**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**WASHINGTON,      D. C. 20549**

**FORM      10-Q**

**____________________________________**

| [                x                ]  | QUARTERLY                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE                ACT OF                1934 for the quarterly period ended **September                30, 2005** |
|--------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| OR                                   |
| [                   ] | TRANSITION                REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE                ACT OF                1934                                                                    |

|   | **Commission                File No. 000-50426** |   |
|--------|--------------------------------------------------|--------|

|                                                                                      |
|--------------------------------------------------------------------------------------|
| (Exact                Name of Registrant as Specified in its                Charter) |

| Pennsylvania                                                                  |   | 38-3681905                                          |
|-------------------------------------------------------------------------------|--------|-----------------------------------------------------|
| (State                or Other Jurisdiction of Incorporation or Organization) |   | (I.R.S.                Employer Identification No.) |

| **90                Highland Avenue, Bethlehem, PA**   |   | **18017**                 |
|--------------------------------------------------------|--------|---------------------------|
| (Address                of Principal Executive Office) |   | (Zip                Code) |

**610-861-5000**

|   | YES | X | NO |   |   |
|--------|-----|---|----|--------|--------|

|   | YES | X | NO |   |   |
|--------|-----|---|----|--------|--------|

|   | YES |   | NO | X |   |
|--------|-----|--------|----|---|--------|

----

**KNBT      BANCORP, INC. AND SUBSIDIARIES**

**INDEX**

|   |   |   | Page |
|--------|--------|--------|------|

| **PART                I - FINANCIAL                INFORMATION** |
|------------------------------------------------------------------|
|                                                             |   |   |   |
|                                                             | Item                1. | Financial                Statements | 1 |
|                                                             |   | Consolidated                Balance Sheets | 1 |
|                                                             |   | Consolidated                Statements of Income | 2 |
|                                                             |   | Consolidated                Statements of Changes in Shareholders’ Equity | 3 |
|                                                             |   | Consolidated                Statements of Cash Flows | 4 |
|                                                             |   | Notes                to Interim Consolidated Financial Statements | 5 |
|                                                             |   |   |   |
|                                                             | Item                2. | Management’s                Discussion and Analysis of Financial Condition and |   |
|                                                             |   | Results                of Operations | 16 |
|                                                             |   |   |   |
|                                                             | Item                3. | Quantitative                and Qualitative Disclosures about Market Risk | 27 |
|                                                             |   |   |   |
|                                                             | Item                4. | Controls                and Procedures | 27 |
|                                                             |   |   |   |
| **PART                II - OTHER INFORMATION**                   |
|                                                             |   |   |   |
|                                                             | Item                1. | Legal                Proceedings | 27 |
|                                                             |   |   |   |
|                                                             | Item                2. | Unregistered                Sales of Equity Securities and Use of Proceeds | 28 |
|                                                             |   |   |   |
|                                                             | Item                3. | Defaults                Upon Senior Securities | 28 |
|                                                             |   |   |   |
|                                                             | Item                4. | Submission                of Matters to a Vote of Security Holders | 28 |
|                                                             |   |   |   |
|                                                             | Item                5. | Other                Information | 28 |
|                                                             |   |   |   |
|                                                             | Item                6. | Exhibits | 28 |
|                                                             |   |   |   |
| **Signatures**                                                   | 29 |
|                                                             |   |
| **Certifications**                                               | 30 |

----

**PART      I.**

| **Item                1.** | **Financial                Statements** |
|----------------------------|-----------------------------------------|

**KNBT      BANCORP, INC. AND SUBSIDIARIES**

**CONSOLIDATED      BALANCE SHEETS**

|                                                                          |   | September                  30,                      |      | December                  31, |   |
|-------------------------------------------------------------------------------|--------|-----------------------------------------------------|-----------|-------------------------------|--------|
|                                                                          |   | 2005                                                |      | 2004                          |   |
|                                                                          |   | (unaudited)                                         |      |                          |   |
|                                                                          |   | (dollars                  in thousands)   |      |
| ASSETS                                                                        |   |                                                |      |                          |   |
| Cash                  and due from banks                                      |   | $                                                   | 50,623    |                          | $      | 30,218 |   |
| Interest-bearing                  deposits with banks                         |   |                                                | 55,081    |                          |   | 56,002 |   |
| Cash                  and cash equivalents                                    |   |                                                | 105,704   |                          |   | 86,220 |   |
| Investment                  securities available-for-sale                     |   |                                                | 1,164,660 |                          |   | 1,057,109 |   |
| Investment                  securities held to maturity                       |   |                                                | 48,833    |                          |   | 56,586 |   |
| (Fair                  value of $48,897 at Sept. 30, 2005 and                 |   |                                                |      |                          |   |   |   |
| $57,034                  at December 31, 2004)                                |   |                                                |      |                          |   |   |   |
| Federal                  Home Loan Bank of Pittsburgh stock                   |   |                                                | 43,420    |                          |   | 36,456 |   |
| Mortgage                  loans held-for-sale                                 |   |                                                | 1,806     |                          |   | 718 |   |
| Loans                                                                         |   |                                                | 1,467,363 |                          |   | 1,013,202 |   |
| Less:                  Allowance for loan losses                              |   |                                                | (15,754   | )                             |   | (10,461 | ) |
| Net                  loans                                                    |   |                                                | 1,451,609 |                          |   | 1,002,741 |   |
| Bank                  owned life insurance                                    |   |                                                | 74,297    |                          |   | 60,501 |   |
| Premises                  and equipment, net                                  |   |                                                | 48,200    |                          |   | 40,790 |   |
| Accrued                  interest receivable                                  |   |                                                | 11,286    |                          |   | 9,509 |   |
| Goodwill                                                                      |   |                                                | 101,268   |                          |   | 36,876 |   |
| Other                  intangible assets                                      |   |                                                | 31,636    |                          |   | 16,379 |   |
| Other                  assets                                                 |   |                                                | 39,683    |                          |   | 15,313 |   |
| TOTAL                  ASSETS                                                 |   | $                                                   | 3,122,402 |                          | $      | 2,419,198 |   |
|                                                                          |   |                                                |      |                          |   |   |   |
| LIABILITIES                                                                   |   |                                                |      |                          |   |   |   |
| Non-interest-bearing                  deposits                                |   | $                                                   | 189,323   |                          | $      | 128,498 |   |
| Interest-bearing                  deposits                                    |   |                                                | 1,590,680 |                          |   | 1,194,555 |   |
| Total                  deposits                                               |   |                                                | 1,780,003 |                          |   | 1,323,053 |   |
| Securities                  sold under agreements to repurchase               |   |                                                | 65,696    |                          |   | 22,643 |   |
| Advances                  from the Federal Home Loan Bank                     |   |                                                | 814,408   |                          |   | 660,674 |   |
| Subordinated                  debt                                            |   |                                                | 38,985    |                          |   | 15,464 |   |
| Accrued                  interest payable                                     |   |                                                | 9,187     |                          |   | 5,811 |   |
| Other                  liabilities                                            |   |                                                | 28,141    |                          |   | 14,199 |   |
| TOTAL                  LIABILITIES                                            |   |                                                | 2,736,420 |                          |   | 2,041,844 |   |
|                                                                          |   |                                                |      |                          |   |   |   |
| SHAREHOLDERS'                  EQUITY                                         |   |                                                |      |                          |   |   |   |
| Preferred                  stock, par value $0.01 per share                   |   |                                                |      |                          |   |   |   |
| Authorized:                  20,000,000 shares, none issued                   |   |                                                | -         |                          |   | - |   |
| Common                  stock, par value $0.01 a share                        |   |                                                | 330       |                          |   | 297 |   |
| Authorized:                  100,000,000 shares                               |   |                                                |      |                          |   |   |   |
| Issued:                                                                       |   |                                                |      |                          |   |   |   |
| 33,907,873                  shares at Sept. 30, 2005                          |   |                                                |      |                          |   |   |   |
| 30,656,840                  shares at December 31, 2004                       |   |                                                |      |                          |   |   |   |
| Additional                  paid-in capital                                   |   |                                                | 342,059   |                          |   | 296,403 |   |
| Retained                  earnings                                            |   |                                                | 124,104   |                          |   | 113,748 |   |
| Treasury                  stock, at cost; 3,285,600 and 650,000 shares at     |   |                                                |      |                          |   |   |   |
| Sept.                  30, 2005 and December 31, 2004, respectively           |   |                                                | (52,429   | )                             |   | (11,179 | ) |
| Unallocated                  common stock held                                |   |                                                |      |                          |   |   |   |
| by                  Employee Stock Ownership Plan                             |   |                                                | (14,569   | )                             |   | (15,176 | ) |
| Unearned                  common stock held                                   |   |                                                |      |                          |   |   |   |
| by                  Management Recognition and Retention Plan                 |   |                                                | (7,664    | )                             |   | (9,107 | ) |
| Accumulated                  other comprehensive income, net                  |   |                                                | (5,849    | )                             |   | 2,368 |   |
| TOTAL                  SHAREHOLDERS' EQUITY                                   |   |                                                | 385,982   |                          |   | 377,354 |   |
|                                                                          |   |                                                |      |                          |   |   |   |
| TOTAL                  LIABILITIES AND SHAREHOLDERS' EQUITY                   |   | $                                                   | 3,122,402 |                          | $      | 2,419,198 |   |
|                                                                          |   |                                                |      |                          |   |   |   |
| See                  accompanying notes to consolidated financial statements. |   |                                                |      |                          |   |   |   |

