Document:

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
this 28th day of November, 2000 by and between PennFed Financial Services, Inc.
(the "Company") and Patrick D. McTernan (the "Employee").

     WHEREAS, the Employee serves as the Senior Executive Vice President and
General Counsel of the Company and of the Company's wholly-owned subsidiary,
Penn Federal Saving Bank (the "Bank");

     WHEREAS, the Employee has an existing employment agreement with the Bank
entered into as of July 14, 1994 (the "Prior Employment Agreement") which he is
willing to terminate in consideration of this Agreement becoming effective;

     WHEREAS, the board of directors of the Company (the "Board of Directors")
believes it is in the best interests of the Company and its subsidiaries for the
Company to enter into this Agreement with the Employee in order to assure
continuity of management of the Company and its subsidiaries; and

     WHEREAS, the Board of Directors has approved and authorized the execution
of this Agreement with the Employee;

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

     1. Definitions.

         (a) The term "Change in Control" means (1) an acquisition of securities
of the Company or the Bank that is determined by the Board of Directors to
constitute an acquisition of control of the Company or the Bank within the
meaning of the Change in Bank Control Act, 12 U.S.C. ss. 1817(j) and the Savings
and Loan Holding Company Act, 12U.S.C. ss.1467a, and applicable regulations
thereunder; (2) an event that would be required to be reported in response to
Item 1 of the current report on Form 8-K, as in effect on the Effective Date,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"); (3) any person (as the term is used in Sections 13(d) and 14(d)
of the Exchange Act) is or becomes the beneficial owner (as defined in Rule
13d-3 under the Exchange Act) directly or indirectly of securities of the
Company or the Bank representing 25% or more of the combined voting power of the
Company's or the Bank's outstanding securities; (4) individuals who are members
of the Board of Directors on the Effective Date (the "Incumbent Board") cease
for any reason to constitute at least a majority thereof, provided that any
person becoming a director subsequent to the Effective Date whose election was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the Company's stockholders
was approved by a nominating committee serving under an Incumbent Board, shall
be considered a member of the Incumbent Board; or (5) approval by the Company's
stockholders of a plan of reorganization, merger or consolidation of the
Company, sale of all or substantially

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all of the assets of the Company, a similar transaction in which the Company is
not the resulting entity; provided that the term "change in control" shall not
include an acquisition of securities by an employee benefit plan of the Bank or
the Company. In the application of regulations under the Change in Bank Control
Act or the Savings and Loan Holding Company Act, determinations to be made by
the applicable federal banking regulator shall be made by the Board of
Directors.

         (b) The term "Consolidated Subsidiaries" means any subsidiary or
subsidiaries of the Company (or its successors) that are part of the
consolidated group of the Company (or its successors) for federal income tax
reporting.

         (c) The term "Date of Termination" means the date upon which the
Employee's employment with the Company or the Bank or both ceases, as specified
in a notice of termination pursuant to Section 8 of this Agreement.

         (d) The term "Effective Date" means November 28, 2000.

         (e) The term "Involuntarily Termination" means the termination of the
employment of Employee (i) by either the Company or the Bank or both without his
express written consent; or (ii) by the Employee by reason of a material
diminution of or interference with his duties, responsibilities or benefits,
including (without limitation) any of the following actions unless consented to
in writing by the Employee: (1) a requirement that the Employee be based at any
place other than West Orange, New Jersey, or within 35 miles thereof, except for
reasonable travel on Company or Bank business; (2) a material demotion of the
Employee; (3) a material reduction in the number or seniority of 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 Company-wide reduction
in staff; (4) a reduction in the Employee's salary or a material adverse change
in the Employee's perquisites, benefits, contingent benefits or vacation, other
than prior to a Change in Control as part of an overall program applied
uniformly and with equitable effect to all members of the senior management of
the Bank or the Company; (5) a material permanent increase in the required hours
of work or the workload of the Employee; or (6) the failure of the Board of
Directors (or a board of directors of a successor of the Company) to elect him
as Senior Executive Vice President and General Counsel of the Company (or a
successor of the Company) or any action by the Board of Directors (or a board of
directors of a successor of the Company) removing him from any of such offices,
or the failure of the board of directors of the Bank (or any successor of the
Bank) to elect him as Senior Executive Vice President and General Counsel of the
Bank (or any successor of the Bank) or any action by such board (or board of a
successor of the Bank) removing him from any of such offices. The term
"Involuntary Termination" does not include Termination for Cause or termination
of employment due to death or permanent disability pursuant to Section 7(g) of
this Agreement, or suspension or temporary or permanent prohibition from
participation in the conduct of the affairs of a depository institution under
Section 8 of the Federal Deposit Insurance Act.

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         (f) The terms "Termination for Cause" and "Terminated for Cause" mean
termination of the employment of the Employee with either the Company or the
Bank, as the case may be, because of the Employee's 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 (excluding violations which do not have a material adverse
affect on the Company or the Bank) or final cease-and-desist order, or (except
as provided below) material breach of any provision of this Agreement. No act or
failure to act by the Employee shall be considered willful unless the Employee
acted or failed to act with an absence of good faith and without a reasonable
belief that his action or failure to act was in the best interest of the
Company. 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 majority of
the entire membership of the Board of Directors at a meeting of the Board duly
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 of
Directors the Employee has engaged in conduct described in the preceding
sentence and specifying the particulars thereof in detail. The opportunity of
the Employee to be heard before the Board shall not affect the right of the
Employee to arbitration as set forth in paragraph 17.

     2. Term; Termination of Prior Employment Agreement. The term of this
Agreement shall be a period of five years commencing on the Effective Date,
subject to earlier termination as provided herein. On each anniversary of this
Agreement the term shall be extended for a period of one year in addition to the
then-remaining term, provided that the Company has not given notice to the
Employee in writing at least 90 days prior to such anniversary that the term of
this Agreement shall not be extended further, and provided further that the
Employee has not received an unsatisfactory performance review by either the
Board of Directors or the board of directors of the Bank. The Employee's Prior
Employment Agreement shall terminate immediately prior to the Effective Date.

     3. Employment. The Employee is employed as the Senior Executive Vice
President and General Counsel of the Company and as the Senior Executive Vice
President and General Counsel of the Bank. As such, the Employee shall render
administrative and management services as are customarily performed by persons
situated in similar executive capacities, and shall have such other powers and
duties as the Board of Directors or the board of directors of the Bank may
prescribe from time to time. The Employee shall also render services to any
subsidiary or subsidiaries of the Company or the Bank as requested by the
Company or the Bank from time to time consistent with his executive position.
The Employee shall devote his best efforts and reasonable time and attention to
the business and affairs of the Company and the Bank to the extent necessary to
discharge his responsibilities hereunder. The Employee may (i) serve on
corporate or charitable boards or committees, and (ii) manage personal
investments, so long as such activities do not interfere materially with
performance of his responsibilities hereunder.

