Exhibit 10.7

       

    

    AMENDED
AND RESTATED

    POLONIA
BANK

    EMPLOYEE
SEVERANCE COMPENSATION PLAN

    


    
      	
              A.

            	
              Purpose.

            


    

    


    The
primary purpose of the Polonia Bank Employee Severance Compensation Plan (the
“Plan”) is to ensure the successful continuation of the business of Polonia Bank
(the “Bank”) and the fair and equitable treatment of the Bank’s employees
following a Change in Control (as defined below).  The Bank has
amended and restated this Plan to conform with the requirements of Section 409A
of the Internal Revenue Code of 1986, as amended (the “Code”).

    


    
      	
              B.

            	
              Covered
      Employees.

            


    

    


    Subject
to paragraph C below, any employee with at least one year of service as of his
or her termination date shall be eligible to receive a Change in Control
Severance Benefit (as defined below) if, within the period beginning on the
effective date of a Change in Control and ending on the first anniversary of
such date, (i) the employee’s employment is involuntarily terminated or (ii) the
employee terminates employment voluntarily after being offered continued
employment in a position that is not a Comparable Position (as defined
below).

    


    
      	
              C.

            	
              Limitations on
      Eligibility for  Change in Control Severance Benefits or
      Management Restructuring
Benefits.

            


    

    


    
      	
               
      

            	
              (1)

            	
              No
      employee shall be eligible for a Change in Control Severance Benefit if
      (a) his or her employment is terminated for “Cause,” (b) he or she is
      offered a Comparable Position and declines to accept such position, or (c)
      the employee is, at the time of termination of employment, a party to an
      individual employment agreement or change in control agreement with the
      Bank and/or Polonia Bancorp (the
“Company).

            


    

    


    
      	
               
      

            	
              (2)

            	
              For
      purposes of this Plan, a termination of employment for “Cause” shall
      include termination because of the employee’s personal dishonesty,
      incompetence, willful misconduct, breach of fiduciary duty involving
      personal profit, intentional failure to perform stated duties, willful
      violation of any law, rule or regulation (other than traffic violations or
      similar offenses) violation of any final cease-and desist order, or
      material breach of any provision of this
Plan.

            


    

    


    
      	
               
      

            	
              (3)

            	
              For
      purposes of this Plan, a “Comparable Position” shall mean a position that
      would (i) provide the employee with base compensation and benefits
      that are comparable in the aggregate to those provided to the employee
      prior to the Change in Control; (ii) provide the employee with an
      opportunity for variable bonus compensation that is comparable to the
      opportunity provided to the employee prior to the Change in Control; (iii)
      be in a location that would not require the employee to increase his or
      her daily one way commuting distance by more than thirty-five (35) miles
      as compared to the employee’s commuting distance immediately prior to the
      Change in Control; and (iv) have job skill requirements and duties that
      are comparable to the requirements and duties of the position held by the
      employee prior to the Change in
Control.

            


    

     

    
      
         


      

      
         


        
          

        

      

      
         


      

    


    D.           Definitions of Change in
Control.

    


    For
purposes of this Plan, “Change in Control” means the occurrence of any one of
the following events:

    


    
      	
               
      

            	
              (1)

            	
              Merger:  The
      Company merges into or consolidates with another corporation, or merges
      another corporation into the Company, and as a result less than a majority
      of the combined voting power of the resulting corporation immediately
      after the merger or consolidation is held by persons who were stockholders
      of the Company immediately before the merger or
    consolidation.

            


    

    


    
      	
               
      

            	
              (2)

            	
              Acquisition of
      Significant Share Ownership:  There is filed, or is
      required to be filed, a report on Schedule 13D or another form or schedule
      (other than Schedule 13G) required under Sections 13(d) or 14(d) of the
      Securities Exchange Act of 1934, if the schedule discloses that the filing
      person or persons acting in concert has or have become the beneficial
      owner(s) of 25% or more of a class of the Company’s voting securities, but
      this clause (2) shall not apply to beneficial ownership of Company voting
      shares held in a fiduciary capacity by an entity of which the Company
      directly or indirectly beneficially owns 50% or more of its outstanding
      voting securities.

            


    

    


    
      	
               
      

            	
              (3)

            	
              Change in Board
      Composition:  During any period of two consecutive years,
      individuals who constitute the Company’s Board of Directors at the
      beginning of the two-year period cease for any reason to constitute at
      least a majority of the Company’s Board of Directors; provided, however,
      that for purposes of this clause (3), each director who is first elected
      by the board (or first nominated by the board for election by the
      stockholders) by a vote of at least two-thirds (2⁄3) of the directors who
      were directors at the beginning of the two-year period shall be deemed to
      have also been a director at the beginning of such period;
    or

            


    

    


    
      	
               
      

            	
              (4)

            	
              Sale of
      Assets:  The Company sells to a third party all or
      substantially all of its assets.

            


    

    


    Notwithstanding
anything in this Plan to the contrary, in no event shall the conversion of the
Bank from the mutual holding company form of organization to the full stock
holding company form of organization (including the elimination of the mutual
holding company) constitute a “Change in Control” for purposes of this
Plan.

    


    E.           Determination of the Change
in Control Severance Benefit.

    


    The
Change in Control Severance Benefit payable to an eligible employee under this
Plan shall be determined as follows:

    


    
      	
               
      

            	
              (1)

            	
              Employees
      who become entitled to receive a Change in Control Severance under the
      Plan shall receive a benefit determined under the following
      schedule:

            


    

    


    
      	
               
      

            	
              (a)

            	
              The
      basic benefit under the Plan shall be determined as the product of (i) the
      employee’s years of service from his or her hire date (including partial
      years) through the termination date and (ii) one (1) month of the
      employee’s Base Compensation (as defined below).  A “year of
      service” shall mean each 12-month period of service following an
      employee’s hire date determined without regard the number of hours worked
      during such period(s).

            


    

     

    
      
         


      

      
        2

        
          

        

      

      
         


      

    


    
      	
               
      

            	
              (b)

            	
              Notwithstanding
      anything in this Plan to the contrary, the minimum payment to an eligible
      employee under this Plan shall be one (1) month of Base Compensation and
      the maximum payment to an eligible employee shall not exceed 199% of the
      employee’s Base Compensation.

            


    

    


    
      	
               
      

            	
              (c)

            	
              The
      Change in Control Severance Benefit shall be paid in a lump sum not later
      than five (5) business days after the date of the employee’s termination
      of employment.

            


    

    


    
      	
               
      

            	
              (2)

            	
              For
      purpose of determinations under this paragraph E, “Base Compensation”
      shall mean:

            


    

    


    
      	
               
      

            	
              (a)

            	
              For
      salaried employees, the employee’s annual base salary at the rate in
      effect on his or her termination date or, if greater, the rate in effect
      on the date immediately preceding the Change in
  Control.

            


    

    


    
      	
               
      

            	
              (b)

            	
              For
      employees whose compensation is determined in whole or in part on the
      basis of commission income, the employee’s base salary at termination (or,
      if greater, the base salary on date immediately preceding the effective
      date of the Change in Control), if any, plus the commissions earned by the
      employee in the twelve (12) full calendar months preceding his or her
      termination date (or, if greater, the commissions earned in the twelve
      (12) full calendar months immediately preceding the effective date of the
      Change in Control).

            


    

    


    
      	
               
      

            	
              (c)

            	
              For
      hourly employees, the employee’s total hourly wages for the twelve (12)
      full calendar months preceding his or her termination date or, if greater,
      the twelve (12) full calendar months preceding the effective date of the
      Change in Control.

            


    

    


    F.           Withholding.

    


    All
payments will be subject to customary withholding for federal, state and local
tax purposes.

    


    G.           Parachute
Payment.

    


    Notwithstanding anything in this Plan
to the contrary, if a Change in Control Severance Benefit to an employee who is
a “Disqualified Individual” shall be in an amount which includes an “Excess
Parachute Payment,” taking into account payments under this Plan and otherwise,
the benefit payable under this Plan shall be reduced to the maximum amount which
does not include an Excess Parachute Payment.  The terms “Disqualified
Individual” and “Excess Parachute Payment” shall have the same meanings as under
Section 280G of the Internal Revenue Code of 1986, as amended, or any successor
provision thereto.

    


    H.           Adoption by
Affiliates.

    


    Upon
approval by the Board of Directors of the Bank, this Plan may be adopted by any
“Subsidiary” or “Parent” of the Bank.  Upon such adoption, the
provisions of the Plan shall be fully applicable to the employees of that
Subsidiary or Parent.  The term “Subsidiary” means any corporation in
which the Bank, directly or indirectly, holds a majority of the voting power of
its outstanding shares of capital stock.  The term “Parent” means any
corporation which holds a majority of the voting power of the Bank’s outstanding
shares of capital stock.



    
      
         


      

      
        3

        
          

        

      

      
         


      

    


    I.            Administration.

    


    The Plan
is administered by the Board of Directors of the Bank (the “Board”), which shall
have the discretion to interpret the terms of the Plan and to make all
determinations about eligibility and payment of benefits. All decisions of the
Board, any action taken by the Board with respect to the Plan and within the
powers granted to the Board under the Plan, and any interpretation by the Board
of any term or condition of the Plan, are conclusive and binding on all persons,
and will be given the maximum possible deference allowed by law.  The
Board may delegate and reallocate any authority and responsibility with respect
to the Plan.

    


    J.           Source of
Payments.

    


    Unless
otherwise determined by the Board, all payments and benefits provided under this
Agreement shall be paid solely by the Bank.  Notwithstanding anything
in this Agreement to the contrary, no provision of this Agreement shall be
construed so as to result in the duplication of any payment or
benefit.

    


    K.          Inalienability.

    


    In no
event may any Employee sell, transfer, anticipate, assign or otherwise dispose
of any right or interest under the Plan. At no time will any such right or
interest be subject to the claims of creditors, nor liable to attachment,
execution or other legal process.

    


    L.          Governing
Law.

    


    The
provisions of the Plan will be construed, administered and enforced in
accordance with the laws of the Commonwealth of Pennsylvania, except to the
extent that federal law applies.

    


    M.          Severability.

    


    If any
provision of the Plan is held invalid or unenforceable, its invalidity or
unenforceability will not affect any other provision of the Plan, and the Plan
will be construed and enforced as if such provision had not been
included.

    


    N.          No Employment
Rights.

    


    Neither
the establishment nor the terms of this Plan shall be held or construed to
confer upon any employee the right to a continuation of employment, nor
constitute a contract of employment, express or implied.  The Bank
reserves the right to dismiss or otherwise deal with any employee to the same
extent and on the same basis as though this Plan had not been adopted. Nothing
in this Plan is intended to alter the at-will status of the Bank’s employees, it
being understood that, except to the extent otherwise expressly set forth to the
contrary in an individual employment-related agreement, the employment of any
employee may be terminated at any time by either the Bank or the employee with
or without cause.

    


    O.          Amendment and
Termination.

    


    The Plan
may be terminated or amended in any respect by resolution adopted by a majority
of the Board of Directors of the Bank, unless a Change in Control has previously
occurred.  If a Change in Control occurs, the Plan no longer shall be
subject to amendment, change, substitution, deletion, revocation or termination
in any respect whatsoever.  The form of any proper amendment or
termination of the Plan shall be a written instrument signed by a duly
authorized officer or officers of the Bank, certifying that the amendment or
termination has been approved by the Board of Directors.  A proper
amendment of the Plan automatically shall effect a corresponding amendment to
each Participant’s rights hereunder.  A proper termination of the Plan
automatically shall effect a termination of all employees’ rights and benefits
hereunder.



    
      
         


      

      
        4

        
          

        

      

      
         


      

    


    P.           Required
Provisions.

    


    
      	
               
      

            	
              (1)

            	
              In
      the event any of the provisions of this Section P are in conflict with the
      terms of this Plan, this Section P shall
  prevail.

            


    

    


    
      	
               
      

            	
              (2)

            	
              The
      Bank’s Board of Directors may terminate an employee’s employment at any
      time, but any termination by the Bank, other than termination for Cause,
      shall not prejudice employee’s right to compensation or other benefits
      under this Plan.  An employee shall not have the right to
      receive compensation or other benefits for any period after Termination
      for Cause.

            


    

    


    
      	
               
      

            	
              (3)

            	
              If
      an employee is suspended from office and/or temporarily prohibited from
      participating in the conduct of the Bank’s affairs by a notice served
      under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12
      U.S.C. §1818(e)(3) or (g)(1); the Bank’s obligations under this Plan shall
      be suspended as of the date of service, unless stayed by appropriate
      proceedings.  If the charges in the notice are dismissed, the
      Bank may in its discretion:  (i) pay the employee all or part of
      the compensation withheld while its contract obligations were suspended;
      and (ii) reinstate (in whole or in part) any of the obligations which were
      suspended.

            


    

    


    
      	
               
      

            	
              (4)

            	
              If
      an employee is removed and/or permanently prohibited from participating in
      the conduct of the Bank’s affairs by an order issued under Section 8(e)(4)
      or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. §1818(e)(4) or
      (g)(1), all obligations of the Bank under this Plan shall terminate as of
      the effective date of the order, but vested rights of the contracting
      parties shall not be affected.

            


    

    


    
      	
               
      

            	
              (5)

            	
              If
      the Bank is in default as defined in Section 3(x)(1) of the Federal
      Deposit Insurance Act, 12 U.S.C. §1813(x)(1) all obligations of the Bank
      under this Plan shall terminate as of the date of default, but this
      paragraph shall not affect any vested rights of the contracting
      parties.

            


    

    


    
      	
               
      

            	
              (6)

            	
              All
      obligations under this Plan shall be terminated, except to the extent
      determined that continuation of the Plan is necessary for the continued
      operation of the Bank:  (i) by the Director of the OTS (or his
      designee), at the time the FDIC enters into an agreement to provide
      assistance to or on behalf of the Bank under the authority contained in
      Section 13(c) of the Federal Deposit Insurance Act, 12 U.S.C. §1823(c); or
      (ii) by the Director of the OTS (or his designee) at the time the Director
      (or his designee) approves a supervisory merger to resolve problems
      related to the operations of the Bank or when the Bank is determined by
      the Director to be in an unsafe or unsound condition.  Any
      rights of the parties that have already vested, however, shall not be
      affected by such action.

            


    

    


    
      	
               
      

            	
              (7)

            	
              Any
      payments made to employees pursuant to this Plan, or otherwise, are
      subject to and conditioned upon their compliance with 12 U.S.C. §1828(k)
      and FDIC regulation 12 C.F.R. Part 359, Golden Parachute and
      Indemnification Payments.

            


    

     

    
      
         


      

      
        5

        
          

        

      

      
         


      

    


    Q.           Section
409A.

    


    If when termination of employment
occurs an employee is a “specified employee” (within the meaning of Section 409A
of the Code), and if the cash severance payment under paragraph E. would be
considered deferred compensation under Section 409A of the Code, and, finally,
if an exemption from the six-month delay requirement of Section 409A(a)(2)(B)(i)
of the Code is not available, the employee’s severance benefit shall be paid to
the employee in a single lump sum, without interest, on the first payroll date
of the seventh month after the month in which the employee’s employment
terminates, provided the termination of employment constitutes a “separation
from service” under Section 409A of the Code. References in this Plan to Section
409A of the Code include rules, regulations, and guidance of general application
issued by the Department of the Treasury under Section 409A of the
Code.


    
      
         


      

      
        6

        
          

        

      

      
         


      

    


    This
amended and restated plan has been approved and adopted by the Board of
Directors of the Bank and is effective as of December 16, 2008.

    


    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      	 
      	 
      	
                                              POLONIA
      BANK

                                            
	 
      	 
      	 
      
	
                                              Attest:

                                            	
                                              /s/ Paul D. Rutkowski

                                            	 
      	 By:/	
                                              s/ Anthony J.
  Szuszczewicz

                                            
	 
      	 
      	 	
                                              For
      the Entire Board of
Directors

                                            


                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

     

    
      
         


      

      
        7