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Immediately upon deciding the future of Bower Lake, you'll be asked by Hobson to see a wealthy citizen who wishes to make a sizeable donation to the Treasury. She's in Millfields, so you'll have a chance to see the effects of your previous edict on the way. Travel your way there to meet her in person. When you arrive, you'll find that this citizen, Muriel wished to donate a family heirloom, which could be sold for a very large amount of gold, but it was stolen by a common thief right before you arrived. The guard she's talking to, of course, is no help. Pfft, typical. She tells you the thief fled in the direction of Silverpines, so you'll need to head into the wood in order to retrieve the statue.

Upon entering Silverpines, you'll see a White Balverine, which will flee the area shortly after. Head forward to the camp, and you'll spot a letter on a nearby tree, telling you to "follow the White Balverine." On you go! Simply head down the main path through Silverpines , and you'll notice the White Balverine hopping from place to place as you progress. When you reach the village at the centre of Silverpines, a villager will fire at you in surprise, then apologise. It seems that the town is on high alert due to recent Balverine sightings, and mentions that they use the lanterns around town to burn silver nitrate, keeping the Balverines at bay. He'll also mention Connor, a man who was caught trying to put out the lamps, and was exiled as a result. Things are starting to get a bit more complicated.

Continue out of the village via the other end (check near the Silverpines Mines entrance in town for an Evil Gnome if you haven't got it yet), and you'll see the White Balverine again. Follow it and eventually you'll find yourself in a clearing with some ruins around it. Connor is there, along with some Balverines; he has the statue and is willing to give it to you... so long as you perform the simple task of putting out the lanterns around the village, opening it up to attack. Of course, you can also choose to oppose him.

Standing against Connor will require you to fight a bunch of his Balverines, and Connor will run off to stage an attack on the village. Fight your way through the Balverines and reach the village, and you'll see a cutscene where Connor transforms into the White Balverine himself (as if that was a surprise), attacking you and the villagers with his werewolf buddies. This fight can be fairly challenging, so don't be afraid at all to use your potions and healing items. When all the Balverines are dead and you've enjoyed your fanfare, Jacob will return the statue to you, and thank you for your help. Of course, this option provides you some good points.

If you choose to help Connor, run back to the village and pull out a weapon, then get smashing the silver lanterns. After smashing three, the alarm will sound and the village will turn against you, but the peasants will pose little threat. Either revel in the slaughter or stand by and watch the massacre, then run your way back to Connor in the ruins, who is revealed to be the White Balverine you saw earlier. He'll tell you you're always welcome in Silverpines, and give you the statue. Guess what it looks like, hm? Obviously, this is the evil option and will result in a karma penalty. Additionally, the Silverpines villagers will all become Balverines (though this isn't apparent unless you try to attack them later on).

Make your way back to Muriel in Millfields and you'll find her waiting with Hobson. Return her back the statue and she'll thank you for the retrieval of her heirloom, and you'll receive 500,000 gold from its sale. At this point, you'll have another choice: use the money to bolster the Treasury and a morality bonus, or simply keep it for yourself, for some negative karma to boot.

When that's done, you'll jump forward in time to 121 days remaining and find yourself back in Bowerstone Castle. Note that despite the date, this will actually be the last "day" before the attack on Albion, and your last set of royal edicts to attend to.