Document:

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                                    AGREEMENT

      THIS AGREEMENT ("Agreement") made as of the __th day of January, 2001, by
and among PSB BANCORP, INC., a Pennsylvania bank holding company (the
"Company"), FIRST PENN BANK, a Pennsylvania-chartered commercial bank (the
"Bank"), and JOHN J. O'CONNELL, an individual (the "Executive").

                                   WITNESSETH

            WHEREAS, the Company, the Bank and the Executive desire to enter
into an agreement regarding, among other things, the employment of the Executive
by the Company and the Bank, all as hereinafter set forth.

                                   AGREEMENT:

            NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as follows:

            1.    EMPLOYMENT. The Company and the Bank each hereby employ the
Executive, and the Executive hereby accepts employment with the Company and the
Bank, on the terms and conditions set forth in this Agreement.

            2.    DUTIES OF EMPLOYEE. The Executive shall perform and discharge
well and faithfully such duties as an executive officer of the Company and of
the Bank as may be assigned to the Executive from time to time by the respective
Boards of Directors of the Company and the Bank. The Executive shall be employed
as the Chairman of the Board of the Bank and shall hold such other titles as may
be given to him from time to time by the respective Boards of Directors of the
Company and the Bank.

            3.    TERM OF EMPLOYMENT. The Executive's employment under this
Agreement shall be for a period (the "Employment Period") commencing upon the
date of this Agreement and ending at the end of the term of this Agreement
pursuant to Section 16 hereof, unless the Executive's employment is sooner
terminated in accordance with Section 5 hereof or one of the following
provisions:

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                  (a)   TERMINATION FOR CAUSE. The Executive's employment under
this Agreement may be terminated at any time during the Employment Period for
"Cause" (as herein defined), by action of the Boards of Directors of the Company
and of the Bank, upon giving notice of such termination to the Executive at
least fifteen (15) days prior to the date upon which such termination shall take
effect. As used in this Agreement, "Cause" means any of the following events:

                        (i) The Executive willfully violates any law, rule or
      regulation (other than traffic violations or similar offenses that would
      not in the Boards' determination effect his ability to perform and
      discharge his duties hereunder);

                        (ii) The Executive breaches his fiduciary duty involving
      personal profit or engages in an act of personal dishonesty in the
      performance of his duties;

                        (iii) A court of competent jurisdiction makes a
      determination that the Executive is incompetent by reason of the fact that
      he is unable to manage his own affairs by reason of insanity or feeble
      mindedness;

                        (iv) The Executive willfully fails to follow the lawful
      instructions of the Board of Directors of the Company or the Bank after
      the Executive's receipt of written notice of such instructions, other than
      a failure resulting from the Executive's incapacity because of physical or
      mental illness; or

                        (v) The Executive violates the covenant not to compete
      contained in Section 7 hereof.

In addition, the Executive's employment under this Agreement shall not be deemed
to have been terminated for "Cause" under Sections 3(a)(i), (ii) or (iv) above
if such termination took place solely as a result of:

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                        (i) Questionable judgment on the part of the Executive;

                        (ii) Any act or omission believed by the Executive, in
      good faith, to have been in, or not opposed to, the best interests of the
      Company and the Bank; or

                        (iii) Any act or omission in respect of which a
      determination could properly be made that the Executive met the applicable
      standard of conduct prescribed for indemnification or reimbursement or
      payment of expenses under the Articles of Incorporation or By-laws of the
      Company or the Bank or the directors' and officers' liability insurance of
      the Company or the Bank, in each case as in effect at the time of such act
      or omission.

If the Executive's employment is terminated under the provisions of this Section
3(a), then all rights of the Executive under Section 4 hereof shall cease as of
the effective date of such termination.

                  (b)   SUSPENSION PURSUANT TO NOTICE. If the Executive 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 (12 U.S.C. ss.1818(e)(3) and (g)(1)), the Company's and
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 Company and the Bank may in their discretion (i) pay the
Executive all or part of the compensation withheld while the Company's and
Bank's obligations under this Agreement were suspended and (ii) reinstate (in
whole or in part) any of the obligations under this Agreement which were
suspended.

                  (c)   TERMINATION PURSUANT TO ORDER. If the Executive 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 Federal
Deposit Insurance Act (12 U.S.C. ss.1818(e)(4) or (g)(1)), all obligations of
the Company and Bank under this Agreement shall terminate as of the effective
date of the order, but vested rights of the Company, the Bank and the Executive
shall not be affected.

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                  (d)   TERMINATION UPON DEFAULT. If the Bank is in default (as
defined in Section 3(x) of the Federal Deposit Insurance Act (the "FDIA")), all
obligations under this Agreement shall terminate as of the date of default, but
this subsection shall not affect any vested rights of the Company, the Bank or
the Executive.

                  (e)   TERMINATION BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION. All obligations under this Agreement shall terminate, if the
Chairman of the Federal Deposit Insurance Corporation (the "FDIC") or his or her
designee (i) 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)
approves a supervisory merger to resolve problems related to operation of the
Bank or when the Bank is determined by such Chairman or designee to be in an
unsafe and unsound condition. Any rights of the Company, the Bank or the
Executive that have already vested, however, shall not be affected by such
action.

                  (f)   TERMINATION WITHOUT CAUSE. The Executive's employment
under this Agreement may be terminated at any time during the Employment Period
without "Cause" (as defined in Section 3(a) hereof), by action of the Boards of
Directors of the Company and of the Bank, upon giving notice of such termination
to the Executive at least thirty (30) days prior to the date upon which such
termination shall take effect. If the Executive's employment is terminated under
the provisions of this Section 3(f), then the Executive shall be entitled to
receive the compensation set forth in Section 6 hereof.

                  (g)   RETIREMENT; DEATH. If the Executive retires or dies, the
Executive's employment under this Agreement shall be deemed terminated as of the
date of the Executive's retirement or death, and all rights of the Executive
under Section 4 hereof shall cease as of the date of such termination and any
benefits payable to the Executive shall be determined in accordance with the
retirement and insurance programs of the Company and of the Bank then in effect.

                  (h)   INCAPACITY. If the Executive is incapacitated by
accident, sickness, or otherwise so as to render the Executive mentally or
physically incapable of performing the services required of the Executive under
Section 2 of

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this Agreement for a continuous period of six (6) months, then, upon the
expiration of such period or at any time thereafter, by action of the Boards of
Directors of the Company and of the Bank, the Executive's employment under this
Agreement may be terminated immediately upon giving the Executive notice to that
effect. If the Executive's employment is terminated under the provisions of this
Section 3(h), then all rights of the Executive under Section 4 hereof shall
cease as of the last business day of the week in which such termination occurs
and any benefits payable to the Executive shall be determined in accordance with
the retirement and insurance programs of the Company and of the Bank then in
effect.

