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, 1999
                                  ---------------------------------
  
  OR
  
            [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE
                          SECURITIES EXCHANGE ACT OF 1934
  
  For the transition period from: ____________ to ____________
  
  
  Commission file number: 000-10957
  
                           NATIONAL PENN BANCSHARES, INC.
               (Exact name of registrant as specified in its charter)
  
                    Pennsylvania                            23-2215075
           (State or other jurisdiction of             (I.R.S. Employer
             incorporation or organization)            Identification No.)
  
                    Philadelphia and Reading Avenues, Boyertown, PA  19512
                    (Address of principal executive offices)      (Zip Code)
  
                                   (610) 367-6001
                (Registrant's telephone number, including area code)
  
                                         N/A
                (Former name, former address and former fiscal year,
                            if changed since last report)
  
           Indicate by check mark whether the Registrant (1) has filed all reports
  required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
  1934 during the preceding 12 months (or for such shorter period that the
  Registrant was required to file such reports), and (2) has been subject to such
  filing requirements for the past 90 days. Yes X No .
  
           Indicate the number of shares outstanding of each of the issuer's
  classes of common stock, as of the latest practicable date.
  
            Class                              Outstanding at July 30, 1999
  
     Common Stock (no stated par value)          (No.)  16,994,298 Shares
  <PAGE>
  TABLE OF CONTENTS
  
  Part I - Financial Information.                                            Page
  
           Item 1.          Financial Statements................................3
  
           Item 2.          Management's Discussion and Analysis of
                            Financial Condition and Results of Operation........8
  
           Item 3.          Quantitative and Qualitative Disclosures about
                            Market Risk........................................15
  
  Part II - Other Information.
  
           Item 1.          Legal Proceedings..................................16
  
           Item 2.          Changes in Securities..............................16
  
           Item 3.          Defaults Upon Senior Securities....................16
  
           Item 4.          Submission of Matters to a Vote of
                            Security Holders...................................16
  
           Item 5.          Other Information..................................16
  
           Item 6.          Exhibits and Reports on Form 8-K...................17
  
  Signature....................................................................18
  
  
  
                                         2
  <PAGE>
                                       PART I - FINANCIAL INFORMATION
  
  Item 1.  Financial Statements
  <TABLE>
  <CAPTION>
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
  CONSOLIDATED CONDENSED BALANCE SHEET                                                      June 30             Dec. 31
   (Dollars in thousands, except per share data)                                             1999                1998
                                                                                          (Unaudited)           (Note)
                                                                                         --------------    --------------
  <S>                                                                                     <C>               <C>
  ASSETS
  Cash and due from banks                                                                      $66,270           $55,024
  Interest bearing deposits in banks                                                             6,179            10,777
  Federal funds sold                                                                                 -                 -
                                                                                         --------------    --------------
      Total cash and cash equivalents                                                           72,449            65,801
  Trading account securities                                                                         -            21,589
  Investment securities available for sale                                                     515,642           523,041
  Loans, less allowance for loan losses of $31,262 and
     $30,835 in 1999 and 1998 respectively                                                   1,467,934         1,404,972
  Other assets                                                                                 110,072           105,845
                                                                                         --------------    --------------
      Total Assets                                                                           2,166,097         2,121,248
                                                                                         ==============    ==============
  
  LIABILITIES AND SHAREHOLDERS' EQUITY
  Non-interest bearing deposits                                                               $243,933          $222,816
  Interest bearing deposits
    (Includes certificates of deposit $100,000 or greater:
    1999 - $145,348; 1998 - $145,047)                                                        1,301,939         1,250,486
                                                                                         --------------    --------------
      Total Deposits                                                                         1,545,872         1,473,302
  Securities sold under repurchase agreements
    and federal funds purchased                                                                146,501           159,586
  Short-term borrowings                                                                          9,985            19,132
  Long-term obligations                                                                        248,086           248,627
  Guaranteed preferred beneficial interests in
      Company's subordinated debentures                                                         40,250            40,250
  Accrued interest and other liabilities                                                        20,300            21,577
                                                                                         --------------    --------------
      Total Liabilities                                                                      2,010,994         1,962,474
  Commitments and contingent liabilities                                                             -                 -
  Shareholders' equity
    Preferred stock, no stated par value;
      authorized 1,000,000 shares, none issued                                                       -                 -
    Common stock, no stated par value;
      authorized 62,500,000 shares; issued and outstanding
      1999 - 16,994,073; 1998 - 16,989,622                                                     115,006           114,294
    Retained earnings                                                                           39,916            34,927
    Accumulated other comprehensive income                                                         181             9,553
                                                                                         --------------    --------------
      Total Shareholders' Equity                                                               155,103           158,774
                                                                                         --------------    --------------
      Total Liabilities and Shareholders' Equity                                            $2,166,097        $2,121,248
                                                                                         ==============    ==============
  
  </TABLE>
  
  The accompanying notes are an integral part of these condensed financial
  statements.
  
  Note: The Balance Sheet at Dec. 31, 1998 has been derived from the audited
       financial statements of the Company plus additions necessary to reflect the
       Company's acquisition of Elverson National Bank which was accounted for
       under the pooling of interest method of accounting.
  
                                          3
  <PAGE>
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
  UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME
  
  <TABLE>
  <CAPTION>
                                                      Three Months Ended        Six Months Ended
  (Dollars in thousands, except per share data)           June 30                    June 30
                                                    ------------------------------------------------
                                                      1999         1998         1999           1998
                                                    --------     --------     --------      --------
  INTEREST INCOME
  <S>                                               <C>          <C>          <C>           <C>
  Loans including fees                              $ 32,284     $ 31,083     $ 63,509      $ 61,654
  Deposits in banks                                       64          158          107           234
  Federal funds sold                                     114           77          160           164
  Trading account securities                              --          203          196           203
  Investment securities                                7,647        6,661       15,088        12,577
                                                    --------     --------     --------      --------
      Total interest income                           40,109       38,182       79,060        74,832
                                                    --------     --------     --------      --------
  INTEREST EXPENSE
  Deposits                                            13,929       13,329       27,233        26,448
  Federal funds purchased, borrowed funds and
    securities sold under repurchase agreements        6,010        5,714       12,096        10,158
                                                    --------     --------     --------      --------
      Total interest expense                          19,939       19,043       39,329        36,606
                                                    --------     --------     --------      --------
      Net interest income                             20,170       19,139       39,731        38,226
  Provision for loan losses                            1,415        1,330        2,830         2,730
                                                    --------     --------     --------      --------
      Net interest income after provision
        for loan losses                               18,755       17,809       36,901        35,496
                                                    --------     --------     --------      --------
  OTHER INCOME
  Trust income                                         1,007          832        1,893         1,592
  Service charges on deposit accounts                  1,326        1,267        2,690         2,482
  Net gains on sale of investment securities             211          153          213           764
  Mortgage banking income                                364          188          430           327
  Trading revenue                                         --          185          (48)          185
  Other                                                2,781        1,694        5,022         3,112
                                                    --------     --------     --------      --------
      Total other income                               5,689        4,319       10,200         8,462
                                                    --------     --------     --------      --------
  OTHER EXPENSES
  Salaries, wages and employee benefits                9,265        8,056       18,551        16,105
  Net premises and equipment                           2,370        2,239        4,694         4,509
  Other operating                                      4,803        4,586        8,525         8,320
                                                    --------     --------     --------      --------
      Total other expenses                            16,438       14,881       31,770        28,934
                                                    --------     --------     --------      --------
      Income before income taxes                       8,006        7,247       15,331        15,024
  Applicable income tax expense                        1,506        1,558        2,815         3,591
                                                    --------     --------     --------      --------
      Net income                                    $  6,500     $  5,689     $ 12,516      $ 11,433
                                                    ========     ========     ========      ========
  
  
  PER SHARE OF COMMON STOCK
  Net income per share - basic                      $   0.39     $   0.33     $   0.74      $   0.67
  Net income per share - diluted                        0.38         0.33         0.73          0.66
  Dividends paid in cash                                0.20         0.14         0.39          0.28
  </TABLE>
  
  The accompanying notes are an integral part of these condensed financial
  statements.
  
                                          4
  
  <PAGE>
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
  CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS'
  EQUITY AND COMPREHENSIVE INCOME
  
  <TABLE>
  <CAPTION>
  SIX MONTHS ENDED JUNE 30, 1999
    (Dollars in thousands)
                                                                        Accumulated
                                                             Additional    other
                                         Common Stock        Paid-in    conprehensive  Retained   Treasury   Comprehensive
                                       Shares    Par Value   Capital       income      earnings    stock        income
                                     --------------------------------------------------------------------------------------
  <S>                                <C>           <C>             <C>        <C>      <C>            <C>          <C>
  Balance at December 31, 1998       16,989,622    114,294          -          9,553     34,927          -
    Net income                                -          -          -              -     12,516          -          12,516
    Cash dividends declared                   -          -          -              -     (7,527)         -
    Shares issued under stock-based
         plans                            4,451        712          -              -          -          -
    Other comprehensive income, net
        of reclassification adjustment
        and taxes                             -          -          -         (9,372)         -          -          (9,372)
                                     --------------------------------------------------------------------------------------
  Total comprehensive income                  -          -          -              -          -          -         $ 3,144
                                     --------------------------------------------------------------------------------------
  Balance at June 30, 1999           16,994,073  $ 115,006        $ -          $ 181    $39,916        $ -
  
  
                                                                                  June 30, 1999
                                                                        -----------------------------------
                                                                           Before         Tax      Net of
                                                                             tax        (expense)    tax
                                                                           amount       benefit    amount
                                                                        -----------------------------------
  Unrealized gains on securities
    Unrealized holding gains arising during period                           (14,631)     5,121     (9,510)
    Less: reclassification adjustment for gains realized in net income           213        (75)       138
                                                                        -----------------------------------
  Other comprehensive income, net                                            (14,418)     5,046     (9,372)
                                                                        ===================================
  
  
  
  SIX MONTHS ENDED JUNE 30, 1998
    (Dollars in thousands)
                                                                        Accumulated
                                                             Additional    other
                                         Common Stock        Paid-in    conprehensive  Retained   Treasury   Comprehensive
                                       Shares    Par Value   Capital       income      earnings    stock        income
                                     --------------------------------------------------------------------------------------
  
  Balance at December 31, 1997       17,080,328     25,620     96,657          7,648     22,431     (3,428)
    Net income                                -          -          -              -     11,433          -          11,433
    Cash dividends declared                   -          -          -              -     (5,119)         -
    Shares issued under stock-based
         plans                                -          -          -              -          -          -
    Other comprehensive income, net
        of reclassification adjustment
        and taxes                             -          -          -            437          -          -             437
                                     --------------------------------------------------------------------------------------
  Total comprehensive income                  -          -          -              -          -          -        $ 11,870
                                     --------------------------------------------------------------------------------------
  Conversion to no par value stock            -     95,436    (95,436)             -          -          -
     Par value adjustments related to
        pooling transaction                   -        (10)       329              -          -          -
    Effect of treasury stock
        transactions                    (80,553)         -     (1,550)             -          -     (3,534)
                                     --------------------------------------------------------------------------------------
  Balance at June 30, 1998           16,999,775  $ 121,046        $ -        $ 8,085    $28,745   $ (6,962)
  
  
                                                                                  June 30, 1998
                                                                        -----------------------------------
                                                                           Before         Tax      Net of
                                                                             tax        (expense)    tax
                                                                           amount       benefit    amount
                                                                        -----------------------------------
  Unrealized gains on securities
    Unrealized holding gains arising during period                               (92)        32        (60)
    Less: reclassification adjustment for gains realized in net income           764       (267)       497
                                                                        ===================================
  Other comprehensive income, net                                                672       (235)       437
                                                                        ===================================
  
  </TABLE>
  
  The accompanying notes are an integral part of these statements.
  