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     4. Cash Compensation.

         (a) Salary. The Company agrees to pay the Employee during the term of
this Agreement a base salary (the "Company Salary") the annualized amount of
which shall be not less than the annualized aggregate amount of the Employee's
base salary from the Company and any Consolidated Subsidiaries in effect at the
Effective Date; provided that any amounts of salary actually paid to the
Employee by any Consolidated Subsidiaries shall reduce the amount to be paid by
the Company to the Employee. The Company Salary shall be paid no less frequently
than monthly and shall be subject to customary tax withholding. The amount of
the Employee's Company Salary shall be increased (but shall not be decreased
other than prior to a Change in Control as part of an overall program applied
uniformly and with equitable effect to all members of senior management of the
Company or the Bank) from time to time in accordance with the amounts of salary
approved by the Board of Directors or the board of directors of any of the
Consolidated Subsidiaries after the Effective Date.

         (b) Bonuses. The Employee shall be entitled to participate in an
equitable manner with all other executive officers of the Company and the Bank
in such performance-based and discretionary bonuses, if any, as are authorized
and declared by the Board of Directors for executive officers of the Company and
by the board of directors of the Bank for executive officers of the Bank.

         (c) Expenses. The Employee shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by the Employee in performing
services under this Agreement in accordance with the policies and procedures
applicable to the executive officers of the Company and the Bank, provided that
the Employee accounts for such expenses as required under such policies and
procedures.

         (d) Deferral of Non-Deductible Compensation. In the event that the
Employee's aggregate compensation (including compensatory benefits which are
deemed remuneration for purposes of Section 162(m) of the Internal Revenue Code
of 1986 as amended (the "Code")) from the Company and the Consolidated
Subsidiaries for any calendar year exceeds the greater of (i) $1,000,000 or (ii)
the maximum amount of compensation deductible by the Company or any of the
Consolidated Subsidiaries in any calendar year under Section 162(m) of the Code
(the "maximum allowable amount"), then any such amount in excess of the maximum
allowable amount shall be mandatorily deferred with interest thereon at 8% per
annum, compounded annually, to a calendar year such that the amount to be paid
to the Employee in such calendar year, including deferred amounts and interest
thereon, does not exceed the maximum allowable amount. Subject to the foregoing,
deferred amounts including interest thereon shall be payable at the earliest
time permissible. All unpaid deferred amounts shall be paid to the Employee not
later than his Date of Termination unless his Date of Termination is on a
December 31st, in which case, the unpaid deferred amounts shall be paid to the
Employee on the first business day of the next succeeding calendar year. The
provisions of this subsection shall survive any termination of the Employee's
employment and any termination of this Agreement.

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     5. Benefits.

         (a) Participation in Benefit Plans. The Employee shall be entitled to
participate, to the same extent as executive officers of the Company and the
Bank generally, in all plans of the Company and the Bank relating to pension,
retirement, thrift, profit-sharing, savings, group or other life insurance,
hospitalization, medical and dental coverage, travel and accident insurance,
education, cash bonuses, and other retirement or employee benefits or
combinations thereof. In addition, the Employee shall be entitled to be
considered for benefits under all of the stock and stock option related plans in
which the Company's or the Bank's executive officers are eligible or become
eligible to participate.

         (b) Fringe Benefits. The Employee shall be eligible to participate in,
and receive benefits under, any other fringe benefit plans or perquisites which
are or may become generally available to the Company's or the Bank's executive
officers, including but not limited to supplemental retirement, incentive
compensation, supplemental medical or life insurance plans, company cars, club
dues, physical examinations, financial planning and tax preparation services.

     6. Vacations; Leave. The Employee shall be entitled to annual paid vacation
in accordance with the policies established by the Board of Directors and the
board of directors of the Bank for executive officers, in no event less than
four weeks per year, and to voluntary leaves of absence, with or without pay,
from time to time at such times and upon such conditions as the Board of
Directors may determine in its discretion.

     7. Termination of Employment.

         (a) Involuntary Termination. If the Employee experiences an Involuntary
Termination, such termination of employment shall be subject to the Company's
obligations under this Section 7. In the event of the Involuntary Termination of
the Employee, if the Employee has offered to continue to provide the services
contemplated by and on the terms provided in this Agreement and such offer has
been declined, subject to Section 7(b) of this Agreement, the Company shall,
during the lesser period of the remaining term of this Agreement or three years
following the Date of Termination (the "Liquidated Damage Period"), as
liquidated damages (i) pay to the Employee monthly one-twelfth of the Company
Salary at the annual rate in effect immediately prior to the Date of Termination
and one-twelfth of the average annual amount of cash bonus and cash incentive
compensation of the Employee, based on the average amounts of such compensation
earned by the Employee from the Company and the Bank for the two full fiscal
years preceding the Date of Termination; and (ii) maintain substantially the
same group life and key man life insurance, hospitalization, medical, dental,
prescription drug and other health benefits, and long-term disability insurance
(if any) for the benefit of the Employee and his dependents and beneficiaries
who would have been eligible for such benefits if the Employee had not suffered
Involuntary Termination and on terms substantially as favorable to the Employee
including amounts of coverage and deductibles and other costs to him in effect
immediately prior to such Involuntary Termination (the "Employee's Health
Coverage").

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         (b) Reduction of the Company's Obligations Under Section 7(a).

             (1) In the event that the Employee becomes entitled to liquidated
damages pursuant to Section 7(a), (i) the Company's obligation thereunder with
respect to cash damages shall be reduced by the amount of the Employee's cash
income, if any, earned from providing personal services during the Liquidated
Damage Period; and (ii) the Company's obligation to maintain Health Coverage
shall be reduced to the extent, if any, that the Employee receives such
benefits, on no less favorable terms, from another employer during the
Liquidated Damage Period. For purposes of this Section 7(b), the term "cash
income" shall include amounts of salary, wages, bonuses, incentive compensation
and fees paid to the Employee in cash but shall not include shares of stock,
stock options, stock appreciation rights or other earned income not paid to the
Employee in cash. To the extent the provisions of this Section 7(b)(1) are
applicable and an overpayment has been made to the Employee as of the expiration
of Liquidated Damage Period, the Employee shall reimburse the Company in an
amount equal to the after tax benefit realized by the Employee from such
overpayment (i.e. amount realized net of all federal, state, local, employment
and medicare taxes). In making the reimbursement calculation it shall be
presumed that the Employee is subject to the highest marginal federal and state
income tax rates.

