To Our Shareholders:

      Fiscal year 1997 was one of overall improvement for the Company. Over the
course of the year, our new Rockland branch reached $6.5 million in deposits
and contributed heavily to our loan growth. We believe such enhancements
increase our franchise value and will translate into future profits, ultimately
providing added value for our shareholders. Although we are pleased with these
accomplishments, we intend to strive for even greater success over the next
year.

      Results of operations show net income was $242,775 at the March 31, 1997
year end, as compared to $303,447 at the previous year end. This decrease
reflects a one-time charge of $241,299 paid by the Bank to recapitalize the
Savings Association Insurance Fund ("SAIF"). Had the Bank not been required to
pay the one-time SAIF assessment, net income would have reached $394,388, or an
increase of 30% from the previous fiscal year. As a result of this payment,
future FDIC assessments will likely be reduced from 23 cents per $100 in
deposits to roughly 6.5 cents per $100 in deposits. At March 31, 1997, assets
had grown to $58,925,368, or an increase of 8.39% from the same period one year
earlier. Shareholder equity increased to $5,075,545, or 8.61% of assets,
resulting in a book value of $21.93 per share.

      Total loans increased just over 15% during the past fiscal year. Despite
increased loan balances, non-accrual loan balances improved as did unrecognized
accrued interest. We believe our loan quality is excellent and remain committed
to maintain quality underwriting standards enhanced by in-depth loan review
procedures.

      During the past year one of the Bank's goals was to position itself as a
leader in technology. Through commitment and hard work, our staff has
substantially completed the Bank's conversion to what may be regarded as a
state-of-the-art banking operation. We are convinced that the newly implemented
advanced hardware and software system is imperative in providing competitive
banking products and services to our present and future customers. The market
for such products and services has become highly competitive as non-bank
entities such as insurance companies, brokerage houses, mortgage lending
companies, and retail outlets are vying for the same customer base. It is our
belief that our enhanced ability to provide better information to management
with greater efficiency gives us a competitive edge to continue to market our
products and services to our present and future customers, providing a major
step toward growth and continued profitability.

      Looking ahead we see the local economy growing at the current rate during
most of the upcoming fiscal year. We therefore expect continued strong loan
demand while gains in deposits are expected to be slow. Deposit growth in banks
on a national basis has been slow for the past several years mostly due to
competitive pressure from other investment vehicles for consumers.

      On behalf of the Board of Directors, I would like to express my sincere
thanks to all our management and staff for their continued dedication
throughout the past fiscal year. To our shareholders, I remain greatly
appreciative of your commitment and support of Mid-Coast Bancorp, Inc.


                                        Sincerely,

                                        MID-COAST BANCORP, INC.


                                        /s/ WESLEY E. RICHARDSON
                                        Wesley E. Richardson
                                        President and Chief Executive Officer



                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


                                  INTRODUCTION

      Management is pleased to present the following discussion and analysis of
the financial condition and results of operations of Mid-Coast Bancorp, Inc.
(the "Holding Company").

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

      The following tables set forth selected consolidated financial and other
data of the Holding Company at the dates and for the periods indicated and
should be read in conjunction with the Holding Company's Consolidated Financial
Statements and accompanying notes thereto and other financial information
included elsewhere herein.

<TABLE>
<CAPTION>
                                                             At March 31,
                                     -------------------------------------------------------------------
                                        1997          1996          1995           1994         1993
                                     -----------   -----------   -----------   -----------   -----------

<S>                                  <C>           <C>           <C>           <C>           <C>
Financial condition data:
  Loans, net                         $48,979,032   $42,465,559   $43,358,622   $42,746,098   $39,588,746
  Other interest-earning assets        6,523,454     9,422,891     7,125,838     5,381,549     5,840,037
  Total assets                        58,925,368    54,362,066    52,749,000    49,685,023    47,013,510
  Deposits                            42,180,698    41,816,902    37,121,110    35,023,932    36,564,259
  Borrowings                          11,440,000     7,465,000    10,715,000    10,215,000     6,475,000
  Stockholders' equity               $ 5,075,545   $ 4,926,077   $ 4,722,596   $ 4,297,094   $ 3,831,657

<CAPTION>
                                                        For the Years Ended March 31,
                                     -------------------------------------------------------------------
                                        1997          1996          1995           1994         1993
                                     -----------   -----------   -----------   -----------   -----------

<S>                                  <C>           <C>           <C>           <C>           <C>
Operating data:
  Interest income                    $ 4,588,646   $ 4,389,689   $ 3,939,940   $ 3,728,547   $ 3,774,885
  Interest expense                     2,436,580     2,485,256     2,007,051     1,904,185     2,083,137
                                     -------------------------------------------------------------------
  Net interest income                  2,152,066     1,904,433     1,932,889     1,824,362     1,691,748
  Provision for loan losses               87,000        62,010        81,000       140,000        91,707
  Other income                           235,021       183,277       157,268       181,717       131,886
  Other expense                        1,913,379     1,565,259     1,293,308     1,167,565     1,118,995
                                     -------------------------------------------------------------------
  Income before income taxes             386,708       460,441       715,849       698,514       612,932
  Income tax expense                     143,933       156,994       248,474       232,462       241,781
                                     -------------------------------------------------------------------
  Income before accounting change        242,775       303,447       467,375       466,052       371,151
  Change in accounting (1)                    --            --            --        47,000            --
                                     -------------------------------------------------------------------
  Net income                         $   242,775   $   303,447   $   467,375   $   513,052   $   371,151
                                     -------------------------------------------------------------------
  Earnings per share (2)
  Income before accounting change    $      1.06   $      1.33   $      2.07   $      2.11   $      1.69
  Change in accounting (1)                    --            --            --           .21            --
                                     -------------------------------------------------------------------
  Net income per share               $      1.06   $      1.33   $      2.07   $      2.32   $      1.69
                                     -------------------------------------------------------------------

<CAPTION>
                                                        For the Years Ended March 31,
                                     -------------------------------------------------------------------
                                        1997          1996          1995           1994         1993
                                     -----------   -----------   -----------   -----------   -----------

<S>                                  <C>           <C>           <C>           <C>           <C>
Statistical data (3):
  Interest rate spread                   3.67%         3.30%         3.56%          3.53%        3.63%
  Net yield on average earning
   assets                                4.07%         3.68%         3.88%          3.83%        3.98%
  Return on average assets               0.43%         0.56%         0.90%          1.04%        0.84%
  Return on average equity               4.74%         6.28%        10.38%         12.54%       10.15%
  Average equity to average assets       9.12%         8.92%         8.67%          8.27%        8.24%
  Dividend payout ratio                 48.27%        35.30%        18.50%         11.92%        8.24%

<FN>
--------------------
<F1>   Represents cumulative effect of adoption of FASB Statement No. 109-"
       Accounting For Income Taxes."

<F2>   All years restated to reflect 3% stock dividend in 1993 and 5% stock
       dividend in 1996.