4.    EMPLOYMENT PERIOD COMPENSATION.

                  (a)   SALARY. For services performed by the Executive under
this Agreement, the Bank shall pay the Executive a salary during the Employment
Period, at the rate of $160,000 per year, payable at the same times as salaries
are payable to other executive employees of the Bank. The Bank may, from time to
time, increase the Executive's salary, and any and all such increases shall be
deemed to constitute amendments to this Section 4(a) to reflect the increased
amounts, effective as of the dates established for such increases by the Board
of Directors of the Bank in the resolutions authorizing such increases.

                  (b)   BONUS. For services performed by the Executive under
this Agreement, the Bank may pay the Executive an annual bonus and such other
bonus or bonuses as the Bank, in its sole discretion, deems appropriate. The
payment of any such bonuses shall not reduce or otherwise affect any other
obligation of the Company and/or the Bank to the Executive provided for in this
Agreement.

                  (c)   OTHER BENEFITS. The Company and/or the Bank will provide
the Executive, during the Employment Period, with insurance, vacation, pension,
and other fringe benefits in the aggregate not less favorable than those
received by executives of the Bank, as such benefits exist on the date hereof
(including, without limitation, the use of an automobile at the Bank's expense).

                  (d)   SALARY DEFERRAL. The Executive may request that the
payment of any portion of his base salary for any year be deferred. Such request

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must be made in writing to the Bank before the beginning of such calendar year
and must include the period of deferral requested by the Executive (the
"Deferral Period"). If the Board of Directors of the Bank approve such request,
the Executive shall be entitled to receive, at the end of the Deferral Period,
the deferred portion of his base salary plus interest, which interest shall be
computed by reference to an annual interest rate determined each year by the
Board of Directors of the Bank. Any salary which is deferred as described herein
shall be credited to an account on the books of the Bank established in the name
of the Executive. However, this account shall not be funded, and neither the
Company nor the Bank shall be deemed to be a trustee for the Executive with
respect to any deferred salary. The liabilities of the Company and the Bank to
the Executive hereunder are those of a debtor pursuant to such contractual
obligations as are created by this Agreement. No liabilities which arise under
this Section 4(d) shall be deemed to be secured by any pledge or other
encumbrance on any property of the Company or of the Bank. The Company and the
Bank shall not be required to segregate any funds representing such deferred
salary, and nothing herein shall be construed as providing for such segregation.

5.    RESIGNATION OF THE EXECUTIVE FOR GOOD REASON.

                  (a)   The Executive may resign for "Good Reason" (as herein
defined) at any time during the Employment Period, as hereinafter set forth. As
used in this Agreement, "Good Reason" means any of the following:

                        (i) Any material adverse change in the Executive's
      responsibilities or authority which is inconsistent with the Executive's
      status as President and Chief Operating Officer of the Company and the
      Bank;

                        (ii) Any reduction in title;

                        (iii) Any reassignment of the Executive to a principal
      place of employment which requires the Executive to move his principal
      residence and is more than thirty (30) miles from the Bank's principal
      executive office on the date of this Agreement;

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                        (iv) Any removal of the Executive from office except for
      any termination of the Executive's employment for Cause under the
      provisions of Section 3(a) hereof;

                        (v) Any reduction in the Executive's annual base salary
      as in effect on the date hereof or as the same may be increased from time
      to time;

                        (vi) Any failure by the Company and/or the Bank to
      provide the Executive with benefits at least as favorable as those enjoyed
      by the Executive under any of the pension, life insurance, medical, health
      and accident, disability or other employee benefit plans of the Company or
      of the Bank in which the Executive participated on the date hereof, or the
      taking of any action that would materially reduce any of such benefits,
      unless such reduction is part of a reduction applicable in each case to
      all participant employees;

                        (vii) Any material breach of this Agreement on the part
      of the Company or the Bank.

                  (b)   At the option of the Executive, exercisable by the
Executive within 90 days after the occurrence of the event constituting "Good
Reason," the Executive may resign from employment under this Agreement by a
notice in writing (the "Notice of Termination") delivered to the Company and the
Bank and the provisions of Section 6 hereof shall thereupon apply.

            6.    RIGHTS IN EVENT OF TERMINATION OF EMPLOYMENT. In the event
that the Executive resigns from employment for Good Reason by delivery of a
Notice of Termination to the Company and the Bank, or the Executive's employment
is terminated by the Company or the Bank without Cause pursuant to Section 3(f)
(and so long as the Executive is not terminated pursuant to Sections 3(b), (c),
(d), (e), (g) or (h) hereof) the Executive shall be entitled to receive the
amounts and benefits set forth in this Section 6.

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                  (a)   Over a period of 36 months from the date of termination
of employment, the Bank shall pay the Executive three times his Average Annual
Compensation (as hereinafter defined).

                        (i) For purposes of this Agreement, the term "Average
      Annual Compensation" means the sum of (A) a dollar amount equal to the
      average of the Executive's base salary during each of his five most recent
      years of employment hereunder (or such fewer number of years as the
      Executive is employed under the terms of this Agreement), and (B) a dollar
      amount equal to the average of the bonuses the Executive received during
      each of the five most recent years of employment hereunder (or such fewer
      number of years as Executive is employed under the terms of this
      Agreement).

                        (ii) Amounts required to be paid to the Executive under
      Section 6(a) shall be paid in equal monthly installments, beginning thirty
      (30) days following the date of termination of employment.

                  (b)   For a period of 36 months from the date of termination
of employment, the Company and the Bank shall continue to provide the Executive
with all life, disability, medical insurance and other employee insurance
benefits in effect with respect to the Executive during the year prior to his
termination of employment, or, if the Company or the Bank cannot provide such
benefits because the Executive is no longer an employee, a dollar amount equal
to the cost to the Executive of obtaining such benefits (or substantially
similar benefits).

                  (c)   Upon full payment of the compensation due under Section
6(a) hereof or upon reaching the earliest age at which the Executive could
retire under plans of the Company or of the Bank then in effect, whichever is
later, the Bank shall pay to the Executive annual benefits for life equal to the
difference between (i) what the Executive would be entitled to under the
retirement plan of the Bank in effect on the date hereof if he had remained in
his position (at his Average Annual Compensation at Termination) until normal
retirement at age 65 and assuming that such benefit were paid in the form of a
straight life annuity, and (ii) what he is in fact entitled to pursuant to the
applicable plan, calculated on the basis of a straight life annuity, based on
the actual date of termination.

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                  (d)   The Executive shall have the unilateral right to reduce
the benefits otherwise payable to him, or on his behalf, under this section to
the extent such reduction would result in his netting, after all applicable
taxes, more benefits.

