Document:

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                                                                    Exhibit 10.7

                                    KEYSTONE
                                  SAVINGS BANK

                                SENIOR MANAGEMENT
                              VARIABLE COMPENSATION
                                     PROGRAM

                                      2002

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KEYSTONE
SAVINGS BANK

                                                               SENIOR MANAGEMENT
                                                           VARIABLE COMPENSATION
                                                                         PROGRAM

                               PROGRAM OBJECTIVES

                           ESTABLISH A FORMAL LINK BETWEEN THE
                           BUSINESS PLAN AND THE COMPENSATION PLAN

                           REFLECT MUTUALITY CREDO

                           REWARD ACHIEVEMENT OF LONG TERM
                           PERFORMANCE OBJECTIVES IN ANNUAL
                           INCREMENTS

                           RETAIN FLEXIBILITY TO ADAPT TO
                           UNFORESEEN EVENTS AND CHANGE
                           IN DIRECTION

                           INCORPORATE INDIVIDUAL PERFORMANCE
                           EVALUATION

                                       -1-

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KEYSTONE
SAVINGS BANK

                                                               SENIOR MANAGEMENT
                                                           VARIABLE COMPENSATION
                                                                         PROGRAM

                                GENERAL STRUCTURE

                           VARIABLE PAYOUTS WILL BE BASED ON BANK
                           PERFORMANCE AGAINST BUSINESS PLAN

                           BUSINESS PLAN WILL BE DEVELOPED WITH
                           DUE CONSIDERATION OF PEER PERFORMANCE

                           PROGRAM LIMITED TO SENIOR MANAGEMENT
                           WHO CAN SIGNIFICANTLY CONTRIBUTE TO
                           ACHIEVEMENT OF BUSINESS PLAN

                           VARIABLE PAYOUTS WILL BE DETERMINED
                           BASED ON PERFORMANCE RESULTS AFTER
                           PROGRAM COSTS

                                       -2-

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KEYSTONE
SAVINGS BANK

                                                               SENIOR MANAGEMENT
                                                           VARIABLE COMPENSATION
                                                                         PROGRAM

                                    VARIABLE
                                 PAYOUT TARGETS

                           EACH POSITION HAS A TARGET VARIABLE
                           PAYOUT

                           TARGETS ARE SET AS A PERCENTAGE OF
                           PARTICIPANTS BASE SALARY

                           EACH POSITION ASSESSED TO HAVE EQUAL
                           POTENTIAL TO AFFECT ACHIEVEMENT OF
                           BUSINESS PLAN

                           ACTUAL VARIABLE PAYOUTS WILL DEPEND
                           ON ACTUAL CORPORATE AND INDIVIDUAL
                           PERFORMANCE

                                       -3-

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KEYSTONE
SAVINGS BANK

                                                               SENIOR MANAGEMENT
                                                           VARIABLE COMPENSATION
                                                                         PROGRAM

                                     INITIAL
                             TARGET VARIABLE PAYOUTS
                        (As A Percentage of Base Salary)

                  Chief Executive Officer                    15%

                  Chief Operating Officer                    15%

                  Chief Financial Officer                    15%

                                       -4-

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KEYSTONE
SAVINGS BANK

                                                               SENIOR MANAGEMENT
                                                           VARIABLE COMPENSATION
                                                                         PROGRAM

                                       TWO
                              CORPORATE PERFORMANCE
                                   THRESHOLDS

              All thresholds must be achieved to activate the Plan

                                                 VARIABLE
                                               COMPENSATION      ACTUAL
                                                   PLAN           2001
                                                   ----           ----

         CAPITAL RATIO                             9.00%         (10.39%)

         NON-PERFORMING LOANS                      1.20%          (0.50%)

                                       -5-

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KEYSTONE
SAVINGS BANK

                                                               SENIOR MANAGEMENT
                                                           VARIABLE COMPENSATION
                                                                         PROGRAM

