S-1

As filed with the Securities and Exchange Commission on March 20, 2006

Registration No. 333-__________

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

Newport Bancorp, Inc.

and

Newport Federal Savings Bank Employees’ Savings & Profit Sharing Plan and Trust

(Exact name of registrant as specified in its charter)

Maryland	6035	20-4465271
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(IRS Employer Identification No.)

100 Bellevue Avenue

Newport, Rhode Island 02840

(401) 847-5500

(Address, including zip code, and telephone number,

including area code, of registrant’s principal executive offices)

Kevin M. McCarthy

President and Chief Executive Officer

Newport Bancorp, Inc.

100 Bellevue Avenue

Newport, Rhode Island 02840

(401) 847-5500

(Name, address, including zip code, and telephone number,

including area code, of agent for service)

Copies to:

Lawrence M.F. Spaccasi, Esquire	P. Ross Bevan, Esquire
Lori M. Beresford, Esquire	Elias, Matz, Tiernan & Herrick L.L.P.
Muldoon Murphy & Aguggia LLP	734 15th Street, 12th Floor
5101 Wisconsin Avenue, NW	Washington, DC 20005
Washington, DC 20016	(202) 347-0300
(202) 362-0840

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. x

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. ¨

Calculation of Registration Fee

Title of each class of securities to be registered	Amount to be registered	Proposed maximum offering price per unit	Proposed maximum aggregate offering price (2)	Amount of registration fee
Common Stock $.01 par value	4,959,375 Shares (1)	$10.00	$49,593,750	$5,307
Participation Interests	(3)	—	$4,569,000	(4)

(1) Includes shares of common stock to be issued to NewportFed Charitable Foundation, a private foundation.

(2) Estimated solely for the purpose of calculating the registration fee.

(3) In addition, pursuant to Rule 416(c) under the Securities Act, this registration statement also covers an indeterminate amount of interests to be offered or sold pursuant to the employee benefit plan described herein.

(4) The securities of Newport Bancorp, Inc. to be purchased by the Newport Federal Savings Bank Employee’s Savings & Profit Sharing Plan are included in the amount shown for common stock. Accordingly, no separate fee is required for the participation interests. In accordance with Rule 457(h) of the Securities Act, as amended, the registration fee has been calculated on the basis of the number of shares of common stock that may be purchased with the current assets of such Plan.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine.

Prospectus Supplement

INTERESTS IN

NEWPORT FEDERAL SAVINGS BANK

EMPLOYEES’ SAVINGS & PROFIT SHARING PLAN AND TRUST

AND

OFFERING OF 456,900 SHARES OF

NEWPORT BANCORP, INC.

COMMON STOCK ($.01 PAR VALUE)

This prospectus supplement relates to the offer and sale to participants in the Newport Federal Savings Bank Employees’ Savings & Profit Sharing Plan and Trust of participation interests and shares of common stock of Newport Bancorp, Inc.

401(k) Plan participants may direct Bank of New York, the trustee for the Newport Bancorp, Inc. Stock Fund, to use their current account balances to subscribe for and purchase shares of Newport Bancorp, Inc. common stock through the Newport Bancorp, Inc. Stock Fund. Based upon the value of the 401(k) Plan assets as of March 1, 2006, the Newport Bancorp, Inc. Stock Fund trustee may purchase up to 456,900 shares of Newport Bancorp, Inc. common stock, assuming a purchase price of $10.00 per share. This prospectus supplement relates to the election of 401(k) Plan participants to direct the Newport Bancorp, Inc. Stock Fund trustee to invest all or a portion of their 401(k) Plan accounts in Newport Bancorp, Inc. common stock.

The prospectus dated __________________, 2006 of Newport Bancorp, Inc., which we have attached to this prospectus supplement, includes detailed information regarding the conversion of Newport Federal Savings Bank from the mutual to the stock form of organization, and the financial condition, results of operations and business of Newport Federal Savings Bank. This prospectus supplement provides information regarding the Plan. You should read this prospectus supplement together with the prospectus and keep both for future reference.

Please refer to “Risk Factors” beginning on page __ of the prospectus.

Neither the Securities and Exchange Commission, the Office of Thrift Supervision, the Federal

Deposit Insurance Corporation, nor any other state or federal agency or any state securities

commission, has approved or disapproved these securities. Any representation to the contrary is a

criminal offense.

These securities are not deposits or accounts and are not insured or guaranteed by the

Federal Deposit Insurance Corporation or any other government agency.

This prospectus supplement may be used only in connection with offers and sales by Newport Bancorp, Inc. of interests or shares of common stock under the Plan to employees of Newport Federal Savings Bank. No one may use this prospectus supplement to reoffer or resell interests or shares of common stock acquired through the Plan.

You should rely only on the information contained in this prospectus supplement and the attached prospectus. Newport Bancorp, Inc., Newport Federal Savings Bank and the Plan have not authorized anyone to provide you with information that is different.

This prospectus supplement does not constitute an offer to sell or solicitation of an offer to buy any securities in any jurisdiction to any person to whom it is unlawful to make an offer or solicitation in that jurisdiction. Neither the delivery of this prospectus supplement and the prospectus nor any sale of common stock shall under any circumstances imply that there has been no change in the affairs of Newport Federal Savings Bank or the Plan since the date of this prospectus supplement, or that the information contained in this prospectus supplement or incorporated by reference is correct as of any time after the date of this prospectus supplement.

The date of this Prospectus Supplement is ______________, 2006.

TABLE OF CONTENTS

THE OFFERING	1
Securities Offered	1
Election to Purchase Newport Bancorp, Inc. Common Stock in the Conversion	1
Value of Participation Interests	1
Method of Directing Transfer	2
Time for Directing Transfer	2
Irrevocability of Transfer Direction	2
Purchase Price of Newport Bancorp, Inc. Common Stock	2
Nature of a Participant’s Interest in Newport Bancorp, Inc. Common Stock	2
Voting and Tender Rights of Newport Bancorp, Inc. Common Stock	2
DESCRIPTION OF THE PLAN	3
Introduction	3
Eligibility and Participation	3
Contributions Under the Plan	3
Limitations on Contributions	4
Investment of Contributions	5
Benefits Under the Plan	7
Withdrawals and Distributions From the Plan	7
Administration of the Plan	8
Reports to Plan Participants	9
Plan Administrator	9
Amendment and Termination	9
Merger, Consolidation or Transfer	9
Federal Income Tax Consequences	9
Restrictions on Resale	11
SEC Reporting and Short-Swing Profit Liability	11
LEGAL OPINION	12

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THE OFFERING

Securities Offered

The securities offered in connection with this prospectus supplement are participation interests in the Plan. Assuming a purchase price of $10.00 per share, the trustee may acquire up to 456,900 shares of Newport Bancorp, Inc. common stock for the Newport Bancorp, Inc. Stock Fund. The interests offered under this prospectus supplement are conditioned on the completion of the mutual to stock conversion of Newport Federal Savings Bank. Your investment in the Newport Bancorp, Inc. Stock Fund in connection with the mutual to stock conversion of Newport Federal Savings Bank is also governed by the purchase priorities contained in the plan of conversion. See the “Limitations on Purchases of Shares” section of the prospectus attached to this prospectus supplement for a discussion of the purchase priorities contained in the plan of conversion.

This prospectus supplement contains information regarding the Plan. The attached prospectus contains information regarding the mutual to stock conversion of Newport Federal Savings Bank and the financial condition, results of operations and business of Newport Federal Savings Bank. The address of the principal executive office of Newport Federal Savings Bank is 100 Bellevue Avenue, Newport, Rhode Island 02840-3231. The telephone number of Newport Federal Savings Bank is (401) 847-5500.

Election to Purchase Newport Bancorp, Inc. Common Stock in the Conversion

In connection with the mutual to stock conversion of Newport Federal Savings Bank, the Plan will permit you to direct the trustee to transfer all or part of the funds which represent your current beneficial interest in the assets of the Plan to the Newport Bancorp, Inc. Stock Fund. The trustee of the Plan will subscribe for Newport Bancorp, Inc. common stock offered for sale in connection with the conversion in accordance with each participant’s direction. If there is not enough common stock in the conversion to fill all subscriptions, the common stock will be apportioned and the trustee for the Plan may not be able to purchase all of the common stock you requested. In such case, the trustee may purchase shares in the open market, on your behalf, after the conversion to fulfill your initial request, if you so elect. Such purchases may be at prices higher than the initial public offering price.

All plan participants are eligible to direct a transfer of funds to the Newport Bancorp, Inc. Stock Fund. However, such directions are subject to the purchase priorities in the plan of conversion. Your order will be filled based on your status as an eligible account holder or supplemental eligible account holder. An eligible account holder is a depositor who has $50.00 or more on deposit at Newport Federal Savings Bank or Westerly Savings Bank as of May 31, 2004. A supplemental eligible account holder is a depositor who has $50.00 or more on deposit at Newport Federal Savings Bank as of March 31, 2006. No eligible account holder or supplemental eligible account holder may purchase more than $200,000 of Newport Bancorp, Inc. common stock in the offering. If you fall into one of the above subscription offering categories, you have subscription rights to purchase shares of common stock in the offering and you may use funds in the Plan account to pay for the shares of Newport Bancorp, Inc. common stock which you are eligible to purchase.

Value of Participation Interests

As of March 1, 2006, the market value of the assets of the Plan equaled approximately $4,569,000. The plan administrator has informed each participant of the value of his or her beneficial interest in the Plan as of December 31, 2005. The value of Plan assets represents past contributions to the Plan on your behalf, plus or minus earnings or losses on the contributions, less previous withdrawals and loans.

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Method of Directing Transfer

Enclosed with this prospectus supplement is a form for you to direct a transfer to the Newport Bancorp, Inc. Stock Fund (the “Change of Investment Allocation Form”). If you wish to transfer all, or part, in multiples of not less than 1%, of your beneficial interest in the assets of the Plan to the Newport Bancorp, Inc. Stock Fund, you should complete the Change of Investment Allocation Form. If you do not wish to make such an election at this time, you do not need to take any action. The minimum investment in the Newport Bancorp, Inc. Stock Fund during the initial public offering is $250.

Time for Directing Transfer

The deadline for submitting a direction to transfer amounts to the Newport Bancorp, Inc. Stock Fund in connection with the conversion is _______________, 2006. You should return the Change of Investment Allocation Form to Judy Tucker by __:__ p.m. on ________________, 2006.

Irrevocability of Transfer Direction

Once you submit your Change in Investment Allocation Form you cannot change your direction to transfer amounts credited to your account in the Plan to the Newport Bancorp, Inc. Stock Fund prior to the completion of the conversion. Following the closing of the Newport Bancorp, Inc. initial public offering and initial purchase of shares in the Newport Bancorp, Inc. Stock Fund, you will be able to change your investment directions in accordance with the terms of the Plan.

Purchase Price of Newport Bancorp, Inc. Common Stock

The trustee will use the funds transferred to the Newport Bancorp, Inc. Stock Fund to purchase shares of Newport Bancorp, Inc. common stock in the conversion. The trustee will pay the same price for shares of Newport Bancorp, Inc. common stock as all other persons who purchase shares of Newport Bancorp, Inc. common stock in the offering. If there is not enough common stock in the offering to fill all subscriptions, the common stock will be apportioned and the trustee for the Plan may not be able to purchase all of the common stock you requested. In such case, you may direct the trustee to purchase shares on your behalf after the conversion in the open market, to fulfill your initial request. Such purchases may be at prices higher or lower than the initial public offering price.

Nature of a Participant’s Interest in Newport Bancorp, Inc. Common Stock

The trustee will hold Newport Bancorp, Inc. common stock in the name of the Plan. The trustee will credit shares of common stock acquired at your direction to your account under the Plan. Therefore, earnings with respect to your account will not be affected by the investment designations of other participants in the Plan.

Voting and Tender Rights of Newport Bancorp, Inc. Common Stock

The trustee generally will exercise voting and tender rights attributable to all Newport Bancorp, Inc. common stock held by the Newport Bancorp, Inc. Stock Fund as directed by participants with interests in the Newport Bancorp, Inc. Stock Fund. With respect to each matter as to which holders of Newport Bancorp, Inc. common stock have a right to vote, you will be given voting instruction rights reflecting your proportionate interest in the Newport Bancorp, Inc. Stock Fund. The number of shares of Newport Bancorp, Inc. common stock held in the Newport Bancorp, Inc. Stock Fund that are voted for and against on each matter will be proportionate to the number of voting instruction rights exercised in

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such manner. If there is a tender offer for Newport Bancorp, Inc. common stock, the Plan provides that each participant will be allotted a number of tender instruction rights reflecting such participant’s proportionate interest in the Newport Bancorp, Inc. Stock Fund. The percentage of shares of Newport Bancorp, Inc. common stock held in the Newport Bancorp, Inc. Stock Fund that will be tendered will be the same as the percentage of the total number of tender instruction rights that are exercised in favor of the tender offer. The remaining shares of Newport Bancorp, Inc. common stock held in the Newport Bancorp, Inc. Stock Fund will not be tendered. The Plan makes provisions for participants to exercise their voting instruction rights and tender instruction rights on a confidential basis.

DESCRIPTION OF THE PLAN

Introduction

Effective April 1, 2006, Newport Federal Savings Bank amended and restated its 401(k) Plan in its entirety into the Newport Federal Savings Bank Employees’ Savings & Profit Sharing Plan and Trust. Newport Federal Savings Bank intends for the Plan to comply, in form and in operation, with all applicable provisions of the Internal Revenue Code and the Employee Retirement Income Security Act of 1974, as amended, or “ERISA.” Newport Federal Savings Bank may change the Plan from time to time in the future to ensure continued compliance with these laws. Newport Federal Savings Bank may also amend the Plan from time to time in the future to add, modify, or eliminate certain features of the plan, as it sees fit. As a plan governed by ERISA, federal law provides you with various rights and protections as a plan participant. Although the Plan is governed by many of the provisions of ERISA, your benefits under the plan are not guaranteed by the Pension Benefit Guaranty Corporation.

Reference to Full Text of the Plan. The following portions of this prospectus supplement provide an overview of the material provisions of the Plan. Newport Federal Savings Bank qualifies this overview in its entirety by reference to the full text of the Plan. You may obtain copies of the full Plan document by sending a request to Judy Tucker at Newport Federal Savings Bank. You should carefully read the full text of the Plan document to understand your rights and obligations under the plan.

Eligibility and Participation

Eligible employees who are at least 21 years of age may begin contributing to the Plan on the first day of the month following the completion of 500 hours of service with Newport Federal Savings Bank during a consecutive six (6) month time period.

As of March 1, 2006, 56 of the 70 employees at Newport Federal Savings Bank elected to participate in the Plan.

Contributions Under the Plan

Plan Participant Contributions. Subject to certain IRS limitations, the Plan permits each participant to make bi-weekly contributions to the Plan equal to 50% of the participant’s compensation. Participants may change their rate of contribution with respect to pre-tax deferrals once a month. For purposes of the 401(k) Plan, a participant’s compensation is defined as that amount reported in Box 1 of the participant’s Form W-2.

Newport Federal Savings Bank Contributions. The Plan provides that Newport Federal Savings Bank may make matching contributions. Newport Federal Savings Bank matches 100% of each

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participant’s deferrals up to 3% of compensation and 50% on the next 2% of compensation. The matching contribution has been adopted in accordance with a “safe harbor” formula.

Limitations on Contributions

Limitation on Employee Salary Deferral. Although the Plan permits you to defer up to 50% of your compensation, by law your total deferrals under the Plan, together with similar plans, may not exceed $15,000 for 2006. Employees who are age 50 and over may make additional catch-up contributions to the Plan, up to $5,000 for 2006. The Internal Revenue Service will periodically increase this annual limitation. Contributions in excess of this limitation, or excess deferrals, will be included in an affected participant’s gross income for federal income tax purposes in the year they are made. In addition, a participant will have to pay federal income taxes on any excess deferrals when distributed by the Plan to the participant, unless the excess deferral and any related income allocable is distributed to the participant not later than the first April 15th following the close of the taxable year in which the excess deferral is made. Any income on the excess deferral that is distributed not later than such date shall be treated, for federal income tax purposes, as earned and received by the participant in the taxable year in which the distribution is made.

Limitations on Annual Additions and Benefits. Under the requirements of the Internal Revenue Code, the Plan provides that the total amount of contributions and forfeitures (annual additions) credited to a participant during any year under all defined contribution plans of Newport Federal Savings Bank (including the Plan and the proposed Newport Federal Savings Bank Employee Stock Ownership Plan) may not exceed the lesser of 100% of the participant’s compensation, or $44,000 for 2006.

Limitation on Plan Contributions for Highly Compensated Employees. Special provisions of the Internal Revenue Code limit the amount of salary deferrals and matching contributions that may be made to the Plan in any year on behalf of highly compensated employees in relation to the amount of deferrals and matching contributions made by or on behalf of all other employees eligible to participate in the Plan. If these limitations are exceeded, the level of deferrals by highly compensated employees must be adjusted.

In general, a highly compensated employee includes any employee who (1) was a five percent owner of the sponsoring employer at any time during the year or preceding year, or (2) had compensation for the preceding year in excess of $100,000 and, if the sponsoring employer so elects, was in the top 20% of employees by compensation for such year. The dollar amounts in the foregoing sentence are for 2006, but may be adjusted periodically by the IRS.

Top-Heavy Plan Requirements. If for any calendar year the Plan is a Top-Heavy Plan, then Newport Federal Savings Bank may be required to make certain minimum contributions to the Plan on behalf of non-key employees.

In general, the Plan will be treated as a “Top-Heavy Plan” for any calendar year if, as of the last day of the preceding calendar year, the aggregate balance of the accounts of participants who are Key Employees exceeds 60% of the aggregate balance of the accounts of all participants. Key Employees generally include any employee who, at any time during the calendar year or any of the four preceding years, is:

(1) an officer of Newport Federal Savings Bank having annual compensation in excess of $140,000 who is in an administrative or policy-making capacity,

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(2) a person who owns, directly or indirectly, more than 5% of the stock of Newport Bancorp, Inc., or stock possessing more than 5% of the total combined voting power of all stock of Newport Bancorp, Inc., or

(3) a person who owns, directly or indirectly, combined voting power of all stock and more than 1% of the total stock of Newport Bancorp, Inc. and has annual compensation in excess of $150,000.

The foregoing dollar amounts are for 2006.

401(k) Plan Investments

Assets in the Plan Trust are invested in the funds specified below. The annual percentage return on these funds (net of fees) for the prior three Plan years ending December 31 was:

	2005		2004		2003
International Stock Fund 600	13.0	%	19.70	%	37.10	%
Nasdaq 100 Stock Fund 520	1.0	%	9.90	%	48.30	%
Russell 2000 Stock Fund 510	4.2	%	17.70	%	46.00	%
S&P Midcap Stock Fund 500	12.0	%	16.10	%	35.10	%
S&P Growth Stock Fund 420	3.5	%	5.50	%	24.90	%
S&P Value Stock Fund 410	5.3	%	15.10	%	30.70	%
S&P 500 Stock Fund 400	4.4	%	10.30	%	28.00	%
US REIT Index Fund 530	11.9	%		*		*
Long Treasury Index Fund 300 (Govt Bond)	7.1	%	8.40	%	1.30	%
Stable Value Fund 210	3.7	%	3.60	%	4.30	%
Short Term Investment Fund 200 (Money Market)	2.9	%	1.10	%	0.90	%
Income Plus Asset Allocation Fund 100	4.9	%	6.60	%	11.70	%
Growth & Income Asset Allocation Fund 111	5.7	%	9.90	%	19.70	%
Growth Asset Allocation Fund 120	6.7	%	12.80	%	28.30	%

* The US REIT Index Fund was first offered on January 1, 2005

The following is a brief description of the above noted funds.

Pentegra Fund 100—Income Plus Asset Allocation Fund. Invests in a diversified portfolio of approximately 75% U.S. bonds, money market instruments and stable value instruments, and 25% in U.S. and international stocks selected from major indexes. Intended for short-to medium-term investors seeking lower-risk portfolio diversified investments with the potential for some capital appreciation over time.

Pentegra Fund 110—Growth & Income Asset Allocation Fund. Invests in a diversified portfolio of approximately 55% U.S. and international stocks, with the remaining 45% held in U.S. fixed income and stable value investments. Intended for long-term investors seeking a moderate total portfolio solution with the potential for moderate capital appreciation over time.

Pentegra Fund 120—Growth Asset Allocation Fund. Invests primarily in stocks (85%), divided among U.S. stocks and international stocks, with the remaining 15% target allocation invested in fixed income and stable value instruments. Intended for long-term investors who can withstand the potential risk for short-term price swings while seeking a potential high return total portfolio solution over time.

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Pentegra Fund 200—Short Term Investment Fund. Invests in high-quality money market securities and other short-term debt instruments. Most of the investments in the Fund may have a range of maturity from overnight to 90 days; however, 20% of the value of the Fund may be invested in assets with a maturity date in excess of 90 days, but not to exceed 13 months. All securities are required to meet strict guidelines for credit quality and must be rated at least A1 by Standard & Poor’s and P1 by Moody’s Investor Service. Intended for short-term investors seeking current income while preserving the value of their investment principal.

Pentegra Fund 210—Stable Value Fund. Invests primarily in investment contracts issued by insurance companies, banks, and other financial institutions, as well as enhanced short-term investment products. The Stable Value Fund seeks to preserve the principal amount of your contributions while maintaining a rate of return comparable to other fixed income instruments. Intended for short-term investors seeking to preserve the value of their investment and achieve a stable return.

Pentegra Fund 300—Long Treasury Index Fund. Invests primarily in U.S. Treasury securities with a maturity of 10 years or longer. Seeks to track the investment returns of the Lehman Brothers Long Treasury Bond Index. As a bond fund, this Fund is intended for short to medium term investors seeking to generate income and add stability of principal to your portfolio.

Pentegra Fund 400—S&P 500 Stock Fund. Invests in most or all of the same stocks held in the S&P 500 Index. Seeks to track the investment returns of the S&P 500 Index. This Fund may be appropriate if you have a medium to longer time frame and are willing to ride out stock market fluctuations in the short term in exchange for the potential for high long-term returns. Intended for investors seeking to capture the earnings and growth potential of large U.S. companies.

Pentegra Fund 410—S&P 500/Value Stock Fund. Invests in a portfolio of stocks of large established U.S. companies and seeks to track the investment returns of the S&P/Citigroup Value Index. Intended for long-term investors seeking a diversified portfolio of large-capitalization value stocks.

Pentegra Fund 420—S&P 500/Growth Stock Fund. Invests in a portfolio of large-capitalization growth stocks. Seeks to track the investment returns of the S&P/Citigroup Growth Index. Intended for long-term investors seeking a diversified portfolio of large-capitalization growth stocks.

Pentegra Fund 500—S&P MidCap Stock Fund. Invests in most or all of the same stocks that make up the S&P MidCap 400 Index. Seeks to track the investment returns of the S&P MidCap 400 Index. Intended for long-term investors seeking high returns that reflect the growth potential of mid-sized U.S. companies.

Pentegra Fund 510—Russell 2000 Stock Fund. Invests in a broad range of small-capitalization U.S. companies. Seeks to track the investment returns of the Russell 2000 Index. Intended for long-term investors seeking the potential of high returns from investing in smaller U.S. companies.

Pentegra Fund 520—NASDAQ 100 Stock Fund. Invests in most or all of the same stocks held in the Nasdaq 100 Index. Seeks to track the performance of the Nasdaq 100 Index. Intended for long-term investors seeking to capture the growth potential of the 100 largest domestic and international and most actively traded nonfinancial companies on the Nasdaq Stock Market.

Pentegra Fund 530—US REIT Index Fund. Invests primarily in equity shares of real estate investment trusts (REITS). REITS invest in loans secured by real estate and invest directly in real estate properties such as apartments, office buildings, and shopping malls. The Fund seeks to match the performance of the Dow Jones/Wilshire REIT Index. Intended for medium to long-term investors seeking a high level of dividend income and long-term appreciation of capital.

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Pentegra Fund 600—International Stock Fund. Invests in a diversified portfolio of approximately 1,000 foreign stocks representing established companies in approximately 21 countries outside North and South America. The Fund seeks to match the performance of the Morgan Stanley Capital International, Europe, Australia, Far East (MSCI EAFE) Index. Intended for long-term investors seeking to capture high returns and diversification by investing in a broad range of foreign stocks and seeking to further diversify a portfolio of U.S. securities.

In addition to the above-noted funds, participants can individually direct their 401(k) Plan investments through the Personal Choice Retirement Account (PCRA). The PCRA is a self-brokerage option that is designed to enhance the core investment options offered through the 401(k) Plan. With the PCRA, plan participants have access to a wide range of investments, including mutual funds plus individual securities. All participants (including active, inactive and terminated members) may establish a PCRA. The minimum initial PCRA transfer is $1,000. A maximum of 25% of a participant’s total plan account balance may be transferred to the PCRA.

Newport Bancorp, Inc. Stock Fund, in connection with the conversion, the Plan now provides the Newport Bancorp, Inc. Stock Fund as an additional choice to the above-noted investment alternatives. The Newport Bancorp, Inc. Stock Fund invests primarily in the common stock of Newport Bancorp, Inc. Participants in the Plan may direct the trustee to invest all or a portion of their Plan account balance in the Newport Bancorp, Inc. Stock Fund. The Newport Bancorp, Inc. Stock Fund consists of investments in the common stock of Newport Bancorp, Inc. made on the effective date of the conversion. After the conversion of Newport Federal Savings Bank, the trustee of the Plan will, to the extent practicable, use all amounts held by it in the Newport Bancorp, Inc. Stock Fund, including cash dividends paid on the common stock held in the fund, to purchase shares of common stock of Newport Bancorp, Inc. Plan participants that invest in the Stock Fund will be permitted to direct the Stock Fund Trustee how to vote the shares of Newport Bancorp, Inc. common stock credited to their account.

As of the date of this prospectus supplement, none of the shares of Newport Bancorp, Inc. common stock have been issued or are outstanding and there is no established market for the Newport Bancorp, Inc. common stock. Accordingly, there is no record of the historical performance of the Newport Bancorp, Inc. Stock Fund. Performance of the Newport Bancorp, Inc. Stock Fund depends on a number of factors, including the financial condition and profitability of Newport Bancorp, Inc. and Newport Federal Savings Bank and market conditions for Newport Bancorp, Inc. common stock generally.

Once you have submitted your Change of Investment Allocation form you will not be able to change your Plan investment directions until after the Newport Bancorp, Inc. initial public offering has been completed. Post-conversion you will be able to change your investment directions in accordance with the terms of the Plan.

Benefits Under the Plan

Vesting. Participants are 100% vested in their elective deferrals, employer matching contributions and supplemental contributions (if any).

Withdrawals and Distributions From the Plan

Withdrawals Before Termination of Employment. You may receive in-service distributions of your after-tax contribution and rollover accounts, if any, from the Plan once per calendar year. Under limited circumstances in the form of hardship distributions, you may apply for in-service withdrawal of your 401(k) pretax contributions. In order to qualify for a hardship withdrawal, you must have an

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immediate and substantial need to meet certain expenses and have no other reasonably available resources to meet the financial need. If you qualify for a hardship distribution, the trustee will make the distribution proportionately from the investment funds in which you have invested your account balances.

In general, employer contributions credited on your behalf will not be available for in-service withdrawal until such contributions have been invested in the Plan for at least 24 months or you have been a participant for at least 5 years or you have attained age 59 ¹/2. Employer “safe harbor” matching contributions cannot be withdrawn until you attain age 59 ¹/2 or terminate employment.

Participant Loans. Participants and beneficiaries are eligible for Plan loans. You may borrow any amount between $1,000 and $50,000 (reduced by your highest outstanding loan balance(s) from the Plan during the preceding 12 months). You may borrow only once in each calendar year and the loan amount is limited to no more than 50% of your vested account balance.

Distribution Upon Retirement or Disability. Upon retirement or disability, you may receive a partial lump sum payment, a full lump sum payment, or installment payments from the Plan equal to the value of your account.

Distribution Upon Death. If you die before your benefits are paid from the Plan, your benefits will be paid to your surviving spouse or beneficiary under one or more of the forms available under the Plan.

Distribution Upon Termination for Any Other Reason. If you terminate employment for any reason other than retirement, disability or death and your account balance exceeds $500, the trustee will make your distribution on your normal retirement date, unless you request otherwise. If your account balances do not exceed $500, the trustee will generally distribute your benefits to you as soon as administratively practicable following termination of employment.

Nonalienation of Benefits. Except with respect to federal income tax withholding and as provided with respect to a qualified domestic relations order, benefits payable under the Plan will not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either voluntary or involuntary, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any rights to benefits payable under the Plan will be void.

Applicable federal tax law requires the Plan to impose substantial restrictions on your right to withdraw amounts held under the plan before your termination of employment with Newport Federal Savings Bank. Federal law may also impose an excise tax on withdrawals made from the Plan before you attain 59 ¹/2 years of age regardless of whether the withdrawal occurs during your employment with Newport Federal Savings Bank or after termination of employment.

Administration of the Plan

Newport Federal Savings Bank is the named fiduciary of the Plan for purposes of ERISA.

Trustees. The board of directors of Newport Federal Savings Bank appoints the trustee to serve at its pleasure. The board of directors has appointed Bank of New York as trustee of the Newport Bancorp, Inc. Stock Fund.

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The trustee receives, holds and invests the contributions to the Plan in trust and distributes them to participants and beneficiaries in accordance with the terms of the Plan and the directions of the plan administrator. The trustee is responsible for investment of the assets of the trust.

Reports to Plan Participants

The plan administrator will furnish you a statement at least quarterly showing the balance in your account as of the end of that period, the amount of contributions allocated to your account for that period, and any adjustments to your account to reflect earnings or losses. Participants may access their account information at any time through Pentegra by Phone 1-800-433-4422 or on the Internet at www.pentegra.com.

Plan Administrator

The current plan administrator of the Plan is Newport Federal Savings Bank. The plan administrator is responsible for the administration of the Plan, interpretation of the provisions of the plan, prescribing procedures for filing applications for benefits, preparation and distribution of information explaining the plan, maintenance of plan records, books of account and all other data necessary for the proper administration of the plan, and preparation and filing of all returns and reports relating to the plan which are required to be filed with the U.S. Department of Labor and the Internal Revenue Service, and for all disclosures required to be made to participants, beneficiaries and others under the Employee Retirement Income Security Act of 1974, as amended.

Amendment and Termination

Newport Federal Savings Bank intends to continue the Plan indefinitely. Nevertheless, Newport Federal Savings Bank may terminate the Plan at any time. If Newport Federal Savings Bank terminates the Plan in whole or in part, then regardless of other provisions in the plan, all affected participants will become fully vested in their accounts. Newport Federal Savings Bank reserves the right to make, from time to time, changes which do not cause any part of the trust to be used for, or diverted to, any purpose other than the exclusive benefit of participants or their beneficiaries; provided, however, that Newport Federal Savings Bank may amend the plan as it determines necessary or desirable, with or without retroactive effect, to comply with the Employee Retirement Income Security Act of 1974, as amended, or the Internal Revenue Code.

Merger, Consolidation or Transfer

If the Plan merges or consolidates with another plan or transfers the trust assets to another plan, and if either the Plan or the other plan is then terminated, the Plan requires that you would receive a benefit immediately after the merger, consolidation or transfer. The benefit would be equal to or greater than the benefit you would have been entitled to receive immediately before the merger, consolidation or transfer if the Plan had then terminated.

Federal Income Tax Consequences

The following is only a brief summary of the material federal income tax aspects of the Plan. You should not rely on this survey as a complete or definitive description of the material federal income tax consequences relating to the Plan. Statutory provisions change, as do their interpretations, and their application may vary in individual circumstances. Finally, the consequences under applicable state and local income tax laws may not be the same as under the federal income tax laws. You are urged to

9

consult your tax advisor with respect to any distribution from the Plan and transactions involving the Plan.

As a “qualified retirement plan,” the Code affords the Plan special tax treatment, including:

(1) The sponsoring employer is allowed an immediate tax deduction for the amount contributed to the plan each year;

(2) participants pay no current income tax on amounts contributed by the employer on their behalf; and

(3) earnings of the plan are tax-deferred, thereby permitting the tax-free accumulation of income and gains on investments.

Newport Federal Savings Bank will administer the Plan to comply in operation with the requirements of the Internal Revenue Code as of the applicable effective date of any change in the law. If Newport Federal Savings Bank receives an adverse determination letter regarding its tax exempt status from the Internal Revenue Service, all participants would generally recognize income equal to their vested interest in the Plan, the participants would not be permitted to transfer amounts distributed from the Plan to an Individual Retirement Account or to another qualified retirement plan, and Newport Federal Savings Bank may be denied certain deductions taken with respect to the Plan.

Lump Sum Distribution. A distribution from the Plan to a participant or the beneficiary of a participant will qualify as a lump sum distribution if it is made within one taxable year, on account of the participant’s death, disability or separation from service, or after the participant attains age 59 ¹/2; and consists of the balance credited to the participant under this plan and all other profit sharing plans, if any, maintained by Newport Federal Savings Bank. The portion of any lump sum distribution required to be included in your taxable income for federal income tax purposes consists of the entire amount of the lump sum distribution less the amount of after-tax contributions, if any, you have made to any other profit sharing plans maintained by Newport Federal Savings Bank which is included in the distribution.

Newport Bancorp, Inc. common stock Included in Lump Sum Distribution. If a lump sum distribution includes Newport Bancorp, Inc. common stock, the distribution generally will be taxed in the manner described above, except that the total taxable amount will be reduced by the amount of any net unrealized appreciation with respect to Newport Bancorp, Inc. common stock, that is, the excess of the value of Newport Bancorp, Inc. common stock at the time of the distribution over its cost or other basis of the securities to the trust. The tax basis of Newport Bancorp, Inc. common stock for purposes of computing gain or loss on its subsequent sale equals the value of Newport Bancorp, Inc. common stock at the time of distribution, less the amount of net unrealized appreciation. Any gain on a subsequent sale or other taxable disposition of Newport Bancorp, Inc. common stock, to the extent of the amount of net unrealized appreciation at the time of distribution, will constitute long-term capital gain regardless of how long the Newport Bancorp, Inc. common stock, is held, or the “holding period.” Any gain on a subsequent sale or other taxable disposition of Newport Bancorp, Inc. common stock in excess of the amount of net unrealized appreciation at the time of distribution will be considered long-term capital gain regardless of the holding period of Newport Bancorp, Inc. common stock. Any gain on a subsequent sale or other taxable disposition of Newport Bancorp, Inc. common stock in excess of the amount of net unrealized appreciation at the time of distribution will be considered either short-term or long-term capital gain, depending upon the length of the holding period of Newport Bancorp, Inc. common stock. The recipient of a distribution may elect to include the amount of any net unrealized appreciation in the total taxable amount of the distribution, to the extent allowed by the regulations to be issued by the IRS.

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Distributions: Rollovers and Direct Transfers to Another Qualified Plan or to an IRA. You may roll over virtually all distributions from the Plan to another qualified retirement plan or to an individual retirement account.

We have provided you with a brief description of the material federal income tax aspects of the Plan which are of general application under the Code. It is not intended to be a complete or definitive description of the federal income tax consequences of participating in or receiving distributions from the Plan. Accordingly, you are urged to consult a tax advisor concerning the federal, state and local tax consequences of participating in and receiving distributions from the Plan.

Restrictions on Resale

Any person receiving a distribution of shares of common stock under the Plan who is an “affiliate” of Newport Bancorp, Inc. under Rules 144 and 405 under the Securities Act of 1933, as amended, may reoffer or resell such shares only under a registration statement filed under the Securities Act of 1933, as amended, assuming the availability of a registration statement, or under Rule 144 or some other exemption of the registration requirements of the Securities Act of 1933, as amended. Directors, officers and substantial shareholders of Newport Bancorp, Inc. are generally considered “affiliates.” Any person who may be an “affiliate” of Newport Federal Savings Bank may wish to consult with counsel before transferring any common stock they own. In addition, participants are advised to consult with counsel as to the applicability of Section 16 of the Securities Exchange Act of 1934, as amended, which may restrict the sale of Newport Bancorp, Inc. common stock acquired under the Plan, or other sales of Newport Bancorp, Inc. common stock.

Persons who are not deemed to be “affiliates” of Newport Federal Savings Bank at the time of resale will be free to resell any shares of Newport Bancorp, Inc. common stock distributed to them under the Plan, either publicly or privately, without regard to the registration and prospectus delivery requirements of the Securities Act of 1933, as amended, or compliance with the restrictions and conditions contained in the exemptive rules under federal law. An “affiliate” of Newport Federal Savings Bank is someone who directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control, with Newport Federal Savings Bank. Normally, a director, principal officer or major shareholder of a corporation may be deemed to be an “affiliate” of that corporation. A person who may be deemed an “affiliate” of Newport Federal Savings Bank at the time of a proposed resale will be permitted to make public resales of the common stock only under a “reoffer” prospectus or in accordance with the restrictions and conditions contained in Rule 144 under the Securities Act of 1933, as amended, or some other exemption from registration, and will not be permitted to use this prospectus in connection with any such resale. In general, the amount of the common stock which any such affiliate may publicly resell under Rule 144 in any three-month period may not exceed the greater of one percent of Newport Bancorp, Inc. common stock then outstanding or the average weekly trading volume reported on the Nasdaq National Market during the four calendar weeks before the sale. Such sales may be made only through brokers without solicitation and only at a time when Newport Bancorp, Inc. is current in filing the reports required of it under the Securities Exchange Act of 1934, as amended.

SEC Reporting and Short-Swing Profit Liability

Section 16 of the Securities Exchange Act of 1934, as amended, imposes reporting and liability requirements on officers, directors and persons beneficially owning more than ten percent of public companies such as Newport Bancorp, Inc. Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the filing of reports of beneficial ownership. Within ten days of becoming a person required to file reports under Section 16(a), a Form 3 reporting initial beneficial ownership must be filed

11

with the Securities and Exchange Commission. Certain changes in beneficial ownership involving allocation or reallocation of assets held in your Plan account must be reported periodically, either on a Form 4 within two days after a transaction, or annually on a Form 5 within 45 days after the close of a company’s fiscal year.

In addition to the reporting requirements described above, Section 16(b) of the Securities Exchange Act of 1934, as amended, provides for the recovery by Newport Bancorp, Inc. of profits realized by any officer, director or any person beneficially owning more than ten percent of the common stock resulting from the purchase and sale or sale and purchase of the common stock within any six-month period.

The SEC has adopted rules that exempt many transactions involving the Plan from the “short-swing” profit recovery provisions of Section 16(b). The exemptions generally involve restrictions upon the timing of elections to buy or sell employer securities for the accounts of any officer, director or any person beneficially owning more than ten percent of the common stock.

Except for distributions of the common stock due to death, disability, retirement, termination of employment or under a qualified domestic relations order, persons who are governed by Section 16(b) may, under limited circumstances involving the purchase of common stock within six months of the distribution, be required to hold shares of the common stock distributed from the Plan for six months following the distribution date.

LEGAL OPINION

The validity of the issuance of the common stock of Newport Bancorp, Inc. will be passed upon by Muldoon Murphy & Aguggia LLP, Washington, D.C. Muldoon Murphy & Aguggia LLP acted as special counsel for Newport Federal Savings Bank in connection with the Newport Federal Savings Bank mutual to stock conversion.

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NEWPORT FEDERAL SAVINGS BANK EMPLOYEES’ SAVINGS & PROFIT SHARING

PLAN AND TRUST

CHANGE OF INVESTMENT ALLOCATION

1. Member Data

Print your full name above	(Last, first, middle initial)	Social Security Number
Street Address	City	State	Zip

2. Instructions

The Newport Federal Savings Bank Employees’ Savings & Profit Sharing Plan and Trust (the “Plan”) is giving Plan participants a special opportunity to subscribe for shares of Newport Bancorp, Inc. common stock in connection with the Newport Federal Savings Bank mutual to stock conversion through the use of their funds in the Plan. The percentage of a Plan participant’s account transferred at the direction of the participant into the Newport Bancorp, Inc. Stock Fund will be used to purchase common stock in the offering. Please review the Prospectus (the “Prospectus”) and the Prospectus Supplement (the “Supplement”) before making any decision to use your retirement funds to invest in Newport Bancorp, Inc. common stock.

If there is not enough common stock in the initial public offering to fill all subscriptions, the common stock will be apportioned and the trustee for the Plan may not be able to purchase all of the common stock you requested. In such case, you may direct the trustee to purchase shares in the open market, on your behalf, after the closing of the initial public offering to fulfill your initial request. Such purchases may be at prices higher or lower than the initial offering price.

¨ Yes, I direct the Plan Trustee to purchase Newport Bancorp, Inc. common stock in the open market, if necessary.

Investing in common stock entails some risks, and we encourage you to discuss this investment decision with your spouse and investment advisor. The Plan trustee and the Plan Administrator are not authorized to make any representations about this investment other than what appears in the Prospectus and the Prospectus Supplement, and you should not rely on any information other than what is contained in the Prospectus and the Prospectus Supplement. For a discussion of certain factors that should be considered by each member as to an investment in the common stock, see “Risk Factors” beginning on page __ of the Prospectus. Any shares purchased by the Plan pursuant to your election will be subject to the conditions or restrictions otherwise applicable to common stock, as discussed in the Prospectus and the Prospectus Supplement.

3. Purchaser Information

Your ability to purchase common stock and to direct your Plan funds into the Newport Bancorp, Inc. Stock Fund is based upon your subscription rights. Please indicate the EARLIEST date that applies to you.

¨ Check here if you had $50.00 or more on deposit with Newport Federal Savings Bank or Westerly Savings Bank as of May 31, 2004.

¨ Check here if you had $50.00 or more on deposit with Newport Federal Savings Bank as of March 31, 2006.

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4. Investment Directions (Applicable to Accumulated Balances Only)

To direct a transfer of all or part of the funds credited to your accounts to the Newport Bancorp, Inc. Stock Fund, you should complete and submit this form to Judy Tucker at Newport Federal Savings Bank, no later than ___________________________ at 4:00 p.m. Once your Change of Investment Allocation form is submitted, your election to invest in the offering with your Plan funds is irrevocable. If you need any assistance in completing this form, please contact Judy Tucker. If you do not complete and return this form to Judy Tucker by 4:00 p.m., on ______________________________, 2006, the funds credited to your account under the Plan will continue to be invested in accordance with your prior investment direction, or in accordance with the terms of the Plan if no investment direction had been provided.

I hereby revoke any previous investment direction and now direct that the market value of the units that I have invested in the following funds, to the extent permissible, be transferred out of the specified fund and invested (in whole percentages) in the Newport Bancorp, Inc. Stock Fund as follows:

Fund	Percentage to be transferred
International Stock Fund 600	___	%
Nasdaq 100 Stock Fund 520	___	%
Russell 2000 Stock Fund 510	___	%
S&P Midcap Stock Fund 500	___	%
S&P Growth Stock Fund 420	___	%
S&P Value Stock Fund 410	___	%
S&P 500 Stock Fund 400	___	%
US REIT Index Fund 530	___	%
Long Treasury Index Fund 300 (Govt Bond)	___	%
Stable Value Fund 210	___	%
Short Term Investment Fund 200 (Money Market)	___	%
Income Plus Asset Allocation Fund 100	___	%
Growth & Income Asset Allocation Fund 111	___	%
Growth Asset Allocation Fund 120	___	%

5. Investment Directions (applicable to future contributions after the close of the initial public offering)

I hereby revoke any previous investment instructions and now direct that any future contributions and/or loan repayments, if any, made by me or on my behalf by Newport Federal Savings Bank, including those contributions and/or repayments received by Newport Federal Savings Bank Employees’ Savings & Profit Sharing Plan and Trust during the same reporting period as this form, be invested in the following whole percentages. If I elect to invest in common stock, such future contributions or loan repayments, if any, will be invested in the Newport Bancorp, Inc. Stock Fund the month following the conclusion of the Offering.

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Fund	Percentage to be transferred
International Stock Fund 600	___	%
Nasdaq 100 Stock Fund 520	___	%
Russell 2000 Stock Fund 510	___	%
S&P Midcap Stock Fund 500	___	%
S&P Growth Stock Fund 420	___	%
S&P Value Stock Fund 410	___	%
S&P 500 Stock Fund 400	___	%
US REIT Index Fund 530	___	%
Long Treasury Index Fund 300 (Govt Bond)	___	%
Stable Value Fund 210	___	%
Short Term Investment Fund 200 (Money Market)	___	%
Income Plus Asset Allocation Fund 100	___	%
Growth & Income Asset Allocation Fund 111	___	%
Growth Asset Allocation Fund 120	___	%
Newport Bancorp, Inc. Stock Fund	___	%

6. Participant Signature and Acknowledgment - Required

By signing this Change of Investment Allocation Form, I authorize and direct the Plan Administrator and trustee to carry out my instructions. I acknowledge that I have been provided with and read a copy of the Prospectus and the Prospectus Supplement relating to the issuance of common stock. I am aware of the risks involved in the investment in common stock, and understand that the Plan trustee and Plan Administrator are not responsible for my choice of investment.

Signature of Member Date

Pentegra Services, Inc. is hereby authorized to make the above listed change(s) to this member’s record.

Signature of Newport Federal Savings Bank Authorized Representative Date

Minimum Stock Purchase is $250

Maximum Stock Purchase is $200,000

PLEASE COMPLETE AND RETURN TO JUDY TUCKER

AT NEWPORT FEDERAL SAVINGS BANK

BY 4:00 P.M. ON, ______________, 2006.

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PROSPECTUS

[LOGO]

Newport Bancorp, Inc.

(Holding Company for Newport Federal Savings Bank)

Up to 3,993,055 Shares of Common Stock

Newport Bancorp, Inc. is offering shares of its common stock for sale in connection with the conversion of Newport Federal Savings Bank from the mutual to the stock form of ownership. Newport Bancorp, Inc. will be the holding company for Newport Federal Savings Bank. After the offering, 100% of Newport Federal Savings Bank’s outstanding common stock will be owned by Newport Bancorp, Inc. We expect that the common stock of Newport Bancorp, Inc. will be quoted on the Nasdaq National Market System under the symbol “NFSB.”

If you are or were a depositor of Newport Federal Savings Bank or were a depositor of Westerly Savings Bank:

• You may have priority rights to purchase shares of common stock.

If you are a participant in the Newport Federal Savings Bank 401(k) Retirement Plan:

• You may direct that all or part of your current account balance in this plan be invested in shares of common stock.

• You will receive a separate supplement to this prospectus that describes your rights under this plan.

If you fit neither of the categories above, but are interested in purchasing shares of our common stock:

• You may have an opportunity to purchase shares of common stock after priority orders are filled.

We are offering up to 3,993,055 shares of common stock for sale on a best efforts basis, subject to certain conditions. We must sell a minimum of 2,951,389 shares to complete the offering. If, as a result of regulatory considerations, demand for the shares or changes in market conditions, the independent appraiser determines our market value has increased, we may sell up to 4,592,013 shares without giving you further notice or the opportunity to change or cancel your order. The offering is expected to close at 12:00 noon, Eastern time, on [Expiration Date]. We may extend this close date without notice to you until [Extension Date 1], unless the Office of Thrift Supervision approves a later date, which will not be beyond                                         .

Sandler O’Neill & Partners, L.P. will use its best efforts to assist us in our selling efforts, but is not required to purchase any of the common stock that is being offered for sale. Purchasers will not pay a commission to purchase shares of common stock in the offering. All shares offered for sale are offered at a price of $10.00 per share.

The minimum purchase is 25 shares. Once submitted, orders are irrevocable unless the offering is terminated or extended beyond [Extension Date 1]. If the offering is extended beyond [Extension Date 1], subscribers will have the right to modify or rescind their purchase orders. Funds received before completion of the offering will be held in an escrow account at Newport Federal Savings Bank and will earn interest at our passbook rate, which is currently         % per annum. If we do not sell the minimum number of shares, if we terminate the offering for any other reason, or if we extend the offering beyond [Extension Date 1] and you rescind your order, we will promptly return your funds with interest.

We expect our directors and executive officers, together with their associates, to subscribe for 227,700 shares, which equals 5.7% of the shares offered for sale at the maximum of the offering range.

The Office of Thrift Supervision conditionally approved our plan of conversion on                 , 2006. However, such approval does not constitute a recommendation or endorsement of this offering.

This investment involves a degree of risk, including the possible loss of principal.

Please read “ Risk Factors” beginning on page        .

OFFERING SUMMARY

Price Per Share: $10.00

	Minimum		Maximum		Maximum As Adjusted
Number of shares		2,951,389		3,993,055		4,592,013
Gross offering proceeds	$	29,513,890	$	39,930,550	$	45,920,130
Estimated offering expenses		1,236,000		1,332,000		1,386,000
Estimated net proceeds		28,277,890		38,598,550		44,534,130
Estimated net proceeds per share		9.58		9.67		9.70

These securities are not deposits or savings accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

Neither the Securities and Exchange Commission, the Office of Thrift Supervision nor any state securities regulator has approved or disapproved of these securities or determined if this prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

Sandler O’Neill + Partners

The date of this prospectus is [DATE], 2006

[Map of Rhode Island showing office locations of Newport Federal Savings Bank appears here]

Table of Contents

	Page
Summary	1
Risk Factors	14
A Warning About Forward-Looking Statements	18
Selected Financial and Other Data	19
Use of Proceeds	21
Our Dividend Policy	22
Market for the Common Stock	22
Capitalization	24
Regulatory Capital Compliance	25
Pro Forma Data	26
Comparison of Independent Valuation and Pro Forma Financial Information With and Without the Foundation	31
Our Business	32
Management’s Discussion and Analysis of Results of Operations and Financial Condition	39
Our Management	65
Subscriptions by Executive Officers and Directors	77
Regulation and Supervision	78
Federal and State Taxation	85
The Conversion and Stock Offering	87
NewportFed Charitable Foundation	103
Restrictions on Acquisition of Newport Bancorp, Inc. and Newport Federal Savings Bank	108
Description of Newport Bancorp, Inc. Capital Stock	112
Transfer Agent and Registrar	113
Registration Requirements	113
Legal and Tax Opinions	114
Experts	114
Where You Can Find More Information	114
Index to Financial Statements of Newport Federal Savings Bank

Summary

This summary highlights selected information from this document and may not contain all the information that is important to you. To understand the stock offering fully, you should read this entire document carefully.

The Companies

Newport Bancorp, Inc. 100 Bellevue Avenue Newport Rhode Island 02840 (401) 847-5500	This offering is made by Newport Bancorp, Inc., a Maryland company formed in March 2006 by Newport Federal Savings Bank to be its holding company. Currently, Newport Bancorp has no assets. Following the conversion, Newport Bancorp will own all of Newport Federal’s capital stock and will direct, plan and coordinate Newport Federal’s business activities. In the future, Newport Bancorp might also acquire or organize other operating subsidiaries, including other financial institutions or financial services companies, although it currently has no specific plans or agreements to do so.
Newport Federal Savings Bank 100 Bellevue Avenue Newport Rhode Island 02840 (401) 847-5500	Newport Federal Savings Bank operates as a community-oriented financial institution offering a variety of deposit products as well as providing residential, multi-family and commercial real estate loans, and, to a lesser degree, construction and consumer loans primarily to individuals, families and small businesses located in Newport and Washington Counties, Rhode Island. In October 2005, Newport Federal merged with Westerly Savings Bank, a Rhode Island mutual financial institution with two branch locations in Westerly, Rhode Island. Newport Federal operates from five full-service locations, including our main office in Newport, Rhode Island and our branch offices in Middleton and Wakefield and two branch offices in Westerly, Rhode Island.
Our Operating Strategy (page     )	Our mission is to operate and grow a profitable community-oriented financial institution. We plan to achieve this by executing our strategy of: •      continuing to emphasize one- to four-family residential real estate loans; •      pursuing opportunities to increase commercial real estate lending; •      pursuing opportunities to expand our primary market area by opening new branch offices; •      continuing to use conservative underwriting practices to maintain the high quality of our loan portfolio; •      maintaining a stable deposit base; and •      providing exceptional service to attract and retain customers.

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The Conversion
Description of the Conversion	Currently, we are a federally chartered mutual savings bank with no shareholders. Our depositors currently have the right to vote on certain matters such as the election of directors and this conversion.
	The conversion process that we are now undertaking involves a change from our mutual form to a stock savings bank with all of Newport Federal’s shares owned by Newport Bancorp. Voting rights in Newport Bancorp will belong to its shareholders, including our employee stock ownership plan and NewportFed Charitable Foundation, each of which will hold 8% of the outstanding common stock of Newport Bancorp issued in the conversion. Newport Federal is conducting the conversion under the terms of its plan of conversion. The Office of Thrift Supervision has approved the plan of conversion with the condition that it be approved by Newport Federal’s members. Newport Federal has called a special meeting of members for                     , 2006 to vote on the plan of conversion.
	The following diagram depicts our corporate structure after the conversion and offering:
Regulation and Supervision (page     )	Newport Bancorp and Newport Federal are subject to regulation, supervision and examination by the Office of Thrift Supervision. Newport Federal is also subject to regulation by the Federal Deposit Insurance Corporation.
The Offering
Purchase Price	The purchase price is $10.00 per share. You will not pay a commission to buy any shares in the offering.
Number of Shares to be Sold	We are offering for sale between 2,951,389 and 3,993,055 shares of Newport Bancorp common stock in this offering to persons other than the charitable foundation. With regulatory approval, we may increase the number of shares to be sold to 4,592,013 shares without giving you further notice or the opportunity to change or cancel your order. In considering whether to increase the offering size, the Office of Thrift Supervision will consider the level of subscriptions, the views of our independent appraiser, our financial condition and results of operations and changes in market conditions.

2

How We Determined the Offering Range (page      )	We decided to offer between 2,951,389 and 3,993,055 shares, which is our offering range, based on an independent appraisal of our pro forma market value prepared by RP Financial, LC., an appraisal firm experienced in appraisals of financial institutions. RP Financial will receive fees totaling $25,000 for its appraisal services, plus $5,000 for each appraisal valuation update and reimbursement of out-of-pocket expenses. RP Financial estimates that as of March 3, 2006, our offering range was between $29.5 million and $39.9 million, with a midpoint of $34.7 million, and that our pro forma market value was between $31.9 million and $43.1 million, with a midpoint of $37.5 million, inclusive of shares issued to the charitable foundation.
	In preparing its appraisal, RP Financial considered the information in this prospectus, including our financial statements. RP Financial also considered the following factors, among others: •      our historical, present and projected operating results and financial condition and the economic and demographic characteristics of our market area; •      a comparative evaluation of the operating and financial statistics of Newport Federal with those of other similarly situated, publicly traded companies; •      the effect of the capital raised in this offering on our net worth and earnings potential; •      the trading market for securities of comparable institutions and general conditions in the market for such securities; and •      our intention to make a contribution to the NewportFed Charitable Foundation of 8% of Newport Bancorp’s outstanding common stock issued in the conversion.
	Our board of directors determined that the common stock should be sold at $10.00 per share. The following table shows the number of shares that will be sold in the offering and contributed to the charitable foundation, based on the estimated valuation range and the purchase price.

	At Minimum of Offering Range	At Maximum of Offering Range	Percent of Shares Outstanding
Shares sold in the offering	2,951,389	3,993,055	92.6%
Shares contributed to the charitable foundation	236,111	319,445	7.4%
Total shares outstanding	3,187,500	4,312,500	100.0%

Two measures that some investors use to analyze whether a stock might be a good investment are the ratio of the offering price to the issuer’s “book value” and the ratio of the offering price to the issuer’s annual net

3

income. RP Financial considered these ratios, among other factors, in preparing its appraisal. Book value is the same as total equity and represents the difference between the issuer’s assets and liabilities. RP Financial’s appraisal also incorporates an analysis of a peer group of publicly traded companies that RP Financial considered to be comparable to us.

The following table presents a summary of selected pricing ratios for the peer group companies and for us utilized by RP Financial in its appraisal. These ratios are based on earnings for the year ended December 31, 2005 and book value as of December 31, 2005.

	Price To Earnings Multiple		Price To Book Value Ratio
Newport Bancorp (pro forma):
Minimum	37.63	x	73.48	%
Maximum	47.02		81.83
Peer group companies as of March 3, 2006:
Average	18.88	x	140.81	%
Average	18.88	x	140.81	%
Median	15.06		139.16

	Compared to the average pricing ratios of the peer group at the maximum of the offering range, our stock would be priced at a premium of 149.0% to the peer group on a price-to-earnings basis and a discount of 41.9% to the peer group on a price-to-book basis. This means that, at the maximum of the offering range, a share of our common stock would be more expensive than the peer group based on an earnings per share basis and less expensive than the peer group based on a book value per share basis.
	The independent appraisal does not indicate market value. You should not assume or expect that the valuation described above means that our common stock will trade at or above the $10.00 purchase price after the offering.
Possible Change in Offering Range (page     )	RP Financial will update its appraisal before we complete the stock offering. If, as a result of regulatory considerations, demand for the shares or changes in market conditions, RP Financial determines that our pro forma market value has increased, we may sell up to 4,592,013 shares without further notice to you. If our pro forma market value at that time is either below $31.9 million or above $49.6 million, then, after consulting with the Office of Thrift Supervision, we may: terminate the stock offering and promptly return all funds; set a new offering range and give all subscribers the opportunity to modify or rescind their purchase orders for shares of Newport Bancorp’s common stock; or take such other actions as may be permitted by the Office of Thrift Supervision and the Securities and Exchange Commission.
Possible Termination of the Offering	We must sell a minimum of 2,951,389 shares to complete the offering. If we do not sell the minimum number of shares, or if we terminate the offering for any other reason, we will promptly return all funds, with interest, at our current passbook rate.

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After-Market Performance of Mutual-to-Stock Conversions The following table provides information regarding the after-market performance of the conversion offerings completed from January 1, 2004 through March 3, 2006. As part of its appraisal of our pro forma market value, RP Financial considered the after-market performance of mutual-to-stock conversions completed in the three months prior to March 3, 2006, which was the date of its appraisal report. RP Financial considered information regarding the new issue market for converting thrifts as part of its consideration of the market for thrift stocks.

		Appreciation From Initial Offering Price
Issuer (Market/Symbol)	Date of IPO	After 1 Day		After 1 Week		After 1 Month		Through 03/03/06
Legacy Bancorp, Inc. (Nasdaq: LEGC)	10/26/05	30.3	%	34.0	%	32.0	%	46.7	%
Bank Financial Corp (Nasdaq: BFIN)	06/24/05	36.0		34.0		36.0		53.9
Benjamin Franklin Bancorp, Inc. (Nasdaq: BFBC)	04/05/05	0.6		3.9		2.5		35.5
OC Financial, Inc. (OTCBB: OCFL)	04/01/05	20.0		8.0		10.0		15.0
Royal Financial, Inc. (OTCBB: RYFL)	01/21/05	16.0		26.0		25.4		46.0
Third Century Bancorp (OTCBB: TDCB)	06/30/04	13.2		10.5		12.5		29.0
SE Financial Corp. (OTCBB: SEFL)	05/06/04	(0.5	)	(1.5	)	(6.0	)	31.7
NewAlliance Bancshares, Inc. (NYSE: NAL)	04/02/04	51.7		45.3		36.5		41.7
Average - all transactions		20.9		20.0		18.6		37.4
Median - all transactions		18.0		18.3		19.0		38.6

This table is not intended to be indicative of how our stock may perform. Furthermore, this table presents only short-term price performance with respect to several companies that only recently completed their initial public offerings and may not be indicative of the longer-term stock price performance of these companies. Stock price appreciation is affected by many factors, including, but not limited to: general market and economic conditions; the interest rate environment; the amount of proceeds a company raises in its offering; and numerous factors relating to the specific company, including the experience and ability of management, historical and anticipated operating results, the nature and quality of the company’s assets, and the company’s market area. The companies listed in the table above may not be similar to Newport Bancorp, the pricing ratios for their stock offerings were in some cases different from the pricing ratios for Newport Bancorp’s common stock and the market conditions in which these offerings were completed were, in some cases, different from current market conditions. Any or all of these differences may cause our stock to perform differently from these other offerings. Before you make an investment decision, we urge you to carefully read this prospectus, including, but not limited to, the Risk Factors beginning on page     .

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	You should be aware that, in certain market conditions, stock prices of thrift initial public offerings have decreased. For example, as the above table illustrates, the stock of one company traded at or below their initial offering price at various times through March 3, 2006. We can give you no assurance that our stock will not trade below the $10.00 purchase price or that our stock will perform similarly to other recent mutual to stock conversions.
Conditions to Completing the Conversion and Offering	We are conducting the conversion and offering under the terms of our plan of conversion. We cannot complete the conversion and offering unless: •      we sell at least the minimum number of shares offered; and •      we receive the final approval of the Office of Thrift Supervision to complete the offering.
Reasons for the Conversion and Offering (page         )	Our primary reasons for the conversion and offering are to: •      increase the capital of Newport Federal to support future lending and operational growth; •      enhance profitability and earnings through reinvesting and leveraging the proceeds, primarily through traditional funding and lending activities; •      support future branching activities and/or the acquisition of financial services companies; •      implement equity compensation plans to retain and attract qualified directors, officers and staff to enhance the current incentive-based compensation programs; and •      be able to increase our philanthropic endeavors to the communities we serve through the formation and funding of NewportFed Charitable Foundation. We are interested in establishing additional branches. We are in the process of acquiring land in Portsmouth, Rhode Island and hope to be able to open a branch office there by the first quarter of 2007. We are looking at other areas for expansion of our branch network, including the possibility of expanding into southeastern Connecticut.
We Will Form the NewportFed Charitable Foundation (page             )	To continue our long-standing commitment to our local communities, we intend to establish a charitable foundation, named NewportFed Charitable Foundation, as part of the conversion. Subject to separate approval by at least a majority of votes eligible to be cast by depositors of Newport Federal Savings Bank, the charitable foundation will be funded with a number of shares of Newport Bancorp common stock

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equal to 8.0% of the shares of common stock sold in the offering. At the maximum of the offering range, we would contribute 319,445 shares of Newport Bancorp common stock to the charitable foundation. At the maximum of the offering range, our contribution to the charitable foundation would reduce net earnings by $1.9 million, after tax, in the year in which the charitable foundation is established, which is expected to be fiscal 2006. The charitable foundation will make grants and donations to non-profit and community groups and projects located within our market areas. The amount of common stock that we would offer for sale would be greater if the conversion were to be completed without the formation of the charitable foundation. For a further discussion of the financial impact of the charitable foundation, including its effect on those who purchase shares in the offering and on the shares issued to stockholders of Newport Bancorp, see “Comparison of Independent Valuation and Pro Forma Financial Information With and Without the Foundation.”

Benefits of the Offering to Management (page__)

We intend to adopt the following benefit plans and employment agreements: •      Employee Stock Ownership Plan. We intend to establish an employee stock ownership plan that will purchase 8% of the shares sold in the offering and contributed to the charitable foundation, with the proceeds from a fifteen-year loan from Newport Bancorp. As the loan is repaid and shares are released from collateral, the shares will be allocated to the accounts of employee participants. Allocations will be based on a participant’s individual compensation as a percentage of total plan compensation. Non-employee directors are not eligible to participate in the employee stock ownership plan. We will incur additional compensation expense as a result of this plan. See “Pro Forma Data” for an illustration of the effects of this plan. •      Equity Incentive Plan. We intend to implement an equity incentive plan no earlier than six months after completion of the offering. If the plan is implemented within one year after the conversion, it must be approved by a majority of the total votes eligible to be cast by our stockholders. If the plan is implemented more than one year after the conversion, it must be approved by a majority of the total votes cast. Under this plan, we may award stock options and shares of restricted stock to key employees and directors. Shares of restricted stock will be awarded at no cost to the recipient. Stock options will be granted at an exercise price equal to 100% of the fair market value of our common stock on the option grant date. We will incur additional compensation expense as a result of this plan. See “Pro Forma Data” for an illustration of the effects of this plan. Under this plan, we may grant stock options in an amount up to 10% of the number of shares sold in the offering and restricted stock awards in an amount equal to 4% of the shares sold in the offering and contributed to the charitable foundation. The equity incentive plan will comply with all applicable Office of Thrift Supervision regulations.

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The following table presents the total value of all shares to be available for restricted stock awards under the equity incentive plan, based on a range of market prices from $8.00 per share to $14.00 per share. Ultimately, the value of the grants will depend on the actual trading price of our common stock, which depends on numerous factors.

		Value of
Share Price		127,500 Shares Awarded at Minimum of Range		150,000 Shares Awarded at Midpoint of Range		172,500 Shares Awarded at Maximum of Range		198,375 Shares Awarded at 15% Above Maximum of Range
		(In thousands)
$	8.00	$	1,020	$	1,200	$	1,380	$	1,587
	10.00		1,275		1,500		1,725		1,984
	12.00		1,530		1,800		2,070		2,381
	14.00		1,785		2,100		2,415		2,777

The following table presents the total value of all stock options available for grant under the equity incentive plan, based on a range of market prices from $8.00 per share to $14.00 per share. For purposes of this table, the value of the stock options was determined using the Black-Scholes option-pricing formula. See “Pro Forma Data.” Ultimately, financial gains can be realized on a stock option only if the market price of the common stock increases above the price at which the option is granted.

				Value of
Exercise Price		Option Value		318,750 Options Granted at Minimum of Range		375,000 Options Granted at Midpoint of Range		431,250 Options Granted at Maximum of Range		495,938 Options Granted at 15% Above Maximum of Range
				(In thousands)
$	8.00	$	2.99	$	953	$	1,121	$	1,289	$	1,483
	10.00		3.74		1,192		1,403		1,613		1,855
	12.00		4.49		1,431		1,684		1,936		2,227
	14.00		5.24		1,670		1,965		2,260		2,599

•      Employment Agreements. Newport Bancorp intends to enter into three-year employment agreements with Kevin M. McCarthy, our President and Chief Executive Officer and Nino Moscardi, our Executive Vice President and Chief Operating Officer, and a two-year employment agreement with Bruce A. Walsh, our Senior Vice President and Chief Financial Officer. Based solely on current cash compensation and excluding any benefits that would be payable under any employee benefit plan, if a change in control of Newport Bancorp occurred and we terminated all of the officers with employment agreements, the total payments due under the Newport Bancorp employment agreements would be approximately $            .

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The following table summarizes at the maximum of the offering range the total number and value of the shares of common stock that the employee stock ownership plan expects to acquire and the total value of all restricted stock awards that are expected to be available under the equity incentive plan. At the maximum of the offering range, we will sell 3,993,055 shares and have 4,312,500 shares outstanding. The number of shares reflected for the benefit plans in the table below assumes that Newport Federal’s tangible capital will be 10% or more following the completion of the offering and the application of the net proceeds as described under “Use of Proceeds.”

	Number of Shares to be Granted or Purchased					Total Estimated Value of Grants
	At Maximum of Offering Range	As a % of Common Stock Sold at Maximum of Offering Range		As a % of Common Stock Outstanding
	(Dollars in thousands)
Employee stock ownership plan (1)	345,000	8.6	%	8.0	%	$	3,450
Restricted stock awards (1)	172,500	4.3		4.0			1,725
Stock options (2)	431,250	10.8		10.0			1,613
Total	948,750	23.9	%	22.0	%	$	6,788

	(1)    Assumes the value of Newport Bancorp common stock is $10.00 per share for purposes of determining the total estimated value of the grants.
	(2)    Assumes the value of a stock option is $3.74, which was determined using the Black-Scholes option-pricing formula. See “Pro Forma Data.”
The Offering Will Not Be Taxable to Persons Receiving Subscription Rights (page __)	As a general matter, the offering will not be a taxable transaction for purposes of federal income taxes to persons who receive or exercise subscription rights. Further, for federal income tax purposes: •      it is more likely than not that the members of Newport Federal will not realize any income upon the issuance or exercise of the subscription rights; •      it is more likely than not that the tax basis to the purchasers in the offering will be the amount paid for our common stock, and that the holding period for shares of common stock will begin on the date of completion of the offering; and •      the holding period for shares of common stock purchased in the community offering or syndicated community offering will begin on the day after the date of the purchase.
Persons Who Can Order Stock in the Offering (page     )	We have granted rights to subscribe for shares of Newport Bancorp common stock in a “subscription offering” to the following persons in the following order of priority:
Note: Subscription rights are not transferable, and persons with subscription rights may not subscribe for shares for the benefit of any other person. If you violate this prohibition, you may lose your rights to purchase shares and may face criminal prosecution and/or other sanctions.	1.      Persons with $50 or more on deposit at Newport Federal or Westerly Savings Bank as of May 31, 2004. 2.      Our employee stock ownership plan, which provides retirement benefits to our employees. 3.      Persons with $50 or more on deposit at Newport Federal as of March 31, 2006.

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	4.      Newport Federal’s depositors as of [Voting Record Date] who were not able to subscribe for shares under categories 1 and 3.
	If we receive subscriptions for more shares than are to be sold in this offering, we may be unable to fill or may only partially fill your order. Shares will be allocated in order of the priorities described above under a formula outlined in the plan of conversion. Generally, shares first will be allocated so as to permit each eligible subscriber, if possible, to purchase a number of shares sufficient to make the subscriber’s total allocation equal to 100 shares or the number of shares actually subscribed for, whichever is less. After that, unallocated shares will be allocated among the remaining eligible subscribers whose subscriptions remain unfilled in proportion to the amounts of their respective qualifying deposits bear to the total qualifying deposits of all remaining eligible subscribers whose subscriptions remain unfilled. If we increase the number of shares to be sold above 3,993,055, Newport Federal’s employee stock ownership plan will have the first priority right to purchase any shares exceeding that amount to the extent that its subscription has not previously been filled. Any shares remaining will be allocated in the order of priorities described above. See “The Stock Offering—Subscription Offering and Subscription Rights” for a description of the allocation procedure.
	We may offer shares not sold in the subscription offering to the general public in a community offering. People and trusts for the benefit of people who are residents of Newport and Washington Counties in Rhode Island will be given a preference to purchase shares in the community offering. This part of the offering may commence concurrently with the subscription offering or at any time thereafter and may terminate at any time without notice but no later than             .
	Shares not sold in the subscription or community offering may be offered for sale in a syndicated community offering, which would be an offering to the general public on a best efforts basis managed by Sandler O’Neill & Partners, L.P. This part of the offering may terminate at any time without notice but not later than             .
Deadline for Ordering Stock (page__)	The subscription offering will end at 12:00 noon, Eastern time, on [Expiration Date]. We expect that the community offering will terminate at the same time, although it may continue for up to 45 days after the end of the subscription offering, or longer if regulators approve a later date. No single extension may be for more than 90 days. If we extend the offering beyond [Extension Date 1] or if we intend to sell fewer than 2,951,389 shares or more than 4,592,013 shares, all subscribers will be notified and given the opportunity to confirm, change or cancel their orders. If you do not respond to this notice, we will return your funds promptly with interest at our passbook rate.

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Purchase Limitations (page__)	Our plan of conversion establishes limitations on the purchase of stock in the offering. These limitations include the following:
	•      The minimum purchase is 25 shares. •      No individual (or individuals on a single deposit account) may purchase more than $150,000 of common stock (which equals 15,000 shares) in the subscription offering. •      No individual, no individual together with any associates, and no group of persons acting in concert may purchase more than $300,000 (which equals 30,000 shares) in the offering. Subject to the Office of Thrift Supervision’s approval, we may increase or decrease the purchase limitations at any time.
How to Purchase Common Stock (page     )	If you want to place an order for shares in the offering, you must complete an original stock order form and send it to us together with full payment. You must sign the certification that is on the reverse side of the stock order form. We must receive your stock order form before the end of the subscription offering or the end of the community offering, as appropriate. Once we receive your order, you cannot cancel or change it without our consent. To ensure that we properly identify your subscription rights, you must list all of your deposit accounts as of the eligibility dates on the stock order form. If you fail to do so, your subscription may be reduced or rejected if the offering is oversubscribed. To preserve your purchase priority, you must register the shares only in the name(s) of person(s) listed on your deposit account at the applicable date of eligibility. You may not add the names of others who were not eligible to purchase common stock in the offering on the applicable date of eligibility. We may, in our sole discretion, reject orders received in the community offering either in whole or in part. For example, we may reject an order submitted by a person who we believe is making false representations or who we believe is attempting to violate, evade or circumvent the terms and conditions of the plan of conversion. If your order is rejected in part, you cannot cancel the remainder of your order. You may pay for shares in the subscription offering or the community offering in any of the following ways: •      By check or money order made payable to Newport Bancorp. •      By authorizing withdrawal from an account at Newport Federal. To use funds in an Individual Retirement Account at Newport Federal, you must transfer your account to an unaffiliated institution or broker. Please contact the conversion center as soon as possible for assistance. We will pay interest on your subscription funds at the rate we pay on passbook accounts, which is currently     %, from the date we receive your funds until the offering is completed or terminated. All funds authorized for withdrawal from deposit accounts with us will earn interest at the applicable account rate until the offering is completed or terminated. If, as a result of a withdrawal from a certificate of deposit, the balance falls below the minimum balance requirement, the remaining funds will earn interest at our passbook rate. There will be no early withdrawal penalty for withdrawals from certificates of deposit used to pay for stock.

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How We Will Use the Proceeds of this Offering (page     ) The following table summarizes how we will use the proceeds of this offering, based on the sale of shares at the minimum and maximum of the offering range.

	2,951,389 Shares at $10.00 Per Share		3,993,055 Shares at $10.00 Per Share
	(In thousands)
Offering proceeds	$	29,514	$	39,931
Net offering proceeds		28,278		38,599
Less:
Proceeds contributed to Newport Federal		14,139		19,300
Proceeds used for loan to employee stock ownership plan		2,550		3,450
Proceeds remaining for Newport Bancorp	$	11,589	$	15,849

	Newport Bancorp may use the portion of the proceeds that it retains to, among other things, invest in securities, pay cash dividends or repurchase shares of common stock, subject to regulatory restrictions. Newport Federal may use the portion of the proceeds that it receives to fund new loans, open new branches, invest in securities and expand its business activities. Newport Bancorp and Newport Federal may also use the proceeds of the offering to diversify their businesses and acquire other companies, although we have no specific plans to do so at this time.
Purchases by Directors and Executive Officers (page     )	We expect that our directors and executive officers, together with their associates, will subscribe for 227,700 shares, which equals 5.7% of the shares that would be sold at the maximum of the offering range. Our directors and executive officers will pay the same $10.00 per share price as everyone else who purchases shares in the offering. Like all of our depositors, our directors and executive officers have subscription rights based on their deposits and, in the event of an oversubscription, their orders will be subject to the allocation provisions set forth in our plan of conversion. Purchases by our directors and executive officers will count towards the minimum number of shares we must sell to close the offering.
Market for Newport Bancorp’s Common Stock (page     )	We have applied to have the common stock of Newport Bancorp listed for trading on the Nasdaq Market under the symbol “NFSB.” We cannot assure you that our common stock will be approved for listing. Sandler O’Neill & Partners, L.P. currently intends to become a market maker in the common stock, but it is under no obligation to do so. In addition, if needed, Sandler O’Neill will assist us in obtaining additional market makers. We cannot assure you that other market makers will be obtained or that an active and liquid trading market for our common stock will develop or, if developed, will be maintained. After shares of the common stock begin trading, you may contact a stock broker to buy or sell shares.

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Newport Bancorp’s Dividend Policy (page     )	We have not determined whether we will pay a dividend on the common stock. After the offering, we will consider a policy of paying regular cash dividends. Our ability to pay dividends will depend on a number of factors, including capital requirements, regulatory limitations and our operating results and financial condition.
Subscription Rights	You are not allowed to transfer your subscription rights, and we will act to ensure that you do not do so. You will be required to certify that you are purchasing shares solely for your own account and that you have no agreement or understanding with another person involving the transfer of the shares that you purchase. We will not accept any stock orders that we believe involve the transfer of subscription rights. In addition, joint stock registration will be allowed only if the qualified account is so registered.
Conversion Center	If you have any questions regarding the offering, please call the conversion center at (            )       -             to speak to a registered representative of Sandler O’Neill. The conversion center is open Monday through Friday from 10:00 a.m. to 4:00 p.m., Eastern time. To ensure that each purchaser in the subscription and community offering receives a prospectus at least 48 hours prior to the expiration date of the subscription and community offering in accordance with federal law, no prospectus will be mailed any later than five days prior to the expiration date or hand delivered any later than two days prior to the expiration date. Order forms will be distributed only when preceded or accompanied by a prospectus.

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Risk Factors

You should consider carefully the following risk factors before purchasing Newport Bancorp common stock.

Risks Related to Our Business

Rising interest rates may hurt our profits.

Interest rates were recently at historically low levels. However, since June 30, 2004, the U.S. Federal Reserve has increased its target for the federal funds rate 14 times from 1.00 percent to 4.5 percent. If interest rates continue to rise, and if rates on our deposits and borrowings reprice upwards faster than the rates on our loans and investments, we would experience compression of our interest rate spread and net interest margin, which would have a negative effect on our profitability. For further discussion of how changes in interest rates could impact us, see “Management’s Discussion and Analysis of Results of Operations and Financial Condition—Risk Management—Interest Rate Risk Management.”

A downturn in the local economy or a decline in real estate values could hurt our profits.

Nearly all of our loans are secured by real estate in the State of Rhode Island. As a result of this concentration, a downturn in the local economy could cause significant increases in nonperforming loans, which would hurt our profits. In recent years, there has been a significant increase in real estate values in our market area. As a result of rising home prices, our loans have been well collateralized. A decline in real estate values could cause some of our mortgage loans to become inadequately collateralized, which would expose us to a greater risk of loss. Additionally, a decline in real estate values could adversely impact our portfolio of commercial real estate loans and could result in a decline in the origination of such loans. For a discussion of our market areas, see “Our Business—Market Area.”

Strong competition within our market area could hurt our profits and slow growth.

We face intense competition both in making loans and attracting deposits. This competition has made it more difficult for us to make new loans and attract deposits. Price competition for loans and deposits might result in us earning less on our loans and paying more on our deposits, which would reduce net interest income. Competition also makes it more difficult to grow loans and deposits. At June 30, 2005, which is the most recent date for which data is available from the FDIC, we held approximately 9.2 percent of the deposits in Newport County, Rhode Island and approximately 3.65 percent of the deposits in Washington County, Rhode Island. (Because Newport Federal and Westerly Savings Bank had not merged as of June 30, 2005, the percentages presented have been calculated by adding the individual market shares of Newport Federal and Westerly Savings Bank as of June 30, 2005.) Some of the institutions with which we compete have substantially greater resources and lending limits than we have and may offer services that we do not provide. We expect competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Our profitability depends upon our continued ability to compete successfully in our market area. For more information about our market area and the competition we face, see “Our Business—Market Area” and “Our Business—Competition.”

We operate in a highly regulated environment and we may be adversely affected by changes in laws and regulations.

We are subject to extensive regulation, supervision and examination by the Office of Thrift Supervision, our chartering authority, and by the Federal Deposit Insurance Corporation, as insurer of our deposits. Newport Bancorp and Newport Federal are all subject to regulation and supervision by the Office of Thrift Supervision. Such regulation and supervision governs the activities in which an institution and its holding company may

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engage, and are intended primarily for the protection of the insurance fund and the depositors and borrowers of Newport Federal rather than for holders of Newport Bancorp common stock. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, the classification of our assets and determination of the level of our allowance for loan losses. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material impact on our operations.

Risks Related to this Offering

Additional expenses following the offering from operating as a public company and from new equity benefit plans will adversely affect our profitability.

Following the offering, our noninterest expenses are likely to increase as a result of the financial accounting, legal and various other additional expenses usually associated with operating as a public company. We also will recognize additional annual employee compensation and benefit expenses stemming from options and shares granted to employees, directors and executives under new benefit plans. These additional expenses will adversely affect our profitability. We cannot determine the actual amount of these new stock-related compensation and benefit expenses at this time because applicable accounting practices generally require that they be based on the fair market value of the options or shares of common stock at the date of the grant; however, we expect them to be material. We will recognize expenses for our employee stock ownership plan when shares are committed to be released to participants’ accounts and will recognize expenses for restricted stock awards and stock options generally over the vesting period of awards made to recipients. These benefit expenses in the first year following the offering have been estimated to be approximately $635,000 at the maximum of the offering range as set forth in the pro forma financial information under “Pro Forma Data” assuming the $10.00 per share purchase price as fair market value. Actual expenses, however, may be higher or lower, depending on the price of our common stock. For further discussion of these plans, see “Our Management—Benefit Plans.”

Our return on equity may negatively impact the value of our common stock.

Return on equity, which equals net income divided by average equity, is a ratio used by many investors to compare the performance of a particular company with other companies. For the year ended December 31, 2005, our annualized return on equity was 3.79%. Our pro forma return on equity for the same period is estimated to be 1.74%, assuming the sale of shares at the maximum of the offering range. Our publicly traded thrift peers used in the valuation of March 3, 2006 had an average return on equity of 8.74% for the year ended December 31, 2005. However, our return on equity in 2005 was reduced by the costs we incurred in connection with our merger with Westerly Savings Bank. Historically, our return on equity compared favorably with that of our peers. Over time, we intend to use the net proceeds from this offering to increase earnings per share and book value per share, without assuming undue risk, with the goal of achieving a return on equity that is competitive with other publicly held companies. This goal could take a number of years to achieve, and we cannot assure you that it will be attained. Consequently, you should not expect a competitive return on equity in the near future. Failure to achieve a competitive return on equity might make an investment in our common stock unattractive to some investors and might cause our common stock to trade at lower prices than comparable companies with higher returns on equity. See “Pro Forma Data” for an illustration of the financial impact of this offering.

We have broad discretion in allocating the proceeds of the offering. Our failure to effectively utilize such proceeds would reduce our profitability.

We intend to contribute approximately 50% of the net proceeds of the offering to Newport Federal. Newport Bancorp may use the portion of the proceeds that it retains to, among other things, invest in securities, pay cash dividends or repurchase shares of common stock, subject to regulatory restrictions. Newport Federal may use the portion of the proceeds that it receives to fund new loans, open new branches, invest in securities and expand its business activities. Newport Bancorp and Newport Federal may also use the proceeds of the offering to diversify their businesses and acquire other companies, although we have no specific plans to do so at this time. We have not allocated specific amounts of proceeds for any of these purposes, and we will have significant

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flexibility in determining how much of the net proceeds we apply to different uses and the timing of such applications. Our failure to utilize these funds effectively would reduce our profitability.

Issuance of shares for benefit programs may dilute your ownership interest.

We intend to adopt an equity incentive plan following the offering. If stockholders approve the new equity incentive plan, we intend to issue shares to our officers, employees and directors through this plan. If the restricted stock awards under the equity incentive plan are funded from authorized but unissued stock, your ownership interest in the shares could be diluted by up to approximately 3.8%, assuming awards of common stock equal to 4% of the shares sold in the offering and contributed to NewportFed Charitable Foundation are awarded under the plan. If the shares issued upon the exercise of stock options under the equity incentive plan are issued from authorized but unissued stock, your ownership interest in the shares could be diluted by up to approximately 9.1%, assuming stock option grants equal to 10% of the shares sold in the offering and contributed to NewportFed Charitable Foundation are granted under the plan. See “Pro Forma Data” and “Our Management—Benefit Plans.”

Our stock price may decline when trading commences.

We cannot guarantee that if you purchase shares in the offering that you will be able to sell them at or above the $10.00 purchase price. After the shares of our common stock begin trading, the trading price of the common stock will be determined by the marketplace, and will be influenced by many factors outside of our control, including prevailing interest rates, investor perceptions, securities analyst research reports and general industry, geopolitical and economic conditions. Publicly traded stocks, including stocks of financial institutions, often experience substantial market price volatility. These market fluctuations might not be related to the operating performance of particular companies whose shares are traded.

There may be a limited market for our common stock, which may adversely affect our stock price.

Although we have applied to have our shares of common stock traded on the Nasdaq Market, there is no guarantee that the shares will be actively traded. If an active trading market for our common stock does not develop, you may not be able to sell all of your shares of common stock on short notice and the sale of a large number of shares at one time could temporarily depress the market price. There also may be a wide spread between the bid and asked price for our common stock. When there is a wide spread between the bid and asked price, the price at which you may be able to sell our common stock may be significantly lower than the price at which you could buy it at that time.

Risks Related to the Formation of the Charitable Foundation

The contribution to NewportFed Charitable Foundation will decrease the ownership interest and voting interest in the shares issued to the public by 7.4% after the contribution.

Purchasers of shares will have their ownership and voting interests diluted by 7.4% at the close of the conversion when Newport Bancorp issues and contributes an additional number of shares to the NewportFed Charitable Foundation. For a further discussion regarding the effect of the contribution to the charitable foundation, see “Pro Forma Data” and “Comparison of Independent Valuation and Pro Forma Financial Information With and Without the Foundation.”

Our contribution to NewportFed Charitable Foundation may not be tax deductible, which could hurt our profits.

We believe that our contribution to NewportFed Charitable Foundation, valued at $3.2 million at the maximum of the offering, pre-tax, will be deductible for federal income tax purposes. However, we do not have any assurance that the Internal Revenue Service will grant tax-exempt status to the foundation. If the contribution is not deductible, we would not receive any tax benefit from the contribution. In addition, even if the contribution is tax deductible, we may not have sufficient profits to be able to use the deduction fully. In the event it is more

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likely than not that we will be unable to use the entire deduction, we will be required to establish a valuation allowance related to any deferred tax asset that has been recorded for this contribution.

Establishment of NewportFed Charitable Foundation will hurt our profits for fiscal year 2006.

Newport Bancorp intends to contribute shares of common stock equal to 8.0% of the shares sold in the offering of Newport Bancorp to NewportFed Charitable Foundation. This contribution will be an additional operating expense and will reduce net income during the fiscal year in which the foundation is established, which is expected to be the year ending December 31, 2006. Based on the pro forma assumptions, at the maximum of the offering range, the contribution to NewportFed Charitable Foundation would reduce net earnings by $1.9 million, after tax, in fiscal year 2006. See “Pro Forma Data.”

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A Warning About Forward-Looking Statements

This prospectus contains forward-looking statements, which can be identified by the use of words such as “believes,” “expects,” “anticipates,” “estimates” or similar expressions. Forward-looking statements include:

• statements of our goals, intentions and expectations;

• statements regarding our business plans, prospects, growth and operating strategies;

• statements regarding the quality of our loan and investment portfolios; and

• estimates of our risks and future costs and benefits.

These forward-looking statements are subject to significant risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the following factors:

• general economic conditions, either nationally or in our market area, that are worse than expected;

• changes in the interest rate environment that reduce our interest margins or reduce the fair value of financial instruments;

• increased competitive pressures among financial services companies;

• changes in consumer spending, borrowing and savings habits;

• legislative or regulatory changes that adversely affect our business;

• adverse changes in the securities markets; and

• changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board or the Public Company Accounting Oversight Board.

Any of the forward-looking statements that we make in this prospectus and in other public statements we make may later prove incorrect because of inaccurate assumptions, the factors illustrated above or other factors that we cannot foresee. Consequently, no forward-looking statement can be guaranteed.

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Selected Financial and Other Data

The summary financial information presented below is derived in part from our financial statements. The following is only a summary and you should read it in conjunction with the financial statements and notes beginning on page F-1. The information at December 31, 2005 and 2004 and for the years ended December 31, 2005, 2004 and 2003 is derived in part from the audited financial statements of Newport Federal that appear elsewhere in this prospectus. The information at and for the years ended December 31, 2002 and 2001 is derived in part from audited financial statements of Newport Federal Savings Bank and Westerly Savings Bank which have been combined for the financial information presented below and such financial statements do not appear in this prospectus.

	At December 31,
	2005		2004		2003		2002		2001
	(In thousands)
Financial Condition Data:
Total assets	$	262,387	$	256,003	$	235,444	$	223,057	$	213,047
Securities available for sale		6,334		6,195		10,099		11,239		5,651
Securities held to maturity		2,292		2,791		3,351		986		2,337
Loans receivable, net (1)		232,326		216,611		191,906		177,308		162,586
Cash and cash equivalents		4,914		11,952		10,005		16,217		31,105
Deposits		192,581		187,100		170,990		163,260		160,341
Advances from Federal Home Loan Bank		50,123		49,972		46,969		43,719		37,814
Total retained earnings (2)		17,984		17,379		16,270		14,858		13,520
	For the Year Ended December 31,
	2005		2004		2003		2002		2001
	(In thousands)
Operating Data:
Interest and dividend income	$	13,882	$	12,501	$	12,714	$	13,151	$	14,335
Interest expense		5,118		4,410		4,687		5,550		7,548
Net interest income		8,764		8,091		8,027		7,601		6,787
Provision for loan losses		198		144		36		36		27
Net interest income after provision for loan losses		8,566		7,947		7,991		7,565		6,760
Other income		1,725		2,004		2,074		1,729		1,779
Operating expenses		8,852		8,159		7,639		7,068		6,466
Income before income taxes		1,439		1,792		2,426		2,226		2,073
Provision for income taxes		765		655		958		903		798
Net income	$	674	$	1,137	$	1,468	$	1,323	$	1,275

(1) Includes loans held for sale.

(2) Includes retained earnings and accumulated other comprehensive income/loss.

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	At or For the Year Ended December 31,
	2005		2004		2003		2002		2001
Performance Ratios:
Return on average assets	0.26	%	0.47	%	0.63	%	0.61	%	0.63	%
Return on average equity	3.79		6.70		9.26		9.21		9.64
Interest rate spread (1)	3.18		3.14		3.20		3.20		2.88
Net interest margin (2)	3.60		3.53		3.60		3.68		3.52
Noninterest expense to average assets	3.46		3.38		3.25		3.28		3.21
Efficiency ratio (3)	84.39		80.82		75.63		75.76		75.48
Average interest-earning assets to average interest-bearing liabilities	119.72		119.86		119.11		118.54		116.60
Average equity to average assets	6.95		7.03		6.75		6.67		6.56
Capital Ratios:
Tangible capital	6.85		6.79		6.91		6.66		6.35
Core capital	6.85		6.79		6.91		6.66		6.35
Total risk-based capital	11.21		10.77		11.94		11.69		11.64
Asset Quality Ratios:
Allowance for loan losses as a percent of total loans (4)	0.79		0.76		0.78		0.83		0.87
Allowance for loan losses as a percent of nonperforming loans	N/M		2,121.79		634.87		406.03		318.79
Net charge-offs (recoveries) to average outstanding loans during the period	0.00		0.00		0.00		(0.01	)	(0.05	)
Non-performing loans as a percent of total loans (4)	0.00		0.04		0.12		0.20		0.27
Other Data:
Number of:
Real estate loans outstanding	1,896		1,840		1,770		1,804		1,715
Deposit accounts	21,978		20,855		21,452		22,966		22,960
Offices	5		5		5		5		5

(1) Represents the difference between the weighted average yield on average interest-earning assets and the weighted average cost on average interest-bearing liabilities.

(2) Represents net interest income as a percent of average interest-earning assets.

(3) Represents other operating expense divided by the sum of net interest income and other operating income.

(4) Loans are presented before the allowance for loan losses but include deferred costs/fees. Construction loans are included net of loans in process. Loans held for sale are included.

N/M Not meaningful because there are no nonperforming loans and, consequently, the denominator in the ratio was zero.

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Use of Proceeds

The following table shows how we intend to use the net proceeds of the offering. The actual net proceeds will depend on the number of shares of common stock sold in the offering and the expenses incurred in connection with the offering. Payments for shares made through withdrawals from deposit accounts at Newport Federal will reduce Newport Federal’s deposits and will not result in the receipt of new funds for investment. See “Pro Forma Data” for the assumptions used to arrive at these amounts.

	Minimum of Offering Range				Midpoint of Offering Range				Maximum of Offering Range				15% Above Maximum of Offering Range
	2,951,389 Shares at $10.00 Per Share		Percent of Net Proceeds		3,472,222 Shares at $10.00 Per Share		Percent of Net Proceeds		3,993,055 Shares at $10.00 Per Share		Percent of Net Proceeds		4,592,013 Shares at $10.00 Per Share		Percent of Net Proceeds
	(Dollars In thousands)
Offering proceeds	$	29,514	104.4	%	$	34,722	103.8	%	$	39,931	103.5	%	$	45,920	103.1	%
Less: offering expenses		1,236	4.4			1,284	3.8			1,332	3.5			1,386	3.1
Net offering proceeds		28,278	100.0			33,438	100.0			38,599	100.0			44,534	100.0
Less:
Proceeds contributed to Newport Federal		14,139	50.0			16,719	50.0			19,300	50.0			22,267	50.0
Proceeds used for loan to employee stock ownership plan		2,550	9.0			3,000	9.0			3,450	8.9			3,968	8.9
Proceeds remaining for Newport Bancorp	$	11,589	41.0	%	$	13,719	41.0	%	$	15,849	41.1	%	$	18,299	41.1	%

Newport Bancorp intends to invest the proceeds it retains from the offering initially in short-term, liquid investments. Over time, Newport Bancorp may use the proceeds it retains from the offering:

• to invest in securities;

• to pay dividends to stockholders;

• to repurchase shares of its common stock, subject to regulatory restrictions;

• to finance the possible acquisition of financial institutions or other businesses that are related to banking; and

• for general corporate purposes.

Under current Office of Thrift Supervision regulations, Newport Bancorp may not repurchase shares of its common stock during the first year following the offering, except to fund equity benefit plans or, with prior regulatory approval, when extraordinary circumstances exist.

Newport Federal may use the proceeds that it receives from the offering, which is shown in the table above as the amount contributed to Newport Federal:

• to fund new loans;

• to invest in mortgage-backed securities;

• to finance the possible expansion of its business activities, including developing new branch locations such as the branch office Newport Federal anticipates opening in Portsmouth, Rhode Island in 2007; and

• for general corporate purposes.

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We may need regulatory approvals to engage in some of the activities listed above.

Except as described above, neither Newport Bancorp nor Newport Federal has any specific plans for the investment of the proceeds of this offering and has not allocated a specific portion of the proceeds to any particular use. For a discussion of our business reasons for undertaking the offering, see “The Conversion and Stock Offering—Reasons for the Conversion.”

Our Dividend Policy

Following the offering, our board of directors will consider a policy of paying regular cash dividends. The board of directors may declare and pay periodic special cash dividends in addition to, or in lieu of, regular cash dividends. In determining whether to declare or pay any dividends, whether regular or special, the board of directors will take into account our financial condition and results of operations, tax considerations, capital requirements, industry standards, and economic conditions. The regulatory restrictions that affect the payment of dividends by Newport Federal to us discussed below will also be considered. Newport Bancorp is also subject to Maryland law, which generally permits Newport Bancorp to pay dividends on its common stock if, after giving effect to the distribution, it would be able to pay its indebtedness as the indebtedness comes due in the usual course of business and its total assets exceed the sum of its liabilities and the amount needed, if Newport Bancorp is also dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of any holders of capital stock who have a preference in the event of dissolution. We cannot guarantee that we will pay dividends or that, if paid, we will not reduce or eliminate dividends in the future.

We will not be subject to Office of Thrift Supervision regulatory restrictions on the payment of dividends. However, our ability to pay dividends may depend, in part, upon dividends we receive from Newport Federal because we initially will have no source of income other than dividends from Newport Federal and earnings from the investment of the net proceeds from the offering that we retain. Office of Thrift Supervision regulations limit dividends and other distributions from Newport Federal to us. Newport Federal may not declare or pay a cash dividend on its capital stock if its effect would be to reduce the regulatory capital of Newport Federal below the amount required for the liquidation account to be established as required by Newport Federal’s plan of conversion. In addition, Newport Federal may not make a distribution that would constitute a return of capital during the three-year term of the business plan submitted in connection with the offering. No insured depository institution may make a capital distribution if, after making the distribution, the institution would be undercapitalized. See “Regulation and Supervision—Regulation of Federal Savings Associations—Limitation on Capital Distributions” and “The Conversion—Effects of Conversion to Stock Form—Liquidation Account.”

Any payment of dividends by Newport Federal to us that would be deemed to be drawn out of Newport Federal’s bad debt reserves would require Newport Federal to pay federal income taxes at the then current income tax rate on the amount deemed distributed. See “Federal and State Taxation—Federal Income Taxation” and note      of the notes to the financial statements included in this prospectus. We do not contemplate any distribution by Newport Federal that would result in this type of tax liability.

Market for the Common Stock

We have not previously issued common stock and there is currently no established market for the common stock. Upon completion of the offering, we expect that our shares of common stock will trade on the Nasdaq Market under the symbol “NFSB.” We cannot assure you that our common stock will be approved for listing. Sandler O’Neill & Partners, L.P. intends to become a market maker in our common stock following the offering, but it is under no obligation to do so. Sandler O’Neill also will assist us, if needed, in obtaining other market makers after the offering. We will try to obtain at least three market makers for our stock, but we cannot assure you that other market makers will be obtained or that an active and liquid trading market for the common stock will develop or, if developed, will be maintained.

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The development of a public market having the desirable characteristics of depth, liquidity and orderliness depends on the existence of willing buyers and sellers, the presence of which is not within our control or that of any market maker. The number of active buyers and sellers of our common stock at any particular time may be limited, which may have an adverse effect on the price at which our common stock can be sold. There can be no assurance that persons purchasing the common stock will be able to sell their shares at or above the $10.00 price per share in the offering. Purchasers of our common stock should have a long-term investment intent and should recognize that there may be a limited trading market in the common stock.

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Capitalization

The following table presents the historical capitalization of Newport Federal at December 31, 2005 and the capitalization of Newport Bancorp reflecting the offering (referred to as “pro forma” information). The pro forma capitalization gives effect to the assumptions listed under “Pro Forma Data,” based on the sale of the number of shares of common stock indicated in the table. This table does not reflect the issuance of additional shares as a result of the exercise of options granted under the proposed equity incentive plan. A change in the number of shares to be issued in the offering may materially affect pro forma capitalization. We are offering our common stock on a best efforts basis. We must sell a minimum of 2,951,389 shares to complete the offering.

				Pro Forma Capitalization Based Upon the Sale of
	Capitalization as of December 31, 2005			2,951,389 Shares at $10.00 Per Share			3,472,222 Shares at $10.00 Per Share			3,993,055 Shares at $10.00 Per Share			4,592,013 Shares at $10.00 Per Share
	(In thousands)
Deposits (1)	$	192,581		$	192,581		$	192,581		$	192,581		$	192,581
Borrowings		50,123			50,123			50,123			50,123			50,123
Total deposits and borrowed funds	$	242,704		$	242,704		$	242,704		$	242,704		$	242,704
Stockholders’ equity:
Preferred stock:
1,000,000 shares, $.01 par value per share, authorized; none issued or outstanding		—			—			—			—			—
Common stock:
19,000,000 shares, $.01 par value per share, authorized; specified number of shares assumed to be issued and outstanding (2)		—			32			38			43			50
Additional paid-in capital		—			30,607			36,178			41,750			48,158
Retained earnings (3)		18,133			18,133			18,133			18,133			18,133
Accumulated other comprehensive loss		(149	)		(149	)		(149	)		(149	)		(149	)
Plus:
Tax benefit of contribution to charitable foundation		—			944			1,111			1,278			1,469
Less:
Foundation contribution expense—shares (4)		—			(2,361	)		(2,778	)		(3,194	)		(3,674	)
Common stock acquired by employee stock ownership plan (5)		—			(2,550	)		(3,000	)		(3,450	)		(3,968	)
Common stock to be acquired by equity incentive plan (6)		—			(1,275	)		(1,500	)		(1,725	)		(1,984	)
Total stockholders’ equity	$	17,984		$	43,381		$	48,033		$	52,685		$	58,036

(1) Does not reflect withdrawals from deposit accounts for the purchase of common stock in the offering. Withdrawals to purchase common stock will reduce pro forma deposits by the amounts of the withdrawals.

(2) Reflects total issued and outstanding shares of 3,187,500, 3,750,000, 4,312,500 and 4,959,375 at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively.

(3) Retained earnings are restricted by applicable regulatory capital requirements.

(4) Represents the expense, net of tax, of the contribution of common stock to NewportFed Charitable Foundation based on an estimated tax rate of 40.0%. The actual rate experienced by Newport Bancorp may vary. The realization of the tax benefit is limited annually to 10.0% of our annual taxable income. However, for federal and state tax purposes, we can carry forward any unused portion of the deduction for five years following the year in which the contribution is made.

(5) Assumes that 8% of the common stock sold in the offering and contributed to the charitable foundation, will be acquired by the employee stock ownership plan in the offering with funds borrowed from Newport Bancorp. Under generally accepted accounting principles, the amount of common stock to be purchased by the employee stock ownership plan represents unearned compensation and is, accordingly, reflected as a reduction of capital and a liability to the ESOP. As shares are released to plan participants’ accounts, a compensation expense will be charged, along with related tax benefit, and a reduction in the charge against capital will occur in the amount of the compensation expense recognized. Since the funds are borrowed from Newport Bancorp, the borrowing will be eliminated in consolidation and no liability or interest expense will be reflected in the financial statements of Newport Federal. See “Our Management—Benefit Plans—Employee Stock Ownership Plan.”

(6) Assumes the purchase in the open market at $10.00 per share, for restricted stock awards under the proposed equity incentive plan, of a number of shares equal to 4% of the shares of common stock issued in the offering and contributed to the charitable foundation. The shares are reflected as a reduction of stockholders’ equity. The equity incentive

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plan will be submitted to stockholders for approval at a meeting following the offering. See “Risk Factors—Issuance of shares for benefit programs may dilute your ownership interest,” “Pro Forma Data” and “Our Management—Benefit Plans—Future Equity Incentive Plan.”

Regulatory Capital Compliance

At December 31, 2005, Newport Federal exceeded all regulatory capital requirements. The following table presents Newport Federal’s capital position relative to its regulatory capital requirements at December 31, 2005, on a historical and a pro forma basis. The table reflects receipt by Newport Federal of 50% of the net proceeds of the offering. For purposes of the table, the amount expected to be borrowed by the employee stock ownership plan and the cost of the shares expected to be awarded under the equity incentive plan as restricted stock (8% and 4% of the shares of common stock sold and contributed to the charitable foundation, respectively) are deducted from pro forma regulatory capital. For a discussion of the assumptions underlying the pro forma capital calculations presented below, see “Use of Proceeds,” “Capitalization” and “Pro Forma Data.” The definitions of the terms used in the table are those provided in the capital regulations issued by the Office of Thrift Supervision. For a discussion of the capital standards applicable to Newport Federal, see “Regulation and Supervision—Regulation of Federal Savings Associations—Capital Requirements.”

					Pro Forma at December 31, 2005
					Minimum of Offering Range				Midpoint of Offering Range				Maximum of Offering Range				15% Above Maximum of Offering Range
	Historical at December 31, 2005				2,951,389 Shares at $10.00 Per Share				3,472,222 Shares at $10.00 Per Share				3,993,055 Shares at $10.00 Per Share				4,592,013 Shares at $10.00 Per Share
	Amount		Percent of Assets (1)		Amount		Percent of Assets		Amount		Percent of Assets		Amount		Percent of Assets		Amount		Percent of Assets
	(Dollars in thousands)
Total capital under generally accepted accounting principles	$	17,984	6.85	%	$	30,743	11.06	%	$	33,080	11.78	%	$	35,417	12.49	%	$	38,104	13.28	%
Tangible Capital:
Capital level (2)	$	17,984	6.85	%	$	30,743	11.06	%	$	33,080	11.78	%	$	35,417	12.49	%	$	38,104	13.28	%
Requirement		3,936	1.50			4,170	1.50			4,212	1.50			4,255	1.50			4,303	1.50
Excess	$	14,048	5.35	%	$	26,573	9.56	%	$	28,868	10.28	%	$	31,162	10.99	%	$	33,801	11.78	%
Core Capital:
Capital level (2)	$	17,984	6.85	%	$	30,743	11.06	%	$	33,080	11.78	%	$	35,417	12.49	%	$	38,104	13.28	%
Requirement		10,495	4.00			11,119	4.00			11,232	4.00			11,346	4.00			11,476	4.00
Excess	$	7,489	2.85	%	$	19,624	7.06	%	$	21,848	7.78	%	$	24,071	8.49	%	$	26,628	9.28	%
Total Risk-Based Capital:
Total risk-based     capital (3)	$	19,837	11.21	%	$	32,596	17.65	%	$	34,933	18.77	%	$	37,270	19.87	%	$	39,957	21.12	%
Requirement		14,155	8.00			14,778	8.00			14,892	8.00			15,005	8.00			15,136	8.00
Excess	$	5,682	3.21	%	$	17,818	9.65	%	$	20,041	10.77	%	$	22,265	11.87	%	$	24,821	13.12	%

(1) Tangible capital and core capital levels are shown as a percentage of adjusted total assets of $262.5 million. Risk-based capital levels are shown as a percentage of risk-weighted assets of $177.0 million.

(2) A portion of the net unrealized losses on available-for-sale securities accounts for the difference between capital calculated under generally accepted accounting principles and each of tangible capital and core capital. See note 3 of the notes to the financial statements for additional information.

(3) Pro forma amounts and percentages assume net proceeds are invested in assets that carry a 50% risk-weighting.

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Pro Forma Data

The following tables show information about our net income and stockholders’ equity reflecting the offering. The information provided illustrates our pro forma net income and stockholders’ equity based on the sale of common stock at the minimum of the offering range, the midpoint of the offering range, the maximum of the offering range and 15% above the maximum of the offering range. The actual net proceeds from the sale of the common stock cannot be determined until the offering is completed. Net proceeds indicated in the following tables are based upon the following assumptions:

• All shares of stock will be sold in the subscription and community offerings;

• Our employee stock ownership plan will purchase a number of shares equal to 8% of the shares sold in the offering and contributed to the charitable foundation, with a loan from Newport Bancorp that will be repaid in equal installments over 15 years;

• Sandler O’Neill & Partners, L.P. will receive a fee equal to 1.0% of the aggregate purchase price of the shares sold in the offering, except that no fee will be paid with respect to shares contributed to the charitable foundation, or purchased by the employee stock ownership plan or by our officers, directors and employees and members of their immediate families;

• Total expenses of the offering, excluding fees paid to Sandler O’Neill, will be approximately $927,000; and

• We will make a charitable contribution of a number of shares of Newport Bancorp common stock equal to 8% of the shares sold in the offering with an assumed value of $10.00 per share. The number of shares contributed to the foundation would equal 236,111, 277,778, 319,445 and 367,362 at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively.

Actual expenses may vary from this estimate, and the amount of fees paid to Sandler O’Neill & Partners, L.P. (and potentially broker-dealers) will depend upon whether a syndicate of broker-dealers or other means is necessary to sell the shares, and other factors.

Pro forma net income for the year ended December 31, 2005 has been calculated as if the offering were completed at the beginning of the period, and the net proceeds had been invested at 4.38% for the year ended December 31, 2005, which represents the one-year treasury rate at that date. We believe that the one-year treasury rate represents a more realistic yield on the investment of the offering proceeds than the arithmetic average of the weighted average yield earned on our interest-earning assets and the weighted average rate paid on our deposits, which is the reinvestment rate required by Office of Thrift Supervision regulations.

A pro forma after-tax return of 2.63% is used for the year ended December 31, 2005, after giving effect to a combined federal and state income tax rate of 40.0%. Historical and pro forma per share amounts have been calculated by dividing historical and pro forma amounts by the number of shares of common stock indicated in the tables.

When reviewing the following tables you should consider the following:

• The final column gives effect to a 15% increase in the offering range, which may occur without any further notice if RP Financial increases its appraisal to reflect the results of this offering, changes in our financial condition or results of operations or changes in market conditions after the offering begins. See “The Conversion and Stock Offering—How We Determined the Offering Range and the $10.00 Purchase Price.”

• Since funds on deposit at Newport Federal may be withdrawn to purchase shares of common stock, the amount of funds available for investment will be reduced by the amount of withdrawals for stock purchases. The pro forma tables do not reflect withdrawals from deposit accounts.

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• Historical per share amounts have been computed as if the shares of common stock expected to be issued in the offering had been outstanding at the beginning of the period covered by the table. However, neither historical nor pro forma stockholders’ equity has been adjusted to reflect the investment of the estimated net proceeds from the sale of the shares in the offering, the additional employee stock ownership plan expense or the proposed equity incentive plan.

• Pro forma stockholders’ equity (“book value”) represents the difference between the stated amounts of our assets and liabilities. Pro forma tangible stockholders’ equity excludes intangible assets. Book value amounts do not represent fair market values or amounts available for distribution to stockholders in the unlikely event of liquidation. The amounts shown do not reflect the federal income tax consequences of the restoration to income of Newport Federal’s special bad debt reserves for income tax purposes, which would be required in the unlikely event of liquidation. See “Federal and State Taxation.”

• The amounts shown as pro forma stockholders’ equity per share do not represent possible future price appreciation of our common stock.

The following pro forma data, which are based on Newport Federal’s equity at December 31, 2005, and net income for the year ended December 31, 2005, may not represent the actual financial effects of the offering or our operating results after the offering. The pro forma data rely exclusively on the assumptions outlined above and in the notes to the pro forma tables. The pro forma data do not represent the fair market value of our common stock, the current fair market value of our assets or liabilities, or the amount of money that would be available for distribution to stockholders if we are liquidated after the offering.

We are offering our common stock on a best efforts basis. We must sell a minimum of 2,951,389 shares to complete the offering.

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	Year Ended December 31, 2005
	Minimum of Offering Range			Midpoint of Offering Range			Maximum of Offering Range			15% Above Maximum of Offering Range
	2,951,389 Shares at $10.00 Per Share			3,472,222 Shares at $10.00 Per Share			3,993,055 Shares at $10.00 Per Share			4,592,013 Shares at $10.00 Per Share
	(Dollars in thousands, except per share amounts)
Gross proceeds of offering	$	29,514		$	34,722		$	39,931		$	45,920
Plus: shares issued to the charitable foundation		2,361			2,778			3,194			3,674
Pro Forma Market Capitalization	$	31,875		$	37,500		$	43,125		$	49,594
Gross proceeds		29,514			34,722			39,931			45,920
Less: estimated expenses		(1,236	)		(1,284	)		(1,332	)		(1,386	)
Estimated net proceeds		28,278			33,438			38,599			44,534
Less: common stock acquired by employee stock ownership plan (1)		(2,550	)		(3,000	)		(3,450	)		(3,968	)
Less: common stock to be acquired by equity incentive plan (2)		(1,275	)		(1,500	)		(1,725	)		(1,984	)
Net investable proceeds	$	24,453		$	28,938		$	33,424		$	38,583
Pro Forma Net Income:
Pro forma net income (3):
Historical	$	674		$	674		$	674		$	674
Pro forma income on net investable proceeds		643			760			878			1,014
Less: pro forma employee stock ownership plan adjustments (1)		(102	)		(120	)		(138	)		(159	)
Less: pro forma restricted stock award expense (2)		(153	)		(180	)		(207	)		(238	)
Less: pro forma stock option expense (4)		(215	)		(252	)		(290	)		(334	)
Pro forma net income	$	847		$	882		$	917		$	957
Pro forma net income per share (3):
Historical	$	0.23		$	0.19		$	0.17		$	0.15
Pro forma income on net investable proceeds		0.22			0.22			0.22			0.22
Less: pro forma employee stock ownership plan adjustments (1)		(0.03	)		(0.03	)		(0.03	)		(0.03	)
Less: pro forma restricted stock award expense (2)		(0.05	)		(0.05	)		(0.05	)		(0.05	)
Less: pro forma stock option expense (4)		(0.07	)		(0.07	)		(0.07	)		(0.07	)
Pro forma net income per share	$	0.30		$	0.26		$	0.24		$	0.22
Offering price as a multiple of pro forma net income per share (annualized)		33.33			38.46			41.67			45.45
Number of shares used to calculate pro forma net income per share (5)		3,187,500			3,750,000			4,312,500			4,959,375
Pro Forma Stockholders’ Equity:
Pro forma stockholders’ equity (book value) (4):
Historical	$	17,984		$	17,984		$	17,984		$	17,984
Estimated net proceeds		28,278			33,438			38,599			44,534
Plus: shares issued to the charitable foundation		2,361			2,778			3,194			3,674
Less: after-tax cost of foundation shares		(1,417	)		(1,667	)		(1,916	)		(2,205	)
Less: common stock acquired by employee stock ownership plan (1)		(2,361	)		(2,778	)		(3,194	)		(3,674	)
Less: common stock to be acquired by equity incentive plan (2)		(1,275	)		(1,500	)		(1,725	)		(1,984	)
Pro forma stockholders’ equity	$	43,381		$	48,033		$	52,685		$	58,036
Pro forma stockholders’ equity per share (4):
Historical	$	5.64		$	4.80		$	4.17		$	3.63
Estimated net proceeds		8.87			8.92			8.95			8.98
Plus: shares issued to the charitable foundation		0.74			0.74			0.74			0.74
Less: after-tax cost of foundation shares		(0.44	)		(0.44	)		(0.44	)		(0.44	)
Less: common stock acquired by employee stock ownership plan (1)		(0.80	)		(0.80	)		(0.80	)		(0.80	)
Less: common stock to be acquired by equity incentive plan (2)		(0.40	)		(0.40	)		(0.40	)		(0.40	)
Pro forma stockholders’ equity per share	$	13.61		$	12.82		$	12.22		$	11.71
Offering price as a percentage of pro forma stockholders’ equity per share		73.48	%		78.00	%		81.83	%		85.40	%
Number of shares used to calculate pro forma stockholders’ equity per share (5)		3,187,500			3,750,000			4,312,500			4,959,375

(footnotes on following page)

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(1) Assumes that the employee stock ownership plan will acquire a number of shares of stock equal to 8% of the shares sold in the offering and contributed to the charitable foundation, (255,000, 300,000, 319,445 and 367,362 shares at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively). The employee stock ownership plan will borrow the funds to acquire these shares from the net offering proceeds retained by Newport Bancorp. The amount of this borrowing has been reflected as a reduction from gross proceeds to determine estimated net investable proceeds. This borrowing will have an interest rate equal to the prime rate as published in The Wall Street Journal, which is currently 7.5%, and a term of 15 years. Newport Federal intends to make contributions to the employee stock ownership plan in amounts at least equal to the principal and interest requirement of the debt. Interest income that Newport Bancorp will earn on the loan will offset a portion of the compensation expense recorded by Newport Federal as it contributes to the ESOP. As the debt is paid down, shares will be released for allocation to participants’ accounts and stockholders’ equity will be increased.

The adjustment to pro forma net income for the employee stock ownership plan reflects the after-tax compensation expense associated with the plan. Applicable accounting principles require that compensation expense for the employee stock ownership plan be based upon shares committed to be released and that unallocated shares be excluded from earnings per share computations. An equal number of shares (1/15 of the total, based on a 15-year loan) will be released each year over the term of the loan. The valuation of shares committed to be released would be based upon the average market value of the shares during the year, which, for purposes of this calculation, was assumed to be equal to the $10.00 per share purchase price. If the average market value per share is greater than $10.00 per share, total employee stock ownership plan expense would be greater. See “Our Management—Benefit Plans—Employee Stock Ownership Plan.”

(2) Assumes that Newport Bancorp will purchase in the open market a number of shares of stock equal to 4% of the shares sold in the offering and contributed to the charitable foundation, (127,500, 150,000, 172,500 and 198,375 shares at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively), that will be reissued as restricted stock awards under a equity incentive plan to be adopted following the offering. Purchases will be funded with cash on hand at Newport Bancorp or with dividends paid to Newport Bancorp by Newport Federal. The cost of these shares has been reflected as a reduction from gross proceeds to determine estimated net investable proceeds. In calculating the pro forma effect of the restricted stock awards, it is assumed that the required stockholder approval has been received, that the shares used to fund the awards were acquired at the beginning of the respective period and that the shares were acquired at the $10.00 per share purchase price. The issuance of authorized but unissued shares of the common stock instead of shares repurchased in the open market would dilute the ownership interests of existing stockholders by approximately 3.8%.

The adjustment to pro forma net income for the restricted stock awards reflects the after-tax compensation expense associated with the awards. It is assumed that the fair market value of a share of Newport Bancorp common stock was $10.00 at the time the awards were made, that shares of restricted stock issued under the equity incentive plan vest 20% per year, that compensation expense is recognized on a straight-line basis over each vesting period so that 20% of the value of the shares awarded was an amortized expense during each year, and that the combined federal and state income tax rate was 40.0%. If the fair market value per share is greater than $10.00 per share on the date shares are awarded under the equity incentive plan, total equity incentive plan expense would be greater.

(3) Does not give effect to the non-recurring expense that will be recognized in fiscal 2006 as a result of the contribution of common stock to the charitable foundation.

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The following table shows the estimated after-tax expense associated with the contribution to the foundation, as well as pro forma net loss and pro forma net loss per share assuming the contribution to the foundation was expensed during the periods presented.

	Minimum of Offering Range			Midpoint of Offering Range			Maximum of Offering Range			15% Above Maximum of Offering Range
	(Dollars in thousands, except per share amounts )
After-tax expense of contribution to foundation:
Year ended December 31, 2005	$	1,417		$	1,667		$	1,916		$	2,205
Pro forma net loss:
Year ended December 31, 2005		(570	)		(785	)		(999	)		(1,248	)
Pro forma net loss per share:
Year ended December 31, 2005		(0.19	)		(0.23	)		(0.25	)		(0.27	)

The pro forma data assume that we will realize 100.0% of the income tax benefit as a result of the contribution to the foundation based on a 40.0% income tax rate. The realization of the tax benefit is limited annually to 10.0% of our annual taxable income. However, for federal and state tax purposes, we can carry forward any unused portion of the deduction for five years following the year in which the contribution is made.

(4) The adjustment to pro forma net income for stock options reflects the after-tax compensation expense associated with the stock options that may be granted under the equity incentive plan to be adopted following the offering. If the equity incentive plan is approved by stockholders, a number of shares equal to 10% of the number of shares sold in the offering and contributed to the charitable foundation, (318,750, 375,000, 431,250 and 495,938) shares at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively) will be reserved for future issuance upon the exercise of stock options that may be granted under the plan. Using the Black-Scholes option-pricing formula, the options are assumed to have a value of $3.74 for each option, based on the following assumptions: exercise price, $10.00; trading price on date of grant, $10.00; dividend yield, 0%; expected life, 10 years; expected volatility, 12.06%; and risk-free interest rate, 4.39%. Because there currently is no market for Newport Bancorp common stock, the assumed expected volatility is based on the SNL Index for all publicly-traded thrifts. The dividend yield is assumed to be 0% because there is no history of dividend payments and the board of directors has not expressed an intention to commence dividend payments upon completion of the offering. It is assumed that stock options granted under the equity incentive plan vest 20% per year, that compensation expense is recognized on a straight-line basis over each vesting period so that 20% of the value of the options awarded was an amortized expense during each year, that 25% of the options awarded are non-qualified options and that the combined federal and state income tax rate was 40.0%. If the fair market value per share is different than $10.00 per share on the date options are awarded under the equity incentive plan, or if the assumptions used in the option-pricing formula are different from those used in preparing this pro forma data, the value of the stock options and the related expense would be different. Applicable accounting standards do not prescribe a specific valuation technique to be used to estimate the fair value of employee stock options. Newport Bancorp may use a valuation technique other than the Black-Scholes option-pricing formula and that technique may produce a different value. The issuance of authorized but unissued shares of common stock to satisfy option exercises instead of shares repurchased in the open market would dilute the ownership interests of existing stockholders by approximately 9.1%.

(5) The number of shares used to calculate pro forma net income per share is equal to the total number of shares to be outstanding upon completion of the offering, less the number of shares purchased by the employee stock ownership plan not committed to be released within nine months or one year following the offering. The number of shares used to calculate pro forma stockholders’ equity per share is equal to the total number of shares to be outstanding upon completion of the offering.

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Comparison of Independent Valuation and Pro Forma Financial

Information With and Without the Foundation

As set forth in the following table, if we do not establish and fund NewportFed Charitable Foundation as part of the offering, RP Financial estimates that our pro forma valuation would be greater, which would have resulted in an increase in the amount of common stock offered for sale in the offering. If the foundation were not established, there is no assurance that the updated appraisal that RP Financial will prepare at the closing of the offering would conclude that our pro forma market value would be the same as the estimate set forth in the table below. The updated appraisal will be based on the facts and circumstances existing at that time, including, among other things, market and economic conditions.

The information presented in the following table is for comparative purposes only. It assumes that the offering was completed at December 31, 2005, based on the assumptions set forth under “Pro Forma Data.”

	At the Minimum of Estimated Valuation Range						At the Midpoint of Estimated Valuation Range						At the Maximum of Estimated Valuation Range						At the Maximum, as Adjusted, of Estimated Valuation Range
	With Foundation			No Foundation			With Foundation			No Foundation			With Foundation			No Foundation			With Foundation			No Foundation
	(Dollars in thousands, except per share amounts)
Estimated offering amount (1)	$	29,514		$	35,275		$	34,722		$	41,500		$	39,931		$	47,725		$	45,920		$	54,884
Pro forma market capitalization		31,875			35,275			37,500			41,500			43,125			47,725			49,594			54,884
Estimated pro forma valuation		31,875			35,275			37,500			41,500			43,125			47,725			49,594			54,884
Pro forma total assets		287,784			292,138			292,436			297,558			297,088			302,979			302,439			309,213
Pro forma total liabilities		244,403			244,403			244,043			244,043			244,043			244,043			244,043			244,043
Pro forma stockholders’ equity		43,381			47,735			48,033			53,155			52,685			58,576			58,036			64,810
Pro forma net income		847			937			882			987			917			1,038			957			1,097
Pro forma stockholders’ equity per share		13.61			13.53			12.82			12.80			12.22			12.28			11.71			11.81
Pro forma net income per share		0.30			0.30			0.26			0.27			0.24			0.24			0.22			0.22
Pro Forma Pricing Ratios:
Offering price as a percentage of pro forma stockholders’ equity		73.48	%		73.91	%		78.00	%		78.13	%		81.83	%		81.43	%		85.40	%		84.67	%
Offering price as a multiple of pro forma net income per share		33.33			33.33			38.46			37.04			41.67			41.67			45.45			45.45
Pro Forma Financial Ratios:
Return on assets		0.29	%		0.32	%		0.30	%		0.33	%		0.31	%		0.34	%		0.32	%		0.35	%
Return on stockholders’ equity		1.95			1.96			1.84			1.86			1.74			1.77			1.65			1.69
Stockholders’ equity to     total assets		15.07			16.34			16.43			17.86			17.73			19.33			19.19			20.96

(1) Based on independent valuation prepared by RP Financial as of March 3, 2006.

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Our Business

General

Newport Bancorp is a Maryland chartered company established in March, 2006 to become the holding company for Newport Federal upon completion of the conversion. Before the completion of the conversion, Newport Bancorp will not engage in any significant activities other than those of an organizational nature. Following completion of the conversion, Newport Bancorp’s business activity will be the ownership of the outstanding capital stock of Newport Federal. Newport Bancorp will not own or lease any property but instead use the premises, equipment and other property of Newport Federal with the payment of appropriate rental fees, as required by applicable law and regulations, under the terms of an expense allocation agreement. In the future, Newport Bancorp may acquire or organize other operating subsidiaries; however, there are no current plans, arrangements, agreements or understandings, written or oral, to do so.

Newport Federal is a federally chartered savings bank originally founded as a Rhode Island institution in 1888. In October 2005, we acquired Westerly Savings Bank, a $76.0 million Rhode Island mutual financial institution with two branch locations in Westerly, Rhode Island. We operate as a community-oriented financial institution offering traditional financial services to consumers and businesses in our market area. We attract deposits from the general public and use those funds to originate one- to four-family residential loans, multi-family loans, commercial real estate loans, construction loans and consumer loans.

Our website address is www.newportfederal.com. Information on our website should not be considered a part of this prospectus.

Market Area

We are headquartered in Newport, Rhode Island. In addition to our main office, we operate four other full-service branch offices in Rhode Island: one each in Middletown and in Wakefield, Rhode Island, and two in Westerly. We consider Newport and Washington Counties, Rhode Island to be our primary market area. According to the Environmental Systems Research Institute and the United States Census Bureau, the population of Newport and Washington Counties were approximately 86,012 and 130,350, respectively.

Competition

We face significant competition for the attraction of deposits and origination of loans. Our most direct competition for deposits has historically come from the several financial institutions operating in our market area and, to a lesser extent, from other financial service companies such as brokerage firms, credit unions and insurance companies. We also face competition for investors’ funds from money market funds, mutual funds and other corporate and government securities. At June 30, 2005, which is the most recent date for which data is available from the FDIC, we held approximately 9.2% of the deposits in Newport County, Rhode Island and approximately 3.65% of the deposits in Washington County, Rhode Island. (Because Newport Federal and Westerly Savings Bank had not merged as of June 30, 2005, the percentages presented have been calculated by adding the individual market shares of Newport Federal and Westerly Savings Bank as of June 30, 2005.) In addition, banks owned by large holding companies such as Bank of America Corporation, Citizens and Sovereign also operate in our market area. These institutions are significantly larger than us and, therefore, have significantly greater resources.

Our competition for loans comes primarily from financial institutions in our market area and, to a lesser extent, from other financial service providers, such as mortgage companies and mortgage brokers. Competition for loans also comes from the increasing number of non-depository financial service companies entering the mortgage market, such as insurance companies, securities companies and specialty finance companies.

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We expect competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Technological advances, for example, have lowered barriers to entry, allowed banks to expand their geographic reach by providing services over the Internet and made it possible for non-depository institutions to offer products and services that traditionally have been provided by banks. Changes in federal law permit affiliation among banks, securities firms and insurance companies, which promotes a competitive environment in the financial services industry. Competition for deposits and the origination of loans could limit our growth in the future.

Lending Activities

General. The largest segment of our loan portfolio is real estate mortgage loans, primarily one- to four-family residential loans. The other significant segment of our loan portfolio is commercial real estate loans. To a lesser degree, we also originate multi-family and construction loans, as well as consumer loans. We originate loans for investment purposes, although we occasionally sell a portion of our one- to four-family residential loans into the secondary market.

One- to Four-Family Residential Loans. Our origination of mortgage loans enables borrowers to purchase or refinance existing homes located in Rhode Island, Southeastern Connecticut and, to a lesser extent, Southeastern Massachusetts, although our primary lending market is Newport and Washington Counties, Rhode Island.

Our residential lending policies and procedures conform to the secondary market guidelines as we occasionally sell qualifying fixed-rate loans into the secondary market. We offer fixed-rate mortgage loans with terms of 10 to 30 years, and to a lesser extent, 40 years. We also offer adjustable-rate mortgage loans. Borrower demand for adjustable-rate loans compared to fixed-rate loans is a function of the level of interest rates, the expectations of changes in the level of interest rates, and the difference between the interest rates and loan fees offered for fixed-rate mortgage loans as compared to an initially discounted interest rate and loan fees for multi-year adjustable-rate mortgages (“ARMs”). The relative amount of fixed-rate mortgage loans and adjustable-rate mortgage loans that can be originated at any time is largely determined by the demand for each in a competitive environment. The loan fees, interest rates and other provisions of mortgage loans are determined by us on the basis of our own pricing criteria and competitive market conditions.

Interest rates and payments on our adjustable-rate mortgage loans generally adjust annually after an initial fixed period that typically ranges from one to three years. Interest rates and payments on our adjustable-rate loans generally are adjusted to a rate typically equal to a percentage above the one year U.S. Treasury index. The maximum amount by which the interest rate may be increased or decreased is generally 2% per adjustment period and the lifetime interest rate cap is generally 6.0% over the initial interest rate of the loan.

While one- to four-family residential real estate loans are normally originated with up to 30-year terms, such loans typically remain outstanding for substantially shorter periods because borrowers often prepay their loans in full either upon sale of the property pledged as security or upon refinancing the original loan. Therefore, average loan maturity is a function of, among other factors, the level of purchase and sale activity in the real estate market, prevailing interest rates and the interest rates payable on outstanding loans on a regular basis. We do not offer loans with negative amortization and generally do not offer interest only loans.

We generally do not make conventional loans with loan-to-value ratios exceeding 95%. Loans with loan-to-value ratios in excess of 80% generally require private mortgage insurance. We require all properties securing mortgage loans to be appraised by a board-approved independent appraiser. We generally require title insurance on all first mortgage loans. Borrowers must obtain hazard insurance, and flood insurance for loans on property located in a flood zone, before closing the loan.

Multi-Family and Commercial Real Estate Loans. We offer fixed- and adjustable-rate mortgage loans secured by commercial and multi-family real estate. Our commercial and multi-family real estate loans are generally secured by five to 10 unit apartment buildings, small office buildings, two to four unit mixed-used retail and residential

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properties and bed and breakfast inn establishments. These properties are located in Newport and Washington Counties in Rhode Island, and to a lesser extent, New London County, Connecticut.

We originate a variety of fixed- and adjustable-rate commercial real estate and multi-family real estate loans generally for terms up to 10 years. Our adjustable-rate loans include loans that adjust based on the five year FHLB Classic Rate Advance Index, adjustable every five years. Loans are secured by first mortgages, and amounts generally do not exceed 75% of the property’s appraised value.

As of December 31, 2005, our largest commercial loan was $1.4 million and was secured by a bed and breakfast inn and owner’s residence in Newport, Rhode Island. This loan was performing in accordance with its original terms at December 31, 2005.

Construction Loans. Newport Federal originates construction loans for one- to four-family homes and commercial, multi-family and other nonresidential purposes. Newport Federal’s residential construction loans generally provide for the payment of only interest during the construction phase, which is usually six to twelve months. At the end of the construction phase, the loan converts to a permanent mortgage loan. One- to four-family residential construction loans are made with a maximum loan to value ratio of 80% of the market value of the real estate and improvements. Commercial, multi-family and other nonresidential loans can be made with a maximum loan to value ratio of 75% of the upon completion market value of the real estate and improvements. At December 31, 2005, the largest outstanding construction loan commitment was for $1 million, $735,000 of which was outstanding. This loan was performing according to its terms at December 31, 2005. Construction loans to individuals are generally made on the same terms as Newport Federal’s one- to four-family mortgage loans.

Consumer Loans. Our consumer loans include home equity loans and lines of credit, loans secured by first or second mortgages of real estate, passbook or certificate accounts or marketable securities.

The procedures for underwriting consumer loans include an assessment of the applicant’s payment history on other debts and ability to meet existing obligations and payments on the proposed loan. Although the applicant’s creditworthiness is a primary consideration, the underwriting process also includes a comparison of the value of the collateral, if any, to the proposed loan amount.

We offer home equity loans with a maximum combined loan to value ratio of 80% or less. Home equity lines of credit have adjustable rates of interest that are indexed to the Prime Rate as published by The Wall Street Journal. Home equity loans have fixed interest rates and terms that typically range from five to 15 years, but may have terms as long as 20 years.

Loan Underwriting Risks.

Adjustable-Rate Loans. While we anticipate that adjustable-rate loans will better offset the adverse effects of an increase in interest rates as compared to fixed-rate mortgages, an increased monthly mortgage payment required of adjustable-rate loan borrowers in a rising interest rate environment could cause an increase in delinquencies and defaults. The marketability of the underlying property also may be adversely affected in a high interest rate environment. In addition, although adjustable-rate mortgage loans make our asset base more responsive to changes in interest rates, the extent of this interest sensitivity is limited by the annual and lifetime interest rate adjustment limits.

Multi-family and Commercial Real Estate Loans. Loans secured by multi-family and commercial real estate generally have larger balances and involve a greater degree of risk than one- to four-family residential mortgage loans. Of primary concern in multi-family and commercial real estate lending is the borrower’s creditworthiness and the feasibility and cash flow potential of the project. Payments on loans secured by income properties often depend on successful operation and management of the properties. As a result, repayment of such loans may be subject to a greater extent than residential real estate loans, to adverse conditions in the real estate market or the economy. To monitor cash flows on income properties, we require borrowers and loan guarantors, if any, to provide annual financial statements on multi-family

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and commercial real estate loans. In reaching a decision on whether to make a multi-family or commercial real estate loan, we consider and review a global cash flow analysis of the borrower and consider the net operating income of the property, the borrower’s expertise, credit history and profitability and the value of the underlying property. We have generally required that the properties securing these real estate loans have debt service coverage ratios (the ratio of earnings before debt service to debt service) of at least 1.25. An environmental survey or environmental risk insurance is obtained when the possibility exists that hazardous materials may have existed on the site, or the site may have been impacted by adjoining properties that handled hazardous materials.

Construction Loans. Construction financing is generally considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the property’s value at completion of construction and the estimated cost of construction. During the construction phase, a number of factors could result in delays and cost overruns. If the estimate of construction costs proves to be inaccurate, we may be required to advance funds beyond the amount originally committed to permit completion of the building. If the estimate of value proves to be inaccurate, we may be confronted, at or before the maturity of the loan, with a building having a value which is insufficient to assure full repayment if liquidation is required. If we are forced to foreclose on a building before or at completion due to a default, there can be no assurance that we will be able to recover all of the unpaid balance of, and accrued interest on, the loan as well as related foreclosure and holding costs.

Consumer Loans. Consumer loans may entail greater risk than do residential mortgage loans, particularly in the case of consumer loans that are secured by assets that depreciate rapidly, such as motor vehicles. In such cases, repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan and a small remaining deficiency often does not warrant further substantial collection efforts against the borrower. Consumer loan collections depend on the borrower’s continuing financial stability, and therefore are likely to be adversely affected by various factors, including job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.

Loan Originations, Purchases and Sales. Loan originations come from a number of sources. The primary source of loan originations are existing customers, walk-in traffic, advertising and referrals from customers. Occasionally, we sell loans that we have originated. Our decision to sell loans is based on prevailing market interest rate conditions, interest rate management and liquidity needs. We sold $7.4 million, $7.4 million and $20.6 million of loans in the years ended December 31, 2005, 2004 and 2003, respectively.

From time to time, Newport Federal will purchase whole loans or participations in loans to supplement its lending portfolio. Whole loans purchased totaled $1.7 million at December 31, 2005. We perform our own underwriting analysis on each loan purchased using the same standards used for loans originated. We do not service purchased loans.

Loan participations totaled $1.7 million at December 31, 2005. Loan participations are also subject to the same credit analysis and loan approvals as loans we originate. We are permitted to review all of the documentation relating to any loan in which we participate. However, in a purchased participation loan, we do not service the loan and thus are subject to the policies and practices of the lead lender with regard to monitoring delinquencies, pursuing collections and instituting foreclosure proceedings.

Loan Approval Procedures and Authority. Our lending activities follow written, non-discriminatory, underwriting standards and loan origination procedures established by our board of directors and management. The President, Chief Lending Officer and Chief Operating Officer have authority to approve secured loans in amounts up to $2.0 million and unsecured loans up to $300,000. Secured loans from $2.0 million to $2.2 million must be approved by four of the following persons: recommending loan officer, Chief Lending Officer, President, Chief Operating Officer and one non-employee member of the board of directors. Secured loans from $2.2 million to $2.4 million must be approved by a majority of the Executive Committee of the board of directors. Unsecured loans over $600,000 and secured loans greater than $2.4 million up to the legal lending limit must be approved by a majority vote of the entire board of directors.

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Smaller loans may be approved by individual loan officers; however, the Chief Lending Officer oversees the origination of all loans.

Loans to One Borrower. The maximum amount that we may lend to one borrower and the borrower’s related entities is limited, by regulation, to generally 15% of our stated capital and reserves. At December 31, 2005, our regulatory limit on loans to one borrower was $2.9 million. At that date, our largest lending relationship was $2.0 million and was secured by a one- to four-family residence. This loan was performing in accordance with its original terms at December 31, 2005.

Loan Commitments. We issue commitments for fixed- and adjustable-rate mortgage loans conditioned upon the occurrence of certain events. Commitments to originate mortgage loans are legally binding agreements to lend to our customers. Generally, our loan commitments expire after 60 days.

Investment Activities

We have legal authority to invest in various types of liquid assets, including U.S. Treasury obligations, securities of various federal agencies and of state and municipal governments, mortgage-backed securities and certificates of deposit of federally insured institutions. Within certain regulatory limits, we also may invest a portion of our assets in corporate securities and mutual funds. We also are required to maintain an investment in Federal Home Loan Bank of Boston stock.

At December 31, 2005, our investment portfolio consisted of mortgage-backed securities issued primarily by Fannie Mae and mutual funds, the underlying assets of which consist of short-term agency securities and mortgage-backed securities.

Our investment objectives are to provide and maintain liquidity, to establish an acceptable level of interest rate and credit risk, to provide an alternate source of low-risk investments when demand for loans is weak and to generate a favorable return. Our board of directors has the overall responsibility for the investment portfolio, including approval of the investment policy. Messrs. McCarthy and Walsh, our Chief Executive Officer and Chief Financial Officer, respectively, are responsible for implementation of the investment policy and monitoring our investment performance. The board of directors of Newport Federal reviews the status of our investment portfolio on a quarterly basis, or more frequently if warranted.

Deposit Activities and Other Sources of Funds

General. Deposits, borrowings and loan repayments are the major sources of our funds for lending and other investment purposes. Scheduled loan repayments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general interest rates and money market conditions.

Deposit Accounts. Substantially all of our depositors are residents of Rhode Island. Deposits are attracted from within our market area through the offering of a broad selection of deposit instruments, including non-interest-bearing demand deposits (such as checking accounts), interest-bearing demand accounts (such as NOW and money market accounts), regular savings accounts and certificates of deposit. Deposit account terms vary according to the minimum balance required, the time periods the funds must remain on deposit and the interest rate, among other factors. In determining the terms of our deposit accounts, we consider the rates offered by our competition, our liquidity needs, profitability to us, matching deposit and loan products and customer preferences and concerns. We generally review our deposit mix and pricing weekly. Our current strategy is to offer competitive rates and to be in the middle of the market for rates on all types of deposit products; however, we selectively compete for various certificates of deposit.

In addition to accounts for individuals, we also offer deposit accounts designed for the businesses operating in our market area. Our business banking deposit products include commercial checking accounts and money market accounts.

Borrowings. We utilize advances from the Federal Home Loan Bank of Boston to supplement our investable funds. The Federal Home Loan Bank functions as a central reserve bank providing credit for member financial institutions.

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As a member, we are required to own capital stock in the Federal Home Loan Bank and are authorized to apply for advances on the security of such stock and certain of our mortgage loans and other assets (principally securities which are obligations of, or guaranteed by, the United States), provided certain standards related to creditworthiness have been met. Advances are made under several different programs, each having its own interest rate and range of maturities. Depending on the program, limitations on the amount of advances are based either on a fixed percentage of an institution’s net worth or on the Federal Home Loan Bank’s assessment of the institution’s creditworthiness.

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Properties

We conduct our business through our main office and branch offices. The following table sets forth certain information relating to these facilities as of December 31, 2005.