                  (e)   Any payments made to Executive hereunder or otherwise
are subject to and conditioned upon their compliance with both 12 USC ss.1828(k)
and Section 280G of the Internal Revenue Code, as amended and any regulations
promulgated under either.

            7.    COVENANT NOT TO COMPETE.

                  (a)   The Executive hereby acknowledges and recognizes the
highly competitive nature of the business of the Company and of the Bank and
accordingly agrees that, during and for the applicable period set forth in
Section 7(c) hereof, the Executive shall not:

                        (i) Be engaged, directly or indirectly, either for his
      own account or as agent, consultant, employee, partner, officer, director,
      proprietor, investor (except as an investor owning less than 5% of the
      stock of a publicly owned company) or otherwise of, any person, firm,
      corporation, or enterprise engaged, in (1) the banking or financial
      services industry, or (2) any other activity in which the Company, the
      Bank or their subsidiaries are engaged during the Employment Period, in
      any county in which, at any time during the Employment Period or at the
      date of termination of the Executive's employment, a branch, office or
      other facility of the Company, the Bank or their subsidiaries are located,
      or in any county contiguous to such a county, including contiguous
      counties located outside of the Commonwealth of Pennsylvania (the
      "Non-Competition Area");

                        (ii) Provide financial or other assistance to any
      person, firm, corporation, or enterprise engaged in (1) the banking or
      financial services industry, or (2) any other activity in which the
      Company, the Bank or their subsidiaries are engaged during the Employment
      Period, in the Non-Competition Area.

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                  (b)   It is expressly understood and agreed that, although the
Executive, the Company and the Bank consider the restrictions contained in
Section 7(a) hereof reasonable for the purpose of preserving for the Company,
the Bank and their subsidiaries their good will and other proprietary rights, if
a final judicial determination is made by a court having jurisdiction that the
time or territory or any other restriction contained in Section 7(a) hereof is
an unreasonable or otherwise unenforceable restriction, the provisions of
Section 7(a) hereof shall not be rendered void but shall be deemed amended to
apply as to such maximum time and territory and to such other extent as such
court may determine or indicate to be reasonable.

                  (c)   The provisions of this Section 7 shall be applicable
commencing on the date of this Agreement and ending on one of the following
dates, as applicable:

                        (i) If the Executive's employment is terminated in
      accordance with the provisions of Sections 3(d), (e), (f) or (h) or
      Section 16 hereof, the effective date of termination of employment;

                        (ii) If Executive's employment is terminated in
      accordance with the provisions of Section 3(a), (b), (c) or (g) hereof or
      Executive voluntarily terminates his employment other than in accordance
      with the provisions of Section 5 hereof, twenty-four (24) months following
      the effective date of termination of employment; or

                        (iii) If Executive voluntarily terminates his employment
      in accordance with the provisions of Section 5 hereof, the date of the
      Notice of Termination.

            8.    REMEDIES. The Executive acknowledges and agrees that the
remedy at law of the Company and of the Bank for a breach or threatened breach
of any of the provisions of Section 7 hereof would be inadequate and, in
recognition of this fact, in the event of a breach or threatened breach by the
Executive of any of the provisions of Section 7 hereof, it is agreed that, in
addition to any remedy at law, the Company and the Bank shall be entitled to,
without

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posting any bond, and the Executive agrees not to oppose any request of the
Company and the Bank for, equitable relief in the form of specific performance,
a temporary restraining order, a temporary or permanent injunction, or any other
equitable remedy which may then be available. Nothing herein contained shall be
construed as prohibiting the Company and the Bank from pursuing any other
remedies available to them for such breach or threatened breach.

            9.    ARBITRATION. The Company, the Bank and the Executive
recognize that in the event a dispute should arise between them concerning the
interpretation or implementation of this Agreement, lengthy and expensive
litigation will not afford a practical resolution of the issues within a
reasonable period of time. Consequently, each party agrees that all disputes,
disagreements and questions of interpretation concerning this Agreement are to
be submitted for resolution to the American Arbitration Association
("Association") in Philadelphia, Pennsylvania. The Company and the Bank, or the
Executive, may initiate an arbitration proceeding at any time by giving notice
to the others in accordance with the rules of the Association. The Association
shall designate a single arbitrator to conduct the proceeding, but the Company
and the Bank, and the Executive, may, as a matter of right, require the
substitution of a different arbitrator chosen by the Association. Each such
right of substitution may be exercised only once. The arbitrator shall not be
bound by the rules of evidence and procedure of the courts of the Commonwealth
of Pennsylvania but shall be bound by the substantive law applicable to this
Agreement. The decision of the arbitrator, absent fraud, duress, incompetence or
gross and obvious error of fact, shall be final and binding upon the parties and
shall be enforceable in courts of proper jurisdiction. Following written notice
of a request for arbitration, the Company and the Bank, and the Executive, shall
be entitled to an injunction restraining all further proceedings in any pending
or subsequently filed litigation concerning this Agreement, except as otherwise
provided herein.

            10.   LEGAL EXPENSES. If the Executive obtains a judgment or
settlement which enforces a right or benefit under this Agreement, the Company
and/or the Bank shall pay to the Executive all reasonable legal fees and
expenses incurred by the Executive in seeking to obtain or enforce such right or
benefit.

            11.   NOTICES. Any notice required or permitted to be given
under this Agreement shall, to be effective hereunder, be given to both the
Company and

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the Bank, in the case of notices given by the Executive, and shall, to be
effective hereunder, be given by both the Company and the Bank. Any such notice
shall be deemed properly given if in writing and if mailed by express,
registered or certified mail, postage prepaid with return receipt requested, to
the residence of the Executive, in the case of notices to the Executive, and to
the respective principal offices of the Company and of the Bank, in the case of
notices to the Company and to the Bank.

            12.   WAIVER. No provision of this Agreement may be modified,
waived, or discharged unless such waiver, modification, or discharge is agreed
to in writing and signed by the Executive, an executive officer of the Company,
and an executive officer of the Bank, each such officer specifically designated
by the Boards of Directors of the Company and of the Bank, respectively. No
waiver by any party hereto at any time of any breach by the other party hereto
of, or compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.

            13.   ASSIGNMENT. This Agreement shall not be assignable by any
party hereto, except by the Company and the Bank to any successor in interest to
the respective businesses of the Company and the Bank.

            14.   ENTIRE AGREEMENT. This Agreement contains the entire
agreement of the parties relating to the subject matter of this Agreement and
supersedes any prior agreement of the parties.

