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                           Little Falls Bancorp, Inc.
                     1997 Directors Stock Compensation Plan

                                    Article I
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                            ESTABLISHMENT OF THE PLAN

         1.01 Little Falls Bancorp, Inc. ("Company") hereby establishes the 1997
Directors  Stock  Compensation  Plan (the "Plan") upon the terms and  conditions
hereinafter stated.

                                   Article II
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                               PURPOSE OF THE PLAN

         2.01 The  purpose of the Plan is to reward and to retain  personnel  of
experience  and ability as members of the Board of  Directors  of the Company by
providing  such members of the Board with an additional  equity  interest in the
Company as compensation for their future professional  contributions and service
to the Company and its subsidiaries.

                                   Article III
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                                   DEFINITIONS

         The following  words and phrases when used in this Plan with an initial
capital letter,  unless the context clearly indicates otherwise,  shall have the
meaning as set forth below.  Wherever  appropriate,  the masculine pronoun shall
include the feminine pronoun and the singular shall include the plural.

         3.01  "Beneficiary"  means the  person  or  persons  designated  by the
Participant to receive any benefits  payable under the Plan in the event of such
Participant's  death.  Such person or persons  shall be designated in writing on
forms provided for this purpose by the Committee and may be changed from time to
time by similar  written  notice to the  Committee.  In the absence of a written
designation,  the Beneficiary  shall be the  Participant's  surviving spouse, if
any, or if none, the Participant's estate.

         3.02  "Board"  means  the Board of  Directors  of the  Company,  or any
successor corporation thereto.

         3.03  "Cause"  means the  personal  dishonesty,  incompetence,  willful
misconduct,  breach of fiduciary duty involving  personal  profits,  intentional
failure to perform stated duties,  willful violation of a material  provision of
any law, rule or regulation (other than traffic violations and similar offense),
or a material  violation of a final  cease-and-desist  order or any other action
which  results  in  a  substantial   financial   loss  to  the  Company  or  its
Subsidiaries.

         3.04 "Change in Control" shall mean: (i) the sale of all, or a material
portion,  of the assets of the Company or its  Subsidiaries;  (ii) the merger or
recapitalization of the Company whereby the Company is not the surviving entity;
(iii) a change in control of the Company as otherwise  defined or  determined by
the Office of Thrift  Supervision  ("OTS") or regulations  promulgated by it; or
(iv) the  acquisition,  directly  or  indirectly,  of the  beneficial  ownership
(within the meaning of that term as it is used in Section  13(d) of the 1934 Act
and the rules and  regulations  promulgated  thereunder) of twenty-five  percent
(25%) or more of the outstanding voting securities of the Company by any person,

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trust,  entity or group.  This  limitation  shall not apply to the  purchase  of
shares of up to 25% of any class of securities of the Company by a tax-qualified
employee stock benefit plan sponsored by the Company or its  subsidiaries  which
is  exempt  from  the   approval   requirements,   set  forth  under  12  C.F.R.
ss.574.3(c)(1)(vi)  as now in effect or as may  hereafter  be amended.  The term
"person"  refers  to  an  individual  or  a  corporation,   partnership,  trust,
association, joint venture, pool, syndicate, sole proprietorship, unincorporated
organization  or any other form of entity not  specifically  listed herein.  The
decision of the  Committee as to whether a Change in Control has occurred  shall
be conclusive and binding.

         3.05  "Committee"  means  the  Board  of  Directors  as a whole  or the
Executive  Committee appointed by the Board from time to time, if such Executive
Committee shall exist.

         3.06 "Common  Stock" means shares of the common  stock,  $.10 par value
per share, of the Company or any successor thereto.

         3.07  "Company"  shall mean  Little  Falls  Bancorp,  Inc.,  the parent
corporation of the Company.

         3.08  "Director" means a member of the Board of the Company.

         3.09  "Director  Emeritus"  means  a  person  serving  as  an  director
emeritus,  advisory director,  consulting director, or other similar position as
may be appointed by the Board of Directors of the Company from time to time.

         3.10 "Disability" means any physical or mental impairment which renders
the  Participant  incapable of  continuing  in the service of the Company in his
current capacity as determined by the Committee.

         3.11  "Employee"  means any person who is  employed by the Company or a
Subsidiary.  "Non-  employee"  shall refer to an  individual  that is not in the
employ of the Company or its  subsidiaries  within the  meaning of the  Internal
Revenue Code of 1986, as amended.

         3.12 "Effective Date" shall mean the date of Board approval of the Plan
on April 17, 1997.

         3.14  "Participant"  means a Non-employee  Director who receives a Plan
Share Award under the Plan.

         3.15  "Plan   Shares"  means  shares  of  Common  Stock  awarded  to  a
Participant pursuant to the Plan.

         3.16  "Plan  Share  Award"  or  "Award"  means  a  right  granted  to a
Participant under this Plan to earn or to receive Plan Shares.

         3.17 "Plan Share Reserve"  means the shares of Common Stock  authorized
for issuance in accordance with the Plan.


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         3.18  "Savings  Bank"  means  Little  Falls  Bank,  and  any  successor
corporation thereto.

         3.19     "Subsidiary" means the subsidiaries of the Company.

                                   Article IV
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                           ADMINISTRATION OF THE PLAN

         4.01  Role  of the  Committee.  The  Plan  shall  be  administered  and
interpreted by the Board of Directors of the Company or a Committee appointed by
said Board, which shall consist of not less than two Non-employee members of the
Board,  which  shall  have all of the powers  allocated  to it in this and other
sections of the Plan. All persons  designated as members of the Committee  shall
be  "Non-Employee  Directors"  within  the  meaning  of  Rule  16b-3  under  the
Securities Exchange Act of 1934, as amended ("1934 Act"). The interpretation and
construction by the Committee of any provisions of the Plan or of any Plan Share
Award granted  hereunder shall be final and binding.  The Committee shall act by
vote or written  consent of a majority  of its  members.  Subject to the express
provisions  and  limitations  of the Plan,  the  Committee may adopt such rules,
regulations  and  procedures  as it deems  appropriate  for the  conduct  of its
affairs.  The Committee  shall report its actions and decisions  with respect to
the Plan to the Board at appropriate  times,  but in no event less than one time
per calendar year.

         4.02 Role of the Board. The members of the Committee shall be appointed
or approved  by, and will serve at the  pleasure of the Board.  The Board may in
its  discretion  from time to time remove  members  from, or add members to, the
Committee.  The Board shall have all of the powers  allocated  to it in this and
other  sections of the Plan,  may take any action  under or with  respect to the
Plan which the Committee is authorized to take,  and may reverse or override any
action  taken or decision  made by the  Committee  under or with  respect to the
Plan,  provided,  however,  that the Board may not revoke  any Plan Share  Award
already made except as provided in Section 7.01(a) herein.

         4.03  Limitation on Liability.  No member of the Board or the Committee
shall be liable for any  determination  made in good  faith with  respect to the
Plan or any Plan Share Awards granted. If a member of the Board or the Committee
is a party or is  threatened  to be made a party to any  threatened,  pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative,  by any  reason  of  anything  done  or not  done  by him in such
capacity  under or with respect to the Plan,  the Company shall  indemnify  such
member  against  expenses  (including  attorney's  fees),  judgments,  fines and
amounts paid in  settlement  actually and  reasonably  incurred by him or her in
connection with such action, suit or proceeding if he or she acted in good faith
and in a manner he or she reasonably believed to be in the best interests of the
Company,  and  with  respect  to  any  criminal  action  or  proceeding,  had no
reasonable cause to believe his conduct was unlawful.

                                    Article V
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                               PLAN SHARE RESERVE

         5.01 Plan Share  Reserve.  The  Committee is authorized to deliver Plan
Share Awards  representing  up to 25,000  shares of Common Stock of the Company.
Such Awards may be from  authorized,  but unissued  shares,  treasury  shares or
shares purchased by the Company for such purposes.


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         5.02 Effect of  Allocations,  Returns and  Forfeitures  Upon Plan Share
Reserves.  Upon the  allocation  of Plan  Share  Awards or the  decision  of the
Committee to return Plan Shares to the Company,  the Plan Share Reserve shall be
reduced by the number of Shares  subject to the Awards so allocated or returned.
Any Shares  subject to an Award which may not be earned because of forfeiture by
the Participant shall be added to the Plan Share Reserve.

                                   Article VI
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                            ELIGIBILITY; ALLOCATIONS

         6.01  Allocations.   As  of  the  Effective  Date  of  the  Plan,  each
Non-employee  Director of the Company  shall be granted a Plan Share Award under
the Plan consisting of 3,500 shares of Common Stock,  subjected to the terms and
conditions  specified   hereinafter.   Additionally,   the  Committee  may  make
additional  Plan Share  Awards under the Plan from time to time,  provided  that
such Awards in the agggregate do not exceed the limitations specified at Section
5.01.

         6.02  Terms of  Awards.  Such Plan  Share  Awards  shall be earned  and
non-forfeitable  at the rate of one-fifth as of the one-year  anniversary of the
Effective  Date and an  additional  one-fifth  following  each of the next  four
successive  years  during  such  periods of service  as a Director  or  Director
Emeritus.  Further,  such Plan Share Award shall be immediately  100% earned and
non-forfeitable  in the event of the death or  Disability  of such  Director  or
Director Emeritus, or upon a Change in Control of the Company. Subsequent to the
Effective  Date,  Plan Share Awards may be awarded to newly elected or appointed
Directors  of the  Company by the  Committee,  provided  that in no event  shall
Awards to any  individual  Non-employee  Director  exceed  20% of the  aggregate
authorized  Plan Share  Reserve.  All actions by the  Committee  shall be deemed
final, except to the extent that such actions are revoked by the Board.

         6.03  Form  of  Allocation.   As  promptly  as   practicable   after  a
determination is made that a Plan Share Award is to be made, the Committee shall
notify the Participant in writing of the grant of the Award,  the number of Plan
Shares covered by the Award, and the terms upon which the Plan Shares subject to
the  award  may be  earned.  The date on which  the  Committee  makes  its award
determination  or the date the  Committee so notifies the  Participant  shall be
considered  the date of grant of the Plan  Share  Awards  as  determined  by the
Committee.  The Committee shall maintain  records as to all grants of Plan Share
Awards under the Plan.

         6.04  Allocations  Not  Required.   Notwithstanding   anything  to  the
contrary,  no  Director  shall have any right or  entitlement  to receive a Plan
Share  Award  hereunder,  such  Awards  being  at the  total  discretion  of the
Committee and the Board.  The Committee may, with the approval of the Board (or,
if so directed by the Board)  return all Common Stock in the Plan Share  Reserve
to the Company at any time, and cease issuing Plan Share Awards.


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                                   Article VII
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       FORFEITURES; DIVIDENDS; DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS

         7.01     Forfeitures.

         (a) Revocation for Misconduct.  Notwithstanding  anything herein to the
contrary,  the  Board  may,  by  resolution,  immediately  revoke,  rescind  and
terminate any Plan Share Award,  or portion  thereof,  previously  awarded under
this Plan,  to the extent such Plan Shares have not been deemed  earned and non-
forfeitable  in the case of a Participant  who is discharged  from the employ or
service of the  Company,  Savings  Bank or a  Subsidiary  for  Cause,  or who is
discovered after termination of employment or service to have engaged in conduct
that would have justified  termination for Cause. A determination of Cause shall
be made by the Board within its sole discretion.

         (b) Exception for  Terminations  Due to Death or  Disability.  All Plan
Shares  subject to a Plan Share Award held by a  Participant  whose service with
the Company  shall  terminate due to death or  Disability,  shall be deemed 100%
earned and  nonforfeitable as of the Participant's last date of service with the
Company.

         (c)  Exception  for  Termination  after a Change in  Control.  All Plan
Shares subject to a Plan Share Award held by a Participant shall be deemed to be
immediately 100% earned and non- forfeitable in the event of a Change in Control
of the Company or Savings Bank.

         7.02 Payment of Dividends.  A holder of a Plan Share Award,  whether or
not  earned,  shall also be  entitled  to  receive  an amount  equal to any cash
dividends  declared and paid with respect to shares of Common Stock  represented
by such Plan Share Award  commencing  on the date the Plan  Shares are  awarded.
Such cash dividend amounts shall be paid directly to the Participant.

         7.03     Distribution of Plan Shares.

         (a)  Timing  of  Distributions:  General  Rule.  Plan  Shares  shall be
distributed to the Participant or his  Beneficiary,  as the case may be, as soon
as  practicable  after the date of grant of the Plan Share Award;  provided that
such Common  Stock  representing  such Plan Shares shall  contain a  restrictive
legend  detailing  the  applicable  limitations  of such shares with  respect to
transfer and forfeiture.

         (b) Form of  Distribution.  All Plan Shares,  together  with any shares
representing stock dividends,  shall be distributed in the form of Common Stock.
One share of Common Stock shall be given for each Plan Share earned.

         (c)  Regulatory  Exceptions.  No  Plan  Shares  shall  be  distributed,
however,  unless and until all of the  requirements  of all  applicable  law and
regulation shall have been fully complied with.

         7.04 Voting of Plan Shares. The Participant shall be entitled to direct
the  voting  of  all  Common  Stock  represented  by a  Plan  Share  Award  once
distributed.


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                                  Article VIII
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                                  MISCELLANEOUS

         8.01  Adjustments  for Capital  Changes.  The aggregate  number of Plan
Shares  available for issuance  pursuant to the Plan Share Awards and the number
of  Shares  to which  any Plan  Share  Award  relates  shall be  proportionately
adjusted for any increase or decrease in the total number of outstanding  shares
of Common Stock issued  subsequent to the effective  date of the Plan  resulting
from any  split,  subdivision  or  consolidation  of the  Common  Stock or other
capital adjustment, change or exchange of the Common Stock, or other increase or
decrease in the number or kind of shares effected  without receipt or payment of
consideration by the Company.

         8.02  Amendment  and  Termination  of  the  Plan.  The  Board  may,  by
resolution, at any time, amend or terminate the Plan.


         8.03 Nontransferable. Plan Share Awards and rights to Plan Shares shall
not be  transferable  by a  Participant  prior to being  deemed  100% earned and
non-forfeitable, except in the event of death of the Participant.

         8.04 No  Employment  Rights.  Neither  the Plan nor any grant of a Plan
Share Award or Plan Shares  hereunder  nor any action taken by the  Committee or
the Board in connection with the Plan shall create any right,  either express or
implied,  on the part of any Participant to continue in the employ or service of
the Company, Savings Bank, or a Subsidiary thereof.

         8.05 Voting and Dividend Rights.  No Participant  shall have any voting
or dividend rights of a stockholder with respect to any Plan Shares covered by a
Plan Share Award prior to the time said Plan Shares are actually  distributed to
such Participant.

         8.06 Governing  Law. The Plan shall be governed by and construed  under
the laws of the State of New Jersey, except to the extent that Federal Law shall
be deemed applicable.

         8.07 Effective Date.  The Plan shall be effective as of April 17, 1997.

         8.08 Term of Plan.  This Plan shall  remain in effect until the earlier
of (i) termination by the Board,  (ii) the  distribution of all shares of Common
Stock  authorized  under  the Plan  Share  Award,  or  (iii)  10 years  from the
Effective  Date.  Termination of the Plan shall not effect any Plan Share Awards
previously granted,  and such Plan Share Awards shall remain valid and in effect
until they have been earned and paid, or by their terms expire or are forfeited.

         8.09  Non-Trust  Status of Plan. It is intended that benefits under the
Plan shall be awarded in the form of Common Stock of the  Company.  Prior to the
time of delivery of such Common Stock to a Participant, no assets of the Company
shall be deemed to constitute a trust hereunder.


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