FORM OF NEWPORT FEDERAL SAVINGS BANK EMPLOYEE STOCK OWNERSHIP PLAN

(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.

(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

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.

(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.

(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.

(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.

(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.

(i)

by reason of pregnancy of the Employee,

(ii)

by reason of the birth of a child of the Employee,

(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

(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.

(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.

(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.

(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;

(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.

(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.

(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.

(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.

(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.

(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.

(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.

(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.

(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.

(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 Se