U.S. SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D. C. 20549

                                  FORM 10-KSB

                 Annual Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

                   For the Fiscal Year Ended: March 31, 1998

                          Commission File No.: 0-18096


                            MID-COAST BANCORP, INC.
-------------------------------------------------------------------------------
              (Exact name of small business issuer in its charter)


               Delaware                               01-0454232
--------------------------------------   --------------------------------------
        State of Incorporation                     IRS Employer No.


                             1768 Atlantic Highway
                                 P. O. Box 589
                             Waldoboro, Maine 04572
                    (Address of Principal Executive Offices)

Registrant's telephone number, including area code:  (207) 832-7521

Securities registered pursuant to Section 12(g) of the Act:

                         Common Stock ($1.00 par value)
-------------------------------------------------------------------------------
                                (Title of Class)

      Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the issuer was required to
file such reports), and (2) has been subject to such filing requirements for
the past 90 days.   Yes [X]   No [ ]


      Indicate by check mark if there is no disclosure of delinquent filers
pursuant to Item 405 of Regulation S-B contained herein, and no disclosure will
be contained, to the best of issuer's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB.  [ ]

      The Net Income for the issuer's fiscal year ended March 31, 1998 are
$475,616.

      The number of shares outstanding as of March 31, 1998 is 711,960.

      Aggregate market value of common stock held by non-affiliates, based on
the last reported sale price on May 18, 1998: $7,006,571.

<PAGE>

                      DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the definitive proxy statement pursuant to Regulation 14A,
which was delivered to the Commission for filing on June 5, 1998, and the
Annual Report for the fiscal year ended March 31, 1998, are incorporated by
reference into Part II and III of this report.

<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                              Page
                                                                              ----

<S>                                                                            <C>
PART I
    Item 1.   Description of Business                                           1
    Item 2.   Description of Property                                          27
    Item 3.   Legal Proceedings                                                28
    Item 4.   Submission of Matters to a Vote of Security Holders              28

PART II
    Item 5.   Market for Common Equity and Related Stockholder Matters         29
    Item 6.   Management's Discussion and Analysis                             30
    Item 7.   Financial Statements                                             30
    Item 8.   Changes in and Disagreements with Accountants on Accounting
               and Financial Disclosure                                        30

PART III
    Item 9.   Directors, Executive Officers, Promoters and Control Persons;
               Compliance with Section 16(a) of the Exchange Act               30
    Item 10.  Executive Compensation                                           30
    Item 11.  Security Ownership of Certain Beneficial Owners and Management   30
    Item 12.  Certain Relationships and Related Transactions                   30
    Item 13.  Exhibits                                                         31

    SIGNATURES                                                                 33
</TABLE>

<PAGE>

PART I
Item 1. Description of Business

                      Business of Mid-Coast Bancorp, Inc.

      Mid-Coast Bancorp, Inc. ("Bancorp" or the "Holding Company") was
organized in 1989 for the purpose of becoming a holding company and owner of
all of the outstanding capital stock of The Waldoboro Bank, F.S.B. ("Waldoboro"
or the "Bank"). The Holding Company is engaged primarily in the business of
directing, planning and coordinating the business activities of the Bank. In
the future, Bancorp may acquire or organize other operating subsidiaries,
including other financial institutions, although it presently has no definitive
plans for any specific acquisitions or new subsidiaries. Bancorp does not
currently own any real estate. Instead, Bancorp uses the premises, equipment
and furniture of the Bank without the payment of any rental fees. At the
present time, Bancorp does not employ any persons other than its officers, but
utilizes the support staff of the Bank from time to time without the payment of
any fees. Additional employees may be hired as appropriate to the extent
Bancorp expands its business.

                     Business of The Waldoboro Bank, F.S.B.

General

      The Bank was formed as a Maine building and loan association, the
Waldoboro Building and Loan Association, on March 18, 1891 and received a
federal charter on August 9, 1983. The Bank's operations are headquartered in
Waldoboro, Maine. The deposits of the Bank are insured by the Savings
Association Insurance Fund (the "SAIF"), which is administered by the Federal
Deposit Insurance Corporation ("FDIC"). The Bank has a strong community
orientation, with most of its customers located in Waldoboro, Rockland and
surrounding communities in Knox and Lincoln counties, Maine. As of March 31,
1998, the Bank had total assets of $62,929,870, total deposits of $45,299,724,
total borrowings of $12,190,000 and stockholders' equity of $5,127,134. As of
March 31, 1998 the Bank had full service branch facilities in Waldoboro and
Rockland, and an ATM in Jefferson, Maine. The Bank's executive offices are
located at 1768 Atlantic Highway, Waldoboro, Maine and its telephone number is
(207) 832-7521.

      The Bank's expansion during fiscal year 1999 includes offices in Belfast
and Jefferson. The Belfast branch opened May 20, 1998, and moves the Bank into
an entirely new market area. We are confident that our people and products will
make this move successful. The Jefferson branch is scheduled to open in August
at the location of our ATM, and we should quickly establish a solid customer
base, as this will be the only bank in town. While we anticipate these branches
will increase operating costs and as a result impact earning in fiscal 1999, we
feel that expansion into these market areas is an important step in maintaining
the growth and long term profitability of the bank.

      The principal business of the Bank is to attract deposits from the
general public and to make loans secured by residential and commercial real
estate, enabling borrowers to purchase, refinance, construct or improve
property. In addition, the Bank makes various types of secured and 

<PAGE> 1

unsecured consumer and passbook loans, such as home equity, commercial and 
automobile loans, and holds investment securities. See "Lending Activities" 
and "Investments."

Market Area

      The Bank's market area is Knox and Lincoln counties, and parts of Waldo
county, Maine, which includes the towns of Waldoboro, Damariscotta, Friendship,
Warren, Nobleboro, Thomaston, Rockland, Belfast, Camden and Lincolnville, as
well as other communities in Maine's mid-coast region. The Bank's market area
is located on the coast of Maine, approximately 60 miles northeast of Portland
and 78 miles southwest of Bangor.

      The economic base of the Bank's market area is diverse, with
manufacturing, services and commercial fishing as the most significant
categories of business activity. The mid-coast region of Maine has also long
been popular as a summer resort area, thus leading to a substantial amount of
seasonal business activity.

Lending Activities

      The Bank's loan portfolio totaled $50,624,539 at March 31, 1998,
representing approximately 80.3% of its total assets. At that date,
approximately 67.1% of the Bank's loan portfolio consisted of permanent
mortgage loans secured by residential properties. In addition, approximately
14.7% of the Bank's loan portfolio consisted of permanent mortgage loans
secured by commercial real estate, while secured and unsecured consumer,
commercial and passbook loans represented 13.9 % of the Bank's loan portfolio.
Finally, construction loans represented 4.3% of the Bank's loan portfolio.
Substantially all of the residential and commercial properties securing the
Bank's loans are located within its market area as discussed above.

      The following tables set forth detailed information concerning the
composition of the Bank's loan portfolio by type of loan at the dates
indicated.

<TABLE>
<CAPTION>
                                                           At March 31,
                                          ---------------------------------------------
                                                  1998                    1997
                                          --------------------    ---------------------
                                            Amount        %         Amount        %
                                          -----------   ------    -----------   -------

<S>                                       <C>           <C>       <C>            <C>
Mortgage loans:
  Residential                             $33,971,535    67.1%    $35,300,010     71.5%
  Commercial                                7,464,541    14.7       6,314,688     12.8
  Construction, net of undisbursed funds    2,189,613     4.3       1,262,210      2.6
                                          ---------------------------------------------
  Total mortgage loans                    $43,625,689    86.1     $42,876,908     86.9%
Other loans:
  Home equity                               1,092,794     2.2       1,300,254      2.6
  Commercial                                2,071,625     4.1       1,406,317      2.8
  Passbook loans                              261,888     0.5         281,967      0.6
  Installment and other                     3,572,543     7.1       3,529,009      7.1
                                          ---------------------------------------------
    Total other loans                       6,998,850    13.9       6,517,547     13.1
                                          ---------------------------------------------
      Total loans                         $50,624,539   100.0%    $49,394,455    100.0%
                                          =============================================
</TABLE>

<PAGE> 2

      Residential Mortgage Loans. A substantial portion of the Bank's lending
activity is comprised of residential mortgage loans, which, at March 31, 1998,
represented 67.1% of the Bank's loan portfolio. Residential mortgage loan
originations are derived from a number of sources, including the existing
customers of the Bank, realtors, referrals and "walk-in" customers. The Bank's
active solicitation of residential mortgage loans through real estate brokers
has historically been its primary source of residential mortgage loan
originations.

      The main focus of the Bank's residential lending activity is the
origination of conventional mortgage loans on one- to four-family dwellings.
Generally, these loans are conventional first mortgage loans of 80% of value or
less that are neither insured nor partially guaranteed by government agencies.
The Bank also makes residential loans up to 95% of the appraised value,
typically the top 15% of the loan is covered by private mortgage insurance.

