash provided by (used in) operating activities
      Provision for loan and lease losses                                          3,600          3,600
      Depreciation and amortization                                                2,780          2,627
      Net (gains) losses on sale of securities and mortgages                        (330)        (1,462)
      Trading-related assets                                                     (21,522)            --
      Mortgage loans originated for resale                                       (40,083)       (15,610)
      Sale of mortgage loans originated for resale                                40,083         15,610
      Other                                                                       (8,065)        (1,964)
                                                                               ---------      ---------
  
        Net cash provided by (used in) operating activities                       (8,419)        16,439
  
  CASH FLOWS FROM INVESTING ACTIVITIES
    Proceeds from sales of investment securities - available for sale             48,500         12,584
    Proceeds from maturities of investment securities - held to maturity              --         14,008
    Proceeds from maturities of investment securities - available for sale        25,289            740
    Purchase of investment securities - available for sale                      (160,901)      (107,581)
    Proceeds from sales of loans                                                      --             --
    Net increase in loans                                                        (78,089)       (55,563)
    Purchases of premises & equipment                                             (1,217)        (2,333)
                                                                               ---------      ---------
  
        Net cash provided by (used in) investing activities                     (166,418)      (138,145)
  
  CASH FLOWS FROM FINANCING ACTIVITIES
    Increase (decrease) in:
      Deposits                                                                    21,421         92,581
      Repurchase agreements, fed funds & short-term borrowings                    77,897        (70,211)
      Long-term borrowings                                                        93,021        119,600
    (Increase) decrease in treasury stock                                          3,428           (294)
    Issuance of common stock under dividend reinvestment plan                     (9,202)        (1,231)
    Cash dividends                                                                (7,317)        (6,422)
                                                                               ---------      ---------
  
        Net cash provided by (used in) financing activities                      179,248        134,023
  
  Net increase (decrease) in cash and cash equivalents                             4,411         12,317
  
  Cash and cash equivalents at January 1                                          41,098         41,996
                                                                               ---------      ---------
  
  Cash and cash equivalents at September 30                                      $45,509        $54,313
                                                                               =========      =========
  </TABLE>
  
  The  accompanying  notes  are an  integral  part of  these  condensed  financial
  statements.
  
                                          6
  <PAGE>
  NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
  (UNAUDITED)
  
  
  1. The accompanying  unaudited condensed financial statements have been prepared
  in  accordance  with  generally  accepted  accounting   principles  for  interim
  financial  information.  The financial information included herein is unaudited;
  however, such information reflects all adjustments  (consisting solely of normal
  recurring  adjustments) which are, in the opinion of management,  necessary to a
  fair statement of the results for the interim periods.  For further information,
  refer to the consolidated financial statements and footnotes thereto included in
  the Company's Annual Report on Form 10-K for the year ended December 31, 1997.
  
  2. The results of operations for the nine-month  period ended September 30, 1998
  are not necessarily indicative of the results to be expected for the full year.
  
  3. Per share data are based on the weighted average number of shares outstanding
  of  13,190,196  and  13,181,487  for 1998  and  1997,  respectively,  and on the
  weighted  average  number  of  diluted  shares  outstanding  of  13,510,772  and
  13,515,377  for 1998 and  1997,  respectively,  and are  computed  after  giving
  retroactive effect to a 5-for-4 stock split paid July 31, 1998.
  
  4. On  September  23, 1998,  the  Company's  Board of Directors  declared a cash
  dividend of $.19 per share  payable on November 17,  1998,  to  shareholders  of
  record on October 31, 1998.
  
  5.  In June  1998,  the  Financial  Accounting  Standards  Board  (FASB)  issued
  Statement of Financial  Accounting  Standards  (SFAS) No. 133,  "Accounting  for
  Derivative   Instruments  and  Hedging   Activity."  SFAS  No.  133  establishes
  accounting and reporting standards for derivative instruments, including certain
  derivative instruments imbedded in other contracts,  and for hedging activities.
  It  requires  that an entity  recognize  all  derivatives  as  either  assets or
  liabilities in the statement of financial position and measure those instruments
  at fair value.  If certain  conditions are met, a derivative may be specifically
  designated  as a hedge.  The  accounting  for  changes  in the  fair  value of a
  derivative  (gains and losses) depends on the intended use of the derivative and
  resulting  designation.  SFAS No. 133 is  effective  for all fiscal  quarters of
  fiscal years  beginning  after June 15, 1999.  Earlier  application is permitted
  only as of the  beginning  of any  fiscal  quarter.  The  Company  is  currently
  reviewing the provisions of SFAS No. 133.
  
  6. The Company  identifies a loan as impaired  when it is probable that interest
  and principal will not be collected  according to the  contractual  terms of the
  loan  agreement.  The balance of impaired  loans was $7,935,000 at September 30,
  1998, all of which are non-accrual loans. The allowance for loan loss associated
  with these  impaired  loans was  $380,000 at  September  30,  1998.  The Company
  recognizes income on impaired loans under the cash basis when the loans are both
  current and the  collateral on the loan is  sufficient to cover the  outstanding
  obligation to the Company.  If these factors do not exist,  the Company will not
  recognize income on such loans.
  
                                         7
  <PAGE>
  Item 2. Management's Discussion and Analysis of Financial Condition and Results 
          of Operations
  
  
       The   following   discussion   and   analysis  is  intended  to  assist  in
  understanding  and evaluating  the major changes in the financial  condition and
  earnings  performance  of the  Company  with a primary  focus on an  analysis of
  operating results.
  
                                 FINANCIAL CONDITION
  
       Total assets increased to $1.734 billion,  an increase of $198.8 million or
  13.0% over the $1.534  billion at December 31, 1997.  This increase is reflected
  primarily in the investment category,  the result of the investment of deposits,
  the  Company's  primary  source of funds,  short-term  borrowings  and long-term
  borrowings.
  
       Total  cash  and  cash  equivalents  increased  $4.4  million  or  10.7% at
  September  30, 1998 when  compared to  December  31,  1997.  This  increase  was
  primarily in federal funds sold and interest bearing deposits in banks.
  
       Loans  increased to $1.172  billion at September 30, 1998.  The increase of
  $74.5  million or 6.8% compared to December 31, 1997 was primarily the result of
  the  investment  of deposits and  long-term  borrowings.  Loans  originated  for
  immediate  resale during the first six months of 1998 amounted to $40.1 million.
  The  Company's  credit  quality  is  reflected  by the  annualized  ratio of net
  charge-offs to total loans of .08% through the third quarter of 1998 versus .20%
  for the year 1997, and the ratio of non-performing assets to total loans of .89%
  at September  30, 1998 and December 31 1997.  Non-performing  assets,  including
  non-accruals,  loans 90 days past due,  restructured loans and other real estate
  owned,  were $10.7  million at September  30, 1998  compared to $10.0 million at
  December 31, 1997. Of these amounts,  non-accrual loans represented $7.9 million
  and $6.8  million at September  30, 1998 and  December  31, 1997,  respectively.
  Loans 90 days past due and still  accruing  interest  were $2.4 million and $2.8
  million at September  30, 1998 and December 31, 1997,  respectively.  Other real
  estate owned was  $387,000  and $375,000 at September  30, 1998 and December 31,
  1997, respectively.  The Company had no restructured loans at September 30, 1998
  or December 31, 1997. The allowance for loan losses to non-performing assets was
  258.6% and 251.6% at September 30, 1998 and December 31, 1997, respectively.  As
  is evident from the above amounts relative to non-performing  assets, there have
  been no significant  changes  between  December 31, 1997 and September 30, 1998.
  The  Company  has no  significant  exposure  to energy and  agricultural-related
  loans.
  
       Investments,  the Company's secondary use of funds, increased $88.7 million
  or 27.6% to $410.4  million at September  30, 1998 when compared to December 31,
  1997. The increase is due to investment  purchases of $160.9 million,  primarily
  in municipal  securities,  which was partially  offset by  investment  sales and
  maturities and the amortization of mortgage-backed securities.
  
       A new line  item on the  consolidated  balance  sheet is  "Trading  account
  securities" of $21.5 million at September 30, 1998. This  represents  investment
  securities  that are actively  traded by the Company with the goal of generating
  higher total  returns.  Investors  Trust  Company,  a subsidiary of the Company,
  manages this  portfolio.  Interest income from these  securities  appears on the
  consolidated  statements  of income on the line item "Trading  assets."  Trading
  gains and losses, both realized and unrealized, appear on the line item "Trading
  revenue" in the "Other Income" category.
  
       As the primary  source of funds,  aggregate  deposits of $1.137  billion at
  September  30, 1998  increased  $21.4  million or 1.9%  compared to December 31,
  1997.  The  increase  in  deposits  during  the  first  nine  months of 1998 was
  primarily in interest  bearing  deposits  which  increased  $15.3  million while
  non-interest bearing deposits increased $6.1 million. Certificates of deposit in
  excess of $100,000  increased  $31.1 million.  In addition to deposits,  earning
  assets are funded to some extent through  purchased funds and borrowings.  These
  include  securities sold under repurchase  agreements,  federal funds purchased,
  short-term borrowings and long-term debt obligations.  In aggregate, these funds
  totaled $450.0 million at September 30, 1998, and $279.0 million at December 31,
  1997.  The  increase of $170.9  million  represents  
  
  
                                          8
  
  <PAGE>
  
  an  increase  in  long-term  obligations  of $93.0  million  and an  increase in
  short-term borrowings, primarily securities sold under repurchase agreements and
  federal funds purchased, of $77.9 million.
  
       Shareholders'  equity  increased $5.4 million  through  September 30, 1998.
  This increase was due to an increase in earnings retained and an increase in the
  valuation  adjustment for securities  available for sale,  which  represents the
  accounting  treatment required under Statement of Financial Accounting Standards
  115, "Accounting for Certain Investments in Debt and Equity Securities," applied
  to the  increase in market value of the  Company's  investment  portfolio.  Cash
  dividends paid during the first nine months of 1998 increased  $945,000 or 15.5%
  compared  to the cash  dividends  paid  during  the first  nine  months of 1997.
  Earnings  retained  during the first nine months of 1998 were 53.4%  compared to
  55.3% during the first nine months of 1997.
  
                                RESULTS OF OPERATIONS
  
       Net income for the quarter ended September 30, 1998 was $5.3 million, 12.1%
  more than the $4.7 million  reported for the same period in 1997.  For the first
  nine months,  net income  reached  $15.1  million,  or 10.9% more than the $13.6
  million  reported for the first nine months of 1997.  The Company's  performance
  has been and will  continue  to be in part  influenced  by the  strength  of the
  economy and conditions in the real estate market.
  
