EMPLOYMENT AGREEMENT


         THIS EMPLOYMENT AGREEMENT  ("Agreement") is made and entered into as of
this 14th day of July, 1998, by and between PENN FEDERAL SAVINGS BANK, 622 Eagle
Rock Avenue, West Orange, New Jersey, a federally chartered savings bank (which,
together with any successor  thereto which  executes and delivers the assumption
agreement  provided for in Section 11(a) hereof or which otherwise becomes bound
by the  terms  and  provisions  of  this  Agreement  by  operation  of  law,  is
hereinafter  referred to as the "Bank"), and Jeffrey J. Carfora (the "Employee")
whose residence address is ____________________________________, New Jersey.

         WHEREAS, the Employee is currently serving as the Senior Vice President
and Chief Financial Officer of the Bank and of PennFed Financial Services,  Inc.
(the "Holding Company"); and

         WHEREAS,  the Board of Directors of the Bank recognizes that, as is the
case with publicly held corporations  generally,  the possibility of a change in
control of the  Holding  Company  may exist and that such  possibility,  and the
uncertainty and questions which it may raise among management, may result in the
departure or  distraction  of key  management  personnel to the detriment of the
Bank, the Holding Company and its stockholders; and

         WHEREAS,  the Board of Directors of the Bank believes it is in the best
interests of the Bank to enter into this Agreement with the Employee in order to
assure  continuity  of management of the Bank and to reinforce and encourage the
continued  attention  and  dedication  of the  Employee to his  assigned  duties
without distraction in the face of potentially disruptive circumstances

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<PAGE>
arising  from the  possibility  of a change in control of the  Holding  Company,
although no such change is now contemplated; and

         WHEREAS, the Board of Directors of the Bank has approved and authorized
the  execution of this  Agreement  with the Employee to take effect as stated in
Section 4 hereof;

         NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants  and  agreements  of the  parties  herein  contained,  it is AGREED as
follows:

         1.  Employment.  The Employee is employed as the Senior Vice  President
and Chief  Financial  Officer of the Bank.  As such,  the Employee  shall render
administrative and management  services as are customarily  performed by persons
serving in similar  capacities,  and shall have such other  powers and duties as
may from  time to time be  prescribed  by the  Board of  Directors  of the Bank,
provided that such duties are consistent under the Employee's position as Senior
Vice  President and Chief  Financial  Officer.  The Employee  shall  continue to
devote his best efforts and substantially all his business time and attention to
the  business  and  affairs  of the Bank  and its  subsidiaries  and  affiliated
companies.

         2.       Compensation.

                  (a)  Salary.  The Bank agrees to pay the  Employee  during the
term of this  Agreement  a salary  established  by the Board of  Directors.  The
salary  hereunder as of the  Commencement  Date (as defined in Section 4 hereof)
shall be equal to the Employee's  salary as in effect  immediately prior to such
date. The Employee's  salary shall be payable not less  frequently  than monthly
and not later  than the  tenth  day  following  the  expiration  of the month in
question. The amount of the Employee's salary shall be reviewed by

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<PAGE>
the Board of Directors  not less often than  annually,  beginning not later than
the date one year after the Commencement  Date (as defined in Section 4 hereof).
Any adjustments in salary or other  compensation shall in no way limit or reduce
any other  obligation of the Bank  hereunder.  The  Employee's  salary in effect
hereunder from time to time shall not thereafter be reduced.

                  (b) Discretionary  Bonuses.  The Employee shall be entitled to
participate in an equitable manner with all other executive officers of the Bank
in discretionary bonuses as authorized and declared by the Board of Directors of
the Bank to its executive employees.  No other compensation provided for in this
Agreement  shall be deemed a substitute for the Employee's  right to participate
in such bonuses when and as declared by the Board of Directors.

                  (c) Expenses. During the term of his employment hereunder, the
Employee  shall be entitled to receive prompt  reimbursement  for all reasonable
expenses incurred by him (in accordance with policies and procedures at least as
favorable  to the  Employee  as  those  presently  applicable  to the  executive
officers  of the  Bank) in  performing  services  hereunder,  provided  that the
Employee properly accounts therefor in accordance with Bank policy.