Location	Year Opened	Square Footage	Date of Lease Expiration	Own/ Lease	Net Book Value as of December 31, 2005
	(Dollars in thousands)
Main Office:
100 Bellevue Avenue Newport, RI 02840	1964	12,000	N/A	Own	$	2,392
Branches:
165 East Main Road Middletown, RI 20842	1978	3,000	5/30/2020	Lease		533
121 Old Tower Hill Road Wakefield, RI 02879	1996	3,000	5/14/2011	Lease		215
8 Union Street Westerly, RI 02891	1958	5,000	N/A	Own		820
2 Wilder Avenue Westerly, RI 02891	2001	1,200	N/A	Own		531

Personnel

As of December 31, 2005, we had 51 full-time employees and 14 part-time employees, none of whom is represented by a collective bargaining unit. We believe our relationship with our employees is good.

Legal Proceedings

Periodically, there have been various claims and lawsuits against us, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. We are not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.

Subsidiaries

Newport Federal Savings Bank has no subsidiaries.

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Management’s Discussion and Analysis of

Results of Operations and Financial Condition

The objective of this section is to help potential investors understand our views on our results of operations and financial condition. You should read this discussion in conjunction with the financial statements and notes to the financial statements that appear at the end of this prospectus.

Overview

Income. Our primary source of pre-tax income is net interest income. Net interest income is the difference between interest income, which is the income that we earn on our loans and investments, and interest expense, which is the interest that we pay on our deposits and borrowings. Other significant sources of pre-tax income are service charges (mostly from service charges on deposit accounts and loan servicing fees). In some years, we recognize income from the sale of loans and securities.

Allowance for Loan Losses. The allowance for loan losses is a valuation allowance for probable losses inherent in the loan portfolio. We evaluate the need to establish allowances against losses on loans on a quarterly basis. When additional allowances are necessary, a provision for loan losses is charged to earnings.

Expenses. The noninterest expenses we incur in operating our business consist of compensation and employee benefits expenses, occupancy expenses, federal deposit insurance premiums, data processing expenses and other miscellaneous expenses. Following the offering, our noninterest expenses are likely to increase as a result of operating as a public company. These additional expenses will consist primarily of legal and accounting fees, expenses of shareholder communications and meetings and expenses related to the addition of personnel in our accounting department.

Compensation and employee benefits consist primarily of: salaries and wages paid to our employees; payroll taxes; and expenses for health insurance, retirement plans and other employee benefits. Following the offering, we will recognize additional annual employee compensation expenses stemming from the adoption of new equity benefit plans. We cannot determine the actual amount of these new stock-related compensation and benefit expenses at this time because applicable accounting practices require that they be based on the fair market value of the shares of common stock at specific points in the future. For an illustration of these expenses, see “Pro Forma Data.”

Occupancy expenses, which are the fixed and variable costs of buildings and equipment, consist primarily of depreciation charges, furniture and equipment expenses, maintenance, real estate taxes and costs of utilities. Depreciation of premises and equipment is computed using the straight-line method based on the useful lives of the related assets, which range from three to 40 years. Leasehold improvements are amortized over the shorter of the useful life of the asset or term of the lease. Expected terms include lease option periods to the extent that the exercise of such options is reasonably assured.

Data processing expenses are the fees we pay to third parties for processing customer information, deposits and loans.

Federal deposit insurance premiums are payments we make to the Federal Deposit Insurance Corporation for insurance of our deposit accounts.

In addition, our contribution to the charitable foundation will be an additional operating expense that will reduce net income during the quarter in which the contribution to the foundation is made and, as a result, we expect to record a loss in the third quarter of fiscal 2006.

Other expenses include expenses for professional services, advertising, office supplies, postage, telephone, insurance, charitable contributions, regulatory assessments and other miscellaneous operating expenses.

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Critical Accounting Policies

We consider accounting policies involving significant judgments and assumptions by management that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies. We consider the following to be our critical accounting policy.

Allowance for Loan Losses. The allowance for loan losses is the amount estimated by management as necessary to cover losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses, which is charged to income. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Among the material estimates required to establish the allowance are: loss exposure at default; the amount and timing of future cash flows on impacted loans; value of collateral; and determination of loss factors to be applied to the various elements of the portfolio. All of these estimates are susceptible to significant change. Management reviews the level of the allowance at least quarterly and establishes the provision for loan losses based upon an evaluation of the portfolio, past loss experience, current economic conditions and other factors related to the collectibility of the loan portfolio. Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation. In addition, the Office of Thrift Supervision, as an integral part of its examination process, periodically reviews our allowance for loan losses. Such agency may require us to recognize adjustments to the allowance based on its judgments about information available to it at the time of its examination. A large loss could deplete the allowance and require increased provisions to replenish the allowance, which would adversely affect earnings. See note 1 of the notes to the financial statements included in this prospectus.

Operating Strategy

Our mission is to operate and grow a profitable community-oriented financial institution. We plan to achieve this by executing our strategy of:

• continuing to emphasize the origination of one- to four-family residential real estate loans;

• pursuing opportunities to increase commercial real estate lending;

• pursuing opportunities to expand our primary market area by opening new branch offices;

• continuing to use conservative underwriting practices to maintain the high quality of our loan portfolio;

• maintaining core deposits; and

• providing exceptional service to attract and retain customers.

Continue to emphasize the origination of one- to four-family residential real estate loans

One of our primary lending activities is the origination of residential mortgage loans secured by homes in our market area. At December 31, 2005, the Bank employed twelve officers with loan approval authority. We intend to continue emphasizing the origination of residential mortgage loans going forward. At December 31, 2005, 68.4% of our total loans were one- to four-family residential real estate loans. We believe that this emphasis on residential lending, which carries a lower credit risk, contributes to our high asset quality. We will continue to occasionally sell a portion of the residential loans we originate, primarily fixed-rate loans, into the secondary market, generally with servicing released.

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Pursue opportunities to increase commercial real estate loans

Commercial real estate loans provide us with the opportunity to earn more income because they tend to have higher interest rates than residential mortgage loans. At December 31, 2005, 20.3% of our total loans were commercial real estate loans.

We intend to continue to pursue commercial real estate lending opportunities in accordance with past practice. There are many commercial real estate lending opportunities located in our market area, including the area surrounding our Westerly branch offices, and we will continue to pursue these commercial lending in accordance with what we believe are our conservative underwriting guidelines.

Pursue opportunities to expand our market area

We intend to pursue opportunities to expand our market area by opening additional branch offices and, possibly, through the acquisition of other financial institutions.

Continue to use conservative underwriting practices to maintain the high quality of our loan portfolio

We believe that high asset quality is a key to long-term financial success. We have sought to maintain a high level of asset quality and moderate credit risk by using underwriting standards which we believe are conservative. At December 31, 2005, there were no nonperforming loans (loans that are 90 days or more delinquent) in our total loan portfolio. We intend to continue our efforts to originate residential mortgage loans, multi-family loans, commercial real estate loans and construction loans after the offering and our philosophy of managing loan exposures through our conservative approach to lending.

Maintain core deposits

Core deposits (deposit accounts other than certificates of deposit) comprised 63% of our total deposits at December 31, 2005. We value core deposits because they generally represent longer term customer relationships and a lower cost of funding compared to certificates of deposit. We seek to maintain our core deposits through exceptional customer service and targeted advertising.

Provide exceptional service to attract and retain customers

As a community-oriented financial institution, we emphasize providing exceptional customer service as a means to attract and retain customers. We deliver personalized service and respond with flexibility to customer needs. We believe that our community orientation is attractive to our customers and distinguishes us from the large banks that operate in our area. We have also provided Internet banking since 2001.

Balance Sheet Analysis

Loans. Our primary lending activity is the origination of loans secured by real estate. We originate one- to four-family residential loans, multi-family and commercial real estate loans and consumer loans. To a lesser extent, we originate construction loans.

The largest segment of our loan portfolio is one- to four- family residential loans. One- to four-family loans totaled $160.5 million and represented 68.4% of total loans at December 31, 2005, compared to $143.3 million, or 65.5% of total loans, at December 31, 2004 and $125.5 million, or 64.7% of total loans, at December 31, 2003. One- to four-family loans increased in each period due to our continued emphasis on investment in one- to four-family mortgage loans.

Commercial real estate loans totaled $47.7 million and represented 20.3% of total loans at December 31, 2005, compared to $46.4 million, or 21.2% of total loans, at December 31, 2004 and $43.0 million, or 22.2% of total loans, at December 31, 2003. Multi-family loans totaled $6.7 million, or 2.9% of total loans at December 31, 2005 compared to $5.8 million or 2.7% of total loans at December 31, 2004 and $3.9 million, or 2.0% of total loans at December 31, 2003. In

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addition to increasing our commercial real estate lending and multi-family lending, we continued to originate construction loans. Our construction loans totaled $3.2 million, representing 1.3% of total loans at December 31, 2005, compared to $7.7 million or 3.5% of total loans at December 31, 2004 and $9.1 million, or 4.7% of total loans at December 31, 2003 primarily because Westerly Savings Bank had engaged in construction lending to a greater degree than we do and once Westerly Savings Bank was merged with and into Newport Federal, the combined entity has originated construction loans in accordance with Newport Federal’s underwriting policy.

We also originate consumer loans, including home equity loans and lines of credit, and to a lesser extent, loans secured by passbook or certificate accounts. Consumer loans totaled $16.7 million and represented 7.1% of total loans at December 31, 2005, compared to $15.7 million, or 7.2% of total loans, at December 31, 2004 and $12.4 million, or 6.4% of total loans, at December 31, 2003. The $992,000 increase in the year ended December 31, 2005 and the $3.3 million increase in the year ended December 31, 2004 was due to increases in home equity loans and lines of credit, as other consumer loans decreased over those periods.

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The following table sets forth the composition of our loan portfolio at the dates indicated.

	At December 31,
	2005					2004					2003					2002					2001
	Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent
	(Dollars in thousands)
Real estate—mortgage:
One- to four-family	$	160,519		68.36	%	$	143,267		65.46	%	$	125,458		64.69	%	$	118,700		66.94	%	$	108,791		66.15	%
Multi-family		6,726		2.86			5,809		2.65			3,884		2.00			2,076		1.17			1,797		1.09
Commercial		47,742		20.33			46,406		21.20			43,034		22.19			43,624		24.60			40,295		24.50
Total real estate—mortgage		214,987		91.55			195,482		89.31			172,376		88.88			164,400		92.91			150,883		91.74
Construction (1)		3,151		1.35			7,711		3.53			9,142		4.72			6,196		3.49			4,820		2.94
Consumer:
Equity lines of credit		15,404		6.56			14,236		6.50			11,089		5.72			7,411		4.18			5,708		3.47
Other consumer		1,263		0.54			1,439		0.66			1,318		0.68			1,259		0.71			3,039		1.85
Total consumer loans		16,667		7.10			15,675		7.16			12,407		6.40			8,670		4.89			8,747		5.32
Total loans		234,805		100.00	%		218,868		100.00	%		193,925		100.00	%		179,266		100.00	%		164,450		100.00	%
Allowance for losses		(1,853	)				(1,655	)				(1,511	)				(1,482	)				(1,425	)
Deferred loan costs		(626	)				(602	)				(508	)				(476	)				(439	)
Loans, net	$	232,326				$	216,611				$	191,906				$	177,308				$	162,586

(1) Construction loans are net of loans in process, which totaled $2,428,000 and $4,018,000 at December 31, 2005 and 2004, respectively.

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Loan Maturity

The following table sets forth certain information at December 31, 2005 regarding the dollar amount of loan principal repayments becoming due during the periods indicated. The table does not include any estimate of prepayments which significantly shorten the average life of all loans and may cause our actual repayment experience to differ from that shown below. Demand loans having no stated schedule of repayments and no stated maturity are reported as due in one year or less.

	1-4 Family Real Estate Loans		Multi- Family Real Estate Loans		Commercial Real Estate Loans		Construction Loans
	(In thousands)
Amounts due in:
One year or less	$	920	$	—	$	1,860	$	2,557
More than one year to five years		3,870		319		3,454		—
More than five years to ten years		17,427		3,937		21,055		594	(1)
More than ten years to twenty years		49,278		1,906		21,367		—
More than twenty years		89,024		564		6		—
Total	$	160,519	$	6,726	$	47,742	$	3,151

	Equity Lines		Consumer Loans		Total Loans
	(In thousands)
Amounts due in:
One year or less	$	26	$	365	$	5,728
More than one year to five years		598		816		9,057
More than five years to ten years		3,604		44		46,661
More than ten years to twenty years		11,070		37		83,658
More than twenty years		106		1		89,701
Total	$	15,404	$	1,263	$	234,805

(1) Includes loans that are construction to permanent.

Fixed v. Adjustable Loans

The following table sets forth the dollar amount of all loans at December 31, 2005 that are due after December 31, 2006, and have either fixed interest rates or floating or adjustable interest rates. The amounts shown below exclude applicable loans in process, unearned interest in consumer loans and net deferred loan costs.

	Fixed Rates		Floating or Adjustable Rates		Total
	(In thousands)
Real estate mortgage loans:
One- to four-family	$	127,626	$	31,972	$	159,598
Multi-family		2,017		4,709		6,726
Commercial		12,395		33,486		45,881
Construction		594		—		594
Consumer		899		15,379		16,278
Total	$	143,531	$	85,546	$	229,077

Our adjustable-rate mortgage loans generally do not provide for downward adjustments below the initial discounted contract rate. When market interest rates rise, as has occurred in recent periods, the interest rates on these loans may increase based on the contract rate (the index plus the margin) exceeding the initial interest rate floor.

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Loan Activity

The following table shows loans originated, purchased and sold during the periods indicated.

	Year Ended December 31,
	2005		2004		2003			2002		2001
	(In thousands)
Loans, net, at beginning of period	$	216,611	$	191,906	$	177,308		$	162,586	$	163,048
Loans originated:
Real estate—mortgage:
One- to four-family		53,052		62,759		78,446			67,783		34,895
Multi-family		1,366		2,437		1,476			806		29
Commercial		26,225		21,754		21,063			11,217		12,515
Construction		6,034		10,863		16,034			15,672		8,683
Consumer:
Equity lines of credit		11,068		11,092		11,136			8,249		4,783
Other consumer		1,365		1,506		3,098			2,635		5,653
Total loans originated		99,110		110,411		131,253			106,362		66,558
Loans purchased		—		450		1,857			—		2,935
Deduct:
Loan principal repayments		75,759		78,583		97,863			75,125		54,561
Transfer to real estate owned		—		—		—			—		190
Loan sales		7,438		7,429		20,620			16,459		15,087
Provision for loan losses		198		144		36			36		27
Loan charge-offs, net of recoveries		—		—		(7	)		20		89
Loans, net, at end of period	$	232,326	$	216,611	$	191,906		$	177,308	$	162,586

Securities. Our securities portfolio consists primarily of mutual funds and mortgage-backed securities.

	At December 31,
	2005				2004				2003
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Securities available for sale:
Mutual funds	$	6,483	$	6,334	$	6,275	$	6,195	$	10,152	$	10,099
Securities held to maturity:
Mortgage-backed securities	$	2,292	$	2,191	$	2,791	$	2,744	$	3,351	$	3,371

At December 31, 2005, we had an investment in a Shay Financials Services Ultra Short Mortgage mutual fund offered by Short US Government mutual funds, with an amortized cost of 4.2 million and a fair value of $4.1 million. At December 31, 2005, we also had an investment in the Federated Adjustable Rate Security mutual fund with an amortized cost of $2.3 million and a fair value of $2.2 million. We had no other investments that had an aggregate book value in excess of 10% of our equity at December 31, 2005.

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The following table sets forth the stated maturities and weighted average yields of our mortgage-backed securities at December 31, 2005. Certain mortgage-backed securities have adjustable interest rates and will reprice annually within the various maturity ranges. These repricing schedules are not reflected in the table below. All but approximately $9,000 of the mortgage-backed securities listed have fixed rates.

	One Year or Less		More than One Year to Five Years				More than Five Years to Ten Years		More than Ten Years			Total
	Carrying Value	Weighted Average Yield	Carrying Value		Weighted Average Yield		Carrying Value	Weighted Average Yield	Carrying Value	Weighted Average Yield		Carrying Value		Weighted Average Yield
	(Dollars in thousands)
Securities held to maturity:
Mortgage-backed securities	—	—	$	2,208	3.55	%	—	—	$84	7.30	%	$	2,292	3.69	%

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Deposits. Our deposit base is comprised of demand deposits, money market and savings accounts and time deposits. We consider demand deposits and money market and savings accounts to be core deposits. Deposits increased $5.5 million, or 3.0%, for the year ended December 31, 2005, as core deposits decreased $13.3 million, or 10%, and time deposits increased $18.8 million. Deposits increased $16.1 million, or 9%, in 2004, as core deposits increased $8.1 million, or 7%, and time deposits increased $7.9 million, or 18%. We have experienced an increase in our time deposit accounts as we have selectively competed for certain deposit maturities by adjusting our rates. However, we believe we are most successful attracting and retaining deposits by offering superior customer service.

The following table sets forth the balances of our deposit products at the dates indicated.

	At December 31,
	2005		2004		2003
	(In thousands)
Noninterest-bearing demand deposits	$	33,225	$	33,587	$	30,221
Interest-bearing demand deposits		27,298		32,333		26,303
Money market deposit accounts		44,887		39,350		38,485
Regular savings		15,922		29,414		31,440
Certificates of deposit		71,249		52,416		44,541
Total	$	192,581	$	187,100	$	170,990

The following table indicates the amount of jumbo certificates of deposit by time remaining until maturity as of December 31, 2005. Jumbo certificates of deposit require minimum deposits of $100,000. We do not offer special rates for jumbo certificates.

Maturity Period	Certificates of Deposits
	(In thousands)
Three months or less	$	2,234
Over three through six months		5,832
Over six through twelve months		8,825
Over twelve months		4,229
Total	$	21,120

The following table sets forth time deposits classified by rates at the dates indicated.

	At December 31,
	2005		2004		2003
0.00 - 1.00%	$	398	$	2,320	$	3,882
1.01 - 2.00%		8,954		16,577		23,311
2.01 - 3.00%		10,286		21,514		9,051
3.01 - 4.00%		37,096		7,917		3,788
4.01 - 5.00%		14,438		4,046		4,207
5.01 - 6.00%		77		42		302
Total	$	71,249	$	52,416	$	44,541

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The following table sets forth the amount and maturities of time deposits at December 31, 2005.

	Amount Due
	Less Than One Year		More Than One Year to Two Years		More Than Two Years to Three Years		More Than Three Years to Four Years		More Than Four Years		Total		Percent of Total Time Deposit Accounts
	(Dollars in thousands)
0.00 - 1.00%	$	398	$	—	$	—	$	—	$	—	$	398	0.56	%
1.01 - 2.00%		8,678		115		161		—		—		8,954	12.57
2.01 - 3.00%		8,134		1,699		340		46		67		10,286	14.44
3.01 - 4.00%		29,818		5,766		1,016		496		—		37,096	52.07
4.01 - 5.00%		10,360		3,072		128		197		681		14,438	20.26
5.01 - 6.00%		25		52		—		—		—		77	0.11
Total	$	57,413	$	10,704	$	1,645	$	739	$	748	$	71,249	100.00	%

The following table sets forth deposit activity for the periods indicated.

	Year Ended December 31,
	2005		2004		2003
	(In thousands)
Beginning balance	$	187,100	$	170,990	$	163,260
Net deposits		3,032		14,524		5,590
Interest credited on deposit accounts		2,449		1,586		2,140
Total increase in deposit accounts		5,481		16,110		7,730
Ending balance	$	192,581	$	187,100	$	170,990

Borrowings. We utilize borrowings from the Federal Home Loan Bank of Boston to supplement our supply of funds for loans and investments.

	Year Ended December 31,
	2005			2004			2003
	(Dollars in thousands)
Maximum amount outstanding at any month end during the period	$	53,522		$	52,463		$	46,969
Average balance outstanding		48,148			49,020			45,278
Weighted average interest rate during the period		5.32	%		5.67	%		5.92	%
Balance outstanding at end of period	$	50,123		$	49,972		$	46,969
Weighted average interest rate at end of period		5.22	%		5.42	%		5.64	%

Federal Home Loan Bank advances increased modestly by $151,000 to $50.1 million at December 31, 2005. These advances mature in 2006 through 2014.

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Results of Operations for the Years Ended December 31, 2005 and 2004

Overview.

	2005			2004			% Change
	(Dollars in thousands)
Net income	$	674		$	1,137		(41.0	)%
Return on average assets		0.26	%		0.47	%	(44.7	)%
Return on average equity		3.79	%		6.70	%	(56.6	)%
Average equity to average assets		6.95	%		7.03	%	(1.1	)%

Net income decreased $463,000, or 41.0%, for the year ended December 31, 2005 compared to the year ended December 31, 2004 as the increase in our net interest income was offset by a decrease in other income as well as an increase in the provision for loan losses, higher effective tax rates due to the non-deductibility of certain merger-related expenses and an increase of $693,000 in our operating expenses. Net interest income increased 8.0% to $8.8 million due to an increase in interest and dividend income of $1.4 million, the effect of which was partially offset by an increase in our interest expense of $708,000. Other income decreased 14.0% to $1.7 million primarily due to a decrease in customer service fees and gains on sales of loans. Operating expenses increased 8.0% to $8.9 million primarily due to expenses associated with the merger of Westerly Savings Bank with Newport Federal totaling $436,000, including $45,000 in data processing expenses, $25,000 in marketing expenses and $366,000 in professional fees. In addition, salaries and employee benefits and occupancy and equipment also increased by $167,000 and $67,000, respectively, which increases were primarily due to inflation. Effective tax rates were 53.2% and 36.6% for the respective periods.

Net Interest Income. Net interest income for 2005 increased $673,000, or 8.3%, to $8.8 million, as a result of an increase of $1.4 million in interest and dividend income, the effect of which was partially offset by an increase of $708,000 in interest expense. Total interest and dividend income increased $1.4 million, or 11.0%, to $13.9 million for the year ended December 31, 2005, as a result of an increase of $1.3 million in interest and fees on loans, an increase of $37,000 in interest on securities and an increase of $65,000 in interest on other interest-earning investments. Interest income on loans increased $1.3 million between the periods as the average balance of the loan portfolio increased $18.0 million and the average yield on the loan portfolio increased 10 basis points to 5.96%. The average yield on the loan portfolio increased as a result of the recent increase in interest rates. Interest on securities increased $37,000, or 13.0%, as a decrease in the average balance was offset by a 65 basis point increase in the average yield. Interest on other interest-earning investments increased $65,000 or 25.4%, as a decrease in average balance was offset by a 24 basis point increase in the average yield.

Total interest expense for 2005 increased $708,000, or 16.1%, to $5.1 million due to an increase in interest paid on deposits. Interest expense on interest-bearing deposits increased $923,000, or 56.5%, due to a higher average balance of deposits and higher rates paid. The average interest rate paid on deposits increased 49 basis points to 1.64% as a result of the increasing interest rate environment. Interest paid on borrowings decreased $215,000, or 7.7%, as a result of a $872,000 decrease in the average balance of borrowings and a 35 basis point decrease in the average cost of borrowings.

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The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting annualized average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. For purposes of this table, average balances have been calculated using month-end balances, and nonaccrual loans are included in average balances only. Management does not believe that use of month-end balances instead of daily average balances has caused any material differences in the information presented. Loan fees are included in interest income on loans and are insignificant.

	Year Ended December 31,
	2005						2004						2003
	Average Balance		Interest and Dividends		Yield/ Cost		Average Balance		Interest and Dividends		Yield/ Cost		Average Balance		Interest and Dividends		Yield/ Cost
	(Dollars in Thousands)
Assets:
Interest-earning assets:
Loans	$	222,004	$	13,240	5.96	%	$	204,032	$	11,961	5.86	%	$	187,533	$	12,133	6.47	%
Securities		8,771		321	3.66			9,429		284	3.01			10,744		269	2.50
Other interest-earning assets		12,991		321	2.47			15,802		256	1.62			24,785		312	1.26
Total interest-earning assets		243,766		13,882	5.69			229,263		12,501	5.45			223,062		12,714	5.70
Bank-owned life insurance		1,981						1,870						1,397
Noninterest-earning assets		10,158						10,304						10,351
Total assets	$	255,905					$	241,437					$	234,810
Liabilities and equity:
Interest-bearing liabilities:
Interest-bearing demand deposits	$	28,346		63	0.22		$	27,112		44	0.16		$	24,241		76	0.31
Savings accounts		41,132		192	0.47			45,183		232	0.51			47,115		378	0.80
Money market accounts		25,819		577	2.23			22,052		293	1.33			21,140		340	1.61
Certificates of deposit		60,160		1,724	2.87			47,907		1,064	2.22			49,498		1,212	2.45
Total interest-bearing deposits		155,457		2,556	1.64			142,254		1,633	1.15			141,994		2,006	1.41
FHLB advances		48,148		2,562	5.32			49,020		2,777	5.67			45,278		2,681	5.92
Total interest-bearing liabilities		203,605		5,118	2.51			191,274		4,410	2.31			187,272		4,687	2.50
Demand deposits		33,265						32,211						30,485
Noninterest-bearing liabilities		1,215						972						1,208
Total liabilities		238,123						224,457						218,965
Retained earnings		17,782						16,980						15,845
Total liabilities and retained earnings	$	255,905					$	241,437					$	234,810
Net interest income			$	8,764					$	8,091					$	8,027
Interest rate spread					3.18	%					3.14	%					3.20	%
Net interest margin					3.60	%					3.53	%					3.60	%
Average interest-earning assets to average interest-bearing liabilities					119.72	%					119.86	%					119.11	%

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Rate/Volume Analysis. The following table sets forth the effects of changing rates and volumes on our net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). Changes due to both volume and rate have been allocated proportionally to the volume and rate changes. The net column represents the sum of the prior columns.

	Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
	Increase (Decrease) Due to						Net
	Volume			Rate
	(In thousands)
Interest and dividend income:
Loans receivable	$	1,069		$	210		$	1,279
Investment securities		(21	)		58			37
Other earning assets		(51	)		116			65
Total interest-earning assets	$	997		$	384		$	1,381
Interest expense:
Deposits		(162	)		759			923
FHLB advances		48			(167	)		(215	)
Total interest-bearing liabilities		(116	)		(592	)		708
Net change in interest income	$	881		$	(208	)	$	673

Provision for Loan Losses. Provisions for loan losses were $198,000 for the year ended December 31, 2005 compared to $144,000 for the year ended December 31, 2004 primarily due to an increase in the size of the loan portfolio and our analysis of the inherent losses in the portfolio. We had no charge-offs in the years ended December 31, 2005 and December 31, 2004. An analysis of the changes in the allowance for loan losses is presented under “Risk Management – Analysis and Determination of the Allowance for Loan Losses.”

Other Income. The following table shows the components of other income for the year ended December 31, 2005 and 2004.

	Year Ended December 31,					% Change
	2005		2004
	(Dollars in thousands)
Customer service fees	$	1,392	$	1,598		(12.9	)%
Loss on sale of securities		—		(22	)	(100.0	)
Gains on sale of loans		99		141		(29.8	)
Gain on sale of real estate owned		—		56		(100.0	)
Other		234		231		1.3
Total	$	1,725	$	2,004		(13.9	)

Other income for 2005 decreased $279,000, or 13.9%, from the 2004 level primarily due to a $206,000 decline in customer service fees on checking accounts (charges for non-sufficient funds and ATM charges). In addition, gains on the sale of loans decreased $42,000 attributable to decreased margins on loans sold in 2005 compared to 2004.

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Operating Expense. The following table shows the components of operating expense and the percentage changes for the year ended December 31, 2005 and 2004.

	Year Ended December 31,						% Change
	2005			2004
	(Dollars in thousands)
Salaries and employee benefits	$	4,606		$	4,439		3.8	%
Occupancy and equipment, net		1,178			1,111		6.0
Data processing		1,066			1,010		5.5
Professional fees		634			264		140.2
Marketing		681			559		21.8
All other		687			776		(11.5	)
Total	$	8,852		$	8,159		8.5	%
Efficiency ratio(1)		84.39	%		80.82	%	4.42	%

(1) Computed as operating expense divided by the sum of net interest income and other income.

Operating expense for 2005 increased $693,000 or 8.5% compared to the same period in 2004 primarily due to expenses totaling $436,000 relating to the merger of Newport Federal and Westerly Savings Bank in 2005. Salaries and employee benefits and occupancy and equipment costs increased due to inflation. Data processing increased $45,000 due to merger-related expenses and $10,000 due to inflation. Professional fees include $359,000 of legal and other fees related to the merger and an $11,000 increase due to inflation. Marketing increased $122,000 due to the merger, the expansion of our direct marketing campaign from three to five branches in the fourth quarter and inflation. All other expenses declined $89,000. Stationery and office supply decreased $66,000 as current supplies were used up in anticipation of the merger. Dues and subscriptions also declined $24,000 as duplicate dues and subscriptions were eliminated.

Income Tax Expense. Income tax expense for the year ended December 31, 2005 was $765,000 compared to $655,000 for the year ended December 31, 2004. The increase in the effective tax rate was due primarily to merger-related expenses, which were not deductible for tax purposes, which raised the effective tax rate to 53.2% from 36.6%.

Results of Operations for the Years Ended December 31, 2004 and 2003

Overview.

	2004			2003			% Change
	(Dollars in thousands)
Net income	$	1,137		$	1,468		(22.5	)%
Return on average assets		0.47	%		0.63	%	(25.4	)
Return on average equity		6.70			9.26		(27.6	)
Average equity to average assets		7.03			6.75		4.1

Comparison of Operating Results for the Years Ended December 31, 2004 and 2003

Net income decreased $331,000 to $1.1 million for the year ended December 31, 2004, from $1.5 million for the year ended December 31, 2003. The decrease reflects an increase of $64,000 in net interest income, a $70,000 decrease in other income, a $520,000 increase in total operating expenses and a decrease of $303,000 in income tax expense, partially offset by a $64,000 increase in net interest income.

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Net Interest Income. Net interest income increased $64,000, or 1.0%, to $8.1 million for 2004 from $8.0 million for 2003. The increase was due to a $6.2 million increase in average interest-earning assets, the effect of which was partially offset by a 25 basis point decrease in the average yield on interest-earning assets. This effect, coupled with a decrease in the cost of interest-bearing liabilities by 19 basis points was responsible for the increase in net interest income. This is further evidenced in the comparison of our interest rate spreads, 3.14% for the year ended December 31, 2004 as compared to 3.20% for the year ended December 31, 2003.

Interest Income. Interest income decreased $213,000, or 1.7%, to $12.5 million for 2004, compared to $12.7 million in 2003. The decrease was primarily attributable to interest on loans, which decreased $172,000, or 1.4%, in 2004. This was attributable to a decrease in the average yield earned on loans of 61 basis points for 2004 as compared to 2003, the effect of which was partially offset by an increase of the average balance of loans to $204.0 million for 2004 as compared to $187.5 million for 2003. Interest on securities increased $15,000, primarily due to an increase in the average yield by 51 basis points to 3.01% for 2004 compared to 2.50% for 2003. The effect of the increased yield was partially offset by a decrease in the average balance of investment securities for 2004 from $10.7 million to $9.4 million. Interest on other interest-earning assets decreased by $56,000, or 17.9%, to $256,000 at 2004 from $312,000 at 2003. This was due to the average balance of other interest-earning assets decreasing by $9.0 million, or 36.2%, the effect of which was partially offset by an increase of 36 basis points in the average yield for 2004 to 1.62% from 1.26% for 2003.

Interest Expense. Interest expense, which consists of interest paid on deposits and borrowings, decreased $277,000, or 5.9%, to $4.4 million at 2004 from $4.7 million at 2003. The decrease in interest expense resulted primarily from a decrease in the average cost of deposits and borrowings as a result of declining market rates, which was partially offset by modest increases in the average balances of outstanding deposits and borrowings. The average cost of deposits declined by 26 basis points and was partially offset by an increase in the average balance of $260,000, or 0.2%. The average cost of borrowings declined by 25 basis points, the effect of which was offset by an increase in the average balance of borrowings of $3.7 million, or 8.3%.

Rate/Volume Analysis. The following table sets forth the effects of changing rates and volumes on our net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). Changes due to both volume and rate have been allocated proportionally to the volume and rate changes. The net column represents the sum of the prior columns.

	2004 Compared to 2003
	Increase (Decrease) Due to						Net
	Volume			Rate
	(In thousands)
Interest and dividend income:
Loans receivable	$	1,019		$	(1,191	)	$	(172	)
Investment securities		(36	)		51			15
Other earning assets		(131	)		75			(56	)
Total interest income		852			(1,065	)		(213	)
Interest expense:
Deposits		(4	)		377			373
FHLB advances		(215	)		119			(96	)
Total interest expense		(219	)		496			277
Net change in interest income	$	633		$	(569	)	$	64

Provision for Loan Losses. Based on our evaluation of loan loss factors, management made a provision of $144,000 for the year ended December 31, 2004, and a provision of $36,000 for the year ended December 31, 2003. We had no charge-offs for the year ended December 31, 2004 compared to charge-offs of $7,000 for the year ended December 31, 2003. We used the same methodology and generally similar assumptions in assessing the allowance for

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both periods. The change in the provision was based solely on management’s estimate of the losses inherent in our total loan portfolio and the increases in the loan portfolio.

The allowance for loan losses was $1.7 million, or .76% of total loans outstanding as of December 31, 2004, as compared with $1.5 million, or .78% as of December 31, 2003. An analysis of the changes in the allowance for loan losses is presented under “Risk Management – Analysis and Determination of the Allowance for Loan Losses.”

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Other Income. The following table shows the components of other income and the percentage changes from year to year.

	2004			2003		% Change
	(Dollars in thousands)
Customer service fees	$	1,598		$	1,555	2.8	%
Loss on sales of securities		(22	)		—	—
Gain on sale of loans		141			351	(59.8	)
Gain on sale of real estate owned		56			—	—
All other		231			168	37.5
Total	$	2,004		$	2,074	(3.4	)%

Other income decreased $70,000, or 2.8%. The decrease is primarily attributable to the decline in gain on sale of loans caused by a decrease in the amount of loans sold in 2004. All other increased $63,000, or 37.5%, due primarily to an increase in income from bank owned life insurance of $46,000 and an increase in loan servicing fees of $19,000.

Operating Expense. The following table shows the components of operating expense and the percentage changes from year to year.

	2004		2003		% Change
	(Dollars in thousands)
Salaries and employee benefits	$	4,439	$	4,174	6.3	%
Occupancy and equipment, net		1,111		1,055	5.3
Data processing		1,010		1,025	(1.5	)
Professional fees		264		189	39.7
Marketing		559		535	4.5
All other		776		661	17.4
Total	$	8,159	$	7,639	6.8	%

Operating expenses increased $520,000, or 6.8%. The increase in salaries and employee benefits is due to raises and benefit increase. The occupancy and equipment increase is due to inflation. Professional fees increased with the ramp up of compliance consulting and internal audit programs. Marketing increased due to inflation and the name change from Newport Federal Savings Bank to NewportFed. All other expenses increased $115,000, or 17.4%. Stationary and office supply increased $53,000 due to the name change. The rest of the increase in all other is due to inflation.

Income Tax Expense. The provision for income taxes decreased to $655,000 for 2004, compared with a provision of $958,000 for 2003, a decrease of $303,000. The decrease was due primarily to our decreased profitability in 2004.

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Risk Management

Overview. Managing risk is an essential part of successfully managing a financial institution. Our most prominent risk exposures are credit risk, interest rate risk and market risk. Credit risk is the risk of not collecting the interest and/or the principal balance of a loan or investment when it is due. Interest rate risk is the potential reduction of interest income as a result of changes in interest rates. Market risk arises from fluctuations in interest rates that may result in changes in the values of financial instruments, such as available-for-sale securities that are accounted for on a mark-to-market basis. Other risks that we face are operational risks, liquidity risks and reputation risk. Operational risks include risks related to fraud, regulatory compliance, processing errors, technology and disaster recovery. Liquidity risk is the possible inability to fund obligations to depositors, lenders or borrowers. Reputation risk is the risk that negative publicity or press, whether true or not, could cause a decline in our customer base or revenue.

Credit Risk Management. Our strategy for credit risk management focuses on having well-defined credit policies and uniform underwriting criteria and providing prompt attention to potential problem loans.

When a borrower fails to make a required loan payment, we take a number of steps to have the borrower cure the delinquency and restore the loan to current status. When the loan becomes 15 days past due a late notice is sent to the borrower. When the loan becomes 18 days past due, a more formal letter is sent. When a loan becomes 25 days past due, the borrower is typically called. After 30 days, we regard the borrower as in default. The borrower is promptly sent a letter from our attorney and we may commence collection proceedings. If a foreclosure action is instituted and the loan is not brought current, paid in full, or refinanced before the foreclosure sale, the real property securing the loan generally is sold at foreclosure. Generally, when a consumer loan becomes 60 days past due, we institute collection proceedings and attempt to repossess any personal property that secures the loan. Management informs the board of directors monthly of the amount of loans delinquent more than 30 days, all loans in foreclosure and repossessed property that we own.

Analysis of Nonperforming and Classified Assets. We consider repossessed assets and loans that are 90 days or more past due to be nonperforming assets. Loans are generally placed on nonaccrual status when they become 90 days delinquent at which time the accrual of interest ceases and the allowance for any uncollectible accrued interest is established and charged against operations. Typically, payments received on a nonaccrual loan are applied to the outstanding principal and interest as determined at the time of collection of the loan.

Real estate that we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned until it is sold. When property is acquired it is recorded at the lower of its cost, which is the unpaid balance of the loan plus foreclosure costs, or fair market value at the date of foreclosure. Holding costs and declines in fair value after acquisition of the property result in charges against income.

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The following table provides information with respect to our nonperforming assets at the dates indicated.

	At December 31,
	2005			2004			2003			2002			2001
	(Dollars in thousands)
Nonaccrual loans:
Real estate—mortgage:
One-to four-family	$	—		$	78		$	238		$	365		$	440
Consumer		—			—			—			—			7
Total		—			78			238			365			447
Accruing loans past due 90 days or more		—			—			—			—			—
Real estate owned		—			—			190			190			190
Total nonperforming assets		—			78			428			555			637
Troubled debt restructurings and total nonperforming assets	$	—		$	78		$	428		$	555		$	637
Total nonperforming loans to total loans		0.00	%		0.04	%		0.12	%		0.20	%		0.27	%
Total nonperforming loans to total assets		0.00	%		0.03	%		0.10	%		0.16	%		0.21	%
Total nonperforming assets and troubled debt restructurings to total assets		0.00	%		0.03	%		0.18	%		0.25	%		0.30	%

Interest income that would have been recorded for the year ended December 31, 2005, had nonaccruing loans been current according to their original terms amounted to $0. No interest related to nonaccrual loans was included in interest income for the year ended December 31, 2005.

Federal regulations require us to review and classify our assets on a regular basis. In addition, the Office of Thrift Supervision has the authority to identify problem assets and, if appropriate, require them to be classified. There are three classifications for problem assets: substandard, doubtful and loss. “Substandard assets” must have one or more defined weaknesses and are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. “Doubtful assets” have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. An asset classified “loss” is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted. The regulations also provide for a “special mention” category, described as assets which do not currently expose us to a sufficient degree of risk to warrant classification but do possess credit deficiencies or potential weaknesses deserving our close attention. When we classify an asset as substandard or doubtful we establish a specific allowance for loan losses. If we classify an asset as loss, we charge off an amount equal to 100% of the portion of the asset classified loss.

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The following table shows the aggregate amounts of our criticized assets at the dates indicated.

	At December 31,
	2005		2004
	(In thousands)
Special mention assets	$	—	$	64
Substandard assets		—		81
Doubtful assets		—		—
Loss assets		—		—
Total classified assets	$	—	$	145

Other than disclosed in the above tables, there are no other loans that management has serious doubts about the ability of the borrowers to comply with the present loan repayment terms.

Delinquencies. The following table provides information about delinquencies in our loan portfolio at the dates indicated.

	At December 31,
	2005						2004						2003
	30-89 Days Past Due			90 Days or More Past Due			30-89 Days Past Due			90 Days or More Past Due			30-89 Days Past Due			90 Days or More Past Due
	(Dollars in thousands)
Real estate—mortgage:
One- to four-family	$	586		$	—		$	—		$	78		$	185		$	238
Commercial		—			—			23			—			—			—
Total	$	586		$	—		$	23		$	78		$	185		$	238
Delinquent loans to total loans		0.25	%		0.00	%		0.01	%		0.04	%		0.10	%		0.12	%

Analysis and Determination of the Allowance for Loan Losses. The allowance for loan losses is a valuation allowance for probable losses inherent in the loan portfolio. We evaluate the need to establish allowances against losses on loans on a quarterly basis. When additional allowances are necessary, a provision for loan losses is charged to earnings.

Our methodology for assessing the appropriateness of the allowance for loan losses consists of: (1) a general valuation allowance on identified problem loans; and (2) a general valuation allowance on the remainder of the loan portfolio. Although we determine the amount of each element of the allowance separately, the entire allowance for loan losses is available to absorb losses in the loan portfolio.

General Valuation Allowance on Identified Problem Loans. We establish a general allowance for delinquent loans that do not have an individual allowance. The evaluation is based on our asset review and classified loan list. Each loan category is assigned a percentage. While loans classified as “Loss” and “Doubtful” are assigned percentages of 100% and 50%, respectively, loans classified as “Substandard,” “Special Mention” and “Pass” are assigned percentages over a range determined by the Asset Review and Classification Committee. The reserve percentages allow for consideration of the varying type of loans, the size of loans and the economic environment.

General Valuation Allowance on the Remainder of the Loan Portfolio. We establish another general allowance for loans that are not classified to recognize the inherent losses associated with lending activities. This general valuation allowance is determined by segregating the loans by loan category and assigning allowance percentages to each category. The allowance percentages have been derived using percentages commonly applied under the regulatory framework for Newport Federal and other similarly-sized institutions. The percentages are

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adjusted for significant factors that, in management’s judgment, affect the collectibility of the portfolio as of the evaluation date. These significant factors may include changes in lending policies and procedures, changes in existing general economic and business conditions affecting our primary lending areas, credit quality trends, collateral value, loan volumes and concentrations, seasoning of the loan portfolio, recent loss experience in particular segments of the portfolio, duration of the current business cycle and bank regulatory examination results. The applied loss factors are reevaluated periodically to ensure their relevance in the current economic environment.

We identify loans that may need to be charged off as a loss by reviewing all delinquent loans, classified loans and other loans that management may have concerns about collectibility. For individually reviewed loans, the borrower’s inability to make payments under the terms of the loan or a shortfall in collateral value would result in our charging off the loan or the portion of the loan that was impaired.

The Office of Thrift Supervision, as an integral part of its examination process, periodically reviews our allowance for loan losses. The Office of Thrift Supervision may require us to make additional provisions for loan losses based on judgments different from ours.

The Bank assigns percentages to eight qualitative loan portfolio risk factors to determine the adequacy of the allowance for loan losses.

1. Levels/trends in delinquencies/impaired/classified loans,

2. Levels/trends in charge-offs/recoveries,

3. Trends in volume and terms of loan,

4. Effects of changes in risk selection and underwriting standards and other changes in lending policies, procedures and practices,

5. Experience/ability and depth of lending management and staff,

6. National and local economic trends and conditions,

7. Industry conditions, and

8. Effects of changes in credit concentration.

At December 31, 2005, our allowance for loan losses represented .79% of total gross loans. No portion of the allowance was allocated to problem loans at December 31, 2005. The allowance for loan losses increased by 12.0% from December 31, 2004 to December 31, 2005, following the provision for loan losses of $198,000. The decision to increase the allowance reflected the increase in the loan portfolio by 7.3%, the concern about a potential real estate value bubble in local real estate markets, the increase in loan delinquency and concern about the local economy. Other factors affecting the allowance calculation such as charge-offs, national economic trends and conditions, industry conditions, changes in credit concentrations, quality of lending management and staff and lending standards remained reasonably stable in 2005.

At December 31, 2004, our allowance for loan losses represented .76% of total gross loans. At December 31, 2004, the general valuation for identified problem loans was $2,000. The general valuation allowance for the remainder of the loan portfolio was $1.7 million. The allowance for loan losses increased 9.5% from December 31, 2003 to December 31, 2004, following the provision for loan losses of $144,000. The decision to increase the allowance reflected the increase in the loan portfolio by 12.8%, offset by a decline in nonperforming assets and other delinquencies. All other factors affecting the allowance calculation remained stable in 2004.

At December 31, 2003, our allowance for loan losses represented .78% of total gross loans. At December 31, 2003, the general valuation allowance for identified problem loans was $7,000, the general valuation allowance for the remainder of the loan portfolio was $1.5 million. The allowance for loan losses increased by 2.0% from December 31, 2002 to December 31, 2003, following the provision for loan losses of $36,000. The decision to increase the allowance reflected the increase in the loan portfolio by 8.2%, offset by a decline in nonperforming assets and the improvement in the local economy. All other factors affecting the allowance remained stable in 2003.

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The following table sets forth the breakdown of the allowance for loan losses by loan category at the dates indicated.

	At December 31,
	2005						2004
	Amount		% of Allowance to Total Allowance		% of Loans in Category to Total Loans		Amount		% of Allowance to Total Allowance		% of Loans in Category to Total Loans
	(Dollars in thousands)
Real estate—Mortgage:
One- to four-family	$	961	51.86	%	68.36	%	$	809	48.88	%	65.46	%
Multi-family		81	4.37		2.86			65	3.93		2.65
Commercial		573	30.92		20.33			520	31.42		21.20
Construction		38	2.05		1.34			86	5.20		3.52
Equity lines of credit		185	9.98		6.56			159	9.61		6.50
Other consumer		15	0.81		0.54			16	0.97		0.66
Total allowance for loan losses	$	1,853	100.00	%	100.00	%	$	1,655	100.00	%	100.00	%

	At December 31,
	2003						2002						2001
	Amount		% of Allowance to Total Allowance		% of Loans in Category to Total Loans		Amount		% of Allowance to Total Allowance		% of Loans in Category to Total Loans		Amount		% of Allowance to Total Allowance		% of Loans in Category to Total Loans
	(Dollars in thousands)
Real estate—Mortgage:
One- to four-family	$	744	49.24	%	64.69	%	$	744	50.20	%	66.21	%	$	730	51.26	%	66.15	%
Multi-family		45	2.98		2.00			25	1.69		1.16			22	1.54		1.09
Commercial		506	33.49		22.19			532	35.90		24.33			504	35.34		24.50
Construction		72	4.77		4.71			76	5.13		3.46			60	4.21		2.93
Equity lines of credit		129	8.54		5.72			90	6.07		4.13			71	4.98		3.47
Other consumer		15	0.99		0.68			15	1.01		0.70			38	2.66		1.85
Total allowance for loan losses	$	1,511	100.00	%	100.00	%	$	1,482	100.00	%	100.00	%	$	1,425	100.00	%	100.00	%

Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary and our results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations. Furthermore, while we believe we have established our allowance for loan losses in conformity with generally accepted accounting principles, there can be no assurance that regulators, in reviewing our loan portfolio, will not require us to increase our allowance for loan losses. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary should the quality of any loans deteriorate as a result of the factors discussed above. Any material increase in the allowance for loan losses may adversely affect our financial condition and results of operations.

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Analysis of Loan Loss Experience. The following table sets forth an analysis of the allowance for loan losses for the periods indicated.

	Year Ended December 31,
	2005			2004			2003			2002			2001
	(In thousands)
Balance at beginning of period	$	1,655		$	1,511		$	1,482		$	1,426		$	1,310
Provision for loan losses		198			144			36			36			27
Charge offs:
Real estate–Mortgage:
One- to four-family		—			—			—			—			22
Non-residential		—			—			—			—			40
Consumer loans		—			—			7			2			2
Total charge-offs		—			—			7			2			64
Recoveries:
Real estate–mortgage:
Non-residential		—			—			—			—			148
Consumer loans		—			—			—			—			5
Total recoveries		—			—			—			22			153
Net charge-offs (recoveries)		—			—			7			(20	)		(89	)
Balance at end of period	$	1,853		$	1,655		$	1,511		$	1,482		$	1,426
Net charge-offs to average loans outstanding during the period		0.00	%		0.00	%		0.00	%		(0.01	)%		(0.05	)%

Interest Rate Risk Management. We manage the interest rate sensitivity of our interest-bearing liabilities and interest-earning assets in an effort to minimize the adverse effects of changes in the interest rate environment. Deposit accounts typically react more quickly to changes in market interest rates than mortgage loans because of the shorter maturities of deposits. As a result, sharp increases in interest rates may adversely affect our earnings while decreases in interest rates may beneficially affect our earnings. To reduce the potential volatility of our earnings, we have sought to improve the match between asset and liability maturities and rates, while maintaining an acceptable interest rate spread. Our strategy for managing interest rate risk emphasizes: adjusting the maturities of borrowings; adjusting the investment portfolio mix and duration; and periodically selling fixed-rate mortgage loans and available-for-sale investment securities.

We have an Asset Liability Management Committee to communicate, coordinate and control all aspects involving asset/liability management. The committee establishes and monitors the volume, maturities, pricing and mix of assets and funding sources with the objective of managing assets and funding sources to provide results that are consistent with liquidity, growth, risk limits and profitability goals.

We use an interest rate sensitivity analysis prepared by the Office of Thrift Supervision to review our level of interest rate risk. This analysis measures interest rate risk by computing changes in net portfolio value of our cash flows from assets, liabilities and off-balance sheet items in the event of a range of assumed changes in market interest rates. Net portfolio value represents the market value of portfolio equity and is equal to the market value of assets minus the market value of liabilities, with adjustments made for off-balance sheet items. This analysis assesses the risk of loss in market risk sensitive instruments in the event of a sudden and sustained 100 to 300 basis point increase or 100 to 200 basis point decrease in market interest rates with no effect given to any steps that we might take to counter the effect of that interest rate movement. We measure interest rate risk by modeling the changes in net

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portfolio value over a variety of interest rate scenarios. The following table, which is based on information that we provide to the Office of Thrift Supervision, presents the change in our net portfolio value at December 31, 2005 that would occur in the event of an immediate change in interest rates based on Office of Thrift Supervision assumptions, with no effect given to any steps that we might take to counteract that change.

	Net Portfolio Value (Dollars in thousands)							Net Portfolio Value as % of Portfolio Value of Assets
Basis Point (“bp”) Change in Rates	$ Amount		$ Change			% Change		NPV Ratio		Change
300	$	15,084	$	(12,910	)	(46	)%	5.96	%	(432	)bp
200		19,343		(8,651	)	(31	)	7.45		(282	)bp
100		23,719		(4,275	)	(15	)	8.92		(136	)bp
0		27,994						10.28
(100)		30,960		2,966		11		11.15		87	bp
(200)		30,664		2,670		10		10.96		68	bp

The Office of Thrift Supervision uses certain assumptions in assessing the interest rate risk of savings associations. These assumptions relate to interest rates, loan prepayment rates, deposit decay rates, and the market values of certain assets under differing interest rate scenarios, among others. As with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable-rate mortgage loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. Further, in the event of a change in interest rates, expected rates of prepayments on loans and early withdrawals from certificates could deviate significantly from those assumed in calculating the table.

Liquidity Management. Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan repayments, maturities and sales of investment securities and borrowings from the Federal Home Loan Bank of Boston. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

We regularly adjust our investments in liquid assets based upon our assessment of (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities and (4) the objectives of our asset/liability management policy.

Our most liquid assets are cash and cash equivalents and interest-bearing deposits. The levels of these assets depend on our operating, financing, lending and investing activities during any given period. At December 31, 2005, cash and cash equivalents totaled $4.9 million. Securities classified as available-for-sale provide additional sources of liquidity. In addition, at December 31, 2005, which is the most recent date for which information is available, we had the ability to borrow a total of approximately $98.1 million from the Federal Home Loan Bank of Boston. On December 31, 2005, we had $50.1 million of advances outstanding.

At December 31, 2005, we had $19.8 million in loan commitments outstanding, which consisted of $300,000 of real estate loan commitments, $15.1 million in unused home equity lines of credit, $2.4 million in construction loan commitments and $2.0 million in commercial lines of credit commitments. Certificates of deposit due within one year of December 31, 2005 totaled $57.4 million, or 80.1% of certificates of deposit. The large percentage of certificates of deposit that mature within one year reflects customers’ hesitancy to invest their funds for long periods in the recent low interest rate environment. If these maturing deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and borrowings. Depending on market conditions, we may be

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required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before December 31, 2006. We believe, however, based on past experience, that a significant portion of our certificates of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

The following table presents certain of our contractual cash obligations as of December 31, 2005.

			Payments due by period
Contractual Obligations	Total		Less than One Year		One to Three Years		Three to Five Years		More Than 5 Years
	(In thousands)
Debt obligations	$	50,123	$	8,233	$	12,249	$	12,341	$	17,300
Operating lease obligations		1,070		108		195		192		575
Total	$	51,193	$	8,331	$	12,444	$	12,538	$	17,875

Our primary investing activities are the origination and purchase of loans and the purchase of securities. Our primary financing activities consist of activity in deposit accounts and Federal Home Loan Bank advances. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors and other factors. We generally manage the pricing of our deposits to be competitive. Occasionally, we offer promotional rates on certain deposit products to attract deposits.

The following table presents our primary investing and financing activities during the periods indicated.

	Year Ended December 31,
	2005		2004
	(In thousands)
Investing activities:
Loan purchases	$	—	$	450
Loans disbursed or closed		99,110		110,441
Loan principal repayments		79,646		79,765
Proceeds from maturities and principal repayments of securities		516		580
Proceeds from sales of securities available for sale		—		3,978
Purchase of Securities		208		123
Financing activities:
Increase in deposits		5,481		16,110
Increase in FHLB advances		151		3,003

Capital Management. We are subject to various regulatory capital requirements administered by the Office of Thrift Supervision, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At December 31, 2005, we exceeded all of our regulatory capital requirements. We are considered “well capitalized” under regulatory guidelines. See “Regulation and Supervision—Regulation of Federal Savings Associations—Capital Requirements,” “Regulatory Capital Compliance” and note 10 of the notes to the financial statements.

This offering is expected to increase our equity by $25.3 million to $40.0 million. See “Capitalization.” Following completion of this offering, we also will manage our capital for maximum stockholder benefit. The capital

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from the offering will significantly increase our liquidity and capital resources. Over time, the initial level of liquidity will be reduced as net proceeds from the stock offering are used for general corporate purposes, including the funding of lending activities. Our financial condition and results of operations will be enhanced by the capital from the offering, resulting in increased net interest-earning assets and net income. However, the large increase in equity resulting from the capital raised in the offering will, initially, have an adverse impact on our return on equity. Following the offering, we may use capital management tools such as cash dividends and common share repurchases. However, under Office of Thrift Supervision regulations, we will not be allowed to repurchase any shares during the first year following the offering, except to fund the restricted stock awards under the equity benefit plan, unless extraordinary circumstances exist and we receive regulatory approval.

Off-Balance Sheet Arrangements. In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments and lines of credit. For information about our loan commitments and unused lines of credit, see note 12 of the notes to the financial statements.

For the year ended December 31, 2005, we did not engage in any off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

Impact of Recent Accounting Pronouncements

In April 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This Statement amends Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under Statement No. 133. This Statement is effective for contracts entered into or modified after June 30, 2003, except in certain circumstances, and for hedging relationships designated after June 30, 2003. This Statement did not have a material effect on our financial statements.

In May 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This Statement provides new rules on the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity. Such financial instruments include mandatorily redeemable shares, instruments that require the issuer to buy back some of its shares in exchange for cash or other assets, or obligations that can be settled with shares, the monetary value of which is fixed. Most of the guidance in Statement No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 30, 2003. This Statement had no effect on our financial statements.

In December 2004, the Financial Accounting Standards Board (“FASB”) published Statement No. 123 (revised 2004), Share-Based Payment (“SFAS 123(R)” or the “Statement”). SFAS 123(R) requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. SFAS 123(R) covers a wide range of share-based compensation arrangements including stock options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. SFAS 123(R) is a replacement of SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related interpretive guidance. The effect of the Statement will be to require entities to measure the cost of employee services received in exchange for stock options based on the grant-date fair value of award, and to recognize the cost over the period the employee is require to provide services for the award. SFAS 123(R) permits entities to use any option-pricing model that meets the fair value objective in the Statement.

For public entities, SFAS 123(R) is effective for fiscal years beginning on or after June 15, 2005, and is applicable to all employee awards vested, granted, modified, or settled after the effective date. For public entities that file as small business issuers and non-public entities, the effective date of implementation is for fiscal years beginning

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on or after December 15, 2005. As of the effective date, compensation cost related to the non-vested portion of awards outstanding as of that date would be based on the grant-date fair value of those awards as calculated under the original provisions of Statement No. 123; that is, an entity would not remeasure the grant-date fair value estimate of the unvested portion of awards granted prior to the effective date of SFAS 123(R). This Statement is not expected to have a material impact on our consolidated financial statements.

Effect of Inflation and Changing Prices

The financial statements and related financial data presented in this prospectus have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution’s performance than do general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

Our Management

Board of Directors

The Boards of Directors of Newport Bancorp and Newport Federal are each composed of fifteen (15) persons who are elected for terms of three (3) years, approximately one third of whom are elected annually. The same individuals comprise the boards of directors of Newport Bancorp and Newport Federal. All of our directors are independent under the current listing standards of the Nasdaq Stock Market, except for Messrs. McCarthy and Moscardi whom we employ as executive officers. Information regarding the directors is provided below. Unless otherwise stated, each person has held his or her current occupation for the last five (5) years. The directors listed are also the directors of Newport Bancorp since its formation. Ages presented are as of December 31, 2005.

The following directors have terms ending in 2007:

John N. Conti is President of John Conti Insurance Agency, Inc. Age 60. Director of Newport Federal since 2005 and a director of Newport Bancorp since its formation. Before serving as a director with Newport Federal, Mr. Conti was a director of Westerly Savings Bank from 2004 until it merged with Newport Federal.

William R. Harvey is an attorney and partner in the law firm Harvey, Carry & Hadfield. Age 59. Director of Newport Federal since 1987 and director of Newport Bancorp since its formation.

Robert S. Lazar is a retired engineer. Age 62. Director of Newport Federal since 1979 and a director of Newport Bancorp since its formation.

Kevin M. McCarthy is President and Chief Executive Officer of Newport Federal and Newport Bancorp. Mr. McCarthy joined Newport Federal in 1989. Prior to joining Newport Federal, Mr. McCarthy served as Vice President, Director of Policy and Supervision at the Federal Home Loan Bank of Boston from 1977 to 1989 and was a savings and loan examiner with the Federal Home Loan Bank Board from 1973 to 1977. Currently, Mr. McCarthy serves on the Board of the Federal Home Loan Bank of Boston. Age 58. Director of Newport Federal since 1993.

Alicia S. Quirk is the former co-owner and current bookkeeper of Aquidneck Employment Services, Inc. Age 64. Director of Newport Federal since 1992 and director of Newport Bancorp since its formation.

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The following directors have terms ending in 2008:

Peter T. Crowley is owner of La Forge Casino Restaurant. Age 57. Director of Newport Federal since 1992 and director of Newport Bancorp since its formation.

Michael J. Hayes is the President of Michael Hayes Co. Age 56. Director of Newport Federal since 1988 and director of Newport Bancorp since its formation.

Arthur H. Lathrop is a certified public accountant. Age 51. Director of Newport Federal since 2005 and director of Newport Bancorp since its formation. Before serving as a director with Newport Federal, Mr. Lathrop was a director of Westerly Savings Bank from 1993 until it merged with Newport Federal. Mr. Lathrop is also a director of Ocean State Tax-Exempt Fund.

Kathleen A. Nealon is a certified public accountant with Professional Planning Group. Age 53. Director of Newport Federal since 2005 and director of Newport Bancorp since its formation. Before serving as a director with Newport Federal, Ms. Nealon was a director of Westerly Savings Bank from 2004 until it merged with Newport Federal.

Peter W. Rector, Chairman of the Board, is a retired businessman. Age 67. Director of Newport Federal since 1967 and director of Newport Bancorp since its formation.

The following directors have terms ending in 2009:

Donald N. Kaull is a retired businessman. Age 60. Director of Newport Federal since 1989 and director of Newport Bancorp since its formation.

Arthur P. Macauley is President of CM Publications, Inc. Age 63. Director of Newport Federal since 2005 and director of Newport Bancorp since its formation. Before serving as a director with Newport Federal, Mr. Macauley was a director of Westerly Savings Bank from 1981 until it merged with Newport Federal.

Nino Moscardi has been Executive Vice President, Chief Operating Officer and Director of Newport Federal since October 2005 and Executive Vice President, Chief Operating Officer and Director of Newport Bancorp since its formation. Before serving with Newport Federal, Mr. Moscardi was Chairman and Chief Executive Officer of Westerly Savings Bank from 1989 until it merged with Newport Federal in October 2005. Age 54.

Michael S. Pinto is the President of Pinto Real Estate, Inc. and a partner in Pinlar Enterprises LLC. Mr. Pinto is also a retired school superintendent. Age 67. Director of Newport Federal since 1992 and director of Newport Bancorp since its formation.

Barbara Saccucci Radebach is General Manager of Saccucci Lincoln Mercury Honda, Inc. Age 53. Director of Newport Federal since 1991 and director of Newport Bancorp since its formation.

Executive Officers

The executive officers of Newport Bancorp are elected annually by the board of directors and serve at the board’s discretion. The executive officers of Newport Bancorp are:

Name	Position
Kevin M. McCarthy	President and Chief Executive Officer
Nino Moscardi	Executive Vice President and Chief Operating Officer
Bruce A. Walsh	Senior Vice President and Chief Financial Officer

Since the formation of Newport Bancorp, none of the executive officers, directors or other personnel has received remuneration from Newport Bancorp.

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The executive officers of Newport Federal are elected annually by the board of directors and serve at the board’s discretion. The executive officers of Newport Federal are:

Name	Position
Kevin M. McCarthy	President and Chief Executive Officer
Nino Moscardi	Executive Vice President and Chief Operating Officer
Ray D. Gilmore, II	Executive Vice President and Chief Lending Officer
Paul Nardone	Senior Vice President and Compliance Officer
Carol R. Silven	Senior Vice President and Retail Banking Officer
Bruce A. Walsh	Senior Vice President and Chief Financial Officer

Below is information regarding our executive officers who are not also directors. Each executive officer has held his or her current position for at least the last five years, unless otherwise stated. Ages presented are as of December 31, 2005.

Ray D. Gilmore, II has been Executive Vice President and Chief Lending Officer of Newport Federal since July 1999. Mr. Gilmore joined Newport Federal in January 1992. He began his banking career as a bank examiner with the Office of the Comptroller of the Currency, U.S. Treasury Department. Prior to working at Newport Federal, Mr. Gilmore was Vice President, Corporate Banking Group of Shawmut Bank, Providence, Rhode Island. Age 58.

Carol R. Silven has been Senior Vice President and Retail Banking Officer of Newport Federal since March 1999. Ms. Silven joined Newport Federal in May 1992. Prior to working at Newport Federal, Ms. Silven was a retail banking officer at Colonial Bank, Cranston, Rhode Island. Age 62.

Bruce A. Walsh has been Senior Vice President and Chief Financial Officer of Newport Federal since March 1999. Mr. Walsh joined Newport Federal in 1986 after two years at KPMG Peat Marwick. Mr. Walsh is a certified public accountant. Age 48.

Paul F. Nardone has been Senior Vice President and Compliance Officer of Newport Federal since October 2005. Prior to serving with Newport Federal, Mr. Nardone was President of Westerly Savings Bank from 1984 until its merger with Newport Federal in October 2005. Mr. Nardone joined Westerly Savings Bank in December 1974. Age 60.

Meetings and Committees of the Board of Directors

We conduct business through meetings of our board of directors and its committees. During the year ended December 31, 2005, the board of directors of Newport Federal met 16 times. As Newport Bancorp was recently incorporated, the board of directors of Newport Bancorp did not meet during the year ended December 31, 2005.

In connection with the formation of Newport Bancorp, the board of directors established Audit, Compensation and Nominating and Governance Committees.

The Audit Committee consists of Robert Lazar (Chairperson), Peter Crowley, Arthur Lathrop and Kathleen Nealon. The Audit Committee is responsible for providing oversight relating to our financial statements and financial reporting process, systems of internal accounting and financial controls, internal audit function, annual independent audit and the compliance and ethics programs established by management and the board. Each member of the Audit Committee is independent in accordance with the listing standards of the Nasdaq Stock Market. The board of directors of Newport Bancorp has designated Arthur Lathrop as an audit committee financial expert under the rules of the Securities and Exchange Commission. As Newport Bancorp was recently incorporated, the Audit Committee of Newport Bancorp did not meet during the year ended December 31, 2005.

The Compensation Committee consists of Alicia Quirk (Chairperson), Peter Rector, William Harvey, Kevin McCarthy, Nino Moscardi and Arthur Macauley. The Compensation Committee is responsible for human resources

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policies, salaries and benefits, incentive compensation, executive development and management succession planning. Each member of the Compensation Committee is independent in accordance with the listing standards of the Nasdaq Stock Market. The Compensation Committee of Newport Bancorp did not meet during the year ended December 31, 2005.

The Nominating and Corporate Governance Committee consists of Alicia Quirk (Chairperson), Peter Rector, William Harvey, Kevin McCarthy, Nino Moscardi and Arthur Macauley. The Nominating and Corporate Governance Committee is responsible for identifying individuals qualified to become board members and recommending a group of nominees for election as directors at each annual meeting of stockholders, ensuring that the board and its committees have the benefit of qualified and experienced independent directors, and developing a set of corporate governance polices and procedures. Each member of the Nominating and Corporate Governance Committee is independent in accordance with the listing standards of the Nasdaq Stock Market. The Nominating and Corporate Governance Committee of Newport Bancorp did not meet during the year ended December 31, 2005.

Each of Newport Bancorp’s committees listed above operates under a written charter, which governs its composition, responsibilities and operations.

In addition, the board of directors of Newport Federal has the following six standing committees: Executive/Loan, Personnel/Nominating, Building, Business Development, Audit/Asset Review and Technology.

Corporate Governance Policies and Procedures

In addition to having established committees of the board of directors, Newport Bancorp has also adopted several policies to govern the activities of both Newport Bancorp and Newport Federal, including a corporate governance policy and a code of business conduct and ethics. The corporate governance policy sets forth:

• the duties and responsibilities of each director;

• the composition, responsibilities and operation of the board of directors;

• the establishment and operation of board committees;

• succession planning;

• convening executive sessions of independent directors;

• the board of directors’ interaction with management and third parties; and

• the evaluation of the performance of the board of directors and of the chief executive officer.

The code of business conduct and ethics, which applies to all employees and directors, addresses conflicts of interest, the treatment of confidential information, general employee conduct and compliance with applicable laws, rules and regulations. In addition, the code of business conduct and ethics is designed to deter wrongdoing and to promote honest and ethical conduct, the avoidance of conflicts of interest, full and accurate disclosure and compliance with all applicable laws, rules and regulations.

Directors’ Compensation

Cash Retainer and Meeting Fees For Non-Employee Directors. The following tables set forth the applicable retainers and fees that will be paid to non-employee directors for their service on the board of directors of the Company and the board of directors of the Bank.

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Board of Directors of Newport Federal:

Annual Retainer	$4,500 ($5,500 for Chairman of the Board, $2,000 additional for members of the Executive Committee)
Fee per Board Meeting	$600 ($800 for Chairman of the Board)
Fee per Committee Meeting:
Executive/Loan Committee	$500 ($700 for Chairperson)
Building Committee	$300 ($350 for Chairperson)
Business Development Committee	$300 ($350 for Chairperson)
Audit/Asset Review Committee	$300 ($350 for Chairperson)
Technology Committee	$300
Personnel/Nominating Committee	$300 ($350 for Chairperson, $450 for Chairman of the Board)
Board of Directors of Newport Bancorp:
Annual Retainer	$4,500

Supplemental Director Retirement Arrangements. Newport Federal entered into supplemental director retirement agreements with members of the Board of Directors who were serving as outside directors of Newport Federal as of June 2003. Under the terms of the agreements, Messrs. Harvey and Rector are entitled to receive a $4,000 and $5,000 annual supplemental retirement benefit, respectively, and all other participating directors are entitled to receive a $3,000 annual supplemental retirement benefit. The annual supplemental retirement benefits are payable over a ten year period commencing on the first of the month following the participating director’s retirement at or after the attainment of age 70. If a participating director retires after attaining age 65, but prior to age 70, and has completed 10 years of service, his or her annual supplemental retirement benefit will be reduced by a specific percentage (as specified in the agreement) based on the participating director’s age. If a participating director is terminated for cause, all supplemental retirement benefits are forfeited.

The agreements also provide for benefits upon a participating director’s death, disability and upon a change in control of the Newport Bancorp followed by the participating director’s involuntary termination of service. If a participating director’s service with the Bank is involuntarily terminated within two (2) years after a change in control of the Newport Bancorp, the participating director would be entitled to receive his or her benefits in monthly installments equal to the benefit he or she would have received had the director continued in service until age 70.

Director Split Dollar Arrangements. Newport Federal entered into split dollar life insurance agreements with members of the board of directors who were serving as outside directors of Newport Federal as of July 2003. These agreements provide the participating directors with a cash payment in the event they die while in service with Newport Federal. Under the terms of the agreements, the Bank is the owner of the life insurance policies under which the individuals are insured. The Bank and the participating directors each pay a portion of the annual premiums due on the life insurance policies. Under the directors’ split-dollar arrangements, upon the director’s death his designated beneficiary is entitled to an amount equal to the lesser of $30,000 ($35,000 for the Chairman of the Board), or the total insurance proceeds less the cash value of the policy. The remainder of the death benefit under the agreements is payable to Newport Federal.

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Executive Compensation

Summary Compensation Table. The following information is provided for our President and Chief Executive Officer and other executive officers who received salary and bonus totaling $100,000 or more for the year ended December 31, 2005. Compensation information for 2004 and 2003 has been omitted as Newport Federal was neither a public company nor a subsidiary of a public company at that time.

Name and Position	Year	Annual Compensation (1)					All Other Compensation (3)(4)(5)(7)
		Salary			Bonus
Kevin M. McCarthy President and Chief Executive Officer	2005	$	182,292		$	25,000	$	18,171
Nino Moscardi Executive Vice President and Chief Operating Officer	2005	$	134,635	(2)	$	20,000	$	3,917	(7)
Ray D. Gilmore, II Executive Vice President and Chief Lending Officer	2005	$	124,166		$	14,000	$	12,831
Bruce A. Walsh Senior Vice President and Chief Financial Officer	2005	$	100,000		$	13,300	$	7,933
Carol R. Silven Senior Vice President and Retail Banking Officer	2005	$	95,000		$	12,600	$	9,572
Paul F. Nardone Senior Vice President and Compliance Officer	2005	$	93,783	(6)	$	10,500	$	2,814	(7)

(1) Does not include the aggregate amount of perquisites or other personal benefits, which did not exceed the lesser of $50,000 or 10% of the total annual salary and bonus reported.

(2) During 2005, Mr. Moscardi earned $130,592 as Chief Executive Officer of Westerly Savings Bank and $             as Chief Operating Officer of Newport Federal.

(3) Includes employer matching contributions of $7,258, $4,931, $3,994 and $3,792 under the Newport Federal’s 401(k) Plan for Messrs. McCarthy, Gilmore and Walsh and Ms. Silven, respectively.

(4) Includes employer supplemental contributions of $6,023, $4,103, $3,319 and $3,150 under the Newport Federal’s 401(k) Plan for Messrs. McCarthy, Gilmore and Walsh and Ms. Silven, respectively.

(5) Includes split dollar life premiums paid by Newport Federal of $4,890, $3,797, $620, $1,488 and $2,630 for Messrs. McCarthy, Gilmore, Walsh and Nardone and Ms. Silven, respectively.

(6) During 2005, Mr. Nardone earned $93,784 as President and Treasurer of Westerly Savings Bank and $             as Senior Vice President and Compliance Officer of Newport Federal.

(7) Matching contributions under the Westerly Savings Bank 401(k) plan for Messrs. Moscardi and Nardone.

Bank Employment Agreements. Newport Federal entered into employment agreements with Messrs. McCarthy, Moscardi and Gilmore (referred to as the “executive” or “executives,” as appropriate, in this and the following paragraphs) in connection with the merger of Newport Federal and Westerly Savings Bank to ensure that Newport Federal would retain the services of these executives. The continued success of Newport Federal depends to a significant degree on the skills and competence of these individuals.

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The employment agreements with the executives provide for three-year terms. The terms of the employment agreements extend annually unless written notice of non-renewal is given by the board of directors of Newport Federal or the executive. The employment agreements provide that the executive’s base salary will be reviewed annually. The current base salaries for Messrs. McCarthy, Moscardi and Gilmore are $210,000, $150,000 and $140,000, respectively. In addition to base salary, the employment agreements provide for, among other things, participation in benefit plans and other fringe benefits applicable to executive personnel. The employment agreements provide for termination for cause, as defined in the employment agreements, at any time. If Newport Federal chooses to terminate an executive’s employment for reasons other than for cause, or if an executive resigns from Newport Federal after specified circumstances that would constitute constructive termination, the executive or, if he dies, his beneficiary, would be entitled to receive an amount equal to the remaining base salary payments due to him for the remaining term of the employment agreement and the contributions that would have been made on his behalf to any employee benefit plans of Newport Federal during the remaining term of the employment agreement. Newport Federal would also continue and/or pay for the executive’s life, health, and dental coverage for the remaining term of the employment agreement. If the executive’s termination of employment is for reasons other than a change in control, he must adhere to a one-year non-competition agreement. Newport Federal will make any necessary amendments to these agreements prior to December 31, 2006, in order to ensure the agreements comply with the requirements of Section 409A of the Internal Revenue Code and the regulations and other Internal Revenue Service guidance issued thereunder.

If Messrs. McCarthy, Moscardi or Gilmore are involuntarily terminated in connection with a change in control, or if they voluntarily terminate employment following a change in control under certain circumstances specified in the employment agreements, they or their beneficiaries will receive a severance payment equal to 2.99 times their average annual compensation over the five preceding tax years (or if they are employed less than five years, their years of employment). Newport Federal will also continue the executives’ medical, dental and life insurance coverage for thirty-six months following termination of employment.

Under applicable law, the Internal Revenue Service may impose an excise tax on change in control-related payments that equal or exceed three times each executive’s average annual compensation over the five years preceding the change in control. This excise tax would equal 20% of the amount that exceeds one times the executive’s average compensation over the preceding five tax years. Therefore, in order to prevent the imposition of the excise tax, each Newport Federal employment agreement will limit payments to the executive to an amount that is one dollar less than three times the executive’s average annual compensation.

Proposed Holding Company Employment Agreements. Upon consummation of the conversion, Newport Bancorp will enter into employment agreements with Messrs. McCarthy, Moscardi and Walsh. The term of the Newport Bancorp employment agreements for Messrs. McCarthy and Moscardi will be three years and Mr. Walsh’s agreement will have a two year term. All agreements will renew on a daily basis unless written notice of non-renewal is given by the executives or Newport Bancorp. The employment agreement provides that Newport Bancorp will review base salaries on an annual basis. The base salaries under the agreements for Messrs. McCarthy and Moscardi will be the same as the salaries set forth under the executives’ Newport Federal agreements. Mr. Walsh’s base salary will be $115,000. In addition to the base salary, the Newport Bancorp employment agreements provide for, among other things, discretionary bonuses, participation in stock benefit plans and other fringe benefits applicable to executive personnel. The employment agreements provide for termination for cause, as defined in the employment agreements, at any time. The employment agreements also provide for a disability benefit equal to 75% of an executive’s bi-weekly rate of base salary in effect as of the executive’s termination date. Disability payments will be reduced by any disability benefits provided by a policy or program sponsored by Newport Federal and/or Newport Bancorp. Disability payments will end upon the earlier of the executive’s full-time employment with Newport Federal, death, attainment of age 65 or the termination of the executive’s agreement. If Newport Bancorp chooses to terminate an executive’s employment for reasons other than for cause, or if the executive resigns after specified circumstances that would constitute constructive termination, the executive or, if he dies, his beneficiary, would be entitled to receive an amount equal to the remaining base salary payments due for the remaining term of the employment agreement and the contributions that would have been made on his behalf to any employee benefit plans sponsored by Newport Federal or Newport Bancorp during the remaining term of the employment agreement. Newport Bancorp would also continue and/or pay for life, health and dental coverage for the remaining term of the employment agreements. In the event Newport Bancorp terminates Messrs. McCarthy, Moscardi or Walsh’s employment for reasons other than a change in control,

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the executive must adhere to a one-year non-competition agreement. Newport Federal will make any necessary amendments to these agreements prior to December 31, 2006, in order to ensure the agreements comply with the requirements of Section 409A of the Internal Revenue Code and the regulations and other Internal Revenue Service guidance issued thereunder.

To the extent that salary payments, other cash payments and benefits, under the Newport Bancorp agreements are paid to or received by the executives under the Newport Federal employment or change in control agreements, such compensation payments and benefits paid by Newport Federal will be subtracted from any amount due simultaneously to the executives under similar provisions of Newport Bancorp agreements. Payments pursuant to the Newport Bancorp employment agreement and the Newport Federal employment agreement will be allocated in proportion to the level of activity and the time expended on such activities by the executives as determined by the Newport Bancorp and Newport Federal.

Under the Newport Bancorp employment agreement, if voluntary (upon circumstances discussed in the agreement) or involuntary termination follows a change in control of Newport Bancorp or Newport Federal, Messrs. McCarthy and Moscardi, or in the event of death, their beneficiaries, would be entitled to a severance payment equal to three (3) times the average of the five preceding taxable years’ annual compensation. Mr. Walsh would be entitled to a payment equal to two (2) times his average annual compensation. Newport Bancorp would also continue the benefits Messrs. McCarthy, Moscardi and Walsh have received under Newport Federal retirement programs in which the executives participated before a change in control and under any health, life or dental plan for 36 months for Messrs. McCarthy and Moscardi and 24 months for Mr. Walsh. Under the Newport Bancorp employment agreement, Messrs. McCarthy and Moscardi also be entitled to receive a tax indemnification payment if payments under their employment agreements or other payments outside of the employment agreements trigger liability under the Internal Revenue Code as an excise tax on payments constituting “excess parachute payments.” Under applicable law, the excise tax is triggered by the executive’s receipt of payments that are contingent on a change in control that equal or exceed three times the executive’s average annual compensation over the five calendar years preceding the year in which the change in control occurs. The excise tax equals 20% of the amount of the payment in excess of one times the executive’s average compensation over the preceding five-year period. The tax indemnification payment provides the executive with a net amount sufficient to pay the excise tax. Mr. Walsh will not be entitled to receive an excess parachute payment under his employment agreement. If a change in control of Newport Bancorp occurred, the total amount of payments due under the employment agreements, based solely on the executive’s average annual taxable compensation for 2001 through 2005 (without regard to base salary adjustments or bonuses and excluding any benefits under any employee benefit plan which may be payable) would be approximately $                                        .

Change in Control Agreements. In connection with the merger of Newport Federal and Westerly Savings Bank, Newport Federal entered into a two-year change in control agreement with Bruce Walsh, Carol Silven and certain other officers of Newport Federal. The board of directors of Newport Federal may renew these agreements annually. The agreements provide that if involuntary termination or, under certain circumstances, voluntary termination follows a change in control of Newport Federal, the executives would each be entitled to receive a severance payment equal to two times the executive’s “base amount,” as defined under the Internal Revenue Code. Newport Federal would also continue and/or pay for life, health and dental coverage for twenty-four months following termination of employment. Following the conversion, these agreements will be amended to revise the definition of change in control to mean a change in control of Newport Bancorp. The agreements will be further amended to include Newport Bancorp as the guarantor of all payments and benefits that are not paid by Newport Federal. Assuming a change in control occurred, the total payments due under the change in control agreements, based solely on the executive’s average annual taxable compensation for 2001 through 2005 (without regard to base salary adjustments or bonuses and excluding any benefits under any employee benefit plan which may be payable) would be approximately $                                        .

Employee Severance Compensation Plan. Newport Federal maintains the Newport Federal Savings Bank Change in Control Severance Plan to provide severance benefits to eligible employees whose employment terminates in connection with a change in control of Newport Federal. Employees become eligible for severance benefits under the plan if they have a minimum of one year of service with Newport Federal. Individuals who enter

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into employment or change in control agreements with Newport Federal or Newport Bancorp are not eligible to participate in the severance plan. Under the severance plan, if, within a year of a change in control, a participant’s employment is involuntarily terminated or a participant voluntarily terminates employment upon the occurrence of events specified in the severance plan, then the participant will receive a severance payment equal to one month’s compensation for each year of service with Newport Federal, up to a maximum payment equal to 199% of the employee’s base compensation. Following the conversion, the plan will be amended to include Newport Bancorp. Based solely on compensation levels and years of service at December 31, 2005 and assuming that a change in control had occurred and all eligible employees became entitled to receive severance payments, the aggregate payment due under the severance plan would be approximately $950,259.

Supplemental Executive Retirement Arrangements. In July 2003, Newport Federal entered into supplemental executive retirement arrangements with Messrs. McCarthy, Walsh, and Gilmore and Ms. Silven. The agreements provide for a fixed annual benefit payable monthly over a fifteen (15) year period following the executive’s retirement at or after age 65. The annual supplemental retirement benefits for Ms. Silven and Messrs. McCarthy, Gilmore and Walsh are $16,150, $30,500, $21,000 and $17,500, respectively. If an executive retires after attaining age 60, but prior to age 65 and has completed 10 years of service, his or her annual supplemental retirement will be reduced by a specific percentage (as specified in the agreement) based on the executive’s age. All benefits are forfeited under the agreements if an executive is terminated for cause. The agreements also provide for retirement benefits upon an executive’s death, disability or termination of employment following a change in control.

If an executive’s employment with Newport Federal is involuntarily terminated within two (2) years after a change in control of the company, the executive would be entitled to receive his or her benefits in monthly installments equal to the benefit he or she would have received had the executive continued his or her employment with Newport Federal until age 65.

Executive Split Dollar Arrangements. Newport Federal entered into split dollar life insurance agreements with Messrs. McCarthy, Walsh and Gilmore and Ms. Silven in July 2003. Under the terms of the agreements, the Newport Federal is the owner of the life insurance policies under which each individual is insured. Newport Federal and the executives each pay a portion of the annual premiums due on the life insurance policies. Under the split-dollar arrangements, upon an executive’s death while he or she is actively employed, his or her designated beneficiary is entitled to an amount equal to $100,000 plus the cash asset value of the life insurance policies for the beneficiaries of Mr. McCarthy and Mr. Gilmore and $60,000 and $                    , plus the cash value of the life insurance policies for the beneficiaries of Mr. Walsh and Ms. Silven, respectively. If an executive dies after retiring or being terminated for reasons other than cause and the executive had at least ten (10) years of employment with Newport Federal his or her beneficiary will receive a benefit equal to the lesser of $150,000, $50,000, $100,000 and $                    , for the beneficiaries of Messrs. McCarthy, Walsh and Gilmore and Ms. Silven, respectively, or the total insurance proceeds less the cash value of the policy for each executive. The remainder of the death benefit under the split dollar arrangements is payable to Newport Federal. If an executive terminates employment without having at least ten (10) years of service with Newport Federal his or her beneficiary will receive no benefits under the Newport Federal split dollar arrangements.

Benefit Plans

Retirement Plan. Newport Federal participates in the Financial Institutions Retirement Fund (the “Retirement Plan”) to provide retirement benefits for eligible employees. Employees are eligible to participate in the Retirement Plan after the completion of 12 months of employment and the attainment of age 21. The formula for normal retirement benefits payable annually under the Retirement Plan is 1.5% / 2.0% of the average of a participant’s highest 3 years of compensation integrated with the fixed covered compensation level as of his or her retirement date multiplied by the participant’s years of benefit service. For the 2006 calendar year, the fixed covered compensation level is $24,408.

Participants generally have no vested interest in Retirement Plan benefits prior to the completion of five years of service. Following the completion of five years of vesting service, or in the event of a participant’s

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attainment of age 65, death or termination of employment due to disability, a participant will become 100% vested in the accrued benefit under the Retirement Plan. The table below reflects the annual pension benefit payable to a participant assuming various levels of earnings and years of service. The amounts of benefits paid under the Retirement Plan are not reduced for any social security benefit payable to participants. As of December 31, 2005, Mr. McCarthy had credited years of service of 26 years/11 months and Mr. Gilmore, Mr. Walsh and Ms. Silven had credited years of service of 11 years/6 months.

	Years of Benefit Service
Final Average Earnings	15		20		25		30		35
$  50,000	$	13,300	$	17,700	$	22,100	$	26,500	$	30,900
75,000		20,800		27,700		34,600		41,500		48,400
100,000		28,300		37,700		47,100		56,500		65,900
125,000		35,800		47,700		59,600		71,500		83,400
150,000		43,300		57,700		72,100		86,500		100,900
175,000		50,800		67,700		84,600		101,500		118,400
200,000		58,300		77,700		97,100		116,500		135,900
225,000		65,800		87,700		109,600		131,500		153,400

In connection with Newport Federal’s merger with Westerly Savings Bank, Newport Federal assumed the Westerly Saving Bank Pension Plan. Under the terms of the Westerly plan, the normal retirement benefit formula is 1.5% of the average of a participant’s highest 5 years of compensation multiplied by the participant’s years of benefit service. The vesting provisions mirror the Newport Federal plan. Newport Federal intends to merge the Westerly plan with and into the Newport Federal plan effective July 1, 2006.

401(k) Plan. Newport Federal maintains the Newport Federal Savings Bank Employees’ Savings & Profit Sharing Plan, a tax-qualified defined contribution plan, for substantially all employees of Newport Federal who have attained age 21 and completed 500 hours of service with Newport Federal in a consecutive six-month period. Eligible employees may contribute up to 50% of their compensation to the plan on a pre-tax basis, subject to the limitations imposed by the Internal Revenue Code of 1986, as amended. For 2006, the limit is $15,000; provided, however, that participants over age 50 may contribute an additional $5,000 per year. Under the plan, Newport Federal makes matching contributions equal to 100% of the first 3% a participant defers under the plan and 50% of the next 2% of a participant’s deferrals. In addition to matching contributions, Newport Federal has the sole discretion to make supplemental employer contributions on an annual basis. Participants are always 100% vested in their 401(k) Plan account balances.

The plan has an individual account for each participant’s contributions and allows each participant to direct the investment of his or her account in the investment funds provided through Pentegra Retirement Services. In connection with the conversion, the plan will add the Newport Bancorp Stock Fund as an investment option. The Newport Bancorp Stock Fund will permit participants to invest their deferrals in Newport Bancorp common stock. A participant who elects to purchase common stock in the offering through the plan will be subject to the individual purchase limitations and purchase priorities set forth in the Newport Federal plan of conversion . See “The Conversion—Subscription Offering and Subscription Rights” and “—Limitations on Purchases of Shares.” The plan will purchase common stock for participants in the offering, to the extent that shares are available. After the offering, the plan will purchase shares in open market transactions. Participants will direct the voting of shares purchased for their plan accounts.

Employee Stock Ownership Plan. In connection with the conversion, Newport Federal will implement an employee stock ownership plan for all eligible employees of Newport Federal. Eligible employees who are employees of Newport Federal on the closing date of the conversion will enter the employee stock ownership plan on the later of: (i) January 1, 2006; or (ii) the employee’s first day of employment with Newport Federal. Individuals employed after the closing date of the conversion will enter the plan on the first day of the month following their attainment of age 21 and completion of 500 hours of service with Newport Federal in a consecutive six month period. The employee stock ownership plan will subscribe for 8% of the shares sold in the offering and contributed to the charitable foundation, using funds borrowed from Newport Bancorp. The term of the loan will be fifteen years. The plan will repay the loan principally through Newport Federal’s

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contributions to the employee stock ownership plan and dividends payable on common stock held by the employee stock ownership plan over the anticipated fifteen-year term of the loan. The fixed interest rate for the employee stock ownership plan loan will equal the prime rate, as published in The Wall Street Journal on the closing date of the conversion. If the employee stock ownership plan is unable to acquire 8% of the common stock sold in the offering, the plan may acquire additional shares following the conversion through open market purchases, subject to approval by the Office of Thrift Supervision.

Participants generally have no vested interest in their employee stock ownership plan account balances prior to the completion of five years of service. Participants are given prior service credit for years of service with Newport Federal and Westerly Savings Bank prior to the closing date of the conversion. A year of service for vesting purposes is defined as 1,000 hours of service with Newport Federal or Westerly Savings Bank in a consecutive twelve month period. Participants fully vest in their account balances at retirement, upon death or disability, upon a change in control or upon termination of the employee stock ownership plan. Generally, the plan provides for the distribution of vested benefits upon a participant’s separation from service. The employee stock ownership plan reallocates any unvested shares forfeited upon termination of employment among the remaining participants in the plan.

The employee stock ownership plan provides that participants may direct the plan trustee how to vote the shares of common stock credited to their accounts. The trustee votes unallocated shares and allocated shares for which no instructions are received on any matter in the same ratio as those shares for which instructions are given, subject to fulfillment of the trustee’s fiduciary responsibilities.

Under applicable accounting requirements, Newport Federal records a compensation expense for a leveraged employee stock ownership plan at the fair market value of the shares when they are committed to be released from the suspense account to participants’ accounts under the plan.

Supplemental Executive Retirement Plan. In connection with the conversion, Newport Federal will implement a supplemental executive retirement plan to provide for supplemental retirement benefits with respect to the employee stock ownership plan and the 401(k) Plan. The plan will provide participating executives with benefits otherwise limited by certain provisions of the Internal Revenue Code or the terms of the employee stock ownership plan loan. Specifically, the plan will provide benefits to eligible officers (those designated by the board of directors of Newport Federal) that cannot be provided under the 401(k) Plan as a result of limitations imposed by the Internal Revenue Code, but that would have been provided under the plan, but for these Internal Revenue Code limitations. In addition to providing for benefits lost under the 401(k) Plan as a result of the Internal Revenue Code limitations, the new plan will also provide supplemental benefits upon a change of control prior to the scheduled repayment of the employee stock ownership plan loan. Generally, upon a change in control, the supplemental executive retirement plan will provide a participant with a cash payment equal to the benefit he would have received under the employee stock ownership plan, had he remained employed throughout the term of the loan, less the benefits actually provided under the employee stock ownership plan on the participant’s behalf. A participant’s benefits generally become payable upon a change in control of Newport Bancorp. Newport Federal has designated Kevin McCarthy and Nino Moscardi as a participants in the supplemental executive retirement plan. In the future, the board of directors may designate other officers as participants.

Newport Federal may utilize a grantor trust in connection with the supplemental executive retirement plan, in order to set aside funds that ultimately may be used to pay benefits under the plan. The assets of the grantor trust will remain subject to the claims of Newport Federal’s general creditors in the event of insolvency, until paid to a participant according to the terms of the supplemental executive retirement plan.

Future Equity Incentive Plan. Following the conversion, Newport Bancorp plans to adopt an equity incentive plan that will provide for grants of stock options and restricted stock. In accordance with applicable regulations, Newport Bancorp anticipates that the plan will authorize a number of stock options equal to 10% of the total shares sold in the conversion and contributed to the charitable foundation, and a number of shares of restricted stock equal to 4% of the total shares sold in the conversion, and contributed to the charitable foundation. Therefore, the number of shares reserved under the plan will range from 446,250

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shares, assuming 2,951,389 shares are sold in the offering, to 603,750 shares, assuming 3,993,055 shares are sold in the offering.

Newport Bancorp may fund the equity incentive plan through the purchase of common stock in the open market by a trust established in connection with the plan or from authorized, but unissued, shares of Newport Bancorp common stock. The acquisition of additional authorized, but unissued, shares by the equity incentive plan after the offering would dilute the interests of existing stockholders. See “Pro Forma Data.”

Newport Bancorp will grant all stock options at an exercise price equal to 100% of the fair market value of the stock on the date of grant. Newport Bancorp will grant restricted stock awards at no cost to recipients. Restricted stock awards and stock options generally vest ratably over a five-year period (or as otherwise permitted by the Office of Thrift Supervision), but Newport Bancorp may also make vesting contingent upon the satisfaction of performance goals established by the board of directors or the committee charged with administering the plan. All outstanding awards will accelerate and become fully vested upon a change in control of Newport Bancorp.

The equity incentive plan will comply with all applicable Office of Thrift Supervision regulations. We will submit the equity incentive plan to stockholders for their approval, at which time we will provide stockholders with detailed information about the plan. Under current Office of Thrift Supervision Regulations, this plan if voted upon within one year, must be approved by a majority of the total votes eligible to be cast by our stockholders.

Transactions with Newport Federal

Loans and Extensions of Credit. The Sarbanes-Oxley Act generally prohibits loans by Newport Bancorp to its executive officers and directors. However, the Sarbanes-Oxley Act contains a specific exemption from such prohibition for loans by Newport Federal to its executive officers and directors in compliance with federal banking regulations. Federal regulations require that all loans or extensions of credit to executive officers and directors of insured institutions must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and must not involve more than the normal risk of repayment or present other unfavorable features. Newport Federal is therefore prohibited from making any new loans or extensions of credit to executive officers and directors at different rates or terms than those offered to the general public. Notwithstanding this rule, federal regulations permit Newport Federal to make loans to executive officers and directors at reduced interest rates if the loan is made under a benefit program generally available to all other employees and does not give preference to any executive officer or director over any other employee.

In addition, loans made to a director or executive officer in an amount that, when aggregated with the amount of all other loans to the person and his or her related interests, are in excess of the greater of $25,000 or 5% of Newport Federal’s capital and surplus, up to a maximum of $500,000, must be approved in advance by a majority of the disinterested members of the board of directors. See “Regulation and Supervision—Regulation of Federal Savings Associations—Transactions with Related Parties.”

The aggregate amount of loans by Newport Federal to its executive officers and directors was $4.4 million at December 31, 2005, or approximately 8.1 % of pro forma stockholders’ equity, assuming that 4,250,000 shares are sold in the offering. These loans were performing according to their original terms at December 31, 2005.

Other Transactions. William R. Harvey is a partner in the law firm of Harvey, Carr & Hadfield which performed legal services for the Bank during fiscal year 2005, [and is expected to perform similar services during the current fiscal year].

Indemnification for Directors and Officers

Newport Bancorp’s bylaws provide that Newport Bancorp shall indemnify all officers, directors and employees of Newport Bancorp to the fullest extent permitted under federal law against all expenses and liabilities reasonably incurred by them in connection with or arising out of any action, suit or proceeding in which they may be involved by reason of their having been a director or officer of Newport Bancorp. Such indemnification may include the advancement of funds to pay for or reimburse reasonable expenses incurred by an indemnified party to

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the fullest extent permitted under federal law. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of Newport Bancorp pursuant to its bylaws or otherwise, Newport Bancorp has been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.

Subscriptions by Executive Officers and Directors

The following table presents certain information as to the approximate purchases of common stock by our directors and executive officers, including their associates, if any, as defined by applicable regulations. No individual has entered into a binding agreement to purchase these shares and, therefore, actual purchases could be more or less than indicated. Directors and executive officers and their associates may not purchase more than 30% of the shares sold in the offering. Like all of our depositors, our directors and officers have subscription rights based on their deposits. For purposes of the following table, sufficient shares are assumed to be available to satisfy subscriptions in all categories. All directors and officers as a group would own 7.7% of our outstanding shares at the minimum of the offering and 5.7% of our outstanding shares at the maximum of the offering.

	Proposed Purchases of Stock in the Offering
Name	Number of Shares	Dollar Amount
Directors:
John N. Conti	1,000	$	10,000
Peter T. Crowley	20,000		200,000
William R. Harvey	15,000		150,000
Michael J. Hayes	17,500		175,000
Donald N. Kaull	20,000		200,000
Arthur H. Lathrop	1,000		10,000
Robert S. Lazar	15,000		150,000
Arthur P. Macauley	7,200		72,000
Kevin M. McCarthy	20,000		200,000
Nino Moscardi	15,000		150,000
Kathleen A. Nealon	1,000		10,000
Michael S. Pinto	20,000		200,000
Alicia S. Quirk	5,000		50,000
Peter W. Rector	12,500		125,000
Barbara Saccucci Radebach	20,000		200,000
Executive Officers Who Are Not Directors:
Ray D. Gilmore, II	15,000		150,000
Paul Nardone	2,500		25,000
Carol R. Silven	10,000		100,000
Bruce A. Walsh	10,000		100,000
All directors and executive officers as a group (19 persons)	227,700	$	2,277,000

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Regulation and Supervision

General

Newport Federal is subject to extensive regulation, examination and supervision by the Office of Thrift Supervision, as its primary federal regulator, and the Federal Deposit Insurance Corporation, as its deposits insurer. Newport Federal is a member of the Federal Home Loan Bank System and its deposit accounts are insured up to applicable limits by the Savings Association Insurance Fund managed by the Federal Deposit Insurance Corporation. Newport Federal must file reports with the Office of Thrift Supervision and the Federal Deposit Insurance Corporation concerning its activities and financial condition in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with, or acquisitions of, other financial institutions. There are periodic examinations by the Office of Thrift Supervision and, under certain circumstances, the Federal Deposit Insurance Corporation to evaluate Newport Federal’s safety and soundness and compliance with various regulatory requirements. This regulatory structure is intended primarily for the protection of the insurance fund and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in such policies, whether by the Office of Thrift Supervision, the Federal Deposit Insurance Corporation or Congress, could have a material adverse impact on Newport Bancorp and Newport Federal and their operations. Newport Bancorp, as a savings and loan holding company, is required to file certain reports with, are subject to examination by, and otherwise must comply with the rules and regulations of the Office of Thrift Supervision. Newport Bancorp will also be subject to the rules and regulations of the Securities and Exchange Commission under the federal securities laws.

Certain of the regulatory requirements that are or will be applicable to Newport Federal and Newport Bancorp are described below. This description of statutes and regulations is not intended to be a complete explanation of such statutes and regulations and their effects on Newport Federal and Newport Bancorp and is qualified in its entirety by reference to the actual statutes and regulations.

Regulation of Federal Savings Associations

Business Activities. Federal law and regulations, primarily the Home Owners’ Loan Act and the regulations of the Office of Thrift Supervision, govern the activities of federal savings banks, such as Newport Federal. These laws and regulations delineate the nature and extent of the activities in which federal savings banks may engage. In particular, certain lending authority for federal savings banks, e.g., commercial, non-residential real property, and consumer, is limited to a specified percentage of the institution’s capital or assets.

Branching. Federal savings banks are authorized to establish branch offices in any state or states of the United States and its territories, subject to the approval of the Office of Thrift Supervision.

Capital Requirements. The Office of Thrift Supervision’s capital regulations require federal savings institutions to meet three minimum capital standards: a 1.5% tangible capital to total assets ratio, a 4% leverage ratio (3% for institutions receiving the highest rating on the CAMELS examination rating system) and an 8% risk-based capital ratio. In addition, the prompt corrective action standards discussed below establish, in effect, a minimum 2% tangible capital standard, a 4% leverage ratio (3% for institutions receiving the highest rating on the CAMELS system) and, together with the risk-based capital standard itself, a 4% Tier 1 risk-based capital standard. The Office of Thrift Supervision regulations also require that, in meeting the tangible, leverage and risk-based capital standards, institutions must generally deduct investments in and loans to subsidiaries engaged in activities as principal that are not permissible for national banks.

The risk-based capital standard requires federal savings institutions to maintain Tier 1 (core) and total capital (which is defined as core capital and supplementary capital) to risk-weighted activities of at least 4% and

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8%, respectively. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet activities, recourse obligations, residual interests and direct credit substitutes, are multiplied by a risk-weight factor of 0% to 100%, assigned by the Office of Thrift Supervision capital regulation based on the risks believed inherent in the type of asset. Core (Tier 1) capital is defined as common stockholders’ equity (including retained earnings), certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries, less intangibles other than certain mortgage servicing rights and credit card relationships. The components of supplementary capital currently include cumulative preferred stock, long-term perpetual preferred stock, mandatory convertible securities, subordinated debt and intermediate preferred stock, the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets and up to 45% of unrealized gains on available-for-sale equity securities with readily determinable fair market values. Overall, the amount of supplementary capital included as part of total capital cannot exceed 100% of core capital.

The Office of Thrift Supervision also has authority to establish individual minimum capital requirements in appropriate cases upon a determination that an institution’s capital level is or may become inadequate in light of the particular circumstances such as interest rate risk.

At December 31, 2005, Newport Federal met each of its capital requirements. See note 10 of the notes to the financial statements included in this prospectus.

Prompt Corrective Regulatory Action. The Office of Thrift Supervision is required to take certain supervisory actions against undercapitalized institutions, the severity of which depends upon the institution’s degree of undercapitalization. Generally, a savings institution that has a ratio of total capital to risk weighted assets of less than 8%, a ratio of Tier 1 (core) capital to risk-weighted assets of less than 4% or a ratio of core capital to total assets of less than 4% (3% or less for institutions with the highest examination rating) is considered to be “undercapitalized.” A savings institution that has a total risk-based capital ratio of less than 6%, a Tier 1 capital ratio of less than 3% or a leverage ratio that is less than 3% is considered to be “significantly undercapitalized” and a savings institution that has a tangible capital to assets ratio equal to or less than 2% is deemed to be “critically undercapitalized.” Subject to a narrow exception, the Office of Thrift Supervision is required to appoint a receiver or conservator within specified time frames for an institution that is “critically undercapitalized.” An institution must file a capital restoration plan with the Office of Thrift Supervision within 45 days of the date it receives notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” Compliance with the plan must be guaranteed by any parent holding company in the amount of the lesser of 5% of the association’s total assets when it became undercapitalized or the amount necessary to achieve full compliance at the time the association first failed to comply. In addition, numerous mandatory supervisory actions become immediately applicable to an undercapitalized institution, including, but not limited to, increased monitoring by regulators and restrictions on growth, capital distributions and expansion. “Significantly undercapitalized” and “critically undercapitalized” institutions are subject to more extensive mandatory regulatory actions. The Office of Thrift Supervision could also take any one of a number of discretionary supervisory actions, including the issuance of a capital directive and the replacement of senior executive officers and directors.

Loans to One Borrower. Federal law provides that savings institutions are generally subject to the limits on loans to one borrower applicable to national banks. Subject to certain exceptions, a savings institution may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of its unimpaired capital and surplus. An additional amount may be lent, equal to 10% of unimpaired capital and surplus, if secured by specified readily-marketable collateral.

Standards for Safety and Soundness. As required by statute, the federal banking agencies have adopted Interagency Guidelines prescribing Standards for Safety and Soundness. The guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the Office of Thrift Supervision determines that a savings institution fails to meet any standard prescribed by the guidelines, the Office of Thrift Supervision may require the institution to submit an acceptable plan to achieve compliance with the standard.

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Limitation on Capital Distributions. Office of Thrift Supervision regulations impose limitations upon all capital distributions by a savings institution, including cash dividends, payments to repurchase its shares and payments to stockholders of another institution in a cash-out merger. Under the regulations, an application to and the prior approval of the Office of Thrift Supervision is required before any capital distribution if the institution does not meet the criteria for “expedited treatment” of applications under Office of Thrift Supervision regulations (i.e., generally, examination and Community Reinvestment Act ratings in the two top categories), the total capital distributions for the calendar year exceed net income for that year plus the amount of retained net income for the preceding two years, the institution would be undercapitalized following the distribution or the distribution would otherwise be contrary to a statute, regulation or agreement with the Office of Thrift Supervision. If an application is not required, the institution must still provide prior notice to the Office of Thrift Supervision of the capital distribution if, like Newport Federal, it is a subsidiary of a holding company. If Newport Federal’s capital were ever to fall below its regulatory requirements or the Office of Thrift Supervision notified it that it was in need of increased supervision, its ability to make capital distributions could be restricted. In addition, the Office of Thrift Supervision could prohibit a proposed capital distribution that would otherwise be permitted by the regulation, if the agency determines that such distribution would constitute an unsafe or unsound practice.

Qualified Thrift Lender Test. Federal law requires savings institutions to meet a qualified thrift lender test. Under the test, a savings association is required to either qualify as a “domestic building and loan association” under the Internal Revenue Code or maintain at least 65% of its “portfolio assets” (total assets less: (i) specified liquid assets up to 20% of total assets; (ii) intangibles, including goodwill; and (iii) the value of property used to conduct business) in certain “qualified thrift investments” (primarily residential mortgages and related investments, including certain mortgage-backed securities) in at least 9 months out of each 12 month period.

A savings institution that fails the qualified thrift lender test is subject to certain operating restrictions and may be required to convert to a bank charter. Recent legislation has expanded the extent to which education loans, credit card loans and small business loans may be considered “qualified thrift investments.” As of December 31, 2005, Newport Federal maintained 98.5% of its portfolio assets in qualified thrift investments and, therefore, met the qualified thrift lender test.

Transactions with Related Parties. Newport Federal’s authority to engage in transactions with “affiliates” is limited by Office of Thrift Supervision regulations and Sections 23A and 23B of the Federal Reserve Act as implemented by the Federal Reserve Board’s Regulation W. The term “affiliates” for these purposes generally means any company that controls or is under common control with an institution. Newport Bancorp and any non-savings institution subsidiaries would be affiliates of Newport Federal. In general, transactions with affiliates must be on terms that are as favorable to the institution as comparable transactions with non-affiliates. In addition, certain types of transactions are restricted to 10% of an institution’s capital and surplus with any one affiliate and 20% of capital and surplus with all affiliates. Collateral in specified amounts must usually be provided by affiliates in order to receive loans from an institution. In addition, savings institutions are prohibited from lending to any affiliate that is engaged in activities that are not permissible for bank holding companies and no savings institution may purchase the securities of any affiliate other than a subsidiary.

The Sarbanes-Oxley Act of 2002 generally prohibits a company from making loans to its executive officers and directors. However, that act contains a specific exception for loans by a depository institution to its executive officers and directors in compliance with federal banking laws. Under such laws, Newport Federal’s authority to extend credit to executive officers, directors and 10% stockholders (“insiders”), as well as entities such persons control, is limited. The law restricts both the individual and aggregate amount of loans Newport Federal may make to insiders based, in part, on Newport Federal’s capital position and requires certain board approval procedures to be followed. Such loans must be made on terms substantially the same as those offered to unaffiliated individuals and not involve more than the normal risk of repayment. There is an exception for loans made pursuant to a benefit or compensation program that is widely available to all employees of the institution and does not give preference to insiders over other employees. There are additional restrictions applicable to loans to executive officers.

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Enforcement. The Office of Thrift Supervision has primary enforcement responsibility over federal savings institutions and has the authority to bring actions against the institution and all institution-affiliated parties, including stockholders, and any attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an insured institution. Formal enforcement action may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors to institution of receivership or conservatorship. Civil penalties cover a wide range of violations and can amount to $25,000 per day, or even $1 million per day in especially egregious cases. The Federal Deposit Insurance Corporation has authority to recommend to the Director of the Office of Thrift Supervision that enforcement action be taken with respect to a particular savings institution. If action is not taken by the Director, the Federal Deposit Insurance Corporation has authority to take such action under certain circumstances. Federal law also establishes criminal penalties for certain violations.

Assessments. Federal savings banks are required to pay assessments to the Office of Thrift Supervision to fund its operations. The general assessments, paid on a semi-annual basis, are based upon the savings institution’s total assets, including consolidated subsidiaries, as reported in the institution’s latest quarterly thrift financial report, the institution’s financial condition and the complexity of its asset portfolio.

Insurance of Deposit Accounts. Newport Federal is a member of the Savings Association Insurance Fund. The Federal Deposit Insurance Corporation (“FDIC”) maintains a risk-based assessment system by which institutions are assigned to one of three categories based on their capitalization and one of three subcategories based on examination ratings and other supervisory information. An institution’s assessment rate depends upon the categories to which it is assigned. Assessment rates for Savings Association Insurance Fund member institutions are determined semi-annually by the FDIC and currently range from zero basis points of assessable deposits for the healthiest institutions to 27 basis points of assessable deposits for the riskiest.

The FDIC has authority to increase insurance assessments. A material increase in Savings Association Insurance Fund insurance premiums would likely have an adverse effect on the operating expenses and results of operations of Newport Federal. Management cannot predict what insurance assessment rates will be in the future.

In addition to the assessment for deposit insurance, institutions are required to make payments on bonds issued in the late 1980s by the Financing Corporation to recapitalize the predecessor to the Savings Association Insurance Fund. During the four quarters ended December 31, 2005, Financing Corporation payments for Savings Association Insurance Fund members averaged 1.89 basis points of assessable deposits.

The FDIC may terminate an institution’s insurance of deposits upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or the Office of Thrift Supervision. The management of Newport Federal does not know of any practice, condition or violation that might lead to termination of deposit insurance.

The Federal Deposit Insurance Reform Act of 2005 (the “Act”), signed by the President on February 8, 2006, revised the laws governing the federal deposit insurance system. The Act provides for the consolidation of the Bank and Savings Association Insurance Funds into a combined “Deposit Insurance Fund.”

Under the Act, insurance premiums are to be determined by the FDIC based on a number of factors, primarily the risk of loss that insured institutions pose to the Deposit Insurance Fund. The legislation eliminates the current minimum 1.25% reserve ratio for the insurance funds, the mandatory assessments when the ratio fall below 1.25% and the prohibition on assessing the highest quality banks when the ratio is above 1.25%. The Act provides the FDIC with flexibility to adjust the new insurance fund’s reserve ratio between 1.15% and 1.5%, depending on projected losses, economic changes and assessment rates at the end of a calendar year.

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The Act increased deposit insurance coverage limits from $100,000 to $250,000 for certain types of Individual Retirement Accounts, 401(k) plans and other retirement savings accounts. While it preserved the $100,000 coverage limit for individual accounts and municipal deposits, the FDIC was furnished with the discretion to adjust all coverage levels to keep pace with inflation beginning in 2010. Also, institutions that become undercapitalized will be prohibited from accepting certain employee benefit plan deposits.

The consolidation of the Bank and Savings Association Insurance Funds must occur no later than the first day of the calendar quarter that begins 90-days after the date of the Act’s enactment, i.e., July 1, 2006. The Act also states that the FDIC must promulgate final regulations implementing the remainder of its provisions not later than 270 days after its enactment.

At this time, management cannot predict the effect, if any, that the Act will have on insurance premiums paid by Newport Federal.

Federal Home Loan Bank System. Newport Federal is a member of the Federal Home Loan Bank System, which consists of (12) regional Federal Home Loan Banks. The Federal Home Loan Bank provides a central credit facility primarily for member institutions. Newport Federal, as a member of the Federal Home Loan Bank of Boston, is required to acquire and hold shares of capital stock in that Federal Home Loan Bank. Newport Federal was in compliance with this requirement with an investment in Federal Home Loan Bank stock at December 31, 2005 of $50.1 million.

The Federal Home Loan Banks are required to provide funds for the resolution of insolvent thrifts in the late 1980s and to contribute funds for affordable housing programs. These requirements could reduce the amount of dividends that the Federal Home Loan Banks pay to their members and could also result in the Federal Home Loan Banks imposing a higher rate of interest on advances to their members. If dividends were reduced, or interest on future Federal Home Loan Bank advances increased, our net interest income would likely also be reduced.

Community Reinvestment Act. Under the Community Reinvestment Act, as implemented by Office of Thrift Supervision regulations, a savings association has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The Community Reinvestment Act does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the Community Reinvestment Act. The Community Reinvestment Act requires the Office of Thrift Supervision, in connection with its examination of a savings association, to assess the institution’s record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such institution.

The Community Reinvestment Act requires public disclosure of an institution’s rating and requires the Office of Thrift Supervision to provide a written evaluation of an association’s Community Reinvestment Act performance utilizing a four-tiered descriptive rating system. Each of Newport Federal and Westerly Savings Bank received an “outstanding” rating as a result of their most recent Community Reinvestment Act assessment.

Other Regulations

Interest and other charges collected or contracted for by Newport Federal are subject to state usury laws and federal laws concerning interest rates. Newport Federal’s operations are also subject to federal laws applicable to credit transactions, such as the:

• Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;

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• Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;

• Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;

• Fair Credit Reporting Act of 1978, governing the use and provision of information to credit reporting agencies;

• Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies; and

• rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws.

The operations of Newport Federal also are subject to the:

• Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;

• Electronic Funds Transfer Act and Regulation E promulgated thereunder, which governs automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services; and

• Check Clearing for the 21^st Century Act (also known as “Check 21”), which, effective October 28, 2004, gave “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check.

• Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (referred to as the “USA PATRIOT Act”), which significantly expanded the responsibilities of financial institutions, including savings and loan associations, in preventing the use of the U.S. financial system to fund terrorist activities. Among other provisions, it required financial institutions operating in the United States to develop new anti-money laundering compliance programs, due diligence policies and controls to ensure the detection and reporting of money laundering. Such required compliance programs are intended to supplement existing compliance requirements, also applicable to financial institutions, under the Bank Secrecy Act and the Office of Foreign Assets Control Regulations.

• The Gramm-Leach-Bliley Act placed limitations on the sharing of consumer financial information with unaffiliated third parties. Specifically, the Gramm-Leach-Bliley Act required all financial institutions offering financial products or services to retail customers to provide such customers with the financial institution’s privacy policy and provide such customers the opportunity to “opt out” of the sharing of personal financial information with unaffiliated third parties.

Holding Company Regulation

General. Newport Bancorp will be a nondiversified unitary savings and loan holding company within the meaning of federal law. Under prior law, a unitary savings and loan holding company was not generally restricted as to the types of business activities in which it may engage, provided that the Bank continued to be a qualified thrift lender. See “Regulation of Federal Savings Associations Regulation–Qualified Thrift Lender Test.” The Gramm-Leach-Bliley Act of 1999 provided that no company may acquire control of a savings institution after May 4, 1999 unless it engages only in the activities permitted for financial holding companies under the law or for

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multiple savings and loan holding companies as described below. Further, the Gramm-Leach-Bliley Act specifies that existing savings and loan holding companies may only engage in such activities. Upon any non-supervisory acquisition by Newport Bancorp of another savings institution or savings bank that meets the qualified thrift lender test and is deemed to be a savings institution by the OTS, Newport Bancorp would become a multiple savings and loan holding company (if the acquired institution is held as a separate subsidiary) and would generally be limited to activities permissible for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act, subject to the prior approval of the OTS, and certain activities authorized by OTS regulation. However, the OTS has issued an interpretation concluding that multiple savings and loan holding companies may also engage in activities permitted for financial holding companies.

A savings and loan holding company is prohibited from, directly or indirectly, acquiring more than 5% of the voting stock of another savings institution or savings and loan holding company, without prior written approval of the OTS and from acquiring or retaining control of a depository institution that is not insured by the Federal Deposit Insurance Corporation. In evaluating applications by holding companies to acquire savings institutions, the OTS considers, among other things, the financial and managerial resources and future prospects of the company and institution involved, the effect of the acquisition on the risk to the deposit insurance funds, the convenience and needs of the community and competitive factors.

The OTS may not approve any acquisition that would result in a multiple savings and loan holding company controlling savings institutions in more than one state, subject to two exceptions: (i) the approval of interstate supervisory acquisitions by savings and loan holding companies; and (ii) the acquisition of a savings institution in another state if the laws of the state of the target savings institution specifically permit such acquisitions. The states vary in the extent to which they permit interstate savings and loan holding company acquisitions.

Although savings and loan holding companies are not currently subject to specific capital requirements or specific restrictions on the payment of dividends or other capital distributions, federal regulations do prescribe such restrictions on subsidiary savings institutions as described below. Newport Federal must notify the OTS 30 days before declaring any dividend to Newport Bancorp. In addition, the financial impact of a holding company on its subsidiary institution is a matter that is evaluated by the OTS and the agency has authority to order cessation of activities or divestiture of subsidiaries deemed to pose a threat to the safety and soundness of the institution.

Acquisition of Control. Under the federal Change in Bank Control Act, a notice must be submitted to the Office of Thrift Supervision if any person (including a company), or group acting in concert, seeks to acquire “control” of a savings and loan holding company or savings association. An acquisition of “control” can occur upon the acquisition of 10% or more of the voting stock of a savings and loan holding company or savings institution or as otherwise defined by the Office of Thrift Supervision. Under the Change in Bank Control Act, the Office of Thrift Supervision has 60 days from the filing of a complete notice to act, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the anti-trust effects of the acquisition. Any company that so acquires control would then be subject to regulation as a savings and loan holding company.

Federal Securities Laws

Newport Bancorp has filed with the Securities and Exchange Commission a registration statement under the Securities Act of 1933, as amended, for the registration of the common stock to be issued pursuant to the offering. Upon completion of the offering, Newport Bancorp common stock will continue to be registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. Newport Bancorp will be subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934, as amended.

The registration, under the Securities Act of 1933, as amended, of the shares of common stock to be issued in the offering does not cover the resale of those shares. Shares of common stock purchased by persons who are

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not affiliates of Newport Bancorp may be resold without registration. Shares purchased by an affiliate of Newport Bancorp will be subject to the resale restrictions of Rule 144 under the Securities Act of 1933, as amended. If Newport Bancorp meets the current public information requirements of Rule 144, each affiliate of Newport Bancorp that complies with the other conditions of Rule 144, including those that require the affiliate’s sale to be aggregated with those of other persons, would be able to sell in the public market, without registration, a number of shares not to exceed, in any three-month period, the greater of 1% of the outstanding shares of Newport Bancorp or the average weekly volume of trading in the shares during the preceding four calendar weeks. In the future, Newport Bancorp may permit affiliates to have their shares registered for sale under the Securities Act of 1933, as amended.

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 addresses, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. As directed by the Sarbanes-Oxley Act of 2002, Newport Bancorp’s Chief Executive Officer and Chief Financial Officer each will be required to certify that Newport Bancorp’s quarterly and annual reports do not contain any untrue statement of a material fact. The rules adopted by the Securities and Exchange Commission under the Sarbanes-Oxley Act of 2002 have several requirements, including having these officers certify that: they are responsible for establishing, maintaining and regularly evaluating the effectiveness of our internal controls; they have made certain disclosures to our auditors and the audit committee of the board of directors about our internal controls; and they have included information in our quarterly and annual reports about their evaluation and whether there have been significant changes in our internal controls or in other factors that could significantly affect internal controls. Newport Bancorp will be subject to further reporting and audit requirements beginning with the year ending December 31, 2007 under the requirements of the Sarbanes-Oxley Act. Newport Bancorp will prepare policies, procedures and systems designed to comply with these regulations to ensure compliance with these regulations.

Federal and State Taxation

Federal Income Taxation

General. We report our income on a fiscal year basis using the accrual method of accounting. The federal income tax laws apply to us in the same manner as to other corporations with some exceptions, including particularly our reserve for bad debts discussed below. The following discussion of tax matters is intended only as a summary and does not purport to be a comprehensive description of the tax rules applicable to us. Our federal income tax returns have been either audited or closed under the statute of limitations through tax year 2002. For its 2005 fiscal year, Newport Federal’s maximum federal income tax rate was 34%.

Newport Bancorp and Newport Federal have entered into a tax allocation agreement. Because Newport Bancorp owns 100% of the issued and outstanding capital stock of Newport Federal, Newport Bancorp and Newport Federal are members of an affiliated group within the meaning of Section 1504(a) of the Internal Revenue Code, of which group Newport Bancorp is the common parent corporation. As a result of this affiliation, Newport Federal may be included in the filing of a consolidated federal income tax return with Newport Bancorp and, if a decision to file a consolidated tax return is made, the parties agree to compensate each other for their individual share of the consolidated tax liability and/or any tax benefits provided by them in the filing of the consolidated federal income tax return.

Bad Debt Reserves. For fiscal years beginning before June 30, 1996, thrift institutions that qualified under certain definitional tests and other conditions of the Internal Revenue Code were permitted to use certain favorable provisions to calculate their deductions from taxable income for annual additions to their bad debt reserve. A reserve could be established for bad debts on qualifying real property loans, generally secured by interests in real property improved or to be improved, under the percentage of taxable

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income method or the experience method. The reserve for nonqualifying loans was computed using the experience method. Federal legislation enacted in 1996 repealed the reserve method of accounting for bad debts and the percentage of taxable income method for tax years beginning after 1995 and require savings institutions to recapture or take into income certain portions of their accumulated bad debt reserves. Approximately $1.0 million of our accumulated bad debt reserves would not be recaptured into taxable income unless Newport Federal makes a “non-dividend distribution” to Newport Bancorp as described below.

Distributions. If Newport Federal makes “non-dividend distributions” to Newport Bancorp, the distributions will be considered to have been made from Newport Federal’s unrecaptured tax bad debt reserves, including the balance of its reserves as of December 31, 1987, to the extent of the “non-dividend distributions,” and then from Newport Federal’s supplemental reserve for losses on loans, to the extent of those reserves, and an amount based on the amount distributed, but not more than the amount of those reserves, will be included in Newport Federal’s taxable income. Non-dividend distributions include distributions in excess of Newport Federal’s current and accumulated earnings and profits, as calculated for federal income tax purposes, distributions in redemption of stock, and distributions in partial or complete liquidation. Dividends paid out of Newport Federal’s current or accumulated earnings and profits will not be so included in Newport Federal’s taxable income.

The amount of additional taxable income triggered by a non-dividend is an amount that, when reduced by the tax attributable to the income, is equal to the amount of the distribution. Therefore, if Newport Federal makes a non-dividend distribution to Newport Bancorp, approximately one and one-half times the amount of the distribution not in excess of the amount of the reserves would be includable in income for federal income tax purposes, assuming a 34% federal corporate income tax rate. Newport Federal does not intend to pay dividends that would result in a recapture of any portion of its bad debt reserves.

State Taxation

Rhode Island Taxation. Newport Federal is subject to Rhode Island’s Corporation Business Tax at the rate of 9% on its taxable income, before net operating loss deductions and special deductions for federal income tax purposes. Newport Bancorp will be required to file Rhode Island income tax returns because it will be doing business in Rhode Island. For this purpose, “taxable income” generally means federal taxable income subject to certain adjustments (including addition of interest income on state and municipal obligations).

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The Conversion and Stock Offering

The board of directors of Newport Federal Savings Bank has approved the plan of conversion. The Office of Thrift Supervision also has conditionally approved the plan of conversion; however, such approval does not constitute a recommendation or endorsement of the plan of conversion by such agency.

General

On June 7, 2005, the board of directors of Newport Federal unanimously adopted the plan of conversion, and on March 9, 2006, the Board unanimously adopted amendments to the Plan of Conversion pursuant to which Newport Federal will convert from a federally chartered mutual savings bank to a federally chartered stock savings bank and become a wholly owned subsidiary of Newport Bancorp, a newly formed Maryland corporation. Newport Bancorp will offer 100% of its common stock to qualifying depositors of Newport Federal and Westerly Savings Bank in a subscription offering and, if necessary, to members of the general public through a community offering and/or a syndicate of registered broker-dealers. The completion of the offering depends on market conditions and other factors beyond our control. We can give no assurance as to the length of time that will be required to complete the sale of the common stock. If we experience delays, significant changes may occur in the appraisal of Newport Federal, which would require a change in the offering range. A change in the offering range would result in a change in the net proceeds realized by Newport Bancorp from the sale of the common stock. If the offering is terminated, Newport Federal would be required to charge all offering expenses against current income. The Office of Thrift Supervision approved our plan of conversion, subject to the fulfillment of certain conditions.

The plan of conversion and stock offering also provides for the establishment of NewportFed Charitable Foundation and our funding of the foundation with shares of our common stock equal to 8% of the shares sold in connection with the conversion. The establishment of NewportFed Charitable Foundation is subject to a separate vote of Newport Federal’s members. The special meeting of Newport Federal’s members has been called for this purpose on                     , 2006.

The following is a brief summary of the pertinent aspects of the offering. A copy of the plan of conversion is available from Newport Federal upon request and is available for inspection at the offices of Newport Federal and at the Office of Thrift Supervision. The plan of conversion is also filed as an exhibit to the registration statement that we have filed with the Securities and Exchange Commission. See “Where You Can Find More Information.”

Reasons for the Conversion

The primary reasons for the conversion and related stock offering are to:

• increase the capital of Newport Federal to support future lending and operational growth;

• enhance profitability and earnings through reinvesting and leveraging the proceeds, primarily through traditional funding and lending activities;

• support future branching activities and/or the acquisition of financial services companies;

• implement equity compensation plans to retain and attract qualified directors, officers and staff to enhance the current incentive-based compensation program; and

• be able to increase our philanthropic endeavors to the communities we serve through the formation and funding of NewportFed Charitable Foundation.

As a stock holding company, Newport Bancorp will have greater flexibility than Newport Federal now has in structuring mergers and acquisitions, including the consideration paid in a transaction. Our current mutual savings bank structure, by its nature, limits our ability to offer any common stock as consideration in a merger or

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acquisition. Our new stock holding company structure will enhance our ability to compete with other bidders when acquisition opportunities arise by better enabling us to offer stock or cash consideration, or a combination of the two. We currently do not have any agreement or understanding as to any specific acquisition.

Effects of Conversion to Stock Form

General. Each depositor in a mutual savings bank has both a deposit account in the institution and a pro rata ownership interest in the net worth of the institution based upon the balance in his or her account. However, this ownership interest is tied to the depositor’s account and has no value separate from such deposit account. Furthermore, this ownership interest may only be realized in the unlikely event that the institution is liquidated. In such event, the depositors of record at that time, as owners, would be able to share in any residual surplus and reserves after payment of other claims, including claims of depositors to the amounts of their deposits. Any depositor who opens a deposit account obtains a pro rata ownership interest in the net worth of the institution without any additional payment beyond the amount of the deposit. A depositor who reduces or closes his or her account receives a portion or all of the balance in the account but nothing for his or her ownership interest in the net worth of the institution, which is lost to the extent that the balance in the account is reduced.

When a mutual bank converts to stock form, depositors lose all rights to the net worth of the mutual savings bank, except the right to claim a pro rata share of funds representing the liquidation account established in connection with the conversion. Additionally, permanent nonwithdrawable capital stock is created and offered to depositors which represents the ownership of the institution’s net worth. The common stock of Newport Bancorp is separate and apart from deposit accounts and cannot be and is not insured by the Federal Deposit Insurance Corporation or any other governmental agency. Certificates are issued to evidence ownership of the permanent stock. The stock certificates are transferable, and therefore the stock may be sold or traded if a purchaser is available with no effect on any deposit account the seller may hold in the institution.

No assets of Newport Bancorp will be distributed in connection with the conversion other than the payment of those expenses incurred in connection with the conversion.

Continuity. While the conversion is being accomplished, the normal business of Newport Federal will continue without interruption, including being regulated by the Office of Thrift Supervision and the Federal Deposit Insurance Corporation. After conversion, Newport Federal will continue to provide services for depositors and borrowers under current policies by its present management and staff.

The directors of Newport Bancorp at the time of the conversion will serve as directors of Newport Bancorp after the conversion. The directors of Newport Bancorp will be composed of individuals who served on the Board of Directors of Newport Federal. All officers of Newport Federal at the time of conversion will retain their positions after the conversion.

Deposit Accounts and Loans. Newport Federal’s deposit accounts, account balances and existing Federal Deposit Insurance Corporation insurance coverage of deposit accounts will not be affected by the conversion. Furthermore, the conversion will not affect the loan accounts, loan balances or obligations of borrowers under their individual contractual arrangements with Newport Federal.

Effect on Voting Rights. Voting rights in Newport Federal, as a mutual savings bank, belong to its depositor members. After the conversion, depositors will no longer have voting rights in Newport Federal and, therefore, will no longer be able to elect directors of Newport Federal or control its affairs. Instead, Newport Bancorp, as the sole stockholder of Newport Federal, will possess all voting rights in Newport Federal. The holders of the common stock of Newport Bancorp will possess all voting rights in Newport Bancorp. Depositors of Newport Federal will not have voting rights after the conversion except to the extent that they become stockholders of Newport Bancorp by purchasing common stock.

Liquidation Account. In the unlikely event of a complete liquidation of Newport Federal prior to the conversion, each depositor in Newport Federal would receive a pro rata share of any assets of Newport Federal

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remaining after payment of claims of all creditors, including the claims of all depositors up to the withdrawal value of their accounts. Each depositor would receive a pro rata share of the remaining assets in the same proportion as the value of his or her deposit account to the total value of all deposit accounts in Newport Federal at the time of liquidation.

After the conversion, holders of withdrawable deposits in Newport Federal, including certificates of deposit, will not be entitled to share in any residual assets upon liquidation of Newport Federal. However, under applicable regulations, Newport Federal will, at the time of the conversion, establish a liquidation account in an amount equal to its total equity as of the date of the latest statement of financial condition contained in the final prospectus relating to the conversion.

Newport Federal will maintain the liquidation account after the conversion for the benefit of eligible account holders and supplemental eligible account holders who retain their savings accounts in Newport Federal. Each eligible account holder and supplemental account holder will, with respect to each deposit account held, has a related inchoate interest in a sub-account portion of the liquidation account balance.

The initial sub-account balance for a savings account held by an eligible account holder or a supplemental eligible account holder will be determined by multiplying the opening balance in the liquidation account by a fraction of which the numerator is the amount of the holder’s “qualifying deposit” in the deposit account and the denominator is the total amount of the “qualifying deposits” of all eligible or supplemental eligible account holders. The initial subaccount balance will not be increased, but it will be decreased as provided below.

If the deposit balance is any deposit account of an eligible account holder or supplemental account holder at the close of business on any annual closing day of Newport Federal (which is December 31) after May 31, 2004 or March 31, 2006, is less than the lesser of the deposit balance in a deposit account at the close of business on any other annual closing date after May 31, 2004 or March 31, 2006, or the amount of the “qualifying deposit” in a savings account on May 31, 2004 or March 31, 2006, then the subaccount balance for a savings account will be adjusted by reducing the subaccount balance in an amount proportionate to the reduction in the savings balance. Once reduced, the subaccount balance will not be subsequently increased, notwithstanding any increase in the savings balance of the related savings account. If any savings account is closed, the related subaccount balance will be reduced to zero.

Upon a complete liquidation of Newport Federal, each eligible account holder and supplemental account holder will be entitled to receive a liquidation distribution from the liquidation account in the amount of the then current adjusted subaccount balance(s) for deposit account(s) held by the holder before any liquidation distribution may be made to stockholders. No merger, consolidation, bulk purchase of assets with assumptions of savings accounts and other liabilities or similar transactions with another federally insured institution in which Newport Federal is not the surviving institution will be considered to be a complete liquidation. In any of these transactions, the liquidation account will be assumed by the surviving institution.

In the unlikely event Newport Federal is liquidated after the conversion, depositors will be entitled to full payment of their deposit accounts before any payment is made to Newport Bancorp or Newport Federal.

There are no plans to liquidate either Newport Federal or Newport Bancorp in the future.

Material Income Tax Consequences

In connection with the conversion, we have received an opinion of counsel with respect to federal tax laws that no gain or loss will be recognized by account holders receiving subscription rights, except to the extent, if any, that subscription rights are deemed to have fair market value on the date such rights are issued. We believe that the tax opinion summarized below addresses all material federal income tax consequences that are generally applicable to persons receiving subscription rights.

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Muldoon Murphy & Aguggia LLP has issued an opinion to us that, for federal income tax purposes:

• the conversion of Newport Federal from the mutual to the stock form of organization will qualify as a reorganization within the meaning of Section 368(a)(1)(F) of the Internal Revenue Code, and no gain or loss will be recognized by account holders and no gain or loss will be recognized by Newport Federal by reason of such conversion;

• no gain or loss will be recognized by Newport Bancorp upon the sale of shares of common stock in the offering;

• it is more likely than not that the fair market value of the non-transferable subscription rights to purchase shares of common stock of Newport Bancorp to be issued to eligible account holders, supplemental eligible account holders and other members is zero and, accordingly, that no income will be realized by eligible account holders, supplemental eligible account holders and other members upon the issuance to them of the subscription rights or upon the exercise of the subscription rights; and

• it is more likely than not that the tax basis to the holders of shares of common stock purchased in the stock offering pursuant to the exercise of the subscription rights will be the amount paid therefor, and that the holding period for such shares of common stock will begin on the date of completion of the stock offering.

The statements set forth in the first and second bullet points above are based on the position that the subscription rights do not have any market value at the time of distribution or at the time they are exercised. Whether subscription rights have a market value for federal income tax purposes is a question of fact, depending upon all relevant facts and circumstances. According to our counsel, the Internal Revenue Service will not issue rulings on whether subscription rights have a market value. Counsel has also advised us that they are unaware of any instance in which the Internal Revenue Service has taken the position that nontransferable subscription rights have a market value. Counsel also noted that the subscription rights will be granted at no cost to the recipients, will be nontransferable and of short duration, and will afford the recipients the right only to purchase our common stock at a price equal to its estimated fair market value, which will be the same price as the purchase price for the unsubscribed shares of common stock.

Unlike a private letter ruling issued by the Internal Revenue Service, an opinion of counsel is not binding on the Internal Revenue Service and the Internal Revenue Service could disagree with the conclusions reached in the opinion. If there is a disagreement, no assurance can be given that the conclusions reached in an opinion of counsel would be sustained by a court if contested by the Internal Revenue Service.

Newport Federal has also received an opinion from Wolf & Company, PC, that, assuming the conversion does not result in any federal income tax liability to Newport Federal, its account holders, or Newport Bancorp, implementation of the plan of conversion will not result in any Rhode Island income tax liability to those entities or persons.

The opinion of Muldoon Murphy & Aguggia LLP and Wolf & Company, PC, are filed as exhibits to the registration statement that we have filed with the Securities and Exchange Commission. See “Where You Can Find More Information.”

Subscription Offering and Subscription Rights

Under the plan of conversion, we have granted rights to subscribe for Newport Bancorp common stock to the following persons in the following order of priority:

• Persons with deposits in Newport Federal or Westerly Savings Bank with balances aggregating $50 or more (“qualifying deposits”) as of the close of business on May 31, 2004 (“eligible

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account holders”). For this purpose, deposit accounts include all savings, time and demand accounts.

• Our employee stock ownership plan.

• Persons with qualifying deposits in Newport Federal as of March 31, 2006 (“supplemental eligible account holders”), other than our officers, directors and their associates.

• Depositors of Newport Federal as of [Voting Record Date], who are not eligible or supplemental eligible account holders (“other members”).

The amount of common stock that any person may purchase will depend on the availability of the common stock after satisfaction of all subscriptions having prior rights in the subscription offering and to the maximum and minimum purchase limitations set forth in the plan of conversion. See “—Limitations on Purchases of Shares.” All persons on a joint account will be counted as a single depositor for purposes of determining the maximum amount that may be subscribed for by owners of a joint account.

We will strive to identify your ownership in all accounts, but cannot guarantee we will identify all accounts in which you have an ownership interest.

Category 1: Eligible Account Holders. Subject to the purchase limitations as described below under “—Limitations on Purchases of Shares,” each eligible account holder has the right to subscribe for up to the greater of:

• $150,000 of common stock (which equals 15,000 shares);

• one-tenth of 1% of the total offering of common stock; or

• 15 times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of common stock to be sold by a fraction of which the numerator is the amount of qualifying deposits of the eligible account holder and the denominator is the total amount of qualifying deposits of all eligible account holders. The balance of qualifying deposits of all eligible account holders was $168.8 million.

If there are insufficient shares to satisfy all subscriptions by eligible account holders, shares first will be allocated so as to permit each subscribing eligible account holder, if possible, to purchase a number of shares sufficient to make the person’s total allocation equal 100 shares or the number of shares actually subscribed for, whichever is less. After that, unallocated shares will be allocated among the remaining subscribing eligible account holders whose subscriptions remain unfilled in the proportion that the amounts of their respective qualifying deposits bear to the total qualifying deposits of all remaining eligible account holders whose subscriptions remain unfilled. Subscription rights of eligible account holders who are also executive officers or directors of Newport Federal or their associates will be subordinated to the subscription rights of other eligible account holders to the extent attributable to increased deposits in Newport Federal in the one year period preceding May 31, 2004.

To ensure a proper allocation of stock, each eligible account holder must list on his or her stock order form all deposit accounts in which such eligible account holder had an ownership interest at May 31, 2004. Failure to list an account, or providing incorrect information, could result in the loss of all or part of a subscriber’s stock allocation.

Category 2: Tax-Qualified Employee Benefit Plans. Our tax-qualified employee benefit plans have the right to purchase up to 10.0% of the shares of common stock sold in the offering and contributed

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to the charitable foundation. As a tax-qualified employee benefit plan, our employee stock ownership plan intends to purchase 8.0% of the shares sold in the offering and contributed to the charitable foundation. Subscriptions by the employee stock ownership plan will not be aggregated with shares of common stock purchased by any other participants in the offering, including subscriptions by our officers and directors, for the purpose of applying the purchase limitations in the plan of conversion. If eligible account holders subscribe for all of the shares being sold, no shares will be available for our tax-qualified employee benefit plans. However, if we increase the number of shares offered above the maximum of the offering range, the employee stock ownership plan will have a first priority right to purchase any shares exceeding that amount up to 10.0% of the common stock issued in the offering. If the plan’s subscription is not filled in its entirety, the employee stock ownership plan may purchase shares in the open market or may purchase shares directly from us with the approval of the Office of Thrift Supervision.

Category 3: Supplemental Eligible Account Holders. Subject to the purchase limitations as described below under “—Limitations on Purchases of Shares,” each supplemental eligible account holder has the right to subscribe for up to the greater of:

• $150,000 of common stock (which equals 15,000 shares);

• one-tenth of 1% of the total offering of common stock; or

• 15 times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of common stock to be sold by a fraction of which the numerator is the amount of qualifying deposits of the supplemental eligible account holder and the denominator is the total amount of qualifying deposits of all supplemental eligible account holders. The balance of qualifying deposits of all supplemental eligible account holders was $             million.

If eligible account holders and the employee stock ownership plan subscribe for all of the shares being sold, no shares will be available for supplemental eligible account holders. If shares are available for supplemental eligible account holders but there are insufficient shares to satisfy all subscriptions by supplemental eligible account holders, shares first will be allocated so as to permit each subscribing supplemental eligible account holder, if possible, to purchase a number of shares sufficient to make the person’s total allocation equal 100 shares or the number of shares actually subscribed for, whichever is less. After that, unallocated shares will be allocated among the remaining subscribing supplemental eligible account holders whose subscriptions remain unfilled in the proportion that the amounts of their respective qualifying deposits bear to the total qualifying deposits of all remaining supplemental eligible account holders whose subscriptions remain unfilled.

To ensure a proper allocation of stock, each supplemental eligible account holder must list on his or her stock order form all deposit accounts in which such supplemental eligible account holder had an ownership interest at May 31, 2004. Failure to list an account, or providing incorrect information, could result in the loss of all or part of a subscriber’s stock allocation.