      Currently, the Bank offers a variety of adjustable-rate mortgage loans
with terms of up to 30 years. These mortgages have rates which are generally
3.0% above the U. S. Treasury Index and have adjustment periods of up to 7
years based on changes in the interest rate on U.S. Treasury obligations.
Typically, such loans have a 2% maximum rate change in any one adjustment
period and a maximum possible rate change of 6% during the term of the loan.
Most of the adjustable-rate mortgage loans originated by the Bank are held in
the Bank's portfolio. The primary reason for the Bank to retain these loans is
to manage the interest rate sensitivity of the Bank's loan portfolio. See
"Asset/Liability Management" located in the Management's Discussion and
Analysis portion of the Annual Report, commencing on page 4.

      In addition to adjustable-rate residential mortgage loans, the Bank also
offers fixed-rate residential mortgage loans with terms typically ranging from
15 to 30 years and are generally written to secondary market standards. During
the fiscal year ended March 31, 1998, the Bank originated $5,496,175 in
fixed-rate loans, of which 54% was sold to the secondary market. The remaining
46% of fixed rate loans were added to the Bank's portfolio. These loans were
underwritten using secondary market guidelines and were created to address
competitive market conditions.

      Borrowers may prepay loans at their option or refinance their loans with
the Bank on terms agreeable to the Bank. The terms of conventional residential
mortgage loans granted by the Bank contain a "due-on-sale" clause, which
permits the Bank to accelerate the indebtedness of a loan upon the sale or
other disposition of the mortgaged property. Due-on-sale clauses are an
important means of increasing the turnover of real estate loans in the Bank's
portfolio. Waldoboro's management believes that due to prepayments in
connection with refinancings and sales of property, the average length of the
Bank's long-term residential loans is substantially shorter than the weighted
average contractual maturity.

      The Bank also makes construction loans to fund the construction of new
buildings or the renovation of existing buildings and finances the construction
of individual, owner-occupied houses by professional contractors and by
individual owners only on the basis of stringent underwriting and construction
loan management guidelines. Net construction loans comprised $2,189,613, or
4.3% of the Bank's loan portfolio at March 31, 1998.

<PAGE> 3

      Commercial Real Estate and Other Commercial Loans. In addition to
residential real estate loans, the Bank also originates loans secured by
commercial real estate. At March 31, 1998, $7,464,541 or 14.7% of the Bank's
loan portfolio was secured by commercial properties. The majority of the Bank's
commercial real estate loans are secured by improved commercial property such
as retail outlets and service establishments. Substantially the Bank's entire
commercial real estate loan portfolio is secured by properties located in the
Bank's primary market area.

      For a variety of reasons, loans secured by commercial properties
generally involve greater credit risks than one- to four-family residential
real estate loans. Repayment of such loans generally depends on the cash flow
generated by the security property. Because the payment experience on loans
secured by such property is often dependent on successful operation or
management of the security property, repayment of the loan may be more subject
to adverse conditions in the real estate market or the economy generally than
is the case with one- to four-family residential real estate loans. The
commercial real estate business is cyclical and subject to downturns,
overbuilding and local economic conditions. Although commercial real estate
loans generally involve a higher risk of credit loss than loans secured by
residential real estate, Waldoboro has not experienced any significant problems
with its commercial mortgage loans.

      In addition, the Bank has begun to increase its commercial business loan
portfolio. At March 31, 1998, such loans amounted to $2,071,625 or 4.1% of the
Bank's loan portfolio. Commercial business loans are generally secured by
equipment, machinery or other corporate assets. The Bank either requires
principals of corporate borrowers to become co-borrowers or the Bank obtains
personal guarantees from the principals of the borrower with respect to all
commercial business loans.

      Commercial business lending generally entails significantly greater
credit risk than residential real estate lending. The repayment of commercial
business loans typically is dependent on the successful operation and income of
the borrower. Such risks can be significantly affected by economic conditions.
In addition, commercial business lending generally requires substantially
greater oversight efforts by the Bank than does residential real estate
lending.

      Consumer Loans. At March 31, 1998, Waldoboro had secured and unsecured
consumer loans, which includes loans on deposit accounts, and home equity loans
of approximately $4.9 million or 9.7% of the Bank's loan portfolio. The Bank's
consumer loans have interest rates that are generally higher than residential
mortgage rates. The average life of the Bank's consumer loans is typically less
than five years. By maintaining its consumer lending, Waldoboro enhances its
ability to maintain a profitable spread between its average loan yield and its
cost of funds while at the same time managing its sensitivity to interest
rates.

      Loans to One Borrower. Regulations promulgated by the Office of Thrift
Supervision (the "OTS") generally limit the permissible amount of loans to one
borrower to the greater of 15% of unimpaired capital and surplus or $500,000.
The maximum amount which the Bank could have loaned to one borrower and the
borrower's related entities at March 31, 1998, was $769,001. At March 31, 1998,
the three largest outstanding balances of loans to any one borrower and related
entities were $604,951, $567,055 and $410,675.

<PAGE> 4

Scheduled Loan Maturities

      The following table presents information regarding contractual maturities
of Waldoboro's loan portfolio at March 31, 1998. Demand loans are reported as
due in one year or less. No prepayment assumptions are utilized for purposes of
this table.

<TABLE>
<CAPTION>
                                                           Payment Due in year 
                                                             Ended March 31,
                                        Balance at   --------------------------------
                                        March 31,                 2000-
                                           1998        1999       2003       2004+
                                        ----------   --------   --------   ----------

<S>                                     <C>          <C>        <C>        <C>
Mortgages - construction                $2,189,613   $454,687   $   ----   $1,734,926
Commercial loans - non real estate       2,071,625    930,022    885,382      256,221
</TABLE>

      The following table shows information concerning the type and amount of
fixed-rate and adjustable-rate loans in Waldoboro's portfolio that come due
after one year.

<TABLE>
<CAPTION>
                                         Loans Due After March 31, 1999
                                       ----------------------------------
                                        With         With
                                        Fixed     Adjustable
                                        Rates       Rates        Total
                                       --------   ----------   ----------

<S>                                    <C>        <C>          <C>
Mortgages - construction               $ 12,578   $1,722,348   $1,734,926
Commercial loans - non real estate      148,642      992,961    1,141,603
</TABLE>

Origination, Purchase and Sale of Loans

      The primary lending activity of Waldoboro is the origination of
conventional loans secured by first mortgage liens on residential properties,
principally single family residences, substantially all of which are located in
Lincoln and Knox counties, Maine. At fiscal year end, substantially all of the
real estate loans originated were secured by properties in Lincoln and Knox
counties. It is anticipated that the recent expansion to Belfast will expand
the Bank's lending area to include Waldo County.

      Waldoboro appraises the security for each new loan. Such appraisals are
performed for the Bank by qualified appraisers in accordance with standards set
by the OTS. The appraisal of the real property upon which Waldoboro makes a
real estate loan is of particular significance to the Bank in the event that
the loan must be foreclosed. An improper appraisal may contribute to a loss or
other financial detriment to the Bank upon the disposition of foreclosed
property.

      The Bank's underwriting standards are guided by a formal written loan
policy that is reviewed and approved annually by the board of directors of the
Bank (the "Board"). This policy provides that the Loan Committee, which
determines whether a borrower has met the required underwriting conditions,
approves the loan and the Security Committee, which ensures that the value of
the real estate securing the loan is adequate, approves the appraisal. Once
approved, the loan must

<PAGE> 5

then be ratified by the Board. In the case of a loan made to an officer of the
Bank or the Holding Company, the loan must be approved by the Board as well as
the Loan Committee and the Security Committee. Waldoboro requires title 
certification on all first mortgage liens, and the borrower is required to 
maintain hazard insurance on the security property.

      Waldoboro has purchased loans in previous years and will continue to
consider participations from third parties provided the terms are favorable and
the loans meet Waldoboro's underwriting standards. The Bank routinely sells
certain fixed-rate real estate loans in the secondary market as a means to
better match its interest-sensitive assets and liabilities. For the year ended
March 31, 1998, the Bank received $3,447,347 in proceeds from the sale of
loans. Waldoboro will continue to consider additional sales of its loans in the
future, depending on its needs, and the terms available in the market for such
transactions.

      Fee Income. In addition to interest earned on loans, Waldoboro realizes
fee income from its lending activities, including origination and collection
fees for residential loans. Waldoboro also receives loan fees and charges
related to existing loans, which include late charges and servicing fees. Net
origination fees originally deferred that were recognized as additional
interest on loans during fiscal 1998 totaled $47,324. At March 31, 1998, net
origination fees deferred to future periods were $64,112.

Classified Assets and Delinquencies

      If a borrower fails to make a required payment on a loan, the loan is
classified as delinquent. In this event, Waldoboro will make contact with the
borrower at prescribed intervals in an effort to bring the loan current. In
most cases, delinquencies are cured promptly, but if a mortgage loan
delinquency is not cured within 60 days, Waldoboro will generally initiate
foreclosure proceedings under applicable state law. If the loan remains
delinquent, the mortgaged property typically will be sold through a foreclosure
sale.

