IN THE MATTER OF THE MERGER OF
HERITAGE CO-OPERATIVE BANK
SALEM, MASSACHUSETTS
WITH AND INTO
SALEM FIVE CENTS SAVINGS BANK, SALEM, MASSACHUSETTS

Pursuant to the provisions of Massachusetts General Laws chapter 168, section 34A and chapter 170, section 26A, Salem Five Cents Savings Bank ("Salem Five" or the "Petitioner"), Salem, Massachusetts has applied to the Division of Banks (the "Division") to merge with Heritage Co-operative Bank ("Heritage"), Salem, Massachusetts. Under the terms of the Agreement and Plan of Merger (the "Merger Agreement") dated as of August 11, 2005, Heritage will merge with and into Salem Five under the charter, by-laws and name of Salem Five Cents Savings Bank. All banking offices of both banks will be retained after the merger. The Commonwealth's Board of Bank Incorporation and the Division of Banks previously approved applications relative to Salem Five's proposed reorganization into a mutual holding company, Salem Five Bancorp. Salem Five intends to complete its reorganization into a mutual holding company subsequent to its proposed merger with Heritage.

Notice of the application has been posted and published. The time period for interested parties to submit comments has passed. Accordingly, all documents and materials related to this transaction have been reviewed. At the request of the Division, supplemental information was submitted on January 23, 2006. That record has been considered with regard to the financial and managerial resources of each bank, the competitive effects of the proposed transaction, the interests of the depositors of each bank, the future prospects of the institutions and the convenience and needs of the communities to be served by the consolidated entity as well as the performance of each bank under the Commonwealth's Community Reinvestment Act ("CRA"), General Laws chapter 167, section 14 and its implementing regulation, 209 CMR 46.00 et seq.

Salem Five is a state-chartered savings bank, currently in mutual form. As of June 30, 2005, it had total assets of approximately $1.9 billion. As indicated in the application, Salem Five's main office is located in Salem. Salem Five operates thirteen branch offices, including one in Salem and two in Danvers. Its other branch offices are located in Beverly, Boston, Hamilton, Lynn, Malden, Marblehead, North Andover, Peabody, Saugus and Swampscott, Massachusetts. Additionally, the Division, in December 2005, issued its non-objection to Salem Five's notice to establish a branch office in Middleton, Massachusetts. According to the merger application, Salem Five has nine wholly-owned subsidiaries including six active subsidiaries which generally provide investment brokerage, insurance and mortgage lending services. Its deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") and the Deposit Insurance Fund ("DIF") of the Depositors Insurance Fund for amounts in excess of the FDIC's insurance limits.

Heritage is a state-chartered co-operative bank in mutual form. As of June 30, 2005, it had total assets of $262.6 million. Heritage maintains its main office in Salem and operates four branch offices in Beverly, Danvers, Marblehead and Peabody, Massachusetts. Heritage has two wholly owned subsidiaries, Kinsman Ventures, Inc. and HCB Security Corporation. Its deposits are insured by the FDIC and the Share Insurance Fund ("SIF") of The Co-operative Central Bank for amounts in excess of the FDIC's insurance limits.

Materials have been submitted to address the issue that competition among banks will not be unreasonably affected by the proposed transaction. On the issue of whether banking competition will be unreasonably affected by the proposed transaction, the Division considers, but does not rely exclusively on, the guidelines used by federal authorities to review bank mergers. Essentially, these guidelines define relevant markets and measure concentration, which is considered an important indicator of competitiveness. The starting point in the federal analysis is the Herfindahl-Hirschman Index ("HHI"), an arithmetic measure of market concentration that synthesizes the distribution of market shares and the number of banks in an affected market into a single value. In this case, the HHI calculations do not indicate that the proposed transaction will result in an undue concentration of banking resources. In addition to that analysis, the Division considers the competitive impact of the proposed transaction on a community-by-community basis, as well as on the overall banking structure of the Commonwealth. Although both banks have at least one banking office in the cities and towns of Beverly, Danvers, Marblehead, Peabody and Salem, it is noted in the application that a number of various other financial institutions, including but not limited to banks, credit unions and mortgage companies have offices in those communities in which branch office networks overlap. However, in those five communities the number of separate banks alone with banking offices ranges from five in Marblehead to eleven in Beverly. Accordingly, the review of the transaction's impact on competition does not raise concerns which would preclude its approval.