                                         5
  <PAGE>
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
  UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
  <TABLE>
  <CAPTION>
                                                                               Six Months Ended June 30,
  (Dollars in thousands)
                                                                                  1999           1998
                                                                               ---------      ---------
  <S>                                                                          <C>            <C>
  CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                                                 $  12,516      $  11,433
    Adjustments to reconcile net income to net
        cash provided by (used in) operating activities
      Provision for loan losses                                                    2,830          2,730
      Depreciation and amortization                                                2,177          2,007
      Net gains (losses) on sale of securities and mortgages                          (1)           615
      Trading-related assets                                                      21,589        (20,388)
      Mortgage loans originated for resale                                       (47,336)       (31,864)
      Sale of mortgage loans originated for resale                                47,336         31,864
      Other                                                                         (355)       (16,321)
                                                                               ---------      ---------
  
        Net cash provided by (used in) operating activities                       38,756        (19,924)
  
  CASH FLOWS FROM INVESTING ACTIVITIES
    Proceeds from sales of investment securities - available for sale             15,303         49,498
    Proceeds from maturities of investment securities - available for sale        34,316          2,951
    Purchase of investment securities - available for sale                       (56,627)      (157,227)
    Proceeds from sales of loans                                                      --             --
    Net increase in loans                                                        (65,792)       (41,342)
    Purchases of premises & equipment                                             (2,295)        (1,340)
                                                                               ---------      ---------
  
        Net cash provided by (used in) investing activities                      (75,095)      (147,460)
  
  CASH FLOWS FROM FINANCING ACTIVITIES
    Increase (decrease) in:
      Deposits                                                                    72,570         39,816
      Repurchase agreements, fed funds & short-term borrowings                   (22,232)        57,095
      Long-term borrowings                                                          (541)        94,625
      Proceeds from issuance of preferred securities                                  --             --
      (Increase) decrease in treasury stock                                           --         (3,534)
      Issuance of common stock under dividend reinvestment plan                      712         (1,231)
      Cash dividends                                                              (7,522)        (5,118)
                                                                               ---------      ---------
  
        Net cash provided by (used in) financing activities                       42,987        181,653
  
  Net increase (decrease) in cash and cash equivalents                             6,648         14,269
  
  Cash and cash equivalents at January 1                                          65,801         63,408
                                                                               ---------      ---------
  
  Cash and cash equivalents at June 30                                         $  72,449      $  77,677
                                                                               =========      =========
  </TABLE>
  
  The accompanying notes are an integral part of these condensed financial
  statements.
  
                                          6
  
  <PAGE>
  NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
  (UNAUDITED)
  
  
  1. The accompanying unaudited consolidated condensed financial statements have
  been prepared in accordance with generally accepted accounting principles for
  interim financial information. The financial information included herein is
  unaudited; however, such information reflects all adjustments (consisting solely
  of normal recurring adjustments) which are, in the opinion of management,
  necessary to a fair statement of the results for the interim periods. The
  financial statements include the balances of Elverson National Bank which was
  acquired on January 4, 1999 in a transaction accounted for under the pooling of
  interest method of accounting (see Note 3). For further information, refer to
  the consolidated financial statements and footnotes thereto included in the
  Company's Annual Report on Form 10-K for the year ended December 31, 1998.
  
  2. The results of operations for the six-month period ended June 30, 1999 are
  not necessarily indicative of the results to be expected for the full year.
  
  3. The Company's banking subsidiary, National Penn Bank, completed the
  acquisition of Elverson National Bank on January 4, 1999 in a transaction
  accounted for as a pooling of interests, which accordingly required restatement
  of the financial statements. Under the terms of the merger, each share of
  Elverson was converted into 1.46875 shares of the Company's common stock,
  resulting in an issuance of 3,821,564 shares of the Company's common stock. In
  addition, outstanding stock options to purchase Elverson common stock were
  converted into stock options to purchase 58,141 shares of the Company's common
  stock, with an exercise price of $12.98 to $15.74 per share. All financial
  information presented for current and prior periods includes the results of
  Elverson National Bank.
  
  4. Per share data are based on the weighted average number of shares outstanding
  of 16,983,691 and 17,006,150 for 1999 and 1998, respectively, and on the
  weighted average number of diluted shares outstanding of 17,259,940 and
  17,364,265 for 1999 and 1998, respectively, and are computed after giving
  retroactive effect to a 5-for-4 stock split paid July 31, 1998.
  
  5. On June 23, 1999, the Company's Board of Directors declared a cash dividend
  of $.20 per share payable on August 17, 1999, to shareholders of record on July
  31, 1999.
  
  6. On July 28, 1999, the Company's Board of Directors authorized the repurchase,
  from time to time, of up to 850,000 shares of its common stock in the open
  market or in negotiated transactions, depending upon market conditions and other
  factors. No timetable has been set for the repurchases. As of June 30, 1999, the
  company had 16,994,073 shares of common stock outstanding. Repurchased shares
  will be used for general corporate purposes, including the Company's dividend
  reinvestment plan, stock option plans, employee stock purchase plan, and other
  stock-based benefit plans.
  
  7. 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 $11,727,000 at June 30, 1999,
  all of which are non-accrual loans. The allowance for loan loss associated with
  these impaired loans was $1,736,000 at June 30, 1999. The Company recognizes
  income on impaired loans under the cash basis when the loans are both current
  and the collateral on the loan is sufficient to cover the outstanding obligation
  to the Company. If these factors do not exist, the Company will not recognize
  income on such loans.
  
  
                                         7
  <PAGE>
  Item 2.  Management's Discussion and Analysis of Financial Condition and
           Results of Operations
  
           The following discussion and analysis is intended to assist in
  understanding and evaluating the major changes in the financial condition and
  earnings performance of the Company with a primary focus on an analysis of
  operating results.
  
                                 FINANCIAL CONDITION
  
           Total assets increased to $2.167 billion, an increase of $44.8 million
  or 2.1% over the $2.121 billion at December 31, 1998. This increase is reflected
  primarily in the loan and cash and cash equivalent categories, which was
  partially offset by decreases in the investment category, including trading
  account securities.
  
           Total cash and cash equivalents increased $6.6 million or 10.1% at June
  30, 1999 when compared to December 31, 1998. The increase in cash and due from
  banks of $11.2 million was partially offset by a decrease in interest bearing
  deposits of $4.6 million.
  
           Loans increased to $1.468 billion at June 30, 1999. The increase of
  $63.0 million or 4.5% compared to December 31, 1998 was primarily the result of
  the investment of deposits and long-term borrowings. Loans originated for
  immediate resale during the first six months of 1999 amounted to $47.3 million.
  The Company's credit quality is reflected by the annualized ratio of net
  charge-offs to total loans of .3% through the second quarter of 1999 and for the
  year 1998, and the ratio of non-performing assets to total loans of .90% at June
  30, 1999 and 1.0% at December 31 1998. Non-performing assets, including
  non-accruals, loans 90 days past due and still accruing and other real estate
  owned, were $13.5 million at June 30, 1999 compared to $14.3 million at December
  31, 1998. Of these amounts, non-accrual loans represented $11.7 million and
  $11.6 million at June 30, 1999 and December 31, 1998, respectively. Loans 90
  days past due and still accruing interest were $1.3 million and $1.8 million at
  June 30, 1999 and December 31, 1998, respectively. Other real estate owned was
  $496,000 and $922,000 at June 30, 1999 and December 31, 1998, respectively. The
  Company had no restructured loans at June 30, 1999 or December 31, 1998. The
  allowance for loan losses to non-performing assets was 231.8% and 215.0% at June
  30, 1999 and December 31, 1998, respectively. As is evident from the above
  amounts relative to non-performing assets, there have been no significant
  changes between December 31, 1998 and June 30, 1999. The Company has no
  significant exposure to energy and agricultural-related loans.
  
           Investments, the Company's secondary use of funds, decreased $7.4
  million or 1.4% to $515.6 million at June 30, 1999 when compared to December 31,
  1998. The decrease is due to investment sales, calls and maturities and the
  amortization of mortgage-backed securities.
  
           Trading account securities decreased $21.6 million at June 30, 1999 due
  to the sale of all these securities. The Company has assessed its involvement in
  trading account activities and decided these activities do not meet with its
  strategic goals.
  
           As the primary source of funds, aggregate deposits of $1.546 billion at
  June 30, 1999 increased $72.6 million or 4.9% compared to December 31, 1998. The
  increase in deposits during the first six months of 1999 was primarily in
  interest bearing deposits which increased $51.5 million while non-interest
  bearing deposits increased $21.1 million. Certificates of deposit in excess of
  $100,000 increased $.3 million. In addition to deposits, earning assets are
  funded to some extent through purchased funds and borrowings. These include
  securities sold under repurchase agreements, federal funds purchased, short-term
  borrowings, long-term debt obligations, and subordinated debentures. In
  aggregate, these funds totaled $444.8 million at June 30, 1999, and $467.6
  million at December 31, 1998. The decrease of $22.8 million is primarily due to
  the decrease in short-term borrowings and securities sold under repurchase
  agreements and federal funds purchased, of $22.2 million due to the repayment of
  short-term advances, and a decrease in long-term obligations of .6 million.
  
                                         8
  <PAGE>
           Shareholders' equity decreased $3.7 million through June 30, 1999. This
  decrease was due to a decrease in earnings retained due to a higher dividend
  payout ratio and a decrease in accumulated other comprehensive income. Cash
  dividends paid during the first six months of 1999 increased $1.8 million or
  36.7% compared to the cash dividends paid during the first six months of 1998.
  Earnings retained during the first six months of 1999 were 47.1% compared to
  57.6% during the first six months of 1998.
  
                                RESULTS OF OPERATIONS
  
           Net income for the quarter ended June 30, 1999 was $6.5 million, 14.3%
  more than the $5.7 million reported for the same period in 1998. For the first
  six months, net income reached $12.5 million, or 9.5% more than the $11.4
  million reported for the first six months of 1998. The Company's performance has
  been and will continue to be in part influenced by the strength of the economy
  and conditions in the real estate market.
  