            15.   SUCCESSORS, BINDING AGREEMENT.

                  (a)   The Company and the Bank will require any successor
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
to all or substantially all of the business and/or assets of the Company and/or
the Bank to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company and the Bank would be required to
perform it if no such succession had taken place. Failure by the Company and the
Bank to obtain such assumption and agreement prior to the effectiveness of any
such succession shall constitute a material breach of this Agreement. As used in
this

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Agreement, "the Company" and the "Bank" shall mean the Company and the Bank as
hereinbefore defined and any successor to the business and/or assets of the
Company and/or the Bank as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.

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

            16.   TERMINATION.

                  (a)   Unless the Executive's employment is terminated pursuant
to the provisions of Section 3 or Section 5 hereof, the term of this Agreement
shall be for a three (3) year period commencing on January __, 2001 and ending
on January __, 2004. This Agreement shall be automatically renewed on January
___ of each year (the "Annual Renewal Date") for a period ending three (3) years
from each Annual Renewal Date unless either party shall give written notice of
nonrenewal to the other party at least sixty (60) days prior to an Annual
Renewal Date or the Boards of Directors of the Company and the Bank fail to
approve the extension at a duly called meeting of such Boards. In furtherance of
the foregoing, the Company and the Bank shall each use their best efforts to
cause its Board of Directors to meet in the month preceding each notice date to
vote upon the extension of the term.

                  (b)   Any termination of the Executive's employment under this
Agreement or of this Agreement shall not affect the provisions of Sections 7, 8
or 9 hereof, which shall survive any such termination and remain in full force
and effect in accordance with their respective terms.

            17.   MITIGATION/OFFSET. The Executive shall not be required to
mitigate the amount of any payment provided for in this Agreement by seeking

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employment or otherwise; provided, however, that for each dollar of compensation
earned by the Executive from another employer, a corresponding dollar amount of
any sum otherwise payable to, or for the benefit of, the Executive under Section
6 hereof shall be reduced by twenty percent (20%). Application of this Section
shall be subject to the following rules:

                        (i) The reduction provision of this subsection shall
      apply only to compensation earned by the Executive during the period of
      time he is receiving payments described in Section 6(a) hereof.

                        (ii) Compensation earned from another employer shall
      include compensation deferred under any qualified or nonqualified
      arrangement.

                        (iii) Compensation earned from another employer shall be
      determined on an annual basis by reference to the Executive's date of
      termination of employment.

                        (iv) Within fifteen (15) days following each anniversary
      date of the Executive's termination of employment (and within fifteen (15)
      days following receipt of the last Section 6(a) payment), he shall provide
      the Company and the Bank with such detailed information and records as may
      have been reasonably requested to confirm the compensation he earned
      during the preceding twelve (12) months (or shorter period, if
      applicable). In the absence of a specific request for detailed
      information, he shall only be required to deliver written notice of the
      total of such compensation amount.

                        (v) Upon receipt of the earned compensation information
      from Executive, the Bank shall withhold subsequent monthly payments until
      the amount withheld equals the reduction required with respect to the
      prior year. If no monthly payments remain to be paid, the Company or the
      Bank will remit to Executive a bill, setting forth the amount overpaid to
      him by reason of this subsection, which bill shall become due and payable
      thirty (30) days following its receipt.

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            18.   INDEMNIFICATION OF EXECUTIVE. The Company and the Bank
shall indemnify the Executive against any action brought against him by reason
of the fact that he serves or had served as a trustee and/or officer of the
Company and the Bank for (i) reasonable costs and expenses, including reasonable
attorneys fees, actually paid or incurred by the Executive in connection with
proceedings relating to the defense or settlement of such action, (ii) any
amount for which he becomes liable by reason of any judgment in such action, and
(iii) reasonable costs and expenses, including reasonable attorney fees,
actually paid or incurred by the Executive in any action to enforce his rights
under this Section, if the Executive obtains a final judgment in his favor in
such enforcement action. Notwithstanding the foregoing, the indemnification
provided for herein shall be made to the Executive only if (i) the final
judgment on the merits is in the Executive's favor, or (ii) in case of (a) a
settlement, (b) a final judgment against the Executive, or (c) a final judgment
in the Executive's favor, other than on the merits, if a majority of the
disinterested Directors of the Bank determine that he was acting in good faith
in the scope of his employment or authority as he could have reasonably have
perceived it under the circumstances and for a purpose he reasonably believed
under the circumstances was in the best interest of the Bank or the Company.

            (b)   In addition, the Executive shall be indemnified by the Company
and the Bank to the fullest extent provided under their respective Articles of
Incorporation and Bylaws.

            (c)   For purposes of this Section, the following terms shall have
the meanings set forth below:

                        (i) "Action" means any action, suit or other judicial or
      administrative proceeding, or threatened proceeding, whether civil,
      criminal, or otherwise, including any appeal or other proceeding for
      review;

                        (ii) "Final Judgment" means a judgment, decree, or order
      which is appealable and as to which the period for appeal has expired and
      no appeal has been taken;

                        (iii) "Settlement" includes the entry of a judgment by
      consent or by confession or upon a plea of guilty or of nolo contendere.

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            19.   SEPARABILITY. The invalidity or unenforceability of any
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.

            20.   APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws (but not the law of conflict of
laws) of the Commonwealth of Pennsylvania.

            21.   HEADINGS/REFERENCES TO DIRECTORS. The headings of the
Sections of this Agreement are for convenience only and shall not control or
affect the meaning or construction or limit the scope or intent of any of the
provisions of this Agreement. References to Directors in this Agreement shall
include trustees to the extent that the Articles of Incorporation of the
Company, the Bank or any successor hereunder provide for management by trustees
rather than Directors.

            22.   GUARANTY. The Company hereby guarantees to the Executive
the full and timely performance by the Bank of each and every obligation of the
Bank contained in this Agreement.

            23.   EFFECTIVE DATE; TERMINATION OF PRIOR AGREEMENT. This
Agreement shall become effective immediately upon the execution and delivery of
this Agreement by the parties hereto. Upon the execution and delivery of this
Agreement by the parties hereto, any prior agreement relating to the subject
matter hereof, shall be automatically terminated and be of no further force or
effect.

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

                                    PSB BANCORP, INC.

                                    By_________________________________
                                          Anthony DiSandro, President

                                    Attest:____________________________
                                           Rosanne Pauciello, Secretary

                                                      ("Company")

                                    FIRST PENN BANK

                                    By_________________________________
                                           Anthony DiSandro, President

                                    Attest:____________________________
                                           Rosanne Pauciello, Secretary

                                                      ("Bank")

Witness:

______________________________      ___________________________________
                                    John J. O'Connell

                                                ("Executive")

                                       17<PAGE>

                                    AGREEMENT

      THIS AGREEMENT ("Agreement") made as of the __th day of January, 2001,
by and among PSB BANCORP, INC., a Pennsylvania bank holding company (the
"Company"), FIRST PENN BANK, a Pennsylvania-chartered commercial bank (the
"Bank"), and MARIO L. INCOLLINGO, JR., an individual (the "Executive").

