content: FORM 10-Q
  
                         SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C. 20549
  
  (Mark One)
  
             [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                          SECURITIES EXCHANGE ACT OF 1934
  
  For the quarterly period ended: March 31, 1999
                                  --------------
  
  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: 000-10957
  
                           NATIONAL PENN BANCSHARES, INC.
               (Exact name of registrant as specified in its charter)
  
               Pennsylvania                            23-2215075       
     (State or other jurisdiction of                (I.R.S. Employer
      incorporation or organization)                Identification No.)
  
                Philadelphia and Reading Avenues, Boyertown, PA   19512
                 (Address of principal executive offices)       (Zip Code)
  
                                   (610) 367-6001
                (Registrant's telephone number, including area code)
  
                                         N/A
                (Former name, former address and former fiscal year,
                            if changed since last report)
  
           Indicate by check mark whether the Registrant (1) has filed all reports
  required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
  1934 during the preceding 12 months (or for such shorter period that the
  Registrant was required to file such reports), and (2) has been subject to such
  filing requirements for the past 90 days. Yes X No __.
  
           Indicate the number of shares outstanding of each of the issuer's
  classes of common stock, as of the latest practicable date.
  
                  Class                     Outstanding at May 7, 1999
  
      Common Stock (no stated par value) (No.)  16,996,657 Shares
  
  
                                 Page 1 of 18 pages
  <PAGE>
  TABLE OF CONTENTS
  <TABLE>
  <CAPTION>
  Part I - Financial Information.                                                 Page
  <S>                                                                            <C>
           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...........................................15
  
  Part II - Other Information.
  
           Item 1.          Legal Proceedings ....................................16
  
           Item 2.          Changes in Securities.................................16
  
           Item 3.          Defaults Upon Senior Securities.......................16
  
           Item 4.          Submission of Matters to a Vote of
                            Security Holders......................................16
  
           Item 5.          Other Information ....................................16
  
           Item 6.          Exhibits and Reports on Form 8-K......................16
  
  Signature.......................................................................18
  </TABLE>
  
  
  
                                         2
  <PAGE>
                           PART I - FINANCIAL INFORMATION
  
  Item 1.  Financial Statements
  <TABLE>
  <CAPTION>
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
  CONSOLIDATED CONDENSED BALANCE SHEET                                        March 31           Dec. 31
   (Dollars in thousands, except per share data)                                1999               1998
                                                                            (Unaudited)           (Note)
                                                                            -------------      -------------
  <S>                                                                            <C>                <C>    
  ASSETS                                                                                        
  Cash and due from banks                                                        $41,062            $55,024
  Interest bearing deposits in banks                                               1,425             10,777
  Federal funds sold                                                              25,500                  -
                                                                            -------------      -------------
      Total cash and cash equivalents                                             67,987             65,801
  Trading account securities                                                       6,558             21,589
  Investment securities available for sale                                       516,911            523,041
  Loans, less allowance for loan losses of $31,400 and
    $30,835 in 1999 and 1998 respectively                                      1,409,936          1,404,972
  Other assets                                                                   106,359            105,845
                                                                            -------------      -------------
      Total Assets                                                             2,107,751          2,121,248
                                                                            =============      =============
  
  LIABILITIES AND SHAREHOLDERS' EQUITY
  Non-interest bearing deposits                                                 $225,925           $222,816
  Interest bearing deposits                                                  
    (Includes certificates of deposit $100,000 or greater:
    1999 - $140,760; 1998- $145,047)                                           1,274,926          1,250,486
                                                                            -------------      -------------
      Total deposits                                                           1,500,851          1,473,302
  Securities sold under repurchase agreements
    and federal funds purchased                                                  131,278            159,586
  Short-term borrowings                                                            5,287             19,132
  Long-term obligations                                                          247,991            248,627
  Guaranteed preferred beneficial interests in
    Company's subordinated debentures                                             40,250             40,250
  Accrued interest and other liabilities                                          22,063             21,577
                                                                            -------------      -------------
      Total Liabilities                                                        1,947,720          1,962,474
  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
      1999 - 16,994,605; 1998 - 16,989,622                                       114,565            114,294
    Retained earnings                                                             36,832             34,927
    Accumulated other comprehensive income                                         8,634              9,553
                                                                            -------------      -------------
      Total Shareholders' Equity                                                 160,031            158,774
                                                                            -------------      -------------
      Total Liabilities and Shareholders' Equity                              $2,107,751         $2,121,248
                                                                            =============      =============
  </TABLE>
  The accompanying notes are an integral part of these condensed financial
  statements.
  
  Note: The Balance Sheet at Dec. 31, 1998 has been derived from the audited
       financial statements of the Company plus additions necessary to reflect the
       Company's acquisition of Elverson National Bank which was accounted for
       under the pooling of interests method of accounting.
  
                                         3
  <PAGE>
  
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
  UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME
  <TABLE>
  <CAPTION>
                                                                                   Three Months Ended
  (Dollars in thousands, except per share data)                                         March 31
                                                                            --------------------------------
                                                                                1999               1998
                                                                            -------------      -------------
  <S>                                                                            <C>                <C>    
  INTEREST INCOME                                                                               
  Loans, including fees                                                          $31,225            $30,571
  Deposits in banks                                                                   43                 76
  Federal funds sold                                                                  46                 87
  Trading account securities                                                         196                  -
  Investment securities                                                            7,441              5,916
                                                                            -------------      -------------
      Total interest income                                                       38,951             36,650
                                                                            -------------      -------------
  INTEREST EXPENSE
  Deposits                                                                        13,304             13,119
  Federal funds purchased, borrowed funds and
    securities sold under repurchase agreements                                    6,086              4,444
                                                                            -------------      -------------
      Total interest expense                                                      19,390             17,563
                                                                            -------------      -------------
      Net interest income                                                         19,561             19,087
  Provision for loan losses                                                        1,415              1,400
                                                                            -------------      -------------
      Net interest income after provision                                                       
        for loan losses                                                           18,146             17,687
                                                                            -------------      -------------
  OTHER INCOME
  Trust income                                                                       886                760
  Service charges on deposit accounts                                              1,364              1,215
  Net gains on sale of investment securities                                           2                611
  Net gains (losses) on sale of residential mortgages                               (207)               (36)
  Trading revenue                                                                    (48)                 -
  Other                                                                            2,514              1,593
                                                                            -------------      -------------
      Total other income                                                           4,511              4,143
                                                                            -------------      -------------
  OTHER EXPENSES
  Salaries, wages and employee benefits                                            9,286              8,049
  Net premises and equipment                                                       2,324              2,270
  Other operating                                                                  3,722              3,734
                                                                            -------------      -------------
      Total other expenses                                                        15,332             14,053
                                                                            -------------      -------------
      Income before income taxes                                                   7,325              7,777
  Applicable income tax expense                                                    1,309              2,033
                                                                            -------------      -------------
      Net income                                                                  $6,016             $5,744
                                                                            =============      =============
  
  
  PER SHARE OF COMMON STOCK
  Net income per share - basic                                                     $0.35              $0.34
  Net income per share - diluted                                                    0.35               0.33
  Dividends paid in cash                                                            0.19               0.14
  </TABLE>
  
  The  accompanying  notes  are an  integral  part of  these  condensed  financial
  statements.
  
