SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549



                                    FORM 10-Q

(Mark One)

|X|  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

For the quarterly period ended March 31, 2001

                                       OR

|_|  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934

For the transition period from ______________ to _______________


                         Commission file number 0-17706

                                    QNB Corp.
             (Exact Name of Registrant as Specified in Its Charter)


         Pennsylvania                                            23-2318082
  (State or Other Jurisdiction                                (I.R.S. Employer
of Incorporation or Organization)                            Identification No.)

 10 North Third Street, Quakertown, PA                           18951-9005
(Address of Principal Executive Offices)                          (Zip Code)

Registrant's Telephone Number, Including Area Code (215)538-5600


                                 Not Applicable
         Former Name, Former Address and Former Fiscal Year, if Changed
                               Since Last Report.

     Indicate  by check |X|  whether  the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No

     Indicate the number of shares  outstanding of each of the issuer's  classes
of common stock, as of the latest practicable date.

            Class                                    Outstanding at May 11, 2001
Common Stock, par value $1.25                                  1,473,079

<PAGE>


                            QNB CORP. AND SUBSIDIARY

                                    FORM 10-Q

                          QUARTER ENDED MARCH 31, 2001


                                      INDEX


                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS (Unaudited)                                   PAGE

         Consolidated Statements of Income for Three
           Months Ended March 31, 2001 and 2000...............................1

         Consolidated Balance Sheets at March 31, 2001
           and December 31, 2000..............................................2

         Consolidated Statements of Cash Flows for Three
           Months Ended March 31, 2001 and 2000 ..............................3

         Notes to Consolidated Financial Statements ..........................4

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
           OPERATIONS AND FINANCIAL CONDITION ................................6

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
           MARKET RISK ......................................................19

                           PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS ..................................................20

ITEM 2.  CHANGES IN SECURITIES ..............................................20

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES ....................................20

ITEM 4.  SUBMISSIONS OF MATTERS TO A VOTE OF SECURITIES HOLDERS .............20

ITEM 5.  OTHER INFORMATION ..................................................20

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K ...................................20

<PAGE>


QNB Corp. and Subsidiary
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME

                                                                (in thousands,
                                                              except share data)
                                                                 (unaudited)
--------------------------------------------------------------------------------
Three Months Ended March 31,                                    2001     2000
--------------------------------------------------------------------------------
Interest Income
Interest and fees on loans .................................   $3,717   $3,461
Interest and dividends on investment securities:
    Taxable ................................................    2,287    2,108
    Tax-exempt .............................................      381      319
Interest on Federal funds sold .............................       69       16
Interest on interest-bearing balances ......................        6        3
--------------------------------------------------------------------------------
         Total interest income .............................    6,460    5,907
--------------------------------------------------------------------------------
Interest Expense
Interest on deposits
    Interest-bearing demand accounts .......................      139      144
    Money market accounts ..................................      325      214
    Savings ................................................      159      171
    Time ...................................................    1,636    1,531
    Time over $100,000 .....................................      277      266
Interest on short-term borrowings ..........................      183       90
Interest on Federal Home Loan Bank advances ................      583      325
--------------------------------------------------------------------------------
         Total interest expense ............................    3,302    2,741
--------------------------------------------------------------------------------
         Net interest income ...............................    3,158    3,166
Provision for loan losses ..................................       --       --
--------------------------------------------------------------------------------
         Net interest income after provision for loan losses    3,158    3,166
--------------------------------------------------------------------------------
Non-Interest Income
Fees for services to customers .............................      349      298
Mortgage servicing fees ....................................       27       29
Net gain on investment securities available-for-sale .......       61       66
Net gain on sale of loans ..................................       26        4
Other operating income .....................................      225      220
--------------------------------------------------------------------------------
         Total non-interest income .........................      688      617
--------------------------------------------------------------------------------
Non-Interest Expense
Salaries and employee benefits .............................    1,471    1,420
Net occupancy expense ......................................      218      165
Furniture and equipment expense ............................      234      223
Marketing expense ..........................................      133       69
Other expense ..............................................      593      495
--------------------------------------------------------------------------------
         Total non-interest expense ........................    2,649    2,372
--------------------------------------------------------------------------------
    Income before income taxes .............................    1,197    1,411
Provision for income taxes .................................      209      316
--------------------------------------------------------------------------------
    Net Income .............................................   $  988   $1,095
================================================================================
    Net Income Per Share - Basic ...........................   $  .67   $  .72
================================================================================
    Net Income Per Share - Diluted .........................   $  .67   $  .72
================================================================================
    Cash Dividends Per Share ...............................   $  .27   $  .24
================================================================================

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                     Page 1
<PAGE>


QNB Corp. and Subsidiary
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS

                                                         (in thousands)
                                                           (unaudited)
--------------------------------------------------------------------------------
                                                      March 31,   December 31,
                                                        2001         2000
--------------------------------------------------------------------------------
Assets
Cash and due from banks ..........................   $  12,083    $  14,466
Federal funds sold ...............................      12,948        2,678
Investment securities
    Available-for-sale ...........................     140,878      114,245
    Held-to-maturity (market value $44,857
      and $42,815) ...............................      44,469       42,982
Total loans, net of unearned income of $202
      and $195 ...................................     186,549      185,234
    Allowance for loan losses ....................      (2,935)      (2,950)
--------------------------------------------------------------------------------
         Net loans ...............................     183,614      182,284
Premises and equipment, net ......................       6,038        6,173
Accrued interest receivable ......................       2,700        2,213
Other assets .....................................       6,004        6,630
--------------------------------------------------------------------------------
Total assets .....................................   $ 408,734    $ 371,671
================================================================================
Liabilities
Deposits
    Demand, non-interest-bearing .................   $  33,141    $  34,773
    Interest-bearing demand accounts .............      48,982       49,154
    Money market accounts ........................      40,028       39,226
    Savings ......................................      36,239       35,388
    Time .........................................     119,786      117,622
    Time over $100,000 ...........................      20,355       17,659
--------------------------------------------------------------------------------
         Total deposits ..........................     298,531      293,822
Short-term borrowings ............................      23,886       17,819
Federal Home Loan Bank advances ..................      50,000       25,000
Accrued interest payable .........................       1,672        1,409
Other liabilities ................................       1,176        1,827
--------------------------------------------------------------------------------
Total liabilities ................................     375,265      339,877
--------------------------------------------------------------------------------
Commitments and contingencies

Shareholders' Equity
Common stock, par value $1.25 per share;
    authorized 5,000,000 shares; issued 1,512,755
    shares issued; 1,476,963 and 1,480,109 shares
    outstanding ..................................       1,891        1,891
Surplus ..........................................       6,491        6,491
Retained earnings ................................      24,998       24,409
Accumulated other comprehensive gain (loss) ......       1,112          (64)
Treasury stock, at cost: 35,792 and 32,646
    shares at March 31, 2001 and December 31, 2000      (1,023)        (933)
--------------------------------------------------------------------------------
Total shareholders' equity .......................      33,469       31,794
--------------------------------------------------------------------------------
Total liabilities and shareholders' equity .......   $ 408,734    $ 371,671
================================================================================

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                     Page 2
<PAGE>