----

**KNBT      BANCORP, INC. AND SUBSIDIARIES**

**CONSOLIDATED      STATEMENTS OF INCOME**

|                                                                          |   | Three                  Months Ended September 30,              |   | Nine                  Months Ended September 30, |   |
|-------------------------------------------------------------------------------|--------|----------------------------------------------------------------|--------|--------------------------------------------------|--------|
|                                                                          |   | 2005                                                           |   | 2004                                             |   | 2005 |   | 2004 |   |
|                                                                          |   | (dollars                  in thousands, except per share data) |   |
|                                                                          |   | (unaudited)                      |   |
| INTEREST                  INCOME                                              |   |                                                           |   |                                             |   |   |   |   |   |
| Loans,                  including fees                                        |   | $                                                              | 22,036 |                                             | $      | 14,724 |   | $ | 55,089 |   | $ | 43,295 |   |
| Investment                  securities                                        |   |                                                           | 14,071 |                                             |   | 10,012 |   |   | 38,707 |   |   | 26,709 |   |
| Other                  interest                                               |   |                                                           | 338    |                                             |   | 36 |   |   | 1,226 |   |   | 314 |   |
| Total                  interest income                                        |   |                                                           | 36,445 |                                             |   | 24,772 |   |   | 95,022 |   |   | 70,318 |   |
|                                                                          |   |                                                           |   |                                             |   |   |   |   |   |   |   |   |   |
| INTEREST                  EXPENSE                                             |   |                                                           |   |                                             |   |   |   |   |   |   |   |   |   |
| Deposits                                                                      |   |                                                           | 7,730  |                                             |   | 4,492 |   |   | 19,178 |   |   | 13,384 |   |
| Securities                  sold under agreements to repurchase               |   |                                                           | 579    |                                             |   | 49 |   |   | 938 |   |   | 126 |   |
| Advances                  from the FHLB and other borrowings                  |   |                                                           | 7,303  |                                             |   | 4,036 |   |   | 19,209 |   |   | 8,900 |   |
| Subordinated                  debt                                            |   |                                                           | 671    |                                             |   | 200 |   |   | 1,336 |   |   | 560 |   |
| Total                  interest expense                                       |   |                                                           | 16,283 |                                             |   | 8,777 |   |   | 40,661 |   |   | 22,970 |   |
|                                                                          |   |                                                           |   |                                             |   |   |   |   |   |   |   |   |   |
| NET                  INTEREST INCOME                                          |   |                                                           | 20,162 |                                             |   | 15,995 |   |   | 54,361 |   |   | 47,348 |   |
| Provision                  for loan losses                                    |   |                                                           | 660    |                                             |   | 742 |   |   | 1,928 |   |   | 3,213 |   |
| Net                  interest income after provision                          |   |                                                           |   |                                             |   |   |   |   |   |   |   |   |   |
| for                  loan losses                                              |   |                                                           | 19,502 |                                             |   | 15,253 |   |   | 52,433 |   |   | 44,135 |   |
|                                                                          |   |                                                           |   |                                             |   |   |   |   |   |   |   |   |   |
| NON-INTEREST                  INCOME                                          |   |                                                           |   |                                             |   |   |   |   |   |   |   |   |   |
| Trust                  revenue                                                |   |                                                           | 608    |                                             |   | 363 |   |   | 1,427 |   |   | 1,088 |   |
| Brokerage                  services revenue                                   |   |                                                           | 592    |                                             |   | 141 |   |   | 1,707 |   |   | 418 |   |
| Caruso                  benefit group revenue                                 |   |                                                           | 1,257  |                                             |   | - |   |   | 2,773 |   |   | - |   |
| Insurance                  services revenue                                   |   |                                                           | 690    |                                             |   | - |   |   | 1,006 |   |   | - |   |
| Deposit                  service charges                                      |   |                                                           | 1,519  |                                             |   | 1,040 |   |   | 3,945 |   |   | 3,360 |   |
| Lending                  fees                                                 |   |                                                           | 416    |                                             |   | 117 |   |   | 819 |   |   | 281 |   |
| Check                  card/ATM card fees                                     |   |                                                           | 752    |                                             |   | 526 |   |   | 1,980 |   |   | 1,562 |   |
| Bank                  owned life insurance                                    |   |                                                           | 782    |                                             |   | 669 |   |   | 2,146 |   |   | 1,991 |   |
| Net                  gains on sale of investment securities                   |   |                                                           | 270    |                                             |   | 338 |   |   | 726 |   |   | 350 |   |
| Net                  gains on sale of residential mortgage loans              |   |                                                           | 152    |                                             |   | 221 |   |   | 634 |   |   | 392 |   |
| Net                  gains on sale of credit card loans                       |   |                                                           | -      |                                             |   | - |   |   | - |   |   | 298 |   |
| Net                  (losses) gains on sale of assets                         |   |                                                           | -      |                                             |   | (18 | ) |   | (72 | ) |   | 195 |   |
| Net                  (losses) gains on sale of other real estate owned        |   |                                                           | -      |                                             |   | (1 | ) |   | (14 | ) |   | 68 |   |
| Other                  non-interest operating income                          |   |                                                           | 725    |                                             |   | 444 |   |   | 1,684 |   |   | 1,242 |   |
| Total                  non-interest income                                    |   |                                                           | 7,763  |                                             |   | 3,840 |   |   | 18,761 |   |   | 11,245 |   |
|                                                                          |   |                                                           |   |                                             |   |   |   |   |   |   |   |   |   |
| NON-INTEREST                  EXPENSES                                        |   |                                                           |   |                                             |   |   |   |   |   |   |   |   |   |
| Compensation                  and employee benefits                           |   |                                                           | 9,997  |                                             |   | 7,473 |   |   | 27,324 |   |   | 22,027 |   |
| Net                  occupancy and equipment expense                          |   |                                                           | 2,911  |                                             |   | 2,318 |   |   | 7,500 |   |   | 6,105 |   |
| Professional                  fees                                            |   |                                                           | 747    |                                             |   | 540 |   |   | 1,930 |   |   | 1,351 |   |
| Advertising                                                                   |   |                                                           | 423    |                                             |   | 281 |   |   | 893 |   |   | 731 |   |
| Data                  processing                                              |   |                                                           | 697    |                                             |   | 405 |   |   | 1,612 |   |   | 1,414 |   |
| Telecommunication                                                             |   |                                                           | 490    |                                             |   | 221 |   |   | 911 |   |   | 772 |   |
| Office                  supplies and postage                                  |   |                                                           | 575    |                                             |   | 410 |   |   | 1,551 |   |   | 1,413 |   |
| Impairment                  of mortgage servicing rights                      |   |                                                           | 126    |                                             |   | 105 |   |   | 324 |   |   | 317 |   |
| Amortization                  of intangible assets                            |   |                                                           | 903    |                                             |   | 547 |   |   | 2,232 |   |   | 1,640 |   |
| Other                  operating expenses                                     |   |                                                           | 1,509  |                                             |   | 1,196 |   |   | 4,496 |   |   | 3,248 |   |
| Total                  non-interest expenses                                  |   |                                                           | 18,378 |                                             |   | 13,496 |   |   | 48,773 |   |   | 39,018 |   |
|                                                                          |   |                                                           |   |                                             |   |   |   |   |   |   |   |   |   |
| Income                  before income taxes                                   |   |                                                           | 8,887  |                                             |   | 5,597 |   |   | 22,421 |   |   | 16,362 |   |
| Income                  taxes                                                 |   |                                                           | 3,581  |                                             |   | 1,150 |   |   | 7,047 |   |   | 3,492 |   |
| NET                  INCOME                                                   |   | $                                                              | 5,306  |                                             | $      | 4,447 |   | $ | 15,374 |   | $ | 12,870 |   |
|                                                                          |   |                                                           |   |                                             |   |   |   |   |   |   |   |   |   |
| PER                  SHARE DATA                                               |   |                                                           |   |                                             |   |   |   |   |   |   |   |   |   |
| Net                  income - basic                                           |   | $                                                              | 0.18   |                                             | $      | 0.15 |   | $ | 0.53 |   | $ | 0.44 |   |
| Net                  income - diluted                                         |   | $                                                              | 0.18   |                                             | $      | 0.15 |   | $ | 0.52 |   | $ | 0.43 |   |
| Cash                  dividends paid per common share                         |   | $                                                              | 0.06   |                                             | $      | 0.05 |   | $ | 0.17 |   | $ | 0.10 |   |
|                                                                          |   |                                                           |   |                                             |   |   |   |   |   |   |   |   |   |
| See                  accompanying notes to consolidated financial statements. |   |                                                           |   |                                             |   |   |   |   |   |   |   |   |   |

----

**KNBT      BANCORP, INC. AND SUBSIDIARIES**

**CONSOLIDATED      STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY**

|                                                                        |   | Nine                  Months Ended September 30, 2005 (unaudited) |                                                                |
|-----------------------------------------------------------------------------|--------|-------------------------------------------------------------------|---------------------------------------------------------------------|
|                                                                        |   | (dollars                  in thousands)                           |                                                                |
|                                                                        |   |                                                              |                                                                |   |   |   |   |   |   |   |   |   |   |   |   | Accumulated |   |   |   |   |   |
|                                                                        |   | Common                                                            |                                                                | Treasury |   | Common |   | Add'l |   |   |   | Unallocated |   | Unearned |   | Other |   |   |   |   |   |
|                                                                        |   | Stock                                                             |                                                                | Stock |   | Stock |   | Paid                  In |   | Retained |   | ESOP |   | MRRP |   | Comprehensive |   | Treasury |   |   |   |
|                                                                        |   | Shares                                                            |                                                                | Shares |   | Value |   | Capital |   | Earnings |   | Shares |   | Shares |   | Income |   | Stock |   | Total |   |
| Balance                  January 1, 2005                                    |   |                                                              | 29,764,319                                                          |   |   | (650,000 | ) | $ | 297 |   | $ | 296,403 |   | $ | 113,748 |   | $ | (15,176 | ) | $ | (9,107 | ) | $ | 2,368 |   | $ | (11,179 | ) | $ | 377,354 |   |
|                                                                        |   |                                                              |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive                  income (loss)                                |   |                                                              |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                  income                                                 |   |                                                              |                                                                |   |   |   |   |   |   |   |   |   |   |   | 15,374 |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 15,374 |   |
| Other                  comprehensive loss net of taxes                      |   |                                                              |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| and                  reclassification adjustments                           |   |                                                              |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (8,217 | ) |   |   |   |   | (8,217 | ) |
| Total                  comprehensive Income                                 |   |                                                              |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 7,157 |   |
| Cash                  dividends                                             |   |                                                              |                                                                |   |   |   |   |   |   |   |   |   |   |   | (5,018 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   | (5,018 | ) |
| Unallocated                  ESOP shares committed to employees             |   |                                                              | 35,701                                                              |   |   |   |   |   |   |   |   | (65 | ) |   |   |   |   | 607 |   |   |   |   |   |   |   |   |   |   |   | 542 |   |
| Shares                  issued upon exercise of stock options               |   |                                                              | 24,302                                                              |   |   |   |   |   |   |   |   | 123 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 123 |   |
| Acquisition                  of Northeast Pennsylvania Financial Corp       |   |                                                              | 3,226,731                                                           |   |   |   |   |   | 33 |   |   | 45,432 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 45,465 |   |
| Purchases                  of treasury stock                                |   |                                                              |                                                                |   |   | (2,635,600 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (41,250 | ) |   | (41,250 | ) |
| Amortization                  of compensation of advisory directors options |   |                                                              |                                                                |   |   |   |   |   |   |   |   | 15 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 15 |   |
| Establishment                  of a Management Recognition                  |   |                                                              |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | - |   |
| and                  Retention Plan (MRRP)                                  |   |                                                              |                                                                |   |   |   |   |   |   |   |   | 151 |   |   |   |   |   |   |   |   | (151 | ) |   |   |   |   |   |   |   |   |   |
| Amortization                  of compensation related to MRRP               |   |                                                              |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 1,594 |   |   |   |   |   |   |   |   | 1,594 |   |
| Balance                  at September 30, 2005                              |   |                                                              | 33,051,053                                                          |   |   | (3,285,600 | ) | $ | 330 |   | $ | 342,059 |   | $ | 124,104 |   | $ | (14,569 | ) | $ | (7,664 | ) | $ | (5,849 | ) | $ | (52,429 | ) | $ | 385,982 |   |
|                                                                        |   |                                                              |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                             |   |                                                              | Nine                    Months Ended September 30, 2004 (unaudited) |   |
|                                                                             |   |                                                              | (dollars                    in thousands)                           |   |
|                                                                             |   |                                                              |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | Accumulated |   |   |   |   |   |   |   |
|                                                                             |   |                                                              | Common                                                         |   |   | Treasury |   |   | Common |   |   | Add'l |   |   |   |   |   | Unallocated |   |   | Unearned |   |   | Other |   |   |   |   |   |   |   |
|                                                                        |   |                                                              | Stock                                                               |   |   | Stock |   |   | Stock |   |   | Paid                  In |   |   | Retained |   |   | ESOP |   |   | MRRP |   |   | Comprehensive |   |   | Treasury |   |   |   |   |
|                                                                        |   |                                                              | Shares                                                              |   |   | Shares |   |   | Value |   |   | Capital |   |   | Earnings |   |   | Shares |   |   | Shares |   |   | Income |   |   | Stock |   |   | Total |   |
| Balance                  January 1, 2004                                    |   |                                                              | 29,479,275                                                          |   |   | - |   | $ | 295 |   | $ | 297,887 |   | $ | 100,570 |   | $ | (15,987 | ) | $ | - |   | $ | 6,315 |   | $ | - |   | $ | 389,080 |   |
|                                                                        |   |                                                              |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive                  income (loss)                                |   |                                                              |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                  income                                                 |   |                                                              |                                                                |   |   |   |   |   |   |   |   |   |   |   | 12,870 |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 12,870 |   |
| Other                  comprehensive loss net of taxes                      |   |                                                              |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| and                  reclassification adjustments                           |   |                                                              |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (2,558 | ) |   |   |   |   | (2,558 | ) |
| Total                  comprehensive loss                                   |   |                                                              |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 10,312 |   |
| Cash                  dividends                                             |   |                                                              |                                                                |   |   |   |   |   |   |   |   |   |   |   | (2,964 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   | (2,964 | ) |
| Purchase                  of shares for Management Recognition              |   |                                                              |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| and                  Retention Plan (MRRP)                                  |   |                                                              |                                                                |   |   |   |   |   |   |   |   | (13,281 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (13,281 | ) |
| Unallocated                  ESOP shares committed to employees             |   |                                                              | 35,701                                                              |   |   |   |   |   |   |   |   | (14 | ) |   |   |   |   | 608 |   |   |   |   |   |   |   |   |   |   |   | 594 |   |
| Shares                  issued upon exercise of stock options               |   |                                                              | 205,464                                                             |   |   |   |   |   | 2 |   |   | 1,113 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 1,115 |   |
| Establishment                  of a MRRP                                    |   |                                                              |                                                                |   |   |   |   |   |   |   |   | 10,527 |   |   |   |   |   |   |   |   | (10,527 | ) |   |   |   |   |   |   |   | - |   |
| Amortization                  of compensation related to MRRP               |   |                                                              |                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 887 |   |   |   |   |   |   |   |   | 887 |   |
| Balance                  at September 30, 2004                              |   |                                                              | 29,720,440                                                          |   |   | - |   | $ | 297 |   | $ | 296,232 |   | $ | 110,476 |   | $ | (15,379 | ) | $ | (9,640 | ) | $ | 3,757 |   |   | - |   | $ | 385,743 |   |