<F3>   Average balances were computed using month end amounts.
</FN>
</TABLE>


GENERAL

      The following discussion should be read in conjunction with the
consolidated financial statements and related notes included in this report.
The financial condition and results of operations of the Holding Company
reflect the operations of its subsidiary, The Waldoboro Bank, F.S.B. (the
"Bank").

      The Holding Company's net income depends largely upon net interest income
of the Bank, which is the difference between interest income from loans and
investments (interest-earning assets) and interest expense on deposits and
borrowed funds (interest-bearing liabilities). Net interest income is
significantly affected by general economic conditions, policies established by
regulatory authorities and competition. Other factors having a major impact on
net income include the provision for possible loan losses, gains and losses on
sales of loans, and operating expenses. The Bank seeks to reduce the
vulnerability of its operations to changes in interest rates, its interest rate
exposure, by managing the nature and composition of the Bank's interest-earning
assets and interest-bearing liabilities.

      On September 30, 1996, the Deposit Insurance Funds Act of 1996 (the
"Funds Act") was enacted into law to recapitalize the Savings Association
Insurance Fund ("SAIF") and to reduce the disparity in the deposit insurance
assessment rates imposed on Bank Insurance Fund ("BIF") insured and
SAIF-insured institutions. To recapitalize SAIF, the Funds Act authorized the
FDIC to impose a special assessment on all institutions with SAIF-assessable
deposits. As implemented by the FDIC, the special assessment was fixed at
0.657% of an institution's SAIF-assessable deposits. For the Bank, a one-time
special assessment of $241,299 was charged to operations during the year ended
March 31, 1997 (before giving effect to any tax benefits).

      In view of the recapitalization of the SAIF, the FDIC reduced the annual
assessment rates for SAIF-assessable deposits for periods beginning on October
1, 1996. For the last quarter of 1996, the reduced annual assessment rates
ranged from 0.18% to 0.27% of deposits. Beginning with January 1, 1997, the
annual assessment rates are the same for both BIF-insured and SAIF-insured
institutions, and the annual assessment rates range from 0.0% to 0.27% of
deposits. The Bank expects its assessment rate for the upcoming fiscal year to
be 0.065%.

      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 the abolition of separate charters
for banks and thrifts and to report the Secretary's conclusions and the
findings to the Congress. The Secretary of the Treasury has recommended 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 such non-financial activity, the
Secretary of the Treasury recommended retention of the thrift charter. Other
proposed legislation has been introduced in Congress that would require thrift
institutions to convert to bank charters.

FINANCIAL CONDITION

      Total assets at March 31, 1997 were $58,925,368, an increase of
$4,563,302 from March 31, 1996. Asset increases include $408,859 in cash and
cash equivalents, $1,353,689 in investments available for sale and $6,513,473
in net loans. These increases were partially offset by decreases of $692,101 in
time deposits, $2,397,453 in investment securities held to maturity, $218,323
in mortgage-backed securities held to maturity and $494,079 in loans held for
sale. Changes in levels of investments from those held to maturity to those
available for sale reflect the reinvestment of maturing securities into
investments classified as available for sale. During the year the Bank utilized
Federal Home Loan Bank ("FHLB") borrowings to fund the Bank's loan growth, due
in part to the more favorable rates paid on these borrowings relative to the
Bank's deposits.

      The Bank had, as of March 31, 1997, a net loan portfolio of $48,979,032,
representing 83% of total assets. Stockholders' equity at year end was
$5,075,545, an increase of $149,468 from March 31, 1996, primarily as a result
of 1997 net income after dividends. As discussed under "Liquidity and Capital
Resources," the Bank's capital is substantially in excess of all applicable
regulatory requirements.

ASSET/LIABILITY MANAGEMENT

      The goal of the Bank's asset/liability policy is to manage its exposure
to interest rate risk. The principal focus of the Bank's strategy has been to
reduce its exposure to interest rate fluctuations by matching more closely the
effective maturities and repricing dates of its assets and liabilities. In the
current interest rate environment the Bank's assets are more rate sensitive
than its liabilities. To that end, the Bank has focused its asset liability
strategy toward maintaining a high percentage of adjustable rate loans in its
residential and commercial mortgage portfolios. At March 31, 1997, the
adjustable rate loans in the residential mortgage loan portfolio amounted to
$28.5 million or 78.93% and adjustable rate loans in the commercial mortgage
portfolio amounted to $4.8 million or 75.87%. The Bank's strategy regarding
liabilities is to attempt to restructure its deposits by increasing NOW and
savings accounts and decreasing certificates of deposit. Currently,
certificates of deposit represent $25.6 million or 60.60% of the Bank's
deposits.

NONPERFORMING ASSETS

      A summary of nonperforming assets for the last three years is shown
below.

<TABLE>
<CAPTION>
                                                                 At March 31,
                                                     -----------------------------------
                                                       1997         1996         1995
                                                     ---------    ---------    ---------

<S>                                                  <C>          <C>          <C>
Nonaccrual loans:
  Mortgage loans in process of foreclosure           $      --    $ 160,919    $  93,859
  Loans more than 90 days past due                     145,466      214,419      213,633  
                                                     -----------------------------------

Total nonaccrual loans                                 145,466      375,338      307,492
Real estate owned, net                                  91,823      224,137      246,079
Loans to facilitate                                         --           --       44,246
                                                     -----------------------------------
Total nonperforming assets                           $ 237,289    $ 599,475    $ 597,817
                                                     ===================================
Ratio of nonaccrual loans to total loans                 0.29%        0.88%        0.70%
Ratio of nonperforming assets to total assets            0.40%        1.10%        1.13%
</TABLE>

      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 or interest. In these cases, interest on such loans is
recognized only when received. No interest is accrued on loans delinquent by
more than ninety days and all previously accrued but unpaid interest is
reversed for such loans.

      There were no loans delinquent more than ninety days but still accruing
interest at March 31, 1997, 1996 or 1995. Unrecognized interest income on loans
on non-accrual status at March 31, 1997 totaled $9,852. Had such loans been
accruing throughout the year, they would have accrued interest income of
$12,923.

      Management does not believe that any loans other than those represented
in the table above are potential problem loans at present.

AVERAGE BALANCE, INTEREST AND YIELD/RATES

      The following table presents average balances, yields and rates for major
classes of interest-earning assets and interest-bearing liabilities for the
periods indicated. Additionally, the table presents interest rate spreads and
ratios of net interest income to average interest-earning assets. All average
balances have been computed using month-end amounts. Non-performing loan
amounts have been included in average balances. Since the Holding Company has
had no significant investments or loans for which interest was exempt from
income taxes, no tax equivalent adjustments have been reflected.