QNB Corp. and Subsidiary
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                 (in thousands)
                                                                   (unaudited)
---------------------------------------------------------------------------------
Three Months Ended March 31,                                   2001        2000
---------------------------------------------------------------------------------
<S>                                                          <C>         <C>
Operating Activities
  Net income .............................................   $    988    $  1,095
  Adjustments to reconcile net income to net
  cash provided by operating activities
    Depreciation and amortization ........................        191         158
    Securities gains .....................................        (61)        (66)
    Net gain on sale of loans ............................        (26)         (4)
    Proceeds from sales of residential mortgages .........        738         102
    Originations of residential mortgages held-for-sale ..     (1,660)       (134)
    Proceeds from sales of student loans .................        279         228
    Deferred income tax provision ........................         17           3
    Change in income taxes payable .......................        177         297
    Net increase in interest receivable ..................       (487)       (133)
    Net amortization of premiums and discounts ...........         (5)         (3)
    Net increase in interest payable .....................        263          38
    Increase in other assets .............................        (16)       (367)
    (Decrease) in other liabilities ......................       (809)       (122)
---------------------------------------------------------------------------------
    Net cash (used) provided by operating activities .....       (411)      1,092
---------------------------------------------------------------------------------
Investing Activities
  Proceeds from maturities and calls of
  investment securities
    available-for-sale ...................................     14,054       2,162
    held-to-maturity .....................................      1,549       1,314
  Proceeds from sales of investment securities
    available-for-sale ...................................        564       1,643
    Purchase of investment securities
    available-for-sale ...................................    (39,400)    (12,576)
    held-to-maturity .....................................     (3,039)       (686)
  Net increase in Federal funds sold .....................    (10,270)         --
  Net increase in loans ..................................       (661)     (3,463)
  Net purchases of premises and equipment ................        (56)       (246)
---------------------------------------------------------------------------------
    Net cash used by investing activities ................    (37,259)    (11,852)
---------------------------------------------------------------------------------
Financing Activities
  Net (decrease) increase in non-interest-bearing deposits     (1,632)         63
  Net increase in interest-bearing deposits ..............      6,341         455
  Net increase in short-term borrowings ..................      6,067       3,593
  Proceeds from Federal Home Loan Bank advances ..........     25,000          --
  Cash dividends paid ....................................       (399)       (345)
  Purchase of treasury stock .............................        (90)         --
---------------------------------------------------------------------------------
    Net cash provided by financing activities ............     35,287       3,766
---------------------------------------------------------------------------------
    Decrease in cash and cash equivalents ................     (2,383)     (6,994)
    Cash and cash equivalents at beginning of year .......     14,466      19,352
---------------------------------------------------------------------------------
    Cash and cash equivalents at end of period ...........   $ 12,083    $ 12,358
=================================================================================
Supplemental Cash Flow Disclosures
  Interest paid ..........................................   $  3,039    $  2,703
  Income taxes paid ......................................         --          --
  Non-Cash Transactions
    Change in net unrealized holding gains (losses),
    net of taxes, on investment securities ...............      1,176        (262)
</TABLE>

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                     Page 3

<PAGE>


                            QNB CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 March 31, 2001 AND 2000, AND DECEMBER 31, 2000
                                   (Unaudited)


1. REPORTING AND ACCOUNTING POLICIES

The accompanying  consolidated  financial statements include the accounts of QNB
Corp. and its wholly owned subsidiary,  The Quakertown National Bank, (QNB). All
significant  intercompany  accounts  and  transactions  are  eliminated  in  the
consolidated statements.

The  consolidated  balance sheet as of March 31, 2001, as well as the respective
statements  of income and cash flows for the three month  period ended March 31,
2001 and 2000,  are  unaudited.  These  financial  statements  should be read in
conjunction with the audited financial  statements and notes thereto included in
QNB's 2000 Annual Report incorporated in the Form 10-K.

The  financial  statements  reflect  all  adjustments,  which in the  opinion of
management are necessary for a fair  presentation  of the results of the interim
periods and are of a normal and  recurring  nature.  The results for the periods
presented are not necessarily indicative of the full year.

2. PER SHARE DATA

The following sets forth the computation of basic and diluted earnings per share
(share and per share data have been  restated to reflect  the 5% stock  dividend
issued June 30, 2000 are not in thousands):

                                                          For the Three Months
                                                             Ended March 31,
                                                          2001           2000
                                                          ----           ----

Numerator for basic and diluted earnings               $      988     $    1,095
per share-net income

Denominator for basic earnings per share-               1,478,472      1,511,188
weighted average shares outstanding

Effect of dilutive securities-employee                       1007             --
stock options

Denominator for diluted earnings per                    1,479,479      1,511,188
share- adjusted weighted average
shares outstanding

Earnings per share-basic                               $      .67     $      .72
Earnings per share-diluted                             $      .67     $      .72

There were  38,636 and 48,195  stock  options  that were  anti-dilutive  for the
three-month periods ended March 31, 2001 and 2000, respectively.

                                     Page 4

<PAGE>


                            QNB CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 MARCH 31, 2001 AND 2000, AND DECEMBER 31, 2000
                                   (Unaudited)


3. COMPREHENSIVE INCOME

Comprehensive  income is defined  as the  change in equity of a business  entity
during a period from transactions and other events and circumstances,  excluding
those resulting from investments by and  distributions  to owners.  For QNB, the
sole component of other comprehensive income is the unrealized holding gains and
losses on available-for-sale investment securities.

The following shows the components and activity of  comprehensive  income during
the periods ended March 31, 2001 and 2000 (net of the income tax effect):

                                                            For the Three Months
                                                              Ended March 31,
                                                             2001         2000
                                                             ----         ----

Unrealized  holding gains (losses) arising during
the period on securities held                              $ 1,216      $  (218)

Reclassification adjustment for sold securities                (40)         (44)
                                                           -------      -------

Net change in unrealized during the
period                                                       1,176         (262)

Unrealized holding (losses) gains, beginning of
period                                                         (64)      (2,604)
                                                           -------      -------

Unrealized holding gains (losses), end of period           $ 1,112      $(2,866)
                                                           =======      =======

Net income                                                 $   988      $ 1,095
Other comprehensive  income, net  of tax:

Unrealized holding gains (losses) arising during
the period                                                   1,176         (262)
                                                           -------      -------
Comprehensive Income                                       $ 2,164      $   833
                                                           =======      =======

4. STOCK REPURCHASE PLAN

In March of 2000, the Board of Directors of QNB Corp.  authorized the repurchase
of up to 4.99 percent or 75,410 shares of QNB Corp's  outstanding  common stock.
Such   repurchases   may  be  made  in  open  market  or  privately   negotiated
transactions.  The  repurchased  shares  will be held in  treasury  and  will be
available  for  general  corporate  purposes.  As of March  31,  2001 QNB  Corp.
repurchased 35,792 shares at an average cost of $28.59 per share.

                                     Page 5

<PAGE>


                            QNB CORP. AND SUBSIDIARY

                 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
                      OF OPERATIONS AND FINANCIAL CONDITION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
        OF OPERATIONS AND FINANCIAL CONDITION

QNB  Corp.  (the  "Corporation")  is a bank  holding  company  headquartered  in
Quakertown,  Pennsylvania  which  provides a full range of commercial and retail
banking services through its banking  subsidiary,  The Quakertown  National Bank
(the  "Bank"),  a 123 year old  community  bank with  locations  in Upper Bucks,
Northern Montgomery and Southern Lehigh Counties.  The results of operations and
financial  condition  discussed herein are presented on a consolidated basis and
the consolidated  entity is referred to herein as "QNB." Per share data has been
adjusted to reflect the 5% stock dividend issued June 30, 2000.

This  report  includes  forward-looking  statements  within  the  meaning of the
Private Securities  Litigation Reform Act with respect to financial  performance
and  other  financial  and  business  matters.  Forward-looking  statements  are
typically   identified  by  words  or  phrases  such  as  "believe,"   "expect,"
"anticipate,"  "intend," "estimate," "position" and variations of such words and
similar  expressions,  or future or conditional  verbs such as "will,"  "would,"
"should," "could," "may" or similar  expressions.  The Corporation cautions that
these forward-looking statements are subject to numerous assumptions,  risks and
uncertainties,  all of which change over time,  and the  Corporation  assumes no
duty  to  update  forward  looking  statements.   Actual  results  could  differ
materially from those anticipated in these forward-looking statements.

In  addition  to  factors  previously  disclosed  by the  Corporation  and those
identified  elsewhere herein, the following factors,  among others,  could cause
actual results to differ materially from forward looking  statements:  increased
credit  risk;  the  introduction,  withdrawal,  success  and timing of  business
initiatives and strategies;  changes in competitive conditions; the inability to
sustain revenue and earnings growth;  changes in economic  conditions,  interest
rates and  financial  and  capital  markets;  inflation;  changes in  investment
performance;   customer   disintermediation;   customer  borrowing,   repayment,
investment  and deposit  practices;  customer  acceptance  of QNB  products  and
services;  and the impact, extent and timing of technological  changes,  capital
management activities,  actions of the Federal Reserve Board and legislative and
regulatory actions and reforms.

RESULTS OF OPERATIONS

QNB recorded  earnings of $988,000 or $.67 per share on a diluted  basis for the
three  month  period  ended  March 31,  2001.  This  compares  to net  income of
$1,095,000 or $.72 per share-diluted reported for the first quarter of 2000.

The decline in net income when  comparing the two quarters is primarily a result
of an increase in non-interest  expense of $277,000.  Expenses  related to a new
computer  system,  a new branch in Souderton  and the startup  costs  related to
Trust and Investment Management services contributed to the increase.  These new
business  initiatives entered into during 2000 and the first quarter of 2001 are
intended to position the company for future growth and increased  profitability.
Partially  offsetting  the increase in  non-interest  expense was an increase in
non-interest  income.  Non-interest  income  increased from $617,000  during the
first quarter of 2000 to $688,000  during the first quarter of 2001, an increase
of 11.5 percent. An increase in fee income from deposit accounts  contributed to
this increase.

                                     Page 6

<PAGE>


                            QNB CORP. AND SUBSIDIARY

                 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
                      OF OPERATIONS AND FINANCIAL CONDITION

RESULTS OF OPERATIONS (Continued):

When  comparing  the  three-month  periods  ended March 31,  2001 and 2000,  net
interest income  decreased  slightly  despite a 9.3 percent  increase in average
earning assets. Net interest income which represents interest income, dividends,
and fees on earning assets,  less interest  expense incurred on funding sources,
decreased  .3 percent to  $3,158,000  for the  quarter  ended  March 31, 2001 as
compared to  $3,166,000  for the quarter  ended March 31,  2000.  However,  on a
tax-equivalent  basis,  which allows for the comparison of tax-exempt  loans and
investments with taxable loans and investments, net interest income increased by
2.0 percent from  $3,388,000  at March 31, 2000 to $3,457,000 at March 31, 2001.
This is a result of an increase in the proportion of tax-exempt  assets. The net
interest  margin  declined from 4.11 percent during the first quarter of 2000 to
3.87 percent for the first quarter of 2001.  Contributing  to the decline in the
net  interest  margin  was the  impact of an  additional  $25  million  leverage
transaction  entered  into during the first  quarter of 2001.  QNB  borrowed $25
million  from  the  Federal  Home  Loan  Bank and  invested  those  proceeds  in
investment securities at an initial spread of 136 basis points. This transaction
has the impact of increasing  net interest  income but reducing the net interest
margin.

Return on average  assets was 1.04 percent and 1.25 percent  while the return on
average  equity was 12.54 percent and 14.53 percent for the quarters ended March
31, 2001 and 2000, respectively.

NET INTEREST INCOME

Net  interest  income is the primary  source of  operating  income for QNB.  Net
interest income is interest income,  dividends, and fees on earning assets, less
interest expense incurred for funding sources.  Earning assets primarily include
loans,  investment securities and Federal funds sold. Sources used to fund these
assets include deposits,  borrowed funds and shareholders'  equity. Net interest
income is affected by changes in interest  rates,  the volume and mix of earning
assets and interest-bearing liabilities, and the amount of earning assets funded
by non-interest-bearing deposits.

Net interest  income  decreased .3 percent to  $3,158,000  for the quarter ended
March 31, 2001 as compared to  $3,166,000  for the quarter ended March 31, 2000.
However,  on  a  tax-equivalent  basis,  which  allows  for  the  comparison  of
tax-exempt loans and investments to taxable loans and investments,  net interest
income increased by 2.0 percent from $3,388,000 for the three months ended March
31, 2000 to  $3,457,000  for the same period  ended  March 31,  2001.  This is a
result of an increase in the  proportion of tax-exempt  earning  assets to total
earning assets.  The yield on earning assets on a tax-equivalent  basis was 7.57
percent for the first  quarter of 2001 versus 7.44 percent for the first quarter
of 2000,  while the rate paid on  interest-bearing  liabilities was 4.20 percent
and 3.87  percent  for the same  periods.  The  increase  in the  rates  paid on
interest-bearing liabilities, despite the large decline in interest rates during
the first quarter of 2001, is primarily a result of higher rates on money market
accounts  resulting from the  introduction  of the Treasury  Select Money Market
product at the end of the first  quarter of 2000 and the  competitive  nature of
the local market for  certificates of deposits,  particularly  during the second
and third  quarters of 2000.  Borrowings  from the Federal Home Loan Bank during
the  first  quarter  of 2001 also  contributed  to the  increase  in the rate on
interest-bearing  liabilities.  The  Treasury  Select Money Market is a variable
rate account  indexed to a percentage of the monthly  average rate of the 91-day
Treasury  bill rate based on balances in the account.  The rates paid on funding
sources  increasing to a greater degree than rates on earning assets resulted in
a  decline  in  the  net  interest   margin.   The  net  interest  margin  on  a
tax-equivalent   basis  declined  24  basis  points  to  3.87  percent  for  the
three-month  period ended March 31, 2001 compared with 4.11 percent for the same
period in 2000. A 9.3 percent  increase in average  earning assets helped offset

                                     Page 7

<PAGE>


                            QNB CORP. AND SUBSIDIARY

                 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
                      OF OPERATIONS AND FINANCIAL CONDITION

NET INTEREST INCOME (Continued):

the negative impact of a falling net interest margin.

Some of the growth in average  earning  assets  was funded  through a  wholesale
funding  transaction  entered into during the first quarter of 2001, whereby QNB
borrowed  $25,000,000 from the Federal Home Loan Bank at an average rate of 5.71
percent.  These funds were  reinvested in investment  securities with an average
yield  of  7.07  percent  for an  initial  spread  of  136  basis  points.  This
transaction has the impact of increasing net interest  income,  but lowering the
net interest margin.

The yield on earning assets  increased  when comparing the two quarters  despite
generally  falling  interest rates, as represented by the United States Treasury
yield  curve,  during the later part of 2000 and early 2001.  The  concerns of a
slowing economy,  falling consumer confidence and a possibility of recession has
prompted the Federal  Reserve Bank to cut the Federal  funds target rate 4 times
and 200 basis points since the beginning of 2001.  The yield on loans  increased
17 basis points to 8.32 percent when  comparing the first quarter of 2000 to the
first quarter of 2001, however it declined 5 basis points compared to the fourth
quarter  of 2000.  During  the first  quarter  of 2000 the  prime  rate on loans
increased  from 8.50 percent to 9.50 percent,  while during the first quarter of
2001 the prime rate has decreased  from 9.50 percent to 8.00 percent.  The prime
rate has  subsequently  dropped to 7.50  percent in April 2001.  This decline in
interest rates will have a negative  impact on the yield on loans during 2001 as
loans with  re-pricing  features price lower and customers with fixed rate loans
refinance at lower rates. Another factor in the decline in the yield on loans is
the current  competitive  environment  for loans,  both commercial and consumer,
from both banks and non-banks.

When comparing the first quarter of 2001 to the first quarter of 2000, the yield
on investment  securities  increased to 6.83 percent from 6.66 percent.  It also
represents an increase from the yield of 6.72 percent recorded during the fourth
quarter of 2000. The 7.07 percent yield from the  investments  purchased as part
of the leverage transaction  contributed to the increase in the overall yield of
the investment portfolio. The yield on investments in expected to decline during
2001 as cash flow from called bonds as well as from  mortgage-backed  securities
is invested at lower rates.

Total interest  expense  increased  $561,000 during the first quarter of 2001 to
$3,302,000.  Interest  expense on the borrowings from the Federal Home Loan Bank
contributed  $258,000 to the increase.  The yield on interest  bearing  deposits
increased  from 3.74  percent  to 3.96  percent  while  the yield on  short-term
borrowings  increased  from 3.72 percent to 4.23 percent for the quarters  ended
March 31, 2000 and 2001.  These yields are anticipated to decline during 2001 as
the lower market rates  translate  into lower deposit and borrowing  rates.  The
average yield on the Federal Home Loan Bank advances increased from 5.23 percent
during the first  quarter of 2000 to 5.63  percent  during the first  quarter of
2001 as a result of the additional borrowings

PROVISION FOR LOAN LOSSES

The  provision  for loan losses  represents  management's  determination  of the
amount  necessary to be charged to  operations  to bring the  allowance for loan
losses  to a level  considered  adequate  in  relation  to the risk of known and
inherent  losses in the loan portfolio.  Actual loan losses,  net of recoveries,
serve to reduce the allowance.

                                     Page 8

<PAGE>


                            QNB CORP. AND SUBSIDIARY

                 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
                      OF OPERATIONS AND FINANCIAL CONDITION

PROVISION FOR LOAN LOSSES (Continued):

The  determination  of an appropriate  level of the allowance for loan losses is
based upon an analysis of the risk inherent in QNB's loan portfolio.  Management
uses various tools to assess the adequacy of the allowance for loan losses.  One
tool is a model  recommended  by the Office of the  Comptroller of the Currency.
This model  considers a number of relevant  factors  including:  historical loan
loss experience,  the assigned risk rating of the credit,  current and projected
credit worthiness of the borrower,  current value of the underlying  collateral,
levels of and trends in delinquencies  and non-accrual  loans,  trends in volume
and terms of loans,  concentrations  of credit,  and national and local economic
trends and  conditions.  This model is supplemented  with another  analysis that
also incorporates  exceptions to QNB's loan policy and QNB's portfolio  exposure
to borrowers with large dollar concentration,  defined as exceeding 25% of QNB's
legal lending limit. Other tools include ratio analysis and peer group analysis.

The provision for loan losses was zero for both three-month  periods ended March
31,  2001 and 2000.  QNB was able to  eliminate  the  provision  for loan losses
during  the  first  quarter  of 2000 as a result  of  continued  low  levels  of
non-performing assets and delinquency relative to the allowance for loan losses.
QNB had net  charge-offs of $15,000 and $29,000 during the first quarter of 2001
and 2000, respectively.

Non-performing  assets  (non-accruing loans, loans past due 90 days or more, and
other real estate  owned)  remained low amounting to .05 percent of total assets
at March 31,  2001.  This  compares  to .28  percent  at March 31,  2000 and .06
percent at December 31, 2000.  Non-accrual  loans were  $197,000 and $627,000 at
March 31, 2001 and 2000.  Non-accrual  loans at December 31, 2000 were $205,000.
QNB did not have any other real estate  owned as of March 31, 2001 and  December
31, 2000. Other real estate owned was $348,000 at March 31, 2000.

There were no  restructured  loans as of March 31,  2001,  December  31, 2000 or
March 31, 2000 as defined in Statement of Financial Accounting Standards No. 15,
"Accounting  by Debtors and Creditors for Troubled  Debt  Restructurings,"  that
have not already been included in loans past due 90 days or more or  non-accrual
loans.

The allowance for loan losses was  $2,935,000  and  $2,950,000 at March 31, 2001
and December 31, 2000,  respectively.  The ratio of the allowance to total loans
was 1.57 percent and 1.59 percent for the respective periods. While QNB believes
that its  allowance  is adequate to cover  losses in the loan  portfolio,  there
remain  inherent  uncertainties  regarding  future  economic  events  and  their
potential impact on asset quality.

A loan is considered impaired, based on current information and events, if it is
probable that QNB will be unable to collect the scheduled  payments of principal
or interest when due according to the  contractual  terms of the loan agreement.
The  measurement  of impaired  loans is generally  based on the present value of
expected future cash flows discounted at the historical effective interest rate,
except that all collateral-dependent  loans are measured for impairment based on
the fair value of the collateral.

At March  31,  2001 and  2000,  the  recorded  investment  in  loans  for  which
impairment has been recognized in accordance with SFAS No. 114 totaled  $139,000
and $561,000, respectively, of which $100,000 and $511,000 related to loans with
no  valuation  allowance.  At March 31,  2001 and 2000  there were  $39,000  and
$50,000 in  impaired  loans that had a  valuation  allowance  against the entire
amount. Most of the loans identified as impaired are collateral-dependent.

                                     Page 9

<PAGE>


                            QNB CORP. AND SUBSIDIARY

                 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
                      OF OPERATIONS AND FINANCIAL CONDITION

NON-INTEREST INCOME

QNB,  through its core  banking  business,  generates  various  fees and service
charges.  Total  non-interest  income is composed of service  charges on deposit
accounts,  mortgage servicing fees, gains on the sale of investment  securities,
gains  on the  sale of  residential  mortgages  and  student  loans,  and  other
miscellaneous  fee income.  QNB reviews  all service  charges and fee  schedules
related  to its  products  and  services  on an  annual  basis.  Except  for the
imposition of an ATM surcharge for non-QNB  customers  during the second quarter
of 2000, QNB has not materially changed these fee schedules during 2000 or 2001.
Total non-interest  income increased $71,000 or 11.5 percent to $688,000 for the
quarter  ended March 31, 2001 when compared to March 31, 2000.  Excluding  gains
and losses on the sale of investment  securities  and loans during both periods,
non-interest income increased approximately $54,000 or 9.9 percent.

Fees for services to  customers,  the largest  component  of total  non-interest
income,  is primarily  comprised of service charges on deposit  accounts.  These
fees increased 17.1 percent,  to $349,000 from $298,000,  when comparing the two
quarters.  An increase in overdraft fee income resulting from a higher volume of
overdrafts  accounted  for the entire  $51,000  increase in fees for services to
customers.

To date, when QNB sells its residential  mortgages in the secondary  market,  it
retains  servicing  rights.  A normal  servicing fee is retained on all mortgage
loans sold and serviced. Mortgage servicing fees for the quarter ended March 31,
2001 were  $27,000  which  represents  a $2,000  decline from the same period in
2000.  The decrease in mortgage  servicing fees for the quarter is a result of a
decline in the amount of mortgages  serviced.  QNB  recognizes its obligation to
service  financial  assets that are retained in a transfer of assets in the form
of a servicing asset. The servicing asset is amortized in proportion to and over
a period of net  servicing  income or loss.  Servicing  assets are  assessed for
impairment  based on their fair  value.  During the first  quarter of 2001,  QNB
amortized  approximately  $11,000 of the mortgage  servicing  asset  compared to
$12,000  during the first  quarter of 2000.  The  average  balance of  mortgages
serviced for others was  $60,126,000  for the first  quarter of 2001 compared to
$65,097,000  for the first  quarter  of 2000,  a decline of 7.6  percent.  Lower
mortgage rates  resulting  from declining  Treasury rates during the end of 2000
and the beginning of 2001 should result in an increase in the number of mortgage
loans  originated and sold. This may result in higher mortgage  servicing income
as long as new sales exceed  prepayments  on the existing  portfolio of serviced
loans. The timing of mortgage payments and delinquencies also impacts the amount
of servicing fees recorded.

Gains on the sale of investment securities were $61,000 for the first quarter of
2001,  compared to $66,000 for the first three months of 2000.  QNB owns a small
portfolio of marketable equity securities.  The gains during both periods were a
result of sales  from this  portfolio  of  stocks.  There  were no sales of debt
securities  during the first quarter of 2001.  During the first quarter of 2000,
QNB sold  approximately  $1,500,000  in U.S.  Treasury  securities  at a loss of
approximately $1,000.

QNB recorded a gain of $26,000 on the sale of loans during the first  quarter of
2001.  This  compares to a $4,000 gain for the same period in 2000.  The sale of
residential  mortgages  and the sale of student  loans  account  for $22,000 and
$4,000 of the gains,  respectively in 2001. For the same period in 2000 the sale
of residential mortgage loans accounted for $1,000 of the gain while the sale of
student loans represented  $3,000 of the gain. QNB sold  approximately  $275,000

                                    Page 10

<PAGE>


                            QNB CORP. AND SUBSIDIARY

                 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
                      OF OPERATIONS AND FINANCIAL CONDITION

NON-INTEREST INCOME (Continued):

and  $225,000  in  student  loans  during the first  quarters  of 2001 and 2000,
respectively. Student loan income, both interest income and the gain on the sale
of loans,  have been  negatively  impacted  by the change in pricing for student
loans by the U.S. Government in 2000.

The net gain on residential  mortgage sales is directly related to the volume of
mortgages  sold and the  timing  of the  sales  relative  to the  interest  rate
environment.  Declining interest rates during late 2000 and early 2001 increased
the amount of mortgage origination and sales activity. QNB originated $1,660,000
and  $134,000 in  mortgages  held for sale during the first  quarter of 2001 and
2000.  Proceeds  from  the  sale of  residential  mortgages  were  approximately
$738,000 and $102,000 during the first quarter of 2001 and 2000. As of March 31,
2001 QNB had  approximately  $1,117,000 in mortgage loans classified as held for
sale. These loans are accounted for at lower of cost or market.

Other  operating   income  increased  $5,000  to  $225,000  when  comparing  the
three-month  periods ended March 31, 2001 and 2000. Income of $25,000 related to
an ATM  surcharge  implemented  during the second  quarter of 2000 was partially
offset by a $12,000  decrease in ATM  interchange  income  resulting  from fewer
transactions  at QNB  machines by non-QNB  customers.  Higher  debit card income
resulting from an increase in the number of transactions  contributed $13,000 to
the increase in other income while merchant-processing  income increased $4,000.
Declines  in the  recognition  of rental  income on other real  estate  owned of
$8,000 and commissions on mutual fund sales of $5,000  partially  offset some of
these positive variances. The rental income decreased as a result of the sale of
the remaining properties.

The development of new products and services including the introduction of Trust
and Investment Management services and Title insurance services during the first
quarter of 2001 should help generate additional non-interest income.

NON-INTEREST EXPENSE

Non-interest  expense is  comprised  of costs  related to salaries  and employee
benefits, net occupancy,  furniture and equipment,  marketing, and various other
operating  expenses.  Total  non-interest  expense of $2,649,000 for the quarter
ended March 31, 2001  represents  an increase of $277,000 or 11.7  percent  from
levels reported in the first quarter of 2000.

Salaries and benefits, the largest component of non-interest expense,  increased
$51,000 or 3.6  percent to  $1,471,000  for the  quarter  ended  March 31,  2001
compared to the same quarter in 2000.  Salary expense  increased  $25,000 or 2.2
percent during the period to $1,165,000 while benefits expense increased $26,000
or 9.3 percent to $306,000.  Excluding the accrual for incentive compensation in
2000,  salary  expense  increased  5.0 percent.  The increase is related to both
merit  increases  and the increase in the number of employees due in part to the
addition of a new branch and the Trust and Investment Management department. The
increase in benefits expense is a result of a $13,000 or17.0 percent increase in
medical and dental premiums,  an $11,000 increase in payroll tax expense related
to the increase payroll costs and a $5,000 increase in retirement plan expense.

Net  occupancy  expense  increased  $53,000  or 32.1  percent to  $218,000  when
comparing the three-month  periods ended March 31, 2001 and 2000,  respectively.
An increase in branch rent expense of $34,000 was primarily  attributable to the
opening of the new branch in Souderton  in January 2001 and to the  expansion of
the Country Square  location at the end of 1999. The higher rent expense for the

                                    Page 11

<PAGE>


                            QNB CORP. AND SUBSIDIARY

                 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
                      OF OPERATIONS AND FINANCIAL CONDITION

NON-INTEREST EXPENSE (Continued):

expanded  location did not begin until the second quarter of 2000.  Depreciation
on leasehold  improvements increased $6,000 and building repairs and maintenance
expense increased  $10,000.  The cost of snow removal  contributed to the higher
building  maintenance  costs.  An  increase  in  utility  costs of  $8,000  also
contributed to the increase in net occupancy expense.

Furniture and  equipment  expense  increased  $11,000 or 4.9 percent to $243,000
when  comparing  the  first  quarter  of  2001 to the  first  quarter  of  2000.
Depreciation  expense  increased  $26,000  during  the  first  quarter  of 2001,
primarily as a result of the  depreciation on the new computer system  installed
at the end of 2000.  Partially  offsetting  this  increase  was a  reduction  in
equipment maintenance costs and disaster recovery costs on the computer system.

Marketing  expense increased $64,000 to $133,000 for the quarter ended March 31,
2001.  Advertising  and promotional  costs  pertaining to the opening of the new
branch was the major reason for the increase in marketing expense when comparing
the two  quarters.  The timing of the  purchase of some  promotional  items also
contributed to the increase in marketing expense.

Total other expense for the three months ended March 31, 2001 was  $593,000,  an
increase  of $98,000 or 19.8  percent  over the same  period in 2000.  The major
categories  that  comprise  other  expense are postage,  supplies,  professional
services,   telecommunications   costs,   insurance  expense  and  state  taxes.
Professional  service costs  increased  $30,000 with legal expense  contributing
$20,000 to the  increase.  The first  quarter of 2000  included  the recovery of
approximately  $16,000  in  legal  costs  from  prior  years.   Excluding  these
recoveries legal expense increased  $4,000.  Costs related to the startup of the
Trust  department  contributed  $11,000 to the increase in professional  service
expense.

An $18,000 increase in supplies expense, a $9,000 increase in courier expense, a
$9,000 increase in classified  advertising and an $8,000 increase in ATM network
costs also  contributed  to the  increase  in other  non-interest  expense.  The
increase in supplies expense is a combination of timing, the start-up of the new
branch and an increase related to the computer conversion. Supply purchases were
less  than  normal  during  the  first  quarter  of 2000 as many  supplies  were
purchased at the end of 1999 in preparation for Year 2000 concerns. The increase
in courier expense relates to the outsourcing of that function during the second
quarter of 2000.

INCOME TAXES

Applicable  income taxes and  effective  tax rates were $209,000 or 17.5 percent
for the  three-month  period ended March 31, 2001,  and $316,000 or 22.4 percent
for the same  period  in 2000.  The  reduction  in the  effective  tax rate when
comparing  2001 to 2000 is a result of an  increase  in income  from  tax-exempt
municipal securities and loans and an increase in dividend income subject to the
70 percent dividend exclusion relative to total pre-tax income.

QNB  utilizes an asset and  liability  approach  for  financial  accounting  and
reporting of income taxes. As of March 31, 2001 QNB's net deferred tax asset was
$257,000.  A deferred tax asset of $756,000  relating to the  allowance for loan
losses was partially  offset by a deferred tax  liability of $573,000  resulting
from the SFAS No.115 adjustment for available-for-sale investment securities. As
of March 31, 2000 QNB's net  deferred tax asset was  $2,466,000.  A deferred tax
asset of  $833,000  related to the  allowance  for loan  losses  and  $1,486,000

                                    Page 12

<PAGE>


                            QNB CORP. AND SUBSIDIARY

                 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
                      OF OPERATIONS AND FINANCIAL CONDITION

INCOME TAXES (Continued):

resulting from the SFAS No.115  adjustment  account for most of the deferred tax
asset at March 31, 2000.

BALANCE SHEET ANALYSIS

The Balance  Sheet  Analysis  reviews  average  balance sheet data for the three
months ended March 31, 2001 and 2000, as well as the period ended balances as of
March 31, 2001 and December 31, 2000.

Average earning assets for the three-month period ended March 31, 2001 increased
$30,793,000 or 9.3 percent to  $362,287,000  from  $331,494,000  for the quarter
ended March 31, 2000. Average  investments  increased  $15,724,000 while average
loans and Federal funds sold increased $11,018,000 and $3,925,000, respectively.
The large  increase in the  investment  portfolio is primarily the result of the
leverage transaction and the additional $25,000,000 in advances from the Federal
Home Loan Bank. The  additional  advance from the Federal Home Loan Bank average
$17,000,000 for the first quarter of 2001.

The 6.3 percent  increase in average loans is a result of the  development  of a
business development and calling program encompassing lending personnel,  branch
personnel and executive management. The focus of this program is to both develop
new  lending  and  deposit   relationships   as  well  as  strengthen   existing
relationships.  Average  commercial  loans  increased  $8,920,000  while average
consumer loans increased  $1,739,000 when comparing the first quarter of 2001 to
the first  quarter of 2000.  The  increase  in  consumer  loans is the result of
aggressive fixed rate home equity loan promotions and pricing.