----

**KNBT      BANCORP, INC. AND SUBSIDIARIES**

**CONSOLIDATED      STATEMENTS OF CASH FLOWS**
** **
**KNBT      BANCORP, INC. AND SUBSIDIARIES**

|                                                                                                |   | Nine                months ended September 30,    |     |
|-----------------------------------------------------------------------------------------------------|--------|---------------------------------------------------|----------|
|                                                                                                |   | 2005                                              |     | 2004 |   |
|                                                                                                |   | (dollars                in thousands)   |     |
| **OPERATING                ACTIVITIES:**                                                            |   |                                              |     |   |   |
| Net                income                                                                           |   | $                                                 | 15,374   |   | $ | 12,870 |   |
| Adjustments                to reconcile net income to net cash                                      |   |                                              |     |   |   |   |   |
| Provided                by operating activities:                                                    |   |                                              |     |   |   |   |   |
| Provision                for loan losses                                                            |   |                                              | 1,928    |   |   | 3,213 |   |
| Depreciation                and amortization                                                        |   |                                              | 6,334    |   |   | 6,501 |   |
| Deferred                income tax charge                                                           |   |                                              | 1,100    |   |   | - |   |
| Compensation                expense-stock option plan                                               |   |                                              | 15       |   |   | 10 |   |
| Management                Recognition and Retention Plan expense                                    |   |                                              | 1,594    |   |   | 877 |   |
| ESOP                expense                                                                         |   |                                              | 542      |   |   | 594 |   |
| Amortization                and accretion of securities premiums and discounts, net                 |   |                                              | 879      |   |   | 1,840 |   |
| (Gain)                loss on sale of other real estate owned                                       |   |                                              | 14       |   |   | (68 | ) |
| Net                (gain) on sales of investment securities                                         |   |                                              | (726     | ) |   | (350 | ) |
| Gain                on sale of credit card portfolio                                                |   |                                              | -        |   |   | (298 | ) |
| (Gain)                loss on sale of other assets                                                  |   |                                              | 72       |   |   | (195 | ) |
| Gain                on sale of mortgage loans                                                       |   |                                              | (634     | ) |   | (392 | ) |
| Mortgage                loans originated for sale                                                   |   |                                              | (45,806  | ) |   | (36,776 | ) |
| Mortgage                loan sales                                                                  |   |                                              | 45,964   |   |   | 39,865 |   |
| Changes                in assets and liabilities:                                                   |   |                                              |     |   |   |   |   |
| Increase                in Bank Owned Life Insurance                                                |   |                                              | (2,146   | ) |   | (1,991 | ) |
| Decrease                (increase) in accrued interest receivable                                   |   |                                              | 1,097    |   |   | (1,794 | ) |
| Decrease                in other assets                                                             |   |                                              | (2,868   | ) |   | (10,852 | ) |
| Increase                (decrease) in other liabilities and accrued interest                payable |   |                                              | 11,052   |   |   | (1,637 | ) |
| Net                cash provided by operating activities                                            |   |                                              | 33,785   |   |   | 11,417 |   |
|                                                                                                |   |                                              |     |   |   |   |   |
| **INVESTING                ACTIVITIES:**                                                            |   |                                              |     |   |   |   |   |
| Proceeds                from calls and maturities of securities available-for-sale                  |   |                                              | 153,143  |   |   | 109,851 |   |
| Proceeds                from calls and maturities of securities held-to maturity                    |   |                                              | 8,186    |   |   | - |   |
| Proceeds                from sales of securities available-for-sale                                 |   |                                              | 96,136   |   |   | 12,237 |   |
| Purchase                of securities available-for-sale                                            |   |                                              | (81,606  | ) |   | (371,598 | ) |
| Purchase                of securities held to maturity                                              |   |                                              | (296     | ) |   | (59,751 | ) |
| Purchase                of Federal Home Loan Bank of Pittsburgh stock                               |   |                                              | (786     | ) |   | (18,795 | ) |
| Redemption                of Federal Home Loan Bank of Pittsburgh stock                             |   |                                              | 5,872    |   |   | - |   |
| Proceeds                from the sale of credit card loans                                          |   |                                              | -        |   |   | 1,831 |   |
| Net                (increase) in loans                                                              |   |                                              | (77,370  | ) |   | (117,861 | ) |
| Cash                paid for acquisitions                                                           |   |                                              | (65,452  | ) |   | - |   |
| Cash                and cash equivalents obtained through acquisitions                              |   |                                              | 54,696   |   |   | - |   |
| Purchase                of premises and equipment                                                   |   |                                              | (847     | ) |   | (7,813 | ) |
| Proceeds                from the sale of other assets                                               |   |                                              | 1,413    |   |   | 775 |   |
| Proceeds                from the sale of other real estate owned                                    |   |                                              | 202      |   |   | 364 |   |
| Net                cash provided by (used in) investing activities                                  |   |                                              | 93,291   |   |   | (450,760 | ) |
|                                                                                                |   |                                              |     |   |   |   |   |
| **FINANCING                ACTIVITIES:**                                                            |   |                                              |     |   |   |   |   |
| Net                increase (decrease) in deposits                                                  |   |                                              | 7,475    |   |   | (2,586 | ) |
| Net                increase (decrease) in repurchase agreements                                     |   |                                              | 2,837    |   |   | (4,049 | ) |
| Proceeds                from long-term debt                                                         |   |                                              | 78,500   |   |   | 408,612 |   |
| Payments                on long-term debt                                                           |   |                                              | (150,259 | ) |   | (47,652 | ) |
| Purchase                of treasury stock                                                           |   |                                              | (41,250  | ) |   | - |   |
| Purchase                of shares for the Management Recognition and Retention                Plan  |   |                                              | -        |   |   | (13,281 | ) |
| Proceeds                from the exercise of stock options                                          |   |                                              | 123      |   |   | 1,115 |   |
| Cash                dividends paid                                                                  |   |                                              | (5,018   | ) |   | (2,964 | ) |
| Net                cash provided by (used in) financing activities                                  |   |                                              | (107,592 | ) |   | 339,195 |   |
| Increase                (decrease) in cash and cash equivalents                                     |   |                                              | 19,484   |   |   | (100,148 | ) |
| Cash                and cash equivalents January 1,                                                 |   |                                              | 86,220   |   |   | 138,977 |   |
| Cash                and cash equivalents September 30,                                              |   | $                                                 | 105,704  |   | $ | 38,829 |   |
|                                                                                                |   |                                              |     |   |   |   |   |
| Supplemental                disclosure of cash flow information                                     |   |                                              |     |   |   |   |   |
| Cash                paid during the period for                                                      |   |                                              |     |   |   |   |   |
| Income                taxes                                                                         |   | $                                                 | 3,900    |   | $ | 1,552 |   |
| Interest                on deposits, advances and other borrowed money                              |   | $                                                 | 39,971   |   | $ | 21,737 |   |
| Supplemental                disclosures of non-cash activities                                      |   |                                              |     |   |   |  |   |
| Reclassification                of loans receivable to other real estate owned                      |   | $                                                 | 241      |   | $ | 326 |   |
|                                                                                                |   |                                              |     |   |   |   |   |
| Acquisition                of Northeast Pennsylvania Financial Corp., stock issued                  |   | $                                                 | 45,465   |   | $ | - |   |
|                                                                                                |   |                                              |     |   |   |   |   |
|                                                                                                |   |                                              |     |   |   |   |   |
| See                accompanying notes to consolidated financial statements.                         |   |                                              |     |   |   |   |   |

----

**NOTES      TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS**(unaudited)

**NOTE      A - BASIS OF PRESENTATION**

**NOTE      B - BASIS OF CONSOLIDATION**

----

**NOTE      C - CONVERSION AND ACQUISITIONS**

**Oakwood      Financial Corp.**

**Caruso      Benefits Group, Inc.**

**Northeast      Pennsylvania Financial Corp.**

----

|                                                      |   | At                  May 19, 2005        |    |
|-----------------------------------------------------------|--------|-----------------------------------------|---------|
|                                                           |   | (dollars                  in thousands) |    |
|                                                      |   |                                    |    |
| Assets:                                                   |   |                                    |    |
| Cash                  and cash equivalents                |   | $                                       | 51,078  |   |
| Investment                  securities available for sale |   |                                    | 301,751 |   |
| Loans                                                     |   |                                    | 379,397 |   |
| Less:                  allowance for loan losses          |   |                                    | (5,281  | ) |
| Net                  loans                                |   |                                    | 374,116 |   |
| Other                  assets                             |   |                                    | 58,763  |   |
| Total                  assets                             |   |                                    | 785,708 |   |
|                                                      |   |                                    |    |   |
| Liabilities:                                              |   |                                    |    |   |
| Non-interest                  bearing deposits            |   |                                    | 47,281  |   |
| Interest-bearing                  deposits                |   |                                    | 403,130 |   |
| FHLB                  advances and other borrowings       |   |                                    | 290,154 |   |
| Other                  liabilities                        |   |                                    | 7,104   |   |
| Total                  liabilities                        |   |                                    | 747,669 |   |
|                                                      |   |                                    |    |   |
| Net                  assets acquired                      |   | $                                       | 38,039  |   |

| (dollars                  in thousands)                                                              |   |   |   |
|------------------------------------------------------------------------------------------------------|--------|--------|--------|
|                                                                                                 |   |   |   |
| Purchase                  price :                                                                    |   |   |   |
| Purchase                  price for shares exchanged for common stock                                |   | $      | 45,465 |   |
| Purchase                  Price for shares exchanged for cash                                        |   |   | 45,452 |   |
| Total                  purchase price                                                                |   |   | 90,917 |   |
| Net                  assets acquired:                                                                |   |   |   |   |
| Seller's                  shareholders' equity, net of intangible assets                             |   |   | 38,039 |   |
| Excess                  purchase price                                                               |   |   | 52,878 |   |
|                                                                                                 |   |   |   |   |
| Estimated                  adjustments to reflect assets acquired at fair value:                     |   |   |   |   |
| Investments                  (amortized over the actual life of the securities)                      |   |   | (77    | ) |
| Loans                  (five year weighted average life)                                             |   |   | (78    | ) |
| Core                  deposit intangible (ten year amortization)                                     |   |   | (6,626 | ) |
| Premises                  (twenty year amortization)                                                 |   |   | 2,778  |   |
| Estimated                  adjustments to reflect liabilities acquired at fair value:                |   |   |   |   |
| Deposits                  (amortized over a five year weighted average life)                         |   |   | 938    |   |
| FHLB                  advances (amortized over an eight year weighted average                  life) |   |   | 3,908  |   |
| Other                  borrowings                                                                    |   |   | 2,967  |   |
| Deferred                  taxes                                                                      |   |   | (2,629 | ) |
| Goodwill                  impact of purchase accounting adjustments                                  |   |   | 1,181  |   |
| Goodwill                  resulting from merger                                                      |   | $      | 54,059 |   |