             (2) The Employee agrees that in the event he becomes entitled to
liquidated damages pursuant to Section 7(a), throughout the Liquidated Damage
Period, he shall promptly inform the Company of the nature and amounts of cash
income and the type of health benefits and coverage which he earns or receives
from providing personal services, and shall provide such documentation of such
cash income and such health benefits and coverage as the Company may request. In
the event of changes to such cash income or such health benefits or coverage
from time to time, the Employee shall inform the Company of such changes, in
each case within five days after the change occurs, and shall provide such
documentation concerning the change as the Company may request.

         (c) Change in Control; Cut Back; and Tax Gross Up. In the event that
the Employee experiences an Involuntary Termination within the 6 months
preceding, at the time of, or within 24 months following a Change in Control, in
addition to the Company's obligations under Section 7(a) of this Agreement, the
Company shall pay to the Employee in cash, within 30 days after the later of the
date of such Change in Control or the Date of Termination, an amount equal to
299% of the Employee's "base amount" as determined under Section 280G of the
Code, less the acceleration and lapse value of options granted to the Employee
by the Company that are taken into account in the determination of "parachute
payments" under 280G(b)(2) of the Code by virtue of vesting acceleration or
deemed vesting acceleration in connection with such Change in Control. In the
event the Employee is requested in connection with or at the time of a Change in
Control to continue employment for an interim period and he shall die while
employed during such interim period, then his estate, or such person as the
Employee may have previously designated in writing, shall be entitled to the
full Change in Control payment described in this paragraph.

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     While it is not contemplated that the Employee will receive any amounts or
benefits that will constitute "excess parachute payments" under Section 280G of
the Code, in the event that any payments or benefits provided or to be provided
to the Employee pursuant to this Agreement, in combination with payments or
benefits, if any, from other plans or arrangements maintained by the Company or
any of the Consolidated Subsidiaries, constitute "excess parachute payments"
under Section 280G of the Code that are subject to excise tax under Section 4999
of the Code, the Company shall pay to the Employee in cash an additional amount
equal to the amount of the Gross Up Payment (as hereinafter defined). The "Gross
Up Payment" shall be the amount needed to ensure that the amount of such
payments and the value of such benefits received by the Employee (net of such
excise tax and any federal, state and local tax on the Company's payment to him
attributable to such excise tax) equals the amount of such payments and value of
such benefits as he would receive in the absence of such excise tax and any
federal, state and local tax on the Company's payment to him attributable to
such excise tax. The Company shall pay the Gross Up Payment within 30 days after
the Date of Termination. For purposes of determining the amount of the Gross Up
Payment, the value of any non-cash benefits and deferred payments or benefits
shall be determined by the Company's independent auditors in accordance with the
principles of Section 280G(d)(3) and (4) of the Code. In the event that, after
the Gross Up Payment is made, the amount of the excise tax is determined to be
less than the amount calculated in the determination of the actual Gross Up
Payment made by the Company, the Employee shall repay to the Company, at the
time that such reduction in the amount of excise tax is finally determined, the
portion of the Gross Up Payment attributable to such reduction, plus interest on
the amount of such repayment at the applicable federal rate under Section 1274
of the Code from the date of the Gross Up Payment to the date of the repayment.
The amount of the reduction of the Gross Up Payment shall reflect any subsequent
reduction in excise taxes resulting from such repayment. In the event that,
after the Gross Up Payment is made, the amount of the excise tax is determined
to exceed the amount anticipated at the time the Gross Up Payment was made, the
Company shall pay to the Employee, in immediately available funds, at the time
that such additional amount of excise tax is finally determined, an additional
payment ("Additional Gross Up Payment") equal to such additional amount of
excise tax and any federal, state and local taxes thereon, plus all interest and
penalties, if any, owned by the Employee with respect to such additional amount
of excise and other tax. The Company shall have the right to challenge, on the
Employee's behalf, any excise tax assessment against him as to which the
Employee is entitled to (or would be entitled if such assessment is finally
determined to be proper) a Gross Up Payment or Additional Gross Up Payment,
provided that all costs and expenses incurred in such a challenge shall be borne
by the Company and the Company shall indemnify the Employee and hold him
harmless, on an after-tax basis, from any excise or other tax (including
interest and penalties with respect thereto) imposed as a result of such payment
of costs and expenses by the Company.

         (d) Termination for Cause. In the event of Termination for Cause, the
Company shall have no further obligation to the Employee under this Agreement
after the Date of Termination other than deferred amounts under Section 4(d).

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         (e) Voluntary Termination. The Employee may terminate his employment
voluntarily at any time by a notice pursuant to Section 8 of this Agreement. In
the event that the Employee voluntarily terminates his employment other than by
reason of any of the actions that constitute Involuntary Termination under
Section 1(e)(ii) of this Agreement ("Voluntary Termination"), the Company shall
be obligated to the Employee for the amount of his Company Salary and benefits
only through the Date of Termination, at the time such payments are due, and the
Company shall have no further obligation to the Employee under this Agreement
except as provided in Section 4(d).

         (f) Death. In the event of the death of the Employee while employed
under this Agreement and prior to any termination of employment, the Company
shall pay to the Employee's estate, or such person as the Employee may have
previously designated in writing, (i) the Company Salary which was not
previously paid to the Employee through the last day of the calendar month in
which Employee's death occurred and, if applicable, the Change in Control
payment set forth in the first paragraph of Section 7(c), provided Employee died
within six months prior or 24 months following such change in control; (ii) the
amounts of any benefits or awards which, pursuant to the terms of any applicable
plan or plans, were earned with respect to the fiscal year in which the Employee
died and which the Employee would have been entitled to receive if he had
continued to be employed, and the amount of any bonus or incentive compensation
for such fiscal year which the Employee would have been entitled to receive if
he had continued to be employed, pro-rated in accordance with the portion of the
fiscal year prior to his death, provided that such amounts shall be payable when
and as ordinarily payable under the applicable plans; and (iii) the unpaid
deferred amounts under Section 4(d).

         (g) Permanent Disability. For purposes of this Agreement, the term
"permanently disabled" means that the Employee has a mental or physical
infirmity which permanently impairs his ability to perform substantially his
duties and responsibilities under this Agreement and which results in (i)
eligibility of the Employee under the long-term disability plan of the Company
or the Bank, if any; or (ii) inability of the Employee to perform substantially
his duties and responsibilities under this Agreement for a period of 180
consecutive days. Either the Company or the Bank or both may terminate the
employment of the Employee after having established that the Employee is
permanently disabled.