                                         4
  <PAGE>
  
  <TABLE>
  <CAPTION>
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
  CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
  
  
  THREE MONTHS ENDED MARCH 31, 1999
    (Dollars in thousands)
                                                                       Accumulated
                                                            Additional    other
                                        Common Stock        Paid-in    conprehensive  Retained  Treasury   Comprehensive
                                      Shares     Par Value  Capital       income      earnings    stock       income
                                    -------------------------------------------------------------------------------------
  <S>                              <C>           <C>         <C>             <C>      <C>            <C>           <C>
  Balance at December 31, 1998      16,989,622    114,294          -          9,553    34,927           -
    Net income                               -          -          -              -     6,016           -          6,016
    Cash dividends declared                  -          -          -              -    (4,111)          -
    Shares issued under stock-based
         plans                           4,983        271          -              -         -           -
    Other comprehensive income, net
        of reclassification adjustment
        and taxes                            -          -          -           (919)        -           -           (919)
                                    -------------------------------------------------------------------------------------
  Total comprehensive income                 -          -          -              -         -           -        $ 5,097
                                    -------------------------------------------------------------------------------------
  Balance at March 31, 1999         16,994,605   $ 114,565       $ -        $ 8,634   $36,832         $ -  
  
  
                                                                                 March 31, 1999
                                                                       -----------------------------------
                                                                          Before        Tax       Net of
                                                                            tax        (expense)   tax
                                                                          amount       benefit    amount
                                                                       -----------------------------------
  Unrealized gains on securities
    Unrealized holding gains arising during period                           (1,416)      496        (920)
    Less: reclassification adjustment for gains realized in net income            2        (1)          1
                                                                       -----------------------------------
  Other comprehensive income, net                                            (1,414)      495        (919)
                                                                       ===================================
  
  
  THREE MONTHS ENDED MARCH 31, 1998                                                                           
    (Dollars in thousands)
                                                                        Accumulated
                                                             Additional    other
                                         Common Stock        Paid-in    conprehensive  Retained  Treasury    Comprehensive
                                       Shares    Par Value   Capital       income      earnings    stock        income
                                     --------------------------------------------------------------------------------------
  
  Balance at December 31, 1997       17,080,328     25,620     96,657          7,648     22,431     (3,428)
    Net income                                -          -          -              -      5,744          -           5,744
    Cash dividends declared                   -          -          -              -     (2,456)         -
    Shares issued under stock-based
         plans                                -          -          -              -          -          -
    Other comprehensive income, net
        of reclassification adjustment
        and taxes                             -          -          -         (1,266)         -          -          (1,266)
                                     --------------------------------------------------------------------------------------
  Total comprehensive income                  -          -          -              -          -          -         $ 4,478
                                     --------------------------------------------------------------------------------------
     Par value adjustments related to
        pooling transaction                   -       (155)       329              -          -          -
     Effect of treasury stock 
        transactions                   (103,520)         -       (941)             -          -      -2843
                                     --------------------------------------------------------------------------------------
  Balance at March 31, 1998          16,976,808   $ 25,465   $ 96,045        $ 6,382    $25,719   $ (6,271) 
  
  
                                                                                  March 31, 1998
                                                                        -----------------------------------
                                                                           Before         Tax      Net of
                                                                             tax        (expense)   tax
                                                                           amount       benefit    amount
                                                                        -----------------------------------
  Unrealized gains on securities
    Unrealized holding gains arising during period                            (2,553)       893     (1,660)
    Less: reclassification adjustment for gains realized in net income           606       (212)       394
                                                                        -----------------------------------
  Other comprehensive income, net                                             (1,947)       681     (1,266)
                                                                        ===================================
  </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>
                                                                                    Three Months Ended March 31,
  (Dollars in thousands)                                                             
                                                                                         1999              1998
                                                                                    ---------------   ---------------
  
  CASH FLOWS FROM OPERATING ACTIVITIES
  <S>                                                                                       <C>               <C>   
    Net income                                                                              $6,016            $5,744
    Adjustments to reconcile net income to net
        cash provided by (used in) operating activities
      Provision for loan losses                                                              1,415             1,400
      Depreciation and amortization                                                            462               899
      Net gains (losses) on sale of securities and mortgages                                  (205)              443
      Trading-related assets                                                                15,031                 -
      Mortgage loans originated for resale                                                 (59,494)          (16,854)
      Sale of mortgage loans originated for resale                                          59,494            16,854
      Other                                                                                    612           (11,897)
                                                                                    ---------------   ---------------
  
        Net cash provided by (used in) operating activities                                 23,331            (3,411)
  
  CASH FLOWS FROM INVESTING ACTIVITIES
    Proceeds from sales of investment securities - available for sale                        1,058            16,594
    Proceeds from maturities of investment securities - available for sale                   6,942             5,807
    Purchase of investment securities - available for sale                                  (3,272)          (68,567)
    Proceeds from sales of loans                                                                 -                 -
    Net increase in loans                                                                   (6,379)           (7,675)
    Purchases of premises & equipment                                                         (414)             (628)
                                                                                    ---------------   ---------------
  
        Net cash provided by (used in) investing activities                                 (2,065)          (54,469)
  
  CASH FLOWS FROM FINANCING ACTIVITIES
    Increase (decrease) in:
      Deposits                                                                              27,549            25,457
      Repurchase agreements, fed funds & short-term borrowings                             (42,153)           (6,716)
      Long-term borrowings                                                                    (636)           54,625
    (Increase) decrease in treasury stock                                                        -            (2,843)
    Issuance of common stock under dividend reinvestment plan                                  271              (767)
    Cash dividends                                                                          (4,111)           (2,456)
                                                                                    ---------------   ---------------
  
        Net cash provided by (used in) financing activities                                (19,080)           67,300
  
  Net increase (decrease) in cash and cash equivalents                                       2,186             9,420
  
  Cash and cash equivalents at January 1                                                    65,801            63,408
                                                                                    ---------------   ---------------
  
  Cash and cash equivalents at March 31                                                    $67,987           $72,828
                                                                                    ===============   ===============
  </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 consolidated 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. The
  financial statements include the balances of Elverson National Bank which was
  acquired on January 4, 1999 in a transaction accounted for under the pooling of
  interest method of accounting (see Note 3). 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, 1998.
  
  2. The results of operations for the three-month period ended March 31, 1999 are
  not necessarily indicative of the results to be expected for the full year.
  
  3. The Company's banking subsidiary, National Penn Bank, completed the
  acquisition of Elverson National Bank on January 4, 1999 in a transaction
  accounted for as a pooling of interests, which accordingly required restatement
  of the financial statements. Under the terms of the merger, each share of
  Elverson was converted into 1.46875 shares of the Company's common stock,
  resulting in an issuance of 3,821,564 shares of the Company's common stock. In
  addition, outstanding stock options to purchase Elverson common stock were
  converted into stock options to purchase 58,141 shares of the Company's common
  stock, with an exercise price of $12.98 to $15.74 per share. All financial
  information presented for current and prior periods includes the results of
  Elverson National Bank.
  
  4. Per share data are based on the weighted average number of shares outstanding
  of 16,978,668 and 16,992,513 for 1999 and 1998, respectively, and on the
  weighted average number of diluted shares outstanding of 17,276,073 and
  17,345,002 for 1999 and 1998, respectively, and are computed after giving
  retroactive effect to a 5-for-4 stock split paid July 31, 1998.
  
  5. On March 4, 1999, the Company's Board of Directors declared a cash dividend
  of $.20 per share payable on May 17, 1999, to shareholders of record on April
  30, 1999.
  
  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 $10,338,000 at March 31, 1999,
  all of which are non-accrual loans. The allowance for loan loss associated with
  these impaired loans was $1,309,000 at March 31, 1999. 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 decreased to $2.108 billion, a decrease of $13,000 or .6%
  over the $2.121 billion at December 31, 1998. This decrease is reflected
  primarily in the investment category, including trading account securities,
  which was partially offset by increases in loans and cash and cash equivalent
  categories.
  