           Net interest income is the difference between interest income on assets
  and interest expense on liabilities. Net interest income increased $1.0 million
  or 5.4% to $20.2 million during the second quarter of 1999 from $19.1 million in
  1998. For the comparative six month period, net interest income increased $1.5
  million or 3.9% to $39.7 million from $38.2 million in 1998. The increase in
  interest income for the first six months is a result of increased investment
  income of $2.5 million and increased loan income of $1.9 million due to growth
  in loan outstandings and higher rates on loans that was partially offset by
  growth in deposits and higher rates on deposits and borrowings. Interest rate
  risk is a major concern in forecasting earnings potential. On November 18, 1998,
  the prime rate changed to 7.75%. Interest expense during the first six months of
  1999 increased $2.7 million or 7.4% 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 $100,000 for the six month period ended June 30, 1999 compared to the
  same period in 1998. The allowance for loan and lease losses of $31.3 million at
  June 30, 1999 and $30.8 million at December 31, 1998 as a percentage of total
  loans was 2.1% for both time periods. The Company's net charge-offs of
  $2,403,000 and $379,000 during the first six months of 1999 and 1998,
  respectively, continue to be comparable to those of the Company's peers, as
  reported in the Bank Holding Company Performance Report.
  
           Other income increased $1.4 million or 31.7% during the second quarter
  of 1999, as a result of increased other income of $1,087,000, which includes the
  investment in bank-owned life insurance, increased mortgage banking income of
  $176,000, increased trust income of $175,000, increased service charges on
  deposit accounts of $59,000 and an increase in net gains on sale of investment
  securities of $58,000. This was partially offset by a decrease in trading
  revenue of $185,000. Year to date, other income increased $1.7 million or 20.5%
  as a result of increased other income of $1,910,000, increased trust income of
  $301,000, increased service charges on deposit accounts of $208,000 and
  increased mortgage banking income of $103,000. This was partially offset by
  decreases in trading revenue of $233,000 and gains on sale of investment
  securities of $551,000. Other expenses increased $1.6 million or 10.5% during
  the quarter ended June 30, 1999 and increased $2.8 million or 9.8% for the six
  month period. Of this year-to-date increase, salaries, wages and benefits
  increased $2,446,000 or 15.2%, other operating expenses increased $205,000 or
  2.5% and net premises and equipment increased $185,000 or 4.1%.
  
           Income before income taxes increased $759,000 or 10.5% in the second
  quarter of 1999 compared to the same time period in 1998. In comparing the first
  
                                         9
  <PAGE>
  six months of 1999 to 1998, income before income taxes increased $307,000 or
  2.0%. Income taxes decreased $52,000 for the quarter ended June 30, 1999 and
  decreased $776,000 for 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, decreased $50.3 million from year end
  1998. Long-term borrowings decreased $541,000 during the first six months of
  1999.
  
           The goal of interest rate sensitivity management is to avoid
  fluctuating net interest margins, and to enhance consistent growth of net
  interest income through periods of changing interest rates. Such sensitivity is
  measured as the difference in the volume of assets and liabilities in the
  existing portfolio that are subject to repricing in a future time period.
  
           The following table shows separately the interest rate sensitivity of
  each category of interest-earning assets and interest-bearing liabilities at
  June 30, 1999:
  <TABLE>
  <CAPTION>
                                                                Repricing Periods  (1)
                                                               Three Months     One Year
                                            Within Three       Through One    Through Five          Over
                                               Months              Year           Years          Five Years
                                                                      (In Thousands)
  <S>                                       <C>               <C>              <C>                 <C>
  Assets
        Interest-bearing deposits
           at banks                         $     6,179       $       - -      $      - -          $    - -
        Investment securities                    44,035            70,023         176,357           225,227
        Trading account securities                  - -               - -             - -               - -
        Loans and leases                        420,909           221,375         486,795           338,855
        Other assets                             17,616               - -             - -           158,726
                                            -----------       -----------      ----------          --------
                                                488,739           291,398         663,152           722,808
                                            -----------       -----------      ----------          --------
  Liabilities and equity
        Noninterest-bearing deposits            243,933               - -             - -               - -
        Interest-bearing deposits               374,281           340,694         210,389           376,575
        Borrowed funds                          135,787            55,000         167,500            46,285
        Preferred securities                        - -               - -             - -            40,250
        Other liabilities                           - -               - -             - -            20,300
        Hedging instruments                     100,000           (20,000)        (80,000)              - -
        Shareholders' equity                        - -               - -             - -           155,103
                                            -----------       -----------      ----------          --------
                                                854,001           375,694         297,889           638,513
                                            -----------       -----------      ----------          --------
  Interest sensitivity gap                     (365,262)          (84,296)        365,263            84,295
                                            -----------       -----------      ----------          --------
  
  Cumulative interest rate
          sensitivity gap                     ($365,262)        ($449,558)     $  (84,295)         $   -  -
                                            ===========       ===========      ==========          =========
  </TABLE>
  
  (1) Adjustable rate loans are included in the period in which interest rates are
  next scheduled to adjust rather than in the period in which they are due. Fixed
  rate loans are included in the period in which they are scheduled to be repaid
  and are adjusted to take into account estimated prepayments based upon
  assumptions estimating prepayments in the interest rate environment prevailing
  during the first calendar quarter of 1999. The table assumes prepayments and
  scheduled principal amortization of fixed-rate loans and mortgage-backed
  
                                         10
  <PAGE>
  
  securities and assumes that adjustable rate mortgages will reprice at
  contractual repricing intervals. There has been no adjustment for the impact of
  future commitments and loans in process.
  
  (2) Savings and NOW deposits are scheduled for repricing based on historical
  deposit decay rate analyses, as well as historical moving averages of run-off
  for the Company's deposits in these categories. While generally subject to
  immediate withdrawal, management considers a portion of these accounts to be
  core deposits having significantly longer effective maturities based upon the
  Company's historical retention of such deposits in changing interest rate
  environments. Specifically, 31.7% of these deposits are considered repriceable
  within three months and 68.3% are considered repriceable in the over five years
  category.
  
           Interest rate sensitivity is a function of the repricing
  characteristics of the Company's assets and liabilities. These characteristics
  include the volume of assets and liabilities repricing, the timing of the
  repricing, and the relative levels of repricing. Attempting to minimize the
  interest rate sensitivity gaps is a continual challenge in a changing rate
  environment. Based on the Company's gap position as reflected in the above
  table, current accepted theory would indicate that net interest income would
  increase in a falling rate environment and would decrease in a rising rate
  environment. An interest rate gap table does not, however, present a complete
  picture of the impact of interest rate changes on net interest income. First,
  changes in the general level of interest rates do not affect all categories of
  assets and liabilities equally or simultaneously. Second, assets and liabilities
  which can contractually reprice within the same period may not, in fact, reprice
  at the same time or to the same extent. Third, the table represents a one-day
  position; variations occur daily as the Company adjusts its interest sensitivity
  throughout the year. Fourth, assumptions must be made to construct such a table.
  For example, non-interest bearing deposits are assigned a repricing interval
  within one year, although history indicates a significant amount of these
  deposits will not move into interest bearing categories regardless of the
  general level of interest rates. Finally, the repricing distribution of interest
  sensitive assets may not be indicative of the liquidity of those assets.
  
           The Company anticipates interest rates will move within a narrow range
  for the remainder of 1999, with no clear indication of sustainable rising or
  falling rates. Given this assumption, the Company's asset/liability strategy for
  1999 is to maintain a negative gap (interest-bearing liabilities subject to
  repricing exceed interest-earning assets subject to repricing) for periods up to
  a year. The impact of a sustained interest rate environment on net interest
  income is not expected to be significant to the Company's results of operations.
  Effective monitoring of these interest sensitivity gaps is the priority of the
  Company's asset/liability management committee.
  
                                  CAPITAL ADEQUACY
  
           The following table sets forth certain capital performance ratios:
  
                                                        June 30,        Dec. 31,
                                                         1999             1998
  CAPITAL PERFORMANCE
  Return on average assets (annualized)                   1.19%            1.17%
  Return on average equity (annualized)                  16.40            15.00
  Earnings retained                                      47.10            55.70
  Internal capital growth (annualized)                    7.42             8.04
  
  
                                         11
  <PAGE>
  
  CAPITAL LEVELS
  <TABLE>
  <CAPTION>
                                       Tier 1 Capital to     Tier 1 Capital to Risk-   Total Capital to Risk-
                                      Average Assets Ratio    Weighted Assets Ratio     Weighted Assets Ratio
                                       Jun. 30,    Dec. 31,    Jun. 30,     Dec. 31,    Jun. 30,    Dec. 31,
                                         1999        1998        1999         1998        1999        1998
                                         ----        ----        ----         ----        ----        ----
  <S>                                   <C>         <C>         <C>         <C>         <C>          <C>
  The Company                           8.88%       8.77%       11.75%      12.21%      13.15%       13.51%
  National Penn Bank                    6.83%       6.80%        9.08%       9.52%      10.34%       10.78%
  "Well Capitalized" institution        5.00%       5.00%        6.00%       6.00%      10.00%       10.00%
      (under banking regulations)
  </TABLE>
  
  
           The Company's capital ratios above compare favorably to the minimum
  required amounts of Tier 1 and total capital to "risk-weighted" assets and the
  minimum Tier 1 leverage ratio, as defined by banking regulators. At June 30,
  1999, the Company was required to have minimum Tier 1 and total capital ratios
  of 4.0% and 8.0%, respectively, and a minimum Tier 1 leverage ratio of 3.0%. In
  order for the Company to be considered "well capitalized", as defined by banking
  regulators, the Company must have Tier 1 and total capital ratios of 6.0% and
  10.0%, respectively, and a minimum Tier 1 leverage ratio of 5.0%. The Company
  currently meets the criteria for a well capitalized institution, and management
  believes that, under current regulations, the Company will continue to meet its
  minimum capital requirements in the foreseeable future. At present, the Company
  has no commitments for significant capital expenditures.
  
           The Company is not under any agreement with regulatory authorities nor
  is the Company aware of any current recommendations by the regulatory
  authorities which, if such recommendations were implemented, would have a
  material effect on liquidity, capital resources or operations of the Company.
  
                                   FUTURE OUTLOOK
  
           The following is a Year 2000 readiness statement.
  
            The Company's Year 2000 initiative began in 1996 with the creation of
  a "Year 2000 Compliance Project team" comprised of various Company employees,
  including senior management. The Year 2000 Project was divided into five phases
  -- Awareness, Assessment, Renovation, Validation, and Implementation. The
  initial Awareness and Assessment Phases have been completed. Non-information
  technology systems have been assessed and do not present a Year 2000 concern.
  The Company has completed the Renovation Phase of mission critical systems. The
  Validation and Implementation Phases of renovated mission critical systems has
  been completed. Validation and Implementation Phases of non-mission critical
  systems will continue through the third quarter of 1999. All active ATM machines
  have been renovated and are now compliant. The company has been actively
  involved in the joint testing of electronic payment and transfer systems. Actual
  costs for 1998 were within the budgeted amount of $300,000, which represented
  approximately 9% of the total information technology budget for 1998. The amount
  budgeted for 1999 is $200,000, which is approximately 12% of the total
  information technology budget for 1999. However, there can be no guarantee that
  these estimates will be achieved and actual results could differ materially from
  those anticipated. Specific factors that may cause such material differences
  include, but are not limited to, the availability and cost of personnel trained
  in this area, the ability to locate and correct all relevant computer codes, and
  similar uncertainties. A business impact analysis has been completed for the
  systems which support critical functions. The Company believes the most likely
  worst-case scenario to be a total or partial failure to perform of one or more
  of the Company's material third-party business partners or providers of service,
  commodity, or data, which failure could have a material adverse impact on the
  Company's operations. In an attempt to mitigate this risk, the Company has
  included the assessment of these partners and providers in its Year 2000
  project. The assessment of the Year 2000 readiness of third parties upon which
  the Company depends for various services has been substantially completed. The
  Company will continue to monitor critical third parties throughout the remainder
  of 1999. However, there can be no guarantee that the systems of other companies
  
                                         12
  <PAGE>
  on which Company's systems rely will be timely converted and would not have a
  material adverse effect on the Company's systems and operations. No major
  information technology projects have been delayed as a result of the Year 2000
  Project. In addition, the Company's audit department contracted for an
  independent consultant to verify and validate the Company's Year 2000 Project.
  No major recommendations were suggested by the independent consultant to
  mitigate exposures in the Company's Year 2000 Project plan.
  
