SEVERANCE AGREEMENT


     Agreement made this 1st day of March 1999, by and between Nazareth National
Bank and Trust Company,  a banking  association  organized under the laws of the
United States ("Bank") and Robert M. McGovern, Jr., an individual ("Employee").

                                   BACKGROUND

     Employee is  currently  employed by the Bank in the  position of  Executive
Vice President and Senior Trust Officer.  In  consideration  of Employee's past,
present  and future  services to the Bank,  the Bank  desires to provide for the
payment  of  certain  compensation  and  other  benefits  to  Employee  upon the
occurrence of certain events, all as more fully set forth below.

     In consideration of the mutual covenants and agreements  herein  contained,
and intending to be legally bound hereby, the parties agree as follows:

          1. Term. This Agreement  shall continue for a period  beginning on the
     day hereof and ending on the earliest of the following  dates (the "Term"):
     (a) the date Employee dies or becomes permanently  disabled (i.e., upon his
     failure  to  render  services  of the  character  which  he had  previously
     rendered to the Bank,  because of his  physical or mental  illness or other
     incapacity  beyond his control for a continuous period of six months or for
     shorter  periods  aggregating  six months in any twelve month period);  (b)
     termination  of  Employee's   employment   with  the  Bank  for  cause  (as
     hereinafter  defined);  (c) mutual agreement of the Bank and Employee;  (d)
     subject  to  Section  2  hereof,  termination  by  Employee  of  Employee's
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     employment  with the Bank by resignation or otherwise;  or (e) December 31,
     2000. In the event the  Employee's  employment  with the Bank is terminated
     during the Term other than as set forth in Section 2 hereof,  the  Employee
     shall  have no  rights  or  benefits  under  this  Agreement,  but shall be
     entitled to any other rights or benefits to which he or she might otherwise
     be entitled to. For purposes of this Agreement, the term "cause" shall mean
     (i) conviction of Employee for any felony,  fraud or  embezzlement  or (ii)
     Employee  failing  or  refusing  to comply  with the  written  policies  or
     directives of the Bank's Board of Directors or the Employee being guilty of
     misconduct in connection  with the  performance  of his duties for the Bank
     and the Employee  fails to cure such  noncompliance  or  misconduct  within
     twenty  days  after  receiving  written  notice  from the  Bank's  Board of
     Directors specifying such non-compliance or misconduct.

          2. Termination.  If during the Term hereof, the Employee's  employment
     with  the Bank is  terminated  as set  forth  below,  the Bank  will pay to
     Employee  the amount set forth in  Section 3 hereof and  Employee  shall be
     entitled  to the  benefits  set forth in  Section  4  hereof:

          (a) the Bank  terminates  Employee's  employment with the Bank without
     cause; or

          (b) the Employee terminates Employee's employment with the Bank due to
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     the fact that the nature and scope of  Employee's  duties and  authority or
     his responsibilities with the Bank or the surviving or acquiring person are
     materially  reduced  to a level  below  that  which he  enjoys  on the date
     hereof,  his then current  base annual  salary is  materially  reduced to a
     level below that which he enjoys on the date  hereof,  the fringe  benefits
     which the Bank provides Employee on the date hereof are materially reduced,
     Employee's  position or title with the Bank or the  surviving  or acquiring
     person is  materially  reduced from his current  position or title with the
     Bank,  or  without  Employee's  consent,   Employee's  principal  place  of
     employment with the Bank is changed to a location greater than eighty miles
     from his current  principal  place of employment  with the Bank,  provided,
     however,  that for any  termination  by Employee  under this clause (b) the
     Employee  shall have first given Bank ten (10) days  written  notice of his
     intention  to  termination  his  employment  pursuant to this clause  (ii),
     specifying the reason(s) for such termination,  and provided further,  that
     the Bank shall not have cured or remedied the  reason(s)  specified in such
     notice  prior to the  expiration  of ten (10) days  after  receipt  of such
     written notice.