                                   WITNESSETH

            WHEREAS, the Company, the Bank and the Executive desire to enter
into an agreement regarding, among other things, the employment of the Executive
by the Company and the Bank, all as hereinafter set forth.

                                   AGREEMENT:

            NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as follows:

            1.    EMPLOYMENT. The Company and the Bank each hereby employ the
Executive, and the Executive hereby accepts employment with the Company and the
Bank, on the terms and conditions set forth in this Agreement.

            2.    DUTIES OF EMPLOYEE. The Executive shall perform and
discharge well and faithfully such duties as an executive officer of the Company
and of the Bank as may be assigned to the Executive from time to time by the
respective Directors of the Company and the Bank. The Executive shall be
employed as the Chief Operating Officer and Executive Vice President of the Bank
and shall hold such other titles as may be given to him from time to time by the
respective Boards of Directors of the Company and the Bank.

            3.    TERM OF EMPLOYMENT. The Executive's employment under this
Agreement shall be for a period (the "Employment Period") commencing upon the
date of this Agreement and ending at the end of the term of this Agreement
pursuant to Section 16 hereof, unless the Executive's employment is sooner
terminated in accordance with Section 5 hereof or one of the following
provisions:

                                        1
<PAGE>

                  (a)   TERMINATION FOR CAUSE. The Executive's employment under
this Agreement may be terminated at any time during the Employment Period for
"Cause" (as herein defined), by action of the Boards of Directors of the Company
and of the Bank, upon giving notice of such termination to the Executive at
least fifteen (15) days prior to the date upon which such termination shall take
effect. As used in this Agreement, "Cause" means any of the following events:

                        (i) The Executive willfully violates any law, rule or
      regulation (other than traffic violations or similar offenses that would
      not in the Boards' determination effect his ability to perform and
      discharge his duties hereunder);

                        (ii) The Executive breaches his fiduciary duty involving
      personal profit or engages in an act of personal dishonesty in the
      performance of his duties;

                        (iii) A court of competent jurisdiction makes a
      determination that the Executive is incompetent by reason of the fact that
      he is unable to manage his own affairs by reason of insanity or feeble
      mindedness;

                        (iv) The Executive willfully fails to follow the lawful
      instructions of the Board of Directors of the Company or the Bank after
      the Executive's receipt of written notice of such instructions, other than
      a failure resulting from the Executive's incapacity because of physical or
      mental illness; or

                        (v) The Executive violates the covenant not to compete
      contained in Section 7 hereof.

In addition, the Executive's employment under this Agreement shall not be deemed
to have been terminated for "Cause" under Sections 3(a)(i), (ii) or (iv) above
if such termination took place solely as a result of:

                                       2
<PAGE>

                        (i) Questionable judgment on the part of the Executive;

                        (ii) Any act or omission believed by the Executive, in
      good faith, to have been in, or not opposed to, the best interests of the
      Company and the Bank; or

                        (iii) Any act or omission in respect of which a
      determination could properly be made that the Executive met the applicable
      standard of conduct prescribed for indemnification or reimbursement or
      payment of expenses under the Articles of Incorporation or By-laws of the
      Company or the Bank or the directors' and officers' liability insurance of
      the Company or the Bank, in each case as in effect at the time of such act
      or omission.

If the Executive's employment is terminated under the provisions of this Section
3(a), then all rights of the Executive under Section 4 hereof shall cease as of
the effective date of such termination.

                  (b)   SUSPENSION PURSUANT TO NOTICE. If the Executive 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 (12 U.S.C. ss.1818(e)(3) and (g)(1)), the Company's and
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 Company and the Bank may in their discretion (i) pay the
Executive all or part of the compensation withheld while the Company's and
Bank's obligations under this Agreement were suspended and (ii) reinstate (in
whole or in part) any of the obligations under this Agreement which were
suspended.

                  (c)   TERMINATION PURSUANT TO ORDER. If the Executive 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 Federal
Deposit Insurance Act (12 U.S.C. ss.1818(e)(4) or (g)(1)), all obligations of
the Company and Bank under this Agreement shall terminate as of the effective
date of the order, but vested rights of the Company, the Bank and the Executive
shall not be affected.

                                       3
<PAGE>

                  (d)   TERMINATION UPON DEFAULT. If the Bank is in default (as
defined in Section 3(x) of the Federal Deposit Insurance Act (the "FDIA")), all
obligations under this Agreement shall terminate as of the date of default, but
this subsection shall not affect any vested rights of the Company, the Bank or
the Executive.

                  (e)   TERMINATION BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION. All obligations under this Agreement shall terminate, if the
Chairman of the Federal Deposit Insurance Corporation (the "FDIC") or his or her
designee (i) 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)
approves a supervisory merger to resolve problems related to operation of the
Bank or when the Bank is determined by such Chairman or designee to be in an
unsafe and unsound condition. Any rights of the Company, the Bank or the
Executive that have already vested, however, shall not be affected by such
action.

                  (f)   TERMINATION WITHOUT CAUSE. The Executive's employment
under this Agreement may be terminated at any time during the Employment Period
without "Cause" (as defined in Section 3(a) hereof), by action of the Boards of
Directors of the Company and of the Bank, upon giving notice of such termination
to the Executive at least thirty (30) days prior to the date upon which such
termination shall take effect. If the Executive's employment is terminated under
the provisions of this Section 3(f), then the Executive shall be entitled to
receive the compensation set forth in Section 6 hereof.

                  (g)   RETIREMENT; DEATH. If the Executive retires or dies, the
Executive's employment under this Agreement shall be deemed terminated as of the
date of the Executive's retirement or death, and all rights of the Executive
under Section 4 hereof shall cease as of the date of such termination and any
benefits payable to the Executive shall be determined in accordance with the
retirement and insurance programs of the Company and of the Bank then in effect.

                  (h)   INCAPACITY. If the Executive is incapacitated by
accident, sickness, or otherwise so as to render the Executive mentally or
physically incapable of performing the services required of the Executive under
Section 2 of

                                       4
<PAGE>

this Agreement for a continuous period of six (6) months, then, upon the
expiration of such period or at any time thereafter, by action of the Boards of
Directors of the Company and of the Bank, the Executive's employment under this
Agreement may be terminated immediately upon giving the Executive notice to that
effect. If the Executive's employment is terminated under the provisions of this
Section 3(h), then all rights of the Executive under Section 4 hereof shall
cease as of the last business day of the week in which such termination occurs
and any benefits payable to the Executive shall be determined in accordance with
the retirement and insurance programs of the Company and of the Bank then in
effect.