<PAGE> 6

      The remedies available to a lender in the event of a default or
delinquency, and the procedures by which such remedies may be exercised, are
generally subject to laws and regulations of the jurisdiction where the
property is located in the case of mortgage loans, or of the jurisdiction where
the lender and/or borrower is situated in the case of unsecured loans. Federal
and Maine law generally require notice of default and right to cure and notice
of the availability of credit counseling and potential state-provided financial
assistance prior to the time a lender commences a legal action or takes
possession of Maine residential real estate securing a loan. Management
attempts to secure payment with regard to consumer and commercial business
loans that become delinquent. Ultimately, if such efforts are unsuccessful,
foreclosure and sale of collateral are considered. In the case of unsecured
installment and commercial business loans, rather than proceeding to collect by
legal action, Waldoboro will often attempt to negotiate a "workout" payment
schedule with the borrower over a period that may exceed the original term of
the loan.

      Under the OTS classification system, problem assets of insured
institutions are classified as "special mention, " "substandard, " "doubtful"
or "loss, " depending on the presence of certain characteristics discussed
below.

      An asset is considered "special mention" if the asset displays potential
weaknesses that deserve close attention by a bank's management and that if
uncorrected might result in a deterioration either of the asset's repayment
prospects or in the future credit condition of the borrower. Special mention
assets do not expose a bank to sufficient risk to warrant adverse
classification under the classifications discussed below.

      An asset is considered "substandard" if inadequately protected by the
current sound worth and paying capacity of the obligor or of the collateral
pledged, if any. "Substandard" assets include those characterized by the
"distinct possibility" that the insured institution will sustain "some loss" if
the deficiencies are not corrected. Assets classified "doubtful" possess the
added characteristic that the weaknesses present make "collection or
liquidation in full," on the basis of currently existing facts, conditions and
values, "highly questionable and improbable." Assets classified "loss" are
those considered "uncollectible" and of such little value that there
continuance as assets without the establishment of a specific loss reserve is
not warranted. When an insured institution classifies problem assets as "loss",
it is required either to establish a specific allowance for losses equal to
100% of the amount of the asset so classified or to charge off such amount.

      The accrual of interest income is discontinued when a loan becomes
delinquent and in management's opinion is deemed uncollectible in whole or in
part as to principal and/ or interest. In these cases, interest on such loans
is recognized only when received. It is the policy of the company to generally
place all loans that are 90 days or more past due on nonaccrual status, unless
in management's judgement the loan is well secured and in the process of
collection.

      At March 31, 1998, the holding company had $69,570 of accruing loans that
were 90 days or more delinquent as compared to no such loans at March 31, 1997
or 1996. Unrecognized interest income on all loans on non-accrual status at
March 31, 1998 totaled $17,089.

<PAGE> 7

Nonperforming Assets

<TABLE>
<CAPTION>
                                                                   At March 31,
                                                          ------------------------------
                                                            1998       1997       1996
                                                          --------   --------   --------

<S>                                                       <C>        <C>        <C>
Nonperforming loans:
  Mortgage loans in process of foreclosure                $   ----   $   ----   $160,919
  Loans more than 90 days past due and still accruing       69,570       ----       ----
  Nonaccrual loans                                         225,056    145,466    214,419
                                                          ------------------------------

Total nonperforming loans                                  294,626    145,466    375,338

Real estate owned, net                                      70,383     91,823    224,137
                                                          ------------------------------

Total nonperforming assets                                $365,009   $237,289   $599,475
                                                          ==============================

Ratio of nonperforming loans to total loans                  0.58%      0.29%      0.88%
Ratio of nonperforming assets to total assets                0.58%      0.40%      1.10%
</TABLE>

      Allowance for Loan Losses. The allowance for loan losses (ALL) is
maintained by a provision charged against income at a level that management
considers adequate to provide for potential losses. The amount of the provision
is based upon management's evaluation of individual loans, past loss
experience, current economic conditions, the inherent risk in the loan
portfolio and other relevant factors. While management believes the current
level is adequate, there can be no assurance that the Bank will not have to
increase its provision for loans losses in the future as a result of changing
conditions, such as a deterioration in the local economy or an increase in
problem loans. In addition, the Bank's primary regulator, The Office of Thrift
Supervision, reviews the ALL as part of their routine examinations. The OTS can
require additions to the ALL based on their examination findings. At the last
OTS examination on November 12, 1997 the examiners deemed the ALL to be
adequate.

<PAGE> 8

      An analysis of activity in the allowance for loan losses for the years
ended March 31, 1998 and 1997 is provided below.

<TABLE>

      <S>                                   <C>
      Balance, March 31, 1996               $221,356
                                            --------
        Charge-offs - Mortgages              (12,000)
        Charge-offs - Consumer                (8,810)
        Recoveries - Mortgage                   ----
        Recoveries - Consumer                  7,911
                                            --------
        Net charge offs                      (12,899)
        Provision for loan losses             87,000
                                            --------

      Balance, March 31, 1997               $295,457
                                            --------
        Charge-offs - Mortgages                 ----
        Charge-offs - Consumer               (22,429)
        Recoveries - Mortgage                    334
        Recoveries - Consumer                    534
                                            --------
        Net charge offs                      (21,561)
        Provision for loan losses             73,000
                                            --------

      Balance, March 31, 1998               $346,896
                                            ========
</TABLE>


      Net charge offs to average loans outstanding

            Year ended March 31, 1997            0.03%
            Year ended March 31, 1998            0.04%

      A breakdown of the allowance for loan losses is shown below.

<TABLE>
<CAPTION>
                                                    1998                     1997
                                           ----------------------   ----------------------
                                                      Percent of               Percent of
                                                       Loans to                 Loans to
                                            Amount    Total Loans    Amount    Total Loans
                                           --------   -----------   --------   -----------

<S>                                        <C>          <C>         <C>          <C>
Mortgage loans - residential + const.      $ 65,560      71.4%      $ 45,000      74.1%
Mortgage loans - commercial                 127,810      14.7        109,190      12.8
Other commercial                             30,718       4.1         20,810       2.8
Consumer & other loans                       45,912       9.8         43,500      10.3
General allocation                           76,896      ----         76,957      ----
                                           --------------------------------------------

                                           $346,896     100.0%      $295,457     100.0%
                                           ============================================
</TABLE>

<PAGE> 9

Investments

      Federally chartered thrift institutions have authority to invest in
various types of liquid assets, including U.S. Treasury obligations, securities
of various federal agencies, certain certificates of deposit of insured banks
and thrift institutions, certain bankers' acceptances and federal funds.
Subject to various restrictions, federally chartered thrift institutions may
also invest a portion of their assets in commercial paper and corporate debt
securities and in mutual funds whose assets conform to the investments that a
federally chartered thrift institution is otherwise authorized to make
directly. At March 31, 1998, 5.9% of the total assets of the Holding Company
were investment securities. See Note 2 of the Holding Company's Consolidated
Financial Statements included herein by reference.

      Currently, the Bank's debt securities are classified as
"held-to-maturity" or "available for sale" in accordance with Financial
Accounting Standards No. 115, "Accounting For Certain Investments in Debt and
Equity Securities." The investment securities classified as "held-to-maturity"
are reported in the Bank's financial statements at amortized cost. Investments
in a mutual fund of $593,894 and debt securities classified as "available for
sale" are carried at market value. The following table sets forth the
composition of the Bank's portfolio of investment securities at the dates
indicated.

<PAGE> 10

<TABLE>
<CAPTION>
                                                                   At March 31,
                                              -----------------------------------------------------
                                                       1998                        1997
                                              -------------------------   -------------------------
                                              Book Value   Market Value   Book Value   Market Value
                                              ----------   ------------   ----------   ------------

<S>                                           <C>           <C>           <C>           <C>
Held to maturity:
Investment securities
  Federal Home Loan Bank Bonds                $  400,000    $  373,734    $  400,000    $  372,000
  U.S. Treasury Obligations                      299,672       298,617       299,109       292,875
  Federal National Mortgage Association 
   Bonds                                         250,000       250,000       250,000       246,250
                                              ----------------------------------------------------
Total Investment securities                   $  949,672    $  922,351    $  949,109    $  911,125
                                              ====================================================

Available for sale:
Investment securities:
  U.S.Treasury Obligations                    $  499,329    $  500,467    $  497,578    $  496,960
  U.S. Agency Obligations                      1,048,980     1,049,680       750,000       747,000
                                              ----------------------------------------------------
                                               1,548,309     1,550,147     1,247,578     1,243,960
Mutual Fund                                      595,732       593,894       561,084       564,702
Required investment in Federal Home Loan
 Bank Stock                                      622,000       622,000       622,000       622,000
Other                                               ----          ----        10,000        10,000
                                              ----------------------------------------------------
                                              $2,766,041    $2,766,041    $2,440,662    $2,440,662
                                              ====================================================
</TABLE>

<PAGE> 11

      The following table shows the maturities of the Bank's bonds at March 31,
1998 and the weighted average yield on such securities.

<TABLE>
<CAPTION>
                                                   After 1      After 5
                                                   Year but     Years but
                                                    Within       Within
                                  Within 1 Year    5 Years      10 Years    After 10 Years     Total
                                  -------------   ----------   ----------   --------------   ----------

<S>                                <C>            <C>          <C>             <C>           <C>
Held to maturity:
U.S. Treasury Obligations
  Book Value                       $  299,672     $     ----   $    ----       $ ----        $  299,672
  Yield                                 4.75%           ----        ----         ----             4.75%
Federal Home Loan Bank Bonds
  Book Value                       $  200,000     $     ----   $ 200,000       $ ----        $  400,000
  Yield                                 3.00%           ----       3.93%         ----             3.47%
Federal National Mortgage
Association Bonds:
  Book Value                       $  250,000     $     ----   $    ----       $ ----        $  250,000
  Yield                                 5.75%           ----        ----         ----             5.75%
                                   --------------------------------------------------------------------
Held to Maturity Total             $  749,672     $     ----   $ 200,000       $ ----        $  949,672
                                   --------------------------------------------------------------------

Available for Sale:
U.S. Treasury Obligations:
  Book Value                       $  499,329     $     ----   $   ----        $ ----        $  499,329
  Yield                                 5.75%           ----       ----          ----             5.75%
Federal Home Loan Bank Bonds
  Book Value                       $     ----     $  798,980   $   ----        $ ----        $  798,980
  Yield                                  ----          6.08%       ----          ----             6.08%
Federal National Mortgage
Association Bonds:
  Book Value                       $     ----     $  250,000   $   ----        $ ----        $  250,000
  Yield                                  ----          6.94%       ----          ----             6.94%
                                   --------------------------------------------------------------------
Available for Sale Total           $  499,329     $1,048,980   $   ----        $ ----        $1,548,309
                                   --------------------------------------------------------------------
Total                              $1,249,001     $1,048,980   $200,000        $ ----        $2,497,981
                                   ====================================================================
</TABLE>

Sources of Funds

      General. The Bank's primary sources of funds are deposits, borrowings and
regular payments of loan principal and interest and prepayments of loan
principal. Deposit inflows and outflows are influenced by general interest rate
conditions. The Bank has been able to respond to market rate changes by
borrowing from the Federal Home Loan Bank (the "FHLB") of Boston in the form of
fixed-rate loans with a variety of maturities.

      Deposits. The Bank offers a variety of deposit products ranging in
maturity from deposits withdrawable upon demand to certificates with maturities
of up to 5 years. Deposits are attracted principally from within the Bank's
market area. Waldoboro relies primarily upon customer service, advertising and
competitive pricing policies to attract and retain deposits.

<PAGE> 12

      At March 31, 1998, money market and savings deposits remained stable
while NOW accounts increased $557,771 or 16.1% and certificates of deposit
increased $2,475,002 or 9.7%. Demand deposits decreased $49,086 or 2.1%.

      As a member of the FHLB System, the Bank is required to maintain liquid
assets at minimum levels that vary from time to time. The Bank's investment
portfolio, cash and deposits in other institutions provide not only a source of
income but also a source of liquidity to meet lending demands, fluctuations in
deposit flows and required liquidity levels. The Bank has periodically used
excess liquidity to meet heavy loan demand. The relative mix of investments and
loans in the Bank's portfolio is dependent upon the Bank's judgment, from time
to time, as to the attractiveness of yields available on loans as compared to
available investment yield. The Bank also considers the relative safety of the
investment and loans and the liquidity needs of Waldoboro. The Bank's
investment portfolio is managed in compliance with the investment policy
established by the Board.

      The Bank offers certificate of deposit "specials" and other deposit
alternatives that are more responsive to market conditions than the Bank's
savings deposits and the longer maturity fixed-rate certificates that have
traditionally served as the Bank's primary sources of deposits. Waldoboro's
overall variety of deposits has enabled the Bank to be competitive in obtaining
funds when necessary and has enabled it to respond with more flexibility to the
threat of disintermediation.

      Historically, the Bank has obtained deposits primarily from the areas in
Maine immediately surrounding its offices. Management expects to continue
obtaining substantially all of its deposits from Knox, Lincoln and Waldo county
market areas. It is the Bank's policy not to accept brokered deposits.

      The distribution of a financial institution's deposits in terms of
interest rate paid is a major determinant of its average cost of funds, while
the distribution of an institution's deposits in terms of maturity has in the
past been an important indicator of the relative stability of its supply of
lendable funds. Management of the Bank believes that because of improved
pricing flexibility, and the relatively low cost of borrowings from the FHLB,
the distribution of deposit maturity is of less importance as an indicator of
stability of its deposits as a source of lendable funds.

<PAGE> 13

      The following table sets forth the average balances of deposits of the
Bank in dollar amounts and as a percent of total deposits, the interest expense
and the weighted average rate for each type of deposit account for the periods
indicated.

<TABLE>
<CAPTION>
                                           Year Ended March 31, 1998
                                 ---------------------------------------------
                                                 % of
                                   Average     Average     Interest    Average
                                   Balance     Deposits    Expense      Rate
                                 -----------   --------   ----------   -------

<S>                              <C>           <C>        <C>            <C>
Demand deposits                  $ 2,187,357     4.95     $     ----     ----
NOW Accounts                       3,977,843     9.01         63,365     1.59
Savings                            5,625,718    12.74        164,437     2.92
Money Market deposit accounts      5,022,940    11.37        191,859     3.82
Certificates of deposit           27,352,018    61.93      1,544,788     5.65
                                 ---------------------------------------------
                                 $44,165,876   100.00%    $1,964,449     4.45%
                                 =============================================

<CAPTION>
                                           Year Ended March 31, 1997
                                 ---------------------------------------------
                                                 % of
                                   Average     Average     Interest    Average
                                   Balance     Deposits    Expense      Rate
                                 -----------   --------   ----------   -------

<S>                              <C>           <C>        <C>           <C>
Demand deposits                  $ 2,113,328     5.08%    $     ----    ----%
NOW Accounts                       3,482,742     8.37         70,486    2.02
Savings                            4,850,950    11.66        135,482    2.79
Money Market deposit accounts      4,884,566    11.74        188,740    3.86
Certificates of deposit           26,255,429    63.15      1,514,948    5.77
                                 ---------------------------------------------
                                 $41,587,015   100.00%    $1,909,656    4.59%
                                 =============================================
</TABLE>

<PAGE> 14

      The maturities of certificates of deposit in amounts greater than or
equal to $100,000 at March 31, 1998 are set forth in the following table.

<TABLE>
<CAPTION>
                     Maturity               Amount
                  ---------------         ----------

                  <S>                     <C>
                  0 - 3 months            $  517,090
                  3 - 6 months               876,577
                  6 -12 months               756,606
                  After 12 months            300,889
                                          ----------
                                          $2,451,162
                                          ==========
</TABLE>

      The Bank offers a number of investment alternatives to depositors.
Interest rates paid and minimum balance requirements for deposits may vary from
time to time as determined by the Bank's management, based on prevailing market
conditions. Waldoboro's deposit accounts are obtained primarily from the areas
immediately surrounding its offices.

      The Bank has offered IRA accounts and intends to continue to do so in the
future. At March 31, 1998, $3,026,939 of IRA accounts were on deposit with the
Bank.

      Borrowings. Deposits are Waldoboro's primary source of funds for lending
activities and other general business purposes. During periods when the supply
of lendable funds cannot meet the demand for such activities and purposes, the
FHLB system seeks to provide a portion of the funds necessary through advances
to its members. Historically, Waldoboro has relied on advances from the FHLB of
Boston rather than other sources. Waldoboro has used such advances from the
FHLB of Boston as an alternative to deposits when rates are favorable as a
means to enhance the Bank's interest rate spread and as a source of lendable
funds. Such advances have also been primarily used to fund a portion of the
Bank's Adjustable Rate Mortgage portfolio which, by shortening the average
maturity of its loan portfolio, makes the Bank less sensitive to future
interest rate fluctuations. At March 31, 1998, Waldoboro had $12,190,000 in
outstanding advances from the FHLB at a weighted average stated rate of 5.71%.

      Waldoboro also has access to a line of credit approximating $1,157,000 at
March 31, 1998, with the FHLB of Boston for short-term borrowing purposes. The
Bank did not have any outstanding borrowings under this line of credit at March
31, 1998.

      The Bank intends to continue to fund its mortgage loan commitments with
borrowed funds from the FHLB of Boston when the supply of other lendable funds
is insufficient or more costly and/or when such borrowings would enhance the
Bank's ability to manage its mix of assets and liabilities.

<PAGE> 15

Asset/Liability Management

      The following table sets forth the scheduled repricing or maturity of the
Holding Company's financial assets and liabilities at March 31, 1998.

      For purposes of this table no portfolio loans are assumed to prepay
before their scheduled maturity date. Also, all NOW, Savings, and Money Market
deposit accounts are assumed to reprice or mature in one year. FHLB callable
advances are slotted based on there first call date. These assumptions may not
be indicative of actual future events.