         (h) Regulatory Action. Notwithstanding any other provisions of this
Agreement:

             (1) If the Employee is removed and/or permanently prohibited from
participating in the conduct of the affairs of a depository institution by an
order issued under Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance
Act ("FDIA"), 12 U.S.C. ss. 1818(e)(4) and (g)(1), all obligations of the
Company under this Agreement shall terminate as of the effective date of the
order, but vested rights of the contracting parties shall not be affected;.

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

             (3) All obligations of the Company 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 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.

     8. Notice of Termination. In the event that the Company or the Bank, or
both, desire to terminate the employment of the Employee during the term of this
Agreement, the Company or the Bank, or both, shall deliver to the Employee a
written notice of termination, stating whether such termination constitutes
Termination for Cause or Involuntary Termination, setting forth in reasonable
detail the facts and circumstances that are the basis for the termination, and
specifying the date upon which employment shall terminate, which date shall be
at least 30 days after the date upon which the notice is delivered, except in
the case of Termination for Cause. In the event that the Employee determines in
good faith that he has experienced an Involuntary Termination of his employment,
he shall send a written notice to the Company stating the circumstances that
constitute such Involuntary Termination and the date upon which his employment
shall have ceased due to such Involuntary Termination. In the event that the
Employee desires to effect a Voluntary Termination, he shall deliver a written
notice to the Company, stating the date upon which employment shall terminate,
which date shall be at least 30 days after the date upon which the notice is
delivered, unless the parties agree to a date sooner.

     9. Attorneys Fees. The Company shall pay all legal fees and related
expenses (including the costs of experts, evidence and counsel) incurred by the
Employee as a result of (i) the Employee's contesting or disputing any
termination of employment, or (ii) the Employee's seeking to obtain or enforce
any right or benefit provided by this Agreement or by any other plan or
arrangement maintained by the Company (or its successors) or the Consolidated
Subsidiaries under which the Employee is or may be entitled to receive benefits;
provided that the Company's obligation to pay such fees and expenses is subject
to the Employee's prevailing with respect to the matters in dispute in any
action initiated by the Employee or the Employee's having been determined to
have acted reasonably and in good faith with respect to any action initiated by
the Company or the Bank.

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     10. Non-Disclosure and Non-Solicitation.

         (a) Non-Disclosure. The Employee acknowledges that he has acquired, and
will continue to acquire while employed by the Company and/or any Consolidated
Subsidiary, special knowledge of the business, affairs, strategies and plans of
the Company and the Consolidated Subsidiaries which has not been disclosed to
the public and which constitutes confidential and proprietary business
information owned by the Company and the Consolidated Subsidiaries, including
but not limited to, information about the customers, customer lists, software,
data, formulae, processes, inventions, trade secrets, marketing information and
plans, and business strategies of the Company and the Consolidated Subsidiaries,
and other information about the products and services offered or developed or
planned to be offered or developed by the Company and/or the Consolidated
Subsidiaries ("Confidential Information"). The Employee agrees that, without the
prior written consent of the Company, he shall not, during the term of his
employment or at any time thereafter, in any manner directly or indirectly
disclose any Confidential Information to any person or entity other than the
Company and the Consolidated Subsidiaries. Notwithstanding the foregoing, if the
Employee is requested or required (including but not limited to by oral
questions, interrogatories, requests for information or documents in legal
proceeding, subpoena, civil investigative demand or other similar process) to
disclose any Confidential Information the Employee shall provide the Company
with prompt written notice of any such request or requirement so that the
Company and/or a Consolidated Subsidiary may seek a protective order or other
appropriate remedy and/or waive compliance with the provisions of this Section
10(a). If, in the absence of a protective order or other remedy or the receipt
of a waiver from the Company, the Employee is nonetheless legally compelled to
disclose Confidential Information to any tribunal or else stand liable for
contempt or suffer other censure or penalty, the Employee may, without liability
hereunder, disclose to such tribunal only that portion of the Confidential
Information which is legally required to be disclosed, provided that the
Employee exercise his best efforts to preserve the confidentiality of the
Confidential Information, including without limitation by cooperating with the
Company and/or a Consolidated Subsidiary to obtain an appropriate protective
order or other reliable assurance that confidential treatment will be accorded
the Confidential Information by such tribunal. On the Date of Termination, the
Employee shall promptly deliver to the Company all copies of documents or other
records (including without limitation electronic records) containing any
Confidential Information that is in his possession or under his control, and
shall retain no written or electronic record of any Confidential Information.

         (b) Non-Solicitation. During the three year period next following the
Date of Termination, the Employee shall not directly or indirectly solicit,
encourage, or induce any person while employed by the Company or any
Consolidated Subsidiary to (i) leave the Company or any Consolidated Subsidiary,
(ii) cease his or her employment with the Company or any Consolidated Subsidiary
or (iii) accept employment with another entity or person.

     The provisions of this Section 10 shall survive any termination of the
Employee's employment and any termination of this Agreement.

     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 Company shall require any successor or assign (whether direct
or indirect, by purchase, merger, consolidation or otherwise) 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 Company would be required to perform it if no such succession or
assignment had taken place. Failure of the Company 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 and
benefits from the Company in the same amount and on the same terms as provided
for an Involuntary Termination under Section 7 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.

         (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.

     12. Notice. For the purposes of this Agreement, notices and all other
communications provided for in this 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, to the Company at its home
office, to the attention of the Board of Directors with a copy to the Secretary
of the Company, or, if to the Employee, to such home or other address as the
Employee has most recently provided in writing to the Company.

     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.

     14. Headings. The headings used in this Agreement are included solely for
convenience and shall not affect, 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
State of New Jersey.

     17. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement (other than relating to the enforcement of the provisions of
Section 10) 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.

                                       11

<PAGE>

     18. Equitable and Other Judicial Relief. In the event of an actual or
threatened breach by the Employee of any of the provisions of Section 10, the
Company shall be entitled to equitable relief in the form of an injunction from
a court of competent jurisdiction and such other equitable and legal relief as
such court deems appropriate under the circumstances. The parties agree that the
Company shall not be required to post any bond in connection with the grant or
issuance of an injunction (preliminary, temporary and/or permanent) by a court
of competent jurisdiction, and if a bond is nevertheless required, the parties
agree that it shall be in a nominal amount. The parties further agree that in
the event of a breach by the Employee of any of the provisions of Section 10,
the Company will suffer irreparable damage and its remedy at law against the
Employee is inadequate to compensate it for such damage.

     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.

Attest:                                   PennFed Financial Services, Inc.

-------------------                       --------------------------------
Assistant Secretary                       By:   William C. Anderson
                                          Its:      Chairman

                                          Employee

                                          --------------------------------
                                          Patrick D. McTernanEMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
this 28th day of November, 2000 by and between PennFed Financial Services, Inc.
(the "Company") and Jeffrey J. Carfora (the "Employee").

