AMENDED AND RESTATED EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (this “Agreement") is made and entered into as of December 28, 2006 by and among Keystone Nazareth Bank & Trust Company (the “Bank”), KNBT Bancorp, Inc. (the “Company”) (the Bank and the Company are collectively referred to as the “Employer”), and Scott V. Fainor (the "Executive").

WHEREAS, in connection with the execution of the Agreement and Plan of Merger between Keystone Savings Bank (now known as Keystone Nazareth Bank & Trust Company) and First Colonial Group, Inc. (“First Colonial”) (the “Merger Agreement”), the Bank and the Executive entered into an Employment Agreement dated March 5, 2003 (the “Original Agreement”);

WHEREAS, in January 2005, the Original Agreement was amended to provide that for purposes thereof the Effective Date was December 31, 2004;

WHEREAS, in accordance with the terms of Section 29 of the Original Agreement and in connection with the consummation of the transactions contemplated by the Merger Agreement, the Company became a party to the Original Agreement;

WHEREAS, the Executive and the Employer desire to amend and restate the Original Agreement in order to make changes to comply with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), as well as certain other changes;

WHEREAS, the Employer desires to ensure that the Company and the Bank are assured of the continued availability of the Executive's services as provided in this Agreement; and

WHEREAS, the Executive is willing to serve the Company and the Bank on the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the premises and the mutual covenants and conditions hereinafter set forth, the Employer and the Executive hereby agree as follows:

SECTION 1. EFFECTIVE DATE; EMPLOYMENT.

For purposes of this Agreement, “Effective Date” shall mean December 31, 2004, provided that this amendment and restatement shall be effective as of the date first written above. The Employer agrees to employ the Executive, and the Executive hereby agrees to such employment, during the period and upon the terms and conditions set forth in this Agreement.

SECTION 2. EMPLOYMENT PERIOD.

(a) The terms and conditions of this Agreement shall be and remain in effect through December 31, 2009 plus such extensions, if any, as are provided pursuant to Section 2(b) hereof (the "Employment Period").

(b) Except as provided in Section 2(c), beginning on December 31, 2007 and on each subsequent December 31^st during the Employment Period, the Employment Period shall automatically be extended for one additional year, unless either the Company or the Bank, on the one hand, or the Executive, on the other hand, elects not to extend the Agreement further by giving written notice thereof to the other parties at least 30 days prior to such annual anniversary date. Upon termination of the Executive's employment with either of the Employer for any reason whatsoever, any annual extensions provided pursuant to this Section 2(b), if not theretofore discontinued, shall automatically cease.

(c) Nothing in this Agreement shall be deemed to prohibit the Employer at any time from terminating the Executive's employment during the Employment Period for any reason upon at least 30 days written notice to the Executive, other than termination for Cause which shall be governed by Section 10 hereof, provided that the relative rights and obligations of the Employer and the Executive in the event of any such termination shall be determined under this Agreement. Furthermore, notwithstanding anything to the contrary herein, no extension of this Agreement pursuant to Section 2(b) shall occur that would extend the term of this Agreement beyond December 31^st of the year in which the Executive reaches age 65.

SECTION 3. DUTIES.

(a) Throughout the Employment Period, the Executive shall serve as the President and the Chief Executive Officer of each of the Employer, having such power, authority and responsibility and performing such duties as are prescribed by or under the Bylaws of each of the Company and the Bank and as are customarily associated with such positions. The Executive shall devote his full business time, attention, skills and efforts (other than during weekends, holidays, vacation periods, and periods of illness or leaves of absence and other than as permitted or contemplated by Section 7 hereof) to the business and affairs of the Employer and shall use his best efforts to advance the interests of the Employer.

(b) Throughout the Employment Period, the Board of Directors of the Bank (the “Bank Board”) shall nominate the Executive to be a director of the Bank when his term expires, subject to the fiduciary duties of the Bank Board, and the Company agrees to approve his election as a director of the Bank. Throughout the Employment Period, the Board of Directors of the Company (the “Company Board”) shall nominate the Executive to be a director of the Company when his term expires and recommend his election to the shareholders of the Company, subject to the fiduciary duties of the Company Board.

SECTION 4. CASH AND OTHER COMPENSATION.