           The following is a more detailed discussion of the Year 2000 Project:
  
           The Year 2000 Project has been in operation at the Company since 1996.
  During this time the Company has been operating under a project plan reflected
  in many individual documents such as the Microsoft Project charts, binders for
  specific project areas, and the inventories which were created.
  
           For the purposes of consistency with the guidance of the Company's
  regulatory agencies, the Company has structured the project in the standard five
  phases: Awareness, Assessment, Renovation, Validation, and Implementation. None
  of these phases are purely consecutive chronologically. For example, Awareness,
  the phase which was begun before the others, will most likely continue well into
  the first and second quarters of 2000.
  
           It is important to note that the Year 2000 Project at the Company
  includes both the progression from 1999 to 2000 and the identification of
  February 29, 2000 as a leap year day.
  
           The following is a more detailed description of each project phase.
  
  
  Awareness
           This phase began in 1996 with the assignment of project managers. The
  first task was to review as much information as possible from user groups,
  seminars, periodicals, and the written guidance available from regulatory
  agencies. The project managers created a project plan to address Year 2000
  issues.
  
           To address individual areas of responsibility in the project plan, a
  team was formed composed of various representatives of National Penn Bank,
  Investors Trust Company, and, beginning in 1998, Penn Securities, Inc. The team
  has been charged with guiding the Year 2000 efforts of the Company through all
  project phases.
  
           The next step in the Awareness phase was to educate the Company's
  employees on Year 2000 issues. This was accomplished through periodic items in
  Company memos and through e-mail. Year 2000 training was conducted for all bank
  officers. In the Spring of 1998, seminars were offered for the Company's
  business loan customers and lending staff.
  
           The seminars were one component of the Company's effort to educate
  customers. Another was a variety of statement stuffers concerning the Year 2000
  issue and specifically providing information on the Company's project plan and
  status. In September 1998, a Year 2000 update was added to the Company's
  internet home page. In addition, the Company has participated in various
  television programs and newspaper articles produced by the local media.
  
           The Company intends to continue to use this variety of channels
  (statement stuffers, letters, seminars, home page, and printed brochures) to
  attempt to provide frequent updates on the status of the Year 2000 project at
  the Company and all of its subsidiary organizations.
  
  
                                         13
  <PAGE>
  Assessment
           The purpose of the Assessment phase is to inventory all potentially
  affected software, hardware, equipment (including faxes, ATMs, hand held
  calculators, etc.), interfaces, environmental systems, and third parties. Once
  this information was gathered, it was organized to provide efficient tracking.
  Letters were sent and web sites visited to ascertain the compliance status of
  the individual product or project at the particular organization.
  
           The Assessment process went one step further with the investigation of
  the Year 2000 compliance status of the Company's largest business depositors
  (funds providers), large commercial loan customers (funds takers), and
  correspondent banks (capital market counterparties). The depositor investigation
  was done through a mailed survey to any business account holder with a balance
  of $100,000 or greater. Commercial loan relationships with an aggregate balance
  greater than $300,000 were individually assessed by the lender. The status of
  correspondent banks has been tracked as part of the third-party portion of the
  project.
  
           Year 2000 issues were addressed as part of the acquisition planning
  with Elverson in 1998. After the acquisition was announced, the teams began to
  share information by the project leaders participating in the other
  institution's team meetings, through data sharing, and through joint testing of
  common applications.
  
           In an effort to control the inventory of systems and applications after
  the assessment was completed, control points were reviewed. A policy was drafted
  requiring all new software purchases to be certified Year 2000 compliant. All
  hardware and software purchases will be tested before they are placed into a
  production environment. As all PC-based hardware and software are installed
  through the Network Services group and all mainframe applications are supported
  through Data Processing, two central control points are established. These
  groups are responsible for the ongoing monitoring of new software and hardware
  installation. As an additional control, the MIS department must approve all
  requests for payment of hardware and software purchases.
  
  Renovation
           The Renovation phase involves upgrading or replacing hardware and
  software as necessary. Core systems have the highest priority. Other mission
  critical systems follow. Finally, non-mission critical systems are addressed. A
  Remediation Contingency Plan has been written to address any potential
  difficulties that may be encountered before December 31, 1999.
  
           The Company has completed renovation efforts on mission critical
  systems. The Company anticipates that the replacement of the two remaining
  non-compliant, non-critical systems will be accomplished during the third
  quarter of 1999. Both of these remaining systems are non-critical and the
  Company has determined that no adverse effect would be encountered should these
  systems be unavailable.
  
           Highlights of the Company's efforts to date include the installation of
  a new mainframe system in January 1998. In May 1998, a new core banking system
  was installed. In October and November 1998, all ATM machines were upgraded to
  compliant releases of software and the memory necessary to process them. In
  December 1998, the core processing system of Investors Trust Company was
  replaced, including new hardware, software, and operating system. All have been
  thoroughly tested by the users' group, as discussed herein in the Validation
  phase.
  
  Validation
           The Validation phase of the project is guided by a written test plan.
  Testing of mission critical systems has been completed. Non-mission critical
  systems will be tested in 1999 in descending order of priority.
  
           The project leader and the end users are jointly responsible for the
  individual tests. The project leader schedules the date and ensures that the
  
                                         14
  <PAGE>
  testing environment is prepared. He then meets with the end user to develop the
  testing scripts and scenarios. The project leader is responsible for ensuring
  that the test adheres to the requirements of the Year 2000 testing plan. The end
  user is responsible for the data entry and system operation during the test and
  for reviewing the results to verify that the test was successful. When the test
  is completed and documented, both the end user and the project leader sign to
  indicate its completion.
  
           When a system is tested, all interfaces and file transmissions will be
  tested at the same time whenever possible. As appropriate and feasible, testing
  with third parties will also be completed.
  
           Initiatives to complete the Validation phase include the creation of an
  isolated PC network testing lab, the use of a secondary logical partition for
  validating mainframe applications and interfaces, user group testing for the
  core trust applications, and proxy testing by the network vendor for ATMs.
  
  Implementation
           Hardware and software certified to be compliant by the vendor will be
  thoroughly tested as addressed in the Validation phase. Any product not
  currently in production must be tested and accepted by the end user before being
  placed into a production environment. After a system is certified to be
  compliant, no future releases or updates will be installed unless first tested
  and confirmed to be compliant through the procedures discussed in the Validation
  phase. The control points for ensuring the future installation of releases will
  continue to be the Network Services and Data Processing departments.
  
  Additional Project Efforts
           Throughout the remainder of 1999, a database is being maintained to
  track the compliance status of third parties with which the Company conducts its
  affairs. This information will be reported to the project team and forwarded to
  executive management as necessary.
  
           A separate budget for Year 2000 expenses is being maintained for 1999.
  The status of the budget will be reported periodically to executive management.
  
           Contingency plans have been written for all mission critical and high
  priority non-mission critical systems. As the plans are completed, they are
  being reviewed and edited. Additionally, the initial testing of these plans has
  been substantially completed.
  
           Although the Company believes that the program outlined above should be
  adequate to address the Year 2000 issue, there can be no assurance to that
  effect.
  
           This report contains forward-looking statements concerning earnings,
  asset quality, Year 2000 compliance and other future events. Actual results
  could differ materially due to, among other things, the risks and uncertainties
  discussed herein and in Exhibit 99 to the Company's Report on Form 10-K for
  1998, which is incorporated herein by reference. Readers are cautioned not to
  place undue reliance on these statements. The Company undertakes no obligation
  to publicly release or update any of these statements.
  
  Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  
           There has been no material change in the Company's assessment of its
  sensitivity to market risk since its presentation in the 1998 annual report on
  Form 10-K filed with the SEC.
  
                                         15
  <PAGE>
                             PART II - OTHER INFORMATION
  
  Item 1.  Legal Proceedings.
  
           None.
  
  Item 2.  Changes in Securities.
  
           None.
  
  Item 3.  Defaults Upon Senior Securities.
  
           None.
  
  Item 4.  Submission of Matters to a Vote of Security Holders.
  
           The 1999 annual meeting (the "Meeting") of the shareholders of National
  Penn Bancshares, Inc. (the "Registrant") was held on April 27, 1999. Notice of
  the Meeting was mailed to shareholders of record on or about March 24, 1999,
  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 to elect three Class III directors to hold office
  for three years from the date of election and until their successors are elected
  and qualified.
  
           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
  Patricia L. Langiotti      13,341,212         233,504             -0-
  
  Harold C. Wegman           13,350,957         223,759             -0-
  
  Wayne R. Weidner           13,345,903         228,813             -0-
  
  
  Item 5.  Other Information.
  
           During second quarter 1999, the Registrant's banking subsidiary,
  National Penn Bank (the "Bank"), opened a branch at 600 Washington Avenue,
  Philadelphia, PA. This branch is part of the Bank's National Asian Bank
  Division. Also during the quarter, the Bank opened two remote automated teller
  machines ("ATMs"), one at a supermarket location and one at a convenience store
  location, and closed two other remote ATMs.
  
           On June 23, 1999, the Registrant's Board of Directors declared a cash
  dividend of $.20 per share to be paid on August 17, 1999 to shareholders of
  record on July 31, 1999.
  
           On July 28, 1999, the Registrant's Board of Directors authorized the
  repurchase, from time to time, of up to 850,000 shares of its common stock in
  the open market or in negotiated transactions, depending upon market conditions
  and other factors. No timetable has been set for the repurchases. As of June 30,
  1999, the Company had 16,994,073 shares of common stock outstanding. Repurchased
  shares will be used for general corporate purposes, including the Company's
  dividend reinvestment plan and various employee benefit plans.
  
                                         16
  <PAGE>
  Item 6.  Exhibits and Reports on Form 8-K.
  
           (a)      Exhibits.
  
                    Exhibit 10.1 -    The Elverson National Bank 401(k) Profit
                                      Sharing Plan - Merger Amendment.
  
                    Exhibit 10.2 -    The Elverson National Bank Employee Stock
                                      Ownership Plan - Termination and Merger
                                      Amendment.
  
                    Exhibit 10.3 -    The National Penn Bancshares, Inc. Amended
                                      and Restated Capital Accumulation Plan.
  
                    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, 1999.
  
  
  
  
                                         17
  <PAGE>
                                     SIGNATURES
  
  
           Pursuant to the requirements of Section 13 of the Securities Exchange
  Act of 1934, the Registrant has caused this report to be signed on its behalf by
  the undersigned thereunto duly authorized.
  
                                              NATIONAL PENN BANCSHARES, INC.
                                                        (Registrant)
  
  Dated:   August 2, 1999                     By /s/  Wayne R. Weidner
                                                ---------------------------------
                                                      Wayne R. Weidner, President
  
  Dated:   August 2, 1999                     By /s/  Gary L. Rhoads
                                                ---------------------------------
                                                      Gary L. Rhoads, Principal
                                                      Financial Officer
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
                                         18
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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, 1999
                                  ---------------------------------
  
  OR
  
            [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE
                          SECURITIES EXCHANGE ACT OF 1934
  
  For the transition period from: ____________ to ____________
  
  Commission file number: 000-10957
  
                           NATIONAL PENN BANCSHARES, INC.
               (Exact name of registrant as specified in its charter)
  
                    Pennsylvania                            23-2215075
           (State or other jurisdiction of             (I.R.S. Employer
             incorporation or organization)            Identification No.)
  
                    Philadelphia and Reading Avenues, Boyertown, PA  19512
                    (Address of principal executive offices)      (Zip Code)
  
                                   (610) 367-6001
                (Registrant's telephone number, including area code)
  
                                         N/A
                (Former name, former address and former fiscal year,
                            if changed since last report)
  
           Indicate by check mark whether the Registrant (1) has filed all reports
  required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
  1934 during the preceding 12 months (or for such shorter period that the
  Registrant was required to file such reports), and (2) has been subject to such
  filing requirements for the past 90 days. Yes X No .
  
           Indicate the number of shares outstanding of each of the issuer's
  classes of common stock, as of the latest practicable date.
  
            Class                              Outstanding at July 30, 1999
  
     Common Stock (no stated par value)          (No.)  16,994,298 Shares
  TABLE OF CONTENTS
  
  Part I - Financial Information.                                            Page
  
           Item 1.          Financial Statements................................3
  
           Item 2.          Management's Discussion and Analysis of
                            Financial Condition and Results of Operation........8
  
           Item 3.          Quantitative and Qualitative Disclosures about
                            Market Risk........................................15
  
  Part II - Other Information.
  
           Item 1.          Legal Proceedings..................................16
  
           Item 2.          Changes in Securities..............................16
  
           Item 3.          Defaults Upon Senior Securities....................16
  
           Item 4.          Submission of Matters to a Vote of
                            Security Holders...................................16
  
           Item 5.          Other Information..................................16
  
           Item 6.          Exhibits and Reports on Form 8-K...................17
  
  Signature....................................................................18
  
                                         2
  PART I - FINANCIAL INFORMATION
  
  Item 1.  Financial Statements
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
  CONSOLIDATED CONDENSED BALANCE SHEET                                                      June 30             Dec. 31
   (Dollars in thousands, except per share data)                                             1999                1998
                                                                                          (Unaudited)           (Note)
                                                                                         --------------    --------------
  ASSETS
  Cash and due from banks                                                                      $66,270           $55,024
  Interest bearing deposits in banks                                                             6,179            10,777
  Federal funds sold                                                                                 -                 -
                                                                                         --------------    --------------
      Total cash and cash equivalents                                                           72,449            65,801
  Trading account securities                                                                         -            21,589
  Investment securities available for sale                                                     515,642           523,041
  Loans, less allowance for loan losses of $31,262 and
     $30,835 in 1999 and 1998 respectively                                                   1,467,934         1,404,972
  Other assets                                                                                 110,072           105,845
                                                                                         --------------    --------------
      Total Assets                                                                           2,166,097         2,121,248
                                                                                         ==============    ==============
  
  LIABILITIES AND SHAREHOLDERS' EQUITY
  Non-interest bearing deposits                                                               $243,933          $222,816
  Interest bearing deposits
    (Includes certificates of deposit $100,000 or greater:
    1999 - $145,348; 1998 - $145,047)                                                        1,301,939         1,250,486
                                                                                         --------------    --------------
      Total Deposits                                                                         1,545,872         1,473,302
  Securities sold under repurchase agreements
    and federal funds purchased                                                                146,501           159,586
  Short-term borrowings                                                                          9,985            19,132
  Long-term obligations                                                                        248,086           248,627
  Guaranteed preferred beneficial interests in
      Company's subordinated debentures                                                         40,250            40,250
  Accrued interest and other liabilities                                                        20,300            21,577
                                                                                         --------------    --------------
      Total Liabilities                                                                      2,010,994         1,962,474
  Commitments and contingent liabilities                                                             -                 -
  Shareholders' equity
    Preferred stock, no stated par value;
      authorized 1,000,000 shares, none issued                                                       -                 -
    Common stock, no stated par value;
      authorized 62,500,000 shares; issued and outstanding
      1999 - 16,994,073; 1998 - 16,989,622                                                     115,006           114,294
    Retained earnings                                                                           39,916            34,927
    Accumulated other comprehensive income                                                         181             9,553
                                                                                         --------------    --------------
      Total Shareholders' Equity                                                               155,103           158,774
                                                                                         --------------    --------------
      Total Liabilities and Shareholders' Equity                                            $2,166,097        $2,121,248
                                                                                         ==============    ==============
  The accompanying notes are an integral part of these condensed financial
  statements.
  
  Note: The Balance Sheet at Dec. 31, 1998 has been derived from the audited
       financial statements of the Company plus additions necessary to reflect the
       Company's acquisition of Elverson National Bank which was accounted for
       under the pooling of interest method of accounting.
  
                                          3
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
  UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME
  Three Months Ended        Six Months Ended
  (Dollars in thousands, except per share data)           June 30                    June 30
                                                    ------------------------------------------------
                                                      1999         1998         1999           1998
                                                    --------     --------     --------      --------
  INTEREST INCOME
  Loans including fees                              $ 32,284     $ 31,083     $ 63,509      $ 61,654
  Deposits in banks                                       64          158          107           234
  Federal funds sold                                     114           77          160           164
  Trading account securities                              --          203          196           203
  Investment securities                                7,647        6,661       15,088        12,577
                                                    --------     --------     --------      --------
      Total interest income                           40,109       38,182       79,060        74,832
                                                    --------     --------     --------      --------
  INTEREST EXPENSE
  Deposits                                            13,929       13,329       27,233        26,448
  Federal funds purchased, borrowed funds and
    securities sold under repurchase agreements        6,010        5,714       12,096        10,158
                                                    --------     --------     --------      --------
      Total interest expense                          19,939       19,043       39,329        36,606
                                                    --------     --------     --------      --------
      Net interest income                             20,170       19,139       39,731        38,226
  Provision for loan losses                            1,415        1,330        2,830         2,730
                                                    --------     --------     --------      --------
      Net interest income after provision
        for loan losses                               18,755       17,809       36,901        35,496
                                                    --------     --------     --------      --------
  OTHER INCOME
  Trust income                                         1,007          832        1,893         1,592
  Service charges on deposit accounts                  1,326        1,267        2,690         2,482
  Net gains on sale of investment securities             211          153          213           764
  Mortgage banking income                                364          188          430           327
  Trading revenue                                         --          185          (48)          185
  Other                                                2,781        1,694        5,022         3,112
                                                    --------     --------     --------      --------
      Total other income                               5,689        4,319       10,200         8,462
                                                    --------     --------     --------      --------
  OTHER EXPENSES
  Salaries, wages and employee benefits                9,265        8,056       18,551        16,105
  Net premises and equipment                           2,370        2,239        4,694         4,509
  Other operating                                      4,803        4,586        8,525         8,320
                                                    --------     --------     --------      --------
      Total other expenses                            16,438       14,881       31,770        28,934
                                                    --------     --------     --------      --------
      Income before income taxes                       8,006        7,247       15,331        15,024
  Applicable income tax expense                        1,506        1,558        2,815         3,591
                                                    --------     --------     --------      --------
      Net income                                    $  6,500     $  5,689     $ 12,516      $ 11,433
                                                    ========     ========     ========      ========
  
  PER SHARE OF COMMON STOCK
  Net income per share - basic                      $   0.39     $   0.33     $   0.74      $   0.67
  Net income per share - diluted                        0.38         0.33         0.73          0.66
  Dividends paid in cash                                0.20         0.14         0.39          0.28
  The accompanying notes are an integral part of these condensed financial
  statements.
  
                                          4
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
  CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS'
  EQUITY AND COMPREHENSIVE INCOME
  SIX MONTHS ENDED JUNE 30, 1999
    (Dollars in thousands)
                                                                        Accumulated
                                                             Additional    other
                                         Common Stock        Paid-in    conprehensive  Retained   Treasury   Comprehensive
                                       Shares    Par Value   Capital       income      earnings    stock        income
                                     --------------------------------------------------------------------------------------
  Balance at December 31, 1998       16,989,622    114,294          -          9,553     34,927          -
    Net income                                -          -          -              -     12,516          -          12,516
    Cash dividends declared                   -          -          -              -     (7,527)         -
    Shares issued under stock-based
         plans                            4,451        712          -              -          -          -
    Other comprehensive income, net
        of reclassification adjustment
        and taxes                             -          -          -         (9,372)         -          -          (9,372)
                                     --------------------------------------------------------------------------------------
  Total comprehensive income                  -          -          -              -          -          -         $ 3,144
                                     --------------------------------------------------------------------------------------
  Balance at June 30, 1999           16,994,073  $ 115,006        $ -          $ 181    $39,916        $ -
  
                                                                                  June 30, 1999
                                                                        -----------------------------------
                                                                           Before         Tax      Net of
                                                                             tax        (expense)    tax
                                                                           amount       benefit    amount
                                                                        -----------------------------------
  Unrealized gains on securities
    Unrealized holding gains arising during period                           (14,631)     5,121     (9,510)
    Less: reclassification adjustment for gains realized in net income           213        (75)       138
                                                                        -----------------------------------
  Other comprehensive income, net                                            (14,418)     5,046     (9,372)
                                                                        ===================================
  
  SIX MONTHS ENDED JUNE 30, 1998
    (Dollars in thousands)
                                                                        Accumulated
                                                             Additional    other
                                         Common Stock        Paid-in    conprehensive  Retained   Treasury   Comprehensive
                                       Shares    Par Value   Capital       income      earnings    stock        income
                                     --------------------------------------------------------------------------------------
  
  Balance at December 31, 1997       17,080,328     25,620     96,657          7,648     22,431     (3,428)
    Net income                                -          -          -              -     11,433          -          11,433
    Cash dividends declared                   -          -          -              -     (5,119)         -
    Shares issued under stock-based
         plans                                -          -          -              -          -          -
    Other comprehensive income, net
        of reclassification adjustment
        and taxes                             -          -          -            437          -          -             437
                                     --------------------------------------------------------------------------------------
  Total comprehensive income                  -          -          -              -          -          -        $ 11,870
                                     --------------------------------------------------------------------------------------
  Conversion to no par value stock            -     95,436    (95,436)             -          -          -
     Par value adjustments related to
        pooling transaction                   -        (10)       329              -          -          -
    Effect of treasury stock
        transactions                    (80,553)         -     (1,550)             -          -     (3,534)
                                     --------------------------------------------------------------------------------------
  Balance at June 30, 1998           16,999,775  $ 121,046        $ -        $ 8,085    $28,745   $ (6,962)
  
                                                                                  June 30, 1998
                                                                        -----------------------------------
                                                                           Before         Tax      Net of
                                                                             tax        (expense)    tax
                                                                           amount       benefit    amount
                                                                        -----------------------------------
  Unrealized gains on securities
    Unrealized holding gains arising during period                               (92)        32        (60)
    Less: reclassification adjustment for gains realized in net income           764       (267)       497
                                                                        ===================================
  Other comprehensive income, net                                                672       (235)       437
                                                                        ===================================
  The accompanying notes are an integral part of these statements.
  