       Net interest income is the difference between interest income on assets and
  interest expense on liabilities. Net interest income increased $42,000 or .3% to
  $16.3 million during the third quarter of 1998 . For the comparative  nine month
  period,  net interest  income  increased  $310,000 or .6% to $48.3  million from
  $48.0 million in 1997. The increase in interest  income is a result of growth in
  loan  outstandings and higher rates on loans that was partially offset by growth
  in deposits and higher rates on deposits and borrowings. Interest rate risk is a
  major  concern  in  forecasting  earnings  potential.  From  March  26,  1997 to
  September 28, 1998,  the prime rate was 8.50%.  On September 29, 1998, the prime
  rate  changed to 8.25%.  Interest  expense  during the first nine months of 1998
  increased  $9.7 million or 24.5% compared to the prior year's first nine months.
  Despite  the  current  rate  environment,  the cost of  attracting  and  holding
  deposited funds is an  ever-increasing  expense in the banking  industry.  These
  increases are the real costs of deposit  accumulation  and retention,  including
  FDIC insurance costs and branch overhead expenses.  Such costs are necessary for
  continued  growth  and to  maintain  and  increase  market  share  of  available
  deposits.
  
       The provision  for loan and lease losses is determined by periodic  reviews
  of loan quality,  current economic conditions,  loss experience and loan growth.
  Based on these  factors,  the provision  for loan and lease losses  remained the
  same for the nine month period  ended  September  30, 1998  compared to the same
  period in 1997.  The  allowance  for loan and lease  losses of $27.8  million at
  September  30, 1998 and $25.1  million at December 31, 1997 as a  percentage  of
  total loans was 2.3% and 2.2%,  respectively.  The Company's net  charge-offs of
  $953,000  and  $1,495,000  during  the  first  nine  months  of 1998  and  1997,
  respectively,  continue to be  comparable to those of the  Company's  peers,  as
  reported in the Bank Holding Company Performance Report.
  
       "Total other income"  increased  $778,000 or 23.6% during the third quarter
  of 1998, as a result of increased  other income of $955,000,  trading revenue of
  $328,000,  increased  trust and investment  management  income of $145,000,  and
  increased  service  charges on deposit  accounts of $84,000.  This was partially
  offset  by a  decrease  in net  gains  (losses)  on the sale of  securities  and
  mortgages of $734,000.  Year to date,  other  income  increased  $2.6 million or
  27.7% when  compared to the first nine  months of 1997 as a result of  increased
  other income of $2.5 million,  trading revenue of $513,000,  increased trust and
  investment  management  income of $414,000,  and increased  services  charges on
  deposit  accounts of $232,000.  This was  partially  offset by a decrease in net
  gains (losses) on the sale of securities  and mortgages of $1.1 million.  "Total
  other  expenses"  increased  $821,000 or 7.0% during the quarter ended September
  30, 1998 and increased  $2.9 million or 8.7% for the nine month period.  Of this
  year-to-date increase, other operating expenses increased $1.6 million or 17.9%,
  salaries,  wages and benefits  increased  $1.2 million or 6.0%, and net premises
  and equipment increased $163,000 or 2.9%.
  
                                         9
  
  <PAGE>
  
       Income before  income taxes  remained even compared to the third quarter of
  1997. In comparing  the first nine months of 1998 to 1997,  income before income
  taxes decreased $77,000 or .4%. Income taxes decreased  $572,000 for the quarter
  and decreased $1.6 million the nine month period.
  
                       LIQUIDITY AND INTEREST RATE SENSITIVITY
  
       The primary functions of asset/liability  management are to assure adequate
  liquidity and maintain an appropriate  balance between  interest-earning  assets
  and interest-bearing  liabilities.  Liquidity management involves the ability to
  meet the cash  flow  requirements  of  customers  who may be  either  depositors
  wanting to withdraw funds or borrowers  needing  assurance that sufficient funds
  will be available  to meet their  credit  needs.  Funding  affecting  short-term
  liquidity,  including deposits,  repurchase agreements, fed funds purchased, and
  short-term  borrowings,  increased  $99.3 million from year end 1997.  Long-term
  borrowings increased $93.0 million during the first nine months of 1998.
  
       The goal of interest rate  sensitivity  management is to avoid  fluctuating
  net interest  margins,  and to enhance  consistent growth of net interest income
  through periods of changing  interest rates. Such sensitivity is measured as the
  difference  in the volume of assets and  liabilities  in the existing  portfolio
  that are subject to repricing in a future time period.
  
       The following table shows  separately the interest rate sensitivity of each
  category  of  interest-earning   assets  and  interest-bearing   liabilities  at
  September 30, 1998:
  
  <TABLE>
  <CAPTION>
                                                         Repricing Periods  (1)
                                                        Three Months   One Year
                                        Within Three    Through One   Through Five       Over
                                          Months           Year          Years         Five Years
                                                              (In Thousands)
  <S>                                    <C>            <C>             <C>           <C>      
  Assets
        Interest-bearing deposits
           at banks                         $1,670      $      --      $      --      $      --
        Investment securities               28,868         47,189        125,080        209,305
        Trading account securities          21,522             --             --             --
        Loans and leases                   312,278        134,079        389,797        335,997
        Other assets                         4,000             --             --        124,406
                                         ---------      ---------      ---------      ---------
                                           368,338        181,268        514,877        669,708
                                         ---------      ---------      ---------      ---------
  Liabilities and equity
        Noninterest-bearing deposits       152,855             --             --             --
        Interest-bearing deposits          213,458        314,252        200,230        256,226
        Borrowed funds                     153,703            631        222,500         32,878
        Preferred securities                    --             --             --         40,250
        Other liabilities                       --             --             --         18,587
        Hedging instruments                100,000        (20,000)       (80,000)            --
        Shareholders' equity                    --             --             --        128,621
                                         ---------      ---------      ---------      ---------
                                           620,016        294,883        342,730        476,562
                                         ---------      ---------      ---------      ---------
  Interest sensitivity gap                (251,678)      (113,615)       172,147        193,146
                                         ---------      ---------      ---------      ---------
  
  Cumulative interest rate
          sensitivity gap                ($251,678)     ($365,293)      $193,146      $      --
                                         =========      =========      =========      =========
  <FN>
  (1) Adjustable rate loans are included in the period in which interest rates are
  next  scheduled to adjust rather than in the period in which they are due. Fixed
  rate loans are  included in the period in which they are  scheduled to be repaid
  and  are  adjusted  to  take  into  account  estimated  prepayments  based  upon
  assumptions  estimating  prepayments in the interest rate environment prevailing
  during the third  calendar  quarter of 1998. The table assumes  prepayments  and
  scheduled  principal   amortization  of  fixed-rate  loans  and  mortgage-backed
  securities  and  assumes  that   adjustable   rate  mortgages  will  reprice  at
  contractual 
  
                                         10
  
  <PAGE>
  
  repricing  intervals.  There  has been no  adjustment  for the  impact of future
  commitments and loans in process.
  
  (2) Savings and NOW deposits are  scheduled  for  repricing  based on historical
  deposit decay rate analyses,  as well as historical  moving  averages of run-off
  for the  Company's  deposits in these  categories.  While  generally  subject to
  immediate  withdrawal,  management  considers a portion of these  accounts to be
  core deposits having  significantly  longer effective  maturities based upon the
  Company's  historical  retention  of such  deposits  in changing  interest  rate
  environments.  Specifically,  28.3% of these deposits are considered repriceable
  within three months and 71.7% are considered  repriceable in the over five years
  category.
  </FN>
  </TABLE>
  
       Interest rate sensitivity is a function of the repricing characteristics of
  the Company's assets and liabilities.  These characteristics  include the volume
  of assets  and  liabilities  repricing,  the  timing of the  repricing,  and the
  relative  levels  of  repricing.   Attempting  to  minimize  the  interest  rate
  sensitivity gaps is a continual challenge in a changing rate environment.  Based
  on the Company's gap position as reflected in the above table,  current accepted
  theory would indicate that net interest  income would increase in a falling rate
  environment  and would decrease in a rising rate  environment.  An interest rate
  gap table  does  not,  however,  present a  complete  picture  of the  impact of
  interest  rate changes on net  interest  income.  First,  changes in the general
  level of interest rates do not affect all  categories of assets and  liabilities
  equally  or   simultaneously.   Second,   assets  and   liabilities   which  can
  contractually  reprice  within the same period may not, in fact,  reprice at the
  same time or to the same extent. Third, the table represents a one-day position;
  variations  occur  daily  as  the  Company  adjusts  its  interest   sensitivity
  throughout the year. Fourth, assumptions must be made to construct such a table.
  For example,  non-interest  bearing  deposits are assigned a repricing  interval
  within  one year,  although  history  indicates  a  significant  amount of these
  deposits  will not move  into  interest  bearing  categories  regardless  of the
  general level of interest rates. Finally, the repricing distribution of interest
  sensitive assets may not be indicative of the liquidity of those assets.
  
       The Company anticipates  volatile interest rate levels for the remainder of
  1998,  with no clear  indication of sustainable  rising or falling rates.  Given
  this assumption,  the Company's asset/liability strategy for 1998 is to maintain
  a  negative  gap  (interest-bearing  liabilities  subject  to  repricing  exceed
  interest-earning  assets  subject to  repricing)  for periods up to a year.  The
  impact of a volatile  interest rate  environment  on net interest  income is not
  expected to be  significant to the Company's  results of  operations.  Effective
  monitoring of these interest  sensitivity  gaps is the priority of the Company's
  asset/liability management committee.
  
                                  CAPITAL ADEQUACY
  
       The following table sets forth certain capital performance ratios.
  
                                                       Sept. 30,         Dec. 31,
                                                         1998              1997
  CAPITAL LEVELS
        Tier 1 leverage ratio                             8.85%            9.84%
        Tier 1 risk-based ratio                          11.98            13.49
        Total risk-based ratio                           13.32            14.91
  
  
  CAPITAL PERFORMANCE
        Return of average assets (annualized)             1.23             1.31
        Return on average equity (annualized)            16.30            15.90
        Earnings retained                                59.60            55.30
        Internal capital growth (annualized)              8.74             8.35
  
                                         11
  <PAGE>
  
       The  Company's  capital  ratios  above  compare  favorably  to the  minimum
  required amounts of Tier 1 and total capital to  "risk-weighted"  assets and the
  minimum Tier 1 leverage  ratio, as defined by banking  regulators.  At September
  30, 1998,  the Company was  required to have  minimum  Tier 1 and total  capital
  ratios of 4.0% and 8.0%,  respectively,  and a minimum Tier 1 leverage  ratio of
  3.0%. In order for the Company to be considered "well  capitalized",  as defined
  by banking regulators,  the Company must have Tier 1 and total capital ratios of
  6.0% and 10.0%,  respectively,  and a minimum Tier 1 leverage ratio of 5.0%. The
  Company  currently meets the criteria for a well  capitalized  institution,  and
  management believes that, under current  regulations,  the Company will continue
  to meet its minimum capital  requirements in the foreseeable future. At present,
  the Company has no commitments for significant capital expenditures.
  
       The Company is not under any agreement with  regulatory  authorities nor is
  the Company aware of any current  recommendations by the regulatory  authorities
  which, if such recommendations were implemented, would have a material effect on
  liquidity, capital resources or operations of the Company.
  