<TABLE>
<CAPTION>
                                       1 Year        >1 to 2       >2 to 3       >3 to 5      >5 to 10       Over
                                       or Less        Years         Years         Years        Years       10 Years       Total
                                     -----------   -----------   -----------   -----------   ----------   ----------   -----------

<S>                                  <C>           <C>           <C>           <C>           <C>          <C>          <C>
Financial Assets (1):
  Mortgage loans & mortgage backed
   securities:
Balloon & adjustable-rate (all 
 property types)                     $12,245,970   $ 4,441,309   $ 5,813,092   $ 1,696,603   $3,432,784   $   85,755   $27,715,513
  Fixed-rate 1 - 4 family                 54,034        11,740       148,675       201,326      610,365    6,488,422     7,514,562
  Fixed-rate - other                        ----          ----        70,305          ----         ----      294,137       364,442
Consumer & other loans                 5,601,367       808,526     1,963,526     2,156,103    1,956,383    2,544,117    15,030,022

  Investments & other interest-
   earning assets                      6,940,193       498,180       249,700       499,800      200,000         ----     8,387,873
                                     ---------------------------------------------------------------------------------------------

Total financial assets               $24,841,564   $ 5,759,755   $ 8,245,298   $ 4,553,832   $6,199,532   $9,412,431   $59,012,412
                                     =============================================================================================

Financial Liabilities (1):
  Deposits:
    NOW accounts, Savings and Money
     Market Accounts                  14,838,938          ----          ----          ----         ----         ----    14,838,938
  Certificates of deposit             22,299,337     4,247,336     1,040,439       447,722         ----         ----    28,034,834
FHLB borrowings                        8,975,000          ----     2,000,000          ----    1,000,000      215,000    12,190,000
                                     ---------------------------------------------------------------------------------------------

Total financial liabilities          $46,113,275   $ 4,247,336   $ 3,040,439   $   447,722   $1,000,000   $  215,000   $55,063,772
                                     =============================================================================================

GAP $                                -21,271,711     1,512,419     5,204,859     4,106,110    5,199,532    9,197,431

GAP to total assets %                     -33.76          2.40          8.26          6.52         8.25        14.60

Cumulative GAP $                     -21,271,711   -19,759,292   -14,554,433   -10,448,323   -5,248,791    3,948,640

Cumulative GAP to total assets %          -33.76        -31.36        -23.10        -16.58        -8.33         6.27

<FN>
--------------------
<F1>  For purposes of this table, financial assets financial assets are defined
      as all interest earning assets other than FHLB stock. Financial
      liabilities consist of all interest-bearing liabilities.
</FN>
</TABLE>

Employees

      At March 31, 1998, the Bank had a total of 25 full-time employees and 7
part-time employees, none of whom were represented by collective bargaining
units. The Bank offers its employees a variety of training programs designed to
enhance their skills. The Bank also provides its full-time employees with a
benefits package that includes life, long-term disability and medical
insurance, a 401(k) plan and a pension plan. Management of Waldoboro believes
that good relations are maintained with its employees.

<PAGE> 16

Service Corporation

      The Bank has one service corporation, First Waldoboro Corporation ("First
Waldoboro"). First Waldoboro was originally formed for the purpose of offering
certain securities brokerage services. However, management of the Bank
subsequently determined not to use First Waldoboro for that purpose, and the
service corporation is presently inactive.

      Federal regulations permit the Bank to invest an amount up to 2% of its
assets in the capital stock, obligations and other securities of its service
corporations. This amount is increased to 3 % if the additional 1% is used
primarily for community, inner city or community development purposes. At March
31, 1998, the Bank's direct investment in First Waldoboro was $10,000.

Competition

      Waldoboro faces strong price-oriented competition in the attraction of
deposits. Its most direct competition for deposits come from the other thrifts
and commercial banks located in its primary market area of Knox, Lincoln and
Waldo Counties. The Bank also faces additional significant competition for
investors' funds from short-term money market funds and other corporate and
government securities. The Bank is the fifth in asset size of the 11
SAIF-insured institutions in the state.

      The Bank competes for deposits principally by offering depositors a high
level of customer service, combined with a wide variety of savings programs, a
market rate of return, tax-deferred retirement programs and other related
services. The Bank does not rely upon any individual, group or entity for a
material portion of its deposits.

      The Bank's competition for real estate loans comes from mortgage banking
companies, other thrift institutions and commercial banks. The Bank competes
for loan originations primarily through the interest rates and loan fees it
charges and the efficiency and quality of services it provides borrowers, real
estate brokers and builders. The Bank's competition for loans varies from time
to time depending upon the general availability of lendable funds and credit,
general and local economic conditions, current interest rate levels, volatility
in the mortgage markets and other factors which are not readily predictable.

                  Regulation of Federal Savings Associations

General

      As a federal savings bank chartered by the OTS, the Bank is subject to
extensive regulation, examination and supervision by the OTS. The Bank is also
a member of the FHLB System, and its deposit accounts are insured by the SAIF,
which is administered by the FDIC. By virtue of federal insurance of its
deposits, the Bank is also subject to regulation and supervision by 

<PAGE> 17

the FDIC, which supervision and regulation is intended primarily to protect
depositors and the SAIF. Certain of these regulatory requirements are
described below or elsewhere herein.

      Business Activities. The Bank derives its lending and investment powers
from the Home Owners' Loan Act, as amended (the "HOLA"), and the regulations of
the OTS thereunder. Under these laws and regulations, the Bank may invest in
mortgage loans secured by residential and commercial real estate, commercial
and consumer loans, certain types of debt securities and certain other assets.
The Bank may also establish service corporations that may engage in activities
not otherwise permissible for the Bank, including certain real estate equity
investments and securities and insurance brokerage. These investment powers are
subject to various limitations, including (a) a prohibition against the
acquisition of any corporate debt security that is not rated in one of the four
highest rating categories; (b) a limit of 400% of an association's assets on
the aggregate amount of loans secured by non-residential real estate property;
(c) a limit of 20% of an association's assets on the aggregate amount of
commercial loans, with the amount of commercial loans in excess of 10% of
assets being limited to small business loans; (d) a limit of 35% of an
association's assets on the aggregate amount of consumer loans and acquisitions
of certain debt securities; (e) a limit of 5% of assets on non-conforming loans
(loans in excess of the specific limitations of the HOLA); and (f) a limit of
the greater of 5% of assets or an association's capital on certain construction
loans made for the purpose of financing what is or is expected to become
residential property.

      Loans to One Borrower. Under the HOLA, savings associations are generally
subject to the same limits on loans to one borrower as are imposed on national
banks. Generally, under these limits, a savings association may not make a loan
or extend credit to a single or related group of borrowers in excess of 15% of
the association's unimpaired capital and surplus. Additional amounts may be
lent, not in excess of 10% of unimpaired capital and surplus, if such loans or
extensions of credit are fully secured by readily-marketable collateral. Such
collateral is defined to include certain debt and equity securities and
bullion, but generally does not include real estate

      QTL Test. The HOLA requires a savings association to meet a qualified
thrift lender, or "QTL" test. Under the QTL test, a savings association is
required to maintain at least 65% of its "portfolio assets" in certain
"qualified thrift investments" in at least nine months of the most recent
12-month period. "Portfolio assets" means, in general, an association's total
assets less the sum of (a) specified liquid assets up to 20% of total assets,
(b) goodwill and other intangible assets, and (c) the value of property used to
conduct the association's business. "Qualified thrift investments" includes
various types of loans made for residential and housing purposes, investments
related to such purposes, including certain mortgage-backed and related
securities, and loans for personal, family, household and certain other
purposes up to a limit of 20% of an association's portfolio assets. Recent
legislation broadened the scope of "qualified thrift investments" to include
100% of an institution's credit card loans, education loans, and small business
loans. A savings association may also satisfy the QTL test by qualifying as a
domestic building and loan association" as defined in the Internal Revenue Code
of 1986. As of March 31, 1998, the Bank had met the Qualified Thrift Lender
test in the requisite months and expects to continue to operate as a Qualified
Thrift Lender in the future.

<PAGE> 18

      A savings association that fails the QTL test must either operate under
certain restrictions on its activities or convert to a bank charter. The
initial restrictions include prohibitions against (a) engaging in any new
activity not permissible for a national bank, (b) paying dividends not
permissible under national bank regulations, (c) obtaining new advances from
any Federal Home Loan Bank and (d) establishing any new branch office in a
location not permissible for a national bank in the association's home state.
In addition, within one year of the date that a savings association ceases to
meet the QTL test, any company controlling the association would have to
register under, and become subject to the requirements of, the Bank Holding
company Act of 1956, as amended (the "BHC Act"). If the savings association
does not requalify under the QTL test within the three-year period after it
failed the QTL test, it would be required to terminate any activity and to
dispose of any investment not permissible for a national bank and would have to
repay as promptly as possible any outstanding advances from a Federal Home Loan
Bank. A savings association that has failed the QTL test may requalify under
the QTL test and be free of such limitations, but it may do so only once.

      Enforcement. The OTS, as the primary regulator of savings institutions,
is primarily responsible for the initiation and prosecution of any enforcement
action it may deem to be required, but the FDIC also has authority to impose
enforcement action independently after following certain procedures. Under
FIRREA, civil penalties are classified into three levels, with amounts
increasing with the severity of the violation.

      The OTS has the authority to impose enforcement action on a savings
institution that fails to comply with its regulatory requirements, particularly
with respect to its capital requirements. Possible enforcement actions include
the imposition of a capital plan and termination of deposit insurance. The FDIC
also may recommend that the Director of OTS take enforcement action. If action
is not taken by the Director, the FDIC would have authority to compel such
action under certain circumstances.

      Capital Requirements. Each of the three capital standards applicable to
savings institutions is discussed separately below.

      Tangible Capital Requirement. Each savings institution is required to
maintain tangible capital equal to at least 1.5% of its adjusted total assets.
Tangible capital includes common stockholders' equity (including retained
earnings), certain noncumulative perpetual preferred stock and related surplus,
and minority interests in the equity accounts of fully consolidated
subsidiaries. In computing tangible capital, intangible assets must, in
general, be deducted from an institution's assets and capital, and mortgage
servicing rights may be included within certain limitation on amount if the
rights satisfy certain requirements. In determining compliance with capital
requirements, equity and debt investments in subsidiaries that are not
"includable subsidiaries," which term includes subsidiaries engaged solely in
activities permissible for a national bank, in activities only as an agent for
its customers, or in mortgage-banking activities, are excluded from an
institution's assets and capital. At March 31, 1998, the Bank had no
investments in or extensions of credit to nonincludable subsidiaries, and its
tangible capital amounted to approximately $5,127,000 or 8.15% of its adjusted
total assets.

<PAGE> 19

      Core Capital Requirements. Capital requirements also require core capital
equal to at least 4% of an institution's adjusted total assets. Core capital is
defined similarity to tangible capital, but core capital also includes certain
qualifying supervisory goodwill and certain purchased credit card
relationships. At March 31, 1998, the Bank had no supervisory goodwill and the
Bank's core capital amounted to approximately $5,127,000 or 8.15% of its
adjusted total assets.

      Risk-Based Capital Requirement. Each savings institution is also required
to maintain total capital equal to at least 8 % of its risk-weighted assets.
Total capital consists of the sum of core capital and supplementary capital,
provided that supplementary capital cannot exceed core capital, as previously
defined.

      Supplementary capital includes (i) permanent capital instruments such as
cumulative perpetual preferred stock, perpetual subordinated debt, and
mandatory convertible subordinated debt, (ii) maturing capital instruments such
as subordinated debt, intermediate-term preferred stock and mandatory
redeemable preferred stock, subject to an amortization schedule, and (iii)
general valuation loan and lease loss allowances up to 1.25% of risk-weighted
assets.

      In computing both assets and total capital for purposes of the risk-based
capital ratio, the portion of land loans and nonresidential construction loans
in excess of an 80 % loan-to-value ratio and non-qualifying equity investments
are each deducted. At March 31, 1998, the Bank had no non-qualifying equity
investments, excess land loans or nonresidential construction loans.

      The risk-based capital regulation assigns each balance sheet asset held
by a savings institution to one of four risk categories, which are based on the
amount of credit risk associated with that particular class of assets. Assets
excluded for purposes of calculating capital are excluded in calculating
risk-weighted assets. The risk categories range from 0% for assets such as cash
and securities issued by or backed by the full faith and credit of, the U.S.
Government to 100% for assets such as consumer loans, repossessed assets or
assets more than 90 days past due, and certain equity investments that have the
same risk characteristics as foreclosed as determined by the OTS. Qualifying
residential mortgage loans and qualifying residential construction loans are
assigned a 50% risk weight, while non-qualifying residential mortgage loans and
that portion of land loans and nonresidential construction loans that do not
exceed an 80% loan-to-value ratio are assigned 100% risk weight.

      The book value of assets in each risk category is multiplied by the
weighing factor (from 0% to 100%) assigned to that category. These products are
then totaled to arrive at total risk-weighted assets. Off-balance sheet items
are included in risk-weighted assets by converting them to an approximate
balance sheet "credit equivalent amount" based on a conversion schedule. The
credit equivalent amounts are then assigned to risk categories in the same
manner as balance sheet assets and included in risk-weighted assets.

      At March 31, 1998, the Bank's total capital amounted to approximately
$5,474,000 or 14.83% of its total risk-weighted assets.

<PAGE> 20

      When determining its compliance with the risk-based capital requirement,
a savings institution with "above normal" interest rate risk is required to
deduct a portion of its total capital to account for any "above normal"
interest rate risk. An institution's interest rate risk is a measure of the
potential percentage decline in the economic value of its portfolio equity
resulting from a hypothetical 200 basis point increase or decrease in interest
rates (whichever change results in the greater decline). A savings association
whose measured interest rate risk exceeds 2% would be considered to have "above
normal" risk. The amount to be deducted from capital is an amount equal to 50%
of its "excess" interest rate risk exposure (the percentage in excess of 2%)
multiplied by the estimated economic value of its total assets. While the
effective date of the interest rate risk requirement was January 1, 1994, the
OTS has indefinitely deferred implementation of the interest rate risk
deduction. The OTS continues to monitor the interest rate risk of individual
institutions and retains the right to impose additional capital requirements on
individual institutions. The Bank remains in compliance with its risk-based
capital requirements as would be adjusted by the interest-rate risk component.

      The following table sets forth the various components of the regulatory
capital for the Bank at March 31, 1998.

<TABLE>
<CAPTION>
                          Minimum Required           Actual             Excess
                          -----------------    -------------------    ----------

<S>                       <C>    <C>           <C>      <C>           <C>
Tangible Capital          1.5%   $  944,000     8.15%   $5,127,000    $4,183,000
Tier 1 (Core) Capital     4.0%   $2,517,000     8.15%   $5,127,000    $2,610,000
Risk-based Capital        8.0%   $2,953,000    14.83%   $5,474,000    $2,521,000
</TABLE>

      Dividends. OTS regulations impose limitations on the ability of savings
institutions to engage in various distributions of capital such as dividends,
stock repurchases and cash-out mergers. The regulation utilizes a three-tiered
approach that permits various levels of distributions based primarily upon a
savings institution's capital level.

      A savings institution that has capital in excess of all applicable
regulatory capital requirements is considered to be a Tier 1 savings
institution, and it may make capital distributions during a calendar year
without applying for regulatory approval in an aggregate amount up to (a) 100%
of its net income to date during the calendar year plus the amount that would
reduce by one-half its surplus capital ratio at the beginning of the calendar
year or (b) 75% of its net earnings for the previous four quarters. Capital
distributions in excess of such amount require advance approval from the OTS.
Other law prohibits insured depository institutions, such as the Bank, from
making any capital distribution if, after such distribution, the institution
would fail to meets its minimum capital requirements.

      Insurance of Deposits. The Bank is a member of the SAIF, and the Bank
pays its deposit insurance assessments to the SAIF. The FDIC also maintains
another insurance fund, the Bank Insurance Fund (the "BIF"), which primarily
insures the deposits of banks and state chartered savings banks.

<PAGE> 21

      Pursuant to FDICIA, the FDIC established a new risk-based assessment
system for determining the deposit insurance assessments to be paid by insured
depository institutions. Under the assessment system, the FDIC assigns an
institution to one of three capital categories based on the institution's
financial information as of the reporting period ending seven months before the
assessment period. The three capital categories consist of (a) well
capitalized, (b) adequately capitalized, or (c) undercapitalized. The FDIC also
assigns an institution to one of three supervisory subcategories within each
capital group. The supervisory subgroup to which an institution is assigned is
based on a supervisory evaluation provided to the FDIC by the institution's
primary federal regulator and information that the FDIC determines to be
relevant to the institution's financial condition and the risk posed to the
deposit insurance funds. An institution's assessment rate depends on the
capital category and supervisory category to which it is assigned. Under the
regulation, there are nine assessment risk classifications (i.e., combinations
of capital groups and supervisory subgroups) to which different assessment
rates are applied. Assessment rates currently range from 0.0% of deposits for
an institution in the highest category (i.e., well-capitalized and financially
sound, with no more than a few minor weaknesses) to 0.27% of deposits for an
institution in the lowest category (i.e., undercapitalized and substantial
supervisory concern). The FDIC is authorized to raise the assessment rates as
necessary to maintain the required reserve ratio of 1.25%. As a result of the
Deposit Insurance Funds Act of 1996 (the "Funds Act"), both the BIF and the
SAIF currently satisfy the reserve ratio requirement. If the FDIC determines
that assessment rates should be increased, institutions in all risk categories
could be affected. The FDIC has exercised this authority several times in the
past and could raise insurance assessment rates in the future. If such action
is taken by the FDIC, it could have an adverse effect on the earnings of the
Bank.

      The Funds Act also amended the FDIA to expand the assessment base for the
payments on the FICO bonds. Beginning January 1, 1997, the assessment base for
the FICO bonds included the deposits of both BIF- and SAIF- insured
institutions. Until December 31, 1999, or such earlier date on which the last
savings association ceases to exist, the rate of assessment for BIF- assessable
deposits shall be one-fifth of the rate imposed on SAIF-assessable deposits.
The annual rate of assessments for the payments on the FICO bonds for the
semi-annual period beginning on January 1, 1997 was 0.0130% for BIF-assessable
deposits and 0.0648% for SAIF-assessable deposits. For the semi-annual period
beginning on July 1, 1997, the rates of assessment for the FICO bonds was
0.0126% for BIF-assessable deposits and 0.0630% for SAIF-assessable deposits.

      The Funds Act also provides for the merger of the BIF and SAIF on January
1, 1999, with such merger being conditioned upon the prior elimination of the
thrift charter. The Funds Act required the Secretary of the Treasury to conduct
a study of relevant factors with respect to the development of a common charter
for all insured depository institutions and abolition of separate charters for
banks and thrifts and to report the Secretary's conclusions and findings to the
Congress. The Secretary of the Treasury recommended to the Congress that the
separate charter for thrifts be eliminated only if other legislation is adopted
that permits bank holding companies to engage in certain non-financial
activities. Absent legislation permitting bank holding companies to engage in
such non-financial activities, the Secretary of the Treasury recommended that
the thrift charter be retained. Other legislation has been introduced in
Congress to eliminate the federal thrift charter, but the future of such
legislation is uncertain.