                                      THREE
                            KEY CORPORATE PERFORMANCE

                                    MEASURES

                    THREE KEY CORPORATE PERFORMANCE MEASURES
                        DETERMINE ACTUAL VARIABLE PAYOUT

                  MEASURE                                    WEIGHTING
                  -------                                    ---------

                  LOAN GROWTH                                   30%

                  DEPOSIT GROWTH                                30%

                  ROE                                           40%
                                                               ---
                                                               100%

                                       -6-

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                                    KEYSTONE

SAVINGS BANK

                                                               SENIOR MANAGEMENT
                                                           VARIABLE COMPENSATION
                                                                         PROGRAM

                        CORPORATE PERFORMANCE OBJECTIVES
                                     SUMMARY

Performance
 Measure               Minimum                TARGET             Peak
and Weight           Performance            Performance       Performance
-----------          -----------            -----------       -----------

LOAN GROWTH
 (30% Weight)

   2002              $34 million           $49 million        $59 million
                       (5.1%)                (7.3%)              (8.8%)

DEPOSIT GROWTH
 (30% Weight)

   2002              $28 million           $58 million        $68 million
                       (3.6%)                (7.5%)              (9.0%)

ROE
 (40% Weight)
   2002                7.80%                 8.87%              10.00%

                                       -7-

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KEYSTONE
SAVINGS BANK
                                                               SENIOR MANAGEMENT
                                                           VARIABLE COMPENSATION
                                                                         PROGRAM

                          VARIABLE PAYOUT DETERMINATION

                     VARIABLE PAYOUTS ARE COMPRISED OF THREE
                                  "COMPONENTS"
              (ONE FOR EACH KEY AREA OF THE BANK'S STRATEGIC PLAN)

                  VARIABLE COMPONENTS BEGIN TO PAYOUT AT
                  MINIMUM CORPORATE PERFORMANCE FOR THE
                  COMPONENT

                  PAYOUTS INCREASE SUBSTANTIALLY AS
                  PERFORMANCE FOR THE MEASURE APPROACHES
                  TARGET

                  AT TARGET PERFORMANCE, TARGET PAYOUTS
                  WILL BE EARNED FOR THE MEASURE

                  PAYOUTS CONTINUE TO INCREASE OVER TARGET

                  PAYOUTS SLOW AFTER TARGET PERFORMANCE
                  IS REACHED

                  PAYOUTS STOP AT PEAK

                  STRONG MOTIVATION TO ACHIEVE TARGETS

                  BENEFITS FROM WINDFALLS AND LOW BALL
                  TARGETS ARE LIMITED

                                       -8-

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KEYSTONE
SAVINGS BANK

                                                               SENIOR MANAGEMENT
                                                           VARIABLE COMPENSATION
                                                                         PROGRAM

                           VARIABLE PAYOUT PARAMETERS

                             TOTAL PAYOUT PARAMETERS

                              (Each Position Level)

                     (As a Percentage of Base Compensation)

                           Minimum Payout                             5.0%
                           Performance Achieved

                           TARGET Payout                             15.0%
                           Performance Achieved

                           Peak Payout                               30.0%
                           Performance Achieved

                                       -9-

<PAGE>

KEYSTONE
SAVINGS BANK

                                                               SENIOR MANAGEMENT
                                                           VARIABLE COMPENSATION
                                                                         PROGRAM

                           VARIABLE PAYOUT PARAMETERS

                           COMPONENT PAYOUT PARAMETERS

                              (Each Position Level)

                     (As a Percentage of Base Compensation)

                       Minimum           TARGET           Peak
      Component      Performance      Performance      Performance
      ---------      -----------      -----------      -----------

LOAN GROWTH             1.50%            4.50%            9.00%

DEPOSIT GROWTH          1.50%            4.50%            9.00%

ROE                     2.00%            6.00%           12.00%
                        -----           ------           ------

COMPONENTS
TOTAL PAYOUT            5.00%           15.00%           30.00%

                               -10-<PAGE>

                                                                    Exhibit 10.8

                         SEVERANCE AGREEMENT AND RELEASE

         This Agreement made this 4th day of December, 2002, and effective
January 2, 2003, by and between RICHARD L. MEARES ("Executive") and KEYSTONE
SAVINGS BANK, a Pennsylvania Mutual Savings Bank with headquarters at 90
Highland Avenue, Bethlehem, Pennsylvania 18017 ("Keystone"), is based upon the
following:

                            Relevant Background Facts

         A. Executive currently serves as Executive Vice President and Chief
Operating Officer of Keystone and its affiliated and subsidiary corporations.

