SEVERANCE AGREEMENT

          Agreement made this 16th day of August,  2001, by and between Nazareth
National Bank and Trust Company, a banking association  organized under the laws
of the United States ("Bank") and David W. Hughes, an individual ("Employee").

                                   BACKGROUND
                                   ----------

          Effective  August 16, 2001 and subject to the terms of this Agreement,
the Bank will  continue to employ  Employee in the  position of  Executive  Vice
President Branch Administration and Marketing,  and to perform such other duties
as may be assigned to him by the President of the Bank. Employee agrees to serve
the Bank in this capacity on a full-time  basis,  faithfully,  diligently and to
the best of his ability.  Employee  further  agrees to fully  cooperate with the
officers and employees of the Bank to the best of his ability, and not to engage
in any  outside  for  profit  business  deemed to be in  conflict  with  general
commercial banking,  employment or commercial activity without the prior written
consent of the President of the Bank.  The Bank and Employee wish 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  begin on August  16,  2001 and shall
terminate  at 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

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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) the
date of  termination  of  Employee's  employment  with the Bank  for  cause  (as
hereinafter defined); (c) the date specified by mutual agreement of the Bank and
Employee;  (d) subject to Section 2 hereof,  the date of termination by Employee
of Employee's  employment  with the Bank by  resignation  or  otherwise;  or (e)
December 31, 2001.  If this  Agreement  expires on December 31, 2001 pursuant to
(e) of the foregoing sentence ("the Initial Term"), it shall renew automatically
for successive  terms of up to one year beginning on January 1 of the applicable
succeeding  year  ("Successive  Term(s)"),  provided  neither of the parties has
given written  notice to the other party of his or its intention not to renew at
least two months  prior to December  31,  2001 or December 31 of the  applicable
succeeding  year.  In the event that this  Agreement is renewed  pursuant to the
foregoing  sentence,  the  Agreement  shall  terminate  on the  earliest  of the
following  dates: (i) a date listed in the (a) through (d) of the first sentence
of this  paragraph;  (ii)  December 31 of the  applicable  succeeding  year.  If
Employee's employment with the Bank is terminated during the Initial Term or any
Successive  Term (other than as set forth in Section 2 hereof),  Employee  shall
have no rights or benefits  under this  Agreement  except to receive  payment of
base salary through the effective date of his termination.  For purposes of this
Agreement,  the term  "cause"  shall mean (i)  conviction  of  Employee  for any
felony,  fraud or embezzlement  or (ii) Employee's  failure or refusal to comply
with the written policies or written directives of the Bank's Board of Directors
or Employee being guilty of misconduct in connection with the performance of his
duties for the Bank,  provided  Employee  fails to cure such  non-compliance  or
misconduct within twenty (20)

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days  after  receiving  written  notice  from  the  Bank's  Board  of  Directors
specifying such non-compliance or misconduct.

          2.  Termination.  If during the Initial  Term or any  Successive  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) Employee terminates his employment with the Bank: (i) for any
reason at any time  within  eighteen  months  after a "change in control" of the
Bank (as defined hereinafter),  or (ii) due to the fact that, without Employee's
consent  and  whether or not a change of control of the Bank has  occurred,  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 reduced to a level below that which he enjoys on the date hereof or at
any time hereafter (whichever may be greater), 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 fifty miles from his current principal place of employment with the
Bank, provided,  however, that for any termination by Employee under this clause
(ii) the  Employee  shall  have  first  given  the Bank  written  notice  of his
intention to terminate his employment  pursuant to this clause (ii),  specifying
the

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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 twenty (20) days after receipt of such written notice.

               (c) For purposes of this  Agreement,  a "change in control" shall
be deemed to have occurred upon the happening of any of the following events:

                    (1) A change  within a twelve  month period in a majority of
the members of the Board of Directors of the Bank or its holding company,  First
Colonial Group, Inc. (the "Holding Company");

                    (2) A change  within a twelve month period in the holders of
more  than  50% of the  outstanding  voting  stock  of the  Bank or its  Holding
Company; or

                    (3) Any other  event  deemed  to  constitute  a  "change  in
control" by the Board of Directors of the Bank.

          3. Termination Payments to Employee. Commencing not later than 30 days
after the date Employee's employment with the Bank is terminated pursuant to any
event  enumerated in subsection  (a) or subsection  (b) of 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 "Severance  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  bonus  plan(s),  if any. 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

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in an  amount  equal to 1/12 of 100% of  Employee's  base  annual  salary on the
Termination Date. If Employee's  employment with the Bank is terminated pursuant
to any event enumerated in subsection (a) or subsection (b) of Section 2 hereof,
Employee  shall have a duty to seek  substantially  equivalent  employment.  The
payments  required  by this  Section 3 shall be reduced  on a  dollar-for-dollar
basis by any income or earnings  received by Employee from any other employer or
by any income or  earnings  obtained  from any other  working  activity in which
Employee may engage during the Severance Period.  Employee shall notify the Bank
promptly of his receipt of any income or earnings during the Severance Period.

          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 in the  event  that  Employee's  employment  with  the  Bank is  terminated
pursuant to any event  enumerated in subsection (a) or subsection (b) of Section
2 hereof:

               (a) for the Severance  Period,  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,  and
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 in excess of 1/3 of his base annual
salary on the Termination  Date for the sum of Employee's  search and relocation
expenses hereunder.

               (b) for the  Severance  Period,  Employee  shall be  entitled  to
participate in the following  group programs of the Bank if such programs are in
effect at the

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Termination Date (or, if such participation is not permitted by the terms of the
group programs, through substantially equivalent benefits), with the Bank paying
for the Employee's  continued  participation  in such group programs at the same
annual rate at which the Bank was paying on the  Termination  Date: all medical,
hospitalization,  life and disability group insurance  benefits which existed at
the Termination date, except that should other subsequent employment be obtained
by  Employee  during  the  Severance   Period,   continuation  of  any  medical,
hospitalization,  life and disability group insurance benefits will be offset by
coverages provided through the Employee's subsequent employer.

          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 by the Bank from such funds as the President shall direct. No special or
separate  fund shall be required to be  established  and 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.

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               (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.

          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.

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               (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,  Lehigh or Monroe  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 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.

               (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

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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.

               (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.

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          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. David W. Hughes
                                    3222 Horseshoe Road
                                    Danielsville, PA  18038

                                    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.

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          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.

               (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.

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               (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: _________________________         By:____________________________
                                         S. Eric Beattie, President


Witness:


__________________________            _________________________(SEAL)
                                      David W. Hughes

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