<PAGE> 22

      Under the FDI Act, insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engaged in unsafe or unsound practices,
is in an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
OTS. The management of the Bank does not know of any practice, condition or
violation that might lead to termination of deposit insurance.

      An insured institution is subject to periodic examination, and regulators
may revalue the assets of an institution, based upon appraisals, and require
establishment of specific reserves in amounts equal to the difference between
such revaluation and the book value of the assets. SAIF insurance of deposits
may be terminated by the FDIC, after notice and hearing, upon a finding by the
FDIC that a savings institution has engaged in an unsafe or unsound practice,
or is in unsafe or unsound condition to continue operations, or has violated
any applicable law, regulation, rule, order or condition imposed by the OTS or
the FDIC. Management of the Bank is not aware of any practice, condition or
violation that might lead to termination of its deposit insurance.

Year 2000

      The Holding Company has conducted a review of its computer systems to
identify the systems that could be affected by the "Year 2000" issue and has
developed a plan to resolve the issue. The Year 2000 issue is the result of
computer programs being written using two digits rather than four to define the
applicable year. Any of the Holding Company's programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a major system failure or miscalculations. The
Holding Company has adopted the regulatory plan that has five phases:

1)    Awareness Phase - This phase consists of defining the Year 2000 problem
      and developing a strategy that encompasses all of the bank's and our
      vendor's systems. This phase has been completed by the institution.

2)    Assessment Phase - This phase consists of assessing the Year 2000 problem
      and detailing the steps necessary to address the issue. This phase must
      identify all software, hardware, other miscellaneous items, and customer
      and vendor interdependencies affected by the Year 2000 issue. This phase
      also sets a timeline and responsibilities for each section of the plan.
      While this phase is largely complete management recognizes that other
      issues could arise that would need to be assessed.

3)    Renovation Phase - This phase includes upgrades to hardware and software,
      system upgrades, vendor certifications, and other associated changes. For
      those applications handled by an outside vendor management has had
      ongoing discussions about how they are addressing this issue, and we will
      continue to monitor their progress. The Holding Company plans on having
      this phase completed by December 31, 1998.

4)    Validation Phase - This phase consists of testing all hardware and
      software to ensure that it is compatible with our systems. Management
      will also be testing systems and data files that are 

<PAGE> 23

      supplied by vendors and will monitor their testing on an on-going basis.
      The Holding Company anticipates having this phase completed by March 31,
      1999.

5)    Implementation Phase - During the final phase all systems should be
      certified as Year 2000 compliant. Any systems that fail certification
      must be addressed and contingency plans must be implemented to ensure
      continuity. In addition, all new systems and changes to existing systems
      must be verified as Year 2000 compliant. The Holding Company anticipates
      completion of this phase by June 30, 1999.

      The Holding Company presently believes that because of the conversion to
new software in fiscal 1997, the year 2000 problem will not pose significant
operational problems for the Holding Company's and the Bank's computer systems
or material costs to be incurred. Also, the Bank's loan portfolio is not
significantly concentrated with any single borrower (at March 31, 1998, the
largest commercial loan relationship was $604,951) and consists largely of
loans secured by real estate. These factors help mitigate year 2000 risks
pertaining to the valuation of the loan portfolio. The Bank is currently
contacting its significant loan customers regarding their Year 2000 status and
plans. The Holding Company does not anticipate any material concerns regarding
other customers or vendors. It should also be noted that the Bank' regulatory
agency, the Office of Thrift Supervision, has been monitoring, and plans to
continue monitoring, the Bank's progress in addressing year 2000 matters.

<PAGE> 24

                                   TAXATION

Federal Taxation

      General. The Holding Company and the Bank will report their income on the
basis of a taxable year ending March 31 using the accrual method of accounting
and will be subject to federal income taxation in the same manner as other
corporations with some exceptions. The following discussion of tax matters is
intended only as a summary and does not purport to be a comprehensive
description of the tax rules applicable to the Bank or the Holding Company.

      Recent Tax Legislation Regarding Tax Bad Debt Reserves. Prior to the
enactment, on August 20, 1996, of the Small Business Job Protection Act of 1996
(the "Small Business Act"), for federal income tax purposes, thrift
institutions such as the Bank, which met certain definitional tests primarily
relating to their assets and the nature of their business, were permitted to
establish tax reserves for bad debts and to make annual additions thereto,
which additions could, within specified limitations, be deducted in arriving at
their taxable income. The Bank's deduction with respect to "qualifying loans,"
which are generally loans secured by certain interests in real property, could
be computed using an amount based on a six-year moving average of the Bank's
actual loss experience (the "Experience Method"), or a percentage equal to 8.0%
of the Bank's taxable income (the "PTI Method"), computed without regard to
this deduction and with additional modifications and reduced by the amount of
any permitted addition to the non-qualifying reserve.

      Under the Small Business Act, the PTI Method was repealed and the Bank,
as a "small bank" (one with assets having an adjusted basis of $500 million or
less), is required to use the Experience Method of computing additions to its
bad debt reserve for taxable years beginning with the Bank's taxable year
beginning April 1, 1996. In addition, the Bank will be required to recapture
(i.e., take into taxable income) over a six-year period, beginning with the
Bank's taxable year beginning April 1, 1996, the excess of the balance of its
bad debt reserves (other than the supplemental reserve) as of March 31, 1996
over the greater of (a) the balance of its "base year reserve," i.e., its
reserves as of March 31, 1988 or (b) an amount that would have been the balance
of such reserves as of March 31, 1996 had the Bank always computed the
additions to its reserves using the Experience Method. However, such recapture
requirements were suspended for each of the two successive taxable years
beginning April 1, 1996 in which the Bank originates a minimum amount of
certain residential loans during such years that is not less than the average
of the principal amounts of such loans made by the Bank during its six taxable
years preceding April 1, 1996. Since the Bank has already provided a deferred
income tax liability related to this for financial reporting purposes, there
will be no adverse impact to the Bank's financial condition or results of
operations from the enactment of this legislation.

      Distributions. To the extent that the Bank makes "nondividend
distributions" to shareholders, such distributions will be considered to 
result in distributions from the Bank's base year reserve and then from its
supplemental reserve for losses on loans, and an amount based on the amount
distributed will be included in the Bank's taxable income. Nondividend
distributions include distributions in excess of the Bank's current and
accumulated earnings and profits, distributions in redemption of stock and
distributions in partial or complete liquidation. However, dividends paid 

<PAGE> 25

out of the Bank's current or accumulated earnings and profits, as calculated 
for federal income tax purposes, will not constitute nondividend distributions
and, therefore, will not be included in the Bank's income.

      The amount of additional taxable income created from a nondividend
distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Thus, approximately one and
one-half times the nondividend distribution would be includable in gross income
for federal income tax purposes, assuming a 34% federal corporate income tax
rate. The Bank does not intend to pay dividends that would result in a
recapture of any portion of its tax bad debt reserve.

      Corporate Alternative Maximum Tax. The Internal Revenue Code (the "Code")
imposes a tax on alternative minimum taxable income ("AMTI") at a rate of 20% .
Only 90% of AMTI can be offset by net operating losses. AMTI is also adjusted
by determining the tax treatment of certain items in a manner that negates the
deferral of income resulting from the regular tax treatment of those items.
Thus, the Bank's AMTI is increased by an amount equal to 75% of the amount by
which the Bank's adjusted current earnings exceeds its AMTI (determined without
regard to this adjustment and prior to reduction for net operating losses). The
Bank does not expect to be subject to the AMT.

      Dividends-Received Deduction and Other Matters. The Holding Company may
exclude from its income 100% of dividends received from the Bank as a member of
the same affiliated group of corporations. The corporate dividends-received
deduction is generally 70% in the case of dividends received from unaffiliated
corporations with which the Holding Company and the Bank will not file a
consolidated tax return, except that if the Holding Company or the Bank owns
more than 20% of the stock of a corporation distributing a dividend, then 80%
of any dividends received may be deducted.

      The Bank's federal income tax returns were audited by the IRS for the
years ended March 31, 1992 and 1993.

Maine State Taxation

      The State of Maine imposes a franchise tax on banks, such as Waldoboro,
doing business in Maine. The tax is comprised of two components. The first
component is a 1% tax on Maine net income as reported on such bank's federal
income tax return. The amount represents net book income after reduction for
federal and state income and franchise taxes. The second component is a tax of
$.08 per $1,000 of assets at the end of the year as reported on Schedule L of
the Bank's federal income tax return.

Forward Looking Statements

      Certain statements contained herein are not based on historical facts and
are "forward-looking statements" within the meaning of Section 21A of the
Securities Exchange Act of 1934. Forward-looking statements which are based on
various assumptions (some of which are beyond the 

<PAGE> 26

Company's control), may be identified by reference to a future period or 
periods, or by the use of forward-looking terminology, such as "may," "will," 
"believe," "expect," "estimate," "anticipate," "continue," or similar terms or 
variations on those terms, or the negative of these terms. Actual results 
could differ materially from those set forth in forward looking statements 
due to a variety of factors, including, but not limited to, those related to 
the economic environment, particularly in the market areas in which the 
company operates, competitive products and pricing, fiscal and monetary 
policies of the U.S. Government, changes in government regulations affecting 
financial institutions, including regulatory fees and capital requirements, 
changes in prevailing interest rates, acquisitions and the integration of 
acquired businesses, credit risk management, asset-liability management, the 
financial and securities markets and the availability of and costs associated
with sources of liquidity.