                                   FUTURE OUTLOOK
  
       The Company's  previously reported acquisition of Elverson National Bank is
  proceeding  and is expected to close during the first quarter  1999.  Merger and
  consolidation  costs related to this  acquisition  may have a negative impact on
  the Company's 1999 earnings.
  
       Penn Securities,  Inc., a new full service broker/dealer  subsidiary of the
  Company,  commenced  operations in early  October 1998.  This new venture is not
  expected to make positive  contributions  to earnings  until sometime in 1999 or
  beyond.
  
       Year 2000 Issues: The Company's Year 2000 initiative began in 1996 with the
  creation of a "Year 2000  Compliance  Project team" comprised of various Company
  employees,  including senior management.  The Year 2000 project was divided into
  five phases -- Awareness, Assessment, Renovation, Validation and Implementation.
  The initial Awareness and Assessment Phases have been completed. Non-information
  technology  systems have been  assessed and do not present a Year 2000  concern.
  The Company  anticipates  that the Renovation  Phase of mission critical systems
  will be complete before November 30, 1998.  However,  if such  modifications and
  conversions are not made, or are not completed timely, the Year 2000 issue could
  have a material  adverse  impact on the  operations  of the Company.  Validation
  Phase efforts remain on schedule to be  substantially  complete  before December
  31, 1998. The  Implementation  Phase of compliant  mission  critical  systems is
  anticipated  to  be  completed   before   November  30,  1998.   Validation  and
  Implementation  Phases of non-mission critical systems will continue through the
  first two quarters of 1999.  Actual costs for 1998 remain within the  previously
  announced budgeted amount of $300,000,  which represents approximately 9% of the
  total  information  technology budget for 1998.  Approximately  $116,000 of Year
  2000 costs have been  incurred  year to date  through  September  1998.  Of this
  amount,  approximately $96,000 was related to network hardware and software with
  the  remainder  for  miscellaneous  Year 2000  issues.  At this time the Company
  estimates  the amount  budgeted  for 1999 will be less than  $200,000.  However,
  there can be no  guarantee  that these  estimates  will be  achieved  and actual
  results could differ  materially from those  anticipated.  Specific factors that
  may cause  such  material  differences  include,  but are not  limited  to,  the
  availability  and cost of personnel  trained in this area, the ability to locate
  and correct all relevant computer codes, and similar  uncertainties.  A business
  impact  analysis  has been  completed  for the systems  which  support  critical
  functions.  The Company  believes  the most likely  worst case  scenario to be a
  total or partial  failure to  perform of one or more of the  Company's  material
  third party business partners or providers of service,  commodity, or data which
  failure could have a material adverse impact on the Company's operations.  In an
  attempt to mitigate  this risk the Company has included the  assessment of these
  partners  and  providers  in its Year  2000  project.  However,  there can be no
  guarantee that the systems of other  companies on which  Company's  systems rely
  will be timely  converted  and would not have a material  adverse  effect on the
  Company's  systems and operations.  Furthermore,  mission critical third parties
  will  be  included  in  the  Company's   contingency  plans  which  the  Company
  anticipates  will be  substantially  written before  December 31, 1998. No major
  information  technology  projects have been delayed as a result of the Year 2000
  Project.  In  addition,   the  Company's  audit  department  contracted  for  an
  independent  consultant to verify and validate the 
  
                                         12
  
  <PAGE>
  
  Company's  Year 2000 Project.  No major  recommendations  were  suggested by the
  independent  consultant to mitigate exposures in the Company's Year 2000 Project
  plan.
  
       The following is a more detailed discussion of the Year 2000 Project:
  
       The Year 2000  Project has been in  operation  at the  Company  since 1996.
  During this time the Company has been  operating  under a project plan reflected
  in many individual  documents such as the Microsoft Project charts,  binders for
  specific project areas, and the inventories which were created.
  
       For the  purposes of  consistency  with the  guidance's  of our  regulatory
  agencies the Company has  structured  the project in the  standard  five phases:
  Awareness, Assessment, Renovation, Validation, and Implementation. None of these
  phases are purely consecutive chronologically. For example, awareness, the phase
  which was begun before the others, will most likely continue well into the first
  and second quarters of 2000.
  
       It is important to note that the Year 2000 project at the Company  includes
  both the progression  from 1999 to 2000 and the  identification  of February 29,
  2000 as a leap year day.
  
       The following is a more detailed description of each project phase.
  
  Awareness
  
       This phase began in 1996 with the assignment of project managers. The first
  task was to review as much  information as possible from user groups,  seminars,
  periodicals,  and  the  guidance's  from  regulatory  information.  The  project
  managers created a project plan to address any possible Year 2000 issues.
  
       To address the individual  areas of  responsibility  in the project plan, a
  team  was  formed  composing  of   representatives   of  the  various  end  user
  departments.   This  team  includes   individuals  from   Information   Systems,
  Purchasing,  Item Processing,  Marketing,  Electronic  Banking,  Security,  Loan
  Administration,  Compliance,  Audit, and CIF. Furthermore,  representatives from
  the  Company's  subsidiaries,   Investors  Trust  Company  and  Penn  Securities
  (starting in 1998), joined the group.
  
       The next step in the Awareness phase was to educate the Company's employees
  on Year 2000 issues. This was accomplished  through periodic items in the Monday
  Morning Memos and through e-mail  notices to all  employees.  Year 2000 training
  was conducted for all bank officers. In the Spring of 1998 seminars were offered
  for our business loan customers and our lending staff.
  
       The seminars were one component of our effort to educate customers. Another
  was a  variety  of  statement  stuffers  concerning  the  Year  2000  issue  and
  specifically  providing information on the Company's project plan and status. In
  September of 1998, a Year 2000 update was added to the  Company's  internet home
  page.
  
       The Company intends to continue to use this variety of channels  (statement
  stuffers,  letters,  seminars,  home page, and printed  brochures) to attempt to
  provide  frequent  updates on the status of the Year 2000 project at the Company
  and all of its subsidiary organizations.
  
  Assessment
  
       The  purpose  of the  Assessment  phase  is to  inventory  all  potentially
  affected  software,  hardware,  equipment  (including  faxes,  ATM's,  hand held
  calculators,  etc.), interfaces,  environmental systems, and third parties. Once
  this  information  was  gathered,  it was  entered  into a  database  to provide
  organization and efficient tracking.  Letters were sent and web sites visited to
  ascertain  the  compliance  status of the  individual  product or project at the
  particular organization.
  
       The assessment  process went one step further with the investigation of the
  Year 2000 compliance status of the Company's largest business  depositors (funds
  providers),  large commercial loan customers (funds takers),  and  correspondent
  banks (capital  market  counterparties).  The depositor  investigation  was 
  
                                         13
  
  <PAGE>
  
  done through a mailed  survey to any business  account  holder with a balance of
  $100,000 or greater.  Commercial loan  relationships  with an aggregate  balance
  greater than $300,000 were  individually  assessed by the lender.  The status of
  correspondent  banks has been tracked as part of the third party  portion of the
  project.
  
       Year 2000 issues were  addressed as part of the  acquisition  planning with
  Elverson  National Bank in 1998. After the acquisition was announced,  the teams
  began to share  information by the project  leaders  participating  in the other
  institution's team meetings,  through data sharing, and through joint testing of
  common applications.
  
       In an effort to control the inventory of systems and applications after the
  assessment  was completed,  control  points were reviewed.  A policy was drafted
  requiring all new software  purchases to be certified Year 2000  compliant.  All
  hardware and  software  purchases  will be tested  before they are placed into a
  production  environment.  As all PC based  hardware and  software are  installed
  through the Network Services group and all mainframe  applications are supported
  through Data  Processing,  two central  control  points are  established.  These
  groups are responsible  for the ongoing  monitoring of new software and hardware
  installation.  As an additional  control,  the MIS  department  must approve all
  requests for payment of hardware and software purchases.
  
  Renovation
  
       The renovation phase involves  upgrading or replacing hardware and software
  as necessary.  Core systems have the highest  priority.  Other mission  critical
  systems  follow.   Finally,  non  mission  critical  systems  are  addressed.  A
  Remediation   Contingency  Plan  has  been  written  to  address  any  potential
  difficulties that may be encountered before December 31, 1999.
  
       In January 1998 the mainframe  hardware and operating  system were replaced
  with  compliant  products.  In  May  1998  a new  core  system,  Dimension,  was
  installed.
  
       Throughout  1998,   compliant   releases  of  software   applications  were
  installed.  Non compliant items are continuously  monitored through the database
  established in the assessment phase.
  
       In September  and October  1998,  all ATM  machines  are being  upgraded to
  compliant releases of software and the memory necessary to process them.
  
       In December 1998,  the core  processing  system of Investors  Trust Company
  will be  replaced  with a compliant  version.  This will  include new  hardware,
  software,  and operating  system.  All have been thoroughly  tested by the users
  group, as discussed herein in the Validation phase.
  
  Validation
  
       The  validation  phase of the project is guided by a written test plan. All
  mission  critical  systems  will be tested in 1998.  Many non  mission  critical
  systems will be tested in 1999 in descending order of priority.
  
       The  project  leader  and the end users  are  jointly  responsible  for the
  individual  tests.  The project  leader  schedules the date and ensures that the
  testing environment is prepared.  He then meets with the end user to develop the
  testing  scripts and scenarios.  The project leader is responsible  for ensuring
  that the test adheres to the requirements of the Year 2000 testing plan. The end
  user is responsible for the data entry and system  operation during the test and
  for reviewing the results to verify that the test was successful.  When the test
  is completed and  documented,  both the end user and the project  leader sign to
  indicate its completion.
  
       When a system is tested,  all  interfaces  and file  transmissions  will be
  tested at the same time whenever possible. As appropriate and feasible,  testing
  with third parties will be completed also.
  
                                         14
  
  <PAGE>
  
       Initiatives  to complete the  Validation  phase  include the creation of an
  isolated  PC/network  testing lab, the use of a secondary  logical partition for
  validating  mainframe  applications  and interfaces,  user group testing for the
  core trust application, and proxy testing by the network vendor for ATM's.
  
  Implementation
  
       Hardware  and  software  certified  to be  compliant  by the vendor will be
  thoroughly  tested  as  addressed  in the  Validation  phase.  Any  product  not
  currently in production must be tested and accepted by the end user before being
  placed  into a  production  environment.  After  a  system  is  certified  to be
  compliant,  no future releases or updates will be installed  unless first tested
  and confirmed to be compliant through the procedures discussed in the Validation
  phase. The control points for ensuring the future  installation of releases will
  continue to be the Network Services and Data Processing departments.
  
  Additional Project Efforts
  
       Throughout the remainder of 1998 and 1999, a database is being  established
  and  maintained to track the  compliance  status of third parties with which the
  Company  conducts its affairs.  This information will be reported to the project
  team and forwarded to executive management as necessary.
  