Category 4: Other Members. Subject to the purchase limitations as described below under “—Limitations on Purchases of Shares,” each other member has the right to purchase up to the greater of $200,000 of common stock (which equals 20,000 shares) or one-tenth of 1% of the total offering of common stock. If eligible account holders, the employee stock ownership plan and supplemental eligible account holders subscribe for all of the shares being sold, no shares will be available for other members. If shares are available for other members but there are not sufficient shares to satisfy all subscriptions by other members, shares first will be allocated so as to permit each subscribing other member, if possible, to purchase a number of shares sufficient to make the person’s total allocation equal 100 shares or the number of shares actually subscribed for, whichever is less. After that, unallocated shares will be allocated among the remaining subscribing other members in the proportion that each other member’s subscription bears to the total subscriptions of all such subscribing other members whose subscriptions remain unfilled.

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To ensure a proper allocation of stock, each other member must list on his or her stock order form all deposit accounts in which such other member had an ownership interest at May 31, 2004. Failure to list an account or providing incorrect information could result in the loss of all or part of a subscriber’s stock allocation.

Expiration Date for the Subscription Offering. The subscription offering, and all subscription rights under the plan of conversion, will terminate at 12:00 Noon, Eastern time, on [Expiration Date]. We will not accept orders for common stock in the subscription offering received after that time. We will make reasonable attempts to provide a prospectus and related offering materials to holders of subscription rights; however, all subscription rights will expire on the expiration date whether or not we have been able to locate each person entitled to subscription rights.

Office of Thrift Supervision regulations require that we complete the sale of common stock within 45 days after the close of the subscription offering. If the sale of the common stock is not completed within that period, all funds received will be returned promptly with interest at our passbook rate and all withdrawal authorizations will be canceled unless we receive approval of the Office of Thrift Supervision to extend the time for completing the offering. If regulatory approval of an extension of the time period has been granted, we will notify all subscribers of the extension and of the duration of any extension that has been granted, and subscribers will have the right to modify or rescind their purchase orders. If we do not receive an affirmative response from a subscriber to any resolicitation, the subscriber’s order will be rescinded and all funds received will be returned promptly with interest, or withdrawal authorizations will be canceled. No single extension can exceed 90 days.

Persons in Non-Qualified States. We will make reasonable efforts to comply with the securities laws of all states in the United States in which persons entitled to subscribe for stock under the plan of conversion reside. However, we are not required to offer stock in the subscription offering to any person who resides in a foreign country or who resides in a state of the United States in which (1) only a small number of persons otherwise eligible to subscribe for shares of common stock reside; (2) the granting of subscription rights or the offer or sale of shares to such person would require that we or our officers or directors register as a broker, dealer, salesman or selling agent under the securities laws of the state, or register or otherwise qualify the subscription rights or common stock for sale or qualify as a foreign corporation or file a consent to service of process; or (3) we determine that compliance with that state’s securities laws would be impracticable for reasons of cost or otherwise.

Restrictions on Transfer of Subscription Rights and Shares. Subscription rights are nontransferable. You may not transfer, or enter into any agreement or understanding to transfer, the legal or beneficial ownership of your subscription rights issued under the plan of conversion or the shares of common stock to be issued upon exercise of your subscription rights. Your subscription rights may be exercised only by you and only for your own account. If you exercise your subscription rights, you will be required to certify that you are purchasing shares solely for your own account and that you have no agreement or understanding regarding the sale or transfer of such shares. Federal regulations also prohibit any person from offering, or making an announcement of an offer or intent to make an offer, to purchase such subscription rights or shares of common stock before the completion of the offering.

If you sell or otherwise transfer your rights to subscribe for common stock in the subscription offering or subscribe for common stock on behalf of another person, you may forfeit those rights and face possible further sanctions and penalties imposed by the Office of Thrift Supervision or another agency of the U.S. Government. We will pursue any and all legal and equitable remedies in the event we become aware of the transfer of subscription rights and will not honor orders known by us to involve the transfer of such rights.

Community Offering

To the extent that shares remain available for purchase after satisfaction of all subscriptions received in the subscription offering, we may offer shares in a community offering to the following persons in the following order of priority:

• Natural persons and trusts of natural persons who are residents of Newport and Washington Counties in Rhode Island; and

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• Other persons to whom we deliver a prospectus.

We will consider persons residing in one of the specified counties if they occupy a dwelling in the county and establish an ongoing physical presence in the county that is not merely transitory in nature. We may utilize depositor or loan records or other evidence provided to us to make a determination as to whether a person is a resident in one of the specified counties. In all cases, the determination of residence status will be made by us in our sole discretion.

Purchasers in the community offering are eligible to purchase up to $150,000 of common stock (which equals 15,000 shares). If shares are available for preferred subscribers in the community offering but there are insufficient shares to satisfy all orders, the available shares will be allocated first to each preferred subscriber whose order we accept in an amount equal to the lesser of 100 shares or the number of shares ordered by each such subscriber, if possible. After that, unallocated shares will be allocated among the remaining preferred subscribers whose orders remain unsatisfied in the same proportion that the unfilled order of each such subscriber bears to the total unfilled orders of all such subscribers. If, after filling the orders of preferred subscribers in the community offering, shares are available for other subscribers in the community offering but there are insufficient shares to satisfy all orders, shares will be allocated in the same manner as for preferred subscribers.

The community offering, if held, may commence concurrently with or subsequent to the subscription offering and will terminate no later than 45 days after the close of the subscription offering unless extended by us, with approval of the Office of Thrift Supervision. If we receive regulatory approval for an extension, all subscribers will be notified of the extension and of the duration of any extension that has been granted, and will have the right to confirm, increase, decrease or rescind their orders. If we do not receive an affirmative response from a subscriber to any resolicitation, the subscriber’s order will be rescinded and all funds received will be promptly returned with interest.

The opportunity to subscribe for shares of common stock in the community offering is subject to our right to reject orders, in whole or part, either at the time of receipt of an order or as soon as practicable following the expiration date of the offering. If your order is rejected in part, you will not have the right to cancel the remainder of your order.

Syndicated Community Offering or Underwritten Public Offering

The plan of conversion provides that, if necessary, all shares of common stock not purchased in the subscription offering and community offering may be offered for sale to the general public in a syndicated community offering to be managed by Sandler O’Neill & Partners, L.P., acting as our agent. In such capacity, Sandler O’Neill & Partners, L.P. may form a syndicate of other brokers-dealers who are NASD member firms. Alternatively, we may sell any remaining shares in an underwritten public offering. Neither Sandler O’Neill nor any registered broker-dealer will have any obligation to take or purchase any shares of the common stock in the syndicated community offering; however, Sandler O’Neill & Partners, L.P. has agreed to use its best efforts in the sale of shares in any syndicated community offering. We have not selected any particular broker-dealers to participate in a syndicated community offering and will not do so until prior to the commencement of the syndicated community offering. The syndicated community offering would terminate no later than 45 days after the expiration of the subscription offering, unless extended by us, with approval of the Office of Thrift Supervision. See “—Community Offering” above for a discussion of rights of subscribers in the event an extension is granted.

The opportunity to subscribe for shares of common stock in the syndicated community offering or underwritten public offering is subject to our right in our sole discretion to accept or reject orders, in whole or part, either at the time of receipt of an order or as soon as practicable following the expiration date of the offering. If your order is rejected in part, you will not have the right to cancel the remainder of your order.

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Common stock sold in the syndicated community offering also will be sold at the $10.00 per share purchase price. Purchasers in the syndicated community offering are eligible to purchase up to $150,000 of common stock (which equals 15,000 shares). Orders for common stock in the syndicated community offering will be filled first to a maximum of 2% of the total number of shares sold in the offering and thereafter any remaining shares will be allocated on an equal number of shares basis per order until all orders have been filled. However, no fractional shares will be issued. We may begin the syndicated community offering or underwritten public offering at any time following the commencement of the subscription offering.

If we are unable to find purchasers from the general public for all unsubscribed shares, we will make other purchase arrangements, if feasible. Other purchase arrangements must be approved by the Office of Thrift Supervision and may provide for purchases for investment purposes by directors, officers, their associates and other persons in excess of the limitations provided in the plan of conversion and in excess of the proposed director and executive officer purchases discussed earlier, although no such purchases are currently intended. If other purchase arrangements cannot be made, we may: terminate the stock offering and promptly return all funds; promptly return all funds, set a new offering range and give all subscribers the opportunity to place a new order for shares of Newport Bancorp common stock; or take such other actions as may be permitted by the Office of Thrift Supervision and the Securities and Exchange Commission.

Plan of Distribution and Marketing Arrangements

Offering materials have been initially distributed to certain persons by mail, with additional copies made available through our conversion center and Sandler O’Neill & Partners, L.P. All prospective purchasers are to send payment directly to Newport Federal, where such funds will be held in a segregated savings account and not released until the offering is completed or terminated.

We have engaged Sandler O’Neill & Partners, L.P., a broker-dealer registered with the NASD, as a financial and marketing advisor in connection with the offering of our common stock. In its role as financial and marketing advisor, Sandler O’Neill & Partners, L.P. will assist us in the offering as follows:

(1) consulting as to the securities marketing implications of any aspect of the plan of conversion or related corporate documents;

(2) reviewing with our board of directors the financial impact of the offering on us based upon the independent appraiser’s appraisal of the common stock;

(3) reviewing all offering documents, including the prospectus, stock order forms and related offering materials (we are responsible for the preparation and filing of such documents);

(4) assisting in the design and implementation of a marketing strategy for the offering;

(5) as necessary, assisting us in scheduling and preparing for meetings with potential investors and broker-dealers in connection with the offering; and

(6) providing such other general advice and assistance as may be requested to promote the successful completion of the conversion.

For these services, Sandler O’Neill & Partners, L.P. will receive a fee of 1% of the aggregate dollar amount of the common stock sold in the subscription and community offerings, excluding shares sold to the employee stock ownership plan, purchased by our officers, employees and directors and their immediate families and shares issued to the charitable foundation. We have made an advance payment to Sandler O’Neill & Partners, L.P. of $50,000. If there is a syndicated community offering, Sandler O’Neill will receive a management fee of 1.0% of the aggregate dollar amount of the common stock sold in the syndicated community offering and other broker dealers will receive compensation for shares sold by them in the syndicated community offering. The fee to be paid to other broker-dealers in connection with shares sold by them in the syndicated community offering will be determined at the time of the syndicated community offering and will be in

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accordance with market and competitive practices at such time. The total fees paid to Sandler O’Neill and other NASD member firms in the syndicated community offering will not exceed 6.5% of the aggregate dollar amount of the common stock sold in the syndicated community offering.

We also will reimburse Sandler O’Neill for its legal fees and expenses associated with its marketing effort, up to a maximum of $50,000. If the plan of conversion is terminated or if Sandler O’Neill terminates its agreement with us in accordance with the provisions of the agreement, Sandler O’Neill will only receive reimbursement of its reasonable out-of-pocket expenses. We will indemnify Sandler O’Neill against liabilities and expenses (including legal fees) incurred in connection with certain claims or liabilities arising out of or based upon untrue statements or omissions contained in the offering materials for the common stock, including liabilities under the Securities Act of 1933, as amended.

We have also engaged Sandler O’Neill to act as conversion agent in connection with the offering. In its role as conversion agent, Sandler O’Neill will assist us in the offering as follows: (1) consolidation of accounts and vote calculation; (2) design and stenciling of proxy, order and/or request forms; (3) organization and supervision of the conversion center; (4) proxy solicitation and special meeting services; and (5) subscription services. For these services, Sandler O’Neill will receive a fee of $10,000 and reimbursement for its reasonable out-of-pocket expenses. We have made an advance payment of $5,000 to Sandler O’Neill for these services.

Sandler O’Neill has not prepared any report or opinion constituting a recommendation or advice to us or to persons who subscribe for common stock, nor has it prepared an opinion as to the fairness to us of the purchase price or the terms of the common stock to be sold. Sandler O’Neill expresses no opinion as to the prices at which common stock to be issued may trade.

Our directors and executive officers may participate in the offering by answering questions about our business. Trained employees may participate in the offering in ministerial capacities, such as providing clerical work in effecting a sales transaction or answering questions of a ministerial nature. Questions of prospective purchasers regarding the offering process will be directed to registered representatives of Sandler O’Neill & Partners, L.P. We will rely on Rule 3a4-1 of the Securities Exchange Act of 1934, as amended, so as to permit officers, directors and employees to participate in the sale of the common stock. No officer, director or employee will be compensated for his or her participation by the payment of commissions or other remuneration based either directly or indirectly on the transactions in the common stock.

Procedure for Purchasing Shares in the Subscription and Community Offerings

Use of Order Forms. To purchase shares in the subscription offering, you must submit a properly completed and executed order form to us by 12:00 noon, Eastern time, on [Expiration Date]. Your order form must be accompanied by full payment for all of the shares subscribed for or include appropriate authorization in the space provided on the order form for withdrawal of full payment from a deposit account with Newport Federal. To purchase shares in the community offering, you must submit a properly completed and executed order form to us, accompanied by the required payment for each share subscribed for, before the community offering terminates, which may be on, or at any time after, the end of the subscription offering. Our interpretation of the terms and conditions of the plan of conversion and of the acceptability of the order forms will be final.

To ensure that your stock purchase eligibility and priority are properly identified, you must list all accounts on the order form, giving all names in each account and the account number. We will strive to identify your ownership in all accounts, but cannot guarantee we will identify all accounts in which you have an ownership interest. Failure to list all of your accounts may result in fewer shares being allocated to you than if all of our accounts were listed.

We need not accept order forms that are received after the expiration of the subscription offering or community offering, as the case may be, or that are executed defectively or that are received without full payment or without appropriate withdrawal instructions. In addition, we are not obligated to accept orders submitted on photocopied or facsimilied stock order forms. We have the right to waive or permit the correction of incomplete or

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improperly executed order forms, but do not represent that we will do so. Under the plan of conversion, our interpretation of the terms and conditions of the plan of conversion and of the order form will be final. Once received, an executed order form may not be modified, amended or rescinded without our consent unless the offering has not been completed within 45 days after the end of the subscription offering, unless extended.

The reverse side of the order form contains a regulatorily mandated certification form. We will not accept order forms where the certification form is not executed. By executing and returning the certification form, you will be certifying that you received this prospectus and acknowledging that the common stock is not a deposit account and is not insured or guaranteed by the federal government. You also will be acknowledging that you received disclosure concerning the risks involved in this offering. The certification form could be used as support to show that you understand the nature of this investment.

To ensure that each purchaser in the subscription and community offering receives a prospectus at least 48 hours before the end of the subscription and community offering, as required by Rule 15c2-8 under the Securities Exchange Act of 1934, as amended, no prospectus will be mailed any later than five days before that date or hand delivered any later than two days before that date. Execution of the order form will confirm receipt or delivery under Rule 15c2-8. Order forms will be distributed only when preceded or accompanied by a prospectus.

Payment for Shares. Payment for subscriptions may be made by check, bank draft or money order, or by authorization of withdrawal from deposit accounts maintained with Newport Federal. Subscription funds will be held by Newport Federal or, at our discretion, in an escrow account at an independent insured depository institution. Appropriate means by which withdrawals may be authorized are provided on the order form. No wire transfers or third party checks will be accepted. Interest will be paid on payments made by check, bank draft or money order at our passbook rate from the date payment is received at the conversion center until the completion or termination of the offering. Payment in cash will not be accepted unless the cash is converted into a bank check or money order. If payment is made by authorization of withdrawal from deposit accounts, the funds authorized to be withdrawn from a deposit account will continue to accrue interest at the contractual rates until completion or termination of the offering, unless the certificate matures after the date of receipt of the order form but before closing or termination of the offering, in which case funds will earn interest at the passbook rate from the date of maturity until the offering is completed or terminated, but a hold will be placed on the funds, making them unavailable to the depositor until completion or termination of the offering. When the offering is completed, the funds received in the offering will be used to purchase the shares of common stock ordered. The shares of common stock issued in the offering cannot and will not be insured by the Federal Deposit Insurance Corporation or any other government agency. If the offering is not consummated for any reason, all funds submitted will be promptly refunded with interest as described above.

If a subscriber authorizes us to withdraw the amount of the purchase price from his or her deposit account, we will do so as of the completion of the offering, though the account must contain the full amount necessary for payment at the time the subscription order is received. We will waive any applicable penalties for early withdrawal from certificate accounts. If the remaining balance in a certificate account is reduced below the applicable minimum balance requirement at the time funds are actually transferred under the authorization, the certificate will be canceled at the time of the withdrawal, without penalty, and the remaining balance will earn interest at our passbook rate.

The employee stock ownership plan will not be required to pay for the shares subscribed for at the time it subscribes, but rather may pay for shares of common stock subscribed for upon the completion of the offering; provided that there is in force from the time of its subscription until the completion of the offering a loan commitment from an unrelated financial institution or from us to lend to the employee stock ownership plan, at that time, the aggregate purchase price of the shares for which it subscribed.

We may, in our sole discretion, permit institutional investors to submit irrevocable orders together with the legally binding commitment for payment and to thereafter pay for such shares of common stock for which they

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subscribe in the community offering at any time prior to the 48 hours before the completion of the offering. This payment may be made by wire transfer.

Our individual retirement accounts (“IRAs”) do not permit investment in common stock. A depositor interested in using his or her IRA funds to purchase common stock must do so through a self-directed IRA. Since we do not offer those accounts, we will allow a depositor to make a trustee-to-trustee transfer of the IRA funds to a trustee offering a self-directed IRA program with the agreement that the funds will be used to purchase our common stock in the offering. There will be no early withdrawal or Internal Revenue Service interest penalties for such transfers. The new trustee would hold the common stock in a self-directed account in the same manner as we now hold the depositor’s IRA funds. An annual administrative fee may be payable to the new trustee. Depositors interested in using funds in an IRA with us to purchase common stock should contact the conversion center as soon as possible so that the necessary forms may be forwarded for execution and returned before the subscription offering ends. In addition, federal laws and regulations require that officers, directors and 10% stockholders who use self-directed IRA funds to purchase shares of common stock in the subscription offering, make purchases for the exclusive benefit of IRAs.

How We Determined the Offering Range and the $10.00 Purchase Price

Federal regulations require that the aggregate purchase price of the securities sold in connection with the offering be based upon our estimated pro forma value, as determined by an independent appraisal. We have retained RP Financial, LC., which is experienced in the evaluation and appraisal of business entities, to prepare the independent appraisal. RP Financial will receive fees totaling $25,000 for its appraisal services, plus out-of-pocket expenses for its initial final appraisal, and $5,000 per appraisal update. We have agreed to indemnify RP Financial and its employees and affiliates for certain costs and expenses, including reasonable legal fees arising out of, related to, or based upon the offering and due to any misstatement or untrue statement or intentional omission by Newport Federal.

RP Financial prepared the appraisal taking into account the pro forma impact of the offering. For its analysis, RP Financial undertook substantial investigations to learn about our business and operations. We supplied financial information, including annual financial statements, information on the composition of assets and liabilities, and other financial schedules. In addition to this information, RP Financial reviewed our stock issuance application as filed with the Office of Thrift Supervision and our registration statement as filed with the Securities and Exchange Commission. Furthermore, RP Financial visited our facilities and had discussions with our management. RP Financial did not perform a detailed individual analysis of the separate components of our assets and liabilities. We did not impose any limitations on RP Financial in connection with its appraisal.

In connection with its appraisal, RP Financial reviewed the following factors, among others:

• our present and projected operating results and financial condition;

• the economic and demographic conditions of our primary market area;

• pertinent historical financial and other information relating to Newport Federal;

• a comparative evaluation of our operating and financial statistics with those of other thrift institutions;

• the proposed price per share;

• the aggregate size of the offering of common stock;

• the impact of the conversion on our capital position and earnings potential; and

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• the trading market for securities of comparable institutions and general conditions in the market for such securities.

Consistent with Office of Thrift Supervision appraisal guidelines, RP Financial’s analysis utilized three selected valuation procedures, the price/tangible book method, the price/core earnings method, and the price/assets method, all of which are described in its report. RP Financial’s appraisal report is filed as an exhibit to the registration statement that we have filed with the Securities and Exchange Commission. See “Where You Can Find More Information.” RP Financial placed the greatest emphasis on the price/core earnings and price/tangible book methods in estimating pro forma market value. RP Financial compared the pro forma price/tangible book and price/core earnings ratios for Newport Bancorp to the same ratios for a peer group of comparable companies. The peer group included companies with:

• average assets of $574 million;

• average non-performing assets of 0.13% of total assets;

• average loans of 64.3% of total assets;

• average equity of 10.9% of total assets; and

• average net income of 0.82% of average assets.

On the basis of the analysis in its report, RP Financial has advised us that, in its opinion, as of March 3, 2006, our estimated pro forma market value, including shares contributed to the NewportFed Charitable Foundation, was within the valuation range of $31,875,000 and $43,125,000 with a midpoint of $37,500,000.

The following table presents a summary of selected pricing ratios for Newport Bancorp, for the peer group companies and for all publicly traded thrifts. Compared to the average pricing ratios of the peer group, Newport Bancorp’s pro forma pricing ratios at the maximum of the offering range indicated a premium of 125.2% on a price-to-earnings basis and a discount of 47.4% on a price-to-tangible book value basis.

	Price to Earnings Multiple (1)		Price to Book Value Ratio (2)		Price to Tangible Book Value Ratio (2)
Newport Bancorp (pro forma):
Minimum	37.63	x	73.48	%	73.48	%
Midpoint	42.51		78.00		78.00
Maximum	47.02		81.83		81.83
Maximum, as adjusted	51.80		85.40		85.40
Peer Group:
Average	18.88	x	140.81	%	148.38	%
Median	15.06		139.16		144.24
All fully-converted, publicly-traded thrifts:
Average	19.68	x	152.97	%	172.45	%
Median	17.22		142.26		165.01

(1) Ratios are based on earnings for year ended December 31, 2005 and share prices as of March 3, 2006.

(2) Ratios are based on book value as of December 31, 2005 and share prices as of March 3, 2006.

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The price-to-earnings multiples set forth in the above table do not reflect the recognition of compensation expense in connection with stock options. New accounting guidance issued by the Financial Accounting Standards Board in December 2004 requires the recognition of compensation expense related to stock options outstanding based upon the fair value of such awards at the date of grant over the period that such awards are earned. The implementation of this accounting guidance will have a significant impact on pricing ratios of Newport Bancorp once it adopts a stock option plan and issues stock options and will likely have a significant impact on the peer group companies as well. The pro forma information presented under “Pro Forma Data” reflects an estimated expense for the equity plan that may be adopted by Newport Bancorp and the resulting effect on the pro forma price-to-earnings multiples for Newport Bancorp.

Our board of directors reviewed RP Financial’s appraisal report, including the methodology and the assumptions used by RP Financial, and determined that the valuation range was reasonable and adequate. Assuming that the shares are sold at $10.00 per share in the conversion, the estimated number of shares would be between 3,187,500 at the minimum of the valuation range and 4,312,500 at the maximum of the valuation range, with a midpoint of 3,750,000 which amount includes shares contributed to the foundation. The purchase price of $10.00 per share was determined by us, taking into account, among other factors, the requirement under Office of Thrift Supervision regulations that the common stock be offered in a manner that will achieve the widest distribution of the stock and desired liquidity in the common stock after the offering.

Since the outcome of the offering relates in large measure to market conditions at the time of sale, it is not possible for us to determine the exact number of shares that we will issue at this time. The offering range may be amended, with the approval of the Office of Thrift Supervision, if necessitated by developments following the date of the appraisal in, among other things, market conditions, our financial condition or operating results, regulatory guidelines or national or local economic conditions.

If, upon completion of the subscription offering, at least the minimum number of shares are subscribed for, RP Financial, after taking into account factors similar to those involved in its prior appraisal, will determine its estimate of our pro forma market value as of the close of the subscription offering. If, as a result of regulatory considerations, demand for the shares or changes in market conditions, RP Financial determines that our pro forma market value has increased, we may sell up to 4,562,625 shares without any further notice to you.

No shares will be sold unless RP Financial confirms that, to the best of its knowledge and judgment, nothing of a material nature has occurred that would cause it to conclude that the actual total purchase price of the shares on an aggregate basis was materially incompatible with its appraisal. If, however, the facts do not justify that statement, we may either: terminate the stock offering and promptly return all funds; set a new offering range, notify all subscribers and give them the opportunity to place a new order for shares of Newport Bancorp common stock; or take such other actions as may be permitted by the Office of Thrift Supervision. If the offering is terminated all subscriptions will be cancelled and subscription funds will be returned promptly with interest, and holds on funds authorized for withdrawal from deposit accounts will be released or reduced. If RP Financial establishes a new valuation range, it must be approved by the Office of Thrift Supervision.

In formulating its appraisal, RP Financial relied upon the truthfulness, accuracy and completeness of all documents we furnished to it. RP Financial also considered financial and other information from regulatory agencies, other financial institutions, and other public sources, as appropriate. While RP Financial believes this information to be reliable, RP Financial does not guarantee the accuracy or completeness of the information and did not independently verify the financial statements and other data provided by us nor independently value our assets or liabilities. The appraisal is not intended to be, and must not be interpreted as, a recommendation of any kind as to the advisability of purchasing shares of common stock. Moreover, because the appraisal must be based on many factors that change periodically, there is no assurance that purchasers of shares in the offering will be able to sell shares after the offering at prices at or above the purchase price.

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Copies of the appraisal report of RP Financial, including any amendments to the report, and the detailed memorandum of the appraiser setting forth the method and assumptions for such appraisal are available for inspection at our main office and the other locations specified under “Where You Can Find More Information.”

Limitations on Purchases of Shares

In addition to the purchase limitations described above under “—Subscription Offering and Subscription Rights,” “—Community Offering” and “—Syndicated Community Offering or Underwritten Public Offering,” the plan of conversion provides for the following purchase limitations:

• Except for our tax-qualified employee benefit plans, no person, either alone or together with associates of or persons acting in concert with such person, may purchase in the aggregate more than $300,000 of the common stock, or 30,000 shares sold in the offerings, subject to increase as described below.

• Our tax-qualified employee benefit plans are entitled to purchase up to 10.0% of the shares sold in the conversion and contributed to the charitable foundation. As a tax-qualified employee benefit plan, our employee stock ownership plan intends to purchase 8.0% of the shares sold in the conversion and contributed to the charitable foundation.

• Each subscriber must subscribe for a minimum of 25 shares.

• Our directors and executive officers, together with their associates, may purchase in the aggregate up to 30% of the common stock sold in the offering.

We may, in our sole discretion, increase the individual or aggregate purchase limitation to up to 5% of the shares of common stock sold in the offering. We do not intend to increase the maximum purchase limitation unless market conditions warrant. If we decide to increase the purchase limitations, persons who subscribed for the maximum number of shares of common stock will be given the opportunity to increase their subscriptions accordingly, subject to the rights and preferences of any person who has priority subscription rights. We, in our discretion, also may give other large subscribers the right to increase their subscriptions.

If we decide to increase the purchase limitations, persons who subscribed for the maximum number of shares of common stock will be given the opportunity to increase their subscriptions accordingly, subject to the rights and preferences of any person who has priority subscription rights. We, in our sole discretion, also may give other large subscribers the right to increase their subscriptions.

The plan of conversion defines “acting in concert” to mean knowing participation in a joint activity or interdependent conscious parallel action towards a common goal whether or not by an express agreement or understanding; or a combination or pooling of voting or other interests in the securities of an issuer for a common purpose under any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise. In general, a person who acts in concert with another party will also be deemed to be acting in concert with any person who is also acting in concert with that other party. We may presume that certain persons are acting in concert based upon, among other things, joint account relationships and the fact that persons may have filed joint Schedules 13D or 13G with the Securities and Exchange Commission with respect to other companies. For purposes of the plan of conversion, our directors are not deemed to be acting in concert solely by reason of their Board membership.

The plan of conversion defines “associate,” with respect to a particular person, to mean:

• a corporation or organization other than Newport Bancorp or Newport Federal or a majority-owned subsidiary of Newport Bancorp or Newport Federal of which a person is a senior officer or partner or is, directly or indirectly, the beneficial owner of 10% or more of any class of equity securities of such corporation or organization;

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• a trust or other estate in which a person has a substantial beneficial interest or as to which a person serves as a trustee or a fiduciary; and

• any person who is related by blood or marriage to such person and who lives in the same home as such person or who is a director or senior officer of Newport Bancorp or Newport Federal or any of their subsidiaries.

For example, a corporation of which a person serves as an officer would be an associate of that person and, therefore, all shares purchased by the corporation would be included with the number of shares that the person could purchase individually under the aggregate purchase limitation described above. We have the right in our sole discretion to reject any order submitted by a person whose representations we believe to be false or who we otherwise believe, either alone or acting in concert with others, is violating or circumventing, or intends to violate or circumvent, the terms and conditions of the plan of conversion. Directors and officers are not treated as associates of each other solely by virtue of holding such positions. We have the sole discretion to determine whether prospective purchasers are “associates” or “acting in concert.”

Delivery of Certificates

Certificates representing the common stock sold in the offering will be mailed by our transfer agent to the persons whose subscriptions or orders are filled at the addresses of such persons appearing on the stock order form as soon as practicable following completion of the offering. We will hold certificates returned as undeliverable until claimed by the persons legally entitled to the certificates or otherwise disposed of in accordance with applicable law. Until certificates for common stock are available and delivered to subscribers, subscribers may not be able to sell their shares, even though trading of the common stock may have commenced.

Restrictions on Repurchase of Stock

Under Office of Thrift Supervision regulations, we may not for a period of one year from the date of the completion of the offering repurchase any of our common stock from any person, except (1) in an offer made to all stockholders to repurchase the common stock on a pro rata basis, approved by the Office of Thrift Supervision, (2) the repurchase of qualifying shares of a director, or (3) repurchases to fund restricted stock plans or tax-qualified employee stock benefit plans. Where extraordinary circumstances exist, the Office of Thrift Supervision may approve the open market repurchase of up to 5% of our common stock during the first year following the offering. To receive such approval, we must establish compelling and valid business purposes for the repurchase to the satisfaction of the Office of Thrift Supervision. Furthermore, repurchases of any common stock are prohibited if they would cause Newport Federal’s regulatory capital to be reduced below the amount required under the regulatory capital requirements imposed by the Office of Thrift Supervision.

Restrictions on Transfer of Shares After the Conversion Applicable to Officers and Directors

Common stock purchased in the offering will be freely transferable, except for shares purchased by our directors and executive officers.

Shares of common stock purchased by our directors and executive officers may not be sold for a period of one year following the offering, except upon the death of the stockholder or unless approved by the Office of Thrift Supervision. Shares purchased by these persons in the open market after the offering will be free of this restriction. Shares of common stock issued to directors and executive officers will bear a legend giving appropriate notice of the restriction and, in addition, we will give appropriate instructions to our transfer agent with respect to the restriction on transfers. Any shares issued to directors and executive officers as a stock dividend, stock split or otherwise with respect to restricted common stock will be similarly restricted.

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Persons affiliated with us, including our directors and executive officers, received subscription rights based only on their deposits with Newport Federal as account holders. Any purchases made by persons affiliated with us for the explicit purpose of meeting the minimum of the offering must be made for investment purposes only, and not with a view towards redistribution. Furthermore, as set forth above, Office of Thrift Supervision regulations restrict sales of common stock purchased in the offering by directors and executive officers for a period of one year following the offering.

Purchases of outstanding shares of our common stock by directors, officers, or any person who becomes an executive officer or director after adoption of the plan of conversion, and their associates, during the three-year period following the offering may be made only through a broker or dealer registered with the Securities and Exchange Commission, except with the prior written approval of the Office of Thrift Supervision. This restriction does not apply, however, to negotiated transactions involving more than 1% of our outstanding common stock or to the purchase of stock under stock benefit plans.

We have filed with the Securities and Exchange Commission a registration statement under the Securities Act of 1933, as amended, for the registration of the common stock to be issued in the offering and contributed to the charitable foundation. This registration does not cover the resale of the shares. Shares of common stock purchased by persons who are not affiliates of us may be resold without registration. Shares purchased by an affiliate of us will have resale restrictions under Rule 144 of the Securities Act. If we meet the current public information requirements of Rule 144, each affiliate of ours who complies with the other conditions of Rule 144, including those that require the affiliate’s sale to be aggregated with those of certain other persons, would be able to sell in the public market, without registration, a number of shares not to exceed, in any three-month period, the greater of 1% of our outstanding shares or the average weekly volume of trading in the shares during the preceding four calendar weeks. We may make future provision to permit affiliates to have their shares registered for sale under the Securities Act under certain circumstances.

Interpretation, Amendment and Termination

To the extent permitted by law, all interpretations by us of the plan of conversion will be final; however, such interpretations have no binding effect on the Office of Thrift Supervision. The plan of conversion provides that, if deemed necessary or desirable, we may substantively amend the plan of conversion as a result of comments from regulatory authorities or otherwise.

Completion of the offering requires the sale of all shares of the common stock within 90 days following approval of the plan of conversion by the Office of Thrift Supervision, unless an extension is granted by the Office of Thrift Supervision. If this condition is not satisfied, the plan of conversion will be terminated and we will continue our business as a federal mutual savings bank. We may terminate the plan of conversion at any time.

NewportFed Charitable Foundation

General

In furtherance of our commitment to our local community, the plan of conversion provides that we will establish a charitable foundation in connection with the conversion. We have established NewportFed Charitable Foundation as a non-stock Delaware corporation to serve as the charitable foundation. The foundation will be funded with Newport Bancorp common stock as described below. By further enhancing our visibility and reputation in our local community, we believe that the foundation will enhance the long-term value of our community banking franchise. We believe the conversion presents us with a unique opportunity to provide a substantial and continuing benefit to our community and to receive the associated tax benefits, without any cash outlay by us.

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Purpose of the Charitable Foundation

We emphasize community lending and community activities. NewportFed Charitable Foundation is being formed to complement, not to replace, our existing community activities. Although we intend to continue to emphasize community lending and community activities following the conversion, such activities are not our sole corporate purpose. NewportFed Charitable Foundation will be dedicated completely to community activities and the promotion of charitable causes, and may be able to support such activities in manners that are not presently available to us. We believe that NewportFed Charitable Foundation will enable us to assist the communities within our market areas in areas beyond community development and lending and will enhance our current activities under the Community Reinvestment Act.

We further believe that the funding of NewportFed Charitable Foundation with our common stock will allow our community to share in our potential growth and success long after the conversion. NewportFed Charitable Foundation will accomplish that goal by providing for continued ties between our community and us, thereby forming a partnership within the communities in which we operate.

We do not expect the contribution to NewportFed Charitable Foundation to take the place of our traditional community lending and charitable activities. For the years ended December 31, 2005 and December 31, 2004, we contributed $90,000 and $75,000, respectively, to community organizations. We expect to continue making charitable contributions and donations within our community. In connection with the closing of the offering, we intend to contribute to NewportFed Charitable Foundation a number of shares of our common stock that will result in the foundation owning 7.4% of our outstanding shares of common stock. At the midpoint of the offering range we would contribute 300,000 shares of Newport Bancorp common stock.

Structure of the Charitable Foundation

NewportFed Charitable Foundation will be incorporated under Delaware law as a non-stock corporation. The Certificate of Incorporation of NewportFed Charitable Foundation will provide that NewportFed Charitable Foundation is organized exclusively for charitable purposes as set forth in Section 501(c)(3) of the Internal Revenue Code. The Certificate of Incorporation will further provide that no part of the net earnings of the foundation will inure to the benefit of, or be distributable to, its directors, officers or members.

We have selected              of our employee directors and              of our non-employee directors to serve on the initial board of directors of the foundation. The employee directors who will serve as directors of the foundation are              and the non-employee directors are             . We also will select one additional person to serve on the foundation’s board of directors who will not be one of our officers, directors or employees. As required by Office of Thrift Supervision regulations, this other director will have experience with local charitable organizations and grant making. While there are no plans to change the size of the initial board of directors during the year following the completion of the conversion, following the first anniversary of the conversion, the foundation may alter the size and composition of its board of directors. For five years after the conversion, one seat on the foundation’s board of directors will be reserved for a person from our local community who has experience with local community charitable organizations and grant making and who is not one of our officers, directors or employees, and one seat on the foundation’s board of directors will be reserved for one of our directors. It is currently not anticipated that directors of the foundation will receive compensation for their service.

The board of directors of NewportFed Charitable Foundation will be responsible for establishing its grant and donation policies, consistent with the purposes for which it was established. As directors of a nonprofit corporation, directors of NewportFed Charitable Foundation will always be bound by their fiduciary duty to advance the foundation’s charitable goals, to protect its assets and to act in a manner consistent with the charitable purposes for which the foundation is established. The directors of NewportFed Charitable Foundation also will be responsible for directing the activities of the foundation, including the management and voting of our common stock held by the foundation. However, as required by Office of Thrift Supervision regulations, all shares of common stock held by NewportFed Charitable Foundation must be voted in the same ratio as all other shares of the common stock on all proposals considered by our stockholders.

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NewportFed Charitable Foundation’s place of business will be located at our administrative offices. The board of directors of NewportFed Charitable Foundation will appoint such officers and employees as may be necessary to manage its operations, although no employees are expected to be hired. To the extent applicable, we will comply with the affiliates restrictions set forth in Sections 23A and 23B of the Federal Reserve Act and the Office of Thrift Supervision regulations governing transactions between us and the foundation.

NewportFed Charitable Foundation will receive working capital from: (1) any dividends that may be paid on our common stock in the future; (2) within the limits of applicable federal and state laws, loans collateralized by the common stock; or (3) the proceeds of the sale of any of the common stock in the open market from time to time. As a private foundation under Section 501(c)(3) of the Internal Revenue Code, NewportFed Charitable Foundation will be required to distribute annually in grants or donations a minimum of 5% of the average fair market value of its net investment assets. One of the conditions imposed on the gift of common stock by us is that the amount of common stock that may be sold by NewportFed Charitable Foundation in any one year shall not exceed 5% of the average market value of the assets held by NewportFed Charitable Foundation, except where the board of directors of the foundation determines that the failure to sell an amount of common stock greater than such amount would result in a long-term reduction of the value of its assets and/or would otherwise jeopardize its capacity to carry out its charitable purposes.

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Tax Considerations

Our independent tax advisor has advised us that an organization created for the above purposes should qualify as a Section 501(c)(3) exempt organization under the Internal Revenue Code and would be classified as a private foundation. NewportFed Charitable Foundation will submit a timely request to the Internal Revenue Service to be recognized as an exempt organization. As long as NewportFed Charitable Foundation files its application for tax-exempt status within 15 months from the date of its organization, and provided the Internal Revenue Service approves the application, its effective date as a Section 501(c)(3) organization will be the date of its organization. Our independent tax advisor, however, has not rendered any advice on whether NewportFed Charitable Foundation’s tax exempt status will be affected by the regulatory requirement that all shares of our common stock held by NewportFed Charitable Foundation must be voted in the same ratio as all other outstanding shares of common stock voted on all proposals considered by our stockholders.

We are authorized under federal law to make charitable contributions. We believe that the conversion presents a unique opportunity to establish and fund a charitable foundation given the substantial amount of additional capital being raised. In making such a determination, we considered the dilutive impact of the contribution of common stock to NewportFed Charitable Foundation on the amount of common stock to be sold in the conversion. See “Capitalization,” “Regulatory Capital Compliance,” and “Comparison of Independent Valuation and Pro Forma Financial Information With and Without the Foundation.” The amount of the contribution will not adversely impact our financial condition. We therefore believe that the amount of the charitable contribution is reasonable given our pro forma capital position and does not raise safety and soundness concerns.

We have received an opinion from our independent tax advisor that our contribution of our stock to NewportFed Charitable Foundation should not constitute an act of self-dealing and that we should be entitled to a deduction under federal law in the amount of the fair market value of the stock at the time of the contribution, less the nominal amount that NewportFed Charitable Foundation is required to pay us for such stock. Under the Internal Revenue Code, we are permitted to deduct only an amount equal to 10% of our annual taxable income in any one year. We are permitted under the Internal Revenue Code to carry the excess contribution over the five-year period following the contribution to NewportFed Charitable Foundation. We estimate that substantially all of the contribution should be deductible under federal law over the six-year period. Rhode Island law does not provide a similar deduction. However, we do not have any assurance that the Internal Revenue Service will grant tax-exempt status to the foundation. Furthermore, even if the contribution is deductible under federal law, we may not have sufficient earnings to be able to use the deduction in full. We do not expect to make any further contributions to NewportFed Charitable Foundation within the first five years following the initial contribution, unless such contributions would be deductible under the Internal Revenue Code. Any such decisions would be based on an assessment of, among other factors, our financial condition at that time, the interests of our stockholders and depositors, and the financial condition and operations of the foundation.

Although we have received an opinion from our independent tax advisor that we should be entitled to a deduction under federal law for the charitable contribution, there can be no assurances that the Internal Revenue Service will recognize NewportFed Charitable Foundation as a Section 501(c)(3) exempt organization or that the deduction will be permitted. In such event, our contribution to NewportFed Charitable Foundation would be expensed without tax benefit, resulting in a reduction in earnings in the year in which the Internal Revenue Service makes such a determination. See “Risk Factors—Risks Related to the Formation of the Charitable Foundation—Our contribution to Newport Foundation may not be tax deductible, which could hurt our profits.”

As a private foundation, earnings and gains, if any, from the sale of common stock or other assets are exempt from federal and state income taxation. However, investment income, such as interest, dividends and capital gains, is generally taxed at a rate of 2.0%. NewportFed Charitable Foundation will be required to file an annual return with the Internal Revenue Service within four and one-half months after the close of its fiscal year. NewportFed Charitable Foundation will be required to make its annual return available for public inspection. The annual return for a private foundation includes, among other things, an itemized list of all grants made or

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approved, showing the amount of each grant, the recipient, any relationship between a grant recipient and the foundation’s managers and a concise statement of the purpose of each grant.

Regulatory Conditions Imposed on the Charitable Foundation

Office of Thrift Supervision regulations will impose the following conditions on the establishment of NewportFed Charitable Foundation:

• the Office of Thrift Supervision can examine the foundation;

• the foundation must comply with all supervisory directives imposed by the Office of Thrift Supervision;

• the foundation must provide annually to the Office of Thrift Supervision a copy of the annual report that the foundation submits to the Internal Revenue Service;

• the foundation must operate according to written policies adopted by its board of directors, including a conflict of interest policy;

• the foundation may not engage in self-dealing and must comply with all laws necessary to maintain its tax-exempt status under the Internal Revenue Code; and

• the foundation must vote its shares in the same ratio as all of the other shares voted on each proposal considered by our stockholders.

In addition, within six months of completing the conversion, NewportFed Charitable Foundation must submit to the Office of Thrift Supervision a three-year operating plan.

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Restrictions on Acquisition of Newport Bancorp

and Newport Federal Savings Bank

General

Newport Federal’s plan of conversion provides for the conversion of Newport Federal from the mutual to the stock form of organization and, as part of the conversion, the adoption of a new federal stock charter and bylaws by Newport Federal’s members. The plan of conversion also provides for the concurrent formation of a holding company. As described below and elsewhere in this document, certain provisions in Newport Bancorp’s articles of incorporation and bylaws may have anti-takeover effects. In addition, provisions in Newport Federal’s federal stock charter and bylaws may also have anti-takeover effects. Finally, Maryland corporate law and regulatory restrictions may make it difficult for persons or companies to acquire control of either Newport Bancorp or Newport Federal.

Restrictions in Newport Bancorp’s Articles of Incorporation and Bylaws

Newport Bancorp’s articles of incorporation and bylaws contain provisions that could make more difficult an acquisition of Newport Bancorp by means of a tender offer, proxy contest or otherwise. Some provisions will also render the removal of the incumbent board of directors or management of Newport Bancorp more difficult. These provisions may have the effect of deterring a future takeover attempt that is not approved by the directors of Newport Bancorp, but which Newport Bancorp stockholders may deem to be in their best interests or in which stockholders may receive a substantial premium for their shares over then current market prices. As a result, stockholders who might desire to participate in such a transaction may not have the opportunity to do so. The following description of these provisions is only a summary and does not provide all of the information contained in Newport Bancorp’s articles of incorporation and bylaws. See “Where You Can Find More Information” for where to obtain a copy of these documents.

Business Combinations with Interested Stockholders. The articles of incorporation require the approval of the holders of at least 80% of Newport Bancorp’s outstanding shares of voting stock entitled to vote to approve certain “business combinations” with an “interested stockholder.” This supermajority voting requirement will not apply in cases where the proposed transaction has been approved by a majority of those members of Newport Bancorp’s board of directors who are unaffiliated with the interested stockholder and who were directors before the time when the interested stockholder became an interested stockholder or if the proposed transaction meets certain conditions that are designed to afford the stockholders a fair price in consideration for their shares. In each such case, where stockholder approval is required, the approval of only a majority of the outstanding shares of voting stock is sufficient.

The term “interested stockholder” includes any individual, group acting in concert, corporation, partnership, association or other entity (other than Newport Bancorp or its subsidiary) who or which is the beneficial owner, directly or indirectly, of 10% or more of the outstanding shares of voting stock of Newport Bancorp.

A “business combination” includes:

• any merger or consolidation of Newport Bancorp or any of its subsidiaries with any interested stockholder or affiliate of an interested stockholder or any corporation which is, or after such merger or consolidation would be, an affiliate of an interested stockholder;

• any sale or other disposition to or with any interested stockholder of 25% or more of the assets of Newport Bancorp or combined assets of Newport Bancorp and its subsidiaries;

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• the issuance or transfer to any interested stockholder or its affiliate by Newport Bancorp (or any subsidiary) of any securities of Newport Bancorp (or any subsidiary) in exchange for cash, securities or other property the value of which equals or exceeds 25% of the fair market value of the common stock of Newport Bancorp;

• the adoption of any plan for the liquidation or dissolution of Newport Bancorp proposed by or on behalf of any interested stockholder or its affiliate; and

• any reclassification of securities, recapitalization, merger or consolidation of Newport Bancorp with any of its subsidiaries which has the effect of increasing the proportionate share of common stock or any class of equity or convertible securities of Newport Bancorp or subsidiary owned directly or indirectly, by an interested stockholder or its affiliate.

Limitation on Voting Rights. The articles of incorporation of Newport Bancorp provide that in no event shall any person, who directly or indirectly beneficially owns in excess of 10% of the then-outstanding shares of common stock as of the record date for the determination of stockholders entitled or permitted to vote on any matter (the “10% limit”), be entitled or permitted to any vote in respect of the shares held in excess of the 10% limit. Beneficial ownership is determined pursuant to the federal securities laws and includes, but is not limited to, shares as to which any person and his or her affiliates (1) have the right to acquire upon the exercise of conversion rights, exchange rights, warrants or options and (2) have or share investment or voting power (but shall not be deemed the beneficial owner of any voting shares solely by reason of a revocable proxy granted for a particular meeting of stockholders, and that are not otherwise beneficially, or deemed by Newport Bancorp to be beneficially, owned by such person and his or her affiliates). The foregoing restriction does not apply to any director or officer acting solely in their capacities as directors and officers, or any employee benefit plans of Newport Bancorp or any subsidiary or a trustee of a plan.

Evaluation of Offers. The articles of incorporation of Newport Bancorp provide that its board of directors, when evaluating a transaction that would or may involve a change in control of Newport Bancorp (including a tender or exchange offer, merger or consolidation or sale of all or substantially all of the assets of Newport Bancorp) may, in connection with the exercise of its judgment in determining what is in the best interest of Newport Bancorp and its stockholders, give consideration to the following factors:

• the economic effect, both immediate and long-term, upon Newport Bancorp’s stockholders, including stockholders, if any, choosing not to participate in the transaction;

• the social and economic effect on the employees, depositors and customers of, and others dealing with, Newport Bancorp and its subsidiaries and on the communities in which Newport Bancorp and its subsidiaries operate or are located;

• whether the proposal is acceptable based on the historical and current operating results or financial condition of Newport Bancorp;

• whether a more favorable price could be obtained for Newport Bancorp’s stock or other securities in the future;

• the reputation and business practices of the offeror and its management and affiliates as they would affect the employees;

• the future value of the stock or any other securities of Newport Bancorp; and

• any antitrust or other legal and regulatory issues that are raised by the proposal.

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By having these standards in the articles of incorporation of Newport Bancorp, the board of directors may be in a stronger position to oppose such a transaction if the Board concludes that the transaction would not be in the best interest of Newport Bancorp, even if the price offered is significantly greater than the then market price of any equity security of Newport Bancorp.

Board of Directors. The articles of incorporation and bylaws of Newport Bancorp require the board of directors to be divided into three classes as nearly equal in number as possible and that the members of each class be elected for a term of three years and until their successors are elected and qualified, with one class being elected annually. Any vacancy occurring in the board of directors, however caused, may be filled by an affirmative vote of the majority of the directors then in office, whether or not a quorum is present, and any director so chosen shall hold office only until the next annual meeting of stockholders at which directors are elected.

The bylaws of Newport Bancorp provide that to be eligible to serve on the board of directors a person must:

(1) be no older than 70 years of age, except for those directors serving on the board as of the effective date of the bylaws;

(2) reside, for at least one year before his or her nomination or appointment, in a county in which an office of Newport Bancorp or its subsidiary maintains a banking office or in an adjacent county;

(3) not have been: (1) subject to a supervisory action by a financial regulatory agency that resulted in a cease and desist order; or (2) been convicted or been charged with the commission of a crime involving dishonesty or breach of trust that is punishable by a year or more in prison; and

(4) not be either a director or officer of another financial institution that engages in business activities in the same market area as Newport Bancorp.

These provisions may prevent stockholders from nominating themselves or persons of their choosing for election to the board of directors.

The articles of incorporation of Newport Bancorp provide that any director may be removed by stockholders only for cause upon the affirmative vote of the holders of not less than 80% of the outstanding voting shares. The higher vote threshold will make it more difficult for stockholders to remove directors and replace them with their own nominees.

Special Meetings of Stockholders. The bylaws of Newport Bancorp contain a provision pursuant to which special meetings of the stockholders of Newport Bancorp may only be called by the Chairman, the President, the board of directors pursuant to a resolution adopted by a majority of the total number of directors which Newport Bancorp would have if there were no vacancies on the board of directors or the holders of not less than a majority of the capital stock of Newport Bancorp entitled to vote at a meeting.

Advance Notice Provisions for Stockholder Nominations and Proposals. Newport Bancorp’s bylaws establish an advance notice procedure for stockholders to nominate directors or bring other business before an annual meeting of stockholders of Newport Bancorp. A person may not be nominated for election as a director unless that person is nominated by or at the direction of the Newport Bancorp board of directors or by a stockholder who has given appropriate notice to Newport Bancorp before the meeting. Similarly, a stockholder may not bring business before an annual meeting unless the stockholder has given Newport Bancorp appropriate notice of its intention to bring that business before the meeting. Newport Bancorp’s secretary must receive notice of the nomination or proposal not less than 90 days before the annual meeting; provided, however, that if less than 100 days’ notice of prior public disclosure of the date of the meeting is given or made to the stockholders, notice by the stockholder to be timely must be received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A

110

stockholder who desires to raise new business must provide certain information to Newport Bancorp concerning the nature of the new business, the stockholder and the stockholder’s interest in the business matter. Similarly, a stockholder wishing to nominate any person for election as a director must provide Newport Bancorp with certain information concerning the nominee and the proposing stockholder.

Advance notice of nominations or proposed business by stockholders gives Newport Bancorp’s board of directors time to consider the qualifications of the proposed nominees, the merits of the proposals and, to the extent deemed necessary or desirable by the board of directors, to inform stockholders and make recommendations about those matters.

Preferred Stock. The articles of incorporation authorize Newport Bancorp’s board of directors to establish one or more series of preferred stock and, for any series of preferred stock, to determine the terms and rights of the series, including voting rights, conversion rates, and liquidation preferences. Although Newport Bancorp’s board of directors has no intention at the present time of doing so, it could issue a series of preferred stock that could, depending on its terms, impede a merger, tender offer or other takeover attempt. Newport Bancorp’s board of directors will make any determination to issue shares with those terms based on its judgment as to the best interests of Newport Bancorp and its stockholders.

Amendment of Governing Instruments. The articles of incorporation of Newport Bancorp generally may be amended by the holders of a majority of the shares entitled to vote; provided, however, that any amendment of Section C of Article Fifth (Limitation of Voting Common Stock), Sections A and C of Article Eighth (Removal of Directors), Sections F, J and L of Article Eighth (Amendment of Governing Instruments) and Article Ninth (Approval of Business Combinations), must be approved by the affirmative vote of the holders of at least 80% of the outstanding shares entitled to vote, except that the board of directors may amend the articles of incorporation without any action by the stockholders to increase or decrease the aggregate number of shares of capital stock. The bylaws of Newport Bancorp may be amended by the majority vote of the Board of Directors.

Restrictions in Maryland Corporate Law

Maryland law contains certain provisions, described below, which may be applicable to Newport Bancorp upon consummation of the conversion.

Control Share Acquisitions. The Maryland general corporation law provides that “control shares” of a Maryland corporation acquired in a “control share acquisition” have no voting rights unless approved by a vote of two-thirds of the votes entitled to be cast on the matter, excluding shares owned by the acquiror or by the corporation’s officers or directors who are employees of the corporation. Control shares are shares of voting stock which, if aggregated with all other shares of stock previously acquired, would entitle the acquiror to exercise voting power in electing directors within one of the following ranges of voting power:

• 20% or more but less than 33 ¹/3%;

• 33 ¹/3% or more but less than a majority; or

• a majority of all voting power.

Control shares do not include shares of stock an acquiring person is entitled to vote as a result of having previously obtained stockholder approval. A control share acquisition generally means the acquisition of, ownership of or the power to direct the exercise of voting power with respect to, control shares.

A person who has made or proposes to make a “control share acquisition,” under specified conditions, including an undertaking to pay expenses, may require the board of directors to call a special stockholders’ meeting to consider the voting rights of the shares. The meeting must be held within 50 days of the demand. If no request for a meeting is made, the corporation may itself present the question at any stockholders’ meeting.

111

If voting rights are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as permitted by the statute, the corporation generally may redeem any or all of the control shares, except those for which voting rights have previously been approved. This redemption of shares must be for fair value, determined without regard to the absence of voting rights as of the date of the last control share acquisition or of any stockholders’ meeting at which the voting rights of the shares are considered and not approved. If voting rights for “control shares” are approved at a stockholders’ meeting and the acquiror becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal rights. The fair value of the stock determined for purposes of appraisal rights may not be less than the highest price per share paid in the control share acquisition. The limitations and restrictions otherwise applicable to the exercise of dissenters’ rights do not apply in the context of a “control share acquisition.”

The control share acquisition statute does not apply to stock acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction, or to acquisition previously approved or exempted by a provision in the articles of incorporation or bylaws of the corporation.

Regulatory Restrictions

Office of Thrift Supervision Regulations. Regulations issued by the Office of Thrift Supervision provide that, for a period of three years following the date of the completion of the conversion, no person, acting singly or together with associates in a group of persons acting in concert, will directly or indirectly offer to acquire or acquire the beneficial ownership of more than 10% of any class of any equity security of Newport Bancorp without the prior written approval of the Office of Thrift Supervision. Where any person, directly or indirectly, acquires beneficial ownership of more than 10% of any class of any equity security of Newport Bancorp without the prior written approval of the Office of Thrift Supervision, the securities beneficially owned by such person in excess of 10% will not be voted by any person or counted as voting shares in connection with any matter submitted to the stockholders for a vote, and will not be counted as outstanding for purposes of determining the affirmative vote necessary to approve any matter submitted to the stockholders for a vote.

Change in Bank Control Act. The acquisition of 10% or more of the common stock outstanding may trigger the provisions of the Change in Bank Control Act. The Office of Thrift Supervision has also adopted a regulation under the Change in Bank Control Act which generally requires persons who at any time intend to acquire control of a federally chartered savings association, including a converted savings and loan association such as Newport Federal, to provide 60 days prior written notice and certain financial and other information to the Office of Thrift Supervision.

The 60-day notice period does not commence until the information is deemed to be substantially complete. Control for the purpose of this Act exists in situations in which the acquiring party has voting control of at least 25% of any class of Newport Bancorp’s voting stock or the power to direct the management or policies of Newport Bancorp. However, under Office of Thrift Supervision regulations, “control” is presumed to exist where the acquiring party has voting control of at least 10% of any class of Newport Bancorp’s voting securities if specified “control factors” are present. The statute and underlying regulations authorize the Office of Thrift Supervision to disapprove a proposed acquisition on certain specified grounds.

Description of Newport Bancorp Capital Stock

The common stock of Newport Bancorp will represent nonwithdrawable capital, will not be an account of any type, and will not be insured by the Federal Deposit Insurance Corporation or any other government agency.

General

Newport Bancorp is authorized to issue 19,000,000 shares of common stock having a par value of $0.01 per share and 1,000,000 shares of preferred stock having a par value of $0.01 per share. Each share of Newport

112

Bancorp’s common stock will have the same relative rights as, and will be identical in all respects with, each other share of common stock. Upon payment of the purchase price for the common stock, as required by the plan of conversion, all stock will be duly authorized, fully paid and nonassessable. Newport Bancorp will not issue any shares of preferred stock in the conversion.

Common Stock

Dividends. Newport Bancorp can pay dividends on its common stock if, after giving effect to the distribution, it would be able to pay its indebtedness as the indebtedness comes due in the usual course of business and its total assets exceed the sum of its liabilities and the amount needed, if Newport Bancorp were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of any holders of capital stock who have a preference in the event of dissolution. The holders of common stock of Newport Bancorp will be entitled to receive and share equally in dividends as may be declared by the board of directors of Newport Bancorp out of funds legally available for dividends. If Newport Bancorp issues preferred stock, the holders of the preferred stock may have a priority over the holders of the common stock with respect to dividends. See “Our Dividend Policy” and “Regulation and Supervision.”

Voting Rights. After the conversion, the holders of common stock of Newport Bancorp will possess exclusive voting rights in Newport Bancorp. They will elect Newport Bancorp’s board of directors and act on other matters as are required to be presented to them under Maryland law or as are otherwise presented to them by the board of directors. Except as discussed in “Comparison of Stockholders’ Rights,” each holder of common stock will be entitled to one vote per share and will not have any right to cumulate votes in the election of directors. If Newport Bancorp issues preferred stock, holders of Newport Bancorp preferred stock may also possess voting rights.

Liquidation. If there is any liquidation, dissolution or winding up of Newport Federal, Newport Bancorp, as the sole holder of Newport Federal’s capital stock, would be entitled to receive all of Newport Federal’s assets available for distribution after payment or provision for payment of all debts and liabilities of Newport Federal, including all deposit accounts and accrued interest. Upon liquidation, dissolution or winding up of Newport Bancorp, the holders of its common stock would be entitled to receive all of the assets of Newport Bancorp available for distribution after payment or provision for payment of all its debts and liabilities. If Newport Bancorp issues preferred stock, the preferred stock holders may have a priority over the holders of the common stock upon liquidation or dissolution.

Preemptive Rights; Redemption. Holders of the common stock of Newport Bancorp will not be entitled to preemptive rights with respect to any shares that may be issued. The common stock cannot be redeemed.

Preferred Stock

Newport Bancorp will not issue any preferred stock in the conversion and it has no current plans to issue any preferred stock after the conversion. Preferred stock may be issued with designations, powers, preferences and rights as the board of directors may from time to time determine. The board of directors can, without stockholder approval, issue preferred stock with voting, dividend, liquidation and conversion rights that could dilute the voting strength of the holders of the common stock and may assist management in impeding an unfriendly takeover or attempted change in control.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock will be Registrar and Transfer Company.

Registration Requirements

We have registered our common stock with the Securities and Exchange Commission under Section 12(g) of the Securities Exchange Act of 1934, as amended, and will not deregister our common stock for a period of at

113

least three years following the offering. As a result of registration, the proxy and tender offer rules, insider trading reporting and restrictions, annual and periodic reporting and other requirements of that statute will apply.

Legal and Tax Opinions

The legality of our common stock has been passed upon for us by Muldoon Murphy & Aguggia LLP, Washington, D.C. The federal tax consequences of the stock offering have been opined upon by Muldoon Murphy & Aguggia LLP. Muldoon Murphy & Aguggia LLP has consented to the references to its opinions in this prospectus. Certain legal matters will be passed upon for Sandler O’Neill & Partners, L.P. by Elias, Matz, Tiernan & Herrick L.L.P.

Experts

The financial statements of Newport Federal Savings Bank as of December 31, 2005 and 2004, and for each of the years in the three year period ended December 31, 2005 included in this prospectus and in the registration statement have been audited by Wolf & Company, PC, an independent registered public accounting firm, as stated in their report appearing herein and elsewhere in the registration statement (which report expresses an unqualified opinion), and has been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

RP Financial, LC. has consented to the summary in this prospectus of its report to us setting forth its opinion as to our estimated pro forma market value and to the use of its name and statements with respect to it appearing in this prospectus.

Where You Can Find More Information

We have filed with the Securities and Exchange Commission a registration statement under the Securities Act of 1933, as amended, that registers the common stock offered in the stock offering, including shares issued to the charitable foundation. This prospectus forms a part of the registration statement. The registration statement, including the exhibits, contains additional relevant information about us and our common stock. The rules and regulations of the Securities and Exchange Commission allow us to omit certain information included in the registration statement from this prospectus. You may read and copy the registration statement at the Securities and Exchange Commission’s public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the Securities and Exchange Commission’s public reference rooms. The registration statement also is available to the public from commercial document retrieval services and at the Internet World Wide Website maintained by the Securities and Exchange Commission at “http://www.sec.gov.”

Newport Bancorp has filed an application for approval of the plan of conversion with the Office of Thrift Supervision. This prospectus omits certain information contained in the application. The application may be inspected, without charge, at the offices of the Office of Thrift Supervision, 1700 G Street, NW, Washington, D.C. 20552 and at the offices of the Regional Director of the Office of Thrift Supervision at the Northeast Regional Office of the Office of Thrift Supervision, Harborside Financial Center Plaza Five, Suite 1600, Jersey City, New Jersey 07311.

A copy of the plan of conversion and Newport Bancorp’s charter and bylaws are available without charge from Newport Federal Savings Bank.

The appraisal report of RP Financial, LC. has been filed as an exhibit to our registration statement and to our application to the Office of Thrift Supervision. Portions of the appraisal report were filed electronically with the Securities and Exchange Commission and are available on its website as described above. The entire appraisal report is available at the public reference room of the Securities and Exchange Commission and the offices of the Office of Thrift Supervision as described above.

114

I ndex to Financial Statements of

Newport Federal Savings Bank

	Page
Report of Independent Registered Public Accounting Firm	F-1
Balance Sheets as of December 31, 2005 and 2004	F-2
Statements of Income for the Years Ended December 31, 2005, 2004 and 2003	F-3
Statements of Changes Retained Earnings for the Years Ended December 31, 2005, 2004 and 2003	F-4
Statements of Cash Flows for the Years Ended December 31, 2005, 2004 and 2003	F-5
Notes to Financial Statements	F-7

* * *

All schedules are omitted as the required information either is not applicable or is included in the financial statements or related notes.

Separate financial statements for Newport Bancorp have not been included in this prospectus because Newport Bancorp, which has engaged only in organizational activities to date, has no significant assets, contingent or other liabilities, revenues or expenses.

[Letterhead of Wolf & Company, P.C.]

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Audit Committee

Newport Federal Savings Bank

Newport, Rhode Island

We have audited the accompanying balance sheets of Newport Federal Savings Bank as of December 31, 2005 and 2004, and the related statements of income, changes in retained earnings and cash flows for each of the years in the three-year period ended December 31, 2005. These financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Newport Federal Savings Bank as of December 31, 2005 and 2004, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America.

/s/ Wolf & Company, P.C.

Boston, Massachusetts

February 17, 2006

F-1

NEWPORT FEDERAL SAVINGS BANK

BALANCE SHEETS

December 31, 2005 and 2004

	2005			2004
	(In Thousands)
ASSETS
Cash and due from banks	$	1,695		$	2,214
Short-term investments		3,219			9,738
Cash and cash equivalents		4,914			11,952
Certificates of deposit		3,000			5,500
Securities available for sale, at fair value		6,334			6,195
Securities held to maturity, at amortized cost		2,292			2,791
Federal Home Loan Bank stock, at cost		3,040			2,977
Loans		234,179			218,266
Allowance for loan losses		(1,853	)		(1,655	)
Loans, net		232,326			216,611
Banking premises and equipment, net		6,000			6,193
Accrued interest receivable		909			765
Deferred income taxes		739			553
Bank-owned life insurance		1,807			1,734
Other assets		1,026			732
	$	262,387		$	256,003
LIABILITIES AND RETAINED EARNINGS
Deposits	$	192,581		$	187,100
Short-term borrowings		6,233			1,250
Long-term borrowings		43,890			48,722
Accrued expenses and other liabilities		1,699			1,552
Total liabilities		244,403			238,624
Commitments and contingencies (Note 12)
Retained earnings		18,133			17,459
Accumulated other comprehensive loss		(149	)		(80	)
Total retained earnings		17,984			17,379
	$	262,387		$	256,003

See accompanying notes to financial statements.

F-2

NEWPORT FEDERAL SAVINGS BANK

STATEMENTS OF INCOME

Years Ended December 31, 2005, 2004 and 2003

	2005		2004			2003
	(In Thousands)
Interest and dividend income:
Interest and fees on loans	$	13,240	$	11,961		$	12,133
Interest on securities		321		284			269
Dividends on Federal Home Loan Bank stock		131		83			74
Interest on certificates of deposit		117		129			95
Interest on short-term investments		73		44			143
Total interest and dividend income		13,882		12,501			12,714
Interest expense:
Interest on deposits		2,556		1,633			2,006
Interest on short-term borrowings		188		156			4
Interest on long-term borrowings		2,374		2,621			2,677
Total interest expense		5,118		4,410			4,687
Net interest income		8,764		8,091			8,027
Provision for loan losses		198		144			36
Net interest income, after provision for loan losses		8,566		7,947			7,991
Other income:
Customer service fees		1,392		1,598			1,555
Loss on sales of securities available for sale		—		(22	)		—
Gains on sales of loans		99		141			351
Gain on sale of other real estate owned		—		56			—
Miscellaneous		234		231			168
Total other income		1,725		2,004			2,074
Operating expenses:
Salaries and employee benefits		4,606		4,439			4,174
Occupancy and equipment, net		1,178		1,111			1,055
Data processing		1,066		1,010			1,025
Professional fees		634		264			189
Marketing		681		559			535
Other general and administrative		687		776			661
Total operating expenses		8,852		8,159			7,639
Income before income taxes		1,439		1,792			2,426
Provision for income taxes		765		655			958
Net income	$	674	$	1,137		$	1,468

See accompanying notes to financial statements.

F-3

NEWPORT FEDERAL SAVINGS BANK

STATEMENTS OF CHANGES IN RETAINED EARNINGS

Years Ended December 31, 2005, 2004 and 2003

	Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Total
	(In Thousands)
Balance at December 31, 2002	$	14,854	$	4		$	14,858
Comprehensive income:
Net income		1,468		—			1,468
Net unrealized gain/loss on securities available for sale		—		(57	)		(57	)
Total comprehensive income							1,411
Balance at December 31, 2003		16,322		(53	)		16,269
Comprehensive income:
Net income		1,137		—			1,137
Net unrealized gain/loss on securities available for sale, net of reclassification adjustment for realized losses of $22,000		—		(27	)		(27	)
Total comprehensive income							1,110
Balance at December 31, 2004		17,459		(80	)		17,379
Comprehensive income:
Net income		674		—			674
Net unrealized gain/loss on securities available for sale		—		(69	)		(69	)
Total comprehensive income							605
Balance at December 31, 2005	$	18,133	$	(149	)	$	17,984

See accompanying notes to financial statements.

F-4

NEWPORT FEDERAL SAVINGS BANK

STATEMENTS OF CASH FLOWS

Years Ended December 31, 2005, 2004 and 2003

	2005			2004			2003
	(In Thousands)
Cash flows from operating activities:
Net income	$	674		$	1,137		$	1,468
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		198			144			36
Net accretion of securities		(17	)		(20	)		(55	)
Amortization of net deferred loan fees		(217	)		(185	)		(233	)
Depreciation and amortization of premises and equipment		582			592			547
Loss on sales of securities available for sale		—			22			—
Gain on sale of other real estate owned		—			(56	)		—
Deferred income tax provision (benefit)		(186	)		(79	)		9
Increase in bank-owned life insurance		(73	)		(73	)		(61	)
Net change in:
Accrued interest receivable		(144	)		(15	)		(34	)
Other assets		(294	)		(229	)		(93	)
Accrued expenses and other liabilities		147			336			(5	)
Net cash provided by operating activities		670			1,574			1,579
Cash flows from investing activities:
Proceeds from maturities of certificates of deposits		2,500			2,000			—
Purchases of certificates of deposit		—			—			(500	)
Activity in securities available for sale:
Sales		—			3,978			—
Purchases		(208	)		(123	)		(217	)
Activity in securities held to maturity:
Principal payments received		516			580			1,935
Purchases		—			—			(2,946	)
Purchase of bank-owned life insurance		—			—			(1,600	)
Purchase of Federal Home Loan Bank stock		(63	)		(507	)		(100	)
Loans purchased		—			(450	)		(1,857	)
Loan originations, net of principal payments		(15,696	)		(24,214	)		(12,544	)
Proceeds from sale of other real estate owned		—			246			—
Additions to banking premises and equipment		(389	)		(250	)		(942	)
Net cash used by investing activities		(13,340	)		(18,740	)		(18,771	)

(continued)

See accompanying notes to financial statements.

F-5

NEWPORT FEDERAL SAVINGS BANK

STATEMENTS OF CASH FLOWS (Concluded)

Years Ended December 31, 2005, 2004 and 2003

	2005			2004			2003
	(In Thousands)
Cash flows from financing activities:
Net increase in deposits		5,481			16,110			7,730
Net increase in borrowings with maturities of three months or less		6,233			1,250			1,145
Proceeds from borrowings with maturities in excess of three months		1,000			6,990			5,615
Repayment of borrowings with maturities in excess of three months		(7,082	)		(5,237	)		(3,510	)
Net cash provided by financing activities		5,632			19,113			10,980
Net change in cash and cash equivalents		(7,038	)		1,947			(6,212	)
Cash and cash equivalents at beginning of year		11,952			10,005			16,217
Cash and cash equivalents at end of year	$	4,914		$	11,952		$	10,005
Supplementary information:
Interest paid on deposit accounts	$	2,449		$	1,586		$	2,140
Interest paid on borrowings		2,530			2,721			2,672
Income taxes paid		805			897			897

See accompanying notes to financial statements.

F-6

NEWPORT FEDERAL SAVINGS BANK

NOTES TO FINANCIAL STATEMENTS

Years Ended December 31, 2005, 2004 and 2003

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Newport Federal Savings Bank (the “Bank”) provides a variety of financial services to individuals and small businesses through its offices in Newport and Washington County, Rhode Island. Its primary deposit products are savings, checking and term certificate accounts, and its primary lending products are residential and commercial mortgage loans.

Mergers and Acquisitions

Effective October 15, 2005, Westerly Savings Bank, a state-chartered savings bank headquartered in Westerly, Rhode Island, was merged with and into the Bank, in a transaction accounted for as a pooling of interests. Accordingly, the financial information for all periods presented has been restated to present the combined financial condition and results of operations as if the combination had been in effect for all periods presented. Separate financial information of Newport Federal Savings Bank and Westerly Savings Bank is as follows:

	January 1, 2005				Years Ended December 31,
	Through October 14, 2005				2004				2003
	Newport Federal		Westerly		Newport Federal		Westerly		Newport Federal		Westerly
	(In Thousands)
Net interest and dividend income	$	4,998	$	1,903	$	5,846	$	2,245	$	5,752	$	2,275
Provision for loan losses		180		18		120		24		—		36
Other income		1,248		213		1,688		316		1,619		455
Operating expenses		5,162		1,761		5,984		2,175		5,536		2,103
Income taxes		358		151		549		106		719		239
Net income		546		186		881		256		1,116		352

Segment reporting

Management evaluates the Bank’s performance and allocates resources based on a single segment concept. Accordingly, there are no separately identified operating segments for which discrete financial information is available. The Bank does not derive revenues from, or have assets located in, foreign countries, nor does it derive revenues from any single customer that represents 10% or more of the Bank’s total revenues.

F-7

NEWPORT FEDERAL SAVINGS BANK

NOTES TO FINANCIAL STATEMENTS (Continued)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Use of estimates

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A material estimate that is particularly susceptible to significant change in the near term relates to the determination of the allowance for loan losses.

Cash and cash equivalents

Cash and cash equivalents include cash and balances due from banks and short-term investments consisting of federal funds and interest-bearing deposits, all of which mature within ninety days.

Transfers of financial assets

Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Bank, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Bank does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Certificates of deposit

Certificates of deposit mature within one year and are carried at cost which approximates fair value.

Securities

Securities available for sale are carried at fair value with unrealized gains and losses excluded from earnings and reported as a separate component of comprehensive income/loss. Securities held to maturity are reflected at amortized cost.

Purchase premiums and discounts are amortized to earnings by the interest method over the terms of the securities. Declines in the value of securities that are deemed to be other than temporary are reflected in earnings when identified. Gains and losses on disposition of securities are recorded on the trade date and are computed by the specific identification method.

F-8

NEWPORT FEDERAL SAVINGS BANK

NOTES TO FINANCIAL STATEMENTS (Continued)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Securities (concluded)

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition of the issuer, and (3) the intent and ability of the Bank to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Loans

The Bank grants mortgage, commercial and consumer loans to customers and a substantial portion of the loan portfolio consists of mortgage loans in Newport and Washington County, Rhode Island. The ability of the Bank’s debtors to honor their contracts is dependent upon the economy in general and the real estate and construction economic sectors.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.

The accrual of interest on mortgage loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Past due status is based on contractual terms of the loan. In all cases, loans are placed on non-accrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected for loans that are placed on non-accrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for loan losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

F-9

NEWPORT FEDERAL SAVINGS BANK

NOTES TO FINANCIAL STATEMENTS (Continued)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Allowance for loan losses (concluded)

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of general and unallocated loss components. For loans that are classified as impaired, an allowance is established when the collateral value of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating the general losses in the portfolio.

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Impairment is measured on a loan by loan basis by the fair value of the collateral.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Bank does not separately identify individual consumer and residential loans for impairment disclosures.

Mortgage servicing rights

The Bank sells loans in the secondary market both with servicing retained and servicing released. Servicing assets are not recognized as separate assets when rights are acquired through the sale of loans as such assets are not deemed to be material. Servicing income is recorded on the cash basis

F-10

NEWPORT FEDERAL SAVINGS BANK

NOTES TO FINANCIAL STATEMENTS (Continued)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Foreclosed assets

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operation and changes in the valuation allowance are included in other general and administrative expenses.

Banking premises and equipment

Land is carried at cost. Premises and equipment are stated at cost, less accumulated depreciation and amortization, computed on a straight-line method over the estimated useful lives of the assets or the terms of the leases, if shorter. Expected terms include lease option periods to the extent that the exercise of such options is reasonably assured.

Marketing costs

Marketing costs are expensed as incurred.

Pension plan

It is the Bank’s policy to fund pension costs in the year of accrual.

Income taxes

Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted accordingly through the provision for income taxes. The Bank’s base amount of its federal income tax reserve for loan losses is a permanent difference for which there is no recognition of a deferred tax liability. However, the loan loss allowance maintained for financial reporting purposes is a temporary difference with allowable recognition of a related deferred tax asset, if it is deemed realizable.

F-11

NEWPORT FEDERAL SAVINGS BANK

NOTES TO FINANCIAL STATEMENTS (Continued)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (concluded)

Comprehensive income/loss

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the retained earnings section of the balance sheet, such items, along with net income, are components of comprehensive income/loss.

2. RESTRICTIONS ON CASH AND AMOUNTS DUE FROM BANKS

The Bank is required to maintain average balances on hand or with the Federal Reserve Bank. At December 31, 2005 and 2004, these reserve balances amounted to $1,320,000 and $1,573,000, respectively.

3. SECURITIES

The amortized cost and estimated fair value of securities, with gross unrealized gains and losses, follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
December 31, 2005
Securities Available for Sale
Mutual funds	$	6,483	$	—	$	(149	)	$	6,334
Securities Held to Maturity
Mortgage-backed securities	$	2,292	$	5	$	(106	)	$	2,191
December 31, 2004
Securities Available for Sale
Mutual funds	$	6,275	$	—	$	(80	)	$	6,195
Securities Held to Maturity
Mortgage-backed securities	$	2,791	$	14	$	(61	)	$	2,744

F-12

NEWPORT FEDERAL SAVINGS BANK

NOTES TO FINANCIAL STATEMENTS (Continued)

SECURITIES (concluded)

Mortgage-backed securities consist of participation certificates guaranteed by the Federal National Mortgage Association and the Government National Mortgage Association.

For the year ended December 31, 2004, proceeds from sales of securities available for sale amounted to $3,978,000 and gross realized losses amounted to $22,000. There were no sales of securities for the years ended December 31, 2005 and 2003.

Information pertaining to securities with gross unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

	Less Than Twelve Months				Over Twelve Months
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
	(In Thousands)
December 31, 2005
Securities Available for Sale
Mutual funds	$	—	$	—	$	149	$	6,334
Securities Held to Maturity
Mortgage-backed securities		—		—		106		2,089
Total temporarily impaired securities	$	—	$	—	$	255	$	8,423
December 31, 2004
Securities Available for Sale
Mutual funds	$	31	$	2,261	$	49	$	3,934
Securities Held to Maturity
Mortgage-backed securities		—		—		61		2,533
Total temporarily impaired securities	$	31	$	2,261	$	110	$	6,467

At December 31, 2005, three mutual funds and one mortgage-backed security had gross unrealized losses of 3.0% from the Bank’s total amortized cost, which is attributable to changes in market rates. The Bank has the ability to hold these securities for the foreseeable future, therefore the declines are not deemed to be other than temporary.

F-13

NEWPORT FEDERAL SAVINGS BANK

NOTES TO FINANCIAL STATEMENTS (Continued)

4. LOANS

A summary of the balances of loans follows:

	December 31,
	2005			2004
	(In Thousands)
Mortgage loans:
Residential	$	152,385		$	137,790
Commercial		54,468			52,215
Equity loans and lines of credit		23,538			19,714
Construction		3,151			7,712
		233,542			217,431
Personal installment		1,263			1,437
Total loans		234,805			218,868
Less: Allowance for loan losses		(1,853	)		(1,655	)
Net deferred loan fees		(626	)		(602	)
Loans, net	$	232,326		$	216,611

An analysis of the allowance for loan losses follows:

	Years Ended December 31,
	2005		2004		2003
	(In Thousands)
Balance at beginning of year	$	1,655	$	1,511	$	1,482
Provision for loan losses		198		144		36
Charge-offs		—		—		(7	)
Balance at end of year	$	1,853	$	1,655	$	1,511

At December 31, 2004, loans in non-accrual status amounted to $78,000 and there were no impaired loans. For the year ended December 31, 2004, the average recorded investment in impaired loans amounted to $77,000. The Bank recognized $12,000 of interest income on impaired loans, during the period that they were impaired, on the cash basis. There were no non-accrual or impaired loans at or during the years ended December 31, 2005 and 2003.

F-14

NEWPORT FEDERAL SAVINGS BANK

NOTES TO FINANCIAL STATEMENTS (Continued)

LOANS (concluded)

Loans sold and serviced for others amounted to $21,873,000 and $27,291,000 at December 31, 2005 and 2004, respectively, which includes $6,813,000 and $8,193,000 of loans sold with recourse provisions. At December 31, 2005, the maximum contingent liability associated with these loans is $61,000.

5. BANKING PREMISES AND EQUIPMENT

A summary of the cost and accumulated depreciation and amortization of banking premises, leasehold improvements and equipment follows:

	December 31,
	2005			2004
	(In Thousands)
Land	$	538		$	538
Building and improvements		5,121			5,029
Leasehold improvements		1,263			1,259
Furniture, fixtures and equipment		3,389			3,145
		10,311			9,971
Less accumulated depreciation and amortization		(4,311	)		(3,778	)
	$	6,000		$	6,193

Depreciation and amortization expense for the years ended December 31, 2005, 2004 and 2003 amounted to $582,000, $592,000 and $547,000, respectively.

6. DEPOSITS

A summary of deposit balances, by type, is as follows:

	December 31,
	2005		2004
	(In Thousands)
NOW and demand	$	60,523	$	65,920
Money market deposits		44,887		39,350
Regular		15,922		29,414
Total non-certificate accounts		121,332		134,684
Term deposit certificates		71,249		52,416
Total deposits	$	192,581	$	187,100

F-15

NEWPORT FEDERAL SAVINGS BANK

NOTES TO FINANCIAL STATEMENTS (Continued)

DEPOSITS (concluded)

Deposit accounts with balances over $100,000 amounted to $52,374,000 and $56,012,000 at December 31, 2005 and 2004, respectively.

A summary of certificate accounts by maturity is as follows:

	December 31, 2005				December 31, 2004
	Amount		Weighted Average Rate		Amount		Weighted Average Rate
	(Dollars in Thousands)
Due within 1 year	$	57,413	3.28	%	$	32,834	1.96	%
Over 1 year to 3 years		12,349	3.51			17,480	3.13
Over 3 years		1,487	4.17			2,102	3.48
	$	71,249	0.34	%	$	52,416	2.41	%

7. SHORT-TERM BORROWINGS

Short-term borrowings include Federal Home Loan Bank (“FHLB”) advances of $5,000,000 and $1,250,000 maturing within one year at a weighted average rate of 4.42% and 2.23% at December 31, 2005 and 2004, respectively.

The Bank also has an available line of credit with the FHLB at an interest rate that adjusts daily. Borrowings under the line are limited to 2% of the Bank’s total assets. At December 31, 2005, this line of credit amounted to $3,000,000, of which $1,233,000 was outstanding. All FHLB borrowings are secured by a blanket lien on certain qualified collateral, defined principally as 75% of the carrying value of first mortgage loans on owner-occupied residential property.

F-16

NEWPORT FEDERAL SAVINGS BANK

NOTES TO FINANCIAL STATEMENTS (Continued)

8. LONG-TERM BORROWINGS

Long-term borrowings at December 31, 2005 and 2004 consist of the following FHLB advances:

	Amount				Weighted Average Rate
	2005		2004		2005		2004
	(In Thousands)
Fixed-rate advances maturing:
2005	$	—	$	4,550	—	%	7.21	%
2006		2,000		2,000	5.45		5.45
2007		2,736		3,139	4.41		4.24
2008		9,513		9,519	5.67		5.67
2009		4,649		5,307	4.48		4.57
Thereafter		24,992		24,207	5.45		5.50
	$	43,890	$	48,722	5.33	%	5.51	%

* Includes advances callable within one year aggregating $5,500,000 with a weighted average rate of 5.60%.

9. INCOME TAXES

Allocation of federal income taxes between current and deferred portions is as follows:

	Years Ended December 31,
	2005			2004			2003
	(In Thousands)
Current tax provision:
Federal	$	733		$	623		$	735
State		218			111			214
		951			734			949
Deferred tax provision (benefit):
Federal		(138	)		(46	)		10
State		(48	)		(33	)		(1	)
		(186	)		(79	)		9
	$	765		$	655		$	958

F-17

NEWPORT FEDERAL SAVINGS BANK

NOTES TO FINANCIAL STATEMENTS (Continued)

INCOME TAXES (continued)

The reasons for the differences between the statutory federal income tax rate and the effective tax rates are summarized as follows:

	Years Ended December 31,
	2005		2004		2003
Statutory rate	34.0	%	34.0	%	34.0	%
Increase (decrease) resulting from:
State taxes, net of federal tax benefit	7.8		3.0		5.8
Non-deductible merger expenses	10.6		—		—
Other, net	0.8		(0.4	)	(0.3	)
Effective tax rates	53.2	%	36.6	%	39.5	%

The components of the net deferred tax asset are as follows:

	December 31,
	2005			2004
	(In Thousands)
Deferred tax asset:
Federal	$	850		$	716
State		247			209
		1,097			925
Deferred tax liability:
Federal		(290	)		(294	)
State		(68	)		(78	)
		(358	)		(372	)
Net deferred tax asset	$	739		$	553

The effects of each type of income and expense that give rise to deferred taxes are as follows:

	December 31,
	2005			2004
	(In Thousands)
Allowance for loan losses	$	586		$	508
Deferred loan fees		232			181
Depreciation and amortization		(205	)		(216	)
Other		126			80
Net deferred tax asset	$	739		$	553

F-18

NEWPORT FEDERAL SAVINGS BANK

NOTES TO FINANCIAL STATEMENTS (Continued)

INCOME TAXES (concluded)

The federal income tax reserve for loan losses at the Bank’s base year amounted to $1,032,000. If any portion of the reserve is used for purposes other than to absorb loan losses, approximately 150% of the amount actually used, limited to the amount of the reserve, would be subject to taxation in the year in which used. As the Bank intends to use the reserve only to absorb loan losses, a deferred income tax liability of $412,000 has not been provided.

10. MINIMUM REGULATORY CAPITAL REQUIREMENTS

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of Tier 1 and tangible capital (as defined) to adjusted total assets (as defined) and of total and Tier 1 capital to risk-weighted assets (as defined). Management believes, as of December 31, 2005 and 2004, that the Bank meets all capital adequacy requirements to which it is subject.

F-19

NEWPORT FEDERAL SAVINGS BANK

NOTES TO FINANCIAL STATEMENTS (Continued)

MINIMUM REGULATORY CAPITAL REQUIREMENTS (concluded)

As of December 31, 2005, the most recent notification from the Office of Thrift Supervision categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based, Tier 1 leverage and tangible ratios as set forth in the following table. There are no conditions or events since that notification that management believes have changed the Bank’s category. The Bank’s actual capital amounts and ratios as of December 31, 2005 and 2004 are also presented in the table.

	Actual				Minimum Capital Requirement				Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in Thousands)
December 31, 2005
Total capital
(to risk weighted assets)	$	19,837	11.2	%	$	14,155	8.0	%	$	17,693	10.0	%
Tier 1 capital
(to risk weighted assets)		17,984	10.1			7,078	4.0			10,616	6.0
Tier 1 capital
(to adjusted total assets)		17,984	6.9			7,872	3.0			13,119	5.0
Tangible capital
(to adjusted total assets)		17,984	6.9			3,936	1.5			N/A	N/A
December 31, 2004
Total capital
(to risk weighted assets)	$	19,034	10.8	%	$	14,133	8.0	%	$	17,666	10.0	%
Tier 1 capital
(to risk weighted assets)		17,379	9.8			7,066	4.0			10,600	6.0
Tier 1 capital
(to adjusted total assets)		17,379	6.8			7,680	3.0			12,800	5.0
Tangible capital
(to adjusted total assets)		17,379	6.8			3,840	1.5			N/A	N/A

F-20

NEWPORT FEDERAL SAVINGS BANK

NOTES TO FINANCIAL STATEMENTS (Continued)

11. EMPLOYEE BENEFIT PLANS

Defined benefit plan

The Bank is a participant in the defined benefit plan of the Financial Institutions Retirement Fund. The Plan is a multi-employer plan whereas the contributions by each bank are not restricted to provide benefits to the employees of the contributing bank. Each employee reaching the age of 21 and having completed at least 1,000 hours of service in one consecutive twelve-month period, beginning with such employee’s date of employment, automatically becomes a participant in the Plan. Participants become vested after completion of five years of service measured from their date of hire. Pension expense under this Plan amounted to $466,000, $430,000 and $327,000 for the three years ended December 31, 2005, 2004 and 2003, respectively.

401(k) plans

The Bank offers a 401(k) plan for employees of Newport Federal Savings Bank (“Newport”) and a 401(k) plan for former employees of Westerly Savings Bank (“Westerly”). Both plans provide for voluntary contributions by participating employees up to fifty percent of their annual compensation subject to certain limits based on federal tax laws. Each Newport employee reaching the age of 21 and having completed at least 500 hours of service in one six-month period beginning with such employee’s date of employment, or anniversary thereof, becomes eligible to be a participant in the plan. For Newport employees, the Bank matches the employees’ voluntary contribution up to 3% of their compensation and will match one-half of the next 2%. Each Westerly employee reaching the age of 21 and having completed 1,000 hours of service in one twelve month period is eligible to participate in the plan. For Westerly employees, the Bank’s matching contribution equals fifty cents per dollar up to 6% of the participant’s annual compensation. Subsequent to January 1, 2006, the Bank intends to combine both plans into one plan for all employees.

The Bank’s total contribution for both plans for the years ended December 31, 2005, 2004 and 2003 amounted to $134,000, $129,000 and $124,000, respectively.

Supplemental executive and director retirement plans

The Bank adopted a Supplemental Executive Retirement Plan, which provides for certain executives of the Bank to receive monthly benefits upon retirement, subject to certain limitations as set forth in the Plan. The present value of these future benefits is accrued over the executive’s term of employment, and the expense for the years ended December 31, 2005, 2004 and 2003 amounted to $80,000, $74,000 and $53,000, respectively.

F-21

NEWPORT FEDERAL SAVINGS BANK

NOTES TO FINANCIAL STATEMENTS (Continued)

EMPLOYEE BENEFIT PLANS (concluded)

Supplemental executive and director retirement plans (concluded)

In addition, the Bank adopted a Supplemental Director Retirement Plan, which provides for certain directors to receive annual benefits upon retirement, subject to certain limitations set forth in the Plan. The present value of these benefits is accrued over the directors’ term of service, and the expense for the years ended December 31, 2005, 2004 and 2003 amounted to $20,000, $19,000 and $13,000, respectively.

12. COMMITMENTS AND CONTINGENCIES

In the normal course of business there are outstanding commitments and contingencies which are not reflected in the accompanying financial statements.

Loan commitments

The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the accompanying balance sheets.

The Bank’s exposure to credit loss is represented by the contractual amount of these commitments. The Bank uses the same credit policies in making commitments as it does for on-balance-sheet instruments.

At December 31, 2005 and 2004, the following financial instruments were outstanding whose contract amounts represent credit risk:

	2005		2004
	(In Thousands)
Commitments to grant loans	$	300	$	3,137
Unadvanced funds on equity lines of credit		15,148		14,337
Unadvanced funds on construction loans		2,428		4,018
Unadvanced funds on commercial lines of credit		2,000		1,321

F-22

NEWPORT FEDERAL SAVINGS BANK

NOTES TO FINANCIAL STATEMENTS (Continued)

COMMITMENTS AND CONTINGENCIES (continued)

Loan commitments (concluded)

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The commitments for lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s credit worthiness on a case-by-case basis and the commitments are collateralized by real estate.

Operating lease commitments

Pursuant to the terms of noncancelable lease agreements in effect pertaining to banking premises, future minimum rent commitments are as follows:

Year Ending December 31,	Amount
	(In Thousands)
2006	$	108
2007		102
2008		93
2009		96
2010		96
Thereafter		575
	$	1,070

The leases contain options to extend for periods from five to fifty years. The cost of such rentals is not included above. Total rent expense for the years ended December 31, 2005, 2004 and 2003 amounted to $85,000, $85,000, and $81,000, respectively.

Minimum future rental income

Pursuant to the terms of non-cancelable lease agreements, the Bank is committed to lease portions of its office space to unrelated third parties. Future minimum rental income is $38,000 and $9,000 for the years ending December 31, 2006 and 2007, respectively. Rental income for the years ended December 31, 2005, 2004 and 2003 amounted to $46,000, $53,000, and $49,000, respectively.

F-23

NEWPORT FEDERAL SAVINGS BANK

NOTES TO FINANCIAL STATEMENTS (Continued)

COMMITMENTS AND CONTINGENCIES (concluded)

Banking premises commitment

On December 29, 2005, the Bank entered into an agreement to purchase property for a new branch in the amount of $2,250,000, of which $80,000 has been paid to date. The agreement is subject to the Bank receiving the necessary State approvals, among other conditions, to open the branch.

Employee agreements

The Bank entered into three-year employment agreements with its President and certain executive officers effective October 14, 2005. The agreements extend automatically for periods of one year commencing in December 2005 and in each December thereafter, unless the Bank or the executive provide notice of the election to not extend the term. The agreements provide for a specific salary and continuation of benefits in the event the executive is terminated without cause. However, such employment may be terminated for cause, as defined, without incurring any continuing obligations. The agreements also provide for a lump sum severance payment, subject to certain conditions, following a “change in control” as defined in the agreement. In addition, the Bank has entered into change in control agreements with certain employees which provide for a lump sum severance payment, subject to certain conditions.

Other contingencies

Various legal claims also arise from time to time in the normal course of business which, in the opinion of management, will have no material effect on the Bank’s financial position.

13. RELATED PARTY TRANSACTIONS

In the ordinary course of business, the Bank has granted loans to its directors and officers and affiliates. Activity is as follows:

	Years Ended December 31,
	2005			2004
	(In Thousands)
Beginning balance	$	4,168		$	3,962
Originations		439			833
Payments and change in status		(181	)		(627	)
Ending balance	$	4,426		$	4,168

F-24

NEWPORT FEDERAL SAVINGS BANK

NOTES TO FINANCIAL STATEMENTS (Continued)

14. FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards (“SFAS”) No. 107, “Disclosures about Fair Value of Financial Instruments,” requires disclosure of estimated fair values of all financial instruments where it is practicable to estimate such values. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. SFAS No. 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Bank.

The following methods and assumptions were used by the Bank in estimating fair value disclosures for financial instruments:

Cash and cash equivalents: The carrying amounts of cash and cash equivalents approximate fair values.

Securities: Fair values are based on quoted market prices.

FHLB stock: The carrying value of FHLB stock approximates fair value based on the redemption provisions of the Federal Home Loan Bank of Boston.

Loans: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms, adjusted for credit risk.

Accrued interest: The carrying amounts of accrued interest approximate fair values.

Deposits: The fair values for non-certificate accounts are, by definition, equal to the amount payable on demand at the reporting date which is the carrying amount. Fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Borrowings: The fair value of borrowings are estimated using discounted cash flow analyses based on the Bank’s current incremental borrowing rates for similar types of borrowing arrangements.

F-25

NEWPORT FEDERAL SAVINGS BANK

NOTES TO FINANCIAL STATEMENTS (Continued)

FAIR VALUE OF FINANCIAL INSTRUMENTS (concluded)

Off-balance-sheet instruments: Fair values for off-balance-sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The estimated fair values of off-balance-sheet instruments are immaterial.

The estimated fair values, and related carrying amounts, of the Bank’s financial instruments at December 31, 2005 and 2004 are as follows:

	2005				2004
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(In Thousands)
Financial assets:
Cash and cash equivalents	$	4,914	$	4,914	$	11,952	$	11,952
Securities available for sale		6,334		6,334		6,195		6,195
Securities held to maturity		2,292		2,191		2,791		2,744
FHLB stock		3,040		3,040		2,977		2,977
Loans, net		232,326		229,135		216,611		219,373
Accrued interest receivable		909		909		765		765
Financial liabilities:
Deposits		192,581		193,433		187,100		187,355
Borrowings		50,123		50,486		49,972		50,872
Accrued interest payable		402		402		322		322

15. STOCK CONVERSION

On June 7, 2005, the Board of Directors of the Bank adopted a Plan of Conversion (the “Plan”) whereby the Bank will convert to a federally-chartered stock savings bank and operate as a wholly-owned subsidiary of a stock holding company (the “Holding Company”), and offer Holding Company stock on a priority basis to qualifying depositors, tax-qualified employee plans, and employees, officers, directors and trustees of the Bank and the Company, with any remaining shares to be offered to the public in a direct community offering and possibly in a syndicated community offering (the “Conversion”).

F-26

NEWPORT FEDERAL SAVINGS BANK

NOTES TO FINANCIAL STATEMENTS (Concluded)

STOCK CONVERSION (concluded)

As part of the Conversion, the Bank will establish a liquidation account in an amount equal to the net worth of the Bank as of the date of the latest consolidated balance sheet appearing in the final prospectus distributed in connection with the Conversion. The liquidation account will be maintained for the benefit of eligible account holders and supplemental eligible account holders who maintain their accounts at the Bank after the Conversion. The liquidation account will be reduced annually to the extent that such account holders have reduced their qualifying deposits as of each anniversary date. Subsequent increases will not restore an account holder’s interest in the liquidation account. In the event of a complete liquidation, each eligible account holder will be entitled to receive balances for accounts then held.

Subsequent to the Conversion, the Bank may not declare or pay dividends on, and may not repurchase, any of its shares of common stock if the effect thereof would cause stockholders’ equity to be reduced below applicable regulatory capital maintenance requirements or if such declaration, payment or repurchase would otherwise violate regulatory requirements.

Conversion costs will be deferred and reduce the proceeds from the shares sold in the Conversion. If the Conversion is not completed, all costs will be expensed. As of December 31, 2005, Conversion costs amounting to $192,000 have been incurred and are included in other assets in the accompanying balance sheet.

As part of the Conversion, the Bank intends to implement an employee stock ownership plan and other benefit and salary continuation plans for directors, officers and employees.

In addition, as part of the Conversion, the Bank intends to form a charitable foundation (the “Foundation”) by donating to the Foundation a number of shares of its authorized but unissued common stock in an amount up to 8% of the Holding Company common stock.

F-27

You should rely only on the information contained in this prospectus. Neither Newport Federal nor Newport Bancorp has authorized anyone to provide you with different information. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any of the securities offered by this prospectus to any person or in any jurisdiction in which an offer or solicitation is not authorized or in which the person making an offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make an offer or solicitation in those jurisdictions. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of common stock.

[LOGO]

(Holding Company for Newport Federal Savings Bank)

3,967,500 Shares

(Anticipated Maximum, Subject to Increase)

COMMON STOCK

Prospectus

Sandler O’Neill + Partners

[date]

Until                     , 2006, or 25 days after commencement of the syndicated community offering, if any, whichever is later, all dealers effecting transactions in the registered securities, whether or not participating in this distribution, may be required to deliver a prospectus when acting as underwriters and with respect to their unsold allotments of subscriptions.

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

SEC filing fee (1)	$	5,307
OTS filing fee		12,000
NASD filing fee (1)		5,459
Nasdaq Stock Market listing fee		100,000
Blue Sky fees and expenses		5,000
EDGAR, printing, postage and mailing		125,000
Legal fees and expenses		300,000
Accounting fees and expenses		166,000
Appraiser’s fees and expenses		40,000
Business Plan fees and expenses		40,000
Underwriting Expenses (including counsel fees)		50,000
Marketing firm expenses (including marketing firm’s counsel fees) (1) (2) (3)		427,994
Conversion agent fees and expenses		40,000
Transfer agent and registrar fees and expenses		20,000
Certificate printing		10,000
Miscellaneous		15,000
Total	$	1,361,750

(1) Estimated expenses based on the registration of 4,959,375 shares at $10.00 per share.

(2) Assumes 8% ESOP purchase and purchases by insiders equal to 5.7% of the offering.

(3) Sandler O’Neill & Partners, L.P. will receive a fee equal to 1.0% of the aggregate purchase price of shares sold in the subscription offering and the community offering, excluding shares purchased by the employee stock ownership plan, the foundation and by officers, directors and employees of Newport Federal Savings Bank and members of their immediate families. Assumes purchases by insiders equal to 5.7% of the offering.

Item 14. Indemnification of Directors and Officers.

Article EIGHTH, Section K of the Registrant’s Articles of Incorporation provide:

To the fullest extent permitted by Maryland statutory or decisional law, as amended or interpreted, no director or officer of this Corporation shall be personally liable to the Corporation or its stockholders for monetary damages. No amendment of the Articles of Incorporation of the Corporation or repeal of any of its provisions shall limit or eliminate the benefits provided to directors and officers under this provision with respect to any act or omission which occurred prior to such amendment or repeal.

In addition, Article TENTH of the Registrant’s Articles of Incorporation provide:

The Corporation shall indemnify (A) its directors and officers, whether serving the Corporation or at its request any other entity, to the fullest extent required or permitted by the general laws of the State of Maryland now or hereafter in force, including the advances of expenses under the procedures required, and (B) other employees and agents to such extent as shall be authorized by the Board of Directors or the Corporation’s Bylaws and be permitted by law. The foregoing rights of indemnification shall not be exclusive of any rights to which those seeking indemnification may be entitled. The Board of Directors may take such action as

II-1

is necessary to carry out these indemnification provisions and is expressly empowered to adopt, approve and amend from time to time such Bylaws, resolutions or contracts implementing such provisions or such further indemnification arrangements as may be permitted by law. No amendment of the Articles of Incorporation of the Corporation shall limit or eliminate the right to indemnification provided hereunder with respect to acts or omissions occurring prior to such amendment or repeal.

Item 15. Recent Sales of Unregistered Securities.

None.

Item 16. Exhibits and Financial Statement Schedules.

The exhibits and financial statement schedules filed as a part of this registration statement are as follows:

(a) List of Exhibits (filed herewith unless otherwise noted)

1.1	Engagement Letter between Newport Federal Savings Bank and Sandler O’Neill & Partners, L.P.
1.2	Draft Agency Agreement*
2.1	Plan of Conversion, as Amended
3.1	Articles of Incorporation of Newport Bancorp, Inc.
3.2	Bylaws of Newport Bancorp, Inc.
4.1	Specimen Stock Certificate of Newport Bancorp, Inc.
5.1	Form of Opinion of Muldoon Murphy & Aguggia LLP re: Legality
8.1	Form of Opinion of Muldoon Murphy & Aguggia LLP re: Federal Tax Matters
8.2	Form of Opinion of Wolf & Company, P.C. re: State Tax Matters
10.1	Form of Newport Federal Savings Bank Employee Stock Ownership Plan
10.2	Form of Newport Federal Savings Bank Employee Stock Ownership Plan Trust Agreement
10.3	Form of Employee Stock Ownership Plan Loan Agreement, ESOP Loan Commitment Letter, Pledge Agreement and Promissory Note
10.4	Newport Federal Savings Bank Employees’ Savings & Profit Sharing Plan and Trust*
10.5	Newport Federal Savings Bank Change in Control Severance Compensation Plan and Proposed Amendment
10.6	Form of Newport Federal Savings Bank Supplemental Executive Retirement Agreement, as Amended
10.7	Form of Newport Federal Savings Bank Supplemental Director Retirement Agreement, as Amended
10.8	Employment Agreement between Newport Federal Savings Bank and Kevin M. McCarthy and Proposed Amendment
10.9	Employment Agreement between Newport Federal Savings Bank and Nino Moscardi and Proposed Amendment
10.10	Employment Agreement between Newport Federal Savings Bank and Ray Gilmore and Proposed Amendment
10.11	Form of Newport Bancorp, Inc. Three-Year Employment Agreement
10.12	Form of Newport Bancorp, Inc. Two-Year Employment Agreement
10.13	Form of Change in Control Agreement between Newport Federal Savings Bank and Bruce A. Walsh and Carol R. Silven and Certain Officers and Proposed Amendment
10.14	Form of Director Split Dollar Life Insurance Agreement
10.15	Form of Executive Split Dollar Life Insurance Agreement
10.16	Form of Supplemental Executive Retirement Plan
23.1	Consent of Muldoon Murphy & Aguggia LLP (included in Exhibits 5.1 and 8.1 filed herewith)
23.2	Consent of Wolf & Company, P.C.
23.3	Consent of RP Financial, LC.
24.1	Powers of Attorney
99.1	Appraisal Report of RP Financial, LC. (P)
99.2	Draft Marketing Materials*
99.3	Form of Subscription Order Form and Instructions*
99.4	Form of NewportFed Charitable Foundation Gift Instrument

(P) The supporting financial schedules are filed in paper pursuant to Rule 202 of Regulation S-T.

* To be filed by amendment.

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(b) Financial Statement Schedules

All schedules have been omitted as not applicable or not required under the rules of Regulation S-X.

Item 17. Undertakings.

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the forgoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(4) That, for purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective.

(5) That, for the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-3

(6) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:

The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Newport, State of Rhode Island on March 17, 2006.

Newport Bancorp, Inc.
By:	/s/ Kevin M. McCarthy
	Kevin M. McCarthy
	President and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

Name	Title	Date
/s/ Kevin M. McCarthy	President, Chief Executive Officer and Director (principal executive officer)	March 17, 2006
Kevin M. McCarthy
/s/ Nino Moscardi	Executive Vice President, Chief Operating Officer and Director	March 17, 2006
Nino Moscardi
/s/ Bruce A. Walsh	Senior Vice President and Chief Financial Officer (principal accounting and financial officer)	March 17, 2006
Bruce A. Walsh
/s/ Peter W. Rector	Chairman of the Board	March 17, 2006
Peter W. Rector
	Director	March     , 2006
John N. Conti
/s/ Peter T. Crowley	Director	March 17, 2006
Peter T. Crowley
/s/ William R. Harvey	Director	March 17, 2006
William R. Harvey

/s/ Michael J. Hayes	Director	March 17, 2006
Michael J. Hayes
/s/ Donald N. Kaull	Director	March 17, 2006
Donald N. Kaull
/s/ Arthur H. Lathrop	Director	March 17, 2006
Arthur H. Lathrop
/s/ Robert S. Lazar	Director	March 17, 2006
Robert S. Lazar
/s/ Arthur P. Macauley	Director	March 17, 2006
Arthur P. Macauley
/s/ Kathleen A. Nealon	Director	March 17, 2006
Kathleen A. Nealon
/s/ Michael S. Pinto	Director	March 17, 2006
Michael S. Pinto
/s/ Alicia S. Quirk	Director	March 17, 2006
Alicia S. Quirk
/s/ Barbara Saccucci Radebach	Director	March 17, 2006
Barbara Saccucci Radebach

EX-1.1

Exhibit 1.1

[Sandler O’Neill & Partners, L.P. Letterhead]

January 21, 2005

Board of Directors

Newport Federal Savings Bank

100 Bellevue Avenue

Newport, Rhode Island 02840

Attention: Mr. Kevin M. McCarthy

President and Chief Executive Officer

Ladies and Gentlemen:

Sandler O’Neill & Partners, L.P. (“Sandler O’Neill”) is pleased to act as an independent financial advisor to Newport Federal Savings Bank (the “Bank”) in connection with the Bank’s proposed conversion from mutual to stock form (the “Conversion”), including the offer and sale of certain shares of the common stock of the proposed new holding company for the Bank (the “Holding Company”) to the Bank’s eligible account holders in a Subscription Offering, to members of the Bank’s community in a Direct Community Offering and, under certain circumstances, to the general public in a Syndicated Community Offering (collectively, the “Offerings”). For purposes of this letter, the term “Actual Purchase Price” shall mean the price at which the shares of the Holding Company’s common stock are sold in the Conversion. This letter is to confirm the terms and conditions of our engagement.

ADVISORY SERVICES

Sandler O’Neill will act as a consultant and advisor to the Bank and the Holding Company and will work with the Bank’s management, counsel, accountants and other advisors in connection with the Conversion and the Offerings. We anticipate that our services will include the following, each as may be necessary and as the Bank may reasonably request:

1. Consulting as to the securities marketing implications of any aspect of the Plan of Conversion or related corporate documents;

2. Reviewing with the Board of Directors the financial impact of the Offerings on the Bank, based upon the independent appraiser’s appraisal of the common stock;

3. Reviewing all offering documents, including the Prospectus, stock order forms and

Board of Directors

Newport Federal Savings Bank

January 21, 2005

Page 2

related offering materials (it being understood that preparation and filing of such documents will be the responsibility of the Bank and the Holding Company and their counsel);

4. Assisting in the design and implementation of a marketing strategy for the Offerings;

5. As necessary, assisting Bank management in scheduling and preparing for meetings with potential investors and broker-dealers in connection with the Offerings; and

6. Providing such other general advice and assistance as may be requested to promote the successful completion of the Conversion.

It is understood that in no event shall Sandler O’Neill be obligated to take or purchase any shares of the common stock in the Offerings.

SUBSCRIPTION AND COMMUNITY OFFERING FEES

If the Conversion is consummated, the Bank agrees to pay Sandler O’Neill for its services a fee of one percent (1.0%) of the aggregate Actual Purchase Price of the shares of common stock sold in the Subscription Offering and in the Direct Community Offering, excluding in each case shares purchased (i) by any employee benefit plan of the Holding Company or the Bank established for the benefit of their respective directors, officers and employees, (ii) by, or on behalf of, a charitable foundation, and (iii) by any director, officer or employee of the Holding Company or the Bank or members of their immediate families.

If (a) Sandler O’Neill’s engagement hereunder is terminated for any of the reasons provided for under the second paragraph of the section of this letter captioned “Definitive Agreement,” or (b) the Conversion is terminated by the Bank, no fees shall be payable by the Bank to Sandler O’Neill hereunder; however, the Bank shall reimburse Sandler O’Neill for its reasonable out-of-pocket expenses (including legal fees) incurred in connection with its engagement hereunder and for any fees and expenses incurred by Sandler O’Neill on behalf of the Bank pursuant to the second paragraph under the section captioned “Costs and Expenses” below.

All fees payable to Sandler O’Neill hereunder shall be payable in cash at the time of the closing of the Conversion. In recognition of the long lead times involved in the conversion process, the Bank agrees to make an advance payment to Sandler O’Neill in the amount of $50,000, which shall be payable upon execution of this letter and which shall be credited against any fees or reimbursement of expenses payable hereunder. In the event that the advance payment exceeds the amount due in payment of fees and reimbursement of expenses hereunder, the excess shall be refunded to the Bank.

Board of Directors

Newport Federal Savings Bank

January 21, 2005

Page 3

COSTS AND EXPENSES

In addition to any fees that may be payable to Sandler O’Neill hereunder and the expenses to be borne by the Bank pursuant to the following paragraph, the Bank agrees to reimburse Sandler O’Neill, upon request made from time to time, for its reasonable out-of-pocket expenses incurred in connection with its engagement hereunder, regardless of whether the Conversion is consummated, including, without limitation, legal fees, advertising, promotional, syndication, and travel expenses, up to a maximum of $50,000; provided, however, that Sandler O’Neill shall document such expenses to the reasonable satisfaction of the Bank. The provisions of this paragraph are not intended to apply to or in any way impair the indemnification provisions of this letter.

As is customary, the Bank will bear all other expenses incurred in connection with the Conversion and the Offerings, including, without limitation, (i) the cost of obtaining all securities and bank regulatory approvals, including any required NASD filing fees; (ii) the cost of printing and distributing the offering materials; (iii) the costs of blue sky qualification (including fees and expenses of blue sky counsel) of the shares in the various states; (iv) listing fees; and (v) all fees and disbursements of the Bank’s and the Holding Company’s counsel, accountants, conversion agent and other advisors. In the event Sandler O’Neill incurs any such fees and expenses on behalf of the Bank or the Holding Company, the Bank will reimburse Sandler O’Neill for such fees and expenses whether or not the Conversion is consummated; provided, however, that Sandler O’Neill shall not incur any substantial expenses on behalf of the Bank or the Holding Company pursuant to this paragraph without the prior approval of the Bank.

SYNDICATED COMMUNITY OFFERING

If any shares of the Holding Company’s common stock remain available after the expiration of the Subscription Offering and the Direct Community Offering, at the request of the Bank and subject to the continued satisfaction of the conditions set forth in the second paragraph under the caption “Definitive Agreement” below, Sandler O’Neill will seek to form a syndicate of registered dealers to assist in the sale of such common stock in a Syndicated Community Offering on a best efforts basis, subject to the terms and conditions to be set forth in a selected dealers agreement. With respect to any shares of the common stock sold by Sandler O’Neill or any other NASD member firm under any selected dealers agreements in a Syndicated Community Offering, the Bank agrees to pay: (a) the sales commission payable to the selected dealer under such agreement and (b) a management fee to Sandler O’Neill of one percent (1.0%) of the aggregate Actual Purchase Price of the shares of common stock sold in the Syndicated Community Offering. Sandler O’Neill will endeavor to limit the aggregate fees to be paid by the Bank under any such selected dealers agreements to an amount competitive with gross underwriting discounts charged at such time for underwritings of comparable amounts of stock sold at a comparable price per share in a similar market environment, which shall not exceed 6.5% of the aggregate Actual Purchase Price of the shares sold under such agreements.

Board of Directors

Newport Federal Savings Bank

January 21, 2005

Page 4

Sandler O’Neill will endeavor to distribute the common stock among dealers in a fashion that best meets the distribution objectives of the Bank and the requirements of the Plan of Conversion, which may result in limiting the allocation of stock to certain selected dealers.

DUE DILIGENCE REVIEW

Sandler O’Neill’s obligation to perform the services contemplated by this letter shall be subject to the satisfactory completion of such investigation and inquiries relating to the Bank and the Holding Company, and their respective directors, officers, agents and employees, as Sandler O’Neill and its counsel in their sole discretion may deem appropriate under the circumstances. In this regard, the Bank agrees that, at its expense, it will make available to Sandler O’Neill all information that Sandler O’Neill requests, and will allow Sandler O’Neill the opportunity to discuss with the Bank’s and the Holding Company’s management the financial condition, business and operations of the Bank and the Holding Company. The Bank and the Holding Company acknowledge that Sandler O’Neill will rely upon the accuracy and completeness of all information received from the Bank and the Holding Company and their directors, trustees, officers, employees, agents, independent accountants and counsel.

BLUE SKY MATTERS

The Bank agrees that if Sandler O’Neill’s counsel does not serve as counsel with respect to blue sky matters in connection with the Offerings, the Bank will cause the counsel performing such services to prepare a Blue Sky Memorandum related to the Offerings including Sandler O’Neill’s participation therein and shall furnish Sandler O’Neill a copy thereof addressed to Sandler O’Neill or upon which such counsel shall state Sandler O’Neill may rely.

CONFIDENTIALITY

Other than disclosure to other firms made part of any syndicate of selected dealers or as required by law, regulation or legal process, Sandler O’Neill agrees that it will treat as confidential all material, non-public information relating to the Bank obtained in connection with its engagement hereunder (the “Confidential Information”), whether or not the Conversion is consummated. As used in this paragraph, the term “Confidential Information” shall not include information which (i) is or becomes generally available to the public other than as a result of a disclosure by Sandler O’Neill, (ii) was available to Sandler O’Neill on a non-confidential basis prior to its disclosure to Sandler O’Neill by the Bank, or (iii) becomes available to Sandler O’Neill on a non-confidential basis from a person other than the Bank who is not otherwise known to Sandler O’Neill to be bound not to disclose such information pursuant to a contractual, legal or fiduciary obligation.

Board of Directors

Newport Federal Savings Bank

January 21, 2005

Page 5

INDEMNIFICATION

Since Sandler O’Neill will be acting on behalf of the Bank and the Holding Company in connection with the Conversion and the Offerings, the Holding Company and the Bank agree to indemnify and hold Sandler O’Neill and its affiliates and their respective partners, directors, officers, employees, agents and controlling persons within the meaning of Section 15 of the Securities Act of 1933 or Section 20 of the Securities Exchange Act of 1934 (Sandler O’Neill and each such person being an “Indemnified Party”) harmless from and against any and all losses, claims, damages and liabilities, joint or several, to which such Indemnified Party may become subject under applicable federal or state law, or otherwise, related to or arising out of the Conversion or the Offerings or the engagement of Sandler O’Neill pursuant to, or the performance by Sandler O’Neill of the services contemplated by, this letter, and will reimburse any Indemnified Party for all expenses (including reasonable legal fees and expenses) as they are incurred, including expenses incurred in connection with the investigation of, preparation for or defense of any pending or threatened claim or any action or proceeding arising therefrom, whether or not such Indemnified Party is a party; provided, however, that the Bank and the Holding Company will not be liable in any such case to the extent that any such loss, claim, damage, liability or expense (i) arises out of or is based upon any untrue statement of a material fact or the omission of a material fact required to be stated therein or necessary to make not misleading any statements contained in any final prospectus, or any amendment or supplement thereto, made in reliance on and in conformity with written information furnished to the Bank by Sandler O’Neill expressly for use therein, or (ii) is primarily attributable to the gross negligence, willful misconduct or bad faith of Sandler O’Neill. If the foregoing indemnification is unavailable for any reason, the Bank and the Holding Company agree to contribute to such losses, claims, damages, liabilities and expenses in the proportion that its financial interest in the Conversion and the Offerings bears to that of Sandler O’Neill.

DEFINITIVE AGREEMENT

Sandler O’Neill and the Bank agree that (a) except as set forth in clause (b), the foregoing represents the general intention of the Bank and Sandler O’Neill with respect to the services to be provided by Sandler O’Neill in connection with the Offerings, which will serve as a basis for Sandler O’Neill commencing activities, and (b) the only legal and binding obligations of the Bank, the Holding Company and Sandler O’Neill with respect to the subject matter hereof shall be (1) the Bank’s obligation to reimburse costs and expenses pursuant to the section captioned “Costs and Expenses,” (2) those set forth under the captions “Confidentiality” and “Indemnification,” and (3) as set forth in a duly negotiated and executed definitive Agency Agreement to be entered into prior to the commencement of the Subscription Offering relating to the services of Sandler O’Neill in connection with the Offerings. Such Agency Agreement shall be in form and content satisfactory to Sandler O’Neill, the Bank and the Holding Company and their respective counsel and shall contain standard indemnification provisions consistent herewith.

Board of Directors

Newport Federal Savings Bank

January 21, 2005

Page 6

Sandler O’Neill’s execution of such Agency Agreement shall also be subject to (i) Sandler O’Neill’s satisfaction with its investigation of the Bank’s business, financial condition and results of operations, (ii) preparation of offering materials that are satisfactory to Sandler O’Neill and its counsel, (iii) compliance with all relevant legal and regulatory requirements to the reasonable satisfaction of Sandler O’Neill’s counsel, (iv) agreement that the price established by the independent appraiser is reasonable, and (v) market conditions at the time of the proposed offering. Sandler O’Neill may terminate this agreement if such Agency Agreement is not entered into prior to March 31, 2006.

Please confirm that the foregoing correctly sets forth our agreement by signing and returning to Sandler O’Neill the duplicate copy of this letter enclosed herewith.

Very truly yours,
Sandler O’Neill & Partners, L.P.
By:	Sandler O’Neill & Partners Corp., the sole general partner

By:	/s/ James J. O’Meara
	James J. O’Meara
	Authorized Signatory

Accepted and agreed to as of the date first above written:

Newport Federal Savings Bank
By:	/s/ Kevin M. McCarthy
	Kevin M. McCarthy
	President and Chief Executive Officer

[Sandler O’Neill & Partners, L.P. Letterhead]

January 21, 2005

Mr. Kevin M. McCarthy

President and Chief Executive Officer

Newport Federal Savings Bank

100 Bellevue Avenue

Newport, Rhode Island 02840

Dear Mr. McCarthy:

Sandler O’Neill & Partners, L.P. (“Sandler O’Neill”) is pleased to act as conversion agent to Newport Federal Savings Bank (the “Bank”) in connection with the Bank’s proposed conversion from mutual to stock form (the “Conversion”), including the offer and sale of certain shares of the common stock of the proposed new holding company for the Bank (the “Holding Company”) to the Bank’s eligible account holders in a Subscription Offering and, if necessary, to members of the Bank’s community in a Direct Community Offering (collectively, the “Offerings”). This letter is to confirm the terms and conditions of our engagement.

SERVICES AND FEES

In our role as Conversion Agent, we anticipate that our services will include the services outlined below, each as may be necessary and as the Bank may reasonably request:

I. Consolidation of Accounts and Vote Calculation

II. Design and Stenciling of Proxy, Order and/or Request Forms

III. Organization and Supervision of the Conversion Center

IV. Proxy Solicitation and Special Meeting Services

V. Subscription Services

Each of these services is further described in Appendix A to this agreement.

For its services hereunder, the Bank agrees to pay Sandler O’Neill a fee of $10,000. The fee set forth above is based upon the requirements of current regulations governing the conversion

Mr. Kevin M. McCarthy

January 21, 2005

Page 2

process and the Plan of Conversion as currently contemplated and an uncontested solicitation of proxies. Any unusual or additional items or duplication of service required as a result of a material change in the regulations or the Plan of Conversion, any opposition to the proxy solicitation by a third party or a material delay or other similar events may result in extra charges which will be covered in a separate agreement if and when they occur.

All fees under this agreement shall be payable in cash, as follows: (a) $5,000, payable upon execution of this agreement by the Bank, which shall be non-refundable; and (b) the balance upon the completion of the Conversion.

COSTS AND EXPENSES

In addition to any fees that may be payable to Sandler O’Neill hereunder, the Bank agrees to reimburse Sandler O’Neill, upon request made from time to time, for its reasonable out-of-pocket expenses incurred in connection with its engagement hereunder regardless of whether the Conversion is consummated, including, without limitation, travel, lodging, food, telephone, postage, listings, forms and other similar expenses; provided, however, that Sandler O’Neill shall document such expenses to the reasonable satisfaction of the Bank. The provisions of this paragraph are not intended to apply to or in any way impair the indemnification provisions of this agreement. It is understood that all expenses associated with the operation of the Conversion Center will be borne by the Bank.

RELIANCE ON INFORMATION PROVIDED

The Bank will provide Sandler O’Neill with such information as Sandler O’Neill may reasonably require to carry out its duties. The Bank recognizes and confirms that Sandler O’Neill (a) will use and rely on such information in performing the services contemplated by this agreement without having independently verified the same, and (b) does not assume responsibility for the accuracy or completeness of the information. The Bank will also inform Sandler O’Neill within a reasonable period of time of any changes in the Plan of Conversion that require changes in Sandler O’Neill’s services. If a substantial expense results from any such change, the parties shall negotiate an equitable adjustment in the fee.

LIMITATIONS

Sandler O’Neill, as Conversion Agent hereunder, (a) shall have no duties or obligations other than those specifically set forth herein; (b) will be regarded as making no representations and having no responsibilities as to the validity, sufficiency, value or genuineness of any order form or any stock certificates or the shares represented thereby, and will not be required to and will make no representations as to the validity, value or genuineness of the offer; (c) shall not be liable to any

Mr. Kevin M. McCarthy

January 21, 2005

Page 3

person, firm or corporation including the Bank by reason of any error of judgment or for any act done by it in good faith, or for any mistake of law or fact in connection with this agreement and the performance hereof unless caused by or arising out of its own willful misconduct, bad faith or gross negligence; (d) will not be obliged to take any legal action hereunder which might in its judgment involve any expense or liability, unless it shall have been furnished with reasonable indemnity satisfactory to it; and (e) may rely on and shall be protected in acting in reliance upon any certificate, instrument, opinion, notice, letter, telex, telegram, or other document or security delivered to it and in good faith believed by it to be genuine and to have been signed by the proper party or parties.

Anything in this agreement to the contrary notwithstanding, in no event shall Sandler O’Neill be liable for special, indirect or consequential loss or damage of any kind whatsoever (including but not limited to lost profits), even if Sandler O’Neill has been advised of the likelihood of such loss or damage and regardless of form of action.

INDEMNIFICATION

The Bank agrees to indemnify and hold Sandler O’Neill and its affiliates and their respective partners, directors, officers, employees, agents and controlling persons (Sandler O’Neill and each such person being an “Indemnified Party”) harmless from and against any and all losses, claims, damages and liabilities, joint or several, to which such Indemnified Party may become subject under applicable federal or state law, or otherwise, related to or arising out of the engagement of Sandler O’Neill pursuant to, and the performance by Sandler O’Neill of the services contemplated by this letter, and will reimburse any Indemnified Party for all expenses (including reasonable counsel fees and expenses) as they are incurred, including expenses incurred in connection with the investigation of, preparation for or defense of any pending or threatened claim or any action or proceeding arising therefrom, whether or not such Indemnified Party is a party. The Bank will not be liable under the foregoing indemnification provision to the extent that any loss, claim, damage, liability or expense is found in a final judgment by a court of competent jurisdiction to have resulted primarily from Sandler O’Neill’s willful misconduct, bad faith or gross negligence.

MISCELLANEOUS

This agreement may be terminated by either party in the event that the agreement entered into between the Bank and Sandler O’Neill for financial advisory services in connection with the Conversion is terminated.

The following addresses shall be sufficient for written notices to each other:

If to you:             Newport Federal Savings Bank

Mr. Kevin M. McCarthy

January 21, 2005

Page 4

100 Bellevue Avenue

Newport, Rhode Island 02840

Attention: Mr. Kevin M. McCarthy, President and CEO

If to us:       Sandler O’Neill & Partners, L.P.

919 Third Avenue, 6th Floor

New York, New York 10022

Attention: Michael Lacovara, Esq., General Counsel

The Agreement and appendix hereto constitute the entire Agreement between the parties with respect to the subject matter hereof and can be altered only by written consent signed by the parties. This Agreement is governed by the laws of the State of New York.

Please confirm that the foregoing correctly sets forth our agreement by signing and returning to Sandler O’Neill the duplicate copy of this letter enclosed herewith.

Very truly yours,
Sandler O’Neill & Partners, L.P.
By:	Sandler O’Neill & Partners Corp.,
	the sole general partner

By:	/s/ James J. O’Meara
	JamesJ. O’Meara
	AuthorizedSignatory

Accepted and agreed to as of

the date first above written:

Newport Federal Savings Bank
By:	/s/ Kevin M. McCarthy
	Kevin M. McCarthy
	President and Chief Executive Officer

APPENDIX A

OUTLINE OF CONVERSION AGENT SERVICES

I. Consolidation of Accounts/Vote Calculation

1. Consolidate files in accordance with regulatory guidelines and create central file.

2. Our EDP format will be provided to your data processing people.

3. Vote calculation.

II. Design and Stenciling of Proxy/Order Form/Request Cards

1. Assist in designing any combination of proxies, request cards and stock order forms for voting and ordering stock.

2. Stencil proxies, request cards and order forms with account holder data.

3. Target group identification for proxy solicitation.

III. Organization and Supervision of Conversion Center

1. Advising on the physical organization of the Conversion Center, including materials requirements.

2. Assist in the training of all Bank personnel who will be staffing the conversion center.

3. Establish reporting procedures.

4. On-site supervision of the Conversion Center during the solicitation/offering period.

IV. Proxy Solicitation and Special Meeting Services

1. Direct proxy solicitation.

2. Proxy and ballot tabulation.

3. Act as or support inspector of election, it being understood that Sandler O’Neill will not act as inspector of election in the case of a contested election.

4. Delete voting record date accounts closed prior to special meeting.

5. Produce final report of vote.

V. Subscription Services

1. Produce list of depositors by state (Blue Sky report).

2. Production of subscription rights and research books.

3. Stock order form processing.

4. Acknowledgment letter to confirm receipt of stock order.

5. Daily reports and analysis.

6. Proration calculation and share allocation in the event of an oversubscription.

7. Produce charter shareholder list.

8. Interface with Transfer Agent for Stock Certificate issuance.

9. Refund and interest calculations.

10. Confirmation letter to confirm purchase of stock.

11. Notification of full/partial rejection of orders.

12. Production of 1099/Debit tape.

A - 1

EX-2.1

Exhibit 2.1

PLAN OF CONVERSION

OF

NEWPORT FEDERAL SAVINGS BANK

Adopted

June 7, 2005

As Amended

March 9, 2006

TABLE OF CONTENTS

		PAGE
1.	Introduction	1
2.	Definitions	2
3.	General Procedure for Conversion	6
4.	Total Number of Shares and Purchase Price of Conversion Stock	8
5.	Subscription Rights of Eligible Account Holders (First Priority)	9
6.	Subscription Rights of Tax-qualified Employee Stock Benefit Plans (Second Priority)	9
7.	Subscription Rights of Supplemental Eligible Account Holders (Third Priority)	10
8.	Subscription Rights of Other Members (Fourth Priority)	10
9.	Community Offering, Syndicated Community Offering and Other Offerings	11
10.	Limitations on Subscriptions and Purchases of Conversion Stock	13
11.	Timing of Subscription Offering; Manner of Exercising Subscription Rights and Order Forms	14
12.	Payment for Conversion Stock	15
13.	Account Holders in Nonqualified States or Foreign Countries	17
14.	Liquidation Account	17
15.	Requirements Following Conversion for Registration, Market Making and Stock Exchange Listing	18
16.	Requirements for Stock Purchases by Directors and Officers Following the Conversion	18
17.	Establishment and Funding of Charitable Foundation	19
18.	Restrictions on Transfer of Stock	19
19.	Stock Compensation Plans	20

i

20.	Dividend and Repurchase Restrictions on Stock	20
21.	Effective Date	21
22.	Amendment or Termination of the Plan	21
23.	Interpretation of the Plan	21

ii

1. INTRODUCTION.

For purposes of this section, all capitalized terms have the meanings ascribed to them in Section 2.

This Plan of Conversion (the “Plan”) provides for the conversion of Newport Federal Savings Bank (the “Savings Bank”), from a federally-chartered mutual savings bank to a federally-chartered stock savings bank. The Plan also provides that the Savings Bank shall operate as a wholly owned subsidiary of a stock holding company (the “Holding Company”) and that non-transferable subscription rights to purchase the common stock of the Holding Company (“Conversion Stock”) shall be granted to certain deposit account holders of the Savings Bank pursuant to the Plan and in accordance with the regulations of the OTS. The Board of Directors of the Savings Bank has considered the alternatives available to the Savings Bank with respect to its corporate structure and has determined that a mutual to stock conversion, as described in this Plan, will be in the best interests of the Savings Bank and its customers. This Conversion will raise capital which will permit the Savings Bank to continue to grow and diversify its lending and investment activities thereby permitting the Savings Bank to further enhance its capabilities to serve the borrowing and other financial needs of the communities it serves. The larger capital base and the holding company structure will also facilitate possible acquisitions of other financial institutions or financial service companies.

In furtherance of the Savings Bank’s commitment to its community, this Plan of Conversion provides for the establishment of a charitable foundation as part of the Conversion. The charitable foundation is intended to complement the Savings Bank’s existing community reinvestment activities in a manner that will allow the Savings Bank’s local community to share in the growth and profitability of the Holding Company and the Savings Bank over the long term. Consistent with the Savings Bank’s goal, the Holding Company intends to donate to the charitable foundation immediately following the Conversion of a number of shares of its authorized but unissued common stock in an amount up to 8% of the Holding Company Common Stock issued in the Conversion.

This Plan was adopted by the Board of Directors of the Savings Bank on June 7, 2005.

This Plan and the formation of the Foundation are each subject to the approval of the OTS and each must be adopted by at least a majority of the total number of outstanding votes eligible to be cast by Voting Members at the Special Meeting.

The Plan provides the nontransferable subscription rights to purchase Conversion Stock shall be granted to certain Members of the Savings Bank pursuant to the Plan and in accordance with the rules and regulations of the OTS. The price of the Conversion Stock will be based on an independent appraisal of the Savings Bank and will reflect its estimated pro forma market value, as converted. No change will be made in the board of directors or management of the Savings Bank as a result of the Conversion.

This Plan recognizes the pending merger between the Savings Bank and Westerly Savings Bank pursuant to a merger agreement dated, April 11, 2005 (the “Merger Agreement”) and that the pending merger is subject to various conditions and approvals the Savings Bank expects the merger to be consummated prior to the submission of the necessary regulatory applications of the OTS. In accordance with the terms of the Merger Agreement, it is intended that for the purposes of the Plan all Westerly Savings Bank depositors as of the Eligibility Record Date will be treated as depositors/members of the Savings Bank for any date preceding the date of the consummation of the merger.

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2. DEFINITIONS.

As used in this Plan, the terms set forth below have the following meaning:

ACTING IN CONCERT means (i) knowing participation in a joint activity or interdependent conscious parallel action towards a common goal whether or not pursuant to an express agreement or understanding; or (ii) a combination or pooling of voting or other interests in the securities of an issuer for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise. A person or company which acts in concert with another Person or company (“other party”) shall also be deemed to be acting in concert with any Person who is also acting in concert with that other party, except that any Tax-Qualified Employee Stock Benefit Plan will not be deemed to be acting in concert with its trustee or a person who serves in a similar capacity solely for the purpose of determining whether stock held by the trustee and stock held by the plan will be aggregated and participants or beneficiaries of any such Tax- Qualified Employee Stock Benefit Plan will not be deemed to be acting in concert solely as a result of their common interests as participants or beneficiaries. When Persons act together for such purpose, their group is deemed to have acquired their stock. The determination of whether a group is Acting in Concert shall be made solely by the Board of Directors of the Savings Bank or Officers delegated by such Board and may be based on any evidence upon which the Board or such delegatee chooses to rely, including, without limitation, joint account relationships or the fact that such Persons have filed joint Schedules 13D or Schedules 13G with the SEC with respect to other companies. Directors of the Holding Company and Savings Bank shall not be deemed to be Acting in Concert solely as a result of their membership on any such board or boards.

ACTUAL PURCHASE PRICE means the price per share at which the Conversion Stock is ultimately sold by the Holding Company in the Offerings in accordance with the terms hereof.

AFFILIATE means a Person who, directly or indirectly, through one or more intermediaries, controls or is controlled by or is under common control with the Person specified.

ASSOCIATE, when used to indicate a relationship with any Person, means (i) a corporation or organization (other than the Holding Company, Savings Bank or a majority-owned subsidiary of the Savings Bank or the Holding Company) of which such Person is a senior officer or partner or is, directly or indirectly, the beneficial owner of 10% or more of any class of equity securities, (ii) any trust or other estate in which such Person has a substantial beneficial interest or as to which such Person serves as trustee or in a similar fiduciary capacity, provided, however, that such term shall not include any Tax-Qualified Employee Stock Benefit Plan of the Holding Company or the Savings Bank in which such Person has a substantial beneficial interest or serves as a trustee or in a similar fiduciary capacity, and (iii) any relative or spouse of such Person, or any relative of such spouse, who has the same home as such Person or who is a director or officer of the Holding Company or the Savings Bank or any of their subsidiaries.

CODE means the Internal Revenue Code of 1986, as amended.

COMMUNITY OFFERING means the offering for sale by the Holding Company of any shares of Conversion Stock not subscribed for in the Subscription Offering to such Persons within or without the Rhode Island counties in which the Savings Bank maintains a banking office as may be selected by the Holding Company and the Savings Bank in their sole discretion and to whom a copy of the Prospectus is delivered by or on behalf of the Holding Company.

2

CONTROL (including the terms “controlling,” “controlled by,” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

CONVERSION means (i) the adoption of a federally savings bank stock charter by the Savings Bank to authorize the issuance of shares of capital stock and otherwise to conform to the requirements of a stock savings bank organized under the laws of the United States, (ii) the issuance of Conversion Stock by the Holding Company in the Offerings as provided herein, and (iii) the purchase by the Holding Company of all of the capital stock of the Savings Bank to be issued by the Savings Bank in connection with its conversion from mutual to stock form.

CONVERSION STOCK means the Holding Company Common Stock to be issued and sold in the Offerings pursuant to the Plan of Conversion, or in the event the Holding Company structure is not used, the Savings Bank common stock to be issued and sold in the Offerings, which stock cannot and will not be insured by the FDIC.

DEPOSIT ACCOUNT means any withdrawable account as defined in Section 561.42 of the Rules and Regulations of the OTS, including a demand account as defined in Section 561.16 of the Rules and Regulations of the OTS.

ELIGIBLE ACCOUNT HOLDER means any Person holding a Qualifying Deposit on the Eligibility Record Date for purposes of determining Subscription Rights and establishing subaccount balances in the liquidation account to be established pursuant to Section 15 hereof.

ELIGIBILITY RECORD DATE means the date for determining Qualifying Deposits of Eligible Account Holders and is the close of business on May 31, 2004.

ESOP means a Tax Qualified Employee Stock Benefit Plan adopted by the Holding Company and the Savings Bank in connection with the Conversion, the purpose of which shall be to acquire capital stock of the Holding Company, including Conversion Stock.

ESTIMATED PRICE RANGE means the range of the estimated aggregate pro forma market value of the total number of shares of Conversion Stock to be issued in the Offerings, as determined by the Independent Appraiser in accordance with Section 4 hereof.

FDIC means the Federal Deposit Insurance Corporation or any successor thereto.

FOUNDATION means the charitable foundation that will qualify as an exempt organization under Section 501(c)(3) of the Code that will be established by the Holding Company and the Savings Bank immediately following consummation of the Conversion.

HOLDING COMPANY means the stock corporation to be organized by the Savings Bank in connection with the Conversion. Upon completion of the Conversion, the Holding Company shall hold all of the outstanding capital stock of the Savings Bank.

3

HOLDING COMPANY COMMON STOCK means the common stock of the Holding Company, par value $.01 per share, which stock cannot and will not be insured by the FDIC or any other governmental authority.

INDEPENDENT APPRAISER means the independent investment banking or financial consulting firm retained by the Holding Company and the Savings Bank to prepare an appraisal of the estimated pro forma market value of the Conversion Stock.

INITIAL PURCHASE PRICE means the price per share to be paid initially by Participants for shares of Conversion Stock subscribed for in the Subscription Offering and by Persons for shares of Conversion Stock ordered in the Community Offering and/or Syndicated Community Offering.

MEMBER means any Person qualifying as a member of the Savings Bank in accordance with its mutual charter and bylaws and the laws of the United States.

OFFERINGS mean the Subscription Offering, the Community Offering and the Syndicated Community or Public Offering.

OFFICER means the chairman of the board of directors, president, chief executive officer, vice-president, secretary, treasurer or principal financial officer, comptroller or principal accounting officer and any other person performing similar functions with respect to any organization whether incorporated or unincorporated.

ORDER FORM means the form or forms to be provided by the Holding Company, containing all such terms and provisions as set forth in Section 11 hereof, to a Participant or other Person by which Conversion Stock may be ordered in the Offerings.

OTHER MEMBER means a Voting Member who is not an Eligible Account Holder or a Supplemental Eligible Account Holder.

OTS means the Office of Thrift Supervision or any successor thereto.

PARTICIPANT means any Eligible Account Holder, Tax-Qualified Employee Stock Benefit Plan, Supplemental Eligible Account Holder or Other Member.

PERSON means an individual, a corporation, a partnership, an association, a joint stock company, a limited liability company, a limited liability partnership, a trust, an unincorporated organization or a government or any political subdivision thereof.

PLAN and PLAN OF CONVERSION mean this Plan of Conversion as adopted by the Board of Directors of the Savings Bank and any amendment hereto approved as provided herein. The Board of Directors of the Holding Company shall adopt this Plan as soon as practicable following its organization.

PROSPECTUS means the one or more documents to be used in offering the Conversion Stock in the Offerings.

4

PROXY STATEMENT means the document used to solicit approval of the Plan by Voting Members.

PUBLIC OFFERING means an underwritten firm commitment offering to the public through one or more underwriters.