           Total cash and cash equivalents increased $2.2 million or 3.3% at March
  31, 1999 when compared to December 31, 1998. The increase in federal funds sold
  of $25.5 million was partially offset by decreases in interest bearing deposits
  of $9.4 million and cash and due from banks of $14.0 million.
  
           Loans increased to $1.410 billion at March 31, 1999. The increase of
  $5.0 million or .4% compared to December 31, 1998 was primarily the result of
  the investment of deposits and long-term borrowings. Loans originated for
  immediate resale during the first three months of 1999 amounted to $59.5
  million. The Company's credit quality is reflected by the annualized ratio of
  net charge-offs to total loans of .2% through the first quarter of 1999 versus
   .3% for the year 1998, and the ratio of non-performing assets to total loans of
   .93% at March 31, 1999 and 1.0% at December 31 1998. Non-performing assets,
  including non-accruals, loans 90 days past due and still accruing and other real
  estate owned, were $13.4 million at March 31, 1999 compared to $14.3 million at
  December 31, 1998. Of these amounts, non-accrual loans represented $10.3 million
  and $11.6 million at March 31, 1999 and December 31, 1998, respectively. Loans
  90 days past due and still accruing interest were $2.5 million and $1.8 million
  at March 31, 1999 and December 31, 1998, respectively. Other real estate owned
  was $631,000 and $922,000 at March 31, 1999 and December 31, 1998, respectively.
  The Company had no restructured loans at March 31, 1999 or December 31, 1998.
  The allowance for loan losses to non-performing assets was 233.1% and 215.0% at
  March 31, 1999 and December 31, 1998, respectively. As is evident from the above
  amounts relative to non-performing assets, there have been no significant
  changes between December 31, 1998 and March 31, 1999. The Company has no
  significant exposure to energy and agricultural-related loans.
  
           Investments, the Company's secondary use of funds, decreased $6.1
  million or 1.2% to $516.9 million at March 31, 1999 when compared to December
  31, 1998. The decrease is due to investment calls and maturities and the
  amortization of mortgage-backed securities.
  
           Trading account securities decreased $15.0 million to $6.6 million at
  March 31, 1999 due to the sale of these securities. The Company has assessed its
  involvement in trading account activities and decided these activities do not
  meet with its strategic goals.
  
           As the primary source of funds, aggregate deposits of $1.501 billion at
  March 31, 1999 increased $27.5 million or 1.9% compared to December 31, 1998.
  The increase in deposits during the first three months of 1999 was primarily in
  interest bearing deposits which increased $24.4 million while non-interest
  bearing deposits increased $3.1 million. Certificates of deposit in excess of
  $100,000 decreased $4.3 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, long-term debt obligations, and subordinated debentures. In
  aggregate, these funds totaled $424.8 million at March 31, 1999, and $467.6
  million at December 31, 1998. The decrease of $42.8 million is primarily due to
  the decrease in short-term borrowings and securities sold under repurchase
  agreements and federal funds purchased, of $42.2 million due to the repayment of
  short-term advances, and a decrease in long-term obligations of .6 million.
  
  
                                         8
  <PAGE>
           Shareholders' equity increased $1.3 million through March 31, 1999.
  This increase was due to an increase in earnings retained which was partially
  offset by a decrease in the valuation adjustment for securities available for
  sale. Cash dividends paid during the first three months of 1999 increased
  $856,000 or 36.1% compared to the cash dividends paid during the first three
  months of 1998. Earnings retained during the first three months of 1999 were
  46.3% compared to 58.7% during the first three months of 1998.
  
                                RESULTS OF OPERATIONS
  
           For the first three months, net income reached $6.0 million, or 4.7%
  more than the $5.7 million reported for the first three months of 1998. 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 $474,000 or
  2.5% to $19.6 million during the first quarter of 1999 from $19.1 million in
  1997. The increase in interest income is a result of increased investment income
  of $1.5 million and increased loan income of $.7 million due to 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. On November 18, 1998, the prime
  rate changed to 7.75%. Interest expense during the first three months of 1999
  increased $1.8 million or 10.4% compared to the prior year's first three months.
  Despite the current rate environment, the cost of attracting and holding
  deposited funds is an ever-increasing expense in the banking industry. These
  increases are the real costs of deposit accumulation and retention, including
  FDIC insurance costs and branch overhead expenses. Such costs are necessary for
  continued growth and to maintain and increase market share of available
  deposits.
  
           The provision for loan and lease losses is determined by periodic
  reviews of loan quality, current economic conditions, loss experience and loan
  growth. Based on these factors, the provision for loan and lease losses
  increased $15,000 for the three month period ended March 31, 1999 compared to
  the same period in 1998. The allowance for loan and lease losses of $31.4
  million at March 31, 1999 and $30.8 million at December 31, 1998 as a percentage
  of total loans was 2.2% and 2.1%, respectively. The Company's net charge-offs of
  $850,000 and $179,000 during the first three months of 1999 and 1998,
  respectively, continue to be comparable to those of the Company's peers, as
  reported in the Bank Holding Company Performance Report.
  
           Other income increased $368,000 or 8.9% during the first quarter of
  1999, as a result of increased other income of $921,000, increased service
  charges on deposit accounts of $149,000, increased trust and investment
  management income of $126,000. This was partially offset by a decrease in net
  gains on the sale of securities and mortgages totaling $780,000 and decreased
  trading revenue of $48,000. Other expenses increased $1.3 million or 9.1% during
  the quarter ended March 31, 1999. Of this year-to-date increase, salaries, wages
  and benefits increased $1.2 million or 15.4%, and net premises and equipment
  increased $54,000 or 2.4%. Other operating expenses decreased $12,000 or .3%.
  
           Income before income taxes decreased $452,000 or 5.8% in the first
  quarter of 1999 compared to the same time period in 1998. Income taxes decreased
  $724,000 for the quarter ended March 31, 1999 due to higher levels of tax free
  income from municipal securities and bank-owned life insurance.
  
                       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 
  
                                         9
  <PAGE>
  agreements,  fed funds  purchased,  and short-term  borrowings,  decreased $14.6
  million from year end 1998.  Long-term  borrowings decreased $636,000 during the
  first three months of 1999.
  
           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
  March 31, 1999:
  <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                      $   1,425      $      --      $      --      $      --
        Investment securities               49,642         50,079        188,507        228,683
        Trading account securities           6,558             --             --             --
        Loans and leases                   393,868        220,028        508,418        287,622
        Other assets                        25,500             --             --        147,421
                                         ---------      ---------      ---------      ---------
                                           476,993        270,107        696,925        663,726
                                         ---------      ---------      ---------      ---------
  Liabilities and equity
        Noninterest-bearing deposits       225,925             --             --             --
        Interest-bearing deposits          396,014        274,323        234,661        369,928
        Borrowed funds                     119,849         30,000        192,500         42,207
        Preferred securities                    --             --             --         40,250
        Other liabilities                       --             --             --         22,063
        Hedging instruments                100,000        (20,000)       (80,000)            --
        Shareholders' equity                    --             --             --        160,031
                                         ---------      ---------      ---------      ---------
                                           841,788        284,323        347,161        634,479
                                         ---------      ---------      ---------      ---------
  Interest sensitivity gap                (364,795)       (14,216)       349,764         29,247
                                         ---------      ---------      ---------      ---------
  
  Cumulative interest rate
          sensitivity gap                ($364,795)     ($379,011)     $ (29,247)     $      --
                                         =========      =========      =========      =========
  </TABLE>
  
  (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 first calendar quarter of 1999. 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 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, 31.8% of these deposits are 
  
                                         10
  <PAGE>
  considered  repriceable within three months and 68.2% 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 interest rates will move within a narrow range
  for the remainder of 1999, with no clear indication of sustainable rising or
  falling rates. Given this assumption, the Company's asset/liability strategy for
  1999 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 sustained 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:
  