       A separate  budget for Year 2000 expenses is being  maintained for 1998 and
  1999.  The status of the budget will be reported to  executive  management.  The
  project leader is responsible  for working with the Chief  Financial  Officer to
  prepare the quarterly Year 2000 information for SEC filings.
  
       During the fourth  quarter of 1998 and first  quarter of 1999,  contingency
  plans will be written for all mission  critical  and high  priority  non mission
  critical systems. An overview of the contingency planning process was written in
  August 1998. After the Business Resumption  Contingency Plans are written,  they
  will be tested as prescribed by the overview.
  
       Although the Company  believes  that the program  outlined  above should be
  adequate  to address  the Year 2000  issue,  there can be no  assurance  to that
  effect.
  
       This report contains forward-looking  statements concerning earnings, asset
  quality,  Year 2000  compliance  and other future  events.  Actual results could
  differ  materially  due to,  among  other  things,  the risks and  uncertainties
  discussed  herein  and in Exhibit  99 to the  Company's  Report on Form 10-K for
  1997,  which is incorporated  herein by reference.  Readers are cautioned not to
  place undue reliance on these statements.  The Company  undertakes no obligation
  to publicly release or update any of these statements.
  
  
                                         15
  <PAGE>
  
  
  Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  
       There  has been no  material  change  in the  Company's  assessment  of its
  sensitivity to market risk since its  presentation  in the 1997 annual report on
  Form 10-K filed with the SEC.
  
  
                                         16
  <PAGE>
                             PART II - OTHER INFORMATION
  
  Item 1.  Legal Proceedings.
  
           None.
  
  Item 2.  Changes in Securities.
  
           None.
  
  Item 3.  Defaults Upon Senior Securities.
  
           None.
  
  Item 4.  Submission of Matters to Vote of Security Holders.
  
           None.
  
  Item 5.  Other Information.
  
           During  third  quarter  1998,  the  Registrant's   banking  subsidiary,
  National Penn Bank (the "Bank"),  opened a supermarket  branch in Sinking Spring
  (Berks County) and installed three,  and closed five,  automated teller machines
  (ATMs) in southeastern Pennsylvania.
  
           On October 6, 1998,  the  Registrant's  wholly-owned  subsidiary,  Penn
  Securities,  Inc.,  opened for business as a full service  securities  brokerage
  firm.
  
           During third quarter 1998, the Registrant and the Bank amended  certain
  agreements  with  various  senior  officers of the Bank which  provide them with
  certain  severance  benefits  in  the  event  of a  change  in  control  of  the
  Registrant.  Copies of such  amendments  are included in this Report as Exhibits
  10.1, 10.2, 10.3, 10.4, 10.5 and 10.6.
  
  Item 6.  Exhibits and Reports on Form 8-K.
  
           (a)   Exhibits.
  
                 Exhibit 10.1 - Amendatory Agreement dated August 26, 1998 between
                 National Penn Bancshares,  Inc., National Penn Bank, and Lawrence
                 T. Jilk, Jr.
  
                 Exhibit 10.2 - Amendatory Agreement dated August 26, 1998 between
                 National Penn Bancshares,  Inc., National Penn Bank, and Wayne R.
                 Weidner.
  
                 Exhibit 10.3 - Amendatory Agreement dated August 26, 1998 between
                 National Penn Bancshares,  Inc., National Penn Bank, and Garry D.
                 Koch.
  
                 Exhibit 10.4 - Amendatory Agreement dated August 26, 1998 between
                 National Penn Bancshares,  Inc.,  National Penn Bank, and Gary L.
                 Rhoads.
  
                 Exhibit 10.5 - Amendatory Agreement dated August 26, 1998 between
                 National Penn Bancshares, Inc., National Penn Bank, and Sandra L.
                 Spayd.
  
                 Exhibit 10.6 - Amendatory Agreement dated August 26, 1998 between
                 National Penn Bancshares, Inc., National Penn Bank, and Sharon L.
                 Weaver.
  
                 Exhibit 27 - Financial Data Schedule.
  
                                         17
  
  <PAGE>
  
           (b)  Reports on Form 8-K.  The  Registrant  did not file any Reports on
  Form 8-K during the quarter ended September 30, 1998.
  
  
  
                                         18
  <PAGE>
  
  
                                     SIGNATURES
  
  
           Pursuant to the  requirements of Section 13 of the Securities  Exchange
  Act of 1934, the Registrant has caused this report to be signed on its behalf by
  the undersigned thereunto duly authorized.
  
                                     NATIONAL PENN BANCSHARES, INC.
                                    (Registrant)
  
  Dated:   November 13, 1998         By /s/  Wayne R. Weidner
                                        ------------------------------
                                        Wayne R. Weidner, President
  
  Dated:   November 13, 1998         By /s/  Gary L. Rhoads
                                        ------------------------------
                                        Gary L. Rhoads, Principal
                                        Financial Officer
metadata_documents: [{"type": "10-Q", "sequence": "1", "secsgml_size_bytes": 66719}]
metadata_filer: {"company-data": {"conformed-name": "NATIONAL PENN BANCSHARES INC", "cik": "0000700733", "assigned-sic": "6021", "irs-number": "232215075", "state-of-incorporation": "PA", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "10-Q", "act": "34", "file-number": "000-10957", "film-number": "98750099"}, "business-address": {"street1": "PHILADELPHIA AND READING AVE", "street2": "PO 547", "city": "BOYERTOWN", "state": "PA", "zip": "19512", "phone": "2153676001"}, "mail-address": {"street1": "POST OFFICE BOX 547", "street2": "POST OFFICE BOX 547", "city": "BOYERTOWN", "state": "PA", "zip": "19512"}}
text: FORM 10-Q
  
  SECURITIES AND EXCHANGE COMMISSION
  WASHINGTON, D.C.  20549
  
  (Mark One)
  
             [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                          SECURITIES EXCHANGE ACT OF 1934
  
  For the quarterly period ended:            September 30, 1998
                                  ---------------------------------------
  
  OR
  
            [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE
                          SECURITIES EXCHANGE ACT OF 1934
  
  For the transition period from: _________________ to _________________
  
  Commission file number: 0-10957
                          -------
  
                           NATIONAL PENN BANCSHARES, INC.
                           ------------------------------
               (Exact name of registrant as specified in its charter)
  
                  Pennsylvania                            23-2215075
                  ------------                            ----------
        (State or other jurisdiction of                (I.R.S. Employer
         incorporation or organization)                 Identification No.)
  
                Philadelphia and Reading Avenues, Boyertown, PA 19512
                -----------------------------------------------------
                (Address of principal executive offices)      (Zip Code)
  
                                   (610) 367-6001
                ----------------------------------------------------
                (Registrant's telephone number, including area code)
  
                                         N/A
                ----------------------------------------------------
                (Former name, former address and former fiscal year,
                            if changed since last report)
  
       Indicate  by check mark  whether the  Registrant  (1) has filed all reports
  required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
  1934  during  the  preceding  12 months  (or for such  shorter  period  that the
  Registrant was required to file such reports),  and (2) has been subject to such
  filing requirements for the past 90 days. Yes _X_  No___.
  
       Indicate the number of shares  outstanding of each of the issuer's  classes
  of common stock, as of the latest practicable date.
  
                Class                       Outstanding at November 6, 1998
  
   Common Stock (no stated par value) (No.)         13,171,751 Shares
  TABLE OF CONTENTS
  
  Part I - Financial Information.                                            Page
  
           Item 1.    Financial Statements..............................      3
  
           Item 2.    Management's Discussion and Analysis of
                      Financial Condition and Results of Operation .....      8
  
           Item 3.    Quantitative and Qualitative Disclosures about
                      Market Risk.......................................     16
  
  Part II - Other Information.
  
           Item 1.    Legal Proceedings ................................     17
  
           Item 2.    Changes in Securities.............................     17
  
           Item 3.    Defaults Upon Senior Securities...................     17
  
           Item 4.    Submission of Matters to a Vote of
                      Security Holders..................................     17
  
           Item 5.    Other Information ................................     17
  
           Item 6.    Exhibits and Reports on Form 8-K..................     17
  
  Signature.............................................................     19
  
                                         2
  PART I - FINANCIAL INFORMATION
  
  Item 1.  Financial Statements
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
  CONSOLIDATED CONDENSED BALANCE SHEET                                           Sept. 30            Dec. 31
   (Dollars in thousands, except per share data)                                   1998               1997
                                                                                (Unaudited)          (Note)
                                                                               -----------        -----------
  ASSETS
  Cash and due from banks                                                      $    39,839        $    40,009
  Interest bearing deposits in banks                                                 1,670              1,089
  Federal funds sold                                                                 4,000                 --
                                                                               -----------        -----------
      Total cash and cash equivalents                                               45,509             41,098
  Trading account securities                                                        21,522                 --
  Investment securities available for sale at market value                         410,442            321,760
  Loans, less allowance for loan losses of $27,769 and
    $25,122 in 1998 and 1997 respectively                                        1,172,151          1,097,662
  Other assets                                                                      84,567             73,858
                                                                               -----------        -----------
      Total Assets                                                               1,734,191          1,534,378
                                                                               ===========        ===========
  
  LIABILITIES AND SHAREHOLDERS' EQUITY
  Non-interest bearing deposits                                                $   152,855        $   146,772
  Interest bearing deposits
    (Includes certificates of deposit in excess of $100,000 or greater:
    1998 - $141,549; 1997 - $110,447)                                              984,166            968,828
                                                                               -----------        -----------
      Total Deposits                                                             1,137,021          1,115,600
  Securities sold under repurchase agreements
    and federal funds purchased                                                    152,940             77,225
  Short-term borrowings                                                              8,291              6,109
  Long-term obligations                                                            248,481            155,460
  Guaranteed preferred beneficial interests in
     Company's subordinated debentures                                              40,250             40,250
  Accrued interest and other liabilities                                            18,587             16,546
                                                                               -----------        -----------
      Total Liabilities                                                          1,605,570          1,411,190
  Commitments and contingent liabilities                                                --                 --
  Shareholders' equity
    Preferred stock, no stated par value;
      authorized 1,000,000 shares, none issued                                          --                 --
    Common stock, no stated par value;
      authorized 62,500,000 shares; issued and outstanding
      1998 - 13,166,808; 1997 - 13,284,175, net of shares
      in Treasury: 1998 - 0; 1997 - 104,623                                         92,546            101,748
    Retained earnings                                                               25,139             17,337
    Net unrealized gains on securities available for sale                           10,936              7,531
    Treasury stock at cost                                                              --             (3,428)
                                                                               -----------        -----------
  
      Total Shareholders' Equity                                                   128,621            123,188
                                                                               -----------        -----------
      Total Liabilities and Shareholders' Equity                               $ 1,734,191        $ 1,534,378
                                                                               ===========        ===========
  The  accompanying  notes  are an  integral  part of  these  condensed  financial
  statements.
  
  Note: The Balance Sheet at Dec. 31, 1997 has been derived from the audited
        financial statements at that date.
  