----

**NOTE      D - EARNINGS PER SHARE**

| For                  the three months ended September 30,  |   |                                                                                                                         |                                                                                                                            | 2005          |   |                       |   |        |                       | 2004          |   |                       |   |
|------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------|---------------|--------|----------------------------|--------|-------------|----------------------------|---------------|--------|----------------------------|--------|
|                                                       |   | Net                                                                                                                          |                                                                                                                            | Average       |   |                       |   | Net         |                       | Average       |   |                       |   |
|                                                       |   | Income                                                                                                                       |                                                                                                                            | Shares        |   | Per                  Share |   | Income      |                       | Shares        |   | Per                  Share |   |
|                                                       |   | (numerator)                                                                                                                  |                                                                                                                            | (denominator) |   | Amount                     |   | (numerator) |                       | (denominator) |   | Amount                     |   |
|                                                       |   | (dollars                  in thousands, except per share                  amounts)        |                                                                                                                            |
| Basic                  earnings per share                  |   |                                                                                                                         |                                                                                                                            |          |   |                       |   |        |                       |          |   |                       |   |
| Income                  available to common shareholders   |   | $                                                                                                                            | 5,306                                                                                                                           |          |   | 29,681,764                 |   | $           | 0.18                       |          | $      | 4,447                      |   |   | 28,875,080 |   | $ | 0.15 |   |
| Effect                  of dilutive securities             |   |                                                                                                                         |                                                                                                                            |          |   |                       |   |        |                       |          |   |                       |   |   |   |   |   |   |   |
| Stock                  options                             |   |                                                                                                                         |                                                                                                                            |          |   | 209,955                    |   |        | -                          |          |   |                       |   |   | 370,998 |   |   | - |   |
| Management                  Recognition and Retention Plan |   |                                                                                                                         |                                                                                                                            |          |   | 163,158                    |   |        | -                          |          |   |                       |   |   | 39,172 |   |   | - |   |
| Total                  effect of dilutive securities       |   |                                                                                                                         |                                                                                                                            |          |   | 373,113                    |   |        | -                          |          |   |                       |   |   | 410,170 |   |   | - |   |
| Diluted                  earnings per share                |   |                                                                                                                         |                                                                                                                            |          |   |                       |   |        |                       |          |   |                       |   |   |   |   |   |   |   |
| Income                  available to common shareholders   |   |                                                                                                                         |                                                                                                                            |          |   |                       |   |        |                       |          |   |                       |   |   |   |   |   |   |   |
| plus                  assumed exercise of options          |   | $                                                                                                                            | 5,306                                                                                                                           |          |   | 30,054,877                 |   | $           | 0.18                       |          | $      | 4,447                      |   |   | 29,285,250 |   | $ | 0.15 |   |
|                                                       |   |                                                                                                                         |                                                                                                                            |          |   |                       |   |        |                       |          |   |                       |   |   |   |   |   |   |   |
| For                  the nine months ended September 30,   |   |                                                                                                                         |                                                                                                                            |          |   | 2005                  |   |        |                       |          |   |                       |   |   | 2004  |   |   |   |   |
|                                                       |   |                                                                                                                         | Net                                                                                                                        |          |   | Average                    |   |        |                       |          |   | Net                        |   |   | Average |   |   |   |   |
|                                                       |   |                                                                                                                         | Income                                                                                                                     |          |   | Shares                     |   |        | Per                  Share |          |   | Income                     |   |   | Shares |   |   | Per                  Share |   |
|                                                            |   |                                                                                                                         | (numerator)                                                                                                                |          |   | (denominator)              |   |        | Amount                     |          |   | (numerator)                |   |   | (denominator) |   |   | Amount |   |
|                                                            |   |                                                                                                                         | (dollars                  in thousands, except per share                  data)         |          |
| Basic                  earnings per share                  |   |                                                                                                                         |                                                                                                                            |          |   |                       |   |        |                       |          |   |                       |   |   |   |   |   |   |   |
| Income                  available to common shareholders   |   | $                                                                                                                            | 15,374                                                                                                                          |          |   | 29,094,049                 |   | $           | 0.53                       |          | $      | 12,870                     |   |   | 29,219,824 |   | $ | 0.44 |   |
| Effect                  of dilutive securities             |   |                                                                                                                         |                                                                                                                            |          |   |                       |   |        |                       |          |   |                       |   |   |   |   |   |   |   |
| Stock                  options                             |   |                                                                                                                         |                                                                                                                            |          |   | 205,820                    |   |        | -                          |          |   |                       |   |   | 427,494 |   |   | - |   |
| Management                  Recognition and Retention Plan |   |                                                                                                                         |                                                                                                                            |          |   | 145,982                    |   |        | -                          |          |   |                       |   |   | 55,216 |   |   | - |   |
| Total                  effect of dilutive securities       |   |                                                                                                                         |                                                                                                                            |          |   | 351,802                    |   | $           | (0.01                      | )             |   |                       |   |   | 482,710 |   | $ | (0.01 | ) |
| Diluted                  earnings per share                |   |                                                                                                                         |                                                                                                                            |          |   |                       |   |        | -                          |          |   |                       |   |   |   |   |   | - |   |
| Income                  available to common shareholders   |   |                                                                                                                         |                                                                                                                            |          |   |                       |   |        |                       |          |   |                       |   |   |   |   |   |   |   |
| plus                  assumed exercise of options          |   | $                                                                                                                            | 15,374                                                                                                                          |          |   | 29,445,851                 |   | $           | 0.52                       |          | $      | 12,870                     |   |   | 29,702,534 |   | $ | 0.43 |   |

----

**NOTE      E - INVESTMENT SECURITIES**

|                                                 |   | At                  September 30, 2005 (unaudited) |      |
|------------------------------------------------------|--------|----------------------------------------------------|-----------|
|                                                 |   |                                               |      | Gross |   | Gross |   |   |   |
|                                                 |   | Amortized                                          |      | Unrealized |   | Unrealized |   | Fair |   |
|                                                 |   | Cost                                               |      | Gains |   | Losses |   | Value |   |
|                                                 |   | (dollars                  in thousands)            |      |
| Held                  to maturity:                   |   |                                               |      |   |   |   |   |   |   |
| U.S.                  Government and agencies        |   | $                                                  | 149       |   | $ | - |   | $ | - |   | $ | 149 |   |
| Obligations                  of states and political |   |                                               |      |   |   |   |   |   |   |   |   |   |   |
| subdivisions                                         |   |                                               | 5,501     |   |   | 237 |   |   | - |   |   | 5,738 |   |
| Mortgage-backed                  securities          |   |                                               |      |   |   |   |   |   |   |   |   |   |   |
| FNMA                                                 |   |                                               | 21,364    |   |   | - |   |   | (100 | ) |   | 21,264 |   |
| CMOs                                                 |   |                                               | 21,819    |   |   | 10 |   |   | (83 | ) |   | 21,746 |   |
| Total                  mortgage-backed securities    |   |                                               | 43,183    |   |   | 10 |   |   | (183 | ) |   | 43,010 |   |
| Total                  held to maturity              |   |                                               | 48,833    |   |   | 247 |   |   | (183 | ) |   | 48,897 |   |
|                                                 |   |                                               |      |   |   |   |   |   |   |   |   |   |   |
| Available                  for sale:                 |   |                                               |      |   |   |   |   |   |   |   |   |   |   |
| U.S.                  Government and agencies        |   |                                               | 157,575   |   |   | 345 |   |   | (1,341 | ) |   | 156,579 |   |
| Obligations                  of states and political |   |                                               |      |   |   |   |   |   |   |   |   |   |   |
| subdivisions                                         |   |                                               | 64,297    |   |   | 2,507 |   |   | (8 | ) |   | 66,796 |   |
| Asset-managed                  funds                 |   |                                               | 4,904     |   |   | - |   |   | (147 | ) |   | 4,757 |   |
| Federated                  Liquid Cash Trust         |   |                                               | 36        |   |   | - |   |   | - |   |   | 36 |   |
| Mortgage-backed                  securities          |   |                                               |      |   |   |   |   |   |   |   |   |   |   |
| GNMA                                                 |   |                                               | 2,582     |   |   | 43 |   |   | - |   |   | 2,625 |   |
| FHLMC                                                |   |                                               | 139,726   |   |   | 117 |   |   | (1,527 | ) |   | 138,316 |   |
| FNMA                                                 |   |                                               | 429,524   |   |   | 597 |   |   | (4,663 | ) |   | 425,458 |   |
| CMOs                                                 |   |                                               | 285,002   |   |   | 21 |   |   | (5,523 | ) |   | 279,500 |   |
| Total                  mortgage-backed securities    |   |                                               | 856,834   |   |   | 778 |   |   | (11,713 | ) |   | 845,899 |   |
| Corporate                  and other debt securities |   |                                               | 73,647    |   |   | 473 |   |   | (51 | ) |   | 74,069 |   |
| Equity                  securities                   |   |                                               | 16,231    |   |   | 667 |   |   | (374 | ) |   | 16,524 |   |
| Total                  available for sale            |   |                                               | 1,173,524 |   |   | 4,770 |   |   | (13,634 | ) |   | 1,164,660 |   |
|                                                 |   |                                               |      |   |   |   |   |   |   |   |   |   |   |
| Total                  investment securities         |   | $                                                  | 1,222,357 |   | $ | 5,017 |   | $ | (13,817 | ) | $ | 1,213,557 |   |

----

|                                               |   | At                December 31, 2004   |      |
|----------------------------------------------------|--------|---------------------------------------|-----------|
|                                               |   |                                  |      | Gross |   | Gross |   |   |   |
|                                               |   | Amortized                             |      | Unrealized |   | Unrealized |   | Fair |   |
|                                               |   | Cost                                  |      | Gains |   | Losses |   | Value |   |
|                                               |   | (dollars                in thousands) |      |
| Held                to maturity:                   |   |                                  |      |   |   |   |   |   |   |
| Obligations                of states and political |   |                                  |      |   |   |   |   |   |   |
| subdivisions                                       |   | $                                     | 5,510     |   | $ | 39 |   | $ | (4 | ) | $ | 5,545 |   |
| Mortgage-backed                securities          |   |                                  |      |   |   |   |   |   |   |   |   |   |   |
| FNMA                                               |   |                                  | 25,893    |   |   | 100 |   |   | - |   |   | 25,993 |   |
| CMOs                                               |   |                                  | 25,183    |   |   | 313 |   |   |   |   |   | 25,496 |   |
| Total                mortgage-backed securities    |   |                                  | 51,076    |   |   | 413 |   |   | - |   |   | 51,489 |   |
| Total                held to maturity              |   |                                  | 56,586    |   |   | 452 |   |   | (4 | ) |   | 57,034 |   |
|                                               |   |                                  |      |   |   |   |   |   |   |   |   |   |   |
| Available                for sale:                 |   |                                  |      |   |   |   |   |   |   |   |   |   |   |
| U.S.                Government and agencies        |   |                                  | 174,864   |   |   | 1,562 |   |   | (777 | ) |   | 175,649 |   |
| Obligations                of states and political |   |                                  |      |   |   |   |   |   |   |   |   |   |   |
| subdivisions                                       |   |                                  | 104,476   |   |   | 2,249 |   |   | (151 | ) |   | 106,574 |   |
| Asset-managed                funds                 |   |                                  | 4,904     |   |   | - |   |   | (93 | ) |   | 4,811 |   |
| Federated                Liquid Cash Trust         |   |                                  | 35        |   |   | - |   |   | - |   |   | 35 |   |
| Mortgage-backed                securities          |   |                                  |      |   |   |   |   |   |   |   |   |   |   |
| GNMA                                               |   |                                  | 1,416     |   |   | 44 |   |   | - |   |   | 1,460 |   |
| FHLMC                                              |   |                                  | 104,476   |   |   | 524 |   |   | (346 | ) |   | 104,654 |   |
| FNMA                                               |   |                                  | 308,923   |   |   | 2,975 |   |   | (1,257 | ) |   | 310,641 |   |
| CMOs                                               |   |                                  | 277,485   |   |   | 522 |   |   | (2,125 | ) |   | 275,882 |   |
| Total                mortgage-backed securities    |   |                                  | 692,300   |   |   | 4,065 |   |   | (3,728 | ) |   | 692,637 |   |
| Corporate                and other debt securities |   |                                  | 9,029     |   |   | 168 |   |   | - |   |   | 9,197 |   |
| Equity                securities                   |   |                                  | 67,914    |   |   | 1,093 |   |   | (801 | ) |   | 68,206 |   |
| Total                available for sale            |   |                                  | 1,053,522 |   |   | 9,137 |   |   | (5,550 | ) |   | 1,057,109 |   |
|                                               |   |                                  |      |   |   |   |   |   |   |   |   |   |   |
| Total                investment securities         |   | $                                     | 1,110,108 |   | $ | 9,589 |   | $ | (5,554 | ) | $ | 1,114,143 |   |