            4.    EMPLOYMENT PERIOD COMPENSATION.

                  (a)   SALARY. For services performed by the Executive under
this Agreement, the Bank shall pay the Executive a salary during the Employment
Period, at the rate of $155,000 per year, payable at the same times as salaries
are payable to other executive employees of the Bank. The Bank may, from time to
time, increase the Executive's salary, and any and all such increases shall be
deemed to constitute amendments to this Section 4(a) to reflect the increased
amounts, effective as of the dates established for such increases by the Board
of Directors of the Bank in the resolutions authorizing such increases.

                  (b)   BONUS. For services performed by the Executive under
this Agreement, the Bank may pay the Executive an annual bonus and such other
bonus or bonuses as the Bank, in its sole discretion, deems appropriate. The
payment of any such bonuses shall not reduce or otherwise affect any other
obligation of the Company and/or the Bank to the Executive provided for in this
Agreement.

                  (c)   OTHER BENEFITS. The Company and/or the Bank will provide
the Executive, during the Employment Period, with insurance, vacation, pension,
and other fringe benefits in the aggregate not less favorable than those
received by executives of the Bank, as such benefits exist on the date hereof
(including, without limitation, the use of an automobile at the Bank's expense).

                  (d)   SALARY DEFERRAL. The Executive may request that the
payment of any portion of his base salary for any year be deferred. Such request

                                       5
<PAGE>

must be made in writing to the Bank before the beginning of such calendar year
and must include the period of deferral requested by the Executive (the
"Deferral Period"). If the Board of Directors of the Bank approve such request,
the Executive shall be entitled to receive, at the end of the Deferral Period,
the deferred portion of his base salary plus interest, which interest shall be
computed by reference to an annual interest rate determined each year by the
Board of Directors of the Bank. Any salary which is deferred as described herein
shall be credited to an account on the books of the Bank established in the name
of the Executive. However, this account shall not be funded, and neither the
Company nor the Bank shall be deemed to be a trustee for the Executive with
respect to any deferred salary. The liabilities of the Company and the Bank to
the Executive hereunder are those of a debtor pursuant to such contractual
obligations as are created by this Agreement. No liabilities which arise under
this Section 4(d) shall be deemed to be secured by any pledge or other
encumbrance on any property of the Company or of the Bank. The Company and the
Bank shall not be required to segregate any funds representing such deferred
salary, and nothing herein shall be construed as providing for such segregation.

            5.    RESIGNATION OF THE EXECUTIVE FOR GOOD REASON.

                  (a)   The Executive may resign for "Good Reason" (as herein
defined) at any time during the Employment Period, as hereinafter set forth. As
used in this Agreement, "Good Reason" means any of the following:

                        (i) Any material adverse change in the Executive's
      responsibilities or authority which is inconsistent with the Executive's
      status as President and Chief Operating Officer of the Company and the
      Bank;

                        (ii) Any reduction in title;

                        (iii) Any reassignment of the Executive to a principal
      place of employment which requires the Executive to move his principal
      residence and is more than thirty (30) miles from the Bank's principal
      executive office on the date of this Agreement;

                                       6
<PAGE>

                        (iv) Any removal of the Executive from office except for
      any termination of the Executive's employment for Cause under the
      provisions of Section 3(a) hereof;

                        (v) Any reduction in the Executive's annual base salary
      as in effect on the date hereof or as the same may be increased from time
      to time;

                        (vi) Any failure by the Company and/or the Bank to
      provide the Executive with benefits at least as favorable as those enjoyed
      by the Executive under any of the pension, life insurance, medical, health
      and accident, disability or other employee benefit plans of the Company or
      of the Bank in which the Executive participated on the date hereof, or the
      taking of any action that would materially reduce any of such benefits,
      unless such reduction is part of a reduction applicable in each case to
      all participant employees;

                        (vii) Any material breach of this Agreement on the part
      of the Company or the Bank.

                  (b)   At the option of the Executive, exercisable by the
Executive within 90 days after the occurrence of the event constituting "Good
Reason," the Executive may resign from employment under this Agreement by a
notice in writing (the "Notice of Termination") delivered to the Company and the
Bank and the provisions of Section 6 hereof shall thereupon apply.

            6.    RIGHTS IN EVENT OF TERMINATION OF EMPLOYMENT. In the event
that the Executive resigns from employment for Good Reason by delivery of a
Notice of Termination to the Company and the Bank, or the Executive's employment
is terminated by the Company or the Bank without Cause pursuant to Section 3(f)
(and so long as the Executive is not terminated pursuant to Sections 3(b), (c),
(d), (e), (g) or (h) hereof) the Executive shall be entitled to receive the
amounts and benefits set forth in this Section 6.

                                       7
<PAGE>

                  (a)   Over a period of 36 months from the date of termination
of employment, the Bank shall pay the Executive three times his Average Annual
Compensation (as hereinafter defined).

                        (i) For purposes of this Agreement, the term "Average
      Annual Compensation" means the sum of (A) a dollar amount equal to the
      average of the Executive's base salary during each of his five most recent
      years of employment hereunder (or such fewer number of years as the
      Executive is employed under the terms of this Agreement), and (B) a dollar
      amount equal to the average of the bonuses the Executive received during
      each of the five most recent years of employment hereunder (or such fewer
      number of years as Executive is employed under the terms of this
      Agreement).

                        (ii) Amounts required to be paid to the Executive under
      Section 6(a) shall be paid in equal monthly installments, beginning thirty
      (30) days following the date of termination of employment.

                  (b)   For a period of 36 months from the date of termination
of employment, the Company and the Bank shall continue to provide the Executive
with all life, disability, medical insurance and other employee insurance
benefits in effect with respect to the Executive during the year prior to his
termination of employment, or, if the Company or the Bank cannot provide such
benefits because the Executive is no longer an employee, a dollar amount equal
to the cost to the Executive of obtaining such benefits (or substantially
similar benefits).

                  (c)   Upon full payment of the compensation due under Section
6(a) hereof or upon reaching the earliest age at which the Executive could
retire under plans of the Company or of the Bank then in effect, whichever is
later, the Bank shall pay to the Executive annual benefits for life equal to the
difference between (i) what the Executive would be entitled to under the
retirement plan of the Bank in effect on the date hereof if he had remained in
his position (at his Average Annual Compensation at Termination) until normal
retirement at age 65 and assuming that such benefit were paid in the form of a
straight life annuity, and (ii) what he is in fact entitled to pursuant to the
applicable plan, calculated on the basis of a straight life annuity, based on
the actual date of termination.

                                       8
<PAGE>

                  (d)   The Executive shall have the unilateral right to reduce
the benefits otherwise payable to him, or on his behalf, under this section to
the extent such reduction would result in his netting, after all applicable
taxes, more benefits.