                                          3
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
  UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME
  Three Months Ended              Nine Months Ended
  (Dollars in thousands, except per share data)                        September 30                    September 30
                                                                ---------------------------------------------------------
                                                                  1998             1997            1998            1997
                                                                --------         --------        --------        --------
  INTEREST INCOME
  Loans including fees                                          $ 27,368         $ 26,033        $ 80,059        $ 75,656
  Deposits in banks                                                   48               22              96              66
  Federal funds sold                                                   5               42              29              93
  Trading Assets                                                     315               --             518              --
  Investment securities                                            5,921            4,414          16,844          11,727
                                                                --------         --------        --------        --------
      Total interest income                                       33,657           30,511          97,546          87,542
                                                                --------         --------        --------        --------
  INTEREST EXPENSE
  Deposits                                                        10,968           10,564          32,922          29,663
  Federal funds purchased, borrowed funds and
    securities sold under repurchase agreements                    6,384            3,684          16,340           9,905
                                                                --------         --------        --------        --------
      Total interest expense                                      17,352           14,248          49,262          39,568
                                                                --------         --------        --------        --------
      Net interest income                                         16,305           16,263          48,284          47,974
  Provision for loan losses                                        1,200            1,200           3,600           3,600
                                                                --------         --------        --------        --------
      Net interest income after provision
        for loan losses                                           15,105           15,063          44,684          44,374
                                                                --------         --------        --------        --------
  OTHER INCOME
  Trust and investment management income                             828              683           2,420           2,006
  Service charges on deposit accounts                              1,097            1,013           3,206           2,974
  Net gains (losses) on sale of securities and mortgages            (114)             620             330           1,462
  Trading Revenue                                                    328               --             513              --
  Other                                                            1,934              979           5,306           2,782
                                                                --------         --------        --------        --------
      Total other income                                           4,073            3,295          11,775           9,224
                                                                --------         --------        --------        --------
  OTHER EXPENSES
  Salaries, wages and employee benefits                            7,009            6,563          20,620          19,450
  Net premises and equipment                                       1,997            1,818           5,707           5,544
  Other operating                                                  3,463            3,267          10,551           8,946
                                                                --------         --------        --------        --------
      Total other expenses                                        12,469           11,648          36,878          33,940
                                                                --------         --------        --------        --------
      Income before income taxes                                   6,709            6,710          19,581          19,658
  Applicable income tax expense                                    1,419            1,991           4,463           6,020
                                                                --------         --------        --------        --------
      Net income                                                $  5,290         $  4,719        $ 15,118        $ 13,638
                                                                ========         ========        ========        ========
  
  PER SHARE OF COMMON STOCK
  Net income per share - basic                                  $   0.40         $   0.36        $   1.14        $   1.03
  Net income per share - diluted                                    0.39             0.35            1.12            1.01
  Dividends paid in cash                                            0.19             0.17            0.53            0.46
  The  accompanying  notes  are an  integral  part of  these  condensed  financial
  statements.
  
                                          4
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
  CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
  NINE MONTHS ENDED SEPTEMBER 30, 1998
    (Dollars in thousands)                                                               Net Unrealized
                                                                                         Gain (Loss) on
                                                                     Additional            Securities   Compre-
                                                 Common Stock         Paid-in    Retained   Available   hensive   Treasury
                                              Shares    Par Value     Capital    Earnings   for Sale    Income      Stock     Total
  Balance at December 31, 1997              10,606,726    $20,085     $81,663    $17,337     $7,531        --     ($3,428)   $123,188
  Comprehensive income:
    Net income                                      --         --          --     15,118         --    15,118          --     $15,118
    Unrealized gains(losses) on
      securities available for sale,
      net of taxes and
      reclassification adjustment
      (see disclosure)                              --         --          --         --      3,405     3,933          --      $3,405
                                                                                                      -------
  Comprehensive income                                                                                $19,051
                                                                                                      =======
  Conversion to no par value stock                  --     80,113     (80,113)        --         --                    --          --
  5 for 4 stock split                        2,677,449
  Shares issued under stock option plan          3,721         19          --         --         --                    --         $19
  Cash dividends declared                           --         --          --     (7,316)        --                    --     ($7,316)
  Effect of treasury stock transactions       (121,088)    (7,671)     (1,550)        --         --                 3,428     ($5,793)
                                            ----------    -------     -------    -------    -------                 -----    --------
  Balance at September 30, 1998             13,166,808    $92,546          $0    $25,139    $10,936                    $0    $128,621
                                            ==========    =======     =======    =======    =======                 =====    ========
  
  Disclosure of reclassification amount:
    Unrealized holding loss
        arising during period                                                                          $3,933
    Less: reclassification adjustment
        for gains included in net income                                                                 (528)
                                                                                                       ------ 
    Net unrealized loss on securities                                                                  $3,405
                                                                                                       ======
  
  NINE MONTHS ENDED SEPTEMBER 30, 1997
    (Dollars in thousands)                                                               Net Unrealized
                                                                                         Gain (Loss) on
                                                                     Additional            Securities   Compre-
                                                 Common Stock         Paid-in    Retained   Available   hensive   Treasury
                                              Shares    Par Value     Capital    Earnings   for Sale    Income      Stock     Total
  
  Balance at December 31, 1996               8,002,648    $20,085     $83,707     $7,357     $4,398        --       ($826)   $114,721
  Comprehensive income:
    Net income                                      --         --          --     13,638         --    13,638          --     $13,638
    Unrealized gains(losses) on
      securities available for sale,
      net of taxes and
      reclassification adjustment
      (see disclosure)                              --         --          --         --       (787)    1,129          --       ($787)
                                                                                                      -------
  Comprehensive income                                                                                $14,767
                                                                                                      =======
  Conversion to no par value stock                  --     83,268     (83,268)        --         --                    --
  4 for 3 stock split                        2,677,497
  Cash dividends declared                           --         --          --     (6,422)        --                    --     ($6,422)
  Effect of treasury stock transactions         (5,139)      (792)       (439)        --         --                  (294)    ($1,525)
                                            ----------   --------     -------    -------    -------               -------    --------
  Balance at September 30, 1997             10,675,006   $102,561          $0    $14,573     $3,611               ($1,120)   $119,625
                                            ==========   ========     =======    =======    =======               =======    ========
  
  Disclosure of reclassification amount:
    Unrealized holding loss arising
       during period                                                                                   $1,129
    Less: reclassification adjustment
       for gains included in net income                                                                  (342)
                                                                                                       ------
    Net unrealized loss on securities                                                                    $787
                                                                                                       ======
  The accompanying notes are an integral part of these statements.
  
                                          5
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
  UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
  Nine Months Ended September 30,
  (Dollars in thousands)
                                                                                  1998            1997
                                                                                --------        --------
  CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                                                   $15,118        $13,638
    Adjustments to reconcile net income to net
        cash provided by (used in) operating activities
      Provision for loan and lease losses                                          3,600          3,600
      Depreciation and amortization                                                2,780          2,627
      Net (gains) losses on sale of securities and mortgages                        (330)        (1,462)
      Trading-related assets                                                     (21,522)            --
      Mortgage loans originated for resale                                       (40,083)       (15,610)
      Sale of mortgage loans originated for resale                                40,083         15,610
      Other                                                                       (8,065)        (1,964)
                                                                               ---------      ---------
  
        Net cash provided by (used in) operating activities                       (8,419)        16,439
  
  CASH FLOWS FROM INVESTING ACTIVITIES
    Proceeds from sales of investment securities - available for sale             48,500         12,584
    Proceeds from maturities of investment securities - held to maturity              --         14,008
    Proceeds from maturities of investment securities - available for sale        25,289            740
    Purchase of investment securities - available for sale                      (160,901)      (107,581)
    Proceeds from sales of loans                                                      --             --
    Net increase in loans                                                        (78,089)       (55,563)
    Purchases of premises & equipment                                             (1,217)        (2,333)
                                                                               ---------      ---------
  
        Net cash provided by (used in) investing activities                     (166,418)      (138,145)
  
  CASH FLOWS FROM FINANCING ACTIVITIES
    Increase (decrease) in:
      Deposits                                                                    21,421         92,581
      Repurchase agreements, fed funds & short-term borrowings                    77,897        (70,211)
      Long-term borrowings                                                        93,021        119,600
    (Increase) decrease in treasury stock                                          3,428           (294)
    Issuance of common stock under dividend reinvestment plan                     (9,202)        (1,231)
    Cash dividends                                                                (7,317)        (6,422)
                                                                               ---------      ---------
  
        Net cash provided by (used in) financing activities                      179,248        134,023
  
  Net increase (decrease) in cash and cash equivalents                             4,411         12,317
  
  Cash and cash equivalents at January 1                                          41,098         41,996
                                                                               ---------      ---------
  
  Cash and cash equivalents at September 30                                      $45,509        $54,313
                                                                               =========      =========
  The  accompanying  notes  are an  integral  part of  these  condensed  financial
  statements.
  
                                          6
  NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
  (UNAUDITED)
  
  1. The accompanying  unaudited condensed financial statements have been prepared
  in  accordance  with  generally  accepted  accounting   principles  for  interim
  financial  information.  The financial information included herein is unaudited;
  however, such information reflects all adjustments  (consisting solely of normal
  recurring  adjustments) which are, in the opinion of management,  necessary to a
  fair statement of the results for the interim periods.  For further information,
  refer to the consolidated financial statements and footnotes thereto included in
  the Company's Annual Report on Form 10-K for the year ended December 31, 1997.
  
  2. The results of operations for the nine-month  period ended September 30, 1998
  are not necessarily indicative of the results to be expected for the full year.
  
  3. Per share data are based on the weighted average number of shares outstanding
  of  13,190,196  and  13,181,487  for 1998  and  1997,  respectively,  and on the
  weighted  average  number  of  diluted  shares  outstanding  of  13,510,772  and
  13,515,377  for 1998 and  1997,  respectively,  and are  computed  after  giving
  retroactive effect to a 5-for-4 stock split paid July 31, 1998.
  
  4. On  September  23, 1998,  the  Company's  Board of Directors  declared a cash
  dividend of $.19 per share  payable on November 17,  1998,  to  shareholders  of
  record on October 31, 1998.
  
  5.  In June  1998,  the  Financial  Accounting  Standards  Board  (FASB)  issued
  Statement of Financial  Accounting  Standards  (SFAS) No. 133,  "Accounting  for
  Derivative   Instruments  and  Hedging   Activity."  SFAS  No.  133  establishes
  accounting and reporting standards for derivative instruments, including certain
  derivative instruments imbedded in other contracts,  and for hedging activities.
  It  requires  that an entity  recognize  all  derivatives  as  either  assets or
  liabilities in the statement of financial position and measure those instruments
  at fair value.  If certain  conditions are met, a derivative may be specifically
  designated  as a hedge.  The  accounting  for  changes  in the  fair  value of a
  derivative  (gains and losses) depends on the intended use of the derivative and
  resulting  designation.  SFAS No. 133 is  effective  for all fiscal  quarters of
  fiscal years  beginning  after June 15, 1999.  Earlier  application is permitted
  only as of the  beginning  of any  fiscal  quarter.  The  Company  is  currently
  reviewing the provisions of SFAS No. 133.
  