         B. Keystone is a Pennsylvania chartered mutual savings bank operating
in the greater Lehigh Valley Region of Pennsylvania.

         C. Executive and Keystone have come to agreements in principle with
respect to Executive's severance from Keystone, the resignation of his positions
therefrom and the terms and conditions under which he would receive certain
severance benefits. It is the intention of Executive and Keystone (and sometimes
the "Parties") to memorialize the terms of that agreement in principle in the
following:

                                    Agreement

         1. Incorporation. The Relevant Background Facts stated above are
incorporated herein by reference as if fully stated herein.

         2. Resignation. Executive agrees and acknowledges that effective
January 2, 2003 ("Severance Date"), he shall resign as Executive Vice President
and Chief Operating Officer of Keystone. Said resignation shall include any and
all positions with Keystone's affiliated or subsidiary corporations and entities
as well as Keystone's Board and the boards of such affiliated or subsidiary
corporations and entities, all as enumerated on Schedule A attached hereto.

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         3. Compensation During Severance Period. Executive shall be entitled to
receive Severance Period compensation ending December 31, 2004, payable in
installments through that date, as shown on Schedule B attached hereto.

         4. Severance Period Benefits: In addition to the Severance Period
compensation stated above for Executive during the Severance Period, Executive
shall be entitled to participate in Keystone's Qualified and Non-qualified Plans
as stated and limited on Schedule C attached hereto.

         5. Board's Powers and Liabilities: The Board shall have the full power
and authority to interpret and administer the Senior Management Variable
Compensation Plan (SMVCP). Provided it is in good faith, the Board's
interpretations and construction of any provision or action taken under the
SMVCP, shall be binding and conclusive on all persons for all purposes. No
member of the Board shall be liable to any person for any action taken or
omitted in connection with the interpretation and administration of the SMVCP
unless attributable to the member's willful misconduct or lack of good faith.

         6. Limited Release: In consideration of the benefits described in this
Agreement which are of greater value and/or duration than Executive would
normally be entitled upon the termination of his employment, Executive, on
behalf of himself, his heirs, executors, administrators, agents, representatives
and assigns, hereby forever releases Keystone Savings Bank, and its respective
officers, directors, trustees, shareholders, owners, employees, supervisors,
agents, representatives, predecessors, successors and assigns ("Released
Parties"), from any and all claims, demands, suits or causes of action of any
nature whatsoever, whether known or unknown, relating in any way to his
employment with Keystone and the termination thereof, including without
limitation claims under Title VII of the Civil Rights Act of 1964, the

                                       2

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Age Discrimination in Employment Act, the Older Workers Benefit Protection Act,
the Americans with Disabilities Act, the Family and Medical Leave Act, the Fair
Labor Standards Act, the National Labor Relations Act, the Pennsylvania Human
Relations Act, the Pennsylvania Wage Payment and Collection Law, and all other
federal, state or local laws, claims for breach of contract, claims for wrongful
discharge, claims for emotional distress, defamation, fraud, misrepresentation
or other personal injury, claims for unpaid compensation, claims relating to
benefits, claims for attorneys' fees and costs, and claims under any federal,
state, or local law or cause of action concerning employment, which have arisen
as of the date this Agreement is signed by him; provided, however, that this
release shall not, in any manner, be construed to be applicable to: (i) any
claims for breach of the terms of this Agreement; or (ii) any claims for breach
of the terms of any Qualified or Non-qualified Plan of which Keystone is the
sponsor.