                                                       March 31,         Dec. 31,
                                                         1999              1998
  CAPITAL PERFORMANCE
  Return on average assets (annualized)                   1.15%            1.17%
  Return on average equity (annualized)                  15.80            15.00
  Earnings retained                                      46.30            55.70
  Internal capital growth (annualized)                    7.02             8.04
  
  CAPITAL LEVELS
  <TABLE>
  <CAPTION>
                                         Tier 1 Capital to   Tier 1 Capital to Risk-  Tier 1 Capital to Risk-
                                      Average Assets Ratio    Weighted Assets Ratio   Weighted Assets Ratio
                                       Mar. 31,    Dec. 31,    Mar. 31,     Dec. 31,    Mar. 31,    Dec. 31,
                                         1999        1998        1999         1998        1999        1998
  <S>                                    <C>         <C>         <C>         <C>         <C>          <C>   
  The Company                            8.93%       8.77%       12.16%      12.21%      13.61%       13.51%
  National Penn Bank                     6.83%       6.80%        9.35%       9.52%       6.83%        6.80%
  "Well Capitalized" institution         5.00%       5.00%        6.00%       6.00%      10.00%       10.00%
      (under banking regulations)
  </TABLE>
  
  
           The Company's capital ratios above compare favorably to the minimum
  required amounts of Tier 1 and total capital to "risk-weighted" assets and the
  minimum Tier 1 leverage ratio, as defined by banking 
  
                                         11
  <PAGE>
  regulators. At March 31, 1999, 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 following is a Year 2000 readiness statement.
  
           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 has completed the Renovation Phase of mission critical systems. The
  Validation and Implementation Phases of renovated mission critical systems were
  substantially complete by December 31, 1998. Validation and Implementation
  Phases of non-mission critical systems will continue through the first two
  quarters of 1999. Actual costs for 1998 were within the budgeted amount of
  $300,000, which represented approximately 9% of the total information technology
  budget for 1998. The amount budgeted for 1999 is $200,000, which is
  approximately 12% of the total information technology budget for 1999. 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 during the first quarter of 1999. 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 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 of the Company's
  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 
  
                                         12
  <PAGE>
  
  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 written guidance available from regulatory
  agencies. The project managers created a project plan to address Year 2000
  issues.
  
           To address individual areas of responsibility in the project plan, a
  team was formed composed of various representatives of National Penn Bank,
  Investors Trust Company, and, beginning in 1998, Penn Securities, Inc. The team
  has been charged with guiding the Year 2000 efforts of the Company through all
  project phases.
  
           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
  Company memos and through e-mail. Year 2000 training was conducted for all bank
  officers. In the Spring of 1998, seminars were offered for the Company's
  business loan customers and lending staff.
  
           The seminars were one component of the Company's 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 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, ATMs, hand held
  calculators, etc.), interfaces, environmental systems, and third parties. Once
  this information was gathered, it was organized to provide 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 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 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.
  
                                         13
  <PAGE>
           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.
  
           The Company has completed renovation efforts on mission critical
  systems and anticipates that the replacement of all remaining non-compliant,
  non-critical systems will be accomplished during the first and second quarters
  of 1999.
  
           Highlights of the Company's efforts to date include the installation of
  a new mainframe system in January 1998. In May 1998, a new core banking system
  was installed. In October and November 1998, all ATM machines were upgraded to
  compliant releases of software and the memory necessary to process them. In
  December 1998, the core processing system of Investors Trust Company was
  replaced, including 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.
  Testing of mission critical systems was substantially complete by the end of
  1998. 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.
  
           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 applications, and proxy testing by the network vendor for ATMs.
  
  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.
  
                                         14
  <PAGE>
  Additional Project Efforts
           Throughout the remainder of 1999, a database is being 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 1999.
  The status of the budget will be reported periodically to executive management.
  
           Contingency plans were written in the first quarter of 1999 for all
  mission critical and high priority non-mission critical systems. These plans are
  currently being reviewed and edited. An overview of the contingency planning
  process was written in August 1998. Upon completion of the Business Resumption
  Contingency Plans, they will be tested as prescribed in the contingency planning
  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
  1998, 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.
  
  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 1998 annual report on
  Form 10-K filed with the SEC.
  
  
  <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 a Vote of Security Holders.
  
           None.
  
  Item 5.  Other Information.
  
           During first quarter 1999, the Registrant, together with four of its
  subsidiaries, National Penn Bank, Investors Trust Company, Penn Securities, Inc.
  and Link Financial Services, Inc., entered into a strategic alliance with
  Creative Financial Group, an independent insurance agency ("CFG"), New England
  Life Insurance Company, an independent life insurance company, and New England
  Securities Corporation, an independent broker-dealer. The purpose of the
  strategic alliance is for CFG and its related companies to offer and sell
  additional insurance and non-deposit investment products to customers of the
  Registrant's subsidiaries, and for the Registrant's subsidiaries to offer and
  sell certain banking and trust products to customers of CFG.
  
           During first quarter 1999, the Registrant's banking subsidiary,
  National Penn Bank, relocated its Private Banking division to 1100 Berkshire
  Boulevard, Suite 210, Wyomissing, Pennsylvania, opened an automated teller
  machine ("ATM") in Northampton, Northampton County, Pennsylvania, and closed an
  ATM in Gap, Lancaster County, Pennsylvania.
  
           On March 24, 1999, the Registrant's Board of Directors declared a cash
  dividend of $.20 per share to be paid on May 17, 1999 to shareholders of record
  on April 30, 1999.
  
  Item 6.  Exhibits and Reports on Form 8-K.
  <TABLE>
  <CAPTION>
           (a)      Exhibits.
  <S>                                 <C>
                    Exhibit 10.1 -    Executive Incentive Plan/Amended Schedules.
  
                    Exhibit 27.1 -    Financial Data Schedule.
  
                    Exhibit 27.2 -    Restated Financial Data Schedule for year ended December 31, 1998.
  
                    Exhibit 27.3 -    Restated Financial Data Schedule for year ended December 31, 1997.
  
                    Exhibit 27.4 -    Restated Financial Data Schedule for year ended December 31, 1996.
  
                    Exhibit 27.5 -    Restated Financial Data Schedule for period ended March 31, 1998.
  
                    Exhibit 27.6 -    Restated Financial Data Schedule for period ended June 30, 1998.
  
  
                                         16
  <PAGE>
  
                    Exhibit 27.7 -    Restated Financial Data Schedule for period ended June 30, 1997.
  
                    Exhibit 27.8 -    Restated Financial Data Schedule for period ended September 30, 1998.
  
                    Exhibit 27.9 -    Restated Financial Data Schedule for period ended September 30, 1997.
  </TABLE>
  
           (b) Reports on Form 8-K. The Registrant filed the following Reports on
  Form 8-K during the quarterly period ended March 31, 1999.
  
                    1. Report on Form 8-K dated January 4, 1999, reporting, under
  Item 2, the closing of the Registrant's acquisition of Elverson National Bank
  ("Elverson").
  
                    2. Report on Form 8-K dated February 28, 1999, reporting,
  under Items 5 and 7, the combined consolidated financial results of the
  Registrant and Elverson from January 1, 1999 through February 28, 1999.
  
                    3. Report on Form 8-K/A No. 1 dated March 11, 1999, reporting,
  under Items 2 and 7, the historical financial statements of Elverson and pro
  forma financial information giving effect to the Registrant's acquisition of
  Elverson.
  
  
  
                                         17
  <PAGE>
                                     SIGNATURES
  
  
           Pursuant to the requirements of Section 13 of the Securities Exchange
  Act of 1934, the Registrant has caused this report to be signed on its behalf by
  the undersigned thereunto duly authorized.
  