      The Company does not undertake, and specifically disclaims any
obligation, to publicly release the result of any revisions that may be made to
any forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.


Item 2. Description of Property

      The Holding Company neither owns nor leases any real property. It
presently uses the premises, equipment and furniture of Waldoboro without
direct payment of any rental fees to the Bank. The Bank conducts its business
out of its offices in Waldoboro, Rockland and Belfast. The office building in
Waldoboro is owned by the Bank and is a modern, full-service facility with
ample parking and a convenient location on U.S. Route 1. The Rockland office,
opened in May 1995 is a full service branch with ample parking. The facility is
located in a high traffic area on U.S. Route 1. The Belfast office which opened
May 20, 1998, is leased space, offering full service and is conveniently
located on U.S. Route 3.

      The following table sets forth certain information with respect to the
Bank's principal executive offices in Waldoboro and Rockland.

<TABLE>
<CAPTION>
          Location                Year Occupied/Opened     Owned(1)
----------------------------      --------------------     --------

<S>                                       <C>              <C>
Principal Executive Offices               1988             $783,028
1768 Atlantic Highway
P.O. Box 589
Waldoboro, Maine

Rockland Branch Office                    1995             $440,776
73 Camden Street
P.O. Box 669
Rockland, Maine

<FN>
--------------------
<F1>   Includes the building and land net of depreciation.
</FN>
</TABLE>

<PAGE> 27

Item 3. Legal Proceedings

      From time to time, the Holding Company and the Bank are involved in
routine litigation stemming from the operations of the Bank. During the fiscal
year ended March 31, 1998, however, there was no material litigation pending to
which the Holding Company or the Bank was a party or of which the property of
the Holding Company or the Bank was the subject.


Item 4. Submission of Matters to a Vote of Security Holders

      During the fourth quarter of fiscal year ended March 31, 1998, there was
no matter that was submitted to a vote of the stockholders.

<PAGE> 28

PART II

Item 5. Market for Common Equity and Related Stockholder Matters

      On March 31, 1998, there were 711,960 shares of the Holding Company's
Common Stock outstanding held by approximately 395 holders of record. Also at
such date, the Holding Company had granted options to purchase 12,246 shares of
the Holding Company's Common Stock.

      The following table shows market price information for the Holding
Company's Common Stock. The prices set forth below represent the high and low
bid prices of the Holding Company's stock during the periods indicated. Such
over the counter market quotations reflect inter-dealer prices, without retail
markup, mark-down or commission and may not necessarily represent actual
transactions. The Holding Company's common stock is traded on the Nasdaq
SmallCap Market under the symbol "MCBN."

<TABLE>
<CAPTION>
                                                Cash
                                              Dividends
                                              Paid per
   Quarter Ended         High(1)    Low(1)    Share(1)
-------------------      -------    ------    ---------

<S>                      <C>        <C>        <C>
March 31, 1996           $ 6.67     $ 5.83     $  ----
June 30, 1996              6.67       6.00       0.083
September 30, 1996         6.67       6.00        ----
December 31, 1996          6.33       6.25       0.086

March 31, 1997             6.33       6.33        ----
June 30, 1997              6.50       6.17       0.086
September 30, 1997         9.33       7.00        ----
December 31, 1997         10.83       8.83       0.086

March 31, 1998           $14.00     $12.83     $  ----

<FN>
--------------------
<F1>  All figures adjusted to reflect 3 for 1 stock split that took effect in
      1998.
</FN>
</TABLE>

      On April 14, 1998 the Holding Company declared a dividend of $.10 per
share to Stockholders of record on June 1, 1998 and payable June 30, 1998. See
"Regulation - Dividends" for information about the Holding Company's ability to
pay dividends.

<PAGE> 29

Item 6. Management's Discussion and Analysis.

      Management's Discussion and Analysis, on Pages 2 through 12 of the 1998
Annual Report to Shareholders for the year ended March 31, 1998, is
incorporated herein by reference.


Item 7. Financial Statements.

      See Item 13 for index to Financial Statements which are incorporated by
reference from pages F-1 through F-28 of the 1998 Annual Report to
Shareholders.


Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

      Not applicable.


PART III


Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.

      The following information included on pages 4, 5, 7 and 8 of the Holding
Company's Proxy Statement for the 1998 Annual Meeting of Shareholders (the
"Proxy Statement") is incorporated herein by reference: "Proposal 1- Election
of Directors," "Directors Who Will Continue in Office After the Meeting,"
"Executive Officers Who Are Not Directors" and "Compliance with Section 16(a)
of the Act."


Item 10. Executive Compensation.

      The following information included on pages 6 through 13 of the Proxy
Statement is incorporated herein by reference: "The Board of Directors and Its
Committees," "Executive Compensation," "Employment Agreement," "Pension Plan,"
"401(k) Plan," "Stock Option Plan" and "Recognition and Retention Plan."


Item 11. Security Ownership of Certain Beneficial Owners and Management.

      Information regarding security ownership of certain beneficial owners and
management on Pages 2 and 3 of the Proxy Statement dated June 5, 1998 is
incorporated herein by reference


Item 12. Certain Relationships and Related Transactions.

      Information regarding certain relationships and related transactions on
Page 9 of the Proxy Statement dated June 5, 1998 is incorporated herein by
reference.

<PAGE> 30

Item 13. Exhibits.

      A)    1)    The following financial statements, the report thereon and
                  notes thereto, which follow, are incorporated by reference in
                  Item 7 and are incorporated by reference herein from the
                  Holding Company's 1998 Annual Report to Stockholders:

<TABLE>
<CAPTION>
                                                                       Pages in
                                                                    Annual Report
                                                                    -------------

<S>                                                                   <C>
Report of Independent Auditors                                              F-1

Consolidated Balance Sheets, March 31, 1998 and 1997                   F-2--F-3

Consolidated Statements of Income, Years Ended March 31, 1998,
 1997 and 1996                                                              F-4

Consolidated Statements of Changes in Stockholders' Equity, Years
 Ended March 31, 1998, 1997 and 1996                                        F-5

Consolidated Statements of Cash Flows, Years Ended March 31, 1998,
 1997 and 1996                                                         F-6--F-7

Notes to Consolidated Financial Statements                            F-8--F-28
</TABLE>


            2)    The Holding Company did not file any reports on Form 8-K
                  during the last quarter of the period covered by this report.


Exhibit No.
-----------

    3(i)     Certificate of Incorporation (previously filed on June 26, 1996 as
             an exhibit to the Holding Company's Form 10-KSB for the year ended
             March 31, 1996, and incorporated herein by reference).

    3(ii)    Bylaws (previously filed on June 26, 1996 as an exhibit to the
             Holding Company's Form 10-KSB for the year ended March 31, 1996,
             and incorporated herein by reference).

   10.1      Employment Agreement dated May 18, 1993 between Wesley E.
             Richardson, the Holding Company and the Bank (previously filed on
             June 26, 1996 as an exhibit to the Holding Company's Form 10-KSB
             for the year ended March 31, 1996, and incorporated herein by
             reference).

<PAGE> 31

   13        Annual Report to the Shareholders for the year ended March 31,
             1998.

   21        Subsidiaries of Issuer (previously filed on June 26, 1996 as an
             exhibit to the Holding Company's Form 10-KSB for the year ended
             March 31, 1996 and incorporated herein by reference).

   23        Consent of Baker Newman & Noyes, L.L.C.

   27        Financial Data Schedules, including restated previously filed
             Financial Data Schedules.

<PAGE> 32

                                  SIGNATURES
                                  ----------

      In accordance with the requirements of The Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, there
unto duly authorized.

                                      MID-COAST BANCORP, INC.


June 26, 1998                         By: /s/ WESLEY E. RICHARDSON
                                          -------------------------------------
                                          Wesley E. Richardson, President,
                                          Chief Executive Officer and Treasurer


      Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
          Signatures                               Title                         Date
------------------------------      -----------------------------------      -------------


<S>                                 <C>                                      <C>
By: /s/ WESLEY E. RICHARDSON        President, Chief Executive Officer,      June 26, 1998
    --------------------------      Treasurer and Director
        Wesley E. Richardson


By: /s/ WAITE W. WESTON             Director and Chairman                    June 26, 1998
    --------------------------
        Waite W. Weston


By: /s/ ROBERT W. SPEAR             Director and Vice Chairman               June 26, 1998
    --------------------------
        Robert W. Spear


By:                                 Director                                 June 26, 1998
    --------------------------
    Sharon Crowe


By: /s/ DONALD DOLLOFF              Director                                 June 26, 1998
    --------------------------
        Donald Dolloff


By: /s/ SAMUEL COHEN                Director                                 June 26, 1998
    --------------------------
        Samuel Cohen


By:                                 Director                                 June 26, 1998
    --------------------------
    Lincoln Orff
</TABLE>


<PAGE> 33