**NOTE      F - STOCK-BASED COMPENSATION**

----

|                                                            |   | Three                  months ended                                                                              |   | Nine                  months ended |   |
|-----------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------|--------|------------------------------------|--------|
|                                                            |   | September                  30,                                                                                   |   | September                  30,     |   |
|                                                            |   | 2005                                                                                                             |   | 2004                               |   | 2005 |   | 2004 |   |
|                                                            |   | (dollars                  in thousands, except per share                  amounts)      |   |
| Net                  Income                                     |   |                                                                                                             |   |                               |   |   |   |   |   |
| As                  reported                                    |   | $                                                                                                                | 5,306  |                               | $      | 4,447 |   | $ | 15,374 |   |   | 12870 |   |
| Add:                  Stock-based employee compensation expense |   |                                                                                                             |   |                               |   |   |   |   |   |   |   |   |   |
| included                  in reported net income, net           |   |                                                                                                             |   |                               |   |   |   |   |   |   |   |   |   |
| of                  related tax effects                         |   |                                                                                                             | 6      |                               |   | 6 |   |   | 18 |   |   | 10 |   |
| Less:                  Stock-based compensation cost determined |   |                                                                                                             |   |                               |   |   |   |   |   |   |   |   |   |
| under                  fair value method for all awards, net    |   |                                                                                                             |   |                               |   |   |   |   |   |   |   |   |   |
| of                  related tax effects                         |   |                                                                                                             | 168    |                               |   | 138 |   |   | 495 |   |   | 231 |   |
| Pro-forma                                                       |   | $                                                                                                                | 5,144  |                               | $      | 4,315 |   | $ | 14,897 |   | $ | 12,649 |   |
|                                                            |   |                                                                                                             |   |                               |   |   |   |   |   |   |   |   |   |
| Earnings                  per share (Diluted)                   |   |                                                                                                             |   |                               |   |   |   |   |   |   |   |   |   |
| As                  reported                                    |   | $                                                                                                                | 0.18   |                               | $      | 0.15 |   | $ | 0.52 |   | $ | 0.43 |   |
| Pro-forma                                                       |   | $                                                                                                                | 0.18   |                               | $      | 0.15 |   | $ | 0.51 |   | $ | 0.43 |   |
|                                                            |   |                                                                                                             |   |                               |   |   |   |   |   |   |   |   |   |
| Earnings                  per share (Basic)                     |   |                                                                                                             |   |                               |   |   |   |   |   |   |   |   |   |
| As                  reported                                    |   | $                                                                                                                | 0.18   |                               | $      | 0.15 |   | $ | 0.53 |   | $ | 0.44 |   |
| Pro-forma                                                       |   | $                                                                                                                | 0.17   |                               | $      | 0.15 |   | $ | 0.51 |   | $ | 0.43 |   |

*Share-Based      Payment Statement 123(R)*
*FASB      No.123, Accounting for Stock-Based Compensation*
*Accounting      for Stock Issued to Employees*

----

*Share-Based      Payment*
*,*

----

**NOTE      G - LOANS**

|                                               |   | September                  30,                      |      | December                  31, |   |
|----------------------------------------------------|--------|-----------------------------------------------------|-----------|-------------------------------|--------|
|                                               |   | 2005                                                |      | 2004                          |   |
|                                               |   | (unaudited)                                         |      |                          |   |
|                                               |   | (dollars                  in thousands)   |      |
| Real                  estate                       |   |                                                |      |                          |   |
| Residential                                        |   | $                                                   | 443,093   |                          | $      | 326,552 |   |
| Construction                                       |   |                                                | 106,848   |                          |   | 106,361 |   |
| Commercial                                         |   |                                                | 321,191   |                          |   | 231,132 |   |
| Total                  real estate                 |   |                                                | 871,132   |                          |   | 664,045 |   |
|                                               |   |                                                |      |                          |   |   |   |
| Consumer                  loans                    |   |                                                | 488,828   |                          |   | 297,935 |   |
| Commercial                  (non-real estate)      |   |                                                | 108,333   |                          |   | 50,691 |   |
| States                  and political subdivisions |   |                                                | 970       |                          |   | 1,170 |   |
| Total                  gross loans                 |   |                                                | 1,469,263 |                          |   | 1,013,841 |   |
|                                               |   |                                                |      |                          |   |   |   |
| Less:                                              |   |                                                |      |                          |   |   |   |
| Mortgage                  loans held-for-sale      |   |                                                | (1,806    | )                             |   | (718 | ) |
| Deferred                  fees                     |   |                                                | (94       | )                             |   | 79 |   |
| Total                  loans                       |   |                                                | 1,467,363 |                          |   | 1,013,202 |   |
|                                               |   |                                                |      |                          |   |   |   |
| Less:                  Allowance for loan losses   |   |                                                | (15,754   | )                             |   | (10,461 | ) |
| Total                  net loans                   |   | $                                                   | 1,451,609 |                          | $      | 1,002,741 |   |

|                                                                        |   | At                  September 30,                   |   | At                  December 31, |   |
|-----------------------------------------------------------------------------|--------|-----------------------------------------------------|--------|----------------------------------|--------|
|                                                                        |   | 2005                                                |   | 2004                             |   |
|                                                                        |   | (unaudited)                                         |   |                             |   |
|                                                                        |   | (dollars                  in thousands)   |   |
|                                                                        |   |                                                |   |                             |   |
| Non-accrual                  loans                                          |   | $                                                   | 6,308  |                             | $      | 4,544 |   |
| Accruing                  loans 90 days or more past due                    |   |                                                | 2,108  |                             |   | 511 |   |
| Total                  non-performing loans                                 |   |                                                | 8,416  |                             |   | 5,055 |   |
|                                                                        |   |                                                |   |                             |   |   |   |
| Other                  real estate owned                                    |   |                                                | 388    |                             |   | 71 |   |
| Total                  non-performing assets                                |   | $                                                   | 8,804  |                             | $      | 5,126 |   |
|                                                                        |   |                                                |   |                             |   |   |   |
| Total                  non-performing loans                                 |   |                                                |   |                             |   |   |   |
| as                  a percentage of loans, net                              |   |                                                | 0.58   | %                                |   | 0.50 | % |
|                                                                        |   |                                                |   |                             |   |   |   |
| Total                  non-performing loans                                 |   |                                                |   |                             |   |   |   |
| as                  a percentage of total assets                            |   |                                                | 0.27   | %                                |   | 0.21 | % |
|                                                                        |   |                                                |   |                             |   |   |   |
| Total                  non-performing assets                                |   |                                                |   |                             |   |   |   |
| as                  a percentage of total assets                            |   |                                                | 0.28   | %                                |   | 0.21 | % |
|                                                                        |   |                                                |   |                             |   |   |   |
| Interest                  on non-accrual loans which would have been        |   |                                                |   |                             |   |   |   |
| recorded                  at the original rate                              |   | $                                                   | 125    |                             | $      | 125 |   |
|                                                                        |   |                                                |   |                             |   |   |   |
| Interest                  on non-accrual loans that was reflected in income |   |                                                | -      |                             |   | - |   |
| Net                  decrease in interest income                            |   | $                                                   | (125   | )                                | $      | (125 | ) |

----

|                                                         |   | At                  or for the                  |   | At                  or for the     |   |
|--------------------------------------------------------------|--------|-------------------------------------------------|--------|------------------------------------|--------|
|                                                         |   | Three                  Months Ended             |   | Nine                  Months Ended |   |
|                                                         |   | September                  30,                  |   | September.                  30,    |   |
|                                                         |   | 2005                                            |   | 2004                               |   | 2005 |   | 2004 |   |
|                                                         |   | (dollars                  in thousands)         |   |
|                                                         |   | (unaudited)       |   |
|                                                         |   |                                            |   |                               |   |   |   |   |   |
| Balance,                  beginning of period                |   | $                                               | 15,760 |                               | $      | 9,519 |   | $ | 10,461 |   | $ | 7,910 |   |
| Reserve                  received in NEPF merger             |   |                                            | -      |                               |   | - |   |   | 5,281 |   |   | - |   |
| Provision                  charged to operations             |   |                                            | 660    |                               |   | 742 |   |   | 1,928 |   |   | 3,213 |   |
| Charge-offs:                                                 |   |                                            |   |                               |   |   |   |   |   |   |   |   |   |
| One-to-four                  family residential              |   |                                            | (15    | )                                  |   | (8 | ) |   | (60 | ) |   | (23 | ) |
| Multi-family                                                 |   |                                            | -      |                               |   | - |   |   | - |   |   | - |   |
| Commercial                  real estate                      |   |                                            | -      |                               |   | - |   |   | - |   |   | - |   |
| Construction                  and land development           |   |                                            | -      |                               |   | - |   |   | (4 | ) |   | - |   |
| Commercial                  business                         |   |                                            | (6     | )                                  |   | - |   |   | (6 | ) |   | - |   |
| Consumer                                                     |   |                                            | (708   | )                                  |   | (387 | ) |   | (2,080 | ) |   | (1,430 | ) |
| Total                  charge offs                           |   |                                            | (729   | )                                  |   | (395 | ) |   | (2,150 | ) |   | (1,453 | ) |
| Recoveries                  of loans previously charged off: |   |                                            |   |                               |   |   |   |   |   |   |   |   |   |
| One-to-four                  family residential              |   |                                            | 1      |                               |   | 27 |   |   | 9 |   |   | 101 |   |
| Commercial                  business                         |   |                                            | 5      |                               |   | 1 |   |   | 66 |   |   | 3 |   |
| Consumer                                                     |   |                                            | 57     |                               |   | 11 |   |   | 159 |   |   | 131 |   |
| Total                  recoveries                            |   |                                            | 63     |                               |   | 39 |   |   | 234 |   |   | 235 |   |
| Net                  loans charged-off                       |   |                                            | (666   | )                                  |   | (356 | ) |   | (1,916 | ) |   | (1,218 | ) |
|                                                         |   |                                            |   |                               |   |   |   |   |   |   |   |   |   |
| Balance,                  end of period                      |   | $                                               | 15,754 |                               | $      | 9,905 |   | $ | 15,754 |   | $ | 9,905 |   |

**NOTE      H - RETIREMENT PLANS**

*1.*
*Defined      Benefit Plans *

----

*2.*
*Directors’      Deferred Plan*

|                                                             |   | September                  30,                      |   |
|------------------------------------------------------------------|--------|-----------------------------------------------------|--------|
|                                                             |   | 2005                                                |   | 2004 |   |
|                                                             |   | (dollars                  in thousands)   |   |
|                                                             |   |                                                |   |   |   |
| Service                  cost                                    |   | $                                                   | -      |   | $ | - |   |
| Interest                  cost                                   |   |                                                | 21     |   |   | 19 |   |
| Expected                  return on plan assets                  |   |                                                | -      |   |   | - |   |
| Amortization                  of unrecognized net                |   |                                                |   |   |   |   |   |
| transition                  asset or obligation                  |   |                                                | -      |   |   | - |   |
| Amortization                  of unrecognized prior service cost |   |                                                | -      |   |   | - |   |
| Amortization                  of unrecognized net gain or loss   |   |                                                | -      |   |   | - |   |
|                                                             |   |                                                |   |   |   |   |   |
| Net                  periodic benefit expense                    |   | $                                                   | 21     |   | $ | 19 |   |