                                              NATIONAL PENN BANCSHARES, INC.
                                                       (Registrant)
  
  Dated:   May 14, 1999                       By /s/  Wayne R. Weidner     
                                                ---------------------------
                                                Wayne R. Weidner, President
  
  Dated:   May 14, 1999                       By /s/  Gary L. Rhoads         
                                                ---------------------------
                                                Gary L. Rhoads, Principal
                                                Financial Officer
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text: FORM 10-Q
  
                         SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C. 20549
  
  (Mark One)
  
             [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                          SECURITIES EXCHANGE ACT OF 1934
  
  For the quarterly period ended: March 31, 1999
                                  --------------
  
  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: 000-10957
  
                           NATIONAL PENN BANCSHARES, INC.
               (Exact name of registrant as specified in its charter)
  
               Pennsylvania                            23-2215075       
     (State or other jurisdiction of                (I.R.S. Employer
      incorporation or organization)                Identification No.)
  
                Philadelphia and Reading Avenues, Boyertown, PA   19512
                 (Address of principal executive offices)       (Zip Code)
  
                                   (610) 367-6001
                (Registrant's telephone number, including area code)
  
                                         N/A
                (Former name, former address and former fiscal year,
                            if changed since last report)
  
           Indicate by check mark whether the Registrant (1) has filed all reports
  required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
  1934 during the preceding 12 months (or for such shorter period that the
  Registrant was required to file such reports), and (2) has been subject to such
  filing requirements for the past 90 days. Yes X No __.
  
           Indicate the number of shares outstanding of each of the issuer's
  classes of common stock, as of the latest practicable date.
  
                  Class                     Outstanding at May 7, 1999
  
      Common Stock (no stated par value) (No.)  16,996,657 Shares
  
                                 Page 1 of 18 pages
  TABLE OF CONTENTS
  Part I - Financial Information.                                                 Page
  Item 1.          Financial Statements.................................. 3  
  
           Item 2.          Management's Discussion and Analysis of
                            Financial Condition and Results of Operation ......... 8
  
           Item 3.          Quantitative and Qualitative Disclosures about
                            Market Risk...........................................15
  
  Part II - Other Information.
  
           Item 1.          Legal Proceedings ....................................16
  
           Item 2.          Changes in Securities.................................16
  
           Item 3.          Defaults Upon Senior Securities.......................16
  
           Item 4.          Submission of Matters to a Vote of
                            Security Holders......................................16
  
           Item 5.          Other Information ....................................16
  
           Item 6.          Exhibits and Reports on Form 8-K......................16
  
  Signature.......................................................................18
  2
  PART I - FINANCIAL INFORMATION
  
  Item 1.  Financial Statements
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
  CONSOLIDATED CONDENSED BALANCE SHEET                                        March 31           Dec. 31
   (Dollars in thousands, except per share data)                                1999               1998
                                                                            (Unaudited)           (Note)
                                                                            -------------      -------------
  ASSETS                                                                                        
  Cash and due from banks                                                        $41,062            $55,024
  Interest bearing deposits in banks                                               1,425             10,777
  Federal funds sold                                                              25,500                  -
                                                                            -------------      -------------
      Total cash and cash equivalents                                             67,987             65,801
  Trading account securities                                                       6,558             21,589
  Investment securities available for sale                                       516,911            523,041
  Loans, less allowance for loan losses of $31,400 and
    $30,835 in 1999 and 1998 respectively                                      1,409,936          1,404,972
  Other assets                                                                   106,359            105,845
                                                                            -------------      -------------
      Total Assets                                                             2,107,751          2,121,248
                                                                            =============      =============
  
  LIABILITIES AND SHAREHOLDERS' EQUITY
  Non-interest bearing deposits                                                 $225,925           $222,816
  Interest bearing deposits                                                  
    (Includes certificates of deposit $100,000 or greater:
    1999 - $140,760; 1998- $145,047)                                           1,274,926          1,250,486
                                                                            -------------      -------------
      Total deposits                                                           1,500,851          1,473,302
  Securities sold under repurchase agreements
    and federal funds purchased                                                  131,278            159,586
  Short-term borrowings                                                            5,287             19,132
  Long-term obligations                                                          247,991            248,627
  Guaranteed preferred beneficial interests in
    Company's subordinated debentures                                             40,250             40,250
  Accrued interest and other liabilities                                          22,063             21,577
                                                                            -------------      -------------
      Total Liabilities                                                        1,947,720          1,962,474
  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
      1999 - 16,994,605; 1998 - 16,989,622                                       114,565            114,294
    Retained earnings                                                             36,832             34,927
    Accumulated other comprehensive income                                         8,634              9,553
                                                                            -------------      -------------
      Total Shareholders' Equity                                                 160,031            158,774
                                                                            -------------      -------------
      Total Liabilities and Shareholders' Equity                              $2,107,751         $2,121,248
                                                                            =============      =============
  The accompanying notes are an integral part of these condensed financial
  statements.
  
  Note: The Balance Sheet at Dec. 31, 1998 has been derived from the audited
       financial statements of the Company plus additions necessary to reflect the
       Company's acquisition of Elverson National Bank which was accounted for
       under the pooling of interests method of accounting.
  
                                         3
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
  UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME
  Three Months Ended
  (Dollars in thousands, except per share data)                                         March 31
                                                                            --------------------------------
                                                                                1999               1998
                                                                            -------------      -------------
  INTEREST INCOME                                                                               
  Loans, including fees                                                          $31,225            $30,571
  Deposits in banks                                                                   43                 76
  Federal funds sold                                                                  46                 87
  Trading account securities                                                         196                  -
  Investment securities                                                            7,441              5,916
                                                                            -------------      -------------
      Total interest income                                                       38,951             36,650
                                                                            -------------      -------------
  INTEREST EXPENSE
  Deposits                                                                        13,304             13,119
  Federal funds purchased, borrowed funds and
    securities sold under repurchase agreements                                    6,086              4,444
                                                                            -------------      -------------
      Total interest expense                                                      19,390             17,563
                                                                            -------------      -------------
      Net interest income                                                         19,561             19,087
  Provision for loan losses                                                        1,415              1,400
                                                                            -------------      -------------
      Net interest income after provision                                                       
        for loan losses                                                           18,146             17,687
                                                                            -------------      -------------
  OTHER INCOME
  Trust income                                                                       886                760
  Service charges on deposit accounts                                              1,364              1,215
  Net gains on sale of investment securities                                           2                611
  Net gains (losses) on sale of residential mortgages                               (207)               (36)
  Trading revenue                                                                    (48)                 -
  Other                                                                            2,514              1,593
                                                                            -------------      -------------
      Total other income                                                           4,511              4,143
                                                                            -------------      -------------
  OTHER EXPENSES
  Salaries, wages and employee benefits                                            9,286              8,049
  Net premises and equipment                                                       2,324              2,270
  Other operating                                                                  3,722              3,734
                                                                            -------------      -------------
      Total other expenses                                                        15,332             14,053
                                                                            -------------      -------------
      Income before income taxes                                                   7,325              7,777
  Applicable income tax expense                                                    1,309              2,033
                                                                            -------------      -------------
      Net income                                                                  $6,016             $5,744
                                                                            =============      =============
  
  PER SHARE OF COMMON STOCK
  Net income per share - basic                                                     $0.35              $0.34
  Net income per share - diluted                                                    0.35               0.33
  Dividends paid in cash                                                            0.19               0.14
  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 AND COMPREHENSIVE INCOME
  