QUALIFYING DEPOSIT means the aggregate balance of all Deposit Accounts in the Savings Bank of (i) an Eligible Account Holder at the close of business on the Eligibility Record Date, provided such aggregate balance is not less than $50, and (ii) a Supplemental Eligible Account Holder at the close of business on the Supplemental Eligibility Record Date, provided such aggregate balance is not less than $50. For the purposes of this definition, any deposit account in Westerly Savings Bank as of the Eligibility Record Date or Supplemental Eligibility Record Date shall be considered to be a Deposit Account in the Savings Bank.

SAVINGS BANK means Newport Federal Savings Bank.

SAVINGS BANK BENEFIT PLANS includes, but is not limited to, Tax Qualified Employee Stock Benefit Plans and Non-Tax Qualified Employee Stock Benefit Plans.

SAVINGS BANK COMMON STOCK means the common stock of the Savings Bank, par value $1.00 per share, which stock is not and will not be insured by the FDIC or any other governmental authority, all of which will be held by the Holding Company.

SEC means the Securities and Exchange Commission.

SPECIAL MEETING means the Special Meeting of Members of the Savings Bank called for the purpose of submitting this Plan, including adoption of a federal savings bank stock charter and new bylaws to authorize the issuance of capital stock and otherwise to read in a form consistent with a federally-chartered stock form savings bank and the formation of the Foundation, to the Members for their approval, including any adjournments of such meeting.

SUBSCRIPTION OFFERING means the offering of the Conversion Stock to Participants.

SUBSCRIPTION RIGHTS mean nontransferable rights to subscribe for Conversion Stock granted to Participants pursuant to the terms of this Plan.

SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDER means any Person, except directors and Officers of the Savings Bank and their Associates, holding a Qualifying Deposit at the close of business on the Supplemental Eligibility Record Date.

SUPPLEMENTAL ELIGIBILITY RECORD DATE, if applicable, means the date for determining Qualifying Deposits of Supplemental Eligible Account Holders and shall be required if the Eligibility Record Date is more than 15 months prior to the date of the latest amendment to the Application for Conversion filed by the Savings Bank prior to approval of such application by the OTS. If applicable, the Supplemental Eligibility Record Date shall be the last day of the calendar quarter preceding OTS approval of the Application for Conversion submitted by the Savings Bank pursuant to this Plan of Conversion.

5

SYNDICATED COMMUNITY OFFERING means the offering for sale by a syndicate of broker-dealers to the general public of shares of Conversion Stock not purchased in the Subscription Offering and the Community Offering.

TAX-QUALIFIED EMPLOYEE STOCK BENEFIT PLAN means any defined benefit plan or defined contribution plan, such as an employee stock ownership plan, stock bonus plan, profit-sharing plan or other plan, which is established for the benefit of the employees of the Holding Company and/or the Savings Bank and any Affiliate thereof and which, with its related trust, meets the requirements to be “qualified” under Section 401 of the Code as from time to time in effect. A “Non-Tax-Qualified Employee Stock Benefit Plan” is any defined benefit plan or defined contribution stock benefit plan which is not so qualified.

VOTING MEMBER means a Person who at the close of business on the Voting Record Date is entitled to vote as a Member of the Savings Bank in accordance with its mutual charter and bylaws.

VOTING RECORD DATE means the date or dates for determining the eligibility of Members to vote at the Special Meeting.

3. GENERAL PROCEDURE FOR CONVERSION.

(a) Organization of the Holding Company and the Savings Bank

The Savings Bank will apply to the OTS to have the Holding Company retain up to 50% of the net proceeds of the Offering, or such other amount as may be determined by the Board of Directors. Following the Conversion, the Savings Bank may distribute additional capital to the Holding Company, subject to the OTS regulations governing capital distributions.

(b) Effect on Deposit Accounts and Borrowings

Each deposit account in the Savings Bank on the Effective Date will remain a deposit account in the Savings Bank after the Conversion in the same amount and upon the same terms and conditions, and will continue to be federally insured up to the legal maximum by the FDIC in the same manner as each deposit account existed in the Savings Bank immediately prior to the Conversion. Holders of deposit accounts in the Savings Bank shall not, as such holders, have any voting rights. Upon consummation of the Conversion, all loans and other borrowings from the Savings Bank shall retain the same status with the Savings Bank after the Conversion, as they had with the Savings Bank immediately prior to the Conversion.

(c) The Savings Bank

Upon completion of the Conversion, the Savings Bank will be authorized to exercise any and all powers, rights and privileges of, and will be subject to all limitations applicable to, capital stock savings associations under federal law. A copy of the proposed charter and bylaws of the stock Savings Bank is attached hereto and made a part of this Plan. The Conversion will not result in any reduction of the amount of retained earnings and general loss reserves will be accounted for by the Holding Company and the Savings Bank on a consolidated basis in accordance with generally accepted accounting principles. Copies of the proposed charter and bylaws of the Savings Bank are attached hereto and made a part of the Plan. By their approval of this Plan, the Voting Members shall have approved and adopted the charter and bylaws of the stock Savings Bank.

6

The initial members of the Board of Directors of the Savings Bank will be the members of the Board of Directors of the Savings Bank at the time of the adoption of the Plan of Conversion who continue to be directors of the Savings Bank at the time of the closing of the Conversion. Following the Conversion, the Savings Bank will be wholly-owned by the Holding Company. The Holding Company will be wholly-owned by its stockholders who will initially consist of the persons who purchase Common Stock.

(d) The Holding Company

The Holding Company will be authorized to exercise any and all powers, rights and privileges, and will be subject to all limitations applicable to savings and loan holding companies under federal law and regulations. The initial members of the Board of Directors of the Holding Company will be appointed by the Savings Bank. Thereafter, the voting stockholders of the Holding Company will elect approximately one-third of the Holding Company’s directors annually. The total shares of Common Stock authorized under the Holding Company articles of incorporation will exceed the shares of Common Stock to be issued in the Conversion.

(e) Applications and Regulatory and Member Approval

The Savings Bank will take the necessary steps to prepare and file Applications for Conversion, including the Plan, together with all requisite material, with the OTS for approval. The Savings Bank also will cause notice of the adoption of the Plan by the Board of Directors of the Savings Bank to be given by publication in a newspaper having general circulation in each community in which an office of the Savings Bank is located, and will cause copies of the Plan to be made available at each office of the Savings Bank for inspection by Members. The Savings Bank will post the notice of the adoption of the Plan in each of its offices. Once the Application for Conversion is filed, the Savings Bank will again cause to be published, in accordance with the requirements of applicable regulations of the OTS, notices of the filing with the OTS of an Application for Conversion and will post notice of the filing of the Application for Conversion in each office of the Savings Bank.

As soon as practicable after the adoption of the Plan by the Board of Directors of the Savings Bank, the proposed Board of Directors of the Holding Company shall adopt the Plan by at least a two-thirds vote. The proposed Board of Directors of the Holding Company shall cause to be submitted to the OTS such applications as may be required for approval of the Holding Company’s acquisition of the Savings Bank and a Registration Statement with the SEC to register the Common Stock under the Securities Act of 1933, as amended. The proposed Board of Directors of the Holding Company shall also register or qualify the Common Stock under any applicable state securities laws, subject to Section 13 hereof.

Promptly following receipt of requisite approval of the OTS, the Plan will be submitted to the Voting Members for their consideration and approval at the Special Meeting. The Savings Bank may, at its option, mail to all Voting Members, at their last known address appearing on the records of the Savings Bank, a proxy statement in either long or, to the extent permitted by applicable laws and regulations, summary form describing the Plan, which will be submitted to a vote of the Voting Members at the Special Meeting. If the Plan is approved by the affirmative vote of a majority of the total number of votes eligible to be cast by Voting Members at the Special Meeting, the Savings Bank shall take all other necessary organizational steps pursuant to applicable laws and regulations to amend its charter and bylaws to authorize the issuance of its capital stock to the Holding Company at the time the Conversion is consummated.

7

(f) Expenses

The Holding Company and the Savings Bank may retain and pay for the services of financial and other advisors and investment bankers to assist in connection with any or all aspects of the Conversion, including in connection with the Offerings, the payment of fees to brokers for assisting Persons in completing and/or submitting Order Forms. The Savings Bank shall use its best efforts to ensure that all fees, expenses, retainers and similar items shall be reasonable.

4. TOTAL NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION STOCK.

(a) The aggregate price at which shares of Conversion Stock shall be sold in the Offerings shall be based on a pro forma valuation of the aggregate market value of the Conversion Stock prepared by the Independent Appraiser. The valuation shall be based on financial information relating to the Holding Company and the Savings Bank, market, financial and economic conditions, a comparison of the Holding Company and the Savings Bank with selected publicly-held financial institutions and holding companies and with comparable financial institutions and holding companies and such other factors as the Independent Appraiser may deem to be important, including, but not limited to, the projected operating results and financial condition of the Holding Company and Savings Bank. The valuation shall be stated in terms of an Estimated Price Range, the maximum of which shall generally be no more than 15% above the average of the minimum and maximum of such price range and the minimum of which shall generally be no more than 15% below such average. The valuation shall be updated during the Conversion as market and financial conditions warrant and as may be required by the OTS.

(b) Based upon the independent valuation, the Boards of Directors of the Holding Company and the Savings Bank shall fix the Initial Purchase Price and the number of shares of Conversion Stock to be offered in the Subscription Offering, Community Offering and/or Syndicated Community Offering. The Actual Purchase Price and the total number of shares of Conversion Stock to be issued in the Offerings shall be determined by the Boards of Directors of the Holding Company and the Savings Bank upon conclusion of the Offerings in consultation with the Independent Appraiser and any financial advisor or investment banker retained by the Holding Company and the Savings Bank in connection with such offering.

(c) Subject to the approval of the OTS, the Estimated Price Range may be increased or decreased to reflect market, financial and economic conditions prior to completion of the Conversion or to fill the Order of the Tax-Qualified Employee Stock Benefit Plans, and under such circumstances the Holding Company and the Savings Bank may increase or decrease the total number of shares of Conversion Stock to be issued in the Conversion to reflect any such change. Notwithstanding anything to the contrary contained in this Plan, no resolicitation of subscribers shall be required and subscribers shall not be permitted to modify or cancel their subscriptions unless the gross proceeds from the sale of the Conversion Stock issued in the Conversion are less than the minimum or more than 15% above the maximum of the Estimated Price Range set forth in the Prospectus. In the event of an increase in the total number of shares offered in the Conversion due to an increase in the Estimated Price Range, the priority of share allocation shall be as set forth in this Plan.

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5. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY).

(a) Each Eligible Account Holder shall receive, without payment, Subscription Rights to purchase up to the greater of (i) $150,000 of Conversion Stock (or such maximum purchase limitation as may be established for the Community Offering and/or Syndicated Community Offering), (ii) one-tenth of 1% of the total offering of shares in the Subscription Offering, or (iii) 15 times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of Conversion Stock offered in the Subscription Offering by a fraction, of which the numerator is the amount of the Qualifying Deposits of the Eligible Account Holder and the denominator is the total amount of all Qualifying Deposits of all Eligible Account Holders, in each case subject to Sections 10 and 13 hereof.

(b) In the event of an oversubscription for shares of Conversion Stock pursuant to Section 5(a), available shares shall be allocated among subscribing Eligible Account Holders so as to permit each such Eligible Account Holder, to the extent possible, to purchase a number of shares which will make his or her total allocation equal to the lesser of the number of shares subscribed for or 100 shares. Any available shares remaining after each subscribing Eligible Account Holder has been allocated the lesser of the number of shares subscribed for or 100 shares shall be allocated among the subscribing Eligible Account Holders in the proportion which the Qualifying Deposit of each such subscribing Eligible Account Holder bears to the total Qualifying Deposits of all such subscribing Eligible Account Holders whose orders are unfilled, provided that no fractional shares shall be issued. Subscription Rights of Eligible Account Holders shall be subordinated to the priority rights of the ESOP to purchase shares in excess of the Maximum Shares, as defined in Section 6 below. Subscription Rights of Eligible Account Holders who are also directors or Officers of the Holding Company or the Savings Bank and their Associates shall be subordinated to those of other Eligible Account Holders to the extent that they are attributable to increased deposits during the one-year period preceding the Eligibility Record Date.

6. SUBSCRIPTION RIGHTS OF TAX-QUALIFIED EMPLOYEE STOCK BENEFIT PLANS (SECOND PRIORITY).

Tax-Qualified Employee Stock Benefit Plans shall receive, without payment, Subscription Rights to purchase in the aggregate up to 10% of the Holding Company Common Stock issued in the Conversion, including (i) any shares of Holding Company Common Stock to be issued in the Conversion as a result of an increase in the Estimated Price Range after commencement of the Subscription Offering and prior to completion of the Conversion, and (ii) any shares of Holding Company Common Stock contributed to the Foundation. The subscription rights granted to Tax-Qualified Employee Stock Benefit Plans shall be subject to the availability of shares of Conversion Stock after taking into account the shares of Conversion Stock purchased by Eligible Account Holders; provided, however, that in the event that the total number of shares of Conversion Stock is increased to any amount greater than the number of shares representing the maximum of the Estimated Price Range as set forth in the Prospectus (“Maximum Shares”), the ESOP shall have a priority right to purchase any such shares exceeding the Maximum Shares up to an aggregate of 10% of Holding Company Common Stock issued in the Conversion, including any shares of Holding Company Common Stock contributed to the Foundation. Shares of Conversion Stock purchased by any individual participant (“Plan Participant”) in a Tax-Qualified Employee Stock Benefit Plan using funds therein pursuant to the exercise of subscription rights granted to such Participant in his individual capacity as an Eligible Account Holder and/or supplemental Eligible Account Holder and/or purchases by such Plan Participant in the Community Offering shall not be deemed to be purchases by a Tax-Qualified Employee Stock Benefit Plan for purposes of calculating the maximum amount of Conversion Stock that Tax-Qualified Employee Stock Benefit Plans may purchase pursuant to the first sentence of this Section 6 if the individual Plan

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Participant controls or directs the investment authority with respect to such account or subaccount. Consistent with applicable laws and regulations and policies and practices of the OTS, the Tax-Qualified Employee Stock Benefit Plans may use funds contributed by the Holding Company or the Savings Bank and/or borrowed from an independent financial institution to exercise such Subscription Rights, and the Holding Company and the Savings Bank may make scheduled discretionary contributions thereto, provided that such contributions do not cause the Holding Company or the Savings Bank to fail to meet any applicable regulatory capital requirement.

7. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD PRIORITY).

(a) In the event that the Eligibility Record Date is more than 15 months prior to the date of the latest amendment to the Application for Conversion filed prior to OTS approval, then, and only in that event, a Supplemental Eligibility Record Date shall be set and each Supplemental Eligible Account Holder shall receive, without payment, Subscription Rights to purchase up to the greater of (i) $150,000 of Conversion Stock in the Subscription Offering (or such maximum purchase limitation as may be established for the Community Offering and/or Syndicated Community Offering), (ii) one-tenth of 1% of the total offering of shares in the Subscription Offering and (iii) 15 times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of Conversion Stock offered in the Subscription Offering by a fraction, of which the numerator is the amount of the Qualifying Deposits of the Supplemental Eligible Account Holder and the denominator is the total amount of all Qualifying Deposits of all Supplemental Eligible Account Holders, in each case subject to Sections 10 and 13 hereof and the availability of shares of Conversion Stock for purchase after taking into account the shares of Conversion Stock purchased by Eligible Account Holders and Tax-Qualified Employee Stock Benefit Plans through the exercise of Subscription Rights under Sections 5 and 6 hereof.

(b) In the event of an oversubscription for shares of Conversion Stock pursuant to Section 7(a), available shares shall be allocated among subscribing Supplemental Eligible Account Holders so as to permit each such Supplemental Eligible Account Holder, to the extent possible, to purchase a number of shares sufficient to make his or her total allocation (including the number of shares, if any, allocated in accordance with Section 5(a)) equal to the lesser of the number of shares subscribed for or 100 shares. Any remaining available shares shall be allocated among subscribing Supplemental Eligible Account Holders in the proportion that the amount of their respective Qualifying Deposits bears to the total amount of the Qualifying Deposits of all such subscribing Supplemental Eligible Account Holders whose orders are unfilled, provided that no fractional shares shall be issued.

8. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY).

(a) Each Other Member shall receive, without payment, Subscription Rights to purchase up to the greater of (i) $150,000 of Conversion Stock in the Subscription Offering (or such maximum purchase limitation as may be established for the Community Offering and/or Syndicated Community Offering) and (ii) one-tenth of 1% of the total offering of shares in the Subscription Offering, subject to Sections 10 and 13 hereof and the availability of shares of Conversion Stock for purchase after taking into account the shares of Conversion Stock purchased by Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans and Supplemental Eligible Account Holders, if any, through the exercise of Subscription Rights under Sections 5, 6 and 7 hereof.

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(b) If, pursuant to this Section 8, Other Members subscribe for a number of shares of Conversion Stock in excess of the total number of shares of Conversion Stock remaining, available shares shall be allocated among subscribing Other Members so as to permit each such Other Member, to the extent possible, to purchase a number of shares which will make his or her total allocation equal to the lesser of the number of shares subscribed for or 100 shares. Any remaining shares shall be allocated among subscribing Other Members on a pro rata basis in the same proportion as each such Other Member’s subscription bears to the total subscriptions of all such subscribing Other Members, provided that no fractional shares shall be issued.

9. COMMUNITY OFFERING, SYNDICATED COMMUNITY OFFERING, PUBLIC OFFERING AND OTHER OFFERINGS.

(a) If less than the total number of shares of Conversion Stock are sold in the Subscription Offering, it is anticipated that all remaining shares of Conversion Stock shall, if practicable, be sold in a Community Offering. Subject to the requirements set forth herein, the manner in which the Conversion Stock is sold in the Community Offering shall have as the objective the achievement of the widest possible distribution of such stock.

(b) In the event of a Community Offering, all shares of Conversion Stock which are not subscribed for in the Subscription Offering shall be offered for sale by means of a direct community marketing program, which may provide for the use of brokers, dealers or investment banking firms experienced in the sale of financial institution securities. Any available shares in excess of those not subscribed for in the Subscription Offering will be available for purchase by members of the general public to whom a Prospectus is delivered by the Holding Company or on its behalf, with preference given first to natural persons and trusts of natural persons residing in the Rhode Island counties in which the Savings Bank maintains a banking office (“Preferred Subscribers”).

(c) A Prospectus and Order Form shall be furnished to such Persons as the Holding Company and the Savings Bank may select in connection with the Community Offering, and each order for Conversion Stock in the Community Offering shall be subject to the absolute right of the Holding Company and the Savings Bank to accept or reject any such order in whole or in part either at the time of receipt of an order or as soon as practicable following completion of the Community Offering. Available shares will be allocated first to each Preferred Subscriber whose order is accepted in an amount equal to the lesser of 100 shares or the number of shares subscribed for by each such Preferred Subscriber, if possible. Thereafter, unallocated shares shall be allocated among the Preferred Subscribers whose accepted orders remain unsatisfied in the same proportion that the unfilled order bears to the total unfilled orders of all Preferred Subscribers whose accepted orders remain unsatisfied, provided that no fractional shares shall be issued. If there are any shares remaining after all accepted orders by Preferred Subscribers have been satisfied, such remaining shares shall be allocated to other members of the general public who purchase in the Community Offering, applying the same allocation described above for Preferred Subscribers.

(d) The amount of Conversion Stock that any Person may purchase in the Community Offering shall not exceed $150,000 of Conversion Stock, provided, however, that this amount may be increased to up to 5% of the total offering of shares of Conversion Stock, subject to any required regulatory approval but without the further approval of Members; and provided further that to the extent applicable, and subject to the preferences set forth in Section 9(b) and (c) of this Plan and the limitations on purchases of Conversion Stock set forth in this Section 9(d) and Section 10 of this Plan, orders for Conversion Stock in the Community Offering shall first be filled to a maximum of 2% of the total number of shares of Conversion Stock sold in the Offerings and thereafter any remaining shares shall be allocated on an equal number of

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shares basis per order until all orders have been filled, provided no fractional shares shall be issued. The Holding Company and the Savings Bank may commence the Community Offering concurrently with, at any time during, or as soon as practicable after the end of, the Subscription Offering, and the Community Offering must be completed within 45 days after the completion of the Subscription Offering, unless extended by the Holding Company and the Savings Bank with any required regulatory approval.

(e) Subject to such terms, conditions and procedures as may be determined by the Holding Company and the Savings Bank, all shares of Conversion Stock not subscribed for in the Subscription Offering or ordered in the Community Offering may be sold by a syndicate of broker-dealers to the general public in a Syndicated Community Offering. Each order for Conversion Stock in the Syndicated Community Offering shall be subject to the absolute right of the Holding Company and the Savings Bank to accept or reject any such order in whole or in part either at the time of receipt of an order or as soon as practicable after completion of the Syndicated Community Offering. The amount of Conversion Stock that any Person may purchase in the Syndicated Community Offering shall not exceed $150,000 of Conversion Stock, provided, however, that this amount may be increased to up to 5% of the total offering of shares of Conversion Stock, subject to any required regulatory approval but without the further approval of Members; and provided further that, to the extent applicable, and subject to the limitations on purchases of Conversion Stock set forth in this Section 9(e) and Section 10 of this Plan, orders for Conversion Stock in the Syndicated Community Offering shall first be filled to a maximum of 2% of the total number of shares of Conversion Stock sold in the Offerings and thereafter any remaining shares shall be allocated on an equal number of shares basis per order until all orders have been filled, provided no fractional shares shall be issued. The Holding Company and the Savings Bank may commence the Syndicated Community Offering concurrently with, at any time during, or as soon as practicable after the end of, the Subscription Offering and/or Community Offering, and the Syndicated Community Offering must be completed within 45 days after the completion of the Subscription Offering, unless extended by the Holding Company and the Savings Bank with any required regulatory approval.

(f) The Holding Company and the Savings Bank may sell any shares of Conversion Stock remaining following the Subscription Offering, Community Offering and/or the Syndicated Community Offering in a Public Offering. The provisions of Section 10 hereof shall not be applicable to the sales to underwriters for purposes of the Public Offering but shall be applicable to sales by the underwriters to the public. The price to be paid by the underwriters in such an offering shall be equal to the Actual Purchase Price less an underwriting discount to be negotiated among such underwriters and the Savings Bank and the Holding Company, subject to any required regulatory approval or consent.

(g) If for any reason a Syndicated Community Offering or Public Offering of shares of Conversion Stock not sold in the Subscription Offering and the Community Offering cannot be effected, or in the event that any insignificant residue of shares of Conversion Stock is not sold in the Subscription Offering, Community Offering or Syndicated Community Offering, the Holding Company and the Savings Bank shall use their best efforts to obtain other purchasers for such shares in such manner and upon such conditions as may be satisfactory to the OTS.

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10. LIMITATIONS ON SUBSCRIPTIONS AND PURCHASES OF CONVERSION STOCK.

The following limitations shall apply to all purchases of Holding Company Common Stock in the Conversion:

(a) The maximum number of shares of Conversion Stock which may be purchased in the Conversion by the ESOP shall not exceed 8%, and all Tax-Qualified Employee Stock Benefit Plans shall not exceed 10%, of the total number of shares of Holding Company Common Stock issued in the Conversion, in each instance, including (i) any shares which may be issued in the event of an increase in the maximum of the Estimated Price Range to reflect changes in market, financial and economic conditions after commencement of the Subscription Offering and prior to completion of the Offerings, and (ii) any shares of Holding Company Common Stock contributed to the Foundation; provided, however, that purchases of Conversion Stock which are made by Plan Participants pursuant to the exercise of subscription rights granted to such Plan Participant in his or her individual capacity as a Participant or purchases by a Plan Participant in the Community Offering using the funds thereof held in Tax-Qualified Employee Stock Benefit Plans shall not be deemed to be purchases by a Tax-Qualified Employee Stock Benefit Plan for purposes of this Section 10(a).

(b) Except in the case of Tax-Qualified Employee Stock Benefit Plans in the aggregate, as set forth in Section 10(a) hereof, and certain Eligible Account Holders and Supplemental Eligible Account Holders, as set forth in Sections 5(a)(ii) and (iii) and 7(a)(ii) and (iii) hereof, and in addition to the other restrictions and limitations set forth herein, the maximum amount of Holding Company Common Stock that any Person, any Person together with any Associates, or Persons otherwise Acting in Concert may, directly or indirectly, subscribe for or purchase in the Conversion, shall not exceed $300,000 of Conversion Stock sold in the Conversion.

(c) The number of shares of Conversion Stock that directors and Officers of the Holding Company or the Savings Bank and their Associates may purchase in the aggregate in the Offerings shall not exceed 30% of the total number of shares of Conversion Stock sold in the Offerings, including any shares which may be issued in the event of an increase in the maximum of the Estimated Price Range to reflect changes in market, financial and economic conditions after commencement of the Subscription Offering and prior to completion of the Offerings.

(d) No Person may purchase fewer than 25 shares of Conversion Stock in the Offerings, to the extent such shares are available; provided, however, that if the Actual Purchase Price is greater than $20.00 per share, such minimum number of shares shall be adjusted so that the aggregate Actual Purchase Price for such minimum shares will not exceed $500.00.

(e) For purposes of the foregoing limitations and the determination of Subscription Rights, (i) directors, Officers and employees of the Holding Company, the Savings Bank or their subsidiaries shall not be deemed to be Associates or a group Acting in Concert solely as a result of their capacities as such, (ii) shares purchased by Tax-Qualified Employee Stock Benefit Plans shall not be attributable to the individual trustees or beneficiaries of any such plan for purposes of determining compliance with the limitations set forth in Section 10(b) hereof, and (iii) shares purchased by a Tax-Qualified Employee Stock Benefit Plan pursuant to instructions of an individual in an account in such plan in which the individual has the right to direct the investment, including any plan of the Savings Bank qualified under Section 401(k) of the Code, shall be aggregated and included in that individual’s purchases and not attributed to the Tax-Qualified Employee Stock Benefit Plan.

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(f) Subject to any required regulatory approval and the requirements of applicable laws and regulations, but without further approval of the Members, the Holding Company and the Savings Bank may increase or decrease any of the individual or aggregate purchase limitations set forth herein to a percentage which does not exceed 5% of the total offering of shares of Holding Company Common Stock in the Conversion whether prior to, during or after the Subscription Offering, Community Offering and/or Syndicated Community Offering. In the event that an individual purchase limitation is increased after commencement of the Subscription Offering or any other offering, the Holding Company and the Savings Bank shall permit any Person who subscribed for the maximum number of shares of Conversion Stock to purchase an additional number of shares, so that such Person shall be permitted to subscribe for the then maximum number of shares permitted to be subscribed for by such Person, subject to the rights and preferences of any Person who has priority Subscription Rights. In the event that any of the individual or aggregate purchase limitations are decreased after commencement of the Subscription Offering or any other offering, the orders of any Person who subscribed for more than the new purchase limitation shall be decreased by the minimum amount necessary so that such Person shall be in compliance with the then maximum number of shares permitted to be subscribed for by such Person.

(g) The Holding Company and the Savings Bank shall have the right to take all such action as they may, in their sole discretion, deem necessary, appropriate or advisable in order to monitor and enforce the terms, conditions, limitations and restrictions contained in this Section 10 and elsewhere in this Plan and the terms, conditions and representations contained in the Order Form, including, but not limited to, the absolute right (subject only to any necessary regulatory approvals or concurrences) to reject, limit or revoke acceptance of any subscription or order and to delay, terminate or refuse to consummate any sale of Conversion Stock which they believe might violate, or is designed to, or is any part of a plan to, evade or circumvent such terms, conditions, limitations, restrictions and representations. Any such action shall be final, conclusive and binding on all persons, and the Holding Company and the Savings Bank and their respective Boards shall be free from any liability to any Person on account of any such action.

11. TIMING OF SUBSCRIPTION OFFERING; MANNER OF EXERCISING SUBSCRIPTION RIGHTS AND ORDER FORMS.

(a) The Offerings shall be conducted in compliance with 12 CFR part 563g and, to the extent applicable, Form OC.

(b) The exact timing of the commencement of the Subscription Offering shall be determined by the Holding Company in consultation with the Independent Appraiser and any financial or advisory or investment banking firm retained by it in connection with the Conversion. The Holding Company may consider a number of factors, including, but not limited to, its current and projected future earnings, local and national economic conditions, and the prevailing market for stocks in general and stocks of financial institutions in particular. The Holding Company shall have the right to withdraw, terminate, suspend, delay, revoke or modify any such Subscription Offering, at any time and from time to time, as its in its sole discretion may determine, without liability to any Person, subject to compliance with applicable securities laws and any necessary regulatory approval or concurrence.

(c) Promptly after the SEC has declared the Registration Statement, which includes the Prospectus, effective and all required regulatory approvals have been obtained, the Holding Company shall distribute or make available the Prospectus, together with Order Forms for the purchase of Conversion Stock, to all Participants for the purpose of enabling them to exercise their respective Subscription Rights, subject to Section 13 hereof.

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(d) A single Order Form for all Deposit Accounts maintained with the Savings Bank by an Eligible Account Holder and any Supplemental Eligible Account Holder may be furnished, irrespective of the number of Deposit Accounts maintained with the Savings Bank on the Eligibility Record Date and Supplemental Eligibility Record Date, respectively. No person holding a subscription right may exceed any otherwise applicable purchase limitation by submitting multiple orders for Conversion Stock. Multiple orders are subject to adjustment, as appropriate, on a pro rata basis and deposit balances will be divided equally among such orders in allocating shares in the event of an oversubscription.

(e) The recipient of an Order Form shall have no less than 20 days and no more than 45 days from the date of mailing of the Order Form (with the exact termination date to be set forth on the Order Form) to properly complete and execute the Order Form and deliver it to the Holding Company. The Holding Company may extend such period by such amount of time as it determines is appropriate. Failure of any Participant to deliver a properly executed Order Form to the Holding Company, along with full payment (or authorization for full payment by withdrawal) for the shares of Conversion Stock subscribed for, within the time limits prescribed, shall be deemed a waiver and release by such person of any rights to subscribe for shares of Conversion Stock. Each Participant shall be required to confirm to the Holding Company by executing an Order Form that such Person has fully complied with all of the terms, conditions, limitations and restrictions in the Plan.

(f) The Holding Company shall have the absolute right, in its sole discretion and without liability to any Participant or other Person, to reject any Order Form, including, but not limited to, any Order Form that is (i) improperly completed or executed; (ii) not timely received; (iii) not accompanied by the proper and full payment (or authorization of withdrawal for full payment) or, in the case of institutional investors in the Community Offering, not accompanied by an irrevocable order together with a legally binding commitment to pay the full amount of the purchase price prior to 48 hours before the completion of the Offerings; or (iv) submitted by a Person whose representations the Holding Company believes to be false or who it otherwise believes, either alone, or Acting in Concert with others, is violating, evading or circumventing, or intends to violate, evade or circumvent, the terms and conditions of the Plan. Furthermore, in the event Order Forms (i) are not delivered and are returned to the Holding Company by the United States Postal Service or the Holding Company is unable to locate the addressee, or (ii) are not mailed pursuant to a “no mail” order placed in effect by the account holder, the Subscription Rights of the Person to which such rights have been granted will lapse as though such Person failed to return the contemplated Order Form within the time period specified thereon. The Holding Company may, but will not be required to, waive any irregularity on any Order Form or may require the submission of corrected Order Forms or the remittance of full payment for shares of Conversion Stock by such date as they may specify. The interpretation of the Holding Company of the terms and conditions of the Order Forms shall be final and conclusive.

12. PAYMENT FOR CONVERSION STOCK.

(a) Payment for shares of Conversion Stock subscribed for by Participants in the Subscription Offering and payment for shares of Conversion Stock ordered by Persons in the Community Offering shall be equal to the Initial Purchase Price multiplied by the number of shares which are being subscribed for or ordered, respectively. Such payment may be made in cash, if delivered in person, or by check, bank draft or money order at the time the Order Form is delivered to the Holding Company, provided that checks will only be accepted subject to collection. The Holding Company, in its sole and absolute discretion, may also elect to receive payment for shares of Conversion Stock by wire transfer. In addition, the Holding Company may elect to provide Participants and/or other Persons who have a Deposit Account with the Savings Bank the opportunity to pay for shares of Conversion Stock by authorizing the Savings Bank to withdraw from such Deposit Account an amount equal to the aggregate Initial Purchase Price of such shares. Payment may

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also be made by a Participant using funds held for such Participant’s benefit by a Savings Bank Benefit Plan to the extent that such plan allows participants or any related trust established for the benefit of such participants to direct that some or all of their individual accounts or sub-accounts be invested in Conversion Stock. If the Actual Purchase Price is less than the Initial Purchase Price, the Holding Company shall refund the difference to all Participants and other Persons, unless the Holding Company choose to provide Participants and other Persons the opportunity on the Order Form to elect to have such difference applied to the purchase of additional whole shares of Conversion Stock. If the Actual Purchase Price is more than the Initial Purchase Price, the Holding Company shall reduce the number of shares of Conversion Stock ordered by Participants and other Persons and refund any remaining amount which is attributable to a fractional share interest, unless the Holding Company chooses to provide Participants and other Persons the opportunity to increase the Actual Purchase Price submitted by them.

(b) Notwithstanding the above, if the Tax-Qualified Employee Stock Benefit Plans subscribe for shares during the Subscription Offering, such plans will not be required to pay for the shares at the time they subscribe but rather may pay for such shares of Common Stock subscribed for by such plans at the Actual Purchase Price upon consummation of the Conversion, provided that, in the case of the Employee Stock Ownership Plan, there is in force from the time of its subscription until the consummation of the Stock Offering, a loan commitment to lend to the Employee Stock Ownership Plan, at such time, the aggregate price of the shares for which it subscribed.

(c) If a Participant or other Person authorizes the Savings Bank to withdraw the amount of the Initial Purchase Price from his or her Deposit Account, the Savings Bank shall have the right to make such withdrawal or to freeze funds equal to the aggregate Initial Purchase Price upon receipt of the Order Form. Notwithstanding any regulatory provisions regarding penalties for early withdrawals from certificate accounts, the Savings Bank may allow payment by means of withdrawal from certificate accounts without the assessment of such penalties. In the case of an early withdrawal of only a portion of such account, the certificate evidencing such account shall be canceled if any applicable minimum balance requirement ceases to be met. In such case, the remaining balance will earn interest at the regular passbook rate. However, where any applicable minimum balance is maintained in such certificate account, the rate of return on the balance of the certificate account shall remain the same as prior to such early withdrawal. This waiver of the early withdrawal penalty applies only to withdrawals made in connection with the purchase of Conversion Stock and is entirely within the discretion of the Holding Company and the Savings Bank.

(d) The Holding Company shall pay interest, at not less than the Savings Bank passbook rate, for all amounts paid in cash, by check, bank draft or money order to purchase shares of Conversion Stock in the Subscription Offering and the Community Offering from the date payment is received until the date the Offerings are completed or terminated.

(e) The Holding Company will not offer or sell any of the Common Stock proposed to be issued to any Person whose purchase would be financed by funds loaned, directly or indirectly, to the Person by the Bank.

(f) Each share of Conversion Stock shall be non-assessable upon payment in full of the Actual Purchase Price.

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13. ACCOUNT HOLDERS IN NONQUALIFIED STATES OR FOREIGN COUNTRIES.

The Holding Company and the Savings Bank shall make reasonable efforts to comply with the securities laws of all jurisdictions in the United States in which Participants reside. However, no Participant will be offered or receive any Conversion Stock under the Plan if such Participant resides in a foreign country or resides in a jurisdiction of the United States with respect to which all of the following apply: (a) there are few Participants otherwise eligible to subscribe for shares under this Plan who reside in such jurisdiction; (b) the granting of Subscription Rights or the offer or sale of shares of Conversion Stock to such Participants would require any of the Holding Company or the Savings Bank or their respective directors and Officers, under the laws of such jurisdiction, to register as a broker-dealer, salesman or selling agent or to register or otherwise qualify the Conversion Stock for sale in such jurisdiction, or any of the Holding Company or the Savings Bank would be required to qualify as a foreign corporation or file a consent to service of process in such jurisdiction; and (c) such registration, qualification or filing in the judgment of the Holding Company and the Savings Bank would be impracticable or unduly burdensome for reasons of cost or otherwise.

14. LIQUIDATION ACCOUNT.

(a) At the time of the Conversion, the Savings Bank shall establish a liquidation account in an amount equal to the Savings Bank’s net worth as reflected in its latest statement of financial condition contained in the final Prospectus used in the Conversion. The function of the liquidation account will be to preserve the rights of certain holders of Deposit Accounts in the Savings Bank who maintain such accounts in the Savings Bank following the Conversion to a priority to distributions in the unlikely event of a liquidation of the Savings Bank subsequent to the Conversion.

(b) The liquidation account shall be maintained for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders, if any, who maintain their Deposit Accounts in the Savings Bank after the Conversion. Each such account holder will, with respect to each Deposit Account held, have a related inchoate interest in a portion of the liquidation account balance, which interest will be referred to in this Section 15 as the “subaccount balance.” All Deposit Accounts having the same social security number will be aggregated for purposes of determining the initial subaccount balance with respect to such Deposit Accounts, except as provided in Section 15(d) hereof.

(c) In the event of a complete liquidation of the Savings Bank subsequent to the Conversion (and only in such event), each Eligible Account Holder and Supplemental Eligible Account Holder, if any, shall be entitled to receive a liquidation distribution from the liquidation account in the amount of the then current subaccount balances for Deposit Accounts then held (adjusted as described below) before any liquidation distribution may be made with respect to the capital stock of the Savings Bank. No merger, consolidation, sale of bulk assets or similar combination transaction with another FDIC-insured institution in which the Savings Bank is not the surviving entity shall be considered a complete liquidation for this purpose. In any such transaction, the liquidation account shall be assumed by the surviving entity.

(d) The initial subaccount balance for a Deposit Account held by an Eligible Account Holder and Supplemental Eligible Account Holder, if any, shall be determined by multiplying the opening balance in the liquidation account by a fraction, of which the numerator is the amount of the Qualifying Deposits of such account holder and the denominator is the total amount of Qualifying Deposits of all Eligible Account Holders and Supplemental Eligible Account Holders, if any. For Deposit Accounts in existence at both the Eligibility Record Date and the Supplemental Eligibility Record Date, if any, separate initial subaccount balances shall be determined on the basis of the Qualifying Deposits in such Deposit Accounts on each such

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record date. Initial subaccount balances shall not be increased, and shall be subject to downward adjustment as provided below.

(e) If the aggregate deposit balance in the Deposit Account(s) of any Eligible Account Holder or Supplemental Eligible Account Holder, if any, at the close of business on any annual closing date, commencing on or after the effective date of the Conversion, is less than the lesser of (a) the aggregate deposit balance in such Deposit Account(s) at the close of business on any other annual closing date subsequent to such record dates, or (b) the aggregate deposit balance in such Deposit Account(s) as of the Eligibility Record Date or the Supplemental Eligibility Record Date, if any, the subaccount balance for such Deposit Account(s) shall be adjusted by reducing such subaccount balance in an amount proportionate to the reduction in such deposit balance. In the event of such a downward adjustment, the subaccount balance shall not be subsequently increased, notwithstanding any subsequent increase in the deposit balance of the related Deposit Account(s). The subaccount balance of an Eligible Account Holder or Supplemental Eligible Account Holder, if any, will be reduced to zero if the Account Holder ceases to maintain a Deposit Account at the Savings Bank that has the same social security number as appeared on his Deposit Account(s) at the Eligibility Record Date or, if applicable, the Supplemental Eligibility Record Date.

(f) Subsequent to the Conversion, the Savings Bank may not pay cash dividends generally on deposit accounts and/or capital stock of the Savings Bank, or repurchase any of the capital stock of the Savings Bank, if such dividend or repurchase would reduce the Savings Bank’s regulatory capital below the aggregate amount of the then current subaccount balances for Deposit Accounts then held; otherwise, the existence of the liquidation account shall not operate to restrict the use or application of any of the net worth accounts of the Savings Bank.

(g) For purposes of this Section 15, a Deposit Account includes a predecessor or successor account which is held by an Account Holder with the same social security number.

15. REQUIREMENTS FOLLOWING CONVERSION FOR REGISTRATION, MARKET MAKING AND STOCK EXCHANGE LISTING.

In connection with the Conversion, the Holding Company shall register the Holding Company Common Stock pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, and shall undertake not to deregister such stock for a period of three years thereafter. The Holding Company also shall use its best efforts to (i) encourage and assist a market maker to establish and maintain a market for the Holding Company Common Stock, and (ii) list the Holding Company Common Stock on a national or regional securities exchange or to have quotations for such stock disseminated on the Nasdaq Stock Market.

16. REQUIREMENTS FOR STOCK PURCHASES BY DIRECTORS AND OFFICERS FOLLOWING THE CONVERSION.

For a period of three years following the Conversion, the directors and Officers of the Holding Company and the Savings Bank and their Associates may not purchase, without the prior written approval of the OTS, Holding Company Common Stock except from a broker-dealer registered with the SEC. This prohibition shall not apply, however, to (i) a negotiated transaction involving more than 1% of the outstanding Holding Company Common Stock, and (ii) purchases of stock made by and held by any Tax-Qualified Employee Stock Benefit Plan (and purchases of stock made by and held by any Non-Tax-Qualified Employee Stock Benefit Plan following the receipt of shareholder approval of such plan) which may be attributable to individual Officers or directors and their Associates. The foregoing restriction on purchases

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of Holding Company Common Stock shall be in addition to any restrictions that may be imposed by federal and state securities laws.

17. ESTABLISHMENT AND FUNDING OF CHARITABLE FOUNDATION.

As part of the Conversion, the Holding Company and the Savings Bank intend to establish the Foundation and donate to the Foundation from authorized but unissued shares of Holding Company Common Stock, an amount up to 8% of the number of shares of Holding Company Common Stock issued in the Conversion. The Foundation is being formed in connection with the Conversion in order to complement the Savings Bank’s existing community reinvestment activities and to share with the Savings Bank’s local community a part of the Savings Bank’s financial success as a locally headquartered, community minded, financial services institution. The funding of the Foundation with Holding Company Common Stock accomplishes this goal as it enables the community to share in the growth and profitability of the Holding Company and the Savings Bank over the long-term.

The Foundation will be dedicated to the promotion of charitable purposes including grants or donations to support housing, not-for-profit community groups and other types of organizations or civic-minded projects. The Foundation annually will distribute total grants to assist charitable organizations or to fund charitable projects within its local community of not less than 5% of the average fair value of Foundation assets each year, less certain expenses. In order to serve the purposes for which it was formed and maintain its Section 501(c)(3) qualification, the Foundation may sell, on an annual basis, a limited portion of the Holding Company Common Stock contributed to it by the Holding Company.

The establishment and funding of the Foundation as part of the Conversion is subject to the receipt of OTS approval and approval of Members. The Conversion is not conditioned upon the establishment and funding of the Foundation. The Conversion may proceed and be completed whether or not the Foundation is established and funded.

The board of directors of the Foundation will be comprised of individuals who are Officers and/or directors of the Holding Company or the Savings Bank and, for at least five years after its organization, at least one member of the Savings Bank’s community who is not an Officer or director of the Holding Company or the Savings Bank. The board of directors of the Foundation will be responsible for establishing the policies of the Foundation with respect to grants or donations, consistent with the stated purposes of the Foundation.

18. RESTRICTIONS ON TRANSFER OF STOCK.

All shares of Conversion Stock which are purchased by Persons other than directors and Officers of the Holding Company or the Savings Bank shall be transferable without restriction. Shares of Conversion Stock purchased by directors and Officers of the Holding Company or the Savings Bank on original issue from the Holding Company (by subscription or otherwise) shall be subject to the restriction that such shares shall not be sold or otherwise disposed of for value for a period of one year following the date of purchase, except for any disposition of such shares following the death of the original purchaser. The shares of Conversion Stock issued by the Holding Company to such directors and Officers shall bear the following legend giving appropriate notice of such one-year restriction:

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“The shares of stock evidenced by this Certificate are restricted as to transfer for a period of one year from the date of this Certificate pursuant to Part 563b of the Rules and Regulations of the Office of Thrift Supervision. These shares may not be transferred during such one-year period without a legal opinion of counsel for the Company that said transfer is permissible under the provisions of applicable law and regulation. This restrictive legend shall be deemed null and void after one year from the date of this Certificate.”

In addition, the Holding Company shall give appropriate instructions to the transfer agent for the Holding Company Common Stock with respect to the applicable restrictions relating to the transfer of restricted stock. Any shares issued at a later date as a stock dividend, stock split or otherwise with respect to any such restricted stock shall be subject to the same holding period restrictions as may then be applicable to such restricted stock. The foregoing restriction on transfer shall be in addition to any restrictions on transfer that may be imposed by federal and state securities laws.

19. STOCK COMPENSATION PLANS.

(a) The Holding Company and the Savings Bank are authorized to adopt Tax-Qualified Employee Stock Benefit Plans in connection with the Conversion, including without limitation an employee stock ownership plan.

(b) Subsequent to the Conversion, the Holding Company and the Savings Bank are authorized to adopt Non-Tax Qualified Employee Stock Benefit Plans, including without limitation, stock option plans and restricted stock plans. In addition, any such plan implemented during the one-year period subsequent to the date of consummation of the Conversion: (i) shall be disclosed in the Prospectus; (ii) in the case of stock option plans and employee recognition or grant plans, shall be submitted for approval by the holders of the Common Stock no earlier than six months following consummation of the Conversion; and (iii) shall comply with all other applicable requirements of the OTS.

(c) Existing, as well as any newly-created, Tax-Qualified Employee Stock Benefit Plans may purchase shares of Conversion Stock in the Offerings, to the extent permitted by the terms of such benefit plans and this Plan.

(d) The Holding Company and the Savings Bank are authorized to enter into employment or severance agreements with their executive officers.

20. DIVIDEND AND REPURCHASE RESTRICTIONS ON STOCK.

The Holding Company may not declare or pay a cash dividend on its Common Stock if the effect thereof would cause the regulatory capital of the Savings Bank to be reduced below the amount required under § 567.2 of the OTS rules and regulations. Otherwise, the Holding Company may declare dividends or make other capital distributions in accordance with § 563b.520 of the OTS rules and regulations. Following completion of the Conversion, the Holding Company may repurchase its Common Stock consistent with § 563b.510 and § 563b.515 of the OTS rules and regulations relating to stock repurchases, as long as such repurchases do not cause the regulatory capital of the Savings Bank to be reduced below the amount required under the OTS rules and regulations.

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21. EFFECTIVE DATE.

The effective date of the Conversion shall be the date of the closing of the sale of all shares of Conversion Stock. The closing of the sale of all shares of Conversion Stock sold in the Offerings shall occur simultaneously and shall be conditioned upon the prior receipt of all requisite regulatory and other approvals.

22. AMENDMENT OR TERMINATION OF THE PLAN.

If deemed necessary or desirable by the Board of Directors of the Holding Company, this Plan may be substantively amended, as a result of comments from regulatory authorities or otherwise, at any time prior to the approval of the Plan by the OTS and at any time thereafter with the concurrence of the OTS. Prior to the approval of the Plan by the OTS, this Plan may be terminated by the Board of Directors of the Holding Company without approval of the OTS; after approval of the Plan by the OTS, the Board of Directors may terminate this Plan only with the concurrence of the OTS.

23. INTERPRETATION OF THE PLAN.

All interpretations of this Plan and application of its provisions to particular circumstances by a majority of each of the Board of Directors of the Holding Company shall be final, subject to the authority of the OTS.

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FEDERAL STOCK CHARTER

FOR

NEWPORT FEDERAL SAVINGS BANK

Section 1. Corporate Title.

The full corporate title of the bank is Newport Federal Savings Bank (the “BANK”).

Section 2. Office.

The home office shall be located in the City of Newport, in the State of Rhode Island.

Section 3. Duration.

The duration of the BANK is perpetual.

Section 4. Purpose and Powers.

The purpose of the BANK is to pursue any or all of the lawful objectives of a Federal savings association chartered under Section 5 of the Home Owners’ Loan Act and to exercise all the express, implied, and incidental powers conferred thereby and by all acts amendatory thereof and supplemental thereto, subject to the Constitution and laws of the United States as they are now in effect, or as they may hereafter be amended, and subject to all lawful and applicable rules, regulations, and orders of the Office of Thrift Supervision (“Office”).

Section 5. Capital Stock.

The total number of shares of all classes of the capital stock which the BANK has the authority to issue is eleven thousand (11,000), of which ten thousand (10,000) shall be common stock, par value $1.00 per share, and of which one thousand (1,000) shall be preferred stock, par value $1.00 per share. The shares may be issued from time to time as authorized by the Board of Directors without further approval of shareholders except as otherwise provided in this Section 5 or to the extent that such approval is required by governing law, rule, or regulation. The consideration for the issuance of the shares shall be paid in full before their issuance and shall not be less than the par value. Neither promissory notes nor future services shall constitute payment or part payment for the issuance of shares of the BANK. The consideration for the shares shall be cash, tangible or intangible property (to the extent direct investment in such property would be permitted), labor or services actually performed for the BANK, or any combination of the foregoing. In the absence of actual fraud in the transaction, the value of such property, labor, or services, as determined by the Board of Directors of the BANK, shall be conclusive. In the case of a stock dividend, that part of the retained earnings of the BANK that is transferred to common stock or paid-in capital accounts upon the issuance of shares as a stock dividend shall be deemed to be the consideration for their issuance.

Except for shares issued in connection with the conversion of the BANK from the mutual to the stock form of capitalization, no shares of capital stock (including shares issuable upon conversion, exchange, or exercise of other securities) shall be issued, directly or indirectly, to officers, directors, or controlling persons of the BANK other than as part of a general public offering or as qualifying shares to a director, unless their issuance or the plan under which they would be issued has been approved by a majority of the total votes eligible to be cast at a legal meeting.

Nothing contained in this Section 5 (or in any supplementary sections hereto) shall entitle the holders of any class or series of capital stock to vote as a separate class or series or to more than one vote per share; provided, however, that this restriction on voting separately by class or series shall not apply:

(i) To any provision which would authorize the holders of preferred stock, voting as a class or series, to elect some members of the Board of Directors, less than a majority thereof, in the event of default in the payment of dividends on any class or series of preferred stock;

(ii) To any provision that would require the holders of preferred stock, voting as a class or series, to approve the merger or consolidation of the BANK with another corporation or the sale, lease, or conveyance (other than by mortgage or pledge) of properties or business in exchange for securities of a corporation other than the BANK if the preferred stock is exchanged for securities of such other corporation; provided, however, that no provision may require such approval for transactions undertaken with the assistance or pursuant to the direction of the Office or the Federal Deposit Insurance Corporation; or

(iii) To any amendment which would adversely change the specific terms of any class or series of capital stock as set forth in this Section 5 (or in any supplementary sections hereto), including any amendment which would create or enlarge any class or series ranking prior thereto in rights and preferences. An amendment which increases the number of authorized shares of any class or series of capital stock, or substitutes the surviving BANK in a merger or consolidation for the BANK, shall not be considered to be such an adverse change.

A description of the different classes and series (if any) of the BANK’s capital stock and a statement of the designations, and the relative rights, preferences, and limitations of the shares of each class of and series (if any) of capital stock are as follows:

A. Common Stock. Except as provided in this Section 5 (or in any supplementary sections hereto) the holders of the common stock shall exclusively possess all voting power. Each holder of shares of common stock shall be entitled to one vote for each share held by each holder. There shall be no cumulative voting for the election of directors.

Whenever there shall have been paid, or declared and set aside for payment, to the holders of the outstanding shares of any class of stock having preference over the common stock as to the payment of dividends, the full amount of dividends and of sinking fund, or retirement fund, or other retirement payments, if any, to which such holders are respectively entitled in preference to the common stock, then dividends may be paid on the common stock and on any class or series of stock entitled to participate therewith as to dividends out of any assets legally available for the payment of dividends.

In the event of any liquidation, dissolution, or winding up of the BANK, the holders of the common stock (and the holders of any class or series of stock entitled to participate with the common stock in the distribution of assets) shall be entitled to receive, in cash or in kind, the assets of the BANK available for distribution remaining after: (i) payment or provision for payment of the BANK’s debts and liabilities; (ii) distributions or provision for distributions in settlement of its liquidation account; and (iii) distributions or provision for distributions to holders of any class or series of stock having preference over the common stock in the liquidation, dissolution, or winding up of the BANK. Each share of common stock shall have the same relative rights as and be identical in all respects with all the other shares of common stock.

B. Preferred Stock. The BANK may provide in supplementary sections to its charter for one or more classes of preferred stock, which shall be separately identified. The shares of any class may be divided into and issued in series, with each series separately designated so as to distinguish the shares thereof from the shares of all other series and classes. The terms of each series shall be set forth in a supplementary section to the charter. All shares of the same class shall be identical except as to the following relative rights and preferences, as to which there may be variations between different series:

(a) The distinctive serial designation and the number of shares constituting such series;

(b) The dividend rate or the amount of dividends to be paid on the shares of such series, whether dividends shall be cumulative and, if so, from which date(s), the payment date(s) for dividends, and the participating or other special rights, if any, with respect to dividends;

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(c) The voting powers, full or limited, if any, of the shares of such series;

(d) Whether the shares of such series shall be redeemable and, if so, the price(s) at which, and the terms and conditions on which, such shares may be redeemed;

(e) The amount(s) payable upon the shares of such series in the event of voluntary or involuntary liquidation, dissolution, or winding up of the BANK;

(f) Whether the shares of such series shall be entitled to the benefit of a sinking or retirement fund to be applied to the purchase or redemption of such shares, and if so entitled, the amount of such fund and the manner of its application, including the price(s) at which such shares may be redeemed or purchased through the application of such fund;

(g) Whether the shares of such series shall be convertible into, or exchangeable for, shares of any other class or classes of stock of the BANK and, if so, the conversion price(s) or the rate(s) of exchange, and the adjustments thereof, if any, at which such conversion or exchange may be made, and any other terms and conditions of such conversion or exchange;

(h) The price or other consideration for which the shares of such series shall be issued; and

(i) Whether the shares of such series which are redeemed or converted shall have the status of authorized but unissued shares of serial preferred stock and whether such shares may be reissued as shares of the same or any other series of serial preferred stock.

Each share of each series of serial preferred stock shall have the same relative rights as and be identical in all respects with all the other shares of the same series.

The Board of Directors shall have authority to divide, by the adoption of supplementary charter sections, any authorized class of preferred stock into series, and, within the limitations set forth in this section and the remainder of this charter, fix and determine the relative rights and preferences of the shares of any series so established.

Prior to the issuance of any preferred shares of a series established by a supplementary charter section adopted by the Board of Directors, the BANK shall file with the Secretary of the Office a dated copy of that supplementary section of this charter establishing and designating the series and fixing and determining the relative rights and preferences thereof.

Section 6. Preemptive Rights.

Holders of the capital stock of the BANK shall not be entitled to preemptive rights with respect to any shares of the BANK which may be issued.

Section 7. Liquidation Account.

Pursuant to the requirements of the Office’s regulations (12 C.F.R. Part 563b), the BANK shall establish and maintain a liquidation account for the benefit of its savings account holders as of              and              (“eligible savers”). In the event of a complete liquidation of the BANK, it shall comply with such regulations with respect to the amount and the priorities on liquidation of each of the BANK’s eligible saver’s inchoate interest in the liquidation account, to the extent it is still in existence; provided, however, that an eligible saver’s inchoate interest in the liquidation account shall not entitle such eligible saver to any voting rights at meetings of the BANK’s shareholders.

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Section 8. Certain Provisions Applicable for Five Years.

Notwithstanding anything contained in the BANK’s charter or bylaws to the contrary, for a period of five years from the date of consummation of the conversion of the BANK from mutual to stock form, the following provisions shall apply:

A. Beneficial Ownership Limitation. No person shall directly or indirectly offer to acquire or acquire the beneficial ownership of more than ten percent (10%) of any class of any equity security of the BANK. This limitation shall not apply to a transaction in which the BANK forms a holding company without change in the respective beneficial ownership interests of the BANK’s shareholders other than pursuant to the exercise of any dissenter and appraisal rights, the purchase of shares by underwriters in connection with a public offering, or the purchase of shares by a tax-qualified employee stock benefit plan which is exempt from the approval requirements under Section 574.3(c)(1)(vi) of the Office Regulations.

In the event shares are acquired in violation of this Section 8, all shares beneficially owned by any person in excess of ten percent (10%) shall be considered “excess shares” and shall not be counted as shares entitled to vote and shall not be voted by any person or counted as voting shares in connection with any matters submitted to the shareholders for a vote.

For the purposes of this Section 8, the following definitions apply:

(i) The term “person” includes an individual, a group acting in concert, a corporation, a partnership, an association, a joint stock company, a trust, any unincorporated organization or similar company, a syndicate or any other group formed for the purpose of acquiring, holding or disposing of the equity securities of the BANK.

(ii) The term “offer” includes every offer to buy or otherwise acquire, solicitation of an offer to sell, tender offer for, or request or invitation for tenders of, a security or interest in a security for value.

(iii) The term “acquire” includes every type of acquisition, whether effected by purchase, exchange, operation of law or otherwise.

(iv) The term “acting in concert” means (a) knowing participation in a joint activity or conscious parallel action towards a common goal whether or not pursuant to an express agreement, or (b) a combination or pooling of voting or other interests in the securities of an issuer for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise.

B. Call for Special Meetings. Special meetings of shareholders relating to changes in control of the BANK or amendments to its charter shall be called only at the direction of the Board of Directors.

Section 9. Directors.

The BANK shall be under the direction of a Board of Directors. The authorized number of directors, as stated in the BANK’s bylaws, shall be not be less than five nor more than 15 except when a greater number or lesser number is approved by the Director of the Office or his or her delegate.

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Section 10. Amendment of Charter.

Except as provided in Section 5, no amendment, addition, alteration, change, or repeal of this charter shall be made, unless such is proposed by the Board of Directors of the BANK, approved by the shareholders by a majority of the votes eligible to be cast at a legal meeting, unless a higher vote is otherwise required, and approved or preapproved by the Office.

* * *

		NEWPORT FEDERAL SAVINGS BANK
Attest:		By:
	William R. Harvey		Kevin M. McCarthy
	Secretary		Chief Executive Officer
		OFFICE OF THRIFT SUPERVISION
Attest:		By:
	Secretary

Declared effective on

the      day of             , 200_

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FEDERAL STOCK BYLAWS

FOR

NEWPORT FEDERAL SAVINGS BANK

ARTICLE I - HOME OFFICE

The home office of Newport Federal Savings Bank (“Bank”) shall be at 100 Bellevue Avenue, Newport, Rhode Island, in the County of Newport, State of Rhode Island.

ARTICLE II - SHAREHOLDERS

Section 1. Place of Meetings. All annual and special meetings of shareholders shall be held at the home office of the Bank or at such other convenient place as the board of directors may determine.

Section 2. Annual Meeting. A meeting of the shareholders of the Bank for the election of directors and for the transaction of any other business of the Bank shall be held annually within 150 days after the end of the Bank’s fiscal year on the third Tuesday of April of each year if not a legal holiday, and if a legal holiday, then on the next day following which is not a legal holiday, at 2:00 p.m., local time, or at such other date and time within such 150-day period as the board of directors may determine.

Section 3. Special Meetings. Special meetings of the shareholders for any purpose or purposes, unless otherwise prescribed by the regulations of the Office of Thrift Supervision (“Office”) or the Bank’s Federal Stock Charter, may be called at any time by the chairman of the board, the president, or a majority of the board of directors, and shall be called by the chairman of the board, the president, or the secretary upon the written request of the holders of not less than one-tenth of all of the outstanding capital stock of the Bank entitled to vote at the meeting. Such written request shall state the purpose or purposes of the meeting and shall be delivered to the home office of the Bank addressed to the chairman of the board, the president, or the secretary.

Section 4. Conduct of Meetings. Annual and special meetings shall be conducted in accordance with the most current edition of Robert’s Rules of Order unless otherwise prescribed by regulations of the Office or these bylaws or the board of directors adopts another written procedure for the conduct of meetings. The board of directors shall designate, when present, either the chairman of the board or president to preside at such meetings.

Section 5. Notice of Meetings. Written notice stating the place, day, and hour of the meeting and the purpose(s) for which the meeting is called shall be delivered not fewer than 20 nor more than 50 days before the date of the meeting, either personally or by mail, by or at the direction of the chairman of the board, the president, or the secretary, or the directors calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the mail, addressed to the shareholder at the address as it appears on the stock transfer books or records of the Bank as of the record date prescribed in section 6 of this article II with postage prepaid. When any shareholders’ meeting, either annual or special, is adjourned for 30 days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. It shall not be necessary to give any notice of the time and place of any meeting adjourned for less than 30 days or of the business to be transacted at the meeting, other than an announcement at the meeting at which such adjournment is taken.

Section 6. Fixing of Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the board of directors shall fix in advance a date as the record date for any such determination of shareholders. Such date in any case shall be not more than 60 days and, in case of a meeting of shareholders, not fewer than 10 days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment.

Section 7. Voting Lists. At least 20 days before each meeting of the shareholders, the officer or agent having charge of the stock transfer books for shares of the Bank shall make a complete list of the shareholders of record entitled to vote at such meeting, or any adjournment thereof, arranged in alphabetical order, with the address and the number of shares held by each. This list of shareholders shall be kept on file at the home office of the Bank and shall be subject to inspection by any shareholder of record or the shareholder’s agent at any time during usual business hours for a period of 20 days prior to such meeting. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to inspection by any shareholder of record or any shareholder’s agent during the entire time of the meeting. The original stock transfer book shall constitute prima facie evidence of the shareholders entitled to examine such list or transfer books or to vote at any meeting of shareholders.

In lieu of making the shareholder list available for inspection by shareholders as provided in the preceding paragraph, the board of directors may elect to follow the procedures prescribed in §552.6(d) of the Office’s regulations as now or hereafter in effect.

Section 8. Quorum. A majority of the outstanding shares of the Bank entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. If less than a majority of the outstanding shares is represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. The shareholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to constitute less than a quorum. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on the subject matter shall be the act of the shareholders, unless the vote of a greater number of shareholders voting together or voting by classes is required by law or the charter. Directors, however, are elected by a plurality of the votes cast at an election of directors.

Section 9. Proxies. At all meetings of shareholders, a shareholder may vote by proxy executed in writing by the shareholder or by his or her duly authorized attorney in fact. Proxies may be given telephonically or electronically as long as the holder uses a procedure for verifying the identity of the shareholder. Proxies solicited on behalf of the management shall be voted as directed by the shareholder or, in the absence of such direction, as determined by a majority of the board of directors. No proxy shall be valid more than eleven months from the date of its execution except for a proxy coupled with an interest.

Section 10. Voting of Shares in the Name of Two or More Persons. When ownership stands in the name of two or more persons, in the absence of written directions to the Bank to the contrary, at any meeting of the shareholders of the Bank any one or more of such shareholders may cast, in person or by proxy, all votes to which such ownership is entitled. In the event an attempt is made to cast conflicting votes, in person or by proxy, by the several persons in whose names shares of stock stand, the vote or votes to which those persons are entitled shall be cast as directed by a majority of those holding such and present in person or by proxy at such meeting, but no votes shall be cast for such stock if a majority cannot agree.

Section 11. Voting of Shares by Certain Holders. Shares standing in the name of another corporation may be voted by any officer, agent, or proxy as the bylaws of such corporation may prescribe, or, in the absence of such provision, as the board of directors of such corporation may determine. Shares held by an administrator, executor, guardian, or conservator may be voted by him or her, either in person or by proxy, without a transfer of such shares into his or her name. Shares outstanding in the name of a trustee may be voted by him or her, either in person or by proxy, but no trustee shall be entitled to vote shares held by him or her without a transfer of such shares into his or her name. Shares held in trust in an IRA or Keogh Account, however, may by voted by the Bank if no other instructions are received. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under control of a receiver may be voted by such receiver without the transfer into his or her name if authority to do so is consigned in an appropriate order of the court or other public authority by which such receiver was appointed.

A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred.

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Neither treasury shares of its own stock held by the Bank nor shares held by another Corporation, if a majority of the shares entitled to vote for the election of directors of such other corporation are held by the Bank, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time for purposes of any meeting.

Section 12. Inspectors of Election. In advance of any meeting of shareholders, the board of directors may appoint any person other than nominees for office as inspectors of election to act at such meeting or any adjournment. The number of inspectors shall be either one or three. Any such appointment shall not be altered at the meeting. If inspectors of election are not so appointed the chairman of the board or the president may, or on the request of not fewer than 10 percent of the votes represented at the meeting shall, make such appointment at the meeting. If appointed at the meeting, the majority of the votes present shall determine whether one or three inspectors are to be appointed. In case any person appointed as inspector fails to appear or fails or refuses to act, the vacancy may be filled by appointment by the board of directors in advance of the meeting or at the meeting by the chairman of the board or the president.

Unless otherwise prescribed by regulations of the Office, the duties of such inspectors shall include: determining the number of shares and the voting power of each share, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity and effect of proxies; receiving votes, ballots, or consents; hearing and determining all challenges and questions in any way arising in connection with the rights to vote; counting and tabulating all votes or consents; determining the result; and such acts as may be proper for conduct the election or vote with fairness to all shareholders.

Section 13. Nominating Committee. The board of directors shall act as a nominating committee for selecting the management nominees for election as directors. Except in the case of a nominee substituted as a result of the death or other incapacity of a management nominee, the nominating committee shall deliver written nominations to the secretary at least 20 days prior to the date of the annual meeting. Upon delivery, such nominations shall be posted in a conspicuous place in each office of the Bank. No nominations for directors except those made by the nominating committee shall be voted upon at the annual meeting unless other nominations by shareholders are made in writing and delivered to the secretary of the Bank at least five days prior to the date of the annual meeting. Upon delivery, such nominations shall be posted in a conspicuous place in each office of the Bank. Ballots bearing the names of all persons nominated by the nominating committee and by shareholders shall be provided for use at the annual meeting. However, if the nominating committee shall fail or refuse to act at least 20 days prior to the annual meeting, nominations for directors may be made at the annual meeting by any shareholder entitled to vote and shall be voted upon.

Section 14. New Business. Any new business to be taken up at the annual meeting shall be stated in writing and filed with the secretary of the Bank at least five days before the date of the annual meeting, and all business so stated, proposed, and filed shall be considered at the annual meeting; but no other proposal shall be acted upon at the annual meeting. Any shareholder may make any other proposal at the annual meeting and the same may be discussed and considered, but unless stated in writing and filed with the secretary at least five days before the meeting, such proposal shall be laid over for action at an adjourned, special, or annual meeting of the shareholders taking place 30 days or more thereafter. This provision shall not prevent the consideration and approval or disapproval at the annual meeting of reports of officers, directors, and committees; but in connection with such reports, no new business shall be acted upon at such annual meeting unless stated and filed as herein provided.

Section 15. Informal Action by Shareholders. Any action required to be taken at a meeting of the shareholders, or any other action which may be taken at a meeting of shareholders, may be taken without a meeting if consent in writing, setting forth the action so taken, shall be given by all of the shareholders entitled to vote with respect to the subject matter.

ARTICLE III - BOARD OF DIRECTORS

Section 1. General Powers. The business and affairs of the Bank shall be under the direction of its board of directors. The board of directors shall annually elect a chairman of the board, vice chairman of the board and a president from among its members and shall designate, when present, either the chairman of the board, vice chairman of the board or the president to preside at its meetings.

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Section 2 . Number and Term. The board of directors shall consist of fifteen (15) and shall be divided into three classes as nearly equal in number as possible. The members of each class shall be elected for a term of three years and until their successors are elected and qualified. One class shall be elected by ballot annually.

Section 3. Regular Meetings. A regular meeting of the board of directors shall be held without other notice than this bylaw following the annual meeting of shareholders. The board of directors may provide, by resolution, the time and place, for the holding of additional regular meetings without other notice than such resolution. Directors may participate in a meeting by means of a conference telephone or similar communications device through which all persons participating can hear each other at the same time. Participation by such means shall constitute presence in person for all purposes.

Section 4. Qualifications. Each director shall at all times be the beneficial owner of not less than 100 shares of capital stock of the Bank unless the Bank is a wholly owned subsidiary of a holding company. No person shall be eligible for nomination, election, appointment or reappointment to the board of directors unless such person is, at the time of such nomination, election, appointment or reappointment, a resident of a county in which the Bank maintains a banking office or a county contiguous to such county in Rhode Island or a contiguous state. All directors must also meet the requirements set forth in Sections 15 and 16 of this Article III.

Section 5. Special Meetings. Special meetings of the board of directors may be called by or at the request of the chairman of the board, the president, or one-third of the directors. The persons authorized to call special meetings of the board of directors may fix any place, within the Bank’s normal lending territory, as the place for holding any special meeting of the board of directors called by such persons.

Members of the board of directors may participate in special meetings by making use of conference telephone or similar communications equipment by which all persons participating in the meeting can hear each other. Such participation shall constitute presence in person for all purposes.

Section 6. Notice. Written notice of any special meeting shall be given to each director at least 24 hours prior thereto when delivered personally or by telegram or at least five days prior thereto when delivered by mail at the address at which the director is most likely to be reached. Such notice shall be deemed to be delivered when deposited in the mail so addressed, with postage prepaid if mailed, when delivered to the telegraph company if sent by telegram, or when the Bank receives notice of delivery if electronically transmitted. Any director may waive notice of any meeting by a writing filed with the secretary. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting of the board of directors need be specified in the notice of waiver of notice of such meeting.

Section 7. Quorum. A majority of the number of directors fixed by Section 2 of this Article III shall constitute a quorum for the transaction of business at any meeting of the board of directors; but if less than such majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to time. Notice of any adjourned meeting shall be given in the same manner as prescribed by Section 5 of this Article III.

Section 8. Manner of Acting. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors, unless a greater number is prescribed by regulation of the Office or by these Bylaws.

Section 9. Action Without a Meeting. Any action required or permitted to be taken by the board of directors at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the directors.

Section 10. Resignation. Any director may resign at any time by sending a written notice of such resignation to the home office of the Bank addressed to the chairman of the board or the president. Unless otherwise specified, such resignation shall take effect upon receipt by the chairman of the board or the president. More than

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three consecutive absences from regular meetings of the board of directors, unless excused by resolution of the board of directors, shall automatically constitute a resignation, effective when such resignation is accepted by the board of directors.

Section 11. Vacancies. Any vacancy occurring on the board of directors may be filled by the affirmative vote of a majority of the remaining directors although less than a quorum of the board of directors. A director elected to fill a vacancy shall be elected to serve only until the next election of directors by the shareholders. Any directorship to be filled by reason of an increase in the number of directors may be filled by election by the board of directors for a term of office continuing only until the next election of directors by the shareholders.

Section 12. Compensation. Directors, as such, may receive a stated salary for their services. By resolution of the board of directors, a reasonable fixed sum, and reasonable expenses of attendance, if any, may be allowed for attendance at each regular or special meeting of the board of directors. Members of either standing or special committees may be allowed such compensation for attendance at committee meetings as the board of directors may determine.

Section 13. Presumption of Assent. A director of the Bank who is present at a meeting of the board of directors at which action on any bank matter is taken shall be presumed to have assented to the action taken unless his or her dissent or abstention shall be entered in the minutes of the meeting or unless he or she shall file a written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the Bank within five days after the date a copy of the minutes of the meeting is received. Such right to dissent shall not apply to a director who voted in favor of such action.

Section 14. Removal of Directors. At a meeting of shareholders called expressly for that purpose, any director may be removed only for cause by a vote of the holders of a majority of the shares then entitled to vote at an election of directors. Whenever the holders of the shares of any class are entitled to elect one or more directors by the provisions of the charter or supplemental sections thereto, the provisions of this section shall apply, in respect to the removal of a director or directors so elected, to the vote of the holders of the outstanding shares of that class and not to the vote of the outstanding shares as a whole.

Section 15. Age Limitation.

(a) Directors. No person 70 years of age or above shall be eligible for election, reelection, appointment, or reappointment to the board of directors. No director shall serve as such beyond the annual meeting of the Bank immediately following the director becoming 70 years of age, except that a director serving on the date on which these bylaws are adopted may complete the term as director. This age limitation does not apply to an advisory director. Advisory directors may serve only one two-year term as such advisory director.

(b) Officers. No person 70 years of age or above shall be eligible for election, reelection, appointment, or reappointment as an officer of the Bank. No officer shall serve beyond the annual meeting of the Bank immediately following the officer becoming 70, except that an officer serving on the date on which these bylaws are adopted may complete the term.

Section 16. Integrity of Directors. A person is not qualified to serve as director if he or she: (1) is under indictment for, or has ever been convicted of, a criminal offense involving dishonesty or breach of trust and the penalty for such offense could be imprisonment for more than one year, or (2) is a person who a banking agency has issued a cease and desist order for conduct involving dishonesty or breach of trust and that order is final and not subject to appeal, or (3) has been found either by a regulatory agency whose decision is final and not subject to appeal or by a court to have (i) breached a fiduciary duty involving personal profit or (ii) committed a willful violation of any law, rule or regulation governing banking, securities, commodities or insurance, or any final cease and desist order issued by a banking, securities, commodities or insurance regulatory agency.

ARTICLE IV - EXECUTIVE AND OTHER COMMITTEES

Section 1. Appointment. The board of directors, by resolution adopted by a majority of the full board, may

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designate the chief executive officer and two or more of the other directors to constitute an executive committee. The designation of any committee pursuant to this Article IV and the delegation of authority shall not operate to relieve the board of directors, or any director, of any responsibility imposed by law or regulation.

Section 2. Authority. The executive committee, when the board of directors is not in session, shall have and may exercise all of the authority of the board of directors except to the extent, if any, that such authority shall be limited by the resolution appointing the executive committee; and except also that the executive committee shall not have the authority of the board of directors with reference to: the declaration of dividends; the amendment of the charter or bylaws of the Bank, or recommending to the shareholders a plan of merger, consolidation, or conversion; the sale, lease, or other disposition of all or substantially all of the property and assets of the Bank otherwise than in the usual and regular course of its business; a voluntary dissolution of the Bank; a revocation of any of the foregoing; or the approval of a transaction in which any member of the executive committee, directly or indirectly, has any material beneficial interest.

Section 3. Tenure. Subject to the provisions of section 8 of this article IV, each member of the executive committee shall hold office until the next regular annual meeting of the board of directors following his or her designation and until a successor is designated as a member of the executive committee.

Section 4. Meetings. Regular meetings of the executive committee may be held without notice at such times and places as the executive committee may fix from time to time by resolution. Special meetings of the executive committee may be called by any member thereof upon not less than one day’s notice stating the place, date, and hour of the meeting, which notice may be written or oral. Any member of the executive committee may waive notice of any meeting and no notice of any meeting need be given to any member thereof who attends in person. The notice of a meeting of the executive committee need not state the business proposed to be transacted at the meeting.

Section 5. Quorum. A majority of the members of the executive committee shall constitute a quorum for the transaction of business at any meeting thereof, and action of the executive committee must be authorized by the affirmative vote of a majority of the members present at a meeting at which a quorum is present.

Section 6. Action Without a Meeting. Any action required or permitted to be taken by the executive committee at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the members of the executive committee.

Section 7. Vacancies. Any vacancy in the executive committee may be filled by a resolution adopted by a majority of the full board of directors.

Section 8. Resignations and Removal. Any member of the executive committee may be removed at any time with or without cause by resolution adopted by a majority of the full board of directors. Any member of the executive committee may resign from the executive committee at any time by giving written notice to the president or secretary of the Bank. Unless otherwise specified, such resignation shall take effect upon its receipt; the acceptance of such resignation shall not be necessary to make it effective.

Section 9. Procedure. The executive committee shall elect a presiding officer from its members and may fix its own rules of procedure which shall not be inconsistent with these bylaws. It shall keep regular minutes of its proceedings and report the same to the board of directors for its information at the meeting held next after the proceedings shall have occurred.

Section 10. Other Committees. The board of directors may by resolution establish an audit, loan, or other committee composed of directors as they may determine to be necessary or appropriate for the conduct of the business of the Bank and may prescribe the duties, constitution, and procedures thereof.

ARTICLE V - OFFICERS

Section l . Positions. The officers of the Bank shall be a president, one or more vice presidents, a secretary, and a treasurer or comptroller, each of whom shall be elected by the board of directors. The board of directors may

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also designate the chairman of the board as an officer. The offices of the secretary and treasurer or comptroller may be held by the same person and a vice president may also be either the secretary or the treasurer or comptroller. The board of directors may designate one or more vice presidents as executive vice president or senior vice president. The board of directors may also elect or authorize the appointment of such other officers as the business of the Bank may require. The officers shall have such authority and perform such duties as the board of directors may from time to time authorize or determine. In the absence of action by the board of directors, the officers shall have such powers and duties as generally pertain to their respective offices.

Section 2. Election and Term of Office. The officers of the Bank shall be elected annually at the first meeting of the board of directors held after each annual meeting of the shareholders. If the election of officers is not held at such meeting, such election shall be held as soon thereafter as possible. Each officer shall hold office until a successor has been duly elected and qualified or until the officer’s death, resignation or removal in the manner hereinafter provided. Election or appointment of an officer, employee, or agent shall not of itself create contractual rights. The board of directors may authorize the Bank to enter into an employment contract with any officer in accordance with regulations of the Office; but no such contract shall impair the right of the board of directors to remove any officer at any time in accordance with section 3 of this Article V.

Section 3. Removal. Any officer may be removed by the board of directors whenever in its judgment the best interests of the Bank will be served thereby, but such removal, other than for cause, shall be without prejudice to the contractual rights, if any, of the person so removed.

Section 4. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification, or otherwise may be filled by the board of directors for the unexpired portion of the term.

Section 5. Remuneration. The remuneration of the officers shall be fixed from time to time by the board of directors.

ARTICLE VI - CONTRACTS, LOANS, CHECKS, AND DEPOSITS

Section 1. Contracts. To the extent permitted by regulations of the Office, and except as otherwise prescribed by these bylaws with respect to certificates for shares, the board of directors may authorize any officer, employee, or agent of the Bank to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Bank. Such authority may be general or confined to specific instances.

Section 2. Loans. No loans shall be contracted on behalf of the Bank and no evidence of indebtedness shall be issued in its name unless authorized by the board of directors. Such authority may be general or confined to specific instances.

Section 3. Checks; Drafts. etc. All checks, drafts, or other orders for the payment of money, notes, or other evidences of indebtedness issued in the name of the Bank shall be signed by one or more officers, employees or agents of the Bank in such manner as shall from time to time be determined by the board of directors.

Section 4. Deposits. All funds of the Bank not otherwise employed shall be deposited from time to time to the credit of the Bank in any duly authorized depositories as the board of directors may select.

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ARTICLE VII - CERTIFICATES FOR SHARES AND THEIR TRANSFER

Section 1. Certificates for Shares. Certificates representing shares of capital stock of the Bank shall be in such form as shall be determined by the board of directors and approved by the Office. Such certificates shall be signed by the chief executive officer or by any other officer of the Bank authorized by the board of directors, attested by the secretary or an assistant secretary, and sealed with the corporate seal or a facsimile thereof. The signatures of such officers upon a certificate may be facsimiles if the certificate is manually signed on behalf of a transfer agent or a registrar other than the Bank itself or one of its employees. Each certificate for shares of capital stock shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares are issued, with the owner of shares and date of issue, shall be entered on the stock transfer books of the Bank. All certificates surrendered to the Bank for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares has been surrendered and cancelled, except that in the case of a lost or destroyed certificate, a new certificate may be issued upon such terms and indemnity to the Bank as the board of directors may prescribe.

Section 2. Transfer of Shares. Transfer of shares of capital stock of the Bank shall be made only on its stock transfer books. Authority for such transfer shall be given only by the holder of record or by his or her legal representative, who shall furnish proper evidence of such authority, or by his or her attorney authorized by a duly executed power of attorney and filed with the Bank. Such transfer shall be made only on surrender for cancellation of the certificate for such shares. The person in whose name shares of capital stock stand on the books of the Bank shall be deemed by the Bank to be the owner for all purposes.

ARTICLE VIII - FISCAL YEAR

The fiscal year of the Bank shall end on the 30^th day of September of each year. The appointment of accountants shall be subject to annual ratification by the shareholders.

ARTICLE IX - DIVIDENDS

Subject to the terms of the Bank’s charter and the regulations and orders of the Office, the board of directors may, from time to time, declare, and the Bank may pay, dividends on its outstanding shares of capital stock.

ARTICLE X - CORPORATE SEAL

The board of directors shall provide the Bank seal which shall be two concentric circles between which shall be the name of the Bank. The year of incorporation or an emblem may appear in the center.

ARTICLE XI - AMENDMENTS

These bylaws may be amended in a manner consistent with regulations of the Office and shall be effective after: (i) approval of the amendment by a majority vote of the authorized board of directors, or by a majority vote of the votes cast by the shareholders of the Bank at any legal meeting, and (ii) receipt of any applicable regulatory approval. When the Bank fails to meet its quorum requirements, solely due to vacancies on the board, then the affirmative vote of a majority of the sitting board will be required to amend the bylaws.

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ARTICLES OF INCORPORATION

OF

NEWPORT BANCORP, INC.

FIRST: The undersigned, Edward G. Olifer, whose address is 5101 Wisconsin Avenue, N.W., Washington, D.C. 20016, being at least eighteen years of age, acting as incorporator, does hereby form a corporation under the General Laws of the State of Maryland.

SECOND: The name of the Corporation (hereinafter “the Corporation”) is:

Newport Bancorp, Inc.

THIRD: The present address of the principal office of the Corporation in the State of Maryland is The Corporation Trust Incorporated, 300 East Lombard Street, Baltimore, Maryland 21202.

FOURTH: The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Laws of the State of Maryland.

FIFTH:

A. The total number of shares of stock of all classes of stock which the Corporation has authority to issue is Twenty Million (20,000,000) shares, having an aggregate par value of Two Hundred Thousand Dollars ($200,000), of which Nineteen Million (19,000,000) are to be shares of common stock with a par value of one cent ($.01) per share, and One Million (1,000,000) shares of preferred stock with a par value of one cent ($.01) per share.

B. A description of each class of stock of the Corporation, including any voting powers, designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations and restrictions thereof, is as follows:

1. Preferred Stock. The Board of Directors is expressly authorized to classify and reclassify any unissued shares of preferred stock, and to divide and classify shares of any class into one or more series of such class, by determining, fixing or altering from time to time before issuance any one or more of the following:

a. The distinctive designation of such class or series and the number of shares to constitute such class or series; provided that, unless otherwise prohibited by the terms of such or any other class or series, the number of shares of any class or series may be decreased by the Board of Directors in connection with any classification or reclassification of unissued shares and the number of shares of such class or series may be increased by the Board of Directors in connection with any such classification or reclassification, and any shares of any class or series that have been redeemed, purchased,

otherwise acquired, or converted into shares of common stock or any other class or series shall remain part of the authorized preferred stock and be subject to classification and reclassification as provided in this Section.

b. Whether or not and, if so, the rates, amounts and times at which, and the conditions under which, dividends shall be payable on shares of such class or series, whether any such dividends shall rank senior or junior to or on a parity with the dividends payable on any other class or series of stock, and the status of any such dividends as cumulative, cumulative to a limited extent or non-cumulative, and as participating or non-participating.

c. Whether or not shares of such class or series shall have voting rights, in addition to any voting rights provided by law and, if so, the terms of such voting rights.

d. Whether or not shares of such class or series shall have conversion or exchange privileges and, if so, the terms and conditions thereof, including provision for adjustment of the conversion or exchange rate in such events or at such times as the Board of Directors shall determine.

e. Whether or not shares of such class or series shall be subject to redemption and, if so, the terms and conditions of such redemption, including the date(s) upon or after which they shall be redeemable and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; and whether or not there shall be any sinking fund or purchase account in respect thereof, and if so, the terms thereof.

f. The rights of the holders of shares of such class or series upon the liquidation, dissolution, or winding up of the affairs of, or upon any distribution of the assets of, the Corporation, which rights may vary depending upon whether such liquidation, dissolution, or winding up is voluntary or involuntary and, if voluntary, may vary at different dates, and whether such rights shall rank senior or junior to or on a parity with such rights of any other class or series of stock.

g. Whether or not there shall be any limitations applicable, while shares of such class or series are outstanding, upon the payment of dividends or making of distributions on, or the acquisition of, or the use of moneys for the purchase or redemption of, any capital stock of the Corporation, or upon any other action of the Corporation, including action under this Section, and, if so, the terms and conditions thereof.

h. Any other preferences, rights, restrictions, including restrictions on transferability, and qualifications of shares of such class or series, not inconsistent with law and the Articles of Incorporation of the Corporation.

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2. Common Stock. Subject to all of the rights of the preferred stock as expressly provided in these Articles of Incorporation, by law or by the Board of Directors in a resolution(s) pursuant to this Article FIFTH, the common stock of the Corporation shall possess all such rights and privileges as are afforded to capital stock by Maryland law in the absence of any express grant of rights or privileges in the Corporation’s Articles of Incorporation, including but not limited to, the following:

a. Holders of the common stock shall be entitled to one (1) vote per share on each matter submitted to a vote at a meeting of stockholders; provided, however, that there shall not be any cumulative voting of the common stock.

b. Dividends may be declared and paid or set aside for payment upon the common stock out of any assets or funds of the Corporation legally available therefor.

c. Upon the voluntary or involuntary liquidation, dissolution or winding up of the Corporation, its net assets shall be distributed ratably to holders of the common stock.

C. 1. Notwithstanding any other provision of these Articles of Incorporation, in no event shall any record owner of any outstanding common stock that is beneficially owned, directly or indirectly, by a person who, as of any record date for the determination of stockholders entitled to vote on any matter, beneficially owns in excess of 10% of the then-outstanding shares of common stock (the “Limit”), be entitled, or permitted to any vote in respect of the shares held in excess of the Limit. The number of votes that may be cast by any record owner by virtue of the provisions hereof in respect of common stock beneficially owned by such person beneficially owning shares in excess of the Limit shall be a number equal to the total number of votes that a single record owner of all common stock beneficially owned by such person would be entitled to cast (subject to the provisions of this Article FIFTH), multiplied by a fraction, the numerator of which is the number of shares of such class or series that are both beneficially owned by such person and owned of record by such record owner and the denominator of which is the total number of shares of common stock beneficially owned by such person owning shares in excess of the Limit.

2. The following definitions shall apply to this Section C of this Article FIFTH:

a. “Affiliate” shall have the meaning ascribed to it in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, as in effect on the date of filing of these Articles of Incorporation.

b. “Beneficial ownership” shall be determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (or any successor rule or statutory provision), or, if said Rule 13d-3 shall be rescinded and there shall be no successor rule or provision thereto, pursuant to said Rule 13d-3 as in effect

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on the date of filing of these Articles of Incorporation; provided, however, that a person shall, in any event, also be deemed the “beneficial owner” of any common stock:

(1) which such person or any of its Affiliates beneficially owns, directly or indirectly; or

(2) which such person or any of its Affiliates has: (a) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding (but shall not be deemed to be the beneficial owner of any voting shares solely by reason of an agreement, contract or other arrangement with this Corporation to effect any transaction which is described in any one or more of Paragraphs 1 through 5 of Section A of Article NINTH of these Articles of Incorporation (“Article NINTH”)), or upon the exercise of conversion rights, exchange rights, warrants or options or otherwise, or (b) sole or shared voting or investment power with respect thereto pursuant to any agreement, arrangement, understanding, relationship or otherwise (but shall not be deemed to be the beneficial owner of any voting shares solely by reason of a revocable proxy granted for a particular meeting of stockholders, pursuant to a public solicitation of proxies for such meeting, with respect to shares of which neither such person nor any such Affiliate is otherwise deemed the beneficial owner); or

(3) which are beneficially owned, directly or indirectly, by any other person with which such first mentioned person or any of its Affiliates acts as a partnership, limited partnership, syndicate or other group pursuant to any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of this Corporation; and provided further, however, that: (a) no Director or Officer of this Corporation (or any Affiliate of any such Director or Officer) shall, solely by reason of any or all of such Directors or Officers acting in their capacities as such, be deemed, for any purposes hereof, to beneficially own any common stock beneficially owned by any other such Director or Officer (or any Affiliate thereof); and (b) neither any employee stock ownership or similar plan of this Corporation or any subsidiary of this Corporation, nor any trustee with respect thereto or any Affiliate of such trustee (solely by reason of such capacity of such trustee), shall be deemed, for any purposes hereof, to beneficially own any common stock held under any such plan. For purposes only of computing the percentage of beneficial ownership of common stock of a person, the outstanding common stock shall include shares deemed owned by such person through application of this subsection but shall not include any other shares of common stock which may be issuable by this Corporation pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise. For all other purposes,

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the outstanding common stock shall include only shares of common stock then outstanding and shall not include any shares of common stock which may be issuable by this Corporation pursuant to any agreement, or upon the exercise of conversion rights, warrants or options, or otherwise.

c. The “Limit” shall mean 10% of the then-outstanding shares of common stock.

d. A “person” shall include an individual, a firm, a group acting in concert, a corporation, a partnership, an association, a joint venture, a pool, a joint stock company, a trust, an unincorporated organization or similar company, a syndicate or any other group formed for the purpose of acquiring, holding or disposing of securities or any other entity.

3. The Board of Directors shall have the power to construe and apply the provisions of this Section and to make all determinations necessary or desirable to implement such provisions, including but not limited to matters with respect to: (a) the number of shares of common stock beneficially owned by any person; (b) whether a person is an Affiliate of another; (c) whether a person has an agreement, arrangement or understanding with another as to the matters referred to in the definition of beneficial ownership; (d) the application of any other definition or operative provision of the section to the given facts; or (e) any other matter relating to the applicability or effect of this Section.

4. The Board of Directors shall have the right to demand that any person who is reasonably believed to beneficially own shares of common stock in excess of the Limit (or holds of record common stock beneficially owned by any person in excess of the Limit) supply the Corporation with complete information as to: (a) the record owner(s) of all shares beneficially owned by such person who is reasonably believed to own shares in excess of the Limit; and (b) any other factual matter relating to the applicability or effect of this Section as may reasonably be requested of such person.

5. Except as otherwise provided by law or expressly provided in this Section C, the presence, in person or by proxy, of the holders of record of shares of capital stock of the Corporation entitling the holders thereof to cast a majority of the votes (after giving effect, if required, to the provisions of this Section C) entitled to be cast by the holders of shares of capital stock of the Corporation entitled to vote shall constitute a quorum at all meetings of the stockholders, and every reference in these Articles of Incorporation to a majority or other proportion of capital stock (or the holders thereof) for purposes of determining any quorum requirement or any requirement for stockholder consent or approval shall be deemed to refer to such majority or other proportion of the votes (or the holders thereof) then entitled to be cast in respect of such capital stock.

6. Any constructions, applications or determinations made by the Board of Directors pursuant to this Section in good faith and on the basis of such information and assistance

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as was then reasonably available for such purpose shall be conclusive and binding upon the Corporation and its stockholders.

7. In the event any provision (or portion thereof) of this Section C shall be found to be invalid, prohibited or unenforceable for any reason, the remaining provisions (or portions thereof) of this Section shall remain in full force and effect, and shall be construed as if such invalid, prohibited or unenforceable provision had been stricken herefrom or otherwise rendered inapplicable, it being the intent of this Corporation and its stockholders that each such remaining provision (or portion thereof) of this Section C remain, to the fullest extent permitted by law, applicable and enforceable as to all stockholders, including stockholders owning an amount of stock over the Limit, notwithstanding any such finding.

SIXTH: The name and address of the resident agent of the Corporation are The Corporation Trust Incorporated, 300 East Lombard Street, Baltimore, Maryland 21202. Said resident agent is a Maryland corporation.

SEVENTH:

A. Except as may be altered in the manner set forth in the Bylaws, the initial number of directors shall be fifteen (15). The Directors shall be divided into three classes, as nearly equal in number as reasonably possible, with the term of office of the first class to expire at the first annual meeting of stockholders, the term of office of the second class to expire at the annual meeting of stockholders one year thereafter and the term of office of the third class to expire at the annual meeting of stockholders two years thereafter with each Director to hold office until his or her successor shall have been duly elected and qualified. At each annual meeting of stockholders following such initial classification and election, Directors elected to succeed those Directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election with each Director to hold office until his or her successor shall have been duly elected and qualified.

B. Subject to the rights of holders of any series of preferred stock outstanding, the newly created directorships resulting from any increase in the authorized number of Directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification or other cause except removal from office, may be filled only by a majority vote of the Directors then in office, though less than a quorum, and Directors so chosen shall hold office for a term expiring at the next annual meeting of stockholders and until their successors are duly elected and qualified. No decrease in the number of Directors constituting the Board of Directors shall shorten the term of any incumbent Director.

C. Any director, or the entire Board of Directors, may be removed from office at any time, but only for cause and then only by the affirmative vote of the holders of at least 80% of the shares of stock entitled to vote in the election of directors.

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D. The names of the initial directors who will serve until their successors are duly elected and qualified are as follows:

First Class - Term Expiring 2007

John N. Conti

William R. Harvey

Robert S. Lazar

Kevin M. McCarthy

Alicia S. Quirk

Second Class - Term Expiring 2008

Peter T. Crowley

Michael J. Hayes

Arthur H. Lathrop

Kathleen A. Nealon

Peter W. Rector

Third Class - Term Expiring 2009

Donald N. Kaull

Arthur P. Macauley

Nino Moscardi

Michael S. Pinto

Barbara Saccucci Radebach

EIGHTH: The following provisions are hereby adopted for the purpose of defining, limiting and regulating the powers of the Corporation, the directors and the stockholders:

A. The Board of Directors is hereby empowered to authorize the issuance from time to time of shares of its stock of any class and securities convertible into shares of its stock of any class for such consideration as determined by the Board of Directors in accordance with the Maryland General Corporation Law, and without any action by the stockholders.

B. The Corporation, if authorized by the Board of Directors, may acquire shares of the Corporation’s capital stock.

C. No holder of any stock or any other securities of the Corporation, whether now or hereafter authorized, shall have any pre-emptive right to subscribe for or purchase any stock or any other securities of the Corporation other than such, if any, as the Board of Directors, in its sole discretion, may determine and at such price(s) and upon such other terms as the Board of Directors, in its sole discretion, may fix; and any stock or other securities which the Board of Directors may

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determine to offer for subscription may, as the Board of Directors in its sole discretion shall determine, be offered to the holders of any class, series or type of stock or other securities at the time outstanding to the exclusion of the holders of any or all other classes, series or types of stock or other securities at the time outstanding.

D. The Board of Directors shall have the power to create and to issue, whether or not in connection with the issuance and sale of any shares of stock or other securities of the Corporation, rights or options entitling the holders thereof to purchase from the Corporation any shares of its capital stock of any class(es), on such terms and conditions and in such form as the Board of Directors shall set forth in a resolution.

E. The Board of Directors shall have the power, subject to any limitations or restrictions imposed by law, to classify or reclassify any unissued shares of stock whether now or hereafter authorized, by fixing or altering in any one or more respects before issuance of such shares the voting powers, designations, preferences and relative, participating, optional or other special rights of such shares and the qualifications, limitations or restrictions of such preferences and/or rights.

F. The Board of Directors shall have the power to adopt, amend or repeal the Bylaws of the Corporation.

G. The Board of Directors shall have the power to declare and authorize the payment of stock dividends payable in stock of one class of the Corporation’s capital stock to holders of stock of another class(es) of the Corporation’s capital stock.

H. The Board of Directors shall have authority to exercise without a vote of stockholders all powers of the Corporation, whether conferred by law or by these Articles of Incorporation, to purchase, lease or otherwise acquire the business assets or franchises in whole or in part of other corporations or unincorporated business entities.

I. The Board of Directors shall have the power to borrow or raise money, from time to time and without limit, and upon any terms, for any corporate purposes, and, subject to the Maryland General Corporation Law, to authorize the creation, issuance, assumption or guaranty of bonds, notes or other evidences of indebtedness for monies so borrowed, to include therein such provisions as to redeemability, convertibility or otherwise as the Board of Directors, in its sole discretion, may determine and to secure the payment of principal, interest or sinking fund in respect thereof by mortgage upon, or the pledge of, or the conveyance or assignment in trust of, the whole or any part of the properties, assets and goodwill of the Corporation then owed or thereafter acquired.

J. Subject to the provisions of Article NINTH of these Articles of Incorporation, the affirmative vote of the holders of a majority of the issued and outstanding shares of capital stock entitled to vote shall be required to approve the following actions:

1. The amendment of the Corporation’s Articles of Incorporation, except that (a) any

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amendment of Section C of Article FIFTH, Sections A and C of Article SEVENTH, Sections F, J and L of Article EIGHTH, and Article NINTH of the Corporation’s Articles of Incorporation shall require the affirmative vote of 80% of the issued and outstanding shares of capital stock entitled to vote, and (b) the Board of Directors, with the approval of a majority of the entire Board, and without any action by the stockholders, may amend these Articles of Incorporation to increase or decrease the aggregate number of shares of capital stock of the Corporation or the number of shares of any class of capital stock that the Corporation has the authority to issue.

2. The merger or consolidation of this Corporation with or into any other corporation.

3. The sale, lease or exchange of all or substantially all of the Corporation’s property and assets.

4. The dissolution of the Corporation.

K. To the fullest extent permitted by Maryland statutory or decisional law, as amended or interpreted, no director or officer of this Corporation shall be personally liable to the Corporation or its stockholders for monetary damages. No amendment of the Articles of Incorporation of the Corporation or repeal of any of its provisions shall limit or eliminate the benefits provided to directors and officers under this provision with respect to any act or omission which occurred prior to such amendment or repeal.

L. The Board of Directors shall, in connection with the exercise of its business judgment involving any actual or proposed transaction which would or may involve a change in control of the Corporation (whether by purchases of shares of stock or any other securities of the Corporation in the open market or otherwise, tender offer, merger, consolidation, dissolution, liquidation, sale of all or substantially all of the assets of the Corporation, proxy solicitation (other than on behalf of the Board of Directors or otherwise), in determining what is in the best interests of the Corporation and its stockholders and in making any recommendation to its stockholders, given due consideration to all relevant factors, including, but not limited to the following: (1) the economic effect, both immediate and long-term, upon the Corporation’s stockholders, including stockholders, if any, not to participate in the transaction; (2) the social and economic effect on the employees, depositors and customers of, and others dealing with, the Corporation and its subsidiaries and on the communities in which the Corporation and its subsidiaries operate or are located; (3) whether the proposal is acceptable based on the historical and current operating results or financial condition of the Corporation; (4) whether a more favorable price could be obtained for the Corporation’s stock or other securities in the future; (5) the reputation and business practices of the offeror and its management and affiliates as they would affect the employees; (6) the future value of the stock or any other securities of the Corporation; and (7) any antitrust or other legal and regulatory issues that are raised by the proposal. If the Board of Directors determines that any actual or proposed transaction which would or may involve a change in control of the Corporation should be rejected, it may take any lawful action to accomplish its purpose, including, but not limited to, any and all of the following: advising stockholders not to accept the proposal; instituting litigation against the

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party making the proposal; filing complaints with governmental and regulatory authorities; acquiring the stock or any of the securities of the Corporation; selling or otherwise issuing authorized but unissued stock, other securities or treasury stock or granting options with respect thereto; selling any of the assets of the Corporation; acquiring a company to create an antitrust or other regulatory problem for the party making the proposal; and obtaining a more favorable offer from another individual or entity.

NINTH:

A. In addition to any affirmative vote required by law or these Articles of Incorporation, and except as otherwise expressly provided in this Article NINTH:

1. any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with: (a) any Interested Stockholder (as hereinafter defined); or (b) any other corporation (whether or not itself an Interested Stockholder) which is, or after such merger or consolidation would be, an Affiliate (as hereinafter defined) of an Interested Stockholder; or

2. any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Stockholder, or any Affiliate of any Interested Stockholder, of any assets of the Corporation or any Subsidiary having an aggregate Fair Market Value (as hereinafter defined) equaling or exceeding 25% or more of the combined assets of the Corporation and its Subsidiaries; or

3. the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the Corporation or any Subsidiary to any Interested Stockholder or any Affiliate of any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value (as hereinafter defined) equaling or exceeding 25% of the combined Fair Market Value of the outstanding common stock of the Corporation and its Subsidiaries, except for any issuance or transfer pursuant to an employee benefit plan of the Corporation or any Subsidiary thereof; or

4. the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of an Interested Stockholder or any Affiliate of any Interested Stockholder; or

5. any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Interested Stockholder or any Affiliate of any Interested Stockholder;

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shall require the affirmative vote of the holders of at least 80% of the voting power of the then-outstanding shares of stock of the Corporation entitled to vote in the election of Directors (the “Voting Stock”) (after giving effect to the provisions of Article FIFTH), voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or by any other provisions of these Articles of Incorporation or in any agreement with any national securities exchange or otherwise.

The term “Business Combination” as used in this Article NINTH shall mean any transaction which is referred to in any one or more of Paragraphs 1 through 5 of Section A of this Article NINTH.

B. The provisions of Section A of this Article NINTH shall not be applicable to any particular Business Combination, and such Business Combination shall require only the affirmative vote of the majority of the outstanding shares of capital stock entitled to vote after giving effect to the provisions of Article FIFTH, or such vote (if any), as is required by law or by these Articles of Incorporation, if, in the case of any Business Combination that does not involve any cash or other consideration being received by the stockholders of the Corporation solely in their capacity as stockholders of the Corporation, the condition specified in the following Paragraph 1 is met or, in the case of any other Business Combination, all of the conditions specified in either of the following Paragraphs 1 or 2 are met:

1. The Business Combination shall have been approved by a majority of the Disinterested Directors (as hereinafter defined).

2. All of the following conditions shall have been met:

a. The aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by the holders of common stock in such Business Combination shall at least be equal to the higher of the following:

(1) (if applicable) the Highest Per Share Price (as hereinafter defined), including any brokerage commissions, transfer taxes and soliciting dealers’ fees, paid by the Interested Stockholder or any of its Affiliates for any shares of common stock acquired by it: (a) within the two-year period immediately prior to the first public announcement of the proposal of the Business Combination (the “Announcement Date”); or (b) in the transaction in which it became an Interested Stockholder, whichever is higher; or

(2) the Fair Market Value per share of common stock on the Announcement Date or on the date on which the Interested Stockholder became an Interested Stockholder (such latter date is referred to in this Article NINTH as the “Determination Date”), whichever is higher.

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b. The aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of shares of any class of outstanding Voting Stock other than common stock shall be at least equal to the highest of the following (it being intended that the requirements of this Subparagraph (b) shall be required to be met with respect to every such class of outstanding Voting Stock, whether or not the Interested Stockholder has previously acquired any shares of a particular class of Voting Stock):

(1) (if applicable) the Highest Per Share Price (as hereinafter defined), including any brokerage commissions, transfer taxes and soliciting dealers’ fees, paid by the Interested Stockholder for any shares of such class of Voting Stock acquired by it: (a) within the two-year period immediately prior to the Announcement Date; or (b) in the transaction in which it became an Interested Stockholder, whichever is higher; or

(2) (if applicable) the highest preferential amount per share to which the holders of shares of such class of Voting Stock are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation; or

(3) the Fair Market Value per share of such class of Voting Stock on the Announcement Date or on the Determination Date, whichever is higher.

c. The consideration to be received by holders of a particular class of outstanding Voting Stock (including common stock) shall be in cash or in the same form as the Interested Stockholder has previously paid for shares of such class of Voting Stock. If the Interested Stockholder has paid for shares of any class of Voting Stock with varying forms of consideration, the form of consideration to be received per share by holders of shares of such class of Voting Stock shall be either cash or the form used to acquire the largest number of shares of such class of Voting Stock previously acquired by the Interested Stockholder. The price determined in accordance with Paragraph 2 of Section B of this Article NINTH shall be subject to appropriate adjustment in the event of any stock dividend, stock split, combination of shares or similar event.

d. After such Interested Stockholder has become an Interested Stockholder and prior to the consummation of such Business Combination: (1) except as approved by a majority of the Disinterested Directors (as hereinafter defined), there shall have been no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) on any outstanding stock having preference over the common stock as to dividends or liquidation; (2) there shall have been: (a) no reduction in the annual rate of dividends paid on the common stock (except as necessary to reflect any subdivision of the common stock), except as approved by a majority of the Disinterested Directors; and (b) an increase in such annual rate of dividends as necessary to reflect any reclassification (including any reverse stock split), recapitalization,

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reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of the common stock, unless the failure to so increase such annual rate is approved by a majority of the Disinterested Directors, and (3) neither such Interested Stockholder nor any of its Affiliates shall have become the beneficial owner of any additional shares of Voting Stock except as part of the transaction which results in such Interested Stockholder becoming an Interested Stockholder.

e. After such Interested Stockholder has become an Interested Stockholder, such Interested Stockholder shall not have received the benefit, directly or indirectly (except proportionately as a stockholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided, directly or indirectly, by the Corporation, whether in anticipation of or in connection with such Business Combination or otherwise.

f. A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (or any subsequent provisions replacing such Act, and the rules or regulations thereunder) shall be mailed to stockholders of the Corporation at least thirty (30) days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions).

C. For the purposes of this Article NINTH:

1. A “Person” shall include an individual, a firm, a group acting in concert, a corporation, a partnership, an association, a joint venture, a pool, a joint stock company, a trust, an unincorporated organization or similar company, a syndicate or any other group formed for the purpose of acquiring, holding or disposing of securities or any other entity.

2. “Interested Stockholder” shall mean any person (other than the Corporation or Subsidiary thereof) who or which:

a. is the beneficial owner, directly or indirectly, of more than 10% of the voting power of the outstanding Voting Stock; or

b. is an Affiliate of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of 10% or more of the voting power of the then-outstanding Voting Stock; or

c. is an assignee of or has otherwise succeeded to any shares of Voting Stock which were at any time within the two-year period immediately prior to the date in question beneficially owned by any Interested Stockholder, if such assignment or

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succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933, as amended.

3. For purposes of this Article NINTH, “beneficial ownership” shall be determined in the manner provided in Section C of Article FIFTH hereof.

4. “Affiliate” and “Associate” shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, as in effect on the date of filing of these Articles of Incorporation.

5. “Subsidiary” means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Interested Stockholder set forth in Paragraph 2 of this Section C, the term “Subsidiary” shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation.

6. “Disinterested Director” means any member of the Board of Directors who is unaffiliated with the Interested Stockholder and was a member of the Board of Directors prior to the time that the Interested Stockholder became an Interested Stockholder, and any Director who is thereafter chosen to fill any vacancy of the Board of Directors or who is elected and who, in either event, is unaffiliated with the Interested Stockholder and in connection with his or her initial assumption of office is recommended for appointment or election by a majority of Disinterested Directors then on the Board of Directors.

7. “Fair Market Value” means:

a. in the case of stock, the highest closing sales price of the stock during the 30-day period immediately preceding the date in question of a share of such stock on the National Association of Securities Dealers Automated Quotation System or any system then in use, or, if such stock is admitted to trading on a principal United States securities exchange registered under the Securities Exchange Act of 1934, as amended, Fair Market Value shall be the highest sale price reported during the 30-day period preceding the date in question, or, if no such quotations are available, the Fair Market Value on the date in question of a share of such stock as determined by the Board of Directors in good faith, in each case with respect to any class of stock, appropriately adjusted for any dividend or distribution in shares of such stock or any stock split or reclassification of outstanding shares of such stock into a greater number of shares of such stock or any combination or reclassification of outstanding shares of such stock into a smaller number of shares of such stock; and

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b. in the case of property other than cash or stock, the Fair Market Value of such property on the date in question as determined by the Board of Directors in good faith.

8. Reference to “Highest Per Share Price” shall in each case with respect to any class of stock reflect an appropriate adjustment for any dividend or distribution in shares of such stock or any stock split or reclassification of outstanding shares of such stock into a greater number of shares of such stock or any combination or reclassification of outstanding shares of such stock into a smaller number of shares of such stock.

9. In the event of any Business Combination in which the Corporation survives, the phrase “consideration other than cash to be received” as used in Subparagraphs (a) and (b) of Paragraph 2 of Section B of this Article NINTH shall include the shares of common stock and/or the shares of any other class of outstanding Voting Stock retained by the holders of such shares.

D. A majority of the Disinterested Directors of the Corporation shall have the power and duty to determine for the purposes of this Article NINTH, on the basis of information known to them after reasonable inquiry: (1) whether a person is an Interested Stockholder; (2) the number of shares of Voting Stock beneficially owned by any person; (3) whether a person is an Affiliate or Associate of another; and (4) whether the assets which are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by the Corporation or any Subsidiary in any Business Combination has an aggregate Fair Market Value equaling or exceeding 25% of the combined Fair Market Value of the common stock of the Corporation and its Subsidiaries. A majority of the Disinterested Directors shall have the further power to interpret all of the terms and provisions of this Article NINTH.

E. Nothing contained in this Article NINTH shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law.

F. Notwithstanding any other provisions of these Articles of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the Voting Stock required by law, these Articles of Incorporation, the affirmative vote of the holders of at least 80% of the voting power of all of the then-outstanding shares of the Voting Stock (after giving effect to the provisions of Article FIFTH), voting together as a single class, shall be required to alter, amend or repeal this Article NINTH.

TENTH: The Corporation shall indemnify (A) its directors and officers, whether serving the Corporation or at its request any other entity, to the fullest extent required or permitted by the general laws of the State of Maryland now or hereafter in force, including the advance of expenses under the procedures required, and (B) other employees and agents to such extent as shall be authorized by the Board of Directors or the Corporation’s Bylaws and be permitted by law. The foregoing rights of indemnification shall not be exclusive of any rights to which those seeking indemnification may be entitled. The Board of Directors may take such action as is necessary to

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carry out these indemnification provisions and is expressly empowered to adopt, approve and amend from time to time such Bylaws, resolutions or contracts implementing such provisions or such further indemnification arrangements as may be permitted by law. No amendment of the Articles of Incorporation of the Corporation shall limit or eliminate the right to indemnification provided hereunder with respect to acts or omissions occurring prior to such amendment or repeal.

IN WITNESS WHEREOF, I have signed these Articles of Incorporation, acknowledging the same to be may act as of this 6th day of March, 2006.

By:	/s/ Edward G. Olifer
	Edward G. Olifer
	Incorporator

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The Corporation Herein Named is: The Corporation Trust Incorporated

An Authorized Corporate Registered Agent in the state of Maryland, per Signatures of its President/Vice-President and Secretary/Assistant Secretary, Herein Consents to Act as Registered Agent For:

Newport Bancorp, Inc.

Signature: /s/ Stacy Rosenthal, Vice President and Assistant Secretary of President or Vice President

Attest: /s/ Stacy Rosenthal of Secretary or Assistant Secretary

Date: 03/06/2006

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NEWPORT BANCORP, INC.

BYLAWS

ARTICLE I - STOCKHOLDERS

Section 1. ANNUAL MEETING

The annual meeting of the stockholders of Newport Bancorp, Inc. (the “Corporation”) shall be held each year at such time and on such date as the Board of Directors shall, in their discretion, fix. The business to be transacted at the annual meeting shall include the election of directors, consideration of the report of the President, and any other business properly brought before the meeting in accordance with these Bylaws.

Section 2. SPECIAL MEETINGS

A special meeting of the stockholders may be called at any time for any purpose(s) by the Chairman of the Board, the President or by a majority of the total number of Directors which the Corporation would have if there were no vacancies on the Board of Directors. A special meeting of the stockholders shall be called by the Secretary of the Corporation upon the written request of the holders of a majority of all shares outstanding and entitled to vote on the business to be transacted at such meeting. Notwithstanding the previous sentence, the Secretary of the Corporation shall not be obligated to call a special meeting of the stockholders requested by stockholders for the purpose of taking any action that is non-binding or advisory in nature. Business transacted at any special meeting shall be confined to the purpose(s) stated in the notice of such meeting.

Section 3. PLACE OF MEETING

The Board of Directors may designate any place, either within or without the State of Maryland, as the place of meeting for any annual or special meeting of stockholders.

Section 4. NOTICE OF MEETING; WAIVER OF NOTICE

Not less than ten (10) days nor more than ninety (90) days before the date of every stockholders meeting, the Secretary shall give to each stockholder entitled to vote at or to notice of such meeting, written notice stating the place, date and time of the meeting and, in the case of a special meeting, the purpose(s) for which the meeting is called, either by mail to his or her address as it appears on the records of the Corporation or by presenting it to him or her personally or by leaving it at his or her residence or usual place of business. Notwithstanding the foregoing provisions, a written waiver of notice, signed by the person entitled to notice, whether before or after the time stated therein, shall be equivalent to notice. Attendance of a person entitled to notice at a

meeting, in person or by proxy, shall constitute a waiver of notice of such meeting, except when such person attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.

When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the place, date and time thereof are announced at the meeting at which the adjournment is taken; provided however, that if the date of the adjourned meeting is more than 120 days after the record date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, written notice of the place, date and time of the adjourned meeting shall be given in conformity herewith.

Section 5. QUORUM

At any meeting of stockholders, the holders of a majority of the shares of the stock entitled to vote at the meeting, present in person or by proxy (after giving effect to the provisions of Article FIFTH of the Articles of Incorporation), shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number may be required by law.

If a quorum fails to attend any meeting, the Chairman of the meeting or the holders of a majority of the shares of stock entitled to vote who are represented in person or by proxy may adjourn the meeting to any place, date and time without further notice to a date not more than 120 days after the original record date. At such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting originally called. The stockholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of stockholders to leave less than a quorum.

Section 6. ORGANIZATION

The Chairman of the Board of the Corporation or, in his or her absence, the President of the Corporation, or in his or her absence such person as the Board of Directors may have designated or, in the absence of such a person, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person or by proxy, shall call to order any meeting of the stockholders and act as chairman of the meeting. In the absence of the Secretary of the Corporation, the secretary of the meeting shall be such person as the chairman appoints.

Section 7. CONDUCT OF BUSINESS

(a) The chairman of any meeting of stockholders shall determine the order of business and the procedures at the meeting, including such regulation of the manner of voting and the conduct of discussion as seem to him or her in order. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting.

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(b) At any annual meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation who is entitled to vote with respect thereto and who complies with the notice procedures set forth in this Section 7(b). For business to be properly brought before an annual meeting by a stockholder, the business must relate to a proper subject matter for stockholder action and the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder’s notice must be delivered or mailed to and received at the principal executive office of the Corporation not less than ninety (90) days prior to the date of the annual meeting; provided, however, that if less than one hundred (100) days’ notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A stockholder’s notice to the Secretary shall set forth as to each matter such stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the Corporation’s books, of the stockholder proposing such business, (iii) the class and number of shares of the Corporation’s capital stock that are beneficially owned by such stockholder, (iv) a statement disclosing (A) whether such stockholder is acting with or on behalf of any other person and (B) if applicable, the identity of such person, and (v) any material interest of such stockholder in such business. Notwithstanding anything in these Bylaws to the contrary, no business shall be brought before or conducted at an annual meeting except in accordance with the provisions of this Section 7(b). The Chairman of the Board or other person presiding over the annual meeting shall, if the facts so warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 7(b) and, if he or she should so determine, he or she shall so declare to the meeting and any such business so determined to be not properly brought before the meeting shall not be transacted.

At any special meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting in accordance with Article I, Section 2.

(c) Only persons who are nominated in accordance with the procedures set forth in these Bylaws shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders at which directors are to be elected only (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 7(c). Such nominations, other than those made by or at the direction of the Board of Directors, shall be made by timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder’s notice shall be delivered or mailed to and received at the principal executive office of the Corporation not less than ninety (90) days prior to the date of the meeting; provided, however, that if less than one hundred (100) days’ notice or prior disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder’s

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notice shall set forth (i) as to each person whom such stockholder proposes to nominate for election or re-election as a director, all information relating to such person that would indicate such person’s qualification under Article II, Section 3, including an affidavit that such person would not be disqualified under the provisions of Section 3(b) and such information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (ii) as to the stockholder giving the notice (A) the name and address, as they appear on the Corporation’s books, of such stockholder, (B) the class and number of shares of the Corporation’s capital stock that are beneficially owned by such stockholder, and (C) a statement disclosing (1) whether such stockholder or any nominee thereof is acting with or on behalf of any other person and (2) if applicable, the identity of such person.

Section 8. VOTING

Unless the Articles of Incorporation provides for a greater or lesser number of votes per share or limits or denies voting rights, each outstanding share of stock, regardless of class, is entitled to one (1) vote on each matter submitted to a vote at a meeting of stockholders.

All voting, including on the election of directors but excepting where otherwise required by law or by the governing documents of the Corporation, may be made by a voice vote; provided, however, that upon demand therefor by a stockholder entitled to vote or his or her proxy, a stock vote shall be taken. Every stock vote shall be taken by ballot, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedures established for the meeting. The Corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability.

All elections shall be determined by a plurality of the votes cast, and, except as otherwise required by law or the Articles of Incorporation, all other matters shall be determined by a majority of the votes cast.

Section 9. PROXIES

At all meetings of stockholders, a stockholder may vote the shares owned of record by him or her either in person or by proxy executed in writing by the stockholder or by his or her duly authorized attorney-in-fact. Any facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to this paragraph may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or

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transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. Proxies may be given telephonically or electronically as long as the holder uses a procedure for verifying the identity of the stockholder. Proxies solicited on behalf of the management shall be voted as directed by the stockholder or, in the absence of such direction, as determined by a majority of the Board of Directors.

Such proxy shall be filed with the Secretary of the Corporation before or at the time of the meeting. No proxy shall be valid after eleven (11) months from the date of its execution, unless otherwise provided in the proxy.

ARTICLE II - DIRECTORS

Section 1. GENERAL POWERS

The business and affairs of the Corporation shall be managed by its Board of Directors. The Board of Directors may exercise all the powers of the Corporation, except those conferred on or reserved to the stockholders by statute or by the Articles of Incorporation or the Bylaws. The Board may adopt such rules and regulations for the conduct of their meetings and the management of the Corporation as they may deem proper, and which are not inconsistent with these Bylaws and with the Maryland General Corporation Law.

Section 2. NUMBER

The number of directors of the Corporation shall be at least five (5) and no more than fifteen (15). A majority of the entire Board of Directors may by resolution set the number of directors at such number as it may determine within such range, but such action shall not affect the tenure of office of any director. Each director shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal.

Section 3. QUALIFICATIONS

(a) No person 70 years or older shall be eligible for election, reelection, appointment or reappointment to the Board of Directors. The term of office of a director of the Corporation shall expire upon the date of the annual meeting of stockholders immediately following the date on which the director becomes age 70. This age limitation does not apply to an emeritus or advisory director or any director serving on the Board of the Corporation at the effective date of these Bylaws.

(b) No person shall be eligible for election or appointment to the Board of Directors: (i) if such person has been the subject of supervisory action by a financial regulatory agency that resulted in a cease and desist order or an agreement or other written statement subject to public disclosure under 12 U.S.C. §1818(u), or any successor provision; (ii) if such person has been

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convicted of a crime involving dishonesty or breach of trust which is punishable by imprisonment for a term exceeding one year under state or federal law; (iii) if such person is currently charged in any information, indictment, or other complaint with the commission of or participation in such a crime; and (iv) unless such person has been, for a period of at least one year immediately before his or her nomination or appointment, a resident of a county in which the Corporation or its subsidiaries maintains a banking office or a county contiguous to any such county. No person may serve on the Board of Directors and at the same time be a director or officer of another co-operative bank, credit union, savings bank, savings and loan association, trust company, bank holding company or banking association (in each case whether chartered by a state, the federal government or any other jurisdiction) that engages in business activities in the same market area as the Corporation of any of its subsidiaries. No person shall be eligible for election or appointment to the Board of Directors if such person is the nominee or representative of a company, as that term is defined in Section 10 of the Home Owners’ Loan Act or any successor provision, of which any director, partner, trustee or stockholder controlling more than 10% of any class of voting stock would not be eligible for election or appointment to the Board of Directors under this Section 3. No person shall be eligible for election to the Board of Directors if such person is the nominee or representative of a person or group, or of a group acting in concert (as defined in 12 C.F.R. Section 574.4(d)), that includes a person who is ineligible for election to the Board of Directors under this Section 3. The Board of Directors shall have the power to construe and apply the provisions of this Section 3 and to make all determinations necessary or desirable to implement such provisions, including but not limited to determinations as to whether a person is a nominee or representative of a person, a company or a group, whether a person or company is included in a group, and whether a person is the nominee or representative of a group acting in concert.

Section 4. VACANCIES

Any vacancy occurring in the Board of Directors may be filled in accordance with Article SEVENTH of the Articles of Incorporation.

Section 5. REGULAR MEETINGS

Regular meetings of the Board of Directors shall be held at such dates, such times and such places, either within or without the State of Maryland, as shall have been designated by the Board of Directors and publicized among all Directors.

Section 6. SPECIAL MEETINGS

Special meetings of the Board of Directors may be called by the Chairman of the Board, by the President or by two-thirds of the Board of Directors in writing. The person(s) authorized to call special meetings of the Board of Directors may fix any place, either within or without the State of Maryland, as the place for holding the special meeting of the Board of Directors called by them.

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Section 7. NOTICE

A notice of a regular meeting shall not be required. The Secretary shall give notice to each director of the date, time and place of each such special meeting of the Board of Directors. Notice is given to a director when it is delivered personally to him or her, left at his or her residence or usual place of business, or sent by telephone, telegraph, or similar means of transmission at least 24 hours before the time of the meeting, or in the alternative, when it is mailed to his or her address as it appears on the records of the Corporation, at least 72 hours before the time of the meeting. Any director may waive notice of any meeting either before or after the holding thereof by written waiver filed with the records of the meeting. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting.

Section 8. TELEPHONIC MEETINGS

Members of the Board of Directors, or of any committee thereof, may participate in a meeting of such Board or committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 8 shall constitute presence in person at such meeting.

Section 9. QUORUM

At any meeting of the Board of Directors, a majority of the total number of directors shall constitute a quorum for the transaction of business, but if less than such quorum is present at a meeting, a majority of the directors present may adjourn the meeting without further notice or waiver thereof.

Section 10. MANNER OF ACTING

The vote of the majority of the directors present at a meeting at which a quorum is present shall be the action of the Board of Directors unless the concurrence of a greater proportion is required for such action by the Articles of Incorporation.

Section 11. ACTION WITHOUT A MEETING

Any action required or permitted to be taken by the Board of Directors at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the directors.

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Section 12. REMOVAL OF DIRECTORS

Any removal of directors may be made in accordance with Article SEVENTH of the Articles of Incorporation.

Section 13. RESIGNATION

A director may resign at any time by giving written notice to the Board, the President or the Secretary of the Corporation. Unless otherwise specified in the notice, the resignation shall take effect upon receipt thereof by the Board or such officer, and the acceptance of the resignation shall not be necessary to make it effective.

Section 14. COMPENSATION

By resolution of the Board of Directors, a fixed sum and expenses, if any, for attendance at each regular or special meeting of the Board of Directors or of committees thereof, and other compensation for their services as such or on such committees, may be paid to directors, as may compensation for such other services as a director may render to the Corporation.

Section 15. COMMITTEES

The Board of Directors, by a vote of a majority of the Board of Directors, may from time to time designate committees of the Board, with such lawfully delegable powers and duties as it thereby confers, to serve at the pleasure of the Board and shall, for these committees and any others provided for herein, elect a director(s) to serve as the member(s), designating, if it desires, other directors as alternate members who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; provided, however, that any such committee shall have no power or authority with reference to (i) declaring dividends or distributions on stock, (ii) issuing stock other than as authorized by the Board of Directors, (iii) recommending to the stockholders any action that requires stockholder approval, (iv) amending the Bylaws, or (v) approving a merger or share exchange that does not require stockholder approval. In the absence or disqualification of any member of any committee and any alternate member in his or her place, the member(s) of the committee present at the meeting and not disqualified from voting, whether or not he or she or they constitute a quorum, may by unanimous vote appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member.

Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required by law. Adequate provision shall be made for notice to members of all meetings. The quorum requirements for each such committee shall be a majority of the members of such committee unless otherwise

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determined by the Board of Directors by a majority vote of the Board of Directors which such quorum determined by a majority of the Board may be one-third of such members and all matters considered by such committees shall be determined by a majority vote of the members present. Action may be taken by any committee without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of such committee.

ARTICLE III - OFFICERS

Section 1. EXECUTIVE AND OTHER OFFICERS

The officers of the Corporation shall be a President and Chief Executive Officer, a Secretary and a Treasurer. The Board of Directors may designate who shall serve as chief executive officer, having general supervision of the business and affairs of the Corporation, and as chief operating officer, having supervision of the operations of the Corporation; in the absence of a designation the President shall serve as chief executive officer and chief operating officer. The Board of Directors may appoint such other officers as it may deem proper. A person may hold more than one office in the Corporation but may not serve concurrently as both President and Vice President of the Corporation.

Section 2. PRESIDENT AND CHIEF EXECUTIVE OFFICER

The President and Chief Executive Officer shall be the principal executive officer of the Corporation. Subject to the provisions of these Bylaws and to the direction of the Board of Directors, he or she shall have the responsibility for the general management and control of the business and affairs of the Corporation and shall perform all duties and have all powers that are commonly incident to the office of the president or that are delegated to him or her by the Board of Directors. He or she shall have power to sign all contracts, agreements and other instruments of the Corporation that are authorized and shall have general supervision and direction of all of the other officers, employees and agents of the Corporation.

Section 3. VICE PRESIDENT(S)

The Vice President(s) shall perform the duties of the President in his or her absence or during his or her inability to act. In addition, the Vice President(s) shall perform the duties and exercise the powers usually incident to their respective offices and/or such other duties and powers as may be properly assigned to them by the Board of Directors, the Chairman of the Board or the President. A Vice President(s) may be designated as Executive Vice President or Senior Vice President.

Section 4. SECRETARY

The Secretary shall keep the minutes of the meetings of the stockholders, of the Board of Directors and of any committees, in books provided for the purpose; he or she shall see that all notices are duly given in accordance with the provisions of the Bylaws or as required by law; he or

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she shall be custodian of the records of the Corporation; he or she shall witness all documents on behalf of the Corporation, the execution of which is duly authorized, see that the corporate seal is affixed where such document is required to be under its seal, and, when so affixed, may attest the same; and, in general, he or she shall perform all duties incident to the office of a secretary of a corporation, and such other duties as may from time to time be assigned to him or her by the Board of Directors or the President.

Section 5. TREASURER

The Treasurer shall have charge of and be responsible for all funds, securities, receipts and disbursements of the Corporation, and shall deposit, or cause to be deposited, in the name of the Corporation, all monies or other valuable effects in such banks, trust companies or other depositories as shall, from time to time, be selected by the Board of Directors. In general, he or she shall perform all the duties incident to the office of a treasurer of a corporation, and such other duties as may from time to time be assigned to him or her by the Board of Directors, the chief executive officer or the President.

Section 6. SUBORDINATE OFFICERS

The Corporation may have such subordinate officers as the Board of Directors may from time to time deem desirable. Each such officer shall hold office for such period and perform such duties as the Board of Directors, the President or the committee or officer designated pursuant to these Bylaws may prescribe.

Section 7. COMPENSATION

The Board of Directors shall have power to fix the salaries and other compensation and remuneration, of whatever kind, of all officers of the Corporation. It may authorize any committee or officer, upon whom the power of appointing subordinate officers may have been conferred, to fix the salaries, compensation and remuneration of such subordinate officers.

Section 8. ELECTION, TENURE AND REMOVAL OF OFFICERS

The Board of Directors shall elect the officers. The Board of Directors may from time to time authorize any committee or officer to appoint subordinate officers. An officer serves for one year or until his or her successor is elected and qualified. If the Board of Directors in its judgment finds that the best interests of the Corporation will be served, it may remove any officer or agent of the Corporation. The removal of an officer or agent does not prejudice any of his or her contract rights. The Board of Directors (or any committee or officer authorized by the Board of Directors) may fill a vacancy which occurs in any office for the unexpired portion of the term of that office.

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ARTICLE IV - STOCK

Section 1. CERTIFICATES FOR STOCK

Each stockholder shall be entitled to certificates that represent and certify the shares of stock he or she holds in the Corporation. Each stock certificate shall include on its face the name of the Corporation, the name of the stockholder and the class of stock and number of shares represented by the certificate and be in such form, not inconsistent with law or with the Articles of Incorporation, as shall be approved by the Board of Directors or any officer(s) designated for such purpose by resolution of the Board of Directors. Each stock certificate shall be signed by the President or the Chairman of the Board, and countersigned by the Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer. Each certificate shall be sealed with the actual corporate seal or a facsimile of it or in any other form and the signatures on each certificate may be either manual or facsimile signatures. A certificate is valid and may be issued whether or not an officer who signed it is still an officer of the Corporation when it is issued.

Section 2. TRANSFERS

The Board of Directors shall have power and authority to make such rules and regulations as it may deem expedient concerning the issue, transfer and registration of certificates of stock, and may appoint transfer agents and registrars thereof. The duties of transfer agent and registrar may be combined.

Section 3. RECORD DATE AND CLOSING OF TRANSFER BOOKS

In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than ninety (90) nor less than ten (10) days before the date of such meeting, nor more than ninety (90) days before any other action. The transfer books may not be closed for a period longer than twenty (20) days. In the case of a meeting of stockholders, the closing of the transfer books shall be at least ten (10) days before the date of the meeting.

Section 4. STOCK LEDGER

The Corporation shall maintain a stock ledger that contains the name and address of each stockholder and the number of shares of stock of each class registered in the name of each stockholder. The stock ledger may be in written form or in any other form that can be converted within a reasonable time into written form for visual inspection. The original or a duplicate of the stock ledger shall be kept at the offices of a transfer agent for the particular class of stock, within or

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without the State of Maryland, or, if none, at the principal office or the principal executive offices of the Corporation in the State of Maryland.

Section 5. CERTIFICATION OF BENEFICIAL OWNERS

The Board of Directors may adopt by resolution a procedure by which a stockholder of the Corporation may certify in writing to the Corporation that any shares of stock registered in the name of the stockholder are held for the account of a specified person other than the stockholder.

Section 6. LOST, STOLEN OR DESTROYED STOCK CERTIFICATES

The Board of Directors of the Corporation may determine the conditions for issuing a new stock certificate in place of one that is purportedly alleged to have been lost, stolen or destroyed, or the Board of Directors may delegate such power to any officer(s) of the Corporation. In its discretion, the Board of Directors or such officer(s) may refuse to issue such new certificate except upon the order of a court having jurisdiction in the premises.

ARTICLE V - FINANCE

Section 1. CHECKS, DRAFTS, ETC.

All checks, drafts and orders for the payment of money, notes and other evidences of indebtedness, issued in the name of the Corporation, shall, unless otherwise provided by resolution of the Board of Directors, be signed by the President or a Vice President and countersigned by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary.

Section 2. ANNUAL STATEMENT OF AFFAIRS

There shall be prepared annually a full and correct statement of the affairs of the Corporation, to include a balance sheet and a financial statement of operations for the preceding fiscal year. The statement of affairs shall be submitted at the annual meeting of the stockholders and, within twenty (20) days after the meeting, placed on file at the Corporation’s principal office. Such statement shall be prepared or caused to be prepared by such executive officer of the Corporation as may be designated in an additional or supplementary bylaw adopted by the Board of Directors. If no other executive officer is so designated, it shall be the duty of the President to prepare or cause to be prepared such statement.

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Section 3. FISCAL YEAR

The fiscal year of the Corporation shall commence on the first day of January and end on the last day of December in each year.

ARTICLE VI - SUNDRY PROVISIONS

Section 1. CORPORATE SEAL

The Board of Directors shall provide a suitable seal, bearing the name of the Corporation, which shall be in the charge of the Secretary. The Board of Directors may authorize one or more duplicate seals and provide for the custody thereof.

Section 2. BONDS

The Board of Directors may require any officer, agent or employee of the Corporation to give a bond to the Corporation, conditioned upon the faithful discharge of his or her duties, with one or more sureties and in such amount as may be satisfactory to the Board of Directors.

Section 3. VOTING UPON SHARES IN OTHER CORPORATIONS

Stock of other corporations or associations, registered in the name of the Corporation, may be voted by the President and Chief Executive Officer, a Vice President or a proxy appointed by any of them. The Board of Directors, however, may by resolution appoint some other person to vote such shares, in which case such person shall be entitled to vote such shares upon the production of a certified copy of such resolution.

Section 4. MAIL

Any notice or other document that is required by these Bylaws to be mailed shall be deposited in the United States mails, postage prepaid.

Section 5. AMENDMENT OF BYLAWS

These Bylaws may be amended or repealed in the manner set forth in the Articles of Incorporation.

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EX-3.1

Exhibit 3.1

ARTICLES OF INCORPORATION

OF

NEWPORT BANCORP, INC.

FIRST: The undersigned, Edward G. Olifer, whose address is 5101 Wisconsin Avenue, N.W., Washington, D.C. 20016, being at least eighteen years of age, acting as incorporator, does hereby form a corporation under the General Laws of the State of Maryland.

SECOND: The name of the Corporation (hereinafter “the Corporation”) is:

Newport Bancorp, Inc.

THIRD: The present address of the principal office of the Corporation in the State of Maryland is The Corporation Trust Incorporated, 300 East Lombard Street, Baltimore, Maryland 21202.

FOURTH: The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Laws of the State of Maryland.

FIFTH:

A. The total number of shares of stock of all classes of stock which the Corporation has authority to issue is Twenty Million (20,000,000) shares, having an aggregate par value of Two Hundred Thousand Dollars ($200,000), of which Nineteen Million (19,000,000) are to be shares of common stock with a par value of one cent ($.01) per share, and One Million (1,000,000) shares of preferred stock with a par value of one cent ($.01) per share.

B. A description of each class of stock of the Corporation, including any voting powers, designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations and restrictions thereof, is as follows:

1. Preferred Stock. The Board of Directors is expressly authorized to classify and reclassify any unissued shares of preferred stock, and to divide and classify shares of any class into one or more series of such class, by determining, fixing or altering from time to time before issuance any one or more of the following:

a. The distinctive designation of such class or series and the number of shares to constitute such class or series; provided that, unless otherwise prohibited by the terms of such or any other class or series, the number of shares of any class or series may be decreased by the Board of Directors in connection with any classification or reclassification of unissued shares and the number of shares of such class or series may be increased by the Board of Directors in connection with any such classification or reclassification, and any shares of any class or series that have been redeemed, purchased,

otherwise acquired, or converted into shares of common stock or any other class or series shall remain part of the authorized preferred stock and be subject to classification and reclassification as provided in this Section.

b. Whether or not and, if so, the rates, amounts and times at which, and the conditions under which, dividends shall be payable on shares of such class or series, whether any such dividends shall rank senior or junior to or on a parity with the dividends payable on any other class or series of stock, and the status of any such dividends as cumulative, cumulative to a limited extent or non-cumulative, and as participating or non-participating.

c. Whether or not shares of such class or series shall have voting rights, in addition to any voting rights provided by law and, if so, the terms of such voting rights.

d. Whether or not shares of such class or series shall have conversion or exchange privileges and, if so, the terms and conditions thereof, including provision for adjustment of the conversion or exchange rate in such events or at such times as the Board of Directors shall determine.

e. Whether or not shares of such class or series shall be subject to redemption and, if so, the terms and conditions of such redemption, including the date(s) upon or after which they shall be redeemable and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; and whether or not there shall be any sinking fund or purchase account in respect thereof, and if so, the terms thereof.

f. The rights of the holders of shares of such class or series upon the liquidation, dissolution, or winding up of the affairs of, or upon any distribution of the assets of, the Corporation, which rights may vary depending upon whether such liquidation, dissolution, or winding up is voluntary or involuntary and, if voluntary, may vary at different dates, and whether such rights shall rank senior or junior to or on a parity with such rights of any other class or series of stock.

g. Whether or not there shall be any limitations applicable, while shares of such class or series are outstanding, upon the payment of dividends or making of distributions on, or the acquisition of, or the use of moneys for the purchase or redemption of, any capital stock of the Corporation, or upon any other action of the Corporation, including action under this Section, and, if so, the terms and conditions thereof.

h. Any other preferences, rights, restrictions, including restrictions on transferability, and qualifications of shares of such class or series, not inconsistent with law and the Articles of Incorporation of the Corporation.

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2. Common Stock. Subject to all of the rights of the preferred stock as expressly provided in these Articles of Incorporation, by law or by the Board of Directors in a resolution(s) pursuant to this Article FIFTH, the common stock of the Corporation shall possess all such rights and privileges as are afforded to capital stock by Maryland law in the absence of any express grant of rights or privileges in the Corporation’s Articles of Incorporation, including but not limited to, the following:

a. Holders of the common stock shall be entitled to one (1) vote per share on each matter submitted to a vote at a meeting of stockholders; provided, however, that there shall not be any cumulative voting of the common stock.

b. Dividends may be declared and paid or set aside for payment upon the common stock out of any assets or funds of the Corporation legally available therefor.

c. Upon the voluntary or involuntary liquidation, dissolution or winding up of the Corporation, its net assets shall be distributed ratably to holders of the common stock.

C. 1. Notwithstanding any other provision of these Articles of Incorporation, in no event shall any record owner of any outstanding common stock that is beneficially owned, directly or indirectly, by a person who, as of any record date for the determination of stockholders entitled to vote on any matter, beneficially owns in excess of 10% of the then-outstanding shares of common stock (the “Limit”), be entitled, or permitted to any vote in respect of the shares held in excess of the Limit. The number of votes that may be cast by any record owner by virtue of the provisions hereof in respect of common stock beneficially owned by such person beneficially owning shares in excess of the Limit shall be a number equal to the total number of votes that a single record owner of all common stock beneficially owned by such person would be entitled to cast (subject to the provisions of this Article FIFTH), multiplied by a fraction, the numerator of which is the number of shares of such class or series that are both beneficially owned by such person and owned of record by such record owner and the denominator of which is the total number of shares of common stock beneficially owned by such person owning shares in excess of the Limit.