         7. Non-Solicitation Covenant. Executive agrees that during the
Severance Period and thereafter for a period of one (1) year he will not solicit
for employment any then-current employee of Keystone Savings Bank or any of its
affiliated entities, nor will he attempt, in any manner, to encourage or cause
any then-current employee of Keystone Savings Bank or its affiliated entities to
terminate his or her employment relationship with Keystone Savings Bank or its
affiliated entities. Executive understands and agrees that any violation of this
section shall constitute and be treated as a material breach of this Agreement.

         8. Non-Disparagement. The parties agree that they shall not
communicate, either orally or in writing, or by conduct, any negative, adverse
or derogatory information, facts, opinions or beliefs concerning each other.
Executive further agrees that he will not engage in any activities that will
serve to undermine the management and/or disrupt the operation of

                                       3

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Keystone Savings Bank or its affiliated entities. Executive understands and
agrees that any violation of this section shall constitute and be treated as a
material breach of this Agreement.

         9.  Binding Effect. The Agreement shall be binding upon and inure to
the benefit of Keystone, its successors and assigns, and to the Executive and
his heirs, executors, administrators, and legal representatives. All of
Keystone's obligations under this Agreement shall survive in the event of
Executive's death and shall be owed to Executive's estate or beneficiaries, as
the case may be.

         10. Governing Law. This Agreement shall be construed in accordance with
and governed by the laws of the Commonwealth of Pennsylvania. Venue for any
action brought under this Agreement shall lie only in the Northampton County
Court of Common Pleas or the United States District Court for the Eastern
District of Pennsylvania.

         11. Compliance with Code, Etc. The Parties intend that this Agreement
comply with the provisions of the Internal Revenue Code, as amended, and
Regulations in effect interpreting the Code. If, at a later date, the laws of
the United States or the Commonwealth of Pennsylvania are construed in such a
way as to make this Agreement or a provision thereof null and void, the
Agreement or provision in question shall be construed in a manner that best
carries out the Parties' purposes and intentions.

         12. Severability. If the Internal Revenue Service shall at any time
interpret this Agreement to be ineffective to defer the Executive's income, and
that interpretation becomes final and unappealable, then only those amounts
which would be treated as taxable income by the Service at the time of such
final interpretation, shall be paid over to the Executive.

                                       4

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         13. Entire Agreement. This Agreement supersedes all other agreements
previously made between the Parties relating to its subject matter. There are no
other understandings or agreements.

         14. Notice. Any notice to be delivered under this Agreement shall be
given in writing and delivered, personally or by certified mail, return receipt
requested, postage prepaid, addressed to Keystone or Executive at their last
known addresses.

         15. Non-waiver. No delay or failure by either party to exercise any
right under this Agreement, and no partial or single exercise of that right,
shall constitute a waiver of that or any other right.

         16. Headings. Headings in this Agreement are for convenience only and
shall not be used to interpret or construe its provisions.

         17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.

         18. Confidentiality.

             A. Executive shall not, directly or indirectly, use or divulge to
any third party any of Keystone's confidential information or materials
disclosed or made available to Executive by reason of his employment with
Keystone and not generally known to the public industry in which Keystone is
engaged (collectively "Confidential Information"). The Confidential Information
includes, without limitation: trade secrets and other information related to
Keystone's practices in personnel, accounting, marketing, advertising,
promotion, selling; customer know-how; and research.

                                       5

<PAGE>

         B. All of the Confidential Information is a valuable asset of Keystone
and is, will be and shall, at all times, remain the sole and exclusive property
of Keystone.

         C. Executive shall, at all times, hold the Confidential Information
secret.

         D. Executive shall immediately upon the Severance Date deliver or cause
to be delivered to Keystone all of the Confidential Information in Executive's
possession or control, as well as all other materials furnished to or acquired
by Executive as a result of, or during the course of, Executive's employment by
Keystone.