  6. The Company  identifies a loan as impaired  when it is probable that interest
  and principal will not be collected  according to the  contractual  terms of the
  loan  agreement.  The balance of impaired  loans was $7,935,000 at September 30,
  1998, all of which are non-accrual loans. The allowance for loan loss associated
  with these  impaired  loans was  $380,000 at  September  30,  1998.  The Company
  recognizes income on impaired loans under the cash basis when the loans are both
  current and the  collateral on the loan is  sufficient to cover the  outstanding
  obligation to the Company.  If these factors do not exist,  the Company will not
  recognize income on such loans.
  
                                         7
  Item 2. Management's Discussion and Analysis of Financial Condition and Results 
          of Operations
  
       The   following   discussion   and   analysis  is  intended  to  assist  in
  understanding  and evaluating  the major changes in the financial  condition and
  earnings  performance  of the  Company  with a primary  focus on an  analysis of
  operating results.
  
                                 FINANCIAL CONDITION
  
       Total assets increased to $1.734 billion,  an increase of $198.8 million or
  13.0% over the $1.534  billion at December 31, 1997.  This increase is reflected
  primarily in the investment category,  the result of the investment of deposits,
  the  Company's  primary  source of funds,  short-term  borrowings  and long-term
  borrowings.
  
       Total  cash  and  cash  equivalents  increased  $4.4  million  or  10.7% at
  September  30, 1998 when  compared to  December  31,  1997.  This  increase  was
  primarily in federal funds sold and interest bearing deposits in banks.
  
       Loans  increased to $1.172  billion at September 30, 1998.  The increase of
  $74.5  million or 6.8% compared to December 31, 1997 was primarily the result of
  the  investment  of deposits and  long-term  borrowings.  Loans  originated  for
  immediate  resale during the first six months of 1998 amounted to $40.1 million.
  The  Company's  credit  quality  is  reflected  by the  annualized  ratio of net
  charge-offs to total loans of .08% through the third quarter of 1998 versus .20%
  for the year 1997, and the ratio of non-performing assets to total loans of .89%
  at September  30, 1998 and December 31 1997.  Non-performing  assets,  including
  non-accruals,  loans 90 days past due,  restructured loans and other real estate
  owned,  were $10.7  million at September  30, 1998  compared to $10.0 million at
  December 31, 1997. Of these amounts,  non-accrual loans represented $7.9 million
  and $6.8  million at September  30, 1998 and  December  31, 1997,  respectively.
  Loans 90 days past due and still  accruing  interest  were $2.4 million and $2.8
  million at September  30, 1998 and December 31, 1997,  respectively.  Other real
  estate owned was  $387,000  and $375,000 at September  30, 1998 and December 31,
  1997, respectively.  The Company had no restructured loans at September 30, 1998
  or December 31, 1997. The allowance for loan losses to non-performing assets was
  258.6% and 251.6% at September 30, 1998 and December 31, 1997, respectively.  As
  is evident from the above amounts relative to non-performing  assets, there have
  been no significant  changes  between  December 31, 1997 and September 30, 1998.
  The  Company  has no  significant  exposure  to energy and  agricultural-related
  loans.
  
       Investments,  the Company's secondary use of funds, increased $88.7 million
  or 27.6% to $410.4  million at September  30, 1998 when compared to December 31,
  1997. The increase is due to investment  purchases of $160.9 million,  primarily
  in municipal  securities,  which was partially  offset by  investment  sales and
  maturities and the amortization of mortgage-backed securities.
  
       A new line  item on the  consolidated  balance  sheet is  "Trading  account
  securities" of $21.5 million at September 30, 1998. This  represents  investment
  securities  that are actively  traded by the Company with the goal of generating
  higher total  returns.  Investors  Trust  Company,  a subsidiary of the Company,
  manages this  portfolio.  Interest income from these  securities  appears on the
  consolidated  statements  of income on the line item "Trading  assets."  Trading
  gains and losses, both realized and unrealized, appear on the line item "Trading
  revenue" in the "Other Income" category.
  
       As the primary  source of funds,  aggregate  deposits of $1.137  billion at
  September  30, 1998  increased  $21.4  million or 1.9%  compared to December 31,
  1997.  The  increase  in  deposits  during  the  first  nine  months of 1998 was
  primarily in interest  bearing  deposits  which  increased  $15.3  million while
  non-interest bearing deposits increased $6.1 million. Certificates of deposit in
  excess of $100,000  increased  $31.1 million.  In addition to deposits,  earning
  assets are funded to some extent through  purchased funds and borrowings.  These
  include  securities sold under repurchase  agreements,  federal funds purchased,
  short-term borrowings and long-term debt obligations.  In aggregate, these funds
  totaled $450.0 million at September 30, 1998, and $279.0 million at December 31,
  1997.  The  increase of $170.9  million  represents  
  
                                          8
  an  increase  in  long-term  obligations  of $93.0  million  and an  increase in
  short-term borrowings, primarily securities sold under repurchase agreements and
  federal funds purchased, of $77.9 million.
  
       Shareholders'  equity  increased $5.4 million  through  September 30, 1998.
  This increase was due to an increase in earnings retained and an increase in the
  valuation  adjustment for securities  available for sale,  which  represents the
  accounting  treatment required under Statement of Financial Accounting Standards
  115, "Accounting for Certain Investments in Debt and Equity Securities," applied
  to the  increase in market value of the  Company's  investment  portfolio.  Cash
  dividends paid during the first nine months of 1998 increased  $945,000 or 15.5%
  compared  to the cash  dividends  paid  during  the first  nine  months of 1997.
  Earnings  retained  during the first nine months of 1998 were 53.4%  compared to
  55.3% during the first nine months of 1997.
  
                                RESULTS OF OPERATIONS
  
       Net income for the quarter ended September 30, 1998 was $5.3 million, 12.1%
  more than the $4.7 million  reported for the same period in 1997.  For the first
  nine months,  net income  reached  $15.1  million,  or 10.9% more than the $13.6
  million  reported for the first nine months of 1997.  The Company's  performance
  has been and will  continue  to be in part  influenced  by the  strength  of the
  economy and conditions in the real estate market.
  
       Net interest income is the difference between interest income on assets and
  interest expense on liabilities. Net interest income increased $42,000 or .3% to
  $16.3 million during the third quarter of 1998 . For the comparative  nine month
  period,  net interest  income  increased  $310,000 or .6% to $48.3  million from
  $48.0 million in 1997. The increase in interest  income is a result of growth in
  loan  outstandings and higher rates on loans that was partially offset by growth
  in deposits and higher rates on deposits and borrowings. Interest rate risk is a
  major  concern  in  forecasting  earnings  potential.  From  March  26,  1997 to
  September 28, 1998,  the prime rate was 8.50%.  On September 29, 1998, the prime
  rate  changed to 8.25%.  Interest  expense  during the first nine months of 1998
  increased  $9.7 million or 24.5% compared to the prior year's first nine months.
  Despite  the  current  rate  environment,  the cost of  attracting  and  holding
  deposited funds is an  ever-increasing  expense in the banking  industry.  These
  increases are the real costs of deposit  accumulation  and retention,  including
  FDIC insurance costs and branch overhead expenses.  Such costs are necessary for
  continued  growth  and to  maintain  and  increase  market  share  of  available
  deposits.
  
       The provision  for loan and lease losses is determined by periodic  reviews
  of loan quality,  current economic conditions,  loss experience and loan growth.
  Based on these  factors,  the provision  for loan and lease losses  remained the
  same for the nine month period  ended  September  30, 1998  compared to the same
  period in 1997.  The  allowance  for loan and lease  losses of $27.8  million at
  September  30, 1998 and $25.1  million at December 31, 1997 as a  percentage  of
  total loans was 2.3% and 2.2%,  respectively.  The Company's net  charge-offs of
  $953,000  and  $1,495,000  during  the  first  nine  months  of 1998  and  1997,
  respectively,  continue to be  comparable to those of the  Company's  peers,  as
  reported in the Bank Holding Company Performance Report.
  
       "Total other income"  increased  $778,000 or 23.6% during the third quarter
  of 1998, as a result of increased  other income of $955,000,  trading revenue of
  $328,000,  increased  trust and investment  management  income of $145,000,  and
  increased  service  charges on deposit  accounts of $84,000.  This was partially
  offset  by a  decrease  in net  gains  (losses)  on the sale of  securities  and
  mortgages of $734,000.  Year to date,  other  income  increased  $2.6 million or
  27.7% when  compared to the first nine  months of 1997 as a result of  increased
  other income of $2.5 million,  trading revenue of $513,000,  increased trust and
  investment  management  income of $414,000,  and increased  services  charges on
  deposit  accounts of $232,000.  This was  partially  offset by a decrease in net
  gains (losses) on the sale of securities  and mortgages of $1.1 million.  "Total
  other  expenses"  increased  $821,000 or 7.0% during the quarter ended September
  30, 1998 and increased  $2.9 million or 8.7% for the nine month period.  Of this
  year-to-date increase, other operating expenses increased $1.6 million or 17.9%,
  salaries,  wages and benefits  increased  $1.2 million or 6.0%, and net premises
  and equipment increased $163,000 or 2.9%.
  
                                         9
  Income before  income taxes  remained even compared to the third quarter of
  1997. In comparing  the first nine months of 1998 to 1997,  income before income
  taxes decreased $77,000 or .4%. Income taxes decreased  $572,000 for the quarter
  and decreased $1.6 million the nine month period.
  
                       LIQUIDITY AND INTEREST RATE SENSITIVITY
  
       The primary functions of asset/liability  management are to assure adequate
  liquidity and maintain an appropriate  balance between  interest-earning  assets
  and interest-bearing  liabilities.  Liquidity management involves the ability to
  meet the cash  flow  requirements  of  customers  who may be  either  depositors
  wanting to withdraw funds or borrowers  needing  assurance that sufficient funds
  will be available  to meet their  credit  needs.  Funding  affecting  short-term
  liquidity,  including deposits,  repurchase agreements, fed funds purchased, and
  short-term  borrowings,  increased  $99.3 million from year end 1997.  Long-term
  borrowings increased $93.0 million during the first nine months of 1998.
  
       The goal of interest rate  sensitivity  management is to avoid  fluctuating
  net interest  margins,  and to enhance  consistent growth of net interest income
  through periods of changing  interest rates. Such sensitivity is measured as the
  difference  in the volume of assets and  liabilities  in the existing  portfolio
  that are subject to repricing in a future time period.
  
       The following table shows  separately the interest rate sensitivity of each
  category  of  interest-earning   assets  and  interest-bearing   liabilities  at
  September 30, 1998:
  Repricing Periods  (1)
                                                        Three Months   One Year
                                        Within Three    Through One   Through Five       Over
                                          Months           Year          Years         Five Years
                                                              (In Thousands)
  Assets
        Interest-bearing deposits
           at banks                         $1,670      $      --      $      --      $      --
        Investment securities               28,868         47,189        125,080        209,305
        Trading account securities          21,522             --             --             --
        Loans and leases                   312,278        134,079        389,797        335,997
        Other assets                         4,000             --             --        124,406
                                         ---------      ---------      ---------      ---------
                                           368,338        181,268        514,877        669,708
                                         ---------      ---------      ---------      ---------
  Liabilities and equity
        Noninterest-bearing deposits       152,855             --             --             --
        Interest-bearing deposits          213,458        314,252        200,230        256,226
        Borrowed funds                     153,703            631        222,500         32,878
        Preferred securities                    --             --             --         40,250
        Other liabilities                       --             --             --         18,587
        Hedging instruments                100,000        (20,000)       (80,000)            --
        Shareholders' equity                    --             --             --        128,621
                                         ---------      ---------      ---------      ---------
                                           620,016        294,883        342,730        476,562
                                         ---------      ---------      ---------      ---------
  Interest sensitivity gap                (251,678)      (113,615)       172,147        193,146
                                         ---------      ---------      ---------      ---------
  
  Cumulative interest rate
          sensitivity gap                ($251,678)     ($365,293)      $193,146      $      --
                                         =========      =========      =========      =========
  (1) Adjustable rate loans are included in the period in which interest rates are
  next  scheduled to adjust rather than in the period in which they are due. Fixed
  rate loans are  included in the period in which they are  scheduled to be repaid
  and  are  adjusted  to  take  into  account  estimated  prepayments  based  upon
  assumptions  estimating  prepayments in the interest rate environment prevailing
  during the third  calendar  quarter of 1998. The table assumes  prepayments  and
  scheduled  principal   amortization  of  fixed-rate  loans  and  mortgage-backed
  securities  and  assumes  that   adjustable   rate  mortgages  will  reprice  at
  contractual 
  
                                         10
  repricing  intervals.  There  has been no  adjustment  for the  impact of future
  commitments and loans in process.
  
  (2) Savings and NOW deposits are  scheduled  for  repricing  based on historical
  deposit decay rate analyses,  as well as historical  moving  averages of run-off
  for the  Company's  deposits in these  categories.  While  generally  subject to
  immediate  withdrawal,  management  considers a portion of these  accounts to be
  core deposits having  significantly  longer effective  maturities based upon the
  Company's  historical  retention  of such  deposits  in changing  interest  rate
  environments.  Specifically,  28.3% of these deposits are considered repriceable
  within three months and 71.7% are considered  repriceable in the over five years
  category.
  Interest rate sensitivity is a function of the repricing characteristics of
  the Company's assets and liabilities.  These characteristics  include the volume
  of assets  and  liabilities  repricing,  the  timing of the  repricing,  and the
  relative  levels  of  repricing.   Attempting  to  minimize  the  interest  rate
  sensitivity gaps is a continual challenge in a changing rate environment.  Based
  on the Company's gap position as reflected in the above table,  current accepted
  theory would indicate that net interest  income would increase in a falling rate
  environment  and would decrease in a rising rate  environment.  An interest rate
  gap table  does  not,  however,  present a  complete  picture  of the  impact of
  interest  rate changes on net  interest  income.  First,  changes in the general
  level of interest rates do not affect all  categories of assets and  liabilities
  equally  or   simultaneously.   Second,   assets  and   liabilities   which  can
  contractually  reprice  within the same period may not, in fact,  reprice at the
  same time or to the same extent. Third, the table represents a one-day position;
  variations  occur  daily  as  the  Company  adjusts  its  interest   sensitivity
  throughout the year. Fourth, assumptions must be made to construct such a table.
  For example,  non-interest  bearing  deposits are assigned a repricing  interval
  within  one year,  although  history  indicates  a  significant  amount of these
  deposits  will not move  into  interest  bearing  categories  regardless  of the
  general level of interest rates. Finally, the repricing distribution of interest
  sensitive assets may not be indicative of the liquidity of those assets.
  
       The Company anticipates  volatile interest rate levels for the remainder of
  1998,  with no clear  indication of sustainable  rising or falling rates.  Given
  this assumption,  the Company's asset/liability strategy for 1998 is to maintain
  a  negative  gap  (interest-bearing  liabilities  subject  to  repricing  exceed
  interest-earning  assets  subject to  repricing)  for periods up to a year.  The
  impact of a volatile  interest rate  environment  on net interest  income is not
  expected to be  significant to the Company's  results of  operations.  Effective
  monitoring of these interest  sensitivity  gaps is the priority of the Company's
  asset/liability management committee.
  
                                  CAPITAL ADEQUACY
  
       The following table sets forth certain capital performance ratios.
  
                                                       Sept. 30,         Dec. 31,
                                                         1998              1997
  CAPITAL LEVELS
        Tier 1 leverage ratio                             8.85%            9.84%
        Tier 1 risk-based ratio                          11.98            13.49
        Total risk-based ratio                           13.32            14.91
  
  CAPITAL PERFORMANCE
        Return of average assets (annualized)             1.23             1.31
        Return on average equity (annualized)            16.30            15.90
        Earnings retained                                59.60            55.30
        Internal capital growth (annualized)              8.74             8.35
  
                                         11
  The  Company's  capital  ratios  above  compare  favorably  to the  minimum
  required amounts of Tier 1 and total capital to  "risk-weighted"  assets and the
  minimum Tier 1 leverage  ratio, as defined by banking  regulators.  At September
  30, 1998,  the Company was  required to have  minimum  Tier 1 and total  capital
  ratios of 4.0% and 8.0%,  respectively,  and a minimum Tier 1 leverage  ratio of
  3.0%. In order for the Company to be considered "well  capitalized",  as defined
  by banking regulators,  the Company must have Tier 1 and total capital ratios of
  6.0% and 10.0%,  respectively,  and a minimum Tier 1 leverage ratio of 5.0%. The
  Company  currently meets the criteria for a well  capitalized  institution,  and
  management believes that, under current  regulations,  the Company will continue
  to meet its minimum capital  requirements in the foreseeable future. At present,
  the Company has no commitments for significant capital expenditures.
  
       The Company is not under any agreement with  regulatory  authorities nor is
  the Company aware of any current  recommendations by the regulatory  authorities
  which, if such recommendations were implemented, would have a material effect on
  liquidity, capital resources or operations of the Company.
  
                                   FUTURE OUTLOOK
  
       The Company's  previously reported acquisition of Elverson National Bank is
  proceeding  and is expected to close during the first quarter  1999.  Merger and
  consolidation  costs related to this  acquisition  may have a negative impact on
  the Company's 1999 earnings.
  
       Penn Securities,  Inc., a new full service broker/dealer  subsidiary of the
  Company,  commenced  operations in early  October 1998.  This new venture is not
  expected to make positive  contributions  to earnings  until sometime in 1999 or
  beyond.
  
       Year 2000 Issues: The Company's Year 2000 initiative began in 1996 with the
  creation of a "Year 2000  Compliance  Project team" comprised of various Company
  employees,  including senior management.  The Year 2000 project was divided into
  five phases -- Awareness, Assessment, Renovation, Validation and Implementation.
  The initial Awareness and Assessment Phases have been completed. Non-information
  technology  systems have been  assessed and do not present a Year 2000  concern.
  The Company  anticipates  that the Renovation  Phase of mission critical systems
  will be complete before November 30, 1998.  However,  if such  modifications and
  conversions are not made, or are not completed timely, the Year 2000 issue could
  have a material  adverse  impact on the  operations  of the Company.  Validation
  Phase efforts remain on schedule to be  substantially  complete  before December
  31, 1998. The  Implementation  Phase of compliant  mission  critical  systems is
  anticipated  to  be  completed   before   November  30,  1998.   Validation  and
  Implementation  Phases of non-mission critical systems will continue through the
  first two quarters of 1999.  Actual costs for 1998 remain within the  previously
  announced budgeted amount of $300,000,  which represents approximately 9% of the
  total  information  technology budget for 1998.  Approximately  $116,000 of Year
  2000 costs have been  incurred  year to date  through  September  1998.  Of this
  amount,  approximately $96,000 was related to network hardware and software with
  the  remainder  for  miscellaneous  Year 2000  issues.  At this time the Company
  estimates  the amount  budgeted  for 1999 will be less than  $200,000.  However,
  there can be no  guarantee  that these  estimates  will be  achieved  and actual
  results could differ  materially from those  anticipated.  Specific factors that
  may cause  such  material  differences  include,  but are not  limited  to,  the
  availability  and cost of personnel  trained in this area, the ability to locate
  and correct all relevant computer codes, and similar  uncertainties.  A business
  impact  analysis  has been  completed  for the systems  which  support  critical
  functions.  The Company  believes  the most likely  worst case  scenario to be a
  total or partial  failure to  perform of one or more of the  Company's  material
  third party business partners or providers of service,  commodity, or data which
  failure could have a material adverse impact on the Company's operations.  In an
  attempt to mitigate  this risk the Company has included the  assessment of these
  partners  and  providers  in its Year  2000  project.  However,  there can be no
  guarantee that the systems of other  companies on which  Company's  systems rely
  will be timely  converted  and would not have a material  adverse  effect on the
  Company's  systems and operations.  Furthermore,  mission critical third parties
  will  be  included  in  the  Company's   contingency  plans  which  the  Company
  anticipates  will be  substantially  written before  December 31, 1998. No major
  information  technology  projects have been delayed as a result of the Year 2000
  Project.  In  addition,   the  Company's  audit  department  contracted  for  an
  independent  consultant to verify and validate the 
  
                                         12
  Company's  Year 2000 Project.  No major  recommendations  were  suggested by the
  independent  consultant to mitigate exposures in the Company's Year 2000 Project
  plan.
  
       The following is a more detailed discussion of the Year 2000 Project:
  
       The Year 2000  Project has been in  operation  at the  Company  since 1996.
  During this time the Company has been  operating  under a project plan reflected
  in many individual  documents such as the Microsoft Project charts,  binders for
  specific project areas, and the inventories which were created.
  
       For the  purposes of  consistency  with the  guidance's  of our  regulatory
  agencies the Company has  structured  the project in the  standard  five phases:
  Awareness, Assessment, Renovation, Validation, and Implementation. None of these
  phases are purely consecutive chronologically. For example, awareness, the phase
  which was begun before the others, will most likely continue well into the first
  and second quarters of 2000.
  
       It is important to note that the Year 2000 project at the Company  includes
  both the progression  from 1999 to 2000 and the  identification  of February 29,
  2000 as a leap year day.
  
       The following is a more detailed description of each project phase.
  
  Awareness
  
       This phase began in 1996 with the assignment of project managers. The first
  task was to review as much  information as possible from user groups,  seminars,
  periodicals,  and  the  guidance's  from  regulatory  information.  The  project
  managers created a project plan to address any possible Year 2000 issues.
  