<TABLE>
<CAPTION>
                                                     Year Ended March 31, 1997              Year Ended March 31, 1996
                                                -----------------------------------    -----------------------------------
                                                  Average                    Yield/      Average                    Yield/
                                                  Balance       Interest      Rate       Balance       Interest      Rate
                                                ------------   -----------   ------    ------------   -----------   ------

<S>                                             <C>            <C>            <C>      <C>            <C>            <C>
Interest-earning assets:
  Loans                                         $ 45,541,246   $ 4,155,451    9.12%    $ 43,936,151   $ 3,965,600    9.03%
  Interest bearing & time deposits                 1,753,805        98,718    5.63%       1,635,091        83,859    5.13%
  Federal funds sold                               1,461,338        76,435    5.23%       2,151,923       130,152    6.05%
  Investments & mortgage-backed securities         4,146,908       258,042    6.22%       4,055,173       210,078    5.18%
                                                -------------------------------------------------------------------------
Total interest-earning assets                     52,903,297     4,588,646    8.67%      51,778,338     4,389,689    8.48%

Other assets:
  Cash and due from banks                            870,617                                318,099
  Fixed assets                                     1,451,401                              1,392,605
  Other assets                                       893,917                                675,812
                                                ------------                           ------------
Total assets                                    $ 56,119,232                           $ 54,164,854
                                                ============                           ============

Interest-bearing liabilities:
  NOW, savings & money market accounts            13,218,258       394,708    2.99%      12,366,007       410,981    3.32%
  Certificates of deposit                         26,255,429     1,514,948    5.77%      26,334,638     1,561,752    5.93%
  Borrowings                                       9,226,284       526,924    5.71%       9,253,462       512,523    5.54%
                                                -------------------------------------------------------------------------------
Total interest-bearing liabilities                48,699,971     2,436,580    5.00%      47,954,107     2,485,256    5.18%

Other liabilities:
  Demand deposits                                  2,113,328                              1,149,086
  Other liabilities                                  187,113                                231,598
                                                ------------                           ------------
Total liabilities                                 51,000,412                             49,334,791

Stockholders' equity                               5,118,820                              4,830,063
                                                ------------                           ------------

Total liabilities and stockholders' equity      $ 56,119,232                           $ 54,164,854
                                                ============                           ============

                                                               -----------                            -----------
Net interest income                                            $ 2,152,066                            $ 1,904,433
                                                               ===========                            ===========
Interest rate spread                                                          3.67%                                  3.30%
Net interest income as a percentage of
 average interest-earning assets                                              4.07%                                  3.68%
</TABLE>

                              RATE/VOLUME ANALYSIS

      A significant contributor to the Holding Company's level of profitability
over the long term is its net interest income, which is a function of both the
interest rates it earns or pays and of the amount, or volume, of its
interest-earning assets and interest-bearing liabilities. The relative
significance that rate and volume have had in various periods on the Holding
Company's results of operations can be observed by measuring the extent to
which the change in each has been responsible for increases or decreases in net
interest income.

      The table below sets forth certain information regarding the changes in
the components of net interest income for the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (1) changes in rate (change
in rate multiplied by old volume) and (2) changes in volume (change in volume
multiplied by old rate). The net change attributable to both volume and rate
has been allocated proportionately.

<TABLE>
<CAPTION>
                                                  Year Ended March 31, 1997            Year Ended March 31, 1996
                                              ---------------------------------    ---------------------------------
                                                      Compared to 1996                     Compared to 1995
                                                     Increase (Decrease)                  Increase (Decrease)
                                              ---------------------------------    ---------------------------------
                                               Volume       Rate         Net        Volume       Rate         Net
                                              ---------   ---------   ---------    ---------   ---------   ---------

<S>                                           <C>         <C>         <C>          <C>         <C>         <C>
Interest on interest-earning assets:
  Loans                                       $ 146,093   $  43,758   $ 189,851    $  31,244   $ 345,759   $ 377,003
  Interest-bearing & time deposits                6,342       8,517      14,859       15,994       6,714      22,708
  Federal funds sold                            (37,395)    (15,922)    (53,717)      33,975      17,256      51,231
  Investments & mortgage-backed securities        4,849      43,115      47,964       34,158     (35,351)     (1,193)
                                              ----------------------------------------------------------------------
  Total Interest Income                       $ 119,489   $  79,468   $ 198,957    $ 115,371   $ 334,378   $ 449,749
                                              ----------------------------------------------------------------------

Interest on interest-bearing liabilities:
  Savings, NOW, & money market deposit 
   accounts                                      34,403     (50,676)    (16,273)      20,978      60,556      81,534
  Certificates of deposit                        (4,685)    (42,119)    (46,804)      95,954     285,961     381,915
  Borrowings                                     (1,500)     15,901      14,401      (45,688)     60,444      14,756
                                              ----------------------------------------------------------------------
  Total Interest Expense                         28,218     (76,894)    (48,676)      71,244     406,961     478,205
                                              ----------------------------------------------------------------------
NET INTEREST INCOME                           $  91,271   $ 156,362   $ 247,633    $  44,127   $ (72,583)  $ (28,456)
                                              ======================================================================
</TABLE>


                             RESULTS OF OPERATIONS

COMPARISON OF YEARS ENDED MARCH 31, 1997 AND 1996

NET INCOME

      Net income for the year ended March 31, 1997 amounted to $242,775, a
decrease of $60,672 or 20% as compared with $303,447 for the year ended March
31, 1996, primarily as a result of the one-time assessment of $241,299 paid to
recapitalize SAIF.

      Details of changes from the year ended March 31, 1997, from March 31,
1996, include an increase in total interest income of $198,957 or 4.53%, a
decrease in total interest expense of $48,676 or 1.96%, an increase in the
provision for loan losses of $24,990 or 40.30%, an increase in other income of
$51,744 or 28.23%, an increase in other expenses of $348,120 or 22.24%, due in
part to the one-time assessment of $241,299 paid to recapitalize SAIF,
mentioned previously, and an income tax expense decrease of $13,061 or 8.32%.


INTEREST INCOME

      Total interest income for the year ended March 31, 1997, increased
$198,957 or 4.53% to $4,588,646 from $4,389,689 for the year ended March 31,
1996. This increase is partially the result of increases in the yield on
adjustable rate mortgages due to periodic rate adjustments, increases in the
yield of secured consumer loans and an increased volume of commercial mortgage
loans. Additionally, other interest income, which is comprised of interest on
other interest-earning assets increased due to an increase in the yield on
those assets.


INTEREST EXPENSE

      Total interest expense for the year ended March 31, 1997, decreased
$48,676 or 1.96% to $2,436,580 from $2,485,256 for the year ended March 31,
1996. This decrease is caused primarily by decreased rates paid on deposits,
partially offset by an increase in the average balance of total
interest-bearing deposits and an increase on the rates on borrowings.


LOAN LOSS PROVISION

      The Bank has increased its provision for loan losses to $87,000 for the
year ended March 31, 1997, from $62,010 for the year ended March 31, 1996,
resulting in an allowance for loan losses of $295,457 at March 31, 1997, an
increase of $74,101 from the previous year. This increase is primarily due to
the increased origination of commercial mortgage loans by the Bank. Management
believes that the Bank's total allowance for losses on loans is adequate and
commensurate with the risks associated with the loan portfolio.


OTHER INCOME

      Other income consists primarily of fee income and gains on sales of
loans. Other income increased $51,744 or 28.23% to $235,021 for the year ended
March 31, 1997, from $183,277 for the year ended March 31, 1996. The increase
is attributable to the imposition of a new fee structure and an increase in the
number of checking accounts, both of which result in an increase in fee income
specifically relating to the collection of overdraft fees.