         E. The Parties agree that this Agreement, the discussions leading to
this Agreement, the facts and circumstances underlying this Agreement and the
terms and conditions of this Agreement are confidential and may not be disclosed
in any manner to any third party, except in a proceeding to enforce the terms
hereof or as required by law. Notwithstanding the foregoing, Keystone recognizes
that Executive may disclose the terms of this Agreement to his immediate family
members, attorneys, tax accountants and/or the Internal Revenue Service, the
Pennsylvania Department of Revenue, and any local taxing authority and that
either party may disclose this Agreement in response to a subpoena from a state
or federal regulatory body. The Parties understand and agree that any violation
of this section shall constitute and be treated as a material breach of this
Agreement, unless such disclosure is compelled by Court Order, subpoena, or
other legal process.

     19. Keystone recommends to Executive that he consult with legal counsel
prior to executing this Agreement.

     20. Executive acknowledges that he has been given at least twenty-one (21)
days from his receipt of this Agreement to consider whether or not to sign this
Agreement. Executive

                                        6

<PAGE>

agrees that if he signed this Agreement before the expiration of this twenty-one
(21) day period, he has done so voluntarily after consulting with counsel
regarding this Agreement.

     21. Executive is aware that he may change his mind and revoke this
Agreement at any time during the seven (7) day period immediately after the date
upon which this Agreement is signed, in which case none of the provisions of
this Agreement will have effect.

     22. The undersigned Chairman of Keystone's Executive Committee represents
that he has been authorized by resolution of the Board to enter into this
Agreement.

     IN WITNESS WHEREOF, Keystone has caused this Agreement to be executed by
its duly authorized officers, and Executive hereunder has set his had and seal
as of the date first above written.

ATTEST:                             KEYSTONE SAVINGS BANK

/s/ Christine J. Donchez            By /s/ Jeffrey Feather
-------------------------              --------------------------------------
                                            Jeffrey Feather, Chairman of the
                                            Executive Committee

WITNESS:

/s/ Michele A. Linsky               /s/ Richard L. Meares
-------------------------           -----------------------------------------
                                    Richard L. Meares

                                       7

<PAGE>

                                   SCHEDULE A

        Positions with Affiliated or Subsidiary Corporations and Entities

Keystone of the Lehigh Valley, Inc.
      President and Director

Keystone Lehigh Valley Investments, Inc.
      None

                                       8

<PAGE>

                                   SCHEDULE B

                          Severance Period Compensation

On January 3, 2003: $218,876

On January 3, 2004: $218,876

On March 3, 2003, a lump sum payment of any bonus earned by Executive under
Keystone's Senior Management Variable Compensation Plan for the fiscal year
ending December 31, 2002. The Executive's bonus under this Plan shall be
calculated on the same basis as that of the Chief Executive Officer and Chief
Financial Officer.

                                        9

<PAGE>

                                   SCHEDULE C

                      Executive's Severance Period Benefits

1.   No Fringe Benefits

2.   Qualified Defined Benefit Pension Plan Participation through December 31,
     2004

3.   50% matching of Executive's (S) 401(k) contributions to Keystone's (S)
     401(k) Plan on the date of each lump sum installment shown on Schedule B,
     up to the maximum permitted by the Plan. In the event Executive is
     determined to be ineligible to make such contributions, Keystone will pay
     an amount equal to the matching payment directly to Executive, which
     payment shall be made at the same time as the lump sum payment set forth on
     Schedule B.

4.   Non-qualified Plans:

     (a)  Supplemental Executive Retirement Plan ("SERP"): On January 3, 2003,
          Keystone will contribute Twelve Thousand Two Hundred Sixty-five and
          00/100 ($12,265.00) Dollars to Executive's SERP and shall make no
          payment thereafter.

     (b)  Performance Unit Plan: Participation through December 31, 2002.
          Vesting shall be accelerated as of the Severance Date such that all
          Units credited to the Account of Executive for services through
          December 31, 2002, shall be 100% vested and he shall not be entitled
          to any further Units under the Performance Unit Plan. Payment shall be
          accelerated to March 1, 2005; provided, however, that the Valuation
          Date as defined in the Performance Unit Plan shall be December 31,
          2004.

5.   Keystone will pay for executive outplacement services on behalf of
     Executive with an executive outplacement firm of Executive's choice up to a
     maximum of Eighteen Thousand ($18,000.00) Dollars.

                                       10

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