2. The following definitions shall apply to this Section C of this Article FIFTH:

a. “Affiliate” shall have the meaning ascribed to it in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, as in effect on the date of filing of these Articles of Incorporation.

b. “Beneficial ownership” shall be determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (or any successor rule or statutory provision), or, if said Rule 13d-3 shall be rescinded and there shall be no successor rule or provision thereto, pursuant to said Rule 13d-3 as in effect

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on the date of filing of these Articles of Incorporation; provided, however, that a person shall, in any event, also be deemed the “beneficial owner” of any common stock:

(1) which such person or any of its Affiliates beneficially owns, directly or indirectly; or

(2) which such person or any of its Affiliates has: (a) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding (but shall not be deemed to be the beneficial owner of any voting shares solely by reason of an agreement, contract or other arrangement with this Corporation to effect any transaction which is described in any one or more of Paragraphs 1 through 5 of Section A of Article NINTH of these Articles of Incorporation (“Article NINTH”)), or upon the exercise of conversion rights, exchange rights, warrants or options or otherwise, or (b) sole or shared voting or investment power with respect thereto pursuant to any agreement, arrangement, understanding, relationship or otherwise (but shall not be deemed to be the beneficial owner of any voting shares solely by reason of a revocable proxy granted for a particular meeting of stockholders, pursuant to a public solicitation of proxies for such meeting, with respect to shares of which neither such person nor any such Affiliate is otherwise deemed the beneficial owner); or

(3) which are beneficially owned, directly or indirectly, by any other person with which such first mentioned person or any of its Affiliates acts as a partnership, limited partnership, syndicate or other group pursuant to any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of this Corporation; and provided further, however, that: (a) no Director or Officer of this Corporation (or any Affiliate of any such Director or Officer) shall, solely by reason of any or all of such Directors or Officers acting in their capacities as such, be deemed, for any purposes hereof, to beneficially own any common stock beneficially owned by any other such Director or Officer (or any Affiliate thereof); and (b) neither any employee stock ownership or similar plan of this Corporation or any subsidiary of this Corporation, nor any trustee with respect thereto or any Affiliate of such trustee (solely by reason of such capacity of such trustee), shall be deemed, for any purposes hereof, to beneficially own any common stock held under any such plan. For purposes only of computing the percentage of beneficial ownership of common stock of a person, the outstanding common stock shall include shares deemed owned by such person through application of this subsection but shall not include any other shares of common stock which may be issuable by this Corporation pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise. For all other purposes,

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the outstanding common stock shall include only shares of common stock then outstanding and shall not include any shares of common stock which may be issuable by this Corporation pursuant to any agreement, or upon the exercise of conversion rights, warrants or options, or otherwise.

c. The “Limit” shall mean 10% of the then-outstanding shares of common stock.

d. A “person” shall include an individual, a firm, a group acting in concert, a corporation, a partnership, an association, a joint venture, a pool, a joint stock company, a trust, an unincorporated organization or similar company, a syndicate or any other group formed for the purpose of acquiring, holding or disposing of securities or any other entity.

3. The Board of Directors shall have the power to construe and apply the provisions of this Section and to make all determinations necessary or desirable to implement such provisions, including but not limited to matters with respect to: (a) the number of shares of common stock beneficially owned by any person; (b) whether a person is an Affiliate of another; (c) whether a person has an agreement, arrangement or understanding with another as to the matters referred to in the definition of beneficial ownership; (d) the application of any other definition or operative provision of the section to the given facts; or (e) any other matter relating to the applicability or effect of this Section.

4. The Board of Directors shall have the right to demand that any person who is reasonably believed to beneficially own shares of common stock in excess of the Limit (or holds of record common stock beneficially owned by any person in excess of the Limit) supply the Corporation with complete information as to: (a) the record owner(s) of all shares beneficially owned by such person who is reasonably believed to own shares in excess of the Limit; and (b) any other factual matter relating to the applicability or effect of this Section as may reasonably be requested of such person.

5. Except as otherwise provided by law or expressly provided in this Section C, the presence, in person or by proxy, of the holders of record of shares of capital stock of the Corporation entitling the holders thereof to cast a majority of the votes (after giving effect, if required, to the provisions of this Section C) entitled to be cast by the holders of shares of capital stock of the Corporation entitled to vote shall constitute a quorum at all meetings of the stockholders, and every reference in these Articles of Incorporation to a majority or other proportion of capital stock (or the holders thereof) for purposes of determining any quorum requirement or any requirement for stockholder consent or approval shall be deemed to refer to such majority or other proportion of the votes (or the holders thereof) then entitled to be cast in respect of such capital stock.

6. Any constructions, applications or determinations made by the Board of Directors pursuant to this Section in good faith and on the basis of such information and assistance

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as was then reasonably available for such purpose shall be conclusive and binding upon the Corporation and its stockholders.

7. In the event any provision (or portion thereof) of this Section C shall be found to be invalid, prohibited or unenforceable for any reason, the remaining provisions (or portions thereof) of this Section shall remain in full force and effect, and shall be construed as if such invalid, prohibited or unenforceable provision had been stricken herefrom or otherwise rendered inapplicable, it being the intent of this Corporation and its stockholders that each such remaining provision (or portion thereof) of this Section C remain, to the fullest extent permitted by law, applicable and enforceable as to all stockholders, including stockholders owning an amount of stock over the Limit, notwithstanding any such finding.

SIXTH: The name and address of the resident agent of the Corporation are The Corporation Trust Incorporated, 300 East Lombard Street, Baltimore, Maryland 21202. Said resident agent is a Maryland corporation.

SEVENTH:

A. Except as may be altered in the manner set forth in the Bylaws, the initial number of directors shall be fifteen (15). The Directors shall be divided into three classes, as nearly equal in number as reasonably possible, with the term of office of the first class to expire at the first annual meeting of stockholders, the term of office of the second class to expire at the annual meeting of stockholders one year thereafter and the term of office of the third class to expire at the annual meeting of stockholders two years thereafter with each Director to hold office until his or her successor shall have been duly elected and qualified. At each annual meeting of stockholders following such initial classification and election, Directors elected to succeed those Directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election with each Director to hold office until his or her successor shall have been duly elected and qualified.

B. Subject to the rights of holders of any series of preferred stock outstanding, the newly created directorships resulting from any increase in the authorized number of Directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification or other cause except removal from office, may be filled only by a majority vote of the Directors then in office, though less than a quorum, and Directors so chosen shall hold office for a term expiring at the next annual meeting of stockholders and until their successors are duly elected and qualified. No decrease in the number of Directors constituting the Board of Directors shall shorten the term of any incumbent Director.

C. Any director, or the entire Board of Directors, may be removed from office at any time, but only for cause and then only by the affirmative vote of the holders of at least 80% of the shares of stock entitled to vote in the election of directors.

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D. The names of the initial directors who will serve until their successors are duly elected and qualified are as follows:

First Class - Term Expiring 2007

John N. Conti

William R. Harvey

Robert S. Lazar

Kevin M. McCarthy

Alicia S. Quirk

Second Class - Term Expiring 2008

Peter T. Crowley

Michael J. Hayes

Arthur H. Lathrop

Kathleen A. Nealon

Peter W. Rector

Third Class - Term Expiring 2009

Donald N. Kaull

Arthur P. Macauley

Nino Moscardi

Michael S. Pinto

Barbara Saccucci Radebach

EIGHTH: The following provisions are hereby adopted for the purpose of defining, limiting and regulating the powers of the Corporation, the directors and the stockholders:

A. The Board of Directors is hereby empowered to authorize the issuance from time to time of shares of its stock of any class and securities convertible into shares of its stock of any class for such consideration as determined by the Board of Directors in accordance with the Maryland General Corporation Law, and without any action by the stockholders.

B. The Corporation, if authorized by the Board of Directors, may acquire shares of the Corporation’s capital stock.

C. No holder of any stock or any other securities of the Corporation, whether now or hereafter authorized, shall have any pre-emptive right to subscribe for or purchase any stock or any other securities of the Corporation other than such, if any, as the Board of Directors, in its sole discretion, may determine and at such price(s) and upon such other terms as the Board of Directors, in its sole discretion, may fix; and any stock or other securities which the Board of Directors may

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determine to offer for subscription may, as the Board of Directors in its sole discretion shall determine, be offered to the holders of any class, series or type of stock or other securities at the time outstanding to the exclusion of the holders of any or all other classes, series or types of stock or other securities at the time outstanding.

D. The Board of Directors shall have the power to create and to issue, whether or not in connection with the issuance and sale of any shares of stock or other securities of the Corporation, rights or options entitling the holders thereof to purchase from the Corporation any shares of its capital stock of any class(es), on such terms and conditions and in such form as the Board of Directors shall set forth in a resolution.

E. The Board of Directors shall have the power, subject to any limitations or restrictions imposed by law, to classify or reclassify any unissued shares of stock whether now or hereafter authorized, by fixing or altering in any one or more respects before issuance of such shares the voting powers, designations, preferences and relative, participating, optional or other special rights of such shares and the qualifications, limitations or restrictions of such preferences and/or rights.

F. The Board of Directors shall have the power to adopt, amend or repeal the Bylaws of the Corporation.

G. The Board of Directors shall have the power to declare and authorize the payment of stock dividends payable in stock of one class of the Corporation’s capital stock to holders of stock of another class(es) of the Corporation’s capital stock.

H. The Board of Directors shall have authority to exercise without a vote of stockholders all powers of the Corporation, whether conferred by law or by these Articles of Incorporation, to purchase, lease or otherwise acquire the business assets or franchises in whole or in part of other corporations or unincorporated business entities.

I. The Board of Directors shall have the power to borrow or raise money, from time to time and without limit, and upon any terms, for any corporate purposes, and, subject to the Maryland General Corporation Law, to authorize the creation, issuance, assumption or guaranty of bonds, notes or other evidences of indebtedness for monies so borrowed, to include therein such provisions as to redeemability, convertibility or otherwise as the Board of Directors, in its sole discretion, may determine and to secure the payment of principal, interest or sinking fund in respect thereof by mortgage upon, or the pledge of, or the conveyance or assignment in trust of, the whole or any part of the properties, assets and goodwill of the Corporation then owed or thereafter acquired.

J. Subject to the provisions of Article NINTH of these Articles of Incorporation, the affirmative vote of the holders of a majority of the issued and outstanding shares of capital stock entitled to vote shall be required to approve the following actions:

1. The amendment of the Corporation’s Articles of Incorporation, except that (a) any

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amendment of Section C of Article FIFTH, Sections A and C of Article SEVENTH, Sections F, J and L of Article EIGHTH, and Article NINTH of the Corporation’s Articles of Incorporation shall require the affirmative vote of 80% of the issued and outstanding shares of capital stock entitled to vote, and (b) the Board of Directors, with the approval of a majority of the entire Board, and without any action by the stockholders, may amend these Articles of Incorporation to increase or decrease the aggregate number of shares of capital stock of the Corporation or the number of shares of any class of capital stock that the Corporation has the authority to issue.

2. The merger or consolidation of this Corporation with or into any other corporation.

3. The sale, lease or exchange of all or substantially all of the Corporation’s property and assets.

4. The dissolution of the Corporation.

K. To the fullest extent permitted by Maryland statutory or decisional law, as amended or interpreted, no director or officer of this Corporation shall be personally liable to the Corporation or its stockholders for monetary damages. No amendment of the Articles of Incorporation of the Corporation or repeal of any of its provisions shall limit or eliminate the benefits provided to directors and officers under this provision with respect to any act or omission which occurred prior to such amendment or repeal.

L. The Board of Directors shall, in connection with the exercise of its business judgment involving any actual or proposed transaction which would or may involve a change in control of the Corporation (whether by purchases of shares of stock or any other securities of the Corporation in the open market or otherwise, tender offer, merger, consolidation, dissolution, liquidation, sale of all or substantially all of the assets of the Corporation, proxy solicitation (other than on behalf of the Board of Directors or otherwise), in determining what is in the best interests of the Corporation and its stockholders and in making any recommendation to its stockholders, given due consideration to all relevant factors, including, but not limited to the following: (1) the economic effect, both immediate and long-term, upon the Corporation’s stockholders, including stockholders, if any, not to participate in the transaction; (2) the social and economic effect on the employees, depositors and customers of, and others dealing with, the Corporation and its subsidiaries and on the communities in which the Corporation and its subsidiaries operate or are located; (3) whether the proposal is acceptable based on the historical and current operating results or financial condition of the Corporation; (4) whether a more favorable price could be obtained for the Corporation’s stock or other securities in the future; (5) the reputation and business practices of the offeror and its management and affiliates as they would affect the employees; (6) the future value of the stock or any other securities of the Corporation; and (7) any antitrust or other legal and regulatory issues that are raised by the proposal. If the Board of Directors determines that any actual or proposed transaction which would or may involve a change in control of the Corporation should be rejected, it may take any lawful action to accomplish its purpose, including, but not limited to, any and all of the following: advising stockholders not to accept the proposal; instituting litigation against the

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party making the proposal; filing complaints with governmental and regulatory authorities; acquiring the stock or any of the securities of the Corporation; selling or otherwise issuing authorized but unissued stock, other securities or treasury stock or granting options with respect thereto; selling any of the assets of the Corporation; acquiring a company to create an antitrust or other regulatory problem for the party making the proposal; and obtaining a more favorable offer from another individual or entity.

NINTH:

A. In addition to any affirmative vote required by law or these Articles of Incorporation, and except as otherwise expressly provided in this Article NINTH:

1. any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with: (a) any Interested Stockholder (as hereinafter defined); or (b) any other corporation (whether or not itself an Interested Stockholder) which is, or after such merger or consolidation would be, an Affiliate (as hereinafter defined) of an Interested Stockholder; or

2. any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Stockholder, or any Affiliate of any Interested Stockholder, of any assets of the Corporation or any Subsidiary having an aggregate Fair Market Value (as hereinafter defined) equaling or exceeding 25% or more of the combined assets of the Corporation and its Subsidiaries; or

3. the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the Corporation or any Subsidiary to any Interested Stockholder or any Affiliate of any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value (as hereinafter defined) equaling or exceeding 25% of the combined Fair Market Value of the outstanding common stock of the Corporation and its Subsidiaries, except for any issuance or transfer pursuant to an employee benefit plan of the Corporation or any Subsidiary thereof; or

4. the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of an Interested Stockholder or any Affiliate of any Interested Stockholder; or

5. any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Interested Stockholder or any Affiliate of any Interested Stockholder;

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shall require the affirmative vote of the holders of at least 80% of the voting power of the then-outstanding shares of stock of the Corporation entitled to vote in the election of Directors (the “Voting Stock”) (after giving effect to the provisions of Article FIFTH), voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or by any other provisions of these Articles of Incorporation or in any agreement with any national securities exchange or otherwise.

The term “Business Combination” as used in this Article NINTH shall mean any transaction which is referred to in any one or more of Paragraphs 1 through 5 of Section A of this Article NINTH.

B. The provisions of Section A of this Article NINTH shall not be applicable to any particular Business Combination, and such Business Combination shall require only the affirmative vote of the majority of the outstanding shares of capital stock entitled to vote after giving effect to the provisions of Article FIFTH, or such vote (if any), as is required by law or by these Articles of Incorporation, if, in the case of any Business Combination that does not involve any cash or other consideration being received by the stockholders of the Corporation solely in their capacity as stockholders of the Corporation, the condition specified in the following Paragraph 1 is met or, in the case of any other Business Combination, all of the conditions specified in either of the following Paragraphs 1 or 2 are met:

1. The Business Combination shall have been approved by a majority of the Disinterested Directors (as hereinafter defined).

2. All of the following conditions shall have been met:

a. The aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by the holders of common stock in such Business Combination shall at least be equal to the higher of the following:

(1) (if applicable) the Highest Per Share Price (as hereinafter defined), including any brokerage commissions, transfer taxes and soliciting dealers’ fees, paid by the Interested Stockholder or any of its Affiliates for any shares of common stock acquired by it: (a) within the two-year period immediately prior to the first public announcement of the proposal of the Business Combination (the “Announcement Date”); or (b) in the transaction in which it became an Interested Stockholder, whichever is higher; or

(2) the Fair Market Value per share of common stock on the Announcement Date or on the date on which the Interested Stockholder became an Interested Stockholder (such latter date is referred to in this Article NINTH as the “Determination Date”), whichever is higher.

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b. The aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of shares of any class of outstanding Voting Stock other than common stock shall be at least equal to the highest of the following (it being intended that the requirements of this Subparagraph (b) shall be required to be met with respect to every such class of outstanding Voting Stock, whether or not the Interested Stockholder has previously acquired any shares of a particular class of Voting Stock):

(1) (if applicable) the Highest Per Share Price (as hereinafter defined), including any brokerage commissions, transfer taxes and soliciting dealers’ fees, paid by the Interested Stockholder for any shares of such class of Voting Stock acquired by it: (a) within the two-year period immediately prior to the Announcement Date; or (b) in the transaction in which it became an Interested Stockholder, whichever is higher; or

(2) (if applicable) the highest preferential amount per share to which the holders of shares of such class of Voting Stock are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation; or

(3) the Fair Market Value per share of such class of Voting Stock on the Announcement Date or on the Determination Date, whichever is higher.

c. The consideration to be received by holders of a particular class of outstanding Voting Stock (including common stock) shall be in cash or in the same form as the Interested Stockholder has previously paid for shares of such class of Voting Stock. If the Interested Stockholder has paid for shares of any class of Voting Stock with varying forms of consideration, the form of consideration to be received per share by holders of shares of such class of Voting Stock shall be either cash or the form used to acquire the largest number of shares of such class of Voting Stock previously acquired by the Interested Stockholder. The price determined in accordance with Paragraph 2 of Section B of this Article NINTH shall be subject to appropriate adjustment in the event of any stock dividend, stock split, combination of shares or similar event.

d. After such Interested Stockholder has become an Interested Stockholder and prior to the consummation of such Business Combination: (1) except as approved by a majority of the Disinterested Directors (as hereinafter defined), there shall have been no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) on any outstanding stock having preference over the common stock as to dividends or liquidation; (2) there shall have been: (a) no reduction in the annual rate of dividends paid on the common stock (except as necessary to reflect any subdivision of the common stock), except as approved by a majority of the Disinterested Directors; and (b) an increase in such annual rate of dividends as necessary to reflect any reclassification (including any reverse stock split), recapitalization,

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reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of the common stock, unless the failure to so increase such annual rate is approved by a majority of the Disinterested Directors, and (3) neither such Interested Stockholder nor any of its Affiliates shall have become the beneficial owner of any additional shares of Voting Stock except as part of the transaction which results in such Interested Stockholder becoming an Interested Stockholder.

e. After such Interested Stockholder has become an Interested Stockholder, such Interested Stockholder shall not have received the benefit, directly or indirectly (except proportionately as a stockholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided, directly or indirectly, by the Corporation, whether in anticipation of or in connection with such Business Combination or otherwise.

f. A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (or any subsequent provisions replacing such Act, and the rules or regulations thereunder) shall be mailed to stockholders of the Corporation at least thirty (30) days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions).

C. For the purposes of this Article NINTH:

1. A “Person” shall include an individual, a firm, a group acting in concert, a corporation, a partnership, an association, a joint venture, a pool, a joint stock company, a trust, an unincorporated organization or similar company, a syndicate or any other group formed for the purpose of acquiring, holding or disposing of securities or any other entity.

2. “Interested Stockholder” shall mean any person (other than the Corporation or Subsidiary thereof) who or which:

a. is the beneficial owner, directly or indirectly, of more than 10% of the voting power of the outstanding Voting Stock; or

b. is an Affiliate of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of 10% or more of the voting power of the then-outstanding Voting Stock; or

c. is an assignee of or has otherwise succeeded to any shares of Voting Stock which were at any time within the two-year period immediately prior to the date in question beneficially owned by any Interested Stockholder, if such assignment or

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succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933, as amended.

3. For purposes of this Article NINTH, “beneficial ownership” shall be determined in the manner provided in Section C of Article FIFTH hereof.

4. “Affiliate” and “Associate” shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, as in effect on the date of filing of these Articles of Incorporation.

5. “Subsidiary” means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Interested Stockholder set forth in Paragraph 2 of this Section C, the term “Subsidiary” shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation.

6. “Disinterested Director” means any member of the Board of Directors who is unaffiliated with the Interested Stockholder and was a member of the Board of Directors prior to the time that the Interested Stockholder became an Interested Stockholder, and any Director who is thereafter chosen to fill any vacancy of the Board of Directors or who is elected and who, in either event, is unaffiliated with the Interested Stockholder and in connection with his or her initial assumption of office is recommended for appointment or election by a majority of Disinterested Directors then on the Board of Directors.

7. “Fair Market Value” means:

a. in the case of stock, the highest closing sales price of the stock during the 30-day period immediately preceding the date in question of a share of such stock on the National Association of Securities Dealers Automated Quotation System or any system then in use, or, if such stock is admitted to trading on a principal United States securities exchange registered under the Securities Exchange Act of 1934, as amended, Fair Market Value shall be the highest sale price reported during the 30-day period preceding the date in question, or, if no such quotations are available, the Fair Market Value on the date in question of a share of such stock as determined by the Board of Directors in good faith, in each case with respect to any class of stock, appropriately adjusted for any dividend or distribution in shares of such stock or any stock split or reclassification of outstanding shares of such stock into a greater number of shares of such stock or any combination or reclassification of outstanding shares of such stock into a smaller number of shares of such stock; and

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b. in the case of property other than cash or stock, the Fair Market Value of such property on the date in question as determined by the Board of Directors in good faith.

8. Reference to “Highest Per Share Price” shall in each case with respect to any class of stock reflect an appropriate adjustment for any dividend or distribution in shares of such stock or any stock split or reclassification of outstanding shares of such stock into a greater number of shares of such stock or any combination or reclassification of outstanding shares of such stock into a smaller number of shares of such stock.

9. In the event of any Business Combination in which the Corporation survives, the phrase “consideration other than cash to be received” as used in Subparagraphs (a) and (b) of Paragraph 2 of Section B of this Article NINTH shall include the shares of common stock and/or the shares of any other class of outstanding Voting Stock retained by the holders of such shares.

D. A majority of the Disinterested Directors of the Corporation shall have the power and duty to determine for the purposes of this Article NINTH, on the basis of information known to them after reasonable inquiry: (1) whether a person is an Interested Stockholder; (2) the number of shares of Voting Stock beneficially owned by any person; (3) whether a person is an Affiliate or Associate of another; and (4) whether the assets which are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by the Corporation or any Subsidiary in any Business Combination has an aggregate Fair Market Value equaling or exceeding 25% of the combined Fair Market Value of the common stock of the Corporation and its Subsidiaries. A majority of the Disinterested Directors shall have the further power to interpret all of the terms and provisions of this Article NINTH.

E. Nothing contained in this Article NINTH shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law.

F. Notwithstanding any other provisions of these Articles of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the Voting Stock required by law, these Articles of Incorporation, the affirmative vote of the holders of at least 80% of the voting power of all of the then-outstanding shares of the Voting Stock (after giving effect to the provisions of Article FIFTH), voting together as a single class, shall be required to alter, amend or repeal this Article NINTH.

TENTH: The Corporation shall indemnify (A) its directors and officers, whether serving the Corporation or at its request any other entity, to the fullest extent required or permitted by the general laws of the State of Maryland now or hereafter in force, including the advance of expenses under the procedures required, and (B) other employees and agents to such extent as shall be authorized by the Board of Directors or the Corporation’s Bylaws and be permitted by law. The foregoing rights of indemnification shall not be exclusive of any rights to which those seeking indemnification may be entitled. The Board of Directors may take such action as is necessary to

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carry out these indemnification provisions and is expressly empowered to adopt, approve and amend from time to time such Bylaws, resolutions or contracts implementing such provisions or such further indemnification arrangements as may be permitted by law. No amendment of the Articles of Incorporation of the Corporation shall limit or eliminate the right to indemnification provided hereunder with respect to acts or omissions occurring prior to such amendment or repeal.

IN WITNESS WHEREOF, I have signed these Articles of Incorporation, acknowledging the same to be may act as of this 6th day of March, 2006.

By:	/s/ Edward G. Olifer
	Edward G. Olifer
	Incorporator

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The Corporation Herein Named is: The Corporation Trust Incorporated

An Authorized Corporate Registered Agent in the state of Maryland, per Signatures of its President/Vice-President and Secretary/Assistant Secretary, Herein Consents to Act as Registered Agent For:

Newport Bancorp, Inc.

Signature: /s/ Stacy Rosenthal, Vice President and Assistant Secretary of President or Vice President

Attest: /s/ Stacy Rosenthal of Secretary or Assistant Secretary

Date: 03/06/2006

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EX-3.2

Exhibit 3.2

NEWPORT BANCORP, INC.

BYLAWS

ARTICLE I - STOCKHOLDERS

Section 1. ANNUAL MEETING

The annual meeting of the stockholders of Newport Bancorp, Inc. (the “Corporation”) shall be held each year at such time and on such date as the Board of Directors shall, in their discretion, fix. The business to be transacted at the annual meeting shall include the election of directors, consideration of the report of the President, and any other business properly brought before the meeting in accordance with these Bylaws.

Section 2. SPECIAL MEETINGS

A special meeting of the stockholders may be called at any time for any purpose(s) by the Chairman of the Board, the President or by a majority of the total number of Directors which the Corporation would have if there were no vacancies on the Board of Directors. A special meeting of the stockholders shall be called by the Secretary of the Corporation upon the written request of the holders of a majority of all shares outstanding and entitled to vote on the business to be transacted at such meeting. Notwithstanding the previous sentence, the Secretary of the Corporation shall not be obligated to call a special meeting of the stockholders requested by stockholders for the purpose of taking any action that is non-binding or advisory in nature. Business transacted at any special meeting shall be confined to the purpose(s) stated in the notice of such meeting.

Section 3. PLACE OF MEETING

The Board of Directors may designate any place, either within or without the State of Maryland, as the place of meeting for any annual or special meeting of stockholders.

Section 4. NOTICE OF MEETING; WAIVER OF NOTICE

Not less than ten (10) days nor more than ninety (90) days before the date of every stockholders meeting, the Secretary shall give to each stockholder entitled to vote at or to notice of such meeting, written notice stating the place, date and time of the meeting and, in the case of a special meeting, the purpose(s) for which the meeting is called, either by mail to his or her address as it appears on the records of the Corporation or by presenting it to him or her personally or by leaving it at his or her residence or usual place of business. Notwithstanding the foregoing provisions, a written waiver of notice, signed by the person entitled to notice, whether before or after the time stated therein, shall be equivalent to notice. Attendance of a person entitled to notice at a

meeting, in person or by proxy, shall constitute a waiver of notice of such meeting, except when such person attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.

When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the place, date and time thereof are announced at the meeting at which the adjournment is taken; provided however, that if the date of the adjourned meeting is more than 120 days after the record date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, written notice of the place, date and time of the adjourned meeting shall be given in conformity herewith.

Section 5. QUORUM

At any meeting of stockholders, the holders of a majority of the shares of the stock entitled to vote at the meeting, present in person or by proxy (after giving effect to the provisions of Article FIFTH of the Articles of Incorporation), shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number may be required by law.

If a quorum fails to attend any meeting, the Chairman of the meeting or the holders of a majority of the shares of stock entitled to vote who are represented in person or by proxy may adjourn the meeting to any place, date and time without further notice to a date not more than 120 days after the original record date. At such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting originally called. The stockholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of stockholders to leave less than a quorum.

Section 6. ORGANIZATION

The Chairman of the Board of the Corporation or, in his or her absence, the President of the Corporation, or in his or her absence such person as the Board of Directors may have designated or, in the absence of such a person, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person or by proxy, shall call to order any meeting of the stockholders and act as chairman of the meeting. In the absence of the Secretary of the Corporation, the secretary of the meeting shall be such person as the chairman appoints.

Section 7. CONDUCT OF BUSINESS

(a) The chairman of any meeting of stockholders shall determine the order of business and the procedures at the meeting, including such regulation of the manner of voting and the conduct of discussion as seem to him or her in order. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting.

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(b) At any annual meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation who is entitled to vote with respect thereto and who complies with the notice procedures set forth in this Section 7(b). For business to be properly brought before an annual meeting by a stockholder, the business must relate to a proper subject matter for stockholder action and the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder’s notice must be delivered or mailed to and received at the principal executive office of the Corporation not less than ninety (90) days prior to the date of the annual meeting; provided, however, that if less than one hundred (100) days’ notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A stockholder’s notice to the Secretary shall set forth as to each matter such stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the Corporation’s books, of the stockholder proposing such business, (iii) the class and number of shares of the Corporation’s capital stock that are beneficially owned by such stockholder, (iv) a statement disclosing (A) whether such stockholder is acting with or on behalf of any other person and (B) if applicable, the identity of such person, and (v) any material interest of such stockholder in such business. Notwithstanding anything in these Bylaws to the contrary, no business shall be brought before or conducted at an annual meeting except in accordance with the provisions of this Section 7(b). The Chairman of the Board or other person presiding over the annual meeting shall, if the facts so warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 7(b) and, if he or she should so determine, he or she shall so declare to the meeting and any such business so determined to be not properly brought before the meeting shall not be transacted.

At any special meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting in accordance with Article I, Section 2.

(c) Only persons who are nominated in accordance with the procedures set forth in these Bylaws shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders at which directors are to be elected only (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 7(c). Such nominations, other than those made by or at the direction of the Board of Directors, shall be made by timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder’s notice shall be delivered or mailed to and received at the principal executive office of the Corporation not less than ninety (90) days prior to the date of the meeting; provided, however, that if less than one hundred (100) days’ notice or prior disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder’s

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notice shall set forth (i) as to each person whom such stockholder proposes to nominate for election or re-election as a director, all information relating to such person that would indicate such person’s qualification under Article II, Section 3, including an affidavit that such person would not be disqualified under the provisions of Section 3(b) and such information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (ii) as to the stockholder giving the notice (A) the name and address, as they appear on the Corporation’s books, of such stockholder, (B) the class and number of shares of the Corporation’s capital stock that are beneficially owned by such stockholder, and (C) a statement disclosing (1) whether such stockholder or any nominee thereof is acting with or on behalf of any other person and (2) if applicable, the identity of such person.

Section 8. VOTING

Unless the Articles of Incorporation provides for a greater or lesser number of votes per share or limits or denies voting rights, each outstanding share of stock, regardless of class, is entitled to one (1) vote on each matter submitted to a vote at a meeting of stockholders.

All voting, including on the election of directors but excepting where otherwise required by law or by the governing documents of the Corporation, may be made by a voice vote; provided, however, that upon demand therefor by a stockholder entitled to vote or his or her proxy, a stock vote shall be taken. Every stock vote shall be taken by ballot, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedures established for the meeting. The Corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability.

All elections shall be determined by a plurality of the votes cast, and, except as otherwise required by law or the Articles of Incorporation, all other matters shall be determined by a majority of the votes cast.

Section 9. PROXIES

At all meetings of stockholders, a stockholder may vote the shares owned of record by him or her either in person or by proxy executed in writing by the stockholder or by his or her duly authorized attorney-in-fact. Any facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to this paragraph may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or

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transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. Proxies may be given telephonically or electronically as long as the holder uses a procedure for verifying the identity of the stockholder. Proxies solicited on behalf of the management shall be voted as directed by the stockholder or, in the absence of such direction, as determined by a majority of the Board of Directors.

Such proxy shall be filed with the Secretary of the Corporation before or at the time of the meeting. No proxy shall be valid after eleven (11) months from the date of its execution, unless otherwise provided in the proxy.

ARTICLE II - DIRECTORS

Section 1. GENERAL POWERS

The business and affairs of the Corporation shall be managed by its Board of Directors. The Board of Directors may exercise all the powers of the Corporation, except those conferred on or reserved to the stockholders by statute or by the Articles of Incorporation or the Bylaws. The Board may adopt such rules and regulations for the conduct of their meetings and the management of the Corporation as they may deem proper, and which are not inconsistent with these Bylaws and with the Maryland General Corporation Law.

Section 2. NUMBER

The number of directors of the Corporation shall be at least five (5) and no more than fifteen (15). A majority of the entire Board of Directors may by resolution set the number of directors at such number as it may determine within such range, but such action shall not affect the tenure of office of any director. Each director shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal.

Section 3. QUALIFICATIONS

(a) No person 70 years or older shall be eligible for election, reelection, appointment or reappointment to the Board of Directors. The term of office of a director of the Corporation shall expire upon the date of the annual meeting of stockholders immediately following the date on which the director becomes age 70. This age limitation does not apply to an emeritus or advisory director or any director serving on the Board of the Corporation at the effective date of these Bylaws.

(b) No person shall be eligible for election or appointment to the Board of Directors: (i) if such person has been the subject of supervisory action by a financial regulatory agency that resulted in a cease and desist order or an agreement or other written statement subject to public disclosure under 12 U.S.C. §1818(u), or any successor provision; (ii) if such person has been

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convicted of a crime involving dishonesty or breach of trust which is punishable by imprisonment for a term exceeding one year under state or federal law; (iii) if such person is currently charged in any information, indictment, or other complaint with the commission of or participation in such a crime; and (iv) unless such person has been, for a period of at least one year immediately before his or her nomination or appointment, a resident of a county in which the Corporation or its subsidiaries maintains a banking office or a county contiguous to any such county. No person may serve on the Board of Directors and at the same time be a director or officer of another co-operative bank, credit union, savings bank, savings and loan association, trust company, bank holding company or banking association (in each case whether chartered by a state, the federal government or any other jurisdiction) that engages in business activities in the same market area as the Corporation of any of its subsidiaries. No person shall be eligible for election or appointment to the Board of Directors if such person is the nominee or representative of a company, as that term is defined in Section 10 of the Home Owners’ Loan Act or any successor provision, of which any director, partner, trustee or stockholder controlling more than 10% of any class of voting stock would not be eligible for election or appointment to the Board of Directors under this Section 3. No person shall be eligible for election to the Board of Directors if such person is the nominee or representative of a person or group, or of a group acting in concert (as defined in 12 C.F.R. Section 574.4(d)), that includes a person who is ineligible for election to the Board of Directors under this Section 3. The Board of Directors shall have the power to construe and apply the provisions of this Section 3 and to make all determinations necessary or desirable to implement such provisions, including but not limited to determinations as to whether a person is a nominee or representative of a person, a company or a group, whether a person or company is included in a group, and whether a person is the nominee or representative of a group acting in concert.

Section 4. VACANCIES

Any vacancy occurring in the Board of Directors may be filled in accordance with Article SEVENTH of the Articles of Incorporation.

Section 5. REGULAR MEETINGS

Regular meetings of the Board of Directors shall be held at such dates, such times and such places, either within or without the State of Maryland, as shall have been designated by the Board of Directors and publicized among all Directors.

Section 6. SPECIAL MEETINGS

Special meetings of the Board of Directors may be called by the Chairman of the Board, by the President or by two-thirds of the Board of Directors in writing. The person(s) authorized to call special meetings of the Board of Directors may fix any place, either within or without the State of Maryland, as the place for holding the special meeting of the Board of Directors called by them.

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Section 7. NOTICE

A notice of a regular meeting shall not be required. The Secretary shall give notice to each director of the date, time and place of each such special meeting of the Board of Directors. Notice is given to a director when it is delivered personally to him or her, left at his or her residence or usual place of business, or sent by telephone, telegraph, or similar means of transmission at least 24 hours before the time of the meeting, or in the alternative, when it is mailed to his or her address as it appears on the records of the Corporation, at least 72 hours before the time of the meeting. Any director may waive notice of any meeting either before or after the holding thereof by written waiver filed with the records of the meeting. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting.

Section 8. TELEPHONIC MEETINGS

Members of the Board of Directors, or of any committee thereof, may participate in a meeting of such Board or committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 8 shall constitute presence in person at such meeting.

Section 9. QUORUM

At any meeting of the Board of Directors, a majority of the total number of directors shall constitute a quorum for the transaction of business, but if less than such quorum is present at a meeting, a majority of the directors present may adjourn the meeting without further notice or waiver thereof.

Section 10. MANNER OF ACTING

The vote of the majority of the directors present at a meeting at which a quorum is present shall be the action of the Board of Directors unless the concurrence of a greater proportion is required for such action by the Articles of Incorporation.

Section 11. ACTION WITHOUT A MEETING

Any action required or permitted to be taken by the Board of Directors at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the directors.

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Section 12. REMOVAL OF DIRECTORS

Any removal of directors may be made in accordance with Article SEVENTH of the Articles of Incorporation.

Section 13. RESIGNATION

A director may resign at any time by giving written notice to the Board, the President or the Secretary of the Corporation. Unless otherwise specified in the notice, the resignation shall take effect upon receipt thereof by the Board or such officer, and the acceptance of the resignation shall not be necessary to make it effective.

Section 14. COMPENSATION

By resolution of the Board of Directors, a fixed sum and expenses, if any, for attendance at each regular or special meeting of the Board of Directors or of committees thereof, and other compensation for their services as such or on such committees, may be paid to directors, as may compensation for such other services as a director may render to the Corporation.

Section 15. COMMITTEES

The Board of Directors, by a vote of a majority of the Board of Directors, may from time to time designate committees of the Board, with such lawfully delegable powers and duties as it thereby confers, to serve at the pleasure of the Board and shall, for these committees and any others provided for herein, elect a director(s) to serve as the member(s), designating, if it desires, other directors as alternate members who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; provided, however, that any such committee shall have no power or authority with reference to (i) declaring dividends or distributions on stock, (ii) issuing stock other than as authorized by the Board of Directors, (iii) recommending to the stockholders any action that requires stockholder approval, (iv) amending the Bylaws, or (v) approving a merger or share exchange that does not require stockholder approval. In the absence or disqualification of any member of any committee and any alternate member in his or her place, the member(s) of the committee present at the meeting and not disqualified from voting, whether or not he or she or they constitute a quorum, may by unanimous vote appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member.

Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required by law. Adequate provision shall be made for notice to members of all meetings. The quorum requirements for each such committee shall be a majority of the members of such committee unless otherwise

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determined by the Board of Directors by a majority vote of the Board of Directors which such quorum determined by a majority of the Board may be one-third of such members and all matters considered by such committees shall be determined by a majority vote of the members present. Action may be taken by any committee without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of such committee.

ARTICLE III - OFFICERS

Section 1. EXECUTIVE AND OTHER OFFICERS

The officers of the Corporation shall be a President and Chief Executive Officer, a Secretary and a Treasurer. The Board of Directors may designate who shall serve as chief executive officer, having general supervision of the business and affairs of the Corporation, and as chief operating officer, having supervision of the operations of the Corporation; in the absence of a designation the President shall serve as chief executive officer and chief operating officer. The Board of Directors may appoint such other officers as it may deem proper. A person may hold more than one office in the Corporation but may not serve concurrently as both President and Vice President of the Corporation.

Section 2. PRESIDENT AND CHIEF EXECUTIVE OFFICER

The President and Chief Executive Officer shall be the principal executive officer of the Corporation. Subject to the provisions of these Bylaws and to the direction of the Board of Directors, he or she shall have the responsibility for the general management and control of the business and affairs of the Corporation and shall perform all duties and have all powers that are commonly incident to the office of the president or that are delegated to him or her by the Board of Directors. He or she shall have power to sign all contracts, agreements and other instruments of the Corporation that are authorized and shall have general supervision and direction of all of the other officers, employees and agents of the Corporation.

Section 3. VICE PRESIDENT(S)

The Vice President(s) shall perform the duties of the President in his or her absence or during his or her inability to act. In addition, the Vice President(s) shall perform the duties and exercise the powers usually incident to their respective offices and/or such other duties and powers as may be properly assigned to them by the Board of Directors, the Chairman of the Board or the President. A Vice President(s) may be designated as Executive Vice President or Senior Vice President.

Section 4. SECRETARY

The Secretary shall keep the minutes of the meetings of the stockholders, of the Board of Directors and of any committees, in books provided for the purpose; he or she shall see that all notices are duly given in accordance with the provisions of the Bylaws or as required by law; he or

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she shall be custodian of the records of the Corporation; he or she shall witness all documents on behalf of the Corporation, the execution of which is duly authorized, see that the corporate seal is affixed where such document is required to be under its seal, and, when so affixed, may attest the same; and, in general, he or she shall perform all duties incident to the office of a secretary of a corporation, and such other duties as may from time to time be assigned to him or her by the Board of Directors or the President.

Section 5. TREASURER

The Treasurer shall have charge of and be responsible for all funds, securities, receipts and disbursements of the Corporation, and shall deposit, or cause to be deposited, in the name of the Corporation, all monies or other valuable effects in such banks, trust companies or other depositories as shall, from time to time, be selected by the Board of Directors. In general, he or she shall perform all the duties incident to the office of a treasurer of a corporation, and such other duties as may from time to time be assigned to him or her by the Board of Directors, the chief executive officer or the President.

Section 6. SUBORDINATE OFFICERS

The Corporation may have such subordinate officers as the Board of Directors may from time to time deem desirable. Each such officer shall hold office for such period and perform such duties as the Board of Directors, the President or the committee or officer designated pursuant to these Bylaws may prescribe.

Section 7. COMPENSATION

The Board of Directors shall have power to fix the salaries and other compensation and remuneration, of whatever kind, of all officers of the Corporation. It may authorize any committee or officer, upon whom the power of appointing subordinate officers may have been conferred, to fix the salaries, compensation and remuneration of such subordinate officers.

Section 8. ELECTION, TENURE AND REMOVAL OF OFFICERS

The Board of Directors shall elect the officers. The Board of Directors may from time to time authorize any committee or officer to appoint subordinate officers. An officer serves for one year or until his or her successor is elected and qualified. If the Board of Directors in its judgment finds that the best interests of the Corporation will be served, it may remove any officer or agent of the Corporation. The removal of an officer or agent does not prejudice any of his or her contract rights. The Board of Directors (or any committee or officer authorized by the Board of Directors) may fill a vacancy which occurs in any office for the unexpired portion of the term of that office.

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ARTICLE IV - STOCK

Section 1. CERTIFICATES FOR STOCK

Each stockholder shall be entitled to certificates that represent and certify the shares of stock he or she holds in the Corporation. Each stock certificate shall include on its face the name of the Corporation, the name of the stockholder and the class of stock and number of shares represented by the certificate and be in such form, not inconsistent with law or with the Articles of Incorporation, as shall be approved by the Board of Directors or any officer(s) designated for such purpose by resolution of the Board of Directors. Each stock certificate shall be signed by the President or the Chairman of the Board, and countersigned by the Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer. Each certificate shall be sealed with the actual corporate seal or a facsimile of it or in any other form and the signatures on each certificate may be either manual or facsimile signatures. A certificate is valid and may be issued whether or not an officer who signed it is still an officer of the Corporation when it is issued.

Section 2. TRANSFERS

The Board of Directors shall have power and authority to make such rules and regulations as it may deem expedient concerning the issue, transfer and registration of certificates of stock, and may appoint transfer agents and registrars thereof. The duties of transfer agent and registrar may be combined.

Section 3. RECORD DATE AND CLOSING OF TRANSFER BOOKS

In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than ninety (90) nor less than ten (10) days before the date of such meeting, nor more than ninety (90) days before any other action. The transfer books may not be closed for a period longer than twenty (20) days. In the case of a meeting of stockholders, the closing of the transfer books shall be at least ten (10) days before the date of the meeting.

Section 4. STOCK LEDGER

The Corporation shall maintain a stock ledger that contains the name and address of each stockholder and the number of shares of stock of each class registered in the name of each stockholder. The stock ledger may be in written form or in any other form that can be converted within a reasonable time into written form for visual inspection. The original or a duplicate of the stock ledger shall be kept at the offices of a transfer agent for the particular class of stock, within or

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without the State of Maryland, or, if none, at the principal office or the principal executive offices of the Corporation in the State of Maryland.

Section 5. CERTIFICATION OF BENEFICIAL OWNERS

The Board of Directors may adopt by resolution a procedure by which a stockholder of the Corporation may certify in writing to the Corporation that any shares of stock registered in the name of the stockholder are held for the account of a specified person other than the stockholder.

Section 6. LOST, STOLEN OR DESTROYED STOCK CERTIFICATES

The Board of Directors of the Corporation may determine the conditions for issuing a new stock certificate in place of one that is purportedly alleged to have been lost, stolen or destroyed, or the Board of Directors may delegate such power to any officer(s) of the Corporation. In its discretion, the Board of Directors or such officer(s) may refuse to issue such new certificate except upon the order of a court having jurisdiction in the premises.

ARTICLE V - FINANCE

Section 1. CHECKS, DRAFTS, ETC.

All checks, drafts and orders for the payment of money, notes and other evidences of indebtedness, issued in the name of the Corporation, shall, unless otherwise provided by resolution of the Board of Directors, be signed by the President or a Vice President and countersigned by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary.

Section 2. ANNUAL STATEMENT OF AFFAIRS

There shall be prepared annually a full and correct statement of the affairs of the Corporation, to include a balance sheet and a financial statement of operations for the preceding fiscal year. The statement of affairs shall be submitted at the annual meeting of the stockholders and, within twenty (20) days after the meeting, placed on file at the Corporation’s principal office. Such statement shall be prepared or caused to be prepared by such executive officer of the Corporation as may be designated in an additional or supplementary bylaw adopted by the Board of Directors. If no other executive officer is so designated, it shall be the duty of the President to prepare or cause to be prepared such statement.

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Section 3. FISCAL YEAR

The fiscal year of the Corporation shall commence on the first day of January and end on the last day of December in each year.

ARTICLE VI - SUNDRY PROVISIONS

Section 1. CORPORATE SEAL

The Board of Directors shall provide a suitable seal, bearing the name of the Corporation, which shall be in the charge of the Secretary. The Board of Directors may authorize one or more duplicate seals and provide for the custody thereof.

Section 2. BONDS

The Board of Directors may require any officer, agent or employee of the Corporation to give a bond to the Corporation, conditioned upon the faithful discharge of his or her duties, with one or more sureties and in such amount as may be satisfactory to the Board of Directors.

Section 3. VOTING UPON SHARES IN OTHER CORPORATIONS

Stock of other corporations or associations, registered in the name of the Corporation, may be voted by the President and Chief Executive Officer, a Vice President or a proxy appointed by any of them. The Board of Directors, however, may by resolution appoint some other person to vote such shares, in which case such person shall be entitled to vote such shares upon the production of a certified copy of such resolution.

Section 4. MAIL

Any notice or other document that is required by these Bylaws to be mailed shall be deposited in the United States mails, postage prepaid.

Section 5. AMENDMENT OF BYLAWS

These Bylaws may be amended or repealed in the manner set forth in the Articles of Incorporation.

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EX-4.1

Exhibit 4.1

COMMON STOCK	COMMON STOCK
PAR VALUE $.01	SEE REVERSE FOR CERTAIN DEFINITIONS
	CUSIP

NEWPORT BANCORP, INC.

INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND

THIS CERTIFIES THAT

S P E C I M E N

is the owner of:

FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.01 PAR VALUE PER SHARE, OF

NEWPORT BANCORP, INC.

The shares represented by this certificate are transferable only on the stock transfer books of the Corporation by the holder of record hereof, or by his duly authorized attorney or legal representative, upon the surrender of this certificate properly endorsed. This certificate and the shares represented hereby are issued and shall be held subject to all the provisions of the Articles of Incorporation of the Corporation and any amendments thereto (copies of which are on file with the Transfer Agent), to all of which provisions the holder by acceptance hereof, assents.

This certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. The shares represented by this Certificate are not insured by the Federal Deposit Insurance Corporation or any other government agency.

IN WITNESS THEREOF, Newport Bancorp, Inc. has caused this certificate to be executed by the facsimile signatures of its duly authorized officers and has caused a facsimile of its corporate seal to be hereunto affixed.

Dated:		[SEAL]
	President		Secretary

Newport Bancorp, Inc.

The shares represented by this certificate are subject to a limitation contained in the Articles of Incorporation to the effect that in no event shall any record owner of any outstanding common stock which is beneficially owned, directly or indirectly, by a person who beneficially owns in excess of 10% of the outstanding shares of common stock (the “Limit”) be entitled or permitted to any vote in respect of shares held in excess of the Limit.

The Board of Directors of the Corporation is authorized by resolution(s), from time to time adopted, to provide for the issuance of serial preferred stock in series and to fix and state the voting powers, designations, preferences and relative, participating, optional, or other special rights of the shares of each such series and the qualifications, limitations and restrictions thereof. The Corporation will furnish to any shareholder upon request and without charge a full description of each class of stock and any series thereof.

The shares represented by this certificate may not be cumulatively voted on any matter. The affirmative vote of the holders of at least 80% of the voting stock of the Corporation, voting together as a single class, shall be required to approve certain business combinations and other transactions, pursuant to the Articles of Incorporation or to amend certain provisions of the Articles of Incorporation.

The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:

TEN COM -	as tenants in common	UNIF GIFTS MIN ACT -	_________ custodian _________
			(Cust)                            (Minor)

TEN ENT -	as tenants by the entireties	under Uniform Gifts to Minors Act
		_______________________
		(State)

JT TEN -	as joint tenants with right	UNIF TRF MIN ACT -	__________ custodian (until age ___)
	of survivorship and not as		__________ under Uniform Transfers
	tenants in common		to Minors Act ___________________
			(State)

Additional abbreviations may also be used though not in the above list.

For value received, __________ hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER

    IDENTIFICATION NUMBER OF ASSIGNEE

________________________________________________________________________________________________

Please print or typewrite name and address including postal zip code of assignee

_______________________________________________ shares of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint ________________________________________________________________________ Attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises.

DATED ________________________
	NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.

SIGNATURE GUARANTEED:
	THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15

EX-5.1

Exhibit 5.1

                    , 2006

Board of Directors

Newport Bancorp, Inc.

100 Bellevue Avenue

Newport, Rhode Island 02840

Re: Registration Statement on Form S-1

Ladies and Gentlemen:

We have acted as special counsel for Newport Bancorp, Inc., a Maryland corporation (the “Company”), in connection with the registration statement on Form S-1 (the “Registration Statement”) initially filed on March     , 2006, by the Company with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Act”), and the regulations promulgated thereunder.

The Registration Statement relates to the proposed issuance by the Company of up to 4,592,013 shares of common stock, $0.01 par value per share, of the Company (the “Common Stock”) in a subscription offering, a community offering and a syndicated community offering (the “Offerings”). The Registration Statement also relates to the proposed issuance by the Company of up to 367,400 shares of Common Stock to NewportFed Charitable Foundation, a privately-owned charitable foundation to be formed in connection with the transaction. The issuances are both pursuant to the Plan of Conversion, as amended and restated, adopted by Newport Federal Savings Bank (the “Bank”).

In the preparation of this opinion, we have examined originals or copies identified to our satisfaction of: (i) the Company’s articles of organization; (ii) the Company’s bylaws; (iii) the Registration Statement, including the prospectus contained therein and the exhibits thereto; (iv) certain resolutions of the Board of Directors of the Company relating to the issuance of the Common Stock being registered under the Registration Statement; (v) the Plan of Conversion; (vi) the trust agreement for the Bank’s employee stock ownership plan (the “ESOP”) and the form of loan agreement between the Company and the ESOP; (vii) the form of stock certificate approved by the Board of Directors of the Company to represent shares of Common Stock; and (viii) the gift instrument whereby shares of Common Stock will be contributed to NewportFed Charitable Foundation. We have also examined originals or copies of such documents, corporate records, certificates of public officials and other instruments, and have conducted such other

Board of Directors

Newport Bancorp, Inc.

                , 2006

Page 2

investigations of law and fact, as we have deemed necessary or advisable for purposes of our opinion.

In our examination, we have assumed, without verification, the genuineness of all signatures, the authenticity of all documents and instruments submitted to us as originals, the conformity to the originals of all documents and instruments submitted to us as certified or conformed copies, the correctness of all certificates, and the accuracy and completeness of all records, documents, instruments and materials made available to us by the Company.

Our opinion is limited to the matters set forth herein, and we express no opinion other than as expressly set forth herein. In rendering the opinion set forth below, we do not express any opinion concerning law other than the corporate law of the State of Maryland. Our opinion is expressed as of the date hereof and is based on laws currently in effect. Accordingly, the conclusions set forth in this opinion are subject to change in the event that any laws should change or be enacted in the future. We are under no obligation to update this opinion or to otherwise communicate with you in the event of any such change.

For purposes of this opinion, we have assumed that, prior to the issuance of any shares, (i) the Registration Statement, as finally amended, will have become effective under the Act and (ii) the conversion of the Bank will have become effective.

Based upon and subject to the foregoing, it is our opinion that, upon the due adoption by the Board of Directors of the Company (or authorized committee thereof) of a resolution fixing the number of shares of Common Stock to be sold in the Offerings and contributed to NewportFed Charitable Foundation, such shares when issued and sold, or contributed in the case of NewportFed Charitable Foundation, in the manner described in the Registration Statement, or in accordance with the gift instrument in the case of NewportFed Charitable Foundation, will be validly issued, fully paid and nonassessable.

We consent to the filing of this opinion as an exhibit to the Registration Statement, and to the reference to our firm under the heading “Legal and Tax Opinions” in the prospectus which is part of the Registration Statement as such may be amended or supplemented, or incorporated by reference in any Registration Statement covering additional shares of Common Stock to be issued or sold under the Plan of Conversion that is filed pursuant to Rule 462(b) under the Act. In giving such consent, we do not hereby admit that we are experts or are otherwise within the category of persons whose consent is required under Section 7 of the Act or the rules or regulations of the Securities and Exchange Commission thereunder.

Very truly yours,

MULDOON MURPHY & AGUGGIA LLP

EX-8.1

Exhibit 8.1

                    , 2006

Newport Bancorp, Inc.

Newport Federal Savings Bank

100 Bellevue Avenue

Newport, Rhode Island 02840

Re: Federal Income Tax Opinion Relating to the Conversion of Newport Federal Savings Bank from a Federally-chartered Mutual Savings Bank to a Federally-chartered Stock Savings Bank

Ladies and Gentlemen:

You have asked our opinion regarding certain federal income tax consequences of the proposed conversion of Newport Federal Savings Bank (“Newport Federal”) from a federally-chartered mutual savings bank to a federally-chartered stock savings bank (the “Converted Bank”) and the acquisition of the Converted Bank’s capital stock by Newport Bancorp, Inc., a Maryland corporation (“Newport Bancorp”), pursuant to a plan of conversion adopted by the Board of Directors on June 7, 2005 (the “Plan of Conversion”). All capitalized terms used but not defined in this letter shall have the meanings assigned to them in the Plan of Conversion.

In connection with the opinions expressed below, we have examined and relied upon originals, or copies certified or otherwise identified to our satisfaction, of the Plan of Conversion and of such corporate records of the parties to the conversion as we have deemed appropriate. We have also relied upon, without independent verification, the representations of Newport Federal and Newport Bancorp contained in their letter to us dated March __, 2006. We have assumed that such representations are true and that the parties to the Conversion will act in accordance with the Plan of Conversion. In addition, we have made such investigations of law as we have deemed appropriate to form a basis for the opinions expressed below.

We have assumed that the conversion contemplated by the Plan of Conversion will be consummated in accordance therewith and as described in the prospectus included as part of the registration statement on Form S-1 filed by Newport Bancorp.

In issuing the opinions set forth below, we have referred solely to existing provisions of the Internal Revenue Code of 1986, as amended (the “Code”), and the Treasury Regulations and

Newport Bancorp, Inc.

Newport Federal Savings Bank

                    , 2006

Page 2

similar guidance issued by the Internal Revenue Service (“IRS”) thereunder. Changes in the tax laws could affect the continued validity of the opinions expressed herein. Furthermore, there can be no assurance that the opinions expressed herein would be adopted by the IRS or a court of law. We assume no obligation to revise or supplement this opinion should the present federal income tax laws be changed by any legislation, judicial decisions or otherwise.

Based on and subject to the foregoing, it is our opinion that for federal income tax purposes, under current law:

1. the conversion of Newport Federal from the mutual to the stock form of organization will qualify as a reorganization within the meaning of Section 368(a)(1)(F) of the Internal Revenue Code (the “Code”) (see Rev. Rul. 80-105, 1980-1 C.B. 78), and no gain or loss will be recognized by account holders and no gain or loss will be recognized by Newport Federal by reason of such conversion;

2. no gain or loss will be recognized by Newport Bancorp upon the sale of shares of common stock in the Offering (Section 1032(a) of the Code);

3. no gain or loss will be recognized by account holders of Newport Federal upon the issuance to them of accounts in Newport Federal immediately after the conversion, in the same dollar amounts and on the same terms and conditions as their accounts at Newport Federal in its mutual form plus interests in the liquidation account in Newport Federal (Section 354(a) of the Code);

4. it is more likely than not that the fair market value of the non-transferable subscription rights to purchase shares of common stock of Newport Bancorp to be issued to Eligible Account Holders, Supplemental Eligible Account Holders and Employees, Officers and trustees is zero (the “Subscription Right”) and, accordingly, that no income will be realized by Eligible Account Holders, Supplemental Eligible Account Holders and Employees, Officers and trustees upon the issuance to them of the Subscription Rights (Section 356(a) of the Code) or upon the exercise of the Subscription Rights (Rev. Rul. 56-572, 1956-2 C.B. 182);

5. it is more likely than not that the tax basis to the holders of shares of common stock purchased in the offering pursuant to the exercise of the Subscription Rights will be the amount paid therefor, and that the holding period for such shares of common stock will begin on the date of completion of the Offering (Section 1012 of the Code); and

6. the holding period for shares of common stock purchased in the Community Offering or Syndicated Community Offering will begin on the day after the date of the purchase (Section 1223(6) of the Code).

Newport Bancorp, Inc.

Newport Federal Savings Bank

                    , 2006

Page 3

The opinions set forth in 4 and 5 above are based on the position that the subscription rights do not have any market value at the time of distribution or at the time they are exercised. Whether subscription rights have a market value for federal income tax purposes is a question of fact, depending upon all relevant facts and circumstances. The Internal Revenue Service will not issue rulings on whether subscription rights have a market value. We are unaware of any instance in which the Internal Revenue Service has taken the position that nontransferable subscription rights issued by a converting financial institution have a market value. The subscription rights will be granted at no cost to the recipients, will be nontransferable and of short duration, and will afford the recipients the right only to purchase Newport Bancorp common stock at a price equal to its estimated fair market value, which will be the same price as the purchase price for the unsubscribed shares of common stock. We believe that it is more likely than not (i.e., that there is a more than a 50% likelihood) that the subscription rights have no market value for federal income tax purposes.

Except as set forth above, we express no opinion to any party as to the tax consequences, whether federal, state, local or foreign, of the conversion or of any transaction related thereto or contemplated by the Plan of Conversion. This opinion is given solely for the benefit of Newport Federal and Newport Bancorp and Eligible Account Holders, Supplemental Eligible Account Holders and Employees, Officers and trustees who receive Subscription Rights, and may not be relied upon by any other party or entity or otherwise referred to in any document without our express written consent. We consent to the filing of this opinion as an exhibit to the Application for Conversion filed with the Office of Thrift Supervision and as an exhibit to the registration statement on Form S-1 filed with the Securities and Exchange Commission, all filed in connection with the conversion, and to the reference thereto in the prospectus included in the registration statement on Form S-1 under the headings “The Conversion—Material Income Tax Consequences” and “Legal and Tax Opinions.” In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended.

Very truly yours,

MULDOON MURPHY & AGUGGIA LLP

EX-8.2

Exhibit 8.2

[FORM OF RHODE ISLAND TAX OPINION]

                    , 2006

Newport Bancorp, Inc.

Newport Federal Savings Bank

110 Bellevue Avenue

Newport, Rhode Island 02840

Ladies and Gentlemen:

You have requested our opinion regarding certain Rhode Island income tax consequences of the conversion of Newport Federal Savings Bank (“Newport Federal”) from a federally chartered mutual savings bank to a federally chartered stock savings bank (the “Converted Bank”) and the acquisition of the Converted Bank’s capital stock by Newport Bancorp, Inc., a Maryland corporation (“Newport Bancorp”), pursuant to the plan of conversion initially adopted by the Board of Directors on June 7, 2005 (the “Plan of Conversion”). All capitalized terms used but not defined in this letter shall have the meanings assigned to them in the Plan of Conversion.

In connection therewith, we have examined the Plan of Conversion and certain other documents of or relating to the conversion, some of which are described or referred to in the Plan of Conversion and which we deemed necessary to examine in order to issue the opinions set forth below. Unless otherwise defined, all terms used herein have the meanings given to such terms in the Plan of Conversion. In our examination, we have assumed the genuineness of all signatures where due execution and delivery are requirements to the effectiveness thereof, the legal capacity of all natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified, conformed or photostatic copies and the authenticity of the originals of such copies. In rendering the opinion set forth below, we have relied on the opinions of Muldoon Murphy & Aguggia LLP related to the Federal tax consequences of the proposed conversion (the “Federal Tax Opinion”), without undertaking to verify the same by independent investigation.

In rendering our opinion, we have considered the applicable provisions of the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations, pertinent judicial authorities, interpretative rulings of the Internal Revenue Service and such other authorities as we have considered relevant.

Additionally, the discussions and conclusions set forth below are based on Rhode Island General Law (the “RIGL”), the regulations promulgated thereunder and existing administrative and judicial interpretations thereof as of the date of this letter, all of which are subject to change.

Newport Bancorp, Inc.

Newport Federal Savings Bank

                    , 2006

Page 2

Our opinions are not binding on the Rhode Island Division of Taxation (the “Division”) and the Department may disagree with the opinions contained herein. Although we believe our opinion will be sustained if challenged, there can be no assurances to this effect. Because the opinions expressed herein are based upon current tax law, future changes in Rhode Island tax laws, regulations, rulings or case law may affect the tax consequences relating to the Plan. However, we have no responsibility to update this opinion for events, transactions or circumstances occurring after the date of this letter.

STATEMENT OF FACTS/DESCRIPTION OF THE PROPOSED TRANSACTIONS

The Plan provides for the conversion of Newport Federal Savings Bank, a federally-chartered mutual savings bank into a capital stock form of organization (the “Conversion”). Following the Conversion, all of the capital stock of the Converted Bank will be held by Newport Bancorp and Newport Bancorp will issue and sell its capital stock (the “Conversion Stock”) upon the terms and conditions set forth in the Plan. The purpose of the Conversion is to provide the Converted Bank and Newport Bancorp with greater operating flexibility and capital resources to respond to changing regulatory and market conditions, and to facilitate corporate transactions, including mergers and acquisitions.

The Board of Directors of Newport Federal Savings Bank believe that the Conversion and the issuance and sale of capital stock by Newport Bancorp pursuant to the Plan are in the best interests of Newport Federal Savings Bank and Newport Bancorp, as well as in the best interests of Newport Federal Savings Bank’s depositors. Accordingly, the following transactions will occur in the Conversion pursuant to the Plan:

1. Newport Federal Savings Bank will take the appropriate steps to cause its Charter and Bylaws to be modified and restated to effect the Conversion from a federally chartered mutual savings bank form to a capital stock form.

2. The Board of Directors of the Converted Bank will cause to be formed Newport Bancorp, Inc. for the purpose of holding all of the capital stock of the Converted Bank and to facilitate the Conversion.

3. Subscription Rights (“Subscription Rights”) to purchase shares of the common stock of Newport Bancorp (“Conversion Stock”) will be issued without payment therefor to Eligible Account Holders, Supplemental Eligible Account Holders and Tax-Qualified Employee Plans (as such persons are defined in the Plan). In addition, Subscription Rights will be issued to Directors, Trustees, Officers and Employees of Newport Bancorp and the Converted Bank pursuant to the Plan.

Newport Bancorp, Inc.

Newport Federal Savings Bank

                    , 2006

Page 3

4. Upon the effective date of the Conversion, Newport Bancorp will sell shares of Conversion Stock in a subscription offering (the “Subscription Offering”) in order of priority to Eligible Account Holders, Supplemental Eligible Account Holders, Tax- Qualified Employee Plans and Directors, Trustees, Officers and Employees of Newport Bancorp and the Converted Bank. Any shares of Conversion Stock remaining unsold after the Subscription Offering will be sold to the public through a Direct Community Offering (as defined in the Plan), a Syndicated Community Offering (as defined in the Plan), and/or a Public Offering (as defined in the Plan) as determined by the Board of Directors of Newport Bancorp in its sole discretion. Collectively, the Subscription Offering, the Direct Community Offering, the Syndicated Community Offering and the Public Offering are referred to herein as the Offerings.

5. Newport Bancorp will contribute to the Converted Bank no less than 50 percent of the net proceeds received by Newport Bancorp in the Offerings (the “Contributed Offering Proceeds”) in exchange for 100 percent of the Converted Bank’s Common Stock.

The Liquidation Account will be established for the benefit of the Eligible and Supplemental Eligible Account Holders who maintain Deposit Accounts (as defined in the Plan) in the Converted Bank. The Liquidation Account balance will initially be an amount equal to 100 percent of Newport Federal Savings Bank’s net worth as of the date of the latest statement of financial condition contained in the final prospectus utilized in the Conversion. Each Eligible and Supplemental Eligible Account Holder will have an undivided interest in the Liquidation Account balance (referred to as a “subaccount balance”). The proportionate interest of an Eligible or Supplemental Eligible Account Holder in the Liquidation Account will never increase, but will, however, decrease to reflect subsequent withdrawals from the Deposit Account of such Eligible or Supplemental Eligible Account Holders. In the sole event of a complete liquidation of the Converted Bank, each Eligible and Supplemental Eligible Account Holder will be entitled to receive a liquidation distribution from the Liquidation Account in the amount of their then current interest before any liquidation distribution may be made with respect to the capital stock of the Converted Bank.

Each Deposit Account in Newport Federal Savings Bank at the time of the consummation of the Conversion will become a Deposit Account in the Converted Bank equivalent in withdrawable amount to the withdrawal value (as adjusted to give effect to any withdrawal made for the purchase of Conversion Stock purchased in the Offerings) and subject to the same terms and conditions (except as to liquidation rights) as such Deposit Account in Newport Federal Savings Bank had immediately preceding consummation of the Conversion.

Newport Bancorp, Inc.

Newport Federal Savings Bank

                    , 2006

Page 4

MULDOON MURPHY & AGUGGIA LLP FEDERAL TAX OPINION

Muldoon Murphy & Aguggia LLP has provided an opinion that addresses the material federal income tax consequences of the Conversion and reorganization. The opinion, which relies upon standard factual representations given by Newport Federal Savings Bank, concluded, as follows:

1. the conversion of Newport Federal Savings Bank from the mutual to the stock form of organization will qualify as a reorganization within the meaning of Section 368(a)(l)(F) of the Internal Revenue Code (the “Code”) (see Rev. Rul. 80-105, 1980-1 C.B. 78), and no gain or loss will be recognized by account holders and no gain or loss will be recognized by Newport Federal Savings Bank by reason of such conversion;

2. no gain or loss will be recognized by Newport Bancorp upon the sale of shares of common stock in the Offering (Section 1032(a) of the Code);

3. no gain or loss will be recognized by account holders of Newport Federal Savings Bank upon the issuance to them of accounts in Newport Federal Savings Bank immediately after the conversion, in the same dollar amounts and on the same terms and conditions as their accounts at Newport Federal Savings Bank in its mutual form plus interests in the liquidation account in Newport Federal Savings Bank (Section 354(a) of the Code);

4. it is more likely than not that the fair market value of the non-transferable subscription rights to purchase shares of common stock of Newport Bancorp to be issued to Eligible Account Holders, Supplemental Eligible Account Holders and Employees, Officers, Trustees and Corporators is zero (the “Subscription Right”) and, accordingly, that no income will be realized by Eligible Account Holders, Supplemental Eligible Account Holders and Employees, Officers and Trustees upon the issuance to them of the Subscription Rights (Section 356(a) of the Code) or upon the exercise of the Subscription Rights (Rev. Rul. 56-572, 1956-2 C.B. 182);

5. it is more likely than not that the tax basis to the holders of shares of common stock purchased in the offering pursuant to the exercise of the Subscription Rights will be the amount paid therefor, and that the holding period for such shares of common stock will begin on the date of completion of the Offering (Section 1012 of the Code); and

6. the holding period for shares of common stock purchased in the Community Offering or Syndicated Community Offering will begin on the day after the date of the purchase (Section 1223(6) of the Code).

Newport Bancorp, Inc.

Newport Federal Savings Bank

                    , 2006

Page 5

DISCUSSION RELATED TO RHODE ISLAND TAX CONSEQUENCES

Accordingly, based upon the facts and representations stated herein and the existing law, it is the opinion of Wolf & Company, P.C. regarding the Rhode Island tax effect of the planned Conversion that:

1. No gain or loss shall be recognized by Newport Federal Savings Bank, the Converted Bank or Newport Bancorp on the receipt by the Converted Bank of the Contributed Offering Proceeds from Newport Bancorp in exchange for common stock of the Converted Bank or by Newport Bancorp upon the receipt of cash in the Offerings in exchange for shares of Conversion Stock;

2. Provided that the amount to be paid for the Conversion Stock pursuant to the Subscription Rights is equal to the fair market value of Newport Bancorp Common Stock, no gain or loss will be recognized by Eligible Account Holders, Supplemental Eligible Account Holders, and other persons described in the Plan who will receive Subscription Rights upon the distribution to them of the Subscription Rights to purchase shares of Conversion Stock; nor will they realize any taxable gain or loss as a result of the exercise of the Subscription Rights (Rhode Island General Laws Chapter §44-30-2.6(a));

3. The basis of the common stock to its stockholders will be the purchase price thereof plus the fair market value, if any, of the Subscription Rights. Accordingly, assuming the Subscription Rights have no value, the basis of the common stock will be the amount paid therefor. The holding period of the common stock purchased pursuant to the exercise of Subscription Rights shall commence on the date on which the right to acquire such stock was exercised;

4. For purposes of Rhode Island General Laws, Chapters §44-14 and §44-11 no gross income, gain or loss will be recognized by Newport Federal Savings Bank, the Converted Bank or Newport Bancorp as a result of the transactions contemplated by the Plan.

Our opinion under paragraph (2) above is predicated on the representation that no person shall receive any payment, whether in money or property, in lieu of the issuance of Subscription Rights. Our opinion under paragraphs (2) and (3) above assumes that the Subscription Rights to purchase shares of Common Stock have a fair market value of zero. We express no view regarding the valuation of the Subscription Rights.

Newport Bancorp, Inc.

Newport Federal Savings Bank

                    , 2006

Page 6

If the Subscription Rights are subsequently found to have a fair market value, income may be recognized by various recipients of the Subscription Rights (in certain cases, whether or not the rights are exercised) and the Converted Bank may be taxable on the distribution of the Subscription Rights.

CONCLUSION

The opinions contained herein are rendered only with respect to the specific matters discussed herein and we express no opinion with respect to any other legal, Federal, state, or local tax aspect of these transactions. This opinion is not binding upon any tax authority including the Rhode Island Division of Taxation or any court and no assurance can be given that a position contrary to that expressed herein will not be asserted by a tax authority.

In rendering our opinions we are relying upon the relevant provisions of the Internal Revenue Code of 1986, as amended, Rhode Island General Laws and the regulations, judicial and administrative interpretations thereof, all as of the date of this letter.

However, all of the foregoing authorities are subject to change or modification which can be retroactive in effect and, therefore, could also affect our opinions. We undertake no responsibility to update our opinions for any subsequent change or modification.

This opinion is given solely for the benefit of Newport Federal Savings Bank, Newport Bancorp, Eligible Account Holders, Supplemental Eligible Account Holders, and other persons described in the Plan who will receive Subscription Rights, and may not be relied upon by any other party or entity or otherwise referred to in any document without our express written consent. We hereby consent to the filing of the opinion as an exhibit to the Application for Conversion filed with the Rhode Island Commissioner of Banks and the Federal Deposit Insurance Corporation, as an exhibit to the Bank Holding Company Application filed with the Federal Reserve Board and as an exhibit to the registration statement on Form S-l as filed with the Securities and Exchange Commission, all filed in connection with the Conversion. We also consent to the references to our firm in the prospectus contained in the Application and Form S-l under the captions “The Conversion - Material Income Tax Consequences” and “Legal and Tax Opinions.”

Very truly yours,

Wolf & Company, P.C.

EX-10.1

Exhibit 10.1

FORM OF

NEWPORT FEDERAL SAVINGS BANK

EMPLOYEE STOCK OWNERSHIP PLAN

Effective as of January 1, 2006

NEWPORT FEDERAL SAVINGS BANK

EMPLOYEE STOCK OWNERSHIP PLAN

CERTIFICATION

I, Kevin McCarthy, President and Chief Executive Officer of Newport Federal Savings Bank hereby certify that the attached Newport Federal Savings Bank Employee Stock Ownership Plan, effective January 1, 2006, was adopted at a duly held meeting of the Board of Directors of the Bank.

NEWPORT FEDERAL SAVINGS BANK
By:
	Kevin McCarthy
	President and Chief Executive Officer

Newport Federal Savings Bank

Employee Stock Ownership Plan

Table of Contents

Section 1 - Introduction	1
Section 2 - Definitions	1
Section 3 - Eligibility and Participation	8
Section 4 - Contributions	10
Section 5 - Plan Accounting	12
Section 6 - Vesting and Forfeitures	18
Section 7 - Distributions	20
Section 8 - Voting of Company Stock and Tender Offers	25
Section 9 - The Committee and Plan Administration	26
Section 10 - Rules Governing Benefit Claims	29
Section 11 - The Trust	30
Section 12 - Adoption, Amendment and Termination	31
Section 13 - General Provisions	33
Section 14 - Top-Heavy Provisions	34

SECTION 1

Introduction

Section 1.01 Nature of the Plan.

Effective as of January 1, 2006 (the “Effective Date”), Newport Federal Savings Bank (the “Bank”) hereby establishes the Newport Federal Savings Bank Employee Stock Ownership Plan (the “Plan”) to enable Eligible Employees (as defined in Section 2.01(o) of the Plan) to acquire stock ownership interests in Newport Bancorp, Inc. (the “Company”), the holding company of the Bank. The Bank intends this Plan to be a tax-qualified stock bonus plan under Section 401(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and an employee stock ownership plan within the meaning of Section 407(d)(6) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and Sections 409 and 4975(e)(7) of the Code. The Plan is designed to invest primarily in the common stock of the Company, which stock constitutes “qualifying employer securities” within the meaning of Section 407(d)(5) of ERISA and Sections 409(l) and 4975(e)(8) of the Code. Accordingly, the Plan and Trust Agreement (as defined in Section 2.01(mm) of the Plan) shall be interpreted and applied in a manner consistent with the Bank’s intent for it to be a tax-qualified plan designed to invest primarily in qualifying employer securities.

The Plan reflects certain provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”). The provisions related to EGTRRA are intended as good faith compliance with EGTRRA and the guidance issued thereunder. To the extent any provision of the Plan was operated according to an effective date earlier than as required by law, then such date shall be the effective date with respect to that provision of the Plan.

Section 1.02 Employers and Affiliates.

The Bank and each of its Affiliates (as defined in Section 2.01(c) of the Plan) that, with the consent of the Bank, adopt the Plan pursuant to the provisions of Section 12.01 of the Plan are collectively referred to as the “Employers” and individually as an “Employer.” The Plan shall be treated as a single plan with respect to all participating Employers.

SECTION 2

Definitions

Section 2.01 Definitions.

In this Plan, whenever the context so indicates, the singular or the plural number and the masculine or feminine gender shall be deemed to include the other, the terms “he,” “his,” and “him,” shall refer to a Participant or Beneficiary, as the case may be, and, except as otherwise provided, or unless the context otherwise requires, the capitalized terms shall have the following meanings:

(a) “Account” or “Accounts” mean a Participant’s or Beneficiary’s Company Stock Account and/or his Other Investments Account, as the context so requires.

1

(b) “Acquisition Loan” means a loan or other extension of credit, including an installment obligation to a “party in interest” (as defined in Section 3(14) of ERISA) incurred by the Trustee in connection with the purchase of Company Stock.

(c) “Affiliate” means any corporation, trade or business, which, at the time of reference, is together with the Bank, a member of a controlled group of corporations, a group of trades or businesses (whether or not incorporated) under common control, or an affiliated service group, as described in Sections 414(b), 414(c), and 414(m) of the Code, respectively, or any other organization treated as a single employer with the Bank under Section 414(o) of the Code; provided, however, that, where the context so requires, the term “Affiliate” shall be construed to give full effect to the provisions of Sections 409(l)(4) and 415(h) of the Code.

(d) “Bank” means Newport Federal Savings Bank, and any entity that succeeds to the business of the Newport Federal Savings Bank and adopts this Plan in accordance with the provisions of Section 12.02 of the Plan, or by written agreement assumes the obligations of the Plan.

(e) “Beneficiary” means the person(s) entitled to receive benefits under the Plan following a Participant’s death, pursuant to Section 7.03 of the Plan.

(f) “Change in Control” means any one of the following events occurs:

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

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

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

2

the directors who were directors at the beginning of the two-year period shall be deemed to have also been a director at the beginning of such period; or

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

Notwithstanding anything in this Plan to the contrary, in no event shall the conversion of the Bank from the mutual form of organization to the stock form of organization constitute a “Change in Control” for purposes of this Agreement.

(g) “Code” means the Internal Revenue Code of 1986, as amended.

(h) “Committee” means the individual(s) responsible for the administration of the Plan in accordance with Section 9 of the Plan.

(i) “Company” means Newport Bancorp, Inc. and any entity which succeeds to the business of Newport Bancorp, Inc.

(j) “Company Stock” means shares of the voting common stock or preferred stock, meeting the requirements of Section 409 of the Code and Section 407(d)(5) of ERISA, issued by the Company or its Affiliates.

(k) “Company Stock Account” means the account established and maintained in the name of each Participant or Beneficiary to reflect his share of the Trust Fund invested in Company Stock.

(l) “Compensation” means a Participant’s wages as reported in Box 1 of the Participant’s Form W-2.

A Participant’s Compensation shall not exceed the limit set forth in Section 401(a)(17) of the Code ($220,000 for Plan Years beginning January 1, 2006). If the Plan Year for which a Participant’s Compensation is measured is less than twelve (12) calendar months, then the amount of Compensation taken into account for such Plan Year shall be the adjusted amount for such Plan Year, as prescribed by the Secretary of the Treasury under Section 401(a)(17) of the Code, multiplied by a fraction, the numerator of which is the number of months taken into account for such Plan Year and the denominator of which is twelve (12). In determining the dollar limitation hereunder, Compensation received from an Affiliate shall be recognized as Compensation.

(m) “Disability” means a physical or mental condition of a Participant resulting from bodily injury, disease, or mental disorder which renders the Participant incapable of continuing any gainful occupation and which condition constitutes total disability under the federal Social Security Act. The Disability of a Participant shall be determined by the Plan Administrator, in its sole discretion.

(n) “Effective Date” means January 1, 2006.

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(o) “Eligible Employee” means any Employee who is not precluded from participating in the Plan by reason of the provisions of Section 3.02 of the Plan.

(p) “Employee” means any person who is actually performing services for the Employer or an Affiliate in a common-law, employer-employee relationship as determined under Sections 31.3121(d)-1, 31.3306(i)-1, or 31.3401(c)-1 of the Treasury Regulations and any “Leased Employee” as defined in Section 3.02(b) of this Plan.

(q) “Employer” or “Employers” means the Bank and any of its Affiliates that adopt the Plan in accordance with the provisions of Section 12.01 of the Plan, and any entity which succeeds to the business of the Bank or its Affiliates and which adopts the Plan in accordance with the provisions of Section 12.02 of the Plan, or by written agreement assumes the obligations under the Plan.

(r) “Entry Date” means the first day of the month following the date the Employee satisfies the requirements for participation under Section 3.01 of the Plan.

(s) “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

(t) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(u) “Financed Shares” means shares of Company Stock acquired by the Trustee with the proceeds of an Acquisition Loan, which shall constitute “qualifying employer securities” under Section 409(l) of the Code and any shares of Company Stock received upon conversion or exchange of such shares.

(v) “Highly Compensated Employee” means an Employee who, for a particular Plan Year, satisfies one of the following conditions:

(i) was a “5-percent owner” (as defined in Section 414(q)(2) of the Code) during the year or the preceding year, or

(ii) for the preceding year, had “compensation” (as defined in Section 414(q)(4) of the Code) from the Bank and its Affiliates exceeding the limit in Section 414(q)(1) of the Code ($100,000 for Plan Years beginning January 1, 2006).

(w) “Hours of Service” means:

(i) Each hour for which an Employee is paid, or entitled to payment, for performing duties for the Employer during the applicable computation period.

(ii) Each hour for which an Employee is paid, or entitled to payment, for a period during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence.

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Notwithstanding the preceding sentence, no credit shall be given to the Employee for:

(A) more than 501 hours under this clause (ii) because of any single continuous period in which the Employee performs no duties (whether or not such period occurs in a single computation period);

(B) an hour for which the Employee is directly or indirectly paid, or entitled to payment, because of a period in which no duties are performed if such payment is made or due under a plan maintained solely for the purpose of complying with applicable worker’s or workmen’s compensation, unemployment, or disability insurance laws; or

(C) an hour or a payment which solely reimburses the Employee for medical or medically-related expenses incurred by the Employee.

(iii) Each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Employer; provided, however, that hours credited under either clause (i) or (ii) above shall not also be credited under this clause (iii). Crediting of hours for back pay awarded or agreed to with respect to periods described in clause (ii) above will be subject to the limitations set forth in that clause.

The crediting of Hours of Service shall be determined by the Committee in accordance with the rules set forth in Section 2530.200b-2 of the regulations prescribed by the Department of Labor, which rules shall be consistently applied with respect to all Employees within the same job classification. If an Employer finds it impracticable to count actual Hours of Service for any class or group of non-hourly Employees, each Employee in that class or group shall be credited with 45 Hours of Service for each weekly period in which he has at least one Hour of Service. However, an Employee shall be credited with Hours of Service only for his normal working hours during a paid absence. Hours of Service shall be credited for employment with an Affiliate.

For purposes of determining whether an Employee has incurred a One Year Break in Service and for vesting and participation purposes, if an Employee begins a maternity/paternity leave of absence described in Section 411(a)(6)(E)(i) of the Code, his Hours of Service shall include the Hours of Service that would have been credited to him if he had not been so absent (or 45 Hours of Service for each week of such absence if the actual Hours of Service cannot be determined). An Employee shall be credited for such Hours of Service (up to a maximum of 501 Hours of Service) in the Plan Year in which his absence begins (if such crediting will prevent him from incurring a One Year Break in Service in such Plan Year) or, in all other cases, in the following Plan Year. An absence from employment for maternity or paternity reasons means an absence:

(i) by reason of pregnancy of the Employee,

(ii) by reason of the birth of a child of the Employee,

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(iii) by reason of the placement of a child with the Employee in connection with the adoption of such child by such Employee, or

(iv) for purposes of caring for such child for a period beginning immediately following such birth or placement.

(x) “Later Retirement Date” means the first day of the month coincident with or next following a Participant’s date of actual retirement which occurs after his Normal Retirement Date.

(y) “Loan Suspense Account” means that portion of the Trust Fund consisting of Company Stock acquired with an Acquisition Loan which has not yet been allocated to the Participants’ Accounts.

(z) “Named Fiduciary” means the Board of Directors of the Bank.

(aa) “Normal Retirement Age” means attainment of age 65.

(bb) “Normal Retirement Date” means the first day of the month coincident with or next following the Participant’s attainment of Normal Retirement Age.

(cc) “One Year Break in Service” means a twelve (12) consecutive month period during which the Participant does not complete more than 500 Hours of Service.

(dd) “Other Investments Account” means the account established and maintained in the name of each Participant or Beneficiary to reflect his share of the Trust Fund, other than Company Stock.

(ee) “Participant” means any Eligible Employee who has become a Participant in accordance with Section 3.01 of the Plan or any other person with an Account balance under the Plan.

(ff) “Plan” means Newport Federal Savings Bank Employee Stock Ownership Plan, as amended from time to time.

(gg) “Plan Year” means the calendar year.

(hh) “Recognized Absence” means a period for which:

(i) an Employer grants an Employee a leave of absence for a limited period of time, but only if an Employer grants such leaves of absence on a nondiscriminatory basis to all Eligible Employees; or

(ii) an Employee is temporarily laid off by an Employer because of a change in the business conditions of the Employer; or

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(iii) an Employee is on active military duty, but only to the extent that his employment rights are protected by the Military Selective Service Act of 1967 and the Uniformed Services Employment and Reemployment Rights Act of 1994.

(ii) “Retirement Date” means a Participant’s Normal or Later Retirement Date, whichever is applicable.

(jj) “Service” means employment with the Bank or an Affiliate.

(kk) “Termination of Service” means the earlier of (a) the date on which an Employee’s Service is terminated by reason of his resignation, retirement, discharge, death or Disability or (b) the first anniversary of the date on which such Employee’s service is terminated for disability of a short-term nature or any other reason. Service in the Armed Forces of the United States shall not constitute a Termination of Service but shall be considered to be a period of employment by the Employer provided (i) such military service is caused by war or other emergency or the Employee is required to serve under the laws of conscription in time of peace, (ii) the Employee returns to employment with the Employer within six (6) months following discharge from such military service and (iii) such Employee is reemployed by the Employer at a time when the Employee had a right to reemployment at his former position or substantially similar position upon separation from such military duty in accordance with seniority rights as protected under the laws of the United States. A leave of absence granted to an Employee by the Employer shall not constitute a Termination of Service provided that the Participant returns to the active service of the Employer at the expiration of any such period for which leave has been granted. Notwithstanding the foregoing, an Employee who is absent from service with the Employer beyond the first anniversary of the first date of his absence for maternity or paternity reasons set forth in Section 2.01 of the Plan shall incur a Termination of Service for purposes of the Plan on the second anniversary of the date of such absence.

(ll) “Treasury Regulations” mean the regulations promulgated by the Department of the Treasury under the Code.

(mm)  “Trust” means the First Federal Savings Bank Employee Stock Ownership Plan Trust created in connection with the establishment of the Plan.

(nn) “Trust Agreement” means the trust agreement establishing the Trust.

(oo) “Trust Fund” means the assets held in the Trust for the benefit of Participants and their Beneficiaries.

(pp) “Trustee” means the trustee or trustees from time to time in office under the Trust Agreement.

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(qq) “Valuation Date” means the last day of the Plan Year and each other date as of which the Committee shall determine the investment experience of the Trust Fund and adjust Participants’ Accounts accordingly.

(rr) “Valuation Period” means the period following a Valuation Date and ending with the next Valuation Date.

(ss) “Year of Service” shall mean a Plan Year in which an Employee is credited with at least 1,000 Hours of Service.

SECTION 3

Eligibility and Participation

Section 3.01 Participation.

(a) All Eligible Employees who are over 21 years of age on the closing date of the Bank’s mutual to stock conversion shall enter the Plan and become Participants as of the Effective Date.

(b) An Eligible Employee who is first employed by an Employer after the closing date of the Bank’s mutual to stock conversion shall become a Participant in the Plan upon satisfying the following requirements:

(i) The Eligible Employee is at least 21 years of age; and

(ii) The Eligible Employee completes 500 Hours of Service in a consecutive six- month period.

(c) An Eligible Employee who has satisfied the eligibility requirements of Section 3.01(b) shall enter the Plan and become a Participant on the Entry Date coincident with or next following the date he satisfies such requirements.

Section 3.02 Certain Employees Ineligible.

The following Employees are ineligible to participate in the Plan:

(a) Employees covered by a collective bargaining agreement between the Employer and the Employee’s collective bargaining representative if:

(i) retirement benefits have been the subject of good faith bargaining between the Employer and the representative, and

(ii) the collective bargaining agreement does not expressly provide that Employees of such unit be covered under the Plan;

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(b) Employees who are nonresident aliens and who receive no earned income from an Employer which constitutes income from sources within the United States; and

(c) Employees of an Affiliate of the Bank that has not adopted the Plan pursuant to Sections 12.01 or 12.02 of the Plan.

Section 3.03 Transfer to and from Eligible Employment.

(a) If an Employee ineligible to participate in the Plan by reason of Section 3.02 of the Plan transfers to employment as an Eligible Employee, he shall enter the Plan as of the later of:

(i) the first Entry Date after the date of transfer, or

(ii) the first Entry Date on which he could have become a Participant pursuant to Section 3.01 of the Plan.

(b) If a Participant transfers to an employment position that makes him ineligible to participate in the Plan as of the date of such transfer, he shall cease active participation in the Plan as of such date and his transfer shall be treated for all purposes under the Plan in the same manner as any other termination of Service.

Section 3.04 Participation after Reemployment.

(a) If an Employee incurs a One Year Break in Service prior to satisfying the eligibility requirements of Section 3.01 of the Plan, Service prior to such One Year Break in Service shall be disregarded and the Employee must satisfy the eligibility requirements of Section 3.01 as a new Employee.

(b) If an Employee incurs a One Year Break in Service after satisfying the eligibility requirements of Section 3.01 of the Plan and again performs an Hour of Service, the Employee shall receive credit for Service prior to his One Year Break in Service and shall be eligible to participate in the Plan immediately upon reemployment, provided the Employee is not excluded from participation under the provisions of Section 3.02 of the Plan.

Section 3.05 Participation Not Guarantee of Employment.

Participation in the Plan does not constitute a guarantee or contract of employment and will not give any Employee the right to be retained in the employ of the Bank or any of its Affiliates nor any right or claim to any benefit under the terms of the Plan unless such right or claim has specifically accrued under the Plan.

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SECTION 4

Contributions

Section 4.01 Employer Contributions.

(a) Discretionary Contributions. Each Plan Year, each Employer, in its discretion, may make a contribution to the Trust. Each Employer making a contribution for any Plan Year under this Section 4.01(a) will contribute to the Trustee cash equal to, or Company Stock or other property having an aggregate fair market value equal to, such amount as the Board of Directors of the Employer shall determine by resolution. Notwithstanding the Employer’s discretion with respect to the medium of contribution, an Employer shall not make a contribution in any medium which would make such contribution a prohibited transaction (for which no exemption is provided) under Section 406 of ERISA or Section 4975 of the Code.

(b) Employer Contributions for Acquisition Loans. Each Plan Year, the Employers shall, subject to any regulatory prohibitions, contribute an amount of cash sufficient to enable the Trustee to discharge any indebtedness incurred with respect to an Acquisition Loan pursuant to the terms of the Acquisition Loan. The Employers’ obligation to make contributions under this Section 4.01(b) shall be reduced to the extent of any investment earnings attributable to such contributions and any cash dividends paid with respect to Company Stock held by the Trustee in the Loan Suspense Account. If there is more than one Acquisition Loan, the Employers shall designate the one to which any contribution pursuant to this Section 4.01(b) is to be applied.

Section 4.02 Limitations on Contributions.

In no event shall an Employer’s contribution(s) made under Section 4.01 of the Plan for any Plan Year exceed the lesser of:

(a) The maximum amount deductible under Section 404 of the Code by that Employer as an expense for Federal income tax purposes; and

(b) The maximum amount which can be credited for that Plan Year in accordance with the allocation limitation provisions of Section 5.05 of the Plan.

Section 4.03 Acquisition Loans.

The Trustee may incur Acquisition Loans from time to time to finance the acquisition of Company Stock for the Trust or to repay a prior Acquisition Loan. An Acquisition Loan shall be for a specific term, shall bear a reasonable rate of interest, shall not be payable in demand, except in the event of default, and shall be primarily for the benefit of Participants and Beneficiaries of the Plan. An Acquisition Loan may be secured by a collateral pledge of the Financed Shares so acquired and any other Plan assets which are permissible securities within the provisions of Section 54.4975-7(b) of the Treasury Regulations. No other assets of the Plan or Trust may be pledged as collateral for an Acquisition Loan, and no lender shall have recourse against any other

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Trust assets. Any pledge of Financed Shares must provide for the release of shares so pledged on a basis equal to the principal and interest (or if the requirements of Section 54.4975-7(b)(8)(ii) of the Treasury Regulations are met and the Employer so elects, principal payments only), paid by the Trustee on the Acquisition Loan. The released Financed Shares shall be allocated to Participants’ Accounts in accordance with the provisions of Sections 5.04 or 5.08 of the Plan, whichever is applicable. Payment of principal and interest on any Acquisition Loan shall be made by the Trustee only from the Employer contributions paid in cash to enable the Trustee to repay such loan in accordance with Section 4.01(b) of the Plan, from earnings attributable to such contributions, and any cash dividends received by the Trustee on Financed Shares acquired with the proceeds of the Acquisition Loan (including contributions, earnings and dividends received during or prior to the year of repayment less such payments in prior years), whether or not allocated. Financed Shares shall initially be credited to the Loan Suspense Account and shall be transferred for allocation to the Company Stock Accounts of Participants only as payments of principal and interest (or, if the requirements of Section 54.4975-7(b)(8)(ii) of the Treasury Regulations are met and the Employer so elects, principal payments only), on the Acquisition Loan are made by the Trustee. The number of Financed Shares to be released from the Loan Suspense Account for allocation to Participants’ Company Stock Account for each Plan Year shall be based on the ratio that the payments of principal and interest (or, if the requirements of Section 54.4975-7(b)(8)(ii) of the Treasury Regulations are met and the Employer so elects, principal payments only), on the Acquisition Loan for that Plan Year bears to the sum of the payments of principal and interest on the Acquisition Loan for that Plan Year plus the total remaining payment of principal and interest projected (or, if the requirements of Section 54.4975-7(b)(8)(ii) of the Treasury Regulations are met and the Employer so elects, principal payments only), on the Acquisition Loan over the duration of the Acquisition Loan repayment period, subject to the provisions of Section 5.05 of the Plan.

Section 4.04 Conditions as to Contributions.

In addition to the provisions of Section 12.03 of the Plan for the return of an Employer’s contributions in connection with a failure of the Plan to qualify initially under the Code, any amount contributed by an Employer due to a good faith mistake of fact, or based upon a good faith but erroneous determination of its deductibility under Section 404 of the Code, shall be returned to the Employer within one year after the date on which the Employer originally made such contribution, or within one year after its nondeductibility has been finally determined. However, the amount to be returned shall be reduced to take account of any adverse investment experience within the Trust in order that the balance credited to each Participant Account is not less than it would have been if the contribution had never been made by the Employer.

Section 4.05 Employee Contributions.

Employee contributions are neither required nor permitted under the Plan.

Section 4.06 Rollover Contributions.

Rollover contributions to the Plan of assets from other tax-qualified retirement plans are not permitted under the Plan.

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Section 4.07 Trustee-to-Trustee Transfers.

Trustee-to-trustee transfers of assets from other tax-qualified retirement plans are not permitted under the Plan.

SECTION 5

Plan Accounting

Section 5.01 Accounting for Allocations.

The Committee shall establish the Accounts (and sub-accounts, if deemed necessary) for each Participant, and the accounting procedures for the purpose of making allocations to Participants’ Accounts as provided for in this Section 5. The Committee shall maintain adequate records of the cost basis of shares of Company Stock allocated to each Participant’s Company Stock Account. The Committee also shall keep separate records of Financed Shares attributable to each Acquisition Loan and of contributions made by the Employers (and any earnings thereon) made for the purpose of enabling the Trustee to repay any Acquisition Loan. From time to time, the Committee may modify its accounting procedures for the purpose of achieving equitable and nondiscriminatory allocations among the Accounts of Participants, in accordance with the provisions of this Section 5 and the applicable requirements of the Code and ERISA. In accordance with Section 9 of the Plan, the Committee may delegate the responsibility for maintaining Accounts and records.

Section 5.02 Maintenance of Participants’ Company Stock Accounts.

As of each Valuation Date, the Committee shall adjust the Company Stock Account of each Participant to reflect activity during the Valuation Period as follows:

(a) First, charge to each Participant’s Company Stock Account all distributions and payments made to the Participant that have not been previously charged;

(b) Next, credit to each Participant’s Company Stock Account the shares of Company Stock, if any, that have been purchased with amounts from the Participant’s Other Investments Account, and adjust such Other Investments Account in accordance with the provisions of Section 5.03 of the Plan;

(c) Next, credit to each Participant’s Company Stock Account the shares of Company Stock representing contributions made by the Employers in the form of Company Stock and the number of Financed Shares released from the Loan Suspense Account under Section 4.03 of the Plan that are to be allocated and credited as of that date in accordance with the provisions of Section 5.04 of the Plan; and

(d) Finally, credit to each Participant’s Company Stock Account the shares of Company Stock released from the Loan Suspense Account that are to be allocated in accordance with the provisions of Section 5.09 of the Plan.

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Section 5.03 Maintenance of Participants’ Other Investments Accounts.

Except as otherwise provided for under Section 5.08 of the Plan, as of each Valuation Date, the Committee shall adjust the Other Investments Account of each Participant to reflect activity during the Valuation Period as follows:

(a) First, charge to each Participant’s Other Investments Account all distributions and payments made to the Participant that have not previously been charged;

(b) Next, if Company Stock is purchased with assets from a Participant’s Other Investments Account, charge the Participant’s Other Investments Account accordingly;

(c) Next, subject to the dividend provisions of Section 5.09 of the Plan, credit to the Other Investments Account of each Participant any cash dividends paid to the Trustee on shares of Company Stock held in that Participant’s Company Stock Account (as of the record date for such cash dividends) and dividends paid on shares of Company Stock held in the Loan Suspense Account that have not been used to repay any Acquisition Loan. Subject to the provisions of Section 5.09 of the Plan, cash dividends that have not been used to repay any Acquisition Loan and have been credited to a Participant’s Other Investments Account shall be applied by the Trustee to purchase shares of Company Stock, which shares shall then be credited to the Company Stock Account of such Participant. The Participant’s Other Investments Account shall then be charged by the amount of cash used to purchase such Company Stock. In addition, any earnings on:

(i) Participants’ Other Investments Accounts will be allocated to Accounts, pro rata, based on Participants’ Other Investments Account balances as of the first day of the Valuation Period, and

(ii) the Loan Suspense Account, other than dividends used to repay the Acquisition Loan, will be allocated to Participants’ Other Investments Accounts, pro rata, based on their Other Investments Account balances as of the first day of the Valuation Period;

(d) Next, allocate and credit the Employer contributions made pursuant to Section 4.01(b) of the Plan for the purpose of repaying any Acquisition Loan, in accordance with Section 5.04 of the Plan. Such amount shall then be used to repay any Acquisition Loan and such Participant’s Other Investments Account shall be charged accordingly; and

(e) Finally, allocate and credit the Employer contributions (other than amounts contributed to repay an Acquisition Loan) that are made in cash (or property other than Company Stock) for the Plan Year to the Other Investments Account of each Participant in accordance with Section 5.04 of the Plan.

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Section 5.04 Allocation and Crediting of Employer Contributions.

(a) Except as otherwise provided for in Sections 5.08 and 5.09 of the Plan, as of the Valuation Date for each Plan Year:

(i) Company Stock released from the Loan Suspense Account for that year and shares of Company Stock contributed directly to the Plan shall be allocated and credited to each Active Participant’s (as defined in paragraph (b) of this Section 5.04) Company Stock Account based on the ratio that each Active Participant’s Compensation bears to the aggregate Compensation of all Active Participants for the Plan Year, and then

(ii) The cash contributions not used to repay an Acquisition Loan and any other property contributed for that year shall be allocated and credited to each Active Participant’s Other Investments Account based on the ratio determined by comparing each Active Participant’s Compensation while a Participant to the aggregate Compensation of all Active Participants for the Plan Year.

(b) For purposes of this Section 5.04, the term “Active Participant” means those Eligible Employees who:

(i) are employed on the last day of the Plan Year; or

(ii) terminated employment during the Plan Year by reason of death, Disability, or attainment of their Normal or Later Retirement Date.

Section 5.05 Limitations on Allocations.

(a) In General. Subject to the provisions of this Section 5.05, Section 415 of the Code shall be incorporated by reference into the terms of the Plan. No allocation shall be made under Section 5.04 of the Plan that would result in a violation of Section 415 of the Code.

(b) Code Section 415 Compensation. For purposes of this Section 5.05, Compensation shall be adjusted to reflect the general rule of Section 1.415-2(d) of the Treasury Regulations.

(c) Limitation Year. The “limitation year” (within the meaning of Section 415 of the Code) shall be the calendar year.

(d) Multiple Defined Contribution Plans. In any case where a Participant also participates in another defined contribution plan of the Bank or its Affiliates, the appropriate committee of such other plan shall first reduce the after-tax contributions under any such plan, shall then reduce any elective deferrals under any such plan subject to Section 401(k) of the Code, shall then reduce all other contributions under any other such plan and, if necessary, shall then reduce contributions under this Plan.

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(e) Excess Allocations. If, after applying the allocation provisions under Section 5.04 of the Plan, allocations under Section 5.04 of the Plan would otherwise result in a violation of Section 415 of the Code, the Committee shall allocate and reallocate employer contributions to other Participants in the Plan for the limitation year or, if such allocation and reallocation causes the limitations of Section 415 of the Code to be exceeded, shall hold excess amounts in an unallocated suspense account for allocation in a subsequent Plan Year in accordance with Section 1.415-6(b)(6)(i) of the Treasury Regulations. Such suspense account, if permitted, will be credited before any allocation of contributions for subsequent limitation years.

(f) Allocations Pursuant to Section 5.08. For purposes of this Section 5.05, no amount credited to any Participant’s Account pursuant to Section 5.08 of the Plan shall be counted as an “annual addition” for purposes of Section 415 of the Code. In the event any amount cannot be allocated to Affected Participants (as defined in Section 5.08 of the Plan) under the Plan pursuant to Section 5.08 of the Plan in the year of a Change in Control, the amount which may not be so allocated in the year of the Change in Control shall be treated in accordance with paragraph (e) of this Section 5.05.

Section 5.06 Other Limitations.

Aside from the limitations set forth in Section 5.05 of the Plan, in no event shall more than one-third of the Employer contributions to the Plan be allocated to the Accounts of Highly Compensated Employees. In order to ensure that such allocations are not made, the Committee shall, beginning with the Participants whose Compensation exceeds the limit then in effect under Section 401(a)(17) of the Code, reduce the amount of Compensation of such Highly Compensated Employees on a pro-rata basis per individual that would otherwise be taken into account for purposes of allocating benefits under Section 5.04 of the Plan. If, in order to satisfy this Section 5.06, any such Participant’s Compensation must be reduced to an amount that is lower than the Compensation amount of the next highest paid (based on such Participant’s Compensation) Highly Compensated Employee (the “breakpoint amount”), then, for purposes of allocating benefits under Section 5.04 of the Plan, the Compensation of all concerned Participants shall be reduced to an amount not to exceed such breakpoint amount.

Section 5.07 Limitations as to Certain Section 1042 Transactions.

To the extent that a shareholder of Company Stock sells qualifying Company Stock to the Plan and elects (with the consent of the Bank) nonrecognition of gain under Section 1042 of the Code, no portion of the Company Stock purchased in such nonrecognition transaction (or other dividends or other income attributable thereto) may accrue or be allocated during the nonallocation period (the ten (10) year period beginning on the later of the date of the sale of the qualified Company Stock, or the date of the Plan allocation attributable to the final payment of an Acquisition Loan incurred in connection with such sale) for the benefit of:

(a) the selling shareholder;

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(b) the spouse, brothers or sisters (whether by the whole or half blood), ancestors or lineal descendants of the selling shareholder or descendant referred to in (a) above; or

(c) any other person who owns, after application of Section 318(a) of the Code, more than twenty-five percent (25%) of:

(i) any class of outstanding stock of the Company or any Affiliate, or

(ii) the total value of any class of outstanding stock of the Company or any Affiliate.

For purposes of this Section 5.07, Section 318(a) of the Code shall be applied without regard to the employee trust exception of Section 318(a)(2)(B)(i) of the Code.

Section 5.08 Allocations Upon Termination Prior to Satisfaction of Acquisition Loan.

(a) Notwithstanding any other provision of the Plan, in the event of a Change in Control, the Plan shall terminate as of the effective date of the Change in Control and, as soon as practicable thereafter, the Trustee shall repay in full any outstanding Acquisition Loan. In connection with such repayment, the Trustee shall: (i) apply cash, if any, received by the Plan in connection with the transaction constituting a Change in Control, with respect to the unallocated shares of Company Stock acquired with the proceeds of the Acquisition Loan, and (ii) to the extent additionally required to effect the repayment of the Acquisition Loan, obtain cash through the sale of any stock or security received by the Plan in connection with such transaction, with respect to such unallocated shares of Company Stock. After repayment of the Acquisition Loan, all remaining shares of Company Stock held in the Loan Suspense Account, all other stock or securities, and any cash proceeds from the sale or other disposition of any shares of Company Stock held in the Loan Suspense Account, shall be allocated among the Accounts of all Participants who were employed by an Employer on the date immediately preceding the effective date of the Change in Control. Such allocations of shares or cash proceeds shall be credited as earnings for purposes of Section 5.05 of the Plan and Section 415 of the Code, as of the effective date of the Change in Control, to the Account of each Participant who is either

in active Service with an Employer, or is on a Recognized Absence, on the date immediately preceding the effective date of the Change of Control (each an “Affected Participant”), in proportion to the opening balances in their Company Stock Accounts as of the first day of the current Valuation Period. As of the effective date of a Change in Control, all Participant Accounts shall be fully vested and nonforfeitable.

(b) In the event of a termination of the Plan in connection with a Change in Control, this Section 5.08 shall have no force and effect unless the price paid for the Company Stock in connection with a Change in Control is greater than the average basis of the unallocated Company Stock held in the Loan Suspense Account as of the date of the Change in Control.

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Section 5.09 Dividends.

(a) Stock Dividends. Dividends on Company Stock which are received by the Trustee in the form of additional Company Stock shall be retained in the portion of the Trust Fund consisting of Company Stock, and shall be allocated among the Participants’ Accounts and the Loan Suspense Account in accordance with their holdings of the Company Stock on which the dividends have been paid.

(b) Cash Dividends on Allocated Shares. Dividends on Company Stock credited to Participants’ Accounts which are received by the Trustee in the form of cash shall, at the direction of the Bank, either:

(i) be credited to Participants’ Accounts in accordance with Section 5.03 of the Plan and invested as part of the Trust Fund;

(ii) be distributed immediately to the Participants;

(iii) be distributed to the Participants within ninety (90) days of the close of the Plan Year in which paid; or

(iv) be used to repay principal and interest on the Acquisition Loan used to acquire Company Stock on which the dividends were paid.

In addition to the alternatives specified in the preceding paragraph regarding the treatment of cash dividends paid with respect to shares of Company Stock credited to Participants’ Accounts, if authorized by the Committee for the Plan Year, a Participant may elect that cash dividends paid on Company Stock credited to the Participant’s Account shall either be:

(i) paid to the Plan, reinvested in Company Stock and credited to the Participant’s Account;

(ii) distributed in cash to the Participant; or

(iii) distributed to the Participant within ninety (90) days of the close of the Plan Year in which paid.

Dividends subject to an election under this paragraph (and any Company Stock acquired therewith pursuant to a Participant’s election) shall at all times be fully vested. To the extent the Committee authorizes dividend elections pursuant to this paragraph, the Committee shall establish policies and procedures relating to Participant elections and, if applicable, the reinvestment of cash dividends in Company Stock, which are consistent with guidance issued under Section 404(k) of the Code.

(c) Cash Dividends on Unallocated Shares. Dividends on Company Stock held in the Loan Suspense Account received by the Trustee in the form of cash shall be applied as soon as

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practicable to payments of principal and interest under the Acquisition Loan incurred with the purchase of Company Stock.

(d) Financed Shares. Financed Shares released from the Loan Suspense Account by reason of dividends paid with respect to Company Stock shall be allocated under Sections 5.03 and 5.04 of the Plan as follows:

(i) First, Financed Shares with a fair market value at least equal to the dividends paid with respect to the Company Stock allocated to Participants’ Accounts shall be allocated among and credited to the Accounts of such Participants, pro rata, according to the number of shares of Company Stock held in such accounts on the date the dividend is declared by the Company; and

(ii) Next, any remaining Financed Shares released from the Loan Suspense Account by reason of dividends paid with respect to Company Stock held in the Loan Suspense Account shall be allocated among and credited to the Accounts of all Participants, pro rata, according to each Participant’s Compensation.

SECTION 6

Vesting and Forfeitures

Section 6.01 Deferred Vesting in Accounts.

(a) A Participant shall be 100% vested in his Account after five Years of Service.

(b) For purposes of determining a Participant’s Years of Service under this Section 6.01, all Years of Service shall be included, beginning with the Employee’s initial service with the Employer. Participants who are former employees of Westerly Savings Bank and became Employees of the Bank as a result of the merger of Westerly Savings Bank and the Bank will be given prior Service credit for their employment with Westerly Savings Bank.

Section 6.02 Immediate Vesting in Certain Situations.

(a) Notwithstanding Section 6.01(a) of the Plan, a Participant shall become fully vested in his Accounts upon the earlier of:

(i) termination of the Plan or upon the permanent and complete discontinuance of contributions by the Employer to the Plan; provided, however, that in the event of a partial termination of the Plan, the interest of each Participant shall fully vest only with respect to that part of the Plan which is terminated;

(ii) the Participant’s Normal Retirement Date;

(iii) a Change in Control; or

(iv) Termination of Service by reason of death or Disability.

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Section 6.03 Treatment of Forfeitures.

(a) If a Participant who is not fully vested in his Accounts terminates employment, that portion of his Accounts in which he is not vested shall be forfeited upon the earlier of:

(i) the date the Participant receives a distribution of his entire vested benefits under the Plan, or

(ii) the date at which the Participant incurs five (5) consecutive One Year Breaks in Service.

(b) If a Participant who has terminated employment and has received a distribution of his entire vested benefits under the Plan is subsequently reemployed by an Employer prior to incurring five (5) consecutive One Year Breaks in Service, he shall have the portion of his Accounts which was previously forfeited restored to his Accounts, provided he repays to the Trustee within five (5) years of his subsequent employment date an amount equal to the previous distribution. The amount restored to the Participant’s Account shall be credited to his Account as of the last day of the Plan Year in which the Participant repays the distributed amount to the Trustee and the restored amount shall come from other Employees’ forfeitures and, if such forfeitures are insufficient, from a special contribution by the Employer for that year. If a Participant’s employment terminates prior to his Account having become vested, such Participant shall be deemed to have received a distribution of his entire vested interest as of the Valuation Date next following his termination of employment.

(c) If a Participant who has terminated employment but has not received a distribution of his entire vested benefits under the Plan is subsequently reemployed by an Employer subsequent to incurring five (5) consecutive One Year Breaks in Service, any undistributed balance of his Accounts from his prior participation which was not forfeited shall be maintained as a fully vested subaccount within his Account.

(d) If a portion of a Participant’s Account is forfeited, assets other than Company Stock must be forfeited before any Company Stock may be forfeited.

(e) Forfeitures shall be reallocated among the other Participants in the Plan.

Section 6.04 Accounting for Forfeitures.

A forfeiture shall be charged to the Participant’s Account as of the first day of the first Valuation Period in which the forfeiture becomes certain pursuant to Section 6.03 of the Plan. Except as otherwise provided in Section 6.03 of the Plan, a forfeiture shall be added to the contributions of the terminated Participant’s Employer which are to be credited to other Participants pursuant to Section 5 as of the last day of the Plan Year in which the forfeiture becomes certain.

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Section 6.05 Vesting Upon Reemployment.

If a Participant incurs a One Year Break in Service and again performs an Hour of Service, such Participant shall receive credit, for purposes of Section 6.01 of the Plan, for his Years of Service prior to his One Year Break in Service.

SECTION 7

Distributions

Section 7.01 Distribution of Benefit Upon a Termination of Employment.

(a) A Participant whose employment terminates for any reason shall receive the entire vested portion of his Accounts in a single payment on a date selected by the Committee; provided, however, that such date shall be on or before the 60th day after the end of the Plan Year in which the Participant’s employment terminated. The benefits from that portion of the Participant’s Other Investments Account shall be calculated on the basis of the most recent Valuation Date before the date of payment. Subject to the provisions of Section 7.05 of the Plan, if the Committee so provides, a Participant may elect that his benefits be distributed to him in the form of Company Stock, cash, or some combination thereof.

(b) Notwithstanding paragraph (a) of this Section 7.01, if the balance credited to a Participant’s Accounts exceeds, at the time such benefit was distributable, $1,000, his benefits shall not be paid before the latest of his 65th birthday or the tenth anniversary of the year in which he commenced participation in the Plan, unless he elects an early payment date in a written election filed with the Committee. Such an election is not valid unless it is made after the Participant has received the required notice under Section 1.411(a)-11(c) of the Treasury Regulations that provides a general description of the material features of a lump sum distribution and the Participant’s right to defer receipt of his benefits under the Plan. The notice shall be provided no less than 30 days and no more than 90 days before the first day on which all events have occurred which entitle the Participant to such benefit. Written consent of the Participant to the distribution generally may not be made within 30 days of the date the Participant receives the notice and shall not be made more than 90 days from the date the Participant receives the notice. However, a distribution may be made less than 30 days after the notice provided under Section 1.411(a)-11(c) of the Treasury Regulations is given, if:

(i) the Committee clearly informs the Participant that he has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and if applicable, a particular distribution option), and

(ii) the Participant, after receiving the notice, affirmatively elects a distribution.

A Participant may modify such an election at any time, provided any new benefit payment date is at least 30 days after a modified election is delivered to the Committee.

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Section 7.02 Minimum Distribution Requirements.

With respect to all Participants, other than those who are “5% owners” (as defined in Section 416 of the Code), benefits shall be paid on the required beginning date which is no later than the April 1st of the later of:

(i) the calendar year following the calendar year in which the Participant attains age 70-1/2, or

(ii) the calendar year in which the Participant retires.

With respect to all Participants who are 5% owners within the meaning of Section 416 of the Code, such Participants’ benefits shall be paid no later than the April 1st of the calendar year following the calendar year in which the Participant attains age 70-1/2.

Section 7.03 Benefits on a Participant’s Death.

(a) If a Participant dies before his benefits are paid pursuant to Section 7.01 of the Plan, the balance credited to his Accounts shall be paid to his Beneficiary in a single distribution on or before the 60th day after the end of the Plan Year in which the Participant died. If the Participant has not named a Beneficiary or his named Beneficiary should not survive him, then the balance in his Accounts shall be paid to his estate. The benefits from that portion of the Participant’s Other Investments Account shall be calculated on the basis of the most recent Valuation Date before the date of payment.

(b) If a married Participant dies before his benefit payments begin, then, unless he has specifically elected otherwise, the Committee shall cause the balance in his Accounts to be paid to his spouse, as Beneficiary. A married Participant may name an individual other than his spouse as Beneficiary provided that such election is accompanied by the spouse’s written consent which must:

(i) acknowledge the effect of the election;

(ii) explicitly provide either that the designated Beneficiary may not subsequently be changed by the Participant without the spouse’s further consent or that it may be changed without such consent; and

(iii) must be witnessed by the Committee, its representative, or a notary public.

This requirement shall not apply if the Participant establishes to the Committee’s satisfaction that the spouse may not be located.

(c) The Committee shall, from time to time, take whatever steps it deems appropriate to keep informed of each Participant’s marital status. Each Employer shall provide the Committee with the most reliable information in the Employer’s possession regarding its Participants’ marital status, and the Committee may, in its discretion, require a notarized

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affidavit from any Participant as to his marital status. The Committee, the Plan, the Trustee, and the Employers shall be fully protected and discharged from any liability to the extent of any benefit payments made as a result of the Committee’s good faith and reasonable reliance upon information obtained from a Participant as to the Participant’s marital status.

Section 7.04 Delay in Benefit Determination.

If the Committee is unable to determine the benefits payable to a Participant or Beneficiary on or before the latest date prescribed for payment pursuant to this Section 7, the benefits shall in any event be paid within 60 days after they can first be determined.

Section 7.05 Options to Receive and Sell Company Stock.

(a) Unless ownership of virtually all Company Stock is restricted to active Employees and qualified retirement plans for the benefit of Employees pursuant to the certificates of incorporation or by-laws of the Employers issuing Company Stock, a terminated Participant or the Beneficiary of a deceased Participant may instruct the Committee to distribute the Participant’s entire vested interest in his Accounts in the form of Company Stock. In that event, the Committee shall apply the Participant’s vested interest in his Other Investments Account to purchase sufficient Company Stock to make the required distribution.

(b) Any Participant who receives Company Stock pursuant to this Section 7.05, and any person who has received Company Stock from the Plan or from such a Participant by reason of the Participant’s death or incompetency, by reason of divorce or separation from the Participant, or by reason of a rollover distribution described in Section 402(c) of the Code, shall have the right to require the Employer which issued the Company Stock to purchase the Company Stock for its current fair market value (hereinafter referred to as the “put right”). The put right shall be exercisable by written notice to the Committee during the first 60 days after the Company Stock is distributed by the Plan, and, if not exercised in that period, during the first 60 days in the following Plan Year after the Committee has communicated to the Participant its determination as to the Company Stock’s current fair market value. If the put right is exercised, the Trustee may, if so directed by the Committee in its sole discretion, assume the Employer’s rights and obligations with respect to purchasing the Company Stock. However, the put right shall not apply to the extent that the Company Stock, at the time the put right would otherwise be exercisable, may be sold on an established market in accordance with federal and state securities laws and regulations.

(c) With respect to a put right, the Employer or the Trustee, as the case may be, may elect to pay for the Company Stock in equal periodic installments, not less frequently than annually, over a period not longer than five (5) years from the 30th day after the put right is exercised pursuant to paragraph (b) of this Section 7.05, with adequate security and interest at a reasonable rate on the unpaid balance, all such terms to be set forth in a

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promissory note delivered to the seller with normal terms as to acceleration upon any uncured default.

(d) Nothing contained in this Section 7.05 shall be deemed to obligate any Employer to register any Company Stock under any federal or state securities law or to create or maintain a public market to facilitate the transfer or disposition of any Company Stock. The put right described in this Section 7.05 may only be exercised by a person described in paragraph (b) of this Section 7.05, and may not be transferred with any Company Stock to any other person. As to all Company Stock purchased by the Plan in exchange for any Acquisition Loan, the put right must be nonterminable. The put right for Company Stock acquired through an Acquisition Loan shall continue with respect to such Company Stock after the Acquisition Loan is repaid or the Plan ceases to be an employee stock ownership plan. Except as provided above, in accordance with the provisions of Sections 54.4975-7(b)(4) of the Treasury Regulations, no Company Stock acquired with the proceeds of an Acquisition Loan may be subject to any put, call or other option or buy-sell or similar arrangement while held by, and when distributed from, the Plan, whether or not the Plan is then an employee stock ownership plan.

Section 7.06 Restrictions on Disposition of Company Stock.

Except in the case of Company Stock which is traded on an established market, a Participant who receives Company Stock pursuant to this Section 7, and any person who has received Company Stock from the Plan or from such a Participant by reason of the Participant’s death or incompetency, divorce or separation from the Participant, or a rollover distribution described in Section 402(c) of the Code, shall, prior to any sale or other transfer of the Company Stock to any other person, first offer the Company Stock to the issuing Employer and to the Plan at its current fair market value. This restriction shall apply to any transfer, whether voluntary, involuntary, or by operation of law, and whether for consideration or gratuitous. Either the Employer or the Trustee may accept the offer within 14 days after it is delivered. Any Company Stock distributed by the Plan shall bear a conspicuous legend describing the right of first refusal under this Section 7.06, as applicable, as well as any other restrictions upon the transfer of the Company Stock imposed by federal and state securities laws and regulations.

Section 7.07 Direct Transfer of Eligible Plan Distributions.

(a) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee’s election under this Section, a distributee (as defined below) may elect to have any portion of an eligible rollover distribution (as defined below) paid directly to an eligible retirement plan (as defined below) specified by the distributee in a direct rollover (as defined below). A “distributee” includes a Participant or former Participant. In addition, the Participant’s or former Participant’s surviving spouse and the Participant’s or former Participant’s spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are distributees with regard to the interest of the spouse or former spouse. For purposes of this Section 7.07 a “direct rollover” is a payment by the Plan to the eligible retirement plan specified by the distributee.

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(b) To effect such a direct transfer, the distributee must notify the Committee that a direct rollover is desired and provide to the Committee sufficient information regarding the eligible retirement plan to which the payment is to be made. Such notice shall be made in such form and at such time as the Committee may prescribe. Upon receipt of such notice, the Committee shall direct the Trustee to make a trustee-to-trustee transfer of the eligible rollover distribution to the eligible retirement plan so specified.

(c) For purposes of this Section 7.07, an “eligible rollover distribution” shall have the meaning set forth in Section 402(c)(4) of the Code and any Treasury Regulations promulgated thereunder. To the extent such meaning is not inconsistent with the above references, an eligible rollover distribution shall mean any distribution of all or any portion of the Participant’s Account, except that such term shall not include any distribution which is one of a series of substantially equal periodic payments (not less frequently than annually) made (i) for the life (or life expectancy) of the Participant or the joint lives (or joint life expectancies) of the Participant and a designated Beneficiary, or (ii) for a period of ten years or more. Further, the term “eligible rollover distribution” shall not include any distribution required to be made under Section 401(a)(9) of the Code or, the portion of any distribution that is not includible in gross income (determined without regard to the exclusions for net unrealized appreciation with respect to Company Stock). To the extent applicable under the Plan, “eligible rollover distributions” shall also not include any hardship distribution described in Section 401(k)(2)(B)(i)(IV) of the Code.

(d) For purposes of this Section 7.07, an “eligible retirement plan” shall have the meaning set forth in Section 402(c)(8) of the Code and any Treasury Regulations promulgated thereunder. To the extent such meaning is not consistent with the above references, an eligible retirement plan shall mean: (i) an individual retirement account described in Section 408(a) of the Code, (ii) an individual retirement annuity described in Section 408(b) of the Code, (iii) an annuity or annuity plan described in Section 403(a) or Section 403(b) of the Code, (iv) a qualified trust described in Section 401(a) of the Code, or (v) a governmental plan under Section 457 of the Code that accepts the distributee’s eligible rollover distribution. However, in the case of an eligible rollover distribution to a surviving spouse, an eligible retirement plan means an individual retirement account or individual retirement annuity.

(e) An eligible retirement plan shall also mean an annuity contract described in Section 403(b) of the Code and an eligible plan under Section 457(b) of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state which agrees to separately account for amounts transferred into such plan from this Plan. The definition of eligible retirement plan shall also apply in the case of a distribution to a surviving spouse, or to a spouse or former spouse who is the alternate payee under a qualified domestic relation order as defined in Section 414(p) of the Code.

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SECTION 8

Voting of Company Stock and Tender Offers

Section 8.01 Voting of Company Stock.

(a) In General. The Trustee shall generally vote all shares of Company Stock held in the Trust in accordance with the provisions of this Section 8.01.

(b) Allocated Shares. Shares of Company Stock which have been allocated to Participants’ Accounts shall be voted by the Trustee in accordance with the Participants’ written instructions.

(c) Uninstructed and Unallocated Shares. Shares of Company Stock which have been allocated to Participants’ Accounts but for which no written instructions have been received by the Trustee regarding voting shall be voted by the Trustee in a manner calculated to most accurately reflect the instructions the Trustee has received from Participants regarding voting shares of allocated Company Stock. Shares of unallocated Company Stock shall also be voted by the Trustee in a manner calculated to most accurately reflect the instructions the Trustee has received from Participants regarding voting shares of allocated Company Stock. Notwithstanding the preceding two sentences, all shares of Company Stock which have been allocated to Participants’ Accounts and for which the Trustee has not timely received written instructions regarding voting and all unallocated shares of Company Stock must be voted by the Trustee in a manner determined by the Trustee to be solely in the best interests of the Participants and Beneficiaries.

(d) Voting Prior to Allocation. In the event no shares of Company Stock have been allocated to Participants’ Accounts at the time Company Stock is to be voted, each Participant shall be deemed to have one share of Company Stock allocated to his Accounts for the sole purpose of providing the Trustee with voting instructions.

(e) Procedure and Confidentiality. Whenever such voting rights are to be exercised, the Employers, the Committee, and the Trustee shall see that all Participants and Beneficiaries are provided with the same notices and other materials as are provided to other holders of the Company Stock, and are provided with adequate opportunity to deliver their instructions to the Trustee regarding the voting of Company Stock allocated to their Accounts or deemed allocated to their Accounts for purposes of voting. The instructions of the Participants with respect to the voting of shares of Company Stock shall be confidential.

Section 8.02 Tender Offers.

In the event of a tender offer, Company Stock shall be tendered by the Trustee in the same manner set forth in Section 8.01 of the Plan regarding the voting of Company Stock.

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SECTION 9

The Committee and Plan Administration

Section 9.01 Identity of the Committee.

The Committee shall consist of three or more individuals selected by the Bank. Any individual, including a director, trustee, shareholder, officer, or Employee of an Employer, shall be eligible to serve as a member of the Committee. The Bank shall have the power to remove any individual serving on the Committee at any time without cause upon ten (10) days’ written notice to such individual and any individual may resign from the Committee at any time without reason upon ten (10) days’ written notice to the Bank. The Bank shall notify the Trustee of any change in membership of the Committee.

Section 9.02 Authority of Committee.

(a) The Committee shall be the “plan administrator” within the meaning of ERISA and shall have exclusive responsibility and authority to control and manage the operation and administration of the Plan, including the interpretation and application of its provisions, except to the extent such responsibility and authority are otherwise specifically:

(i) allocated to the Bank, the Employers, or the Trustee under the Plan and Trust Agreement;

(ii) delegated in writing to other persons by the Bank, the Employers, the Committee, or the Trustee; or

(iii) allocated to other parties by operation of law.

(b) The Committee shall have exclusive responsibility regarding decisions concerning the payment of benefits under the Plan.

(c) The Committee shall have full investment responsibility with respect to the Investment Fund except to the extent, if any, specifically provided for in the Trust Agreement.

(d) In the discharge of its duties, the Committee may employ accountants, actuaries, legal counsel, and other agents (who also may be employed by an Employer or the Trustee in the same or some other capacity) and may pay such individuals reasonable compensation and expenses for their services rendered with respect to the operation or administration of the Plan, to the extent such payments are not otherwise prohibited by law.

Section 9.03 Duties of Committee.

(a) The Committee shall keep whatever records may be necessary in connection with the maintenance of the Plan and shall furnish to the Employers whatever reports may be required from time to time by the Employers. The Committee shall furnish to the Trustee whatever information may be necessary to properly administer the Trust. The Committee

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shall see to the filing with the appropriate government agencies of all reports and returns required with respect to the Plan under ERISA, the Code and other applicable laws and regulations.

(b) The Committee shall have exclusive responsibility and authority with respect to the Plan’s holdings of Company Stock and shall direct the Trustee in all respects regarding the purchase, retention, sale, exchange, and pledge of Company Stock and the creation and satisfaction of any Acquisition Loan to the extent such responsibilities are not set forth in the Trust Agreement.

(c) The Committee shall at all times act consistently with the Bank’s long-term intention that the Plan, as an employee stock ownership plan, be invested primarily in Company Stock. Subject to the direction of the Committee with respect to any Acquisition Loan pursuant to the provisions of Section 4.03 of the Plan, and subject to the provisions of Sections 7.05 and 11.04 of the Plan as to Participants’ rights under certain circumstances to have their Accounts invested in Company Stock or in assets other than Company Stock, the Committee shall determine, in its sole discretion, the extent to which assets of the Trust shall be used to repay any Acquisition Loan, to purchase Company Stock, or to invest in other assets selected by the Committee or an investment manager. No provision of the Plan relating to the allocation or vesting of any interests in Company Stock or investments other than Company Stock shall restrict the Committee from changing any holdings of the Trust Fund, whether the changes involve an increase or a decrease in the Company Stock or other assets credited to Participants’ Accounts. In determining the proper extent of the Trust Fund’s investment in Company Stock, the Committee shall be authorized to employ investment counsel, legal counsel, appraisers, and other agents and to pay their reasonable compensation and expenses to the extent such payments are not prohibited by law.

(d) If the valuation of any Company Stock is not established by reported trading on a generally recognized public market, then the Committee shall have the exclusive authority and responsibility to determine the value of the Company Stock for all purposes under the Plan. Such value shall be determined as of each Valuation Date and on any other date as of which the Trustee purchases or sells Company Stock in a manner consistent with Section 4975 of the Code and the Treasury Regulations issued thereunder. The Committee shall use generally accepted methods of valuing stock of similar corporations for purposes of arm’s length business and investment transactions, and in this connection the Committee shall obtain, and shall be protected in relying upon, the valuation of Company Stock as determined by an independent appraiser (as defined in Section 401(a)(28)(c) of the Code).

Section 9.04 Compliance with ERISA and the Code.

The Committee shall perform all acts necessary to ensure the Plan’s compliance with ERISA and the Code. Each individual member of the Committee shall discharge his duties in good faith and in accordance with the applicable requirements of ERISA and the Code.

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Section 9.05 Action by Committee.

All actions of the Committee shall be governed by the affirmative vote of a majority of the total number of Committee members. The members of the Committee may meet informally and may take any action without meeting as a group.

Section 9.06 Execution of Documents.

Any instrument to be executed by the Committee may be signed by any member of the Committee.

Section 9.07 Adoption of Rules.

The Committee shall adopt such rules and regulations of uniform applicability as it deems necessary or appropriate for the proper operation, administration and interpretation of the Plan.

Section 9.08 Responsibilities to Participants.

The Committee shall determine which Employees qualify to participate in the Plan. The Committee shall furnish to each Eligible Employee whatever summary plan descriptions, summary annual reports, and other notices and information that may be required under ERISA. The Committee also shall determine when a Participant or his Beneficiary qualifies for the payment of benefits under the Plan. The Committee shall furnish to each such Participant or Beneficiary whatever information is required under ERISA or the Code (or is otherwise appropriate) to enable the Participant or Beneficiary to make whatever elections may be available pursuant to Section 7, and the Committee shall provide for the payment of benefits in the proper form and amount from the Trust. The Committee may decide in its sole discretion to permit modifications of elections and to defer or accelerate benefits to the extent consistent with the terms of the Plan, applicable law, and the best interests of the individuals concerned.

Section 9.09 Alternative Payees in Event of Incapacity.

If the Committee finds at any time that an individual qualifying for benefits under this Plan is a minor or is incompetent, the Committee may direct the benefits to be paid, in the case of a minor, to his parents, his legal guardian, a custodian for him under the Uniform Transfers to Minors Act, or the person having actual custody of him, or, in the case of an incompetent, to his spouse, his legal guardian, or the person having actual custody of him. The Committee and the Trustee shall not be obligated to inquire as to the actual use of the funds by the person receiving them under this Section 9.09, and any such payment shall completely discharge the obligations of the Plan, the Trustee, the Committee, and the Employers to the extent of the payment.

Section 9.10 Indemnification by Employers.

Except as separately agreed upon in writing, the Committee, and any member or employee of the Committee, shall be indemnified and held harmless by the Employers, jointly and severally, to the fullest extent permitted by law, against any and all costs, damages, expenses, and liabilities

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reasonably incurred by or imposed upon the Committee or such individual in connection with any claim made against the Committee or such individual, or in which the Committee or such individual may be involved by reason of being, or having been, the Committee, or a member or employee of the Committee, to the extent such amounts are not paid by insurance.

Section 9.11 Abstention by Interested Member.

Any member of the Committee who is also a Participant in the Plan shall take no part in any determination specifically relating to his own participation or benefits under the Plan, unless an abstention would render the Committee incapable of acting on the matter.

SECTION 10

Rules Governing Benefit Claims

Section 10.01 Claim for Benefits.

Any Participant or Beneficiary who qualifies for the payment of benefits shall file a claim for benefits with the Committee on a form provided by the Committee. The claim, including any election of an alternative benefit form, shall be filed at least 30 days before the date on which the benefits are to begin. If a Participant or Beneficiary fails to file a claim by the 30th day before the date on which benefits become payable, he shall be presumed to have filed a claim for payment for the Participant’s benefits in the standard form prescribed by Section 7 of the Plan.

Section 10.02 Notification by Committee.

Within 90 days after receiving a claim for benefits (or within 180 days, if special circumstances require an extension of time and written notice of the extension is given to the Participant or Beneficiary within 90 days after receiving the claim for benefits), the Committee shall notify the Participant or Beneficiary whether the claim has been approved or denied. If the Committee denies a claim in any respect, the Committee shall set forth in a written notice to the Participant or Beneficiary:

(a) each specific reason for the denial;

(b) specific references to the pertinent Plan provisions on which the denial is based;

(c) a description of any additional material or information which could be submitted by the Participant or Beneficiary to support his claim, with an explanation of the relevance of such information; and

(d) an explanation of the claims review procedures set forth in Section 10.03 of the Plan.

Section 10.03 Claims Review Procedure.

Within 60 days after a Participant or Beneficiary receives notice from the Committee that his claim for benefits has been denied in any respect, he may file with the Committee a written

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notice of appeal setting forth his reasons for disputing the Committee’s determination. In connection with his appeal, the Participant or Beneficiary or his representative may inspect or purchase copies of pertinent documents and records to the extent not inconsistent with other Participants’ and Beneficiaries’ rights of privacy. Within 60 days after receiving a notice of appeal from a prior determination (or within 120 days, if special circumstances require an extension of time and written notice of the extension is given to the Participant or Beneficiary and his representative within 60 days after receiving the notice of appeal), the Committee shall furnish to the Participant or Beneficiary and his representative, if any, a written statement of the Committee’s final decision with respect to his claim, including the reasons for such decision and the particular Plan provisions upon which it is based.

SECTION 11

The Trust

Section 11.01 Creation of Trust Fund.

All amounts received under the Plan from an Employer and investments shall be held in a Trust Fund pursuant to the terms of this Plan and the Trust Agreement. The benefits described in this Plan shall be payable only from the assets of the Trust Fund. Neither the Bank, any other Employer, its board of directors or trustees, its stockholders, its officers, its employees, the Committee, nor the Trustee shall be liable for payment of any benefit under this Plan except from the Trust Fund.

Section 11.02 Company Stock and Other Investments.

The Trust Fund held by the Trustee shall be divided into Company Stock and investments other than Company Stock. The Trustee shall have no investment responsibility for the portion of the Trust Fund consisting of Company Stock, but shall accept any Employer contributions made in the form of Company Stock, and shall acquire, sell, exchange, distribute, and otherwise deal with and dispose of Company Stock in accordance with the instructions of the Committee.

Section 11.03 Acquisition of Company Stock.

From time to time the Committee may, in its sole discretion, direct the Trustee to acquire Company Stock from the issuing Employer or from shareholders, including shareholders who are or have been Employees, Participants, or fiduciaries with respect to the Plan. The Trustee shall pay for such Company Stock no more than its fair market value, which shall be determined conclusively by the Committee pursuant to Section 9.03(d) of the Plan. The Committee may direct the Trustee to finance the acquisition of Company Stock through an Acquisition Loan subject to the provisions of Section 4.03 of the Plan.

Section 11.04 Participants’ Option to Diversify.

The Committee shall establish a procedure under which each Participant may, during the first five years of a certain six-year period, elect to have up to 25 percent of the value of his Accounts committed to alternative investment options within an “Investment Fund.” For the sixth year in

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this period, the Participant may elect to have up to 50 percent of the value of his Accounts committed to other investments. The six-year period shall begin with the Plan Year following the first Plan Year in which the Participant has both reached age 55 and completed 10 years of participation in the Plan; a Participant’s election to diversify his Accounts must be made within the 90-day period immediately following the last day of each of the six Plan Years. The Committee shall see that the Investment Fund includes a sufficient number of investment options to comply with Section 401(a)(28)(B) of the Code. The Committee may, in its discretion, permit a transfer of a portion of the Participant’s Accounts to the First Federal Savings Bank Retirement Plan in order to satisfy this Section 11.04, provided such investments comply with Section 401(a)(28)(B) of the Code and such transfer is not otherwise prohibited under the Code or ERISA. The Trustee shall comply with any investment directions received from Participants in accordance with the procedures adopted from time to time by the Committee under this Section 11.04.

SECTION 12

Adoption, Amendment and Termination

Section 12.01 Adoption of Plan by Other Employers.

With the consent of the Bank, any entity may become a participating Employer under the Plan by:

(a) taking such action as shall be necessary to adopt the Plan;

(b) becoming a party to the Trust Agreement establishing the Trust Fund; and

(c) executing and delivering such instruments and taking such other action as may be necessary or desirable to put the Plan into effect with respect to the entity’s Employees.

Section 12.02 Adoption of Plan by Successor.

In the event that any Employer shall be reorganized by way of merger, consolidation, transfer of assets or otherwise, so that an entity other than an Employer shall succeed to all or substantially all of the Employer’s business, the successor entity may be substituted for the Employer under the Plan by adopting the Plan and becoming a party to the Trust Agreement. Contributions by the Employer shall be automatically suspended from the effective date of any such reorganization until the date upon which the substitution of the successor entity for the Employer under the Plan becomes effective. If, within 90 days following the effective date of any such reorganization, the successor entity shall not have elected to become a party to the Plan, or if the Employer shall adopt a plan of complete liquidation other than in connection with a reorganization, the Plan shall be automatically terminated with respect to Employees of the Employer as of the close of business on the 90th day following the effective date of the reorganization, or as of the close of business on the date of adoption of a plan of complete liquidation, as the case may be.

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Section 12.03 Plan Adoption Subject to Qualification.

Notwithstanding any other provision of the Plan, the adoption of the Plan and the execution of the Trust Agreement are conditioned upon their being determined initially by the Internal Revenue Service to meet the qualification requirements of Section 401(a) of the Code, so that the Employers may deduct currently for federal income tax purposes their contributions to the Trust and so that the Participants may exclude the contributions from their gross income and recognize income only when they receive benefits. In the event that this Plan is held by the Internal Revenue Service not to qualify initially under Section 401(a) of the Code, the Plan may be amended retroactively to the earliest date permitted by the Code and the applicable Treasury Regulations in order to secure qualification under Section 401(a) of the Code. If this Plan is held by the Internal Revenue Service not to qualify initially under Section 401(a) of the Code either as originally adopted or as amended, each Employer’s contributions to the Trust under this Plan (including any earnings thereon) shall be returned to it and this Plan shall be terminated. In the event that this Plan is amended after its initial qualification, and the Plan, as amended, is held by the Internal Revenue Service not to qualify under Section 401(a) of the Code, the amendment may be modified retroactively to the earliest date permitted by the Code and the applicable Treasury Regulations in order to secure approval of the amendment under Section 401(a) of the Code.

Section 12.04 Right to Amend or Terminate.

(a) The Bank intends to continue this Plan as a permanent program. However, each participating Employer separately reserves the right to suspend, supersede, or terminate the Plan at any time and for any reason, as it applies to that Employer’s Employees, and the Bank reserves the right to amend, suspend, supersede, merge, consolidate, or terminate the Plan at any time and for any reason, as it applies to the Employees of all Employers.

(b) No amendment, suspension, supersession, merger, consolidation, or termination of the Plan shall reduce any Participant’s or Beneficiary’s proportionate interest in the Trust Fund, or shall divert any portion of the Trust Fund to purposes other than the exclusive benefit of the Participants and their Beneficiaries prior to the satisfaction of all liabilities under the Plan. Except as is required for purposes of compliance with the Code or ERISA, neither the provisions of Section 5.04 relating to the crediting of contributions, forfeitures and shares of Company Stock released from the Loan Suspense Account, nor any other provision of the Plan relating to the allocation of benefits to Participants, may be amended more frequently than once every six months. Moreover, there shall not be any transfer of assets to a successor plan or merger or consolidation with another plan unless, in the event of the termination of the successor plan or the surviving plan immediately following such transfer, merger, or consolidation, each participant or beneficiary would be entitled to a benefit equal to or greater than the benefit he would have been entitled to if the plan in which he was previously a participant or beneficiary had terminated immediately prior to such transfer, merger, or consolidation. Following a termination of this Plan by the Bank, the Trustee shall continue to administer the Trust and pay benefits in accordance with the Plan and the Committee’s instructions.