     WHEREAS, the Employee serves as the Executive Vice President and Chief
Financial Officer of the Company and of the Company's wholly-owned subsidiary,
Penn Federal Saving Bank (the "Bank");

     WHEREAS, the Employee has an existing employment agreement with the Bank
entered into as of July 14, 1998 (the "Prior Employment Agreement") which he is
willing to terminate in consideration of this Agreement becoming effective;

     WHEREAS, the board of directors of the Company (the "Board of Directors")
believes it is in the best interests of the Company and its subsidiaries for the
Company to enter into this Agreement with the Employee in order to assure
continuity of management of the Company and its subsidiaries; and

     WHEREAS, the Board of Directors has approved and authorized the execution
of this Agreement with the Employee;

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

     1. Definitions.

         (a) The term "Change in Control" means (1) an acquisition of securities
of the Company or the Bank that is determined by the Board of Directors to
constitute an acquisition of control of the Company or the Bank within the
meaning of the Change in Bank Control Act, 12 U.S.C. ss. 1817(j) and the Savings
and Loan Holding Company Act, 12U.S.C. ss.1467a, and applicable regulations
thereunder; (2) an event that would be required to be reported in response to
Item 1 of the current report on Form 8-K, as in effect on the Effective Date,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"); (3) any person (as the term is used in Sections 13(d) and 14(d)
of the Exchange Act) is or becomes the beneficial owner (as defined in Rule
13d-3 under the Exchange Act) directly or indirectly of securities of the
Company or the Bank representing 25% or more of the combined voting power of the
Company's or the Bank's outstanding securities; (4) individuals who are members
of the Board of Directors on the Effective Date (the "Incumbent Board") cease
for any reason to constitute at least a majority thereof, provided that any
person becoming a director subsequent to the Effective Date whose election was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the Company's stockholders
was approved by a nominating committee serving under an Incumbent Board, shall
be considered a member of the Incumbent Board; or (5) approval by the Company's
stockholders of a plan of reorganization, merger or consolidation of the
Company, sale of all or substantially

<PAGE>

all of the assets of the Company, a similar transaction in which the Company is
not the resulting entity; provided that the term "change in control" shall not
include an acquisition of securities by an employee benefit plan of the Bank or
the Company. In the application of regulations under the Change in Bank Control
Act or the Savings and Loan Holding Company Act, determinations to be made by
the applicable federal banking regulator shall be made by the Board of
Directors.

         (b) The term "Consolidated Subsidiaries" means any subsidiary or
subsidiaries of the Company (or its successors) that are part of the
consolidated group of the Company (or its successors) for federal income tax
reporting.

         (c) The term "Date of Termination" means the date upon which the
Employee's employment with the Company or the Bank or both ceases, as specified
in a notice of termination pursuant to Section 8 of this Agreement.

         (d) The term "Effective Date" means November 28, 2000.

         (e) The term "Involuntarily Termination" means the termination of the
employment of Employee (i) by either the Company or the Bank or both without his
express written consent; or (ii) by the Employee by reason of a material
diminution of or interference with his duties, responsibilities or benefits,
including (without limitation) any of the following actions unless consented to
in writing by the Employee: (1) a requirement that the Employee be based at any
place other than West Orange, New Jersey, or within 35 miles thereof, except for
reasonable travel on Company or Bank business; (2) a material demotion of the
Employee; (3) a material reduction in the number or seniority of 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 Company-wide reduction
in staff; (4) a reduction in the Employee's salary or a material adverse change
in the Employee's perquisites, benefits, contingent benefits or vacation, other
than prior to a Change in Control as part of an overall program applied
uniformly and with equitable effect to all members of the senior management of
the Bank or the Company; (5) a material permanent increase in the required hours
of work or the workload of the Employee; or (6) the failure of the Board of
Directors (or a board of directors of a successor of the Company) to elect him
as Executive Vice President and Chief Financial Officer of the Company (or a
successor of the Company) or any action by the Board of Directors (or a board of
directors of a successor of the Company) removing him from any of such offices,
or the failure of the board of directors of the Bank (or any successor of the
Bank) to elect him as Executive Vice President and Chief Financial Officer of
the Bank (or any successor of the Bank) or any action by such board (or board of
a successor of the Bank) removing him from any of such offices. The term
"Involuntary Termination" does not include Termination for Cause or termination
of employment due to death or permanent disability pursuant to Section 7(g) of
this Agreement, or suspension or temporary or permanent prohibition from
participation in the conduct of the affairs of a depository institution under
Section 8 of the Federal Deposit Insurance Act.

                                       2

<PAGE>

         (f) The terms "Termination for Cause" and "Terminated for Cause" mean
termination of the employment of the Employee with either the Company or the
Bank, as the case may be, because of the Employee's 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 (excluding violations which do not have a material adverse
affect on the Company or the Bank) or final cease-and-desist order, or (except
as provided below) material breach of any provision of this Agreement. No act or
failure to act by the Employee shall be considered willful unless the Employee
acted or failed to act with an absence of good faith and without a reasonable
belief that his action or failure to act was in the best interest of the
Company. 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 majority of
the entire membership of the Board of Directors at a meeting of the Board duly
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 of
Directors the Employee has engaged in conduct described in the preceding
sentence and specifying the particulars thereof in detail. The opportunity of
the Employee to be heard before the Board shall not affect the right of the
Employee to arbitration as set forth in paragraph 17.

     2. Term; Termination of Prior Employment Agreement. The term of this
Agreement shall be a period of five years commencing on the Effective Date,
subject to earlier termination as provided herein. On each anniversary of this
Agreement the term shall be extended for a period of one year in addition to the
then-remaining term, provided that the Company has not given notice to the
Employee in writing at least 90 days prior to such anniversary that the term of
this Agreement shall not be extended further, and provided further that the
Employee has not received an unsatisfactory performance review by either the
Board of Directors or the board of directors of the Bank. The Employee's Prior
Employment Agreement shall terminate immediately prior to the Effective Date.

     3. Employment. The Employee is employed as the Executive Vice President and
Chief Financial Officer of the Company and as the Executive 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
situated in similar executive capacities, and shall have such other powers and
duties as the Board of Directors or the board of directors of the Bank may
prescribe from time to time. The Employee shall also render services to any
subsidiary or subsidiaries of the Company or the Bank as requested by the
Company or the Bank from time to time consistent with his executive position.
The Employee shall devote his best efforts and reasonable time and attention to
the business and affairs of the Company and the Bank to the extent necessary to
discharge his responsibilities hereunder. The Employee may (i) serve on
corporate or charitable boards or committees, and (ii) manage personal
investments, so long as such activities do not interfere materially with
performance of his responsibilities hereunder.

