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:      June 30, 1997
  
                                         OR
  
       [ ]  TRANSITION  REPORT  PURSUANT TO SECTION 13 OF 15(d) OF THE  
                          SECURITIES EXCHANGE ACT OF 1934
  
  For the transition period from:                to
  
  
  Commission file number: 0-10957
  
                           NATIONAL PENN BANCSHARES, INC.
               (Exact name of registrant as specified in its charter)
  
          Pennsylvania                                    23-2215075
  (State or other jurisdiction of                      (I.R.S. Employer
   incorporation or organization)                       Identification No.)
  
                Philadelphia and Reading Avenues, Boyertown, PA 19512
                (Address of principal executive offices)    (Zip Code)
  
                                   (610) 367-6001
                (Registrant's telephone number, including area code)
  
                                         N/A
                (Former name, former address and former fiscal year,
                            if changed since last report)
  
           Indicate by check mark whether the Registrant (1) has filed all reports
  required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
  1934  during  the  preceding  12 months  (or for such  shorter  period  that the
  Registrant was required to file such reports),  and (2) has been subject to such
  filing requirements for the past 90 days. Yes X No __.
  
           Indicate  the  number of  shares  outstanding  of each of the  issuer's
  classes of common stock, as of the latest practicable date.
  
               Class                           Outstanding at August 6, 1997
  
     Common Stock ($1.875 par value)              (No.)  10,690,192 Shares
  
                                   1 of 17 pages
  <PAGE>
  
  
                                  TABLE OF CONTENTS
  
  Part I - Financial Information.                                            Page
  
           Item 1.          Financial Statements ...........................   3
  
           Item 2.          Management's Discussion and Analysis of
                            Financial Condition and Results of Operation       8
  
  Part II - Other Information.
  
           Item 1.          Legal Proceedings ..............................  14
  
           Item 2.          Changes in Securities ..........................  14
  
           Item 3.          Defaults Upon Senior Securities ...............   14
  
           Item 4.          Submission of Matters to a Vote of
                            Security Holders ..............................   14
  
           Item 5.          Other Information .............................   15
  
           Item 6.          Exhibits and Reports on Form 8-K ..............   16
  
  Signature ...............................................................   17
  
                                         2
  <PAGE>
                           PART I - FINANCIAL INFORMATION
  
  Item 1.  Financial Statements
  
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
  CONSOLIDATED CONDENSED BALANCE SHEET  
   (Dollars in thousands, except per share data) 
  
  <TABLE>
  <CAPTION>
  
                                                                  June 30          Dec. 31
                                                                    1997             1996
                                                                (Unaudited)         (Note)
  <S>                                                           <C>              <C>       
  ASSETS
  Cash and due from banks                                          $52,559          $40,194
  Interest bearing deposits in banks                                 2,553            1,802
  Federal funds sold                                                    --               --
                                                                ----------       ----------
      Total cash and cash equivalents                               55,112           41,996
  Investment securities available for sale at market value         249,715          236,814
  Loans, less allowance for loan losses of $24,006 and
     $22,746 in 1997 and 1996 respectively                       1,071,793        1,028,334
  Other assets                                                      54,871           50,869
                                                                ----------       ----------
      Total Assets                                              $1,431,491       $1,358,013
                                                                ==========       ==========
  
  LIABILITIES AND SHAREHOLDERS' EQUITY
  Non-interest bearing deposits                                   $148,598         $145,107
  Interest bearing deposits
    (Includes certificates of deposit $100,000 or greater:
    1997 - $125,988; 1996 - $97,115)                               920,912          835,701
                                                                ----------       ----------
      Total Deposits                                             1,069,510          980,808
  Securities sold under repurchase agreements
    and federal funds purchased                                     76,141          164,996
  Short-term borrowings                                             10,184            6,931
  Long-term obligations                                            101,110           76,110
  Guaranteed preferred beneficial interests in
      Company's subordinated debentures                             40,250               --
  Accrued interest and other liabilities                            16,371           14,447
                                                                ----------       ----------
      Total Liabilities                                          1,313,566        1,243,292
  Commitments and contingent liabilities                                --               --
  Shareholders' equity
    Preferred stock, no stated par value;
      authorized 1,000,000 shares, none issued                          --               --
    Common stock, par value $2.50 per share;
      authorized 20,000,000 shares; issued and outstanding
      1997 - 8,020,177; 1996 - 8,002,648, net of shares
      in Treasury: 1997 - 15,259; 1996 - 31,204                     20,085           20,085
    Additional paid-in-capital                                      83,268           83,707
    Retained earnings                                               12,112            4,398
    Net unrealized gains on securities available for sale            2,901            7,357
    Treasury stock at cost                                            (441)            (826)
                                                                ----------       ----------
      Total Shareholders' Equity                                   117,925          114,721
                                                                ----------       ----------
      Total Liabilities and Shareholders' Equity                $1,431,491       $1,358,013
                                                                ==========       ==========
  </TABLE>
  
  The  acompanying  notes  are an  integral  part  of  these  condensed  financial
  statements.
  
  Note:  The  Balance  Sheet at Dec.  31, 1996 has been  derived  from the audited
       financial statements at that date.
  
                                         3
  <PAGE>
  
  
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES      
  UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME  
  
  (Dollars in thousands, except per share data) 
  <TABLE>
  <CAPTION>
                                                 Three Months Ended          Six Months Ended 
                                                    June 30                    June 30 
                                                     1997          1996         1997         1996 
  <S>                                              <C>           <C>          <C>          <C>    
  INTEREST INCOME INTEREST INCOME
  Loans including fees                             $25,239       $22,035      $49,623      $43,927
  Deposits in banks                                     27            20           44           29
  Federal funds sold                                    33            13           51          113
  Investment securities                              3,564         3,799        7,313        7,517
                                                   -------       -------      -------      -------
  Total interest income                             28,863        25,867       57,031       51,586
                                                   -------       -------      -------      -------
  
  INTEREST EXPENSE INTEREST EXPENSE
  Deposits                                           9,906         8,527       19,099       16,725
  Federal funds purchased, borrowed funds and
  securities sold under repurchase agreements        2,945         2,627        6,221        5,698
                                                   -------       -------      -------      -------
  
  Total interest expense                            12,851        11,154       25,320       22,423
                                                   -------       -------      -------      -------
  
  Net interest income                               16,012        14,713       31,711       29,163
  Provision for loan losses                          1,200           975        2,400        1,950
                                                   -------       -------      -------      -------
  
  Net interest income after provision
  for loan losses                                   14,812        13,738       29,311       27,213
                                                   -------       -------      -------      -------
  
  OTHER INCOME
  Trust and investment management income               687           573        1,323        1,204
  Service charges on deposit accounts                1,007           810        1,961        1,593
  Net gains (losses) on sale of
  securities and mortgages                             (74)           88          842          (15)
  Other                                              1,014           615        1,803        1,249
                                                   -------       -------      -------      -------
  Total other income                                 2,634         2,086        5,929        4,031
                                                   -------       -------      -------      -------
  
  OTHER EXPENSES OTHER EXPENSES
  Salaries, wages and employee benefits              6,481         5,434       12,887       10,458
  Net premises and equipment                         1,786         1,593        3,726        3,397
  Other operating                                    2,807         3,021        5,679        5,642
                                                   -------       -------      -------      -------
  Total other expenses                              11,074        10,048       22,292       19,497
                                                   -------       -------      -------      -------
  Income before income taxes                         6,372         5,776       12,948       11,747
  Applicable income tax expense                      1,987         1,783        4,029        3,639
                                                   -------       -------      -------      -------
  Net income                                        $4,385        $3,993       $8,919       $8,108
                                                   =======       =======      =======      =======
  
  
  PER SHARE OF COMMON STOCK
  Net income                                         $0.54         $0.50        $1.11        $1.00
  Dividends paid in cash                              0.24          0.22         0.48         0.43
  
  </TABLE>
  
  
  The  accompanying  notes  are an  integral  part of  these  condensed  financial
  statements.
  
                                          4
  
  <PAGE>
  
  
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
  UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
  
  <TABLE>
  <CAPTION>
                                                                               Six Months Ended June 30,
  (Dollars in thousands)
                                                                                  1997          1996
  <S>                                                                            <C>           <C>   
  CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                                                   $8,919        $8,108
    Adjustments to reconcile net income to net
        cash provided by (used in) operating activities
      Provision for loan losses                                                   2,400         1,950
      Depreciation and amortization                                               1,696         1,554
      Net gains (losses) on sale of securities and mortgages                        842           (15)
      Mortgage loans originated for resale                                       (8,068)      (11,488)
      Sale of mortgage loans originated for resale                                8,068        11,488
      Other                                                                      (2,333)       (3,848)
                                                                               --------      --------
  
        Net cash provided by (used in) operating activities                      11,524         7,749
  
  CASH FLOWS FROM INVESTING ACTIVITIES
    Proceeds from sales of investment securities - available for sale            11,655        13,780
    Proceeds from maturities of investment securities - held to maturity             --            --
    Proceeds from maturities of investment securities - available for sale       14,629        21,680
    Purchase of investment securities - available for sale                      (41,488)      (37,090)
    Proceeds from sales of loans                                                     --            --
    Net increase in loans                                                       (45,859)      (40,868)
    Purchases of premises & equipment                                            (1,475)       (1,658)
                                                                               --------      --------
  
        Net cash provided by (used in) investing activities                     (62,538)      (44,156)
  
  CASH FLOWS FROM FINANCING ACTIVITIES
    Increase (decrease) in:
      Deposits                                                                   88,702        46,996
      Repurchase agreements, fed funds & short-term borrowings                  (85,602)        9,224
      Long-term borrowings                                                       25,000       (15,479)
      Proceeds from issuance of preferred securities                             40,250            --
      (Increase) decrease in treasury stock                                         385           483
      Issuance of common stock under dividend reinvestment plan                    (439)           25
      Cash dividends                                                             (4,166)       (3,085)
                                                                               --------      --------
  
        Net cash provided by (used in) financing activities                      64,130        38,164
  
  Net increase (decrease) in cash and cash equivalents                           13,116         1,757
  
  Cash and cash equivalents at January 1                                         41,996        41,209
                                                                               --------      --------
  
  Cash and cash equivalents at June 30                                          $55,112       $42,966
                                                                               ========      ========
  </TABLE>
  
  The  accompanying  notes  are an  integral  part of  these  condensed  financial
  statements.
  
                                          5
  
  <PAGE>
  
                NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                     (UNAUDITED)
  
  
  1. The accompanying  unaudited condensed financial statements have been prepared
  in  accordance  with  generally  accepted  accounting   principles  for  interim
  financial  information.  The financial information included herein is unaudited;
  however, such information reflects all adjustments  (consisting solely of normal
  recurring  adjustments) which are, in the opinion of management,  necessary to a
  fair statement of the results for the interim periods.  For further information,
  refer to the consolidated financial statements and footnotes thereto included in
  the Company's Annual Report on Form 10-K for the year ended December 31, 1996.
  
  2. The results of operations  for the  six-month  period ended June 30, 1997 are
  not necessarily indicative of the results to be expected for the full year.
  
  3. Per share data are based on the weighted average number of shares outstanding
  of 8,013,489  and 7,994,472  for 1997 and 1996,  respectively,  and are computed
  after giving retroactive effect to a 5% stock dividend paid on October 31, 1996.
  
  4. On June 25, 1997, the Company's Board of Directors  declared a four-for-three
  stock split payable on July 31, 1997 to shareholders of record on July 15, 1997.
  
  5. New Accounting  Pronouncements - The Financial Accounting Standards Board has
  issued  Statement of  Financial  Accounting  Standards  No. 128,  "Earnings  Per
  Share," which is effective for financial  statements  issued after  December 15,
  1997.  Early  adoption of the new  standard is not  permitted.  The new standard
  eliminates   primary  and  fully   diluted   earnings  per  share  and  requires
  presentation of basic and diluted earnings per share together with disclosure of
  how the per share  amounts were  computed.  The adoption of this new standard is
  not expected to have a material  impact on the  disclosure of earnings per share
  in the  financial  statements.  The effect of adopting this new standard has not
  been determined.
  
           The  Financial  Accounting  Standards  Board has  issued  Statement  of
  Accounting Standards No 130, "Reporting Comprehensive Income," which was adopted
  by the Company in June 1997 and is effective for years  beginning after December
  15,  1997.  The new  standard  requires  entities  presenting  a complete set of
  financial statements to include details of comprehensive  income.  Comprehensive
  income  consists  of net  income  or loss for the  current  period  and  income,
  expenses,  gains and losses that bypass the income  statement  and are  reported
  directly in a separate  component of equity.  The Company has not analyzed  this
  statement nor determined  the effect on its financial  statements at the present
  time.
  
  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 $8,226,000 at June 30, 1997,
  all of which are non-accrual  loans. The allowance for loan loss associated with
  these  impaired  loans was  $857,000 at June 30,  1997.  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.
  
  
                                         6
  <PAGE>
  
  7. On May 22,  1997,  the  Company  issued  41.5  million  of  9.00%  of  junior
  subordinated  deferrable  interest  debentures (the "debentures") to NPB Capital
  Trust (the "Trust"), a Delaware business trust, in which the Company owns all of
  the common equity.  The  debentures  are the sole asset of the Trust.  The Trust
  issued  $40.25  million of preferred  securities  to  investors.  The  Company's
  obligations  under  the  debentures  and  related  documents,   taken  together,
  constitute  a full and  unconditional  guarantee  by the  Company of the Trust's
  obligations  under the preferred  securities.  Although the  debentures  will be
  treated  as debt of the  Company,  they  currently  qualify  for tier 1  capital
  treatment  in an  amount  up to  25% of  total  tier 1  capital.  The  preferred
  securities  are  redeemable by the Company on or after June 30, 2002, or earlier
  in the event the  deduction  of related  interest  for federal  income  taxes is
  prohibited,  treatment as tier 1 capital is no longer permitted or certain other
  contingencies  arise. The preferred securities must be redeemed upon maturity of
  the  debentures  in 2027.  See  "Liquidity  and Interest Rate  Sensitivity"  and
  "Capital Adequacy" below.
  
  
  
                                         7
  <PAGE>
  
  
  Item 2.       Management's Discussion and Analysis of Financial Condition and
                Results of Operations
  
  
           The  following  discussion  and  analysis  is  intended  to  assist  in
  understanding  and evaluating  the major changes in the financial  condition and
  earnings  performance  of the  Company  with a primary  focus on an  analysis of
  operating results.
  
                                 FINANCIAL CONDITION
  
           Total assets increased to $1.431 billion,  an increase of $73.5 million
  or 5.4% over the $1.358 billion at December 31, 1996. This increase is reflected
  primarily in the loan category,  the result of the  investment of deposits,  the
  Company's primary source of funds.
  
           Total cash and cash  equivalents  increased  $13.1  million or 31.2% at
  June 30, 1997 when compared to December 31, 1996. This increase was primarily in
  cash and due from banks.
  
           Loans  increased to $1.072  billion at June 30,  1997.  The increase of
  $43.5  million or 4.2% compared to December 31, 1996 was primarily the result of
  the  investment  of deposits and  long-term  borrowings.  Loans  originated  for
  immediate  resale  during the first six months of 1997 amounted to $8.1 million.
  The  Company's  credit  quality  is  reflected  by the  annualized  ratio of net
  charge-offs  to total loans of .21%  through  the second  quarter of 1997 versus
   .14% for the year 1996, and the ratio of non-performing assets to total loans of
  1.11% at June 30, 1997  compared  to 1.21% at  December 31 1996.  Non-performing
  assets,  including non-accruals,  loans 90 days past due, restructured loans and
  other real estate  owned,  were $12.2 million at June 30, 1997 compared to $12.7
  million at December 31, 1996. Of these amounts,  non-accrual  loans  represented
  $8.2  million  and  $8.7  million  at June  30,  1997  and  December  31,  1996,
  respectively.  Loans 90 days  past due and  still  accruing  interest  were $3.6
  million and $3.7 million at June 30, 1997 and  December 31, 1996,  respectively.
  Other real estate  owned was  $305,000 and $319,000 at June 30 1997 and Decmeber
  31, 1996, respectively. The Company had no restructured loans at June 30 1997 or
  December 31, 1996.  The allowance for loan losses to  non-performing  assets was
  197.4% and 179.2% at June 30 1997 and  December 31,  1996,  respectively.  As is
  evident from the above amounts  relative to  non-performing  assets,  there have
  been no  significant  changes  between  December 31, 1996 and June 30, 1997. The
  Company has no significant exposure to energy and agricultural-related loans.
  
           Investments,  the  Company's  secondary use of funds,  increased  $12.9
  million or 5.4% to $249.7 million at June 30, 1997 when compared to December 31,
  1996. The increase is due to investment purchases of $41.5 million, primarily in
  municipal  securities,  which  was  partially  offset  by  investment  sales and
  maturities and the amortization of mortgage-backed securities.
  
           As the primary source of funds, aggregate deposits of $1.070 billion at
  June 30, 1997 increased $88.7 million or 9.0% compared to December 31, 1996. The
  increase  in  deposits  during  the  first six  month of 1997 was  primarily  in
  interest  bearing  deposits  which  increased  $85.2 million while  non-interest
  bearing  deposits  increased $3.5 million.  Certificates of deposit in excess of
  $100,000  increased $28.9 million.  In addition to deposits,  earning assets are
  funded to some extent  through  purchased  funds and  borrowings.  These include
  securities sold under repurchase agreements, federal funds purchased, short-term
  borrowings and long-term  debt  obligations.  In aggregate,  these funds totaled
  $227.7  million at June 30, 1997,  and $248.0
  
                                         8
  <PAGE>
  
  million at December  31,  1996.  The increase of $20.4  million  represents  the
  issuance of $40.25 million in junior subordinated deferrable interest debentures
  and an increase in long-term  obligations  of $25.0  million which was partially
  offset by a decrease in short-term  borrowings,  primarily securities sold under
  repurchase agreements and federal funds purchased.
  
           Shareholders'  equity  increased  slightly  through June 30, 1997. This
  increase was due to an increase in earnings retained offset by a decrease in the
  change  in  valuation  adjustment  for  securities  available  for  sale,  which
  represents  the  accounting  treatment  required  under  Statement  of Financial
  Accounting Standards 115, "Accounting for Certain Investments in Debt and Equity
  Securities," applied to the decrease in market value of the Company's investment
  portfolio.  Cash  dividends  paid during the first six months of 1997  increased
  $418,000  or 12.2%  compared  to the cash  dividends  paid  during the first six
  months of 1996. Earnings retained during the first six months of 1997 were 56.9%
  compared to 57.8% during the first six months of 1996.
  
                                RESULTS OF OPERATIONS
  
           Net income for the quarter ended June 30, 1997 was $4.4  million,  9.8%
  more than the $3.9 million  reported for the same period in 1996.  For the first
  six months, net income reached $8.9 million, or 10.0% more than the $8.1 million
  reported for the first six months of 1996.  The Company's  performance  has been
  and will  continue to be in part  influenced  by the strength of the economy and
  conditions in the real estate market.
  
           Net interest income is the difference between interest income on assets
  and interest expense on liabilities.  Net interest income increased $1.3 million
  or 8.8% to $16.0 million during the second quarter of 1997 from $14.7 million in
  the second  quarter 1996.  For the  comparative  six month period,  net interest
  income  increased  $2.5 million or 8.7% to $31.7  million from $29.2  million in
  1996. The increase in interest income is a result of growth in loan outstandings
  and higher  rates on loans that was  partially  offset by growth in deposits and
  higher rates on deposits and  borrowings.  Interest rate risk is a major concern
  in forecasting earnings potential. The Company's prime rate from January 1, 1997
  to March 25, 1997 was 8.25%. On March 26, 1997, the prime rate changed to 8.50%.
  Interest  expense  during the first six months of 1997 increased $2.9 million or
  12.9%  compared to the prior year's  first six 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  $225,000 for the second quarter and $450,000 for the first six months
  of 1997  compared to the same periods in 1996.  The allowance for loan and lease
  losses of $24.0  million at June 30, 1997 and $22.7 million at December 31, 1996
  as a  percentage  of total  loans  was 2.2% at both  dates.  The  Company's  net
  charge-offs of $1,140,000  and $976,000  during the first six months of 1997 and
  1996,  respectively,  continue to be comparable to those of the Company's peers,
  as reported in the Bank Holding Company Performance Report.
  
           "Total  other  income"  increased  $548,000 or 26.3%  during the second
  quarter of 1997,  as a result of increased  other income of $399,000,  increased
  service  charges  on deposit  accounts  of
  
                                         9
  <PAGE>
  
  $197,000, and increased trust and investment management income of $114,000. Year
  to date, other income increased $1.9 million or 47.1% when compared to the first
  six  months of 1996 as a result of  increased  gains on sale of  securities  and
  mortgages of $857,000,  increased other income of $554,000,  increased  services
  charges on deposit  accounts  of $365,000  and  increased  trust and  investment
  management income of $119,000.  "Total other expenses" increased $1.0 million or
  10.2% during the quarter ended June 30, 1997 and increased $2.8 million or 14.3%
  for the six month period. Of this  year-to-date  increase,  salaries,  wages and
  employee  benefits  increased  $2.4  million or 23.2%,  premises  and  equipment
  increased  $329,000 or 9.7%, and other operating  expenses  increased $37,000 or
   .6%.
  
           Income before income taxes  increased by $596,000 or 10.3%  compared to
  the second  quarter of 1996.  In comparing the first six months of 1997 to 1996,
  income  before  income  taxes  increased  $1.2  million or 10.2%.  Income  taxes
  increased $204,000 for the quarter and increased $390,000 the six month period.
  
                       LIQUIDITY AND INTEREST RATE SENSITIVITY
  
           The  primary  functions  of  asset/liability  management  are to assure
  adequate liquidity and maintain an appropriate balance between  interest-earning
  assets and  interest-bearing  liabilities.  Liquidity  management  involves  the
  ability  to meet the cash  flow  requirements  of  customers  who may be  either
  depositors  wanting  to  withdraw  funds or  borrowers  needing  assurance  that
  sufficient funds will be available to meet their credit needs. Funding affecting
  short-term  liquidity,  including  deposits,  repurchase  agreements,  fed funds
  purchased, and short-term borrowings, increased $3.1 million from year end 1996.
  Long-term  borrowings  increased  $62.3  million  during the first six months of
  1997. As described in note 7 to the financial statements included herein at Item
  #1, cash inflow was increased by a $40.25 million debt offering on May 22, 1997.
  
           The  goal  of  interest  rate   sensitivity   management  is  to  avoid
  fluctuating  net  interest  margins,  and to  enhance  consistent  growth of net
  interest income through periods of changing  interest rates. Such sensitivity is
  measured  as the  difference  in the  volume of assets  and  liabilities  in the
  existing portfolio that are subject to repricing in a future time period.
  
  
  
  
                                         10
  <PAGE>
  
  
           The following table shows  separately the interest rate  sensitivity of
  each category of  interest-earning  assets and  interest-bearing  liabilities at
  June 30, 1997:
  <TABLE>
  <CAPTION>
                                                                  Repricing Periods  (1)
                                                              Three Months        One Year
                                            Within Three      Through One       Through Five           Over
                                               Months             Year             Years            Five Years
                                                                      (In Thousands)
  Assets
  <S>                                          <C>                <C>              <C>               <C>    
        Interest-bearing deposits
           at banks                         $    2,553      $         - -   $          - -        $      - -
        Investment securities                   10,266             36,223          120,282            82,944
        Loans and leases                       305,233            148,764          453,216           164,580
        Other assets                            12,117                - -              - -            95,313
                                             ---------           ---------       ----------         ---------
                                               330,169            184,987          573,498           342,837
                                             ---------           ---------       ----------         ---------
  Liabilities and equity
        Noninterest-bearing deposits           148,598                - -              - -               - -
        Interest-bearing deposits              285,110            175,019          223,026           237,757
        Borrowed funds                         154,159             10,000           15,110             8,166
        Preferred securities                       - -                - -              - -            40,250
        Other liabilities                          - -                - -              - -            16,371
        Hedging instruments                     80,000                - -          (80,000)
        Shareholders' equity                       - -                - -              - -           117,925
                                             ---------          ---------       ----------         ---------
                                               667,867            185,019          158,136           420,469
                                             ---------          ---------       ----------         ---------
  Interest sensitivity gap                    (337,698)               (32)         415,362           (77,632)
                                             ---------          ---------       ----------         ---------
  
  Cumulative interest rate
          sensitivity gap                    ($337,698)         ($337,730)      $   77,632         $     - -
                                             =========          =========       ==========         =========
  </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 second  calendar  quarter of 1997. 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,  25.6% of these deposits are considered repriceable
  within three months and 74.4% 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,
  
                                         11
  
  <PAGE>
  
  and the relative  levels of repricing.  Attempting to minimize the interest rate
  sensitivity gaps is a continual challenge in a changing rate environment.  Based
  on the Company's gap position as reflected in the above table,  current accepted
  theory would indicate that net interest  income would increase in a falling rate
  environment  and would decrease in a rising rate  environment.  An interest rate
  gap table  does  not,  however,  present a  complete  picture  of the  impact of
  interest  rate changes on net  interest  income.  First,  changes in the general
  level of interest rates do not affect all  categories of assets and  liabilities
  equally  or   simultaneously.   Second,   assets  and   liabilities   which  can
  contractually  reprice  within the same period may not, in fact,  reprice at the
  same time or to the same extent. Third, the table represents a one-day position;
  variations  occur  daily  as  the  Company  adjusts  its  interest   sensitivity
  throughout the year. Fourth, assumptions must be made to construct such a table.
  For example,  non-interest  bearing  deposits are assigned a repricing  interval
  within  one year,  although  history  indicates  a  significant  amount of these
  deposits  will not move  into  interest  bearing  categories  regardless  of the
  general level of interest rates. Finally, the repricing distribution of interest
  sensitive assets may not be indicative of the liquidity of those assets.
  
           The Company anticipates volatile interest rate levels for the remainder
  of 1997, with no clear indication of sustainable  rising or falling rates. Given
  this assumption,  the Company's asset/liability strategy for 1997 is to maintain
  a  negative  gap  (interest-bearing  liabilities  subject  to  repricing  exceed
  interest-earning  assets  subject to  repricing)  for periods up to a year.  The
  impact of a volatile  interest rate  environment  on net interest  income is not
  expected to be  significant to the Company's  results of  operations.  Effective
  monitoring of these interest  sensitivity  gaps is the priority of the Company's
  asset/liability management committee.
  
                                  CAPITAL ADEQUACY
  
           The following table sets forth certain capital performance ratios.
  
                                                        June 30,         Dec. 31,
                                                          1997             1996
  CAPITAL LEVELS
        Tier 1 leverage ratio                            10.56%            7.83%
        Tier 1 risk-based ratio                          14.06            10.82
        Total risk-based ratio                           15.72            12.09
  
  CAPITAL PERFORMANCE
        Return of average assets (annualized)             1.30             1.31
        Return on average equity (annualized)            15.40            15.60
        Earnings retained                                56.90            58.50
        Internal capital growth (annualized)              8.90             7.60
  
           The Company's  capital  ratios above  compare  favorably to the minimum
  required amounts of Tier 1 and total capital to  "risk-weighted"  assets and the
  minimum Tier 1 leverage  ratio,  as defined by banking  regulators.  At June 30,
  1997,  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
  
                                         12
  <PAGE>
  
  criteria for a well capitalized institution, and management believes that, under
  current  regulations,  the Company  will  continue  to meet its minimum  capital
  requirements  in  the  foreseeable  future.  At  present,  the  Company  has  no
  commitments for significant capital expenditures.  As described in note 7 to the
  financial  statements  included herein at Item #1, capital ratios were increased
  by a $40.25 million debt offering on May 22, 1997.
  
           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
  
           In June 1996, the Company's Board of Directors  approved the repurchase
  of up to 380,000  shares of its common stock from time to time in open market or
  negotiated  transactions.  Repurchased shares will be used for general corporate
  purposes,  including the Company's  dividend  reinvestment  plan and stock based
  compensation  plans. To date, a total of 99,229 shares have been  repurchased at
  an aggregate cost of $2.7 million.
  
           Shareholders of Penncore Financial Services  Corporation,  Newtown,  PA
  have approved their merger with ML Bancorp, Inc., Villanova, PA. The Company has
  20% ownership interest in Penncore and, the deal price of $36.56 per share gives
  the Company an unrealized gain of approximately $1 million on this  transaction.
  The merger is expected to be completed in late August or early September of this
  year, although no assurance can be given that it will be completed.  The Company
  has two remaining 20% ownership interests in de novo banks.
  
           This report contains  forward-looking  statements  concerning earnings,
  asset quality,  and other future events.  Actual results could differ materially
  due to, among other things, the risks and uncertainties  discussed in Exhibit 99
  to the Company's Report on Form 10-K for 1996,  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.
  
                                         13
  <PAGE>
  
                             PART II - OTHER INFORMATION
  
  Item 1. Legal Proceedings.
  
           None.
  
  Item 2. Changes in Securities.
  
           None.
  
  Item 3. Defaults Upon Senior Securities.
  
           None.
  
  Item 4. Submission of Matters to Vote of Security Holders.
  
           The 1997 annual meeting (the "Meeting") of the shareholders of National
  Penn Bancshares,  Inc. (the  "Registrant") was held on April 22, 1997. Notice of
  the Meeting  was mailed to  shareholders  of record on or about March 26,  1997,
  together with proxy  solicitation  materials prepared in accordance with Section
  14 (a) of the Securities  Exchange Act of 1934, as amended,  and the regulations
  promulgated thereunder.
  
           The Meeting was held for the following purposes:
  
           (1) to elect  three  Class I  directors  to hold office for three years
  from the date of election and until their  successors  are elected and qualified
  (Proposal No. 1); and
  
           (2) to act upon a proposal to approve the  Registrant's  Directors' Fee
  Plan (proposal No.2).
  
           (3) to act upon a proposal to approve the  Registrant's  Officers'  and
  Key Employees' Stock Compensation Plan (Proposal No. 3)
  
           (4) to act upon a proposal to approve the  Registrant's  Employee Stock
  Purchase Plan (proposal No.4).
  
           There was no solicitation in opposition to the nominees of the Board of
  Directors  for election to the Board of  Directors  and all such  nominees  were
  elected.  The  number of votes  cast for or  withheld,  as well as the number of
  abstentions and broker non-votes, for each of the nominees for election to the
  Board of Directors were as follows:
                                                           Abstentions and
  Nominee                       For          Withheld     Broker Non-Votes
  
  John H. Body               5,592,593        41,369             0
  
  J. Ralph Borneman, Jr      5,590,565        43,397             0
  
  Kenneth A. Longacre        5,593,004        40,958             0
  
                                         14
  <PAGE>
  
           There was no  solicitation  in  opposition to Proposal No. 2 to approve
  the Directors' Fee Plan, and the Plan was approved. The number of votes cast for
  or against,  as well as the number of abstentions and broker non-votes,  for the
  proposal were as follows:
  
  For                        Against        Abstentions         Broker Non-votes
  
  5,396,245                  143,638          54,040                   0
  
           There was no  solicitation  in  opposition to Proposal No. 3 to approve
  the Officers'  and Key  Employees'  Stock  Compensation  Plan,  and the Plan was
  approved.  The  number of votes  cast for or  against,  as well as the number of
  abstentions and broker non-votes, for the proposal were as follows:
  
  For                        Against        Abstentions         Broker Non-votes
  
  5,228,242                  250,847          114,834                  0
  
           There was no  solicitation  in  opposition to Proposal No. 4 to approve
  the Employee Stock Purchase Plan, and the Plan was approved. The number of votes
  cast for or against,  as well as the number of abstention and broker  non-votes,
  for the proposal were as follows:
  
  For                        Against        Abstentions         Broker Non-votes
  
  5,383,738                  116,348          93,837                   0
  
  
  Item 5. Other Information.
  
           On May  21,  1997,  the  Registrant  closed  the  sale  of  $40,250,000
  principal  amount of Trust Preferred  Securities  issued by NPB Capital Trust, a
  Delaware  business  trust,  which  securities  are  wholly  and  unconditionally
  guaranteed by the Registrant.  For further  information,  see footnote #7 to the
  Registrant's  quarterly  financial  statements  at Part I,  Item 1  hereof,  and
  Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
  Operations, at Part I, Item 2 hereof.
  
           On June 25,  1997,  the  Registrant's  Board of  Directors  declared  a
  4-for-3 stock split of the Registrant's common shares,  payable July 31, 1997 to
  shareholders  of record July 15, 1997,  and declared a cash dividend of $.21 per
  share payable August 17, 1997 to shareholders of record July 31, 1997.
  
           In  June  1996,  the  Registrant's  Board  of  Directors  approved  the
  repurchase  of up to 380,000  common  shares of the  Registrant,  to be used for
  general corporate  purposes,  including the Registrant's  dividend  reinvestment
  plan and stock option plans. The stock repurchase plan authorizes the Registrant
  to make  repurchases  from time to time in open market or  privately  negotiated
  transactions.  At June 30, 1997, a total of 99,229 shares have been  repurchased
  at an aggregate cost of $2.7 million.
  
                                         15
  <PAGE>
  
           During  second  quarter  1997,  the  Registrant's  banking  subsidiary,
  National  Penn Bank (the "Bank")  installed  12 new  automated  teller  machines
  ("ATMs")  in  various  convenience  store  and  other  non-branch  locations  in
  southeastern Pennsylvania.
  
           The Registrant  anticipates that the Bank will install four new ATMs in
  various  locations in third quarter 1997.  Two of these new ATMs are expected to
  be installed in supermarket locations and two in fast-food store locations.  The
  Registrant also anticipates that the Bank will open a supermarket  branch in the
  Roxborough section of Philadelphia in early 1998.
  
  Item 6.  Exhibits and Reports on Form 8-K.
  
           (a) Exhibits.
  
               Exhibit 3.1 - Articles of Incorporation, as amended.
  
               Exhibit 27 - Financial Data Schedule.
  
           (b) Reports on Form 8-K.  The  Registrant  did not file any Reports on
  Form 8-K during the quarterly period ended June 30, 1997.
  
  
  
  
                                         16
  <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:   August 14, 1997               By /s/  Wayne R. Weidner
                                            ----------------------
                                            Wayne R. Weidner, Executive
                                            Vice President
  
  Dated:   August 14, 1997               By /s/  Gary L. Rhoads
                                            --------------------
                                            Gary L. Rhoads, Principal
                                            Financial Officer
  
  
  
  
  
                                         17
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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:      June 30, 1997
  
                                         OR
  
       [ ]  TRANSITION  REPORT  PURSUANT TO SECTION 13 OF 15(d) OF THE  
                          SECURITIES EXCHANGE ACT OF 1934
  
  For the transition period from:                to
  
  Commission file number: 0-10957
  
                           NATIONAL PENN BANCSHARES, INC.
               (Exact name of registrant as specified in its charter)
  
          Pennsylvania                                    23-2215075
  (State or other jurisdiction of                      (I.R.S. Employer
   incorporation or organization)                       Identification No.)
  
                Philadelphia and Reading Avenues, Boyertown, PA 19512
                (Address of principal executive offices)    (Zip Code)
  
                                   (610) 367-6001
                (Registrant's telephone number, including area code)
  
                                         N/A
                (Former name, former address and former fiscal year,
                            if changed since last report)
  
           Indicate by check mark whether the Registrant (1) has filed all reports
  required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
  1934  during  the  preceding  12 months  (or for such  shorter  period  that the
  Registrant was required to file such reports),  and (2) has been subject to such
  filing requirements for the past 90 days. Yes X No __.
  
           Indicate  the  number of  shares  outstanding  of each of the  issuer's
  classes of common stock, as of the latest practicable date.
  
               Class                           Outstanding at August 6, 1997
  
     Common Stock ($1.875 par value)              (No.)  10,690,192 Shares
  
                                   1 of 17 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
  
  Part II - Other Information.
  
           Item 1.          Legal Proceedings ..............................  14
  
           Item 2.          Changes in Securities ..........................  14
  
           Item 3.          Defaults Upon Senior Securities ...............   14
  
           Item 4.          Submission of Matters to a Vote of
                            Security Holders ..............................   14
  
           Item 5.          Other Information .............................   15
  
           Item 6.          Exhibits and Reports on Form 8-K ..............   16
  
  Signature ...............................................................   17
  
                                         2
  PART I - FINANCIAL INFORMATION
  
  Item 1.  Financial Statements
  
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
  CONSOLIDATED CONDENSED BALANCE SHEET  
   (Dollars in thousands, except per share data)
  June 30          Dec. 31
                                                                    1997             1996
                                                                (Unaudited)         (Note)
  ASSETS
  Cash and due from banks                                          $52,559          $40,194
  Interest bearing deposits in banks                                 2,553            1,802
  Federal funds sold                                                    --               --
                                                                ----------       ----------
      Total cash and cash equivalents                               55,112           41,996
  Investment securities available for sale at market value         249,715          236,814
  Loans, less allowance for loan losses of $24,006 and
     $22,746 in 1997 and 1996 respectively                       1,071,793        1,028,334
  Other assets                                                      54,871           50,869
                                                                ----------       ----------
      Total Assets                                              $1,431,491       $1,358,013
                                                                ==========       ==========
  
  LIABILITIES AND SHAREHOLDERS' EQUITY
  Non-interest bearing deposits                                   $148,598         $145,107
  Interest bearing deposits
    (Includes certificates of deposit $100,000 or greater:
    1997 - $125,988; 1996 - $97,115)                               920,912          835,701
                                                                ----------       ----------
      Total Deposits                                             1,069,510          980,808
  Securities sold under repurchase agreements
    and federal funds purchased                                     76,141          164,996
  Short-term borrowings                                             10,184            6,931
  Long-term obligations                                            101,110           76,110
  Guaranteed preferred beneficial interests in
      Company's subordinated debentures                             40,250               --
  Accrued interest and other liabilities                            16,371           14,447
                                                                ----------       ----------
      Total Liabilities                                          1,313,566        1,243,292
  Commitments and contingent liabilities                                --               --
  Shareholders' equity
    Preferred stock, no stated par value;
      authorized 1,000,000 shares, none issued                          --               --
    Common stock, par value $2.50 per share;
      authorized 20,000,000 shares; issued and outstanding
      1997 - 8,020,177; 1996 - 8,002,648, net of shares
      in Treasury: 1997 - 15,259; 1996 - 31,204                     20,085           20,085
    Additional paid-in-capital                                      83,268           83,707
    Retained earnings                                               12,112            4,398
    Net unrealized gains on securities available for sale            2,901            7,357
    Treasury stock at cost                                            (441)            (826)
                                                                ----------       ----------
      Total Shareholders' Equity                                   117,925          114,721
                                                                ----------       ----------
      Total Liabilities and Shareholders' Equity                $1,431,491       $1,358,013
                                                                ==========       ==========
  The  acompanying  notes  are an  integral  part  of  these  condensed  financial
  statements.
  
  Note:  The  Balance  Sheet at Dec.  31, 1996 has been  derived  from the audited
       financial statements at that date.
  
                                         3
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES      
  UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME  
  
  (Dollars in thousands, except per share data)
  Three Months Ended          Six Months Ended 
                                                    June 30                    June 30 
                                                     1997          1996         1997         1996
  INTEREST INCOME INTEREST INCOME
  Loans including fees                             $25,239       $22,035      $49,623      $43,927
  Deposits in banks                                     27            20           44           29
  Federal funds sold                                    33            13           51          113
  Investment securities                              3,564         3,799        7,313        7,517
                                                   -------       -------      -------      -------
  Total interest income                             28,863        25,867       57,031       51,586
                                                   -------       -------      -------      -------
  
  INTEREST EXPENSE INTEREST EXPENSE
  Deposits                                           9,906         8,527       19,099       16,725
  Federal funds purchased, borrowed funds and
  securities sold under repurchase agreements        2,945         2,627        6,221        5,698
                                                   -------       -------      -------      -------
  
  Total interest expense                            12,851        11,154       25,320       22,423
                                                   -------       -------      -------      -------
  
  Net interest income                               16,012        14,713       31,711       29,163
  Provision for loan losses                          1,200           975        2,400        1,950
                                                   -------       -------      -------      -------
  
  Net interest income after provision
  for loan losses                                   14,812        13,738       29,311       27,213
                                                   -------       -------      -------      -------
  
  OTHER INCOME
  Trust and investment management income               687           573        1,323        1,204
  Service charges on deposit accounts                1,007           810        1,961        1,593
  Net gains (losses) on sale of
  securities and mortgages                             (74)           88          842          (15)
  Other                                              1,014           615        1,803        1,249
                                                   -------       -------      -------      -------
  Total other income                                 2,634         2,086        5,929        4,031
                                                   -------       -------      -------      -------
  
  OTHER EXPENSES OTHER EXPENSES
  Salaries, wages and employee benefits              6,481         5,434       12,887       10,458
  Net premises and equipment                         1,786         1,593        3,726        3,397
  Other operating                                    2,807         3,021        5,679        5,642
                                                   -------       -------      -------      -------
  Total other expenses                              11,074        10,048       22,292       19,497
                                                   -------       -------      -------      -------
  Income before income taxes                         6,372         5,776       12,948       11,747
  Applicable income tax expense                      1,987         1,783        4,029        3,639
                                                   -------       -------      -------      -------
  Net income                                        $4,385        $3,993       $8,919       $8,108
                                                   =======       =======      =======      =======
  
  PER SHARE OF COMMON STOCK
  Net income                                         $0.54         $0.50        $1.11        $1.00
  Dividends paid in cash                              0.24          0.22         0.48         0.43
  The  accompanying  notes  are an  integral  part of  these  condensed  financial
  statements.
  
                                          4
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
  UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
  Six Months Ended June 30,
  (Dollars in thousands)
                                                                                  1997          1996
  CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                                                   $8,919        $8,108
    Adjustments to reconcile net income to net
        cash provided by (used in) operating activities
      Provision for loan losses                                                   2,400         1,950
      Depreciation and amortization                                               1,696         1,554
      Net gains (losses) on sale of securities and mortgages                        842           (15)
      Mortgage loans originated for resale                                       (8,068)      (11,488)
      Sale of mortgage loans originated for resale                                8,068        11,488
      Other                                                                      (2,333)       (3,848)
                                                                               --------      --------
  
        Net cash provided by (used in) operating activities                      11,524         7,749
  
  CASH FLOWS FROM INVESTING ACTIVITIES
    Proceeds from sales of investment securities - available for sale            11,655        13,780
    Proceeds from maturities of investment securities - held to maturity             --            --
    Proceeds from maturities of investment securities - available for sale       14,629        21,680
    Purchase of investment securities - available for sale                      (41,488)      (37,090)
    Proceeds from sales of loans                                                     --            --
    Net increase in loans                                                       (45,859)      (40,868)
    Purchases of premises & equipment                                            (1,475)       (1,658)
                                                                               --------      --------
  
        Net cash provided by (used in) investing activities                     (62,538)      (44,156)
  
  CASH FLOWS FROM FINANCING ACTIVITIES
    Increase (decrease) in:
      Deposits                                                                   88,702        46,996
      Repurchase agreements, fed funds & short-term borrowings                  (85,602)        9,224
      Long-term borrowings                                                       25,000       (15,479)
      Proceeds from issuance of preferred securities                             40,250            --
      (Increase) decrease in treasury stock                                         385           483
      Issuance of common stock under dividend reinvestment plan                    (439)           25
      Cash dividends                                                             (4,166)       (3,085)
                                                                               --------      --------
  
        Net cash provided by (used in) financing activities                      64,130        38,164
  
  Net increase (decrease) in cash and cash equivalents                           13,116         1,757
  
  Cash and cash equivalents at January 1                                         41,996        41,209
                                                                               --------      --------
  
  Cash and cash equivalents at June 30                                          $55,112       $42,966
                                                                               ========      ========
  The  accompanying  notes  are an  integral  part of  these  condensed  financial
  statements.
  
                                          5
  NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                     (UNAUDITED)
  
  1. The accompanying  unaudited condensed financial statements have been prepared
  in  accordance  with  generally  accepted  accounting   principles  for  interim
  financial  information.  The financial information included herein is unaudited;
  however, such information reflects all adjustments  (consisting solely of normal
  recurring  adjustments) which are, in the opinion of management,  necessary to a
  fair statement of the results for the interim periods.  For further information,
  refer to the consolidated financial statements and footnotes thereto included in
  the Company's Annual Report on Form 10-K for the year ended December 31, 1996.
  
  2. The results of operations  for the  six-month  period ended June 30, 1997 are
  not necessarily indicative of the results to be expected for the full year.
  
  3. Per share data are based on the weighted average number of shares outstanding
  of 8,013,489  and 7,994,472  for 1997 and 1996,  respectively,  and are computed
  after giving retroactive effect to a 5% stock dividend paid on October 31, 1996.
  
  4. On June 25, 1997, the Company's Board of Directors  declared a four-for-three
  stock split payable on July 31, 1997 to shareholders of record on July 15, 1997.
  
  5. New Accounting  Pronouncements - The Financial Accounting Standards Board has
  issued  Statement of  Financial  Accounting  Standards  No. 128,  "Earnings  Per
  Share," which is effective for financial  statements  issued after  December 15,
  1997.  Early  adoption of the new  standard is not  permitted.  The new standard
  eliminates   primary  and  fully   diluted   earnings  per  share  and  requires
  presentation of basic and diluted earnings per share together with disclosure of
  how the per share  amounts were  computed.  The adoption of this new standard is
  not expected to have a material  impact on the  disclosure of earnings per share
  in the  financial  statements.  The effect of adopting this new standard has not
  been determined.
  
           The  Financial  Accounting  Standards  Board has  issued  Statement  of
  Accounting Standards No 130, "Reporting Comprehensive Income," which was adopted
  by the Company in June 1997 and is effective for years  beginning after December
  15,  1997.  The new  standard  requires  entities  presenting  a complete set of
  financial statements to include details of comprehensive  income.  Comprehensive
  income  consists  of net  income  or loss for the  current  period  and  income,
  expenses,  gains and losses that bypass the income  statement  and are  reported
  directly in a separate  component of equity.  The Company has not analyzed  this
  statement nor determined  the effect on its financial  statements at the present
  time.
  
  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 $8,226,000 at June 30, 1997,
  all of which are non-accrual  loans. The allowance for loan loss associated with
  these  impaired  loans was  $857,000 at June 30,  1997.  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.
  
                                         6
  7. On May 22,  1997,  the  Company  issued  41.5  million  of  9.00%  of  junior
  subordinated  deferrable  interest  debentures (the "debentures") to NPB Capital
  Trust (the "Trust"), a Delaware business trust, in which the Company owns all of
  the common equity.  The  debentures  are the sole asset of the Trust.  The Trust
  issued  $40.25  million of preferred  securities  to  investors.  The  Company's
  obligations  under  the  debentures  and  related  documents,   taken  together,
  constitute  a full and  unconditional  guarantee  by the  Company of the Trust's
  obligations  under the preferred  securities.  Although the  debentures  will be
  treated  as debt of the  Company,  they  currently  qualify  for tier 1  capital
  treatment  in an  amount  up to  25% of  total  tier 1  capital.  The  preferred
  securities  are  redeemable by the Company on or after June 30, 2002, or earlier
  in the event the  deduction  of related  interest  for federal  income  taxes is
  prohibited,  treatment as tier 1 capital is no longer permitted or certain other
  contingencies  arise. The preferred securities must be redeemed upon maturity of
  the  debentures  in 2027.  See  "Liquidity  and Interest Rate  Sensitivity"  and
  "Capital Adequacy" below.
  
                                         7
  Item 2.       Management's Discussion and Analysis of Financial Condition and
                Results of Operations
  
           The  following  discussion  and  analysis  is  intended  to  assist  in
  understanding  and evaluating  the major changes in the financial  condition and
  earnings  performance  of the  Company  with a primary  focus on an  analysis of
  operating results.
  
                                 FINANCIAL CONDITION
  
           Total assets increased to $1.431 billion,  an increase of $73.5 million
  or 5.4% over the $1.358 billion at December 31, 1996. This increase is reflected
  primarily in the loan category,  the result of the  investment of deposits,  the
  Company's primary source of funds.
  
           Total cash and cash  equivalents  increased  $13.1  million or 31.2% at
  June 30, 1997 when compared to December 31, 1996. This increase was primarily in
  cash and due from banks.
  
           Loans  increased to $1.072  billion at June 30,  1997.  The increase of
  $43.5  million or 4.2% compared to December 31, 1996 was primarily the result of
  the  investment  of deposits and  long-term  borrowings.  Loans  originated  for
  immediate  resale  during the first six months of 1997 amounted to $8.1 million.
  The  Company's  credit  quality  is  reflected  by the  annualized  ratio of net
  charge-offs  to total loans of .21%  through  the second  quarter of 1997 versus
   .14% for the year 1996, and the ratio of non-performing assets to total loans of
  1.11% at June 30, 1997  compared  to 1.21% at  December 31 1996.  Non-performing
  assets,  including non-accruals,  loans 90 days past due, restructured loans and
  other real estate  owned,  were $12.2 million at June 30, 1997 compared to $12.7
  million at December 31, 1996. Of these amounts,  non-accrual  loans  represented
  $8.2  million  and  $8.7  million  at June  30,  1997  and  December  31,  1996,
  respectively.  Loans 90 days  past due and  still  accruing  interest  were $3.6
  million and $3.7 million at June 30, 1997 and  December 31, 1996,  respectively.
  Other real estate  owned was  $305,000 and $319,000 at June 30 1997 and Decmeber
  31, 1996, respectively. The Company had no restructured loans at June 30 1997 or
  December 31, 1996.  The allowance for loan losses to  non-performing  assets was
  197.4% and 179.2% at June 30 1997 and  December 31,  1996,  respectively.  As is
  evident from the above amounts  relative to  non-performing  assets,  there have
  been no  significant  changes  between  December 31, 1996 and June 30, 1997. The
  Company has no significant exposure to energy and agricultural-related loans.
  
           Investments,  the  Company's  secondary use of funds,  increased  $12.9
  million or 5.4% to $249.7 million at June 30, 1997 when compared to December 31,
  1996. The increase is due to investment purchases of $41.5 million, primarily in
  municipal  securities,  which  was  partially  offset  by  investment  sales and
  maturities and the amortization of mortgage-backed securities.
  
           As the primary source of funds, aggregate deposits of $1.070 billion at
  June 30, 1997 increased $88.7 million or 9.0% compared to December 31, 1996. The
  increase  in  deposits  during  the  first six  month of 1997 was  primarily  in
  interest  bearing  deposits  which  increased  $85.2 million while  non-interest
  bearing  deposits  increased $3.5 million.  Certificates of deposit in excess of
  $100,000  increased $28.9 million.  In addition to deposits,  earning assets are
  funded to some extent  through  purchased  funds and  borrowings.  These include
  securities sold under repurchase agreements, federal funds purchased, short-term
  borrowings and long-term  debt  obligations.  In aggregate,  these funds totaled
  $227.7  million at June 30, 1997,  and $248.0
  
                                         8
  million at December  31,  1996.  The increase of $20.4  million  represents  the
  issuance of $40.25 million in junior subordinated deferrable interest debentures
  and an increase in long-term  obligations  of $25.0  million which was partially
  offset by a decrease in short-term  borrowings,  primarily securities sold under
  repurchase agreements and federal funds purchased.
  
           Shareholders'  equity  increased  slightly  through June 30, 1997. This
  increase was due to an increase in earnings retained offset by a decrease in the
  change  in  valuation  adjustment  for  securities  available  for  sale,  which
  represents  the  accounting  treatment  required  under  Statement  of Financial
  Accounting Standards 115, "Accounting for Certain Investments in Debt and Equity
  Securities," applied to the decrease in market value of the Company's investment
  portfolio.  Cash  dividends  paid during the first six months of 1997  increased
  $418,000  or 12.2%  compared  to the cash  dividends  paid  during the first six
  months of 1996. Earnings retained during the first six months of 1997 were 56.9%
  compared to 57.8% during the first six months of 1996.
  
                                RESULTS OF OPERATIONS
  
           Net income for the quarter ended June 30, 1997 was $4.4  million,  9.8%
  more than the $3.9 million  reported for the same period in 1996.  For the first
  six months, net income reached $8.9 million, or 10.0% more than the $8.1 million
  reported for the first six months of 1996.  The Company's  performance  has been
  and will  continue to be in part  influenced  by the strength of the economy and
  conditions in the real estate market.
  
           Net interest income is the difference between interest income on assets
  and interest expense on liabilities.  Net interest income increased $1.3 million
  or 8.8% to $16.0 million during the second quarter of 1997 from $14.7 million in
  the second  quarter 1996.  For the  comparative  six month period,  net interest
  income  increased  $2.5 million or 8.7% to $31.7  million from $29.2  million in
  1996. The increase in interest income is a result of growth in loan outstandings
  and higher  rates on loans that was  partially  offset by growth in deposits and
  higher rates on deposits and  borrowings.  Interest rate risk is a major concern
  in forecasting earnings potential. The Company's prime rate from January 1, 1997
  to March 25, 1997 was 8.25%. On March 26, 1997, the prime rate changed to 8.50%.
  Interest  expense  during the first six months of 1997 increased $2.9 million or
  12.9%  compared to the prior year's  first six 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  $225,000 for the second quarter and $450,000 for the first six months
  of 1997  compared to the same periods in 1996.  The allowance for loan and lease
  losses of $24.0  million at June 30, 1997 and $22.7 million at December 31, 1996
  as a  percentage  of total  loans  was 2.2% at both  dates.  The  Company's  net
  charge-offs of $1,140,000  and $976,000  during the first six months of 1997 and
  1996,  respectively,  continue to be comparable to those of the Company's peers,
  as reported in the Bank Holding Company Performance Report.
  
           "Total  other  income"  increased  $548,000 or 26.3%  during the second
  quarter of 1997,  as a result of increased  other income of $399,000,  increased
  service  charges  on deposit  accounts  of
  
                                         9
  $197,000, and increased trust and investment management income of $114,000. Year
  to date, other income increased $1.9 million or 47.1% when compared to the first
  six  months of 1996 as a result of  increased  gains on sale of  securities  and
  mortgages of $857,000,  increased other income of $554,000,  increased  services
  charges on deposit  accounts  of $365,000  and  increased  trust and  investment
  management income of $119,000.  "Total other expenses" increased $1.0 million or
  10.2% during the quarter ended June 30, 1997 and increased $2.8 million or 14.3%
  for the six month period. Of this  year-to-date  increase,  salaries,  wages and
  employee  benefits  increased  $2.4  million or 23.2%,  premises  and  equipment
  increased  $329,000 or 9.7%, and other operating  expenses  increased $37,000 or
   .6%.
  
           Income before income taxes  increased by $596,000 or 10.3%  compared to
  the second  quarter of 1996.  In comparing the first six months of 1997 to 1996,
  income  before  income  taxes  increased  $1.2  million or 10.2%.  Income  taxes
  increased $204,000 for the quarter and increased $390,000 the six month period.
  
                       LIQUIDITY AND INTEREST RATE SENSITIVITY
  
           The  primary  functions  of  asset/liability  management  are to assure
  adequate liquidity and maintain an appropriate balance between  interest-earning
  assets and  interest-bearing  liabilities.  Liquidity  management  involves  the
  ability  to meet the cash  flow  requirements  of  customers  who may be  either
  depositors  wanting  to  withdraw  funds or  borrowers  needing  assurance  that
  sufficient funds will be available to meet their credit needs. Funding affecting
  short-term  liquidity,  including  deposits,  repurchase  agreements,  fed funds
  purchased, and short-term borrowings, increased $3.1 million from year end 1996.
  Long-term  borrowings  increased  $62.3  million  during the first six months of
  1997. As described in note 7 to the financial statements included herein at Item
  #1, cash inflow was increased by a $40.25 million debt offering on May 22, 1997.
  
           The  goal  of  interest  rate   sensitivity   management  is  to  avoid
  fluctuating  net  interest  margins,  and to  enhance  consistent  growth of net
  interest income through periods of changing  interest rates. Such sensitivity is
  measured  as the  difference  in the  volume of assets  and  liabilities  in the
  existing portfolio that are subject to repricing in a future time period.
  
                                         10
  The following table shows  separately the interest rate  sensitivity of
  each category of  interest-earning  assets and  interest-bearing  liabilities at
  June 30, 1997:
  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                         $    2,553      $         - -   $          - -        $      - -
        Investment securities                   10,266             36,223          120,282            82,944
        Loans and leases                       305,233            148,764          453,216           164,580
        Other assets                            12,117                - -              - -            95,313
                                             ---------           ---------       ----------         ---------
                                               330,169            184,987          573,498           342,837
                                             ---------           ---------       ----------         ---------
  Liabilities and equity
        Noninterest-bearing deposits           148,598                - -              - -               - -
        Interest-bearing deposits              285,110            175,019          223,026           237,757
        Borrowed funds                         154,159             10,000           15,110             8,166
        Preferred securities                       - -                - -              - -            40,250
        Other liabilities                          - -                - -              - -            16,371
        Hedging instruments                     80,000                - -          (80,000)
        Shareholders' equity                       - -                - -              - -           117,925
                                             ---------          ---------       ----------         ---------
                                               667,867            185,019          158,136           420,469
                                             ---------          ---------       ----------         ---------
  Interest sensitivity gap                    (337,698)               (32)         415,362           (77,632)
                                             ---------          ---------       ----------         ---------
  
  Cumulative interest rate
          sensitivity gap                    ($337,698)         ($337,730)      $   77,632         $     - -
                                             =========          =========       ==========         =========
  (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 second  calendar  quarter of 1997. 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,  25.6% of these deposits are considered repriceable
  within three months and 74.4% 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,
  
                                         11
  and the relative  levels of repricing.  Attempting to minimize the interest rate
  sensitivity gaps is a continual challenge in a changing rate environment.  Based
  on the Company's gap position as reflected in the above table,  current accepted
  theory would indicate that net interest  income would increase in a falling rate
  environment  and would decrease in a rising rate  environment.  An interest rate
  gap table  does  not,  however,  present a  complete  picture  of the  impact of
  interest  rate changes on net  interest  income.  First,  changes in the general
  level of interest rates do not affect all  categories of assets and  liabilities
  equally  or   simultaneously.   Second,   assets  and   liabilities   which  can
  contractually  reprice  within the same period may not, in fact,  reprice at the
  same time or to the same extent. Third, the table represents a one-day position;
  variations  occur  daily  as  the  Company  adjusts  its  interest   sensitivity
  throughout the year. Fourth, assumptions must be made to construct such a table.
  For example,  non-interest  bearing  deposits are assigned a repricing  interval
  within  one year,  although  history  indicates  a  significant  amount of these
  deposits  will not move  into  interest  bearing  categories  regardless  of the
  general level of interest rates. Finally, the repricing distribution of interest
  sensitive assets may not be indicative of the liquidity of those assets.
  
           The Company anticipates volatile interest rate levels for the remainder
  of 1997, with no clear indication of sustainable  rising or falling rates. Given
  this assumption,  the Company's asset/liability strategy for 1997 is to maintain
  a  negative  gap  (interest-bearing  liabilities  subject  to  repricing  exceed
  interest-earning  assets  subject to  repricing)  for periods up to a year.  The
  impact of a volatile  interest rate  environment  on net interest  income is not
  expected to be  significant to the Company's  results of  operations.  Effective
  monitoring of these interest  sensitivity  gaps is the priority of the Company's
  asset/liability management committee.
  
                                  CAPITAL ADEQUACY
  
           The following table sets forth certain capital performance ratios.
  
                                                        June 30,         Dec. 31,
                                                          1997             1996
  CAPITAL LEVELS
        Tier 1 leverage ratio                            10.56%            7.83%
        Tier 1 risk-based ratio                          14.06            10.82
        Total risk-based ratio                           15.72            12.09
  
  CAPITAL PERFORMANCE
        Return of average assets (annualized)             1.30             1.31
        Return on average equity (annualized)            15.40            15.60
        Earnings retained                                56.90            58.50
        Internal capital growth (annualized)              8.90             7.60
  
           The Company's  capital  ratios above  compare  favorably to the minimum
  required amounts of Tier 1 and total capital to  "risk-weighted"  assets and the
  minimum Tier 1 leverage  ratio,  as defined by banking  regulators.  At June 30,
  1997,  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
  
                                         12
  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.  As described in note 7 to the
  financial  statements  included herein at Item #1, capital ratios were increased
  by a $40.25 million debt offering on May 22, 1997.
  
           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
  
           In June 1996, the Company's Board of Directors  approved the repurchase
  of up to 380,000  shares of its common stock from time to time in open market or
  negotiated  transactions.  Repurchased shares will be used for general corporate
  purposes,  including the Company's  dividend  reinvestment  plan and stock based
  compensation  plans. To date, a total of 99,229 shares have been  repurchased at
  an aggregate cost of $2.7 million.
  
           Shareholders of Penncore Financial Services  Corporation,  Newtown,  PA
  have approved their merger with ML Bancorp, Inc., Villanova, PA. The Company has
  20% ownership interest in Penncore and, the deal price of $36.56 per share gives
  the Company an unrealized gain of approximately $1 million on this  transaction.
  The merger is expected to be completed in late August or early September of this
  year, although no assurance can be given that it will be completed.  The Company
  has two remaining 20% ownership interests in de novo banks.
  
           This report contains  forward-looking  statements  concerning earnings,
  asset quality,  and other future events.  Actual results could differ materially
  due to, among other things, the risks and uncertainties  discussed in Exhibit 99
  to the Company's Report on Form 10-K for 1996,  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.
  
                                         13
  PART II - OTHER INFORMATION
  
  Item 1. Legal Proceedings.
  
           None.
  
  Item 2. Changes in Securities.
  
           None.
  
  Item 3. Defaults Upon Senior Securities.
  
           None.
  
  Item 4. Submission of Matters to Vote of Security Holders.
  
           The 1997 annual meeting (the "Meeting") of the shareholders of National
  Penn Bancshares,  Inc. (the  "Registrant") was held on April 22, 1997. Notice of
  the Meeting  was mailed to  shareholders  of record on or about March 26,  1997,
  together with proxy  solicitation  materials prepared in accordance with Section
  14 (a) of the Securities  Exchange Act of 1934, as amended,  and the regulations
  promulgated thereunder.
  
           The Meeting was held for the following purposes:
  
           (1) to elect  three  Class I  directors  to hold office for three years
  from the date of election and until their  successors  are elected and qualified
  (Proposal No. 1); and
  
           (2) to act upon a proposal to approve the  Registrant's  Directors' Fee
  Plan (proposal No.2).
  
           (3) to act upon a proposal to approve the  Registrant's  Officers'  and
  Key Employees' Stock Compensation Plan (Proposal No. 3)
  
           (4) to act upon a proposal to approve the  Registrant's  Employee Stock
  Purchase Plan (proposal No.4).
  
           There was no solicitation in opposition to the nominees of the Board of
  Directors  for election to the Board of  Directors  and all such  nominees  were
  elected.  The  number of votes  cast for or  withheld,  as well as the number of
  abstentions and broker non-votes, for each of the nominees for election to the
  Board of Directors were as follows:
                                                           Abstentions and
  Nominee                       For          Withheld     Broker Non-Votes
  
  John H. Body               5,592,593        41,369             0
  
  J. Ralph Borneman, Jr      5,590,565        43,397             0
  
  Kenneth A. Longacre        5,593,004        40,958             0
  
                                         14
  There was no  solicitation  in  opposition to Proposal No. 2 to approve
  the Directors' Fee Plan, and the Plan was approved. The number of votes cast for
  or against,  as well as the number of abstentions and broker non-votes,  for the
  proposal were as follows:
  
  For                        Against        Abstentions         Broker Non-votes
  
  5,396,245                  143,638          54,040                   0
  
           There was no  solicitation  in  opposition to Proposal No. 3 to approve
  the Officers'  and Key  Employees'  Stock  Compensation  Plan,  and the Plan was
  approved.  The  number of votes  cast for or  against,  as well as the number of
  abstentions and broker non-votes, for the proposal were as follows:
  
  For                        Against        Abstentions         Broker Non-votes
  
  5,228,242                  250,847          114,834                  0
  
           There was no  solicitation  in  opposition to Proposal No. 4 to approve
  the Employee Stock Purchase Plan, and the Plan was approved. The number of votes
  cast for or against,  as well as the number of abstention and broker  non-votes,
  for the proposal were as follows:
  
  For                        Against        Abstentions         Broker Non-votes
  
  5,383,738                  116,348          93,837                   0
  
  Item 5. Other Information.
  
           On May  21,  1997,  the  Registrant  closed  the  sale  of  $40,250,000
  principal  amount of Trust Preferred  Securities  issued by NPB Capital Trust, a
  Delaware  business  trust,  which  securities  are  wholly  and  unconditionally
  guaranteed by the Registrant.  For further  information,  see footnote #7 to the
  Registrant's  quarterly  financial  statements  at Part I,  Item 1  hereof,  and
  Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
  Operations, at Part I, Item 2 hereof.
  
           On June 25,  1997,  the  Registrant's  Board of  Directors  declared  a
  4-for-3 stock split of the Registrant's common shares,  payable July 31, 1997 to
  shareholders  of record July 15, 1997,  and declared a cash dividend of $.21 per
  share payable August 17, 1997 to shareholders of record July 31, 1997.
  
           In  June  1996,  the  Registrant's  Board  of  Directors  approved  the
  repurchase  of up to 380,000  common  shares of the  Registrant,  to be used for
  general corporate  purposes,  including the Registrant's  dividend  reinvestment
  plan and stock option plans. The stock repurchase plan authorizes the Registrant
  to make  repurchases  from time to time in open market or  privately  negotiated
  transactions.  At June 30, 1997, a total of 99,229 shares have been  repurchased
  at an aggregate cost of $2.7 million.
  
                                         15
  During  second  quarter  1997,  the  Registrant's  banking  subsidiary,
  National  Penn Bank (the "Bank")  installed  12 new  automated  teller  machines
  ("ATMs")  in  various  convenience  store  and  other  non-branch  locations  in
  southeastern Pennsylvania.
  
           The Registrant  anticipates that the Bank will install four new ATMs in
  various  locations in third quarter 1997.  Two of these new ATMs are expected to
  be installed in supermarket locations and two in fast-food store locations.  The
  Registrant also anticipates that the Bank will open a supermarket  branch in the
  Roxborough section of Philadelphia in early 1998.
  
  Item 6.  Exhibits and Reports on Form 8-K.
  
           (a) Exhibits.
  
               Exhibit 3.1 - Articles of Incorporation, as amended.
  
               Exhibit 27 - Financial Data Schedule.
  
           (b) Reports on Form 8-K.  The  Registrant  did not file any Reports on
  Form 8-K during the quarterly period ended June 30, 1997.
  
                                         16
  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:   August 14, 1997               By /s/  Wayne R. Weidner
                                            ----------------------
                                            Wayne R. Weidner, Executive
                                            Vice President
  
  Dated:   August 14, 1997               By /s/  Gary L. Rhoads
                                            --------------------
                                            Gary L. Rhoads, Principal
                                            Financial Officer
  
                                         17