(a) In consideration for the services to be rendered by the Executive hereunder, the Employer shall pay to him a salary of four hundred and ten thousand dollars ($410,000) annually (“Base Salary”). The Executive's Base Salary shall be payable in approximately equal installments in accordance with the Company’s and the Bank’s customary payroll practices for senior officers. Base Salary shall include any amounts of compensation deferred by the Executive under any tax-qualified retirement or welfare benefit plan or any other deferred compensation arrangement. The Company Board and the Bank Board shall review the Executive's annual rate of salary at such times during the Employment Period as they deem appropriate, but not less frequently than once every twelve months, and may, in their respective discretion, approve an increase therein. In addition to salary, the Executive may receive other cash compensation from the Employer for services hereunder at such times, in such amounts and on such terms and conditions as the Company Board or the Bank Board may determine from time to time. Any increase in the Executive’s annual salary shall become the Base Salary of the Executive for purposes hereof. The Executive’s Base Salary as in effect from time to time cannot be decreased by the Employer without the Executive’s express prior written consent.

(b) The Executive shall be entitled to participate in an equitable manner with all other executive officers of the Employer in discretionary bonuses as authorized by the Company Board and/or the Bank Board to executive officers. No other compensation provided for in this Agreement shall be deemed a substitute for the Executive’s right to participate in such bonuses when and as declared by the Company Board and/or the Bank Board.

SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.

(a) During the Employment Period, the Executive shall be treated as an employee of the Company and the Bank and shall be entitled to participate in and receive benefits under any and all qualified or non-qualified retirement, pension, savings or profit-sharing plans, any and all group life, health (including hospitalization, medical and major medical), dental, accident and long term disability insurance plans, and any other employee benefit and compensation plans (including, but not limited to, any incentive compensation plans or programs, stock option and appreciation rights plans and restricted stock plans) as may from time to time be maintained by, or cover employees of, the Company and the Bank, in accordance with the terms and conditions of such employee benefit plans and programs and compensation plans and programs and consistent with the Company's and the Bank’s customary practices. Any grants under a restricted stock plan to the Executive shall be at the discretion of either the Company Board or the committee that administers such plan. Nothing paid to the Executive under any such plan or program will be deemed to be in lieu of other compensation to which the Executive is entitled under this Agreement.

(b) During the Employment Period, the Employer shall provide the Executive with an automobile allowance equal to $1,000 per month.

(c) During the Employment Period, the Employer shall reimburse the Executive for his monthly membership dues to be a member of the Saucon Valley Country Club.

SECTION 6. INDEMNIFICATION AND INSURANCE.

(a) During the Employment Period and for a period of six years thereafter, the Employer shall cause the Executive to be covered by and named as an insured under any policy or contract of insurance obtained by them to insure their directors and officers against personal liability for acts or omissions in connection with service as an officer or director of the Employer or service in other capacities at the request of the Employer. The coverage provided to the Executive pursuant to this Section 6 shall be of the same scope and on the same terms and conditions as the coverage (if any) provided to other officers or directors of the Employer or any successors.

(b) To the maximum extent permitted under applicable law, the Employer shall indemnify the Executive against and hold him harmless from any costs, liabilities, losses and exposures that may be incurred by the Executive in his capacity as a director or officer of the Employer or any subsidiary or affiliate.

The Executive may (a) serve as a member of the boards of directors of such business, community and charitable organizations as he may disclose to and as may be approved by the Employer (which approval shall not be unreasonably withheld), and (b) perform duties as a trustee or personal representative or in any other fiduciary capacity, provided that in each case such service shall not materially interfere with the performance of his duties under this Agreement or present any conflict of interest. The Executive may also engage in personal business and investment activities which do not materially interfere with the performance of his duties hereunder, provided that such activities are not prohibited under any code of conduct or investment or securities trading policy established by the Employer and generally applicable to all similarly situated executives. If the Executive is discharged or suspended, or is subject to any regulatory prohibition or restriction with respect to participation in the affairs of the Bank, he shall continue to perform services for the Company in accordance with this Agreement but shall not directly or indirectly provide services to or participate in the affairs of the Bank in a manner inconsistent with the terms of such discharge or suspension or any applicable regulatory order.

SECTION 8. WORKING FACILITIES AND EXPENSES.

It is understood by the parties that the Executive's principal place of employment shall be at the Employer’s principal executive office located in Bethlehem, Pennsylvania, or at such other location within 25 miles of the address of such principal executive office, or at such other location as the Employer and the Executive may mutually agree upon. The Employer shall provide the Executive at his principal place of employment with a private office, secretarial services and other support services and facilities suitable to his position with the Employer and necessary or appropriate in connection with the performance of his assigned duties under this Agreement. The Employer shall reimburse the Executive for his ordinary and necessary business expenses attributable to the Employer’s business, including, without limitation, the Executive's travel and entertainment expenses incurred in connection with the performance of his duties for the Employer under this Agreement, in each case upon presentation to the Employer of an itemized account of such expenses in such form as the Employer may reasonably require.

SECTION 9. TERMINATION OF EMPLOYMENT WITH BENEFITS.

(a) The Executive shall be entitled to the benefits described in Section 9(b) in the event that either prior to a Change in Control or more than two years after a Change in Control as defined in Section 11(a):

(i) his employment with the Employer terminates during the Employment Period as a result of the Executive's resignation within six full calendar months following:

(A) the failure of either the Company Board or the Bank Board to appoint or re-appoint the Executive to the positions with the Company stated in Section 3(a) of this Agreement;

(B) the expiration of a 30-day period following the date on which the Executive gives written notice to the Employer of its material failure, whether by amendment of the Articles of Incorporation or Bylaws of either the Company or the Bank, or by action of the Company Board, the Company's shareholders, the Bank Board, the Bank’s shareholder(s), or otherwise, to vest in the Executive the functions, duties or responsibilities prescribed in Section 3(a) of this Agreement, unless, during such 30-day period, the Employer cures such failure;

(C) the expiration of a 30-day period following the date on which the Executive gives written notice to the Employer of its material breach of any term, condition or covenant contained in this Agreement (including, without limitation, any reduction of the Executive's rate of Base Salary in effect from time to time and any change in the terms and conditions of any compensation or benefit program in which the Executive participates which, either individually or together with other changes, has a material adverse effect on the aggregate value of his total compensation package), unless, during such 30-day period, the Employer cures such failure;

(D) a change in the Executive's principal place of employment by a distance in excess of 25 miles from the Employer’s principal executive office in Bethlehem, Pennsylvania;

(E) the receipt by the Executive of written notice pursuant to Section 2(b) hereof that the Employment Period is not being extended as of any annual anniversary date of the Effective Date; or

(F) the termination of the Executive’s employment by either the Company or the Bank for reasons other than those specified in Section 10 hereof; or

(ii) the Executive's employment with the Employer is terminated (A) by the Employer during the Employment Period for any reason other than for "cause," death or “Disability,” as provided in Section 10(a) or (B) pursuant to the provisions of Section 9(c).

(b) Upon the termination of the Executive’s employment pursuant to Section 9(a) of this Agreement either prior to a Change in Control as defined in Section 11(a) or more than two years after a Change in Control, the Employer shall pay and provide to the Executive (or, in the event of his subsequent death, to his estate):

(i) his earned but unpaid Base Salary (including, without limitation, all items which constitute wages under applicable law and the payment of which is not otherwise provided for in this Section 9(b)) as of the date of the termination of his employment, such payment to be made at the time and in the manner prescribed by law applicable to the payment of wages but in no event later than 30 days after termination of employment;

(ii) the benefits, if any, to which he is entitled under the employee benefit plans and programs and compensation plans and programs maintained for the benefit of the Company's and the Bank’s officers and employees through the date of the termination of his employment;

(iii) continued group life, health, dental, accident and long term disability insurance benefits, in addition to that provided pursuant to Section 9(b)(ii), and after taking into account the coverage provided by any subsequent employer, if and to the extent necessary to provide for the Executive, for the period beginning on the date on which his employment terminates and ending on the earlier of (A) the last day of the Employment Period (the “Remaining Employment Period”) or (B) 24 months from the date of termination (with such lesser period being the “Coverage Period”), coverage equivalent to the coverage to which he would have been entitled under such plans if he had continued to be employed during such period at the highest annual rate of salary achieved during the Employment Period;

(iv) within 30 days following the date on which his employment terminates, a lump sum payment, in an amount equal to the present value of the Base Salary that the Executive would have earned if he had continued to be employed during the Coverage Period at the highest annual rate of Base Salary achieved during the Employment Period, such present value to be determined using a discount rate equal to the applicable short-term federal rate prescribed under Section 1274(d) of the Code, compounded using the compounding periods corresponding to the Company's and the Bank’s regular payroll periods for their officers, and such lump sum to be paid in lieu of all other payments of Base Salary provided for under this Agreement in respect of the Coverage Period;

(v) within 30 days following the date on which his employment terminates, a lump sum payment in an amount equal to the excess, if any, of:

(A) the present value of the aggregate benefits to which he would be entitled under any and all qualified defined benefit pension plans and non-qualified plans related thereto maintained by, or covering employees of, the Company and the Bank if he were 100% vested thereunder and had continued to be employed during the Coverage Period at the highest annual rate of Base Salary achieved during the Employment Period; over

(B) the present value of the benefits to which he is actually entitled under such defined benefit pension plans as of the date on which his employment terminates; such present values to be determined using the mortality tables prescribed under Section 415(b)(2)(E)(v) of the Code and a discount rate, compounded monthly, equal to the annualized rate of interest prescribed by the Pension Benefit Guaranty Corporation for the valuation of immediate annuities payable under terminating single-employer defined benefit plans for the month in which the Executive's employment terminates ("Applicable PBGC Rate");

(vi) within 30 days following the date on which his employment terminates, a lump sum payment in an amount equal to the present value of the additional employer contributions to which he would have been entitled under any and all qualified defined contribution plans and non-qualified plans related thereto maintained by, or covering employees of, the Company and the Bank as if he were 100% vested thereunder and had continued to be employed during the Coverage Period at the highest annual rate of Base Salary achieved during the Employment Period and making the maximum amount of employee contributions, if any, required or permitted under such plan or plans, such present value to be determined on the basis of a discount rate, compounded using the compounding period that corresponds to the frequency with which employer contributions are made to the relevant plan, equal to the applicable short-term federal rate prescribed under Section 1274(d) of the Code, provided that no payments shall be made pursuant to this subsection (vi) with respect to the Company’s Employee Stock Ownership Plan (“ESOP”) if the ESOP is terminated effective as of a date within one year of the date of the termination of the Executive’s employment;

(vii) within 30 days following the date on which his employment terminates, a lump sum payment in an amount equal to the present value of the payments that would have been made to the Executive under any cash bonus or long-term or short-term cash incentive compensation plan maintained by, or covering employees of, the Company and the Bank if he had continued to be employed during the Coverage Period and had earned in each calendar year that ends during the Coverage Period a bonus or incentive award that equals the highest annual bonus or incentive award paid to the Executive during the preceding 36 calendar months, with the present value of such payments to be determined using a discount rate equal to the applicable short-term federal rate prescribed under Section 1274(d) of the Code, compounded using the compounding periods corresponding to the Company’s and the Bank’s schedule of paying bonuses;

(viii) for the first year following the date on which his employment terminates, reimbursement for all reasonable expenses incurred by the Executive 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 the Executive in connection with securing new employment; provided, however, that the amounts payable by the Employer pursuant to this subsection (viii) shall not exceed $75,000; and

(ix) within 30 days following the occurrence of an event described in Section 9(a), upon the surrender of then outstanding options or appreciation rights (other than options or appreciation rights which do not, by their terms, vest in the event of a Change in Control as defined in Section 11(a) hereof) previously issued to the Executive under any stock option and appreciation rights plan or program maintained by, or covering employees of, the Employer, a lump sum payment in an amount equal to the product of:

(A) the excess of (I) the fair market value of a share of stock of the same class as the stock subject to the option or appreciation right, determined as of the date on which his employment terminates, over (II) the exercise price per share for such option or appreciation right, as specified in or under the relevant plan or program; multiplied by

(B) the number of shares with respect to which options or appreciation rights are being surrendered.

The Employer and the Executive agree that the Employer may condition the payments and benefits (if any) due under Sections 9(b)(iii), (iv), (v), (vi), (vii) and (viii) on the receipt of the Executive's resignation from any and all positions which he holds as an officer, director or committee member with respect to the Employer or any of its subsidiaries or affiliates.

(c) In the event the Executive’s employment is terminated by voluntary resignation (including voluntary retirement) subsequent to the Executive reaching age 65 but before the end of the Employment Period other than pursuant to Section 9(a) and such termination occurs either before a Change in Control as defined in Section 11(a) or more than two years after a Change in Control, the Employer shall pay and provide to the Executive (or, in the event of his subsequent death, to his estate):

SECTION 10. TERMINATION WITHOUT ADDITIONAL EMPLOYER LIABILITY.

(a) In the event that the Executive's employment with the Employer shall terminate during the Employment Period on account of:

(i)  the discharge of the Executive for "cause," which, for purposes of this Agreement, shall mean a discharge because either the Company Board or the Bank Board determines that the Executive has: (A) willfully failed to perform his assigned duties under this Agreement, other than any failure resulting from the Executive’s incapacity due to physical or mental injury or illness; (B) committed an act involving moral turpitude in the course of his employment with the Employer and its subsidiaries; (C) engaged in willful misconduct; (D) breached his fiduciary duties for personal profit; (E) willfully violated, in any material respect, any law, rule or regulation (other than traffic violations or similar offenses), written agreement or final cease-and-desist order with respect to his performance of services for the Company or the Bank, as determined by the Company Board or the Bank Board; or (F) materially breached the terms of this Agreement and failed to cure such material breach during a 15-day period following the date on which the Compan