                  (e)   Any payments made to Executive hereunder or otherwise
are subject to and conditioned upon their compliance with both 12 USC ss.1828(k)
and Section 280G of the Internal Revenue Code, as amended and any regulations
promulgated under either.

            7.    COVENANT NOT TO COMPETE.

                  (a)   The Executive hereby acknowledges and recognizes the
highly competitive nature of the business of the Company and of the Bank and
accordingly agrees that, during and for the applicable period set forth in
Section 7(c) hereof, the Executive shall not:

                        (i) Be engaged, directly or indirectly, either for his
      own account or as agent, consultant, employee, partner, officer, director,
      proprietor, investor (except as an investor owning less than 5% of the
      stock of a publicly owned company) or otherwise of, any person, firm,
      corporation, or enterprise engaged, in (1) the banking or financial
      services industry, or (2) any other activity in which the Company, the
      Bank or their subsidiaries are engaged during the Employment Period, in
      any county in which, at any time during the Employment Period or at the
      date of termination of the Executive's employment, a branch, office or
      other facility of the Company, the Bank or their subsidiaries are located,
      or in any county contiguous to such a county, including contiguous
      counties located outside of the Commonwealth of Pennsylvania (the
      "Non-Competition Area");

                        (ii) Provide financial or other assistance to any
      person, firm, corporation, or enterprise engaged in (1) the banking or
      financial services industry, or (2) any other activity in which the
      Company, the Bank or their subsidiaries are engaged during the Employment
      Period, in the Non-Competition Area.

                                       9
<PAGE>

                  (b)   It is expressly understood and agreed that, although the
Executive, the Company and the Bank consider the restrictions contained in
Section 7(a) hereof reasonable for the purpose of preserving for the Company,
the Bank and their subsidiaries their good will and other proprietary rights, if
a final judicial determination is made by a court having jurisdiction that the
time or territory or any other restriction contained in Section 7(a) hereof is
an unreasonable or otherwise unenforceable restriction, the provisions of
Section 7(a) hereof shall not be rendered void but shall be deemed amended to
apply as to such maximum time and territory and to such other extent as such
court may determine or indicate to be reasonable.

                  (c)   The provisions of this Section 7 shall be applicable
commencing on the date of this Agreement and ending on one of the following
dates, as applicable:

                        (i) If the Executive's employment is terminated in
      accordance with the provisions of Sections 3(d), (e), (f) or (h) or
      Section 16 hereof, the effective date of termination of employment;

                        (ii) If Executive's employment is terminated in
      accordance with the provisions of Section 3(a), (b), (c) or (g) hereof or
      Executive voluntarily terminates his employment other than in accordance
      with the provisions of Section 5 hereof, twenty-four (24) months following
      the effective date of termination of employment; or

                        (iii) If Executive voluntarily terminates his employment
      in accordance with the provisions of Section 5 hereof, the date of the
      Notice of Termination.

            8.    REMEDIES. The Executive acknowledges and agrees that the
remedy at law of the Company and of the Bank for a breach or threatened breach
of any of the provisions of Section 7 hereof would be inadequate and, in
recognition of this fact, in the event of a breach or threatened breach by the
Executive of any of the provisions of Section 7 hereof, it is agreed that, in
addition to any remedy at law, the Company and the Bank shall be entitled to,
without

                                       10
<PAGE>

posting any bond, and the Executive agrees not to oppose any request of the
Company and the Bank for, equitable relief in the form of specific performance,
a temporary restraining order, a temporary or permanent injunction, or any other
equitable remedy which may then be available. Nothing herein contained shall be
construed as prohibiting the Company and the Bank from pursuing any other
remedies available to them for such breach or threatened breach.

            9.    ARBITRATION. The Company, the Bank and the Executive
recognize that in the event a dispute should arise between them concerning the
interpretation or implementation of this Agreement, lengthy and expensive
litigation will not afford a practical resolution of the issues within a
reasonable period of time. Consequently, each party agrees that all disputes,
disagreements and questions of interpretation concerning this Agreement are to
be submitted for resolution to the American Arbitration Association
("Association") in Philadelphia, Pennsylvania. The Company and the Bank, or the
Executive, may initiate an arbitration proceeding at any time by giving notice
to the others in accordance with the rules of the Association. The Association
shall designate a single arbitrator to conduct the proceeding, but the Company
and the Bank, and the Executive, may, as a matter of right, require the
substitution of a different arbitrator chosen by the Association. Each such
right of substitution may be exercised only once. The arbitrator shall not be
bound by the rules of evidence and procedure of the courts of the Commonwealth
of Pennsylvania but shall be bound by the substantive law applicable to this
Agreement. The decision of the arbitrator, absent fraud, duress, incompetence or
gross and obvious error of fact, shall be final and binding upon the parties and
shall be enforceable in courts of proper jurisdiction. Following written notice
of a request for arbitration, the Company and the Bank, and the Executive, shall
be entitled to an injunction restraining all further proceedings in any pending
or subsequently filed litigation concerning this Agreement, except as otherwise
provided herein.

            10.   LEGAL EXPENSES. If the Executive obtains a judgment or
settlement which enforces a right or benefit under this Agreement, the Company
and/or the Bank shall pay to the Executive all reasonable legal fees and
expenses incurred by the Executive in seeking to obtain or enforce such right or
benefit.

            11.   NOTICES. Any notice required or permitted to be given
under this Agreement shall, to be effective hereunder, be given to both the
Company and

                                       11
<PAGE>

the Bank, in the case of notices given by the Executive, and shall, to be
effective hereunder, be given by both the Company and the Bank. Any such notice
shall be deemed properly given if in writing and if mailed by express,
registered or certified mail, postage prepaid with return receipt requested, to
the residence of the Executive, in the case of notices to the Executive, and to
the respective principal offices of the Company and of the Bank, in the case of
notices to the Company and to the Bank.

            12.   WAIVER. No provision of this Agreement may be modified,
waived, or discharged unless such waiver, modification, or discharge is agreed
to in writing and signed by the Executive, an executive officer of the Company,
and an executive officer of the Bank, each such officer specifically designated
by the Boards of Directors of the Company and of the Bank, respectively. No
waiver by any party hereto at any time of any breach by the other party hereto
of, or compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.

            13.   ASSIGNMENT. This Agreement shall not be assignable by any
party hereto, except by the Company and the Bank to any successor in interest to
the respective businesses of the Company and the Bank.

            14.   ENTIRE AGREEMENT. This Agreement contains the entire
agreement of the parties relating to the subject matter of this Agreement and
supersedes any prior agreement of the parties.