                                         5
  NATIONAL PENN BANCSHARES, INC. AND SUBSIDIARIES
  UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
  Six Months Ended June 30,
  (Dollars in thousands)
                                                                                  1999           1998
                                                                               ---------      ---------
  CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                                                 $  12,516      $  11,433
    Adjustments to reconcile net income to net
        cash provided by (used in) operating activities
      Provision for loan losses                                                    2,830          2,730
      Depreciation and amortization                                                2,177          2,007
      Net gains (losses) on sale of securities and mortgages                          (1)           615
      Trading-related assets                                                      21,589        (20,388)
      Mortgage loans originated for resale                                       (47,336)       (31,864)
      Sale of mortgage loans originated for resale                                47,336         31,864
      Other                                                                         (355)       (16,321)
                                                                               ---------      ---------
  
        Net cash provided by (used in) operating activities                       38,756        (19,924)
  
  CASH FLOWS FROM INVESTING ACTIVITIES
    Proceeds from sales of investment securities - available for sale             15,303         49,498
    Proceeds from maturities of investment securities - available for sale        34,316          2,951
    Purchase of investment securities - available for sale                       (56,627)      (157,227)
    Proceeds from sales of loans                                                      --             --
    Net increase in loans                                                        (65,792)       (41,342)
    Purchases of premises & equipment                                             (2,295)        (1,340)
                                                                               ---------      ---------
  
        Net cash provided by (used in) investing activities                      (75,095)      (147,460)
  
  CASH FLOWS FROM FINANCING ACTIVITIES
    Increase (decrease) in:
      Deposits                                                                    72,570         39,816
      Repurchase agreements, fed funds & short-term borrowings                   (22,232)        57,095
      Long-term borrowings                                                          (541)        94,625
      Proceeds from issuance of preferred securities                                  --             --
      (Increase) decrease in treasury stock                                           --         (3,534)
      Issuance of common stock under dividend reinvestment plan                      712         (1,231)
      Cash dividends                                                              (7,522)        (5,118)
                                                                               ---------      ---------
  
        Net cash provided by (used in) financing activities                       42,987        181,653
  
  Net increase (decrease) in cash and cash equivalents                             6,648         14,269
  
  Cash and cash equivalents at January 1                                          65,801         63,408
                                                                               ---------      ---------
  
  Cash and cash equivalents at June 30                                         $  72,449      $  77,677
                                                                               =========      =========
  The accompanying notes are an integral part of these condensed financial
  statements.
  
                                          6
  NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
  (UNAUDITED)
  
  1. The accompanying unaudited consolidated condensed financial statements have
  been prepared in accordance with generally accepted accounting principles for
  interim financial information. The financial information included herein is
  unaudited; however, such information reflects all adjustments (consisting solely
  of normal recurring adjustments) which are, in the opinion of management,
  necessary to a fair statement of the results for the interim periods. The
  financial statements include the balances of Elverson National Bank which was
  acquired on January 4, 1999 in a transaction accounted for under the pooling of
  interest method of accounting (see Note 3). For further information, refer to
  the consolidated financial statements and footnotes thereto included in the
  Company's Annual Report on Form 10-K for the year ended December 31, 1998.
  
  2. The results of operations for the six-month period ended June 30, 1999 are
  not necessarily indicative of the results to be expected for the full year.
  
  3. The Company's banking subsidiary, National Penn Bank, completed the
  acquisition of Elverson National Bank on January 4, 1999 in a transaction
  accounted for as a pooling of interests, which accordingly required restatement
  of the financial statements. Under the terms of the merger, each share of
  Elverson was converted into 1.46875 shares of the Company's common stock,
  resulting in an issuance of 3,821,564 shares of the Company's common stock. In
  addition, outstanding stock options to purchase Elverson common stock were
  converted into stock options to purchase 58,141 shares of the Company's common
  stock, with an exercise price of $12.98 to $15.74 per share. All financial
  information presented for current and prior periods includes the results of
  Elverson National Bank.
  
  4. Per share data are based on the weighted average number of shares outstanding
  of 16,983,691 and 17,006,150 for 1999 and 1998, respectively, and on the
  weighted average number of diluted shares outstanding of 17,259,940 and
  17,364,265 for 1999 and 1998, respectively, and are computed after giving
  retroactive effect to a 5-for-4 stock split paid July 31, 1998.
  
  5. On June 23, 1999, the Company's Board of Directors declared a cash dividend
  of $.20 per share payable on August 17, 1999, to shareholders of record on July
  31, 1999.
  
  6. On July 28, 1999, the Company's Board of Directors authorized the repurchase,
  from time to time, of up to 850,000 shares of its common stock in the open
  market or in negotiated transactions, depending upon market conditions and other
  factors. No timetable has been set for the repurchases. As of June 30, 1999, the
  company had 16,994,073 shares of common stock outstanding. Repurchased shares
  will be used for general corporate purposes, including the Company's dividend
  reinvestment plan, stock option plans, employee stock purchase plan, and other
  stock-based benefit plans.
  
  7. 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 $11,727,000 at June 30, 1999,
  all of which are non-accrual loans. The allowance for loan loss associated with
  these impaired loans was $1,736,000 at June 30, 1999. The Company recognizes
  income on impaired loans under the cash basis when the loans are both current
  and the collateral on the loan is sufficient to cover the outstanding obligation
  to the Company. If these factors do not exist, the Company will not recognize
  income on such loans.
  
                                         7
  Item 2.  Management's Discussion and Analysis of Financial Condition and
           Results of Operations
  
           The following discussion and analysis is intended to assist in
  understanding and evaluating the major changes in the financial condition and
  earnings performance of the Company with a primary focus on an analysis of
  operating results.
  
                                 FINANCIAL CONDITION
  
           Total assets increased to $2.167 billion, an increase of $44.8 million
  or 2.1% over the $2.121 billion at December 31, 1998. This increase is reflected
  primarily in the loan and cash and cash equivalent categories, which was
  partially offset by decreases in the investment category, including trading
  account securities.
  
           Total cash and cash equivalents increased $6.6 million or 10.1% at June
  30, 1999 when compared to December 31, 1998. The increase in cash and due from
  banks of $11.2 million was partially offset by a decrease in interest bearing
  deposits of $4.6 million.
  
           Loans increased to $1.468 billion at June 30, 1999. The increase of
  $63.0 million or 4.5% compared to December 31, 1998 was primarily the result of
  the investment of deposits and long-term borrowings. Loans originated for
  immediate resale during the first six months of 1999 amounted to $47.3 million.
  The Company's credit quality is reflected by the annualized ratio of net
  charge-offs to total loans of .3% through the second quarter of 1999 and for the
  year 1998, and the ratio of non-performing assets to total loans of .90% at June
  30, 1999 and 1.0% at December 31 1998. Non-performing assets, including
  non-accruals, loans 90 days past due and still accruing and other real estate
  owned, were $13.5 million at June 30, 1999 compared to $14.3 million at December
  31, 1998. Of these amounts, non-accrual loans represented $11.7 million and
  $11.6 million at June 30, 1999 and December 31, 1998, respectively. Loans 90
  days past due and still accruing interest were $1.3 million and $1.8 million at
  June 30, 1999 and December 31, 1998, respectively. Other real estate owned was
  $496,000 and $922,000 at June 30, 1999 and December 31, 1998, respectively. The
  Company had no restructured loans at June 30, 1999 or December 31, 1998. The
  allowance for loan losses to non-performing assets was 231.8% and 215.0% at June
  30, 1999 and December 31, 1998, respectively. As is evident from the above
  amounts relative to non-performing assets, there have been no significant
  changes between December 31, 1998 and June 30, 1999. The Company has no
  significant exposure to energy and agricultural-related loans.
  
           Investments, the Company's secondary use of funds, decreased $7.4
  million or 1.4% to $515.6 million at June 30, 1999 when compared to December 31,
  1998. The decrease is due to investment sales, calls and maturities and the
  amortization of mortgage-backed securities.
  
           Trading account securities decreased $21.6 million at June 30, 1999 due
  to the sale of all these securities. The Company has assessed its involvement in
  trading account activities and decided these activities do not meet with its
  strategic goals.
  
           As the primary source of funds, aggregate deposits of $1.546 billion at
  June 30, 1999 increased $72.6 million or 4.9% compared to December 31, 1998. The
  increase in deposits during the first six months of 1999 was primarily in
  interest bearing deposits which increased $51.5 million while non-interest
  bearing deposits increased $21.1 million. Certificates of deposit in excess of
  $100,000 increased $.3 million. In addition to deposits, earning assets are
  funded to some extent through purchased funds and borrowings. These include
  securities sold under repurchase agreements, federal funds purchased, short-term
  borrowings, long-term debt obligations, and subordinated debentures. In
  aggregate, these funds totaled $444.8 million at June 30, 1999, and $467.6
  million at December 31, 1998. The decrease of $22.8 million is primarily due to
  the decrease in short-term borrowings and securities sold under repurchase
  agreements and federal funds purchased, of $22.2 million due to the repayment of
  short-term advances, and a decrease in long-term obligations of .6 million.
  
                                         8
  Shareholders' equity decreased $3.7 million through June 30, 1999. This
  decrease was due to a decrease in earnings retained due to a higher dividend
  payout ratio and a decrease in accumulated other comprehensive income. Cash
  dividends paid during the first six months of 1999 increased $1.8 million or
  36.7% compared to the cash dividends paid during the first six months of 1998.
  Earnings retained during the first six months of 1999 were 47.1% compared to
  57.6% during the first six months of 1998.
  
                                RESULTS OF OPERATIONS
  
           Net income for the quarter ended June 30, 1999 was $6.5 million, 14.3%
  more than the $5.7 million reported for the same period in 1998. For the first
  six months, net income reached $12.5 million, or 9.5% more than the $11.4
  million reported for the first six months of 1998. The Company's performance has
  been and will continue to be in part influenced by the strength of the economy
  and conditions in the real estate market.
  
           Net interest income is the difference between interest income on assets
  and interest expense on liabilities. Net interest income increased $1.0 million
  or 5.4% to $20.2 million during the second quarter of 1999 from $19.1 million in
  1998. For the comparative six month period, net interest income increased $1.5
  million or 3.9% to $39.7 million from $38.2 million in 1998. The increase in
  interest income for the first six months is a result of increased investment
  income of $2.5 million and increased loan income of $1.9 million due to growth
  in loan outstandings and higher rates on loans that was partially offset by
  growth in deposits and higher rates on deposits and borrowings. Interest rate
  risk is a major concern in forecasting earnings potential. On November 18, 1998,
  the prime rate changed to 7.75%. Interest expense during the first six months of
  1999 increased $2.7 million or 7.4% 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 $100,000 for the six month period ended June 30, 1999 compared to the
  same period in 1998. The allowance for loan and lease losses of $31.3 million at
  June 30, 1999 and $30.8 million at December 31, 1998 as a percentage of total
  loans was 2.1% for both time periods. The Company's net charge-offs of
  $2,403,000 and $379,000 during the first six months of 1999 and 1998,
  respectively, continue to be comparable to those of the Company's peers, as
  reported in the Bank Holding Company Performance Report.
  
           Other income increased $1.4 million or 31.7% during the second quarter
  of 1999, as a result of increased other income of $1,087,000, which includes the
  investment in bank-owned life insurance, increased mortgage banking income of
  $176,000, increased trust income of $175,000, increased service charges on
  deposit accounts of $59,000 and an increase in net gains on sale of investment
  securities of $58,000. This was partially offset by a decrease in trading
  revenue of $185,000. Year to date, other income increased $1.7 million or 20.5%
  as a result of increased other income of $1,910,000, increased trust income of
  $301,000, increased service charges on deposit accounts of $208,000 and
  increased mortgage banking income of $103,000. This was partially offset by
  decreases in trading revenue of $233,000 and gains on sale of investment
  securities of $551,000. Other expenses increased $1.6 million or 10.5% during
  the quarter ended June 30, 1999 and increased $2.8 million or 9.8% for the six
  month period. Of this year-to-date increase, salaries, wages and benefits
  increased $2,446,000 or 15.2%, other operating expenses increased $205,000 or
  2.5% and net premises and equipment increased $185,000 or 4.1%.
  
           Income before income taxes increased $759,000 or 10.5% in the second
  quarter of 1999 compared to the same time period in 1998. In comparing the first
  
                                         9
  six months of 1999 to 1998, income before income taxes increased $307,000 or
  2.0%. Income taxes decreased $52,000 for the quarter ended June 30, 1999 and
  decreased $776,000 for 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, decreased $50.3 million from year end
  1998. Long-term borrowings decreased $541,000 during the first six months of
  1999.
  
           The goal of interest rate sensitivity management is to avoid
  fluctuating net interest margins, and to enhance consistent growth of net
  interest income through periods of changing interest rates. Such sensitivity is
  measured as the difference in the volume of assets and liabilities in the
  existing portfolio that are subject to repricing in a future time period.
  
           The following table shows separately the interest rate sensitivity of
  each category of interest-earning assets and interest-bearing liabilities at
  June 30, 1999:
  Repricing Periods  (1)
                                                               Three Months     One Year
                                            Within Three       Through One    Through Five          Over
                                               Months              Year           Years          Five Years
                                                                      (In Thousands)
  Assets
        Interest-bearing deposits
           at banks                         $     6,179       $       - -      $      - -          $    - -
        Investment securities                    44,035            70,023         176,357           225,227
        Trading account securities                  - -               - -             - -               - -
        Loans and leases                        420,909           221,375         486,795           338,855
        Other assets                             17,616               - -             - -           158,726
                                            -----------       -----------      ----------          --------
                                                488,739           291,398         663,152           722,808
                                            -----------       -----------      ----------          --------
  Liabilities and equity
        Noninterest-bearing deposits            243,933               - -             - -               - -
        Interest-bearing deposits               374,281           340,694         210,389           376,575
        Borrowed funds                          135,787            55,000         167,500            46,285
        Preferred securities                        - -               - -             - -            40,250
        Other liabilities                           - -               - -             - -            20,300
        Hedging instruments                     100,000           (20,000)        (80,000)              - -
        Shareholders' equity                        - -               - -             - -           155,103
                                            -----------       -----------      ----------          --------
                                                854,001           375,694         297,889           638,513
                                            -----------       -----------      ----------          --------
  Interest sensitivity gap                     (365,262)          (84,296)        365,263            84,295
                                            -----------       -----------      ----------          --------
  
  Cumulative interest rate
          sensitivity gap                     ($365,262)        ($449,558)     $  (84,295)         $   -  -
                                            ===========       ===========      ==========          =========
  (1) Adjustable rate loans are included in the period in which interest rates are
  next scheduled to adjust rather than in the period in which they are due. Fixed
  rate loans are included in the period in which they are scheduled to be repaid
  and are adjusted to take into account estimated prepayments based upon
  assumptions estimating prepayments in the interest rate environment prevailing
  during the first calendar quarter of 1999. The table assumes prepayments and
  scheduled principal amortization of fixed-rate loans and mortgage-backed
  
                                         10
  securities and assumes that adjustable rate mortgages will reprice at
  contractual repricing intervals. There has been no adjustment for the impact of
  future commitments and loans in process.
  
  (2) Savings and NOW deposits are scheduled for repricing based on historical
  deposit decay rate analyses, as well as historical moving averages of run-off
  for the Company's deposits in these categories. While generally subject to
  immediate withdrawal, management considers a portion of these accounts to be
  core deposits having significantly longer effective maturities based upon the
  Company's historical retention of such deposits in changing interest rate
  environments. Specifically, 31.7% of these deposits are considered repriceable
  within three months and 68.3% are considered repriceable in the over five years
  category.
  
           Interest rate sensitivity is a function of the repricing
  characteristics of the Company's assets and liabilities. These characteristics
  include the volume of assets and liabilities repricing, the timing of the
  repricing, and the relative levels of repricing. Attempting to minimize the
  interest rate sensitivity gaps is a continual challenge in a changing rate
  environment. Based on the Company's gap position as reflected in the above
  table, current accepted theory would indicate that net interest income would
  increase in a falling rate environment and would decrease in a rising rate
  environment. An interest rate gap table does not, however, present a complete
  picture of the impact of interest rate changes on net interest income. First,
  changes in the general level of interest rates do not affect all categories of
  assets and liabilities equally or simultaneously. Second, assets and liabilities
  which can contractually reprice within the same period may not, in fact, reprice
  at the same time or to the same extent. Third, the table represents a one-day
  position; variations occur daily as the Company adjusts its interest sensitivity
  throughout the year. Fourth, assumptions must be made to construct such a table.
  For example, non-interest bearing deposits are assigned a repricing interval
  within one year, although history indicates a significant amount of these
  deposits will not move into interest bearing categories regardless of the
  general level of interest rates. Finally, the repricing distribution of interest
  sensitive assets may not be indicative of the liquidity of those assets.
  
           The Company anticipates interest rates will move within a narrow range
  for the remainder of 1999, with no clear indication of sustainable rising or
  falling rates. Given this assumption, the Company's asset/liability strategy for
  1999 is to maintain a negative gap (interest-bearing liabilities subject to
  repricing exceed interest-earning assets subject to repricing) for periods up to
  a year. The impact of a sustained interest rate environment on net interest
  income is not expected to be significant to the Company's results of operations.
  Effective monitoring of these interest sensitivity gaps is the priority of the
  Company's asset/liability management committee.
  
                                  CAPITAL ADEQUACY
  
           The following table sets forth certain capital performance ratios:
  
                                                        June 30,        Dec. 31,
                                                         1999             1998
  CAPITAL PERFORMANCE
  Return on average assets (annualized)                   1.19%            1.17%
  Return on average equity (annualized)                  16.40            15.00
  Earnings retained                                      47.10            55.70
  Internal capital growth (annualized)                    7.42             8.04
  
                                         11
  CAPITAL LEVELS
  Tier 1 Capital to     Tier 1 Capital to Risk-   Total Capital to Risk-
                                      Average Assets Ratio    Weighted Assets Ratio     Weighted Assets Ratio
                                       Jun. 30,    Dec. 31,    Jun. 30,     Dec. 31,    Jun. 30,    Dec. 31,
                                         1999        1998        1999         1998        1999        1998
                                         ----        ----        ----         ----        ----        ----
  The Company                           8.88%       8.77%       11.75%      12.21%      13.15%       13.51%
  National Penn Bank                    6.83%       6.80%        9.08%       9.52%      10.34%       10.78%
  "Well Capitalized" institution        5.00%       5.00%        6.00%       6.00%      10.00%       10.00%
      (under banking regulations)
  The Company's capital ratios above compare favorably to the minimum
  required amounts of Tier 1 and total capital to "risk-weighted" assets and the
  minimum Tier 1 leverage ratio, as defined by banking regulators. At June 30,
  1999, the Company was required to have minimum Tier 1 and total capital ratios
  of 4.0% and 8.0%, respectively, and a minimum Tier 1 leverage ratio of 3.0%. In
  order for the Company to be considered "well capitalized", as defined by banking
  regulators, the Company must have Tier 1 and total capital ratios of 6.0% and
  10.0%, respectively, and a minimum Tier 1 leverage ratio of 5.0%. The Company
  currently meets the criteria for a well capitalized institution, and management
  believes that, under current regulations, the Company will continue to meet its
  minimum capital requirements in the foreseeable future. At present, the Company
  has no commitments for significant capital expenditures.
  
           The Company is not under any agreement with regulatory authorities nor
  is the Company aware of any current recommendations by the regulatory
  authorities which, if such recommendations were implemented, would have a
  material effect on liquidity, capital resources or operations of the Company.
  
                                   FUTURE OUTLOOK
  
           The following is a Year 2000 readiness statement.
  
            The Company's Year 2000 initiative began in 1996 with the creation of
  a "Year 2000 Compliance Project team" comprised of various Company employees,
  including senior management. The Year 2000 Project was divided into five phases
  -- Awareness, Assessment, Renovation, Validation, and Implementation. The
  initial Awareness and Assessment Phases have been completed. Non-information
  technology systems have been assessed and do not present a Year 2000 concern.
  The Company has completed the Renovation Phase of mission critical systems. The
  Validation and Implementation Phases of renovated mission critical systems has
  been completed. Validation and Implementation Phases of non-mission critical
  systems will continue through the third quarter of 1999. All active ATM machines
  have been renovated and are now compliant. The company has been actively
  involved in the joint testing of electronic payment and transfer systems. Actual
  costs for 1998 were within the budgeted amount of $300,000, which represented
  approximately 9% of the total information technology budget for 1998. The amount
  budgeted for 1999 is $200,000, which is approximately 12% of the total
  information technology budget for 1999. However, there can be no guarantee that
  these estimates will be achieved and actual results could differ materially from
  those anticipated. Specific factors that may cause such material differences
  include, but are not limited to, the availability and cost of personnel trained
  in this area, the ability to locate and correct all relevant computer codes, and
  similar uncertainties. A business impact analysis has been completed for the
  systems which support critical functions. The Company believes the most likely
  worst-case scenario to be a total or partial failure to perform of one or more
  of the Company's material third-party business partners or providers of service,
  commodity, or data, which failure could have a material adverse impact on the
  Company's operations. In an attempt to mitigate this risk, the Company has
  included the assessment of these partners and providers in its Year 2000
  project. The assessment of the Year 2000 readiness of third parties upon which
  the Company depends for various services has been substantially completed. The
  Company will continue to monitor critical third parties throughout the remainder
  of 1999. However, there can be no guarantee that the systems of other companies
  
                                         12
  on which Company's systems rely will be timely converted and would not have a
  material adverse effect on the Company's systems and operations. No major
  information technology projects have been delayed as a result of the Year 2000
  Project. In addition, the Company's audit department contracted for an
  independent consultant to verify and validate the Company's Year 2000 Project.
  No major recommendations were suggested by the independent consultant to
  mitigate exposures in the Company's Year 2000 Project plan.
  
           The following is a more detailed discussion of the Year 2000 Project:
  
           The Year 2000 Project has been in operation at the Company since 1996.
  During this time the Company has been operating under a project plan reflected
  in many individual documents such as the Microsoft Project charts, binders for
  specific project areas, and the inventories which were created.
  
           For the purposes of consistency with the guidance of the Company's
  regulatory agencies, the Company has structured the project in the standard five
  phases: Awareness, Assessment, Renovation, Validation, and Implementation. None
  of these phases are purely consecutive chronologically. For example, Awareness,
  the phase which was begun before the others, will most likely continue well into
  the first and second quarters of 2000.
  
           It is important to note that the Year 2000 Project at the Company
  includes both the progression from 1999 to 2000 and the identification of
  February 29, 2000 as a leap year day.
  
           The following is a more detailed description of each project phase.
  
  Awareness
           This phase began in 1996 with the assignment of project managers. The
  first task was to review as much information as possible from user groups,
  seminars, periodicals, and the written guidance available from regulatory
  agencies. The project managers created a project plan to address Year 2000
  issues.
  
           To address individual areas of responsibility in the project plan, a
  team was formed composed of various representatives of National Penn Bank,
  Investors Trust Company, and, beginning in 1998, Penn Securities, Inc. The team
  has been charged with guiding the Year 2000 efforts of the Company through all
  project phases.
  
           The next step in the Awareness phase was to educate the Company's
  employees on Year 2000 issues. This was accomplished through periodic items in
  Company memos and through e-mail. Year 2000 training was conducted for all bank
  officers. In the Spring of 1998, seminars were offered for the Company's
  business loan customers and lending staff.
  
           The seminars were one component of the Company's effort to educate
  customers. Another was a variety of statement stuffers concerning the Year 2000
  issue and specifically providing information on the Company's project plan and
  status. In September 1998, a Year 2000 update was added to the Company's
  internet home page. In addition, the Company has participated in various
  television programs and newspaper articles produced by the local media.
  
           The Company intends to continue to use this variety of channels
  (statement stuffers, letters, seminars, home page, and printed brochures) to
  attempt to provide frequent updates on the status of the Year 2000 project at
  the Company and all of its subsidiary organizations.
  
                                         13
  Assessment
           The purpose of the Assessment phase is to inventory all potentially
  affected software, hardware, equipment (including faxes, ATMs, hand held
  calculators, etc.), interfaces, environmental systems, and third parties. Once
  this information was gathered, it was organized to provide efficient tracking.
  Letters were sent and web sites visited to ascertain the compliance status of
  the individual product or project at the particular organization.
  
           The Assessment process went one step further with the investigation of
  the Year 2000 compliance status of the Company's largest business depositors
  (funds providers), large commercial loan customers (funds takers), and
  correspondent banks (capital market counterparties). The depositor investigation
  was done through a mailed survey to any business account holder with a balance
  of $100,000 or greater. Commercial loan relationships with an aggregate balance
  greater than $300,000 were individually assessed by the lender. The status of
  correspondent banks has been tracked as part of the third-party portion of the
  project.
  
           Year 2000 issues were addressed as part of the acquisition planning
  with Elverson in 1998. After the acquisition was announced, the teams began to
  share information by the project leaders participating in the other
  institution's team meetings, through data sharing, and through joint testing of
  common applications.
  
           In an effort to control the inventory of systems and applications after
  the assessment was completed, control points were reviewed. A policy was drafted
  requiring all new software purchases to be certified Year 2000 compliant. All
  hardware and software purchases will be tested before they are placed into a
  production environment. As all PC-based hardware and software are installed
  through the Network Services group and all mainframe applications are supported
  through Data Processing, two central control points are established. These
  groups are responsible for the ongoing monitoring of new software and hardware
  installation. As an additional control, the MIS department must approve all
  requests for payment of hardware and software purchases.
  
  Renovation
           The Renovation phase involves upgrading or replacing hardware and
  software as necessary. Core systems have the highest priority. Other mission
  critical systems follow. Finally, non-mission critical systems are addressed. A
  Remediation Contingency Plan has been written to address any potential
  difficulties that may be encountered before December 31, 1999.
  
           The Company has completed renovation efforts on mission critical
  systems. The Company anticipates that the replacement of the two remaining
  non-compliant, non-critical systems will be accomplished during the third
  quarter of 1999. Both of these remaining systems are non-critical and the
  Company has determined that no adverse effect would be encountered should these
  systems be unavailable.
  
           Highlights of the Company's efforts to date include the installation of
  a new mainframe system in January 1998. In May 1998, a new core banking system
  was installed. In October and November 1998, all ATM machines were upgraded to
  compliant releases of software and the memory necessary to process them. In
  December 1998, the core processing system of Investors Trust Company was
  replaced, including new hardware, software, and operating system. All have been
  thoroughly tested by the users' group, as discussed herein in the Validation
  phase.
  
  Validation
           The Validation phase of the project is guided by a written test plan.
  Testing of mission critical systems has been completed. Non-mission critical
  systems will be tested in 1999 in descending order of priority.
  
           The project leader and the end users are jointly responsible for the
  individual tests. The project leader schedules the date and ensures that the
  
                                         14
  testing environment is prepared. He then meets with the end user to develop the
  testing scripts and scenarios. The project leader is responsible for ensuring
  that the test adheres to the requirements of the Year 2000 testing plan. The end
  user is responsible for the data entry and system operation during the test and
  for reviewing the results to verify that the test was successful. When the test
  is completed and documented, both the end user and the project leader sign to
  indicate its completion.
  
           When a system is tested, all interfaces and file transmissions will be
  tested at the same time whenever possible. As appropriate and feasible, testing
  with third parties will also be completed.
  
           Initiatives to complete the Validation phase include the creation of an
  isolated PC network testing lab, the use of a secondary logical partition for
  validating mainframe applications and interfaces, user group testing for the
  core trust applications, and proxy testing by the network vendor for ATMs.
  
  Implementation
           Hardware and software certified to be compliant by the vendor will be
  thoroughly tested as addressed in the Validation phase. Any product not
  currently in production must be tested and accepted by the end user before being
  placed into a production environment. After a system is certified to be
  compliant, no future releases or updates will be installed unless first tested
  and confirmed to be compliant through the procedures discussed in the Validation
  phase. The control points for ensuring the future installation of releases will
  continue to be the Network Services and Data Processing departments.
  
  Additional Project Efforts
           Throughout the remainder of 1999, a database is being maintained to
  track the compliance status of third parties with which the Company conducts its
  affairs. This information will be reported to the project team and forwarded to
  executive management as necessary.
  
           A separate budget for Year 2000 expenses is being maintained for 1999.
  The status of the budget will be reported periodically to executive management.
  
           Contingency plans have been written for all mission critical and high
  priority non-mission critical systems. As the plans are completed, they are
  being reviewed and edited. Additionally, the initial testing of these plans has
  been substantially completed.
  
           Although the Company believes that the program outlined above should be
  adequate to address the Year 2000 issue, there can be no assurance to that
  effect.
  
           This report contains forward-looking statements concerning earnings,
  asset quality, Year 2000 compliance and other future events. Actual results
  could differ materially due to, among other things, the risks and uncertainties
  discussed herein and in Exhibit 99 to the Company's Report on Form 10-K for
  1998, which is incorporated herein by reference. Readers are cautioned not to
  place undue reliance on these statements. The Company undertakes no obligation
  to publicly release or update any of these statements.
  
  Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  
           There has been no material change in the Company's assessment of its
  sensitivity to market risk since its presentation in the 1998 annual report on
  Form 10-K filed with the SEC.
  
                                         15
  PART II - OTHER INFORMATION
  
  Item 1.  Legal Proceedings.
  
           None.
  
  Item 2.  Changes in Securities.
  
           None.
  
  Item 3.  Defaults Upon Senior Securities.
  
           None.
  
  Item 4.  Submission of Matters to a Vote of Security Holders.
  
           The 1999 annual meeting (the "Meeting") of the shareholders of National
  Penn Bancshares, Inc. (the "Registrant") was held on April 27, 1999. Notice of
  the Meeting was mailed to shareholders of record on or about March 24, 1999,
  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 to elect three Class III directors to hold office
  for three years from the date of election and until their successors are elected
  and qualified.
  
           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
  Patricia L. Langiotti      13,341,212         233,504             -0-
  
  Harold C. Wegman           13,350,957         223,759             -0-
  
  Wayne R. Weidner           13,345,903         228,813             -0-
  
  Item 5.  Other Information.
  
           During second quarter 1999, the Registrant's banking subsidiary,
  National Penn Bank (the "Bank"), opened a branch at 600 Washington Avenue,
  Philadelphia, PA. This branch is part of the Bank's National Asian Bank
  Division. Also during the quarter, the Bank opened two remote automated teller
  machines ("ATMs"), one at a supermarket location and one at a convenience store
  location, and closed two other remote ATMs.
  
           On June 23, 1999, the Registrant's Board of Directors declared a cash
  dividend of $.20 per share to be paid on August 17, 1999 to shareholders of
  record on July 31, 1999.
  
           On July 28, 1999, the Registrant's Board of Directors authorized the
  repurchase, from time to time, of up to 850,000 shares of its common stock in
  the open market or in negotiated transactions, depending upon market conditions
  and other factors. No timetable has been set for the repurchases. As of June 30,
  1999, the Company had 16,994,073 shares of common stock outstanding. Repurchased
  shares will be used for general corporate purposes, including the Company's
  dividend reinvestment plan and various employee benefit plans.
  
                                         16
  Item 6.  Exhibits and Reports on Form 8-K.
  
           (a)      Exhibits.
  
                    Exhibit 10.1 -    The Elverson National Bank 401(k) Profit
                                      Sharing Plan - Merger Amendment.
  
                    Exhibit 10.2 -    The Elverson National Bank Employee Stock
                                      Ownership Plan - Termination and Merger
                                      Amendment.
  
                    Exhibit 10.3 -    The National Penn Bancshares, Inc. Amended
                                      and Restated Capital Accumulation Plan.
  
                    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, 1999.
  
                                         17
  SIGNATURES
  
           Pursuant to the requirements of Section 13 of the Securities Exchange
  Act of 1934, the Registrant has caused this report to be signed on its behalf by
  the undersigned thereunto duly authorized.
  
                                              NATIONAL PENN BANCSHARES, INC.
                                                        (Registrant)
  
  Dated:   August 2, 1999                     By /s/  Wayne R. Weidner
                                                ---------------------------------
                                                      Wayne R. Weidner, President
  
  Dated:   August 2, 1999                     By /s/  Gary L. Rhoads
                                                ---------------------------------
                                                      Gary L. Rhoads, Principal
                                                      Financial Officer
  
                                         18