The application notes that the continuing institution's Board of Trustees will consist of the non-officer members of the Board of Directors of Heritage, the President and Chief Executive Officer of Heritage and all of the Trustees of Salem Five immediately prior to the consummation of the merger. The management of the combined bank is also detailed in the application documents. The applicant bank argues that the combined institution will produce some financial economies and additional service capabilities. Upon consolidation, the continuing bank will meet all required capital standards. Accordingly, upon review, financial and managerial considerations support the application.

The Division has also considered whether public convenience and advantage will be promoted by this proposed transaction. As the continuing bank, Salem Five will offer its broad range of deposit and credit products as well as other financial services. The application documents provide examples of products and services currently offered by Salem Five to its customers that are not presently available to customers of Heritage. As described in the application, such products and services include commercial and personal insurance products, investment brokerage services, as well as equipment leasing. In particular, the Petitioner believes customers of Heritage will benefit from Salem Five's wealth management services and various commercial lending programs. In addition, the combined institution's lending limits will be significantly higher than Heritage's current lending limits. Moreover, Heritage's customers will be able to take advantage of Salem Five's longer banking hours. The Division considered these reasons and others cited in the submitted documents in determining that public convenience and advantage will be promoted by approval of this transaction.

In determining whether or not to approve a petition under the statutory criteria, the Commissioner is also required to consider a showing of "net new benefits" related to the transaction. That term as set out in section 34A of said chapter 168 and section 26A of said chapter 170 includes initial capital investments, job creation plans, consumer and business services and commitments to maintain and open branch offices, among other factors, which the Commissioner may deem necessary. In the application, the Petitioner has addressed this requirement of statute. As stated in the application, the resulting bank will offer employment to all employees of Heritage and provide the aforementioned products and services and other benefits to its customers. Moreover, customers of both banks will have access to the banking offices of both banks.

Related to the issue of public convenience and advantage is the record of performance under the CRA by the banks which are parties to this transaction. Such review for state-chartered banks includes examination of personnel by the Division as well as analysis of concerns received from the bank's community and its response to those concerns fairly raised. A publicly available descriptive rating and evaluation by a federal bank regulatory agency will also be considered. Upon review, the Division has noted that Salem Five and Heritage received ratings of "Satisfactory" and "Outstanding" respectively in the most recent examinations of their performances under CRA. Accordingly, the Division's review of factors related to public convenience and advantage are consistent with approval of the Petitioner's application.

Upon review of the application with reference to the relevant statutory and regulatory requirements, this Division has concluded that the consummation of the proposed consolidation would be in the public interest. On the basis of these considerations, approval is granted to merge Heritage with and into Salem Five under the charter, by-laws and name of Salem Five Cents Savings Bank pursuant to the provisions of said section 34A of chapter 168 and said section 26A of chapter 170 of the General Laws.

The approvals granted herein are subject to the following conditions:

1. that the proposed merger shall not become effective until a Certificate signed by the Presidents and Clerks or other duly authorized officers of each bank indicating that each institution has complied with the provisions of Massachusetts General Laws chapter 168, section 34A and chapter 170, section 26A has been returned with my endorsement thereon;
2. that the proposed merger shall not become effective until Articles of Merger with my endorsement thereon are filed with the Secretary of State;
3. that the proposed merger be consummated within one year of the date of this Decision; and
4. that the merger may not be consummated until the Division has received notice of satisfactory arrangements for this transaction from the DIF and the SIF.