June 23, 1983

In your letter of May 31, 1983, you requested rulings with respect to the Massachusetts savings bank excise and personal income tax consequences of the conversion of the __________ ("Bank") from a state-chartered mutual savings bank to a state-chartered stock savings bank.

The Bank is a member of the Federal Deposit Insurance Corporation ("FDIC") and the Mutual Savings Central Fund, Inc. ("Fund"). The Bank uses the cash receipts and disbursements method of accounting and its taxable year for purposes of the savings bank excise (as well as for federal income tax purposes) ends October 31.

As a mutual savings bank, the Bank has no authorized capital stock. Instead, the proprietary interest in the Bank's reserves and undivided profits belongs to all of its savings depositors. A savings depositor in the Bank is entitled to interest on his account balance that is declared and paid by the Bank. In addition, each Bank depositor has an intangible ownership interest in the net proceeds on liquidation of the Bank equal to the proportion which his deposit balance bears to the aggregate deposit balances of all Bank depositors. However, liquidation of the Bank requires approval by the FDIC and the Commissioner of Banks of the Commonwealth of Massachusetts ("Bank Commissioner"), who rarely, if ever, approve liquidation of a solvent savings bank. All of these interests of a Bank depositor cease when he closes his account with the Bank.

The savings depositors in the Bank have no voting rights. Instead, such rights are held by a group of individuals called "Corporators." The original Corporators were the individuals named as such in the legislative act that created the Bank. Since that time the Corporators have elected their own successors. Management and control of the Bank's business are vested in its Board of Trustees ("Board"), whose members are elected by the Corporators.

In order to stimulate future growth and expansion of the Bank's deposit, lending and other activities through the raising of additional capital, the Board has approved the conversion of the Bank into a Massachusetts-chartered stockholder-owned savings bank ("Converted Bank") pursuant to a plan of conversion ("Plan"). The Plan is subject to amendment to assure compliance with the final regulations of the Bank Commissioner (which, pursuant to General Laws Chapter 168, Section 72C, must be substantially similar to the regulations of the Federal

Home Loan Bank Board governing conversions of savings and loan associations under its jurisdiction). The Bank Commissioner's present proposed regulations (209 CMR § 33.00 et seq.) are expected to be adopted shortly without substantial changes. The conversion of the Bank into the Converted Bank is subject to the approval of the Bank Commissioner in accordance with his rules and regulations and the affirmative vote of two-thirds of the Corporators present and voting.

Under the Plan, the Bank will issue shares of $.10 par value voting common stock. The aggregate purchase price at which all such shares will be offered and sold will be equal to the estimated pro forma market value of the Bank, based upon an independent appraisal. All such shares will be issued and sold at a uniform price per share. The common stock will first be offered to qualifying purchasers pursuant to nontransferable subscription rights. These rights will be offered without compensation therefor first to persons who held qualifying deposits of $50 or more ("Qualifying Deposits") on __________ ("Record Date"). To the extent there are shares available after such persons ("Eligible Account Holders") have exercised their rights, nontransferable subscription rights will be offered without compensation therefor to the trustees, officers and employees of the Bank, who may not purchase in the aggregate more than 30% of the total offering of shares. Any remaining balance of the unsubscribed-for shares will thereafter be sold at the same offering price in a firm-commitment underwritten public offering.

After the conversion, all voting rights not attributable to the common stock will expire. A liquidation account will be established in an amount equal to the net worth of the Bank as set forth in its latest statement of financial condition contained in the final offering circular respecting the offering of the common stock. It is anticipated that such statement will be dated as of __________ While the establishment of the liquidation account will not operate to restrict the Converted Bank's use of its net worth, each Eligible Account Holder who had a Qualifying Deposit on the Record Date will have a contingent creditor interest in a portion of the liquidation account balance. This interest will constitute a right to receive an amount representing the Eligible Account Holder's interest in such net worth of the Bank before any liquidation distribution can be made with respect to the common stock. An interest in the liquidation account will never be increased. It will, however, be decreased as of any October 31 after the Record Date to reflect withdrawals from the depositor's account that reduce the amount therein as of any such October 31 below the amount in such account as of the Record Date or any other October 31.

The conversion will not interrupt the business of the Bank, and its business will continue as usual. Upon the conversion, each depositor will receive without payment a deposit account or accounts in the Converted Bank equivalent in amount, interest rate and terms (other than with respect to liquidation rights) to his account(s) in the Bank at the time of the conversion. All loans of the Bank will remain unchanged and will retain the same characteristics after the conversion. The Converted Bank will continue its membership in, and its deposit accounts will continue to be insured up to the legal maximum by the FDIC and the Fund, and the Converted Bank will remain subject to the regulatory authority of the Bank Commissioner.

The Bank represents that the following federal income tax consequences will obtain as a result of the proposed transaction:

(1) The change in the form of operation of the Bank from a state-chartered mutual savings bank to a state-chartered stock savings bank will constitute a reorganization within the meaning of Section 368(a)(1)(F) of the Internal Revenue Code ("Code" or "IRC"). No gain or loss will be recognized by the Bank or the Converted Bank as a result of the conversion. The Bank and the Converted Bank will each be "a party to a reorganization" within the meaning of Section 368(b) of the Code. (See Rev. Rul. 80-105, 1980-2 C.B. 78).

(2) No gain or loss will be recognized by the Converted Bank on the receipt of money in exchange for shares of the common stock. (I.R.C. § 1032).

(3) The basis of the assets of the Bank in the hands of the Converted Bank will be the same as the basis of such assets in the hands of the Bank immediately prior to the conversion. (I.R.C. § 362(b)).

(4) The holding period of the assets of the Bank to be received by the Converted Bank will include the period during which the Bank held the assets before the conversion. (I.R.C. § 1223(2)).

(5) No gain or loss will be recognized by the Eligible Account Holders of the Bank on the constructive issuance to them of deposit accounts in the Converted Bank in the same dollar amount as their deposit accounts in the Bank plus interests in the liquidation account of the Converted Bank in constructive exchange for their deposit accounts in the Bank. (I.R.C. § 354(a)(1)).

(6) No gain or loss will be recognized by the Eligible Account Holders of the Bank on the distribution to them of nontransferable subscription rights to purchase shares of the common stock. (I.R.C. § 305(a) and (d)(1)).

(7) No taxable income will be realized by the Eligible Account Holders of the Bank as a result of the exercise of the nontransferable subscription rights. (See Rev. Rul. 56-572, 1956-2 C.B. 182).

(8) The basis of the deposit accounts in the Converted Bank constructively received by the Bank's account holders will be the same as the basis of their deposit accounts in the Bank constructively surrendered in exchange therefor. The basis of the interests in the liquidation account of the Converted Bank to be received by the Eligible Account Holders of the Bank will be zero. (See I.R.C. § 358).

(9) The basis of the nontransferable subscription rights will be zero (I.R.C. § 307(b)(1), Treas. Reg. § 1.307-1 and 2). The basis of the common stock will be the purchase price thereof. (I.R.C. § 1012). The holding period of the common stock will commence on the exercise of the subscription rights. (I.R.C. § 1223(6)).

Individual residents of Massachusetts are subject to income taxation under General Laws Chapter 62 on their Massachusetts gross income less certain deductions and exemptions. An individual's Massachusetts gross income is federal gross income with certain modifications not relevant here. (G.L. c. 62, § 2(a)).

The Bank is subject to taxation under General Laws Chapter 63, Section 11.

Based upon the foregoing, it is ruled:

1. The Converted Bank will continue to be subject to General Laws Chapter 63, Section 11.

2. Under General Laws Chapter 63, Section 11, the Bank and the Converted Bank will be treated as the same savings bank and as if the conversion had not occurred; and

(a) the part of the current taxable year of the Bank before the conversion and the part of the current taxable year of the Converted Bank after the conversion will constitute a single taxable year of the Converted Bank;

(b) the Converted Bank will succeed to and take into account the net operating income of the Bank as of the date of the conversion;

(c) the Converted Bank's basis in its assets, holding periods, depreciation and amortization will be calculated as if the Bank and the Converted Bank were the same savings bank and as if the conversion had not occurred;

(d) the creation of the liquidation account on the records of the Converted Bank will have no effect upon either the Bank or the Converted Bank's net operating income;

(e) for the current taxable year, the Converted Bank may claim as a credit any estimated tax under Section 11 paid by the Bank prior to the conversion; and

(f) the deposits, real estate and mortgage loans of the Converted Bank will be calculated as if the Bank and the Converted Bank were the same savings bank and as if the conversion had not occurred.

3. No gross income, gain or loss will be realized by either the Bank or the Converted Bank as a result of the conversion.

4. No gross income, gain or loss will be realized by either the Bank or the Converted Bank on the receipt of money or other consideration in exchange for shares of common stock.

5. No gain or loss will be recognized by the Eligible Account Holders of the Bank on the constructive issuance to them of deposit accounts in the Converted Bank in the same dollar amount as their deposit accounts in the Bank plus interests in the liquidation account of the Converted Bank in constructive exchange for their deposit accounts in the Bank.

6. No gain or loss will be realized by the Eligible Account Holders of the Bank on the distribution to them of nontransferable subscription rights to purchase shares of common stock.

7. No taxable income will be realized by the Eligible Account Holders of the Bank as a result of the exercise of the nontransferable subscription rights.

8. The basis of the deposit accounts in the Converted Bank constructively received by the Bank's account holders will be the same as the basis of their deposit accounts in the Bank constructively surrendered in exchange therefor. The basis of the interests in the liquidation account of the Converted Bank to be received by the Eligible Account Holders of the Bank will be zero.

9. The basis of the nontransferable subscription rights will be zero. The basis of the common stock will be the purchase price thereof. The holding period of the common stock will commence on the exercise of the subscription rights.

Very truly yours,

/s/Daniel B. Breen

Daniel B. Breen

Acting Commissioner of Revenue

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LR 83-53