                                       3

<PAGE>

     4. Cash Compensation.

         (a) Salary. The Company agrees to pay the Employee during the term of
this Agreement a base salary (the "Company Salary") the annualized amount of
which shall be not less than the annualized aggregate amount of the Employee's
base salary from the Company and any Consolidated Subsidiaries in effect at the
Effective Date; provided that any amounts of salary actually paid to the
Employee by any Consolidated Subsidiaries shall reduce the amount to be paid by
the Company to the Employee. The Company Salary shall be paid no less frequently
than monthly and shall be subject to customary tax withholding. The amount of
the Employee's Company Salary shall be increased (but shall not be decreased
other than prior to a Change in Control as part of an overall program applied
uniformly and with equitable effect to all members of senior management of the
Company or the Bank) from time to time in accordance with the amounts of salary
approved by the Board of Directors or the board of directors of any of the
Consolidated Subsidiaries after the Effective Date.

         (b) Bonuses. The Employee shall be entitled to participate in an
equitable manner with all other executive officers of the Company and the Bank
in such performance-based and discretionary bonuses, if any, as are authorized
and declared by the Board of Directors for executive officers of the Company and
by the board of directors of the Bank for executive officers of the Bank.

         (c) Expenses. The Employee shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by the Employee in performing
services under this Agreement in accordance with the policies and procedures
applicable to the executive officers of the Company and the Bank, provided that
the Employee accounts for such expenses as required under such policies and
procedures.

         (d) Deferral of Non-Deductible Compensation. In the event that the
Employee's aggregate compensation (including compensatory benefits which are
deemed remuneration for purposes of Section 162(m) of the Internal Revenue Code
of 1986 as amended (the "Code")) from the Company and the Consolidated
Subsidiaries for any calendar year exceeds the greater of (i) $1,000,000 or (ii)
the maximum amount of compensation deductible by the Company or any of the
Consolidated Subsidiaries in any calendar year under Section 162(m) of the Code
(the "maximum allowable amount"), then any such amount in excess of the maximum
allowable amount shall be mandatorily deferred with interest thereon at 8% per
annum, compounded annually, to a calendar year such that the amount to be paid
to the Employee in such calendar year, including deferred amounts and interest
thereon, does not exceed the maximum allowable amount. Subject to the foregoing,
deferred amounts including interest thereon shall be payable at the earliest
time permissible. All unpaid deferred amounts shall be paid to the Employee not
later than his Date of Termination unless his Date of Termination is on a
December 31st, in which case, the unpaid deferred amounts shall be paid to the
Employee on the first business day of the next succeeding calendar year. The
provisions of this subsection shall survive any termination of the Employee's
employment and any termination of this Agreement.

                                       4

<PAGE>

     5. Benefits.

         (a) Participation in Benefit Plans. The Employee shall be entitled to
participate, to the same extent as executive officers of the Company and the
Bank generally, in all plans of the Company and the Bank relating to pension,
retirement, thrift, profit-sharing, savings, group or other life insurance,
hospitalization, medical and dental coverage, travel and accident insurance,
education, cash bonuses, and other retirement or employee benefits or
combinations thereof. In addition, the Employee shall be entitled to be
considered for benefits under all of the stock and stock option related plans in
which the Company's or the Bank's executive officers are eligible or become
eligible to participate.

         (b) Fringe Benefits. The Employee shall be eligible to participate in,
and receive benefits under, any other fringe benefit plans or perquisites which
are or may become generally available to the Company's or the Bank's executive
officers, including but not limited to supplemental retirement, incentive
compensation, supplemental medical or life insurance plans, company cars, club
dues, physical examinations, financial planning and tax preparation services.

     6. Vacations; Leave. The Employee shall be entitled to annual paid vacation
in accordance with the policies established by the Board of Directors and the
board of directors of the Bank for executive officers, in no event less than
four weeks per year, and to voluntary leaves of absence, with or without pay,
from time to time at such times and upon such conditions as the Board of
Directors may determine in its discretion.

     7. Termination of Employment.

         (a) Involuntary Termination. If the Employee experiences an Involuntary
Termination, such termination of employment shall be subject to the Company's
obligations under this Section 7. In the event of the Involuntary Termination of
the Employee, if the Employee has offered to continue to provide the services
contemplated by and on the terms provided in this Agreement and such offer has
been declined, subject to Section 7(b) of this Agreement, the Company shall,
during the lesser period of the remaining term of this Agreement or three years
following the Date of Termination (the "Liquidated Damage Period"), as
liquidated damages (i) pay to the Employee monthly one-twelfth of the Company
Salary at the annual rate in effect immediately prior to the Date of Termination
and one-twelfth of the average annual amount of cash bonus and cash incentive
compensation of the Employee, based on the average amounts of such compensation
earned by the Employee from the Company and the Bank for the two full fiscal
years preceding the Date of Termination; and (ii) maintain substantially the
same group life insurance, hospitalization, medical, dental, prescription drug
and other health benefits, and long-term disability insurance (if any) for the
benefit of the Employee and his dependents and beneficiaries who would have been
eligible for such benefits if the Employee had not suffered Involuntary
Termination and on terms substantially as favorable to the Employee including
amounts of coverage and deductibles and other costs to him in effect immediately
prior to such Involuntary Termination (the "Employee's Health Coverage").

                                       5

<PAGE>

         (b) Reduction of the Company's Obligations Under Section 7(a).

             (1) In the event that the Employee becomes entitled to liquidated
damages pursuant to Section 7(a), (i) the Company's obligation thereunder with
respect to cash damages shall be reduced by the amount of the Employee's cash
income, if any, earned from providing personal services during the Liquidated
Damage Period; and (ii) the Company's obligation to maintain Health Coverage
shall be reduced to the extent, if any, that the Employee receives such
benefits, on no less favorable terms, from another employer during the
Liquidated Damage Period. For purposes of this Section 7(b), the term "cash
income" shall include amounts of salary, wages, bonuses, incentive compensation
and fees paid to the Employee in cash but shall not include shares of stock,
stock options, stock appreciation rights or other earned income not paid to the
Employee in cash. To the extent the provisions of this Section 7(b)(1) are
applicable and an overpayment has been made to the Employee as of the expiration
of Liquidated Damage Period, the Employee shall reimburse the Company in an
amount equal to the after tax benefit realized by the Employee from such
overpayment (i.e. amount realized net of all federal, state, local, employment
and medicare taxes). In making the reimbursement calculation it shall be
presumed that the Employee is subject to the highest marginal federal and state
income tax rates.