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(c) In the event of a Change in Control, the Plan shall be terminated and allocations made to Participants in accordance with the provisions of Section 5.08 of the Plan.

SECTION 13

General Provisions

Section 13.01 Nonassignability of Benefits.

The interests of Participants and other persons entitled to benefits under the Plan shall not be subject to the claims of their creditors and may not be voluntarily or involuntarily assigned, alienated, pledged, encumbered, sold, or transferred. The prohibitions set forth in this Section 13.01 shall also apply to any judgment, decree, or order (including approval of a property or settlement agreement) which relates to the provision of child support, alimony, or property rights to a present or former spouse, child, or other dependent of a Participant pursuant to a domestic relations order, unless such judgment, decree or order is determined to be a “qualified domestic relations order” as defined in Section 414(p) of the Code.

Section 13.02 Limit of Employer Liability.

The liability of the Employers with respect to Participants and other persons entitled to benefits under the Plan shall be limited to making contributions to the Trust from time to time, in accordance with Section 4 of the Plan.

Section 13.03 Plan Expenses.

All expenses incurred by the Committee or the Trustee in connection with administering the Plan and Trust shall be paid by the Trustee from the Trust Fund to the extent the expenses have not been paid or assumed by the Employer.

Section 13.04 Nondiversion of Assets.

Except as provided in Sections 5.05 and 12.03 of the Plan, under no circumstances shall any portion of the Trust Fund be diverted to or used for any purpose other than the exclusive benefit of Participants and their Beneficiaries prior to the satisfaction of all liabilities under the Plan.

Section 13.05 Separability of Provisions.

If any provision of the Plan is held to be invalid or unenforceable, the other provisions of the Plan shall not be affected but shall be applied as if the invalid or unenforceable provision had not been included in the Plan.

Section 13.06 Service of Process.

The agent for the service of process upon the Plan shall be the Chairman of the Board of the Bank and the Trustee, or such other person as may be designated from time to time by the Bank.

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Section 13.07 Governing Law.

The Plan is established under, and its validity, construction and effect shall be governed by the laws of the State of Rhode Island to the extent those laws are not preempted by federal law, including the provisions of ERISA.

Section 13.08 Special Rules for Persons Subject to Section 16(b) Requirements.

Notwithstanding anything herein to the contrary, any former Participant who is subject to the provisions of Section 16(b) of the Securities Exchange Act of 1934, who becomes eligible to again participate in the Plan, may not become a Participant prior to the date that is six months from the date such former Participant terminated participation in the Plan. In addition, any person subject to the provisions of Section 16(b) of the Securities Exchange Act of 1934 Act receiving a distribution of Company Stock from the Plan must hold such Company Stock for a period of six months, commencing with the date of distribution. However, this restriction will not apply to Company Stock distributions made in connection with death, retirement, Disability or termination of employment, or made pursuant to the terms of a qualified domestic relations order.

Section 13.09 Military Service.

Notwithstanding any other provision of this Plan to the contrary, contributions, benefits and Service credit with respect to qualified military service will be provided in accordance with Section 414(u) of the Code.

SECTION 14

Top-Heavy Provisions

Section 14.01 Top-Heavy Provisions.

(i) Key employee. Key employee means any employee or former employee (including any deceased employee) who at any time during the Plan Year that includes the Determination Date was an officer of the Employer having annual compensation greater than $130,000 (as adjusted under Section 416(i)(1) of the Code for Plan Years beginning after December 31, 2002), a 5% owner of the Employer or a 1% owner of the Employer having annual compensation of more than $150,000. For this purpose, annual compensation means compensation within the meaning of Section 415(c)(3) of the Code. The determination of who is a key employee will be made in accordance with Section 416(i)(1) of the Code and the applicable regulations and other guidance of general applicability issued thereunder.

(ii) Determination of present values and amounts. This section (ii) shall apply for purposes of determining the present values of accrued benefits and the amounts of account balances of Participants as of the distribution date.

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(A) Distributions during year ending on the Determination Date. The present values of accrued benefits and the amounts of account balances of a Participant as of the Determination Date shall be increased by the distributions made with respect to the Participant under the Plan and any Plan aggregated with the Plan under Section 416(g)(2) of the Code during the 1-year period ending on the Determination Date. The preceding sentence shall also apply to distributions under a terminated plan which, had it not been terminated, would have been aggregated with the Plan under Section 416(g)(2)(A)(i) of the Code. In the case of a distribution made for a reason other than separation from service, death or disability, this provision shall be applied by substituting “5-year period” for “1-year period”.

(B) Participants not performing services during the year ending on the Determination Date. The accrued benefits and accounts of any individual who has not performed services for the Employer during the 1-year period ending on the Determination Date shall not be taken into account.”

Section 14.02 Plan Modifications Upon Becoming Top-Heavy.

(a) Minimum Accruals. Section 5.04 of the Plan will be modified to provide that the aggregate amount of Employer contributions allocated in each Plan Year to the Accounts of each Participant who is a non-Key Employee (as defined under Section 416(i)(1) of the Code), and who is employed by an Employer as of the last day of the Plan Year, may not be less than the lesser of:

(i) three percent (3%) of his Compensation for the Plan Year; and

(ii) a percentage of his Compensation equal to the largest percentage obtained by dividing the sum of the amount credited to the Accounts of any Key Employee by that Key Employee’s Compensation.

(b) The preceding provision will remain in effect for the period in which the Plan is top-heavy. If, for any particular year thereafter, the Plan is no longer top-heavy, the provisions contained in this Section 14.02 shall cease to apply, except that any previously vested portion of any Account balance shall remain nonforfeitable.

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EX-10.2

Exhibit 10.2

FORM OF

TRUST AGREEMENT

BETWEEN

NEWPORT FEDERAL SAVINGS BANK

AND

[TRUSTEE]

FOR THE

NEWPORT FEDERAL SAVINGS BANK

EMPLOYEE STOCK OWNERSHIP PLAN TRUST

Effective as of April 1, 2006

CONTENTS

		Page No.
Section 1	Creation of Trust	1
Section 2	Investment of Trust Fund and Administrative Powers of the Trustee	2
Section 3	Compensation and Indemnification of Trustee and Payment of Expenses and Taxes	7
Section 4	Records and Valuation	8
Section 5	Instructions from Committee	9
Section 6	Change of Trustee	10
Section 7	Miscellaneous	10

i

This TRUST AGREEMENT dated________________________, BETWEEN, Newport Federal Savings Bank with its administrative office at _______________________ (hereinafter called the “Company”), and __________________________ with its administrative office at ____________________________________(hereinafter called the “Trustee”).

W I T N E S S E T H   T H A T:

WHEREAS, the Company has approved and adopted an employee stock ownership plan for the benefit of its employees, the Newport Federal Savings Bank Employee Stock Ownership Plan (hereinafter called the “Plan”); and

WHEREAS, the Company has authorized the execution of this Trust Agreement and has appointed ___________________________ as Trustee of the Trust Fund created pursuant to the Plan; and

WHEREAS, _______________________________ has agreed to act as Trustee and to hold and administer the assets of the Plan in accordance with the terms of this Trust Agreement.

NOW, THEREFORE, the Company and the Trustee agree as follows:

Section 1. Creation of Trust

1.1 Trustee ________________________________ shall serve as Trustee of the Trust Fund created in accordance with and in furtherance of the Plan, and shall serve as Trustee until their removal or resignation in accordance with Section 6.

1.2 Trust Fund The Trustee hereby agrees to accept contributions from the Employer as defined in the Plan and amounts transferred from other qualified retirement plans from time to time in accordance with the terms of the Plan. All such property and contributions, together with income thereon and increments thereto, shall constitute the “Trust Fund” to be held in accordance with the terms of the Trust Agreement.

1.3 Incorporation of Plan An instrument entitled “Newport Federal Savings Bank Employee Stock Ownership Plan” is incorporated herein by reference, and this Trust Agreement shall be interpreted consistently with that Plan. All words and phrases defined in that Plan shall have the same meaning when used in this Trust Agreement.

1.4 Name The name of this trust shall be “Newport Federal Savings Bank Employee Stock Ownership Plan Trust.”

1.5 Nondiversion of Assets In no event shall any part of the corpus or income of the Trust Fund be used for, or diverted to, purposes other than for the exclusive benefit of the Participants and their Beneficiaries prior to the satisfaction of all liabilities under the Plan, except to the extent that assets may be returned to the Employer in accordance with the Plan where the Plan fails to qualify initially under Section 401(a) of the Internal Revenue Code (the “Code”), or

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where they are attributable to contributions made by mistake of fact or in excess of the deductibility allowed under the Code.

Section 2. Investment of Trust Fund and Administrative Powers of the Trustee

2.1 Newport Bancorp, Inc. Stock and Other Investments The basic investment policy of the Plan shall be to invest primarily in Newport Bancorp, Inc. Stock for the exclusive benefit of the Participants and their Beneficiaries. The Committee shall have full and complete investment authority and responsibility with respect to the purchase, retention, sale, exchange, and pledge of Newport Bancorp, Inc. Stock and the payment of Stock Obligations, and the Trustee shall not deal in any way with Newport Bancorp, Inc. Stock except in accordance with their obligations pursuant to this Trust Agreement and the written instructions of the Committee. The Trustee shall invest, or keep invested, all or a portion of the Trust Fund in Newport Bancorp, Inc. Stock, and shall pay Stock Obligations out of assets of the Trust Fund, as instructed from time to time by the Committee. The Trustee shall invest any balance of the Trust Fund (the “Investment Fund”) in such other property as the Committee, in its sole discretion, shall deem advisable, subject to any delegation of such investment responsibility pursuant to Section 2.2. Nothing contained herein shall provide investment discretion authority or any like kind responsibility in regard to the assets of the Trust Fund.

In connection with instructions to acquire Newport Bancorp, Inc. Stock, the Trustee may purchase newly issued or outstanding Newport Bancorp, Inc. Stock from the Employer or any other holders of Newport Bancorp, Inc. Stock, including Participants, Beneficiaries, and Plan fiduciaries. All purchases and sales of Stock shall be made by the Trustee at fair market value as determined by the Committee in good faith and in accordance with any applicable requirements under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). Such purchases may be made with assets of the Trust Fund, with funds borrowed for this purpose (with or without guarantees of repayment to the lender by the Employer), or by any combination of the foregoing.

Notwithstanding any other provision of this Trust Agreement or the Plan, neither the Committee nor the Trustee shall make any purchase, sale, exchange, investment, pledge, valuation, or loan, or take any other action involving those assets for which they are responsible which (i) is inconsistent with the policy of the Plan and Trust, (ii) is inconsistent with the prudence and diversification requirements set forth in Sections 404(a)(1)(B) and (C) of ERISA (to the extent such requirements apply to an employee stock ownership plan and trust), (iii) is prohibited by Section 406 or 407 of ERISA, or (iv) would impair the qualification of the Plan or the exemption of the Trust under Sections 401 and 501, respectively, of the Code.

2.2 Delegation of Investment Responsibility The Committee may, by written notice and in accordance with the Plan, direct the Trustee to segregate any portion or all of the Investment Fund into one or more separate accounts for each of which full investment responsibility will be delegated to an investment manager appointed in such notice pursuant to Section 402(c)(3) of ERISA (hereinafter a “Manager”). For any separate account where the Trustee is to maintain custody of the assets, the Trustee and the Manager shall agree upon procedures for the transmittal of investment instructions from the Manager to the Trustee, and

2

the Trustee may provide the Manager with such documents as may be necessary to authorize the Manager to effect transactions directly on behalf of the segregated account.

Further, the Committee may, by written notice and in accordance with the Plan, direct the Trustee to segregate any portion or all of the Investment Fund into one or more separate accounts for each of which full investment responsibility will be delegated to an insurance company through one or more group annuity contracts, deposit administration contracts, or similar contracts, which may provide for investments in any commingled separate accounts established under such contracts. An insurance company shall be a Manager with respect to any amounts held under such a contract except to the extent the insurer’s assets are not deemed assets of the Plan and Trust Fund pursuant to Section 401(b)(2) of ERISA. The allocation of amounts held under such a contract among the insurer’s general account and one or more individual or commingled separate accounts shall be determined by the Committee except as otherwise agreed by the Committee and the insurer.

Any Manager shall have all of the powers given to the Trustee pursuant to Section 2.3 with respect to the portion of the Trust Fund committed to its investment discretion and control. The Trustee shall be responsible for the safekeeping of any assets which remain in their custody, but in no event shall the Trustee be under any duty to question or make any inquiry or suggestion regarding the action or inaction of a Manager or an insurer or the advisability of acquiring, retaining, or disposing of any asset of a segregated account. The Employer shall indemnify and hold the Trustee harmless from any and all costs, damages, expenses, and liabilities which the Trustee may incur by reason of any action taken or omitted to be taken by the Trustee upon directions from the Committee, a Manager, or an insurer pursuant to this Section 2.2.

2.3 Trustee Powers In addition to and not by way of limitation upon the fiduciary powers granted to it by law, the Trustee shall have the following specific powers, subject to the limitations set forth in Section 2.1:

2.3-1 to receive, hold, manage, invest and reinvest the money or other property which constitutes the Trust Fund, without distinction between principal and income;

2.3-2 to hold funds uninvested temporarily, provided it is a period of time that is not unreasonable, without liability for interest thereon, and to deposit funds in one or more savings or similar accounts with any banks and savings and loan associations which are insured by an instrumentality of the federal government, including the Trustee if it is such an institution;

2.3-3 at the direction of the Committee, to invest or reinvest the whole or any portion of the money or other property which constitutes the Trust Fund in such common or preferred stocks, investment trust shares, mutual funds, commingled trust funds, partnership interests, bonds, notes, or other evidences of indebtedness, and real and personal property as the Trustee in their absolute judgment and discretion may deem to be for the best interests of the Trust Fund, regardless of nondiversification to the extent that such nondiversification is clearly prudent, and regardless of whether any such investment or property is authorized by law regarding the investment of trust funds, of a wasting asset nature, temporarily nonincome producing, or within or without the United States;

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2.3-4 to invest in common and preferred stocks, bonds, notes, or other obligations of any corporation or business enterprise in which an Employer or its owners may own an interest;

2.3-5 at the direction of the Committee, to exchange any investment or property, real or personal, for other investments or properties at such time and upon such terms as the Trustee shall deem proper;

2.3-6 at the direction of the Committee, to sell, transfer, convey or otherwise dispose of any investment or property, real or personal, for cash or on credit, in such manner and upon such terms and conditions as the Trustee shall deem advisable, and no person dealing with the Trustee shall be under any duty to inquire as to the validity, expediency, or propriety of any such sale or as to the application of the purchase money paid to the Trustee;

2.3-7 to hold any investment or property in the name of the Trustee, with or without the designation of any fiduciary capacity, or in the name of a nominee, or unregistered, or in such other form that title may pass by delivery; provided, however, that the Trustee’s records always show that such investment or property belongs to the Trust Fund and the Trustee shall not be relieved hereby of its responsibility to maintain safe custody of such investment or property;

2.3-8 to organize one or more corporations to hold, manage, or liquidate any property, including real estate, owned or acquired by the Trust Fund if in the sole discretion of the Trustee the organization of such corporation or corporations is for the best interests of the Trust and the Plan Participants and Beneficiaries;

2.3-9 to extend the time for payment of, to modify, to renew, or to release security from any mortgage, note or other evidence of indebtedness, or to take advantage of or waive any default; to foreclose mortgages and bid on property under foreclosure or to take title to property by conveyance in lieu of foreclosure, either with or without the payment of additional consideration;

2.3-10 to vote in person or by proxy all stocks and other securities having voting privileges; to exercise or refrain from exercising any option or privilege with respect to stocks and other securities, including any right or privilege to subscribe for or otherwise to acquire stocks and other securities; or to sell any such right or privilege; to assent to and join in any plan of refinance, merger, consolidation, reorganization or liquidation of any corporation or other enterprise in which this Trust may have an interest, to deposit stocks and other securities with any committee formed to effectuate the same, to pay any expense incidental thereto, to exchange stocks and other securities for those which may be issued pursuant to any such plan, and to retain as an investment the stocks and other securities received by the Trustee; and to deposit any investment in a voting trust; notwithstanding the preceding, Participants and Beneficiaries shall be entitled to direct the manner in which stock allocated to their respective accounts are to be voted on all matters. All stock which has been allocated to Participants’ Accounts for which the Trustee has received no written direction and all unallocated Employer securities will be voted by the Trustee in direct proportion to any Participant’s directions received and solely in the interest of the Participants and Beneficiaries. Whenever such voting rights are to be exercised,

4

the Employer, the Committee and the Trustee shall see that all Participants and Beneficiaries are provided with adequate opportunity to deliver their instructions to the Trustee regarding voting of stock allocated to their accounts. The instructions of the Participants with respect to the voting of allocated shares hereunder shall be confidential;

2.3-11 to abandon any property, real or personal, which the Trustee shall consider to be worthless or not of sufficient value to warrant its keeping or protecting; to abstain from the payment of taxes, water rents, assessments, repairs, maintenance, and upkeep of any such property; to permit any such property to be lost by tax sale or other proceedings, and to convey any such property for a nominal consideration or without consideration;

2.3-12 to borrow money from the Employer or from others (including the Trustee), and to enter into installment contracts, for the purchase of Stock upon such terms and conditions and at such reasonable rates of interest as the Committee may deem to be advisable, to issue its promissory notes as Trustee to evidence such debt, to secure the payment of such notes by pledging any property of the Trust Fund, and to authorize the holders of any such notes to pledge them to secure obligations of the holders and in connection therewith to repledge any assets of the Trust as security therefor; provided that, with respect to any extension of credit to the Trust involving, as a lender or guarantor, the Employer or other “disqualified person” within the meaning of Section 4975(e)(2) of the Code —

(a) each loan or installment contract is primarily for the benefit of Participants and Beneficiaries of the Plan;

(b) any interest on a loan or installment contract does not exceed a reasonable rate;

(c) the proceeds of any loan shall be used only to acquire Stock, to repay the loan, or to repay a previous loan meeting these conditions, and the subject of any installment contract shall be only the Trust’s purchase of Stock;

(d) any collateral pledged to a creditor by the Trustee shall consist only of qualifying employer securities as that term is defined under Section 4975(e)(8) of the Code and the creditor shall have no recourse against the Trust Fund except with respect to the collateral (although the creditor may have recourse against an Employer as guarantor);

(e) payments with respect to a loan or installment contract shall be made only from those amounts contributed by the Employer to the Trust Fund, from amounts earned on such contributions, and from cash dividends received on unallocated Stock held by the Trust as collateral for such an obligation; and

(f) upon the payment of any portion of balance due on a loan or upon any installment payment, a proportionate part of any qualified employer securities originally pledged as collateral for such indebtedness shall be released from encumbrance in accordance with Section 4.2 of the Plan and the Committee shall at least annually advise the Trustee of the number of shares of Stock so released and the proper allocation of such shares under the terms of the Plan;

2.3-13 to manage and operate any real property which shall at any time constitute an asset of the Trust Fund; to make repairs, alterations, and improvements thereto; to insure such property against loss by fire or other casualty; to lease or grant options for the sale of such

5

property, which lease or option may be for a period of time which may extend beyond the life of this Trust; and to take any other action or enter into any other contract respecting such property which is consistent with the best interests of the Trust;

2.3-14 to pay any and all reasonable and normal expenses incurred in connection with the exercise of any power, right, authority or discretion granted herein, and, upon prior notice to the Company, to employ and compensate agents, investment counsel, custodians, actuaries, attorneys, and accountants in such connection;

2.3-15 to employ and consult with any legal counsel, who also may be counsel to an Employer or the Administrator, with respect to the meaning or construction of this Trust Agreement, the extent of the Trustee’s obligations and duties hereunder, and whether the Trustee should take or decline to take a particular action hereunder, and the Trustee shall be fully protected with respect to any action taken or omitted by such Trustee in good faith pursuant to such advice;

2.3-16 to defend any action or proceeding instituted against the Trust Fund, to institute any action on behalf of the Trust Fund, and to compromise or submit to arbitration any dispute concerning the Trust Fund;

2.3-17 to make, execute, acknowledge and deliver any and all documents of transfer and conveyance and any and all other instruments that may be necessary or appropriate to carry out the powers herein granted;

2.3-18 to commingle the Trust Fund created pursuant hereto, in whole or in part, in a single trust with all or any portion of any other trust fund, assigning an undivided interest to each such commingled trust fund, provided that such commingled trust is itself exempt from taxation pursuant to Section 501(a) of the Code, or its successor Section; and provided further that the trust agreement governing such commingled trust shall be deemed incorporated by reference in the Plan;

2.3-19 where two or more trusts governed by this Trust Agreement have an undivided interest in any property, to credit the income from such property to such trusts in proportion to their undivided interests, and when non pro rata distributions of property or money are made from such trusts, to make appropriate adjustments to the undivided fractional interests of such trusts;

2.3-20 to invest all or any portion of the Trust Fund in one or more group annuity contracts, deposit administration contracts, and other such contracts with insurance companies, including any commingled separate accounts established under such contracts;

2.3-21 generally, with respect to all cash, stocks and other securities, and property, both real and personal, received or held in the Trust Fund by the Trustee, to exercise all the same rights and powers as are or may be lawfully exercised by persons owning cash, or stocks and other securities, or such property in their own right; and to do all other acts, whether or not

6

expressly authorized, which it may deem necessary or proper for the protection of the Trust Fund; and

2.3-22 whenever more than two persons shall qualify to act as co-Trustee, to exercise and perform every power (including discretionary powers), authority or duty by the concurrence of a majority of them the same effect as if all had joined therein, except that the unanimous vote of such persons shall be necessary to determine the number (one or more) and identity of persons who may sign checks, make withdrawals from financial institutions, have access to safe deposit boxes, or direct the sale of trust assets and the disposition of the proceeds.

2.4 Brokerage If permitted in writing by the Committee the Trustee shall have the power and authority, to be exercised in their sole discretion at any time and from time to time, to issue and place orders for the purchase or sale of securities with qualified brokers and dealers. Such orders may be placed with such qualified brokers and/or dealers who also provide investment information or other research or statistical services to the Trustee in its capacity as a fiduciary or investment manager for other clients.

Section 3. Compensation and Indemnification of Trustee and Payment of Expenses and Taxes

3.1 Fees and Expenses from Fund In consideration for rendering services pursuant to this Trust Agreement the Trustee shall be paid fees in accordance with the Trustee’s fee schedule as in effect from time to time. Fee changes resulting in fee increases shall be effective upon not less than 30 days’ notice to the Company. In addition, the Trustee shall be reimbursed for any reasonable expenses, including reasonable attorneys’ fees, incurred in the administration of the Trust created hereby. Fees and expenses shall be allocated to Participants’ Accounts, if any, unless paid directly by the Employer. All compensation and expenses of the Trustee shall be paid out of the Trust Fund or by the Employer as specified in the Plan. If and to the extent the Trust Fund shall not be sufficient, such compensation and expenses shall be paid by the Employer upon demand. If payment is due but not paid by the Employer, such amount shall be paid from the assets of the Trust Fund. The Trustee is hereby empowered to withdraw all such compensation and expenses which are 60 days past due from the Trust Fund, and, in furtherance thereof, liquidate any assets of the Trust Fund, without further authorization or direction from or by any person. Notwithstanding the foregoing, in the event any officer or director of Equitable Bank serves as trustee of the Plan, no compensation shall be paid to the officer or director in exchange for his or her services as trustee.

3.2 Indemnification Notwithstanding any other provision of this Trust Agreement, any individual designated as a trustee hereunder shall be indemnified and held harmless by the Employer to the fullest extent permitted by law against any and all costs, damages, expenses and liabilities including, but not limited to attorneys’ fees and disbursements reasonably incurred by or imposed upon such individual in connection with any claim made against him or in which he may be involved by reason of his being, or having been, a trustee hereunder, to the extent such amounts are not satisfied by insurance maintained by the Employer, except liability which is adjudicated to have resulted from the gross negligence or willful misconduct of the Trustee by reason of any action so taken. Further, any corporate trustee and its officers, directors and agents

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may be indemnified and held harmless by the Employer to the fullest extent permitted by law against any and all costs, damages, expenses and liabilities including, but not limited to, attorneys’ fees and disbursements reasonably incurred by or imposed upon such persons and/or corporation in connection with any claim made against it or them or in which such persons and/or corporation may be involved by reason of its being, or having been, a trustee hereunder as may be agreed between the Employer and such trustee, except liability which is adjudicated to have resulted from the gross negligence or willful misconduct of the Trustee by reason of any action so taken.

3.3 Expenses All expenses of administering the Trust and the Plan, whether incurred by the Trustee or the Committee, shall be paid by the Trustee from the Trust Fund to the extent such expenses shall not have been assumed by the Employer.

3.4 Taxes All taxes that may be levied or assessed upon or in respect of the Trust Fund shall be paid from the Trust Fund. The Trustee shall notify the Committee of any proposed or final assessments of taxes and may assume that any such taxes are lawfully levied or assessed unless the Committee advises it in writing to the contrary within fifteen days after receiving the above notice from the Trustee. In such case, the Trustee, if requested by the Committee in writing, shall contest the validity of such taxes in any manner deemed appropriate by the Committee; the Employer may itself contest the validity of any such taxes, in which case the Committee shall so notify the Trustee and the Trustee shall have no responsibility or liability respecting such contest. If either party to this Agreement contests any such proposed levy or assessments, the other party shall provide such information and cooperation as the party conducting the contest shall reasonably request.

Section 4. Records and Valuation

4.1 Records The Trustee, and any investment manager appointed pursuant to Section 2.2, shall maintain accurate and detailed records and accounts of all investments, receipts, disbursements and other transactions made by it with respect to the Trust Fund, and all accounts, books and records relating thereto shall be open at all reasonable time to inspection and audit by the Committee and the Employer.

4.2 Valuation From time to time upon the request of the Committee, but at least annually as of the last day of each Plan Year, the Trustee shall prepare a balance sheet of the Investment Fund in accordance with the Plan and shall deliver copies of the balance sheet to the Committee and the Employer.

4.3 Discharge of Trustee Ninety days after the filing of any balance sheet under Section 4.2 or any accounting under Section 6, the Trustee shall be forever released and discharged from any liability or accountability other than for gross negligence or wilful misconduct on the part of the Trustee to anyone with respect to the transactions shown or reflected in such balance sheet or accounting, except with respect to any acts or transactions as to which the Committee, within such ninety-day period, files written objections with the Trustee. The written approval of the Committee of any balance sheet or accounting so filed by the Trustee, or the Committee’s failure to file written objections within ninety days, shall be a

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settlement of such balance sheet or accounting as against all persons, and shall forever release and discharge the Trustee from any liability of accountability to anyone with respect to the transactions shown or reflected in such balance sheet or accounting other than liability arising out of the Trustee’s gross negligence or wilful misconduct. If a statement of objections is filed by the Committee and the Committee is satisfied that its objections should be withdrawn or if the balance sheet or accounting is adjusted to its satisfaction, the Committee shall indicate its approval of the balance sheet or accounting in a written statement filed with the Trustee and the Trustee shall be forever released and discharged from any liability of accountability to anyone in accordance with the immediately preceding sentence. If an objection is not settled by the Committee and the Trustee, the Trustee may start a proceeding for a judicial settlement of the balance sheet or accounting in any court of competent jurisdictions; the only parties that need be joined in such a proceeding are the Trustee, the Committee, the Employer and any other parties whose participation is required by law.

4.4 Right to Judicial Settlement Nothing in this Agreement shall prevent the Trustee from having its account settled by a court of competent jurisdiction at any time. The only parties that need be joined in any such proceeding are the Employer, the Committee, the Trustee and any other parties whose participation is required by law.

Section 5. Instructions from Committee.

5.1 Certification of Members of the Committee. From time to time the Company shall certify to the Trustee in writing the names of the individuals comprising the Committee and shall furnish to the Trustee specimens of their signatures and the signatures of their agents, if any. The Trustee shall be entitled to presume that the identities of such individuals and their agents are unchanged until it receives a certification from the Company notifying it of any changes.

5.2 Instructions to Trustee.

(a) The Trustee shall pay benefits and administrative expenses under the Plan only when it receives (and in accordance with) written instructions of the Committee indicating the amount of the payment and the name and address of the recipient in accordance with the terms of the Plan. The Trustee need not inquire into whether any payment the Committee instructs the Trustee to make is consistent with the terms of the Plan or applicable law or otherwise proper. Any payment made by the Trustee in accordance with such instructions shall be a complete discharge and acquaintance to the Trustee. If the Committee advises the Trustee that benefits have become payable with respect to a Participant’s interest in the Trust Fund but does not instruct the Trustee as to the manner of payment, the Trustee shall hold the Participant’s interest in the Trust until the Trustee receives written instructions from the Committee as to the manner of payment. The Trustee shall not pay benefits from the Trust Fund without such instructions, even though it may be informed from other sources, including, without limitation, a Participant or Beneficiary, that benefits are payable under the Plan. The Trustee shall have no responsibility to determine when, to whom or in what amount benefits and expenses are payable under the Plan. Further, the Trustee shall have no power, authority or duty to interpret the Plan or inquire into the decisions or determinations of the Committee, or to question the instructions given to it

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by the Committee. If the Committee so directs, the Trustee shall segregate amounts payable with respect to the interest in the Plan of any Participant and administer them separately from the rest of the Trust Fund in accordance with the Committee’s instructions.

(b) The Trustee may require the Committee to certify in writing that any payment of benefits or expenses it instructs the Trustee to make pursuant to Section 5.2(a) above is: (i) in accordance with the terms of the Plan and/or (ii) one which the Committee is authorized by the Plan and any other applicable instruments to direct and/or (iii) made for the exclusive purpose of providing benefits to Participants and Beneficiaries, or defraying reasonable expenses of Plan administration and/or (iv) not made to a party in interest (within the meaning of ERISA Section 3(14)), and/or (v) not a prohibited transaction (within the meaning of Code Section 4975 and ERISA Section 406). If the Trustee requests, instructions to pay benefits shall be made by the Committee on forms prepared by the Trustee to include any or all of the above representations. The Trustee shall be fully protected in relying on the truth of any such representation by the Committee and shall have no duty to investigate whether such representations are correct or to see to the application of any amounts paid to and received by the recipient.

5.3 Plan Change In the event of an amendment, merger, division, or termination of the Plan, the Trustee shall continue to disburse funds and to take other proper actions in accordance with the instructions of the Committee.

Section 6. Change of Trustee

The Company may at any time remove any person or entity serving as a Trustee hereunder by giving to such person or entity written notice of removal and, if applicable, the name and address of the successor trustee. Any person or entity serving as a Trustee hereunder may resign at any time by giving written notice to the Company. Any such removal or resignation shall take effect within 30 days after notice has been given by the Trustee or by the Company, as the case may be. Within those 30 days, the removed or resigned Trustee shall transfer, pay over and deliver any portion of the Trust Fund in its possession or control (less an appropriate reserve for any unpaid fees, expenses, and liabilities) and all pertinent records to the successor or remaining trustee; provided, however, that any assets which are invested in a collective fund or in some other manner which prevents their immediate transfer shall be transferred and delivered to the successor trustee as soon as may be practicable. Thereafter, the removed or resigned Trustee shall have no liability for the Trust Fund or for its administration by the successor or remaining trustee, but shall render an accounting to the Committee of its administration of the Trust Fund through the date on which its Trusteeship shall have been terminated. The Company may also, upon 30 days’ notice to each person currently serving as a trustee, appoint one or more persons to serve as co-Trustee hereunder.

Section 7. Miscellaneous

7.1 Right to Amend This Trust Agreement may be amended from time to time by an instrument executed by the Company; provided, however, that any amendment affecting the powers, duties or liabilities of the Trustee must be approved by the Trustee, and provided, further, that no amendment may divert any portion of the Trust Fund to purposes other than the

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exclusive benefit of the Participants and their Beneficiaries prior to the satisfaction of all liabilities for benefits. Any amendment shall apply to the Trust Fund as constituted at the time of the amendment as well as to that portion of the Trust Fund which is subsequently acquired.

7.2 Compliance with ERISA In the exercise of its powers and the performance of its duties, the Trustee shall act in good faith and in accordance with the applicable requirements under ERISA. Except as may be otherwise required by ERISA, the Trustee shall not be required to furnish any bond in any jurisdiction for the performance of their duties and, if a bond is required despite this provision, no surety shall be required on it.

7.3 Nonresponsibility for Funding The Trustee shall be under no duty to enforce the payment of any contributions and shall not be responsible for the adequacy of the Trust Fund to satisfy any obligations for benefits, expenses, and liabilities under the Plan.

7.4 Reports The Trustees shall file any report which they are required by law to file with any governmental authority with respect to this Trust, and the Committee shall furnish to the Trustee whatever information is necessary to prepare the report.

7.5 Dealings with the Trustee Persons dealing with the Trustee, including, but not limited to, banks, brokers, dealers, and insurers, shall be under no obligation to inquire concerning the validity of anything which the Trustee purports to do, nor need any person see to the proper application of any money paid or any property transferred upon the order of the Trustee or to inquire into the Trustee’s authority as to any transaction.

7.6 Limitation Upon Responsibilities The Trustee shall have no responsibilities with respect to the Plan or Trust other than those specifically enumerated or explicitly allocated to it under this Trust Agreement or the provisions of ERISA. All other responsibilities are retained and shall be performed by one or more of the Employer, the Committee, and such advisors or agents as they choose to engage.

The Trustee may execute any of the trusts or powers hereof and perform any of its duties by or through attorneys, agents, receivers or employees and shall not be answerable for the conduct of the same if chosen with reasonable care and shall be entitled to advice of counsel concerning all matters of trust hereof and the duties hereunder, and may in all cases pay such reasonable compensation to all such attorneys, agents, receivers and employees as may reasonably be employed in connection with the trusts hereof. The Trustee may act upon the opinion or advice of any attorney (who may be the attorney for the Trustee or attorney for the Committee), approved by the Trustee in the exercise of reasonable care. The Trustee shall not be responsible for any loss or damage resulting from any action or non-action in good faith in reliance upon such opinion or advice.

The Trustee shall be protected in acting upon any notice, request, consent, certificate, order, affidavit, letter, telegram or other paper or document believed to be genuine and correct and to have been signed or sent by the proper person or persons, and the Trustee shall be under no duty to make any investigation or inquiry as to any statement contained in any such writing

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but may accept the same as conclusive evidence of the truth and accuracy of the statements therein contained.

The Trustee shall not be liable for other than their gross negligence or willful misconduct. Except in the case of gross negligence or wilful misconduct on the part of the Trustee, the Trustee in its corporate capacity shall not be liable for claims of any persons in any manner regarding the Plan; such claims shall be limited to the Trust Fund. Unless the Trustee participates knowingly in, or knowingly undertakes to conceal, an act or omission of the Committee or any other fiduciary, knowing such act or omission to be a breach of fiduciary responsibility, the Trustee shall be under no liability for any loss of any kind which may result by reason of such act or omission.

Before taking any action hereunder at the request or direction of the Committee, the Trustee may require that indemnity in form and amount satisfactory to the Trustee be furnished for the reimbursement of any and all costs and expenses to which they may be put including, without limitation, reasonable attorneys’ fees and to protect them against all liability, except liability which is adjudicated to have resulted from the gross negligence or willful misconduct of the Trustee by reason of any action so taken.

No provision of this Trust Agreement shall require the Trustee to expend or risk their own funds or otherwise incur any financial liability in the performance of any of their duties hereunder, or in the exercise of any of their rights or powers, if they shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to them.

7.7 Qualification of the Plan and Trust The Trustee shall be fully protected in assuming that the Plan and Trust meet the requirements of Code Sections 401 and 501, respectively, and all the applicable provisions of ERISA, unless they are advised to the contrary in writing by the Committee or a governmental agency.

7.8 Party in Interest Information The Employer shall provide the Trustee with such information concerning the relationship between any person or organization and the Plan as the Trustee reasonably requests in order to determine whether such person or organization is a party in interest with respect to the Plan within the meaning of ERISA Section 3(14).

7.9 Disputes If a dispute arises as to the payment of any funds or delivery of any assets by the Trustee, the Trustee may withhold such payment or delivery until the dispute is determined by a court of competent jurisdiction or finally settled in writing by the parties concerned.

7.10 Successor Trustee This Trust Agreement shall apply to any person who shall be appointed to succeed the person currently appointed as the Trustee; and any reference herein to the Trustee shall be deemed to include any one or more individuals or corporations or any combination thereof who or which have at any time acted as a co-trustee or as the sole trustee.

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7.11 Governing State Law This Trust Agreement shall be interpreted in accordance with the laws of the State of Rhode Island to the extent those laws may be applicable under the provisions of ERISA.

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

ATTEST:	NEWPORT FEDERAL SAVINGS BANK
	By:
ATTEST:
	as TRUSTEE
	By:

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EX-10.3

Exhibit 10.3

FORM OF

LOAN AGREEMENT

THIS LOAN AGREEMENT (“Loan Agreement”) is made and entered into as of the ___ day of _____________________, 200_, by and between the NEWPORT FEDERAL SAVINGS BANK EMPLOYEE STOCK OWNERSHIP PLAN TRUST (“Borrower”), a trust forming part of the Newport Federal Savings Bank Employee Stock Ownership Plan (“ESOP”); and [_________________] (“Lender”), a corporation organized and existing under the laws of _______________.

WITNESSETH

WHEREAS, the Borrower is authorized to purchase shares of common stock of____________________(“Common Stock”), either directly from ________________________ or in open market purchases in an amount not to exceed [______________________].

WHEREAS, the Borrower is authorized to borrow funds from the Lender for the purpose of financing authorized purchases of Common Stock; and

WHEREAS, the Lender is willing to make a loan to the Borrower for such purpose:

NOW, THEREFORE, the parties agree hereto as follows:

ARTICLE I

DEFINITIONS

The following definitions shall apply for purposes of this Loan Agreement, except to the extent that a different meaning is plainly indicated by the context:

Business Day means any day other than a Saturday, Sunday or other day on which banks are authorized or required to close under federal or local law.

Code means the Internal Revenue Code of 1986 (including the corresponding provisions of any succeeding law).

Default means an event or condition which would constitute an Event of Default. The determination as to whether an event or condition would constitute an Event of Default shall be determined without regard to any applicable requirements of notice or lapse of time.

ERISA means the Employee Retirement Income Security Act of 1974, as amended (including the corresponding provisions of any succeeding law).

Event of Default means an event or condition described in Article 5.

Loan means the loan described in section 2.1

Loan Documents means, collectively, the Loan Agreement, the Promissory Note and the Pledge Agreement and all other documents now or hereafter executed and delivered in connection with such documents, including all amendments, modifications and supplements of or to all such documents.

Pledge Agreement means the agreement described in section 2.8(a).

Principal Amount means the face amount of the Promissory Note, determined as set forth in section 2.1(c).

Promissory Note means the promissory note described in section 2.3.

Register means the register described in section 2.9.

ARTICLE II

THE LOAN; PRINCIPAL AMOUNT;

INTEREST; SECURITY; INDEMNIFICATION

Section 2.1 The Loan; Principal Amount.

(a) The Lender hereby agrees to lend to the Borrower such amount, and at such time, as shall be determined under this Section 2.1; provided, however, that in no event shall the aggregate amount lent under this Loan Agreement from time to time exceed the greater of (i) [$___________] or (ii) the aggregate amount paid by the Borrower to purchase up to [_______________] shares of Common Stock.

(b) Subject to the limitations of Section 2.1(a), the Borrower shall determine the amounts borrowed under this Agreement, and the time at which such borrowings are effected. Each such determination shall be evidenced in a writing which shall set forth the amount to be borrowed and the date on which the Lender shall disburse such amount, and such writing shall be furnished to the Lender by notice from the Borrower. The Lender shall disburse to the Borrower the amount specified in each such notice on the date specified therein or, if later, as promptly as practicable following the Lender’s receipt of such notice; provided, however, that the Lender shall have no obligation to disburse funds pursuant to this Agreement following the occurrence of a Default or an Event of Default until such time as such Default or Event of Default shall have been cured.

(c) For all purposes of this Loan Agreement, the Principal Amount on any date shall be equal to the excess, if any, of:

(i) the aggregate amount disbursed by the Lender pursuant to section 2.1(b) on or before such date; over

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(ii) the aggregate amount of any repayments of such amounts made before such date.

The Lender shall maintain on the Register a record of, and shall record in the Promissory Note, the Principal Amount, any changes in the Principal Amount and the effective date of any changes in the Principal Amount.

Section 2.2 Interest.

(a) The Borrower shall pay to the Lender interest on the Principal Amount, for the period commencing with the first disbursement of funds under this Loan Agreement and continuing until the Principal Amount shall be paid in full, at the rate of [___________________] percent (____%) per annum. Interest payable under this Agreement shall be computed on the basis of a year of 365 days and actual days elapsed (including the first day but excluding the last) occurring during the period to which the computation relates, unless otherwise specified in the amortization schedule.

(b) Accrued interest on the Principal Amount shall be payable by the Borrower on the dates set forth in Schedule I to the Promissory Note. All interest on the Principal Amount shall be paid by the Borrower in immediately available funds.

(c) Anything in the Loan Agreement or the Promissory Note to the contrary notwithstanding, the obligation of the Borrower to make payments of interest shall be subject to the limitation that payments of interest shall not be required to be made to the Lender to the extent that the Lender’s receipt thereof would not be permissible under the law or laws applicable to the Lender limiting rates of interest which may be charged or collected by the Lender. Any such payment referred to in the preceding sentence shall be made by the Borrower to the Lender on the earliest interest payment date or dates on which the receipt thereof would be permissible under the laws applicable to the Lender limiting rates of interest which may be charged or collected by the Lender. Such deferred interest shall not bear interest.

Section 2.3 Promissory Note.

The Loan shall be evidenced by the Promissory Note of the Borrower attached hereto

Section 2.4 Payment of Trust Loan.

The Principal Amount of the Loan shall be repaid in accordance with Schedule I to the Promissory Note on the dates specified therein until fully paid.

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Section 2.5 Prepayment.

The Borrower shall be entitled to prepay the Loan in whole or in part, at any time and from time to time; provided, however, that the Borrower shall give notice to the Lender of any such prepayment; and provided, further, that any partial prepayment of the Loan shall be in an amount not less than $1,000. Any such prepayment shall be: (a) permanent and irrevocable; (b) accompanied by all accrued interest through the date of such prepayment; (c) made without premium or penalty; and (d) applied on the inverse order of the maturity of the installment thereof unless the Lender and the Borrower agree to apply such prepayments in some other order.

Section 2.6 Method of Payments.

(a) All payments of principal, interest, other charges (including indemnities) and other amounts payable by the Borrower hereunder shall be made in lawful money of the United States, in immediately available funds, to the Lender at the address specified in or pursuant to this Loan Agreement for notices to the Lender, on the date on which such payment shall become due. Any such payment made on such date but after such time shall, if the amount paid bears interest, and except as expressly provided to the contrary herein, be deemed to have been made on, and interest shall continue to accrue and be payable thereon until, the next succeeding Business Day. If any payment of principal or interest becomes due on a day other than a Business Day, such payment may be made on the next succeeding Business Day, and when paid, such payment shall include interest to the day on which payment is in fact made.

(b) Notwithstanding anything to the contrary contained in this Loan Agreement or the Promissory Note, the Borrower shall not be obligated to make any payment, repayment or prepayment on the Promissory Note if doing so would cause the ESOP to cease to be an employee stock ownership plan within the meaning of section 4975(e)(7) of the Code or qualified under section 401(a) of the Code or cause the Borrower to cease to be a tax exempt trust under section 501(a) of the Code or if such act or failure to act would cause the Borrower to engage in any “prohibited transaction” as such term is defined in the section 4975(c) of the Code and the regulations promulgated thereunder which is not exempted by section 4975(c)(2) or (d) of the Code and the regulations promulgated thereunder or in section 406 of ERISA and the regulations promulgated thereunder which is not exempted by section 408(b) of ERISA and the regulations promulgated thereunder; provided, however, that in each case, the Borrower, may act or refrain from acting pursuant to this section 2.6(b) on the basis of an opinion of counsel, and any opinion of such counsel. The Borrower may consult with counsel, and any opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by it hereunder in good faith and in accordance with such opinion of counsel. Nothing contained in this section 2.6(b) shall be construed as imposing a duty on the Borrower to consult with counsel. Any obligation of the Borrower to make any payment, repayment or prepayment on the Promissory Note or refrain from taking any other act hereunder or under the Promissory Note which is excused pursuant to this section 2.6(b) shall be considered a binding obligation of the Borrower, or both, as the case may be, for the purposes of determining whether a Default or Event of Default has occurred hereunder or

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under the Promissory Note and nothing in this section 2.6(b) shall be construed as providing a defense to any remedies otherwise available upon a Default or an Event of Default hereunder (other than the remedy of specific performance).

Section 2.7 Use of Proceeds of Loan.

The entire proceeds of the Loan shall be used solely for acquiring shares of Common Stock, and for no other purpose whatsoever.

Section 2.8 Security.

(a) In order to secure the due payment and performance by the Borrower of all of its obligations under this Loan Agreement, simultaneously with the execution and delivery of this Loan Agreement by the Borrower, the Borrower shall:

(i) pledge to the Lender as Collateral (as defined in the Pledge Agreement), and grant to the Lender a first priority lien on and security interest in, the Common Stock purchased with the Principal Amount, by the execution and delivery to the lender of the Pledge Agreement attached hereto as an exhibit; and

(ii) execute and deliver, or cause to be executed and delivered, such other agreement, instruments and documents as the Lender may reasonably require in order to effect the purposes of the Pledge Agreement and this Loan Agreement.

(b) The Lender shall release from encumbrance under the Pledge Agreement and transfer to the Borrower, as of the date on which any payment or repayment of the Principal Amount is made, a number of shares of Common Stock held as Collateral determined pursuant to the applicable provisions of the ESOP.

Section 2.9 Registration of the Promissory Note.

(a) The Lender shall maintain a Register providing for the registration of the Principal Amount and any stated interest and of transfer and exchange of the Promissory Note. Transfer of the Promissory Note may be effected only by the surrender of the old instrument and either the reissuance by the Borrower of the old instrument to the new holder or the issuance by the Borrower of a new instrument to the new holder. The old Promissory Note so surrendered shall be canceled by the Lender and returned to the Borrower after such cancellation.

(b) Any new Promissory Note issued pursuant to section 2.9(a) shall carry the same rights to interest (unpaid and to accrue) carried by the Promissory Note so transferred or exchanged so that there will not be any loss or gain of interest on the note surrender. Such new Promissory Note shall be subject to all of the provisions and entitled to all of the benefits of this Agreement. Prior to due presentment for registration or transfer, the Borrower may deem and treat the registered holder of

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any Promissory Note as the holder thereof for purposes of payment and other purposes. A notation shall be made on each new Promissory Note of the amount of all payments of principal and interest theretofore paid.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE BORROWER

The Borrower hereby represents and warrants to the Lender as follows:

Section 3.1 Power, Authority, Consents.

The Borrower has the power to execute, deliver and perform this Loan Agreement, the Promissory Note and Pledge Agreement, all of which have been duly authorized by all necessary and proper corporate or other action.

Section 3.2 Due Execution, Validity, Enforceability.

Each of the Loan Documents, including, without limitation, this Loan Agreement, the Promissory Note and the Pledge Agreement, has been duly executed and delivered by the Borrower; and each constitutes the valid and legally binding obligation of the Borrower, enforceable in accordance with its terms.

Section 3.3 Properties, Priority of Liens.

The liens which have been created and granted by the Pledge Agreement constitute valid, first liens on the properties and assets covered by the Pledge Agreement, subject to no prior or equal lien.

Section 3.4 No Defaults, Compliance with Laws.

The Borrower is not in default in any material respect under any agreement, ordinance, resolution, decree, bond, note, indenture, order or judgement to which it is a party or by which it is bound, or any other agreement or other instrument by which any of the properties or assets owned by it is materially affected.

Section 3.5 Purchase of Common Stock.

Upon consummation of any purchase of Common Stock by the Borrower with the proceeds of the Loan, the Borrower shall acquire valid, legal and marketable title to all of the Common Stock so purchased, free and clear of any liens, other than a pledge to the Lender of the Common Stock so purchased pursuant to the Pledge Agreement. Neither the execution and delivery of the Loan Documents nor the performance of any obligation thereunder violates any provisions of law or conflicts with or results in a breach of or creates (with or without the giving of notice of lapse of

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time, or both) a default under any agreement to which the Borrower is a party or by which it is bound or any of its properties is affected. No consent of any federal, state, or local governmental authority, agency, or other regulatory body, the absence of which could have a materially adverse effect on the Borrower or the Trustee, is or was required to be obtained in connection with the execution, delivery, or performance of the Loan Documents and the transaction contemplated therein or in connection therewith, including without limitation, with respect to the transfer of the shares of Common Stock purchased with the proceeds of the Loan pursuant thereto.

Section 3.6 ESOP; Contributions.

As of the effective date of the ESOP sponsor’s mutual to stock conversion, the ESOP and the Borrower will be duly created, organized and maintained by the ESOP sponsor in compliance with all applicable laws, regulations and rulings. The ESOP will qualify as an “employee stock ownership plan” as defined in section 4975(e)(7) of the Code. The ESOP provides that the ESOP sponsor may make contributions to the ESOP in an amount necessary to enable the Trustee to amortize the Loan in accordance with the terms of the Promissory Note; provided, however, that no such contributions shall be required if they would adversely affect the qualification of the ESOP under section 401(a) of the Code.

Section 3.7 Trustee.

The trustees of the ESOP have been duly appointed by the ESOP sponsor.

Section 3.8 Compliance with Laws; Actions.

Neither the execution and delivery by the Borrower of this Loan Agreement or any instruments required thereby, nor compliance with the terms and provisions of any such documents by the lender, constitutes a violation of any provision of any law or any regulation, order, writ, injunction or decree or any court or governmental instrumentality, or an event of default under any agreement, to which the Borrower is a party of which the Borrower is bound or to which the Borrower is subject, which violation or event of default would have a material adverse effect on the Borrower. There is no action or proceeding pending or threatened against either the ESOP or the Borrower before any court or administrative agency.

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ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE LENDER

The Lender hereby represents and warrants to the Borrower as follows:

Section 4.1 Power, Authority, Consents.

The Lender has the power to execute, deliver and perform this Loan Agreement, the Pledge Agreement and all documents executed by the Lender in connection with the Loan, all of which have been duly authorized by all necessary and proper corporate or other action. No consent, authorization or approval or other action by any governmental authority or regulatory body, and no notice by the Lender to, or filing by the Lender with any governmental authority or regulatory body is required for the due execution, delivery and performance of this Loan Agreement.

Section 4.2 Due Execution, Validity, Enforceability.

This Loan Agreement and the Pledge Agreement have been duly executed and delivered by the Lender, and each constitutes a valid and legally binding obligation of the Lender, enforceable in accordance with its terms.

ARTICLE V

EVENTS OF DEFAULT

Section 5.1 Events of Default under Loan Agreement.

Each of the following events shall constitute an “Event of Default” hereunder:

(a) Failure to make any payment or mandatory prepayment of principal of the Promissory Note when due, or failure to make any payment of interest on the Promissory Note not later than five (5) Business Days after the date when due.

(b) Failure by the Borrower to perform or observe any term, condition or covenant of this Loan Agreement or of any of the other Loan Documents, including without limitation, the Promissory Note and the Pledge Agreement.

(c) Any representation or warranty made in writing to the Lender in any of the Loan Documents, or any certificate, statement or report made or delivered in compliance with this Loan Agreement, shall have been false or misleading in any material respect when made or delivered.

Section 5.2 Lender’s Rights upon Event of Default.

If an Event of Default under this Loan Agreement shall occur and be continuing, the Lender shall have no rights to assets of the Borrower other than: (a) contributions (other than contributions of Common Stock) that are made by the ESOP sponsor to enable the Borrower to meet its obligations pursuant to this Loan Agreement and earnings attributable to the investment of such contributions and (b) “Eligible Collateral” (as defined in the Pledge Agreement); provided, however, that; (i) the value of the Borrower’s assets transferred to the Lender following an Event of Default in satisfaction of the due and unpaid amount of the Loan shall not exceed the amount in default (without regard to amounts owing solely as a result of any acceleration of the Loan); (ii) the

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Borrower’s assets shall be transferred to the Lender following an Event of Default only to the extent of the failure of the Borrower to meet the payment schedule of the Loan; and (iii) all rights of the Lender to the Common Stock purchased with the proceeds of the Loan covered by the Pledge Agreement following an Event of Default shall be governed by the terms of the Pledge Agreement.

ARTICLE VI

Miscellaneous Provisions

Section 6.1 Payments Due to the Lender.

If any amount is payable by the Borrower to the Lender pursuant to any indemnity obligation contained herein, then the Borrower shall pay, at the time or times provided therefor, any such amount and shall indemnify the Lender against and hold it harmless from any loss of damage resulting from or arising out of the nonpayment or delay in payment of any such amount. If any amounts as to which the Borrower has so indemnified the Lender hereunder shall be assessed or levied against the Lender, the Lender may notify the Borrower and make immediate payment thereof, together with interest or penalties in connection therewith, and shall thereupon be entitled to and shall receive immediate reimbursement therefor from the Borrower together with interest on each such amount as provided in section 2.2(c). Notwithstanding any other provision contained in this Loan Agreement, the covenants and agreements of the Borrower contained in this section 6.1 shall survive: (a) payment of the Promissory Note and (b) termination of this Loan Agreement.

Section 6.2 Payments.

All payments hereunder and under the Promissory Note shall be made without set-off or counterclaim and in such amounts as may be necessary in order that all such payments shall not be less than the amounts otherwise specified to be paid under this Loan Agreement and the Promissory Note, subject to any applicable tax withholding requirements. Upon payment in full of the Promissory Note, the Lender shall mark such Promissory Note “Paid” and return it to the Borrower.

Section 6.3 Survival.

All agreements, representations and warranties made herein shall survive the delivery of this Loan Agreement and the Promissory Note.

Section 6.4 Modifications, Consents and Waivers; Entire Agreement.

No modification, amendment or waiver of or with respect to any provision of this Loan Agreement, the Promissory Note, the Pledge Agreement, or any of the other Loan Documents, nor consent to any departure from any of the terms or conditions thereof, shall in any event be effective unless it shall be in writing and signed by the party against whom enforcement thereof is sought. Any such waiver or consent shall be effective only in the specific instance and for the purpose for

9

which given. No consent to or demand on a party in any case shall, of itself, entitle it to any other or further notice or demand in similar or other circumstances. This Loan Agreement embodies the entire agreement and understanding between the Lender and the Borrower and supersedes all prior agreements and understandings relating to the subject matter hereof.

Section 6.5 Remedies Cumulative.

Each and every right granted to the Lender hereunder or under any other document delivered hereunder or in connection herewith, or allowed it by law or equity, shall be cumulative and may be exercised from time to time. No failure on the part of the Lender or the holder of the Promissory Note to exercise, and no delay in exercising, any right shall operate as a waiver thereof, nor shall any single or partial exercise of any right preclude any other or future exercise thereof or the exercise of any other right. The due payment and performance of the obligations under the Loan Documents shall be without regard to any counterclaim, right of offset or any other claim whatsoever which the Borrower may have against the Lender and without regard to any other obligation of any nature whatsoever which the Lender may have to the Borrower, and no such counterclaim or offset shall be asserted by the Borrower in any action, suit or proceeding instituted by the Lender for payment or performance of such obligations.

Section 6.6 Further Assurances; Compliance with Covenants.

At any time and from time to time, upon the request of the Lender, the Borrower shall execute, deliver and acknowledge or cause to be executed, delivered and acknowledged, such further documents and instruments and do such other acts and things as the Lender may reasonably request in order to fully effect the terms of this Loan Agreement, the Promissory Note, the Pledge Agreement, the other Loan Documents and any other agreements, instruments and documents delivered pursuant hereto or in connection with the Loan.

Section 6.7 Notices.

Except as otherwise specifically provided for herein, all notice, requests, reports and other communications pursuant to this Loan Agreement shall be in writing, either by letter (delivered by hand or commercial messenger service or sent by registered or certified mail, return receipt requested, except for routine reports delivered in compliance with Article VI hereof which may be sent by ordinary first-class mail) or telex or telecopier addressed as follows:

(a) If to the Borrower:

(b) If to the Lender:

Any notice, request or communication hereunder shall be deemed to have been given on the day on which it is delivered by hand or by commercial messenger service, or sent by telex or telecopier, to

10

such party at its address specified above, or, if sent by mail, on the third Business Day after the day deposited in the mail, postage prepaid, addressed as aforesaid. Any party may change the person or address to whom or which notices are to be given hereunder, by notice duly given hereunder; provided, however, that any such notice shall be deemed to have been given only when actually received by the party to whom it is addressed.

Section 6.8 Counterparts.

This Loan Agreement may be signed in any number of counterparts which, when taken together, shall constitute one and the same document.

Section 6.9 Construction; Governing Law.

The headings used in the table of contents and in this Loan Agreement are for convenience only and shall not be deemed to constitute a part hereof. All uses herein of any gender or of singular or plural terms shall be deemed to include uses of the other genders or plural or singular terms, as the context may require. All references in this Loan Agreement of an Article or section shall be to an Article or section of this Loan Agreement, unless otherwise specified. This Loan Agreement, the Promissory Note, the Pledge Agreement and the other Loan Documents shall be governed by, and construed and interpreted in accordance with, the laws of the State of Rhode Island.

Section 6.10 Severability.

Wherever possible, each provision of this Loan Agreement shall be interpreted in such manner as to be effective and valid under applicable law; however, the provisions of this Loan Agreement are severable, and if any clause of provision hereof shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provisions in this Loan Agreement in any jurisdiction. Each of the covenants, agreements and conditions contained in this Loan Agreement independent, and compliance by a party with any of them shall not excuse non-compliance by such party with any other. The Borrower shall not take any action the effect of which shall constitute a breach or violation of any provision of this Loan Agreement.

Section 6.11 Binding Effect: No Assignment or Delegation.

This Loan Agreement shall be binding upon and inure to the benefit of the Borrower and its successors and the Lender and its successors and assigns. The rights and obligations of the Borrower under this Agreement shall not be assigned or delegated without the prior written consent of the Lender, and any purported assignment or delegation without such consent shall be void.

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

NEWPORT FEDERAL SAVINGS BANK

EMPLOYEE STOCK OWNERSHIP PLAN TRUST

Authorized Trust Officer of 

[LENDER]

By:

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ESOP LOAN COMMITMENT LETTER

[COMPANY LETTERHEAD]

________________, 2006

Mr. Kevin McCarthy

President and Chief Executive Officer

Newport Federal Savings Bank

100 Bellevue Avenue

Newport, Rhode Island 02840

Dear Kevin:

This letter confirms the commitment of Newport Bancorp, Inc. (the “Company”) to fund a leveraged ESOP in an amount sufficient to purchase up to 8% of the shares issued in the conversion of Newport Federal Savings Bank mutual to stock conversion, including shares contributed to the foundation established in connection with the conversion and initial public offering. This loan commitment is subject to the following terms and conditions:

1.	Lender:	Newport Bancorp, Inc.
2.	Borrower:	Newport Federal Savings Bank Employee Stock Ownership Plan Trust.
3.	Trustee:	________________________________________________
4.	Security:	Unallocated shares of stock of the Company held in the Newport Federal Savings Bank Employee Stock Ownership Plan Trust.
5.	Maturity:	Up to 15 years.
6.	Amortization:	Equal annual principal and interest payments.
7.	Pricing:	Lowest “prime rate” as published in the Wall Street Journal on the date of the loan transaction.
8.	Interest Payments:	Annual on a 365 day basis.
9.	Prepayment:	Voluntary prepayments are permitted at any time, provided the borrower gives notice to the lender of prepayment, and any prepayment shall be in an amount not less than $1,000.

10. Conditions Precedent to Closing: Receipt by the Company and the Borrower of all supporting loan documents in a form and with terms and conditions satisfactory to the Company and its counsel and the Borrower and its counsel. Consummation of the transaction will also be contingent upon no material adverse change occurring in the condition of Newport Federal Savings Bank or the Company.

If the terms and conditions of this letter are agreeable to you, please indicate your acceptance by signing the enclosed copy and returning it to my attention.

Sincerely,

Chairman of the Board

Accepted on Behalf of Newport Federal Savings Bank Employee Stock Ownership Plan Trust
By:
	Authorized Trust Officer

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FORM OF

PLEDGE AGREEMENT

THIS PLEDGE AGREEMENT (“Pledge Agreement”) is made as of the __ day of __________________ 200_, by and between the NEWPORT FEDERAL SAVINGS BANK EMPLOYEE STOCK OWNERSHIP PLAN TRUST (“Pledgor”), and NEWPORT BANCORP, INC., a corporation organized and existing under the laws of Maryland (“Pledgee”).

WITNESSETH

WHEREAS, this Pledge Agreement is being executed and delivered to the Pledgee pursuant to the terms of a Loan Agreement (“Loan Agreement”), by and between the Pledgor and the Pledgee;

NOW, THEREFORE, in consideration of the mutual agreements contained herein and in the Loan Agreement, the parties hereto do hereby covenant and agree as follows:

Section 1. Definitions. The following definitions shall apply for purposes of this Pledge Agreement, except to the extent that a different meaning is plainly indicated by the context; all capitalized terms used but not defined herein shall have the respective meanings assigned to them in the Loan Agreement:

Collateral shall mean the Pledged Shares and, subject to section 5 hereof, and to the extent permitted by applicable law, all rights with respect thereto, and all proceeds of such Pledged Shares and rights.

ESOP shall mean the Newport Federal Savings Bank Employee Stock Ownership Plan.

Event of Default shall mean an event so defined in the Loan Agreement.

Liabilities shall mean all the obligations of the Pledgor to the Pledgee, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due, under the Loan Agreement and the Promissory Note.

Pledged Shares shall mean all the Shares of Common Stock of the Pledgee purchased by the Pledgor with the proceeds of the loan made by the Pledgee to the Pledgor pursuant to the Loan Agreement, but excluding any such shares previously released pursuant to section 4.

Section 2. Pledge. To secure the payment of and performance of all the Liabilities, the Pledgor hereby pledges to the Pledgee, and grants to the Pledgee, a security interest in, and lien upon, the Collateral.

Section 3. Representations and Warranties of the Pledgor. The Pledgor represents, warrants, and covenants to the Pledgee as follows:

(a) the execution, delivery and performance of this Pledge Agreement and the pledging of the Collateral hereunder do not and will not conflict with, result in a violation of, or constitute a default under, any agreement binding upon the Pledgor;

(b) the Pledged Shares are and will continue to be owned by the Pledgor free and clear of any liens or rights of any other person except the lien hereunder and under the Loan Agreement in favor of the Pledgee, and the security interest of the Pledgee in the Pledged Shares and the proceeds thereof is and will continue to be prior to and senior to the rights of all others;

(c) this Pledge Agreement is the legal, valid, binding and enforceable obligation of the Pledgor in accordance with its terms;

(d) the Pledgor shall, from time to time, upon request of the Pledgee, promptly deliver to the Pledgee such stock powers, proxies, and similar documents, satisfactory in form and substance to the Pledgee, with respect to the Collateral as the Pledgee may reasonably request; and

(e) subject to the first sentence of section 4(b), the Pledgor shall not, so long as any Liabilities are outstanding, sell, assign, exchange, pledge or otherwise transfer or encumber any of its rights in and to any of the Collateral.

Section 4. Eligible Collateral.

(a) As used herein the term “Eligible Collateral” shall mean the amount of Collateral which has an aggregate fair market value equal to the amount by which the Pledgor is in default (without regard to any amounts owing solely as the result of an acceleration of the Loan Agreement) or such lesser amount of Collateral as may be required pursuant to section 13 of this Pledge Agreement.

(b) The Pledged Shares shall be released from this Pledge Agreement in a manner conforming to the requirements of Treasury Regulations Section 54.4975-7(b)(8), as the same may be from time to time amended or supplemented, and the applicable provisions of the ESOP. Subject to such Regulations, the Pledgee may from time to time, after any Default or Event of Default, and without prior notice to the Pledgor, transfer all or any part of the Eligible Collateral in the name of the Pledgee or its nominee, without disclosing that such Eligible Collateral is subject to any rights of the Pledgor and may from time to time, whether before or after any of the Liabilities shall become due and payable, without notice to the Pledgor, take all or any of the following actions: (i) notify the parties obligated on any of the Eligible Collateral to make payment to the Pledgee of any amounts due or due to become due thereunder, (ii) release or exchange all or any part of the Eligible Collateral, or compromise or extend or renew for any period (whether or not longer than the original period) any obligations of any nature of any party with respect thereto, and (iii) take control of any proceeds of the Eligible Collateral.

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Section 5. Delivery.

(a) The Pledgor shall deliver to the Pledgee upon execution of this Pledge Agreement (i) either (A) certificates for the Pledged Shares, each certificate duly signed in blank by the Pledgor or accompanied by a stock transfer power duly signed in blank by the Pledgor and each such certificate accompanied by all required documentary or stock transfer tax stamps or (B) if the Trustee does not yet have possession of the Pledged Shares, an assignment by the Pledgor of all the Pledgor’s rights to and interest in the Pledged Shares and (ii) an irrevocable proxy, in form and substance satisfactory to the Pledgee, signed by the Pledgor with respect to the Pledged Shares.

(b) So long as no Default or Event of Default shall have occurred and be continuing, (i) the Pledgor shall be entitled to exercise any and all voting and other rights pertaining to the Collateral or any part thereof for any purpose not inconsistent with the terms of this Pledge Agreement, and (ii) the Pledgor shall be entitled to receive any and all cash dividends or other distributions paid in respect of the Collateral.

Section 6. Events of Default.

(a) If a Default or Event Default shall be existing, in addition to the rights it may have under the Loan Agreement, the Promissory Note, and this Pledge Agreement, or by virtue of any other instrument, (i) the Pledgee may exercise, with respect to the Eligible Collateral, from time to time, any rights and remedies available to it under the Uniform Commercial Code as in effect from time to time in the State of Connecticut or otherwise available to it and (ii) the Pledgee shall have the right, for and in the name, place and stead of the Pledgor, to execute endorsement, assignments, stock powers and other instruments of conveyance or transfer with respect to all or any of the Eligible Collateral. Written notification of intended disposition of any of the Eligible Collateral shall be given by the Pledgee to the Pledgor at least three (3) Business Days before such disposition. Subject to section 13 below, any proceeds of any disposition of Eligible Collateral may be applied by the Pledgee to the payment of expenses in connection with the Eligible Collateral, including, without limitation, reasonable attorneys’ fees and legal expenses, and any balance of such proceeds may be applied by the Pledgee toward the payment of such of the Liabilities as are in Default, and in such order of application, as the Pledgee may from time to time elect. No action of the Pledgee permitted hereunder shall impair or affect its rights in and to the Eligible Collateral. All rights and remedies of the Pledgee expressed hereunder are in addition to all other rights and remedies possessed by it, including, without limitation, those contained in the documents referred to in the definition of Liability in section 1 hereof.

(b) In any sale of any of the Eligible Collateral after a Default or an Event of Default shall have occurred, the Pledgee is hereby authorized to comply with any limitation or restriction in connection with such sale as it may be advised by counsel if necessary in order to avoid violation of applicable law (including, without limitation, compliance with such procedures as may restrict the number of prospective bidders and purchasers or further restrict such prospective bidders or purchasers to persons who will represent and agree that they are purchasing for their own account

17

for investment and not with a view to the distribution or resale of such Eligible Collateral), or in order to obtain such required approval of the sale or of the purchase by any governmental regulatory authority or official, and the Pledgor further agrees that such compliance shall not result in such sale’s being considered or deemed not to have been made in a commercially reasonable manner, nor shall the Pledgee be liable or accountable to the Pledgor for any discount allowed by reason of the fact that such Eligible Collateral is sold in compliance with any such limitation or restriction.

Section 7. Payment in Full. Upon the payment in full of all outstanding Liabilities, this Pledge Agreement shall terminate and the Pledgee shall forthwith assign, transfer and deliver to the Pledgor, against receipt and without recourse to the Pledgee, all Collateral then held by the Pledgee pursuant to the Pledge Agreement.

Section 8. No Waiver. No failure or delay in the part of the Pledgee in exercising any right or remedy hereunder or under any other document which confers or grants any rights to the Pledgee in respect of the Liabilities shall operate as a waiver thereof nor shall any single or partial exercise of any such rights or remedy preclude any other or further exercise thereof or the exercise of any other right or remedy of the Pledgee.

Section 9. Binding Effect; No Assignment or Delegation. This Pledge Agreement shall be binding upon and inure to the benefit of the Pledgor, the Pledgee and their respective successors and assigns, except that the Pledgor may not assign or transfer its rights hereunder without the prior written consent of the Pledgee (which consent shall not unreasonably be withheld). Each duty or obligation of the Pledgor to the Pledgee pursuant to the provisions of this Pledge Agreement shall be performed in favor of any person or entity designated by the Pledgee, and any duty or obligation of the Pledgee to the Pledgor may be performed by any other person or entity designated by the Pledgee.

Section 10. Governing Law. This Pledge Agreement shall be governed by and construed in accordance with the laws of the State of Rhode Island applicable to agreements to be performed wholly within the State of Rhode Island.

Section 11. Notices. All notices, requests, instructions or documents hereunder shall be in writing and delivered personally or sent by United States mail, registered or certified, return receipt requested, with proper postage prepaid as follows:

(a) If to the Pledgee:

(b) If to the Pledgor:

18

or at such other address as either of the parties may designate by written notice to the other party. If delivered personally, the date on which a notice, request, instruction or document is delivered shall be the date on which such delivery is made, and, if delivered by mail, the date on which such notice, request, instruction, or document is deposited in the mail shall be the date of delivery. Each notice, request, instruction or document shall bear the date on which it is delivered.

Section 12. Interpretation. Wherever possible each provision of this Pledge Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision herein shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions hereof.

Section 13. Construction. All provisions hereof shall be construed so as to maintain (a) the ESOP as a qualified leveraged employee stock ownership plan under section 401(a) and 4975(e)(7) of the Internal Revenue Code of 1986 (the “Code”), (b) the Trust as exempt from taxation under section 501(a) of the Code and (c) the Trust Loan as an exempt loan under section 54.4975-7(b) of the Treasury Regulations and as described in Department of Labor Regulation section 2550.408b-3.

IN WITNESS WHEREOF, this Pledge Agreement has been duly executed by the parties hereto as of the day and year first above written.

NEWPORT FEDERAL SAVINGS BANK

EMPLOYEE STOCK OWNERSHIP PLAN TRUST

Authorized Trust Officer of __________________

NEWPORT BANCORP, INC.

By:

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FORM OF

PROMISSORY NOTE

FOR VALUE RECEIVED, the undersigned, NEWPORT FEDERAL SAVINGS BANK EMPLOYEE STOCK OWNERSHIP PLAN TRUST (the “Borrower”), hereby promises to pay to the order of Newport Bancorp, Inc. (the “Lender”) up to [$_________] payable in accordance with the Loan Agreement made and entered into between the Borrower and the Lender of even date herewith (“Loan Agreement”) pursuant to which this Promissory Note is issued.

The Principal Amount of this Promissory Note shall be payable in accordance with the schedule attached hereto (“Schedule I”).

This Promissory Note shall bear interest at the rate per annum set for or established under the Loan Agreement, such interest to be payable in accordance with Schedule I.

Anything herein to the contrary notwithstanding, the obligation of the Borrower to make payments of interest shall be subject to the limitation that payments of interest shall not be required to be made to the Lender to the extent that the Lender’s receipt thereof would not be permissible under the law or laws applicable to the Lender limiting rates on interest which may be charged or collected by the Lender. Any such payments on interest which are not made as a result of the limitation referred to in the preceding sentence shall be made by the Borrower to the Lender on the earliest interest payment date or dates on which the receipt thereof would be permissible under the laws applicable to the Lender limiting rates of interest which may be charged or collected by the Lender. Such deferred interest shall not bear interest.

Payments of both principal and interest on this Promissory Note are to be made at the principal office of the Lender or such other place as the holder hereof shall designate to the Borrower in writing, in lawful money of the United States of America in immediately available funds.

Failure to make any payments of principal on this Promissory Note when due, or failure to make any payment of interest on this Promissory Note not later than five (5) Business Days after the date when due, shall constitute a default hereunder, whereupon the principal amount of accrued interest on this Promissory Note shall immediately become due and payable in accordance with the terms of the Loan Agreement.

This Promissory Note is secured by a Pledge Agreement between the Borrower and the Lender of even date herewith and is entitled to the benefits thereof.

NEWPORT FEDERAL SAVINGS BANK

EMPLOYEE STOCK OWNERSHIP PLAN TRUST

Authorized Trust Officer of 

EX-10.5

Exhibit 10.5

NEWPORT FEDERAL SAVINGS BANK

CHANGE IN CONTROL SEVERANCE COMPENSATION PLAN

A. Purpose.

The purpose of the Newport Federal Savings Bank Change in Control Severance Compensation Plan (the “Plan”) is to ensure the successful continuation of the business of Newport Federal Savings Bank (the “Bank”) and the fair and equitable treatment of the Bank’s employees following a Change in Control (as defined below).

B. Covered Employees.

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

C. Limitations on Eligibility for Change in Control Severance Benefits.

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

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

3. For purposes of this Plan, a “Comparable Position” shall mean a position that would (i) provide the employee with base compensation and benefits that are comparable in the aggregate to those provided to the employee prior to the Change in Control, (ii) provide the employee with an opportunity for variable bonus compensation that is comparable to the opportunity provided to the employee prior to the Change in Control, (iii) be in a location that would not require the employee to increase his or her daily one way commuting distance by more than twenty-five (25) miles as compared to the employee’s commuting distance immediately prior to the Change in Control and (iv) have job skill requirements and duties that are comparable to the requirements and duties of the position held by the employee prior to the Change in Control.

D. Definition of Change in Control.

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

i. Merger: The Bank merges into or consolidates with another entity, or merges another entity into the Bank, and as a result less than a majority of the combined voting power of

the resulting entity immediately after the merger or consolidation is held by persons who were members of the Bank immediately before the merger or consolidation;

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

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

Notwithstanding anything in this Section D, a “Change in Control” for purposes of this Plan shall not include any corporate restructuring transaction by the Bank in mutual or stock form, including but not limited to a mutual to stock conversion or mutual holding company reorganization or minority stock offering, provided that the Board of Directors of the Bank immediately preceding such transaction constitutes at least a majority of the Board of Directors of the Bank after such transaction.

E. Determination of the Change in Control Severance Benefit.

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

(1) An eligible employee who become entitled to receive a Change in Control Severance Payment under the Plan shall receive a benefit determined under the following schedule:

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

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

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

(3) For purpose of determinations under this Section E, “Base Compensation” shall mean:

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

(b) for employees whose compensation is determined in whole or in part on the basis of commission income, the employee’s base salary at termination (or, if greater, the base salary on date immediately preceding the effective date of the Change in

2

Control), if any, plus the commissions earned by the employee in the twelve (12) full calendar months preceding his or her termination date (or, if greater, the commissions earned in the twelve (12) full calendar months immediately preceding the effective date of the Change in Control).

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

F. Withholding.

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

G. Parachute Payment.

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

H. Adoption by Subsidiaries.

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

I. Administration.

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

J. Source of Payments.

All amounts payable under the Plan will be paid in cash from the general funds of the Bank; no separate fund will be established under the Plan; and the Plan will have no assets.

K. Inalienability.

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

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L. Governing Law.

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

M. Severability.

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

N. No Employment Rights.

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

O. Amendment and Termination.

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

Having been adopted by its Board of Directors, this Plan is executed by its duly authorized officer and effective October 14, 2005.

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Proposed

Amendment to the

Newport Federal Savings Bank

Change in Control Severance Compensation Plan

WHEREAS, in connection with the merger of Newport Federal Savings Bank (the “Bank”) and Westerly Savings Bank, the Board of Directors of the Bank adopted the Newport Federal Savings Bank Change in Control Severance Compensation Plan (the “Severance Plan”); and

WHEREAS, in connection with the mutual to stock conversion of the Bank, the Board of Directors of the Bank wishes to amend the Severance Plan to make certain ministerial changes and to include eligible employees of Newport Bancorp, Inc., the holding company formed in connection with the conversion, as participants in the Severance Plan; and

WHEREAS, Paragraph O of the Severance Plan provides that the plan may be amended by a majority of the Board of Directors prior to a change in control.

NOW, THEREFORE, the Severance Plan is amended as follows:

FIRST CHANGE

Effective                         , 2006, the Plan is hereby amended by adding the following new Section P.

“P. Required Provisions.

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

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

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

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

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

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

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

SECOND CHANGE

Effective                         , 2006, the Plan shall be amended to include employees of Newport Bancorp, Inc.

THIRD CHANGE

Effective                         , 2006, the Section D of the Plan shall be deleted in its entirety and replaced with the following new Section D.

“D. Definition of a Change in Control.

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

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

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

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

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

Notwithstanding anything in this Section D, a “Change in Control” for purposes of this Plan shall not include any corporate restructuring transaction by the Bank in mutual or stock form, including but not limited to a mutual to stock conversion.

FOURTH CHANGE

Effective                         , 2006, Section J will be deleted in its entirety and replaced with the following new Section J:

“J. Source of Payments.

Unless otherwise determined by the Board of Directors of the Bank, all payments and benefits provided in this Plan shall be paid or provided solely by the Bank. Notwithstanding anything in this Plan to the contrary, no provision of this Plan shall be construed so as to result in the duplication of any payment or benefit. Unless otherwise determined by the Board of Directors of the Bank, the Company’s sole obligation under this Plan shall be to unconditionally guarantee the payment and provision of all amounts and benefits due hereunder, if such amounts and benefits due from the Bank are not timely paid or provided by the Bank, such amounts and benefits shall be paid or provided by the Company.”

IN WITNESS WHEREOF, the Bank has caused this amendment to the Plan to be executed by its duly authorized officer on      day of                     , 2006.

NEWPORT FEDERAL SAVINGS BANK
By:
	On behalf of the Board of Directors

EX-10.6

Exhibit 10.6: Form of Supplemental Executive Retirement Agreements between Newport Federal Savings Bank and Carol R. Silven, Ray D. Gilmore, II, Kevin M. McCarthy and Bruce A. Walsh

Newport Federal Savings Bank entered into supplemental executive retirement agreements with Messrs. Gilmore, McCarthy and Walsh and Ms. Silven which are substantially identical in all material respects (except as noted below) as the attached Form of Supplemental Executive Retirement Agreement.

Parties to Supplemental Executive Retirement Agreement:

Newport Federal Savings Bank and Carol R. Silven (1)

Newport Federal Savings Bank and Ray D. Gilmore, II (2)

Newport Federal Savings Bank and Kevin M. McCarthy (3)

Newport Federal Savings Bank and Bruce A. Walsh (4)

(1) Ms. Silven’s Supplemental Executive Retirement Agreement is substantially identical to Exhibit 10.6 except as to the amount of the Supplemental Annual Pension Benefit, which is $16,150.00.

(2) Mr. Gilmore’s Supplemental Executive Retirement Agreement is substantially identical to Exhibit 10.6 except as to the amount of the Supplemental Annual Pension Benefit, which is $21,000.00.

(3) Mr. McCarthy’s Supplemental Executive Retirement Agreement is substantially identical to Exhibit 10.6 except as to the amount of the Supplemental Annual Pension Benefit, which is $30,500.00.

(4) Mr. Walsh’s Supplemental Executive Retirement Agreement is substantially identical to Exhibit 10.6 except as to the amount of the Supplemental Annual Pension Benefit, which is $17,500.00.

Exhibit 10.6

FORM OF

SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT

THIS AGREEMENT, made and entered into this ___ day of _____________, 200_ (hereinafter the “Effective Date”), by Newport Federal Savings Bank, (hereinafter referred to as the “Bank”), a bank organized and existing under the laws of Rhode Island, and _______________________ (hereinafter referred to as the “Employee”).

WHEREAS, the Employee has performed his/her duties as President and Chief Executive Officer of the Bank in an efficient and capable manner; and

WHEREAS, the Bank is desirous of retaining the services of the Employee and rewarding him/her for his/her performance and his/her career with the Bank; and

WHEREAS, to retain the services of the Employee and to reward him/her for his/her performance and career with the Bank, the Board of Directors has agreed to provide the Employee with a supplemental retirement benefit as described in this Agreement.

NOW, THEREFORE, for the value received and in consideration of the mutual covenants contained herein, the parties agree as follows:

1. Normal Retirement Supplemental Pension

Upon the Employee’s retirement on or after attaining age sixty-five (65) (hereafter “Normal Retirement Age”), the Bank shall pay the Employee a supplemental annual pension benefit equal to $______ payable in equal monthly installments, commencing with the first month after the Employee^’s retirement, and continuing for a period of fifteen (15) years.

2. Early Retirement or Termination

If the Employee retires or his/her employment with the Bank is otherwise terminated without cause after attaining age 60 and prior to attaining Normal Retirement Age, and the Employee has completed at least ten (10) years of service, then the Bank will pay the Employee a supplemental pension payable in equal monthly installments, commencing with the first month after such early retirement or termination, and continuing for 15 years, in an amount as indicated on the following schedule:

Age at Early Retirement or Termination	% of Normal Retirement Pension
Less than 60	0	%
60	10	%
61	15	%
62	30	%
63	50	%
64	75	%

Should the Employee be terminated for cause or should be engaged in competitive activity, all supplemental annual pension benefits under the Agreement shall be forfeited.

Termination for cause shall mean the Employee’s deliberate dishonesty with respect to the Bank or any subsidiary or affiliate thereof; conviction of a crime involving moral turpitude; or gross and willful failure to perform [other than on account of a medically determinable disability which renders the Employee incapable of performing such services] a substantial portion of the Employee^’s duties and responsibilities as an officer of the Bank, which failure continues for more than thirty days after written notice given to the Employee pursuant to a two-thirds vote of all of the members of the Board then in office, such vote to set forth in reasonable detail the nature of such failure.

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Competitive activity by the employee shall mean that during the Employee’s employment by the Bank or within two (2) years following his or her termination from service, the Employee directly or indirectly:

(i) engages, as an individual proprietor, partner, stockholder, officer, employee, director, consultant, joint venturer, investor, lender, or in any other capacity whatsoever (except as the holder of less than two percent (2%) of the total outstanding stock of a publicly-held Bank), in any business concurrently being carried out by the Bank anywhere within the Bank’s primary market areas at the time of such activity by the Employee; or

(ii) recruits, solicits, or induces, or attempts to induce, any employee or employees of the Bank to terminate their employment with, or otherwise cease any relationship with the Bank; or solicits, diverts, takes away, or attempts to divert or take away, any business of any of the clients, customers or accounts, or prospective clients, customers or accounts, of the Bank which were contacted, solicited or served by the Employee, or were directly or indirectly under the Employee’s responsibility, while the Employee was employed by the Bank.

(iii) solicits, diverts, takes away, or attempts to divert or take away, any business of any of the clients, customers or accounts, or prospective clients, customers or accounts of the Bank which were contacted, solicited or served by the Employee or were directly or indirectly under the Employee’s responsibility, while the Employee was employed by the Bank.

3. Death or Disability

a. Upon the death of the Employee while still actively employed, the Employee’s designated beneficiary shall receive an annual survivor benefit equal to the benefits as outlined in Sections 1 or 2, payable in equal monthly installments, commencing with the first month after such death, and continuing for a period of fifteen (15) years.

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b. Upon the death of the Employee while receiving any supplemental pension benefit payments as provided in this Agreement, the Employee’s designated beneficiary shall receive the remaining equal monthly payments which would have been due the Employee.

c. If the Employee ceases employment because of permanent disability, the Employee will be treated as actively employed, for purposes of this Agreement, while such disability continues. In such event, payments hereunder will commence upon the Employee’s attainment of Normal Retirement Age in accordance with Section 1 of this Agreement, or as described under Section 2 of the Agreement. The Employee will be considered permanently disabled when the Employee is no longer capable of performing the material aspects of his or her employment duties for the Bank as a result of physical and/or mental impairment. The Employee shall be considered to be no longer permanently disabled at such time as he or she returns to work in a position with responsibilities comparable to those inherent in the position in which he or she was employed on the date he or she became permanently disabled.

In the event there is a disagreement as to whether the Employee is permanently disabled, the Bank and the Employee (or his or her physical representative) each shall select a physician. If the physicians are in disagreement, they shall select a third physician. A majority opinion of the three physicians as to disability shall be binding on all of the parties hereto.

d. If the Employee shall have failed to make an effective designation of beneficiary in writing, or if the individual or individuals so designated shall die prior to receiving all payments required to be made to them hereunder and there is no designated alternate beneficiary, then in such event the remaining payments shall be made first to the Employee’s surviving spouse, second the Employee’s surviving children, equally per stirpes if there is no surviving spouse, and finally to the estate of the Employee if there are neither a surviving spouse nor surviving children. The Employee shall have the right at all times to revoke or change his/her beneficiary designation by completing a new designation in writing.

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4. Assignment

Except as otherwise provided herein, it is understood that neither the Employee, nor any person designated by him/her pursuant to this Agreement, shall have any right to commute, sell, assign, transfer or otherwise convey the right to receive payments to be made hereunder, which payments and the right thereto are expressly declared to be non-assignable and non-transferable. If such assignment or transfer is attempted, the Bank may disregard it and continue to discharge its obligations hereunder as though such assignment or transfer were not attempted.

5. Independent Arrangement

The benefits payable under this Agreement shall be independent of, and in addition to, any other agreement which may exist from time to time between the parties hereto, or any other compensation payable by the Bank to the Employee. This Agreement shall not be deemed to constitute a contract of employment between the parties hereto, nor shall any provisions hereof restrict the right of the Bank to discharge the Employee or restrict the right of the Employee to terminate his/her employment.

6. Non-Trust or Fiduciary Obligation

The rights of the Employee under this Agreement (including the right to payment from the Bank) and of any beneficiary of the Employee or of any other person who may acquire such rights shall be solely those of an unsecured creditor of the Bank. The Bank’s obligation to pay the supplemental pension provided for under this Agreement is an unfunded promise by the Bank.

The Bank may, but need not, set aside or invest funds, to meet its liability under this Agreement. Title to and beneficiary ownership of any assets, whether cash, investments, life insurance, or otherwise, which the Bank may purchase or designate to pay the benefits described hereunder shall at all times remain in the Bank, and the Employee shall have no property interest whatsoever in any of these assets or any other assets of the Bank.

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Any insurance policy on the life of the Employee or any other asset acquired by the Bank in connection with the obligations assumed by it hereunder shall not be deemed to be held under any trust for the benefit of the Employee or his/her beneficiaries or to be security for the performance of the obligations of the Bank, but shall be, and remain, a general, unpledged, unrestricted asset of the Bank.

Nothing contained in the Agreement and no action taken pursuant to the provisions of the Agreement shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Bank and the Employee or his/her beneficiaries. Any funds which may be invested under this Agreement shall continue for all purposes to be a part of the general funds of the Bank, and no person, other than the Bank, shall, by virtue of the provisions of this Agreement, have any interest in such funds.

7. Change in Control

a. If the Employee’s employment with the Bank is involuntarily terminated within two years after a change in control of the Bank, payment hereunder will commence immediately in monthly amounts equal to the amount which would have been payable as if the Employee were employed until Normal Retirement Age.

b. Change in control shall be deemed to have occurred at such time as (1) the Bank is converted from a mutual savings bank to an entity which issues stock and is owned by its shareholders, (2) individuals who, as of the beginning of any twenty-four (24) month period, constitute Board of Directors (“Incumbent Board”) cease for any reason to constitute at least a majority of the Board of Directors, provided that any individual becoming a Director subsequent to the beginning of such period whose election or nomination for election was approved by a vote of at least a majority of the Directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, (3) a merger, consolidation, acquisition or other corporate transaction occurs that has the

6

effect of transferring a controlling influence over management of the Bank to a natural person, corporate or other business entity other than its current management or Directors, or (4) a completed liquidation or dissolution of the Bank or sale or other disposition of all or substantially all of the assets of the Bank is consummated, other than to individuals or entities who were the beneficial owners of the Bank immediately prior to such sale or disposition.

8. Arbitration

Any controversy or claim arising out of or relating to the Agreement, or the breach thereof, or any failure to agree where agreement of the parties is necessary pursuant hereto, including the determination of the scope of this agreement to arbitrate, shall be resolved by the following procedures:

(a) The parties agree to submit any dispute to final and binding arbitration administered by the American Arbitration Association (the “AAA”), pursuant to the Commercial Arbitration Rules of the AAA as in effect at the time of submission. The arbitration shall be held in Providence, Rhode Island before a single neutral, independent, and impartial arbitrator (the “Arbitrator”).

(b) Unless the parties have agreed upon the selection of the Arbitrator before then, the AAA shall appoint the Arbitrator within thirty (30) days after the submission to AAA for binding arbitration. The arbitration hearings shall commence within fifteen (15) days after the selection of the Arbitrator. Each party shall be limited to two pre-hearing depositions each lasting no longer than two (2) hours. The parties shall exchange documents to be used at the hearing no later than ten (10) days prior to the hearing date. Each party shall have no longer than three (3) hours to present its position, and the entire proceedings before the Arbitrator shall be on no more than two (2) hearing days within a two week period. The award shall be made no more than ten (10) days following the close of the proceeding. The Arbitrator’s award shall not include consequential, exemplary, or punitive damages. The Arbitrator’s award shall be a final and binding determination of the dispute and shall be fully enforceable in

7

any court of competent jurisdiction. Except in a proceeding to enforce the results of the arbitration, neither party nor the Arbitrator may disclose the existence, content, or results of any arbitration hereunder without the prior written consent of both parties.

9. Taxes

a. The Bank shall have the right to deduct from all amounts to be paid by the Bank to the Employee under the Agreement any taxes required by law to be withheld.

b. The Employee should consult his/her own legal and tax advisors concerning personal tax consequences of being eligible for, and receiving benefit payments under, the Agreement.

10. Miscellaneous Provisions

a. This Agreement shall be binding upon and inure to the benefit of any successor of the Bank and any such successor shall be deemed substituted for the Bank under the terms of this Agreement.

b. This instrument contains the entire Agreement of the parties. It may be amended only by a writing signed by both of the parties hereto.

c. This Agreement shall be governed and construed in accordance with the law of the State of Rhode Island.

d. The benefits provided by the Bank to the Employee pursuant to this Agreement are in the nature of a fringe benefit and shall in no event be construed to affect or limit the Employee’s current or prospective salary increases, cash bonuses or profit-sharing distributions or credits or his right to participate in or be covered by any qualified or

8

non-qualified pension, profit-sharing, group, bonus or other supplemental compensation or fringe benefit plan.

e. The Plan Administrator shall be the Chairman of the Board or his/her designee. In the event a dispute arises over benefits payable under this Agreement and benefits are not paid to the Employee (or to his estate in the case of the Employee’s death) and such claimants feel they are entitled to receive such benefits, then a written claim must be made to the Plan Administrator within sixty (60) days from the date payments are refused. The Plan Administrator shall review the written claim and if the claim is denied, in whole or in part, it shall provide in writing within sixty (60) days of receipt of such claim its specific reasons for such denial, reference to the provisions of the Agreement upon which the denial is based and any additional material or information necessary to perfect the claim. Such written notice shall further indicate the additional steps to be taken by claimants if a further review of the claim denial is desired. A claim shall be deemed to have been denied if the Plan Administrator fails to take any action within the aforesaid sixty-day period.

If claimants desire a second review they shall notify the Plan Administrator in writing within ninety (90) days of the first claim denial. Claimants may review this Agreement or any documents relating thereto and submit any written issues and comments they may feel appropriate. In its sole discretion, the Plan Administrator shall then review the second claim and provide a written decision within sixty (60) days of receipt of such claim. This decision shall likewise state the specific reasons for the decision and shall include reference to specific provisions of this Agreement upon which the decision is based.

IN WITNESS WHEREOF, the parties have hereunto set their hands and seals, the Bank by it duly authorized representative, on the day and year first above written.

______________________________________	(L.S.)
Employee
______________________________________	(L.S.)
[Chairman, Board of Directors]

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BENEFICIARY STATEMENT

I, _______________________, hereby name as a beneficiary under the Supplemental Executive Retirement Agreement dated _______________________, 200_ as follows:

Primary:	_____________________________________________
Secondary:	_____________________________________________

Signed:	________________________________
Dated:	________________________________

RESOLUTION OF THE

PERSONNEL COMMITTEE BOARD OF DIRECTORS OF

NEWPORT FEDERAL SAVINGS BANK

WHEREAS, the Board of Directors of Newport Federal Savings Bank (the “Bank”) maintains the Supplemental Executive Retirement Agreements and the Supplemental Director Retirement Agreements for certain executives and outside directors of the Bank (collectively the “Agreements”) for the purpose of providing these individuals with a supplemental retirement benefit upon attainment of Normal Retirement Age (as such term is defined in each of the Agreements); and

WHEREAS, this Committee wishes to amend the Agreement to revise the definition of a Change in Control.

NOW, THEREFORE, BE IT RESOLVED, that the Agreements shall be, and hereby are, amended as follows:

First Change

Effective January 1, 2006, Section 7(b) of the Supplemental Executive Retirement Agreement and Section 7(b) of the Supplemental Director Retirement Agreement shall each be deleted and replaced with the following new Section 7(b):

a. A Change in Control shall be deemed to have occurred upon the earlier of the following events:

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

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

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

For purposes of this provision “Company” shall mean any holding company of the Bank. Notwithstanding anything in this Agreement, in no event shall a mutual to stock conversion of the Bank constitute a “Change in Control” for purposes of this Agreement.

Second Change

Effective January 1, 2006, the first sentence in Section 7(a) of the Agreement shall be amended to refer to a Change in Control of the Company instead of a Change in Control of the Bank.

CERTIFICATION

I, William R. Harvey, Corporate Secretary of Newport Federal Savings Bank certify that the above resolution was unanimously adopted by the Personnel Committee of the Board of Directors of Newport Federal Savings Bank at a duly held meeting of the Committee on February 15, 2006.

/s/ William R. Harvey

Corporate Secretary

EX-10.7

Exhibit 10.7: Form of Supplemental Director Retirement Agreements between Newport Federal Savings Bank and Peter Crowley, William R. Harvey, Michael Hayes, Robert S. Lazar, Michael S. Pinto, Alicia S. Quirk, Peter W. Rector and Barbara Saccucci

Newport Federal Savings Bank entered into supplemental director retirement agreements with Directors Crowley, Harvey, Hayes, Lazar, Pinto, Quirk, Rector and Saccucci which are substantially identical in all material respects (except as noted below) as the attached Form of Supplemental Director Retirement Agreement.

Parties to Supplemental Director Retirement Agreement:

Newport Federal Savings Bank and Peter Crowley (1)

Newport Federal Savings Bank and William R. Harvey (2)

Newport Federal Savings Bank and Michael Hayes (3)

Newport Federal Savings Bank and Robert S. Lazar (4)

Newport Federal Savings Bank and Michael S. Pinto (5)

Newport Federal Savings Bank and Alicia S. Quirk (6)

Newport Federal Savings Bank and Peter W. Rector(7)

Newport Federal Savings Bank and Barbara Saccucci (8)

(1) Mr. Crowley’s Supplemental Director Retirement Agreement is substantially identical to Exhibit 10.7 except as to the amount of the Supplemental Annual Pension Benefit, which is $3,000.00.

(2) Mr. Harvey’s Supplemental Director Retirement Agreement is substantially identical to Exhibit 10.7 except as to the amount of the Supplemental Annual Pension Benefit, which is $4,000.00.

(3) Mr. Hayes’s Supplemental Director Retirement Agreement is substantially identical to Exhibit 10.7 except as to the amount of the Supplemental Annual Pension Benefit, which is $3,000.00.

(4) Mr. Lazar’s Supplemental Director Retirement Agreement is substantially identical to Exhibit 10.7 except as to the amount of the Supplemental Annual Pension Benefit, which is $3,000.00.

(5) Mr. Pinto’s Supplemental Director Retirement Agreement is substantially identical to Exhibit 10.7 except as to the amount of the Supplemental Annual Pension Benefit, which is $3,000.00.

(6) Ms. Quirk’s Supplemental Director Retirement Agreement is substantially identical to Exhibit 10.7 except as to the amount of the Supplemental Annual Pension Benefit, which is $3,000.00.

(7) Mr. Rector’s Supplemental Director Retirement Agreement is substantially identical to Exhibit 10.7 except as to the amount of the Supplemental Annual Pension Benefit, which is $5,000.00.

(8) Ms. Saccucci’s Supplemental Director Retirement Agreement is substantially identical to Exhibit 10.7 except as to the amount of the Supplemental Annual Pension Benefit, which is $3,000.00.

Exhibit 10.7

FORM OF

SUPPLEMENTAL DIRECTOR RETIREMENT AGREEMENT

THIS AGREEMENT, made and entered into this ___ day of ______________, 200_ (hereinafter the “Effective Date”), by Newport Federal Savings Bank, (hereinafter referred to as the “Bank”), a bank organized and existing under the laws of Rhode Island, and _____________________ hereinafter referred to as the “Director”).

WHEREAS, the Director has performed his/her duties as a director of the Bank in an efficient and capable manner; and

WHEREAS, the Bank is desirous of retaining the services of the Director and rewarding him/her for his/her performance and his/her career with the Bank; and

WHEREAS, to retain the services of the Director and to reward him/her for his/her performance and career with the Bank, the Board of Directors has agreed to provide the Director with a supplemental retirement benefit as described in this Agreement.

NOW, THEREFORE, for the value received and in consideration of the mutual covenants contained herein, the parties agree as follows:

1. Normal Retirement Supplemental Pension

Upon the Director^’s retirement on or after attaining age seventy (70) (hereafter “Normal Retirement Age”), the Bank shall pay the Director a supplemental annual pension benefit equal to $_______ payable in equal monthly installments, commencing with the first month after the Director’s retirement, and continuing for a period of ten (10) years.

2. Early Retirement or Termination

If the Director retires after attaining the age of 65 or his/her service with the Bank is otherwise terminated without cause prior to attaining Normal Retirement Age, and the Director has completed at least ten (10) years of service, then the Bank will pay the Director a supplemental annual pension payable in equal monthly installments, commencing with the first month after such early retirement or termination of service, and continuing for 10 years, in an amount as indicated on the following schedule:

Age at Early Retirement or Termination	% of Normal Retirement Pension
Less than 65	0	%
65	10	%
66	15	%
67	30	%
68	50	%
69	75	%

Should the Director be terminated for cause all supplemental annual pension benefits under the Agreement shall be forfeited. For purposes of this Agreement the Director shall be deemed to have been terminated for cause if he shall be convicted by a court of law for fraud, misappropriation, embezzlement or any other crime related to the Bank or his service by the Bank is terminated pursuant to a determination by the Bank’s regulator(s) that the Director has engaged in a willful violation of any federal or state statute or regulation, or bank policy for which such regulatory agency(ies) requires the termination of the service of the Director.

3. Death or Disability

a. Upon the death of the Director while still actively performing the duties of a Director, the Director’s designated beneficiary shall receive an annual survivor benefit equal to the benefits as outlined in Sections 1 or 2, payable in equal monthly installments, commencing with the first month after such death, and continuing for a period of ten (10) years.

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b. Upon the death of the Director while receiving any supplemental pension benefit payments as provided in this Agreement, the Director’s designated beneficiary shall receive the remaining equal monthly payments which would have been due the Director.

c. If the Director ceases to perform duties as a Director because of permanent disability, the Director will be treated as actively performing duties as a Director, for purposes of this Agreement, while such disability continues. In such event, payments hereunder will commence upon the Director’s attainment of Normal Retirement Age in accordance with Section 1 of this Agreement, or as described under Section 2 of the Agreement. The Director will be considered permanently disabled when the Director is no longer capable of performing the material aspects of his or her duties for the Bank as a result of physical and/or mental impairment. The Director shall be considered to be no longer permanently disabled at such time as he or she returns to work to perform duties as a Director.

In the event there is a disagreement as to whether the Director is permanently disabled, the Bank and the Director (or his or her physical representative) each shall select a physician. If the physicians are in disagreement, they shall select a third physician. A majority opinion of the three physicians as to disability shall be binding on all of the parties hereto.

d. If the Director shall have failed to make an effective designation of beneficiary in writing, or if the individual or individuals so designated shall die prior to receiving all payments required to be made to them hereunder and there is no designated alternate beneficiary, then in such event the remaining payments shall be made first to the Director’s surviving spouse, second the Director’s surviving children, equally per stirpes if there is no surviving spouse, and finally to the estate of the Director if there are neither a surviving spouse nor surviving children. The Director shall have the right at all times to revoke or change his/her beneficiary designation by completing a new designation in writing.

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4. Assignment

Except as otherwise provided herein, it is understood that neither the Director, nor any person designated by him/her pursuant to this Agreement; shall have any right to commute, sell, assign, transfer or otherwise convey the right to receive payments to be made hereunder, which payments and the right thereto are expressly declared to be non-assignable and non-transferable. If such assignment or transfer is attempted, the Bank may disregard it and continue to discharge its obligations hereunder as though such assignment or transfer were not attempted.

5. Independent Arrangement

The benefits payable under this Agreement shall be independent of, and in addition to, any other agreement which may exist from time to time between the parties hereto, or any other compensation payable by the Bank to the Director. This Agreement shall not be deemed to constitute a contract of employment between the parties hereto, nor shall any provisions hereof restrict the right of the Bank to discharge the Director or restrict the right of the Director to terminate his/her service.

6. Non-Trust or Fiduciary Obligation

The rights of the Director under this Agreement (including the right to payment from the Bank) and of any beneficiary of the Director or of any other person who may acquire such rights shall be solely those of an unsecured creditor of the Bank. The Bank’s obligation to pay the supplemental pension provided for under this Agreement is an unfunded promise by the Bank.

The Bank may, but need not, set aside or invest funds, to meet its liability under this Agreement. Title to and beneficiary ownership of any assets, whether cash, investments, life insurance, or otherwise, which the Bank may purchase or designate to pay the benefits described hereunder shall at all times remain in the Bank, and the Director shall have no property interest whatsoever in any of these assets or any other assets of the Bank.

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Any insurance policy on the life of the Director or any other asset acquired by the Bank in connection with the obligations assumed by it hereunder shall not be deemed to be held under any trust for the benefit of the Director or his/her beneficiaries or to be security for the performance of the obligations of the Bank, but shall be, and remain, a general, unpledged, unrestricted asset of the Bank.

Nothing contained in the Agreement and no action taken pursuant to the provisions of the Agreement shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Bank and the Director or his/her beneficiaries. Any funds which may be invested under this Agreement shall continue for all purposes to be a part of the general funds of the Bank, and no person, other than the Bank, shall, by virtue of the provisions of this Agreement, have any interest in such funds.

7. Change in Control

a. If the Director’s service with the Bank is involuntarily terminated within two years after a change in control of the Bank, payment hereunder will commence immediately in monthly amounts equal to the amount which would have been payable as if the Director were performing duties as a Director until Normal Retirement Age.

b. Change in control shall be deemed to have occurred at such time as (1) the Bank is converted from a mutual savings bank to an entity which issues stock and is owned by its shareholders, (2) individuals who, as of the beginning of any twenty-four (24) month period, constitute Board of Directors (“Incumbent Board”) cease for any reason to constitute at least a majority of the Board of Directors, provided that any individual becoming a Director subsequent to the beginning of such period whose election or nomination for election was approved by a vote of at least a majority of the Directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, (3) a merger, consolidation, acquisition or other corporate transaction occurs that has the effect of transferring a controlling influence over management of the Bank to a natural person, corporate or other business entity other than its current management or Directors, or (4) a completed liquidation or dissolution of the Bank or sale or other disposition of all or substantially all of

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the assets of the Bank is consummated, other than to individuals or entities who were the beneficial owners of the Bank immediately prior to such sale or disposition.

8. Arbitration

Any controversy or claim arising out of or relating to the Agreement, or the breach thereof, or any failure to agree where agreement of the parties is necessary pursuant hereto, including the determination of the scope of this agreement to arbitrate, shall be resolved by the following procedures:

(a) The parties agree to submit any dispute to final and binding arbitration administered by the American Arbitration Association (the “AAA”), pursuant to the Commercial Arbitration Rules of the AAA as in effect at the time of submission. The arbitration shall be held in Providence, Rhode Island before a single neutral, independent, and impartial arbitrator (the “Arbitrator”).

(b) Unless the parties have agreed upon the selection of the Arbitrator before then, the AAA shall appoint the Arbitrator within thirty (30) days after the submission to AAA for binding arbitration. The arbitration hearings shall commence within fifteen (15) days after the selection of the Arbitrator. Each party shall be limited to two pre-hearing depositions each lasting no longer than two (2) hours. The parties shall exchange documents to be used at the hearing no later than ten (10) days prior to the hearing date. Each party shall have no longer than three (3) hours to present its position, and the entire proceedings before the Arbitrator shall be on no more than two (2) hearing days within a two week period. The award shall be made no more than ten (10) days following the close of the proceeding. The Arbitrator’s award shall not include consequential, exemplary, or punitive damages. The Arbitrator’s award shall be a final and binding determination of the dispute and shall be fully enforceable in any court of competent jurisdiction. Except in a proceeding to enforce the results of the arbitration, neither party nor the Arbitrator may disclose the existence, content, or results of any arbitration hereunder without the prior written consent of both parties.

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9. Taxes

a. The Bank shall have the right to deduct from all amounts to be paid by the Bank to the Director under the Agreement any taxes required by law to be withheld.

b. The Director should consult his/her own legal and tax advisors concerning personal tax consequences of being eligible for, and receiving benefit payments under, the Agreement.

10. Miscellaneous Provisions

a. This Agreement shall be binding upon and inure to the benefit of any successor of the Bank and any such successor shall be deemed substituted for the Bank under the terms of this Agreement.

b. This instrument contains the entire Agreement of the parties. It may be amended only by a writing signed by both of the parties hereto.

c. This Agreement shall be governed and construed in accordance with the law of the State of Rhode Island.

d. The benefits provided by the Bank to the Director pursuant to this Agreement are in the nature of a fringe benefit and shall in no event be construed to affect or limit the Director’s current or prospective salary increases, cash bonuses or profit-sharing distributions or credits or his right to participate in or be covered by any qualified or non-qualified pension, profit-sharing, group, bonus or other compensation or fringe benefit plan.

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e. The Plan Administrator shall be the Chairman of the Board or his/her designee. In the event a dispute arises over benefits payable under this Agreement and benefits are not paid to the Director (or to his estate in the case of the Director’s death) and such claimants feel they are entitled to receive such benefits, then a written claim must be made to the Plan Administrator within sixty (60) days from the date payments are refused. The Plan Administrator shall review the written claim and if the claim is denied, in whole or in part, it shall provide in writing within sixty (60) days of receipt of such claim its specific reasons for such denial, reference to the provisions of the Agreement upon which the denial is based and any additional material or information necessary to perfect the claim. Such written notice shall further indicate the additional steps to be taken by claimants if a further review of the claim denial is desired. A claim shall be deemed to have been denied if the Plan Administrator fails to take any action within the aforesaid sixty-day period.

If claimants desire a second review they shall notify the Plan Administrator in writing within ninety (90) days of the first claim denial. Claimants may review this Agreement or any documents relating thereto and submit any written issues and comments they may feel appropriate. In its sole discretion, the Plan Administrator shall then review the second claim and provide a written decision within sixty (60) days of receipt of such claim. This decision shall likewise state the specific reasons for the decision and shall include reference to specific provisions of this Agreement upon which the decision is based.

IN WITNESS WHEREOF, the parties have hereunto set their hands and seals, the Bank by it duly authorized representative, on the day and year first above written.

	(L.S.)
Director
	(L.S.)
[Authorized Representative]

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BENEFICIARY STATEMENT

I, _________________, hereby name as a beneficiary under the Supplemental Director Retirement Agreement dated ____________________, 200_ as follows:

Primary:	_______________________
Secondary:	Estate

Signed:

Dated:

RESOLUTION OF THE

PERSONNEL COMMITTEE BOARD OF DIRECTORS OF

NEWPORT FEDERAL SAVINGS BANK

WHEREAS, the Board of Directors of Newport Federal Savings Bank (the “Bank”) maintains the Supplemental Executive Retirement Agreements and the Supplemental Director Retirement Agreements for certain executives and outside directors of the Bank (collectively the “Agreements”) for the purpose of providing these individuals with a supplemental retirement benefit upon attainment of Normal Retirement Age (as such term is defined in each of the Agreements); and

WHEREAS, this Committee wishes to amend the Agreement to revise the definition of a Change in Control.

NOW, THEREFORE, BE IT RESOLVED, that the Agreements shall be, and hereby are, amended as follows:

First Change

Effective January 1, 2006, Section 7(b) of the Supplemental Executive Retirement Agreement and Section 7(b) of the Supplemental Director Retirement Agreement shall each be deleted and replaced with the following new Section 7(b):

a. A Change in Control shall be deemed to have occurred upon the earlier of the following events:

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

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

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

For purposes of this provision “Company” shall mean any holding company of the Bank. Notwithstanding anything in this Agreement, in no event shall a mutual to stock conversion of the Bank constitute a “Change in Control” for purposes of this Agreement.

Second Change

Effective January 1, 2006, the first sentence in Section 7(a) of the Agreement shall be amended to refer to a Change in Control of the Company instead of a Change in Control of the Bank.

CERTIFICATION

I, William R. Harvey, Corporate Secretary of Newport Federal Savings Bank certify that the above resolution was unanimously adopted by the Personnel Committee of the Board of Directors of Newport Federal Savings Bank at a duly held meeting of the Committee on February 15, 2006.

/s/ William R. Harvey

Corporate Secretary

EX-10.8

Exhibit 10.8

EMPLOYMENT AGREEMENT

THIS AGREEMENT (the “Agreement”), made this 14th day of October, 2005, by and between, Newport Federal Savings Bank, a federally chartered savings bank (the “Bank”), and Kevin McCarthy (the “Executive”).

WHEREAS, Executive serves in a position of substantial responsibility;

WHEREAS, the Bank wishes to assure the services of Executive for the period provided in this Agreement; and

WHEREAS, Executive is willing to serve in the employ of the Bank on a full-time basis for said period.

NOW, THEREFORE, in consideration of the mutual covenants herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows:

1. Employment. Executive is employed as the President and Chief Executive Officer of the Bank. Executive shall perform all duties and shall have all powers which are commonly incident to the offices of President and Chief Executive Officer or which, consistent with those offices, are delegated to him by the Board of Directors of the Bank. During the term of this Agreement, Executive also agrees to serve, if elected, as an officer and/or director of any subsidiary or affiliate of the Bank and in such capacity will carry out such duties and responsibilities reasonably appropriate to that office.

2. Location and Facilities. Executive will be furnished with the working facilities and staff customary for executive officers with the title and duties set forth in Section 1 and as are necessary for him to perform his duties. The location of such facilities and staff shall be at the principal administrative offices of the Bank, or at such other site or sites customary for such offices.

3. Term.

a. The term of this Agreement shall be (i) the initial term, consisting of the period commencing on the date of this Agreement (the “Effective Date”) and ending on the third anniversary of the Effective Date, plus (ii) any and all extensions of the initial term made pursuant to this Section 3.

b. Commencing December 2006 and each December thereafter, the disinterested members of the boards of directors of the Bank may extend the Agreement an additional year such that the remaining term of the Agreement shall be thirty-six (36) months, unless Executive elects not to extend the term of this Agreement by giving written notice in accordance with Section 19 of this Agreement. The Board of Directors of the Bank (the “Board”) will review the Agreement and Executive’s performance annually for purposes of determining whether to extend the Agreement and the rationale and results thereof shall be included in the minutes of the Board’s meeting. The Board of Directors of the Bank shall give notice to Executive as soon as possible after such review as to whether the Agreement is to be extended.

4. Base Compensation.

a. The Bank agrees to pay Executive during the term of this Agreement a base salary at the rate of $210,000 per year, payable in accordance with customary payroll practices.

b. The Board shall review the rate of Executive’s base salary at least annually based upon factors they deem relevant, and may maintain or increase his base salary, provided that no such action shall reduce the rate of base salary below the rate in effect on the Effective Date.

c. In the absence of action by the Board, Executive shall continue to receive base salary at the annual rate specified on the Effective Date or, if another rate has been established under the provisions of this Section 4, the rate last properly established by action of the Board under the provisions of this Section 4.

5. Bonuses. Executive shall be entitled to participate in discretionary bonuses or other incentive compensation programs that the Bank may award from time to time to senior management employees pursuant to bonus plans or otherwise.

6. Benefit Plans. Executive shall be entitled to participate in such life insurance, medical, dental, pension, profit sharing, retirement and stock-based compensation plans and other programs and arrangements as may be approved from time to time by the Bank for the benefit of their employees.

7. Vacation and Leave.

a. Executive shall be entitled to vacations and other leave in accordance with policy for senior executives, or otherwise as approved by the Board.

b. In addition to paid vacations and other leave, Executive shall be entitled, without loss of pay, to absent himself voluntarily from the performance of his employment for such additional periods of time and for such valid and legitimate reasons as the Board may, in its discretion, determine. Further, the Board may grant to Executive a leave or leaves of absence, with or without pay, at such time or times and upon such terms and conditions as the Board in its discretion may determine.

8. Expense Payments and Reimbursements. Executive shall be reimbursed for all reasonable out-of-pocket business expenses that he shall incur in connection with his services under this Agreement upon substantiation of such expenses in accordance with applicable policies of the Bank.

9. Automobile Allowance. During the term of this Agreement, Executive shall be entitled to use of an automobile provided by the Bank, including insurance, maintenance and work-related fuel expenses, or, in the alternative and the sole discretion of the Bank, the Executive shall be entitled to an automobile allowance which would approximate the expense of a Bank-provided automobile and related insurance, maintenance and fuel costs. Executive shall comply with reasonable reporting and expense limitations on the use of such automobile as may be established by the Bank from time to time, and the Bank shall annually include on Executive’s Form W-2 any amount of income attributable to Executive’s personal use of such automobile.

10. Loyalty and Confidentiality.

a. During the term of this Agreement, Executive: (i) shall devote all his time, attention, skill, and efforts to the faithful performance of his duties hereunder; provided, however, that from time to time, Executive may serve on the boards of directors of, and hold any other offices or positions in, companies or organizations which will not present any conflict of interest with the Bank or any of its subsidiaries or affiliates, unfavorably affect the performance of Executive’s duties pursuant to this Agreement, or violate any applicable statute or regulation and (ii) shall not engage in any business or activity contrary to the business affairs or interests of the Bank or any of its subsidiaries or affiliates.

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b. Nothing contained in this Agreement shall prevent or limit Executive’s right to invest in the capital stock or other securities or interests of any business dissimilar from that of the Bank, or, solely as a passive, minority investor, in any business.

c. Executive agrees to maintain the confidentiality of any and all information concerning the operation or financial status of the Bank; the names or addresses of any of its borrowers, depositors and other customers; any information concerning or obtained from such customers; and any other information concerning the Bank or its subsidiaries or affiliates to which he may be exposed during the course of his employment. Executive further agrees that, unless required by law or specifically permitted by the Board in writing, he will not disclose to any person or entity, either during or subsequent to his employment, any of the above-mentioned information which is not generally known to the public, nor shall he employ such information in any way other than for the benefit of the Bank.

11. Termination and Termination Pay. Subject to Section 12 of this Agreement, Executive’s employment under this Agreement may be terminated in the following circumstances:

a. Death. Executive’s employment under this Agreement shall terminate upon his death during the term of this Agreement, in which event Executive’s estate shall be entitled to receive the compensation due to Executive through the last day of the calendar month in which his death occurred.

b. Retirement. This Agreement shall be terminated upon Executive’s retirement under the retirement benefit plan or plans in which he participates pursuant to Section 6 of this Agreement or otherwise.

c. Disability.

i. The Board or Executive may terminate Executive’s employment after having determined Executive has a Disability. For purposes of this Agreement, “Disability” means a physical or mental infirmity that impairs Executive’s ability to substantially perform his duties under this Agreement and that results in Executive becoming eligible for long-term disability benefits under any long-term disability plans of the Bank (or, if there are no such plans in effect, that impairs Executive’s ability to substantially perform his duties under this Agreement for a period of one hundred eighty (180) consecutive days). The Board shall determine whether or not Executive is and continues to be permanently disabled for purposes of this Agreement in good faith, based upon competent medical advice and other factors that they reasonably believe to be relevant. As a condition to any benefits, the Board may require Executive to submit to such physical or mental evaluations and tests as it deems reasonably appropriate.

ii. In the event of such Disability, Executive’s obligation to perform services under this Agreement will terminate. The Bank will pay Executive, as Disability pay, an amount equal to seventy-five percent (75%) of Executive’s bi-weekly rate of base salary in effect as of the date of his termination of employment due to Disability. Disability payments will be made on a monthly basis and will commence on the first day of the month following the effective date of Executive’s termination of employment for Disability and end on the earlier of: (A) the date he returns to full-time employment at the Bank in the same capacity as he was employed prior to his termination for Disability; (B) his death; (C) upon his attainment of age 65 or (D) the date this Agreement would have expired had Executive’s employment not terminated by reason of disability. Such payments shall be reduced by the amount of any

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short- or long-term disability benefits payable to Executive under any other disability programs sponsored by the Bank. In addition, during any period of Executive’s Disability, Executive and his dependents shall, to the greatest extent possible, continue to be covered under all benefit plans (including, without limitation, retirement plans and medical, dental and life insurance plans) of the Bank, in which Executive participated prior to his Disability on the same terms as if Executive were actively employed by the Bank.

d. Termination for Cause.

i. The Board may, by written notice to Executive in the form and manner specified in this paragraph, immediately terminate his employment at any time, for “Cause.” Executive shall have no right to receive compensation or other benefits for any period after termination for Cause except for vested benefits. Termination for Cause shall mean termination because of, in the good faith determination of the Board, Executive’s:

(1) Personal dishonesty;

(2) Incompetence;

(3) Willful misconduct;

(4) Breach of fiduciary duty involving personal profit;

(5) Intentional failure to perform stated duties under this Agreement;

(6) Willful violation of any law, rule or regulation (other than traffic violations or similar offenses) that reflects adversely on the reputation of the Bank, any felony conviction, any violation of law involving moral turpitude, or any violation of a final cease-and-desist order; or

(7) Material breach by Executive of any provision of this Agreement.

ii. Notwithstanding the foregoing, Executive shall not be deemed to have been terminated for Cause by the Bank unless there shall have been delivered to Executive a copy of a resolution duly adopted by the affirmative vote of a majority of the entire membership of the Board at a meeting of such Board called and held for the purpose of finding that, in the good faith opinion of the Board, Executive was guilty of the conduct described above and specifying the particulars thereof.

e. Voluntary Termination by Executive. In addition to his other rights to terminate under this Agreement, Executive may voluntarily terminate employment during the term of this Agreement upon at least sixty (60) days prior written notice to the Board. Following a voluntary termination of employment under this Section 11(e), Executive will be subject to the restrictions set forth in Sections 11(g)(i) and 11(g)(ii) of this Agreement for a period of one (1) year from his termination date.

f. Without Cause or With Good Reason.

i. In addition to termination pursuant to Sections 11(a) through 11(e), the Board may, by written notice to Executive, immediately terminate his employment at any time for a reason other than Cause (a termination “Without Cause”) and Executive may, by

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written notice to the Board, immediately terminate this Agreement at any time within ninety (90) days following an event constituting “Good Reason,” as defined below (a termination “With Good Reason”).

ii. Subject to Section 12 of this Agreement, in the event of termination under this Section 11(f), Executive shall be entitled to receive his base salary for the remaining term of the Agreement paid in one lump sum within ten (10) calendar days of such termination. Also, in such event, Executive shall, for the remaining term of the Agreement, continue to participate in any benefit plans of the Bank that provide health (including medical and dental) and life insurance coverage, upon terms and conditions no less favorable than the most favorable terms and conditions provided to senior executives of the Bank during such period. In the event that the Bank is unable to provide such coverage by reason of Executive no longer being an employee, the Bank shall provide Executive with comparable coverage on an individual policy basis.

iii. “Good Reason” shall exist if, without Executive’s express written consent, the Bank materially breaches any of its obligations under this Agreement. Without limitation, such a material breach shall be deemed to occur upon any of the following:

(1) A material reduction in Executive’s responsibilities or authority in connection with his employment with the Bank;

(2) Assignment to Executive of duties of a non-executive nature or duties for which he is not reasonably equipped by his skills and experience;

(3) Failure of Executive to be nominated or renominated to the Board to the extent Executive is a Board member prior to the Effective Date;

(4) A reduction in salary or benefits contrary to the terms of this Agreement, or, following a Change in Control as defined in Section 12 of this Agreement, any reduction in salary or material reduction in benefits below the amounts to which Executive was entitled prior to the Change in Control;

(5) Termination of incentive and benefit plans (other than the Bank’s tax-qualified plans), programs or arrangements, or reduction of Executive’s participation to such an extent as to materially reduce their aggregate value below their aggregate value as of the Effective Date;

(6) A requirement that Executive relocate his principal business office or his principal place of residence outside of the area consisting of a twenty-five (25) mile radius from the current main office and any branch of the Bank, or the assignment to Executive of duties that would reasonably require such a relocation; or

(7) Liquidation or dissolution of the Bank.

iv. Notwithstanding the foregoing, a reduction or elimination of Executive’s benefits under one or more benefit plans maintained by the Bank as part of a good faith, overall reduction or elimination of such plans or plans or benefits thereunder applicable to all participants in a manner that does not discriminate against Executive (except as such discrimination may be necessary to comply with law) shall not constitute an event of Good Reason or a material breach of this Agreement, provided

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that benefits of the type or to the general extent as those offered under such plans prior to such reduction or elimination are not available to other officers of the Bank or any company that controls either of them under a plan or plans in or under which Executive is not entitled to participate.

g. Continuing Covenant Not to Compete or Interfere with Relationships. Regardless of anything herein to the contrary, following a termination by the Bank or Executive pursuant to Section 11(f):

i. Executive’s obligations under Section 10(c) of this Agreement will continue in effect; and

ii. During the period ending on the first anniversary of such termination, Executive shall not serve as an officer, director or employee of any bank or its subsidiaries or affiliates holding company, bank, savings association, savings and loan holding company, or mortgage company (any of which, a “Financial Institution”) which Financial Institution offers products or services competing with those offered by the Bank from any office within fifty (50) miles from the main office or any branch of the Bank and shall not interfere with the relationship of the Bank, its subsidiaries or affiliates and any of their employees, agents, or representatives.

h. To the extent Executive is a member of the Board, on the date of termination of employment with the Bank, Executive shall resign from the Board immediately following such termination of employment with the Bank. Executive shall be obligated to tender such resignation regardless of the method or manner of termination, and such resignation shall not be conditioned upon any event or payment.

12. Termination in Connection with a Change in Control.

a. For purposes of this Agreement, a “Change in Control” means any of the following events:

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

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

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

b. Termination. If within the period ending two (2) years after a Change in Control, (i) the Bank shall terminate Executive’s employment Without Cause, or (ii) Executive voluntarily terminates his employment With Good Reason, the Bank shall, within ten calendar days of the termination of Executive’s employment, make a lump-sum cash payment to him equal to 2.99 times Executive’s average Annual Compensation over the five (5) most recently completed calendar years ending with the year immediately preceding the effective date of the Change in Control. In determining Executive’s average Annual Compensation, Annual Compensation

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shall include base salary and any other taxable income, including, but not limited to, amounts related to the granting, vesting or exercise of restricted stock or stock option awards, commissions, bonuses (whether paid or accrued for the applicable period), as well as, retirement benefits, director or committee fees and fringe benefits paid or to be paid to Executive or paid for Executive’s benefit during any such year, profit sharing, employee stock ownership plan and other retirement contributions or benefits, including to any tax-qualified plan or arrangement (whether or not taxable) made or accrued on behalf of Executive of such year. The cash payment made under this Section 12(b) shall be made in lieu of any payment also required under Section 11(f) of this Agreement because of a termination in such period. Executive’s rights under Section 11(f ) are not otherwise affected by this Section 12. Also, in such event, Executive shall, following his termination of employment, continue to participate in any benefit plans of the Bank that provide health (including medical and dental) and life insurance coverage upon terms no less favorable than the most favorable terms provided to senior executives during such period. In the event that the Bank is unable to provide such coverage by reason of Executive no longer being an employee, the Bank shall provide Executive with comparable coverage on an individual policy. The medical, dental and life insurance coverage or other arrangement provided under this Section 12(b) shall cease upon the earlier of: (i) the Executive’s death; (ii) his employment by another employer other than one of which he is the majority owner; or (iii) the expiration of thirty-six (36) months from his termination of employment.

c. The provisions of Section 12 and Sections 14 through 25, including the defined terms used in such sections, shall continue in effect until the later of the expiration of this Agreement or two years following a Change in Control.

d. Notwithstanding anything in this Section 12, a “Change in Control” for purposes of this Agreement shall not include any corporate restructuring transaction by the Bank in mutual or stock form, including but not limited to a mutual to stock conversion or mutual holding company reorganization or minority stock offering, provided that the Board of Directors of the Bank immediately preceding such transaction constitutes at least a majority of the Board of Directors of the Bank after such transaction.

13. Indemnification and Liability Insurance.

a. Indemnification. The Bank agrees to indemnify Executive (and his heirs, executors, and administrators), and to advance expenses related thereto, to the fullest extent permitted under applicable law and regulations against any and all expenses and liabilities reasonably incurred by him in connection with or arising out of any action, suit, or proceeding in which he may be involved by reason of his having been a director or Executive of the Bank or any of its subsidiaries (whether or not he continues to be a director or Executive at the time of incurring any such expenses or liabilities) such expenses and liabilities to include, but not be limited to, judgments, court cost, and attorney’s fees and the costs of reasonable settlements, such settlements to be approved by the Board, if such action is brought against Executive in his capacity as an Executive or director of the Bank or any of its subsidiaries. Indemnification for expenses shall not extend to matters for which Executive has been terminated for Cause. Nothing contained herein shall be deemed to provide indemnification prohibited by applicable law or regulation. Notwithstanding anything herein to the contrary, the obligations of this Section 13 shall survive the term of this Agreement by a period of six (6) years.

b. Insurance. During the period in which indemnification of Executive is required under this Section, the Bank shall provide Executive (and his heirs, executors, and administrators) with coverage under a directors’ and officers’ liability policy at the expense of the Bank, at least equivalent to such coverage provided to directors and senior executives of the Bank.

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14. Reimbursement of Executive’s Expenses to Enforce this Agreement. The Bank shall reimburse Executive for all out-of-pocket expenses, including, without limitation, reasonable attorney’s fees, incurred by Executive in connection with successful enforcement by Executive of the obligations of the Bank to Executive under this Agreement. Successful enforcement shall mean the grant of an award of money or the requirement that the Bank take some action specified by this Agreement: (i) as a result of court order; or (ii) otherwise by the Bank following an initial failure of the Bank to pay such money or take such action promptly after written demand therefor from Executive stating the reason that such money or action was due under this Agreement at or prior to the time of such demand.

15. Limitation of Benefits under Certain Circumstances. If the payments and benefits pursuant to Section 12 of this Agreement, either alone or together with other payments and benefits which Executive has the right to receive from the Bank, would constitute a “parachute payment” under Section 280G of the Code, the payments and benefits pursuant to Section 12 shall be reduced or revised, in the manner determined by Executive, by the amount, if any, which is the minimum necessary to result in no portion of the payments and benefits under Section 12 being non-deductible to the Bank pursuant to Section 280G of the Code and subject to the excise tax imposed under Section 4999 of the Code. The determination of any reduction in the payments and benefits to be made pursuant to Section 12 shall be based upon the opinion of the Bank’s counsel or independent public accountants which such opinion shall be paid for by the Bank. In the event that the Bank and/or Executive do not agree with the opinion of such counsel or independent accountants, (i) the Bank shall pay to Executive the maximum amount of payments and benefits pursuant to Section 12, as selected by Executive, but only to the extent that such opinion indicates there is a high probability that such payments and benefits do not result in any of such payments and benefits being non-deductible to the Bank and subject to the imposition of the excise tax imposed under Section 4999 of the Code and (ii) the Bank may request, and Executive shall have the right to demand that the Bank request, a ruling from the IRS as to whether the disputed payments and benefits pursuant to Section 12 have such consequences. Any such request for a ruling from the IRS shall be promptly prepared and filed by the Bank, but in no event later than thirty (30) days from the date of the opinion of counsel or independent accountants referred to above, and shall be subject to Executive’s approval prior to filing, which shall not be unreasonably withheld. The Bank and Executive agree to be bound by any ruling received from the IRS and to make appropriate payments to each other to reflect any such rulings, together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code. Nothing contained herein shall result in a reduction of any payments or benefits to which Executive may be entitled upon termination of employment other than pursuant to Section 12 hereof, or a reduction in the payments and benefits specified in Section 12 below zero.

16. Injunctive Relief. If there is a breach or threatened breach of Section 11(g) of this Agreement or the prohibitions upon disclosure contained in Section 10(c) of this Agreement, the parties agree that there is no adequate remedy at law for such breach, and that the Bank shall be entitled to injunctive relief restraining Executive from such breach or threatened breach, but such relief shall not be the exclusive remedy hereunder for such breach. The parties hereto likewise agree that Executive, without limitation, shall be entitled to injunctive relief to enforce the obligations of the Bank under this Agreement.

17. Successors and Assigns.

a. This Agreement shall inure to the benefit of and be binding upon any corporate or other successor of the Bank which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or stock of the Bank.

b. Since the Bank is contracting for the unique and personal skills of Executive, Executive shall be precluded from assigning or delegating his rights or duties hereunder without first obtaining the written consent of the Bank.

18. No Mitigation. Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise and no such payment shall be offset

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or reduced by the amount of any compensation or benefits provided to Executive in any subsequent employment.

19. Notices. All notices, requests, demands and other communications in connection with this Agreement shall be made in writing and shall be deemed to have been given when delivered by hand or 48 hours after mailing at any general or branch United States Post Office, by registered or certified mail, postage prepaid, addressed to the Bank at their principal business offices and to Executive at his home address as maintained in the records of the Bank.

20. No Plan Created by this Agreement. Executive and the Bank expressly declare and agree that this Agreement was negotiated among them and that no provision or provisions of this Agreement are intended to, or shall be deemed to, create any plan for purposes of the Employee Retirement Income Security Act or any other law or regulation, and each party expressly waives any right to assert the contrary. Any assertion in any judicial or administrative filing, hearing, or process that such a plan was so created by this Agreement shall be deemed a material breach of this Agreement by the party making such an assertion.

21. Amendments. No amendments or additions to this Agreement shall be binding unless made in writing and signed by all of the parties, except as herein otherwise specifically provided.

22. Applicable Law. Except to the extent preempted by Federal law, the laws of the State of Rhode Island shall govern this Agreement in all respects, whether as to its validity, construction, capacity, performance or otherwise.

23. 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.

24. Headings. Headings contained herein are for convenience of reference only.

25. Entire Agreement. This Agreement, together with any understanding or modifications thereof as agreed to in writing by the parties, shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof, other than written agreements with respect to specific plans, programs or arrangements described in Sections 5 and 6.

26. Required Provisions. In the event any of the foregoing provisions of this Section 26 are in conflict with the terms of this Agreement, this Section 26 shall prevail.

a. The Bank may terminate Executive’s employment at any time, but any termination by the Bank, other than Termination for Cause, shall not prejudice Executive’s right to compensation or other benefits under this Agreement. Executive shall not have the right to receive compensation or other benefits for any period after Termination for Cause as defined in Section 7 hereinabove.

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

c. If 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 8(g)(1) of the Federal Deposit

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Insurance Act, 12 U.S.C. Section 1818(e)(4) or (g)(1), all obligations of the Bank under this contract shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected.

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

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

f. Any payments made to Executive pursuant to this Agreement, or otherwise, are subject to and conditioned upon compliance with 12 U.S.C. Section 1828(k) and 12 C.F.R. Section 545.121 and any rules and regulations promulgated thereunder.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on October 14, 2005.

ATTEST:	NEWPORT FEDERAL SAVINGS BANK
/s/ Judy Tucker	By:	/s/ Peter W. Rector
Witness		For the Entire Board of Directors
WITNESS:	EXECUTIVE
/s/ Judy Tucker	By:	/s/ Kevin M. McCarthy
		Kevin McCarthy

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PROPOSED

AMENDMENT TO THE

NEWPORT FEDERAL SAVINGS BANK

EMPLOYMENT AGREEMENT

WHEREAS,                          (the “Executive”) entered into an employment agreement with Newport Federal Savings Bank (the “Bank”) effective October 15, 2005 (the “Agreement”); and

WHEREAS, in connection with the mutual to stock conversion of the Bank, the Bank and the Executive desire to amend the Agreement to include Newport Bancorp, Inc. as a guarantor of the payments under the Agreement and to facilitate some ministerial changes; and

WHEREAS, the Agreement provides that the Agreement may be amended or modified at any time prior to a Change in Control by means of a written instrument signed by the parties.

NOW, THEREFORE, the Bank and the Executive hereby agree to amend the Agreement as follows:

FIRST CHANGE

Effective                         , 2006, the first paragraph of the Agreement shall be amended to add the following sentence to the end of the paragraph:

“Newport Bancorp, Inc., the holding company of the Bank (the “Holding Company”) will serve as guarantor under this Agreement.”

SECOND CHANGE

Effective                         , 2006, all references in the Agreement to “Change in Control of the Bank or the Holding Company” shall be replaced with “Change in Control of the Holding Company”.

THIRD CHANGE

Effective                         , 2006, Section 12(a) shall be deleted in its entirety and replaced with the following new Section 12(a):

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

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

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

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

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

Notwithstanding anything in this Section 2, a “Change in Control” for purposes of this Agreement shall not include any corporate restructuring transaction by the Bank in mutual or stock form, including but not limited to a mutual to stock conversion.”

FOURTH CHANGE

Effective                         , 2006, the following Section 27 shall be added to the Agreement:

“27. Source of Payments.

a. All payments provided for in this Agreement shall be timely paid in cash or check from the general funds of the Bank. The Company, however, unconditionally guarantees payment and provision of all amounts and benefits due hereunder to Executive and, if such amounts and benefits due from the Bank are not timely paid or provided by the Bank, such amounts and benefits shall be paid or provided by the Company.

b. Notwithstanding any provision herein to the contrary, to the extent that payments and benefits, as provided by this Agreement, are paid to or received by Executive under the Employment Agreement in effect between Executive and the Company (the “Company Agreement”), such compensation payments and benefits paid by the Company will be subtracted from any amount due simultaneously to

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Executive under similar provisions of this Agreement. Payments pursuant to this Agreement and the Company Agreement shall be allocated in proportion to the level of activity and the time expended on such activities by Executive as determined by the Company and the Bank.”

IN WITNESS WHEREOF, the Bank has caused this Amendment to the Agreement to be executed by its duly authorized officer, and Executive has signed this Amendment, on the      day of                     , 2006.

ATTEST:	NEWPORT FEDERAL SAVINGS BANK
	For the Board of Directors
WITNESS:	EXECUTIVE

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EX-10.9

EXHIBIT 10.9

EMPLOYMENT AGREEMENT

THIS AGREEMENT (the “Agreement”), made this 14th day of October, 2005, by and between, Newport Federal Savings Bank, a federally chartered savings bank (the “Bank”), and Nino Moscardi (the “Executive”).

WHEREAS, Executive has served as Chairman and Chief Executive Officer of Westerly Savings Bank which effective this date has merged with Newport Federal Savings Bank;

WHEREAS, the Bank desires to employ Executive and be assured of the services of Executive for the period provided in this Agreement; and

WHEREAS, that certain Agreement and Plan of Merger by and between the Bank and Westerly Savings Bank dated as of April 11, 2005 (“Merger Agreement”) provides that Executive will also be offered the position of Chief Operating Officer of the holding company contemplated by said Merger Agreement;

WHEREAS, Executive is willing to serve in the employ of the Bank on a full-time basis for said period.

NOW, THEREFORE, in consideration of the mutual covenants herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows:

1. Employment. Executive is employed as Executive Vice President and Chief Operating Officer. Executive shall perform all duties and shall have all powers which are commonly incident to the offices of Executive Vice President and Chief Operating Officer or which, consistent with those offices, are delegated to him by the Chief Executive Officer or the Board of Directors of the Bank. During the term of this Agreement, Executive also agrees to serve, if elected, as an officer and/or director of any subsidiary or affiliate of the Bank and in such capacity will carry out such duties and responsibilities reasonably appropriate to that office. Executive shall be offered the position of Chief Operating Officer of the holding company contemplated by said Merger Agreement;

2. Location and Facilities. Executive will be furnished with the working facilities and staff customary for executive officers with the title and duties set forth in Section 1 and as are necessary for him to perform his duties. The location of such facilities and staff shall be at the principal administrative offices of the Bank.

3. Term.

a. The term of this Agreement shall be (i) the initial term, consisting of the period commencing on the date of this Agreement (the “Effective Date”) and ending on the third anniversary of the Effective Date, plus (ii) any and all extensions of the initial term made pursuant to this Section 3.

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b. Commencing December 2006 and each December thereafter, the disinterested members of the boards of directors of the Bank may extend the Agreement an additional year such that the remaining term of the Agreement shall be thirty-six (36) months, unless Executive elects not to extend the term of this Agreement by giving written notice in accordance with Section 19 of this Agreement. The Board of Directors of the Bank (the “Board”) will review the Agreement and Executive’s performance annually for purposes of determining whether to extend the Agreement and the rationale and results thereof shall be included in the minutes of the Board’s meeting. The Board of Directors of the Bank shall give notice to Executive as soon as possible after such review as to whether the Agreement is to be extended.

4. Base Compensation.

a. The Bank agrees to pay Executive during the initial year of this Agreement a base salary at the rate of $150,000 per year, payable in accordance with customary payroll practices.

b. The Board shall review the rate of Executive’s base salary at least annually based upon factors they deem relevant, and may maintain or increase his base salary, provided that no such action shall reduce the rate of base salary below the rate in effect on the Effective Date.

c. In the absence of action by the Board, Executive shall continue to receive base salary at the annual rate specified on the Effective Date or, if another rate has been established under the provisions of this Section 4, the rate last properly established by action of the Board under the provisions of this Section 4.

5. Bonuses. Executive shall be entitled to participate in discretionary bonuses or other incentive compensation programs that the Bank may award from time to time to senior management employees pursuant to bonus plans or otherwise.