OTHER EXPENSES

      Other expenses consist primarily of the Bank's general and administrative
expenses. Other expenses increased $348,120 or 22.24% for the year ended March
31, 1997, from $1,565,259 for the year ended March 31, 1996, due primarily to
the one-time charge of $241,299 to recapitalize SAIF. The remaining portion of
the increase was comprised mainly of one-time costs totaling $88,947 in data
processing charges related to the Bank's computer conversion process.

INCOME TAXES EXPENSE

      The provision for income tax for the year ended March 31, 1997, was
$143,933, a decrease of 8.32% from the previous year. The effective tax rate
for the year was 37.2%. See note 11 to the consolidated financial statements
for further information regarding income taxes.


COMPARISON OF YEARS ENDED MARCH 31, 1996 AND 1995

NET INCOME

      Net income for the year ended March 31, 1996 amounted to $303,447, a
decrease of $163,928 or 35.07% as compared with $467,375 for the year ended
March 31, 1995, primarily as a result of two factors. First, the interest rate
on liabilities increased more rapidly than did the yield on assets.
Additionally, the Holding Company's operating expenses increased as a result of
the opening of the new Rockland branch.

      Details of changes from the year ended March 31, 1996, from March 31,
1995, include an increase in total interest income of $449,749 or 11.42%, an
increase in total interest expense of $478,205 or 23.83%, an decrease in the
provision for loan losses of $18,990 or 23.44%, an increase in other income of
$26,009 or 16.54%, an increase in other expenses of $271,951 or 21.03%, and an
income tax expense decrease of $91,480 or 36.82%.

INTEREST INCOME

      Total interest income for the year ended March 31, 1996, increased
$449,749 or 11.42% to $4,389,689 from $3,939,940 for the year ended March 31,
1995. This increase is partially the result of increases in the yield on
adjustable rate mortgages due to periodic rate adjustments, increases in the
yield of secured consumer loans and an increased volume of commercial mortgage
loans. Additionally, other interest income, which is comprised of interest on
Federal funds sold and interest-bearing and time deposits, increased due to an
increase in the volume of and yield on those assets.


INTEREST EXPENSE

      Total interest expense for the year ended March 31, 1996, increased
$478,205 or 23.83% to $2,485,256 from $2,007,051 for the year ended March 31,
1995. This increase is caused primarily by increased rates paid on both
deposits and borrowings, and an increase of $2,590,610 in the average balance
of total interest-bearing deposits, which is partially offset by a decrease of
$884,615 or 8.73% in the average balance of borrowings.


LOAN LOSS PROVISION

      The Bank decreased its provision for loan losses to $62,010 for the year
ended March 31, 1996, from $81,000 for the year ended March 31, 1995, resulting
in an allowance for loan losses of $221,356 at March 31, 1996, an increase of
$37,673 from the previous year. Management believes that the Bank's total
allowance for losses on loans is adequate and commensurate with the risks
associated with the loan portfolio.


OTHER INCOME

      Other income consists primarily of fee income and gains on sales of
loans. Other income increased $26,009 or 16.54% to $183,277 for the year ended
March 31, 1996, from $157,268 for the year ended March 31, 1995. The increase
is attributable to an increase in volume of loans sold on the secondary market
and an increase in the size of the secondary market portfolio serviced by the
Bank.


OTHER EXPENSES

      Other expenses consist primarily of the Bank's general and administrative
expenses. Other expenses increased $271,951 or 21.03% for the year ended March
31, 1996, from $1,293,308 for the year ended March 31, 1995, due primarily to
an increase in compensation of directors, officers and staff of $100,951 and
increases in other expenses related to the opening of the branch office. Such
other expenses include data processing, advertising and taxes (other than
income taxes). Stockholder expenses, including printing, legal and transfer
agent costs also increased significantly.

INCOME TAXES EXPENSE

      The provision for income tax for the year ended March 31, 1996, was
$156,994 a decrease of 36.82% from the previous year. See note 11 to the
consolidated financial statements for further information regarding income
taxes.


                        LIQUIDITY AND CAPITAL RESOURCES

      Liquidity is a measure of the Bank's ability to fund loans, provide a
source for withdrawal of deposits and allow for the payment of normal cash
expenses. The Bank's primary sources of funds are deposits, borrowings, regular
payments of loan principal and interest and prepayments of loan principal. To a
lesser extent, the Bank obtains funds from maturities of investment securities,
and funds provided by operations.

      During the past several years, the Bank has used funds primarily to meet
its ongoing commitments to fund maturing time deposits and savings withdrawals,
to fund existing and continuing loan commitments and to maintain liquidity. The
Bank has periodically supplemented its liquidity needs with advances from the
FHLB. The Bank has also utilized FHLB borrowings to fund the Bank's loan
growth, due in part to the more favorable rates paid on these borrowings. The
Bank's current borrowing capacity exceeds $29,000,000. At March 31, 1997 the
Bank's borrowings from the FHLB were $11,440,000.

      At year end March 31, 1997, stockholders' equity was $5,075,545 or 8.61%
of assets compared to $4,926,077 or 9.06% at March 31, 1996. The Bank is
required to maintain specified amounts of capital pursuant to federal
regulations. At year end March 31, 1997 the Bank's capital substantially
exceeded core capital, tangible capital and risk based capital regulatory
requirements. See Note 2 of the consolidated financial statements for further
information.

IMPACT OF INFLATION AND CHANGING INTEREST RATES

      The Holding Company's consolidated financial statements and related notes
presented elsewhere herein have been prepared in accordance with generally
accepted accounting principles ("GAAP"), which require the measurement of
financial position and operating results in terms of historical dollars without
considering changes in the relative purchasing power of money over time due to
inflation. Unlike many industrial companies, substantially all of the assets
and virtually all of the liabilities of the Holding Company are monetary in
nature. As a result, interest rates have a more significant impact on the
Holding Company's performance than the general level of inflation. Over short
periods of time, interest rates may not necessarily move in the same direction
or in the same magnitude as the prices of goods and services. Management
believes that, through the implementation of its strategic plan, it has taken
important steps to maintain positive interest rate spreads, and to control the
potential effects of interest rate fluctuations on the Holding Company's
earnings.

PART II

MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

      On March 31, 1997, there were 231,439 shares of the Holding Company's
Common Stock outstanding held by approximately 320 holders of record. Also at
such date, the Holding Company had granted options to purchase 9,963 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 National
Association of Securities Dealers Automated Quotation system (NASDAQ) under the
symbol "MCBN."

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

<S>                         <C>        <C>          <C>
March 31, 1995              $ 14.75    $ 14.25      $    --
June 30, 1995                 17.25      14.50         0.23
September 30, 1995            18.75      15.00           --
December 31, 1995             20.25      15.50         0.25(1)

March 31, 1996                20.00      17.50           --
June 30, 1996                 20.00      18.00         0.25
September 30, 1996            20.00      18.00           --
December 31, 1996             19.00      18.75         0.26

March 31, 1997                19.00      18.75

<FN>
--------------------
<F1>   During the quarter ended December 31, 1995 the Holding Company also
       declared a 5% stock dividend in addition to the $0.25 per share cash
       dividend.
</FN>
</TABLE>


      On April 15, 1997 the Holding Company declared a dividend of $0.26 per
share to Stockholders of record on June 2, 1997 and payable June 30, 1997.