          3. Termination Payments to Employee. Commencing not later than 30 days
     after the date Employee's  employment with the Bank is terminated  pursuant
     to Section 2 hereof  (the  "Termination  Date") and  subject to  Employee's
     compliance  with  Section 8 hereof,  the Bank  shall  pay  compensation  to
     Employee  for a  one  year  period  following  the  Termination  Date  (the
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     "Compensation  Period")  at a per annum  rate  equal to 100% of  Employee's
     "base  annual  salary"  on the  Termination  Date.  For  purposes  of  this
     Agreement,  the term "base annual salary" shall mean the Employee's  annual
     compensation  rate on the  Termination  Date  exclusive of cash bonuses and
     payments under the Bank's Annual Incentive Bonus Plan. The Bank agrees that
     it will make the payments due under this Section 3 on the first day of each
     month following the Termination  Date in an amount equal to 1/12 of 100% of
     Employee's  base annual salary on the  Termination  Date.  Such payments to
     Employee  shall be reduced each month by the sum of the  following:  (a) by
     the amount of any pension or annuity benefits  Employee  receives under any
     Defined  Benefit  Pension Plan  maintained by the Bank as the same shall be
     amended  from time to time,  computed as if Employee  had retired at age 65
     (regardless  of when he actually  retired)  and had elected the single life
     annuity benefit (regardless of the benefit he actually elected), and (b) in
     the event Employee commences  employment within the Compensation Period, by
     the amount of base annual  salary to which he is then entitled by virtue of
     his new  employment.  The  intent  of  this  paragraph  is that  the sum of
     payments  made under  this  Section 3 in any year,  when added to  payments
     received  under the Bank's  Defined  Benefit  Pension  Plan and base annual
     salary  received  by  virtue  of  other  employment,  will not  exceed  the
     Employee's  base  annual  salary  on the  Termination  Date.  The  Employee
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     covenants and agrees that upon the termination of the Employee's employment
     with the Bank,  the  Employee  shall  use his best  efforts  to secure  new
     employment.

          4.  Other  Benefits.  In  addition  to the  compensation  set forth in
     Section 3 hereof, Employee shall be entitled to the following benefits from
     the Bank:

          (a)  for  a  period  of  one  year  following  the  Termination  Date,
     reimbursement   for  all  reasonable   expenses  incurred  by  Employee  in
     connection  with  the  search  for  new  employment,   including,   without
     limitation,  those of a placement agency or service; provided,  however, in
     no event shall the Bank be  obligated to  reimburse  Employee  hereunder in
     excess of 1/3 of his base annual salary on the Termination  Date.

          (b)  for  a  period  of  one  year  following  the  Termination  Date,
     reimbursement for all reasonable  relocation  expenses incurred by Employee
     in connection with securing new employment;  provided, however, in no event
     shall the Bank be obligated to  reimburse  Employee  hereunder in excess of
     1/3 of his base annual salary on the Termination  Date.

          (c) for a period of one year following the Termination Date,  Employee
     shall be entitled to participate in the following programs of the Bank:

               (i) All  medical,  hospitalization  and life  insurance  benefits
          shall be  continued  for the  Compensation  Period  except that should
          subsequent  employment  be accepted  during the  Compensation  Period,
          continuation  of  any  medical,  hospitalization  and  life  insurance
          benefits will be offset by coverages  provided  through the Employee's
          subsequent employer.
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               (ii) If permitted under the terms thereof, Employee will remain a
          participant  under the Bank's Defined Benefit  Pension Plan,  however,
          benefits  will be  actuarially  reduced based upon the number of years
          remaining until Employee's  normal  retirement date had he remained an
          employee of the Bank.

     5. Withholding.  The Bank may withhold from any benefits payable under this
Agreement all federal,  state, city or other taxes as shall be required pursuant
to any law or  governmental  regulation  or ruling.

     6. Source of Payment.  All payments  provided under this Agreement shall be
paid in cash from the general  funds of the Bank.  No special or  separate  fund
shall be required to be  established  by the Bank and the Employee shall have no
right,  title or interest  whatsoever in or to any investment which the Bank may
make to aid the Bank in meeting its obligations hereunder.  Nothing contained in
this Agreement, and no action taken pursuant to its provisions,  shall create or
be construed to create a trust of any kind or a fiduciary  relationship  between
the Bank and Employee or any other person.

     7. (a)  Nonassignability.  Neither this Agreement nor any right or interest
hereunder shall be assignable by Employee or his legal  representatives  without
the Bank's prior written consent.

          (b)  Attachment.  Except as  required  by law,  the  right to  receive
     payments under this Agreement shall not be subject of  anticipation,  sale,
     encumbrance, charge, levy, or similar process or assignment by operation of
     law.
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     8. Confidentiality and Non-Competition. All payments to Employee under this
Agreement shall be subject to Employee's  compliance with the provisions of this
Section 8. If Employee  fails to comply with such  provisions,  his right to any
future payments under this Agreement shall terminate and the Bank's  obligations
under this  Agreement  to make such  payments and provide  such  benefits  shall
cease.