**NOTE      I - NEW ACCOUNTING PRONOUNCEMENTS**

*Accounting      for Loans or Certain Debt Securities Acquired in a Transfer*

*“*
* *
*“*

----

**NOTE      J -      RECLASSIFICATIONS**

**NOTE      K - INCOME TAXES**

*“Accounting      for Income Taxes,”*

| **Item                2.** | **Management's                Discussion and Analysis of****Financial                Condition and** |
|----------------------------|------------------------------------------------------------------------------------------------------|
|                       | **Results                of Operations**                                                             |

**CAUTIONARY      STATEMENT REGARDING FORWARD LOOKING INFORMATION**

----

**http://www.sec.gov**

**Critical      Accounting Policies, Judgments and Estimates**

----

**Comparison      of Financial Condition as of September 30, 2005 and December 31,      2004**

**Assets.      **

**Non-Performing      Assets. **

**Allowance      for Loan Losses. **

----

**Liabilities.      **

**Shareholders’      Equity. **

----

|                                             |   | At                    September 30,                    2005           |    |
|--------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------|---------|
|                                             |   |                                                                                                                    |    |   |   | Required |   | To                    Be Well Capitalized |   |
|                                             |   |                                                                                                                    |    |   |   | For                    Capital |   | Under                    Prompt Corrective |   |
|                                             |   | Actual                                                                                                                  |    | Adequacy                    Purposes |   | Action                    Provisions |   |
|                                             |   | Amount                                                                                                                  |    | Ratio |   | Amount |   | Ratio |   | Amount |   | Ratio |   |
| Total                    Capital                 |   | (dollars                    in thousands)                                                                |    |
| (To                    risk-weighted assets)     |   |                                                                                                                    |    |   |   |   |   |   |   |   |   |   |   |
| Company                    (consolidated)        |   | $                                                                                                                       | 317,331 |   |   | 17.06 | % | $ | 148,835 |   |   | 8.00 | % |   | N/A |   |   | N/A |   |
| Bank                                             |   | $                                                                                                                       | 289,058 |   |   | 15.59 | % | $ | 148,356 |   |   | 8.00 | % | $ | 185,445 |   |   | 10.00 | % |
| Tier                    I Capital                |   |                                                                                                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (To                    risk-weighted assets)     |   |                                                                                                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Company                    (consolidated)        |   | $                                                                                                                       | 301,512 |   |   | 16.21 | % | $ | 74,418 |   |   | 4.00 | % |   | N/A |   |   | N/A |   |
| Bank                                             |   | $                                                                                                                       | 273,304 |   |   | 14.74 | % | $ | 74,178 |   |   | 4.00 | % | $ | 111,267 |   |   | 6.00 | % |
| Tier                    I Capital                |   |                                                                                                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (To                    average assets, leverage) |   |                                                                                                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Company                    (consolidated)        |   | $                                                                                                                       | 301,512 |   |   | 8.36 | % | $ | 74,418 |   |   | 4.00 | % |   | N/A |   |   | N/A |   |
| Bank                                             |   | $                                                                                                                       | 273,304 |   |   | 9.15 | % | $ | 74,178 |   |   | 4.00 | % | $ | 92,723 |   |   | 5.00 | % |

|                                             |   | At                    December 31,                    2004             |    |
|--------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------|---------|
|                                             |   |                                                                                                                     |    |   |   | Required |   | To                    Be Well Capitalized |   |
|                                             |   |                                                                                                                     |    |   |   | For                    Capital |   | Under                    Prompt Corrective |   |
|                                             |   | Actual                                                                                                                   |    | Adequacy                    Purposes |   | Action                    Provisions |   |
|                                             |   | Amount                                                                                                                   |    | Ratio |   | Amount |   | Ratio |   | Amount |   | Ratio |   |
| Total                    Capital                 |   | (dollars                    in                    thousands)           |    |
| (To                    risk-weighted assets)     |   |                                                                                                                     |    |   |   |   |   |   |   |   |   |   |   |
| Company                    (consolidated)        |   | $                                                                                                                        | 355,857 |   |   | 25.64 | % | $ | 111,042 |   |   | 8.00 | % |   | N/A |   |   | N/A |   |
| Bank                                             |   | $                                                                                                                        | 264,159 |   |   | 19.17 | % | $ | 110,233 |   |   | 8.00 | % | $ | 137,792 |   |   | 10.00 | % |
| Tier                    I Capital                |   |                                                                                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (To                    risk-weighted assets)     |   |                                                                                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Company                    (consolidated)        |   | $                                                                                                                        | 345,396 |   |   | 24.88 | % | $ | 55,521 |   |   | 4.00 | % |   | N/A |   |   | N/A |   |
| Bank                                             |   | $                                                                                                                        | 253,698 |   |   | 18.41 | % | $ | 55,117 |   |   | 4.00 | % | $ | 82,675 |   |   | 6.00 | % |
| Tier                    I Capital                |   |                                                                                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (To                    average assets, leverage) |   |                                                                                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Company                    (consolidated)        |   | $                                                                                                                        | 345,396 |   |   | 14.66 | % | $ | 55,521 |   |   | 4.00 | % |   | N/A |   |   | N/A |   |
| Bank                                             |   | $                                                                                                                        | 253,698 |   |   | 12.17 | % | $ | 55,117 |   |   | 4.00 | % | $ | 68,896 |   |   | 5.00 | % |

**Liquidity.      **

----

**“GAP”      Analysis. **

|                                                |   | At                  September 30, 2005  |    |
|-----------------------------------------------------|--------|-----------------------------------------|---------|
|                                                |   |                                    |    | More                  than |   | More                  than |   | More                  than |   | More                  than |   |   |   |   |   |
|                                                |   | 3                  Months               |    | 3                  Months |   | 6                  Months |   | 1                  Year |   | 3                  Years |   | More                  than |   |   |   |
|                                                |   | or                  Less                |    | to                  6 Months |   | to                  1 Year |   | to                  3 Years |   | to                  5 Years |   | 5                  Years |   | Total |   |
|                                                |   | (dollars                  in thousands) |    |
| Interest-earning                  assets (1):       |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                  at other institutions     |   | $                                       | 55,081  |   | $ | - |   | $ | - |   | $ | - |   | $ | - |   | $ | - |   | $ | 55,081 |   |
| Loans                  receivable (2)               |   |                                    | 264,795 |   |   | 98,508 |   |   | 191,100 |   |   | 482,301 |   |   | 259,884 |   |   | 172,581 |   |   | 1,469,169 |   |
| Investment                  securities, debt        |   |                                    | 144,108 |   |   | 50,941 |   |   | 133,479 |   |   | 380,624 |   |   | 253,292 |   |   | 245,089 |   |   | 1,207,533 |   |
| Investment                  securities, equity      |   |                                    | -       |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 49,380 |   |   | 49,380 |   |
| Total                  interest-earning             |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| assets                                              |   | $                                       | 463,984 |   | $ | 149,449 |   | $ | 324,579 |   | $ | 862,925 |   | $ | 513,176 |   | $ | 467,050 |   | $ | 2,781,163 |   |
|                                                |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cumulative                  total interest-         |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| earning                  assets                     |   | $                                       | 463,984 |   | $ | 613,433 |   | $ | 938,012 |   | $ | 1,800,937 |   | $ | 2,314,113 |   | $ | 2,781,163 |   | $ | 2,781,163 |   |
|                                                |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing                                    |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| liabilities:                                        |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Savings                  deposits                   |   | $                                       | -       |   | $ | 11,182 |   | $ | 11,182 |   | $ | 14,910 |   | $ | 18,637 |   | $ | 223,645 |   | $ | 279,556 |   |
| Interest-bearing                  checking deposits |   |                                    | -       |   |   | 14,101 |   |   | 9,401 |   |   | 9,401 |   |   | 4,700 |   |   | 197,416 |   |   | 235,019 |   |
| Money                  market deposits              |   |                                    | 32,498  |   |   | 38,997 |   |   | 25,998 |   |   | 43,330 |   |   | 21,665 |   |   | 162,487 |   |   | 324,975 |   |
| Certificates                  of deposit            |   |                                    | 103,093 |   |   | 105,792 |   |   | 219,071 |   |   | 269,672 |   |   | 51,591 |   |   | 1,910 |   |   | 751,129 |   |
| FHLB                  advances and other            |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| borrowings                                          |   |                                    | 279,295 |   |   | 46,954 |   |   | 64,785 |   |   | 296,842 |   |   | 140,322 |   |   | 90,891 |   |   | 919,089 |   |
| Total                  interest-bearing             |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| liabilities                                         |   | $                                       | 414,886 |   | $ | 217,026 |   | $ | 330,437 |   | $ | 634,155 |   | $ | 236,915 |   | $ | 676,349 |   | $ | 2,509,768 |   |
|                                                |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cumulative                  total interest-         |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| bearing                  liabilities                |   | $                                       | 414,886 |   | $ | 631,912 |   | $ | 962,349 |   | $ | 1,596,504 |   | $ | 1,833,419 |   | $ | 2,509,768 |   | $ | 2,509,768 |   |
|                                                |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-earning                  assets            |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| less                  interest-bearing              |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| liabilities                                         |   | $                                       | 49,098  |   | $ | (67,577 | ) | $ | (5,858 | ) | $ | 228,770 |   | $ | 276,261 |   | $ | (209,299 | ) | $ | 271,395 |   |
|                                                |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cumulative                  interest-rate           |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| sensitivity                  gap (3)                |   | $                                       | 49,098  |   | $ | (18,479 | ) | $ | (24,337 | ) | $ | 204,433 |   | $ | 480,694 |   | $ | 271,395 |   |   |   |   |
|                                                |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cumulative                  interest-rate gap as a  |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| percentage                  of total assets at      |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| September,                  2005                    |   |                                    | 1.57    | % |   | (0.59 | %) |   | (0.78 | %) |   | 6.55 | % |   | 15.40 | % |   | 8.69 | % |   |   |   |
|                                                |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cumulative                  interest-earning assets |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| as                  a percentage of                 |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| cumulative                  interest-bearing        |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| liabilities                  at September 30, 2005  |   |                                    | 111.83  | % |   | 97.08 | % |   | 97.47 | % |   | 112.81 | % |   | 126.22 | % |   | 110.81 | % |   |   |   |

| (1)    | Interest-earning                assets are included in the period in which the                balances are expected to be redeployed and/or repriced as a                result of anticipated prepayments, scheduled rate adjustment or                contractual                maturity.             |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)    | For                purposes                of the Gap analysis, loans receivable includes non-performing loans,                gross                of the allowance for loan losses, undisbursed                loan funds and deferred loan                fees.                                       |
| (3)    | Interest-rate                sensitivity gap represents the difference between total interest-earning                assets and total interest-bearing                liabilities.                                                                                                                                                |   |   |   |   |   |
|   |                                                                                                                                                                                                                                                                                                                    |

