Board of Directors
Savings Bank of Walpole
North Meadow Plaza and Westminster Street
P.O. Box 517
Walpole, New Hampshire 03608

Members of the Board:

We have reviewed your request to indirectly continue real estate investment activities that may not be permissible for a subsidiary of a national bank. The application, dated August 8, 1997 and the addendum dated August 28, 1997, were filed pursuant to Section 362.4(d)(4)(iii) of the Federal Deposit Insurance Corporation (FDIC) Rules and Regulations.

For the reasons set forth in the attached Statement, your application was approved today, subject to the following conditions:

(1) The Bank immediately shall transfer ownership to SBW Holdings, Inc. (SBW) and shall take the necessary steps to operate SBW in a manner that ensures a separate corporate existence as a majority-owned subsidiary that:

(a) is adequately capitalized;

(b) is physically separate and distinct in its operations from the operations of the Bank;

(c) maintains separate accounting and other corporate records;

(d) observes such formalities as holding separate board of directors' meetings;

(e) maintains a board of directors with management expertise capable of conducting activities in a safe and sound manner;

(f) contracts with the Bank for any service on terms and conditions comparable to those available to or from independent entities; and

(g) conducts business pursuant to separate policies and procedures designed to inform customers and prospective customers of the subsidiary that is a separate organization from the Bank, including the placement of specific language on any debt instrument or contract with a third party disclosing that the Bank itself is not responsible for payment or performance.

(2) The Bank's real estate investment activities that are not permissible for a national bank shall be limited to those currently held. For purposes of this Order "real estate investment activities" shall mean the Meadowview Knolls real estate project consisting of the model home on Newbury Lane, the four lot Skyline Drive property and the six-acre Summit Ridge parcel.

(3) Full divestiture of the real estate investment activity is to be accomplished on or before September 30, 1998.

(4) The Bank shall not condition any loan on the purchase of real estate from SBW and the Bank shall not extend credit to any borrower to acquire real estate from SBW unless it is consistent with safe and sound banking practice and does not involve more than a normal degree of risk of repayment, and the credit is extended on terms and under circumstances, including credit standards, that are substantially the same, or at least as favorable to the Bank, as those prevailing at the time for comparable transactions.

(5) The Bank and SBW shall not engage in any transactions with insiders of the Bank or their related interests which relate to the SBW's real estate activities without the prior written consent of the appropriate Regional Director, and

(6) Consent is granted based on the facts and circumstances presented or otherwise known to the FDIC in connection with this request. The Bank shall notify the FDIC of any significant change in facts or circumstance, and that the FDIC shall have the right to alter, suspend, or withdraw its approval.

Questions relating to this matter may be referred to Assistant Regional Director Richard C. Barringer or Case Manager Ellen Kosmicki in the Boston Regional Of5ce at (781) 320-1600.

Sincerely,

Keith W. Seibold
Acting Associate Director

FEDERAL DEPOSIT INSURANCE CORPORATION

RE: Savings Bank of Walpole Walpole, New Hampshire

Application Pursuant to Section 24 of the Federal Deposit Insurance Act to Indirectly Continue Activity That May Not Be Permissible for a National Bank

STATEMENT

Pursuant to the provisions of Section 24 of the Federal Deposit Insurance Act, an application has been filed with the Federal Deposit Insurance Corporation (FDIC) by the Savings Bank of Walpole, Walpole, New Hampshire (Bank). The Bank requests FDIC consent to allow its wholly-owned subsidiary SBW Holdings, Inc. (SBW) to retain the Bank's real estate properties known as the Meadowview Knolls real estate project, until it is able to divest of those real estate properties, but in no event later than September 30, 1998. Meadowview Knolls consists of a model home on Newbury Lane, a four lot subdivision known as Skyline Drive, and a six-acre parcel known as Summit Ridge. All properties will be 100 percent owned by SBW.

In general, real estate investment may not be a permissible activity for a national bank or a subsidiary of a national bank. Subsidiaries of state-chartered, FDIC-insured banks may not engage as principal in an activity prohibited to subsidiaries of nationally chartered banks unless the bank is in compliance with applicable capital standards and the FDIC determines that the activity poses no significant risk to the deposit insurance fund. New Hampshire banking statutes permit the holding of the subject real estate investments.

The Bank does not engage in real estate investment activities beyond the subject properties and management has indicated that the Bank has no intention of engaging in real estate investment activities once the properties are divested. The Bank is making reasonable efforts to sell the above-described properties. No further development of the properties is planned.

The Bank meets the definition of "Well Capitalized" in the FDIC's Rules and Regulations in 12 C.F.R. Section 325.103. The total investment represents slightly more than two percent of Tier 1 Leverage Capital. In connection with this application, the FDIC has also taken into consideration the financial and managerial resources and future earnings prospects of the Bank.

Real estate investment is subject to a high degree of market risk and other specialized risks specific to real estate ownership and may be of questionable benefit in the diversification of a financial institution's portfolio of assets. Due to these risks, real estate investment activities appear suitable to a financial institution only on a very limited scale and under restrictive conditions designed to control the various risks posed to the financial institution and the deposit insurance fund.

As prudential limitations and restrictions addressing the risks posed by real estate investment activities will be imposed, the subsidiary's real estate investment activities will not constitute a significant risk to the Bank Insurance Fund or present material safety and soundness concerns.

Based upon careful evaluation of all available facts and information, the Acting Associate Director, acting under delegated authority, has concluded that approval of the application is appropriate subject to the restrictions discussed below. The following conditions are imposed for prudential reasons due to the volatility and other risks that are inherent in the subject real estate activity as well as to mitigate any potential insider conflicts of interests or risks associated with transactions between the Bank and subsidiary.

(1) The Bank immediately shall transfer ownership to SBW Holdings, Inc. (SBW) and shall take the necessary steps to operate SBW in a manner that ensures a separate corporate existence as a majority-owned subsidiary that:

(a) is adequately capitalized;

(b) is physically separate and distinct in its operations from the operations of the Bank;

(c) maintains separate accounting and other corporate records;

(d) observes such formalities as holding separate board of directors' meetings;

(e) maintains a board of directors with management expertise capable of conducting activities in a safe and sound manner;

(f) contracts with the Bank for any service on terms and conditions comparable to those available to or from independent entities; and

(g) conducts business pursuant to separate policies and procedures designed to inform customers and prospective customers of the subsidiary that is a separate organization from the Bank, including the placement of specific language on any debt instrument or contract with a third party disclosing that the Bank itself is not responsible for payment or performance.

(2) The Bank's real estate investment activities that are not permissible for a national bank shall be limited to those currently held. For purposes of this Order "real estate investment activities" shall mean the Meadowview Knolls real estate project consisting of the model home on Newbury Lane, the four lot Skyline Drive property and the six-acre Summit Ridge parcel.

(3) Full divestiture of the real estate investment activity is to be accomplished on or before September 30, 1998.

(4) The Bank shall not condition any loan on the purchase of real estate from SBW and the Bank shall not extend credit to any borrower to acquire real estate from SBW unless it is consistent with safe and sound banking practice and does not involve more than a normal degree of risk of repayment, and the credit is extended on terms and under circumstances, including credit standards, that are substantially the same, or at least as favorable to the Bank, as those prevailing at the time for comparable transactions.

(5) The Bank and SBW shall not engage in any transactions with insiders of the Bank or their related interests which relate to the SBW's real estate activities without the prior written consent of the appropriate Regional Director, and

(6) Consent is granted based on the facts and circumstances presented or otherwise known to the FDIC in connection with this request. The Bank shall notify the FDIC of any significant change in facts or circumstance, and that the FDIC shall have the right to alter, suspend, or withdraw its approval.

ACTING ASSOCIATE DIRECTOR
DIVISION OF SUPERVISION