                            Mid-Coast Bancorp, Inc.

                          Audited Financial Statements

                   Years Ended March 31, 1997, 1996 and 1995
                       With Independent Auditors' Report




                            MID-COAST BANCORP, INC.

                         INDEX TO FINANCIAL STATEMENTS



                                                                      Page
                                                                      ----

Independent Auditors' Report                                          F-1

Consolidated Balance Sheets as of March 31, 1997 and 1996             F-2

Consolidated Statements of Income for the Three Years Ended
 March 31, 1997                                                       F-4

Consolidated Statements of Changes in Stockholders' Equity for
 the Three Years Ended March 31, 1997                                 F-5

Consolidated Statements of Cash Flows for the Three Years Ended
 March 31, 1997                                                       F-6

Notes to Consolidated Financial Statements                            F-8





                             BAKER NEWMAN & NOYES
                                            LIMITED LIABILITY COMPANY

                         CERTIFIED PUBLIC ACCOUNTANTS



                          INDEPENDENT AUDITORS' REPORT


The Board of Directors and Stockholders
Mid-Coast Bancorp, Inc.


We have audited the accompanying consolidated balance sheets of Mid-Coast
Bancorp, Inc. and subsidiary as of March 31, 1997 and 1996, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the three years ended March 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Mid-Coast
Bancorp, Inc. and subsidiary at March 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years
ended March 31, 1997, in conformity with generally accepted accounting
principles.



                                               /s/ BAKER NEWMAN NOYES

May 2, 1997                                    Limited Liability Company



        ONE HUNDRED MIDDLE STREET, P.O. BOX 507, PORTLAND, MAINE 04112
                TELEPHONE 207-879-2100  *  TELEFAX 207-774-1793

           INTERNET: HTTP://WWW.BNNCPA.COM          MAIL@BNNCPA.COM



                            MID-COAST BANCORP, INC.

                          CONSOLIDATED BALANCE SHEETS

                            March 31, 1997 and 1996


                                     ASSETS

<TABLE>
<CAPTION>
                                                                       1997            1996
                                                                   ------------    ------------

<S>                                                                <C>             <C>
Cash and due from banks                                            $  1,156,227    $    296,198
Interest bearing deposits                                               104,683         805,853
Federal funds sold                                                    1,875,000       1,625,000
                                                                   ----------------------------

  Cash and cash equivalents                                           3,135,910       2,727,051

Time deposits                                                         1,089,000       1,781,101
Investment securities available for sale, at market (note 3)          2,440,662       1,086,973
Held to maturity investment securities (market value of
 $911,125 in 1997 and $3,303,276 in 1996) (note 3)                      949,109       3,346,562
Held to maturity mortgage-backed securities (market value
 of $219,775 in 1996) (note 4)                                               --         218,323
Loans held for sale                                                      65,000         559,079

Loans (note 5):                                                      49,394,455      42,838,169
  Less:  Allowance for loan losses (note 6)                             295,457         221,356
         Deferred loan fees                                             119,966         151,254
                                                                   ----------------------------

                                                                     48,979,032      42,465,559

Bank premises and equipment, net (note 8)                             1,580,290       1,386,589

Other assets:
  Income taxes receivable                                                    --          60,220
  Accrued interest receivable - loans                                   244,474         244,963
  Accrued interest receivable - time deposits                             9,162          10,400
  Accrued interest receivable - investment securities                    50,268          58,047
  Accrued interest receivable - mortgage-backed securities                   --           1,181
  Deferred income taxes (note 11)                                        98,000          94,000
  Prepaid expenses and other assets                                     192,638          97,881
  Real estate owned (note 7)                                             91,823         224,137
                                                                   ----------------------------

      Total other assets                                                 686,365        790,829
                                                                   ----------------------------

      Total assets                                                 $ 58,925,368    $ 54,362,066
                                                                   ============================


                      LIABILITIES AND STOCKHOLDERS' EQUITY

<CAPTION>
                                                                       1997            1996
                                                                   ------------    ------------

<S>                                                                <C>             <C>
Liabilities:
  Deposits (note 9):
    Demand deposits                                                $  2,346,730    $  1,802,239
    NOW accounts                                                      3,460,858       3,111,931
    Savings                                                           5,693,545       4,645,035
    Money market deposit accounts                                     5,119,733       4,740,543
    Certificates of deposit                                          25,559,832      27,517,154
                                                                   ----------------------------

      Total deposits                                                 42,180,698      41,816,902

   Advances from the Federal Home Loan Bank (note 10)                11,440,000       7,465,000
   Accrued expenses and other liabilities                               229,125         154,087
                                                                   ----------------------------

      Total liabilities                                              53,849,823      49,435,989

Commitments and contingencies (note 14)

Stockholders' equity (notes 2 and 15):
  Common stock, $1 par value, 1,500,000 shares authorized; 
   231,439 shares issued and outstanding (229,031 shares 
   in 1996)                                                             231,439         229,031
  Paid-in capital                                                     1,469,769       1,448,282
  Retained earnings (note 11)                                         3,374,337       3,248,764
                                                                   ----------------------------

      Total stockholders' equity                                      5,075,545       4,926,077


                                                                   ----------------------------
      Total liabilities and stockholders' equity                   $ 58,925,368    $ 54,362,066
                                                                   ============================
</TABLE>


See accompanying notes.



                            MID-COAST BANCORP, INC.

                       CONSOLIDATED STATEMENTS OF INCOME

                   Years Ended March 31, 1997, 1996 and 1995

<TABLE>
<CAPTION>
                                                                             1997           1996            1995
                                                                          -----------    -----------     -----------
<S>                                                                       <C>            <C>             <C>
Interest income:
  Interest on loans                                                       $ 4,155,451    $ 3,965,600     $ 3,588,597
  Interest on investment securities                                           225,015        194,284         192,489
  Interest on mortgage-backed securities                                       33,027         15,794          18,782
  Other                                                                       175,153        214,011         140,072
                                                                          ------------------------------------------

      Total interest income                                                 4,588,646      4,389,689       3,939,940

Interest expense:
  Interest on deposits (note 9)                                             1,909,656      1,972,733       1,509,284
  Interest on borrowings                                                      526,924        512,523         497,767
                                                                          ------------------------------------------

      Total interest expense                                                2,436,580      2,485,256       2,007,051
                                                                          ------------------------------------------ 

      Net interest income                                                   2,152,066      1,904,433       1,932,889

Provision for loan losses (note 6)                                             87,000         62,010          81,000
                                                                          ------------------------------------------

                                                                            2,065,066      1,842,423       1,851,889
Other income:
  Loan servicing and other loan fees                                           46,335         42,273          26,798
  Gain on sales of loans                                                       31,436         36,935          15,400
  Deposit account fees                                                        140,654         98,268          88,154
  Gain on sale of investment securities available for sale (note 3)             6,748             --              --
  Miscellaneous                                                                 9,848          5,801          26,916
                                                                          ------------------------------------------

                                                                              235,021        183,277         157,268
Other expenses:
  Compensation of directors, officers, and staff                              652,237        631,779         530,828
  Employee benefits (note 13)                                                  91,430         67,670          39,440
  Occupancy and equipment expense                                             137,900        133,864         109,724
  Insurance expense                                                           360,328        137,163         127,624
  Real estate owned (note 7)                                                   11,678         46,831          48,973
  Other (note 12)                                                             659,806        547,952         436,719
                                                                          ------------------------------------------

                                                                            1,913,379      1,565,259       1,293,308
                                                                          ------------------------------------------

Income before income taxes                                                    386,708        460,441         715,849

Income tax expense (note 11)                                                  143,933        156,994         248,474
                                                                          ------------------------------------------

Net income                                                                $   242,775    $   303,447     $   467,375
                                                                          ==========================================

Earnings per share (note 1)                                               $      1.06    $      1.33     $      2.07
                                                                          ==========================================
</TABLE>


See accompanying notes.



                            MID-COAST BANCORP, INC.

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                   Years Ended March 31, 1997, 1996 and 1995


<TABLE>
<CAPTION>
                                                                                                       Total
                                                         Common        Paid-in       Retained      Stockholders'
                                                          Stock        Capital       Earnings         Equity
                                                        ---------    -----------    -----------    -------------

<S>                                                     <C>          <C>            <C>             <C>
Balance at April 1, 1994                                $ 211,417    $ 1,219,276    $ 2,866,401     $ 4,297,094
  Issuance of 6,049 shares of common stock upon 
   exercise of options                                      6,049         43,720             --          49,769
  Reversal of 382 shares incorrectly issued in 1994          (382)        (4,818)            --          (5,200)
  Net income                                                   --             --        467,375         467,375
  Dividends declared ($.40 per share)                          --             --        (86,442)        (86,442)
                                                        -------------------------------------------------------

Balance at March 31, 1995                                 217,084      1,258,178      3,247,334       4,722,596
  Issuance of 1,172 shares of common stock upon 
   exercise of options                                      1,172          8,223             --           9,395
  Issuance of 10,775 shares of common stock as a
    5% stock dividend (note 2)                             10,775        181,881       (194,893)         (2,237)
  Net income                                                   --             --        303,447         303,447
  Dividends declared ($.48 per share)                          --             --       (107,124)       (107,124)
                                                        -------------------------------------------------------

Balance at March 31, 1996                                 229,031      1,448,282      3,248,764       4,926,077
  Issuance of 2,408 shares of common stock upon
   exercise of options                                      2,408         21,487             --          23,895
  Net income                                                   --             --        242,775         242,775
  Dividends declared ($.51 per share)                          --             --       (117,202)       (117,202)
                                                        -------------------------------------------------------

Balance at March 31, 1997                               $ 231,439    $ 1,469,769    $ 3,374,337     $ 5,075,545
                                                        =======================================================
</TABLE>


See accompanying notes.



                            MID-COAST BANCORP, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                   Years Ended March 31, 1997, 1996 and 1995



<TABLE>
<CAPTION>
                                                                        1997           1996           1995
                                                                    ------------    -----------    -----------

<S>                                                                 <C>             <C>            <C>
Operating activities:
  Net income                                                        $    242,775    $   303,447    $   467,375
  Adjustments to reconcile net income to net cash provided by 
   operating activities:
    Depreciation                                                          62,268         66,906         48,716
    Net accretion on investment securities                                (6,250)       (11,416)       (14,201)
    Gain on sale of investment securities available for sale              (6,748)            --             --
    Provision for losses on real estate owned                                 --         38,789         20,000
    Provision for loan losses                                             87,000         62,010         81,000
    Net change in deferred loan fees                                     (31,288)       (18,562)         3,889
    Proceeds from sales of loans                                       2,248,585      2,688,085      2,060,555
    Loans originated for sale                                         (1,723,070)    (3,142,729)    (1,952,655)
    Gain on sales of loans                                               (31,436)       (36,935)       (15,400)
    Deferred income taxes                                                 (4,000)         2,000         26,000
    Change in accrued interest receivable                                 10,687        (39,341)       (52,812)
    Change in prepaid expenses and other assets                          (94,757)       (13,607)       (32,601)
    Change in income taxes receivable                                     60,220        (48,809)       (27,480)
    Change in accrued expenses and other liabilities                      75,038        (36,207)        57,366
                                                                    ------------------------------------------

  Net cash flows from operating activities                               889,024       (186,369)       669,752

Investing activities:
  Net change in time deposits                                            692,101     (1,381,694)       382,691
  Investment securities available for sale:
    Proceeds from sale of investment securities                          508,942             --             --
    Proceeds from maturities, calls and principal paydowns               552,805             --             --
    Purchases                                                         (2,405,881)      (528,673)            --
    Held to maturity investment and mortgage-backed securities:
      Purchases                                                               --     (1,204,212)    (1,407,688)
      Proceeds from maturities, calls and principal paydowns           2,619,219        948,982        567,997
    Net change in loans                                               (6,566,937)       877,655       (933,057)
    Additions to real estate owned                                            --           (641)            --
    Proceeds from sale of real estate owned                              130,066             --             --
    Proceeds from sale of bank premises and equipment                      1,500             --             --
    Purchases of bank premises and equipment                            (257,469)      (158,855)      (457,600)
                                                                    ------------------------------------------

    Net cash flows from investing activities                          (4,725,654)    (1,447,438)    (1,847,657)

Financing activities:
  Net change in certificates of deposit                             $ (1,957,322)   $ 2,062,511    $ 2,473,475
  Net change in other deposits                                         2,321,118      2,633,281       (376,297)
  Maturities of advances from Federal Home Loan Bank                  (4,525,000)    (6,975,000)    (3,500,000)
  Advances from Federal Home Loan Bank                                 8,500,000      3,725,000      4,000,000
  Issuance of stock                                                       23,895          9,395         44,569
  Dividends paid                                                        (117,202)      (109,361)       (86,442)
                                                                    ------------------------------------------

    Net cash flows from financing activities                           4,245,489      1,345,826      2,555,305
                                                                    ------------------------------------------

Net (decrease) increase in cash and cash equivalents                     408,859       (287,981)     1,377,400

Cash and cash equivalents at beginning of year                         2,727,051      3,015,032      1,637,632
                                                                    ------------------------------------------

Cash and cash equivalents at end of year                            $  3,135,910    $ 2,727,051    $ 3,015,032
                                                                    ==========================================


Supplemental disclosure of cash flow information:
  Cash paid during the year for:
    Interest (including $1,655,818, $1,674,077, and $1,272,518,
     credited to deposit accounts in 1997, 1996 and 1995, 
     respectively)                                                  $  2,411,059    $ 2,505,789    $ 1,996,927
    Income taxes                                                          55,174        203,802        249,420
  Net transfer of real estate owned and similar assets to 
   (from) loans                                                            2,248        (28,040)      (196,025)
</TABLE>


See accompanying notes.



                            MID-COAST BANCORP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                         March 31, 1997, 1996 and 1995


1.    Accounting Policies
      -------------------

      Consolidation
      -------------

      The accompanying consolidated financial statements include the accounts
      of Mid-Coast Bancorp, Inc. ("the Company"), its wholly-owned subsidiary,
      The Waldoboro Bank, F.S.B. (the "Bank") and the Bank's wholly-owned
      subsidiary, First Waldoboro Corporation; this subsidiary has no
      significant activity. All significant intercompany balances and
      transactions have been eliminated.

      Business
      --------

      The Company, through the Bank, provides a full range of banking services
      to individuals and corporate customers located in the mid-coast area of
      Maine. The Bank is subject to competition from other financial
      institutions. The Company and the Bank also are subject to the
      regulations of certain regulatory agencies and undergo periodic
      examinations by those regulatory authorities.

      Financial Statement Presentation
      --------------------------------

      The accompanying consolidated financial statements have been prepared in
      conformity with generally accepted accounting principles. In preparing
      the financial statements, management is required to make estimates and
      assumptions that affect the reported amounts of assets and liabilities at
      the balance sheet dates and income and expenses for the periods
      presented. Actual results could differ significantly from these
      estimates. The principal areas requiring use of estimates are
      establishment of allowances for losses on loans and real estate owned,
      which are further discussed below.

      Restrictions on Cash Availability
      ---------------------------------

      The Company is required to comply with various laws and regulations which
      require that the Company maintain certain amounts of cash on deposit and
      is restricted from investing these amounts.

      Investments
      -----------

      The Company's investments in securities are classified in two categories
      and accounted for as follows:

           Held to Maturity Investment and Mortgage-Backed Securities
           ----------------------------------------------------------

           Debt securities for which management has the positive intent and
           ability to hold to maturity are reported at cost, adjusted for
           amortization of premiums and accretion of discounts which are
           recognized in interest income using the interest method over the
           period of maturity.

           Investment Securities Available for Sale
           ----------------------------------------

           Investment securities available for sale consist of investments to
           be held for indefinite periods of time and are carried at market
           value. Any material unrealized gain or loss (net of tax effect) is
           reflected as a separate component of stockholders' equity.

      It is not management's policy to acquire securities for purposes of
      trading. For this reason, the Company has not classified any of its
      securities as trading.

      Realized gains and losses on the sale of securities are determined using
      the specific-identification method and are shown separately in the
      consolidated statement of income. If a decline in market value is
      considered other than temporary, the loss is charged to net securities
      gains (losses).

      Allowance for Loan Losses
      -------------------------

      The allowance for loan losses is established by management to absorb
      future charge-offs of loans deemed uncollectible. This allowance is
      increased by provisions charged to operating expense and by recoveries on
      loans previously charged off. The Company adopted the provisions of
      Statement of Financial Accounting Standards (SFAS) No. 114, Accounting by
      Creditors for Impairment of a Loan, as amended by SFAS No. 118,
      Accounting by Creditors for Impairment of a Loan - Income Recognition and
      Disclosure, on April 1, 1995. Adoption of these statements did not have a
      significant impact on the financial position or results of operations,
      and prior periods have not been restated. Management, considering current
      information and events regarding the borrowers' ability to repay their
      obligations, considers residential mortgage and commercial loans to be
      impaired when it is probable that the Company will be unable to collect
      all amounts due according to the contractual terms of the note agreement;
      other loans (primarily installment loans) are evaluated collectively for
      valuation. When a loan is considered to be impaired, the amount of the
      impairment is measured based on the fair value of the underlying
      collateral, where applicable, or on the present value of expected future
      cash flows discounted at the note's effective interest rate. Impairment
      losses are included in the allowance for loan losses through a charge to
      provision for loan losses. Loans are charged off when a loss is
      determined.

      Management believes that the allowance for loan losses is adequate.
      Arriving at an appropriate level of allowance for loan loss involves
      judgment; the primary considerations are the level of delinquencies, the
      nature of the loan portfolio, prior loan loss experience, the local
      economic conditions, and current real estate market trends. While
      management uses available information to recognize losses on loans,
      future additions to the allowance may be necessary. In addition, various
      regulatory agencies, as an integral part of their examination process,
      periodically review the Company's allowance for loan losses. Such
      agencies may require the Company to recognize additions to the allowance
      based on judgments different from those of management.

      A substantial portion (89% and 91% at March 31, 1997 and 1996,
      respectively) of the Company's loans are collateralized by real estate
      (primarily residential) in Maine. Accordingly, the ultimate
      collectibility of a substantial portion of the Company's loan portfolio
      is particularly susceptible to changes in market conditions for
      residential real estate in the Company's market area.

      Loans Held for Sale
      -------------------

      Loans held for sale are carried at the lower of aggregate cost or fair
      value.

      Interest Income on Loans
      ------------------------

      Interest on loans is accrued and credited to income based on the
      principal amount outstanding. The accrual of interest income is
      discontinued when a loan becomes impaired and in management's opinion is
      deemed uncollectible in whole or in part as to principal or interest. In
      these cases, interest is recognized only when received. No interest is
      accrued on loans delinquent by more than ninety days and all previously
      accrued interest is reversed for such loans. Loan origination fees and
      certain direct loan origination costs are deferred and the net amount
      amortized as an adjustment to the related loan yield, generally over the
      contractual life of the loan, or until the loan is sold or repaid.

      Bank Premises and Equipment
      ---------------------------

      Bank premises and equipment are stated at cost, less accumulated
      provisions for depreciation computed on the straight-line method over the
      estimated lives of the related assets.

      Income Taxes
      ------------

      Deferred income taxes are provided for the effect of items recognized in
      different periods for financial statement and income tax reporting
      purposes using the asset and liability method.

      Real Estate Owned
      -----------------

      Real estate owned (REO), other than bank premises, consists of properties
      acquired through mortgage loan foreclosure proceedings. REO is initially
      recorded at the lower of cost or fair value, less estimated selling
      costs, at the date of foreclosure and any losses recognized at that time
      are charged to the allowance for loan losses. Subsequent to this date,
      additional losses incurred resulting from further decreases in the fair
      value (net of estimated selling costs) of the property are recognized by
      a charge to operations and establishment of a valuation allowance. Costs
      relating to the development and improvement of property are capitalized;
      holding costs are charged to expense.

      Statement of Cash Flows
      -----------------------

      The Company considers cash and due from banks, interest-bearing deposits
      and federal funds sold as cash and cash equivalents on the consolidated
      statements of cash flows.

      Earnings Per Share
      ------------------

      Earnings per share are computed by dividing net income by the weighted
      average number of shares outstanding. The following table shows the
      weighted average number of shares outstanding for each of the last three
      years. Amounts for fiscal year 1995 have been restated to reflect the 5%
      stock dividend declared in fiscal year 1996.

                  1997                                   229,975
                  1996                                   227,662
                  1995                                   225,463

      Shares issuable relative to stock options granted have not been reflected
      since their impact would not be significantly dilutive.