         3.       Benefits.

                  (a)      Participation in Retirement and Employee Benefit
Plans.  The Employee shall be entitled while employed hereunder to

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<PAGE>
participate  in, and  receive  benefits  under,  all plans  relating to pension,
thrift, profit-sharing,  group life insurance, medical coverage, education, cash
bonuses, and other retirement or employee benefits or combinations thereof, that
are  maintained  for the benefit of the Bank's  executive  employees  or for its
employees generally.

                  (b) Fringe  Benefits.  The  Employee  shall be eligible  while
employed  hereunder to participate  in, and receive  benefits  under,  any other
fringe  benefits  which are or may become  applicable  to the  Bank's  executive
employees or to its employees generally.

                  (c) Plans  Applicable to the Employee.  The Employee  shall be
the  beneficiary  of such  compensation  plans and  benefits  as may be designed
specifically for the Employee in the discretion of the Board of Directors of the
Bank.

         4. Term. The term of employment  under this Agreement shall be a period
of three years commencing on the date hereof (the "Commencement Date"),  subject
to earlier termination as provided herein. Beginning on the first anniversary of
the  Commencement  Date,  and  on  each  anniversary  thereafter,  the  term  of
employment  under this  Agreement  shall be extended for a period of one year in
addition to the then-remaining  term of employment under this Agreement,  unless
either the Bank or the Employee gives  contrary  written notice to the other not
less than 90 days in advance of the date on which the term of  employment  under
this Agreement would otherwise be extended.

         Notwithstanding  any other  statement or provision in this Agreement to
the contrary,  this Agreement will not be automatically  extended unless,  prior
thereto, the Board of Directors of the Bank

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<PAGE>
reviews  a  formal   performance   evaluation  of  the  Employee   performed  by
disinterested  members of the Board of Directors of the Bank, which is reflected
in the  minutes  of the  Board of  Directors,  and  affirmatively  approves  the
extension. Reference herein to the term of employment under this Agreement shall
refer to both such initial term and such extended terms.

         5. Vacations.  The Employee shall be entitled,  without loss of pay, to
absent himself  voluntarily  from the  performance of his employment  under this
Agreement, all such voluntary absences to count as vacation time, provided that:

                  (a) During the term of employment  under this  Agreement,  the
Employee  shall  be  entitled  to paid  vacation  in  accordance  with  the most
favorable plans, policies,  programs or practices of the Bank and its affiliated
companies as in effect for the Employee at any time during the six-month  period
immediately  preceding  the  Commencement  Date  or,  if more  favorable  to the
Employee,  as in effect  generally at any time  thereafter with respect to other
executives of the Bank and its affiliated companies; and

                  (b)      The timing of vacations shall be scheduled in a
reasonable manner by the Employee.

         6.  Termination of Employment; Death.

                  (a) The Bank's Board of Directors may terminate the Employee's
employment  at any time,  but any  termination  by the Bank's Board of Directors
other than  termination for cause,  shall not prejudice the Employee's  right to
compensation  or other benefits under this  Agreement.  If the employment of the
Employee is involuntarily terminated, other than for "cause" as provided in this
Section 6(a) or by reason of death or disability as provided

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<PAGE>
in Sections 6(c) or 7, the Bank shall pay the Employee his salary and provide to
the Employee the same insurance  benefits as he was receiving before the date of
termination through the remaining term of this Agreement.

         The terms "termination" or "involuntarily terminated" in this Agreement
shall refer to the termination of the employment of Employee without his express
written consent. In addition,  a material diminution of or interference with the
Employee's  duties,  responsibilities  and benefits as Senior Vice President and
Chief  Financial  Officer of the Bank shall be deemed  and shall  constitute  an
involuntary  termination  of employment to the same extent as express  notice of
such involuntary termination. Any of the following actions shall constitute such
diminution or interference unless consented to in writing by the Employee: (1) a
change in the principal  workplace of the Employee to a location outside of a 35
mile radius from the Bank's  headquarters  office as of the date  hereof;  (2) a
material  demotion  of the  Employee,  a  material  reduction  in the  number or
seniority  of other Bank  personnel  reporting  to the  Employee,  or a material
reduction  in the  frequency  with which,  or in the nature of the matters  with
respect to which,  such  personnel are to report to the Employee,  other than as
part of a Bank- or Holding  Company-wide  reduction in staff; (3) a reduction or
adverse  change in the salary,  perquisites,  benefits,  contingent  benefits or
vacation time which had theretofore been provided to the Employee, other than as
part of an overall  program applied  uniformly and with equitable  effect to all
members of the senior  management of the Bank or the Holding Company;  and (4) a
material

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<PAGE>
increase in the required hours of work or the workload of the Employee.

         In case of termination of the Employee's employment for cause, the Bank
shall pay the Employee his salary through the date of termination,  and the Bank
shall have no further  obligation  to the  Employee  under this  Agreement.  For
purposes of this Agreement,  termination  for "cause" shall include  termination
for personal dishonesty, incompetence, willful misconduct, breach of a 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) or final cease- and-desist order, or material breach of any
provision of this Agreement.  Notwithstanding the foregoing,  the Employee shall
not be deemed to have been  terminated  for cause  unless and until  there shall
have been delivered to the Employee a copy of a resolution,  duly adopted by the
affirmative  vote  of not  less  than a  disinterested  majority  of the  entire
membership  of the  Board of  Directors  of the Bank at a  meeting  of the Board
called and held for such purpose (after reasonable notice to the Employee and an
opportunity for the Employee,  together with the Employee's counsel, to be heard
before  the  Board),  stating  that in the good  faith  opinion of the Board the
Employee  was guilty of  conduct  constituting  "cause"  as set forth  above and
specifying the particulars thereof in detail.

         (b) The  Employee's  employment  may be  voluntarily  terminated by the
Employee  at any time  upon 90 days  written  notice  to the  Bank or upon  such
shorter  period as may be agreed  upon  between  the  Employee  and the Board of
Directors of the Bank. In the event of

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<PAGE>



such voluntary  termination,  the Bank shall be obligated to continue to pay the
Employee his salary and benefits  only through the date of  termination,  at the
time such payments are due, and the Bank shall have no further obligation to the
Employee under this Agreement.

                  (c) In the event of the death of the Employee  during the term
of employment under this Agreement and prior to any termination  hereunder,  the
Employee's estate, or such person as the Employee may have previously designated
in  writing,  shall be  entitled  to  receive  from the Bank the  salary  of the
Employee  through  the last day of the  calendar  month in which his death shall
have occurred, and the term of employment under this Agreement shall end on such
last day of the month.

                  (d) If the Employee is suspended and/or temporarily prohibited
from participating in the conduct of the Bank's affairs by a notice served under
Section  8(e)(3) or (g)(1) of the Federal  Deposit  Insurance Act  ("FDIA"),  12
U.S.C. ss.  1818(e)(3) and (g)(1),  the Bank's  obligations under this Agreement
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 obligations  under this Agreement were suspended and (ii) reinstate in whole
or in part any of its obligations which were suspended.

                  (e) If the 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 (g)(1) of the FDIA, 12 U.S.C. ss. 1818(e)(4) and (g)(1),  all
obligations of the Bank under

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<PAGE>



this Agreement shall terminate as of the effective date of the order, but vested
rights of the contracting parties shall not be affected.

                  (f) If the Bank is in default (as  defined in Section  3(x)(1)
of the FDIA, all obligations under this Agreement shall terminate as of the date
of  default,  but this  provision  shall not  affect  any  vested  rights of the
contracting parties.

                  (g) All obligations  under this Agreement shall be terminated,
except to the extent determined that continuation of this Agreement is necessary
for the  continued  operation of the Bank:  (i) by the Director of the Office of
Thrift  Supervision  (the  "Director")  or his or her designee,  at the time the
Federal  Deposit  Insurance  Corporation  ("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 FDIA;  or (ii) by the Director or his or her  designee,  at
the time the Director or his or her designee  approves a  supervisory  merger to
resolve problems related to operation 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 any such
action.

                  (h) In the event the Bank  purports to terminate  the Employee
for cause,  but it is determined by a court of competent  jurisdiction  or by an
arbitrator pursuant to Section 17 that cause did not exist for such termination,
or if in any event it is  determined  by any such court or  arbitrator  that the
Bank has failed to make timely payment of any amounts owed to the Employee under
this Agreement, the Employee shall be entitled to reimbursement for

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<PAGE>



all reasonable costs,  including  attorneys' fees,  incurred in challenging such
termination or collecting such amounts.  Such reimbursement shall be in addition
to all rights to which the Employee is otherwise entitled under this Agreement.

         7. Disability.  If the Employee shall become disabled as defined in the
Bank's then current disability plan or if the Employee shall be otherwise unable
to serve as Senior Vice  President  and Chief  Financial  Officer,  the Employee
shall be entitled to receive group and other  disability  income benefits of the
type then provided by the Bank for other  executive  employees.  In the event of
such disability, this Agreement shall not be suspended.  However, the Bank shall
be obligated to pay the Employee  compensation pursuant to Sections 2(a) and (b)
hereof only to the extent of the difference  between the  Employee's  salary and
the disability income benefits received pursuant to this paragraph. In addition,
the  Bank  shall  have  the  right,  upon  resolution  of  the  majority  of the
disinterested  members of the Board of  Directors,  to  discontinue  paying cash
compensation  pursuant to Sections 2(a) and (b) beginning six months following a
determination  that  Employee  qualifies  for the  foregoing  disability  income
benefits.

         8.       Change in Control.

                  (a) Involuntary  Termination.  If the Employee's employment is
involuntarily  terminated  (other  than for cause or pursuant to any of Sections
6(c) through 6(g) or Section 7 of this  Agreement) in connection  with or within
12 months after a change in control  which occurs at any time during the term of
employment under this Agreement,  the Employee shall be entitled to the benefits
provided below:

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                  (i) The Bank shall pay the Employee  his salary in  accordance
         with  Section  2 for  the  remaining  term  of  employment  under  this
         Agreement; plus

             (ii)  The  Bank  shall  pay to the  Employee  in a lump sum in cash
         within 25 business days after the Date of Termination  (as  hereinafter
         defined) of employment an amount equal to 299 percent of the Employee's
         "base amount" of compensation,  as defined in Section 280G(b)(3) of the
         Internal Revenue Code of 1986, as amended ("Code"); plus

                  (iii) The Bank shall  continue  to provide the  Employee  with
         health  benefits in accordance with Section 6 for the remaining term of
         employment under this Agreement.

Notwithstanding  any other  provision or statement  herein to the contrary,  the
amounts  payable to the Employee  pursuant to subsec  tions (i),  (ii) and (iii)
above shall be limited,  such that these amounts will not exceed three times the
Employee's average annual  compensation over the most recent five year period or
be nondeductible by the Bank for Federal income tax purposes pursuant to Section
280G of the Code.

                  (b)  Definitions.  For purposes of Section 8, 9 and 11 of this
Agreement,  "Date of  Termination"  means the earlier of (i) the date upon which
the Bank gives notice to the Employee of the  termination of his employment with
the Bank or (ii) the date upon which the Employee ceases to serve as an Employee
of the Bank,  and "change in control" is defined  solely as any  acquisition  of
control (other than by a trustee or other fiduciary holding  securities under an
employee  benefit  plan of the Holding  Company or a  subsidiary  of the Holding
Company), as defined in 12 C.F.R.

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<PAGE>



ss. 574.4,  or any successor  regulation,  of the Bank or Holding  Company which
would require the filing of an application  for acquisition of control or notice
of change in control  in a manner as set forth in 12 C.F.R.  ss.  574.3,  or any
successor regulation.

         9.  Certain  Reduction  of Payments by the Bank.  (a)  Anything in this
Agreement to the contrary  notwithstanding,  in the event it shall be determined
that  any  payment  or  distribution  by the Bank to or for the  benefit  of the
Employee  (whether paid or payable or distributed or  distributable  pursuant to
the terms of this Agreement or otherwise) (a "Payment")  would be  nondeductible
(in  whole or part) by the Bank for  Federal  income  tax  purposes  because  of
Section 280G of the Code, then the aggregate present value of amounts payable or
distributable  to or for the benefit of the Employee  pursuant to this Agreement
(such  amounts  payable  or   distributable   pursuant  to  this  Agreement  are
hereinafter referred to as "Agreement Payments") shall be reduced to the Reduced
Amount. The "Reduced Amount" shall be an amount,  not less than zero,  expressed
in present  value which  maximizes  the  aggregate  present  value of  Agreement
Payments  without causing any Payment to be nondeductible by the Bank because of
Section 280G of the Code. For purposes of this Section 9, present value shall be
determined in accordance with Section 280G(d)(4) of the Code.