6. Benefit Plans. Executive shall be entitled to participate in such life insurance, medical, dental, pension, profit sharing, retirement and stock-based compensation plans and other programs and arrangements as may be approved from time to time by the Bank for the benefit of their employees or for senior management of the Bank.

7. Vacation and Leave.

a. Executive shall be entitled to five (5) weeks of vacation annually, and such other leave in accordance with policy for senior executives or otherwise as approved by the Board.

b. In addition to paid vacations and other leave, Executive shall be entitled, without loss of pay, to absent himself voluntarily from the performance of his employment for such additional periods of time and for such valid and legitimate

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reasons as the Board may, in its discretion, determine. Further, the Board may grant to Executive a leave or leaves of absence, with or without pay, at such time or times and upon such terms and conditions as the Board in its discretion may determine.

8. Expense Payments and Reimbursements. Executive shall be reimbursed for all reasonable out-of-pocket business expenses that he shall incur in connection with his services under this Agreement upon substantiation of such expenses in accordance with applicable policies of the Bank.

9. Automobile Allowance. During the term of this Agreement, Executive shall be entitled to use of a 2005-2006 model year automobile of a make and value consistent with his present automobile, including insurance, maintenance and work-related fuel expenses, or, in the alternative and the sole discretion of the Bank, the Executive shall be entitled to an automobile allowance which would approximate the expense of a Bank-provided automobile and related insurance, maintenance and fuel costs. Executive shall comply with reasonable reporting and expense limitations on the use of such automobile as may be established by the Bank from time to time, and the Bank shall annually include on Executive’s Form W-2 any amount of income attributable to Executive’s personal use of such automobile. Such automobile shall be replaced with a comparable new automobile not less than every five (5) years during this Agreement.

10. Loyalty and Confidentiality.

a. During the term of this Agreement, Executive: (i) shall devote all his time, attention, skill, and efforts to the faithful performance of his duties hereunder; provided, however, that from time to time, Executive may serve on the boards of directors of, and hold any other offices or positions in, companies or organizations which will not present any conflict of interest with the Bank or any of its subsidiaries or affiliates, unfavorably affect the performance of Executive’s duties pursuant to this Agreement, or violate any applicable statute or regulation and (ii) shall not engage in any business or activity contrary to the business affairs or interests of the Bank or any of its subsidiaries or affiliates.

b. Nothing contained in this Agreement shall prevent or limit Executive’s right to invest in the capital stock or other securities or interests of any business dissimilar from that of the Bank, or, solely as a passive, minority investor, in any business.

c. Executive agrees to maintain the confidentiality of any and all information concerning the operation or financial status of the Bank; the names or addresses of any of its borrowers, depositors and other customers; any information concerning or obtained from such customers; and any other information concerning the Bank or its subsidiaries or affiliates to which he may be exposed during the course of his employment. Executive further agrees that, unless required by law or specifically permitted by the Board in writing, he will not disclose to any person or entity, either during or subsequent to his employment, any of the above-mentioned information which is not generally known to the

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public, nor shall he employ such information in any way other than for the benefit of the Bank.

11. Termination and Termination Pay. Subject to Section 12 of this Agreement, Executive’s employment under this Agreement may be terminated in the following circumstances:

a. Death. Executive’s employment under this Agreement shall terminate upon his death during the term of this Agreement, in which event Executive’s estate shall be entitled to receive the compensation due to Executive through the last day of the calendar month in which his death occurred.

b. Retirement. This Agreement shall be terminated upon Executive’s retirement under the retirement benefit plan or plans in which he participates pursuant to Section 6 of this Agreement or otherwise.

c. Disability.

i. The Board or Executive may terminate Executive’s employment after having determined Executive has a Disability. For purposes of this Agreement, “Disability” means a physical or mental infirmity that impairs Executive’s ability to substantially perform his duties under this Agreement and that results in Executive becoming eligible for long-term disability benefits under any long-term disability plans of the Bank (or, if there are no such plans in effect, that impairs Executive’s ability to substantially perform his duties under this Agreement for a period of one hundred eighty (180) consecutive days). The Board shall determine whether or not Executive is and continues to be permanently disabled for purposes of this Agreement in good faith, based upon competent medical advice and other factors that they reasonably believe to be relevant. As a condition to any benefits, the Board may require Executive to submit to such physical or mental evaluations and tests as it deems reasonably appropriate.

ii. In the event of such Disability, Executive’s obligation to perform services under this Agreement will terminate. The Bank will pay Executive, as Disability pay, an amount equal to seventy-five percent (75%) of Executive’s bi-weekly rate of base salary in effect as of the date of his termination of employment due to Disability. Disability payments will be made on a monthly basis and will commence on the first day of the month following the effective date of Executive’s termination of employment for Disability and end on the earlier of: (A) the date he returns to full-time employment at the Bank in the same capacity as he was employed prior to his termination for Disability; (B) his death; (C) upon his attainment of age 65 or (D) the date this Agreement would have expired had Executive’s employment not terminated by reason of disability. Such payments shall

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be reduced by the amount of any short- or long-term disability benefits payable to Executive under any other disability programs sponsored by the Bank. In addition, during any period of Executive’s Disability, Executive and his dependents shall, to the greatest extent possible, continue to be covered under all benefit plans (including, without limitation, retirement plans and medical, dental and life insurance plans) of the Bank, in which Executive participated prior to his Disability on the same terms as if Executive were actively employed by the Bank.

d. Termination for Cause.

i. The Board may, by written notice to Executive in the form and manner specified in this paragraph, immediately terminate his employment at any time, for “Cause.” Executive shall have no right to receive compensation or other benefits for any period after termination for Cause except for vested benefits. Termination for Cause shall mean termination because of, in the good faith determination of the Board, Executive’s:

(1) Personal dishonesty;

(2) Incompetence;

(3) Willful misconduct;

(4) Breach of fiduciary duty involving personal profit;

(5) Intentional failure to perform stated duties under this Agreement;

(6) Willful violation of any law, rule or regulation (other than traffic violations or similar offenses) that reflects adversely on the reputation of the Bank, any felony conviction, any violation of law involving moral turpitude, or any violation of a final cease-and-desist order; or

(7) Material breach by Executive of any provision of this Agreement.

ii. Notwithstanding the foregoing, Executive shall not be deemed to have been terminated for Cause by the Bank unless there shall have been delivered to Executive a copy of a resolution duly adopted by the affirmative vote of a majority of the entire membership of the Board at a meeting of such Board called and held for the purpose of finding that, in the good faith opinion of the Board, Executive was guilty of the conduct described above and specifying the particulars thereof.

e. Voluntary Termination by Executive. In addition to his other rights to terminate under this Agreement, Executive may voluntarily terminate employment during the term of this Agreement upon at least sixty (60) days prior written notice to the

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Board. Following a voluntary termination of employment under this Section 11(e), Executive will be subject to the restrictions set forth in Sections 11(g)(i) and 11(g)(ii) of this Agreement for a period of one (1) year from his termination date.

f. Without Cause or With Good Reason.

i. In addition to termination pursuant to Sections 11(a) through 11(e), the Board may, by written notice to Executive, immediately terminate his employment at any time for a reason other than Cause (a termination “Without Cause”) and Executive may, by written notice to the Board, immediately terminate this Agreement at any time within ninety (90) days following an event constituting “Good Reason,” as defined below (a termination “With Good Reason”).

ii. Subject to Section 12 of this Agreement, in the event of termination under this Section 11(f), Executive shall be entitled to receive his base salary for the remaining term of the Agreement paid in one lump sum within ten (10) calendar days of such termination. Also, in such event, Executive shall, for the remaining term of the Agreement, continue to participate in any benefit plans of the Bank that provide health (including medical and dental) and life insurance coverage, upon terms and conditions no less favorable than the most favorable terms and conditions provided to senior executives of the Bank during such period. In the event that the Bank is unable to provide such coverage by reason of Executive no longer being an employee, the Bank shall provide Executive with comparable coverage on an individual policy basis. Executive shall also be entitled to retain without cost any automobile made available to the Executive herein for a period of thirty-six (36) months from the remaining term of the Agreement.

iii. “Good Reason” shall exist if, without Executive’s express written consent, the Bank materially breaches any of its obligations under this Agreement or upon the following events. Without limitation, such a material breach or event shall be deemed to occur upon any of the following:

(1) A material reduction in Executive’s responsibilities or authority in connection with his employment with the Bank;

(2) Assignment to Executive of duties of a non-executive nature or duties for which he is not reasonably equipped by his skills and experience;

(3) Failure of Executive to be nominated or renominated to the Board to the extent Executive is a Board member prior to the Effective Date;

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(4) A reduction in salary or benefits contrary to the terms of this Agreement, or, following a Change in Control as defined in Section 12 of this Agreement, any reduction in salary or material reduction in benefits below the amounts to which Executive was entitled prior to the Change in Control;

(5) Termination of incentive and benefit plans (other than the Bank’s tax-qualified plans), programs or arrangements, or reduction of Executive’s participation to such an extent as to materially reduce their aggregate value below their aggregate value as of the Effective Date;

(6) A requirement that Executive relocate his principal business office or his principal place of residence outside of the area consisting of a twenty-five (25) mile radius from the current main office and any branch of the Bank, or the assignment to Executive of duties that would reasonably require such a relocation; or

(7) Liquidation or dissolution of the Bank.

iv. Notwithstanding the foregoing, a reduction or elimination of Executive’s benefits under one or more benefit plans maintained by the Bank as part of a good faith, overall reduction or elimination of such plan or plans or benefits thereunder applicable to all participants in a manner that does not discriminate against Executive (except as such discrimination may be necessary to comply with law) shall not constitute an event of Good Reason or a material breach of this Agreement, provided that benefits of the type or to the general extent as those offered under such plans prior to such reduction or elimination are not available to other officers of the Bank or any company that controls either of them under a plan or plans in or under which Executive is not entitled to participate.

g. Continuing Covenant Not to Compete or Interfere with Relationships. Regardless of anything herein to the contrary, following a termination by the Bank or Executive pursuant to Section 11(f):

i. Executive’s obligations under Section 10(c) of this Agreement will continue in effect; and

ii. During the period ending on the first anniversary of such termination, Executive shall not serve as an officer, director or employee of any bank or its subsidiaries or affiliates holding company, bank, savings association, savings and loan holding company, or mortgage company (any of which, a “Financial Institution”) which Financial Institution offers products or services competing with those offered by the Bank and has its principal or home office within fifteen (15) miles from the City of Newport, Rhode

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Island or the Town of Westerly, Rhode Island and shall not interfere with the relationship of the Bank, its subsidiaries or affiliates and any of their employees, agents, or representatives.

h. To the extent Executive is a member of the Board, on the date of termination of employment with the Bank, Executive shall resign from the Board immediately following such termination of employment with the Bank. Executive shall be obligated to tender such resignation regardless of the method or manner of termination, and such resignation shall not be conditioned upon any event or payment.

12. Termination in Connection with a Change in Control.

a. For purposes of this Agreement, a “Change in Control” means any of the following events:

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

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

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

b. Termination. If within the period ending two (2) years after a Change in Control, (i) the Bank shall terminate Executive’s employment Without Cause, or (ii) Executive voluntarily terminates his employment With Good Reason, the Bank shall, within ten calendar days of the termination of Executive’s employment, make a lump-sum cash payment to him equal to 2.99 times Executive’s average Annual Compensation over the five (5) most recently completed calendar years ending with the year immediately preceding the effective date of the Change in Control. In determining Executive’s average Annual Compensation, Annual Compensation shall include base salary and any other taxable income, including, but not limited to, amounts related to the granting, vesting or exercise of restricted stock or stock option awards, commissions, bonuses (whether paid or accrued for

8

the applicable period), as well as, retirement benefits, director or committee fees and fringe benefits paid or to be paid to Executive or paid for Executive’s benefit during any such year, profit sharing, employee stock ownership plan and other retirement contributions or benefits, including to any tax-qualified plan or arrangement (whether or not taxable) made or accrued on behalf of Executive of such year. The cash payment made under this Section 12(b) shall be made in lieu of any payment also required under Section 11(f) of this Agreement because of a termination in such period. Executive’s rights under Section 11(f) are not otherwise affected by this Section 12. Also, in such event, Executive shall, following his termination of employment, continue to participate in any benefit plans of the Bank that provide health (including medical and dental) and life insurance coverage upon terms no less favorable than the most favorable terms provided to senior executives during such period. In the event that the Bank is unable to provide such coverage by reason of Executive no longer being an employee, the Bank shall provide Executive with comparable coverage on an individual policy. The medical, dental and life insurance coverage or other arrangement provided under this Section 12(b) shall cease upon the earlier of: (i) the Executive’s death; (ii) his employment by another employer other than one of which he is the majority owner; or (iii) the expiration of thirty-six (36) months from his termination of employment. Executive shall also be entitled to retain without cost any automobile made available to the Executive hereunder for the period of thirty-six (36) months from his termination of employment.

c. The provisions of Section 12 and Sections 14 through 25, including the defined terms used in such sections, shall continue in effect until the later of the expiration of this Agreement or two years following a Change in Control.

d. Notwithstanding anything in this Section 12, a “Change in Control” for purposes of this Agreement shall not include any corporate restructuring transaction by the Bank in mutual or stock form, including but not limited to a mutual to stock conversion or mutual holding company reorganization or minority stock offering, provided that the Board of Directors of the Bank immediately preceding such transaction constitutes at least a majority of the Board of Directors of the Bank after such transaction.

13. Indemnification and Liability Insurance.

a. Indemnification. The Bank agrees to indemnify Executive (and his heirs, executors, and administrators), and to advance expenses related thereto, to the fullest extent permitted under applicable law and regulations against any and all expenses and liabilities reasonably incurred by him in connection with or arising out of any action, suit, or proceeding in which he may be involved by reason of his having been a director or Executive of the Bank or any of its subsidiaries (whether or not he continues to be a director or Executive at the time of incurring any such expenses or liabilities) such expenses and liabilities to include, but not be limited to, judgments, court cost, and attorney’s fees and the costs of

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reasonable settlements, such settlements to be approved by the Board, if such action is brought against Executive in his capacity as an Executive or director of the Bank or any of its subsidiaries. Indemnification for expenses shall not extend to matters for which Executive has been terminated for Cause. Nothing contained herein shall be deemed to provide indemnification prohibited by applicable law or regulation. Notwithstanding anything herein to the contrary, the obligations of this Section 13 shall survive the term of this Agreement by a period of six (6) years.

b. Insurance. During the period in which indemnification of Executive is required under this Section, the Bank shall provide Executive (and his heirs, executors, and administrators) with coverage under a directors’ and officers’ liability policy at the expense of the Bank, at least equivalent to such coverage provided to directors and senior executives of the Bank.

14. Reimbursement of Executive’s Expenses to Enforce this Agreement. The Bank shall reimburse Executive for all out-of-pocket expenses, including, without limitation, reasonable attorney’s fees, incurred by Executive in connection with successful enforcement by Executive of the obligations of the Bank to Executive under this Agreement. Successful enforcement shall mean the grant of an award of money or the requirement that the Bank take some action specified by this Agreement: (i) as a result of court order; or (ii) otherwise by the Bank following an initial failure of the Bank to pay such money or take such action promptly after written demand therefor from Executive stating the reason that such money or action was due under this Agreement at or prior to the time of such demand.

15. Limitation of Benefits under Certain Circumstances. If the payments and benefits pursuant to Section 12 of this Agreement, either alone or together with other payments and benefits which Executive has the right to receive from the Bank, would constitute a “parachute payment” under Section 280G of the Code, the payments and benefits pursuant to Section 12 shall be reduced or revised, in the manner determined by Executive, by the amount, if any, which is the minimum necessary to result in no portion of the payments and benefits under Section 12 being non-deductible to the Bank pursuant to Section 280G of the Code and subject to the excise tax imposed under Section 4999 of the Code. The determination of any reduction in the payments and benefits to be made pursuant to Section 12 shall be based upon the opinion of the Bank’s counsel or independent public accountants which such opinion shall be paid for by the Bank. In the event that the Bank and/or Executive do not agree with the opinion of such counsel or independent accountants, (i) the Bank shall pay to Executive the maximum amount of payments and benefits pursuant to Section 12, as selected by Executive, but only to the extent that such opinion indicates there is a high probability that such payments and benefits do not result in any of such payments and benefits being non-deductible to the Bank and subject to the imposition of the excise tax imposed under Section 4999 of the Code and (ii) the Bank may request, and Executive shall have the right to demand that the Bank request, a ruling from the IRS as to whether the disputed payments and benefits pursuant to Section 12 have such consequences. Any such request for a ruling from the IRS shall be promptly prepared and filed by the Bank, but in no event later than thirty (30) days from the date of the opinion of counsel or

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independent accountants referred to above, and shall be subject to Executive’s approval prior to filing, which shall not be unreasonably withheld. The Bank and Executive agree to be bound by any ruling received from the IRS and to make appropriate payments to each other to reflect any such rulings, together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code. Nothing contained herein shall result in a reduction of any payments or benefits to which Executive may be entitled upon termination of employment other than pursuant to Section 12 hereof, or a reduction in the payments and benefits specified in Section 12 below zero.

16. Injunctive Relief. If there is a breach or threatened breach of Section 11(g) of this Agreement or the prohibitions upon disclosure contained in Section 10(c) of this Agreement, the parties agree that there is no adequate remedy at law for such breach, and that the Bank shall be entitled to injunctive relief restraining Executive from such breach or threatened breach, but such relief shall not be the exclusive remedy hereunder for such breach. The parties hereto likewise agree that Executive, without limitation, shall be entitled to injunctive relief to enforce the obligations of the Bank under this Agreement.

17. Successors and Assigns.

a. This Agreement shall inure to the benefit of and be binding upon any corporate or other successor of the Bank which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or stock of the Bank.

b. Since the Bank is contracting for the unique and personal skills of Executive, Executive shall be precluded from assigning or delegating his rights or duties hereunder without first obtaining the written consent of the Bank.

18. No Mitigation. Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise and no such payment shall be offset or reduced by the amount of any compensation or benefits provided to Executive in any subsequent employment.

19. Notices. All notices, requests, demands and other communications in connection with this Agreement shall be made in writing and shall be deemed to have been given when delivered by hand or 48 hours after mailing at any general or branch United States Post Office, by registered or certified mail, postage prepaid, addressed to the Bank at their principal business offices and to Executive at his home address as maintained in the records of the Bank.

20. No Plan Created by this Agreement. Executive and the Bank expressly declare and agree that this Agreement was negotiated among them and that no provision or provisions of this Agreement are intended to, or shall be deemed to, create any plan for purposes of the Employee Retirement Income Security Act or any other law or regulation, and each party expressly waives any right to assert the contrary. Any assertion in any judicial or administrative filing, hearing, or process that such a plan was so created by this Agreement shall be deemed a material breach of this Agreement by the party making such an assertion.

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21. Amendments. No amendments or additions to this Agreement shall be binding unless made in writing and signed by all of the parties, except as herein otherwise specifically provided.

22. Applicable Law. Except to the extent preempted by Federal law, the laws of the State of Rhode Island shall govern this Agreement in all respects, whether as to its validity, construction, capacity, performance or otherwise.

23. 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.

24. Headings. Headings contained herein are for convenience of reference only.

25. Entire Agreement. This Agreement, together with any understanding or modifications thereof as agreed to in writing by the parties, shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof, other than written agreements with respect to specific plans, programs or arrangements described in Sections 5 and 6.

26. Required Provisions. In the event any of the foregoing provisions of this Section 26 are in conflict with the terms of this Agreement, this Section 26 shall prevail.

a. The Bank may terminate Executive’s employment at any time, but any termination by the Bank, other than Termination for Cause, shall not prejudice Executive’s right to compensation or other benefits under this Agreement. Executive shall not have the right to receive compensation or other benefits for any period after Termination for Cause as defined in Section 7 hereinabove.

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

c. If 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 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. Section 1818(e)(4) or (g)(1), all obligations of the Bank under this contract shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected.

d. If the Bank is in default as defined in Section 3(x)(1) of the Federal Deposit Insurance Act, 12 U.S.C. Section 1813(x)(1) all obligations of the Bank under this

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contract shall terminate as of the date of default, but this paragraph shall not affect any vested rights of the contracting parties.

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

f. Any payments made to Executive pursuant to this Agreement, or otherwise, are subject to and conditioned upon compliance with 12 U.S.C. Section 1828(k) and 12 C.F.R. Section 545.121 and any rules and regulations promulgated thereunder.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on October 14, 2005.

ATTEST:	NEWPORT FEDERAL SAVINGS BANK
/s/ Judy Tucker		By:	/s/ Kevin M. McCarthy
Corporate Secretary			For the Entire Board of Directors
WITNESS:	EXECUTIVE
/s/ Judy Tucker		By:	/s/ Nino Moscardi
			Nino Moscardi

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PROPOSED

AMENDMENT TO THE

NEWPORT FEDERAL SAVINGS BANK

EMPLOYMENT AGREEMENT

WHEREAS,                          (the “Executive”) entered into an employment agreement with Newport Federal Savings Bank (the “Bank”) effective October 15, 2005 (the “Agreement”); and

WHEREAS, in connection with the mutual to stock conversion of the Bank, the Bank and the Executive desire to amend the Agreement to include Newport Bancorp, Inc. as a guarantor of the payments under the Agreement and to facilitate some ministerial changes; and

WHEREAS, the Agreement provides that the Agreement may be amended or modified at any time prior to a Change in Control by means of a written instrument signed by the parties.

NOW, THEREFORE, the Bank and the Executive hereby agree to amend the Agreement as follows:

FIRST CHANGE

Effective                         , 2006, the first paragraph of the Agreement shall be amended to add the following sentence to the end of the paragraph:

“Newport Bancorp, Inc., the holding company of the Bank (the “Holding Company”) will serve as guarantor under this Agreement.”

SECOND CHANGE

Effective                         , 2006, all references in the Agreement to “Change in Control of the Bank or the Holding Company” shall be replaced with “Change in Control of the Holding Company”.

THIRD CHANGE

Effective                         , 2006, Section 12(a) shall be deleted in its entirety and replaced with the following new Section 12(a):

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

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

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

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

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

Notwithstanding anything in this Section 2, a “Change in Control” for purposes of this Agreement shall not include any corporate restructuring transaction by the Bank in mutual or stock form, including but not limited to a mutual to stock conversion.”

FOURTH CHANGE

Effective                         , 2006, the following Section 27 shall be added to the Agreement:

“27. Source of Payments.

a. All payments provided for in this Agreement shall be timely paid in cash or check from the general funds of the Bank. The Company, however, unconditionally guarantees payment and provision of all amounts and benefits due hereunder to Executive and, if such amounts and benefits due from the Bank are not timely paid or provided by the Bank, such amounts and benefits shall be paid or provided by the Company.

b. Notwithstanding any provision herein to the contrary, to the extent that payments and benefits, as provided by this Agreement, are paid to or received by Executive under the Employment Agreement in effect between Executive and the Company (the “Company Agreement”), such compensation payments and benefits paid by the Company will be subtracted from any amount due simultaneously to

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Executive under similar provisions of this Agreement. Payments pursuant to this Agreement and the Company Agreement shall be allocated in proportion to the level of activity and the time expended on such activities by Executive as determined by the Company and the Bank.”

IN WITNESS WHEREOF, the Bank has caused this Amendment to the Agreement to be executed by its duly authorized officer, and Executive has signed this Amendment, on the      day of                     , 2006.

ATTEST:	NEWPORT FEDERAL SAVINGS BANK
	For the Board of Directors
WITNESS:	EXECUTIVE

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EX-10.10

Exhibit 10.10

EMPLOYMENT AGREEMENT

THIS AGREEMENT (the “Agreement”), made this 14th day of October, 2005, by and between, Newport Federal Savings Bank, a federally chartered savings bank (the “Bank”), and Ray Gilmore (the “Executive”).

WHEREAS, Executive serves in a position of substantial responsibility;

WHEREAS, the Bank wishes to assure the services of Executive for the period provided in this Agreement; and

WHEREAS, Executive is willing to serve in the employ of the Bank on a full-time basis for said period.

NOW, THEREFORE, in consideration of the mutual covenants herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows:

1. Employment. Executive is employed as the Chief Lending Officer of the Bank. Executive shall perform all duties and shall have all powers which are commonly incident to the offices of Chief Lending Officer or which, consistent with those offices, are delegated to him by the Board of Directors of the Bank. During the term of this Agreement, Executive also agrees to serve, if elected, as an officer and/or director of any subsidiary or affiliate of the Bank and in such capacity will carry out such duties and responsibilities reasonably appropriate to that office.

2. Location and Facilities. Executive will be furnished with the working facilities and staff customary for executive officers with the title and duties set forth in Section 1 and as are necessary for him to perform his duties. The location of such facilities and staff shall be at the principal administrative offices of the Bank, or at such other site or sites customary for such offices.

3. Term.

a. The term of this Agreement shall be (i) the initial term, consisting of the period commencing on the date of this Agreement (the “Effective Date”) and ending on the third anniversary of the Effective Date, plus (ii) any and all extensions of the initial term made pursuant to this Section 3.

b. Commencing December 2005 and each December thereafter, the disinterested members of the boards of directors of the Bank may extend the Agreement an additional year such that the remaining term of the Agreement shall be thirty-six (36) months, unless Executive elects not to extend the term of this Agreement by giving written notice in accordance with Section 19 of this Agreement. The Board of Directors of the Bank (the “Board”) will review the Agreement and Executive’s performance annually for purposes of determining whether to extend the Agreement and the rationale and results thereof shall be included in the minutes of the Board’s meeting. The Board of Directors of the Bank shall give notice to Executive as soon as possible after such review as to whether the Agreement is to be extended.

4. Base Compensation.

a. The Bank agrees to pay Executive during the term of this Agreement a base salary at the rate of $140,000 per year, payable in accordance with customary payroll practices.

b. The Board shall review the rate of Executive’s base salary at least annually based upon factors they deem relevant, and may maintain or increase his base salary, provided that no such action shall reduce the rate of base salary below the rate in effect on the Effective Date.

c. In the absence of action by the Board, Executive shall continue to receive base salary at the annual rate specified on the Effective Date or, if another rate has been established under the provisions of this Section 4, the rate last properly established by action of the Board under the provisions of this Section 4.

5. Bonuses. Executive shall be entitled to participate in discretionary bonuses or other incentive compensation programs that the Bank may award from time to time to senior management employees pursuant to bonus plans or otherwise.

6. Benefit Plans. Executive shall be entitled to participate in such life insurance, medical, dental, pension, profit sharing, retirement and stock-based compensation plans and other programs and arrangements as may be approved from time to time by the Bank for the benefit of their employees.

7. Vacation and Leave.

a. Executive shall be entitled to vacations and other leave in accordance with policy for senior executives, or otherwise as approved by the Board.

b. In addition to paid vacations and other leave, Executive shall be entitled, without loss of pay, to absent himself voluntarily from the performance of his employment for such additional periods of time and for such valid and legitimate reasons as the Board may, in its discretion, determine. Further, the Board may grant to Executive a leave or leaves of absence, with or without pay, at such time or times and upon such terms and conditions as the Board in its discretion may determine.

8. Expense Payments and Reimbursements. Executive shall be reimbursed for all reasonable out-of-pocket business expenses that he shall incur in connection with his services under this Agreement upon substantiation of such expenses in accordance with applicable policies of the Bank.

9. Automobile Allowance. During the term of this Agreement, Executive shall be entitled to use of an automobile provided by the Bank, including insurance, maintenance and work-related fuel expenses, or, in the alternative and the sole discretion of the Bank, the Executive shall be entitled to an automobile allowance which would approximate the expense of a Bank-provided automobile and related insurance, maintenance and fuel costs. Executive shall comply with reasonable reporting and expense limitations on the use of such automobile as may be established by the Bank from time to time, and the Bank shall annually include on Executive’s Form W-2 any amount of income attributable to Executive’s personal use of such automobile.

10. Loyalty and Confidentiality.

a. During the term of this Agreement, Executive: (i) shall devote all his time, attention, skill, and efforts to the faithful performance of his duties hereunder; provided, however, that from time to time, Executive may serve on the boards of directors of, and hold any other offices or positions in, companies or organizations which will not present any conflict of interest with the Bank or any of its subsidiaries or affiliates, unfavorably affect the performance of Executive’s duties pursuant to this Agreement, or violate any applicable statute or regulation and (ii) shall not engage in any business or activity contrary to the business affairs or interests of the Bank or any of its subsidiaries or affiliates.

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b. Nothing contained in this Agreement shall prevent or limit Executive’s right to invest in the capital stock or other securities or interests of any business dissimilar from that of the Bank, or, solely as a passive, minority investor, in any business.

c. Executive agrees to maintain the confidentiality of any and all information concerning the operation or financial status of the Bank; the names or addresses of any of its borrowers, depositors and other customers; any information concerning or obtained from such customers; and any other information concerning the Bank or its subsidiaries or affiliates to which he may be exposed during the course of his employment. Executive further agrees that, unless required by law or specifically permitted by the Board in writing, he will not disclose to any person or entity, either during or subsequent to his employment, any of the above-mentioned information which is not generally known to the public, nor shall he employ such information in any way other than for the benefit of the Bank.

11. Termination and Termination Pay. Subject to Section 12 of this Agreement, Executive’s employment under this Agreement may be terminated in the following circumstances:

a. Death. Executive’s employment under this Agreement shall terminate upon his death during the term of this Agreement, in which event Executive’s estate shall be entitled to receive the compensation due to Executive through the last day of the calendar month in which his death occurred.

b. Retirement. This Agreement shall be terminated upon Executive’s retirement under the retirement benefit plan or plans in which he participates pursuant to Section 6 of this Agreement or otherwise.

c. Disability.

i. The Board or Executive may terminate Executive’s employment after having determined Executive has a Disability. For purposes of this Agreement, “Disability” means a physical or mental infirmity that impairs Executive’s ability to substantially perform his duties under this Agreement and that results in Executive becoming eligible for long-term disability benefits under any long-term disability plans of the Bank (or, if there are no such plans in effect, that impairs Executive’s ability to substantially perform his duties under this Agreement for a period of one hundred eighty (180) consecutive days). The Board shall determine whether or not Executive is and continues to be permanently disabled for purposes of this Agreement in good faith, based upon competent medical advice and other factors that they reasonably believe to be relevant. As a condition to any benefits, the Board may require Executive to submit to such physical or mental evaluations and tests as it deems reasonably appropriate.

ii. In the event of such Disability, Executive’s obligation to perform services under this Agreement will terminate. The Bank will pay Executive, as Disability pay, an amount equal to seventy-five percent (75%) of Executive’s bi-weekly rate of base salary in effect as of the date of his termination of employment due to Disability. Disability payments will be made on a monthly basis and will commence on the first day of the month following the effective date of Executive’s termination of employment for Disability and end on the earlier of: (A) the date he returns to full-time employment at the Bank in the same capacity as he was employed prior to his termination for Disability; (B) his death; (C) upon his attainment of age 65 or (D) the date this Agreement would have expired had Executive’s employment not terminated by reason of disability. Such payments shall be reduced by the amount of any

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short- or long-term disability benefits payable to Executive under any other disability programs sponsored by the Bank. In addition, during any period of Executive’s Disability, Executive and his dependents shall, to the greatest extent possible, continue to be covered under all benefit plans (including, without limitation, retirement plans and medical, dental and life insurance plans) of the Bank, in which Executive participated prior to his Disability on the same terms as if Executive were actively employed by the Bank.

d. Termination for Cause.

i. The Board may, by written notice to Executive in the form and manner specified in this paragraph, immediately terminate his employment at any time, for “Cause.” Executive shall have no right to receive compensation or other benefits for any period after termination for Cause except for vested benefits. Termination for Cause shall mean termination because of, in the good faith determination of the Board, Executive’s:

(1) Personal dishonesty;

(2) Incompetence;

(3) Willful misconduct;

(4) Breach of fiduciary duty involving personal profit;

(5) Intentional failure to perform stated duties under this Agreement;

(6) Willful violation of any law, rule or regulation (other than traffic violations or similar offenses) that reflects adversely on the reputation of the Bank, any felony conviction, any violation of law involving moral turpitude, or any violation of a final cease-and-desist order; or

(7) Material breach by Executive of any provision of this Agreement.

ii. Notwithstanding the foregoing, Executive shall not be deemed to have been terminated for Cause by the Bank unless there shall have been delivered to Executive a copy of a resolution duly adopted by the affirmative vote of a majority of the entire membership of the Board at a meeting of such Board called and held for the purpose of finding that, in the good faith opinion of the Board, Executive was guilty of the conduct described above and specifying the particulars thereof.

e. Voluntary Termination by Executive. In addition to his other rights to terminate under this Agreement, Executive may voluntarily terminate employment during the term of this Agreement upon at least sixty (60) days prior written notice to the Board. Following a voluntary termination of employment under this Section 11(e), Executive will be subject to the restrictions set forth in Sections 11(g)(i) and 11(g)(ii) of this Agreement for a period of one (1) year from his termination date.

f. Without Cause or With Good Reason.

i. In addition to termination pursuant to Sections 11(a) through 11(e), the Board may, by written notice to Executive, immediately terminate his employment at any time for a reason other than Cause (a termination “Without Cause”) and Executive may, by

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written notice to the Board, immediately terminate this Agreement at any time within ninety (90) days following an event constituting “Good Reason,” as defined below (a termination “With Good Reason”).

ii. Subject to Section 12 of this Agreement, in the event of termination under this Section 11(f), Executive shall be entitled to receive his base salary for the remaining term of the Agreement paid in one lump sum within ten (10) calendar days of such termination. Also, in such event, Executive shall, for the remaining term of the Agreement, continue to participate in any benefit plans of the Bank that provide health (including medical and dental) and life insurance coverage, upon terms and conditions no less favorable than the most favorable terms and conditions provided to senior executives of the Bank during such period. In the event that the Bank is unable to provide such coverage by reason of Executive no longer being an employee, the Bank shall provide Executive with comparable coverage on an individual policy basis.

iii. “Good Reason” shall exist if, without Executive’s express written consent, the Bank materially breaches any of its obligations under this Agreement. Without limitation, such a material breach shall be deemed to occur upon any of the following:

(1) A material reduction in Executive’s responsibilities or authority in connection with his employment with the Bank;

(2) Assignment to Executive of duties of a non-executive nature or duties for which he is not reasonably equipped by his skills and experience;

(3) Failure of Executive to be nominated or renominated to the Board to the extent Executive is a Board member prior to the Effective Date;

(4) A reduction in salary or benefits contrary to the terms of this Agreement, or, following a Change in Control as defined in Section 12 of this Agreement, any reduction in salary or material reduction in benefits below the amounts to which Executive was entitled prior to the Change in Control;

(5) Termination of incentive and benefit plans (other than the Bank’s tax-qualified plans), programs or arrangements, or reduction of Executive’s participation to such an extent as to materially reduce their aggregate value below their aggregate value as of the Effective Date;

(6) A requirement that Executive relocate his principal business office or his principal place of residence outside of the area consisting of a twenty-five (25) mile radius from the current main office and any branch of the Bank, or the assignment to Executive of duties that would reasonably require such a relocation; or

(7) Liquidation or dissolution of the Bank.

iv. Notwithstanding the foregoing, a reduction or elimination of Executive’s benefits under one or more benefit plans maintained by the Bank as part of a good faith, overall reduction or elimination of such plans or plans or benefits thereunder applicable to all participants in a manner that does not discriminate against Executive (except as such discrimination may be necessary to comply with law) shall not constitute an event of Good Reason or a material breach of this Agreement, provided

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that benefits of the type or to the general extent as those offered under such plans prior to such reduction or elimination are not available to other officers of the Bank or any company that controls either of them under a plan or plans in or under which Executive is not entitled to participate.

g. Continuing Covenant Not to Compete or Interfere with Relationships. Regardless of anything herein to the contrary, following a termination by the Bank or Executive pursuant to Section 11(f):

i. Executive’s obligations under Section 10(c) of this Agreement will continue in effect; and

ii. During the period ending on the first anniversary of such termination, Executive shall not serve as an officer, director or employee of any bank or its subsidiaries or affiliates holding company, bank, savings association, savings and loan holding company, or mortgage company (any of which, a “Financial Institution”) which Financial Institution offers products or services competing with those offered by the Bank from any office within fifty (50) miles from the main office or any branch of the Bank and shall not interfere with the relationship of the Bank, its subsidiaries or affiliates and any of their employees, agents, or representatives.

h. To the extent Executive is a member of the Board, on the date of termination of employment with the Bank, Executive shall resign from the Board immediately following such termination of employment with the Bank. Executive shall be obligated to tender such resignation regardless of the method or manner of termination, and such resignation shall not be conditioned upon any event or payment.

12. Termination in Connection with a Change in Control.

a. For purposes of this Agreement, a “Change in Control” means any of the following events:

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

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

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

b. Termination. If within the period ending two (2) years after a Change in Control, (i) the Bank shall terminate Executive’s employment Without Cause, or (ii) Executive voluntarily terminates his employment With Good Reason, the Bank shall, within ten calendar days of the termination of Executive’s employment, make a lump-sum cash payment to him equal to 2.99 times Executive’s average Annual Compensation over the five (5) most recently completed calendar years ending with the year immediately preceding the effective date of the Change in Control. In determining Executive’s average Annual Compensation, Annual Compensation

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shall include base salary and any other taxable income, including, but not limited to, amounts related to the granting, vesting or exercise of restricted stock or stock option awards, commissions, bonuses (whether paid or accrued for the applicable period), as well as, retirement benefits, director or committee fees and fringe benefits paid or to be paid to Executive or paid for Executive’s benefit during any such year, profit sharing, employee stock ownership plan and other retirement contributions or benefits, including to any tax-qualified plan or arrangement (whether or not taxable) made or accrued on behalf of Executive of such year. The cash payment made under this Section 12(b) shall be made in lieu of any payment also required under Section 11(f) of this Agreement because of a termination in such period. Executive’s rights under Section 11(f ) are not otherwise affected by this Section 12. Also, in such event, Executive shall, following his termination of employment, continue to participate in any benefit plans of the Bank that provide health (including medical and dental) and life insurance coverage upon terms no less favorable than the most favorable terms provided to senior executives during such period. In the event that the Bank is unable to provide such coverage by reason of Executive no longer being an employee, the Bank shall provide Executive with comparable coverage on an individual policy. The medical, dental and life insurance coverage or other arrangement provided under this Section 12(b) shall cease upon the earlier of: (i) the Executive’s death; (ii) his employment by another employer other than one of which he is the majority owner; or (iii) the expiration of thirty-six (36) months from his termination of employment.

c. The provisions of Section 12 and Sections 14 through 25, including the defined terms used in such sections, shall continue in effect until the later of the expiration of this Agreement or two years following a Change in Control.

d. Notwithstanding anything in this Section 12, a “Change in Control” for purposes of this Agreement shall not include any corporate restructuring transaction by the Bank in mutual or stock form, including but not limited to a mutual to stock conversion or mutual holding company reorganization or minority stock offering, provided that the Board of Directors of the Bank immediately preceding such transaction constitutes at least a majority of the Board of Directors of the Bank after such transaction.

13. Indemnification and Liability Insurance.

a. Indemnification. The Bank agrees to indemnify Executive (and his heirs, executors, and administrators), and to advance expenses related thereto, to the fullest extent permitted under applicable law and regulations against any and all expenses and liabilities reasonably incurred by him in connection with or arising out of any action, suit, or proceeding in which he may be involved by reason of his having been a director or Executive of the Bank or any of its subsidiaries (whether or not he continues to be a director or Executive at the time of incurring any such expenses or liabilities) such expenses and liabilities to include, but not be limited to, judgments, court cost, and attorney’s fees and the costs of reasonable settlements, such settlements to be approved by the Board, if such action is brought against Executive in his capacity as an Executive or director of the Bank or any of its subsidiaries. Indemnification for expenses shall not extend to matters for which Executive has been terminated for Cause. Nothing contained herein shall be deemed to provide indemnification prohibited by applicable law or regulation. Notwithstanding anything herein to the contrary, the obligations of this Section 13 shall survive the term of this Agreement by a period of six (6) years.

b. Insurance. During the period in which indemnification of Executive is required under this Section, the Bank shall provide Executive (and his heirs, executors, and administrators) with coverage under a directors’ and officers’ liability policy at the expense of the Bank, at least equivalent to such coverage provided to directors and senior executives of the Bank.

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14. Reimbursement of Executive’s Expenses to Enforce this Agreement. The Bank shall reimburse Executive for all out-of-pocket expenses, including, without limitation, reasonable attorney’s fees, incurred by Executive in connection with successful enforcement by Executive of the obligations of the Bank to Executive under this Agreement. Successful enforcement shall mean the grant of an award of money or the requirement that the Bank take some action specified by this Agreement: (i) as a result of court order; or (ii) otherwise by the Bank following an initial failure of the Bank to pay such money or take such action promptly after written demand therefor from Executive stating the reason that such money or action was due under this Agreement at or prior to the time of such demand.

15. Limitation of Benefits under Certain Circumstances. If the payments and benefits pursuant to Section 12 of this Agreement, either alone or together with other payments and benefits which Executive has the right to receive from the Bank, would constitute a “parachute payment” under Section 280G of the Code, the payments and benefits pursuant to Section 12 shall be reduced or revised, in the manner determined by Executive, by the amount, if any, which is the minimum necessary to result in no portion of the payments and benefits under Section 12 being non-deductible to the Bank pursuant to Section 280G of the Code and subject to the excise tax imposed under Section 4999 of the Code. The determination of any reduction in the payments and benefits to be made pursuant to Section 12 shall be based upon the opinion of the Bank’s counsel or independent public accountants which such opinion shall be paid for by the Bank. In the event that the Bank and/or Executive do not agree with the opinion of such counsel or independent accountants, (i) the Bank shall pay to Executive the maximum amount of payments and benefits pursuant to Section 12, as selected by Executive, but only to the extent that such opinion indicates there is a high probability that such payments and benefits do not result in any of such payments and benefits being non-deductible to the Bank and subject to the imposition of the excise tax imposed under Section 4999 of the Code and (ii) the Bank may request, and Executive shall have the right to demand that the Bank request, a ruling from the IRS as to whether the disputed payments and benefits pursuant to Section 12 have such consequences. Any such request for a ruling from the IRS shall be promptly prepared and filed by the Bank, but in no event later than thirty (30) days from the date of the opinion of counsel or independent accountants referred to above, and shall be subject to Executive’s approval prior to filing, which shall not be unreasonably withheld. The Bank and Executive agree to be bound by any ruling received from the IRS and to make appropriate payments to each other to reflect any such rulings, together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code. Nothing contained herein shall result in a reduction of any payments or benefits to which Executive may be entitled upon termination of employment other than pursuant to Section 12 hereof, or a reduction in the payments and benefits specified in Section 12 below zero.

16. Injunctive Relief. If there is a breach or threatened breach of Section 11(g) of this Agreement or the prohibitions upon disclosure contained in Section 10(c) of this Agreement, the parties agree that there is no adequate remedy at law for such breach, and that the Bank shall be entitled to injunctive relief restraining Executive from such breach or threatened breach, but such relief shall not be the exclusive remedy hereunder for such breach. The parties hereto likewise agree that Executive, without limitation, shall be entitled to injunctive relief to enforce the obligations of the Bank under this Agreement.

17. Successors and Assigns.

a. This Agreement shall inure to the benefit of and be binding upon any corporate or other successor of the Bank which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or stock of the Bank.

b. Since the Bank is contracting for the unique and personal skills of Executive, Executive shall be precluded from assigning or delegating his rights or duties hereunder without first obtaining the written consent of the Bank.

18. No Mitigation. Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise and no such payment shall be offset

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or reduced by the amount of any compensation or benefits provided to Executive in any subsequent employment.

19. Notices. All notices, requests, demands and other communications in connection with this Agreement shall be made in writing and shall be deemed to have been given when delivered by hand or 48 hours after mailing at any general or branch United States Post Office, by registered or certified mail, postage prepaid, addressed to the Bank at their principal business offices and to Executive at his home address as maintained in the records of the Bank.

20. No Plan Created by this Agreement. Executive and the Bank expressly declare and agree that this Agreement was negotiated among them and that no provision or provisions of this Agreement are intended to, or shall be deemed to, create any plan for purposes of the Employee Retirement Income Security Act or any other law or regulation, and each party expressly waives any right to assert the contrary. Any assertion in any judicial or administrative filing, hearing, or process that such a plan was so created by this Agreement shall be deemed a material breach of this Agreement by the party making such an assertion.

21. Amendments. No amendments or additions to this Agreement shall be binding unless made in writing and signed by all of the parties, except as herein otherwise specifically provided.

22. Applicable Law. Except to the extent preempted by Federal law, the laws of the State of Rhode Island shall govern this Agreement in all respects, whether as to its validity, construction, capacity, performance or otherwise.

23. 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.

24. Headings. Headings contained herein are for convenience of reference only.

25. Entire Agreement. This Agreement, together with any understanding or modifications thereof as agreed to in writing by the parties, shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof, other than written agreements with respect to specific plans, programs or arrangements described in Sections 5 and 6.

26. Required Provisions. In the event any of the foregoing provisions of this Section 26 are in conflict with the terms of this Agreement, this Section 26 shall prevail.

a. The Bank may terminate Executive’s employment at any time, but any termination by the Bank, other than Termination for Cause, shall not prejudice Executive’s right to compensation or other benefits under this Agreement. Executive shall not have the right to receive compensation or other benefits for any period after Termination for Cause as defined in Section 7 hereinabove.

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

c. If 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 8(g)(1) of the Federal Deposit

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Insurance Act, 12 U.S.C. Section 1818(e)(4) or (g)(1), all obligations of the Bank under this contract shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected.

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

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

f. Any payments made to Executive pursuant to this Agreement, or otherwise, are subject to and conditioned upon compliance with 12 U.S.C. Section 1828(k) and 12 C.F.R. Section 545.121 and any rules and regulations promulgated thereunder.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on October 14, 2005.

ATTEST:	NEWPORT FEDERAL SAVINGS BANK
/s/ Judy Tucker	By:	/s/ Peter W. Rector
Witness		For the Entire Board of Directors
WITNESS:	EXECUTIVE
/s/ Judy Tucker	By:	/s/ Ray Gilmore
		Ray Gilmore

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PROPOSED

AMENDMENT TO THE

NEWPORT FEDERAL SAVINGS BANK

EMPLOYMENT AGREEMENT

WHEREAS,                          (the “Executive”) entered into an employment agreement with Newport Federal Savings Bank (the “Bank”) effective October 15, 2005 (the “Agreement”); and

WHEREAS, in connection with the mutual to stock conversion of the Bank, the Bank and the Executive desire to amend the Agreement to include Newport Bancorp, Inc. as a guarantor of the payments under the Agreement and to facilitate some ministerial changes; and

WHEREAS, the Agreement provides that the Agreement may be amended or modified at any time prior to a Change in Control by means of a written instrument signed by the parties.

NOW, THEREFORE, the Bank and the Executive hereby agree to amend the Agreement as follows:

FIRST CHANGE

Effective                         , 2006, the first paragraph of the Agreement shall be amended to add the following sentence to the end of the paragraph:

“Newport Bancorp, Inc., the holding company of the Bank (the “Holding Company”) will serve as guarantor under this Agreement.”

SECOND CHANGE

Effective                         , 2006, all references in the Agreement to “Change in Control of the Bank or the Holding Company” shall be replaced with “Change in Control of the Holding Company”.

THIRD CHANGE

Effective                         , 2006, Section 12(a) shall be deleted in its entirety and replaced with the following new Section 12(a):

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

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

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

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

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

Notwithstanding anything in this Section 2, a “Change in Control” for purposes of this Agreement shall not include any corporate restructuring transaction by the Bank in mutual or stock form, including but not limited to a mutual to stock conversion.”

FOURTH CHANGE

Effective                         , 2006, the following Section 27 shall be added to the Agreement:

“27. Source of Payments.

a. All payments provided for in this Agreement shall be timely paid in cash or check from the general funds of the Bank. The Company, however, unconditionally guarantees payment and provision of all amounts and benefits due hereunder to Executive and, if such amounts and benefits due from the Bank are not timely paid or provided by the Bank, such amounts and benefits shall be paid or provided by the Company.

b. Notwithstanding any provision herein to the contrary, to the extent that payments and benefits, as provided by this Agreement, are paid to or received by Executive under the Employment Agreement in effect between Executive and the Company (the “Company Agreement”), such compensation payments and benefits paid by the Company will be subtracted from any amount due simultaneously to

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Executive under similar provisions of this Agreement. Payments pursuant to this Agreement and the Company Agreement shall be allocated in proportion to the level of activity and the time expended on such activities by Executive as determined by the Company and the Bank.”

IN WITNESS WHEREOF, the Bank has caused this Amendment to the Agreement to be executed by its duly authorized officer, and Executive has signed this Amendment, on the      day of                     , 2006.

ATTEST:	NEWPORT FEDERAL SAVINGS BANK
	For the Board of Directors
WITNESS:	EXECUTIVE

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EX-10.11

Exhibit 10.11

FORM OF

NEWPORT BANCORP, INC.

THREE-YEAR EMPLOYMENT AGREEMENT

THIS AGREEMENT (the “Agreement”), made this ___ day of _______________, 2006, by and among NEWPORT BANCORP, INC., a Maryland corporation (the “Company”), and _____________________ (“Executive”). References to the “Bank” herein shall mean NEWPORT FEDERAL SAVINGS BANK.

WITNESSETH

WHEREAS, Executive serves in a position of substantial responsibility;

WHEREAS, the Company wishes to assure the services of Executive for the period provided in this Agreement; and

WHEREAS, Executive is willing to serve in the employ of the Company on a full-time basis for said period.

NOW, THEREFORE, in consideration of the mutual covenants herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows:

1. Employment. Executive is employed as the ___________________________ of the Company. Executive shall perform all duties and shall have all powers which are commonly incident to the offices of __________________________ of the Company or which, consistent with those offices, are delegated to him by the Board of Directors of the Company. During the term of this Agreement, Executive also agrees to serve, if elected, as an officer and/or director of any subsidiary of the Company and in such capacity carry out such duties and responsibilities reasonably appropriate to that office.

2. Location and Facilities. The Executive will be furnished with the working facilities and staff customary for executive officers with the title and duties set forth in Section 1 and as are necessary for him to perform his duties. The location of such facilities and staff shall be at the principal administrative offices of the Company, or at such other site or sites customary for such offices.

3. Term. The period of Executive’s employment under this Agreement shall be deemed to have commenced as of the date written above and shall continue for a period of thirty-six (36) full calendar months. The term of this Agreement shall be extended for one day each day so that a constant thirty-six (36) calendar month term shall remain in effect, until such time as the Board of Directors of the Company (the “Board”) or Executive elects not to extend the term of the Agreement by giving written notice to the other party in accordance with the terms of this Agreement, in which case the term of this Agreement shall be fixed and shall end on the third anniversary of the date of such written notice.

4. Base Compensation.

a. The Company agrees to pay the Executive during the term of this Agreement a base salary at the rate of $________ per year, payable in accordance with customary payroll practices.

b. The Board shall review the rate of the Executive’s base salary at least annually based upon factors they deem relevant, and may maintain or increase his salary, provided that no such action shall reduce the rate of salary below the rate in effect on the Effective Date.

c. In the absence of action by the Board, the Executive shall continue to receive his base salary at the annual rate specified on the Effective Date or, if another rate has been established under the provisions of this Section 4, the rate last properly established by action of the Board under the provisions of this Section 4.

5. Bonuses. The Executive shall be entitled to participate in discretionary bonuses or other incentive compensation programs that the Company may award from time to time to senior management employees pursuant to bonus plans or otherwise.

6. Benefit Plans. The Executive shall be entitled to participate in such life insurance, medical, dental, pension, profit sharing, retirement and stock-based compensation plans and other programs and arrangements as may be approved from time to time by the Company and the Bank for the benefit of their employees.

7. Vacation and Leave.

a. The Executive shall be entitled to vacation and other leave in accordance with policy for senior executives, or otherwise as approved by the Board.

b. In addition to paid vacation and other leave, the Executive shall be entitled, without loss of pay, to absent himself voluntarily from the performance of his employment for such additional periods of time and for such valid and legitimate reasons as the Board may in its discretion determine. Further, the Board may grant to the Executive a leave or leaves of absence, with or without pay, at such time or times and upon such terms and conditions as the Board in its discretion may determine.

8. Expense Payments and Reimbursements. The Executive shall be reimbursed for all reasonable out-of-pocket business expenses that he shall incur in connection with his services under this Agreement upon substantiation of such expenses in accordance with applicable policies of the Company.

9. Automobile Allowance. During the term of this Agreement, Executive shall be entitled to use of an automobile provided by the Bank or the Company, including insurance,

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maintenance and work-related fuel expenses, or, in the alternative and the sole discretion of the Bank or the Company, the Executive shall be entitled to an automobile allowance which would approximate the expense of a Bank-provided or Company provided automobile and related insurance, maintenance and fuel costs. Executive shall comply with reasonable reporting and expense limitations on the use of such automobile as may be established by the Bank or the Company from time to time, and the Bank or the Company shall annually include on Executive’s Form W-2 any amount of income attributable to Executive’s personal use of such automobile.

10. Loyalty and Confidentiality.

a. During the term of this Agreement Executive: (i) shall devote all his time, attention, skill, and efforts to the faithful performance of his duties hereunder; provided, however, that from time to time, Executive may serve on the boards of directors of, and hold any other offices or positions in, companies or organizations which will not present any conflict of interest with the Company or any of their subsidiaries or affiliates, unfavorably affect the performance of Executive’s duties pursuant to this Agreement, or violate any applicable statute or regulation and (ii) shall not engage in any business or activity contrary to the business affairs or interests of the Company.

b. Nothing contained in this Agreement shall prevent or limit Executive’s right to invest in the capital stock or other securities of any business dissimilar from that of the Company, or, solely as a passive, minority investor, in any business.

c. Executive agrees to maintain the confidentiality of any and all information concerning the operation or financial status of the Company and the Bank, the names or addresses of any of its borrowers, depositors and other customers; any information concerning or obtained from such customers; and any other information concerning the Company and the Bank to which he may be exposed during the course of his employment. The Executive further agrees that, unless required by law or specifically permitted by the Board in writing, he will not disclose to any person or entity, either during or subsequent to his employment, any of the above-mentioned information which is not generally known to the public, nor shall he employ such information in any way other than for the benefit of the Company and the Bank.

11. Termination and Termination Pay. Subject to Section 12 of this Agreement, Executive’s employment under this Agreement may be terminated in the following circumstances:

a. Death. Executive’s employment under this Agreement shall terminate upon his death during the term of this Agreement, in which event Executive’s estate shall be entitled to receive the compensation due to the Executive through the last day of the calendar month in which his death occurred.

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b. Retirement. This Agreement shall be terminated upon Executive’s retirement under the retirement benefit plan or plans in which he participates pursuant to Section 6 of this Agreement or otherwise.

c. Disability.

i. The Board or Executive may terminate Executive’s employment after having determined Executive has a Disability. For purposes of this Agreement, “Disability” means a physical or mental infirmity that impairs Executive’s ability to substantially perform his duties under this Agreement and that results in Executive becoming eligible for long-term disability benefits under any long-term disability plans of the Company and the Bank (or, if there are no such plans in effect, that impairs Executive’s ability to substantially perform his duties under this Agreement for a period of one hundred eighty (180) consecutive days). The Board shall determine whether or not Executive is and continues to be permanently disabled for purposes of this Agreement in good faith, based upon competent medical advice and other factors that they reasonably believe to be relevant. As a condition to any benefits, the Board may require Executive to submit to such physical or mental evaluations and tests as it deems reasonably appropriate.

ii. In the event of such Disability, Executive’s obligation to perform services under this Agreement will terminate. The Bank or the Company will pay Executive, as Disability pay, an amount equal to 75% of Executive’s bi-weekly rate of base salary in effect as of the date of his termination of employment due to Disability. Disability payments will be made on a monthly basis and will commence on the first day of the month following the effective date of Executive’s termination of employment for Disability and end on the earlier of: (A) the date he returns to full-time employment at the Company in the same capacity as he was employed prior to his termination for Disability; (B) his death; (C) upon attainment of age 65 or (D) the date this Agreement would have expired had Executive’s employment not terminated by reason of disability. Such payments shall be reduced by the amount of any short- or long-term disability benefits payable to the Executive under any other disability programs sponsored by the Bank or the Company. In addition, during any period of Executive’s Disability, Executive and his dependents shall, to the greatest extent possible, continue to be covered under all benefit plans (including, without limitation, retirement plans and medical, dental and life insurance plans) of the Bank and the Company, in which Executive participated prior to his Disability on the same terms as if Executive were actively employed by the Company.

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d. Termination for Cause.

i. The Board may, by written notice to the Executive in the form and manner specified in this paragraph, terminate his employment at any time, for “Cause”. The Executive shall have no right to receive compensation or other benefits for any period after termination for Cause. Termination for “Cause” shall mean termination because of, in the good faith determination of the Board, Executive’s:

(1) Personal dishonesty;

(2) Incompetence;

(3) Willful misconduct;

(4) Breach of fiduciary duty involving personal profit;

(5) Intentional failure to perform stated duties;

(6) Willful violation of any law, rule or regulation (other than traffic violations or similar offenses) that reflects adversely on the reputation of the Company and the Bank, any felony conviction, any violation of law involving moral turpitude or any violation of a final cease-and-desist order; or

(7) Material breach by Executive of any provision of this Agreement.

ii. Notwithstanding the foregoing, Executive shall not be deemed to have been terminated for Cause by the Bank unless there shall have been delivered to Executive a copy of a resolution duly adopted at a meeting of such Board where in the good faith opinion of the Board, Executive was guilty of the conduct described above and specifying the particulars thereof.

e. Voluntary Termination by Executive. In addition to his other rights to terminate under this Agreement, Executive may voluntarily terminate employment during the term of this Agreement upon at least sixty (60) days prior written notice to the Boards, in which case Executive shall receive only his compensation, vested rights and employee benefits up to the date of his termination. Following a voluntary termination of employment under this Section 11(e), Executive will be subject to the restrictions set forth in Sections 11(g)(i) and 11(g)(ii) of this Agreement for a period of one (1) year from his termination date.

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f. Without Cause or With Good Reason.

i. In addition to termination pursuant to Sections 11(a) through 11(e) the Boards, may, by written notice to Executive, immediately terminate his employment at any time for a reason other than Cause (a termination “Without Cause”) and Executive may, by written notice to the Board, immediately terminate this Agreement at any time within ninety (90) days following an event constituting “Good Reason” as defined below (a termination “With Good Reason”).

ii. Subject to Section 12 of this Agreement, in the event of termination under this Section 11(f), Executive shall be entitled to receive his base salary for the remaining term of the Agreement paid in one lump sum within ten (10) calendar days of such termination. Also, in such event, Executive shall, for the remaining term of the Agreement, receive the benefits he would have received during the remaining term of the Agreement under any retirement programs (whether tax-qualified or non-qualified) in which Executive participated prior to his termination (with the amount of the benefits determined by reference to the benefits received by the Executive or accrued on his behalf under such programs during the twelve (12) months preceding his termination) and continue to participate in any benefit plans of the Bank or the Company that provide health (including medical and dental), or life insurance, or similar coverage upon terms no less favorable than the most favorable terms provided to senior executives of the Company during such period. In the event that the Company or the Bank are unable to provide such coverage by reason of Executive no longer being an employee, the Company shall provide Executive with comparable coverage on an individual policy basis.

iii. “Good Reason” shall exist if, without Executive’s express written consent, the Bank materially breach any of their respective obligations under this Agreement. Without limitation, such a material breach shall be deemed to occur upon any of the following:

(1) A material reduction in Executive’s responsibilities or authority in connection with his employment with the Bank;

(2) Assignment to Executive of duties of a non-executive nature or duties for which he is not reasonably equipped by his skills and experience;

(3) Failure of the Executive to be nominated or re-nominated to the Board to the extent Executive is a Board member prior to the Effective Date;

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(4) A reduction in salary or benefits contrary to the terms of this Agreement, or, following a Change in Control as defined in Section 12 of this Agreement, any reduction in salary or material reduction in benefits below the amounts to which he was entitled prior to the Change in Control;

(5) Termination of incentive and benefit plans (other than the Bank’s tax-qualified plans), programs or arrangements, or reduction of Executive’s participation to such an extent as to materially reduce their aggregate value below their aggregate value as of the Effective Date;

(6) A requirement that Executive relocate his principal business office or his principal place of residence outside of the area consisting of a twenty-five (25) mile radius from the current main office and any branch of the Bank, or the assignment to Executive of duties that would reasonably require such a relocation; or

(7) liquidation or dissolution of the Company or the Bank.

iv. Notwithstanding the foregoing, a reduction or elimination of the Executive’s benefits under one or more benefit plans maintained by the Company or the Bank as part of a good faith, overall reduction or elimination of such plans or plans or benefits thereunder applicably to all participants in a manner that does not discriminate against Executive (except as such discrimination may be necessary to comply with law) shall not constitute an event of Good Reason or a material breach of this Agreement, provided that benefits of the type or to the general extent as those offered under such plans prior to such reduction or elimination are not available to other officers of the Bank or any company that controls the Bank under a plan or plans in or under which Executive is not entitled to participate.

g. Continuing Covenant Not to Compete or Interfere with Relationships. Regardless of anything herein to the contrary, following a termination by the Bank or Executive pursuant to Section 11(f):

i. Executive’s obligations under Section 10(c) of this Agreement will continue in effect; and

ii. During the period ending on the first anniversary of such termination, the Executive shall not serve as an officer, director or employee of any bank holding company, bank, savings bank, savings and loan holding company, or mortgage company (any of which, a “Financial Institution”) which Financial Institution offers products or services competing with those offered by the Bank from any office within fifty (50) miles from the main

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office or any branch of the Bank and shall not interfere with the relationship of the Company and the Bank and any of its employees, agents, or representatives.

12. Termination in Connection with a Change in Control.

a. For purposes of this Agreement, a Change in Control means any of the following events:

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

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

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

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

Notwithstanding anything in this Agreement to the contrary, in no event shall the corporate restructuring of the Board from the mutual to the stock form of organization constitute a “Change in Control” for purposes of this Agreement.

b. Termination. If within the period ending two (2) years after a Change in Control, (i) the Company and the Bank shall terminate the Executive’s employment

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Without Cause, or (ii) Executive voluntarily terminates his employment With Good Reason, the Company and the Bank shall, within ten calendar days of the termination of Executive’s employment, make a lump-sum cash payment to him equal to three (3) times the Executive’s average Annual Compensation over the five (5) most recently completed calendar years ending with the year immediately preceding the effective date of the Change in Control. In determining Executive’s average Annual Compensation, Annual Compensation shall include base salary and any other taxable income, including but not limited to amounts related to the granting, vesting or exercise of restricted stock or stock option awards, commissions, bonuses (whether paid or accrued for the applicable period), as well as, retirement benefits, director or committee fees and fringe benefits paid or to be paid to Executive or paid for Executive’s benefit during any such year, profit sharing, employee stock ownership plan and other retirement contributions or benefits, including to any tax-qualified plan or arrangement (whether or not taxable) made or accrued on behalf of Executive of such year. The cash payment made under this Section 12(a) shall be made in lieu of any payment also required under Section 11(f) of this Agreement because of a termination in such period. Executive’s rights under Section 11(f) are not otherwise affected by this Section 12. Also, in such event, the Executive shall, for a thirty-six (36) month period following his termination of employment, receive the benefits he would have received over such period under any retirement programs (whether tax-qualified or nonqualified) in which the Executive participated prior to his termination (with the amount of the benefits determined by reference to the benefits received by the Executive or accrued on his behalf under such programs during the twelve (12) months preceding the Change in Control) and continue to participate in any benefit plans of the Company and the Bank that provide health (including medical and dental), or life insurance, or similar coverage upon terms no less favorable than the most favorable terms provided to senior executives of the Bank during such period. In the event that the Company and the Bank are unable to provide such coverage by reason of the Executive no longer being an employee, the Company and the Bank shall provide the Executive with comparable coverage on an individual policy.

c. The provisions of Section 12 and Sections 14 through 25, including the defined terms used is such sections, shall continue in effect until the later of the expiration of this Agreement or two (2) years following a Change in Control.

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13. Indemnification and Liability Insurance. Subject to, and limited by Section 26(f) of this Agreement, the Bank shall provide the following:

a. Indemnification. The Company and the Bank agree to indemnify the Executive (and his heirs, executors, and administrators), and to advance expenses related thereto, to the fullest extent permitted under applicable law and regulations against any and all expenses and liabilities reasonably incurred by him in connection with or arising out of any action, suit, or proceeding in which he may be involved by reason of his having been a director or Executive of the Company, the Bank or any of their subsidiaries (whether or not he continues to be a director or Executive at the time of incurring any such expenses or liabilities) such expenses and liabilities to include, but not be limited to, judgments, court costs, and attorney’s fees and the cost of reasonable settlements, such settlements to be approved by the Board, if such action is brought against the Executive in his capacity as an Executive or director of the Company and the Bank or any of their subsidiaries. Indemnification for expense shall not extend to matters for which the Executive has been terminated for Cause. Nothing contained herein shall be deemed to provide indemnification prohibited by applicable law or regulation. Notwithstanding anything herein to the contrary, the obligations of this Section 13 shall survive the term of this Agreement by a period of six (6) years.

b. Insurance. During the period in which indemnification of the Executive is required under this Section, the Company and the Bank shall provide the Executive (and his heirs, executors, and administrators) with coverage under a directors’ and Executives’ liability policy at the expense of the Company and the Bank, at least equivalent to such coverage provided to directors and senior Executives of the Company and the Bank.

14. Reimbursement of Executive’s Expenses to Enforce this Agreement. The Company shall reimburse the Executive for all reasonable out-of-pocket expenses, including, without limitation, reasonable attorney’s fees, incurred by the Executive in connection with successful enforcement by the Executive of the obligations of the Company to the Executive under this Agreement. Successful enforcement shall mean the grant of an award of money or the requirement that the Company take some action specified by this Agreement: (i) as a result of court order; or (ii) otherwise by the Company following an initial failure of the Company to pay such money or take such action promptly after written demand therefor from the Executive stating the reason that such money or action was due under this Agreement at or prior to the time of such demand.

15. Adjustment of Certain Payments and Benefits.

a. Tax Indemnification. Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment, benefit or distribution made or provided by the Company or the Bank to or for the benefit of the Executive (whether made or provided pursuant to the terms of this Agreement or otherwise) (each referred to herein as a “Payment”),

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would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”) or any interest or penalties are incurred by the Executive with respect to such excise tax (the excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), the Executive shall be entitled to receive an additional payment (a “Gross-Up Payment”) in an amount such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.

b. Determination of Gross-Up Payment. Subject to the provisions of Section 15(c) of this Agreement, all determinations required to be made under this Section 15, including whether and when a Gross-Up Payment is required, the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by a certified public accounting firm reasonably acceptable to the Company as may be designated by the Executive (the “Accounting Firm”) which shall provide detailed supporting calculations to the Company and the Executive within fifteen (15) business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 15, shall be paid by the Company to the Executive within five (5) business days of the later of (i) the due date for the payment of any Excise Tax, and (ii) the receipt of the Accounting Firm’s determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code, at the time of the initial determination by the Accounting Firm hereunder, it is possible that a Gross-Up Payment will not have been made by the Company which should have been made (an “Underpayment”), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 15(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.

c. Treatment of Claims. The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require a Gross-Up Payment to be made. Such notification shall be given as soon as practicable, but no later than ten (10) business days, after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the thirty (30) day period following the date on which it gives such notice to the Company and the Bank (or any shorter period

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ending on the date that payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of this period that it desires to contest such claim, the Executive shall:

i. give the Company any information reasonably requested by the Company relating to such claim;

ii. take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company;

iii. cooperate with the Company in good faith in order to effectively contest such claim; and

iv. permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and indemnity and hold the Executive harmless, on an after-tax basis, for any Excise Tax or related taxes, interest or penalties imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 15(c) of this Agreement, the Company shall control all proceedings taken in connection with such contest and, at their option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority with respect to such claim and may, at their option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner. Further, the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis (including interest or penalties with respect thereto). Furthermore, the Company’s control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issues raised by the Internal Revenue Service or any other taxing authority.

d. Adjustments to the Gross-Up Payment. If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 15(c) of this Agreement, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company’s compliance with the requirements of Section 15(c) of this Agreement) promptly pay to the Company the amount of

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such refund (together with any interest paid or credited thereon after applicable taxes). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 15(c) of this Agreement, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and such denial of refund occurs prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of the Gross-Up Payment required to be paid.

16. Injunctive Relief. If there is a breach or threatened breach of Section 11(g) of this Agreement or the prohibitions upon disclosure contained in Section 10(c) of this Agreement, the parties agree that there is no adequate remedy at law for such breach, and that the Bank shall be entitled to injunctive relief restraining the Executive from such breach or threatened breach, but such relief shall not be the exclusive remedy hereunder for such breach. The parties hereto likewise agree that the Executive, without limitation, shall be entitled to injunctive relief to enforce the obligations of the Bank under this Agreement.

17. Successors and Assigns.

a. This Agreement shall inure to the benefit of and be binding upon any corporate or other successor of the Company which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or stock of the Company.

b. Since the Company is contracting for the unique and personal skills of Executive, Executive shall be precluded from assigning or delegating his rights or duties hereunder without first obtaining the written consent of the Company.

18. No Mitigation. Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise and no such payment shall be offset or reduced by the amount of any compensation or benefits provided to Executive in any subsequent employment.

19. Notices. All notices, requests, demands and other communications in connection with this Agreement shall be made in writing and shall be deemed to have been given when delivered by hand or 48 hours after mailing at any general or branch United States Post Office, by registered or certified mail, postage prepaid, addressed to the Company at their principal business offices and to Executive at his home address as maintained in the records of the Bank.

20. No Plan Created by this Agreement. Executive and the Company expressly declare and agree that this Agreement was negotiated among them and that no provision or provisions of this Agreement are intended to, or shall be deemed to, create any plan for purposes of the Employee Retirement Income Security Act or any other law or regulation, and each party expressly waives any right to assert the contrary. Any assertion in any judicial or administrative filing, hearing, or process that such a plan was so created by this Agreement shall be deemed a material breach of this Agreement by the party making such an assertion.

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21. Amendments. No amendments or additions to this Agreement shall be binding unless made in writing and signed by all of the parties, except as herein otherwise specifically provided.

22. Applicable Law. Except to the extent preempted by Federal law, the laws of the State of Rhode Island shall govern this Agreement in all respects, whether as to its validity, construction, capacity, performance or otherwise.

23. 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.

24. Headings. Headings contained herein are for convenience of reference only.

25. Entire Agreement. This Agreement, together with any understanding or modifications thereof as agreed to in writing by the parties, shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof, other than written agreements with respect to specific plans, programs or arrangements described in Sections 5 and 6.

26. Required Provisions. In the event any of the foregoing provisions of this Section 26 are in conflict with the terms of this Agreement, this Section 26 shall prevail.

a. The Bank’s or the Company’s board of directors may terminate Executive’s employment at any time, but any termination by the Bank or the Company, other than Termination for Cause, shall not prejudice Executive’s right to compensation or other benefits under this Agreement. Executive shall not have the right to receive compensation or other benefits for any period after Termination for Cause as defined in Section 11(d) hereinabove.

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

c. If 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 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. §1818(e)(4) or (g)(1), all obligations of the Bank under this contract shall

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

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

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

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

g. Notwithstanding anything in this Agreement to the contrary, if the Company or the Bank in good faith determines that amounts that, as of the effective date of the Executive’s termination of employment are or may become payable to the Executive upon termination of his employment hereunder are required to be suspended or delayed for six (6) months in order to satisfy the requirements of Section 409A of the Internal Revenue Code, then the Company or the Bank will so advise the Executive, and any such payments shall be suspended and accrued for six months, whereupon they shall be paid to the Executive in a lump sum (together with interest thereon at the then-prevailing prime rate).

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first set forth above.

Attest:	NEWPORT BANCORP, INC.
	By:
		Chairman of the Board of Directors
Witness:	EXECUTIVE

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EX-10.12

Exhibit 10.12

FORM OF

NEWPORT BANCORP, INC.

TWO-YEAR EMPLOYMENT AGREEMENT

THIS AGREEMENT (the “Agreement”), made this ___ day of _________________, 2006, by and among NEWPORT BANCORP, INC., a Maryland corporation (the “Company”), and ___________________ (“Executive”). References to the “Bank” herein shall mean NEWPORT FEDERAL SAVINGS BANK.

WITNESSETH

WHEREAS, Executive serves in a position of substantial responsibility;

WHEREAS, the Company wishes to assure the services of Executive for the period provided in this Agreement; and

WHEREAS, Executive is willing to serve in the employ of the Company on a full-time basis for said period.

NOW, THEREFORE, in consideration of the mutual covenants herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows:

1. Employment. Executive is employed as the __________________________ of the Company. Executive shall perform all duties and shall have all powers which are commonly incident to the offices of __________________________ of the Company or which, consistent with those offices, are delegated to him by the Chief Executive Officer and/or Chief Operating Officer of the Company.

2. Location and Facilities. The Executive will be furnished with the working facilities and staff customary for executive officers with the title and duties set forth in Section 1 and as are necessary for him to perform his duties. The location of such facilities and staff shall be at the principal administrative offices of the Company, or at such other site or sites customary for such offices.

3. Term.

a. The term of this Agreement shall be (i) the initial term, consisting of the period commencing on the date of this Agreement (the “Effective Date”) and ending on the second anniversary of the Effective Date, plus (ii) any and all extensions of the initial term made pursuant to this Section 3.

b. Commencing December 2006 and each December thereafter, the disinterested members of the boards of directors of the Company may extend the Agreement an additional year such that the remaining term of the Agreement shall be twenty-four (24) months, unless

Executive elects not to extend the term of this Agreement by giving written notice in accordance with Section 19 of this Agreement. The Board of Directors of the Company (the “Board”) will review the Agreement and Executive’s performance annually for purposes of determining whether to extend the Agreement and the rationale and results thereof shall be included in the minutes of the Board’s meeting. The Board of Directors of the Company shall give notice to Executive as soon as possible after such review as to whether the Agreement is to be extended.

4. Base Compensation.

a. The Company agrees to pay the Executive during the term of this Agreement a base salary at the rate of $_______ per year, payable in accordance with customary payroll practices.

b. The Board shall review annually the rate of the Executive’s base salary based upon factors they deem relevant, and may maintain or increase his salary, provided that no such action shall reduce the rate of salary below the rate in effect on the Effective Date.

c. In the absence of action by the Board, the Executive shall continue to receive salary at the annual rate specified on the Effective Date or, if another rate has been established under the provisions of this Section 4, the rate last properly established by action of the Board under the provisions of this Section 4.

5. Bonuses. The Executive shall be entitled to participate in discretionary bonuses or other incentive compensation programs that the Company may award from time to time to senior management employees pursuant to bonus plans or otherwise.

6. Benefit Plans. The Executive shall be entitled to participate in such life insurance, medical, dental, pension, profit sharing, retirement and stock-based compensation plans and other programs and arrangements as may be approved from time to time by the Company and the Bank for the benefit of their employees.

7. Vacation and Leave.

a. The Executive shall be entitled to vacation and other leave in accordance with policy for senior executives, or otherwise as approved by the Board.

b. In addition to paid vacation and other leave, the Executive shall be entitled, without loss of pay, to absent himself voluntarily from the performance of his employment for such additional periods of time and for such valid and legitimate reasons as the Board may in its discretion determine. Further, the Board may grant to the Executive a leave or leaves of absence, with or without pay, at such time or times and upon such terms and conditions as the Board in its discretion may determine.

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8. Expense Payments and Reimbursements. The Executive shall be reimbursed for all reasonable out-of-pocket business expenses that he shall incur in connection with his services under this Agreement upon substantiation of such expenses in accordance with applicable policies of the Company.

9. Reserved.

10. Loyalty and Confidentiality.

a. During the term of this Agreement Executive: (i) shall devote all his time, attention, skill, and efforts to the faithful performance of his duties hereunder; provided, however, that from time to time, Executive may serve on the boards of directors of, and hold any other offices or positions in, companies or organizations which will not present any conflict of interest with the Company or any of their subsidiaries or affiliates, unfavorably affect the performance of Executive’s duties pursuant to this Agreement, or violate any applicable statute or regulation and (ii) shall not engage in any business or activity contrary to the business affairs or interests of the Company.

b. Nothing contained in this Agreement shall prevent or limit Executive’s right to invest in the capital stock or other securities of any business dissimilar from that of the Company, or, solely as a passive, minority investor, in any business.

c. Executive agrees to maintain the confidentiality of any and all information concerning the operation or financial status of the Company and the Bank, the names or addresses of any of its borrowers, depositors and other customers; any information concerning or obtained from such customers; and any other information concerning the Company and the Bank to which he may be exposed during the course of his employment. The Executive further agrees that, unless required by law or specifically permitted by the Board in writing, he will not disclose to any person or entity, either during or subsequent to his employment, any of the above-mentioned information which is not generally known to the public, nor shall he employ such information in any way other than for the benefit of the Company and the Bank.

11. Termination and Termination Pay. Subject to Section 12 of this Agreement, Executive’s employment under this Agreement may be terminated in the following circumstances:

a. Death. Executive’s employment under this Agreement shall terminate upon his death during the term of this Agreement, in which event Executive’s estate shall be entitled to receive the compensation due to the Executive through the last day of the calendar month in which his death occurred.

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b. Retirement. This Agreement shall be terminated upon Executive’s retirement under the retirement benefit plan or plans in which he participates pursuant to Section 6 of this Agreement or otherwise.

c. Disability.

i. The Board or Executive may terminate Executive’s employment after having determined Executive has a Disability. For purposes of this Agreement, “Disability” means a physical or mental infirmity that impairs Executive’s ability to substantially perform his duties under this Agreement and that results in Executive becoming eligible for long-term disability benefits under any long-term disability plans of the Company and the Bank (or, if there are no such plans in effect, that impairs Executive’s ability to substantially perform his duties under this Agreement for a period of one hundred eighty (180) consecutive days). The Board shall determine whether or not Executive is and continues to be permanently disabled for purposes of this Agreement in good faith, based upon competent medical advice and other factors that they reasonably believe to be relevant. As a condition to any benefits, the Board may require Executive to submit to such physical or mental evaluations and tests as it deems reasonably appropriate.

ii. In the event of such Disability, Executive’s obligation to perform services under this Agreement will terminate. The Bank or the Company will pay Executive, as Disability pay, an amount equal to 75% of Executive’s bi-weekly rate of base salary in effect as of the date of his termination of employment due to Disability. Disability payments will be made on a monthly basis and will commence on the first day of the month following the effective date of Executive’s termination of employment for Disability and end on the earlier of: (A) the date he returns to full-time employment at the Company in the same capacity as he was employed prior to his termination for Disability; (B) his death; (C) upon attainment of age 65 or (D) upon termination of the Agreement. Such payments shall be reduced by the amount of any short- or long-term disability benefits payable to the Executive under any other disability programs sponsored by the Bank or the Company. In addition, during any period of Executive’s Disability, Executive and his dependents shall, to the greatest extent possible, continue to be covered under all benefit plans (including, without limitation, retirement plans and medical, dental and life insurance plans) of the Bank and the Company, in which Executive participated prior to his Disability on the same terms as if Executive were actively employed by the Company.

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d. Termination for Cause.

i. The Board may, by written notice to the Executive in the form and manner specified in this paragraph, terminate his employment at any time, for “Cause”. The Executive shall have no right to receive compensation or other benefits for any period after termination for Cause. Termination for “Cause” shall mean termination because of, in the good faith determination of the Board, Executive’s:

(1) Personal dishonesty;

(2) Incompetence;

(3) Willful misconduct;

(4) Breach of fiduciary duty involving personal profit;

(5) Intentional failure to perform stated duties;

(6) Willful violation of any law, rule or regulation (other than traffic violations or similar offenses) that reflects adversely on the reputation of the Company and the Bank, any felony conviction, any violation of law involving moral turpitude or any violation of a final cease-and-desist order; or

(7) Material breach by Executive of any provision of this Agreement.

ii. Notwithstanding the foregoing, Executive shall not be deemed to have been terminated for Cause by the Bank unless there shall have been delivered to Executive a copy of a resolution duly adopted at a meeting of such Board where in the good faith opinion of the Board, Executive was guilty of the conduct described above and specifying the particulars thereof.

e. Voluntary Termination by Executive. In addition to his other rights to terminate under this Agreement, Executive may voluntarily terminate employment during the term of this Agreement upon at least sixty (60) days prior written notice to the Boards, in which case Executive shall receive only his compensation, vested rights and employee benefits up to the date of his termination.

f. Without Cause or With Good Reason.

i. In addition to termination pursuant to Sections 11(a) through 11(e) the Boards, may, by written notice to Executive, immediately terminate his employment at any time for a reason other than Cause (a termination “Without Cause”) and Executive may, by written notice to the Board, immediately terminate this Agreement at any time within ninety (90) days

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following an event constituting “Good Reason” as defined below (a termination “With Good Reason”).

ii. Subject to Section 12 of this Agreement, in the event of termination under this Section 11(f), Executive shall be entitled to receive his base salary for the remaining term of the Agreement paid in one lump sum within ten (10) calendar days of such termination. Also, in such event, Executive shall, for the remaining term of the Agreement, receive the benefits he would have received during the remaining term of the Agreement under any retirement programs (whether tax-qualified or non-qualified) in which Executive participated prior to his termination (with the amount of the benefits determined by reference to the benefits received by the Executive or accrued on his behalf under such programs during the twelve (12) months preceding his termination) and continue to participate in any benefit plans of the Bank or the Company that provide health (including medical and dental), or life insurance, or similar coverage upon terms no less favorable than the most favorable terms provided to senior executives of the Company during such period. In the event that the Company or the Bank are unable to provide such coverage by reason of Executive no longer being an employee, the Company shall provide Executive with comparable coverage on an individual policy basis.

iii. “Good Reason” shall exist if, without Executive’s express written consent, the Bank materially breach any of their respective obligations under this Agreement. Without limitation, such a material breach shall be deemed to occur upon any of the following:

(1) A material reduction in Executive’s responsibilities or authority in connection with his employment with the Bank;

(2) Assignment to Executive of duties of a non-executive nature or duties for which he is not reasonably equipped by his skills and experience;

(3) Failure of the Executive to be nominated or re-nominated to the Board

(4) A reduction in salary or benefits contrary to the terms of this Agreement, or, following a Change in Control as defined in Section 12 of this Agreement, any reduction in salary or material reduction in benefits below the amounts to which he was entitled prior to the Change in Control;

(5) Termination of incentive and benefit plans, programs or arrangements, or reduction of Executive’s participation to such an

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extent as to materially reduce their aggregate value below their aggregate value as of the Effective Date;

(6) A requirement that Executive relocate his principal business office or his principal place of residence outside of the area consisting of a twenty-five (25) mile radius from the current main office and any branch of the Bank, or the assignment to Executive of duties that would reasonably require such a relocation; or

(7) liquidation or dissolution of the Company or the Bank.

iv. Notwithstanding the foregoing, a reduction or elimination of the Executive’s benefits under one or more benefit plans maintained by the Company or the Bank as part of a good faith, overall reduction or elimination of such plans or plans or benefits thereunder applicably to all participants in a manner that does not discriminate against Executive (except as such discrimination may be necessary to comply with law) shall not constitute an event of Good Reason or a material breach of this Agreement, provided that benefits of the type or to the general extent as those offered under such plans prior to such reduction or elimination are not available to other officers of the Bank or any company that controls the Bank under a plan or plans in or under which Executive is not entitled to participate.

g. Continuing Covenant Not to Compete or Interfere with Relationships. Regardless of anything herein to the contrary, following a termination by the Bank or Executive pursuant to Section 11(f):

i. Executive’s obligations under Section 10(c) of this Agreement will continue in effect; and

ii. During the period ending on the first anniversary of such termination, the Executive shall not serve as an officer, director or employee of any bank holding company, bank, savings bank, savings and loan holding company, or mortgage company (any of which, a “Financial Institution”) which Financial Institution offers products or services competing with those offered by the Bank from any office within fifty (50) miles from the main office or any branch of the Bank and shall not interfere with the relationship of the Company and the Bank and any of its employees, agents, or representatives.

12. Termination in Connection with a Change in Control.

a. For purposes of this Agreement, a Change in Control means any of the following events:

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

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

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

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

Notwithstanding anything in this Agreement to the contrary, in no event shall the corporate restructuring of the Bank from the mutual to the stock form of organization constitute a “Change in Control” for purposes of this Agreement.

b. Termination. If within the period ending two (2) years after a Change in Control, (i) the Bank shall terminate Executive’s employment Without Cause, or (ii) Executive voluntarily terminates his employment With Good Reason, the Bank shall, within ten calendar days of the termination of Executive’s employment, make a lump-sum cash payment to him equal to two (2) times Executive’s average Annual Compensation over the five (5) most recently completed calendar years ending with the year immediately preceding the effective date of the Change in Control. In determining Executive’s average Annual Compensation, Annual Compensation shall include base salary and any other taxable income, including, but not limited to, amounts related to the granting, vesting or exercise of restricted stock or stock option awards,

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commissions, bonuses (whether paid or accrued for the applicable period), as well as, retirement benefits, director or committee fees and fringe benefits paid or to be paid to Executive or paid for Executive’s benefit during any such year, profit sharing, employee stock ownership plan and other retirement contributions or benefits, including to any tax-qualified plan or arrangement (whether or not taxable) made or accrued on behalf of Executive of such year. The cash payment made under this Section 12(b) shall be made in lieu of any payment also required under Section 11(f) of this Agreement because of a termination in such period. Executive’s rights under Section 11(f ) are not otherwise affected by this Section 12. Also, in such event, Executive shall, following his termination of employment, continue to participate in any benefit plans of the Bank that provide health (including medical and dental) and life insurance coverage upon terms no less favorable than the most favorable terms provided to senior executives for a period of twenty-four (24) months after his termination date. In the event that the Bank or the Company is unable to provide such coverage by reason of Executive no longer being an employee, the Bank or the Company shall provide Executive with comparable coverage on an individual policy. The medical, dental and life insurance coverage or other arrangement provided under this Section 12(b) shall cease upon the earlier of: (i) the Executive’s death; (ii) his employment by another employer other than one of which he is the majority owner; or (iii) the expiration of twenty-four (24) months from his termination of employment.

13. Indemnification and Liability Insurance. Subject to, and limited by Section 26(f) of this Agreement, the Bank shall provide the following:

a. Indemnification. The Company and the Bank agree to indemnify the Executive (and his heirs, executors, and administrators), and to advance expenses related thereto, to the fullest extent permitted under applicable law and regulations against any and all expenses and liabilities reasonably incurred by him in connection with or arising out of any action, suit, or proceeding in which he may be involved by reason of his having been a director or Executive of the Company, the Bank or any of their subsidiaries (whether or not he continues to be a director or Executive at the time of incurring any such expenses or liabilities) such expenses and liabilities to include, but not be limited to, judgments, court costs, and attorney’s fees and the cost of reasonable settlements, such settlements to be approved by the Board, if such action is brought against the Executive in his capacity as an Executive or director of the Company and the Bank or any of their subsidiaries. Indemnification for expense shall not extend to matters for which the Executive has been terminated for Cause. Nothing contained herein shall be deemed to provide indemnification prohibited by applicable law or regulation. Notwithstanding anything herein to the contrary, the obligations of this Section 13 shall survive the term of this Agreement by a period of six (6) years.

b. Insurance. During the period in which indemnification of the Executive is required under this Section, the Company and the Bank shall provide the Executive (and his heirs, executors, and administrators) with coverage under a

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directors’ and Executives’ liability policy at the expense of the Company and the Bank, at least equivalent to such coverage provided to directors and senior Executives of the Company and the Bank.

14. Reimbursement of Executive’s Expenses to Enforce this Agreement. The Company shall reimburse the Executive for all reasonable out-of-pocket expenses, including, without limitation, reasonable attorney’s fees, incurred by the Executive in connection with successful enforcement by the Executive of the obligations of the Company to the Executive under this Agreement. Successful enforcement shall mean the grant of an award of money or the requirement that the Company take some action specified by this Agreement: (i) as a result of court order; or (ii) otherwise by the Company following an initial failure of the Company to pay such money or take such action promptly after written demand therefor from the Executive stating the reason that such money or action was due under this Agreement at or prior to the time of such demand.

15. Limitation of Benefits Under Certain Circumstances. If the payments and benefits pursuant to Section 12 of this Agreement, either alone or together with other payments and benefits which Executive has the right to receive from the Bank, would constitute a “parachute payment” under Section 280G of the Code, the payments and benefits pursuant to Section 12 shall be reduced or revised, in the manner determined by Executive, by the amount, if any, which is the minimum necessary to result in no portion of the payments and benefits under Section 12 being non-deductible to the Bank of the Company pursuant to Section 280G of the Code and subject to the excise tax imposed under Section 4999 of the Code. The Company’s independent public accountants shall determine any reduction in the payments and benefits to be made pursuant to Section 12, and the Company shall pay for the accountant’s opinion with respect to such reduction. If the Company and/or Executive do not agree with the accountant’s opinion, the Company shall pay to Executive the maximum amount of payments and benefits pursuant to Section 12, as selected by Executive, which the opinion indicates have a high probability of not causing any of the payments and benefits to be non-deductible to the Company and subject to the imposition of the excise tax imposed under Section 4999 of the Code. The Company may also request, and Executive shall have the right to demand that they request, a ruling from the IRS as to whether the disputed payments and benefits pursuant to Section 12 have such tax consequences. The Company shall promptly prepare and file the request for a ruling from the IRS, but in no event shall the Company make such filing later than thirty (30) days from the date of the accountant’s opinion referred to above. The request shall also be subject to the Executive’s approval prior to filing; Executive shall not unreasonably withhold his approval. The Company and Executive agree to be bound by any ruling received from the IRS and to make appropriate payments to each other to reflect any IRS rulings, together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code. Nothing contained in this Agreement shall result in a reduction of any payments or benefits to which Executive may be entitled upon termination of employment other than pursuant to Section 12 hereof, or a reduction in the payments and benefits specified in Section 12, below zero.

16. Injunctive Relief. If there is a breach or threatened breach of Section 11(g) of this Agreement or the prohibitions upon disclosure contained in Section 10(c) of this Agreement, the parties agree that there is no adequate remedy at law for such breach, and that the Bank shall

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be entitled to injunctive relief restraining the Executive from such breach or threatened breach, but such relief shall not be the exclusive remedy hereunder for such breach. The parties hereto likewise agree that the Executive, without limitation, shall be entitled to injunctive relief to enforce the obligations of the Bank under this Agreement.

17. Successors and Assigns.

a. This Agreement shall inure to the benefit of and be binding upon any corporate or other successor of the Company which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or stock of the Company.

b. Since the Company is contracting for the unique and personal skills of Executive, Executive shall be precluded from assigning or delegating his rights or duties hereunder without first obtaining the written consent of the Company.

18. No Mitigation. Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise and no such payment shall be offset or reduced by the amount of any compensation or benefits provided to Executive in any subsequent employment.

19. Notices. All notices, requests, demands and other communications in connection with this Agreement shall be made in writing and shall be deemed to have been given when delivered by hand or 48 hours after mailing at any general or branch United States Post Office, by registered or certified mail, postage prepaid, addressed to the Bank at their principal business offices and to Executive at his home address as maintained in the records of the Bank.

20. No Plan Created by this Agreement. Executive and the Bank expressly declare and agree that this Agreement was negotiated among them and that no provision or provisions of this Agreement are intended to, or shall be deemed to, create any plan for purposes of the Employee Retirement Income Security Act or any other law or regulation, and each party expressly waives any right to assert the contrary. Any assertion in any judicial or administrative filing, hearing, or process that such a plan was so created by this Agreement shall be deemed a material breach of this Agreement by the party making such an assertion.

21. Amendments. No amendments or additions to this Agreement shall be binding unless made in writing and signed by all of the parties, except as herein otherwise specifically provided.

22. Applicable Law. Except to the extent preempted by Federal law, the laws of the State of Rhode Island shall govern this Agreement in all respects, whether as to its validity, construction, capacity, performance or otherwise.

23. 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.

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24. Headings. Headings contained herein are for convenience of reference only.

25. Entire Agreement. This Agreement, together with any understanding or modifications thereof as agreed to in writing by the parties, shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof, other than written agreements with respect to specific plans, programs or arrangements described in Sections 5 and 6. Upon execution of this Agreement, the employment agreement entered into between the parties on June 4, 2002, will become null and void.

26. Required Provisions. In the event any of the foregoing provisions of this Section 26 are in conflict with the terms of this Agreement, this Section 26 shall prevail.

a. The Bank’s and the Company’s board of directors may terminate Executive’s employment at any time, but any termination by the Bank, other than Termination for Cause, shall not prejudice Executive’s right to compensation or other benefits under this Agreement. Executive shall not have the right to receive compensation or other benefits for any period after Termination for Cause as defined in Section 11(d) hereinabove.

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

c. If 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 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. §1818(e)(4) or (g)(1), all obligations of the Bank under this contract shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected.

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

e. All obligations under this contract shall be terminated, except to the extent determined that continuation of the contract is necessary for the continued operation of the Bank: (i) by the Director of the OTS (or his designee), at the time the FDIC enters into an agreement to provide assistance to or on

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behalf of the Bank under the authority contained in Section 13(c) of the Federal Deposit Insurance Act, 12 U.S.C. §1823(c); or (ii) by the Director of the OTS (or his designee) at the time the Director (or his designee) approves a supervisory merger to resolve problems related to the operations of the Bank or when the Bank is determined by the Director to be in an unsafe or unsound condition. Any rights of the parties that have already vested, however, shall not be affected by such action.

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

g. Notwithstanding anything in this Agreement to the contrary, if the Company or the Bank in good faith determines that amounts that, as of the effective date of the Executive’s termination of employment are or may become payable to the Executive upon termination of his employment hereunder are required to be suspended or delayed for six (6) months in order to satisfy the requirements of Section 409A of the Internal Revenue Code, then the Company or the Bank will so advise the Executive, and any such payments shall be suspended and accrued for six months, whereupon they shall be paid to the Executive in a lump sum (together with interest thereon at the then-prevailing prime rate).

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first set forth above.

Attest:	NEWPORT BANCORP, INC.
	By:
		Chairman of the Board of Directors

Witness: EXECUTIVE

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EX-10.13

Exhibit 10.13

NEWPORT FEDERAL SAVINGS BANK

CHANGE IN CONTROL AGREEMENT

This AGREEMENT (“Agreement”) is hereby entered into as of October 14, 2005, by and between Newport Federal Savings Bank (the “Bank”), a federally-chartered savings bank with its principal offices at 100 Bellevue Avenue, Newport, Rhode Island 02840-3231 and ______________(“Executive”).

WHEREAS, the Bank recognizes the importance of Executive to the Bank’s operations and wishes to protect his position with the Bank in the event of a change in control of the Bank or any holding company of the Bank (“Holding Company”) for the period provided for in this Agreement; and

WHEREAS, Executive and the Board of Directors of the Bank desire to enter into an agreement setting forth the terms and conditions of payments due to Executive in the event of a change in control and the related rights and obligations of each of the parties.

NOW, THEREFORE, in consideration of the promises and mutual covenants herein contained, it is hereby agreed as follows:

1. Term of Agreement.

(a) The term of this Agreement shall be (i) the initial term, consisting of the period commencing on the date of this Agreement (the “Effective Date”) and ending on the third anniversary of the Effective Date, plus (ii) any and all extensions of the initial term made pursuant to this Section 1.

(b) Commencing December 2006 and continuing each December thereafter, the Board of Directors of the Bank (the “Board of Directors”) may extend the term of this Agreement for an additional one (1) year period beyond the then effective expiration date, provided that Executive shall not have given at least sixty (60) days’ written notice of his desire that the term not be extended.

(c) Notwithstanding anything in this Section to the contrary, this Agreement shall terminate if Executive or the Bank terminates Executive’s employment prior to a Change in Control.

2. Change in Control.

(a) Upon the occurrence of a Change in Control of the Bank or the Holding Company followed by the voluntary termination (for “Good Reason” as defined below) or involuntary termination of Executive’s employment within two (2) years of the Change in Control, other than termination for Cause, (as defined in Section 2(d) of this Agreement) the provisions of Section 3 of this Agreement shall apply.

(b) “Good Reason” means, unless Executive has consented in writing thereto, the occurrence following a Change in Control, of any of the following:

(1) the assignment to Executive of any duties materially inconsistent with Executive’s position, including any material diminution in status, title, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and that is remedied by the Bank or Executive’s employer reasonably promptly after receipt of notice from Executive;

(2) Any reduction in Executive’s base salary below the amount to which Executive was entitled prior to the Change in Control;

(3) the taking of any action by the Bank or any of its affiliates or successors that would materially adversely affect Executive’s overall compensation and benefits package (other than changes to the Bank’s tax-qualified plans), unless such changes to the compensation and benefits package are made on a non-discriminatory basis and affect substantially all employees

(4) A requirement that Executive relocate his principal business office or his principal place of residence outside of the area consisting of a twenty-five (25) mile radius from the current main office, or the assignment to Executive of duties that would reasonably require such a relocation; or

(5) Liquidation or dissolution of the Bank or the Holding Company.

(c) For purposes of this Agreement, a “Change in Control” means:

i. Merger: The Bank or the Holding Company, as the case may be, merges into or consolidates with another entity, or merges another entity into the Bank or the Holding Company, and as a result less than a majority of the combined voting power of the resulting entity immediately after the merger or consolidation is held by persons who were members of the Bank or the Holding Company immediately before the merger or consolidation;

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

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

Notwithstanding anything in this Section 2, a “Change in Control” for purposes of this Agreement shall not include any corporate restructuring transaction by the Bank or the Holding Company in mutual or stock form, including but not limited to a mutual to stock conversion or mutual holding company reorganization or minority stock offering, provided that the Board of Directors of the Bank and the Holding Company immediately preceding such transaction constitutes at least a majority of the Board of Directors of the Bank and the Holding Company after such transaction.

(d) Executive shall not have the right to receive termination benefits pursuant to Section 3 hereof upon termination for Cause. Termination for Cause shall mean: termination because of, in the good faith determination of the Board, Executive’s personal dishonesty, incompetence, willful misconduct, any breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, regulation (other than traffic violations or similar offenses), final cease and desist order, or any material breach of any provision of this Agreement.

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(e) Notwithstanding paragraph (d) above, Executive shall not be deemed to have been terminated for Cause unless and until (i) in the case of any failure or breach by Executive in the performance of Executive’s duties to the Bank, the Bank shall have provided Executive with (30) days written notice of such failure or breach and Executive shall have had an opportunity to cure such failure or breach within such (30) day period, and (ii) there shall have been delivered to him a copy of a resolution duly adopted by the affirmative vote of a majority of the entire membership of the Board of Directors at a meeting of the Board of Directors called and held for that purpose, finding that in the good faith opinion of the Board of Directors, Executive was guilty of conduct justifying termination for Cause and specifying the particulars thereof. Executive shall not have the right to receive compensation or other benefits following termination for Cause.

3. Termination Benefits.

(a) Upon the occurrence of a Change in Control, followed by the Executive’s voluntary termination for Good Reason (as defined in Section 2(b) of this Agreement) or involuntary termination within two (2) years of the Change in Control, other than a termination for Cause (as defined in Section 2(c) of the Agreement), the Bank and the Holding Company shall be obligated to pay or provide Executive, or in the event of his subsequent death, his beneficiary or beneficiaries, or his estate as the case may be:

i. A severance benefit equal to two (2) times the Executive’s “base amount” as defined in Section 280G(b)(3) of the Internal Revenue Code (the “Code”) and the sum of any other “parachute payments” as defined under Section 280G(b)(2) of the Code. Such payment shall be made in a lump sum within ten (10) calendar days of the Executive’s termination of employment; and

ii. Continued health, dental and life insurance coverage following Executive’s termination of employment. Said coverage shall be provided under the same terms and conditions in effect on the date of Executive’s termination of employment. To the extent that benefits required under this Section 3(a)(ii) cannot be provided under the terms of any Bank health and welfare plans, the Bank shall enter into alternative arrangements that will provide Executive with comparable benefits. The coverage or other arrangements provided under this Section 3(a)(ii) shall cease upon the earlier of (i) the Executive’s death; (ii) his employment by another employer other than one of which he is the majority owner; or (iii) the expiration of 24 months.

(c) Notwithstanding the preceding provisions of this Section 3, in no event shall the aggregate payments or benefits to be made or afforded to Executive under said paragraphs (the “Termination Benefits”) constitute an “excess parachute payment” under Section 280G of the Code or any successor thereto, and in order to avoid such a result, Termination Benefits will be reduced, if necessary, to an amount (the “Non-Triggering Amount”), the value of which is one dollar ($1.00) less than an amount equal to three (3) times Executive’s “base amount,” as determined in accordance with said Section 280G. The allocation of the reduction required among the Termination Benefits provided by this Section 3 shall be determined by Executive.

4. Notice of Termination.

(a) Any purported termination by the Bank or by Executive shall be communicated by Notice of Termination to the other party hereto. For purposes of this Agreement, a “Notice of

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Termination” shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provision so indicated.

(b) “Date of Termination” shall mean the date specified in the Notice of Termination (which, in the case of a Termination for Cause, shall not be less than thirty (30) days from the date such Notice of Termination is given, provided that Executive shall have the right to cure such breach within such (30) day period, to the extent curable).

5. Source of Payments.

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

6. Effect on Prior Agreements and Existing Benefit Plans.

This Agreement contains the entire understanding between the parties hereto with regard to the subject matter hereof and supersedes any prior agreement between the Bank and Executive, except that this Agreement shall not affect or operate to reduce any benefit or compensation inuring to Executive of a kind elsewhere provided. No provision of this Agreement shall be interpreted to mean that Executive is subject to receiving fewer benefits than those available to him without reference to this Agreement. Nothing in this Agreement shall confer upon Executive the right to continue in the employ of the Bank or shall impose on the Bank any obligation to employ or retain Executive in its employ for any period.

7. No Attachment.

(a) Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or to execution, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to affect any such action shall be null, void and of no effect.

(b) This Agreement shall be binding upon, and inure to the benefit of, Executive, the Bank and the Holding Company and their respective successors and assigns.

8. Modification and Waiver.

(a) This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto.

(b) No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived.

9. Severability.

If, for any reason, any provision of this Agreement, or any part of any provision, is held invalid, such invalidity shall not affect any other provision of this Agreement or any part of such provision not

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held so invalid, and each such other provision and part thereof shall to the full extent consistent with law continue in full force and effect.

10. Headings for Reference Only.

The headings of sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. In addition, references herein to the masculine shall apply to both the masculine and the feminine.

11. Governing Law.

Except to the extent preempted by federal law, the validity, interpretation, performance, and enforcement of this Agreement shall be governed by the laws of the State of Rhode Island, without regard to principles of conflicts of law of that State.

12. Arbitration.

Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators sitting in a location selected by Executive within fifty (50) miles from the location of the Bank, 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; provided, however, that Executive shall be entitled to seek specific performance of his right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement.

13. Payment of Legal Fees.

All reasonable legal fees paid or incurred by Executive pursuant to any dispute or question of interpretation relating to this Agreement shall be paid or reimbursed by the Bank and the Holding Company, only if Executive is successful pursuant to a legal judgment, arbitration or settlement.

14. Indemnification.

The Bank shall provide Executive (including his heirs, executors and administrators) with coverage under a standard directors’ and officers’ liability insurance policy at its expense and shall indemnify Executive (and his heirs, executors and administrators) to the fullest extent permitted under applicable law against all expenses and liabilities reasonably incurred by him in connection with or arising out of any action, suit or proceeding in which he may be involved by reason of his having been a director or officer of the Bank or the Holding Company (whether or not he continues to be a director or officer at the time of incurring such expenses or liabilities), such expenses and liabilities to include, but not be limited to, judgments, court costs, attorneys’ fees and the cost of reasonable settlements.

15. Successors to the Bank.

The Bank and the Holding Company shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all of the business or assets of the Bank or the Holding Company, expressly and unconditionally to assume and agree to perform the Bank’s and the Holding Company’s obligations under this Agreement, in the same manner and to the same extent that the Bank and the Holding Company would be required to perform if no such succession or assignment had taken place.

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16. Required Provisions.

In the event any of the foregoing provisions of this Section 16 are in conflict with the terms of this Agreement, this Section 16 shall prevail.

(a) The Bank’s board of directors may terminate Executive’s employment at any time, but any termination by the Bank, other than Termination for Cause, shall not prejudice Executive’s right to compensation or other benefits under this Agreement. Executive shall not have the right to receive compensation or other benefits for any period after Termination for Cause.

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

(c) If 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 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. §1818(e)(4) or (g)(1), all obligations of the Bank under this contract shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected.

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

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

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

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PROPOSED

AMENDMENT TO THE

NEWPORT FEDERAL SAVINGS BANK

CHANGE IN CONTROL AGREEMENT

WHEREAS,                          (the “Executive”) entered into a change in control agreement with Newport Federal Savings Bank (the “Bank”) effective October 15, 2005 (the “Agreement”); and

WHEREAS, in connection with the mutual to stock conversion of the Bank, the Bank and the Executive desire to amend the Agreement to include Newport Bancorp, Inc. as a guarantor of the payments under the Agreement and to facilitate some ministerial changes; and

WHEREAS, the Agreement provides that the Agreement may be amended or modified at any time prior to a Change in Control by means of a written instrument signed by the parties.

NOW, THEREFORE, the Bank and the Executive hereby agree to amend the Agreement as follows:

FIRST CHANGE

Effective                         , 2006, the first paragraph of the Agreement shall be amended to add the following sentence to the end of the paragraph:

“Newport Bancorp, Inc., the holding company of the Bank (the “Holding Company”) will serve as guarantor under this Agreement.”

SECOND CHANGE

Effective                         , 2006, the first WHEREAS clause of the Agreement shall be deleted in its entirety and replaced with the following new language:

“WHEREAS, the Bank recognizes the importance of Executive to the Bank’s operations and wishes to protect his position with the Bank in the event of a change in control of the Holding Company; and”

THIRD CHANGE

Effective                         , 2006, all references in the Agreement to “Change in Control of the Bank or the Holding Company” shall be replaced with “Change in Control of the Holding Company”.

FOURTH CHANGE

Effective                         , 2006, Section 2(c) shall be deleted in its entirety and replaced with the following new Section 2(c):

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

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

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

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

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

Notwithstanding anything in this Section 2, a “Change in Control” for purposes of this Agreement shall not include any corporate restructuring transaction by the Bank in mutual or stock form, including but not limited to a mutual to stock conversion.”

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FIFTH CHANGE

Effective                         , 2006, Section 5 of the Agreement shall be deleted in its entirety and replaced with the following new Section 5:

“5. Source of Payments.

All payments provided in this Agreement shall be timely paid in cash or check from the general funds of the Bank. The Company, however, unconditionally guarantees payment and provision of all amounts and benefits due hereunder to Executive and, if such amounts and benefits due from the Bank are not timely paid or provided by the Bank, such amounts and benefits shall be paid or provided by the Company.”

IN WITNESS WHEREOF, the Bank has caused this Amendment to the Agreement to be executed by its duly authorized officer, and Executive has signed this Amendment, on the      day of                     , 2006.

ATTEST:	NEWPORT FEDERAL SAVINGS BANK
	For the Board of Directors
WITNESS:	EXECUTIVE

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EX-10.14

Exhibit 10.14: Form of Director Split Dollar Life Insurance Agreements between Newport Federal Savings Bank and Peter Crowley, Michael Hayes, Donald N. Kaull, Michael S. Pinto, Alicia S. Quirk and Peter W. Rector

Newport Federal Savings Bank entered into split dollar life insurance agreements with Directors Crowley, Hayes, Kaull, Pinto, Quirk and Rector which are substantially identical in all material respects as the attached Form of Director Split Dollar Life Insurance Agreement.

Each Director, with the exception of Mr. Rector is entitled a benefit equal to the lesser of $30,000.00 or the amount equal to the total insurance proceeds less the cash value of the policy. Mr. Rector’s benefit is equal to the lesser of $35,000.00 or the amount equal to the total insurance proceeds less the cash value of the policy.

Exhibit 10.14

FORM OF

DIRECTOR SPLIT DOLLAR LIFE INSURANCE AGREEMENT

THIS AGREEMENT, made and entered into this      day                             , 200_, by and among Newport Federal Savings Bank (hereinafter referred to as the “Bank”), a Bank organized and existing under the laws of Rhode Island, and                                          (hereinafter referred to as the “Director”).

WHEREAS, the Director has performed his/her duties in an efficient and capable manner; and

WHEREAS, the Bank is desirous of retaining the services of the Director; and

WHEREAS, the Bank is desirous of assisting the Director in paying for life insurance on his/her own life; and

WHEREAS, the Bank has determined that this assistance can best be provided under a “split-dollar” arrangement; and

WHEREAS, the Bank and the Director have applied for insurance policy(ies) on the Director’s life; and

WHEREAS, the Bank and the Director agree to make said insurance policy subject to this split-dollar agreement; and

WHEREAS, it is now understood and agreed that this split-dollar agreement is to be effective as of the date on which the Policy was issued;

NOW, THEREFORE, for value received and in consideration of the mutual covenants contained herein, the parties agree as follows:

1. Definitions

a) “Split Dollar Insurance Benefit” means the life insurance benefit payable to the Director’s beneficiary in an amount as shown on Schedule A.

2. Allocation of Premiums

a) The Director will pay that portion of the annual premiums due on the Policy that is equal to the lesser of (a) the amount of the entire economic benefit (including any economic benefit attributable to the use of Policy dividends) that would be taxable to the Director but for such payment, or (b) the amount of the premium due on the policy. The Bank will pay the remainder of the premium. The economic benefit that would be taxable to the Director will be computed in accordance with IRS Revenue Rulings 64-328, 1964-2 C.B. 11, and 66-110, 1966-1 C.B. 12, as in effect on the effective date of this agreement.

3. Payment of Premiums

a) Any premium or portion thereof which is payable by the Director under any Article of this agreement may at the election of the Director be deducted from the cash compensation otherwise payable to the Director and the Bank agrees to transmit that premium or portion, along with any premium or portion thereof payable by it, to the Insurance Company on or before the premium due date.

4. Rights in the Policy

a) The Bank is the owner of any insurance policy, with the insured having only the right to name a beneficiary for any split dollar insurance benefit.

b) Upon the death of the Director while this agreement is in force, the Director’s named beneficiary will be entitled to receive from the Policy proceeds an amount equal to the Split Dollar Death Benefit. The remainder of the Policy Proceeds will be paid to Bank. Within 60 days after the death of the Director, the Bank will provide to the Insurance Company a written statement indicating the amount of the Policy proceeds which it is entitled to receive.

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5. Death Proceeds

a) Upon the death of the Director, the Director’s designated beneficiary shall receive the Split Dollar Insurance Benefit per Schedule A.

6. Miscellaneous Provisions

a) Entire Agreement. This Agreement constitutes the entire agreement between the Bank and the Director as to the subject matter hereof. No rights are granted to the Director by virtue of this Agreement other than those specifically set forth herein.

b) This instrument contains the entire Agreement of the parties. It may be amended only by a writing signed by both of the parties hereto.

c) This Agreement shall be governed and construed in accordance with the law of the State of Rhode Island.

7. Liability of Insurers

The insurers are not parties to this Agreement. With respect to any Policies of insurance issued pursuant to this Agreement, the insurers shall have no liability except as set forth in the Policies. Such insurers shall not be bound to inquire into or take notice of any of the covenants herein contained as to Policies of life insurance, or as to the application of the proceeds of such Policies.

The insurers shall be discharged from all liability in making payments of the proceeds and in permitting rights and privileges under the policies to be exercised to the provisions of the Policies.

IN WITNESS WHEREOF, the parties have hereunto set their hands and seals, the Bank by its duly authorized officer, on the day and year first above written.

	(L.S.)
Director

	(L.S.)
Bank Officer

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EX-10.15

Exhibit 10.15: Form of Executive Split Dollar Life Insurance Agreements between Newport Federal Savings Bank and Carol R. Silven, Ray D. Gilmore, II, Kevin M. McCarthy and Bruce A. Walsh

Newport Federal Savings Bank entered into executive split dollar life insurance agreements with Messrs. Gilmore, McCarthy and Walsh and Ms. Silven which are substantially identical in all material respects (except as noted below) as the attached Form of Executive Split Dollar Life Insurance Agreement.

Parties to Supplemental Executive Retirement Agreement:

Newport Federal Savings Bank and Carol R. Silven (1)

Newport Federal Savings Bank and Ray D. Gilmore, II (2)

Newport Federal Savings Bank and Kevin M. McCarthy (3)

Newport Federal Savings Bank and Bruce A. Walsh (4)

(1) Ms. Silven’s Executive Split Dollar Life Insurance Agreement is substantially identical to Exhibit 10.15 except as to the amount of the death benefit, which is $            , (plus the cash asset value of the life insurance policy) if actually employed at the time of her death or the lesser of $            , or the total cash proceeds less the cash value of her insurance policy if retired with 10 years of service at the Bank at the time of her death.

(2) Mr. Gilmore’s Executive Split Dollar Life Insurance Agreement is substantially identical to Exhibit 10.15 except as to the amount of the death benefit, which is $100,000.00, (plus the cash asset value of the life insurance policy) if actually employed at the time of his death or the lesser of $100,000.00, or the total cash proceeds less the cash value of his insurance policy if retired with 10 years of service at the Bank at the time of his death.

(3) Mr. McCarthy’s Executive Split Dollar Life Insurance Agreement is substantially identical to Exhibit 10.15 except as to the amount of the death benefit, which is $100,000.00, (plus the cash asset value of the life insurance policy) if actually employed at the time of his death or the lesser of $150,000.00, or the total cash proceeds less the cash value of his insurance policy if retired with 10 years of service at the Bank at the time of his death.

(4) Mr. Walsh’s Executive Split Dollar Life Insurance Agreement is substantially identical to Exhibit 10.15 except as to the amount of the death benefit, which is $60,000.00, (plus the cash asset value of the life insurance policy) if actually employed at the time of his death or the lesser of $50,000.00, or the total cash proceeds less the cash value of his insurance policy if retired with 10 years of service at the Bank at the time of his death.

Exhibit 10.15

FORM OF

EXECUTIVE SPLIT DOLLAR LIFE INSURANCE AGREEMENT

THIS AGREEMENT, made and entered into this ___ day of ____________ 200_, by and among Newport Federal Savings Bank (hereinafter referred to as the “Bank”), a Bank organized and existing under the laws of Rhode Island, and ___________________ (hereinafter referred to as the “Executive”).

WHEREAS, the Executive has performed his/her duties in an efficient and capable manner; and

WHEREAS, the Bank is desirous of retaining the services of the Executive; and

WHEREAS, the Bank is desirous of assisting the Executive in paying for life insurance on his/her own life; and

WHEREAS, the Bank has determined that this assistance can best be provided under a “split-dollar” arrangement; and

WHEREAS, the Bank and the Executive have applied for insurance policy(ies) on the Executive’s life; and

WHEREAS, the Bank and the Executive agree to make said insurance policy subject to this split-dollar agreement; and

WHEREAS, it is now understood and agreed that this split-dollar agreement is to be effective as of the date on which the Policy was issued;

NOW, THEREFORE, for value received and in consideration of the mutual covenants contained herein, the parties agree as follows:

1. Definitions

a) “Split Dollar Insurance Benefit” means the life insurance benefit payable to the Executive’s beneficiary in an amount as shown on Schedule A.

2. Allocation of Premiums

a) The Executive will pay that portion of the annual premiums due on the Policy that is equal to the lesser of (a) the amount of the entire economic benefit (including any economic benefit attributable to the use of Policy dividends) that would be taxable to the Executive but for such payment, or (b) the amount of the premium due on the policy. The Bank will pay the remainder of the premium. The economic benefit that would be taxable to the Executive will be computed in accordance with IRS Revenue Rulings 64-328, 1964-2 C.B. 11, and 66-110, 1966-1 C.B. 12, as in effect on the effective date of this agreement.

3. Payment of Premiums

a) Any premium or portion thereof which is payable by the Executive under any Article of this agreement may at the election of the Executive be deducted from the cash compensation otherwise payable to the Executive and the Bank agrees to transmit that premium or portion, along with any premium or portion thereof payable by it, to the Insurance Company on or before the premium due date.

4. Rights in the Policy

a) The Bank is the owner of any insurance policy, with the insured having only the right to name a beneficiary for any split dollar insurance benefit.

b) Upon the death of the Executive while this agreement is in force, the Executive’s named beneficiary will be entitled to receive from the Policy proceeds an amount equal to the Split Dollar Death Benefit. The remainder of the Policy Proceeds will be paid to Bank. Within 60 days after the death of the Executive, the Bank will provide to the Insurance Company a written statement indicating the amount of the Policy proceeds which it is entitled to receive.

5. Death Proceeds

a) Upon the death of the Executive while actively employed, the Executive’s designated beneficiary shall receive the Split Dollar Insurance Benefit per Schedule A.

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b) If the Executive retires or his/her employment with the Bank is otherwise terminated, other than for cause, and if the Executive has been employed by the Bank for at least Ten (10) Years, then the Split Dollar Insurance Benefit is payable at death in an amount per Schedule A.

c) If the Executive terminates employment without having been employed by the Bank for at least the Ten (10) Years, then the Executive will not be entitled to any payments hereunder.

d) If the Executive is terminated for cause, then the Executive and his/her beneficiary will not be entitled to any payments hereunder. Termination for Cause shall mean the Employee’s deliberate dishonesty with respect to the Bank or any subsidiary or affiliate thereof; conviction of a crime involving moral turpitude; or gross and willful failure to perform [other than on account of a medically determinable disability which renders the Employee incapable of performing such services] a substantial portion of the Employee’s duties and responsibilities as an officer of the Bank, which failure continues for more than thirty days after written notice given to the Employee pursuant to a two-thirds vote of all of the members of the Board then in office, such vote to set forth in reasonable detail the nature of such failure or for good reason (good reason shall mean (1) a reduction in the Employee’s annual base salary as in effect on the date hereof; or (2) a significant diminution in the nature or scope of the Employee’s responsibilities, authorities, powers, functions or duties; or (3) a material breach by the Bank of any of the provisions of this Agreement which failure or breach shall have continued for thirty (30) days after written notice from the Employee to the Bank specifying the nature of such failure or breach).

6. Miscellaneous Provisions

a) Entire Agreement. This Agreement constitutes the entire agreement between the Bank and the Executive as to the subject matter hereof. No rights are granted to the Executive by virtue of this Agreement other than those specifically set forth herein.

b) This instrument contains the entire Agreement of the parties. It may be amended only by a writing signed by both of the parties hereto.

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c) This Agreement shall be governed and construed in accordance with the law of the State of Rhode Island.

7. Liability of Insurers

The insurers are not parties to this Agreement. With respect to any Policies of insurance issued pursuant to this Agreement, the insurers shall have no liability except as set forth in the Policies. Such insurers shall not be bound to inquire into or take notice of any of the covenants herein contained as to Policies of life insurance, or as to the application of the proceeds of such Policies.

The insurers shall be discharged from all liability in making payments of the proceeds and in permitting rights and privileges under the policies to be exercised to the provisions of the Policies.

IN WITNESS WHEREOF, the parties have hereunto set their hands and seals, the Bank by its duly authorized officer, on the day and year first above written.

	(L.S.)
Executive
	(L.S.)
Bank Officer

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EX-10.16

Exhibit 10.16

FORM OF

NEWPORT FEDERAL SAVINGS BANK

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

Effective January 1, 2006

Newport Federal Savings Bank

Supplemental Executive Retirement Plan

Table of Contents

Article I	Introduction	1
Article II	Definitions	2
Article III	Eligibility and Participation	5
Article IV	Benefits	6
Article V	Accounts	8
Article VI	Supplemental Benefit Payments	9
Article VII	Claims Procedures	10
Article VIII	Amendment and Termination	11
Article IX	General Provisions	12

Article I

Introduction

Section 1.01 Purpose, Design and Intent.

(a) The purpose of the Newport Federal Savings Bank Supplemental Executive Retirement Plan (the “Plan”) is to assist Newport Federal Savings Bank (the “Bank”) and its affiliates in retaining the services of key employees until their retirement, to induce such employees to use their best efforts to enhance the business of the Bank and its affiliates, and to provide certain supplemental retirement benefits to such employees.

(b) The Plan, in relevant part, is intended to constitute an unfunded “excess benefit plan” as defined in Section 3(36) of the Employee Retirement Income Security Act of 1974, as amended. In this respect, the Plan is specifically designed to provide certain key employees with retirement benefits that would have been provided under various tax-qualified retirement plans sponsored by the Bank but for the applicable limitations placed on benefits and contributions under such plans by various provisions of the Internal Revenue Code of 1986, as amended.

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Article II

Definitions

Section 2.01 Definitions. In this Plan, whenever the context so indicates, the singular or the plural number and the masculine or feminine gender shall be deemed to include the other, the terms “he,” “his,” and “him,” shall refer to a Participant or a beneficiary of a Participant, as the case may be, and, except as otherwise provided, or unless the context otherwise requires, the capitalized terms shall have the following meanings:

(a) “Affiliate” means any corporation, trade or business, which, at the time of reference, is together with the Bank, a member of a controlled group of corporations, a group of trades or businesses (whether or not incorporated) under common control, or an affiliated service group, as described in Sections 414(b), 414(c), and 414(m) of the Code, respectively, or any other organization treated as a single employer with the Bank under Section 414(o) of the Code.

(b) “Applicable Limitations” means one or more of the following, as applicable:

(i) the maximum limitations on annual additions to a tax-qualified defined contribution plan under Section 415(c) of the Code;

(ii) the maximum limitation on the annual amount of compensation that may, under Section 401(a)(17) of the Code, be taken into account in determining contributions to and benefits under tax-qualified plans; and

(iii) the maximum limitations, under Sections 401(k), 401(m), or 402(g) of the Code, on pre-tax contributions that may be made to a qualified defined contribution plan.

(c) “Bank” means Newport Federal Savings Bank, and its successors.

(d) “Board of Directors” means the Board of Directors of the Bank.

(e) “Change in Control” means the earliest occurrence of one of the following events:

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

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

(iii) Change in Board Composition: During any period of two consecutive years, individuals who constitute the Company’s Board of Directors at the beginning of the two-year period cease for any reason to constitute at least a majority of the Company’s Board of Directors; provided, however, that for purposes of this clause (iii), each director who is first elected by the

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board (or first nominated by the board for election by the stockholders) by a vote of at least two-thirds ( ²/3) of the directors who were directors at the beginning of the two-year period shall be deemed to have also been a director at the beginning of such period; or

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

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

Notwithstanding the foregoing, in no event will a mutual to stock conversion of Newport Federal Savings Bank constitute a change in control under this Plan.

(f) “Code” means the Internal Revenue Code of 1986, as amended.

(g) “Committee” means the person(s) designated by the Board of Directors, pursuant to Section 9.02 of the Plan, to administer the Plan.

(h) “Common Stock” means the common stock of the Company.

(i) “Company” means Newport Bancorp, Inc. and its successors.

(j) “Eligible Individual” means any Employee who participates in the ESOP or the 401(k) Plan, as the case may be, and whom the Board of Directors determines is one of a “select group of management or highly compensated employees,” as such phrase is used for purposes of Sections 101, 201, and 301 of ERISA.

(k) “Employee” means any person employed by the Bank or an Affiliate.

(l) “Employer” means the Bank or Affiliate thereof that employs the Employee.

(m) “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

(n) “ESOP” means the Newport Federal Savings Bank Employee Stock Ownership Plan, as amended from time to time.

(o) “ESOP Acquisition Loan” means a loan or other extension of credit incurred by the trustee of the ESOP in connection with the purchase of Common Stock on behalf of the ESOP.

(p) “ESOP Valuation Date” means any day as of which the investment experience of the trust fund of the ESOP is determined and individuals’ accounts under the ESOP are adjusted accordingly.

(q) “Effective Date” means January 1, 2006.

(r) “Participant” means an Eligible Employee who is entitled to benefits under the Plan.

(s) “Plan” means this Newport Federal Savings Bank Supplemental Executive Retirement Plan.

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(t) “401(k) Plan” means the Newport Federal Savings Bank Employees’ Savings & Profit Sharing Plan and Trust, as amended from time to time.

(u) Reserved.

(v) Reserved.

(w) “Supplemental Savings Benefit” means the benefit credited to a Participant pursuant to Section 4.03 of the Plan.

(x) “Supplemental Savings Account” means an account established by an Employer, pursuant to Section 5.03 of the Plan, with respect to a Participant’s Supplemental Savings Benefit.

(y) “Supplemental Stock Ownership Account” means an account established by an Employer, pursuant to Section 5.02 of the Plan, with respect to a Participant’s Supplemental Stock Ownership Benefit.

(z) “Supplemental Stock Ownership Benefit” means the benefit credited to a Participant pursuant to Section 4.02 of the Plan.

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Article III

Eligibility and Participation

Section 3.01 Eligibility and Participation.

(a) Each Eligible Employee may participate in the Plan. An Eligible Employee shall become a Participant in the Plan upon designation as such by the Board of Directors. An Eligible Employee whom the Board of Directors designates as a Participant in the Plan shall commence participation as of the date established by the Board of Directors. The Board of Directors shall establish an Eligible Employee’s date of participation at the same time it designates the Eligible Employee as a Participant in the Plan.

(b) The Board of Directors may, at any time, designate an Eligible Employee as a Participant for any or all supplemental benefits provided for under Article IV of the Plan.

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Article IV

Benefits

Section 4.01 Reserved.

Section 4.02 Supplemental Stock Ownership Benefit.

(a) Upon a Change in Control, the Employer shall credit to the Participant’s Supplemental Stock Ownership Account a Supplemental Stock Ownership Benefit equal to (i) less (ii), the result of which is multiplied by (iii), where:

(i) Equals the total number of shares of Common Stock acquired with the proceeds of all ESOP Acquisition Loans (together with any dividends, cash proceeds, or other medium related to such ESOP Acquisition Loans) that would have been allocated or credited for the benefit of the Participant under the ESOP and/or this Plan, as the case may be, had the Participant continued in the employ of the Employer through the first ESOP Valuation Date following the last scheduled payment of principal and interest on all ESOP Acquisition Loans outstanding at the time of the Change in Control; and

(ii) Equals the total number of shares of Common Stock acquired with the proceeds of all ESOP Acquisition Loans (together with any dividends, cash proceeds, or other medium related to such ESOP Acquisition Loans) and allocated for the benefit of the Participant under the ESOP and/or this Plan, as the case may be, as of the first ESOP Valuation Date following the Change in Control; and

(iii) Equals the fair market value of the Common Stock immediately preceding the Change in Control.

(b) For purposes of clause (i) of subsection (a) of this Section 4.02, the total number of shares of Common Stock shall be determined by multiplying the sum of (i) and (ii) by (iii), where:

(i) equals the average of the total shares of Common Stock acquired with the proceeds of an ESOP Acquisition Loan and allocated for the benefit of the Participant under the ESOP as of the three most recent ESOP Valuation Dates preceding the Change in Control (or lesser number if the Participant has not participated in the ESOP for three full years);

(ii) equals the average number of shares of Common Stock credited to the Participant’s Supplemental ESOP Account for the three most recent plan years of the ESOP (such that the three most recent plan years coincide with the three most recent ESOP Valuation Dates referred to in (i) above); and

(iii) equals the original number of scheduled annual payments on the ESOP Acquisition Loans.

Section 4.03 Supplemental Savings Benefit.

A Participant’s Supplemental Savings Benefit under the Plan shall be equal to the excess of (a) over (b), where:

(a) is the sum of the matching contributions and other contributions of the Employer that would otherwise be allocated to an account of the Participant under the 401(k) Plan for a particular year,

6

if the provisions of the 401(k) Plan were administered without regard to any of the Applicable Limitations; and

(b) is the sum of the matching contributions and other contributions of the Employer that are actually allocated on account of the Participant under the provisions of the 401(k) Plan for that particular year, after giving effect to any reduction of such allocation required by any of the Applicable Limitations.

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Article V

Accounts

Section 5.01 Reserved.

Section 5.02 Supplemental Stock Ownership Account.

The Employer shall establish, as a memorandum account on its books, a Supplemental Stock Ownership Account. Upon a Change in Control, the Committee shall credit to the Participant’s Supplemental Stock Ownership Account the amount of benefits determined under Section 4.02 of the Plan. The Committee shall credit the account with an amount equal to the appropriate number of shares of Common Stock or other medium of contribution that would have otherwise been made to the Participant’s accounts under the ESOP. Shares of Common Stock shall be valued under this Plan in the same manner as under the ESOP. Cash contributions credited to a Participant’s Supplemental Stock Ownership Account shall be credited annually with interest at a rate equal to the combined weighted return provided to the Participant’s non-stock accounts under the ESOP.

Section 5.03 Supplemental Savings Account.

The Employer shall establish a memorandum account, the “Supplemental Savings Account” for each Participant on its books, and each year the Committee will credit the amount of contributions determined under Section 4.03 of the Plan. Contributions credited to a Participant’s Supplemental Savings Account shall be credited monthly with interest at a rate equal to the combined weighted return provided to the Participant’s account(s) under the 401(k) Plan.

8

Article VI

Supplemental Benefit Payments

Section 6.01 Reserved.

Section 6.02 Payment of Supplemental Stock Ownership Benefit.

(a) A Participant’s Supplemental Stock Ownership Benefit shall be paid to the Participant or, in the event of the Participant’s death, to his beneficiary, in cash at the same time his benefits are paid under the ESOP.

(b) A Participant shall always have a fully non-forfeitable right to the Supplemental Stock Ownership Benefit credited to him under this Plan.

Section 6.03 Payment of Supplemental Savings Benefit.

(a) A Participant’s Supplemental Savings Benefit shall be paid to the Participant or, in the event of the Participant’s death, to his beneficiary, in the same form and at the same time as his benefits are paid under the 401(k) Plan.

(b) A Participant shall have a non-forfeitable right to his Supplemental Savings Benefit under this Plan in the same percentage as he has to his matching contributions under the 401(k) Plan at the time the benefits become distributable to him under the 401(k) Plan.

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Article VII

Claims Procedures

Section 7.01 Claims Reviewer.

For purposes of handling claims with respect to this Plan, the “Claims Reviewer” shall be the Committee, unless the Committee designates another person or group of persons as Claims Reviewer.

Section 7.02 Claims Procedure.

(a) An initial claim for benefits under the Plan must be made by the Participant or his beneficiary or beneficiaries in accordance with the terms of this Section 7.02.

(b) Not later than ninety (90) days after receipt of such a claim, the Claims Reviewer will render a written decision on the claim to the claimant, unless special circumstances require the extension of such 90-day period. If such extension is necessary, the Claims Reviewer shall provide the Participant or the Participant’s beneficiary or beneficiaries with written notification of such extension before the expiration of the initial 90-day period. Such notice shall specify the reason or reasons for the extension and the date by which a final decision can be expected. In no event shall such extension exceed a period of ninety (90) days from the end of the initial 90-day period.

(c) In the event the Claims Reviewer denies the claim of a Participant or any beneficiary in whole or in part, the Claims Reviewer’s written notification shall specify, in a manner calculated to be understood by the claimant, the reason for the denial; a reference to the Plan or other document or form that is the basis for the denial; a description of any additional material or information necessary for the claimant to perfect the claim; an explanation as to why such information or material is necessary; and an explanation of the applicable claims procedure.

(d) Should the claim be denied in whole or in part and should the claimant be dissatisfied with the Claims Reviewer’s disposition of the claimant’s claim, the claimant may have a full and fair review of the claim by the Committee upon written request submitted by the claimant or the claimant’s duly authorized representative and received by the Committee within sixty (60) days after the claimant receives written notification that the claimant’s claim has been denied. In connection with such review, the claimant or the claimant’s duly authorized representative shall be entitled to review pertinent documents and submit the claimant’s views as to the issues, in writing. The Committee shall act to deny or accept the claim within sixty (60) days after receipt of the claimant’s written request for review unless special circumstances require the extension of such 60-day period. If such extension is necessary, the Committee shall provide the claimant with written notification of such extension before the expiration of such initial 60-day period. In all events, the Committee shall act to deny or accept the claim within 120 days of the receipt of the claimant’s written request for review. The action of the Committee shall be in the form of a written notice to the claimant and its contents shall include all of the requirements for action on the original claim.

(e) In no event may a claimant commence legal action for benefits the claimant believes are due the claimant until the claimant has exhausted all of the remedies and procedures afforded the claimant by this Article VII.

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Article VIII

Amendment and Termination

Section 8.01 Amendment of the Plan.

The Bank may from time to time and at any time amend the Plan; provided, however, that such amendment may not adversely affect the rights of any Participant or beneficiary with respect to any benefit under the Plan to which the Participant or beneficiary may have previously become entitled prior to the effective date of such amendment without the consent of the Participant or beneficiary. The Committee shall be authorized to make minor or administrative changes to the Plan, as well as amendments required by applicable federal or state law (or authorized or made desirable by such statutes); provided, however, that such amendments must subsequently be ratified by the Board of Directors.

Section 8.02 Termination of the Plan.

The Bank may at any time terminate the Plan; provided, however, that such termination may not adversely affect the rights of any Participant or beneficiary with respect to any benefit under the Plan to which the Participant or beneficiary may have previously become entitled prior to the effective date of such termination without the consent of the Participant or beneficiary. Any amounts credited to the supplemental accounts of any Participant shall remain subject to the provisions of the Plan and no distribution of benefits shall be accelerated because of termination of the Plan.

11

Article IX

General Provisions

Section 9.01 Unfunded, Unsecured Promise to Make Payments in the Future.

The right of a Participant or any beneficiary to receive a distribution under this Plan shall be an unsecured claim against the general assets of the Bank or its Affiliates, and neither a Participant, nor his designated beneficiary or beneficiaries, shall have any rights in or against any amount credited to any account under this Plan or any other assets of the Bank or an Affiliate. The Plan at all times shall be considered entirely unfunded both for tax purposes and for purposes of Title I of ERISA. Any funds invested hereunder shall continue for all purposes to be part of the general assets of the Bank or an Affiliate and available to its general creditors in the event of bankruptcy or insolvency. Accounts under this Plan and any benefits which may be payable pursuant to this Plan are not subject in any manner to anticipation, sale, alienation, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors of a Participant or a Participant’s beneficiary. The Plan constitutes a mere promise by the Bank or Affiliate to make benefit payments in the future. No interest or right to receive a benefit may be taken, either voluntarily or involuntarily, for the satisfaction of the debts of, or other obligations or claims against, such Participant or beneficiary, including claims for alimony, support, separate maintenance and claims in bankruptcy proceedings.

Section 9.02 Committee as Plan Administrator.

(a) The Plan shall be administered by the Committee designated by the Board of Directors of the Bank.

(b) The Committee shall have the authority, duty and power to interpret and construe the provisions of the Plan as it deems appropriate. The Committee shall have the duty and responsibility of maintaining records, making the requisite calculations and disbursing the payments hereunder. In addition, the Committee shall have the authority and power to delegate any of its administrative duties to employees of the Bank or an Affiliate, as they may deem appropriate. The Committee shall be entitled to rely on all tables, valuations, certificates, opinions, data and reports furnished by any actuary, accountant, controller, counsel or other person employed or retained by the Bank with respect to the Plan. The interpretations, determinations, regulations and calculations of the Committee shall be final and binding on all persons and parties concerned.

Section 9.03 Expenses.

Expenses of administration of the Plan shall be paid by the Bank or an Affiliate.

Section 9.04 Statements.

The Committee shall furnish individual annual statements of accrued benefits to each Participant, or current beneficiary, in such form as determined by the Committee or as required by law.

Section 9.05 Rights of Participants and Beneficiaries.

(a) The sole rights of a Participant or beneficiary under this Plan shall be to have this Plan administered according to its provisions and to receive whatever benefits he or she may be entitled to hereunder.

12

(b) Nothing in the Plan shall be interpreted as a guaranty that any funds in any trust which may be established in connection with the Plan or assets of the Bank or an Affiliate will be sufficient to pay any benefit hereunder.

(c) The adoption and maintenance of this Plan shall not be construed as creating any contract of employment or service between the Bank or an Affiliate and any Participant or other individual. The Plan shall not affect the right of the Bank or an Affiliate to deal with any Participants in employment or service respects, including their hiring, discharge, compensation, and other conditions of employment or service.

Section 9.06 Incompetent Individuals.

The Committee may, from time to time, establish rules and procedures which it determines to be necessary for the proper administration of the Plan and the benefits payable to a Participant or beneficiary in the event that such Participant or beneficiary is declared incompetent and a conservator or other person is appointed and legally charged with that Participant’s or beneficiary’s care. Except as otherwise provided for herein, when the Committee determines that such Participant or beneficiary is unable to manage his financial affairs, the Committee may pay such Participant’s or beneficiary’s benefits to such conservator, person legally charged with such Participant’s or beneficiary’s care, or institution then contributing toward or providing for the care and maintenance of such Participant or beneficiary. Any such payment shall constitute a complete discharge of any liability of the Bank or an Affiliate and the Plan for such Participant or beneficiary.

Section 9.07 Sale, Merger or Consolidation of the Bank.

The Plan may be continued after a sale of assets of the Bank, or a merger or consolidation of the Bank into or with another corporation or entity only if, and to the extent that, the transferee, purchaser or successor entity agrees to continue the Plan. Additionally, upon a merger, consolidation or other change in control any amounts credited to Participant’s deferral accounts shall be placed in a grantor trust to the extent not already in such a trust. In the event that the Plan is not continued by the transferee, purchaser or successor entity, then the Plan shall be terminated subject to the provisions of Section 8.02 of the Plan. Any legal fees incurred by a Participant in determining benefits to which such Participant is entitled under the Plan following a sale, merger, or consolidation of the Bank or an Affiliate of which the Participant is an Employee or, if applicable, a member of the Board of Directors, shall be paid by the resulting or succeeding entity.

Section 9.08 Location of Participants.

Each Participant shall keep the Bank informed of his current address and the current address of his designated beneficiary or beneficiaries. The Bank shall not be obligated to search for any person. If such person is not located within three (3) years after the date on which payment of the Participant’s benefits payable under this Plan may first be made, payment may be made as though the Participant or his beneficiary had died at the end of such three-year period.

Section 9.09 Liability of the Bank and its Affiliates.

Notwithstanding any provision herein to the contrary, neither the Bank nor any individual acting as an employee or agent of the Bank shall be liable to any Participant, former Participant, beneficiary, or any other person for any claim, loss, liability or expense incurred in connection with the Plan, unless attributable to fraud or willful misconduct on the part of the Bank or any such employee or agent of the Bank.

