November 5, 1997

Board of Directors
Medford Co-operative Bank
60 High Street
Medford, Massachusetts 02155

Dear Board of Directors:

The notice of proposed mutual-to-stock conversion and subsequent amendments thereto, filed on behalf of Medford Co-operative Bank (Medford) have been reviewed by the Federal Deposit Insurance Corporation (FDIC) pursuant to section 303.15 of the FDIC Rules and Regulations. As described in the notice and the amendments, Medford proposes to convert from a Massachusetts-chartered mutual co-operative bank to a Massachusetts-chartered stock co-operative bank.

The FDIC has relied on information provided in Medford's Notice of Conversion and the accompanying business plan in reaching its decision. It is anticipated that any planned material deviations from the business plan which will result in a return of capital will be provided to the FDIC in advance of such an event. Based on the information presented in Medford's notice of conversion, as amended, including commitments by Medford to restrict payment of dividends and the return of capital, the FDIC plans to issue a letter of non-objection to the proposed conversion transaction, provided that Medford satisfies the following conditions:

1. Medford must execute the enclosed Tolling Agreement and deliver it to this office on or before December 20, 1997.

2. Medford must advise this office of the results of the subscription offering and deliver an updated appraisal that:

(a) takes the results of the subscription offering into account;

(b) discusses any material occurrences during the subscription period, and

(c) explains any order that may have been rejected.

3. Medford must receive final approval from the appropriate Commonwealth of Massachusetts officials (State Authority) for its establishment as a stock co- operative bank and final approval must be received from the Federal Reserve Bank of Boston and the State Authority for Mystic Financial, Inc. to acquire Medford.

4. Medford must satisfy the disclosure requirements for any offering materials, currently under review by the FDIC's Registration and Disclosure Unit.

The Division of Supervision also approves the request for a limited depositor vote waiver. Enclosed is a Statement addressing approval of this request, filed concurrently with the notice of conversion.

Provided that Medford meets the conditions outlined above and that the FDIC is satisfied that the results of the subscription offering represent fair value for Medford, and provided further that there has been no significant alteration to the terms of the conversion transaction (by action of other regulators or otherwise) subsequent to the date of this letter, the FDIC will issue a letter of non-objection to the proposed conversion transaction.

Sincerely,

Keith W. Seibold
Acting Associate Director

Enclosures

cc: Richard A. Schaberg, Esq.
Thacher Proffitt & Wood
1500 K Street, N,W. Suite 200
Washington, D.C. 20005

FEDERAL DEPOSIT INSURANCE CORPORATION

IN RE: Medford Co-Operative Bank Medford, Middlesex County, Massachusetts

Request for Limited Waiver of Federal Deposit Insurance Corporation's Depositor Voting Requirements in 12 C.F.R. Section 333.4(d)(2)

STATEMENT

Pursuant to the regulations of the Federal Deposit Insurance Corporation (FDIC) at 12 C.F.R. Section 333.4(a), Medford Co-Operative Bank, Medford, Massachusetts (Medford), has filed an application with the FDIC for a limited waiver of the FDIC's depositor voting requirements for mutual-to-stock conversions. The Board of Directors (Board) has fully considered all available facts related to the application, considers the facts in this case to present a unique situation, and has concluded the application should be granted for the reasons discussed below.

The FDIC's regulations at 12 C.F.R. Section 333.4(d)(2) require that the following depositor voting procedures be implemented:

The proposed conversion shall be approved by a vote of at least a majority of the bank's depositors and, as reasonably determined by the bank's directors or trustees, other stakeholders of the bank who are entitled to vote on the conversion, unless the applicable state law requires a higher percentage, in which case the higher percentage shall be used. Voting may be in person or by proxy.

Massachusetts law requires approval of mutual-to-stock conversion plans by more than two-thirds of the depositors present at a special meeting called to vote on a plan. Massachusetts law prohibits voting by proxy for co-operative banks.

Medford called a special meeting of the depositors to vote on a plan of conversion. The meeting was held on October 28, 1997. The special meeting was attended by 845 eligible depositors out of a total of 15,157 eligible depositors. Of the 845 eligible depositors, 844 voted on the plan of conversion, with 721 or 85.3 percent of those depositors voting in favor of the plan of conversion. The FDIC has determined that there existed an acceptable vote in favor of the plan by depositors who are not insiders of the bank and do not have a potential conflict of interest.

The 721 depositors who voted in favor of the conversion clearly do not represent a majority of Medford's depositors, as required by the FDIC's Rules and Regulations, but the FDIC understands that it was difficult, if not impossible, for Medford to obtain votes from a majority of depositors without the use of proxies, which are prohibited under Massachusetts law. In the face of this difficult challenge, Medford made extraordinary efforts to attract depositors to the special meeting so depositors could vote in person.

Medford provided its depositors with 17 days' written notice of the special meeting, instead of the seven days required by Massachusetts law, via first class mail and provided details about the plan of conversion, along with the Notice and Information Statement. Medford prominently displayed in the lobbies of all offices posters announcing the special meeting, and advertised the special meeting through newspaper advertisements in two local newspapers, as well as newspapers in the contiguous towns of Woburn, Winchester, Wakefield, Stoneham, Somerville, Saugus, Melrose, Maiden and Arlington. Announcements were made several times a day on a local radio station, as well as the local cable television channel. During the 14 days prior to the special meeting, Medford distributed reminder statements to all customers conducting business in its lobby and at its drive-up window. Medford's staff placed approximately 3,500 telephone calls to depositors to inform them of the meeting. Finally, the Bank attempted to schedule the meeting at a convenient time and location. Despite its valiant efforts, the Bank attracted only a small proportion of its depositors to the special meeting.

The FDIC recognizes that the 845 depositors who participated in the special meeting represent a great improvement over the numbers of participants at previous depositor meetings of Medford, which were typically attended by only 15 to 18 depositors. The FDIC also recognizes that any further efforts are not likely to attract significantly higher numbers of depositors to another special meeting.

The FDIC has undertaken this explanation of the Board's approval of Medford's waiver request to emphasize the special circumstances of this case Despite great effort, Medford was unable to meet the FDIC's requirement of majority approval by depositors of its plan of conversion because Massachusetts law prohibits the use of proxies. Because of this, the FDIC accepts that it is a practical impossibility for Medford to obtain majority approval through in-person voting only. The FDIC acknowledges Medford's extraordinary efforts to inform depositors about the special meeting and about the purpose of the special meeting, and appreciates Medford's dilemma in trying to satisfy the laws and rules of both the Commonwealth of Massachusetts and the FDIC For these reasons, the Board has approved Medford's waiver request.

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.

Dated at Washington, D. C., this 5th day of November, 1997.

ACTING ASSOCIATE DIRECTOR
DIVISION OF SUPERVISION

Tolling Agreement by and between Medford Co-operative Bank Medford, Massachusetts and The Federal Deposit Insurance Corporation

The undersigned parties hereby agree as follows:

1. The time in which the Federal Deposit Insurance Corporation (FDIC) may act to object to the notice of the proposed conversion of Medford Co-operative Bank (Medford) to stock ownership filed with the FDIC on August 26, 1997, pursuant to section 303.15 of the FDIC Rules and Regulations (Notice), is hereby extended from December 25, 1997 until 30 days after Medford advises the FDIC of the results of the subscription offering and delivers an appraisal that:

(a) takes the results of the subscription offering into account;

(b) discusses any material occurrences during the subscription period; and

(c) explains any orders that may have been rejected.

2. Any action taken by the FDIC on the aforementioned Notice during the extension period described in paragraph 1 shall have the same force and effect as if it were taken by the FDIC before December 25, 1997 and shall not be challenged by Medford or anyone associated with it solely for having been taken during the extension period described above in paragraph 1.

Dated:

MEDFORD CO-OPERATIVE BANK

By:

Dated:

FEDERAL DEPOSIT INSURANCE CORPORATION

By: