**EXHIBIT
      10.2** **FORM
      OF 2006 INCENTIVE PLAN PERFORMANCE AGREEMENT**





**KNBT
      BANCORP, INC.**


**EXECUTIVE
      ANNUAL INCENTIVE PLAN**


**PERFORMANCE
      AGREEMENT**


**2006
      Grants**





KNBT
      Bancorp, Inc. (“KNBT”), pursuant to the terms and in accordance with the KNBT
      Bancorp, Inc. Executive Annual Incentive Plan (the “Plan”), hereby grants to
      ______________ (“Officer”) an Incentive Award under the terms set forth in this
      Performance Agreement (“Agreement”), effective as of ________________ 2006:





**1.**  **Incentive
      Award Grant.** KNBT
      grants to the Officer an Incentive Award effective as of the date set forth
      above (the “Award”). This Award is subject to the terms and conditions of this
      Agreement, and to the further terms and conditions applicable to Incentive
      Awards as set forth in the Plan.





**2.**  **Performance
      Objectives.** The
      Incentive Award to the Officer is based on KNBT’s performance for each
      Measure:





(a)
            The
                Incentive Opportunity Target for each Measure is the product of (x)
                the
                Measure’s Weight percentage, (y) the Officer’s total Incentive Opportunity
                Target percentage and (z) the Officer’s annual gross base salary on the
                first day of the Plan Year. The Incentive Opportunity Range is 50%
                of
                Target for Threshold performance and 150% of Target for Superior
                performance.





(b)
            Each
                Measure is calculated independently. If the performance falls between
                Threshold and Superior, that level is interpolated and applied to
                the
                Incentive Opportunity Range. This calculation determines the dollar
                value
                of the award for that particular Measure to the Officer.





(c)
            Performance
                below the Threshold Goal for a specific Measure results in no award
                for
                that Measure. The award for performance above the Superior Goal is
                limited
                to the Superior incentive amount for that
                Measure.





(d)
            The
                Committee in its sole discretion reserves the right to reduce the
                actual
                Incentive Award below the amount calculated in accordance with the
                above
                formulas.





(e)
            Attached
                as Appendix A hereto is the 2006 fiscal year Performance Matrix which
                contains the Measures, Goals, Weights and Incentive Opportunities
                for the
                Officer.




**3.**  **Payment
      of Incentive Award.** Payment
      with respect to the Incentive Award shall be made in cash as soon as practicable
      after the final results of the Company’s financial performance for fiscal 2006
      (which may be unaudited) have been approved by the Board and publicly announced,
      but in no case later than 74 days after the end of the fiscal year.


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**4.**  **Change
      of Employment Status.** In the
      event of a termination of the Officer’s employment with KNBT by reason of the
      death of the Officer, Disability or Retirement, a pro ration of the Incentive
      Award shall be considered for the number of full quarters of participation
      by
      the Officer during the Plan Year involved. If the Officer resigns from the
      Company during the Plan Year, the Company will use its discretion as to whether
      the Officer will lose eligibility for any potential payment pursuant to the
      Incentive Award related to the Plan Year. If the Officer resigns after the
      Plan
      Year but before the distribution of the Incentive Award for that Plan Year,
      the
      Company will use its discretion as to whether the Officer shall be entitled
      to
      receive the Incentive Award. If the Officer is terminated by KNBT for Cause
      as
      defined in the Officer’s employment or severance agreement, if applicable, the
      Officer loses eligibility for any potential payment pursuant to the Incentive
      Award related to the Plan Year. If the Officer is not a party to an employment
      or severance agreement with KNBT or one of its subsidiaries or any such
      agreement with Officer does not define Cause, then Cause shall mean, for
      purposes of this Agreement, the termination of the Officer as result of KNBT’s
      determination that the Officer has: (i) willfully failed to perform his or
      her
      assigned duties, other than any failure resulting from the Officer’s incapacity
      due to physical or mental injury or illness; (ii) committed an act involving
      moral turpitude in the course of his or her employment with KNBT or any of
      its
      subsidiaries; (iii) engaged in willful misconduct; (iv) breached his or her
      fiduciary duties for personal profit; or (v) willfully violated, in any material
      respect, any law, rule or regulation (other than traffic violations or similar
      offenses), written agreement or final cease-and-desist order with respect to
      his
      or her performance of services for KNBT or any of its subsidiaries, as
      determined by the Committee. If the Officer is terminated by KNBT without Cause,
      the Officer may be entitled to a portion of the Incentive Award for the number
      of full quarters of participation, as calculated after the end of the fiscal
      year.





**5.**  **Tax
      Withholding.** KNBT or
      any subsidiary thereof shall withhold from any payment to the Officer or other
      person under this Agreement an amount sufficient to cover any withholding taxes
      which may become required with respect to such payment or take any other action
      as it deems necessary to satisfy any income or other tax withholding
      requirements with respect to the Incentive Award.





**6.**  **Non-Transferability.** The
      Incentive Award may not be sold, transferred, or otherwise disposed of and
      shall
      not be pledged or otherwise hypothecated.





**7.**  **Employment
      and Termination.** Neither
      the Plan, this Agreement nor any related documents, communications or other
      material shall give the Officer the right to continued employment by KNBT or
      by
      any subsidiary thereof, or shall adversely affect the right of KNBT or any
      subsidiary to terminate the Officer’s employment with or without Cause at any
      time.





**8.**  **Modification
      of Agreement.** This
      Agreement may be modified, amended, suspended or terminated only in accordance
      with the terms of the Plan.






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**9.**  **Agreement
      Subject to Plan.** This
      Agreement shall be subject to the applicable provisions, definitions, terms
      and
      conditions set forth in the Plan, all of which are incorporated by this
      reference in this Agreement and, unless defined in this Agreement, any
      capitalized terms in this Agreement shall have the same meaning assigned to
      those terms under the Plan. If there is any inconsistency between the terms
      of
      this Agreement and the terms of the Plan, the Plan’s terms shall supercede and
      replace the conflicting terms of this Agreement.





**10.**  **Severability.** Should
      any provision of this Agreement be held by a court of competent jurisdiction
      to
      be unenforceable or invalid for any reason, the remaining provisions of this
      Agreement shall not be affected by such holding and shall continue in full
      force
      in accordance with their terms.





**11.**  **Governing
      Law.** Except
      to the extent pre-empted by federal law, the Plan and this Agreement shall
      be
      governed by the laws of the Commonwealth of Pennsylvania.





**12.**  **Administration.** Any
      dispute or disagreement which may arise under, or as a result of, or in any
      way
      relate to, the interpretation, construction or application of this Agreement
      shall be determined by the Committee. Any determination made hereunder shall
      be
      final, binding and conclusive on the Officer, the Officer’s heirs, executors,
      administrators and successors, and KNBT for all purposes.





IN
      WITNESS WHEREOF, this Agreement has been executed on behalf of KNBT effective
      as
      of the date first written above.





KNBT
                BANCORP, INC.By:
                __________________________________________________________________________**Name
                of Executive**








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Appendix
      A





Performance
      Matrix





Name
      of
      Officer:_______________________________


$_______
      Officer’s Base Salary for 2006


$_______
      Officer’s Target Bonus (__% of Base Salary)





**Performance**
                **Measures**
              **Weight**
              **Threshold**
                **(pays
                  50%**
                **of
                  Target)**
              **Target**
                **Performance**
              **Superior**
                **(pays
                  150%**
                **of
                  Target)**Earnings
                  Per Share (diluted)
              40%
              Goal
              $
              $
              $Award
              $_____
              $_____
              $_____Return
                  on Average Equity
              40%
              Goal
              __%
              __%
              __%Award
              $_____
              $_____
              $_____Efficiency
                  Ratio
              20%
              Goal
              __%
              __%
              __%Award
              $_____
              $_____
              $_____
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