  THREE MONTHS ENDED MARCH 31, 1999
    (Dollars in thousands)
                                                                       Accumulated
                                                            Additional    other
                                        Common Stock        Paid-in    conprehensive  Retained  Treasury   Comprehensive
                                      Shares     Par Value  Capital       income      earnings    stock       income
                                    -------------------------------------------------------------------------------------
  Balance at December 31, 1998      16,989,622    114,294          -          9,553    34,927           -
    Net income                               -          -          -              -     6,016           -          6,016
    Cash dividends declared                  -          -          -              -    (4,111)          -
    Shares issued under stock-based
         plans                           4,983        271          -              -         -           -
    Other comprehensive income, net
        of reclassification adjustment
        and taxes                            -          -          -           (919)        -           -           (919)
                                    -------------------------------------------------------------------------------------
  Total comprehensive income                 -          -          -              -         -           -        $ 5,097
                                    -------------------------------------------------------------------------------------
  Balance at March 31, 1999         16,994,605   $ 114,565       $ -        $ 8,634   $36,832         $ -  
  
                                                                                 March 31, 1999
                                                                       -----------------------------------
                                                                          Before        Tax       Net of
                                                                            tax        (expense)   tax
                                                                          amount       benefit    amount
                                                                       -----------------------------------
  Unrealized gains on securities
    Unrealized holding gains arising during period                           (1,416)      496        (920)
    Less: reclassification adjustment for gains realized in net income            2        (1)          1
                                                                       -----------------------------------
  Other comprehensive income, net                                            (1,414)      495        (919)
                                                                       ===================================
  
  THREE MONTHS ENDED MARCH 31, 1998                                                                           
    (Dollars in thousands)
                                                                        Accumulated
                                                             Additional    other
                                         Common Stock        Paid-in    conprehensive  Retained  Treasury    Comprehensive
                                       Shares    Par Value   Capital       income      earnings    stock        income
                                     --------------------------------------------------------------------------------------
  
  Balance at December 31, 1997       17,080,328     25,620     96,657          7,648     22,431     (3,428)
    Net income                                -          -          -              -      5,744          -           5,744
    Cash dividends declared                   -          -          -              -     (2,456)         -
    Shares issued under stock-based
         plans                                -          -          -              -          -          -
    Other comprehensive income, net
        of reclassification adjustment
        and taxes                             -          -          -         (1,266)         -          -          (1,266)
                                     --------------------------------------------------------------------------------------
  Total comprehensive income                  -          -          -              -          -          -         $ 4,478
                                     --------------------------------------------------------------------------------------
     Par value adjustments related to
        pooling transaction                   -       (155)       329              -          -          -
     Effect of treasury stock 
        transactions                   (103,520)         -       (941)             -          -      -2843
                                     --------------------------------------------------------------------------------------
  Balance at March 31, 1998          16,976,808   $ 25,465   $ 96,045        $ 6,382    $25,719   $ (6,271) 
  
                                                                                  March 31, 1998
                                                                        -----------------------------------
                                                                           Before         Tax      Net of
                                                                             tax        (expense)   tax
                                                                           amount       benefit    amount
                                                                        -----------------------------------
  Unrealized gains on securities
    Unrealized holding gains arising during period                            (2,553)       893     (1,660)
    Less: reclassification adjustment for gains realized in net income           606       (212)       394
                                                                        -----------------------------------
  Other comprehensive income, net                                             (1,947)       681     (1,266)
                                                                        ===================================
  The accompanying notes are an integral part of these statements.
  
                                          5
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
  UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
  Three Months Ended March 31,
  (Dollars in thousands)                                                             
                                                                                         1999              1998
                                                                                    ---------------   ---------------
  
  CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                                                              $6,016            $5,744
    Adjustments to reconcile net income to net
        cash provided by (used in) operating activities
      Provision for loan losses                                                              1,415             1,400
      Depreciation and amortization                                                            462               899
      Net gains (losses) on sale of securities and mortgages                                  (205)              443
      Trading-related assets                                                                15,031                 -
      Mortgage loans originated for resale                                                 (59,494)          (16,854)
      Sale of mortgage loans originated for resale                                          59,494            16,854
      Other                                                                                    612           (11,897)
                                                                                    ---------------   ---------------
  
        Net cash provided by (used in) operating activities                                 23,331            (3,411)
  
  CASH FLOWS FROM INVESTING ACTIVITIES
    Proceeds from sales of investment securities - available for sale                        1,058            16,594
    Proceeds from maturities of investment securities - available for sale                   6,942             5,807
    Purchase of investment securities - available for sale                                  (3,272)          (68,567)
    Proceeds from sales of loans                                                                 -                 -
    Net increase in loans                                                                   (6,379)           (7,675)
    Purchases of premises & equipment                                                         (414)             (628)
                                                                                    ---------------   ---------------
  
        Net cash provided by (used in) investing activities                                 (2,065)          (54,469)
  
  CASH FLOWS FROM FINANCING ACTIVITIES
    Increase (decrease) in:
      Deposits                                                                              27,549            25,457
      Repurchase agreements, fed funds & short-term borrowings                             (42,153)           (6,716)
      Long-term borrowings                                                                    (636)           54,625
    (Increase) decrease in treasury stock                                                        -            (2,843)
    Issuance of common stock under dividend reinvestment plan                                  271              (767)
    Cash dividends                                                                          (4,111)           (2,456)
                                                                                    ---------------   ---------------
  
        Net cash provided by (used in) financing activities                                (19,080)           67,300
  
  Net increase (decrease) in cash and cash equivalents                                       2,186             9,420
  
  Cash and cash equivalents at January 1                                                    65,801            63,408
                                                                                    ---------------   ---------------
  
  Cash and cash equivalents at March 31                                                    $67,987           $72,828
                                                                                    ===============   ===============
  The accompanying notes are an integral part of these condensed financial
  statements.
  
                                          6
  NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
  (UNAUDITED)
  
  1. The accompanying unaudited consolidated 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. The
  financial statements include the balances of Elverson National Bank which was
  acquired on January 4, 1999 in a transaction accounted for under the pooling of
  interest method of accounting (see Note 3). 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, 1998.
  
  2. The results of operations for the three-month period ended March 31, 1999 are
  not necessarily indicative of the results to be expected for the full year.
  
  3. The Company's banking subsidiary, National Penn Bank, completed the
  acquisition of Elverson National Bank on January 4, 1999 in a transaction
  accounted for as a pooling of interests, which accordingly required restatement
  of the financial statements. Under the terms of the merger, each share of
  Elverson was converted into 1.46875 shares of the Company's common stock,
  resulting in an issuance of 3,821,564 shares of the Company's common stock. In
  addition, outstanding stock options to purchase Elverson common stock were
  converted into stock options to purchase 58,141 shares of the Company's common
  stock, with an exercise price of $12.98 to $15.74 per share. All financial
  information presented for current and prior periods includes the results of
  Elverson National Bank.
  
  4. Per share data are based on the weighted average number of shares outstanding
  of 16,978,668 and 16,992,513 for 1999 and 1998, respectively, and on the
  weighted average number of diluted shares outstanding of 17,276,073 and
  17,345,002 for 1999 and 1998, respectively, and are computed after giving
  retroactive effect to a 5-for-4 stock split paid July 31, 1998.
  
  5. On March 4, 1999, the Company's Board of Directors declared a cash dividend
  of $.20 per share payable on May 17, 1999, to shareholders of record on April
  30, 1999.
  
  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 $10,338,000 at March 31, 1999,
  all of which are non-accrual loans. The allowance for loan loss associated with
  these impaired loans was $1,309,000 at March 31, 1999. 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 decreased to $2.108 billion, a decrease of $13,000 or .6%
  over the $2.121 billion at December 31, 1998. This decrease is reflected
  primarily in the investment category, including trading account securities,
  which was partially offset by increases in loans and cash and cash equivalent
  categories.
  