13

Section 9.10 Governing Law.

All questions pertaining to the construction, validity and effect of the Plan shall be determined in accordance with the laws of the United States and, to the extent not preempted by such laws, by the laws of the State of Rhode Island.

Section 9.11 Special Transition Rules Relating to Section 409A of the Code.

The Bank intends this Plan to conform in all respects with Section 409A of the Code in both form and operation. Notwithstanding any other provision in this Plan, the Bank reserves the right to amend any provision of the Plan or take any other action the Committee deems appropriate to ensure compliance with Section 409A of the Code, including altering the time and form of any distribution.

Having been adopted by its Board of Directors, this Plan is executed by its duly authorized officer on _________________________, 2006.

Attest:	NEWPORT FEDERAL SAVINGS BANK
	By:
Corporate Secretary		For the Entire Board of Directors

14

EX-23.2

Exhibit 23.2

[Letterhead of Wolf & Company, P.C.]

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the use, in this Registration Statement on Form S-1 of our report dated February 17, 2006, on the financial statements of Newport Federal Savings Bank as of December 31, 2005 and 2004, and for each of the years in the three-year period ended December 31, 2005, appearing in the Prospectus, which is a part of this Registration Statement on Form S-1. We further consent to the reference to us under the heading “Experts” in such Prospectus.

/s/ Wolf Company, P.C.

Boston, Massachusetts

March 17, 2006

EX-23.3

Exhibit 23.3

RP^® FINANCIAL, LC.

Financial Services Industry Consultants

March 16, 2006

Board of Directors

Newport Federal Savings Bank

100 Bellevue Avenue

Newport, Rhode Island 02840

Members of the Board of Directors:

We hereby consent to the use of our firm’s name in the Form AC Application for Conversion, and any amendments thereto to be filed with Office of Thrift Supervision, and in the Registration Statement on Form S-1, and any amendments thereto to be filed with the Securities and Exchange Commission. We also hereby consent to the inclusion of, summary of and references to our Valuation Appraisal Report and any Valuation Appraisal Report Updates in such filings including the prospectus of Newport Bancorp, Inc. and to the reference to our firm under the heading “Experts” in the prospectus.

Sincerely,

RP^® FINANCIAL, LC.

/s/ RP Financial, LC.

Washington Headquarters	Telephone: (703) 528-1700
Rosslyn Center	Fax No.: (703) 528-1788
1700 North Moore Street, Suite 2210	Toil-Free No.: (866) 723-0594
Arlington, VA 22209

EX-24.1

Exhibit 24.1

POWERS OF ATTORNEY

Each person whose signature appears below constitutes and appoints Kevin M. McCarthy and Bruce A. Walsh, as the true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for them and in their name, place and stead, in any and all capacities to sign any or all amendments to the Application for Conversion on Form AC by Newport Federal Savings Bank or Newport Bancorp, Inc., and the Registration Statement on Form S-1 by Newport Bancorp, Inc. and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Office of Thrift Supervision (the “OTS”) or the U.S. Securities and Exchange Commission, respectively, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done as fully to all intents and purposes as they might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or their substitute or substitute may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of Part 563b of the OTS Rules and Regulations and the Securities Act of 1933, as amended, and any rules and regulations promulgated thereunder, the foregoing Powers of Attorney prepared in conjunction with the Application for Conversion on Form AC and the Registration Statement on Form S-1 have been duly signed by the following persons in the capacities and on the dates indicated.

NAME	DATE
/s/ Kevin M. McCarthy	March 17, 2006
Kevin M. McCarthy
President, Chief Executive Officer and Director
(principal executive officer)
Newport Bancorp, Inc.
President, Chief Executive Officer and Director
(principal executive officer)
Newport Federal Savings Bank
/s/ Nino Moscardi	March 17, 2006
Nino Moscardi
Executive Vice President, Chief Operating Officer and Director
Newport Bancorp, Inc.
Executive Vice President, Chief Operating Officer and Director
Newport Federal Savings Bank

/s/ Bruce A. Walsh	March 17, 2006
Bruce A. Walsh
Senior Vice President and Chief Financial
Officer
(principal accounting and financial officer)
Newport Bancorp, Inc.
Senior Vice President and Chief Financial
Officer
(principal accounting and financial officer)
Newport Federal Savings Bank
/s/ Peter W. Rector	March 17, 2006
Peter W. Rector
Chairman of the Board
Newport Bancorp, Inc.
Chairman of the Board
Newport Federal Savings Bank
	March __, 2006
John N. Conti
Director
Newport Bancorp, Inc.
Director
Newport Federal Savings Bank
/s/ Peter T. Crowley	March 17, 2006
Peter T. Crowley
Director
Newport Bancorp, Inc.
Director
Newport Federal Savings Bank
/s/ William R. Harvey	March 17, 2006
William R. Harvey
Director
Newport Bancorp, Inc.
Director
Newport Federal Savings Bank

/s/ Michael J. Hayes	March 17, 2006
Michael J. Hayes
Director
Newport Bancorp, Inc.
Director
Newport Federal Savings Bank
/s/ Donald N. Kaull	March 17, 2006
Donald N. Kaull
Director
Newport Bancorp, Inc.
Director
Newport Federal Savings Bank
/s/ Arthur H. Lathrop	March 17, 2006
Arthur H. Lathrop
Director
Newport Bancorp, Inc.
Director
Newport Federal Savings Bank
/s/ Robert S. Lazar	March 17, 2006
Robert S. Lazar
Director
Newport Bancorp, Inc.
Director
Newport Federal Savings Bank
/s/ Arthur P. Macauley	March 17, 2006
Arthur P. Macauley
Director
Newport Bancorp, Inc.
Director
Newport Federal Savings Bank

/s/ Kathleen A. Nealon	March 17, 2006
Kathleen A. Nealon
Director
Newport Bancorp, Inc.
Director
Newport Federal Savings Bank
/s/ Michael S. Pinto	March 17, 2006
Michael S. Pinto
Director
Newport Bancorp, Inc.
Director
Newport Federal Savings Bank
/s/ Alicia S. Quirk	March 17, 2006
Alicia S. Quirk
Director
Newport Bancorp, Inc.
Director
Newport Federal Savings Bank
/s/ Barbara Saccucci Radebach	March 17, 2006
Barbara Saccucci Radebach
Director
Newport Bancorp, Inc.
Director
Newport Federal Savings Bank

EX-99.1

Exhibit 99.1

PRO FORMA VALUATION REPORT

NEWPORT BANCORP, INC.

PROPOSED HOLDING COMPANY FOR

NEWPORT FEDERAL SAVINGS BANK

Newport, Rhode Island

Dated as Of:

March 3, 2006

RP^® Financial, LC.

1700 North Moore Street

Suite 2210

Arlington, Virginia 22209

RP^® FINANCIAL, LC.                                                 

Financial Services Industry Consultants

March 3, 2006

Board of Directors

Newport Federal Savings Bank

100 Bellevue Avenue

Newport, Rhode Island 02840

Members of the Board of Directors:

At your request, we have completed and hereby provide an independent appraisal (“Appraisal”) of the estimated pro forma market value of the common stock which is to be issued in connection with the mutual-to-stock conversion of Newport Federal Savings Bank, Newport, Rhode Island (“Newport Federal” or the “Bank”). The common stock issued in connection with the Bank’s conversion will simultaneously be acquired by a holding company, Newport Bancorp, Inc. (“Newport Bancorp” or the “Company”). Pursuant to the plan of conversion, Newport Bancorp will offer its stock in a subscription offering to Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans including Newport Federal’s employee stock ownership plan (the “ESOP”), Supplemental Eligible Account Holders and Other Members. To the extent that shares remain available for purchase after satisfaction of all subscriptions received in the subscription offering, the shares may be offered for sale in a community offering.

This Appraisal is furnished pursuant to the conversion regulations promulgated by the Office of Thrift Supervision (“OTS”). Specifically, this Appraisal has been prepared in accordance with the “Guidelines for Appraisal Reports for the Valuation of Savings and Loan Associations Converting from Mutual to Stock Form of Organization” as set forth by the OTS, and applicable regulatory interpretations thereof.

Description of Plan of Conversion

On June 7, 2005, the Board of Directors of the Bank adopted a plan of conversion, incorporated herein by reference, in which the Bank will convert from a federally-chartered mutual savings bank to a federally-chartered stock savings bank and become a wholly-owned subsidiary of Newport Bancorp, a newly formed Maryland corporation. Newport Bancorp will offer 100% of its common stock to qualifying depositors of Newport Federal and Westerly Savings Bank, Westerly, Rhode Island (“Westerly Savings”) in a subscription offering and, if necessary, to members of the general public through a community offering and/or a syndicate of registered broker-dealers. Going forward, Newport Bancorp will own 100% of the Bank’s stock, and the Bank will initially be Newport Bancorp’s sole subsidiary. A portion of the net proceeds received from the sale of common stock will be used to purchase all of the then to be issued and outstanding capital stock of the Bank and the balance of the net proceeds will be retained by the Company.

Washington Headquarters
Rosslyn Center	Telephone: (703) 528-1700
1700 North Moore Street, Suite 2210	Fax No.: (703) 528-1788
Arlington, VA 22209	Toll-Free No.: (866) 723-0594
www.rpfinancial.com	E-Mail: mail@rpfinancial.com

Board of Directors

March 3, 2006

Page 2

At this time, no other activities are contemplated for the Company other than the ownership of the Bank, a loan to the newly-formed ESOP and reinvestment of the proceeds that are retained by the Company. In the future, Newport Bancorp may acquire or organize other operating subsidiaries, diversify into other banking-related activities, pay dividends or repurchase its stock, although there are no specific plans to undertake such activities at the present time.

The plan of conversion provides for the establishment of NewportFed Charitable Foundation (the “Foundation”). The Foundation will be funded with common stock contributed by the Company in an amount equal to 8.0% the gross proceeds of the shares sold in the conversion. The Foundation will be dedicated to assist the communities within Newport Federal’s’ market area beyond community development and lending and will enhance the Bank’s current activities under the Community Reinvestment Act.

RP^® Financial, LC.

RP^® Financial, LC. (“RP Financial”) is a financial consulting firm serving the financial services industry nationwide that, among other things, specializes in financial valuations and analyses of business enterprises and securities, including the pro forma valuation for savings institutions converting from mutual-to-stock form. The background and experience of RP Financial is detailed in Exhibit V-1. We believe that, except for the fee we will receive for our appraisal, we are independent of the Bank and the other parties engaged by Newport Federal to assist in the corporate reorganization and stock issuance process.

Valuation Methodology

In preparing our appraisal, we have reviewed the Bank’s and the Company’s regulatory applications, including the prospectus as filed with the OTS and the Securities and Exchange Commission (“SEC”). We have conducted a financial analysis of the Bank that has included due diligence related discussions with Newport Federal’s management; Wolf & Company, P.C., the Bank’s independent auditor; Muldoon Murphy & Aguggia LLP, Newport Federal’s conversion counsel; and Sandler O’Neill & Partners, L.P., which has been retained as the financial and marketing advisor in connection with the Bank’s stock offering. All conclusions set forth in the Appraisal were reached independently from such discussions. In addition, where appropriate, we have considered information based on other available published sources that we believe are reliable. While we believe the information and data gathered from all these sources are reliable, we cannot guarantee the accuracy and completeness of such information.

We have investigated the competitive environment within which Newport Federal operates and have assessed the Bank’s relative strengths and weaknesses. We have monitored all material regulatory and legislative actions affecting financial institutions generally and analyzed the potential impact of such developments on Newport Federal and the industry as a whole to the extent we were aware of such matters. We have analyzed the potential effects of the stock

Board of Directors

March 3, 2006

Page 3

conversion on the Bank’s operating characteristics and financial performance as they relate to the pro forma market value of Newport Bancorp. We have reviewed the economy and demographic characteristics of the primary market area in which the Bank currently operates. We have compared Newport Federal’s financial performance and condition with publicly-traded thrift institutions evaluated and selected in accordance with the Valuation Guidelines, as well as all publicly-traded thrifts and thrift holding companies. We have reviewed conditions in the securities markets in general and the market for thrifts and thrift holding companies, including the market for new issues.

The Appraisal is based on Newport Federal’s representation that the information contained in the regulatory applications and additional information furnished to us by the Bank and its independent auditors, legal counsel, investment bankers and other authorized agents are truthful, accurate and complete. We did not independently verify the financial statements and other information provided by the Bank, or its independent auditors, legal counsel, investment bankers and other authorized agents nor did we independently value the assets or liabilities of the Bank. The valuation considers Newport Federal only as a going concern and should not be considered as an indication of the Bank’s liquidation value.

Our appraised value is predicated on a continuation of the current operating environment for the Bank and the Company and for all thrifts and their holding companies. Changes in the local and national economy, the federal and state legislative and regulatory environments for financial institutions and mutual holding companies, the stock market, interest rates, and other external forces (such as natural disasters or significant world events) may occur from time to time, often with great unpredictability, and may materially impact the value of thrift stocks as a whole or the Bank’s value alone. It is our understanding that Newport Federal intends to remain an independent institution and there are no current plans for selling control of the Bank as a converted institution. To the extent that such factors can be foreseen, they have been factored into our analysis.

The estimated pro forma market value is defined as the price at which the Company’s stock, immediately upon completion of the offering, would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts.

Valuation Conclusion

It is our opinion that, as of March 3, 2006, the estimated aggregate pro forma market value of the shares to be issued immediately following the conversion, including shares to be issued to the Foundation, equaled $37,500,000 at the midpoint, equal to 3,750,000 shares offered at a per share value of $10.00. Pursuant to conversion guidelines, the 15% offering range indicates a minimum value of $31,875,000 and a maximum value of $43,125,000. Based on the $10.00 per share offering price determined by the Board, this valuation range equates to total shares outstanding of 3,187,500 at the minimum and 4,312,500 at the maximum. In the event the appraised value is subject to an increase, the aggregate pro forma market value may be increased

Board of Directors

March 3, 2006

Page 4

up to a supermaximum value of $49,593,750 without a resolicitation. Based on the $10.00 per share offering price, the supermaximum value would result in total shares outstanding of 4,959,375. Based on this valuation range, the offering range is as follows: $29,325,000 at the minimum, $34,500,000 at the midpoint, $39,675,000 at the maximum and $45,626,250 at the supermaximum. Based on the $10.00 per share offering price, the number of offering shares is as follows: 2,951,389 at the minimum, 3,472,222 at the midpoint, 3,993,055 at the maximum and 4,592,013 at the supermaximum.

Limiting Factors and Considerations

The valuation is not intended, and must not be construed, as a recommendation of any kind as to the advisability of purchasing shares of the common stock. Moreover, because such valuation is determined in accordance with applicable OTS regulatory guidelines and is necessarily based upon estimates and projections of a number of matters, all of which are subject to change from time to time, no assurance can be given that persons who purchase shares of common stock in the conversion will thereafter be able to buy or sell such shares at prices related to the foregoing valuation of the estimated pro forma market value thereof. The appraisal reflects only a valuation range as of this date for the pro forma market value of Newport Bancorp immediately upon issuance of the stock and does not take into account any trading activity with respect to the purchase and sale of common stock in the secondary market on the date of issuance of such securities or at anytime thereafter following the completion of the public stock offering.

The valuation prepared by RP Financial in accordance with applicable OTS regulatory guidelines was based on the financial condition and operations of Newport Federal as of December 31, 2005, the date of the financial data included in the prospectus.

RP Financial is not a seller of securities within the meaning of any federal and state securities laws and any report prepared by RP Financial shall not be used as an offer or solicitation with respect to the purchase or sale of any securities. RP Financial maintains a policy which prohibits RP Financial, its principals or employees from purchasing stock of its financial institution clients.

The valuation will be updated as provided for in the OTS conversion regulations and guidelines. These updates will consider, among other things, any developments or changes in the financial performance and condition of Newport Federal, management policies, and current conditions in the equity markets for thrift stocks, both existing issues and new issues. These updates may also consider changes in other external factors which impact value including, but not limited to: various changes in the federal and state legislative and regulatory environments for financial institutions, the stock market and the market for thrift stocks, and interest rates. Should any such new developments or changes be material, in our opinion, to the valuation of the shares, appropriate adjustments to the estimated pro forma market value will be

Board of Directors

March 3, 2006

Page 5

made. The reasons for any such adjustments will be explained in the update at the date of the release of the update.

Respectfully submitted,

RP^® FINANCIAL, LC.

/s/ Ronald S. Riggins

Ronald S. Riggins

President and Managing Director

/s/ Gregory E. Dunn

Gregory E. Dunn

Senior Vice President

RP^® Financial, LC.

TABLE OF CONTENTS

NEWPORT FEDERAL SAVINGS BANK

Newport, Rhode Island

DESCRIPTION	PAGE NUMBER
CHAPTER ONE OVERVIEW AND FINANCIAL ANALYSIS
Introduction	1.1
Plan of Conversion	1.1
Strategic Overview	1.2
Balance Sheet Trends	1.5
Income and Expense Trends	1.9
Interest Rate Risk Management	1.13
Lending Activities and Strategy	1.14
Asset Quality	1.17
Funding Composition and Strategy	1.17
Legal Proceedings	1.19
CHAPTER TWO MARKET AREA
Introduction	2.1
Market Area Demographics	2.1
National Economic Factors	2.2
Local Economy	2.9
Market Area Deposit Characteristics	2.11
Competition	2.13
CHAPTER THREE PEER GROUP ANALYSIS
Peer Group Selection	3.1
Financial Condition	3.6
Income and Expense Components	3.9
Loan Composition	3.12
Interest Rate Risk	3.14
Credit Risk	3.16
Summary	3.16

RP^® Financial, LC.

TABLE OF CONTENTS

NEWPORT FEDERAL SAVINGS BANK

Newport, Rhode Island

(continued)

DESCRIPTION				PAGE NUMBER
CHAPTER FOUR VALUATION ANALYSIS
Introduction				4.1
Appraisal Guidelines				4.1
RP Financial Approach to the Valuation				4.1
Valuation Analysis				4.2
	1.	Financial Condition		4.3
	2.	Profitability, Growth and Viability of Earnings		4.4
	3.	Asset Growth		4.6
	4.	Primary Market Area		4.7
	5.	Dividends		4.8
	6.	Liquidity of the Shares		4.9
	7.	Marketing of the Issue		4.9
		A.	The Public Market	4.10
		B.	The New Issue Market	4.15
		C.	The Acquisition Market	4.16
	8.	Management		4.19
	9.	Effect of Government Regulation and Regulatory Reform		4.19
Summary of Adjustments				4.20
Valuation Approaches				4.20
	1.	Price-to-Earnings (“P/E”)		4.22
	2.	Price-to-Book (“P/B”)		4.24
	3.	Price-to-Assets (“P/A”)		4.24
Comparison to Recent Offerings				4.24
Valuation Conclusion				4.25

RP^® Financial, LC.

LIST OF TABLES

NEWPORT FEDERAL SAVINGS BANK

Newport, Rhode Island

TABLE NUMBER	DESCRIPTION	PAGE
1.1	Historical Balance Sheets	1.6
1.2	Historical Income Statements	1.10
2.1	Summary Demographic Data	2.3
2.2	Primary Market Area Employment Sectors	2.10
2.3	Unemployment Trends	2.11
2.4	Deposit Summary	2.12
2.5	Market Area County Deposit Competitors	2.13
3.1	Peer Group of Publicly-Traded Thrifts	3.3
3.2	Balance Sheet Composition and Growth Rates	3.7
3.3	Income as a Percent of Average Assets and Yields, Costs, Spreads	3.10
3.4	Loan Portfolio Composition and Related Information	3.13
3.5	Interest Rate Risk Measures and Net Interest Income Volatility	3.15
3.6	Credit Risk Measures and Related Information	3.17
4.1	Market Area Unemployment Rates	4.7
4.2	Recent Conversion Pricing Characteristics	4.17
4.3	Market Pricing Recent Conversions	4.18
4.4	Public Market Pricing	4.23

RP^® Financial, LC.

Page 1.1

I. OVERVIEW AND FINANCIAL ANALYSIS

Introduction

Newport Federal Savings Bank (“Newport Federal” or the “Bank”), chartered in 1888, is a federally-chartered savings bank headquartered in Newport, Rhode Island. Newport Federal serves southern Rhode Island through its main office in Newport and four branch offices located in the towns of Middletown, Wakefield and Westerly. The Bank maintains two branches in Westerly. The Newport and Middletown offices are located in Newport County, while the Westerly and Wakefield offices are located in Washington County. The major portion of the Bank activities is conducted within the markets served by the retail branches and surrounding contiguous markets. A map of the Bank’s branch office locations is provided in Exhibit I-1. Newport Federal is a member of the Federal Home Loan Bank (“FHLB”) system, and its deposits are insured up to the regulatory maximums by the Savings Association Insurance Fund (“SAIF”) of the Federal Deposit Insurance Corporation (“FDIC”). At December 31, 2005, Newport Federal had $262.4 million in assets, $192.6 million in deposits and total equity of $18.0 million equal to 6.9% of total assets. Newport Federal’s audited financial statements are included by reference as Exhibit I-2.

Plan of Conversion

On June 7, 2005, the Board of Directors of the Bank adopted a plan of conversion, incorporated herein by reference, in which the Bank will convert from a federally-chartered mutual savings bank to a federally-chartered stock savings bank and become a wholly-owned subsidiary of Newport Bancorp, Inc. (“Newport Bancorp” or the “Company”), a newly formed Maryland corporation. Newport Bancorp will offer 100% of its common stock to qualifying depositors of Newport Federal and Westerly Savings Bank, Westerly, Rhode Island (“Westerly Savings”) in a subscription offering and, if necessary, to members of the general public through a community offering and/or a syndicate of registered broker-dealers. Going forward, Newport Bancorp will own 100% of the Bank’s stock, and the Bank will initially be Newport Bancorp’s sole subsidiary. A portion of the net proceeds received from the sale of common stock will be used to purchase all of the then to be issued and outstanding capital stock of the Bank and the balance of the net proceeds will be retained by the Company.

RP^® Financial, LC.

Page 1.2

At this time, no other activities are contemplated for the Company other than the ownership of the Bank, a loan to the newly-formed employee stock ownership plan (the “ESOP”) and reinvestment of the proceeds that are retained by the Company. In the future, Newport Bancorp may acquire or organize other operating subsidiaries, diversify into other banking-related activities, pay dividends or repurchase its stock, although there are no specific plans to undertake such activities at the present time.

The plan of conversion provides for the establishment of NewportFed Charitable Foundation (the “Foundation”). The Foundation will be funded with common stock contributed by the Company in an amount equal to 8.0% the gross proceeds of the shares sold in the conversion. The Foundation will be dedicated to assist the communities within Newport Federal’s’ market area beyond community development and lending and will enhance the Bank’s current activities under the Community Reinvestment Act.

Strategic Overview

Newport Federal maintains a local community banking emphasis, with a primary strategic objective of meeting the borrowing and savings needs of its local customer base. Historically, Newport Federal’s operating strategy has been fairly reflective of a traditional thrift operating strategy in which 1-4 family residential mortgage loans and retail deposits have constituted the principal components of the Bank’s assets and liabilities, respectively. In October 2005, the Bank completed a merger with Westerly Savings, which was structured as a pooling merger for purposes of accounting for the transaction. Accordingly, the Bank’s historical financial data has been pooled or combined with Westerly Savings’ historical financial data. Westerly Savings maintained a main office and a branch in Westerly, which is approximately 35 miles southwest of Newport on the border of Connecticut. At the time of the merger, Westerly Savings had approximately $75 million of assets and $56 million of deposits. Similar to Newport Federal, Westerly Savings operated as a community-oriented thrift with an emphasis on 1-4 family lending funded by retail deposits.

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Beyond 1-4 family permanent mortgage loans, lending diversification by the Bank has emphasized multi-family and commercial real estate loans and consumer loans. On a more limited basis, the Bank’s lending activities include origination of construction loans. Pursuant to the Bank’s business plan, Newport Federal will continue to emphasize 1-4 family lending and will emphasize growth of multi-family and commercial real estate loans as the primary area of lending diversification.

Investments serve as a supplement to the Bank’s lending activities and the investment portfolio is considered to be indicative of a low risk investment philosophy. The investment portfolio is comprised primarily of mutual funds invested in U.S. Treasury and mortgage-backed securities, with the balance of investment portfolio consisting substantially of mortgage-backed securities, certificates of deposits (“CDs”) and FHLB stock.

Retail deposits have consistently served as the primary interest-bearing funding source for the Bank. Transaction and savings accounts constitute the largest portion of the Bank’s deposits, reflecting the Bank’s emphasis on marketing and cross-selling those accounts as well as a large “blue collar” customer base that in general have a relatively high propensity for maintaining deposits in transaction and savings and account types of deposits. Notwithstanding the higher concentration of deposits maintained in transaction and savings accounts, CDs have accounted for most of the Bank’s deposit growth in recent years. The Bank utilizes borrowings as a supplemental funding source to facilitate management of funding costs and interest rate risk. FHLB advances have in general been the Bank’s only source of borrowings, which consist of a mixture of short- and long-term advances with laddered terms out to ten years. Following the conversion, the Bank may use additional borrowings to facilitate leveraging of its higher capital position that will result from the stock offering, in which borrowings would be utilized to fund purchases of investment securities at a positive spread to improve earnings and return on equity. To the extent additional borrowings are utilized by the Bank, FHLB advances would likely continue to be the principal source of such borrowings.

Newport Federal’s earnings base is largely dependent upon net interest income and operating expense levels. Overall, the Bank’s operating strategy has provided for a relatively strong net interest margin; which has been supported by the high concentration of interest-earning assets maintained in loans compared to lower yielding investment securities. Operating

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expenses have also generally been maintained at relatively high levels, which can in part be attributed to the high concentration of assets maintained in loans, which are more costly to generate and service than investments. The Bank’s funding composition, which consists of a relatively high level of transaction and savings accounts, would also tend to place upward pressure on the operating expense ratio, given that transaction and savings account deposits are more costly to service than time deposits and borrowings.

The Bank’s lack of any significant diversification of products and services has somewhat limited the earnings contribution realized from sources of non-interest operating income. Non-interest operating income consists substantially of customer service fees generated from transaction accounts. Some growth of non-interest operating income is contemplated as part of the Bank’s business plan, largely through building market share that will be facilitated by marketing the Bank’s products and services to a larger customer base and expansion of market area that was provided by the merger with Westerly Savings.

The post-offering business plan of the Bank is expected to continue to focus on products and services which have facilitated Newport Federal’s recent growth. Specifically, Newport Federal will continue to be an independent community-oriented financial institution with a commitment to local real estate financing with operations funded by retail deposits, borrowings, equity capital and internal cash flows. In addition, the Bank will continue to emphasize multi-family and commercial real estate loans as the primary area of lending diversification.

The Bank’s Board of Directors has elected to complete a mutual-to-stock conversion to improve the competitive position of Newport Federal. The capital realized from the stock offering will increase the operating flexibility and overall financial strength of Newport Federal. The additional capital realized from stock proceeds will increase liquidity to support funding of future loan growth and other interest-earning assets. Newport Federal’s higher capital position resulting from the infusion of stock proceeds will also serve to reduce interest rate risk, particularly through enhancing the Bank’s interest-earning-assets-to-interest-bearing-liabilities (“IEA/IBL”) ratio. The additional funds realized from the stock offering will provide an alternative funding source to deposits and borrowings in meeting the Bank’s future funding needs, which may facilitate a reduction in Newport Federal’s funding costs. Additionally, Newport Federal’s higher equity-to-assets ratio will also better position the Bank to take

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advantage of expansion opportunities as they arise. Such expansion would most likely occur through the establishment or acquisition of additional banking offices or customer facilities that would provide for further penetration in the markets currently served by the Bank or nearby surrounding markets. The Bank will also be bettered position to pursue growth through acquisition of other financial service providers following the stock offering, given its strengthened capital position. At this time, the Bank has no specific plans for expansion other than through establishing additional branches. The projected uses of proceeds are highlighted below.

• Newport Bancorp, Inc. The Company is expected to retain up to 50% of the net offering proceeds. At present, funds at the Company level, net of the loan to the ESOP, are expected to be primarily invested initially into short-term investment grade securities. Over time, the funds may be utilized for various corporate purposes, possibly including acquisitions, infusing additional equity into the Bank, repurchases of common stock, and the payment of regular and/or special cash dividends.

• Newport Federal. Approximately 50% of the net stock proceeds will be infused into the Bank in exchange for all of the Bank’s newly issued stock. Cash proceeds (i.e., net proceeds less deposits withdrawn to fund stock purchases) infused into the Bank are anticipated to become part of general operating funds, and are expected to be primarily utilized to fund loan growth.

Overall, it is the Bank’s objective to pursue growth that will serve to increase returns, while, at the same time, growth will not be pursued that could potentially compromise the overall risk associated with Newport Federal’s operations.

Balance Sheet Trends

Table 1.1 shows the Bank’s historical balance sheet data for the past five years. From year end 2001 through year end 2005, Newport Federal’s assets increased at a 5.3% annual rate. Asset growth was largely the result of loan growth and loans constitute the major portion of the Bank’s interest-earning asset composition. Loan growth has been funded with a combination of deposits and borrowings, as well as redeployment of cash and investments. A summary of Newport Federal’s key operating ratios for the past five years are presented in Exhibit I-3.

Newport Federal’s loans receivable portfolio increased at a 9.3% annual rate from year end 2001 through year end 2005, with the portfolio exhibiting positive growth throughout the

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[TABLE 1.1 APPEARS HERE]

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period. The Bank’s higher loan growth rate compared to its asset growth rate provided for an increase in the loans-to-assets ratio from 76.3% at year end 2001 to 88.5% at year end 2005. Newport Federal’s historical emphasis on 1-4 family lending is reflected in its loan portfolio composition, as 68.4% of total loans receivable consisted of 1-4 family loans at year end 2005. Trends in the Bank’s loan portfolio composition over the past five years show that the concentration of 1-4 loans comprising total loans has been fairly stable, with such loan ranging from a low of 64.7% of total loans at year end 2003 to a high of 68.4% of total loans at year end 2005. The increase in the ratio of 1-4 family loans comprising total loans since year end 2003 was the result of comparatively stronger growth of 1-4 family loans, as the Bank’s loan growth during the past two years was largely sustained by 1-4 family loans. Over the past five years, lending diversification by the Bank has been mostly in the area of multi-family and commercial real estate loans, which equaled 23.2% of total loans at December 31, 2005. The relative concentration of multi-family and commercial real estate loans declined slightly over the past five years, with such loans comprising 25.6% of total loans at year end 2001. The remainder pf the mortgage loan portfolio consists of construction loans, with such loans ranging from a high of 4.7% of total loans at year end 2003 to a low of 1.4% of total loans at year end 2005. Consumer loans represent the only area of non-mortgage lending by the Bank, with such loans ranging from a low of 4.9% of total loans at year end 2002 to a high of 7.1% of total loans at year end 2005. Growth of the consumer loan portfolio has been sustained by home equity loans, which account for the major portion of the consumer loan portfolio.

The intent of the Bank’s investment policy is to provide adequate liquidity and to generate a favorable return within the context of supporting Newport Federal’s overall credit and interest rate risk objectives. It is anticipated that proceeds retained at the holding company level will primarily be initially invested into investments with short-term maturities. Over the past five years, the Bank’s level of cash and investment securities (inclusive of FHLB stock) has trended lower, decreasing from 19.8% of assets at year end 2001 to 7.5% of assets at year end 2005. Redeployment of cash and cash equivalents, primarily into loan growth, accounted for most of the reduction in the cash and investments ratio, as cash and cash equivalents declined from 14.6% of assets at year end 2001 to 1.9% of assets at year end 2005. Mutual funds invested in U.S. Treasury bonds and mortgage-backed securities, which totaled $6.3 million at year end

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2005, comprise the most significant component of the Bank’s investment portfolio. Other investments held by the Bank at December 31, 205 consisted of CDs ($3.0 million), mortgage-backed securities ($2.3 million), Fannie Mae stock ($2,000) and FHLB stock ($3.0 million). Mortgage-backed securities held by the Bank consist of pass-through securities which are guaranteed or insured by Government Sponsored Enterprises (“GSEs”). The mortgage-backed securities portfolio is maintained as held to maturity. Mutual funds and Fannie Mae stock are maintained as available for sale and at December 31, 2005 the net unrealized loss on available for investments equaled $149,000. The Bank also maintained cash and cash equivalents of $4.9 million at December 31, 2005, which equaled 1.9% of assets. Exhibit I-4 provides historical detail of the Bank’s investment portfolio.

The Bank also maintains an investment in bank-owned life insurance (“BOLI”) policies, which cover the lives of some of the Bank’s officers and directors. The purpose of the investment is to provide funding for the benefit plans of the covered individuals. The life insurance policies earn tax-exempt income through cash value accumulation and death proceeds. As of December 31, 2005, the cash surrender value of the Bank’s BOLI equaled $1.8 million.

Over the past five years, Newport Federal’s funding needs have been substantially met through retail deposits, internal cash flows, borrowings and retained earnings. From year end 2001 through year end 2005, the Bank’s deposits increased at an annual rate of 4.7%. Positive deposit growth was sustained throughout the period covered in Table 1.1, but the level of deposits funding assets declined reflecting a slight increase in the level of borrowings utilized by the Bank. Accordingly, deposits as a percent of assets declined from 75.3% at year end 2001 to 73.4% at year end 2005. Transaction and savings accounts have consistently accounted for the major portion of the Bank’s deposit composition and equaled 63.0% of total deposits at December 31, 2005.

Borrowings serve as an alternative funding source for the Bank to address funding needs for growth and to support management of deposit costs and interest rate risk. Borrowings have become a slightly more prominent funding source for the Bank during the past five years, as borrowings increased from 17.7% of assets at year end 2001 to 19.1% of assets at year end 2005. In general, the relative mix of borrowings and deposits maintained by the Bank since year end 2002 has been fairly consistent with deposits being maintained at approximately 73% of assets

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and borrowings being maintained at slightly below 20% of assets. The Bank’s use of borrowings has generally been limited to FHLB advances and at December 31, 2005 the $50.1 million of borrowings held by the Bank consisted entirely of FHLB advances.

Since year end 2001, retention of earnings and the adjustment for the net unrealized loss or gain on available for sale securities translated into an annual capital growth rate of 7.4% for the Bank. Capital growth outpaced the Bank’s asset growth, as Newport Federal’s equity-to-assets ratio increased from 6.3% at year end 2001 to 6.9% at year end 2005. All of the Bank’s capital is tangible capital, and the Bank maintained capital surpluses relative to all of its regulatory capital requirements at December 31, 2005. The addition of stock proceeds will serve to strengthen Newport Federal’s capital position and competitive posture within its primary market area, as well as possibly support expansion into other nearby markets if favorable growth opportunities are presented. At the same time, as the result of the Bank’s relatively high pro forma capital position, Newport Federal’s ROE can be expected to initially be below industry averages following its stock offering.

Income and Expense Trends

Table 1.2 shows the Bank’s historical income statements for the past five years. The Bank reported positive earnings over the past five years, ranging from a low of 0.26% of average assets during fiscal 2005 to a high of 0.63% of average assets during 2001 and 2003. The lower return reported in 2005 was mostly attributable to merger expenses incurred in connection with the merger of Westerly Savings, which were non-taxable expenses. Net interest income and operating expenses represent the primary components of the Bank’s earnings. Other revenues for the Bank largely are derived from customer service fees, which constitute the major portion of the Bank’s non-interest operating income. Favorable credit quality has served to limit the amount of loan loss provisions the Bank established over the past five years. Gains realized from the sale of fixed rate loans have been an ongoing factor in the Bank’s earnings, while gains and loss on the sale of investments and other assets typically have not been a significant factor in the Bank’s earnings.

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[TABLE 1.2 APPEARS HERE]

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Over the past five years, the Bank’s net interest income to average assets ratio ranged from a low of 3.35% during 2001 and 2004 to a high of 3.48% during 2002. For 2005, the Bank’s net interest income to average assets equaled 3.42%. The relative stability of Bank’s net interest income ratio is reflective of an interest rate spread that has exhibited only modest fluctuations during recent years. Overall, the Bank’s net interest income to average ratio has been maintained at relatively high levels during the past five years, which has been supported by favorable interest rate spreads and favorable ratios of interest-earning assets as a percent of interest-bearing liabilities. Relatively wide yield-cost spreads have been realized through maintaining a relatively high concentration of assets in loans compared to lower yielding investments and through maintaining a relatively high concentration of liabilities in transaction and savings accounts compared to higher costing CDs and borrowings. For the year ended 2005 the Bank maintained an interest rate spread of 3.18%, which approximated the Bank’s interest rate spread during the prior two years. The Bank’s historical net interest rate spreads and yields and costs are set forth in Exhibits I-3 and I-5.

Non-interest operating income has been a fairly stable contributor to the Bank’s earnings over the past five years, ranging from a low of 0.64% of average assets during 2005 to a high of 0.76% of average assets during 2004. Customer service fees constitute the largest source of non-interest operating income for the Bank and a reduction in customer service fee income accounted for the decline in non-interest operating income during 2005. The lower customer service fees recorded during 2005 was in part attributable to a decline in NOW checking accounts, which declined by approximately $5.0 million during 2005.

Operating expenses represent the other major component of the Bank’s earnings, ranging from a high of 3.38% of average assets during 2004 to a low of 3.19% of average assets during 2001. For 2005, the Bank’s operating expense to average assets ratio equaled 3.29%, which excludes one time merger expenses that are shown separately in Table 1.2. Overall, the Bank has maintained a relatively high level of operating expenses, which is reflective of the Bank’s relatively high number employees for its assets size. As of December 31, 2005, the Bank’s ratio of assets per full time equivalent employee equaled $4.2 million, versus a comparable ratio of $5.8 million for all publicly-traded thrifts. The Bank’s lower assets per employee ratio is indicative of the higher staffing needs associated with servicing an interest-earning asset

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composition that is primarily concentrated in loans, as opposed to investments, and a funding composition that is primarily concentrated in transaction and savings accounts as opposed to CDs and borrowings. Upward pressure will be placed on the Bank’s expense ratio following the stock offering, due to expenses associated with operating as a publicly-traded company, including expenses related to the stock benefit plans. At the same time, the increase in capital realized from the stock offering will increase the Bank’s capacity to leverage operating expenses through pursuing a more aggressive growth strategy.

Overall, the general trends in the Bank’s net interest margin and operating expense ratio since fiscal 2001 reflect little change in the Bank’s core earnings, as indicated by the Bank’s expense coverage ratio (net interest income divided by operating expenses). Newport Federal’s expense coverage ratio equaled 1.05 times in 2001, versus a comparable ratio of 1.04 times in 2005. Comparatively, Newport Federal’s efficiency ratio (operating expenses, net of amortization of intangibles, as a percent of the sum of net interest income and other operating income) of 77.8% in 2001 was slightly more favorable than the 81.0% efficiency ratio maintained in 2005. The Bank’s less favorable efficiency ratio for 2005 resulted from a lower level of non-interest operating income and a higher level of operating expenses, which was only partially offset by an increase in the net income ratio.

Over the past five years, loan loss provisions established by the Bank ranged from a low of 0.01% of average assets during 2001 to a high of 0.08% of average assets during 2005. The higher loan loss provisions established during 2004 and 2005 were largely related to growth of the loan portfolio, as the Bank’s credit quality remained very favorable in 2004 and 2005. As of December 31, 2005, the Bank maintained valuation allowances of $1.9 million, equal to 0.80% of net loans receivable. The Bank did not maintain any non-performing loans at year end 2005. Exhibit I-6 sets forth the Bank’s loan loss allowance activity during the past five years.

Non-operating income has consisted mostly of gains realized from the sale of 1-4 family fixed rate loans to the secondary market. Loan sale gains ranged from a high of 0.15% of average assets during 2003 to a low of 0.04% of average assets during 2005. Most of the loan sale gains were recorded by Westerly Savings, as the Bank’s general philosophy has been to retain substantially all loans originated for investment. Accordingly, the trend of lower loan sale

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gains recorded in 2005 can be expected to continue in future earnings periods. Other gains and losses generally have not been a factor in the Bank’s earnings. In 2004 the Bank recorded a slight loss on the sale of mutual funds and a slight gain on the sale of real estate owned. In 2005 earnings were negatively impacted by expenses resulting from the merger, which totaled $436,000 or 0.17% of average assets. The merger expenses were non-taxable, thereby resulting in a $436,000 reduction in the Bank’s 2005 earnings. With the exception of the loan sale gains, the non-operating gains and losses that have been recorded by the Bank during the past five years are not considered to be part of the Bank’s recurring earnings base.

The Bank’s effective tax rate ranged from a low of 36.55% in 2004 to a high of 53.16% in 2005. The higher effective tax rate for 2005 was largely the result of the non-taxable merger expenses. As set forth in the prospectus, the Bank’s marginal effective statutory tax rate approximates 40.0%.

Interest Rate Risk Management

The Bank’s balance sheet is liability-sensitive in the short-term (less than one year) and, thus, the net interest margin will typically be adversely affected during periods of rising and higher interest rates, as well as during periods when the yield curve becomes flatter due to short-term interest rates rising faster than long-term interest rates. As of December 31, 2005, the Net Portfolio Value (“NPV”) analysis provided by the OTS indicated that a 2.0% instantaneous and sustained increase in interest rates would result in a 31% decline in the Bank’s NPV (see Exhibit I-7).

The Bank pursues a number of strategies to manage interest rate risk, particularly with respect to seeking to limit the repricing mismatch between interest rate sensitive assets and liabilities. The Bank manages interest rate risk from the asset side of the balance sheet through underwriting residential mortgages that will allow for their sale to the secondary market when such a strategy is appropriate, maintaining investments as available for sale, investing in mutual funds invested in short-term or adjustable rate bonds and mortgage-backed, and diversifying into other types of lending beyond 1-4 family permanent mortgage loans which consists primarily of shorter term fixed rate loans or adjustable rate loans. As of December 31, 2005, of the Bank’s

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total loans due after December 31, 2006, ARM loans comprised 37.3% of those loans (see Exhibit I-8). On the liability side of the balance sheet, management of interest rate risk has been pursued through utilizing fixed rate FHLB advances with laddered maturities out to ten years and through maintaining a high concentration of deposits in lower costing and less interest rate sensitive transaction and savings accounts. Transaction and savings accounts comprised 63.0% of the Bank’s deposits at December 31, 2005.

The infusion of stock proceeds will serve to further limit the Bank’s interest rate risk exposure, as most of the net proceeds will be redeployed into interest-earning assets and the increase in the Bank’s capital position will lessen the proportion of interest rate sensitive liabilities funding assets.

Lending Activities and Strategy

Newport Federal’s lending activities have traditionally emphasized 1-4 family permanent mortgage loans and such loans continue to comprise the largest component of the Bank’s loan portfolio. Beyond 1-4 family loans, lending diversification by the Bank has emphasized multi-family and commercial real estate loans. To a lesser extent, the Bank’s lending activities include consumer loans and construction loans. Going forward, the Bank’s lending strategy is expected to remain fairly consistent with recent historical trends, with the origination of 1-4 family permanent mortgage loans remaining as the primary source of loan originations. Lending diversification by the Bank will continue to emphasize growth of commercial real estate loans. Exhibit I-9 provides historical detail of Newport Federal’s loan portfolio composition over the past five years and Exhibit I-10 provides the contractual maturity of the Bank’s loan portfolio by loan type as of December 31, 2005.

Newport Federal originates both fixed rate and adjustable rate 1-4 family permanent mortgage loans. The Bank’s current practice is to generally retain all 1-4 family originations for investment. Loans are underwritten to secondary market standards specified by Fannie Mae and on occasion the Bank has sold loans to Fannie Mae on a servicing retained basis. ARM loans offered by the Bank include loans with initial repricing terms of one, three, five, seven or ten years, which convert to a one year ARM loan after the initial repricing period. ARM loans are

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indexed to the to the one year U.S. Treasury rate. Initial rates are generally discounted from the fully indexed rate, with a smaller discount applied for loans with longer initial repricing terms. Fixed rate 1-4 family mortgage loans offered by the Bank have terms of 10, 15, 20, 30 or 40 years. As of December 31, 2005, the Bank’s outstanding balance of 1-4 family permanent mortgage loans equaled $160.5 million or 68.4% of total loans outstanding.

Construction loans originated by the Bank consist substantially of loans to finance the construction of 1-4 family residences, while, on a limited basis, commercial real estate construction loans are originated by the Bank. The Bank’s 1-4 family construction lending activities consist mostly of construction financing for construction/permanent loans and, to a lesser extent, speculative loans that are extended to builders. Construction loans are offered up to a loan-to-value (“LTV”) ratio of 80% and require payment of interest only during the construction period. Commercial real estate construction loans are originated as construction/permanent loans and are subject to the same underwriting criteria as required for permanent mortgage loans, as well as submission of completed plans, specifications and cost estimates related to the proposed construction. As of December 31, 2005, Newport Federal’s outstanding balance of construction loans totaled $3.2 million or 1.4% of total loans outstanding.

The balance of the mortgage loan portfolio consists of commercial real estate and multi-family loans, which are collateralized by properties in Rhode Island and in nearby markets in Connecticut and Massachusetts. Commercial real estate and multi-family loans are generally originated up to a maximum LTV ratio of 75.0% and require a minimum debt-coverage ratio of 1.25 times. Commercial real estate and multi-family loans offered by Newport Federal generally have terms with a balloon provision in the five to ten year range, with amortization terms of up to 25 years. Properties securing the commercial real estate and multi-family loan portfolio include apartments, office buildings, strip malls, restaurants, bed and breakfast lodgings and retail properties. Growth of the commercial real estate loan portfolio is a targeted area of lending growth for the Bank, in which the Bank will continue to emphasize originations of loans in the $500,000 to $1.0 million range secured by local properties. Growth will be supported by the increase in capital provided by stock proceeds, as the Bank’s higher capital position will increase the loans-to-one borrower limit and, thereby, provide for increased flexibility with respect to retaining credits that are currently near the regulatory limit for loans-to-one borrower. As of December 31, 2005, the Bank’s commercial real estate and multi-family loan portfolio totaled $54.5 million or 23.2% of the total loan portfolio.

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The balance of the Bank’s loan portfolio consists of consumer loans, with home equity loans comprising the major portion of the Bank’s consumer loan portfolio. Home equity loans originated by the Bank include fixed-rate amortizing loans as well as variable rate home equity lines of credit (“HELOCs”). Home equity loans are offered up to a LTV ratio of 80.0%, inclusive of other liens on the property. Fixed rate amortizing home equity loans are offered for terms of 5 to 15 years, while HELOCS generally have 10 year terms. HELOCs are tied to the prime rate as reported in The Wall Street Journal. Other types of consumer lending by the Bank have been fairly limited, with the remainder of consumer loan portfolio consisting primarily of loans secured by deposits. The Bank’s consumer loan portfolio also includes modest balances of automobile loans, credit card balances and miscellaneous other types of installment loans. As of December 31 2005, the Bank’s outstanding balance of consumer loans equaled $16.7 million or 7.1% of total loans outstanding. Of the $16.7 million outstanding in consumer loans, home equity loans accounted for $15.4 million of the total.

Exhibit I-11 provides a summary of the Bank’s lending activities over the past five years. The Bank’s lending volume peaked in 2003, which was supported by a peak in originations of residential mortgage loans and increased originations of commercial real estate loans. A large portion of the Bank 1-4 family loan volume during 2003 were loans to refinance existing mortgages, as borrowers took advantage of historically low mortgage rates to refinance into lower rate loans. Loan originations in 2003 totaled $131.3 million, versus $66.6 million in 2001 and $106.4 million in 2002. Loan originations declined to $110.4 million in 2004 and to $99.1 million in 2005. Originations of 1-4 family permanent mortgage loans comprised the largest portion of the Bank’s lending volume during the past five years, accounting for 57.8% of total loans originated over the past five years. Commercial real estate and multi-family loans represented the second large source of the Bank’s loan volume for the 2001 to 2005 period, with such loans accounting for 19.3% of loans originated during the period.

The Bank was also more active in selling loans during 2003, in which $20.6 million of newly originated 1-4 family fixed rate loans were sold for purposes of interest rate risk management. Since 2003, loan sales by the Bank decreased to $7.4 million both in 2004 and

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2005. From time-to-time the Bank has supplemented originations with a minor amount of loan purchases of 1-4 family loans, most of which are secured by residences in Massachusetts. Over the past five years, the highest activity of loans purchases occurred during 2001 with loan purchases totaling $2.9 million. The Bank sustained positive loan growth over the past five years, which served to increase net loans receivable from $162.6 million at year end 2001 to $232.3 million at year end 2005.

Asset Quality

The Bank’s emphasis on credit risk management, as well as generally favorable local real estate market conditions, is evidenced by the low balance of non-performing assets maintained over the past five years. As shown in Exhibit I-12, Newport Federal’s ratio of non-performing assets has shown a steady downward trend, declining from 0.30% of assets at year end 2001 to a zero balance at year end 2005. In general, non-performing assets held by the Bank over the past five years have consisted of modest balances of non-performing 1-4 family loans and real estate owned secured by 1-4 family properties.

To track the Bank’s asset quality and the adequacy of valuation allowances, Newport Federal has established detailed asset classification policies and procedures which are consistent with regulatory guidelines. Detailed asset classifications are reviewed quarterly by senior management and the Board. Pursuant to these procedures, when needed, the Bank establishes additional valuation allowances to cover anticipated losses in classified or non-classified assets. As of December 31, 2005, the Bank maintained valuation allowances of $1.9 million, equal to 0.80% of net loans receivable.

Funding Composition and Strategy

Deposits have consistently accounted for the substantial portion of the Bank’s interest-bearing funding composition and at December 31, 2005 deposits equaled 79.3% of Newport Federal’s interest-bearing funding composition. Exhibit I-13 sets forth the Bank’s deposit composition for the past three years and Exhibit I-14 provides the interest rate and maturity composition of the CD portfolio at December 31, 2005. Transaction and savings account

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deposits constitute the largest portion of the Bank’s deposit base, although recent trends in the Bank’s deposit composition show that the concentration of transaction and savings accounts comprising total deposits has been declining. A slight decline in core deposits and growth of CDs have both been factors that have contributed to the decline in the level of core deposits comprising total deposits. Transaction and savings account deposits equaled $121.3 million or 63.0% of total deposits at December 31, 2005, versus $126.4 million or 74.0% of total deposits at December 31, 2003. The decline in core deposits was the result of disintermediation of savings account deposits, which was partially offset by growth of money market and checking account deposits.

The balance of the Bank’s deposits consists of CDs, with Newport Federal’s current CD composition reflecting a higher concentration of short-term CDs (maturities of one year or less). As of December 31, 2005, the CD portfolio totaled $71.2 million or 37.0% of total deposits and 80.6% of the CDs were scheduled to mature in one year or less. As of December 31, 2005, jumbo CDs (CD accounts with balances of $100,000 or more) amounted to $21.1 million or 29.6% of total CDs. Newport Federal does not maintain any brokered CDs. Growth of CDs in recent years has been facilitated by a general increase in CD rates, thereby increasing the attractiveness of those deposits relative to lower yielding transaction and savings accounts that generally have not matched the rate increases being offered on CDs. From year end 2003 through year end 2005, the Bank’s balance of CDs increased by $26.7 million.

Borrowings serve as an alternative funding source for the Bank to facilitate management of funding costs and interest rate risk. The Bank’s utilization of borrowings has typically been limited to FHLB advances. Newport Federal maintained $50.1 million of FHLB advances at December 31, 2005, which consisted of a mixture of short-term FHLB advances and longer term fixed rate FHLB advances with laddered terms out to ten years. Exhibit I-15 provides further detail of Newport Federal’s borrowing activities during the past three years. Following the stock offering, the Bank may add borrowings to facilitate leveraging of the balance sheet, in which borrowings would be utilized to fund purchases of mortgage-backed securities at a positive spread to improve earnings and return on equity. To the extent additional borrowings are required to fund growth, FHLB advances would likely be the primary source of borrowings utilized by the Bank.

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Legal Proceedings

Newport Federal is not currently party to any pending legal proceedings that the Bank’s management believes would have a material adverse effect on the Bank’s financial condition, results of operations or cash flows.

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II. MARKET AREA

Introduction

Newport Federal serves southern Rhode Island through its main office in Newport and four branch offices located in the towns of Middletown, Wakefield and Westerly. The two offices maintained in Westerly were the main office and branch office of Westerly Savings. The Newport and Middletown offices are located in Newport County, while the Westerly and Wakefield offices are located in Washington County. The major portion of the Bank activities is conducted within the markets served by the retail branches and surrounding contiguous markets. Exhibit II-1 provides information on the Bank’s office facilities.

The primary market area served by the Bank is largely suburban in nature, with the Newport metropolitan area representing the most populous and largest source of economic activity in southern Rhode Island. The Bank’s competitive environment includes a large number of thrifts, commercial banks and other financial service providers, some of which have a regional or national presence. Due to its small size, the Bank has more limited resources and a smaller market presence than many of its competitors. The primary market area economy is fairly diversified, with services, government and wholesale/retail trade and manufacturing constituting the basis of the primary market area economy.

Future business and growth opportunities will be partially influenced by economic and demographic characteristics of the markets served by the Bank, particularly the future growth and stability of the regional economy, demographic growth trends, and the nature and intensity of the competitive environment for financial institutions. These factors have been examined to help determine the growth potential that exists for the Bank and the relative economic health of the Bank’s market area.

Market Area Demographics

Key demographic and economic indicators in the Bank’s market include population, number of households and household/per capita income levels. Demographic data for Newport and Washington Counties, as well as comparative data for Rhode Island and the U.S., is provided

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in Table 2.1. Washington County is geographically larger and more populous than Newport County. Since 2000, population and household growth have been relatively strong in Washington County, exceeding the comparable Rhode Island growth measures and approximating the comparable national growth measures. Comparatively, Newport County has had limited population growth since 2000, which also translated into a lower household growth rate in comparison to Washington County. Population and household growth for the primary market area counties are projected to be consistent with recent historical trends over the next five years.

Income levels in the market area reflect that southern Rhode Island is a relatively affluent market area, as implied by household and per capita income measures that exceed the comparable U.S. and Rhode Island measures. Median household income was slightly higher in Washington County ($63,000 versus $60,000 in Newport County), while per capita income was higher in Newport County ($33,000 versus $31,000 in Washington County). Comparatively, Rhode Island’s median household and per capita income measures were $50,000 and $26,000, respectively, which approximated the comparable U.S. measures. Over the next five years, growth rates for household and per capita income in the primary market area counties are projected to be slightly higher than the comparable U.S. and Rhode Island growth rates. Household income distribution measures further imply that southern Rhode Island is a relatively affluent market area, as the counties of Newport and Washington maintain notably higher percentages of households with incomes exceeding $100,000 as compared to the U.S. and Rhode Island.

In summary, the demographic characteristics of the primary market area are considered to be conducive for facilitating loan and deposit growth, particularly in the faster growing Washington County market area.

National Economic Factors

The future success of the Bank’s operations is partially dependent upon various national and local economic trends. In assessing national economic trends over the past year, economic data for the beginning of the first quarter of 2005 was mixed. The manufacturing sector

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[TABLE 2.1 APPEARS HERE]

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continued to expand in January 2005 and retail sales continued to be a healthy contributor to the economy in January. While the January 2005 unemployment rate declined to 5.2%, its lowest rate since 2001, its was mostly attributable to a decline in the number of people looking for jobs as job growth fell below expectations in January. After gaining 0.3% in December, the index of leading economic indicators slipped 0.3% in January. Retail sales were better-than-expected in February and job growth jumped in February, although the national unemployment rate rose in February to 5.4%. February economic data also showed a rise in durable-goods orders and a surge in new home sales, providing further indications that the economy’s steady growth was continuing. However, despite a decline in the March U.S. unemployment rate to 5.2%, job growth was sluggish in March with the 110,000 jobs added in March marking the smallest gain since July 2004. While new home sales were unexpectedly strong in March, the economy showed signs of slowing down at the end of the first quarter as indicated by slowing job growth, a drop in consumer confidence and disappointing retail sales.

A sharp drop in initial jobless claims and a report showing a pick-up in manufacturing activity in the mid-Atlantic region suggested that the economy gained momentum at the start of the second quarter of 2005. Job growth was stronger than expected in April, with the April national unemployment rate holding steady at 5.2%. Record new and existing home sales in April, as well as strong increases in April retail sales and durable goods orders, provided further evidence that the economy had recovered from the slowdown in March. Job growth slowed dramatically in May after surging in April, but the May unemployment rate dipped to 5.1%. Weak auto sales led to a drop in retail sales during May, while manufacturing activity rebounded in May. Sales of new and existing homes remained strong during May, as low interest rates continued to drive the housing market. Orders for durable goods were up strongly in May, as the result of a big jump in demand for commercial aircraft. However, excluding the transportation sector, orders for durable goods declined slightly in May. Economic data at the end of the second quarter showed signs that the expansion was on firm footing, as indicated by a pick-up in manufacturing activity in June, consumer confidence hitting a three year high in June and first quarter GDP growth was revised upward to a 3.8% annual rate compared to the original estimate of 3.5%. June employment data showed modest job growth, but the national unemployment rate dropped to 5.0%. Consumer spending rose sharply in June, which fueled a surge in retail sales and increased sales of durable goods orders.

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Employment data for July 2005 indicated that the U.S. economy was continuing to strengthen, as the July unemployment rate held steady at 5.0% and 207,000 jobs were added in July. Other economic data generally reflected an upbeat picture of economic growth during July and August, although durable-goods orders unexpectedly dropped sharply in July. Sales of new homes remained strong in July and a mid-August reading of the index of leading indicators implied a continuation of moderate growth in the months ahead. Retail sales fell sharply in August due to a decline in demand for cars, while August industrial output was up nominally. The unemployment rate for August dropped to a four year low of 4.9%, as 169,000 jobs were added during the month. August data reflected a decline in new home construction as well as new home sales, although existing home sales increased during August.

The outlook for future economic growth became considerably less favorable following the devastation caused by Hurricane Katrina, with employment and output expected to take a sizable hit from the loss of economic activity in the Gulf region. As expected, initial jobless claims rose sharply in the aftermath of Katrina, while consumer confidence slid to a two year low in September 2005 as energy prices soared and the September unemployment rate increased to 5.1%. However, despite Katrina and higher energy prices, manufacturing activity picked up in September. Comparatively, business activity in the service sector dropped sharply in September. Housing starts unexpectedly surged in September, while the index of leading indicators fell in September which was largely attributed to the hurricanes in the Gulf region. Overall, the economy expanded at a 4.1% annual rate in the third quarter, the fastest pace since early 2004 with brisk spending by consumers, businesses and the government helping to sustain the stronger growth.

The economy generally showed positive growth trends at the beginning of the fourth quarter of 2005, although the housing market showed signs of cooling off as mortgage rates moved higher. Retail sales, excluding autos and orders for durable goods, posted strong gains in October. Other measures showing that the economy was on solid footing included a decline in the October unemployment rate to 5.0% and a 0.9% rise in the October index of leading indicators. Falling gas prices helped to lift consumer confidence in October and November.

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Comparatively, higher mortgage rates served to slow home construction and existing home sales in October, but new home sales unexpectedly surged in October. November unemployment data showed job growth in line with expectations and no change in the national unemployment rate of 5.0%. Other economic data for November was also generally positive, as November retail sales were up solidly from a year ago, consumer spending picked up modestly in November, new home construction rose more than expected in November and factory orders posted the biggest gain in three months in November supported by a surge in demand for commercial aircraft.

Year end economic data generally showed a slower pace of economic growth, with the U.S. economy increasing at just a 1.1% annual rate in the fourth quarter of 2005. The fourth quarter growth rate was the slowest pace in three years, as higher energy costs and rising borrowings costs hurt consumer spending. While sales of new homes climbed to an all time high in 2005, rising mortgage rates and higher home prices translated into a sharp decline in housing construction during December. Other data showed the economy on solid footing at year end, as industrial production rose for a third straight month and consumer spending was up in December but the personal-savings rate plunged to negative levels. Job growth slowed in December, following a big increase in jobs added in November, although the December unemployment rate dipped to 4.9%.

Economic data at the beginning of 2006 generally reflected a healthy economy, with retail sales surging in January and the U.S. unemployment rate dropping to 4.7%, the lowest rate in more than four years. The service sector also continued to expand in January, although at a slower pace compared to December. While rising home inventories in a number of large cities signaled a cooling market for housing, housing starts surged 14.5% in January with the help of unusually mild weather. Notwithstanding the increase in housing starts, both new and existing homes declined in January and unsold homes reached a ten year high. Other data reflected a more positive picture of the economy, which included an upward revision in fourth quarter GDP to 1.6% and healthy growth in the manufacturing and service sectors during February.

In terms of interest rate trends over the past year, Treasury yields increased sharply at the beginning of 2005 on signs that economic growth was picking up momentum and indications from the Federal Reserve that it was likely to keep raising rates because of wariness about

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inflation. Despite generally favorable economic data, Treasury yields eased lower during mid- and late-January as investors dumped stocks in favor of bonds. The Federal Reserve raised its target interest rate by another quarter-point in early-February and signaled no change in its plan for more increases. The as expected rate increase and January employment data showing lower than expected job growth sparked a rally in long-term Treasury bonds, with the yield on the 10-year Treasury falling below 4.0% in early-February. Bond yields moved higher in mid- and late-February on inflation concerns and indications of higher interest rates from the Federal Reserve. The generally strong economic data for February and signals from the Federal Reserve that it was becoming more concerned about inflation sustained the upward trend in interest rates through most of March. As expected, the Federal Reserve concluded its March meeting by raising its target rate to 2.75% from 2.5%. Treasury yields eased lower at the end of March and into early-April, as a key inflation gauge held steady in February and March job growth fell well short of expectations.

The downward trend in long-term Treasury yields generally prevailed through most of April 2005 on signs that the U.S. economy lost steam towards the end of the first quarter. A drop in consumer confidence in April and a weak first quarter GDP report fueled a decline in the 10-year Treasury yield below 4.20% at the end of April and, thus, further narrowed the gap between short- and long-term yields. The Federal Reserve raised the federal funds rate a quarter-point to 3.0% in early-May and indicated a plan of continued rate increases at a measured pace. The increase in short-term interest rates provided for further flattening of the yield curve, particularly as long-term interest rates declined in mid-May. The downward trend in long-term Treasury yields continued through early-June, reflecting increased expectations that the Federal Reserve would stop raising interest rates sooner than expected on news of weaker than expected job growth in the May employment report. The yield on the 10-year Treasury note declined to a 14-month low of 3.89% at the beginning of June. Interest rates edged higher in mid-June, as the Federal Reserve indicated that the rate increases would continue. Higher oil prices, a decline in producer prices in May, as well as indications of slower economic growth suggested by a decline in the index of leading indicators for May, served to ease inflation concerns and pushed the yield on the 10-year Treasury note back below 4.0% in late-June. As expected, the Federal Reserve raised its target for the federal funds rate by a quarter point to 3.25 % at its late-June meeting and indicated that it would continue with a policy of gradual rate hikes.

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Economic data showing that the economy was gaining momentum pushed Treasury yields higher at the start of the third quarter of 2005. The decline in Treasury prices became more pronounced in late-July on news that China revalued its currency. Treasury yields continued to climb in early-August, following a strong employment report for July that suggested the economy was continuing to strengthen. As expected, the Federal Reserve concluded its August meeting by increasing its target rate by another quarter-point to 3.5% and indicated plans to continue to raise rates at a measured pace. The yield curve became flatter during the second half of August and early-September, as long-term Treasury yields eased lower on expectations that rising oil prices would slow consumer spending. An upbeat assessment of the economy by the Federal Reserve and growing expectations that the Federal Reserve would continue to raise rates at its mid-September meeting reversed the downward trend in long-term Treasury yields in mid-September. The Federal Reserve concluded the September meeting by raising its target interest rate another quarter point to 3.75%, concluding that Katrina’s impact on inflation was more worrisome than its effect on growth. The rate increase by the Federal Reserve combined with signs of inflation becoming more prominent pushed Treasury yields higher at the end of the third quarter.

Treasury yields generally trended higher at the beginning of the fourth quarter of 2005, as inflation worries become more prominent. The yield on the 10-year Treasury note moved above 4.5% in late-October, reflecting expectations of a continuation of rate increases by the Federal Reserve amid signs inflation could rise. Inflation fears, better than expected economic data and another rate hike by the Federal Reserve at the beginning of November pushed Treasury yields higher in early-November, as the yield on the 10-year Treasury note hit a 16-month high. At the November meeting, the Federal Reserve indicated that it would continue to raise rates until the economy showed signs of slowing down. The yield on the 10-year Treasury note ebbed below 4.5% in mid- and late-November, as inflation concerns eased following reports that showed core producer prices fell in October and October core consumer prices rose only slightly. Renewed inflation fears prompted by an upward revision in the third quarter growth rate for the U.S. economy pushed Treasury yields higher at the end of November and into early-December. Interest rates stabilized heading into mid-December, as a healthy increase in third quarter

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productivity helped to soothe inflation fears. Long-term Treasury yields declined slightly in mid-December following the Federal Reserve’s quarter point rate hike to a four and one-half year high of 4.25%, as the Federal Reserve signaled that the current cycle of rate increases may be nearing an end. The yield on the 10-year Treasury eased lower in late-December, which combined with higher short-term rates, provided for a slightly inverted yield curve at year end.

Treasury yields stabilized through most of January 2006, as the Federal Reserve indicated that it was becoming less worried about inflation and may be nearing an end to their campaign to raise rates. Uncertainty over future Federal Reserve policy with the incoming of a new Federal Reserve Chairman pushed long-term Treasury yields higher in late-January. The Federal Reserve concluded its end of January meeting by raising the target interest rate another quarter point to 4.5%, which was the 14^th consecutive rate hike implemented by the Federal Reserve over the past 19 months. An expanding economy with inflation under control provided for a relatively stable interest rate environment through most of February. Consumer prices jumped 0.7% in January due to higher energy costs, but core prices rose only 0.2% which served to soothe inflation fears. Interest rates edged higher in early-March, reflecting growing expectations that foreign central banks would keep raising interest rates based on forecasts of an improving global economy. As of March 3, 2006, the constant maturity yields for U.S. government bonds with terms of one and ten years equaled 4.75% and 4.68%, respectively, versus comparable year ago yields of 3.19% and 4.39%. Exhibit II-2 provides historical interest rate trends from 1995 through March 3, 2006.

Local Economy

The Bank’s primary market area has a fairly diversified local economy. Similar to statewide data, services, government and trade play a major role in the local market area economy. Manufacturing and finance/insurance/real estate jobs also constitute major employment sectors regionally.

Comparative employment data shown in Table 2.2 shows that the more populous and faster growing county of Washington had higher employment concentrations in the manufacturing and wholesale/retail sectors, while the Newport County market maintained higher

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concentrations of service and government jobs. The higher concentration of manufacturing employment in Washington County is viewed as supporting growth opportunities in that market, given that manufacturing jobs tend to be relatively high paying jobs. Comparatively, the higher concentration of service jobs in Newport County is considered to be less conducive for supporting growth opportunities, as a significant portion of service jobs tend to be relatively low paying jobs. Table 2.2 provides an overview of employment by sector, for both of the primary market area counties and the state of Rhode Island.

Table 2.2

Primary Market Area Employment Sectors

(Percent of Labor Force)(1)

Employment Sectors	Rhode Island		Newport		Washington		Primary Market Average
Services	44.7	%	45.7	%	38.4	%	42.1	%
Wholesale/Retail Trade	13.6		11.7		15.2		13.4
Government	13.0		20.5		17.8		19.2
Manufacturing	10.2		6.2	(2)	10.6		8.4
Fin., Ins., Real Estate	8.2		6.0		6.0		6.0
Construction	5.1		5.5		5.4		5.5
Transport. & Warehousing	2.1		1.2		1.7		1.4
Information	2.0		1.4	(2)	1.2		1.3
Other	1.1		1.8		3.7		2.7
	100.0	%	100.0	%	100.0	%	100.0	%

(1) As of 2003.

(2) Estimate, based on 2002 employment data.

Source: Regional Economic Information System Bureau of Economic Analysis.

Comparative unemployment rates for the primary market area counties, as well as for the U.S. and Rhode Island, are shown in Table 2.3. Current unemployment rates for the primary market area counties were both lower than the Rhode Island December 2005 unemployment rate of 5.1%. The December 2005 national unemployment rate was 4.6%. In contrast to the U.S., the December 2005 unemployment rates for Rhode Island and the counties of Newport and Washington were higher compared to a year ago.

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Table 2.3

Unemployment Trends(1)

Region	December 2004 Unemployment		December 2005 Unemployment
United States	5.1	%	4.6	%
Rhode Island	5.0		5.1
Newport County	3.9		4.7
Washington County	3.5		4.0

(1) Unemployment rates have not been seasonally adjusted.

Source: U.S. Bureau of Labor Statistics.

MARKET AREA DEPOSIT CHARACTERISTICS

The Bank’s retail deposit base is closely tied to the economic fortunes of southern Rhode Island and, in particular, the markets that are nearby to one of Newport Federal’s five branches. Table 2.4 displays deposit market trends from June 30, 2002 through June 30, 2005 for the branches that were maintained by the Bank during that period. Additional data is also presented for the state of Rhode Island. The data indicates that Washington County’s more favorable demographic trends translated into a stronger deposit growth rate, with total thrift and bank deposits increasing by 9.8% and 6.8% in Washington County and Newport County, respectively, for the three year period covered in Table 2.4. Consistent with the state of Rhode Island, commercial banks maintained a larger market share of deposits than savings institutions in Washington County. Comparatively, savings institutions maintained a larger market share of deposits in Newport County. For the three year period covered in Table 2.4, savings institutions experienced a decline in deposit market share in both of the primary market area counties.

Newport Federal maintains its largest balance and largest market share of deposits in Newport County. The Bank’s $109.1 million of deposits at the Newport County branches represented a 9.2% market share of thrift and bank deposits at June 30, 2005. Comparatively, the Bank’s $86.6 million of deposits at the Washington County branches represented a 3.6% market share of thrift and bank deposits at June 30, 2005. During the three year period, Newport Federal’s deposit market share increased from 8.9% to 9.2% in Newport County based on an annual deposit growth rate of 7.9%. Comparatively, the Bank’s 5.6% annual deposit growth rate

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[TABLE 2.4 APPEARS HERE]

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in Washington County resulted in a decline in deposit market share from 4.1% at June 30, 2002 to 3.6% at June 30, 2005.

Competition

The Bank faces notable competition in both deposit gathering and lending activities, including direct competition with several financial institutions and credit unions that primarily have a local or regional presence. Securities firms and mutual funds also represent major sources of competition in raising deposits. In many cases, these competitors are also seeking to provide some or all of the community-oriented services as Newport Federal. With regard to lending competition, the Bank encounters the most significant competition from the same institutions providing deposit services. In addition, the Bank competes with mortgage companies, independent mortgage brokers, and credit unions in originating mortgage loans. Table 2.5 lists the Bank’s largest competitors in the two counties currently served by its branches, based on deposit market share as noted parenthetically. The Bank’s deposit market share and market rank are also provided in Table 2.5.

Table 2.5

Newport Federal Savings Bank

Market Area Deposit Competitors

Location	Name
Newport County	Bank of Newport (49.3%)
	Citizens Bank of RI (23.3%)
	Bank of America (9.7%)
	Newport Federal (9.2%) - Rank of 4
Washington County	Washington Trust Company (52.6%)
	Citizens Bank of RI (27.4%)
	Bank of America (8.8%)
	Newport Federal (3.6%) - Rank of 5
Source: FDIC.

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III. PEER GROUP ANALYSIS

This chapter presents an analysis of Newport Federal’s operations versus a group of comparable savings institutions (the “Peer Group”) selected from the universe of all publicly-traded savings institutions in a manner consistent with the regulatory valuation guidelines. The basis of the pro forma market valuation of Newport Federal is derived from the pricing ratios of the Peer Group institutions, incorporating valuation adjustments for key differences in relation to the Peer Group. Since no Peer Group can be exactly comparable to Newport Federal, key areas examined for differences are: financial condition; profitability, growth and viability of earnings; asset growth; primary market area; dividends; liquidity of the shares; marketing of the issue; management; and effect of government regulations and regulatory reform.

Peer Group Selection

The Peer Group selection process is governed by the general parameters set forth in the regulatory valuation guidelines. Accordingly, the Peer Group is comprised of only those publicly-traded savings institutions whose common stock is either listed on a national exchange (NYSE or AMEX), or is NASDAQ listed, since their stock trading activity is regularly reported and generally more frequent than non-publicly traded and closely-held institutions. Institutions that are not listed on a national exchange or NASDAQ are inappropriate, since the trading activity for thinly-traded or closely-held stocks is typically highly irregular in terms of frequency and price and thus may not be a reliable indicator of market value. We have also excluded from the Peer Group those companies under acquisition or subject to rumored acquisition, mutual holding companies and recent conversions, since their pricing ratios are subject to unusual distortion and/or have limited trading history. A recent listing of the universe of all publicly-traded savings institutions is included as Exhibit III-1.

Ideally, the Peer Group, which must have at least 10 members to comply with the regulatory valuation guidelines, should be comprised of locally or regionally-based institutions with comparable resources, strategies and financial characteristics. There are approximately 171 publicly-traded institutions nationally and, thus, it is typically the case that the Peer Group will

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be comprised of institutions with relatively comparable characteristics. To the extent that differences exist between the converting institution and the Peer Group, valuation adjustments will be applied to account for the differences. Since Newport Federal will be a full public company upon completion of the offering, we considered only full public companies to be viable candidates for inclusion in the Peer Group. From the universe of publicly-traded thrifts, we selected ten institutions with characteristics similar to those of Newport Federal. In the selection process, we applied two “screens” to the universe of all public companies:

• Screen #1. New England institutions with assets between $100 million and $1 billion, equity-to-assets ratios of greater than 6.5% and positive core earnings. Nine companies met the criteria for Screen #1 and six were included in the Peer Group: Central Bancorp of Massachusetts, Hingham Institution for Savings of Massachusetts, LSB Corp. of Massachusetts, MassBank Corp. of Massachusetts, Mayflower Co-Op Bank of Massachusetts and NH Thrift Bancshares of New Hampshire. The three companies excluded from the Peer Group were Benjamin Franklin Bancorp of Massachusetts, Legacy Bancorp of Massachusetts and New England Bancshares of Connecticut. All three companies were excluded due to the recency of their conversions, which were all completed less than one year ago. Exhibit III-2 provides financial and public market pricing characteristics of all publicly-traded New England thrifts.

• Screen #2. New York, New Jersey and eastern Pennsylvania institutions with assets between $100 million and $1 billion, equity-to-assets of greater than 6.5%, positive core earnings and a return on equity ratio of less than 12.5%. Seven companies met the criteria for Screen #2 and four were included in the Peer Group: Elmira Savings Bank of New York, Rome Bancorp of New York, Synergy Financial Group of New Jersey and TF Financial Corp. of Pennsylvania. Carver Bancorp of New York was excluded from the Peer Group due to its unique customer base. American Bancorp of New Jersey was excluded due to the recency of its second step conversion and Atlantic Liberty Financial of New York was excluded as the result of being the subject of an announced acquisition. Exhibit III-3 provides financial and public market pricing characteristics of all publicly-traded Mid-Atlantic thrifts.

Table 3.1 shows the general characteristics of each of the 10 Peer Group companies and Exhibit III-4 provides summary demographic and deposit market share data for the primary market areas served by each of the Peer Group companies. While there are expectedly some differences between the Peer Group companies and Newport Federal, we believe that the Peer Group companies, on average, provide a good basis for valuation subject to valuation adjustments. The following sections present a comparison of Newport Federal’s financial

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[TABLE 3.1 APPEARS HERE]

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condition, income and expense trends, loan composition, interest rate risk and credit risk versus the Peer Group as of the most recent publicly available date.

A summary description of the key characteristics of each of the Peer Group companies is detailed below.

• Central Bancorp of Massachusetts. Selected due to relatively high loans-to-assets ratio, comparable interest-bearing funding composition, lending diversification emphasis on commercial real estate/multi-family loans and favorable credit quality measures.

• Elmira Savings Bank, FSB of New York. Selected due to comparable asset size, comparable size of branch network, similar interest-bearing funding composition, similar earnings contribution from non-interest operating income, lending diversification emphasis on commercial real estate/multi-family loans and favorable credit quality measures.

• Hingham Institution for Savings of Massachusetts. Selected due to relatively high loans-to-assets ratio, lending diversification emphasis on commercial real estate/multi-family loans and favorable credit quality measures.

• LSB Corp. of Massachusetts. Selected due to relatively high equity-to-assets ratio, similar earnings contribution from non-interest operating income, lending diversification emphasis on commercial real estate/multi-family loans and favorable credit quality measures.

• MassBank Corp. of Massachusetts. Selected due to relatively high equity-to-assets ratio and favorable credit quality measures.

• Mayflower Co-op Bank of Massachusetts. Selected due to comparable asset size, comparable size of branch network, comparable net interest margin, lending diversification emphasis on commercial real estate/multi-family loans and favorable credit quality measures.

• New Hampshire Thrift Bancshares of New Hampshire. Selected due to relatively high loans-to-assets ratio, comparable interest-bearing funding composition, comparable net interest margin, similar earnings contribution from non-interest operating income, similar concentration of mortgage-backed securities and 1-4 family loans in aggregate comprising total assets, lending diversification emphasis on commercial real estate/multi-family loans and favorable credit quality measures.

• Rome Bancorp, Inc, of New York. Selected due to comparable asset size, comparable size of branch network, relatively high loans-to-assets ratio, high equity-to-assets ratio, relatively strong net interest margin, similar earnings contribution from non-interest operating income, relatively high level of operating expenses, lending diversification emphasis on commercial real estate/multi-family loans and favorable credit quality measures.

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• Synergy Financial Group of New Jersey. Selected due to relatively high loans-to-assets ratio, lending diversification emphasis on commercial real estate/multi-family loans and favorable credit quality measures.

• TF Financial Corp. of Pennsylvania. Selected due to relatively high loans-to-assets ratio, comparable interest-bearing funding composition, comparable net interest margin, similar concentration of mortgage-backed securities and 1-4 family loans in aggregate comprising total assets, lending diversification emphasis on commercial real estate/multi-family loans and favorable credit quality measures.

In aggregate, the Peer Group companies maintain a comparable lower level of capital as the industry average (10.95% of assets versus 11.09% for all public companies), generate slightly higher earnings as a percent of average assets (0.82% ROAA versus 0.72% for all public companies), and generate a slightly higher ROE (8.74% ROE versus 7.60% for all public companies). Overall, the Peer Group’s average P/B ratio and average P/E multiple were below the respective averages for all publicly-traded thrifts.

	All Publicly-Traded			Peer Group
Financial Characteristics (Averages)
Assets ($Mil)	$	2,735		$	574
Market capitalization ($Mil)	$	397		$	83
Equity/assets (%)		11.09	%		10.95	%
Return on average assets (%)		0.72			0.82
Return on average equity (%)		7.60			8.74
Pricing Ratios (Averages)(1)
Price/earnings (x)		19.68	x		18.88	x
Price/book (%)		152.97	%		140.81	%
Price/assets (%)		16.88			15.00

(1) Based on market prices as of March 3, 2006.

Ideally, the Peer Group companies would be comparable to Newport Federal in terms of all of the selection criteria, but the universe of publicly-traded thrifts does not provide for an appropriate number of such companies. However, in general, the companies selected for the Peer Group were fairly comparable to Newport Federal, as will be highlighted in the following comparative analysis.

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Financial Condition

Table 3.2 shows comparative balance sheet measures for Newport Federal and the Peer Group, reflecting the expected similarities and some differences given the selection procedures outlined above. The Bank’s and the Peer Group’s ratios reflect balances as of December 31, 2005, unless indicated otherwise for the Peer Group companies. Newport Federal’s equity-to-assets ratio of 6.9% was below the Peer Group’s average net worth ratio of 10.9%. However, the Bank’s pro forma capital position will increase with the addition of stock proceeds and will likely exceed the Peer Group’s ratio following the stock offering. Tangible equity-to-assets ratios for the Bank and the Peer Group equaled 6.9% and 10.6%, respectively. The increase in Newport Federal’s pro forma capital position will be favorable from a risk perspective and in terms of future earnings potential that could be realized through leverage and lower funding costs. At the same time, the Bank’s higher pro forma capitalization will initially depress return on equity. Both Newport Federal’s and the Peer Group’s capital ratios reflected capital surpluses with respect to the regulatory capital requirements, with the Peer Group’s ratios currently exceeding the Bank’s ratios. On a pro forma basis, the Bank’s regulatory surpluses will likely be above the Peer Group’s ratios.

The interest-earning asset compositions for the Bank and the Peer Group were somewhat similar, with loans constituting the bulk of interest-earning assets for both Newport Federal and the Peer Group. The Bank’s loans-to-assets ratio of 88.6% was higher than the comparable Peer Group ratio of 64.3%. Comparatively, the Peer Group’s cash and investments-to-assets ratio of 32.0% exceeded the comparable ratio for the Bank of 7.5%. Overall, Newport Federal’s interest-earning assets amounted to 96.1% of assets, which approximated the comparable Peer Group ratio of 96.3%.

Newport Federal’s funding liabilities reflected a funding strategy that was somewhat similar to that of the Peer Group’s funding composition. The Bank’s deposits equaled 73.4% of assets, which was slightly above the comparable Peer Group ratio of 69.7%. Comparatively, borrowings were utilized to a similar degree by the Bank and the Peer Group, as indicated by borrowings-to-assets ratios of 19.1% and 18.4% for Newport Federal and the Peer Group, respectively. Total interest-bearing liabilities maintained by the Bank and the Peer Group, as a

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[TABLE 3.2 APPEARS HERE]

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percent of assets, equaled 92.5% and 88.1%, respectively. Following the increase in capital provided by the net proceeds of the stock offering, the Bank’s ratio of interest-bearing liabilities as a percent of assets will likely be less than the Peer Group’s ratio.

A key measure of balance sheet strength for a thrift institution is its IEA/IBL ratio. Presently, the Peer Group’s IEA/IBL ratio is stronger than the Bank’s ratio, based on IEA/IBL ratios of 109.3% and 103.9%, respectively. The additional capital realized from stock proceeds should serve to provide Newport Federal with an IEA/IBL ratio that approximates or exceeds the Peer Group’s ratio, as the increase in capital provided by the infusion of stock proceeds will serve to lower the level of interest-bearing liabilities funding assets and will be primarily deployed into interest-earning assets.

The growth rate section of Table 3.2 shows annual growth rates for key balance sheet items. Newport Federal’s and the Peer Group’s growth rates are based on growth for the twelve months ended December 31, 2005 or the most recent period available. Newport Federal’s assets increased at a 2.5% annual rate, which was well below the Peer Group’s asset growth rate of 6.2%. Asset growth for the Bank was realized through loan growth, which was in part funded by redeployment of cash and investments. Asset growth for the Peer Group was also primarily realized through loan growth and was supplemented with modest growth of cash and investments.

Deposits funded most of the Bank’s asset growth, as borrowings increased nominally during 2005. Asset growth for the Peer Group was also primarily funded by deposit growth and was supplemented with an increase in borrowings. The Peer Group’s deposit and borrowings growth rates were both above the comparable growth rates posted by the Bank. Capital growth rates posted by the Bank and the Peer Group equaled 3.5% and 1.5%, respectively. The slightly higher capital growth rate posted by the Bank resulted from the Peer Group’s higher return on assets being more than offset by the Bank’s lower capital position as well as retention of all of its earnings. Comparatively, the Peer Group’s capital growth rate was slowed by dividend payments as well as stock repurchases. The increase in capital realized from stock proceeds, as well as possible dividend payments and stock repurchases, will likely depress the Bank’s capital growth rate following the stock offering.

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Income and Expense Components

Table 3.3 displays comparable statements of operations for the Bank and the Peer Group, based on earnings for the twelve months ended December 31, 2005, unless otherwise indicated for the Peer Group companies. Newport Federal and the Peer Group reported net income to average assets ratios of 0.26% and 0.82%, respectively. Lower operating expenses and a lower effective tax rate largely accounted for the Peer Group’s higher return. The Bank’s earnings reflected comparative earnings advantages with respect to maintaining higher levels of net interest income, non-interest operating income and net gains.

The Bank’s stronger net interest margin was realized through maintenance of a higher interest income ratio, which was partially offset by the Peer Group’s slightly lower interest expense ratio. The Bank’s higher interest income ratio was realized through earning a higher yield on interest-earning assets (5.69% versus 5.19% for the Peer Group), which was supported by the Bank’s interest-earning asset composition that reflected a higher concentration of loans in comparison to the Peer Group’s interest-earning asset composition. The Peer Group’s lower interest expense ratio was supported by maintenance of a lower cost of funds (2.09% versus 2.51% for the Bank) and maintenance of a lower level of interest-bearing liabilities funding assets. Overall, Newport Federal and the Peer Group reported net interest income to average assets ratios of 3.42% and 3.15%, respectively.

In another key area of core earnings strength, the Bank maintained a higher level of operating expenses than the Peer Group. For the period covered in Table 3.3, the Bank and the Peer Group reported operating expense to average assets ratios of 3.46% and 2.33%, respectively. Consistent with the Bank’s higher operating expense ratio and more diversified operations, Newport Federal maintained a comparatively higher number of employees relative to its asset size. Assets per full time equivalent employee equaled $4.2 million for the Bank, versus a comparable measure of $4.7 million for the Peer Group. Newport Federal’s higher operating expense ratio could in part be attributed to an interest-earning asset composition that reflected a higher concentration of loans relative to the Peer Group’s ratio, which cost more to generate and service than investments. Likewise, the Bank’s funding composition that consisted of a relatively high level of transaction and savings accounts are more costly to service than time

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[TABLE 3.3 APPEARS HERE]

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deposits and borrowings. Expenses related to the merger of Westerly Savings were another factor that contributed to the Bank’s higher operating expense ratio, with such expenses totaling $436,000 or 0.17% of average assets. On a post-offering basis, the Bank’s operating expenses can be expected to increase with the addition of stock benefit plans and certain expenses that result from being a publicly-traded company, with such expenses already impacting the Peer Group’s operating expenses. At the same time, Newport Federal’s capacity to leverage operating expenses will be comparable to or greater than the Peer Group’s leverage capacity following the increase in capital realized from the infusion of net stock proceeds.

When viewed together, net interest income and operating expenses provide considerable insight into a thrift’s earnings strength, since those sources of income and expenses are typically the most prominent components of earnings and are generally more predictable than losses and gains realized from the sale of assets or other non-recurring activities. In this regard, as measured by their expense coverage ratios (net interest income divided by operating expenses), the Peer Group’s earnings were stronger than the Bank’s. Expense coverage ratios posted by Newport Federal and the Peer Group equaled 0.99x and 1.35x, respectively. Excluding the one time merger expenses, the Bank’s expense coverage ratio improved to 104.0%. An expense coverage ratio of greater than 1.0x indicates that an institution is able to sustain pre-tax profitability without having to rely on non-interest sources of income.

As noted above, sources of non-interest operating income provided a slightly larger contribution to the Bank’s earnings. Non-interest operating income equaled 0.64% and 0.45% of Newport Federal’s and the Peer Group’s average assets, respectively. Taking non-interest operating income into account in comparing the Bank’s and the Peer Group’s earnings, Newport Federal’s efficiency ratio (operating expenses, net of amortization of intangibles, as a percent of the sum of non-interest operating income and net interest income) of 85.2% was less favorable than the Peer Group’s efficiency ratio of 64.4%. Excluding the one time merger expenses, the Bank’s efficiency ratio improved to 81.0%. The Peer Group’s more favorable efficiency ratio was realized through maintenance of a lower operating expense ratio, which more than offset the Bank’s higher levels of net interest income and non-interest operating income.

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Loan loss provisions had a slightly larger impact on Newport Federal’s, with loan loss provisions established by the Bank and the Peer Group equaling 0.04% and 0.05% of average assets, respectively. The relatively minor impact of loan loss provisions on the Bank’s and the Peer Group’s earnings were indicative of their generally favorable credit quality measures and low risk lending strategies.

Net gains realized from the sale of assets were a slightly larger contributor to the Bank’s earnings, as the Bank reported net gains equal to 0.04% of average assets versus a net loss equal to 0.01% of average assets reported by the Peer Group. Typically, gains and losses generated from the sale of assets are viewed as earnings with a relatively high degree of volatility, particularly to the extent that such gains and losses result from the sale of investments or other assets that are not considered to be part of an institution’s core operations. Comparatively, to the extent that gains have been derived through selling fixed rate loans into the secondary market, which accounted for all of the Bank’s gains, such gains may be considered to be an ongoing activity for an institution particularly during periods of low interest rates and, therefore, warrant some consideration as a core earnings factor for an institution. However, loan sale gains are still viewed as a more volatile source of income than income generated through the net interest margin and non-interest operating income. Extraordinary items were not a factor in either the Bank’s or the Peer Group’s earnings.

Taxes had a significantly larger impact on the Bank’s earnings, as Newport Federal and the Peer Group posted effective tax rates of 53.16% and 37.06%, respectively. The Bank’s higher effective tax reflects the inclusion of $436,000 of merger expenses, which are not tax effected. As indicated in the prospectus, the Bank’s effective marginal tax rate is equal to 40.0%.

Loan Composition

Table 3.4 presents data related to the Bank’s and the Peer Group’s loan portfolio compositions and investment in mortgage-backed securities. The Bank’s loan portfolio composition reflected a higher concentration of 1-4 family permanent mortgage loans and mortgage-backed securities than maintained by the Peer Group (62.1% versus 48.0% for the Peer

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[TABLE 3.4 APPEARS HERE]

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Group). The Bank’s higher ratio was attributable to maintaining a higher concentration of 1-4 family loans, which was partially offset by the Peer Group’s higher concentration of mortgage-backed securities. Loans serviced for others equaled 8.3% and 8.6% of the Bank’s and the Peer Group’s assets, respectively, thereby indicating a similar influence of mortgage banking activities on their respective operations. Servicing intangible assets were not a significant balance sheet item for either the Bank or the Peer Group.

Diversification into higher risk types of lending was slightly greater for the Peer Group. Commercial real estate/multi-family loans represented the most significant area of lending diversification for the Bank (20.8% of assets), followed by consumer loans (6.4% of assets). The Peer Group’s lending diversification consisted primarily of commercial real estate/multi-family loans (18.6% of assets), while other areas of lending diversification for the Peer Group were fairly evenly distributed between the other loan types. Lending diversification was more significant for the Bank with respect to consumer loans and commercial real estate loans, while commercial business loans and construction and land loans represented more significant areas of lending diversification for the Peer Group. Overall, the Bank’s higher ratio of loans-to-assets and similar degree of lending diversification into higher risk types of lending translated into a higher risk weighted assets-to-assets ratio of 67.4%, versus a comparable Peer Group ratio of 60.2%.

Interest Rate Risk

Table 3.5 reflects various key ratios highlighting the relative interest rate risk exposure of the Bank versus the Peer Group. In terms of balance sheet composition, Newport Federal’s interest rate risk characteristics were considered to be less favorable than the Peer Group’s. Most notably, Newport Federal’s lower tangible capital position and lower IEA/IBL ratio indicate a greater dependence on the yield-cost spread to sustain the net interest margin, while the Bank and the Peer Group maintained comparable levels of non-interest earning assets. On a pro forma basis, the infusion of stock proceeds should provide the Bank with comparable or more favorable balance sheet interest rate risk characteristics than currently maintained by the Peer Group,

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[TABLE 3.5 APPEARS HERE]

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particularly with respect to the increases that will be realized in Bank’s equity-to-assets and IEA/IBL ratios.

To analyze interest rate risk associated with the net interest margin, we reviewed quarterly changes in net interest income as a percent of average assets for Newport Federal and the Peer Group. In general, the relative fluctuations in the Bank’s and the Peer Group’s net interest income to average assets ratios were considered to be fairly comparable and, thus, based on the interest rate environment that prevailed during the period analyzed in Table 3.5, Newport Federal and the Peer Group were viewed as maintaining a similar degree of interest rate risk exposure in their respective net interest margins. The stability of the Bank’s net interest margin should be enhanced by the infusion of stock proceeds, as the increase in capital will reduce the level of interest rate sensitive liabilities funding Newport Federal’s assets.

Credit Risk

Overall, the credit risk associated with the Bank’s balance sheet was considered to be less than the Peer Group’s, as implied by Newport Federal’s more favorable credit quality measures for non-performing assets. As of December 31, 2005, the Bank did not hold any non-performing assets. Comparatively, as shown in Table 3.6, the Peer Group’s ratio of non-performing assets and accruing loans that are more than 90 days past due equaled 0.13% of assets. Non-performing loans for the Peer Group equaled 0.16% of loans. The Peer Group’s loss reserves as a percent of non-performing loans equaled 306.5%. Loss reserved maintained as percent of loans were slightly higher for the Peer Group (0.91% versus 0.80% for the Bank). The Bank’s credit risk exposure was also considered to be more favorable with respect to not recording any net loan charge-offs for the twelve month period. Comparatively, net loan charge-offs recorded by the Peer Group equaled 0.09% of net loans receivable.

Summary

Based on the above analysis and the criteria employed in the selection of the companies for the Peer Group, RP Financial concluded that the Peer Group forms a reasonable basis for determining the pro forma market value of Newport Federal. Such general characteristics as

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[TABLE 3.6 APPEARS HERE]

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asset size, capital position, interest-earning asset composition, funding composition, core earnings measures, loan composition, credit quality and exposure to interest rate risk all tend to support the reasonability of the Peer Group from a financial standpoint. Those areas where differences exist will be addressed in the form of valuation adjustments to the extent necessary.

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IV. VALUATION ANALYSIS

Introduction

This chapter presents the valuation analysis and methodology, prepared pursuant to the regulatory valuation guidelines, and valuation adjustments and assumptions used to determine the estimated pro forma market value of the common stock to be issued in conjunction with the Bank’s conversion transaction.

Appraisal Guidelines

The OTS written appraisal guidelines specify the market value methodology for estimating the pro forma market value of an institution pursuant to a mutual-to-stock conversion. Pursuant to this methodology: (1) a peer group of comparable publicly-traded institutions is selected; (2) a financial and operational comparison of the subject company to the peer group is conducted to discern key differences; and (3) a valuation analysis in which the pro forma market value of the subject company is determined based on the market pricing of the peer group as of the date of valuation, incorporating valuation adjustments for key differences. In addition, the pricing characteristics of recent conversions, both at conversion and in the aftermarket, must be considered.

RP Financial Approach to the Valuation

The valuation analysis herein complies with such regulatory approval guidelines. Accordingly, the valuation incorporates a detailed analysis based on the Peer Group, discussed in Chapter III, which constitutes “fundamental analysis” techniques. Additionally, the valuation incorporates a “technical analysis” of recently completed stock conversions, including closing pricing and aftermarket trading of such offerings. It should be noted that these valuation analyses cannot possibly fully account for all the market forces which impact trading activity and pricing characteristics of a particular stock on a given day.

The pro forma market value determined herein is a preliminary value for the Company’s to-be-issued stock. Throughout the conversion process, RP Financial will: (1) review changes in

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Newport Federal’s operations and financial condition; (2) monitor Newport Federal’s operations and financial condition relative to the Peer Group to identify any fundamental changes; (3) monitor the external factors affecting value including, but not limited to, local and national economic conditions, interest rates, and the stock market environment, including the market for thrift stocks; and (4) monitor pending conversion offerings (including those in the offering phase), both regionally and nationally. If material changes should occur during the conversion process, RP Financial will evaluate if updated valuation reports should be prepared reflecting such changes and their related impact on value, if any. RP Financial will also prepare a final valuation update at the closing of the offering to determine if the prepared valuation analysis and resulting range of value continues to be appropriate.

The appraised value determined herein is based on the current market and operating environment for the Bank and for all thrifts. Subsequent changes in the local and national economy, the legislative and regulatory environment, the stock market, interest rates, and other external forces (such as natural disasters or major world events), which may occur from time to time (often with great unpredictability) may materially impact the market value of all thrift stocks, including Newport Federal’s value, or Newport Federal’s value alone. To the extent a change in factors impacting the Bank’s value can be reasonably anticipated and/or quantified, RP Financial has incorporated the estimated impact into the analysis.

Valuation Analysis

A fundamental analysis discussing similarities and differences relative to the Peer Group was presented in Chapter III. The following sections summarize the key differences between the Bank and the Peer Group and how those differences affect the pro forma valuation. Emphasis is placed on the specific strengths and weaknesses of the Bank relative to the Peer Group in such key areas as financial condition, profitability, growth and viability of earnings, asset growth, primary market area, dividends, liquidity of the shares, marketing of the issue, management, and the effect of government regulations and/or regulatory reform. We have also considered the market for thrift stocks, including the market for new issues, to assess the impact on value of Newport Federal coming to market at this time.

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1. Financial Condition

The financial condition of an institution is an important determinant in pro forma market value because investors typically look to such factors as liquidity, capital, asset composition and quality, and funding sources in assessing investment attractiveness. The similarities and differences in the Bank’s and the Peer Group’s financial strengths are noted as follows:

• Overall A/L Composition. Loans funded by retail deposits were the primary components of both Newport Federal’s and the Peer Group’s balance sheets. The Bank’s interest-earning asset composition exhibited a higher concentration of loans, while diversification into higher risk and higher yielding types of loans was slightly greater for the Peer Group. Overall, the Bank’s asset composition provided for a higher yield earned on interest-earning assets and a higher risk weighted assets-to-assets ratio than maintained by the Peer Group. Newport Federal’s funding composition reflected a slightly higher level of deposits and a similar level of borrowings in comparison to the Peer Group’s ratios. Overall, the Peer Group maintained a lower cost of funds than the Bank. As a percent of assets, the Bank maintained a similar level of interest-earning assets and a higher level of interest-bearing liabilities compared to the Peer Group’s ratios, which provided for a higher IEA/IBL ratio for the Peer Group. After factoring in the impact of the net stock proceeds, the Bank’s IEA/IBL ratio will likely be slightly above the Peer Group’s ratio. On balance, RP Financial concluded that the Bank’s asset/liability composition was a slightly positive factor in our adjustment for financial condition.

• Credit Quality. Given that the Bank maintained a zero balance of non-performing assets at December 31, 2005, the Peer Group’s credit quality measures for non-performing assets and non-performing loans were not as favorable as the Bank’s measures. Loss reserves as a percent of loans were slightly higher for the Peer Group. Net loan charge-offs were higher for the Peer Group, while the Bank maintained a higher risk weighted assets-to-assets ratio than the Peer Group. Overall, in comparison to the Peer Group, the Bank maintains a lower degree of credit risk exposure, which was considered as a slightly positive factor our adjustment for financial condition.

• Balance Sheet Liquidity. The Peer Group operated with a higher level of cash and investment securities relative to the Bank (32.0% of assets versus 7.5% for the Bank). Following the infusion of stock proceeds, the Bank’s cash and investments ratio is expected to increase as the proceeds retained at the holding company level will be initially deployed into investments. The Bank’s future borrowing capacity was considered to be fairly comparable to the Peer Group’s, as both the Bank and the Peer Group were considered to have ample borrowing capacities based on their current ratios of borrowings-to-assets. Overall, RP Financial concluded that this was a neutral factor in our adjustment for financial condition.

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• Funding Liabilities. The Bank’s interest-bearing funding composition reflected a slightly higher concentration of deposits and a similar concentration of borrowings relative to the comparable Peer Group ratios, with the Peer Group maintaining a lower cost of funds than the Bank. In total, the Bank maintained a higher level of interest-bearing liabilities than the Peer Group, which was attributable to Newport Federal’s lower capital position. Following the stock offering, the increase in the Bank’s capital position should serve to reduce the level of interest-bearing liabilities funding assets to a ratio that is less than the Peer Group’s ratio. Overall, RP Financial concluded that the Bank’s lower pro forma ratio of interest-bearing liabilities funding assets was somewhat offset by the Peer Group’s lower cost of funds and, therefore, concluded that this was a neutral factor in our adjustment for financial condition.

• Capital. The Peer Group operates with a higher equity-to-assets ratio than the Bank. However, following the stock offering, Newport Federal’s pro forma capital position will exceed the Peer Group’s equity-to-assets ratio. The increase in the Bank’s pro forma capital position will result in greater leverage potential and reduce the level of interest-bearing liabilities utilized to fund assets. At the same time, the Bank more significant capital surplus will likely result in a lower ROE. On balance, RP Financial concluded that capital strength was a slightly positive factor in our adjustment for financial condition.

On balance, Newport Federal’s pro forma balance sheet strength was considered to be more favorable than the Peer Group’s in the areas of overall asset/liability composition and credit quality. Accordingly, a slight upward adjustment was applied for the Bank’s financial condition.

2. Profitability, Growth and Viability of Earnings

Earnings are a key factor in determining pro forma market value, as the level and risk characteristics of an institution’s earnings stream and the prospects and ability to generate future earnings heavily influence the multiple that the investment community will pay for earnings. The major factors considered in the valuation are described below.

• Reported Earnings. The Bank’s reported earnings were lower than the Peer Group’s on a ROAA basis (0.26% of average assets versus 0.82% for the Peer Group). The Bank’s lower return was the result of higher operating expenses and a higher effective tax rate, both of which were in part attributable to one time merger expenses that were non-taxable expenses. A higher net interest margin, a higher level of non-interest operating income and higher net gains represented earnings advantages for Newport Federal, while loan loss provisions were a comparable factor in the Bank’s and the Peer Group’s respective earnings. Reinvestment of stock proceeds into interest-earning assets will serve to increase

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the Bank’s earnings, with the benefit of reinvesting proceeds expected to be somewhat offset by higher operating expenses associated with operating as a publicly-traded company and the implementation of stock benefit plans. Overall, even after factoring out the one time merger expenses, the Bank’s reported earnings were considered to be less favorable than the Peer Group’s and, thus, the Bank’s reported earnings were considered as a slightly negative factor in our adjustment for the Bank’s profitability growth and viability of earnings.

• Core Earnings. Both the Bank’s and the Peer Group’s earnings were derived largely from recurring sources, including net interest income, operating expenses, and non-interest operating income. In these measures, the Bank operated with a higher net interest margin, a higher operating expense ratio and a higher level of non-interest operating income. The Bank’s higher net interest margin and higher level of operating expenses (excluding the one time merger expenses) translated into a lower expense coverage ratio (1.04x versus 1.35x for the Peer Group). Similarly, the Bank’s efficiency ratio of 81.0% (excluding the one time merger expenses) was less favorable than the Peer Group’s efficiency ratio of 64.4%, as the Bank’s higher net interest margin and higher level of non-interest operating income were more than offset the Peer Group’s lower operating expense ratio. Loss provisions had a similar impact on the Bank’s and the Peer Group’s earnings, while the Bank’s effective tax rate was higher than the Peer Group’s effective rate even after factoring out the one timer merger expenses that were not taxed-effected. Overall, these measures, as well as the expected earnings benefit the Bank should realize from the redeployment of stock proceeds into interest-earning assets net of the additional expenses associated with the stock benefit plans, indicate that the Bank’s core earnings were less favorable than the Peer Group’s. Accordingly, the Bank’s core earnings were considered a slightly negative factor in our adjustment for the Bank’s profitability growth and viability of earnings.

• Interest Rate Risk. Quarterly changes in the Bank’s and the Peer Group’s net interest income to average assets ratios indicated the degree of volatility associated with the Bank’s and the Peer Group’s net interest margins were comparable. Other measures of interest rate risk, such as capital ratios and IEA/IBL ratios were more favorable for the Peer Group, thereby indicating a lower dependence on the yield-cost spread to sustain net interest income. On a pro forma basis, the infusion of stock proceeds can be expected to provide the Bank with equity-to-assets and IEA/ILB ratios that are above the Peer Group ratios, as well as enhance the stability of the Bank’s net interest margin through the reinvestment of stock proceeds into interest-earning assets. On balance, RP Financial concluded that interest rate risk was a slightly positive factor in our adjustment for profitability, growth and viability of earnings.

• Credit Risk. Loan loss provisions were a comparable factor in the Bank’s and the Peer Group’s earnings. In terms of future exposure to credit quality related losses, lending diversification into higher risk types of loans was slightly greater for the Peer Group. The Bank’s and the Peer Group’s credit quality measures

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indicated that the Bank maintained a lower level of non-performing assets and a lower level of loss reserves as a percent loans. On balance, RP Financial concluded that credit risk was a slightly positive factor in our adjustment for profitability, growth and viability of earnings.

• Earnings Growth Potential. Several factors were considered in assessing earnings growth potential. First, the Bank’s historical growth was not as strong as the Peer Group’s, although the Peer Group’s stronger growth rate was largely attributable to the Bank recording a large decline in cash and investments as those funds were utilized to fund loan growth. Second, the infusion of stock proceeds will increase the Bank’s earnings growth potential with respect to leverage capacity. Lastly, the Bank’s higher level of non-interest operating income provides greater earnings growth potential and sustainability of earnings during periods when net interest margins come under pressure as the result of unfavorable changes in the yield curve. On balance, this was a slightly positive factor in our adjustment for profitability, growth and viability of earnings.

• Return on Equity. The Bank’s current return on equity is lower than the Peer Group’s return on equity ratio. Accordingly, as the result of the significant increase in capital that will be realized from the infusion of net stock proceeds into the Bank’s equity, combined with the Bank’s lower return on assets, the Bank’s pro forma return on equity on a core earnings basis will be significantly below the Peer Group’s return on equity ratio. Accordingly, this was a negative factor in the adjustment for profitability, growth and viability of earnings.

Overall, the downward adjustments applied for the Bank’s reported earnings, core earnings and return on equity were considered to be partially negated by the upward adjustments applied for the Bank’s credit risk, interest rate risk and earnings growth potential. Accordingly, we concluded that a slight downward adjustment was warranted for this factor.

3. Asset Growth

Newport Federal’s asset growth was not as strong as the Peer Group’s asset growth rate for the period covered in our comparative analysis (2.5% growth versus 6.2% growth for the Peer Group). Asset growth for both the Bank and the Peer Group were driven by loan growth, with the Peer Group posting a higher loan growth rate compared to the Bank. On a pro forma basis, the Bank’s tangible equity-to-assets ratio will be above the Peer Group’s tangible equity-to-assets ratio, implying slightly leverage capacity for the Bank. Accordingly, on balance, we believe that no valuation adjustment was warranted for this factor.

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4. Primary Market Area

The general condition of an institution’s market area has an impact on value, as future success is in part dependent upon opportunities for profitable activities in the local market served. Newport Federal’s primary market area for deposits and loans is considered to be where the Bank maintains a branch presence in the counties of Newport and Washington. Washington County is a larger and faster growing market than Newport County. The markets served by the Bank are relatively affluent, thereby fostering significant competition among financial services companies that includes other locally-based thrifts and banks, as well as regional and super regional banks.

The majority of the Peer Group companies serve more populous and faster growing counties compared to the Bank’s primary market area, which includes some densely populated urban markets. Comparative per capita income measures imply that southern Rhode Island is a slightly more affluent market area compared to the markets served by the Peer Group companies. Newport Federal’s deposit market share in Newport County was greater than the majority of the Peer Group companies, indicating a competitive position advantage for the Bank. Summary demographic and deposit market share data for the Bank and the Peer Group companies is provided in Exhibit III-3. As shown in Table 4.1, December 2005 unemployment rates for the majority of the markets served by the Peer Group companies were generally comparable to the unemployment rate reflected for Newport County. On balance, we concluded that no adjustment was appropriate for the Bank’s market area.

Table 4.1

Market Area Unemployment Rates

Newport Federal Savings Bank and the Peer Group Companies(1)

	County	December 2005 Unemployment
Newport Federal - RI	Newport	4.7	%
The Peer Group
Central Bancorp – MA	Middlesex	3.6	%
Elmira Savings Bank – NY	Chemung	5.1

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Table 4.1 (continued)

Market Area Unemployment Rates

Newport Federal Savings Bank and the Peer Group Companies(1)

	County	December 2005 Unemployment
Hingham Inst. for Savings — MA	Plymouth	4.5
LSB Corp. - MA	Essex	4.9
MassBank Corp. - MA	Middlesex	3.6
Mayflower Co-Op Bank - MA	Plymouth	4.5
NH Thrift Bancshares – NH	Sullivan	2.8
Rome Bancorp – NY	Oneida	4.6
Synergy Financial Group- NJ	Union	4.7
TF Financial Corp. - PA	Bucks	3.6

(1) Unemployment rates are not seasonally adjusted.

Source: U.S. Bureau of Labor Statistics.

5. Dividends

At this time the Bank has not established a dividend policy. Future declarations of dividends by the Board of Directors will depend upon a number of factors, including investment opportunities, growth objectives, financial condition, profitability, tax considerations, minimum capital requirements, regulatory limitations, stock market characteristics and general economic conditions.

All ten of the Peer Group companies pay regular cash dividends, with implied dividend yields ranging from 1.47% to 3.28%. The average dividend yield on the stocks of the Peer Group institutions equaled 2.68% as of March 3, 2006. As of March 3, 2006, approximately 88% of all publicly-traded thrifts had adopted cash dividend policies (see Exhibit IV-1), exhibiting an average yield of 2.21%. The dividend paying thrifts generally maintain higher than average profitability ratios, facilitating their ability to pay cash dividends.

While the Bank has not established a definitive dividend policy prior to converting, the Bank will have the capacity to pay a dividend comparable to the Peer Group’s average dividend yield based on pro forma earnings and capitalization. On balance, we concluded that no adjustment was warranted for purposes of the Bank’s dividend policy.

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6. Liquidity of the Shares

The Peer Group is by definition composed of companies that are traded in the public markets. All ten of the Peer Group members trade on the NASDAQ National Market system. Typically, the number of shares outstanding and market capitalization provides an indication of how much liquidity there will be in a particular stock. The market capitalization of the Peer Group companies ranged from $27.1 million to $156.6 million as of March 3, 2006, with average and median market values of $83.2 million and $80.8 million, respectively. The shares issued and outstanding to the public shareholders of the Peer Group members ranged from 1.2 million to 11.5 million, with average and median shares outstanding of 4.4 million and 3.6 million, respectively. The Bank’s stock offering is expected to have a pro forma market value that will be in the lower end of the range of market values reflected for the Peer Group companies, while shares outstanding for the Bank will be comparable to the range of shares outstanding indicated for Peer Group average and median. Like all of the Peer Group companies, the Bank’s stock will be quoted on the NASDAQ National Market System following the stock offering. Overall, we anticipate that the Bank’s public stock will have a comparable trading market as the Peer Group companies on average and, therefore, concluded no adjustment was necessary for this factor.

7. Marketing of the Issue

We believe that three separate markets exist for thrift stocks, including those coming to market such as Newport Federal: (1) the after-market for public companies, in which trading activity is regular and investment decisions are made based upon financial condition, earnings, capital, ROE, dividends and future prospects; (2) the new issue market in which converting thrifts are evaluated on the basis of the same factors, but on a pro forma basis without the benefit of prior operations as a fully-converted publicly-held company and stock trading history; and (3) the acquisition market for thrift franchises in Rhode Island. All three of these markets were considered in the valuation of the Bank’s to-be-issued stock.

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A. The Public Market

The value of publicly-traded thrift stocks is easily measurable, and is tracked by most investment houses and related organizations. Exhibit IV-1 provides pricing and financial data on all publicly-traded thrifts. In general, thrift stock values react to market stimuli such as interest rates, inflation, perceived industry health, projected rates of economic growth, regulatory issues and stock market conditions in general. Exhibit IV-2 displays historical stock market trends for various indices and includes historical stock price index values for thrifts and commercial banks. Exhibit IV-3 displays historical stock price indices for thrifts only.

In terms of assessing general stock market conditions, the performance of the overall stock market has been mixed over the past year. Despite surging oil prices, the Dow Jones Industrial Average (“DJIA”) moved back into positive territory for the year in early-March 2005. Strong job growth reflected in the February employment data and better than expected retail sales for February were factors that contributed to the positive move in stocks during the first week of March. Higher oil prices and interest rates pressured stocks lower in mid-March, as rising commodity prices rekindled inflation fears. The downturn in stocks continued into the second half of March, as stocks were weighed down by news of a record U.S. trade deficit in 2004, General Motors’ warning that earnings would be significantly below an earlier forecast and record high oil prices. Increased expectations of higher interest rates further depressed stocks in late-March, as the Federal Reserve surprised investors by signaling for the first time in more than four years that it was concerned with inflation. As expected, the Federal Reserve concluded its March meeting by raising its target for the federal funds rate to 2.75% from 2.5%. After the DJIA dropped to a two-month low, a decline in oil prices helped lift the DJIA to its biggest one-day gain for the year at the end of March 2005. However, the first quarter of 2005 still showed a decline in the DJIA for the third year in a row.

Weaker-than-expected job growth reflected in the March 2005 employment data pushed stocks lower at the start of the second quarter. Following a brief rally in early-April, the broader stock market moved to a five-month low in mid-April. The sell-off was based on concerns of a slowing U.S. economy, higher inflation and rising oil prices. Comparatively, economic data which showed a decline in initial jobless claims, a pick-up in Mid-Atlantic

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manufacturing activity and strong new home sales combined with some favorable first quarter earnings reports fueled a sharp rise in the stock market heading into late-April. A stronger-than-expected employment report for April, optimism about interest rates and a big planned purchase of General Motors shares helped to lift stocks in early-May. Gains in the broader stock market generally continued through the balance of May, as oil prices dropped and the economy showed signs of sustaining growth with low inflation following an upward revision in GDP growth for the first quarter while an accompanying inflation measure remained unrevised. The positive trend in the broader stock market was sustained through the first half of June, fueled by economic data which showed steady growth and mild inflation. After moving to a three-month high in mid-June, stocks declined at the end of the second quarter on continued worries over oil prices, slowing economic growth and the Federal Reserve’s plans for raising interest rates further.

The broader stock market rebounded at the start of the third quarter of 2005, as investors reacted favorably to falling oil prices and job growth reflected in the June employment data. Favorable inflation data for June and some positive third quarter earnings reports sustained the rally into the latter part of July. Stocks posted further gains in early-August on optimism about the economy, corporate profits and interest rates. Concerns that rising oil prices would reduce consumer spending and hurt corporate earnings produced a downward trend in the stock market during the second half of August, with the DJIA posting a 1.5% loss for the month of August. The stock market showed resiliency in the aftermath of Hurricane Katrina, as oil prices fell following the Energy Department’s decision to release some of the Strategic Petroleum Reserve. Lower oil prices and an upbeat report from the Federal Reserve that showed the economy kept growing in July and August helped to extend the rebound in the stock market heading into mid-September. The rebound in the broader stock market paused in mid-September, as Hurricane Rita, higher oil prices and a quarter point rate increase by the Federal Reserve contributed to the DJIA posting its worst weekly loss in three months for the trading week ending September 23^rd. Stocks rebounded mildly at the close of the third quarter, which helped the DJIA to a 2.9% gain for the third quarter.

Inflation fears pushed stocks lower at the start of the fourth quarter of 2005, as comments from the Federal Reserve suggested that the central bank was worried about inflation

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and was likely to keep raising rates. The DJIA dropped to a five-month low in mid-October, reflecting concerns that high oil prices would depress consumer spending. Mixed results for third quarter earnings and inflation worries translated into an uneven trading market through the end of October. Optimism that a strong economy would produce a year-end rally provided a lift to the broader stock market in early-November. Lower bond yields and oil prices helped to extend the rally through mid-November. The DJIA approached a four and one-half year high in late-November, as the Federal Reserve hinted that the cycle of rate increases could be approaching an end. Stocks fluctuated in first half of December, as strong economic news and higher oil prices renewed concerns about inflation and rising interest rates. Acquisitions in the technology and pharmaceutical industries, along with some positive economic news showing a dip in unemployment claims and strong third quarter GDP growth, provided a boost to the broader stock market heading into late-December. However, the gains were not sustained through the end of the year, as higher oil prices, inflation concerns and the inversion of the yield curve pulled stocks lower in late-December.

The broader stock market rallied higher at the start of 2006 on indications that the Federal Reserve was nearing an end to the current cycle of rate increases. In the second week of January, the DJIA closed above 11000 for the first time since before September 11, 2001. Higher oil prices, some disappointing fourth quarter earnings and worries about Iran pushed stocks lower in mid-January, which was followed by a rebound in the broader stock market in late-January. The late-January gains were supported by some favorable fourth quarter earnings and economic news showing strong December orders for durable goods and lower than expected unemployment. Mixed reaction to some fourth quarter earnings reports and concerns about the housing market cooling off provided for a choppy market during the first half of February. Some favorable economic data, which included a surge in January retail sales and only a slight rise in core consumer prices for January, supported gains in the broader stock market heading into late-February. Major indexes approached multi-year highs in late-February, before faltering at the end of February on economic data showing a decline in consumer confidence and the housing market slowing down. As an indication of the general trends in the nation’s stock markets over the past year, as of March 3, 2006, the DJIA closed at 11021.59 an increase of 0.7% from one year ago and an increase of 2.8% year-to-date, and the NASDAQ closed at 2302.60 an increase

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of 11.2% from one year ago and an increase of 4.4% year-to-date. The Standard & Poors 500 Index closed at 1287.23 on March 3, 2006, an increase of 5.3% from one year ago and an increase of 3.1% year-to-date.

The market for thrift stocks has been mixed during the past twelve months, but, in general, thrift stocks have appreciated and declined in conjunction with the broader market. Thrift stocks followed the broader market higher in early-March 2005, as long-term interest rates declined slightly. Likewise, thrift stocks declined in conjunction with broader market during mid-March on the spike-up in long-term interest rates and signals from the Federal Reserve that it was becoming more concerned about inflation. Thrift stocks participated in the broader market rally at the close of the first quarter, with the SNL Thrift Index posting a one-day gain of 1.3% compared to 1.1% gain for the DJIA.

Thrift issues started the second quarter of 2005 trading in a narrow range and then followed the broader market lower in mid-April, reflecting concerns that first quarter earnings in the thrift sector would show the negative effects of net interest margin compression resulting from the flattening of the yield curve. Acquisition speculation involving some large thrifts and a strong report on new home sales in March provided a boost to thrift stocks in late-April. Thrift stocks continued to show strength at the beginning of May, as long-term Treasury yields headed higher on news that the U.S. Treasury Department was considering bringing back the 30-year Treasury bond. Surprisingly strong job growth cooled off the thrift rally at the end of the first week of May. Thrift stocks rebounded in mid-May on strength in the broader market and a smaller than expected increase in the April consumer price index, which served to ease inflation concerns. Tame inflation data in the revised first quarter GDP report provided a boost to thrift stocks in late-May.

A weak employment report for May 2005 and concerns of an inverted yield curve provided for a mild pull back in thrift issues in early-June. Thrift stocks strengthened in mid-June, supported by a decline in the May consumer price index which served to calm inflation fears. Stocks in general also moved higher in mid-June on news that consumer confidence was up in June, reflecting the impact of a decline in the national unemployment rate and lower gasoline prices. Thrift stocks traded in a narrow range at the end of the second quarter, outperforming the broader market as acquisition activity in the financial services sector largely offset factors that were negatively impacting stocks in general such as higher oil prices.

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Strength in the broader stock market and some positive second quarter earnings reports in the thrift sector supported a positive trend in thrift stocks at the beginning of the third quarter of 2005. Thrift stocks settled into a narrow trading range in late-July and early-August, as higher short-term interest rates provided for further flattening of the Treasury yield curve. Weakness in the broader market combined with a flatter yield curved pressured thrift stocks lower in mid- and late-August. Similar to the broader market, the market for thrift issues showed mixed results in early-September amid ongoing concerns about the long-term economic impact of Hurricane Katrina. Strength in the broader market and speculation of the Federal Reserve taking a pause in increasing rates supported a mild rally in thrift stocks going into mid-September. Likewise, thrift issues sold off in conjunction with the broader stock market going into late-September, as investors reacted negatively to the Federal Reserve hiking interest rates by another quarter point and the threat of Hurricane Rita hurting energy production. In contrast to the rebound in the broader stock market, thrift issues continued their slide at the end of the third quarter as a sharp decline in September consumer confidence weighed heavily on the thrift sector.

Thrift stocks retreated further at the beginning of the fourth quarter of 2005 on concerns about higher interest rates and inflation. Mixed earnings reports and shareholder activism at Sovereign Bancorp produced a choppy trading market for the thrift sector heading into late-October. Some positive macroeconomic news, which included a rise in consumer spending, helped to initiate a rally in thrift stocks at the end of October. Strength in the broader stock market and merger speculation helped to fuel gains for thrift stocks through much of November. Overall, the SNL Index for all publicly-traded thrifts registered a 3.6% increase during November. Thrift issues generally eased lower during early-December, reflecting concerns about higher interest rates and the strength of the housing market. Signals from the Federal Reserve that it could stop raising rates sometime in 2006 and easing inflation fears on lower than expected revised third quarter GDP growth lifted thrift stocks going into late-December. However, weakness in the broader market and an inverted yield curve pressured thrift stocks lower at year end.

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Thrift stocks participated in the broader stock market rally at the beginning of the New Year, as interest rate sensitive issues benefited from news that rate increases by the Federal Reserve may be nearing an end. Thrift stocks continued to parallel the broader market in mid-January, as the sector traded down following some disappointing fourth quarter earnings caused by net interest margin pressure. Short covering and a slight improvement in the yield curve provided for a brief rebound in thrift stocks in late-January 2006, followed by a downward move in the sector at the end of January as investors anticipated another rate hike by the Federal Reserve. The downward trend in thrift stocks continued through mid-February, reflecting concerns that valuations were too high in light of a number of thrift issues experiencing a weaker earnings outlook due to spread compression resulting from the inverted yield curve. Thrift stocks strengthened along with the broader market heading into late-February, as mortgage lenders benefited from inflation data that showed only a small rise in core consumer prices for January and news that housing starts surged in January. Comparatively, reports of declining home sales, lower consumer confidence and higher oil prices depressed thrift stocks at the end of February and the first week of March. On March 3, 2006, the SNL Index for all publicly-traded thrifts closed at 1,636.2, an increase of 2.9% from one year ago and an increase of 1.2% year-to-date.

B. The New Issue Market

In addition to thrift stock market conditions in general, the new issue market for converting thrifts is also an important consideration in determining the Bank’s pro forma market value. The new issue market is separate and distinct from the market for seasoned thrift stocks in that the pricing ratios for converting issues are computed on a pro forma basis, specifically: (1) the numerator and denominator are both impacted by the conversion offering amount, unlike existing stock issues in which price change affects only the numerator; and (2) the pro forma pricing ratio incorporates assumptions regarding source and use of proceeds, effective tax rates, stock plan purchases, etc. which impact pro forma financials, whereas pricing for existing issues are based on reported financials. The distinction between pricing of converting and existing issues is perhaps no clearer than in the case of the price/book (“P/B”) ratio in that the P/B ratio of a converting thrift will typically result in a discount to book value whereas in the current market

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for existing thrifts the P/B ratio often reflects a premium to book value. Therefore, it is appropriate to also consider the market for new issues, both at the time of the conversion and in the aftermarket.

After experiencing a softer market in the first quarter of 2005, particularly with respect to mutual holding company offerings where a number of new issues traded below their IPO prices, speculative interest in converting thrifts lessened and the new issue market for converting issues showed signs of stabilizing during the second half of 2005 and into the beginning of 2006. As shown in Table 4.2, one second-step conversion and two mutual holding company offerings were completed during the past three months. The most recent standard conversion offering completed, which is considered to be more relevant for purposes of our analysis, was by Legacy Bancorp of Pittsfield, Massachusetts. Legacy Bancorp completed its conversion in late-October of 2005, raising gross proceeds of $95.5 million which was equal to the maximum of the offering range. Legacy Bancorp’s pro forma P/TB ratio at closing equaled 72.6%.

Shown in Table 4.3 are the current pricing ratios for NEBS Bancshares, which is the only company that completed a fully-converted offering during the past three months. NEBS Bancshares’ offering was a second-step conversion, which tend to be priced higher on a P/TB basis than a standard conversion. The current P/TB ratio of NEBS Bancshares equaled 107.1%. NEBS Bancshares’ closing stock price on March 3, 2006 was 8.0% above its IPO price.

C. The Acquisition Market

Also considered in the valuation was the potential impact on Newport Federal’s stock price of recently completed and pending acquisitions of other financial institutions operating in Rhode Island. As shown in Exhibit IV-4, between 2001 through year-to-date 2006, Newport Federal’s merger with Westerly was the only merger of a Rhode Island based savings institution. There was also one acquisition of a Rhode Island based bank completed during the period covered in Exhibit IV-4. To the extent that acquisition speculation may impact the Bank’s offering, we have largely taken this into account in selecting companies for the Peer Group which operate in markets that have experienced a comparable or more significant level of

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[TABLE 4.2 APPEARS HERE]

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[TABLE 4.3 APPEARS HERE]

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acquisition activity as the Bank’s market and, thus, are subject to the same type of acquisition speculation that may influence Newport Federal’s stock. However, since converting thrifts are subject to a three-year regulatory moratorium from being acquired, acquisition speculation in Newport Federal’s stock would tend to be less compared to the stocks of the Peer Group companies.

* * * * * * * * * * *

In determining our valuation adjustment for marketing of the issue, we considered trends in the overall thrift market, the new issue market and the local acquisition market for thrift stocks. Taking these factors and trends into account, RP Financial concluded that no adjustment was appropriate in the valuation analysis for purposes of marketing of the issue.

8. Management

Newport Federal’s management team appears to have experience and expertise in all of the key areas of the Bank’s operations. Exhibit IV-5 provides summary resumes of Newport Federal’s Board of Directors and senior management. The financial characteristics of the Bank suggest that the Board and senior management have been effective in implementing an operating strategy that can be well managed by the Bank’s present organizational structure. The Bank currently does not have any senior management positions that are vacant.

Similarly, the returns, capital positions and other operating measures of the Peer Group companies are indicative of well-managed financial institutions, which have Boards and management teams that have been effective in implementing competitive operating strategies. Therefore, on balance, we concluded no valuation adjustment relative to the Peer Group was appropriate for this factor.

9. Effect of Government Regulation and Regulatory Reform

In summary, as a fully-converted OTS regulated institution, Newport Federal will operate in substantially the same regulatory environment as the Peer Group members — all of whom are adequately capitalized institutions and are operating with no apparent restrictions. Exhibit IV-6 reflects the Bank’s pro forma regulatory capital ratios. On balance, no adjustment has been applied for the effect of government regulation and regulatory reform.

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Summary of Adjustments

Overall, based on the factors discussed above, we concluded that the Bank’s pro forma market value should reflect the following valuation adjustments relative to the Peer Group:

Key Valuation Parameters:	Valuation Adjustment
Financial Condition	Slight Upward
Profitability, Growth and Viability of Earnings	Slight Downward
Asset Growth	No Adjustment
Primary Market Area	No Adjustment
Dividends	No Adjustment
Liquidity of the Shares	No Adjustment
Marketing of the Issue	No Adjustment
Management	No Adjustment
Effect of Government Regulations and Regulatory Reform	No Adjustment

Valuation Approaches

In applying the accepted valuation methodology promulgated by the OTS, i.e., the pro forma market value approach, we considered the three key pricing ratios in valuing Newport Federal’s to-be-issued stock — price/earnings (“P/E”), price/book (“P/B”), and price/assets (“P/A”) approaches — all performed on a pro forma basis including the effects of the stock proceeds. In computing the pro forma impact of the conversion and the related pricing ratios, we have incorporated the valuation parameters disclosed in Newport Federal’s prospectus for offering expenses, reinvestment rate, effective tax rate and stock benefit plan assumptions (summarized in Exhibits IV-7 and IV-8).

RP Financial’s valuation placed an emphasis on the following:

• P/E Approach. The P/E approach is generally the best indicator of long-term value for a stock. Given the similarities between the Bank’s and the Peer Group’s operating strategies, earnings composition and overall financial condition, the P/E approach was carefully considered in this valuation. At the same time, since reported earnings for both the Bank

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and the Peer Group included certain non-recurring items, we also made adjustments to earnings to arrive at core earnings estimates for the Bank and the Peer Group and resulting price/core earnings ratios.

• P/B Approach. P/B ratios have generally served as a useful benchmark in the valuation of thrift stocks, particularly in the context of a public offering, as the earnings approach involves assumptions regarding the use of proceeds. RP Financial considered the P/B approach to be a useful indicator of pro forma value, taking into account the pricing ratios under the P/E and P/A approaches. We have also modified the P/B approach to exclude the impact of intangible assets (i.e., price/tangible book value or “P/TB”), in that the investment community frequently makes this adjustment in its evaluation of this pricing approach.

• P/A Approach. P/A ratios are generally a less reliable indicator of market value, as investors typically assign less weight to assets and attribute greater weight to book value and earnings—we have also given less weight to the assets approach. Furthermore, this approach as set forth in the regulatory valuation guidelines does not take into account the amount of stock purchases funded by deposit withdrawals, thus understating the pro forma P/A ratio. At the same time, the P/A ratio is an indicator of franchise value, and, in the case of highly capitalized institutions, high P/A ratios may limit the investment community’s willingness to pay market multiples for earnings or book value when ROE is expected to be low.

The Bank will adopt Statement of Position (“SOP”) 93-6, which will cause earnings per share computations to be based on shares issued and outstanding excluding unreleased ESOP shares. For purposes of preparing the pro forma pricing analyses, we have reflected all shares issued in the offering, including all ESOP shares, to capture the full dilutive impact, particularly since the ESOP shares are economically dilutive, receive dividends and can be voted. However, we did consider the impact of the adoption of SOP 93-6 in the valuation.

Based on the application of the three valuation approaches, taking into consideration the valuation adjustments discussed above and the dilutive impact of the stock contribution to the Foundation, RP Financial concluded that, as of March 3, 2006, the pro forma market value of Newport Federal’s conversion stock was $37,500,000 at the midpoint, equal to 3,750,000 shares at $10.00 per share.

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1. Price-to-Earnings (“P/E”). The application of the P/E valuation method requires calculating the Bank’s pro forma market value by applying a valuation P/E multiple to the pro forma earnings base. In applying this technique, we considered both reported earnings and a recurring earnings base, that is, earnings adjusted to exclude any one-time non-operating items, plus the estimated after-tax earnings benefit of the reinvestment of the net proceeds. The Bank’s reported earnings equaled $674,000 for the twelve months ended December 31, 2005. In deriving Newport Federal’s estimated core earnings for purposes of the valuation, the only adjustments made to reported earnings were to eliminate net gains on the sales of loans and one time expenses related to the merger of Westerly Savings, which equaled $99,000 and $436,000, respectively. As shown below, on a tax-effected basis, assuming an effective marginal tax rate of 40.0%, the Bank’s core earnings were determined to equal $1.1 million for the twelve months ended December 31, 2005. (Note: see Exhibit IV-9 for the adjustments applied to the Peer Group’s earnings in the calculation of core earnings).

	Amount
	($000)
Net income	$	674
Less: Gain on sale of loans(1)		(59	)
Add back: merger expenses(2)		436
Core earnings estimate	$	1,051

(1) Tax effected at 40.0%.

(2) Merger expenses were non-taxable expenses

Based on Newport Federal’s reported and estimated core earnings and incorporating the impact of the pro forma assumptions discussed previously, the Bank’s pro forma reported and core P/E multiples at the $37.5 million midpoint value equaled 42.51 times and 29.78 times, respectively, which provided for premiums of 125.2% and 57.0% relative to the Peer Group’s average reported and core P/E multiples of 18.88 times and 18.97 times, respectively (see Table 4.4). At the top of the superrange, the Bank’s reported and core P/E multiples equaled 51.80 times and 37.17 times, respectively. In comparison to the Peer Group’s average reported and

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[TABLE 4.4 APPEARS HERE]

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core P/E multiples, the Bank’s P/E multiples at the top of the superrange reflected premiums of 174.4% and 95.9% on a reported and core earnings basis, respectively.

2. Price-to-Book (“P/B”). The application of the P/B valuation method requires calculating the Bank’s pro forma market value by applying a valuation P/B ratio, as derived from the Peer Group’s P/B ratio to Newport Federal’s pro forma book value. Based on the $37.5 million midpoint valuation, Newport Federal’s pro forma P/B and P/TB ratios both equaled 78.00%. In comparison to the average P/B and P/TB ratios for the Peer Group of 140.81% and 148.38%, the Bank’s ratios reflected a discount of 44.6% on a P/B basis and a discount of 47.4% on a P/TB basis. At the top of the superrange, the Bank’s P/B and P/TB ratios both equaled 85.40%. In comparison to the Peer Group’s average P/B and P/TB ratios, the Bank’s P/B and P/TB ratios at the top of the superrange reflected discounts of 39.4% and 42.4%, respectively. RP Financial considered the discounts under the P/B approach to be reasonable, in light of the previously referenced valuation adjustments, the nature of the calculation of the P/B ratio which mathematically results in a ratio discounted to book value and the resulting premium pricing ratios indicated under the earnings approach.

3. Price-to-Assets (“P/A”). The P/A valuation methodology determines market value by applying a valuation P/A ratio to the Bank’s pro forma asset base, conservatively assuming no deposit withdrawals are made to fund stock purchases. In all likelihood there will be deposit withdrawals, which results in understating the pro forma P/A ratio which is computed herein. At the midpoint of the valuation range, Newport Federal’s value equaled 12.82% of pro forma assets. Comparatively, the Peer Group companies exhibited an average P/A ratio of 15.0%, which implies a discount of 14.5% has been applied to the Bank’s pro forma P/A ratio.

Comparison to Recent Offerings

As indicated at the beginning of this chapter, RP Financial’s analysis of recent conversion offering pricing characteristics at closing and in the aftermarket has been limited to a “technical” analysis and, thus, the pricing characteristics of recent conversion offerings can not be a primary determinate of value. Particular focus was placed on the P/TB approach in this analysis, since the P/E multiples do not reflect the actual impact of reinvestment and the source of the stock

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proceeds (i.e., external funds vs. deposit withdrawals). As discussed previously, Legacy Bancorp was the most recent standard conversion offering completed. In comparison to Legacy Bancorp’s pro closing forma P/TB ratio of 72.6%, the Bank’s P/TB ratio of 78.0% at the midpoint value reflects an implied premium of 7.4%. At the top of the superrange, the Bank’s P/TB ratio of 85.4% reflected an implied premium of 17.6% relative to the Legacy Bancorp’s closing P/TB ratio. Legacy Bancorp’s current P/TB ratio, based on its closings stock price as of March 3, 2006, equaled 105.7%. In comparison to Legacy Bancorp’s current P/TB ratio, the Bank’s P/TB ratio at the midpoint value reflects an implied discount of 26.2% and at the top of the superrange the discount narrows to 19.2%.

Valuation Conclusion

Based on the foregoing, it is our opinion that, as of March 3, 2006, the estimated aggregate pro forma market value of the shares to be issued immediately following the conversion, including shares to be issued to the Foundation, equaled $37,500,000 at the midpoint, equal to 3,750,000 shares offered at a per share value of $10.00. Pursuant to conversion guidelines, the 15% offering range indicates a minimum value of $31,875,000 and a maximum value of $43,125,000. Based on the $10.00 per share offering price determined by the Board, this valuation range equates to total shares outstanding of 3,187,500 at the minimum and 4,312,500 at the maximum. In the event the appraised value is subject to an increase, the aggregate pro forma market value may be increased up to a supermaximum value of $49,593,750 without a resolicitation. Based on the $10.00 per share offering price, the supermaximum value would result in total shares outstanding of 4,959,375. Based on this valuation range, the offering range is as follows: $29,513,890 at the minimum, $34,722,220 at the midpoint, $39,930,550 at the maximum and $45,920,130 at the supermaximum. Based on the $10.00 per share offering price, the number of offering shares is as follows: 2,951,389 at the minimum, 3,472,222 at the midpoint, 3,993,055 at the maximum and 4,592,013 at the supermaximum. The pro forma valuation calculations relative to the Peer Group are shown in Table 4.4 and are detailed in Exhibit IV-7 and Exhibit IV-8.

EX-99.4

Exhibit 99.4

GIFT INSTRUMENT

CHARITABLE GIFT TO

NEWPORTFED CHARITABLE FOUNDATION

Newport Bancorp, Inc. (the “Company”), desires to make a gift of its common stock and cash to NewportFed Charitable Foundation (the “Foundation”), a nonprofit corporation organized under the laws of the State of Delaware. The purpose of the donation is to establish a bond between the Company and the communities in which it and its affiliates operate and to enable the community to share in the potential growth and success of the Company and its affiliates over the long term. To that end, the Company now gives, transfers, and delivers to the Foundation                     shares of its common stock, subject to the following conditions:

1. The Foundation’s primary purpose is to serve and make grants in the Company’s local community in accordance with the provisions of the Foundation’s Certificate of Incorporation.

2. Consistent with the Company’s intent to form a long-term bond between the Company and the community, the amount of common stock that may be sold by the Foundation in any one year shall not exceed 5% of the market value of the assets held by the Foundation, except that this restriction shall not prohibit the board of directors of the Foundation from selling a greater amount of common stock in any one year if the board of directors of the Foundation determines that the failure to sell a greater amount of the common stock held by the Foundation would: (a) result in a long-term reduction of the value of the Foundation’s assets relative to their then current value that would jeopardize the Foundation’s capacity to carry out its charitable purposes; or (b) otherwise jeopardize the Foundation’s tax-exempt status.

3. As long as the Foundation controls shares of Company common stock, it must vote those shares in the same ratio as all other shares voted on each proposal considered by the stockholders of the Company.

4. For at least five years after the organization of the Foundation: (a) one seat on the Foundation’s board of directors shall be reserved for an independent director from the Company’s local community who is not an officer, director or employee of the Company or Newport Federal Savings Bank (the “Bank”) or an officer, director or employee of the Company’s or the Bank’s affiliates who has experience with local community charitable organizations and grant making; and (b) one seat on the Foundation’s board of directors shall be reserved for a director from the board of directors of the Company or the Bank or the board of directors of an acquiror or resulting institution in the event of a merger or acquisition of the Company or the Bank.

5. The Foundation shall comply with the following regulatory requirements imposed by the Office of Thrift Supervision (“OTS”):

(a) the OTS may examine the Foundation at the Foundation’s expense;

(b) the Foundation must comply with all supervisory directives that the OTS imposes;

(c) the Foundation must annually provide to the OTS a copy of the annual report that is submitted to the Internal Revenue Service;

(d) the Foundation must operate according to written policies adopted by its board of directors, including a conflict of interest policy; and

(e) the Foundation may not engage in self-dealing, and must comply with all laws necessary to maintain its tax exempt status under the Internal Revenue Code.

Dated:                     , 200	NEWPORT BANCORP, INC.
	By:

Agreed and Accepted

NEWPORTFED CHARITABLE FOUNDATION

By: