UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549
                                    FORM 10-Q

                      ------------------------------------
(Mark One)

[ x ]    QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

                  For the quarterly period ended March 31, 2004
                                       OR

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

           For the transition period from ____________ to ____________

                          Commission File No. 000-50426
             -----------------------------------------------------

                               KNBT Bancorp, Inc.
--------------------------------------------------------------------------------
             (Exact Name of Registrant as Specified in its Charter)

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

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

Registrant's Telephone Number, Including Area Code:  610-861-5000

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                 YES X    NO _____

Indicate by check mark whether the registrant is an accelerated filer as defined
in rule 12b-2 of the Exchange Act.

                                  YES _   NO __X

Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date: As of May 13, 2004, 30,541,772
shares of the Registrant's common stock were issued and outstanding.

<PAGE>


<TABLE>
<CAPTION>

<S>                                                                                  <C>

                       KNBT BANCORP, INC. AND SUBSIDIARIES

                                      INDEX

PART 1  -  FINANCIAL INFORMATION                                                  PAGE NO.

     ITEM 1  -       Financial Statements

         Consolidated Balance Sheets                                                 2
         Consoliated Statements of Income                                            3
         Consolidated Statement of Changes in Shareholders' Equity                   4
         Consolidated Statements of Cash Flows                                       5
         Notes to Consolidated Financial Statements                                  6

     ITEM 2 -        Management's Discussion and Analysis of
                     Financial Condition and Results of Operations                   14

     ITEM 3  -       Quantitative and Qualitative Discussion About                   24
                     Market Risk

     ITEM 4 -        Controls and Procedures                                         24

PART II  -  OTHER INFORMATION

     ITEM 1  -       Legal Proceedings                                               25

     ITEM 2  -       Changes in Securities, Use of Proceeds and                      25
                     Issuer Purchases of Equity Securities

     ITEM 3  -       Defaults Upon Senior Securities                                 25

     ITEM 4  -       Submission of Matters to a Vote of Security Holders             25

     ITEM 5  -       Other Information                                               25

     ITEM 6  -       Exhibits and Reports on Form 8-K                                25

SIGNATURES                                                                           26

CERTIFICATIONS                                                                       27



</TABLE>



                                                                         1
<PAGE>



PART 1.  FINANCIAL INFORMATION
ITEM 1.   Financial Statements

<TABLE>
<CAPTION>
                                                 KNBT BANCORP, INC. AND SUBSIDIARIES
                                                     CONSOLIDATED BALANCE SHEETS
                                                       (dollars in thousands)

                                                                                             At March 31,        At December 31,
                                                                                                 2004                 2003
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                              (unaudited)
<S>                                                                                                <C>                    <C>
ASSETS
    Cash and Due From Banks                                                                        $ 42,010               $ 53,555
    Interest-Bearing Deposits With Banks                                                             45,242                 85,422
                                                                                            ----------------   --------------------
      Cash and Cash Equivalents                                                                      87,252                138,977
    Investment Securities Available-for-Sale                                                        866,893                734,087
    Federal Home Loan Bank of Pittsburgh Stock                                                       15,791                 11,543
    Mortgage Loans Held-for-Sale                                                                      3,745                  4,677
    Loans                                                                                           922,518                890,076
    Less:  Allowance for Loan Losses                                                                 (9,000)                (7,910)
                                                                                            ----------------   --------------------
      Net Loans                                                                                     913,518                882,166
    Accrued Interest Receivable                                                                       9,274                  7,645
    Premises and Equipment, Net                                                                      38,172                 35,867
    Bank Owned Life Insurance                                                                        58,516                 57,849
    Goodwill and Other Intangible Assets                                                             46,547                 47,448
    Other Assets                                                                                     17,377                 21,714
                                                                                            ----------------   --------------------
      TOTAL ASSETS                                                                              $ 2,057,085            $ 1,941,973
                                                                                            ================   ====================

LIABILITIES
    Deposits
      Non-interest-bearing deposits                                                               $ 112,856              $ 117,270
      Interest-bearing deposits                                                                   1,181,359              1,172,140
                                                                                            ----------------   --------------------
         Total deposits                                                                           1,294,215              1,289,410
    Securities Sold Under Agreements to Repurchase                                                   28,393                 24,550
    Advances from the Federal Home Loan Bank                                                        308,540                207,153
    Subordinated Debentures                                                                          15,464                      -
    Guaranteed Preferred Beneficial Interest in the
      Company's Subordinated Debentures                                                                   -                 15,000
    Accrued Interest Payable                                                                          3,639                  3,218
    Other Liabilities                                                                                 8,968                 13,562
                                                                                            ----------------   --------------------
      TOTAL LIABILITIES                                                                           1,659,219              1,552,893
                                                                                            ----------------   --------------------

SHAREHOLDERS' EQUITY
    Preferred Stock, no par
      Authorized:  20,000,000 shares                                                                      -                      -
    Common Stock, Par Value $0.01 a share                                                               296                    295
      Authorized:  100,000,000 shares
       Issued and Outstanding:
        30,529,820 shares at March 31, 2004 and 30,419,397 shares
          at December 31, 2003
    Additional Paid-In Capital                                                                      298,455                297,887
    Retained Earnings                                                                               104,685                100,570
    Unallocated Common Stock Held
      by Employee Stock Ownership Plan:                                                             (15,784)               (15,987)
      928,222 shares at March 31, 2004 and 940,122 shares at December 31, 2003
    Accumulated Other Comprehensive Income                                                           10,214                  6,315
                                                                                            ----------------   --------------------
    TOTAL SHAREHOLDERS' EQUITY                                                                      397,866                389,080
                                                                                            ----------------   --------------------

    TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                                  $ 2,057,085            $ 1,941,973
                                                                                            ================   ====================

-----------------------------------------------------------------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.
</TABLE>



                                                                        2
<PAGE>

                                       KNBT BANCORP, INC.. AND SUBSIDIARIES
                                        CONSOLIDATED STATEMENTS OF INCOME
                                    Three Months Ended March 31, 2004 and 2003
                                              (dollars in thousands)

<TABLE>
<CAPTION>
                                                                               Three Months Ended March 31,
                                                                           -------------------------------------
                                                                                2004                 2003
----------------------------------------------------------------------------------------------------------------
                                                                             (unaudited)
<S>                                                                               <C>                  <C>
INTEREST INCOME
     Loans, including fees                                                        $ 14,093             $ 10,133
     Investment Securities                                                           8,116                3,875
     Other Interest                                                                    142                  131
                                                                           ----------------    -----------------
         Total Interest Income                                                      22,351               14,139
                                                                           ----------------    -----------------

INTEREST EXPENSE
     Deposits                                                                        4,535                4,163
     Securities sold under Agreements to Repurchase                                     35                   32
     Advances from the Federal Home Loan Bank                                        2,124                1,108
     Subordinated Debentures                                                           181                    -
                                                                           ----------------    -----------------
         Total Interest Expense                                                      6,875                5,303
                                                                           ----------------    -----------------

NET INTEREST INCOME                                                                 15,476                8,836
Provision for Loan Losses                                                            1,500                   62
                                                                           ----------------    -----------------

     Net Interest Income After Provision
       for Loan Losses                                                              13,976                8,774
                                                                           ----------------    -----------------

NON-INTEREST INCOME
     Trust                                                                             353                    -
     Brokerage Services                                                                160                   87
     Deposit Service Charges                                                         1,311                  852
     Bank Owned Life Insurance                                                         667                  355
     Net Losses on Sales of Investment Securities                                       (8)                   -
     Net Gains on Sales of Residential Mortgage Loans                                  159                  264
     Net Gain on Sale of Credit Card Loans                                             298                    -
     Net Gains (Losses) on Sales of Other Real Estate Owned                             44                  (21)
     Other Income                                                                      983                  644
                                                                           ----------------    -----------------

         Total Non-Interest Income                                                   3,967                2,181
                                                                           ----------------    -----------------

NON-INTEREST EXPENSES
     Compensation and Employee Benefits                                              7,245                3,735
     Net Occupancy and Equipment Expense                                             1,825                  999
     Professional Fees                                                                 572                  112
     Advertising                                                                       153                  307
     Data Processing                                                                   531                  431
     Impairment of Mortgage Servicing Rights                                            58                  365
     Amortization of Intangible Assets                                                 547                    -
     Other Expenses                                                                  1,574                  957
                                                                           ----------------    -----------------

         Total Non-Interest Expenses                                                12,505                6,906
                                                                           ----------------    -----------------

Income Before Income Taxes                                                           5,438                4,049
Income Taxes                                                                         1,323                1,100
                                                                           ----------------    -----------------

NET INCOME                                                                         $ 4,115              $ 2,949
                                                                           ================    =================

PER SHARE DATA
     Net Income - Basic                                                             $ 0.14                N/A
                                                                           ================    =================
     Net Income - Diluted                                                           $ 0.14                N/A
                                                                           ================    =================

----------------------------------------------------------------------------------------------------------------
</TABLE>


See accompanying notes to consolidated financial statements.



                                                                         3
<PAGE>



<PAGE>


<TABLE>
<CAPTION>
                                                 KNBT BANCORP, INC. AND SUBSIDIARIES
                                      CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                                           Three Months Ended March 31, 2004 (Unaudited)
                                                       (dollars in thousands)

                                                                                                           Accumulated
                                                              Common    Additional            Unallocated     Other
                                                  Common      Stock      Paid-In    Retained     ESOP     Comprehensive
                                                  Shares      Value      Capital    Earnings    Shares       Income       Total
-----------------------------------------------------------------------------------------------------------------------------------
                                               (unaudited)
<S>                                            <C>              <C>     <C>        <C>        <C>             <C>       <C>
Balance at January 1, 2004                      29,479,275       $ 295   $ 297,887  $ 100,570  $ (15,987)       $ 6,315  $ 389,080

Comprehensive Income
   Net Income                                                                           4,115                                4,115
   Other Comprehensive Income Net of Taxes
      and Reclassification Adjustments                                                                            3,899      3,899
                                                                                                                         ----------
Total Comprehensive Income                                                                                                   8,014
Unallocated ESOP Shares Committed to Employees      11,900                       5                   203                       208
Shares Issued upon Exercise of Stock Options       110,423           1         563                                             564
                                               ------------------------------------------------------------------------------------
Balance at March 31, 2004                       29,601,598       $ 296   $ 298,455  $ 104,685  $ (15,784)      $ 10,214  $ 397,866

-----------------------------------------------------------------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.
</TABLE>














                                                                        4
<PAGE>

<TABLE>
<CAPTION>
                                    KNBT BANCORP, INC. AND SUBSIDIARIES
                                   CONSOLIDATED STATEMENTS OF CASH FLOWS
                               Three Months Ended March 31, 2004 and 2003
                                          (dollars in thousands)

                                                                              Three Months Ended March 31,
                                                                                 2004               2003
----------------------------------------------------------------------------------------------------------
                                                                                        (unaudited)

<S>                                                                              <C>                <C>
OPERATING ACTIVITIES
  Net Income                                                                   $   4,115     $   2,949
  Adjustments to Reconcile Net Income to Net Cash
     Provided by Operating Activities:
      Provision for Loan Losses                                                    1,500            62
      Depreciation and Amortization                                                1,182           381
      Amortization (Accretion) of Security Premiums and Discounts, Net               608           362
      (Gain) Loss on Sale of Other Real Estate Owned                                 (44)           21
      Losses on Sales of Investment Securities                                         8          --
      Gains on the Sales of Mortgage Loans                                          (159)         (264)
      Gain on the Sale of Credit Card Loans                                         (298)         --
      Mortgage Loans Originated for Sale                                          (1,255)       (9,859)
      Mortgage Loan Sales                                                          2,715         9,859
   Changes in Assets and Liabilities:
      Increase in Bank Owned Life Insurance                                         (667)         (354)
      Increase in Accrued Interest Receivable                                     (1,629)         (275)
      Decrease in Other Assets                                                     2,775           529
      (Decrease) Increase in Other Liabilities and Accrued Interest Payable       (4,173)        3,862
                                                                               ---------     ---------
Net Cash Provided by Operating Activities                                          4,678         7,273
                                                                               ---------     ---------

INVESTING ACTIVITIES
Proceeds from Calls and Maturities of Securities Available-for-Sale               32,573        52,217
Proceeds from Sales of Securities Available-for-Sale                                 249          --
Purchase of Securities Available-for-Sale                                       (160,343)     (111,556)
Purchase of Federal Home Loan Bank of Pittsburgh Stock                            (4,248)         (505)
Proceeds from the Sale of Credit Card Receivables                                  1,831          --
Net (Increase) Decrease in Loans                                                 (34,323)          416
Purchase of Premises and Equipment                                                (2,902)       (1,086)
Proceeds from Sale of Other Real Estate Owned                                        161            84
                                                                               ---------     ---------
Net Cash Used in Investing Activities                                           (167,002)      (60,430)
                                                                               ---------     ---------

FINANCING ACTIVITIES
Net Increase in Deposits                                                           4,805        25,536
Net Increase in Repurchase Agreements                                              3,843         1,109
Proceeds from Long-Term Debt                                                     109,562          --
Payments on Long-Term Debt                                                        (8,175)      (10,000)
Proceeds from the Exercise of Stock Options                                          564          --
                                                                               ---------     ---------
Net Cash Provided by Financing Activities                                        110,599        16,645
                                                                               ---------     ---------

Decrease in Cash and Cash Equivalents                                            (51,725)      (36,512)
Cash and Cash Equivalents, January 1,                                            138,977        86,293
                                                                               ---------     ---------
Cash and Cash Equivalents, March 31,                                           $  87,252     $  49,781
                                                                               =========     =========

Supplemental Disclosure of Cash Flow Information
   Cash Paid During the Period for
      Income Taxes                                                             $    --       $      95
                                                                               =========     =========

      Interest on Deposits, Advances and Other Borrowed Money                  $   6,454     $   5,558
                                                                               =========     =========

Supplemental Disclosure of Non-cash Activities
      Mortgage Loan Securitizations                                            $    --       $  47,250
                                                                               =========     =========

      Reclassification of Loans Receivable to Other Real Estate Owned          $      97     $    --
                                                                               =========     =========

-----------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.







                                                                        5
<PAGE>


                       KNBT BANCORP, INC. AND SUBSIDIARIES

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
               --------------------------------------------------

                                   (Unaudited)


NOTE A  -  BASIS OF PRESENTATION

KNBT Bancorp,  Inc. ("KNBT" or the "Company") is a Pennsylvania  corporation and
registered bank holding  company  organized in 2003.  KNBT's  business  consists
primarily of being the parent holding company for Keystone Nazareth Bank & Trust
Company, a Pennsylvania  chartered savings bank.  Keystone Nazareth Bank & Trust
Company (the "Bank") is the stock-form  successor to Keystone  Savings Bank upon
the mutual-to-stock  conversion of Keystone Savings Bank, which was completed on
October  31,  2003.  Concurrently  with  the  mutual-to-stock  conversion,  KNBT
acquired,  through a merger, First Colonial Group, Inc. ("First Colonial"),  the
parent bank holding company for Nazareth National Bank and Trust Company.

The accompanying  consolidated  financial statements were prepared in accordance
with  instructions  to Form 10-Q, and therefore,  do not include  information or
footnotes necessary for a complete  presentation of financial position,  results
of operations and cash flows in conformity  with generally  accepted  accounting
principles  ("GAAP"). However, all normal,  recurring  adjustments which, in the
opinion of management,  are necessary for a fair presentation of these financial
statements,  have been included.  These financial  statements  should be read in
conjunction with the audited financial  statements and the notes thereto for the
Company  for the year  ended  December  31,  2003,  which  are  included  in the
Company's  Annual Report on Form 10-K for the year ended  December 31, 2003. The
results for the interim period  presented are not necessarily  indicative of the
results that may be expected for the year ending December 31, 2004.

The financial information presented herein is unaudited; however, in the opinion
of management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the unaudited financial  information have been made.
The Company has prepared its accompanying  consolidated  financial statements in
accordance with GAAP as applicable to the banking  industry.  Certain amounts in
prior years are reclassified for  comparability to current year's  presentation.
Such  reclassifications,  when  applicable  have no  effect on net  income.  The
consolidated  financial  statements  include the balances of the Company and its
wholly owned subsidiaries.  All material  intercompany balances and transactions
have been  eliminated in  consolidation.  References to the Company  include the
Bank unless otherwise noted.

In preparing the consolidated  financial statements,  the Company is required to
make estimates and  assumptions  that affect the reported  amounts of assets and
liabilities  as of the date of the statement of financial  condition and revenue
and expense for the period. Actual results could differ significantly from those
estimates.  A material estimate that is particularly  susceptible to significant
changes in the near-term is the determination of the allowance for loan losses.

In  addition to the Bank,  KNBT's  subsidiaries  include  KNBT Inv. I founded in
December 2003, KNBT Inv. II and First Colonial  Statutory Trust I, both acquired
in October 2003 as a part of the acquisition of First Colonial. The Bank has two
wholly owned subsidiaries KLV, Inc and KLVI, Inc. The Bank is the majority owner
of Traditions Settlement Services, LLC.


NOTE B  -  CONVERSION AND ACQUISITION

The  mutual-to-stock  conversion  of Keystone  Savings Bank  coincided  with the
completion  of the initial  public  offering  of KNBT  Bancorp,  Inc.  KNBT sold
approximately 20.2 million shares of its common stock for an aggregate of $202.0
million to subscribers in its offering,  contributed  approximately  1.6 million
shares of common  stock to the recently  created  Keystone  Nazareth  Charitable
Foundation and issued an additional  approximately  8.5 million shares to former
shareholders of First Colonial in exchange for their First Colonial shares.





                                                                        6
<PAGE>


On October 31, 2003, KNBT and the Bank completed mergers with First Colonial and
its subsidiary Nazareth National Bank and Trust Company, respectively. Under the
terms of the merger agreement,  which was the result of arms-length negotiation,
each of the shares of First  Colonial stock was exchanged for 3.7 shares of KNBT
common stock for a total issuance of 8,545,855 shares of common stock.  Based on
management's   assessment  of  the  anticipated  benefits  of  the  acquisition,
including  enhanced  market share and expansion of its banking  franchise;  KNBT
entered into the merger  agreement and proceeded  with its  acquisition of First
Colonial.  First Colonial stock options  outstanding at the date of acquisitions
were converted into 808,157  options to purchase KNBT shares of common stock and
were fully vested at the time of the merger.  The  transaction was accounted for
under the  purchase  method  of  accounting.  The  acquisition  resulted  in the
recording  of  approximately  $45.9  million of  goodwill  and other  intangible
assets. KNBT's financial position and results of operations at and for the three
months  ended  March  31,  2003  do  not  include  First  Colonial  because  the
acquisition was not completed until October 31, 2003.

NOTE C  -  EARNINGS PER SHARE

The Company  calculates  earnings  per share as provided  by the  provisions  of
Statement of Financial  Accounting  Standards No. 128, "Earnings Per Share (SFAS
128)". Basic and diluted earnings per share for the three months ended March 31,
2004 were calculated as follows:


<TABLE>
<CAPTION>
For the Three Months Ended March 31, 2004
-----------------------------------------------------------------------------------------------------------------
                                                                    Net               Average
                                                                   Income              Shares          Per Share
                                                                (numerator)        (denominator)         Amount
                                                              ---------------------------------------------------
                                                                            (dollars in thousands)
<S>                                                                  <C>              <C>                 <C>
Basic Earnings Per Share
   Income Available to Common Shareholders                           $ 4,115          29,555,238          $ 0.14

Effect of Dilutive Securities
   Stock Options                                                                         456,026         $  0.00
                                                                                      ----------       ----------
Diluted Earnings Per Share
   Income Available to Common Shareholders
   plus Assumed Exercise of Options                                  $ 4,115          30,011,264          $ 0.14
                                                                  ==========          ==========       ==========
-----------------------------------------------------------------------------------------------------------------
</TABLE>

Common shares  outstanding at March 31, 2004 do not include 928,222  unallocated
shares held by the Employee  Stock  Ownership  Plan  ("ESOP").  The exclusion of
these unallocated shares held by the ESOP is in accordance with the provision of
Statement of Position  ("SOP") 93-6,  "Employer's  Accounting for Employee Stock
Ownership Plans",  issued by the Accounting  Standards  Division of the American
Institute of Certified Public Accountants ("AICPA").

KNBT had no shares  outstanding  in the first  quarter of 2003,  as KNBT did not
complete its initial public offering until October 31, 2003.

NOTE D  -  STOCK BASED COMPENSATION

KNBT acquired the stock option plans previously  maintained by First Colonial as
a part of the merger. KNBT's stock option plans are accounted for under SFAS No.
123,  "Accounting for Stock-Based  Compensation."  This standard contains a fair
value-based  method  for  valuing  stock-based   compensation,   which  measures
compensation  cost at the  grant  date  based  on the fair  value of the  award.
Compensation is then  recognized  over the service period,  which is usually the
vesting  period.  Alternatively,  the  standard  permits  entities  to  continue
accounting for employee stock options and similar  instruments under APB Opinion
No. 25.  Entities  that  continue to account for stock options using APB Opinion
No. 25 are required to make pro forma disclosures of net income and earnings per
share, as if the fair value-based  method of accounting  defined in SFAS No. 123
had been applied.  KNBT's stock option plans are accounted for under APB Opinion
No. 25.  KNBT had no unvested  stock  options at March 31,  2004.  There were no
options awarded during the first three months of 2004.

On March 31, 2004, the Financial  Accounting  Standards  Board ("FASB") issued a
proposed Statement, "Share-Based Payment an Amendment of FASB Statements No. 123
and APB No 95," that address the





                                                                         7
<PAGE>


accounting for share-based  payment  transactions in which a enterprise receives
employee  services in exchange for (a) equity  instruments  of the enterprise or
(b)  liabilities  that are based on the fair  value of the  enterprise's  equity
instruments  or that may be settled by the issuance of such equity  instruments.
Under the FASB's  proposal,  all forms of  share-based  payments  to  employees,
including  employee stock  options,  would be treated the same as other forms of
compensation  by  recognizing  the  related  cost in the income  statement.  The
expense of the award  would  generally  be  measured  at fair value at the grant
date.  Current  accounting  guidance  requires  that  the  expense  relating  to
so-called  fixed plan employee  stock options only be disclosed in the footnotes
to the financial statements.  The proposed Statement would eliminate the ability
to account for share-based  compensation  transactions using APB Opinion No. 25,
"Accounting  for Stock Issued to Employees".  KNBT is currently  evaluating this
proposed statement and its effects on its results of operations.


At its Annual Meeting of Shareholders, held on May 6, 2004, shareholders of KNBT
Bancorp  approved the Company's 2004 Stock Option Plan and 2004  Recognition and
Retention Plan. An aggregate of 2,020,118  shares of the Company's common stock,
subject to  adjustment,  was reserved  for issuance  under the 2004 Option Plan.
Options  granted under the 2004 Stock Option Plan will have an exercise price no
less than the fair  market  value on the date of grant,  generally  will vest no
more  rapidly  than 20% per year and will have a duration of 10 years.  The 2004
Recognition  and Retention  Plan provides for 808,047  shares of Company  common
stock,  subject to adjustment,  which may be granted as restricted shares to the
Company's directors, officers and employees and generally will vest over no less
than five years after the date of grant.






                                                                         8
<PAGE>




NOTE E - INVESTMENT SECURITIES

The  amortized  cost,  unrealized  gains  and  losses  and fair  value of KNBT's
investment  securities  available-for-sale  at March 31,  2004  (unaudited)  and
December 31, 2003 are as follows:

<TABLE>
<CAPTION>


---------------------------------------------------------------------------------------------------------
                                                              At March 31, 2004 (Unaudited)
                                           --------------------------------------------------------------
                                                                 Gross           Gross
                                              Amortized       Unrealized       Unrealized         Fair
                                                Cost             Gains           Losses          Value
                                               --------        --------        --------         --------
                                                                (dollars in thousands)

<S>                                            <C>             <C>             <C>              <C>
U. S. Government and agencies                  $151,533        $  4,228        $    (11)        $155,750
Obligations of states and political
    subdivisions                                109,714           4,115            (148)         113,681

Mortgage-backed securities
    GNMA                                          1,978              26            --              2,004
    FHLMC                                        90,478           1,369             (83)          91,764
    FNMA                                        277,960           4,496             (48)         282,408
    Other CMOs                                  187,207           1,216            (450)         187,973
                                               --------        --------        --------         --------
       Total Mortgage-backed securities         557,623           7,107            (581)         564,149
Corporate and other debt securities              14,057             506              (1)          14,562
ARM fund                                          4,939            --               (59)           4,880
Equity securities                                13,560             443            (132)          13,871
                                               --------        --------        --------         --------
Total Investment Securities                    $851,426        $ 16,399        $   (932)        $866,893
                                               ========        ========        ========         ========

---------------------------------------------------------------------------------------------------------

                                                          At December 31, 2003
                                               ----------------------------------------------------------
                                                                 Gross           Gross
                                              Amortized       Unrealized       Unrealized         Fair
                                                Cost             Gains           Losses          Value
                                               --------        --------        --------         --------
                                                                (dollars in thousands)

U. S. Government and agencies                  $118,037        $  2,442        $    (99)        $120,380
Obligations of states and political
    subdivisions                                112,228           3,584            (157)         115,655

Mortgage-backed securities
    GNMA                                          2,124              14            --              2,138
    FHLMC                                        83,737           1,016            (768)          83,985
    FNMA                                        224,802           5,597          (2,861)         227,538
    Other CMOs                                  150,645             628            (576)         150,697
                                               --------        --------        --------         --------
       Total Mortgage-backed securities         461,308           7,255          (4,205)         464,358
Corporate and other debt securities              15,068             569            --             15,637
ARM fund                                          4,939            --               (59)           4,880
Equity securities                                12,939             272             (34)          13,177
                                               --------        --------        --------         --------
Total Investment Securities                    $724,519        $ 14,122        $ (4,554)        $734,087
                                               ========        ========        ========         ========

---------------------------------------------------------------------------------------------------------

</TABLE>


                                                                        9
<PAGE>


NOTE F  -  LOANS

A summary of KNBT's loans  receivable at March 31, 2004 (unaudited) and December
31, 2003 follows:


--------------------------------------------------------------------------------

                                              March 31,        December 31,
                                                2004              2003
                                              ---------         ---------
                                             (unaudited)
                                                (dollars in thousands)
Real Estate
     Residential                              $ 327,979         $ 346,221
     Construction                               109,452           112,684
     Commercial                                 168,172           156,563
                                              ---------         ---------
        Total real estate                       605,603           615,468

     Consumer loans                             266,001           265,541
     Commercial (non real estate)                47,255            38,978
     States and political subdivisions            1,367             2,334
                                              ---------         ---------
        Total gross loans                       920,226           922,321

Less:
     Mortgage loans held-for-sale                (3,745)           (4,677)
     Loans in process                             6,365           (27,099)
     Deferred fees (costs)                         (328)             (469)
                                              ---------         ---------
        Total loans                             922,518           890,076

Less:  Allowance for loan losses                 (9,000)           (7,910)
                                              ---------         ---------
        Total net loans                       $ 913,518         $ 882,166
                                              =========         =========

--------------------------------------------------------------------------------




                                                                        10
<PAGE>


The following table shows the amounts of KNBT's non-performing  assets,  defined
as  non-accruing  loans,  accruing loans 90 days or more past due and other real
estate owned at March 31, 2004 (unaudited) and December 31, 2003.


<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------

                                                                 At March 31,    At December 31,
                                                                    2004             2003
                                                                   -------          -------
                                                                 (unaudited)
                                                                     (dollars in thousands)

<S>                                                                <C>              <C>
Non-accrual loans                                                  $ 2,747          $ 1,720
Accruing loans 90 days or more past due                                  7              405
                                                                   -------          -------
    Total non-performing loans                                       2,754            2,125
                                                                   -------          -------

Other real estate owned                                                153              173
                                                                   -------          -------
    Total non-performing assets                                    $ 2,907          $ 2,298
                                                                   =======          =======
---------------------------------------------------------------------------------------------------------

Total non-performing loans as a percentage of loans, net              0.30%            0.24%
Total non-performing loans as a percentage of total assets            0.13%            0.11%
Total non-performing assets as a percentage of total assets           0.14%            0.12%
---------------------------------------------------------------------------------------------------------

Interest on non-accrual loans which would have been
  recorded at the original rate                                    $    50          $    50
Interest on non-accrual loans that was reflected in income            --                 60
                                                                   -------          -------
      Net impact on interest income                                $   (50)         $    10
                                                                   =======          =======
---------------------------------------------------------------------------------------------------------

</TABLE>


KNBT's recorded  investment in impaired loans was $279,000 at March 31, 2004 and
$217,000 at December 31, 2003.  The valuation  allowance for loan losses related
to impaired  loans is a part of the allowance for loan losses and was $32,000 at
March 31, 2004 and $33,000 at  December  31,  2003.  The average  impaired  loan
balance  for the three  months  ended March 31,  2004 was  $229,000.  During the
quarter  ended March 31, 2004,  KNBT  received  principal  payments of $3,000 on
impaired loans,  which payments are recognized on a cash basis.  KNBT recognized
no income on impaired  loans in the  three-month  period  ended March 31,  2004.
There were no principal  payments and no income  recognized on impaired loans in
the first quarter of 2003.

Activity in KNBT's  allowance  for loan losses  during the  three-month  periods
ended March 31, 2004 and 2003 was as follows:

--------------------------------------------------------------------------------

                                                 Three Months Ended March 31,
                                                    2004            2003
                                                  -------         -------
                                                 (unaudited)
                                                   (dollars in thousands)

Balance, beginning of period                      $ 7,910         $ 2,927
Provision charged to operations                     1,500              62
Loans charged-off                                    (491)           (312)
Recoveries of loans previously charged-off             81              12
                                                  -------         -------

Balance, end of period                            $ 9,000         $ 2,689
                                                  =======         =======

--------------------------------------------------------------------------------


                                                                       11
<PAGE>



NOTE G -  RETIREMENT PLANS

1.   Defined Benefit Plan.  KNBT  participates  in a multiple  employer  defined
     benefit pension plan, which covers  substantially  all employees with 1,000
     hours of service  during plan years prior to October 2003. In October 2003,
     KNBT froze the future accrual of benefits  under this plan.  KNBT continues
     to  contribute  to this plan for benefits  accrued  prior to October  2003.
     KNBT's  contribution  to this plan in the three months ended March 31, 2004
     was $104,000. During the three months ended March 31, 2003 the contribution
     to this plan  amounted to $215,000.  KNBT  currently  expects to contribute
     approximately $115,000 to this plan during the remainder of 2004.

2.   Directors'  Deferred  Plan.  KNBT,  as a part  of  the  merger  with  First
     Colonial,  assumed,  as of October 31, 2003, the First Colonial  directors'
     deferred plan involving  certain former  directors of First  Colonial.  The
     plan requires defined annual payments over a fifteen-year  period beginning
     at age 65. The net periodic  defined  benefit  expense for the three months
     ended March 31, 2004 was as follows.


--------------------------------------------------------------------------------
                                                       (dollars in thousands)

Service cost                                                $    --
Interest cost                                                     5
Exepected 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                    --
                                                            -----------
Total Net Periodic Pension Cost for the Quarter             $     5
                                                            ===========
--------------------------------------------------------------------------------



     KNBT currently expects to contribute  approximately $22,000 to this plan in
     2004. We are currently  evaluating the impact on the Company of the Pension
     Funding Equity Act enacted in April 2004 on our projected funding.


NOTE H - VARIABLE INTEREST ENTITY

Management has determined that The First Colonial Statutory Trust I ("Trust I"),
which was  created by First  Colonial  and  acquired  by KNBT in the merger with
First   Colonial,   qualifies   as  a  variable   interest   entity  under  FASB
Interpretation 46 ("FIN 46"),  "Consolidation of Variable Interest Entities," as
revised.  Trust I issued mandatorily  redeemable preferred stock in July 2002 to
investors and loaned the proceeds to the Company.  Trust I is included in KNBT's
consolidated  balance sheet and  statements of operations as of and for the year
ended  December 31, 2003.  Subsequent to the issuance of FIN 46 in January 2003,
the FASB issued a revised  interpretation,  FIN 46(R),  the  provisions of which
must be applied to certain variable interest entities by March 31, 2004.

KNBT  adopted  the  provisions  under the  revised  interpretation  in the first
quarter of 2004.  Accordingly,  KNBT no longer  consolidates Trust I as of March
31, 2004. FIN 46(R) precludes  consideration  of the call option embedded in the
preferred  stock when  determining  if KNBT has the right to a majority of Trust
I's expected residual returns. The deconsolidation resulted in the investment in
the common  stock of Trust I to be included in other assets as of March 31, 2004
and the corresponding increase in outstanding debt of $464,000. In addition, the
income  received on KNBT's common stock  investment is included in other income.
The adoption of FIN 46(R) had no material  impact on the  financial  position or
results  of  operation.  The  banking  regulatory  agencies  have not issued any
guidance   that  would  change  the   regulatory   capital   treatment  for  the
trust-preferred securities issued by Trust I based on the adoption of FIN 46(R).
However,  as additional  interpretations  from the banking regulators related to
entities such as Trust I are issued,  management  will  reevaluate its potential
impact to its Tier I capital calculation under such interpretations.



                                                                       12
<PAGE>



NOTE I - NEW ACCOUNTING PRONOUNCEMENTS

The  Securities  and Exchange  Commission  recently  released  Staff  Accounting
Bulletin ("SAB") 105, Application of Accounting  Principles to Loan Commitments.
SAB  105  provides  guidance  regarding  the  measurement  of  loan  commitments
recognized  at  fair  value  under  FASB  Statement  No.  133,  "Accounting  for
Derivative Instruments and Hedging Activities".  SAB 105 also requires companies
to disclose their accounting policy for those loan commitments including methods
and assumptions used to estimate fair value and associated  hedging  strategies.
SAB 105 is effective for all loan commitments  accounted for as derivatives that
are entered  into after March 31,  2004.  The adoption of SAB 105 is expected to
have no material effect on KNBT's consolidated financial statements.


NOTE J - RECLASSIFICATIONS

Certain  reclassifications  of prior years' amounts have been made to conform to
the March 31, 2004 presentation.











                                                                       13
<PAGE>


ITEM 2.       Management's Discussion and Analysis of
              Financial Condition and Results of Operations




CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION

In  addition  to  historical  information,  this  Quarterly  Report on Form 10-Q
includes certain "forward-looking  statements," as defined in the Securities Act
of 1933 and the  Securities  Exchange Act of 1934,  based on current  management
expectations.   KNBT's  actual  results  could  differ   materially  from  those
management  expectations.  Such  forward-looking  statements  include statements
regarding  KNBT's  intentions,  beliefs or current  expectations  as well as the
assumptions  on which such  statements  are based.  Stockholders  and  potential
stockholders  are cautioned  that any such  forward-looking  statements  are not
guarantees of future performance and involve risks and  uncertainties,  and that
actual  results  may  differ   materially   from  those   contemplated  by  such
forward-looking statements. Factors that could cause future results to vary from
current  management  expectations  include,  but are  not  limited  to,  general
economic  conditions,   legislative  and  regulatory  changes,  monetary  fiscal
policies  of  the  federal  government,  changes  in  tax  policies,  rates  and
regulations  of federal,  state and local tax  authorities,  changes in interest
rates,  deposit  flows,  cost of funds,  demand  for loan  products,  demand for
financial  services,  difficulties  in integrating  the data processing or other
systems at KNBT's subsidiary savings bank,  competition,  changes in the quality
or composition of KNBT's loan and investment  portfolios,  changes in accounting
principles, policies or guidelines and other economic, competitive, governmental
and  technological  factors  affecting  KNBT's  operations,  markets,  products,
services  and fees.  KNBT  undertakes  no  obligation  to  update or revise  any
forward-looking  statements to reflect  changed  assumptions,  the occurrence of
unanticipated events or changes to future operating results over time.


Critical Accounting Policies, Judgments and Estimates

The accounting and reporting  policies of KNBT conform to accounting  principles
generally  accepted in the United States of America and general practices within
the  financial  services  industry.  The  preparation  of  financial  statements
requires  management to make estimates and  assumptions  that affect the amounts
reported in the financial  statements and the accompanying notes. Actual results
could differ from those estimates.

KNBT considers that the  determination of the allowance for loan losses involves
a higher degree of judgment and complexity than its other significant accounting
policies.  The  allowance  for loan losses is  calculated  with the objective of
maintaining  a reserve  level  believed by management to be sufficient to absorb
estimated probable credit losses.  Management's determination of the adequacy of
the allowance is based on periodic  evaluations  of the loan portfolio and other
relevant  factors.  However,  this  evaluation  is  inherently  subjective as it
requires  material  estimates,   including,   among  others,   expected  default
probabilities,  loss given default,  expected  commitment usage, the amounts and
timing of expected future cash flows on impaired loans,  mortgages,  and general
amounts for historical  loss  experience.  The process also  considers  economic
conditions,  uncertainties  in estimating  losses and inherent risks in the loan
portfolio. All of these factors may be susceptible to significant change. To the
extent actual outcomes differ from management  estimates,  additional provisions
for loan losses may be required that would  adversely  impact earnings in future
periods.

KNBT  recognizes  deferred tax assets and  liabilities for future tax effects of
temporary  differences,  net  operating  loss carry  forwards  and tax  credits.
Deferred tax assets are subject to  management's  judgment  based upon available
evidence  that  future  realization  is more  likely  than  not.  If  management
determines  that KNBT may be unable to realize all or part of net  deferred  tax
assets in the future,  a direct  charge to income tax expense may be required to
reduce  the  recorded  value  of the net  deferred  tax  asset  to the  expected
realizable amount.



                                                                       14
<PAGE>


Goodwill, under SFAS No. 142, is subject to impairment testing at least annually
to determine whether  write-downs of the recorded  balances are necessary.  KNBT
tests for impairment based on the goodwill  maintained at each defined reporting
unit. A fair value is determined  for each  reporting unit based on at least one
of three  various  market  valuation  methodologies.  If the fair  values of the
reporting units exceed their book values,  no write-down of recorded goodwill is
necessary.  If the fair value of the  reporting  unit is less, an expense may be
required  on KNBT's  books to write  down the  related  goodwill  to the  proper
carrying value. KNBT recorded goodwill and other identifiable  intangible assets
as a result of the acquisition of First Colonial in October 2003.

Comparison of Financial Condition as of March 31, 2004 and December 31, 2003

Assets.  KNBT's  total assets were $2.1 billion at March 31, 2004 as compared to
$1.9 billion at December 31, 2003,  an increase of $116.3  million or 6.0%.  The
increase in assets was  principally  due to increases in investment  securities,
loans receivable, Federal Home Loan Bank stock and premises and equipment. These
increases were offset in part by a reduction in cash and cash equivalents and an
increase in the  allowance  for loan  losses.  During the first three  months of
2004, KNBT's investment  securities  increased $132.8 million or 18.1% to $866.9
million at March 31, 2004 compared to $734.1  million at December 31, 2003.  The
primary  sources of funds used for the increase in  investment  securities  were
additional  advances  from the  Federal  Home Loan Bank of  Pittsburgh  and to a
lesser extent cash and cash equivalents.  The Company determined to add leverage
to the balance  sheet by taking out $109.6  million of  additional  Federal Home
Loan Bank advances,  which had an average rate of 2.47% and investing such funds
into $109.5  million of  investment  securities  with an average yield of 4.19%.
KNBT's total loans receivable were $922.5 million at March 31, 2004, an increase
of $32.4 million or 3.6% over the December 31, 2003 total of $890.1 million. The
growth in loans  receivable  was  principally  due to an $11.6  million  or 7.4%
increase in  commercial  real  estate  loans,  a $8.3  million or 21.2% in other
commercial  loans and a $460,000 or 0.2% increase in consumer loans.  These loan
increases  were  offset  in  part  by an  $18.2  million  or  5.3%  decrease  in
single-family residential mortgage loans as a result of the sale of $2.7 million
of these  loans  during the first  quarter of 2004,  customer  repayments  and a
reduced level of new mortgage loans because of rising interest rates. During the
first  quarter of 2004,  KNBT sold all of its $1.8  million of credit card loans
for a gain of  $298,000.  These  credit  card  loans  were sold  because  of the
relatively low volume and high administrative costs. KNBT will continue to offer
credit cards to its  customers  through a third party  provider and will receive
some fee income through this arrangement.  KNBT's investment in the stock of the
Federal  Home Loan Bank of  Pittsburgh  was $15.8  million at March 31,  2004 as
compared to $11.5  million at December  31,  2003.  This was an increase of $4.2
million or 36.8%. KNBT's net premises and equipment increased by $2.3 million or
6.4% to $38.2  million at March 31, 2004  compared to $35.9  million at December
31, 2003  principally as a result of the purchase of new computer  equipment and
the cost of renovations to the Company's  headquarters and operations buildings.
KNBT anticipates that its capital  expenditures will be approximately $2 million
for the remainder of 2004.  KNBT's cash and cash  equivalents were $87.3 million
at March 31, 2004 as  compared to $139.0  million at  December  31,  2003.  This
decrease of $51.7 million or 37.2% was  principally the result of the investment
of these funds in investment securities and loans receivable.



                                                                         15
<PAGE>



Allowance  for Loan Losses.  KNBT's  allowance  for loan losses  increased  $1.1
million or 13.8% during the first three months of 2004.  The  allowance for loan
losses was $9.0  million  and $7.9  million at March 31, 2004 and  December  31,
2003,  respectively.  The  increase  in the  allowance  for loan losses was  the
result of  management's  analysis of the risks  within the loan  portfolio.  The
allowance  for loan losses is  established  through a provision for loan losses.
KNBT  maintains  the allowance at a level  believed to the best of  management's
knowledge, to cover all known and inherent losses in the portfolio that are both
probable and reasonable to estimate at each reporting date.  Management  reviews
all loans, which are delinquent 60 days or more on a monthly basis, and performs
regular  reviews of the  allowance  no less than  quarterly in order to identify
those inherent losses and assess the overall collection probability for the loan
portfolio.  Such reviews  consist of a  quantitative  analysis by loan category,
using  historical loss experience and  consideration  of a series of qualitative
loss  factors.  KNBT's  evaluation  process  includes,  among other  things,  an
analysis  of  delinquency  trends,  non-performing  loan  trends,  the  level of
charge-offs and recoveries,  prior loss experience, total loans outstanding, the
volume of loan originations,  the type, size and geographic concentration of its
loans,  the value of collateral  securing the loan,  the  borrower's  ability to
repay  and  repayment  performance,  the  number of loans  requiring  heightened
management  oversight,  local economic  conditions and industry  experience.  In
addition,  in  establishing  the  allowance for loan losses,  KNBT's  management
considers a ten point  internal  rating  system for all loans  originated by the
Commercial Lending department. At the time of origination,  each commercial loan
is assigned a rating based on the assumed risk  elements of the loan.  Such risk
ratings  are   periodically   reviewed  by  management  and  revised  as  deemed
appropriate. The establishment of the allowance for loan losses is significantly
affected by management's  judgment and  uncertainties  and there is a likelihood
that  different  amounts  would  be  reported  under  different   conditions  or
assumptions.   Various  regulatory  agencies,  as  an  integral  part  of  their
examination process,  periodically review KNBT's allowance for loan losses. Such
agencies may require the Company to make  additional  provisions  for  estimated
loan losses based upon  judgments  different  from those of  management.  KNBT's
allowance for loan losses was 0.98% and 0.89% of total loans receivable at March
31, 2004 and December  31,  2003,  respectively.  See  "Comparison  of Operating
Results for the three months ended March 31, 2004 and 2003 - Provision  for Loan
Losses."

Liabilities.  KNBT's  total  liabilities  amounted to $1.7  billion at March 31,
2004,  an increase of $107.5  million or 6.9% compared to total  liabilities  at
December 31, 2003 of $1.6 billion.  The increase in liabilities  was principally
due to a $101.3 million or 48.9% increase in advances from the Federal Home Loan
Bank of Pittsburgh during the first quarter of 2004. These advances total $308.5
million  and  $207.2   million  at  March  31,  2004  and   December  31,  2003,
respectively.  KNBT's  deposits  increased  $4.8  million  or  0.4%  during  the
three-month  period ended March 31, 2004.  Deposits totaled $1.3 billion at both
March 31, 2004 and  December 31, 2003.  During the first  quarter of 2004,  KNBT
adopted  FIN 46(R)  and,  as a result,  KNBT  deconsolidated  Trust I. The $15.5
million of debentures  issued by KNBT to Trust I were reflected as  subordinated
debentures in the March 31, 2004 consolidated  balance sheet.  KNBT's investment
in the Trust in the  amount of  $464,000  was  included  in other  assets in the
consolidated balance sheet of KNBT at March 31, 2004. At December 31, 2003 Trust
I was  a  consolidated  subsidiary  and  was  included  in  liabilities  in  the
consolidated  balance sheet as "Guaranteed  preferred beneficial interest in the
Company's  subordinated  debentures"  and the common stock and the debentures of
Trust  I  along  with  the  related  income  effects  were   eliminated  in  the
consolidated  financial  statements.  The debentures issued to Trust I, less the
common stock of Trust I, or $15.0  million at March 31, 2004 continue to qualify
as Tier I capital under current guidance issued by the Federal Reserve Board.

Shareholders'  Equity.  KNBT's  shareholders'  equity  totaled $397.9 million at
March 31, 2004  compared to $389.1  million at December 31, 2003, an increase of
$8.8 million or 2.3%. The increase in  shareholders'  equity was principally the
result of net  income of $4.1  million  and an  increase  in  accumulated  other
comprehensive  income of $3.9 million related to an increase unrealized gains on
investment securities  available-for-sale.  Also contributing to the increase in
shareholders'  equity was the  allocation  of 11,900 shares of KNBT common stock
pursuant to the ESOP for a value of $209,000 and the issuance of 110,423  common
shares upon the exercise of stock  options for proceeds of $564,000.  Regulatory
capital ratios for KNBT and the Bank at March 31, 2004 and December 31, 2003 are
shown in the following table.


                                                                         16
<PAGE>


<TABLE>
<CAPTION>

<S>                                  <C>                <C>        <C>                <C>
CAPITAL RATIOS

------------------------------------------------------------------------------------------------------------------------------------
                                                                           Required               To Be Well Capitalized
                                                                         For Capital             Under Prompt Corrective
                                               Actual                  Adequacy Purposes             Action Provisions
                                      ------------------------     --------------------------   ------------------------------
(Dollars in Thousands)
  At March 31, 2004                   Amount            Ratio        Amount         Ratio        Amount          Ratio
----------------------------------------------------------------------------------------------------------------------------------

Total Capital
(To Risk-Weighted Assets)
    Company                          $366,183           32.32%       $ 90,644        8.00%            N/A          N/A
    Bank                             $264,438           23.60%       $ 89,630        8.00%       $112,037        10.00%

Tier 1 Capital
(To Risk-Weighted Assets)
    Company                          $357,183           31.52%       $ 45,322        4.00%            N/A          N/A
    Bank                             $255,438           22.80%       $ 44,815        4.00%       $ 67,222         6.00%

Tier 1 Capital
(To Average Assets, Leverage)
    Company                          $357,183           18.47%       $ 77,342        4.00%            N/A          N/A
    Bank                             $255,438           13.41%       $ 76,184        4.00%       $ 95,231         5.00%


------------------------------------------------------------------------------------------------------------------------------------
                                                                           Required               To Be Well Capitalized
                                                                         For Capital             Under Prompt Corrective
                                               Actual                  Adequacy Purposes             Action Provisions
                                      ------------------------     --------------------------   ------------------------------
(Dollars in Thousands)
  At December 31, 2003                Amount            Ratio        Amount         Ratio        Amount          Ratio
----------------------------------------------------------------------------------------------------------------------------------
Total Capital
(To Risk-Weighted Assets)
    Company                          $359,522           33.24%       $ 86,535        8.00%            N/A          N/A
    Bank                             $258,441           24.01%       $ 86,123        8.00%       $107,654        10.00%

Tier 1 Capital
(To Risk-Weighted Assets)
    Company                          $351,612           32.51%       $ 43,268        4.00%            N/A          N/A
    Bank                             $250,499           23.27%       $ 43,062        4.00%       $ 64,593         6.00%

Tier 1 Capital
(To Average Assets, Leverage)
    Company                          $351,612           19.39%       $ 72,525        4.00%            N/A          N/A
    Bank                             $250,499           13.42%       $ 74,646        4.00%       $ 93,307         5.00%

----------------------------------------------------------------------------------------------------------------------------------

</TABLE>




                                                                       17
<PAGE>


Liquidity.  KNBT's primary  sources of funds are from deposits,  amortization of
loans,  loan prepayments and the maturity of loans,  mortgage-backed  securities
and other investments, and other funds provided from operations. While scheduled
payments  from the  amortization  of loans and  mortgage-backed  securities  and
maturing  investment  securities  are relatively  predictable  sources of funds,
deposit flows and loan prepayments can be greatly influenced by general interest
rates, economic conditions and competition.  KNBT also maintains excess funds in
short-term,  interest-bearing  assets that provide additional liquidity and also
utilizes  outside  borrowings,  primarily  from the  Federal  Home  Loan Bank of
Pittsburgh ("FHLB"), as an additional funding source. KNBT uses its liquidity to
fund  existing and future loan  commitments,  to fund maturing  certificates  of
deposit  and demand  deposit  withdrawals,  to invest in other  interest-earning
assets, and to meet operating  expenses.  In addition to cash flow from loan and
securities payments and prepayments as well as from sales of  available-for-sale
securities and mortgage loans, KNBT has significant borrowing capacity available
to fund liquidity  needs.  KNBT has increased its utilization of FHLB borrowings
in recent years as a cost  efficient  addition to deposits as a source of funds.
The average balance of FHLB borrowings was $248.5 million and $103.0 million for
the three months ended March 31, 2004 and December 31, 2003, respectively.

"GAP" Analysis.  The following  interest rate sensitivity "GAP" table sets forth
the amounts of KNBT's interest-earning  assets and interest-bearing  liabilities
outstanding  at  March  31,  2004,  which  are  expected,   based  upon  certain
assumptions,  to  reprice or mature in each of the future  time  periods  shown.
Except as stated below, the amount of assets and liabilities shown which reprice
or mature during a particular  period were  determined  in  accordance  with the
earlier  of term to  repricing  or the  contractual  maturity  of the  asset  or
liability.  The table sets forth an approximation of the projected  repricing of
assets  and  liabilities  at  March  31,  2004,  on  the  basis  of  contractual
maturities,  anticipated  prepayments,  and scheduled rate adjustments  within a
three-month period and subsequent  selected time intervals.  The loan amounts in
the table reflect principal  balances expected to be repaid and/or repriced as a
result   of   contractual    amortization   and   anticipated   prepayments   of
adjustable-rate  loans and fixed-rate loans, and as a result of contractual rate
adjustments   on   adjustable-rate    loans.   Annual   prepayment   rates   for
adjustable-rate and fixed-rate single-family and multi-family mortgage loans are
assumed to range from 14% to 32%. The annual prepayment rate for mortgage-backed
securities is assumed to range from 14% to 32%. Money market  deposit  accounts,
savings  accounts  and  interest-bearing  checking  accounts are assumed to have
annual rates of withdrawal, or "decay rates," of 20%, 15% and 15%, respectively.



                                                                        18
<PAGE>


<TABLE>
<CAPTION>

<S>                                <C>                 <C>           <C>           <C>            <C>            <C>       <C>

INTEREST RATE SENSITIVITY "GAP"

------------------------------------------------------------------------------------------------------------------------------------
                                                                        At March 31, 2004
------------------------------------------------------------------------------------------------------------------------------------
                                               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  $   45,242    $     --      $     --      $     --       $     --       $     --      $   45,242
    Loans receivable (2)               368,778       112,963       160,356       208,511         51,907         17,711       920,226
    Investment securities, debt         36,848        39,403        96,736       247,337        165,615        262,454       848,393
    Investment securities, equity       10,237          --            --            --             --           24,054        34,291
                                    ----------    ----------    ----------    ----------     ----------     ----------    ----------
       Total interest-earning
          assets                    $  461,105    $  152,366    $  257,092    $  455,848     $  217,522     $  304,219    $1,848,152
                                    ==========    ==========    ==========    ==========     ==========     ==========    ==========
Cumulative total interest-
    earning assets                  $  461,105    $  613,471    $  870,563    $1,326,411     $1,543,933     $1,848,152    $1,848,152
                                    ==========    ==========    ==========    ==========     ==========     ==========    ==========
Interest-bearing
    liabilities:
    Savings deposits                $    8,935    $    8,935    $   17,870    $   67,012     $   67,011     $   53,607    $  223,370
    Interest-bearing
       checking deposits                 6,778         6,778        13,556        50,836         50,835         40,401       169,184
    Money market deposits               12,278        12,278        24,556        98,224         98,490           --         245,826
    Certificates of deposit             93,807        76,292       152,584       162,744         32,150         25,402       542,979
    FHLB advances and other
       borrowings                       59,023         4,068        20,686        87,594         93,066         87,960       352,397
                                    ----------    ----------    ----------    ----------     ----------     ----------    ----------
       Total interest-bearing
          liabilities               $  180,821    $  108,351    $  229,252    $  466,410     $  341,552     $  207,370    $1,533,756
                                    ==========    ==========    ==========    ==========     ==========     ==========    ==========
Cumulative total interest-
    bearing liabilities             $  180,821    $  289,172    $  518,424    $  984,834     $1,326,386     $1,533,756    $1,533,756
                                    ==========    ==========    ==========    ==========     ==========     ==========    ==========
Interest-earning assets
    less interest-bearing
    liabilities                     $  280,284    $   44,015    $   27,840    $  (10,562)    $ (124,030)    $   96,849    $  314,396
                                    ==========    ==========    ==========    ==========     ==========     ==========    ==========
Cumulative interest-rate
    sensitivity gap (3)             $  280,284    $  324,299    $  352,139    $  341,577     $  217,547     $  314,396
                                    ==========    ==========    ==========     ==========     ==========    ==========
Cumulative interest-rate
    gap as a percentage
    of total assets at
    March 31, 2004                      13.63%         15.76%       17.12%         16.60%         10.58%         15.28%
Cumulative interest-rate
    earning assets as a
    percentage of
    cumulative interest-
    bearing liabilities at
    March 31, 2004                     255.01%        212.15%      167.92%        134.68%        116.40%        120.50%

--------------------------------------------------------------------------------------------------------------------------------

(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 and 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 net interest-earning assets and interest-bearing liabilities.


</TABLE>



                                                                         19
<PAGE>




Comparison  of  Operating  Results for the Three Months Ended March 31, 2004 and
2003

General.  KNBT's net income for the three  months  ended March 31, 2004 was $4.1
million  compared to $2.9 million for the three months ended March 31, 2003,  an
increase of $1.2 million or 39.5%.  Basic and diluted earnings per share for the
first  quarter of 2004 was $0.14.  Per share data is not  reported for the first
quarter of 2003 as KNBT  completed  its initial  public  offering on October 31,
2003.  Average basic and diluted shares  outstanding during the first quarter of
2004 were 29,555,238 and 30,011,264, respectively. KNBT's increase in net income
in the three  months  ended March 31, 2004  compared to the three  months  ended
March 31, 2003 was due to higher levels of net interest income and  non-interest
income  in  the  2004  period  which  was  partially   offset  by  increases  in
non-interest  expenses and the  provision  for loan losses.  The increase in net
interest income primarily  reflects increased interest income in the 2004 period
due to a significant  increase in the average balance of interest earning assets
as a result of $196.2 million in net proceeds  received in the Company's initial
public  offering,  the acquisition of First Colonial and the investment of funds
received from Federal Home Loan Bank advances as part of the Company's  leverage
strategy.  The increases in non-interest income and non-interest expenses in the
2004 period also  reflect in large part the  Company's  significantly  increased
operating  base and product  offerings as a result of the  acquisition  of First
Colonial. At the time of acquisition,  First Colonial had total assets of $666.9
million,  including $272.3 million in net loans and $271.8 million in investment
securities, and total deposits of $512.1 million.

Net Interest  Income.  KNBT's net interest  income amounted to $15.5 million for
the three  months  ended March 31, 2004  compared to $8.8  million for the three
months  ended March 31, 2003,  an increase of $6.6  million or 75.1%.  The major
factors in the increases in both interest  income and interest  expense were the
acquisition  of First  Colonial on October 31, 2003,  the  proceeds  from KNBT's
initial public offering on October 31, 2003 and an increase in the advances from
the Federal Home Loan Bank.  KNBT's total interest  income was $22.4 million for
the first  quarter of 2004,  an increase of $8.2 million or 58.1% from the $14.1
million  earned in the first quarter of 2003.  KNBT's average  interest  earning
assets  amounted to $1.8  billion for the first three months of 2004 as compared
to $948.4  million  for the first  three  months of 2003,  an increase of $806.8
million  or 85.1%.  The total  interest  expense  paid by KNBT on  deposits  and
borrowings  was $6.9 million and $5.3 million for the  three-month  period ended
March 31, 2004 and 2003  respectively.  This was an  increase in total  interest
expense of $1.6 million or 29.6%. Average interest-bearing liabilities were $1.5
billion and $855.7 million for the first quarter of 2004 and 2003, respectively,
an increase of $608.5 million or 71.1%. KNBT's net interest margin was 3.53% for
the three  months ended March 31, 2004 as compared to 3.73% for the three months
ended March 31, 2003.  On a tax  equivalent  basis the net  interest  margin was
3.68%  and  3.85%  for  the  three   months  ended  March  31,  2004  and  2003,
respectively.  The net interest  spread on a tax equivalent  basis was 3.36% for
the first  quarter of 2004 and 3.61% for the first  quarter  of 2003.  The lower
interest  margin and  interest  spread  was the  result of a general  decline of
interest rates during the past year with the average yield earned by KNBT on its
interest-earning  assets declining to a greater degree than the interest paid by
KNBT on its interest-bearing liabilities.

Average  Balances,  Net Interest  Income,  and Yields Earned and Rates Paid. The
following  table  shows for the periods  indicated  the total  dollar  amount of
interest from average  interest-earning assets and the resulting yields, as well
as the interest expense on average interest-bearing liabilities,  expressed both
in  dollars  and  rates,  and  the  net  interest  margin.  The  table  includes
information  adjusted to a tax  equivalent  basis for the  Company's  tax-exempt
investment  securities.  The  presentation  on a  tax-equivalent  basis  may  be
considered to include  non-GAAP  information.  Management  believes that it is a
standard  industry  practice in the banking industry to present such information
on a fully tax equivalent basis and that such information is useful to investors
in making peer  comparisons.  The tax-exempt  adjustments  and  comparable  GAAP
information also is included in the table.




                                                                        20
<PAGE>


<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------------------------------------------------------------------------------------------------------
                                                                 2004                                         2003
                                             -----------------------------------------    ------------------------------------------
                                                               Interest      Average                        Interest      Average
                                                Average         Income/      Yield/          Average         Income/       Yield/
                                                Balance         Expense       Rate           Balance         Expense        Rate
                                             -----------------------------------------    ------------------------------------------
<S>                                               <C>               <C>         <C>             <C>              <C>          <C>
Assets                                                                        (dollars in thousands)
Interest-Earning Assets
    Interest-Bearing Balances with Banks          $ 36,390          $ 142        1.56%          $ 54,776         $ 131         0.96%
    Investment Securities
       Taxable (1)                                 699,329          6,871        3.93            276,662         3,300         4.77
       Non-Taxable                                 116,178          1,886        6.49             47,391           871         7.35
    Loans Receivable (2) (3)                       911,362         14,104        6.19            572,478        10,133         7.08
    Allowance for Loan Losses                       (8,079)             -           -             (2,896)            -            -
                                             --------------   ------------                ---------------  ------------
    Net Loans                                      903,283         14,104        6.25            569,582        10,133         7.12
                                             --------------   ------------                ---------------  ------------
      Total Interest-Earning Assets              1,755,180         23,003        5.24            948,411        14,435         6.09
    Non-Interest Earning Assets                    224,006              -           -             55,543             -            -
                                             --------------   ------------                ---------------  ------------
      Total Assets,
        Interest Income                        $ 1,979,186         23,003                    $ 1,003,954        14,435
                                             ==============   ------------                ===============  ------------

Liabilities
Interest-Bearing Liabilities
    Interest-Bearing Deposits
      Demand Deposits                            $ 178,104             64        0.14           $ 85,801           113         0.53
      Money Market Deposits                        238,371            542        0.91            153,238           626         1.63
      Savings Deposits                             224,034            263        0.47            118,604           307         1.04
      Certificates of Deposit                      536,535          3,666        2.73            387,253         3,117         3.22
                                             --------------   ------------                ---------------  ------------
        Total Interest-Bearing Deposits          1,177,044          4,535        1.54            744,896         4,163         2.24

    Securities Sold Under Agreements
      to Repurchase                                 23,296             35        0.60              7,880            32         1.62
    FHLB Advances                                  248,470          2,124        3.42            102,962         1,108         4.30
    Subordinated Debentures                         15,464            181        4.68                  -             -            -
                                             --------------   ------------                ---------------
      Total Interest-Bearing Liabilitites        1,464,274          6,875        1.88            855,738         5,303         2.48

Non-Interest-Bearing Liabilities
    Non-Interest-Bearing Deposits                  115,925              -           -             34,416             -           -
    Other Liabilities                                5,594              -           -              5,657             -           -
                                             --------------   ------------                ---------------  ------------
      Total Liabilities                          1,585,793          6,875                        895,811         5,303
    Shareholders' Equity/
      Retained Earnings                            393,393              -           -            108,143             -           -
                                             --------------   ------------                ---------------  ------------
    Total Liabilities & Shareholders'
      Equity, Interest Expense                 $ 1,979,186          6,875                    $ 1,003,954         5,303
                                             ==============   ------------                ===============  ------------

Net Interest Income Tax Equivalent Basis                           16,128                                        9,132
                                                              ------------                                 ------------
    Net Interest Spread
      Tax Equivalent Basis (4)                                                  3.36%                                         3.61%
    Effect of Interest-Free Sources
      Used to Fund Earning Assets                                               0.32                                          0.24
                                                                            ----------                                   -----------

Net Interest Margin
    Tax Equivalent Basis (5)                                                    3.68%                                         3.85%

Tax-exempt Adjustment                                                 652                                          296
                                                              ------------                                 ------------

Net Interest Income and Margin                                    $15,476       3.53%                          $ 8,836        3.73%
                                                              ============  ==========                     ============  ===========

Average Interest-Earning Assets
    to Average Interest-Bearing Liabilities                                   119.87%                                       110.83%
------------------------------------------------------------------------------------------------------------------------------------

<FN>
(1) Includes Federal Home Loan Bank stock.
(2) The indicated  interest income and average yields are presented on a taxable
    equivalent  basis.  The taxable  equivalent  adjustments  included above are
    $652,000  and $296,000 for the for the three months ended March 31, 2004 and
    2003,  respectively.  The effective tax rate used for the taxable equivalent
    adjustment was 34%.
(3) Loan  (expenses)  fees of $(34,000)  and $122,000 for the three months ended
    March 31, 2004 and 2003,  respectively,  are  included  in interest  income.
    Average loan balances  include  non-accruing  loans of $2.1 million and $1.9
    million,  respectively and average loans  held-for-sale of $3.3 million $9.0
    million, respectively for the three months ended 2004 and 2003.
(4) Net  interest  spread  is  the  arithmetic   difference   between  yield  on
    interest-earning  assets and the rate paid on interest-bearing  liabilities.
(5) Tax equivalent  net interest  margin is computed  by dividing tax equivalent
    net interest income by average  interest-earning assets.

</FN>
</TABLE>



                                                                       21
<PAGE>


Rate Volume  Analysis.  The following table shows the extent to which changes in
interest   rates  and   changes  in  volume  of   interest-earning   assets  and
interest-bearing  liabilities affected KNBT's interest income and expense during
the  periods  indicated.  For  each  category  of  interest-earning  assets  and
interest-bearing liabilities, information is provided on changes attributable to
(1)  changes  in rate,  which is the  change in rate  multiplied  by prior  year
volume,  and (2) changes in volume,  which is the change in volume multiplied by
prior year rate. The combined effect of changes in both rate and volume has been
allocated  proportionately  to the  change  due to rate  and the  change  due to
volume.

<TABLE>
<CAPTION>
                                                               Three Months Ended March 31, 2004
                                                                           Compared To
                                                                Three Months Ended March 31, 2003
                                                           -------------------------------------------
                                                               Increase (Decrease)
                                                                      Due to
                                                           ----------------------------      Total
                                                                                           Increase
                                                               Rate          Volume       (Decrease)
                                                           ----------------------------  -------------
                                                             (dollars in thousands)
<S>                                                                <C>           <C>             <C>
Interest income:
    Cash and cash equivalents                                      $ 55          $ (44)          $ 11
    Investment securities                                        (1,740)         6,326          4,586
    Loans receivable, net                                        (1,965)         5,936          3,971
                                                           -------------  -------------  -------------
        Total interest-earning assets                            (3,650)        12,218          8,568

Interest expense:
    Savings deposits                                               (317)           273            (44)
    Demand deposits                                                (171)           122            (49)
    Money market deposits                                          (432)           348            (84)
    Certificates of deposits                                       (652)         1,201            549
                                                           -------------  -------------  -------------
        Total interest-bearing deposits                          (1,572)         1,944            372

Securities sold under agreements
    to repurchase                                                   (60)            63              3
FHLB advances                                                      (550)         1,566          1,016
Subordinated borrowings                                               -            181            181
                                                           -------------  -------------  -------------
        Total interest-bearing liabilities                       (2,182)         3,754          1,572
                                                           -------------  -------------  -------------
Increase (decrease) in net
    interest income                                            $ (1,468)       $ 8,464        $ 6,996
                                                           =============  =============  =============

------------------------------------------------------------------------------------------------------

</TABLE>







                                                                       22
<PAGE>



Provision for Loan Losses.  KNBT made provisions for loan losses of $1.5 million
for the three  months  ended March 31, 2004 as compared to $62,000 for the three
months ended March 31, 2003.  During the first quarter of 2004,  KNBT's net loan
charge-offs  amounted to  $410,000  as  compared  to  $300,000  during the first
quarter of 2003.  KNBT's total  non-performing  loans  amounted to $2.8 million,
$2.1 million and $2.0 million at March 31, 2004, December 31, 2003 and March 31,
2003, respectively. At March 31, 2004, KNBT's allowance for loan losses was $9.0
million  or 0.98% of total  loans  receivable.  At  December  31,  2003,  KNBT's
allowance for loan losses was $7.9 million or 0.89% of total loans receivable.

Non-Interest  Income.  KNBT's total non-interest income amounted to $4.0 million
for the three months ended March 31, 2004 compared to $2.2 million for the three
months ended March 31, 2003, an increase of $1.8 million or 81.9%. This increase
was principally the result of an increase in deposit service charges of $459,000
due  primarily  to a  larger  number  of  accounts  added  as a  result  of  the
acquisition of First Colonial,  revenues from the Trust department acquired from
First Colonial of $353,000,  a $312,000  increase in earnings on bank owned life
insurance  due  primarily  to a full  quarters  earnings on the $30 million BOLI
purchased  in the fourth  quarter  of 2003,  a gain of  $298,000  on the sale of
KNBT's credit card loans receivable,  higher revenues from brokerage services of
$73,000 and a $339,000 increase in other non-interest  operating income of which
$261,000 was the result of increased debit card and electronic  banking fees due
to an increased volume of transactions.  These increases in non-interest  income
were  offset  in  part  by a  $105,000  decrease  in the  gains  on the  sale of
residential  real estate loans and losses on the sale of  investment  securities
available-for-sale of $8,000.

Non-Interest  Expense.  KNBT's  non-interest  expense was $12.5  million for the
three months ended March 31, 2004  compared to $6.9 million for the three months
ended March 31, 2003, an increase of $5.6 million or 81.1%.  The primary  reason
for the increase in  non-interest  expense was higher salary and benefit  costs,
higher occupancy and equipment  expenses,  the amortization of intangible assets
and increases in other  expenses due  principally  to the  acquisition  of First
Colonial.  Compensation  and benefit expenses for the first quarter of 2004 were
$7.2 million as compared to $3.7  million for the same period in 2003.  This was
an increase of $3.5 million or 94.0%.  At March 31, 2004, KNBT had 625 employees
compared to 387 at March 31, 2003.  The increase in employees  was due primarily
to the addition of 245 employees as a result of the merger with First  Colonial.
Net  occupancy  and  equipment  expense  increased  by $826,000 or 82.7% to $1.8
million for the first  quarter of 2004 from $1.0 million in the first quarter of
2003. The principal factor in the higher occupancy  expenses was the acquisition
of First Colonial, which added 20 offices. Since March 31, 2003, KNBT has opened
two branch  offices and acquired a 47,000  square foot  operations  center.  The
amortization  of intangible  assets  related to the First  Colonial  acquisition
amounted to $547,000 for the three  months  ended March 31,  2004.  Professional
fees increase by $460,000 in the first quarter of 2004 to a total of $572,000 as
compared to $112,000 for the first quarter of 2003. The increase in professional
fees was due to increases in accounting,  legal and consulting costs principally
incurred in connection  with the expansion  and systems  integration.  All other
non-interest expenses including advertising, data processing, supplies, postage,
telephone  and other  miscellaneous  expenses were $2.3 million and $2.1 million
for the first quarter of 2004 and 2003, respectively.  This increase of $256,000
or 12.4% was due primarily to the merger and systems integration costs.

Income Tax  Expense.  KNBT's  income tax expense was $1.3  million for the three
months ended March 31, 2004  compared to $1.1 million for the three months ended
March 31, 2003. KNBT's effective Federal tax rate was 24.3% for the three months
ended March 31,  2004  compared  to 27.2% for the three  months  ended March 31,
2003.  The principal  factors in the lower  effective tax rate was the increased
investment in tax-free municipal securities and in BOLI.




                                                                         23
<PAGE>



ITEM 3.      Quantitative and Qualitative Discussion About Market Risk

For a discussion  of KNBT's asset and liability  management  policies as well as
the methods used to manage its exposure to the risk of loss from adverse changes
in market prices and interest rates see "Management's Discussion and Analysis of
Financial  Condition  and Results of  Operations"  - "Market Risk" and "Interest
Rate  Sensitivity"  in KNBT's  annual  report  on Form  10-K for the year  ended
December 31, 2003. There have been no material  changes in KNBT's  assessment of
its sensitivity to market risk since December 31, 2003.

ITEM 4.      Controls and Procedures

Management evaluated,  with the participation of the Chief Executive Officer and
Chief  Financial  Officer,  the  effectiveness  of the  disclosure  controls and
procedures  (as defined in Rules  13a-15(e)  or 15d-15(e)  under the  Securities
Exchanges Act of 1934) at March 31, 2004.  Based on such  evaluation,  the Chief
Executive Officer and Chief Financial Officer have concluded that the disclosure
controls and procedures are designed to ensure that  information  required to be
disclosed in the reports that the Company files or submits under the  Securities
Exchange Act of 1934 is recorded, processed,  summarized and reported within the
same time period  specified in the SEC's rules and regulations and are operating
in an effective manner.

During the quarter ended March 31, 2004,  the Company  converted  certain of its
operating and accounting  functions to a new data  processing  system.  This has
resulted  in  certain  changes  in the  information  gathering,  collection  and
reporting   functions.   The  Company  has  adjusted   the   internal   controls
appropriately  and  none of these  changes,  or any  other  changes  during  the
quarter,  have  materially  affected,  or are  reasonably  likely to  materially
affect, the internal control over financial reporting (as defined in Rules 13a -
15(f) or 15(d) - 15(f) under the Securities Exchange Act of 1934).




                                                                         24
<PAGE>




PART II  -      OTHER INFORMATION

ITEM 1.         Legal Proceedings

                There are no matters required to be reported under this item.

ITEM 2.         Changes in Securities, Use of Proceeds and Issuer Purchases of
                Equity Securities

                There are no matters required to be reported under this item.

ITEM 3.         Defaults Upon Senior Securities

                There are no matters required to be reported under this item.

ITEM 4.         Submission of Matters to a Vote of Security Holders

                There are no matters required to be reported under this item.

ITEM 5.         Other Information

                There are no matters required to be reported under this item.

ITEM 6.         Exhibits and Reports on Form 8-K

               (a)  List of exhibits: (filed herewith unless otherwise noted)

                  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.

               (b)  Reports on Form 8-K

                   On January 14, 2003, the Registrant filed an amendment
                   (Amendment No. 2) to its Current Report on Form 8-K, dated
                   October 31, 2003, providing under Item 7 certain financial
                   information.

                   On February 3, 2004, the Registrant filed a Current Report
                   on Form 8-K, dated February 2, 2004, providing under Item
                   12, information with respect to the results of operations
                   and financial conditions at and the for the year ended
                   December 31, 2003.



                                                                       25
<PAGE>




                                   SIGNATURES


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


                                      KNBT BANCORP, INC.


DATE:    May 17, 2004                 BY: /S/  Scott V. Fainor
       -----------------------            --------------------------------------
                                          Scott V. Fainor
                                          President and Chief Executive
Officer



DATE:    May 17, 2004                 BY: /S/  Eugene T. Sobol
       -----------------------            --------------------------------------
                                          Eugene T. Sobol
                                          Senior Executive Vice President
                                          Chief Operating Officer
                                          Chief Financial Officer




                                                                       26
<PAGE>