           Total cash and cash equivalents increased $2.2 million or 3.3% at March
  31, 1999 when compared to December 31, 1998. The increase in federal funds sold
  of $25.5 million was partially offset by decreases in interest bearing deposits
  of $9.4 million and cash and due from banks of $14.0 million.
  
           Loans increased to $1.410 billion at March 31, 1999. The increase of
  $5.0 million or .4% compared to December 31, 1998 was primarily the result of
  the investment of deposits and long-term borrowings. Loans originated for
  immediate resale during the first three months of 1999 amounted to $59.5
  million. The Company's credit quality is reflected by the annualized ratio of
  net charge-offs to total loans of .2% through the first quarter of 1999 versus
   .3% for the year 1998, and the ratio of non-performing assets to total loans of
   .93% at March 31, 1999 and 1.0% at December 31 1998. Non-performing assets,
  including non-accruals, loans 90 days past due and still accruing and other real
  estate owned, were $13.4 million at March 31, 1999 compared to $14.3 million at
  December 31, 1998. Of these amounts, non-accrual loans represented $10.3 million
  and $11.6 million at March 31, 1999 and December 31, 1998, respectively. Loans
  90 days past due and still accruing interest were $2.5 million and $1.8 million
  at March 31, 1999 and December 31, 1998, respectively. Other real estate owned
  was $631,000 and $922,000 at March 31, 1999 and December 31, 1998, respectively.
  The Company had no restructured loans at March 31, 1999 or December 31, 1998.
  The allowance for loan losses to non-performing assets was 233.1% and 215.0% at
  March 31, 1999 and December 31, 1998, respectively. As is evident from the above
  amounts relative to non-performing assets, there have been no significant
  changes between December 31, 1998 and March 31, 1999. The Company has no
  significant exposure to energy and agricultural-related loans.
  
           Investments, the Company's secondary use of funds, decreased $6.1
  million or 1.2% to $516.9 million at March 31, 1999 when compared to December
  31, 1998. The decrease is due to investment calls and maturities and the
  amortization of mortgage-backed securities.
  
           Trading account securities decreased $15.0 million to $6.6 million at
  March 31, 1999 due to the sale of these securities. The Company has assessed its
  involvement in trading account activities and decided these activities do not
  meet with its strategic goals.
  
           As the primary source of funds, aggregate deposits of $1.501 billion at
  March 31, 1999 increased $27.5 million or 1.9% compared to December 31, 1998.
  The increase in deposits during the first three months of 1999 was primarily in
  interest bearing deposits which increased $24.4 million while non-interest
  bearing deposits increased $3.1 million. Certificates of deposit in excess of
  $100,000 decreased $4.3 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, long-term debt obligations, and subordinated debentures. In
  aggregate, these funds totaled $424.8 million at March 31, 1999, and $467.6
  million at December 31, 1998. The decrease of $42.8 million is primarily due to
  the decrease in short-term borrowings and securities sold under repurchase
  agreements and federal funds purchased, of $42.2 million due to the repayment of
  short-term advances, and a decrease in long-term obligations of .6 million.
  
                                         8
  Shareholders' equity increased $1.3 million through March 31, 1999.
  This increase was due to an increase in earnings retained which was partially
  offset by a decrease in the valuation adjustment for securities available for
  sale. Cash dividends paid during the first three months of 1999 increased
  $856,000 or 36.1% compared to the cash dividends paid during the first three
  months of 1998. Earnings retained during the first three months of 1999 were
  46.3% compared to 58.7% during the first three months of 1998.
  
                                RESULTS OF OPERATIONS
  
           For the first three months, net income reached $6.0 million, or 4.7%
  more than the $5.7 million reported for the first three months of 1998. 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 $474,000 or
  2.5% to $19.6 million during the first quarter of 1999 from $19.1 million in
  1997. The increase in interest income is a result of increased investment income
  of $1.5 million and increased loan income of $.7 million due to 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. On November 18, 1998, the prime
  rate changed to 7.75%. Interest expense during the first three months of 1999
  increased $1.8 million or 10.4% compared to the prior year's first three months.
  Despite the current rate environment, the cost of attracting and holding
  deposited funds is an ever-increasing expense in the banking industry. These
  increases are the real costs of deposit accumulation and retention, including
  FDIC insurance costs and branch overhead expenses. Such costs are necessary for
  continued growth and to maintain and increase market share of available
  deposits.
  
           The provision for loan and lease losses is determined by periodic
  reviews of loan quality, current economic conditions, loss experience and loan
  growth. Based on these factors, the provision for loan and lease losses
  increased $15,000 for the three month period ended March 31, 1999 compared to
  the same period in 1998. The allowance for loan and lease losses of $31.4
  million at March 31, 1999 and $30.8 million at December 31, 1998 as a percentage
  of total loans was 2.2% and 2.1%, respectively. The Company's net charge-offs of
  $850,000 and $179,000 during the first three months of 1999 and 1998,
  respectively, continue to be comparable to those of the Company's peers, as
  reported in the Bank Holding Company Performance Report.
  
           Other income increased $368,000 or 8.9% during the first quarter of
  1999, as a result of increased other income of $921,000, increased service
  charges on deposit accounts of $149,000, increased trust and investment
  management income of $126,000. This was partially offset by a decrease in net
  gains on the sale of securities and mortgages totaling $780,000 and decreased
  trading revenue of $48,000. Other expenses increased $1.3 million or 9.1% during
  the quarter ended March 31, 1999. Of this year-to-date increase, salaries, wages
  and benefits increased $1.2 million or 15.4%, and net premises and equipment
  increased $54,000 or 2.4%. Other operating expenses decreased $12,000 or .3%.
  
           Income before income taxes decreased $452,000 or 5.8% in the first
  quarter of 1999 compared to the same time period in 1998. Income taxes decreased
  $724,000 for the quarter ended March 31, 1999 due to higher levels of tax free
  income from municipal securities and bank-owned life insurance.
  
                       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 
  
                                         9
  agreements,  fed funds  purchased,  and short-term  borrowings,  decreased $14.6
  million from year end 1998.  Long-term  borrowings decreased $636,000 during the
  first three months of 1999.
  
           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
  March 31, 1999:
  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                      $   1,425      $      --      $      --      $      --
        Investment securities               49,642         50,079        188,507        228,683
        Trading account securities           6,558             --             --             --
        Loans and leases                   393,868        220,028        508,418        287,622
        Other assets                        25,500             --             --        147,421
                                         ---------      ---------      ---------      ---------
                                           476,993        270,107        696,925        663,726
                                         ---------      ---------      ---------      ---------
  Liabilities and equity
        Noninterest-bearing deposits       225,925             --             --             --
        Interest-bearing deposits          396,014        274,323        234,661        369,928
        Borrowed funds                     119,849         30,000        192,500         42,207
        Preferred securities                    --             --             --         40,250
        Other liabilities                       --             --             --         22,063
        Hedging instruments                100,000        (20,000)       (80,000)            --
        Shareholders' equity                    --             --             --        160,031
                                         ---------      ---------      ---------      ---------
                                           841,788        284,323        347,161        634,479
                                         ---------      ---------      ---------      ---------
  Interest sensitivity gap                (364,795)       (14,216)       349,764         29,247
                                         ---------      ---------      ---------      ---------
  
  Cumulative interest rate
          sensitivity gap                ($364,795)     ($379,011)     $ (29,247)     $      --
                                         =========      =========      =========      =========
  (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 first calendar quarter of 1999. 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 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, 31.8% of these deposits are 
  