----

**Comparison      of Operating Results for the Three and Nine Months Ended September 30, 2005      and      2004**

**General.**

** **
** **
** **

**Analysis      of Net Interest Income.**

**Average      Balances, Net Interest Income, and Yields Earned and Rates      Paid.**

----

|                                                             |   | For                  the Three Months Ended September 30, |      |
|------------------------------------------------------------------|--------|-----------------------------------------------------------|-----------|
|                                                             |   | 2005                                                      |      | 2004 |   |
|                                                             |   |                                                      |      | Interest |   | Average |   |   |   | Interest |   | Average |   |
|                                                             |   | Average                                                   |      | Income/ |   | Yield/ |   | Average |   | Income/ |   | Yield/ |   |
|                                                             |   | Balance                                                   |      | Expense |   | Rate |   | Balance |   | Expense |   | Rate |   |
| Assets                                                           |   | (dollars                  in thousands)                   |      |
| Interest-earning                  assets                         |   |                                                      |      |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing                  balances with banks            |   | $                                                         | 44,014    |   | $ | 338 |   |   | 3.07 | % | $ | 9,272 |   | $ | 36 |   |   | 1.55 | % |
| Investment                  securities                           |   |                                                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Taxable                  (1)                                     |   |                                                      | 1,218,070 |   |   | 13,122 |   |   | 4.31 | % |   | 885,687 |   |   | 8,879 |   |   | 4.01 | % |
| Non-taxable                  (2)                                 |   |                                                      | 84,650    |   |   | 1,438 |   |   | 6.80 | % |   | 111,088 |   |   | 1,717 |   |   | 6.18 | % |
| Loans                  receivable (2) (3)                        |   |                                                      | 1,450,103 |   |   | 22,152 |   |   | 6.11 | % |   | 992,696 |   |   | 14,733 |   |   | 5.94 | % |
| Allowance                  for loan losses                       |   |                                                      | (15,879   | ) |   |   |   |   |   |   |   | (9,641 | ) |   | - |   |   |   |   |
| Net                  loans                                       |   |                                                      | 1,434,224 |   |   | 22,152 |   |   | 6.18 | % |   | 983,055 |   |   | 14,733 |   |   | 5.99 | % |
| Total                  interest-earning assets                   |   |                                                      | 2,780,958 |   |   | 37,050 |   |   | 5.33 | % |   | 1,989,102 |   |   | 25,365 |   |   | 5.10 | % |
| Non-interest-earning                  assets                     |   |                                                      | 318,721   |   |   | - |   |   |   |   |   | 217,201 |   |   | - |   |   |   |   |
| Total                  assets, interest income                   |   | $                                                         | 3,099,679 |   |   | 37,050 |   |   |   |   | $ | 2,206,304 |   |   | 25,365 |   |   |   |   |
| Liabilities                                                      |   |                                                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing                  liabilities                    |   |                                                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing                  deposits                       |   |                                                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Demand                  deposits                                 |   | $                                                         | 233,442   |   |   | 179 |   |   | 0.31 | % | $ | 174,871 |   |   | 72 |   |   | 0.16 | % |
| Money                  market deposits                           |   |                                                      | 297,635   |   |   | 1,469 |   |   | 1.97 | % |   | 250,345 |   |   | 661 |   |   | 1.06 | % |
| Savings                  deposits                                |   |                                                      | 289,644   |   |   | 296 |   |   | 0.41 | % |   | 220,901 |   |   | 269 |   |   | 0.49 | % |
| Certificates                  of deposit                         |   |                                                      | 751,791   |   |   | 5,786 |   |   | 3.08 | % |   | 533,892 |   |   | 3,490 |   |   | 2.61 | % |
| Total                  interest-bearing deposits                 |   |                                                      | 1,572,512 |   |   | 7,730 |   |   | 1.97 | % |   | 1,180,009 |   |   | 4,492 |   |   | 1.52 | % |
|                                                             |   |                                                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities                  sold under agreements                |   |                                                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| to                  repurchase                                   |   |                                                      | 70,143    |   |   | 579 |   |   | 3.30 | % |   | 24,739 |   |   | 49 |   |   | 0.79 | % |
| FHLB                  advances and other borrowings              |   |                                                      | 783,036   |   |   | 7,303 |   |   | 3.73 | % |   | 457,031 |   |   | 4,036 |   |   | 3.53 | % |
| Other                  debt                                      |   |                                                      | 39,056    |   |   | 671 |   |   | 6.87 | % |   | 15,464 |   |   | 200 |   |   | 5.17 | % |
| Total                  interest-bearing liabilities              |   |                                                      | 2,464,747 |   |   | 16,283 |   |   | 2.64 | % |   | 1,677,243 |   |   | 8,777 |   |   | 2.09 | % |
|                                                             |   |                                                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest-bearing                  liabilities                |   |                                                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest-bearing                  deposits                   |   |                                                      | 182,745   |   |   | - |   |   | - |   |   | 119,155 |   |   | - |   |   | - |   |
| Other                  liabilities                               |   |                                                      | 51,680    |   |   | - |   |   | - |   |   | 29,469 |   |   | - |   |   | - |   |
| Total                  liabilities                               |   |                                                      | 2,699,171 |   |   | 16,283 |   |   |   |   |   | 1,825,867 |   |   | 8,777 |   |   |   |   |
| Shareholders'                  equity                            |   |                                                      | 400,508   |   |   | - |   |   | - |   |   | 380,437 |   |   | - |   |   | - |   |
| Total                  liabilities and shareholders'             |   |                                                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| equity,                  interest expense                        |   | $                                                         | 3,099,679 |   |   | 16,283 |   |   |   |   | $ | 2,206,304 |   |   | 8,777 |   |   |   |   |
|                                                             |   |                                                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                  interest income on tax equivalent basis (2) |   |                                                      |      |   |   | 20,767 |   |   |   |   |   |   |   |   | 16,588 |   |   |   |   |
| Net                  interest spread on                          |   |                                                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| tax-equivalent                  basis (4)                        |   |                                                      |      |   |   |   |   |   | 2.69 | % |   |   |   |   |   |   |   | 3.01 | % |
| Effect                  of interest-free sources                 |   |                                                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| used                  to fund earning assets                     |   |                                                      |      |   |   |   |   |   | 0.09 | % |   |   |   |   |   |   |   | 0.12 | % |
| Net                  interest margin                             |   |                                                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| tax-equivalent                  basis (5)                        |   |                                                      |      |   |   |   |   |   | 2.99 | % |   |   |   |   |   |   |   | 3.34 | % |
| Tax-exempt                  adjustment                           |   |                                                      |      |   |   | 605 |   |   |   |   |   |   |   |   | 593 |   |   |   |   |
|                                                             |   |                                                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                  interest income and margin (5)              |   |                                                      |      |   | $ | 20,162 |   |   | 2.90 | % |   |   |   | $ | 15,995 |   |   | 3.22 | % |
| Average                  interest-earning assets                 |   |                                                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| to                  average interest-bearing liabilities         |   |                                                      |      |   |   |   |   |   | 112.83 | % |   |   |   |   |   |   |   | 118.59 | % |

|   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|

| (1)    | Includes                Federal Home Loan Bank                stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)    | The                indicated interest income and average yields are presented on a                tax-equivalent basis. The tax-equivalent adjustments                included above are $605,000 and $593,000 for the three months ended                September 30, 2005 and 2004,                respectively.                                                                                                                                                                                                            |
|        | The                effective tax rate used for the tax-equivalent adjustment was                34%.                                                                                                                                                                                                                                                                                                                                                                                                                          |
| (3)    | Loan                fees of                $57,000 and $154,000 for the three months ended September 30, 2005                and                2004, respectively, are included                in interest income. Average loan balances include non-accruing loans                of                $5.9 million and $4.0 million and average                loans held-for-sale of $1.4 million and $929,000 for the three months                ended September 30, 2005 and 2004,                respectively.           |
| (4)    | Net                interest                spread is the arithmatic difference between yield on interest-earning                assets and the rate paid on interest-bearing                liabilities.                                                                                                                                                                                                                                                                                                                      |
| (5)    | Net                interest                margin is computed by dividing net interest income by average                interest-earning assets.                                                                                                                                                                                                                                                                                                                                                                                                            |   |   |   |   |   |   |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |

----

|                                                               |   | For                    the Nine Months Ended September 30, |      |
|--------------------------------------------------------------------|--------|------------------------------------------------------------|-----------|
|                                                               |   | 2005                                             |      | 2004   |   |
|                                                               |   |                                                       |      | Interest |   | Average |   |   |   | Interest |   | Average |   |
|                                                               |   | Average                                                    |      | Income/ |   | Yield/ |   | Average |   | Income/ |   | Yield/ |   |
|                                                               |   | Balance                                                    |      | Expense |   | Rate |   | Balance |   | Expense |   | Rate |   |
| Assets                                                             |   | (dollars                    in thousands)        |
| Interest-earning                    assets                         |   |                                                       |      |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing                    balances with banks            |   | $                                                          | 61,343    |   | $ | 1,226 |   |   | 2.66 | % | $ | 29,361 |   | $ | 314 |   |   | 1.43 | % |
| Investment                    securities                           |   |                                                       |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Taxable                    (1)                                     |   |                                                       | 1,113,172 |   |   | 35,434 |   |   | 4.24 | % |   | 787,912 |   |   | 23,144 |   |   | 3.92 | % |
| Non-taxable                    (2)                                 |   |                                                       | 100,582   |   |   | 4,958 |   |   | 6.57 | % |   | 109,226 |   |   | 5,401 |   |   | 6.59 | % |
| Loans                    receivable (2) (3)                        |   |                                                       | 1,231,986 |   |   | 55,293 |   |   | 5.98 | % |   | 952,080 |   |   | 43,323 |   |   | 6.07 | % |
| Allowance                    for loan losses                       |   |                                                       | (13,093   | ) |   |   |   |   |   |   |   | (8,950 | ) |   | - |   |   |   |   |
| Net                    loans                                       |   |                                                       | 1,218,893 |   |   | 55,293 |   |   | 6.05 | % |   | 943,130 |   |   | 43,323 |   |   | 6.12 | % |
| Total                    interest-earning assets                   |   |                                                       | 2,493,990 |   |   | 96,911 |   |   | 5.18 | % |   | 1,869,629 |   |   | 72,182 |   |   | 5.15 | % |
| Non-interest-earning                    assets                     |   |                                                       | 263,649   |   |   | - |   |   |   |   |   | 215,853 |   |   | - |   |   |   |   |
| Total                    assets, interest income                   |   | $                                                          | 2,757,639 |   |   | 96,911 |   |   |   |   | $ | 2,085,482 |   |   | 72,182 |   |   |   |   |
| Liabilities                                                        |   |                                                       |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing                    liabilities                    |   |                                                       |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing                    deposits                       |   |                                                       |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Demand                    deposits                                 |   | $                                                          | 205,892   |   |   | 347 |   |   | 0.22 | % | $ | 174,687 |   |   | 203 |   |   | 0.15 | % |
| Money                    market deposits                           |   |                                                       | 274,025   |   |   | 3,376 |   |   | 1.64 | % |   | 247,658 |   |   | 1,772 |   |   | 0.95 | % |
| Savings                    deposits                                |   |                                                       | 250,933   |   |   | 811 |   |   | 0.43 | % |   | 223,737 |   |   | 805 |   |   | 0.48 | % |
| Certificates                    of deposit                         |   |                                                       | 658,312   |   |   | 14,644 |   |   | 2.97 | % |   | 534,703 |   |   | 10,604 |   |   | 2.64 | % |
| Total                    interest-bearing deposits                 |   |                                                       | 1,389,162 |   |   | 19,178 |   |   | 1.84 | % |   | 1,180,785 |   |   | 13,384 |   |   | 1.51 | % |
|                                                               |   |                                                       |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities                    sold under agreements                |   |                                                       |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| to                    repurchase                                   |   |                                                       | 44,423    |   |   | 938 |   |   | 2.82 | % |   | 24,077 |   |   | 126 |   |   | 0.70 | % |
| FHLB                    advances and other borrowings              |   |                                                       | 741,781   |   |   | 19,209 |   |   | 3.45 | % |   | 334,616 |   |   | 8,900 |   |   | 3.55 | % |
| Other                    debt                                      |   |                                                       | 27,142    |   |   | 1,336 |   |   | 6.56 | % |   | 15,464 |   |   | 560 |   |   | 4.83 | % |
| Total                    interest-bearing liabilities              |   |                                                       | 2,202,508 |   |   | 40,661 |   |   | 2.46 | % |   | 1,554,942 |   |   | 22,970 |   |   | 1.97 | % |
|                                                               |   |                                                       |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest-bearing                    liabilities                |   |                                                       |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest-bearing                    deposits                   |   |                                                       | 152,337   |   |   | - |   |   | - |   |   | 117,560 |   |   | - |   |   | - |   |
| Other                    liabilities                               |   |                                                       | 12,624    |   |   | - |   |   | - |   |   | 26,327 |   |   | - |   |   | - |   |
| Total                    liabilities                               |   |                                                       | 2,367,469 |   |   | 40,661 |   |   |   |   |   | 1,698,829 |   |   | 22,970 |   |   |   |   |
| Shareholders'                    equity                            |   |                                                       | 390,170   |   |   | - |   |   | - |   |   | 386,653 |   |   | - |   |   | - |   |
| Total                    liabilities and shareholders'             |   |                                                       |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| equity,                    interest expense                        |   | $                                                          | 2,757,639 |   |   | 40,661 |   |   |   |   | $ | 2,085,482 |   |   | 22,970 |   |   |   |   |
|                                                               |   |                                                       |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                    interest income on tax equivalent basis (2) |   |                                                       |      |   |   | 56,250 |   |   |   |   |   |   |   |   | 49,212 |   |   |   |   |
| Net                    interest spread on                          |   |                                                       |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| tax-equivalent                    basis (4)                        |   |                                                       |      |   |   |   |   |   | 2.72 | % |   |   |   |   |   |   |   | 3.18 | % |
| Effect                    of interest-free sources                 |   |                                                       |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| used                    to fund earning assets                     |   |                                                       |      |   |   |   |   |   | 0.10 | % |   |   |   |   |   |   |   | 0.13 | % |
| Net                    interest margin                             |   |                                                       |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| tax-equivalent                    basis (5)                        |   |                                                       |      |   |   |   |   |   | 3.01 | % |   |   |   |   |   |   |   | 3.51 | % |
| Tax-exempt                    adjustment                           |   |                                                       |      |   |   | 1,889 |   |   |   |   |   |   |   |   | 1,864 |   |   |   |   |
|                                                               |   |                                                       |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                    interest income and margin (5)              |   |                                                       |      |   | $ | 54,361 |   |   | 2.91 | % |   |   |   | $ | 47,348 |   |   | 3.38 | % |
| Average                    interest-earning assets                 |   |                                                       |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| to                    average interest-bearing liabilities         |   |                                                       |      |   |   |   |   |   | 113.23 | % |   |   |   |   |   |   |   | 120.24 | % |
|                                                               |   |                                                       |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| (1) | Includes                  Federal Home Loan Bank                  stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | The                  indicated interest income and average yields are presented on a                  tax-equivalent basis. The tax-equivalent adjustments                  included above are $1.9 million for both the nine months ended                  September                  30, 2005 and 2004,                  respectively.                                                                                                                                                                                                                                           |
|     | The                  effective tax rate used for the tax-equivalent adjustment was                  34%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| (3) | Loan                  (expenses) fees of ($155,000) and $619,000 for the nine months                  ended                  September 30, 2005 and 2004, respectively, are included                  in interest income. Average loan balances include non-accruing                  loans of                  $4.9 million and $3.2 million and average                  loans held-for-sale of $1.2 million and $2.7 million for the nine                  months                  ended September 30, 2005 and                  2004,                  respectively.           |
| (4) | Net                  interest                  spread is the arithmatic difference between yield on interest-earning                  assets and the rate paid on interest-bearing                  liabilities.                                                                                                                                                                                                                                                                                                                                                                   |
| (5) | Net                  interest                  margin is computed by dividing net interest income by average                  interest-earning                  assets.                                                                                                                                                                                                                                                                                                                                                                                                            |

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**Rate      Volume Analysis. **

|                                                  |   | Three                    Months Ended September 30, 2005      |   | Nine                    Months Ended September 30, 2005      |   |
|-------------------------------------------------------|--------|-----------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------|--------|
|                                                  |   | Compared                    to                                |   | Compared                    to                               |   |
|                                                  |   | Three                    Months Ended September 30, 2004      |   | Nine                    Months Ended September 30, 2004      |   |
|                                                  |   | Increase                    (Decrease)                                            |   | Total                                                                            |   | Increase                    (Decrease) |   | Total |   |
|                                                  |   | Due                    to                                                         |   | Increase                                                                         |   | Due                    to |   | Increase |   |
|                                                  |   | Rate                                                                              |   | Volume                                                                           |   | (Decrease) |   | Rate |   | Volume |   | (Decrease) |   |
|                                                  |   | (dollars                    in thousands)                                         |   | (dollars                    in thousands)                    |   |
| Interest                    Income:                   |   |                                                                              |   |                                                                             |   |   |   |   |   |   |   |   |   |
| Cash                    and cash equivalents          |   | $                                                                                 | 167    |                                                                             | $      | 135 |   | $ | 302 |   | $ | 570 |   | $ | 342 |   | $ | 912 |   |
| Investment                    securities              |   |                                                                              | 712    |                                                                             |   | 3,252 |   |   | 3,964 |   |   | 1,773 |   |   | 10,074 |   |   | 11,847 |   |
| Loans                    receivable, net              |   |                                                                              | 630    |                                                                             |   | 6,789 |   |   | 7,419 |   |   | (768 | ) |   | 12,737 |   |   | 11,969 |   |
| Total                    interest-earning assets      |   |                                                                              | 1,509  |                                                                             |   | 10,176 |   |   | 11,685 |   |   | 1,575 |   |   | 23,153 |   |   | 24,728 |   |
|                                                  |   |                                                                              |   |                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                    Expense:                  |   |                                                                              |   |                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Demand                    deposits                    |   | $                                                                                 | 83     |                                                                             | $      | 24 |   | $ | 107 |   | $ | 108 |   | $ | 36 |   | $ | 144 |   |
| Money                    market deposits              |   |                                                                              | 683    |                                                                             |   | 125 |   |   | 808 |   |   | 1,415 |   |   | 189 |   |   | 1,604 |   |
| Savings                    deposits                   |   |                                                                              | (57    | )                                                                                |   | 84 |   |   | 27 |   |   | (92 | ) |   | 98 |   |   | 6 |   |
| Certificates                    of deposit            |   |                                                                              | 872    |                                                                             |   | 1,424 |   |   | 2,296 |   |   | 1,588 |   |   | 2,451 |   |   | 4,039 |   |
| Total                    interest-bearing deposits    |   |                                                                              | 1,580  |                                                                             |   | 1,658 |   |   | 3,238 |   |   | 3,019 |   |   | 2,774 |   |   | 5,793 |   |
|                                                  |   |                                                                              |   |                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities                    sold under agreements   |   |                                                                              |   |                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| to                    repurchase                      |   | $                                                                                 | 440    |                                                                             | $      | 90 |   | $ | 530 |   | $ | 706 |   | $ | 106 |   | $ | 812 |   |
| FHLB                    advances                      |   |                                                                              | 388    |                                                                             |   | 2,879 |   |   | 3,267 |   |   | (521 | ) |   | 10,830 |   |   | 10,309 |   |
| Other                    debt                         |   |                                                                              | 166    |                                                                             |   | 305 |   |   | 471 |   |   | 353 |   |   | 423 |   |   | 776 |   |
| Total                    interest-bearing liabilities |   |                                                                              | 2,574  |                                                                             |   | 4,932 |   |   | 7,506 |   |   | 3,557 |   |   | 14,133 |   |   | 17,690 |   |
|                                                  |   |                                                                              |   |                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Increase                    (decrease) in net         |   |                                                                              |   |                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| interest                    income (1)                |   | $                                                                                 | (1,065 | )                                                                                | $      | 5,244 |   | $ | 4,179 |   | $ | (1,982 | ) | $ | 9,020 |   | $ | 7,038 |   |

|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)                  | The                        indicated increase (decrease) in net interest                        income is presented on a tax-equivalent basis. The tax-equivalent                        adjustment for the                        increase (decrease) in net interest income for the three                        month comparison                        periods ending September 30, 2005 and September                        30, 2004 was $604,000 and $592,000, respectively, and $1.9                        million for the                        nine month comparison period ending September                        30, 2005 and September 30,                        2004.            |

**Provision          for Loan Losses. **

----

** **

**Non-Interest      Income. **

**Non-Interest      Expense.**

----

**Income      Tax Expense.**
** **
** **

| **Item                3.** | **Quantitative                and Qualitative Disclosures About Market                Risk** |
|----------------------------|----------------------------------------------------------------------------------------------|

| **Item                4.** | **Controls                and Procedures** |
|----------------------------|--------------------------------------------|

**Evaluation      of Disclosure Controls and Procedures. **

**Changes      in Internal Control Over Financial Reporting.**

**PART      II -** **OTHER INFORMATION**

| **Item                1.** | **Legal                Proceedings** |
|----------------------------|--------------------------------------|

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| **Item                2.** | **Unregistered                Sales of Equity Securities and Use of                Proceeds** |
|----------------------------|-----------------------------------------------------------------------------------------------|

|   | (a) | Not                applicable. |
|--------|-----|--------------------------------|
|   | (b) | Not                applicable. |

| Period                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | Total                  Number of Shares Purchased |   | Average                  Price PaidPer                  Share |   | Total                  Number of Shares Purchased as Part of Publicly Announced Plans                  or                  Programs |   | Maximum                  Number of Shares that may yet be Purchased Under the Plan or Program(s)                  (1) |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------|--------|---------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------|
| July                  1 - 31, 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | 25,000                                            |   | $16.31                                                        |   | 25,000                                                                                                                              |   | 3,824,183                                                                                                             |
| August                  1 - 31, 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | 486,000                                           |   | $16.32                                                        |   | 486,000                                                                                                                             |   | 3,338,183                                                                                                             |
| September                  1 - 30, 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | 410,000                                           |   | $16.66                                                        |   | 410,000                                                                                                                             |   | 2,928,183                                                                                                             |
| Total                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | 921,000                                           |   | $16.47                                                        |   | 921,000                                                                                                                             |   |                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                              |   |                                                          |   |                                                                                                                                |   |                                                                                                                  |
| (1)                  On October 27, 2004, the Board of Directors authorized the repurchase                  of                  up to 3,062,486 shares or approximately 10% of its outstanding                  common                  stock. This repurchase plan was completed during the third quarter                  of                  2005. On July 27, 2005, the Board of Directors authorized an additional                  repurchase of 3,151,297 shares of which 223,114 shares had been                  repurchased as of September 30, 2005.                           |

| **Item                3.** | **Defaults                Upon Senior Securities** |
|----------------------------|----------------------------------------------------|

| **Item                4.** | **Submission                of Matters to a Vote of Security                Holders** |
|----------------------------|---------------------------------------------------------------------------------------|

| **Item                5.** | **Other                Information** |
|----------------------------|--------------------------------------|

| **Item                6.** | **Exhibits** |
|----------------------------|--------------|

|   | (a)    | List                of exhibits: |
|--------|--------|----------------------------------|
|   |   |                             |   |
|   |   | 31.1                             | Section                302 Certification of the Chief Executive Officer |
|   |   | 31.2                             | Section                302 Certification of the Chief Financial Officer |
|   |   | 32.1                             | Certification                Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section                906 of                the Sarbanes-Oxley Act of 2002. |
|   |   |                             |   |   |
|   |   |                             |   |

----

**SIGNATURES**

|   |                            |   | **KNBT                BANCORP, INC.** |
|--------|---------------------------------|--------|---------------------------------------|
|   |                            |   |                                  |   |
|   |                            |   |                                  |   |
|   |                            |   |                                  |   |
| DATE:  | November                7, 2005 |   | BY:                                   | /S/                Scott V. Fainor |
|   |                            |   |                                  | Scott                V. Fainor |
|   |                            |   |                                  | President                and Chief Executive Officer |
|   |                            |   |                                  |   |
| DATE:  | November                7, 2005 |   | BY:                                   | /S/                Eugene T. Sobol |
|   |                            |   |                                  | Eugene                T. Sobol |
|   |                            |   |                                  | Senior                Executive Vice President, |
|   |                            |   |                                  | Chief                Financial Officer and Treasurer |
|   |                            |   |                                  |   |

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