          (a) Employee covenants and agrees that he will not, during the term of
     his  employment and at any time  thereafter,  except with the express prior
     written consent of the Bank or pursuant to the lawful order of any judicial
     or administrative agency of government,  directly or indirectly,  disclose,
     communicate or divulge to any person, or use for the benefit of any person,
     any knowledge or information  with respect to the conduct or details of the
     Bank's business which he, acting reasonably,  believes or should believe to
     be of a  confidential  nature and the  disclosure of which not to be in the
     Bank's interest.

          (b) Employee covenants and agrees that he will not, during the term of
     his  employment  and for a period of one year  thereafter,  except with the
     express prior written consent of the Bank, directly or indirectly,  whether
     as  employee,  employer,  owner,  partner,  consultant,   agent,  director,
     officer,  shareholder  or in any other  capacity,  engage in or assist  any
     person to engage in any act or action which he, acting reasonably, believes
     or should  believe  would be harmful or  inimical to the  interests  of the
     Bank.
<PAGE>

          (c) Employee covenants and agrees that he will not, during the term of
     his  employment  and for a period of one year  thereafter,  except with the
     express prior written consent of the Bank, in any capacity (including,  but
     not limited to, owner, partner,  shareholder,  consultant, agent, employee,
     employer, officer, director or otherwise),  directly or indirectly, for his
     own account or for the benefit of any person,  engage or  participate in or
     otherwise be connected  with any  commercial  bank which has its  principal
     office in either  Northampton or Lehigh  Counties,  Pennsylvania  or Warren
     County,  New Jersey except that the foregoing  shall not prohibit  Employee
     from owning as a shareholder  less than 1% of the  outstanding  stock of an
     issuer whose stock is publicly traded.

          (d) The  parties  agree  that any  breach  by  Employee  of any of the
     covenants  or  agreements  contained  in  this  Section  8 will  result  in
     irreparable injury to the Bank for which money damages could not adequately
     compensate  the Bank and  therefore,  in the event of any such breach,  the
     Bank shall be entitled (in addition to any other rights and remedies  which
     it may  have  at law or in  equity)  to have an  injunction  issued  by any
     competent court enjoining and restraining  Employee and/or any other person
     involved therein from continuing such breach. The existence of any claim or
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     cause of  action  which  Employee  may have  against  the Bank or any other
     person  (other  than a claim for the Bank's  breach of this  Agreement  for
     failure to make payments  hereunder)  shall not constitute a defense or bar
     to the enforcement of such covenants.  In the event of an alleged breach by
     Employee of any of the covenants or agreements contained in this Section 8,
     the Bank shall continue any and all of the payments due Employee under this
     Agreement  until such time as a court shall enter a final and  unappealable
     order finding such a breach;  provided,  however,  that the foregoing shall
     not preclude a court from ordering  Employee to repay such payments made to
     him for the period after the breach is  determined to have occurred or from
     ordering that payments hereunder be permanently  terminated in the event of
     a material and willful breach.

          (e) If any portion of the  covenants or  agreements  contained in this
     Section  8, or the  application  thereof,  is  construed  to be  invalid or
     unenforceable,  the other portions of such  covenant(s) or  agreement(s) or
     the application thereof shall not be affected and shall be given full force
     and effect without regard to the invalid or  unenforceable  portions to the
     fullest extent possible.  If any covenant or agreement in this Section 8 is
     held unenforceable  because of the area covered,  the duration thereof,  or
     the scope thereof,  then the court making such determination shall have the
     power to reduce the area and/or  duration  and/or limit the scope  thereof,
     and the  covenant or  agreement  shall then be  enforceable  in its reduced
     form.
<PAGE>

          (f) For purposes of this Section 8, the term "the Bank" shall  include
     the Bank, any successor to the Bank under Section 9 hereof, and all present
     and future direct and indirect subsidiaries and affiliates of the Bank.