             (2) The Employee agrees that in the event he becomes entitled to
liquidated damages pursuant to Section 7(a), throughout the Liquidated Damage
Period, he shall promptly inform the Company of the nature and amounts of cash
income and the type of health benefits and coverage which he earns or receives
from providing personal services, and shall provide such documentation of such
cash income and such health benefits and coverage as the Company may request. In
the event of changes to such cash income or such health benefits or coverage
from time to time, the Employee shall inform the Company of such changes, in
each case within five days after the change occurs, and shall provide such
documentation concerning the change as the Company may request.

         (c) Change in Control; Cut Back; and Tax Gross Up. In the event that
the Employee experiences an Involuntary Termination within the 6 months
preceding, at the time of, or within 24 months following a Change in Control, in
addition to the Company's obligations under Section 7(a) of this Agreement, the
Company shall pay to the Employee in cash, within 30 days after the later of the
date of such Change in Control or the Date of Termination, an amount equal to
299% of the Employee's "base amount" as determined under Section 280G of the
Code, less the acceleration and lapse value of options granted to the Employee
by the Company that are taken into account in the determination of "parachute
payments" under 280G(b)(2) of the Code by virtue of vesting acceleration or
deemed vesting acceleration in connection with such Change in Control. In the
event the Employee is requested in connection with or at the time of a Change in
Control to continue employment for an interim period and he shall die while
employed during such interim period, then his estate, or such person as the
Employee may have previously designated in writing, shall be entitled to the
full Change in Control payment described in this paragraph.

                                       6

<PAGE>

         While it is not contemplated that the Employee will receive any amounts
or benefits that will constitute "excess parachute payments" under Section 280G
of the Code, in the event that any payments or benefits provided or to be
provided to the Employee pursuant to this Agreement, in combination with
payments or benefits, if any, from other plans or arrangements maintained by the
Company or any of the Consolidated Subsidiaries, constitute "excess parachute
payments" under Section 280G of the Code that are subject to excise tax under
Section 4999 of the Code, the Company shall pay to the Employee in cash an
additional amount equal to the amount of the Gross Up Payment (as hereinafter
defined). The "Gross Up Payment" shall be the amount needed to ensure that the
amount of such payments and the value of such benefits received by the Employee
(net of such excise tax and any federal, state and local tax on the Company's
payment to him attributable to such excise tax) equals the amount of such
payments and value of such benefits as he would receive in the absence of such
excise tax and any federal, state and local tax on the Company's payment to him
attributable to such excise tax. The Company shall pay the Gross Up Payment
within 30 days after the Date of Termination. For purposes of determining the
amount of the Gross Up Payment, the value of any non-cash benefits and deferred
payments or benefits shall be determined by the Company's independent auditors
in accordance with the principles of Section 280G(d)(3) and (4) of the Code. In
the event that, after the Gross Up Payment is made, the amount of the excise tax
is determined to be less than the amount calculated in the determination of the
actual Gross Up Payment made by the Company, the Employee shall repay to the
Company, at the time that such reduction in the amount of excise tax is finally
determined, the portion of the Gross Up Payment attributable to such reduction,
plus interest on the amount of such repayment at the applicable federal rate
under Section 1274 of the Code from the date of the Gross Up Payment to the date
of the repayment. The amount of the reduction of the Gross Up Payment shall
reflect any subsequent reduction in excise taxes resulting from such repayment.
In the event that, after the Gross Up Payment is made, the amount of the excise
tax is determined to exceed the amount anticipated at the time the Gross Up
Payment was made, the Company shall pay to the Employee, in immediately
available funds, at the time that such additional amount of excise tax is
finally determined, an additional payment ("Additional Gross Up Payment") equal
to such additional amount of excise tax and any federal, state and local taxes
thereon, plus all interest and penalties, if any, owned by the Employee with
respect to such additional amount of excise and other tax. The Company shall
have the right to challenge, on the Employee's behalf, any excise tax assessment
against him as to which the Employee is entitled to (or would be entitled if
such assessment is finally determined to be proper) a Gross Up Payment or
Additional Gross Up Payment, provided that all costs and expenses incurred in
such a challenge shall be borne by the Company and the Company shall indemnify
the Employee and hold him harmless, on an after-tax basis, from any excise or
other tax (including interest and penalties with respect thereto) imposed as a
result of such payment of costs and expenses by the Company.

         (d) Termination for Cause. In the event of Termination for Cause, the
Company shall have no further obligation to the Employee under this Agreement
after the Date of Termination other than deferred amounts under Section 4(d).

                                       7

<PAGE>

         (e) Voluntary Termination. The Employee may terminate his employment
voluntarily at any time by a notice pursuant to Section 8 of this Agreement. In
the event that the Employee voluntarily terminates his employment other than by
reason of any of the actions that constitute Involuntary Termination under
Section 1(e)(ii) of this Agreement ("Voluntary Termination"), the Company shall
be obligated to the Employee for the amount of his Company Salary and benefits
only through the Date of Termination, at the time such payments are due, and the
Company shall have no further obligation to the Employee under this Agreement
except as provided in Section 4(d).

         (f) Death. In the event of the death of the Employee while employed
under this Agreement and prior to any termination of employment, the Company
shall pay to the Employee's estate, or such person as the Employee may have
previously designated in writing, (i) the Company Salary which was not
previously paid to the Employee through the last day of the calendar month in
which Employee's death occurred and, if applicable, the Change in Control
payment set forth in the first paragraph of Section 7(c), provided Employee died
within six months prior or 24 months following such change in control; (ii) the
amounts of any benefits or awards which, pursuant to the terms of any applicable
plan or plans, were earned with respect to the fiscal year in which the Employee
died and which the Employee would have been entitled to receive if he had
continued to be employed, and the amount of any bonus or incentive compensation
for such fiscal year which the Employee would have been entitled to receive if
he had continued to be employed, pro-rated in accordance with the portion of the
fiscal year prior to his death, provided that such amounts shall be payable when
and as ordinarily payable under the applicable plans; and (iii) the unpaid
deferred amounts under Section 4(d).

         (g) Permanent Disability. For purposes of this Agreement, the term
"permanently disabled" means that the Employee has a mental or physical
infirmity which permanently impairs his ability to perform substantially his
duties and responsibilities under this Agreement and which results in (i)
eligibility of the Employee under the long-term disability plan of the Company
or the Bank, if any; or (ii) inability of the Employee to perform substantially
his duties and responsibilities under this Agreement for a period of 180
consecutive days. Either the Company or the Bank or both may terminate the
employment of the Employee after having established that the Employee is
permanently disabled.