In addition to borrowing  from the Federal Home Loan Bank, the growth in average
earning assets was funded by increases in interest-bearing  deposit accounts and
short-term  borrowings.  Average  interest-bearing  deposit  accounts  increased
$9,445,000, while average short-term borrowings increased $7,773,000. The growth
in  average  interest-bearing  deposit  accounts  is  centered  in money  market
accounts  which  increased  $8,552,000  when  comparing  the two  quarters.  The
popularity of the Treasury Select Money Market product  introduced at the end of
the first quarter of 2000 is the primary reason for this increase.  The increase
in short-term borrowings is a result of a $7,766,000 increase in commercial cash
management  balances when  comparing the two  quarters.  Average total  deposits
increased 2.4 percent when comparing the three-month periods.

Total assets at March 31, 2001 were $408,734,000,  compared with $371,671,000 at
December 31, 2000, an increase of 10.0 percent for the quarter.  This growth was
primarily  funded by the  $25,000,000  advance  from the Federal  Home Loan Bank
during the first quarter of 2001. In addition,  total  deposits  increased  from
$293,822,000  at  December  31,  2000 to  $298,531,000  at March 31,  2001 while
short-term  borrowings  increased from  $17,819,000 to $23,886,000 at these same
dates.  A  $4,860,000  increase in time  deposits is the primary  reason for the
increase in total deposits. With the decline in market interest rates during the
first quarter of 2001,  time deposit rates have stayed high relative to rates on
money market and savings  accounts.  This is due to the competitive local market
for time deposits.

The  increase in assets from  December  31, 2000 to March 31, 2001 is  primarily
centered  in  investment  securities  and  Federal  funds sold  which  increased
$28,120,000 and $10,270,000, respectively. The increase in investment securities

                                    Page 13

<PAGE>


                            QNB CORP. AND SUBSIDIARY

                 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
                      OF OPERATIONS AND FINANCIAL CONDITION

BALANCE SHEET ANALYSIS (Continued):

is  primarily  the result of the leverage  transaction.  The increase in Federal
Funds sold is a result of the desire to stay liquid in light of the  increase in
the commercial cash  management  balances which are short-term in nature and the
prospect for loan demand during the second quarter of 2001.

At March 31, 2001 the fair value of investment securities available-for-sale was
$140,878,000  or  $1,685,000  above the  amortized  cost of  $139,193,000.  This
compares to a fair value of  $114,245,000 or $98,000 below the amortized cost of
$114,343,000 at December 31, 2000. An unrealized  holding gain, net of taxes, of
$1,112,000  was  recorded as an increase  to  shareholders'  equity at March 31,
2001. An unrealized  holding  loss,  net of taxes,  of $64,000 was recorded as a
decrease to  shareholders'  equity at December 31, 2000.  Falling interest rates
during  the  first  quarter  of  2001  resulted  in the  unrealized  gain in the
portfolio as of March 31, 2001.  The growth in the  portfolio as a result of the
leverage  transaction as well as the replacement of callable  agency  securities
with mortgage-backed  securities and collateralized mortgage obligations (CMO's)
has  resulted  in a change in a change in the sector  composition  of the entire
investment  portfolio.  The percentage of the portfolio in callable agency bonds
has  decreased  to 16.5  percent of the  portfolio at March 31, 2001 versus 27.0
percent as of December 31, 2001.  During this same time period  corporate  bonds
have  increased to 9.3 percent of the portfolio from .6 percent of the portfolio
and  mortgage-backed  securities have increased to 17.8 percent of the portfolio
from 16.2 percent.  CMO's  represent  26.9 percent of the portfolio at March 31,
2001 compared to 26.1 percent at December 31, 2000.

The   available-for-sale   portfolio   had  a  weighted   average   maturity  of
approximately  5 years and 10 months at March 31, 2001 and 5 years,  4 months at
December 31, 2000. The weighted  average  tax-equivalent  yield was 6.72 percent
and 6.73 percent at March 31, 2001 and December 31, 2000.  The weighted  average
maturity is based on the stated  contractual  maturity of all securities  except
for mortgage-backed  securities,  which are based on estimated average life. The
maturity of the portfolio  may be shorter  because of call features in many debt
securities  and  because  of  prepayments  on  mortgage-backed  securities.  The
interest rate sensitivity  analysis reflects the expected maturity  distribution
of the securities portfolio based upon estimated call dates and anticipated cash
flows assuming management's most likely interest rate environment.  The expected
weighted average life of the available-for-sale  portfolio was 4 years, 6 months
at March 31, 2001 and 4 years,  2 months at December  31,  2000,  based on these
assumptions.

Investment  securities  held-to-maturity  are reported at amortized  cost. As of
March  31,  2001  and  December  31,  2000,  QNB had  securities  classified  as
held-to-maturity  with an amortized cost of $44,469,000  and  $42,982,000  and a
market value of $44,857,000 and $42,815,000,  respectively. The held-to-maturity
portfolio had an expected  weighted average maturity of approximately 3 years, 2
months  and 4 years,  8 months at March 31,  2001 and  December  31,  2000.  The
decline in the expected  weighted average maturity during the three month period
is a result of an increase in  prepayments  on mortgage  related  securities  as
interest rates have declined.

LIQUIDITY

Liquidity  represents  an  institution's  ability to generate  cash or otherwise
obtain funds at reasonable rates to satisfy commitments to borrowers and demands
of  depositors.  QNB manages  its mix of cash,  Federal  funds sold,  investment
securities  and loans in order to match the  volatility,  seasonality,  interest
sensitivity  and growth trends of its deposit funds.  Liquidity is provided from
asset  sources  through  maturities  and  repayments  of  loans  and  investment
securities,  net interest  income and fee income.  The  portfolio of  investment
securities  available-for-sale  and QNB's policy of selling certain  residential
mortgage  originations  and student loans in the  secondary  market also provide
sources of  liquidity.  Additional  sources of  liquidity  are  provided  by The

                                    Page 14

<PAGE>


                            QNB CORP. AND SUBSIDIARY

                 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
                      OF OPERATIONS AND FINANCIAL CONDITION

LIQUIDITY (Continued):

Quakertown  National  Bank's  membership  in the  Federal  Home  Loan Bank and a
$5,000,000 unsecured Federal funds line granted by the Bank's correspondent.

Cash and due from banks, Federal funds sold,  available-for-sale  securities and
loans  held-for-sale  were  $169,156,000  and $131,587,000 at March 31, 2001 and
December  31,  2000.  These  sources  were  adequate  to meet  seasonal  deposit
withdrawals  during the first  quarter of 2001 and  should be  adequate  to meet
normal  fluctuations  in loan demand and or deposit  withdrawals.  Approximately
$40,055,000 and $43,019,000 of  available-for-sale  securities at March 31, 2001
and December 31, 2000 were pledged as collateral for  repurchase  agreements and
deposits of public  funds as required  by law. In  addition,  under terms of its
agreement with the Federal Home Loan Bank, QNB maintains otherwise  unencumbered
qualifying assets  (principally 1-4 family  residential  mortgage loans and U.S.
Government  and Agency notes,  bonds,  and  mortgage-backed  securities)  in the
amount of at least as much as its advances from the Federal Home Loan Bank.

The  consolidated  statements of cash flows present the changes in cash and cash
equivalents from operating,  investing and financing activities.  QNB's cash and
cash  equivalents  decreased  $2,383,000 to $12,083,000 at March 31, 2001.  This
compares to a $6,994,000  decrease  during the first three  months of 2000.  The
large  decrease  during the first three  months of 2000 is a result of liquidity
planning for potential Year 2000 concerns. QNB increased cash at the end of 1999
as a contingency plan for any potential Year 2000 problems. This excess cash was
reinvested in  investment  securities in January and February of 2000 after Year
2001 concerns passed.

After adjusting net income for non-cash transactions,  operating activities used
$411,000 in cash flow in the first three  months of 2001,  compared to providing
$1,092,000 in the same period of 2000. An increase in residential  mortgage loan
activity as well as the reduction in accrued liabilities and payables during the
first three months of 2001 account for the net use of funds.

Net cash used by investing  activities was $37,259,000  during the first quarter
of 2001. The purchase of investment  securities exceeded the maturity,  call and
sale of  securities  by  $26,272,000  during  the first  quarter  of 2001.  This
increase  relates  primarily  to the  $25,000,000  in  purchases  as part of the
leverage  transaction.  A $10,270,000  increase in Federal funds sold was also a
use of cash  during  the  first  quarter  of 2001.  Net cash  used by  investing
activities was  $11,852,000  during the first three months of 2000. The purchase
of investment securities exceeded the maturity,  call and sales of securities by
$8,143,000  during the first quarter of 2000.  Most of this activity  relates to
the  reinvestment of the excess Year 2000 cash buildup.  A net increase in loans
of $3,463,000 was also a use of cash during the first quarter of 2001.

Net cash  provided by  financing  activities  was  $35,287,000  during the first
quarter of 2001 and $3,766,000 during the first quarter of 2000. The $25,000,000
in advances from the Federal Home Loan Bank as well as a $6,067,000  increase in
short-term borrowings and a $4,860,000 increase in time deposits account for the
large increase in cash provided by financing  activities in 2001. With regard to
the first quarter of 2000, short-term borrowings increased $3,593,000, with cash
management accounts increasing $2,152,000 and Federal funds purchased increasing
$1,332,000  during this  period.  The increase in Federal  funds  purchased is a
result of the growth in assets exceeding the growth in deposits during the first
three months of 2000.

                                    Page 15

<PAGE>


                            QNB CORP. AND SUBSIDIARY

                 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
                      OF OPERATIONS AND FINANCIAL CONDITION

CAPITAL ADEQUACY

A strong  capital  position  is  fundamental  to  support  continued  growth and
profitability,  to serve the  needs of  depositors,  and to yield an  attractive
return  for  shareholders.  QNB's  shareholders'  equity at March  31,  2001 was
$33,469,000 or 8.19 percent of total assets compared to shareholders'  equity of
$31,794,000 or 8.55 percent at December 31, 2000.  Shareholders' equity at March
31, 2001  includes a positive  adjustment  of  $1,112,000  related to unrealized
holding gains, net of taxes, on investment securities available-for-sale,  while
shareholders'  equity at December  31, 2000  includes a negative  adjustment  of
$64,000.  Without these adjustments  shareholders'  equity to total assets would
have been 7.92 percent and 8.57 percent at March  31,2001 and December 31, 2000.
The  decline in the  capital to asset  ratio is a result of the growth in assets
primarily  related to the  leverage  transaction  as well as the  success of the
stock repurchase plan.

On March 30,  2000,  the Board of  Directors  of QNB  Corp.  approved  a plan to
repurchase up to 4.99 percent or 75,410 shares of QNB Corp's  outstanding common
stock in open  market and  privately  negotiated  transactions.  As of March 31,
2001,  35,646  shares had been  repurchased  at an average cost of $28.59 and at
December 31, 2000,  32,646 shares had been repurchased at average cost of $28.58
per share.  These shares are recorded as Treasury stock at cost and reduce total
shareholder's  equity.  During the second quarter of 2000 the Board of Directors
declared a 5 percent stock  dividend paid June 30, 2000.  Per share  information
has been adjusted to reflect the impact of the stock dividend.

Shareholders' equity averaged $31,946,000 for the first three months of 2001 and
$30,991,000 during all of 2000, an increase of 3.1 percent. The ratio of average
total equity to average total assets declined to 8.29 percent for 2001, compared
to 8.53  percent  for 2000.  The  decrease  in the  equity  to asset  ratio is a
function of the growth in average assets and the stock repurchase plan mentioned
above.

QNB Corp.  and the  Quakertown  National Bank are subject to various  regulatory
capital  requirements as issued by Federal  regulatory  authorities.  Regulatory
capital is defined in terms of Tier I capital  (shareholders'  equity  excluding
unrealized gains or losses on  available-for-sale  securities),  Tier II capital
which  includes a portion of the  allowance  for loan losses,  and total capital
(Tier I plus II).  Risk-based  capital  ratios are  expressed as a percentage of
risk-weighted  assets.  Risk-weighted assets are determined by assigning various
weights to all assets and  off-balance  sheet  arrangements,  such as letters of
credit and loan  commitments,  based on associated  risk.  Regulators  have also
adopted minimum Tier I leverage ratio standards, which measure the ratio of Tier
I capital to total assets.

The minimum  regulatory capital ratios are 4.00 percent for Tier I, 8.00 percent
for the total risk-based and 4.00 percent for leverage.  Under the requirements,
QNB has a Tier I  capital  ratio of 12.98  percent  and 13.99  percent,  a total
risk-based ratio of 14.18 percent and 15.24 percent and a leverage ratio of 8.27
percent and 8.60 percent at March 31, 2001 and December 31, 2000,  respectively.
The decline in the capital  ratios  reflects the growth in assets since December
as  well  as the  changes  in the  types  of  investment  securities  purchased.
Corporate bonds have a higher risk weighting than U.S. Agency securities.

The Federal Deposit  Insurance  Corporation  Improvement Act of 1991 established
five capital level  designations  ranging from "well capitalized" to "critically
undercapitalized."  At March 31,  2001 and  December  31, 2000 QNB met the "well
capitalized" criteria which requires minimum Tier I and total risk-based capital
ratios of 6.00  percent and 10.00  percent,  respectively  and a Tier I leverage
ratio of 5.00 percent.

                                    Page 16

<PAGE>


                            QNB CORP. AND SUBSIDIARY

                 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
                      OF OPERATIONS AND FINANCIAL CONDITION

INTEREST RATE SENSITIVITY

Since the assets and liabilities of QNB have diverse re-pricing  characteristics
that influence net interest income,  management  analyzes  interest  sensitivity
through the use of gap analysis and simulation models. Interest rate sensitivity
management seeks to minimize the effect of interest rate changes on net interest
margins and interest rate spreads,  and to provide growth in net interest income
through  periods of changing  interest  rates.  The  Asset/Liability  Management
Committee  (ALCO)  is  responsible  for  managing  interest  rate  risk  and for
evaluating  the impact of changing  interest  rate  conditions  on net  interest
income.

Gap analysis measures the difference  between volumes of  rate-sensitive  assets
and liabilities  and quantifies  these  re-pricing  differences for various time
intervals. Static gap analysis describes interest rate sensitivity at a point in
time.  However, it alone does not accurately measure the magnitude of changes in
net interest income since changes in interest rates do not impact all categories
of assets and liabilities  equally or simultaneously.  Interest rate sensitivity
analysis also involves assumptions on certain categories of assets and deposits.
For purposes of interest rate sensitivity  analysis,  assets and liabilities are
stated at their  contractual  maturity,  estimated likely call date, or earliest
re-pricing  opportunity.  Mortgage-backed  securities and  amortizing  loans are
scheduled based on their  anticipated  cash flow.  Savings  accounts,  including
passbook,  statement  savings,  money market  accounts;  except for the Treasury
Select  product,  and  interest-bearing  demand  accounts,  do not have a stated
maturity or re-pricing  term and can be withdrawn or re-priced at any time. This
may impact QNB's margin if more  expensive  alternative  sources of deposits are
required to fund loans or deposit  runoff.  Management  projects the  re-pricing
characteristics   of  these  accounts  based  on  historical   performance   and
assumptions that it believes reflect their rate sensitivity. The Treasury Select
Indexed  Money Market  account  re-prices  monthly  based on a percentage of the
average of the 91-day Treasury bill.

A positive gap results when the amount of interest rate sensitive assets exceeds
interest rate sensitive  liabilities.  A negative gap results when the amount of
interest rate sensitive liabilities exceeds interest rate sensitive assets.

QNB  primarily   focuses  on  the  management  of  the  one-year  interest  rate
sensitivity gap. At March 31, 2001,  interest-earning assets scheduled to mature
or  likely to be  called,  re-priced  or  repaid in one year were  $135,913,000.
Interest-sensitive  liabilities  scheduled to mature or re-price within one year
were  $139,498,000.  The one year  cumulative gap, which reflects QNB's interest
sensitivity over a period of time, was a negative  $3,585,000 at March 31, 2001.
The cumulative  one-year gap equals -.93 percent of total earning  assets.  This
slightly  negative or liability  sensitive gap will  generally  benefit QNB in a
falling interest rate environment,  while rising interest rates could negatively
impact QNB.

QNB also uses a  simulation  model to assess the  impact of changes in  interest
rates on net  interest  income.  The  model  reflects  management's  assumptions
related to asset yields and rates paid on liabilities,  deposit sensitivity, and
the size, composition and maturity or re-pricing  characteristics of the balance
sheet. The assumptions are based on what management  believes at that time to be
the most likely interest rate environment.  Management also evaluates the impact
of higher and lower interest rates.

Actual  results  may  differ  from  simulated  results  due to  various  factors
including  time,   magnitude  and  frequency  of  interest  rate  changes,   the
relationship  or  spread  between  various  rates,   loan  pricing  and  deposit
sensitivity,  and asset/liability strategies. Based on the simulation model, net
interest  income for the next twelve  months is  expected  to increase  slightly

                                    Page 17

<PAGE>


                            QNB CORP. AND SUBSIDIARY

                 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
                      OF OPERATIONS AND FINANCIAL CONDITION

INTEREST RATE SENSITIVITY (Continued):

compared to the prior  twelve  months.  The  projected  increase in net interest
income is  primarily  the  result of growth in  earning  assets  offsetting  the
anticipated decline in the net interest margin.

If interest  rates are 100 basis  points  higher than  management's  most likely
interest rate environment, the simulation model projects net interest income for
the next  twelve  months to exceed  the most  likely  scenario.  Conversely,  if
interest  rates were 100 basis points  lower,  net interest  income for the most
likely scenario would decline.  These results are inconsistent  with the results
of the gap  analysis  described  above.  This  inconsistency  shows  some of the
inherent  weaknesses  of GAP  analysis,  which for  example,  does not factor in
interest rate floors on deposit accounts.

Management   believes  that  the   assumptions   utilized  in   evaluating   the
vulnerability  of QNB's  net  interest  income  to  changes  in  interest  rates
approximate actual experience.  However,  the interest rate sensitivity of QNB's
assets and  liabilities  as well as the estimated  effect of changes in interest
rates on net interest income could vary  substantially if different  assumptions
are  used or  actual  experience  differs  from  the  experience  on  which  the
assumptions were based.

In the event QNB should  experience  a mismatch  in its desired gap ranges or an
excessive  decline in its net interest  income  subsequent  to an immediate  and
sustained  change in interest  rates;  it has a number of options  that it could
utilize  to  remedy  such a  mismatch.  QNB  could  restructure  its  investment
portfolio  through  the sale or  purchase  of  securities  with  more  favorable
re-pricing  attributes.  It could also emphasize loan products with  appropriate
maturities or  re-pricing  attributes,  or it could  attract  deposits or obtain
borrowings with desired maturities.

The nature of QNB's current  operation is such that it is not subject to foreign
currency exchange or commodity price risk. Additionally, neither the Corporation
nor the Bank  owns  trading  assets.  At March  31,  2001,  QNB did not have any
hedging transactions in place such as interest rate swaps, caps or floors.

The table  below  summarizes  estimated  changes in net  interest  income over a
twelve-month period, under alternative interest rate scenarios.

--------------------------------------------------------------------------------
Change in Interest Rates   Net Interest Income   Dollar Change   Percent Change
--------------------------------------------------------------------------------
+300 Basis Points               $12,499            $  (346)          (2.69)%
+200 Basis Points                12,731               (114)          (0.89)
+100 Basis Points                12,903                 58             .45
FLAT RATE                        12,845                 --              --
-100 Basis Points                12,511               (334)          (2.60)
-200 Basis Points                11,842             (1,003)          (7.18)
-300 Basis Points                11,197             (1,648)         (12.83)

Management  believes,  given the current  interest rate  environment  that it is
unlikely that interest rates would decline by 200 or 300 basis points.

                                     Page 18

<PAGE>


                            QNB CORP. AND SUBSIDIARY

                 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
                      OF OPERATIONS AND FINANCIAL CONDITION

OTHER ITEMS

Management is not aware of any current  specific  recommendations  by regulatory
authorities or proposed legislation,  which if they were implemented, would have
a material adverse effect upon the liquidity,  capital resources,  or results of
operations,  although the general cost of compliance  with numerous and multiple
federal and state laws and regulations  does have, and in the future may have, a
negative impact on QNB's results of operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

The information required herein is set forth in Item 2, above.

                                    Page 19

<PAGE>


                            QNB CORP. AND SUBSIDIARY

                           PART II. OTHER INFORMATION

                                 MARCH 31, 2001

Item 1. Legal Proceedings

        None.

Item 2. Changes in Securities

        None.

Item 3. Default Upon Senior Securities

        None.

Item 4. Submission of Matters to Vote of Securities Holders

        None.

Item 5. Other Information

        None.

Item 6. Exhibits and Reports on Form 8-K

       (a)  Exhibits

The following Exhibits are included in this Report:

Exhibit 3(i)  Articles of Incorporation of Registrant, as amended. (Incorporated
              by reference to  Exhibit 3(i)  of Registrants Form 10-Q filed with
              the Commission on August 13,1998).

Exhibit 3(ii) Bylaws of  Registrant,  as amended.  (Incorporated by reference to
              Exhibit 3(ii) of  Registrants  Form 10-Q filed with the Commission
              on August 13,1998).

Exhibit 10.1  Employment Agreement between  the Registrant  and Thomas J. Bisko.
              (Incorporated  by  reference to Exhibit  10.1 of  Registrants Form
              10-K filed with the Commission on March 31, 1999).

Exhibit 10.2  Salary Continuation Agreement between the Registrant and Thomas J.
              Bisko. (Incorporated  by reference to Exhibit 10.2 of  Registrants
              Form 10-K filed with the Commission on March 31, 1999).

                                    Page 20

<PAGE>


                            QNB CORP. AND SUBSIDIARY

                           PART II. OTHER INFORMATION

                                 MARCH 31, 2001


Item 6. Exhibits and Reports on Form 8-K (Continued)

Exhibit 10.3  QNB Corp. 1998 Stock Incentive Plan. (Incorporated by reference to
              Exhibit 4.3  to Registration  Statement No. 333-91201 on Form S-8,
              filed with the Commission on November 18, 1999).

Exhibit 10.4  QNB Corp. 1988 Stock Incentive Plan. (Incorporated by reference to
              Exhibit 4A to  Registration  Statement  No. 333-16627 on Form S-8,
              filed with the Commission on November 22, 1996).

Exhibit 10.5  QNB Corp. Employee Stock Purchase Plan. (Incorporated by reference
              to Exhibit 4B to Registration Statement No. 333-16627 on Form S-8,
              filed with the Commission on November 22, 1996).

Exhibit 10.6  The Quakertown National Bank  Profit Sharing  and  Section  401(k)
              Salary  Deferral  Plan.  (Incorporated  by reference to Exhibit 4C
              to Registration  Statement No.  333-16627 on Form S-8,  filed with
              the Commission on November 22, 1996).

Exhibit 10.7  Change  of  Control  Agreement  between  Registrant  and Robert C.
              Werner (Incorporated by  reference  to Exhibit 10.7 of Registrants
              Form 10-Q filed with the Commission on November 13, 2000.)

Exhibit 10.8  Change  of  Control  Agreement  between  Registrant  and  Bret  H.
              Krevolin (Incorporated by reference to Exhibit 10.8 of Registrants
              Form 10-Q filed with the Commission on November 13, 2000.)

Exhibit 11    Statement Re: Computation of Earnings Per Share.
                 (Included in Part I, Item I, hereof.)

        (b)   Reports on Form 8-K
                 None


                                    Page 21

<PAGE>


                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  Report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized.



                                              QNB Corp.




Date:  May 14, 2001                           By:
       ------------------------------

                                              ----------------------------------
                                              Thomas J. Bisko
                                              President/CEO


Date:  May 14, 2001                           By:
       ------------------------------

                                              ----------------------------------
                                              Robert C. Werner
                                              Vice President


Date:  May 14, 2001                           By:
       ------------------------------

                                              ----------------------------------
                                              Bret H. Krevolin
                                              Chief Accounting Officer


                                    Page 22