Keystone Savings Bank and Nazareth National Bank To Combine Institutions, Forming Region's Largest, Local Bank!

When merged, two longstanding leaders will offer added convenience,
more capabilities, stronger commitment to communities

LEHIGH VALLEY, Pa. – Keystone Savings Bank and First Colonial Group, Inc., (NASDAQ: FTCG) the parent of Nazareth National Bank two of the region’s most successful, community-focused financial institutions have signed a definitive agreement to combine, forming the largest locally controlled bank in the greater Lehigh Valley-Poconos market area.

The resulting bank, Keystone Nazareth Bank & Trust Company, and its newly created bank holding company, KNBT Bancorp, Inc., will have combined assets of more than $1.6 billion and 36 branches covering Lehigh, Northampton, Monroe and Carbon counties. Both banks will continue to operate independently until the close of the transaction, which is expected to occur in the fourth quarter of 2003.

Based on deposit data at June 30, 2002, Keystone Nazareth Bank & Trust Company is expected to have the largest market share in Northampton County (22%), the second-largest market share in Lehigh County (8%), and the second-largest market share (14%) in the two counties combined. Factoring in the seventh-largest market share (5%) in Monroe and Carbon counties, Keystone Nazareth Bank & Trust Company is expected to have the second-largest market share (12%) in its four-county area of operations.

The transaction involves the conversion of Keystone Savings Bank, the region’s largest locally operated bank, from a mutual savings bank to a stock institution; the formation of a holding company, KNBT Bancorp, Inc.; and the mergers of First Colonial Group into KNBT Bancorp, Inc. and Nazareth National Bank into Keystone Savings Bank. Each share of First Colonial will be valued at $37 and exchanged for shares of KNBT Bancorp, Inc., common stock based on the initial public offering (IPO) price of KNBT Bancorp’s common stock. (Assuming an IPO price of $10 per share, each share of First Colonial Group will be exchanged for 3.7 shares of KNBT Bancorp, Inc.)

Jeffrey P. Feather, chairman of the board of trustees of Keystone Savings Bank, said, “Combining these two outstanding community institutions works on many levels because their franchises and philosophies complement each other so well. In addition, the capital raised in the stock conversion will enable future growth and community development opportunities.”

Feather, who is also chairman and chief executive officer of SunGard Pentamation, Inc., Bethlehem, Pa., will serve as chairman of the newly created holding company and bank. Six members of the First Colonial board will join nine members of the Keystone Savings board to form a new 15-member KNBT Bancorp, Inc. board. All board members are community leaders from the banks’ market area.

Scott V. Fainor, currently president and chief executive officer of Nazareth National Bank and First Colonial Group, will become the president and chief executive officer of Keystone Nazareth Bank & Trust Company and KNBT Bancorp, Inc., effective upon completion of the transaction. Eugene T. Sobol, currently senior executive vice president, chief operating officer and treasurer of Keystone Savings Bank, will continue his role at Keystone Nazareth Bank & Trust Company and KNBT Bancorp, Inc.

Frederick E. Kutteroff, president and chief executive officer of Keystone Savings Bank, has elected to accelerate his previously announced retirement to coincide with the completion of the merger.

Richard Stevens III, chairman of the board of First Colonial Group and Nazareth National Bank, said, “Existing customers at both banks will benefit from a wider selection of products and services and increased convenience. Meanwhile, our employees and shareholders will have the opportunity to be involved with a larger community bank with excellent growth potential.”

All branches from both banks are slated to remain open. Also, within the past six months, both banks have embarked on multi-branch expansion programs that will continue unabated. Fainor and Sobol said the addition of these branches will further strengthen the combined bank’s presence and provide greater customer convenience throughout the combined banks’ market.

To demonstrate its commitment to the communities in its market area, a multi-million dollar charitable foundation will be formed to help fund local projects and programs of civic, charitable and cultural organizations throughout the region.

Fainor said, “We are combining two great institutions into one locally owned
super-community bank. The merger is exceptionally strategic in terms of geographic presence, lines of business, local board and management, and our ability to make a difference for individuals, families, businesses and institutions across our market area. This is one of the most exciting events to occur in our local communities in years.”

Together, the banks currently employ 602 people. Fainor said the banks’ respective expansion programs will likely increase the number of people working at Keystone Nazareth Bank & Trust Company during the next several years.

From a corporate culture standpoint, Sobol said the banks will fit together well. “We both have a rich heritage of helping families and businesses in the greater Lehigh Valley and Poconos meet their financial needs,” he said. “Both banks have had a solid community focus since they were formed – Nazareth National in 1897 and Keystone in 1925. Together, that’s 184 years of community banking – and a tremendous foundation to build upon.”

The transaction is subject to certain conditions, including the receipt of various regulatory approvals, as well as the approval of First Colonial Group’s shareholders and Keystone Savings Bank’s depositors.

Each of the directors of First Colonial has agreed to vote their shares of First Colonial in favor of the merger, and each of the trustees of Keystone Savings Bank has agreed to vote their deposits in favor of the conversion.

The proposed merger will be submitted to First Colonial’s shareholders for their consideration. KNBT Bancorp and First Colonial will file a registration statement, a proxy statement/prospectus and other relevant documents concerning the proposed transaction with the SEC. Shareholders of First Colonial are urged to read the registration statement and the proxy statement/prospectus when it becomes available and any other relevant documents filed with the SEC, as well as any amendments or supplements to those documents, because they will contain important information, before making any decision regarding the merger. Shareholders of First Colonial will be able to obtain a free copy of the proxy statement/prospectus, as well as other filings containing information about KNBT Bancorp, Keystone Savings and First Colonial, at the SEC’s Internet site. Copies of the proxy statement/prospectus can be obtained, without charge, by directing a request to the Secretary of First Colonial, First Colonial Group, Inc., 76 South Main Street, Nazareth, Pennsylvania 18064 (610-861-5721).

First Colonial and its directors and executive officers may be deemed to be participants in the solicitation of proxies from the shareholders of First Colonial in connection with the merger. Information about the directors and executive officers of First Colonial and their ownership of First Colonial common stock is set forth in the proxy statement, for First Colonial’s 2002 annual meeting of shareholders, as filed with the SEC on a Schedule 14A. Additional information about the interests of those participants may be obtained from reading the definitive proxy statement/prospectus regarding the proposed merger when it becomes available.

About Keystone Savings Bank Keystone Savings Bank is a Pennsylvania-chartered mutual savings bank headquartered in Bethlehem, Pa., with 19 branches in Lehigh, Northampton and Carbon counties. As of Dec. 31, 2002, it had assets of $1,013,472,000 and deposits of $771,825,000.

About First Colonial Group, Inc. Headquartered in Nazareth, Pa., First Colonial Group operates a one-bank subsidiary, Nazareth National Bank. It has 17 branches in Lehigh, Northampton and Monroe counties. As of Dec. 31, 2002, it had assets of $611,592,000 and deposits of $472,798,000.

Contacts:
Jeffrey P. Feather, Chairman of the Board, Keystone Savings Bank, 610-691-3616
Eugene Sobol, Sr. EVP, COO and Treasurer, Keystone Savings Bank, 610-861-5000
Richard Stevens III, Chairman of the Board, First Colonial Group, Inc. and Nazareth National Bank, 610-861-5721
Scott V. Fainor, President and Chief Executive Officer, First Colonial Group, Inc., and Nazareth National Bank, 610-861-5720

Web resources:
Keystone Savings Bank: www.keystonesavingsbank.com
Nazareth National Bank: www.nazbank.com
FDIC/OTC market share reports: www3.fdic.gov/sod/sodMarketBank.asp?barItem=2

This news release contains certain forward-looking statements about the proposed merger and conversion within the meaning of the Private Securities Litigation Reform Act of 1995. These include statements regarding the anticipated future results. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words like “believe,” “expect,” “anticipate,” “estimate” and “intend” or future or conditional verbs such as “will,” “would,” “should,” “could” or “may.” These forward-looking statements are based upon the current beliefs and expectations of Keystone Savings’ and First Colonial’s management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the companies’ control. In addition, these forward-looking statements are subject to the assumptions set forth below with respect to future business strategies and decisions that are subject to change. Actual results may differ materially from the anticipated results discussed in these forward-looking statements. Keystone Savings and First Colonial do not undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date the forward-looking statements are made. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among other things, the following possibilities: (1) competitive pressure among depository institutions increases significantly; (2) costs related to the integration of the business of Keystone Savings and First Colonial are greater than expected; (3) operating costs, customer losses and business disruption following the merger may be greater than expected; (4) governmental approvals of the merger and/or the conversion may not be obtained, or adverse regulatory conditions may be imposed in connection with governmental approvals of the merger and/or the conversion; (5) First Colonial shareholders may fail to approve the merger and Keystone Savings Bank’s depositors fail to approve the conversion; (6) adverse governmental or regulatory policies may be enacted; (7) changes in the interest rate environment reduces interest margins; (8) general economic conditions, either nationally or in the states in which the combined company will be doing business, are less favorable than expected; (9) legislation or regulatory requirements or changes adversely affect the business in which the combined company will be engaged; and (10) changes may occur in the securities market.