                  (b) All determinations  required to be made under this Section
9 shall be made by the Bank's independent  auditors,  or at the election of such
auditors  by such other firm or  individuals  of  recognized  expertise  as such
auditors  may  select  (such  auditors  or, if  applicable,  such  other firm or
individual,  are hereinafter  referred to as the "Advisory Firm").  The Advisory
Firm shall

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<PAGE>



within ten business days of the Date of Termination,  or at such earlier time as
is requested  by the Bank,  provide to both the Bank and the Employee an opinion
(and detailed supporting  calculations) that the Bank has substantial  authority
to deduct for  federal  income tax  purposes  the full  amount of the  Agreement
Payments and that the Employee has  substantial  authority  not to report on his
federal  income tax return  any excise tax  imposed by Section  4999 of the Code
with respect to the Agreement  Payments.  Any such  determination and opinion by
the Advisory Firm shall be binding upon the Bank and the Employee.  The Employee
shall determine  which and how much, if any, of the Agreement  Payments shall be
eliminated  or  reduced  consistent  with the  requirements  of this  Section 9,
provided  that,  if the  Employee  does not make such  determination  within ten
business days of the receipt of the calculations  made by the Advisory Firm, the
Bank shall elect which and how much, if any, of the Agreement  Payments shall be
eliminated or reduced  consistent  with the  requirements  of this Section 9 and
shall notify the Employee  promptly of such election.  Within five business days
of the  earlier  of (i)  the  Bank's  receipt  of the  Employee's  determination
pursuant to the  immediately  preceding  sentence of this  Agreement or (ii) the
Bank's  election  in  lieu of  such  determination,  the  Bank  shall  pay to or
distribute  to or for the benefit of the  Employee  such amounts as are then due
the Employee under this  Agreement.  The Bank and the Employee  shall  cooperate
fully with the Advisory  Firm,  including  without  limitation  providing to the
Advisory  Firm all  information  and  materials  reasonably  requested by it, in
connection with the making of the determinations required under this Section 9.

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<PAGE>



                  (c) As a result of  uncertainty in application of Section 280G
of the  Code at the  time of the  initial  determination  by the  Advisory  Firm
hereunder,  it is possible  that  Agreement  Payments will have been made by the
Bank  which  should  not  have  been  made  ("Overpayment")  or that  additional
Agreement  Payments  will not have been made by the Bank which  should have been
made  ("Underpayment"),  in each case, consistent with the calculations required
to be made  hereunder.  In the event  that the  Advisory  Firm,  based  upon the
assertion by the Internal  Revenue  Service against the Employee of a deficiency
which the Advisory Firm believes has a high  probability  of success  determines
that an Overpayment has been made, any such  Overpayment  paid or distributed by
the Bank to or for the benefit of Employee  shall be treated for all purposes as
a loan ab initio  which  the  Employee  shall  repay to the Bank  together  with
interest at the  applicable  federal rate provided for in Section  7872(f)(2) of
the Code; provided, however, that no such loan shall be deemed to have been made
and no amount  shall be payable by the Employee to the Bank if and to the extent
such  deemed loan and  payment  would not either  reduce the amount on which the
Employee  is  subject  to tax under  Section 1 and  Section  4999 of the Code or
generate a refund of such taxes. In the event that the Advisory Firm, based upon
controlling  precedent  or  other  substantial  authority,  determines  that  an
Underpayment has occurred,  any such Underpayment  shall be promptly paid by the
Bank to or for the benefit of the Employee together with interest at the

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<PAGE>



applicable federal rate provided for in Section 7872(f)(2) of the
Code.

         10. No  Mitigation.  The Employee shall not be required to mitigate the
amount of any salary or other payment or benefit  provided for in this Agreement
by seeking other employment or otherwise, nor shall the amount of any payment or
benefit provided for in this Agreement be reduced by any compensation  earned by
the Employee as the result of  employment  by another  employer,  by  retirement
benefits after the date of termination or otherwise.