       To address the individual  areas of  responsibility  in the project plan, a
  team  was  formed  composing  of   representatives   of  the  various  end  user
  departments.   This  team  includes   individuals  from   Information   Systems,
  Purchasing,  Item Processing,  Marketing,  Electronic  Banking,  Security,  Loan
  Administration,  Compliance,  Audit, and CIF. Furthermore,  representatives from
  the  Company's  subsidiaries,   Investors  Trust  Company  and  Penn  Securities
  (starting in 1998), joined the group.
  
       The next step in the Awareness phase was to educate the Company's employees
  on Year 2000 issues. This was accomplished  through periodic items in the Monday
  Morning Memos and through e-mail  notices to all  employees.  Year 2000 training
  was conducted for all bank officers. In the Spring of 1998 seminars were offered
  for our business loan customers and our lending staff.
  
       The seminars were one component of our effort to educate customers. Another
  was a  variety  of  statement  stuffers  concerning  the  Year  2000  issue  and
  specifically  providing information on the Company's project plan and status. In
  September of 1998, a Year 2000 update was added to the  Company's  internet home
  page.
  
       The Company intends to continue to use this variety of channels  (statement
  stuffers,  letters,  seminars,  home page, and printed  brochures) to attempt to
  provide  frequent  updates on the status of the Year 2000 project at the Company
  and all of its subsidiary organizations.
  
  Assessment
  
       The  purpose  of the  Assessment  phase  is to  inventory  all  potentially
  affected  software,  hardware,  equipment  (including  faxes,  ATM's,  hand held
  calculators,  etc.), interfaces,  environmental systems, and third parties. Once
  this  information  was  gathered,  it was  entered  into a  database  to provide
  organization and efficient tracking.  Letters were sent and web sites visited to
  ascertain  the  compliance  status of the  individual  product or project at the
  particular organization.
  
       The assessment  process went one step further with the investigation of the
  Year 2000 compliance status of the Company's largest business  depositors (funds
  providers),  large commercial loan customers (funds takers),  and  correspondent
  banks (capital  market  counterparties).  The depositor  investigation  was 
  
                                         13
  done through a mailed  survey to any business  account  holder with a balance of
  $100,000 or greater.  Commercial loan  relationships  with an aggregate  balance
  greater than $300,000 were  individually  assessed by the lender.  The status of
  correspondent  banks has been tracked as part of the third party  portion of the
  project.
  
       Year 2000 issues were  addressed as part of the  acquisition  planning with
  Elverson  National Bank in 1998. After the acquisition was announced,  the teams
  began to share  information by the project  leaders  participating  in the other
  institution's team meetings,  through data sharing, and through joint testing of
  common applications.
  
       In an effort to control the inventory of systems and applications after the
  assessment  was completed,  control  points were reviewed.  A policy was drafted
  requiring all new software  purchases to be certified Year 2000  compliant.  All
  hardware and  software  purchases  will be tested  before they are placed into a
  production  environment.  As all PC based  hardware and  software are  installed
  through the Network Services group and all mainframe  applications are supported
  through Data  Processing,  two central  control  points are  established.  These
  groups are responsible  for the ongoing  monitoring of new software and hardware
  installation.  As an additional  control,  the MIS  department  must approve all
  requests for payment of hardware and software purchases.
  
  Renovation
  
       The renovation phase involves  upgrading or replacing hardware and software
  as necessary.  Core systems have the highest  priority.  Other mission  critical
  systems  follow.   Finally,  non  mission  critical  systems  are  addressed.  A
  Remediation   Contingency  Plan  has  been  written  to  address  any  potential
  difficulties that may be encountered before December 31, 1999.
  
       In January 1998 the mainframe  hardware and operating  system were replaced
  with  compliant  products.  In  May  1998  a new  core  system,  Dimension,  was
  installed.
  
       Throughout  1998,   compliant   releases  of  software   applications  were
  installed.  Non compliant items are continuously  monitored through the database
  established in the assessment phase.
  
       In September  and October  1998,  all ATM  machines  are being  upgraded to
  compliant releases of software and the memory necessary to process them.
  
       In December 1998,  the core  processing  system of Investors  Trust Company
  will be  replaced  with a compliant  version.  This will  include new  hardware,
  software,  and operating  system.  All have been thoroughly  tested by the users
  group, as discussed herein in the Validation phase.
  
  Validation
  
       The  validation  phase of the project is guided by a written test plan. All
  mission  critical  systems  will be tested in 1998.  Many non  mission  critical
  systems will be tested in 1999 in descending order of priority.
  
       The  project  leader  and the end users  are  jointly  responsible  for the
  individual  tests.  The project  leader  schedules the date and ensures that the
  testing environment is prepared.  He then meets with the end user to develop the
  testing  scripts and scenarios.  The project leader is responsible  for ensuring
  that the test adheres to the requirements of the Year 2000 testing plan. The end
  user is responsible for the data entry and system  operation during the test and
  for reviewing the results to verify that the test was successful.  When the test
  is completed and  documented,  both the end user and the project  leader sign to
  indicate its completion.
  
       When a system is tested,  all  interfaces  and file  transmissions  will be
  tested at the same time whenever possible. As appropriate and feasible,  testing
  with third parties will be completed also.
  
                                         14
  Initiatives  to complete the  Validation  phase  include the creation of an
  isolated  PC/network  testing lab, the use of a secondary  logical partition for
  validating  mainframe  applications  and interfaces,  user group testing for the
  core trust application, and proxy testing by the network vendor for ATM's.
  
  Implementation
  
       Hardware  and  software  certified  to be  compliant  by the vendor will be
  thoroughly  tested  as  addressed  in the  Validation  phase.  Any  product  not
  currently in production must be tested and accepted by the end user before being
  placed  into a  production  environment.  After  a  system  is  certified  to be
  compliant,  no future releases or updates will be installed  unless first tested
  and confirmed to be compliant through the procedures discussed in the Validation
  phase. The control points for ensuring the future  installation of releases will
  continue to be the Network Services and Data Processing departments.
  
  Additional Project Efforts
  
       Throughout the remainder of 1998 and 1999, a database is being  established
  and  maintained to track the  compliance  status of third parties with which the
  Company  conducts its affairs.  This information will be reported to the project
  team and forwarded to executive management as necessary.
  
       A separate  budget for Year 2000 expenses is being  maintained for 1998 and
  1999.  The status of the budget will be reported to  executive  management.  The
  project leader is responsible  for working with the Chief  Financial  Officer to
  prepare the quarterly Year 2000 information for SEC filings.
  
       During the fourth  quarter of 1998 and first  quarter of 1999,  contingency
  plans will be written for all mission  critical  and high  priority  non mission
  critical systems. An overview of the contingency planning process was written in
  August 1998. After the Business Resumption  Contingency Plans are written,  they
  will be tested as prescribed by the overview.
  
       Although the Company  believes  that the program  outlined  above should be
  adequate  to address  the Year 2000  issue,  there can be no  assurance  to that
  effect.
  
       This report contains forward-looking  statements concerning earnings, asset
  quality,  Year 2000  compliance  and other future  events.  Actual results could
  differ  materially  due to,  among  other  things,  the risks and  uncertainties
  discussed  herein  and in Exhibit  99 to the  Company's  Report on Form 10-K for
  1997,  which is incorporated  herein by reference.  Readers are cautioned not to
  place undue reliance on these statements.  The Company  undertakes no obligation
  to publicly release or update any of these statements.
  
                                         15
  Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  
       There  has been no  material  change  in the  Company's  assessment  of its
  sensitivity to market risk since its  presentation  in the 1997 annual report on
  Form 10-K filed with the SEC.
  
                                         16
  PART II - OTHER INFORMATION
  
  Item 1.  Legal Proceedings.
  
           None.
  
  Item 2.  Changes in Securities.
  
           None.
  
  Item 3.  Defaults Upon Senior Securities.
  
           None.
  
  Item 4.  Submission of Matters to Vote of Security Holders.
  
           None.
  
  Item 5.  Other Information.
  
           During  third  quarter  1998,  the  Registrant's   banking  subsidiary,
  National Penn Bank (the "Bank"),  opened a supermarket  branch in Sinking Spring
  (Berks County) and installed three,  and closed five,  automated teller machines
  (ATMs) in southeastern Pennsylvania.
  
           On October 6, 1998,  the  Registrant's  wholly-owned  subsidiary,  Penn
  Securities,  Inc.,  opened for business as a full service  securities  brokerage
  firm.
  
           During third quarter 1998, the Registrant and the Bank amended  certain
  agreements  with  various  senior  officers of the Bank which  provide them with
  certain  severance  benefits  in  the  event  of a  change  in  control  of  the
  Registrant.  Copies of such  amendments  are included in this Report as Exhibits
  10.1, 10.2, 10.3, 10.4, 10.5 and 10.6.
  
  Item 6.  Exhibits and Reports on Form 8-K.
  
           (a)   Exhibits.
  
                 Exhibit 10.1 - Amendatory Agreement dated August 26, 1998 between
                 National Penn Bancshares,  Inc., National Penn Bank, and Lawrence
                 T. Jilk, Jr.
  
                 Exhibit 10.2 - Amendatory Agreement dated August 26, 1998 between
                 National Penn Bancshares,  Inc., National Penn Bank, and Wayne R.
                 Weidner.
  
                 Exhibit 10.3 - Amendatory Agreement dated August 26, 1998 between
                 National Penn Bancshares,  Inc., National Penn Bank, and Garry D.
                 Koch.
  
                 Exhibit 10.4 - Amendatory Agreement dated August 26, 1998 between
                 National Penn Bancshares,  Inc.,  National Penn Bank, and Gary L.
                 Rhoads.
  
                 Exhibit 10.5 - Amendatory Agreement dated August 26, 1998 between
                 National Penn Bancshares, Inc., National Penn Bank, and Sandra L.
                 Spayd.
  
                 Exhibit 10.6 - Amendatory Agreement dated August 26, 1998 between
                 National Penn Bancshares, Inc., National Penn Bank, and Sharon L.
                 Weaver.
  
                 Exhibit 27 - Financial Data Schedule.
  
                                         17
  (b)  Reports on Form 8-K.  The  Registrant  did not file any Reports on
  Form 8-K during the quarter ended September 30, 1998.
  
                                         18
  SIGNATURES
  
           Pursuant to the  requirements of Section 13 of the Securities  Exchange
  Act of 1934, the Registrant has caused this report to be signed on its behalf by
  the undersigned thereunto duly authorized.
  
                                     NATIONAL PENN BANCSHARES, INC.
                                    (Registrant)
  
  Dated:   November 13, 1998         By /s/  Wayne R. Weidner
                                        ------------------------------
                                        Wayne R. Weidner, President
  
  Dated:   November 13, 1998         By /s/  Gary L. Rhoads
                                        ------------------------------
                                        Gary L. Rhoads, Principal
                                        Financial Officer