Document:

Exhibit 10.4

 Exhibit 10.4 
 NEWPORT BANCORP, INC. 
 THREE-YEAR EMPLOYMENT AGREEMENT 
 THIS AGREEMENT (the “Agreement”), made this 18th day of July, 2006, by and 
 among NEWPORT BANCORP, INC., a Maryland
corporation (the “Company”), and KEVIN 
 M. MCCARTHY (“Executive”). References to the “Bank”
herein shall mean NEWPORT 
 FEDERAL SAVINGS BANK. 
 W I T N E S S E T H 
 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 President and Chief Executive 
 Officer of the Company. Executive shall perform all duties and shall have all powers which are 
 commonly incident to the offices of President and Chief Executive Officer 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 $210,000 per year, payable in accordance with 
 customary payroll practices. 
  

	 	 b.
	 The Board shall review 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. The Board review shall occur each December during the term of this 
 Agreement. 
  

	 	 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 or its affiliates for the benefit of its 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 Company or the Bank, including insurance, 
  

 2 

 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 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 Company 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 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 its affiliates 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. 
  

 3 

	 	 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. Executive will receive the 
 compensation due to him through his retirement date. 
  

	 	 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 its affiliates or subsidiaries (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 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 Company 
 or its affiliates. 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 Company and its affiliates, in which Executive participated prior to 
 his Disability on the same terms as if Executive were actively employed 
 by the Company. 
  

 4 

	 	 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 Company 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 
 Board, 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. 
  

 5 

	 	 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 in 
 effect as of his termination date 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 Company or its affiliates 
 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 or its affiliates during 
 such period. In the event that the Company or its affiliates 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 Company 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 Company; 
  

	 	 (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; 
  

 6 

	 	 (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 of the 
 Company 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. 

  

	 	 iv.
	 Notwithstanding the foregoing, a reduction or elimination of the 

 Executive’s benefits under one or more benefit plans maintained by the 
 Company or an affiliate 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 Company or any affiliate 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 Company 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 Company or its subsidiaries or affiliates from any office 
  

 7 

 within fifty (50) miles from the main office of the Company or any branch

 of the Bank and, further, Executive shall not interfere with the relationship 
 of the Company, its subsidiaries or affiliates 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. 
  

	 	 b.
	 Termination. If within the period ending two (2) years after a Change in Control, 

 (i) the Company shall terminate the Executive’s employment Without Cause, or 
 (ii) Executive voluntarily terminates his employment With Good Reason, the 
 Company shall, within ten (10) calendar days of the termination of Executive’s 
 employment, make a lump-sum cash payment to him equal to three (3) times the 
  

 8 

 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/or 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 
 Company or its subsidiaries during such period. In the event that the Company or 
 its subsidiaries are unable to provide such coverage by reason of the Executive no 
 longer being an employee, the Company or its subsidiaries shall provide the 
 Executive with comparable coverage on an individual policy. 
  

	 	 c.
	 The provisions of Section 12 and Sections 14 through 27, 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. 
  

 9 

 13. Indemnification and Liability Insurance. Subject to, and limited by

 Section 27(b) of this Agreement, the Company shall provide the following: 
  

	 	 a.
	 Indemnification. The Company agrees 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 or any affiliate or 
 subsidiary of the Company (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 or any affiliate or subsidiary 
 of the Company. 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 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, at least equivalent to 
 such coverage provided to directors and senior Executives of the Company and 
 subsidiaries. 
 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 to or for the 
 benefit of the Executive (whether made or provided pursuant to the terms of this 
  

 10 

 Agreement or otherwise) (each referred to herein as a “Payment”), 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 
  

 11 

 on which it gives such notice to the Company (or any shorter period 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 
  

 12 

 of Section 15(c) of this Agreement) promptly pay to the Company the amount of

 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 Company 
 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 Company 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 
 Company. 
 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 
  

 13 

 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 Maryland 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. Source of Payments. Notwithstanding any provision in this Agreement to the 
 contrary, to
the extent payments and benefits, as provided for under this Agreement, are paid or 
 received by Executive under the Employment Agreement in
effect between Executive and the 
 Bank, the payments and benefits paid by the Bank will be subtracted from any amount or benefit 

due simultaneously to Executive under similar provisions of this Agreement. Payments will be 
 allocated in proportion to the level of activity and the time expended by Executive on activities 
 related to the Company and the Bank, respectively, as determined by the Company and the Bank. 
 27. Miscellaneous. In the event any of the foregoing provisions of this Section 27 
 are in conflict with the
terms of this Agreement, this Section 27 shall prevail. 
  

	 	 a.
	 The Board may terminate Executive’s employment at any time, but any 

 termination by 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.
	 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. 
  

 14 

	 	 c.
	 Notwithstanding anything in this Agreement to the contrary, if the Company 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 months in order to satisfy the requirements of Section 409A of the Code, 
 then the Company 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.

				
	 /s/ Judy Tucker
	 		 	 By:
	 	 /s/ Peter W. Rector

		 		 		 	 Chairman of the Board of Directors

			
	 Witness:
	 		 	 EXECUTIVE

			
	 /s/ Judy Tucker
	 		 	 /s/ Kevin M. McCarthy

		 		 	 Kevin M. McCarthy

  

 15Exhibit 10.5

 Exhibit 10.5 
 NEWPORT BANCORP, INC. 
 THREE-YEAR EMPLOYMENT AGREEMENT 
 THIS AGREEMENT (the “Agreement”), made this 18th day of July, 2006, by and 
 among
NEWPORT BANCORP, INC., a Maryland corporation (the “Company”), and NINO 
 MOSCARDI (“Executive”).
References to the “Bank” herein shall mean NEWPORT 
 FEDERAL SAVINGS BANK. 
 W I T N E S S E T H 
 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
Executive Vice President and Chief 
 Operating Officer of the Company. Executive shall perform all duties and shall have all powers

 which are commonly incident to the office of the Chief Operating Officer of the Company or 
 which, consistent with the office, 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 $150,000 per year, payable in accordance with 
 customary payroll practices. 
  

	 	 b.
	 The Board shall review 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. The Board review shall occur each December during the term of the 
 Agreement. 
  

	 	 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 or its affiliates for the benefit of its 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 Company or the Bank, including insurance, 
  

 2 

 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 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 Company 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 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 its affiliates 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. 
  

 3 

	 	 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. Executive will receive the 
 compensation due to him through his retirement date. 
  

	 	 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 its affiliates or subsidiaries (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 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 Company 
 or its affiliates. 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 Company and its affiliates, in which Executive participated prior to 
 his Disability on the same terms as if Executive were actively employed 
 by the Company. 
  

 4 

	 	 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 Company 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 
 Board, 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. 
  

 5 

	 	 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 in 
 effect as of his termination date 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 Company or its affiliates 
 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 or its affiliates during 
 such period. In the event that the Company or its affiliates 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 Company 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 Company; 
  

	 	 (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; 
  

 6 

	 	 (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 of the 
 Company 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. 

  

	 	 iv.
	 Notwithstanding the foregoing, a reduction or elimination of the 

 Executive’s benefits under one or more benefit plans maintained by the 
 Company or an affiliate 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 Company or any affiliate 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 Company 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 Company or its subsidiaries or affiliates from any office 
  

 7 

 within fifty (50) miles from the main office of the Company or any branch

 of the Bank and, further, Executive shall not interfere with the relationship 
 of the Company, its subsidiaries or affiliates 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. 
  

	 	 b.
	 Termination. If within the period ending two (2) years after a Change in Control, 

 (i) the Company shall terminate the Executive’s employment Without Cause, or 
 (ii) Executive voluntarily terminates his employment With Good Reason, the 
 Company shall, within ten (10) calendar days of the termination of Executive’s 
 employment, make a lump-sum cash payment to him equal to three (3) times the 
  

 8 

 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/or 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 
 Company or its subsidiaries during such period. In the event that the Company or 
 its subsidiaries are unable to provide such coverage by reason of the Executive no 
 longer being an employee, the Company or its subsidiaries shall provide the 
 Executive with comparable coverage on an individual policy. 
  

	 	 c.
	 The provisions of Section 12 and Sections 14 through 27, 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. 
  

 9 

 13. Indemnification and Liability Insurance. Subject to, and limited by

 Section 27(b) of this Agreement, the Company shall provide the following: 
  

	 	 a.
	 Indemnification. The Company agrees 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 or any affiliate or 
 subsidiary of the Company (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 or any affiliate or subsidiary 
 of the Company. 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 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, at least equivalent to 
 such coverage provided to directors and senior Executives of the Company and 
 subsidiaries. 
 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 to or for the 
 benefit of the Executive (whether made or provided pursuant to the terms of this 
  

 10 

 Agreement or otherwise) (each referred to herein as a “Payment”), 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 
  

 11 

 on which it gives such notice to the Company (or any shorter period 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 
  

 12 

 of Section 15(c) of this Agreement) promptly pay to the Company the amount of

 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 Company 
 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 Company 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 
 Company. 
 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 
  

 13 

 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 Maryland 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. Source of Payments. Notwithstanding any provision in this Agreement to the 
 contrary, to
the extent payments and benefits, as provided for under this Agreement, are paid or 
 received by Executive under the Employment Agreement in
effect between Executive and the 
 Bank, the payments and benefits paid by the Bank will be subtracted from any amount or benefit 

due simultaneously to Executive under similar provisions of this Agreement. Payments will be 
 allocated in proportion to the level of activity and the time expended by Executive on activities 
 related to the Company and the Bank, respectively, as determined by the Company and the Bank. 
 27. Miscellaneous. In the event any of the foregoing provisions of this Section 27 
 are in conflict with the
terms of this Agreement, this Section 27 shall prevail. 
  

	 	 a.
	 The Board may terminate Executive’s employment at any time, but any 

 termination by 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.
	 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. 
  

 14 

	 	 c.
	 Notwithstanding anything in this Agreement to the contrary, if the Company 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 months in order to satisfy the requirements of Section 409A of the Code, 
 then the Company 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

				
	 /s/ Judy Tucker
	 		 	 By:
	 	 /s/ Peter W. Rector

		 		 		 	 Chairman of the Board of Directors

			
	 Witness:
	 		 	 EXECUTIVE

			
	 /s/ Judy Tucker
	 		 	 /s/ Nino Moscardi

		 		 	 Nino Moscardi

  

 15

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