         11. No  Assignments.  (a) This  Agreement  is  personal  to each of the
parties  hereto,  and neither  party may assign or delegate any of its rights or
obligations  hereunder  without first obtaining the written consent of the other
party;  provided,  however,  that the Bank will require any  successor or assign
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or  substantially  all of the  business  and/or  assets of the  Bank,  by an
assumption  agreement in form and substance  satisfactory  to the  Employee,  to
expressly  assume and agree to perform this  Agreement in the same manner and to
the same  extent  that  the Bank  would be  required  to  perform  it if no such
succession or assignment had taken place.  Failure of the Bank to obtain such an
assumption  agreement  prior  to the  effectiveness  of any such  succession  or
assignment shall be a breach of this Agreement and shall entitle the Employee to
compensation  from  the  Bank in the same  amount  and on the same  terms as the
compensation  pursuant to Section 8(a) hereof.  For purposes of implementing the
provisions of this Section 11(a), the date on which any such succession  becomes
effective shall be deemed the Date of Termination.

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<PAGE>



                  (b) This  Agreement  and all rights of the Employee  hereunder
shall inure to the benefit of and be enforceable by the Employee's  personal and
legal   representatives,    executors,   administrators,    successors,   heirs,
distributees,  devisees  and  legatees.  If the  Employee  should  die while any
amounts  would still be payable to the  Employee  hereunder  if the Employee had
continued to live, all such amounts,  unless otherwise provided herein, shall be
paid in accordance  with the terms of this Agreement to the Employee's  devisee,
legatee or other  designee or if there is no such  designee,  to the  Employee's
estate.

         12. Notice.  For the purposes of this Agreement,  notices and all other
communications  provided for in the  Agreement  shall be in writing and shall be
deemed to have been duly given when  personally  delivered  or sent by certified
mail,  return receipt  requested,  postage prepaid,  addressed to the respective
addresses  set  forth on the first  page of this  Agreement  (provided  that all
notices to the Bank shall be directed to the attention of the Board of Directors
of the Bank with a copy to the Secretary of the Bank),  or to such other address
as  either  party  may have  furnished  to the other in  writing  in  accordance
herewith.

         13.  Amendments.  No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.  The parties  hereto agree to amend this  Agreement to comply with any
required provisions of 12 C.F.R. ss. 563.39(b), as the same may be amended.

         14. Paragraph  Headings.  The paragraph headings used in this Agreement
are included solely for convenience and shall not affect,

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<PAGE>



or be used in connection with, the interpretation of this Agreement.

         15.  Severability.  The  provisions of this  Agreement  shall be deemed
severable and the  invalidity  or  unenforceability  of any provision  shall not
affect the validity or enforceability of the other provisions hereof.

         16.  Governing Law. This Agreement shall be governed by the laws of the
United States to the extent applicable and otherwise by the laws of the State of
New Jersey.

         17.  Arbitration.  Any  dispute  or  controversy  arising  under  or in
connection  with this Agreement  shall be settled  exclusively by arbitration in
accordance  with  the  rules of the  American  Arbitration  Association  then in
effect.  Judgment may be entered on the  arbitrator's  award in any court having
jurisdiction.

         18. Regulatory  Compliance.  Any payments made to the Employee pursuant
to this  Agreement,  or  otherwise,  are subject to and  conditioned  upon their
compliance  with  12  U.S.C.   ss.  1828(k)  and  any  regulations   promulgated
thereunder.  Notwithstanding  anything in this  Agreement  to the  contrary,  no
payments may be made pursuant to this  Agreement  without the prior  approval of
the  OTS  if  the  Bank  is  not  in  compliance  with  its  regulatory  capital
requirements,  or if such  payment  would cause the Bank to fail its  regulatory
capital requirements.

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<PAGE>



         IN WITNESS WHEREOF,  the parties have executed this Agreement as of the
day and year first above written.

         THIS AGREEMENT  CONTAINS A BINDING  ARBITRATION  PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.

                                                PENN FEDERAL SAVINGS BANK





                                                By: /s/Joseph L. LaMonica
                                                    ---------------------
                                                    Joseph L. LaMonica
                                                    President and Chief
                                                    Executive Officer

                                                    EMPLOYEE





                                                    /s/Jeffrey J. Carfora
                                                    ---------------------
                                                    Jeffrey J. Carfora


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