     9. Successors and Assigns. This Agreement shall inure to the benefit of and
be binding upon any corporate or other  successor of the Bank which may acquire,
directly or indirectly, by merger, consolidation, purchase, or otherwise, all or
substantially  all of the assets of the Bank, and shall  otherwise  inure to the
benefit of and be binding upon the parties  hereto and their  respective  heirs,
executors,  administrators,  successors  and assigns.  Nothing in the  Agreement
shall  preclude  the  Bank  from  consolidating  or  merging  into  or  with  or
transferring all or substantially  all of its assets to another person.  In that
event,  such other person shall assume this Agreement and all obligations of the
Bank hereunder.  Upon such a  consolidation,  merger,  or transfer of assets and
assumption, the term "the Bank" as used herein, shall mean such other person and
this Agreement shall continue in full force and effect.

     10.  Waivers  Not to be  Continued.  Any waiver by a party of any breach of
this Agreement by another party shall not be construed as a continuing waiver or
as a consent to any subsequent breach by the other party.
<PAGE>

     11.  Notices.  All  notices,  requests,  demands  and other  communications
hereunder  shall be in  writing  and shall be deemed to have been duly  given if
delivered  by hand or mailed,  certified  or  registered  mail,  return  receipt
requested,  with postage  prepaid,  to the following  addresses or to such other
address as either party may designate by like notice:

               If to Employee, to:

                   Mr. Robert M. McGovern, Jr.
                   2804 Liberty Street
                   Allentown, Pennsylvania 18104

               If to the Bank, to:

                   Nazareth National Bank and Trust Company
                   76 South Main Street
                   Nazareth, Pennsylvania 18064

                   Attn:   Board of Directors

and to such other or  additional  person or persons as either  party  shall have
designated to the other party in writing by like notice.

     12. Applicable Law~  Jurisdiction.  This Agreement shall be governed by and
construed  and  enforced  in  accordance  with  the  substantive   laws  of  the
Commonwealth  of  Pennsylvania  with respect to contracts  executed in and to be
wholly   performed   therein.   Bank  and  Employee  consent  to  the  exclusive
jurisdiction of the Court of Common Pleas,  Northampton County,  Commonwealth of
Pennsylvania  and the United States  District Court for the Eastern  District of
Pennsylvania in any and all actions arising hereunder and irrevocably consent to
service of process as set forth in Section 11 hereof.
<PAGE>

     13. General Provisions.

          (a) This  Agreement  constitutes  the  entire  agreement  between  the
     parties with  respect to the subject  matter  hereof,  and  supersedes  and
     replaces all prior agreements between the parties. No amendment,  waiver or
     termination  of any of the provisions  hereof shall be effective  unless in
     writing and signed by the party  against  whom it is sought to be enforced.
     Any written  amendment,  waiver or termination  hereof executed by the Bank
     and Employee shall be binding upon them and upon all other persons, without
     the  necessity of securing the consent of any other  person,  and no person
     shall be deemed to be a third party beneficiary under this Agreement.

          (b) This  Agreement  shall not limit or infringe upon the right of the
     Bank to terminate  the  employment  of Employee at any time for any reason,
     nor upon the right of Employee to terminate his employment with the Bank.

          (c) The  term  "person"  as used in  this  Agreement  means a  natural
     person, joint venture,  corporation,  sole  proprietorship,  trust, estate,
     partnership, cooperative, association, non-profit organization or any other
     legally cognizable entity.

          (d) This Agreement may be executed in one or more  counterparts,  each
     of which shall be deemed an original, but all of which taken together shall
     constitute one and the same Agreement.
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          (e) No  failure  on the part of any party  hereto to  exercise  and no
     delay in exercising any right, power or remedy hereunder preclude any other
     or further exercise  thereof or the exercise of any other rights,  power or
     remedy.

          (f) The headings of the sections of this  Agreement have been inserted
     for  convenience  of reference  only and shall in no way restrict or modify
     any of the terms or provisions hereof.

          (g) Nothing contained herein shall be construed to require the Bank to
     violate applicable law,  including,  but not limited to, applicable banking
     laws and regulations,  and all obligations of the Bank under this Agreement
     shall be deemed to be qualified accordingly.

ATTEST:                                     NAZARETH NATIONAL BANK AND
                                                   TRUST COMPANY


By: /S/ Michelle L. Frable                   BY:   /S/ S. Eric Beattie
    Michelle L. Frable, Secretary                 S. Eric Beattie, President

Witness:


    /S/ Susan M. Kresge                            /S/ Robert M. McGovern, Jr.
                                                   ROBERT M. McGOVERN, JR.(SEAL)