         (h) Regulatory Action. Notwithstanding any other provisions of this
Agreement:

             (1) If the Employee is removed and/or permanently prohibited from
participating in the conduct of the affairs of a depository institution by an
order issued under Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance
Act ("FDIA"), 12 U.S.C. ss. 1818(e)(4) and (g)(1), all obligations of the
Company under this Agreement shall terminate as of the effective date of the
order, but vested rights of the contracting parties shall not be affected;.

                                       8

<PAGE>

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

             (3) All obligations of the Company 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 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.

     8. Notice of Termination. In the event that the Company or the Bank, or
both, desire to terminate the employment of the Employee during the term of this
Agreement, the Company or the Bank, or both, shall deliver to the Employee a
written notice of termination, stating whether such termination constitutes
Termination for Cause or Involuntary Termination, setting forth in reasonable
detail the facts and circumstances that are the basis for the termination, and
specifying the date upon which employment shall terminate, which date shall be
at least 30 days after the date upon which the notice is delivered, except in
the case of Termination for Cause. In the event that the Employee determines in
good faith that he has experienced an Involuntary Termination of his employment,
he shall send a written notice to the Company stating the circumstances that
constitute such Involuntary Termination and the date upon which his employment
shall have ceased due to such Involuntary Termination. In the event that the
Employee desires to effect a Voluntary Termination, he shall deliver a written
notice to the Company, stating the date upon which employment shall terminate,
which date shall be at least 30 days after the date upon which the notice is
delivered, unless the parties agree to a date sooner.

     9. Attorneys Fees. The Company shall pay all legal fees and related
expenses (including the costs of experts, evidence and counsel) incurred by the
Employee as a result of (i) the Employee's contesting or disputing any
termination of employment, or (ii) the Employee's seeking to obtain or enforce
any right or benefit provided by this Agreement or by any other plan or
arrangement maintained by the Company (or its successors) or the Consolidated
Subsidiaries under which the Employee is or may be entitled to receive benefits;
provided that the Company's obligation to pay such fees and expenses is subject
to the Employee's prevailing with respect to the matters in dispute in any
action initiated by the Employee or the Employee's having been determined to
have acted reasonably and in good faith with respect to any action initiated by
the Company or the Bank.

                                       9

<PAGE>

     10. Non-Disclosure and Non-Solicitation.

         (a) Non-Disclosure. The Employee acknowledges that he has acquired, and
will continue to acquire while employed by the Company and/or any Consolidated
Subsidiary, special knowledge of the business, affairs, strategies and plans of
the Company and the Consolidated Subsidiaries which has not been disclosed to
the public and which constitutes confidential and proprietary business
information owned by the Company and the Consolidated Subsidiaries, including
but not limited to, information about the customers, customer lists, software,
data, formulae, processes, inventions, trade secrets, marketing information and
plans, and business strategies of the Company and the Consolidated Subsidiaries,
and other information about the products and services offered or developed or
planned to be offered or developed by the Company and/or the Consolidated
Subsidiaries ("Confidential Information"). The Employee agrees that, without the
prior written consent of the Company, he shall not, during the term of his
employment or at any time thereafter, in any manner directly or indirectly
disclose any Confidential Information to any person or entity other than the
Company and the Consolidated Subsidiaries. Notwithstanding the foregoing, if the
Employee is requested or required (including but not limited to by oral
questions, interrogatories, requests for information or documents in legal
proceeding, subpoena, civil investigative demand or other similar process) to
disclose any Confidential Information the Employee shall provide the Company
with prompt written notice of any such request or requirement so that the
Company and/or a Consolidated Subsidiary may seek a protective order or other
appropriate remedy and/or waive compliance with the provisions of this Section
10(a). If, in the absence of a protective order or other remedy or the receipt
of a waiver from the Company, the Employee is nonetheless legally compelled to
disclose Confidential Information to any tribunal or else stand liable for
contempt or suffer other censure or penalty, the Employee may, without liability
hereunder, disclose to such tribunal only that portion of the Confidential
Information which is legally required to be disclosed, provided that the
Employee exercise his best efforts to preserve the confidentiality of the
Confidential Information, including without limitation by cooperating with the
Company and/or a Consolidated Subsidiary to obtain an appropriate protective
order or other reliable assurance that confidential treatment will be accorded
the Confidential Information by such tribunal. On the Date of Termination, the
Employee shall promptly deliver to the Company all copies of documents or other
records (including without limitation electronic records) containing any
Confidential Information that is in his possession or under his control, and
shall retain no written or electronic record of any Confidential Information.

         (b) Non-Solicitation. During the three year period next following the
Date of Termination, the Employee shall not directly or indirectly solicit,
encourage, or induce any person while employed by the Company or any
Consolidated Subsidiary to (i) leave the Company or any Consolidated Subsidiary,
(ii) cease his or her employment with the Company or any Consolidated Subsidiary
or (iii) accept employment with another entity or person.

     The provisions of this Section 10 shall survive any termination of the
Employee's employment and any termination of this Agreement.

                                       10

<PAGE>

     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 Company shall require any successor or assign (whether direct
or indirect, by purchase, merger, consolidation or otherwise) 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 Company would be required to perform it if no such succession or
assignment had taken place. Failure of the Company 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 and
benefits from the Company in the same amount and on the same terms as provided
for an Involuntary Termination under Section 7 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.

         (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.

     12. Notice. For the purposes of this Agreement, notices and all other
communications provided for in this 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, to the Company at its home
office, to the attention of the Board of Directors with a copy to the Secretary
of the Company, or, if to the Employee, to such home or other address as the
Employee has most recently provided in writing to the Company.

     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.

     14. Headings. The headings used in this Agreement are included solely for
convenience and shall not affect, 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
State of New Jersey.

     17. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement (other than relating to the enforcement of the provisions of
Section 10) 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.

                                       11

<PAGE>

     18. Equitable and Other Judicial Relief. In the event of an actual or
threatened breach by the Employee of any of the provisions of Section 10, the
Company shall be entitled to equitable relief in the form of an injunction from
a court of competent jurisdiction and such other equitable and legal relief as
such court deems appropriate under the circumstances. The parties agree that the
Company shall not be required to post any bond in connection with the grant or
issuance of an injunction (preliminary, temporary and/or permanent) by a court
of competent jurisdiction, and if a bond is nevertheless required, the parties
agree that it shall be in a nominal amount. The parties further agree that in
the event of a breach by the Employee of any of the provisions of Section 10,
the Company will suffer irreparable damage and its remedy at law against the
Employee is inadequate to compensate it for such damage.

     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.

Attest:                               PennFed Financial Services, Inc.

---------------------                 ---------------------------
Secretary                             By:   William C. Anderson
                                      Its:    Chairman

                                      Employee

                                      ----------------------------
                                      Jeffrey J. Carfora

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