            15.   SUCCESSORS, BINDING AGREEMENT.

                  (a)   The Company and the Bank will require any successor
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
to all or substantially all of the business and/or assets of the Company and/or
the Bank to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company and the Bank would be required to
perform it if no such succession had taken place. Failure by the Company and the
Bank to obtain such assumption and agreement prior to the effectiveness of any
such succession shall constitute a material breach of this Agreement. As used in
this

                                       12
<PAGE>

Agreement, "the Company" and the "Bank" shall mean the Company and the Bank as
hereinbefore defined and any successor to the business and/or assets of the
Company and/or the Bank as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.

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

            16.   TERMINATION.

                  (a)   Unless the Executive's employment is terminated pursuant
to the provisions of Section 3 or Section 5 hereof, the term of this Agreement
shall be for a three (3) year period commencing on January __, 2001 and ending
on January __, 2004. This Agreement shall be automatically renewed on January
___ of each year (the "Annual Renewal Date") for a period ending three (3) years
from each Annual Renewal Date unless either party shall give written notice of
nonrenewal to the other party at least sixty (60) days prior to an Annual
Renewal Date or the Boards of Directors of the Company and the Bank fail to
approve the extension at a duly called meeting of such Boards. In furtherance of
the foregoing, the Company and the Bank shall each use their best efforts to
cause its Board of Directors to meet in the month preceding each notice date to
vote upon the extension of the term.

                  (b)   Any termination of the Executive's employment under this
Agreement or of this Agreement shall not affect the provisions of Sections 7, 8
or 9 hereof, which shall survive any such termination and remain in full force
and effect in accordance with their respective terms.

            17.   MITIGATION/OFFSET. The Executive shall not be required to
mitigate the amount of any payment provided for in this Agreement by seeking

                                       13
<PAGE>

employment or otherwise; provided, however, that for each dollar of compensation
earned by the Executive from another employer, a corresponding dollar amount of
any sum otherwise payable to, or for the benefit of, the Executive under Section
6 hereof shall be reduced by twenty percent (20%). Application of this Section
shall be subject to the following rules:

                        (i) The reduction provision of this subsection shall
      apply only to compensation earned by the Executive during the period of
      time he is receiving payments described in Section 6(a) hereof.

                        (ii) Compensation earned from another employer shall
      include compensation deferred under any qualified or nonqualified
      arrangement.

                        (iii) Compensation earned from another employer shall be
      determined on an annual basis by reference to the Executive's date of
      termination of employment.

                        (iv) Within fifteen (15) days following each anniversary
      date of the Executive's termination of employment (and within fifteen (15)
      days following receipt of the last Section 6(a) payment), he shall provide
      the Company and the Bank with such detailed information and records as may
      have been reasonably requested to confirm the compensation he earned
      during the preceding twelve (12) months (or shorter period, if
      applicable). In the absence of a specific request for detailed
      information, he shall only be required to deliver written notice of the
      total of such compensation amount.

                        (v) Upon receipt of the earned compensation information
      from Executive, the Bank shall withhold subsequent monthly payments until
      the amount withheld equals the reduction required with respect to the
      prior year. If no monthly payments remain to be paid, the Company or the
      Bank will remit to Executive a bill, setting forth the amount overpaid to
      him by reason of this subsection, which bill shall become due and payable
      thirty (30) days following its receipt.

                                       14
<PAGE>

            18.   INDEMNIFICATION OF EXECUTIVE. The Company and the Bank
shall indemnify the Executive against any action brought against him by reason
of the fact that he serves or had served as a trustee and/or officer of the
Company and the Bank for (i) reasonable costs and expenses, including reasonable
attorneys fees, actually paid or incurred by the Executive in connection with
proceedings relating to the defense or settlement of such action, (ii) any
amount for which he becomes liable by reason of any judgment in such action, and
(iii) reasonable costs and expenses, including reasonable attorney fees,
actually paid or incurred by the Executive in any action to enforce his rights
under this Section, if the Executive obtains a final judgment in his favor in
such enforcement action. Notwithstanding the foregoing, the indemnification
provided for herein shall be made to the Executive only if (i) the final
judgment on the merits is in the Executive's favor, or (ii) in case of (a) a
settlement, (b) a final judgment against the Executive, or (c) a final judgment
in the Executive's favor, other than on the merits, if a majority of the
disinterested Directors of the Bank determine that he was acting in good faith
in the scope of his employment or authority as he could have reasonably have
perceived it under the circumstances and for a purpose he reasonably believed
under the circumstances was in the best interest of the Bank or the Company.

            (b)   In addition, the Executive shall be indemnified by the Company
and the Bank to the fullest extent provided under their respective Articles of
Incorporation and Bylaws.

            (c)   For purposes of this Section, the following terms shall have
the meanings set forth below:

                        (i) "Action" means any action, suit or other judicial or
      administrative proceeding, or threatened proceeding, whether civil,
      criminal, or otherwise, including any appeal or other proceeding for
      review;

                        (ii) "Final Judgment" means a judgment, decree, or order
      which is appealable and as to which the period for appeal has expired and
      no appeal has been taken;

                        (iii) "Settlement" includes the entry of a judgment by
      consent or by confession or upon a plea of guilty or of nolo contendere.

                                       15
<PAGE>

            19.   SEPARABILITY. The invalidity or unenforceability of any
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.

            20.   APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws (but not the law of conflict of
laws) of the Commonwealth of Pennsylvania.

            21.   HEADINGS/REFERENCES TO DIRECTORS. The headings of the
Sections of this Agreement are for convenience only and shall not control or
affect the meaning or construction or limit the scope or intent of any of the
provisions of this Agreement. References to Directors in this Agreement shall
include trustees to the extent that the Articles of Incorporation of the
Company, the Bank or any successor hereunder provide for management by trustees
rather than Directors.

            22.   GUARANTY. The Company hereby guarantees to the Executive
the full and timely performance by the Bank of each and every obligation of the
Bank contained in this Agreement.

            23.   EFFECTIVE DATE; TERMINATION OF PRIOR AGREEMENT. This
Agreement shall become effective immediately upon the execution and delivery of
this Agreement by the parties hereto. Upon the execution and delivery of this
Agreement by the parties hereto, any prior agreement relating to the subject
matter hereof, shall be automatically terminated and be of no further force or
effect.

                                       16
<PAGE>

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

                                    PSB BANCORP, INC.

                                    By_________________________________
                                          Anthony DiSandro, President

                                    Attest:____________________________
                                           Rosanne Pauciello, Secretary

                                                      ("Company")

                                    FIRST PENN BANK

                                    By_________________________________
                                           Anthony DiSandro, President

                                    Attest:____________________________
                                           Rosanne Pauciello, Secretary

                                                      ("Bank")

Witness:

_________________________           ___________________________________
                                    Mario L. Incollingo, Jr.

                                                ("Executive")

                                       17

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