                                         10
  considered  repriceable within three months and 68.2% 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 interest rates will move within a narrow range
  for the remainder of 1999, with no clear indication of sustainable rising or
  falling rates. Given this assumption, the Company's asset/liability strategy for
  1999 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 sustained 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:
  
                                                       March 31,         Dec. 31,
                                                         1999              1998
  CAPITAL PERFORMANCE
  Return on average assets (annualized)                   1.15%            1.17%
  Return on average equity (annualized)                  15.80            15.00
  Earnings retained                                      46.30            55.70
  Internal capital growth (annualized)                    7.02             8.04
  
  CAPITAL LEVELS
  Tier 1 Capital to   Tier 1 Capital to Risk-  Tier 1 Capital to Risk-
                                      Average Assets Ratio    Weighted Assets Ratio   Weighted Assets Ratio
                                       Mar. 31,    Dec. 31,    Mar. 31,     Dec. 31,    Mar. 31,    Dec. 31,
                                         1999        1998        1999         1998        1999        1998
  The Company                            8.93%       8.77%       12.16%      12.21%      13.61%       13.51%
  National Penn Bank                     6.83%       6.80%        9.35%       9.52%       6.83%        6.80%
  "Well Capitalized" institution         5.00%       5.00%        6.00%       6.00%      10.00%       10.00%
      (under banking regulations)
  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 
  
                                         11
  regulators. At March 31, 1999, 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 following is a Year 2000 readiness statement.
  
           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 has completed the Renovation Phase of mission critical systems. The
  Validation and Implementation Phases of renovated mission critical systems were
  substantially complete by December 31, 1998. Validation and Implementation
  Phases of non-mission critical systems will continue through the first two
  quarters of 1999. Actual costs for 1998 were within the budgeted amount of
  $300,000, which represented approximately 9% of the total information technology
  budget for 1998. The amount budgeted for 1999 is $200,000, which is
  approximately 12% of the total information technology budget for 1999. 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 during the first quarter of 1999. 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 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 of the Company's
  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 
  
                                         12
  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 written guidance available from regulatory
  agencies. The project managers created a project plan to address Year 2000
  issues.
  
           To address individual areas of responsibility in the project plan, a
  team was formed composed of various representatives of National Penn Bank,
  Investors Trust Company, and, beginning in 1998, Penn Securities, Inc. The team
  has been charged with guiding the Year 2000 efforts of the Company through all
  project phases.
  
           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
  Company memos and through e-mail. Year 2000 training was conducted for all bank
  officers. In the Spring of 1998, seminars were offered for the Company's
  business loan customers and lending staff.
  
           The seminars were one component of the Company's 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 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, ATMs, hand held
  calculators, etc.), interfaces, environmental systems, and third parties. Once
  this information was gathered, it was organized to provide 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 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 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.
  
                                         13
  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.
  
           The Company has completed renovation efforts on mission critical
  systems and anticipates that the replacement of all remaining non-compliant,
  non-critical systems will be accomplished during the first and second quarters
  of 1999.
  
           Highlights of the Company's efforts to date include the installation of
  a new mainframe system in January 1998. In May 1998, a new core banking system
  was installed. In October and November 1998, all ATM machines were upgraded to
  compliant releases of software and the memory necessary to process them. In
  December 1998, the core processing system of Investors Trust Company was
  replaced, including 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.
  Testing of mission critical systems was substantially complete by the end of
  1998. 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.
  
           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 applications, and proxy testing by the network vendor for ATMs.
  
  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.
  
                                         14
  Additional Project Efforts
           Throughout the remainder of 1999, a database is being 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 1999.
  The status of the budget will be reported periodically to executive management.
  
           Contingency plans were written in the first quarter of 1999 for all
  mission critical and high priority non-mission critical systems. These plans are
  currently being reviewed and edited. An overview of the contingency planning
  process was written in August 1998. Upon completion of the Business Resumption
  Contingency Plans, they will be tested as prescribed in the contingency planning
  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
  1998, 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.
  
  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 1998 annual report on
  Form 10-K filed with the SEC.
  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 a Vote of Security Holders.
  
           None.
  
  Item 5.  Other Information.
  
           During first quarter 1999, the Registrant, together with four of its
  subsidiaries, National Penn Bank, Investors Trust Company, Penn Securities, Inc.
  and Link Financial Services, Inc., entered into a strategic alliance with
  Creative Financial Group, an independent insurance agency ("CFG"), New England
  Life Insurance Company, an independent life insurance company, and New England
  Securities Corporation, an independent broker-dealer. The purpose of the
  strategic alliance is for CFG and its related companies to offer and sell
  additional insurance and non-deposit investment products to customers of the
  Registrant's subsidiaries, and for the Registrant's subsidiaries to offer and
  sell certain banking and trust products to customers of CFG.
  
           During first quarter 1999, the Registrant's banking subsidiary,
  National Penn Bank, relocated its Private Banking division to 1100 Berkshire
  Boulevard, Suite 210, Wyomissing, Pennsylvania, opened an automated teller
  machine ("ATM") in Northampton, Northampton County, Pennsylvania, and closed an
  ATM in Gap, Lancaster County, Pennsylvania.
  
           On March 24, 1999, the Registrant's Board of Directors declared a cash
  dividend of $.20 per share to be paid on May 17, 1999 to shareholders of record
  on April 30, 1999.
  
  Item 6.  Exhibits and Reports on Form 8-K.
  (a)      Exhibits.
  Exhibit 10.1 -    Executive Incentive Plan/Amended Schedules.
  
                    Exhibit 27.1 -    Financial Data Schedule.
  
                    Exhibit 27.2 -    Restated Financial Data Schedule for year ended December 31, 1998.
  
                    Exhibit 27.3 -    Restated Financial Data Schedule for year ended December 31, 1997.
  
                    Exhibit 27.4 -    Restated Financial Data Schedule for year ended December 31, 1996.
  
                    Exhibit 27.5 -    Restated Financial Data Schedule for period ended March 31, 1998.
  
                    Exhibit 27.6 -    Restated Financial Data Schedule for period ended June 30, 1998.
  
                                         16
  Exhibit 27.7 -    Restated Financial Data Schedule for period ended June 30, 1997.
  
                    Exhibit 27.8 -    Restated Financial Data Schedule for period ended September 30, 1998.
  
                    Exhibit 27.9 -    Restated Financial Data Schedule for period ended September 30, 1997.
  (b) Reports on Form 8-K. The Registrant filed the following Reports on
  Form 8-K during the quarterly period ended March 31, 1999.
  
                    1. Report on Form 8-K dated January 4, 1999, reporting, under
  Item 2, the closing of the Registrant's acquisition of Elverson National Bank
  ("Elverson").
  
                    2. Report on Form 8-K dated February 28, 1999, reporting,
  under Items 5 and 7, the combined consolidated financial results of the
  Registrant and Elverson from January 1, 1999 through February 28, 1999.
  
                    3. Report on Form 8-K/A No. 1 dated March 11, 1999, reporting,
  under Items 2 and 7, the historical financial statements of Elverson and pro
  forma financial information giving effect to the Registrant's acquisition of
  Elverson.
  
                                         17
  SIGNATURES
  
           Pursuant to the requirements of Section 13 of the Securities Exchange
  Act of 1934, the Registrant has caused this report to be signed on its behalf by
  the undersigned thereunto duly authorized.
  
                                              NATIONAL PENN BANCSHARES, INC.
                                                       (Registrant)
  
  Dated:   May 14, 1999                       By /s/  Wayne R. Weidner     
                                                ---------------------------
                                                Wayne R. Weidner, President
  
  Dated:   May 14, 1999                       By /s/  Gary L. Rhoads         
                                                ---------------------------
                                                Gary L. Rhoads, Principal
                                                Financial Officer