      Reclassification
      ----------------

      Certain amounts in the 1995 and 1996 financial statements have been
      reclassified to conform to the manner of presentation used in 1997.


2.    Capital and Other Regulatory Limitations
      ----------------------------------------

      The Bank is subject to various regulatory capital requirements
      administered by the federal banking agencies. The Bank's failure to meet
      minimum capital requirements can initiate certain mandatory and possibly
      additional discretionary actions by regulators that, if undertaken, could
      have a direct material effect on the Company's financial statements.
      Under capital adequacy guidelines and the regulatory framework for prompt
      corrective action, the Bank must meet specific capital guidelines that
      involve quantitative measures of the Bank's assets, liabilities, and
      certain off-balance sheet items as calculated under regulatory accounting
      practices. The Bank's capital amounts and classification are also subject
      to qualitative judgments by the regulators about components, risk
      weightings, and other factors.

      As of March 31, 1997, the most recent notification from the Office of
      Thrift Supervision (OTS) categorized the Bank as "well capitalized" under
      the regulatory framework for prompt corrective action. To be categorized
      as "well capitalized" the Bank must maintain minimum total risk-based,
      Tier 1 risk-based and Tier 1 leverage tangible capital as set forth in
      the table below. There are no conditions or events since that
      notification that management believes have changed the institution's
      category.

      Quantitative measures established by regulation to ensure capital
      adequacy require the Bank to maintain minimum amounts and ratios as set
      forth in the table below. Management believes that the Bank meets all
      capital adequacy requirements to which it is subject as of March 31,
      1997.

      The Bank's actual capital amounts and ratios are also presented in the
      table. Since the Company is a one-bank holding company, its ratios are
      not materially different from the Bank's.

<TABLE>
<CAPTION>
                                                                                                         To Be "Well
                                                                                                      Capitalized" Under
                                                                                For Capital           Prompt Corrective
                                                            Actual           Adequacy Purposes        Action Provisions
                                                       ----------------    ---------------------    ----------------------
                                                       Amount     Ratio      Amount       Ratio       Amount       Ratio
                                                       -------    -----    ----------    -------    ----------    --------

      (Dollars in thousands)

      <S>                                              <C>        <C>      <C>           <C>        <C>           <C>
      As of March 31, 1997:
        Total capital (to risk weighted assets)        $ 5,320    15.1%    >= $ 2,822    >= 8.0%    >= $ 3,528    >= 10.0%
        Tier 1 Capital (to risk weighted assets)         5,025    14.2%    >=   1,411    >= 4.0%    >=   2,117    >=  6.0%
        Tier 1 Capital (to average assets)               5,025     8.9%    >=   2,266    >= 4.0%    >=   2,832    >=  5.0%

      As of March 31, 1996:
        Total capital (to risk weighted assets)        $ 5,151    16.9%    >= $ 2,445    >= 8.0%    >= $ 3,057    >= 10.0%
        Tier 1 Capital (to risk weighted assets)         4,922    16.1%    >=   1,223    >= 4.0%    >=   1,834    >=  6.0%
        Tier 1 Capital (to average assets)               4,922     9.1%    >=   2,167    >= 4.0%    >=   2,708    >=  5.0%
</TABLE>

      In connection with the conversion of the Bank from a mutual to a stock
      institution in 1989, the Company was required by OTS regulations to
      establish a liquidation account in the amount of the Bank's retained
      earnings at the date of conversion, which totalled approximately
      $1,918,000. In the event of liquidation of the Company (and only in such
      event), an eligible account holder, as defined, would be entitled to
      receive a proportionate share of this account. The total amount of this
      liquidation account will be decreased as the balances of eligible account
      holders are reduced. Such account will never be increased despite any
      increase in balances of eligible account holders. The Company has not
      computed the amount of decrease in the liquidation account since the
      conversion date.

      In addition to the dividend restriction caused by the liquidation account
      discussed above, the Bank may not, without prior approval of OTS, declare
      or pay a dividend on or repurchase any of its common stock in excess of
      OTS-stipulated amounts (generally current year net income plus 50% of the
      Bank's excess of capital over required amounts as of the beginning of the
      year). At March 31, 1997, unrestricted retained earnings of the Bank
      under such OTS limitations approximated $1,595,000.

      The following table reconciles core capital per the Waldoboro Bank's
      reports to OTS at March 31, 1997 to the total of stockholders' equity
      shown on the accompanying consolidated financial statements.

<TABLE>
<CAPTION>
                                                                   In Thousands

      <S>                                                             <C>
      Capital per the OTS Report                                      $ 5,025
      Impact of Mid-Coast Bancorp                                          50
                                                                      -------
      Stockholders' equity per consolidated financial statements      $ 5,075
                                                                      =======
</TABLE>

      The Company's Board of Directors declared a 5% stock dividend payable on
      December 31, 1995 to stockholders of record on December 1, 1995. Cash
      totalling $2,237 was paid in lieu of fractional shares on the basis of a
      per share value of $17.88 (the average of the bid and asked price on
      December 1, 1995). Earnings per share data for all prior periods have
      been restated to reflect this stock dividend.


3.    Investment Securities
      ---------------------

      Held to Maturity Investment Securities
      --------------------------------------

      The amortized cost and market values of held to maturity investment
      securities at March 31, 1997 and 1996 are as follows:

<TABLE>
<CAPTION>
                                                                             March 3l, 1997
                                                         -------------------------------------------------------
                                                                          Gross          Gross
                                                          Amortized     Unrealized     Unrealized      Market
                                                            Cost          Gains          Losses         Value
                                                         -----------    ----------     ----------    -----------
      <S>                                                <C>             <C>           <C>           <C>
      Debt Securities:
        U.S. Treasury Obligations                        $   299,109     $    --       $   6,234     $   292,875
        U.S. Agency Obligations                              650,000          --          31,750         618,250
                                                         -------------------------------------------------------
                                                         $   949,109     $    --       $  37,984     $   911,125
                                                         =======================================================

<CAPTION>
                                                                             March 3l, 1996
                                                         -------------------------------------------------------
                                                                          Gross          Gross
                                                          Amortized     Unrealized     Unrealized      Market
                                                            Cost          Gains          Losses         Value
                                                         -----------    ----------     ----------    -----------
      <S>                                                <C>             <C>           <C>           <C>
      Debt Securities:
        U.S. Treasury Obligations                        $ 2,246,562     $ 5,701       $  (8,909)    $ 2,243,354
        Student Loan Marketing Association Notes             250,000          --              (8)        249,992
        Federal Home Loan Bank Bonds                         500,000          --         (35,674)        464,326
        Federal National Mortgage Association Bonds          250,000          --          (4,415)        245,585
        Federal Farm Credit Bank Notes                       100,000          19              --         100,019
                                                         -------------------------------------------------------
                                                         $ 3,346,562     $ 5,720       $ (49,006)    $ 3,303,276
                                                         =======================================================
</TABLE>

      The March 31, 1997 amortized cost and estimated market value of debt
      securities by contractual maturity (without giving effect to earlier
      "call" dates in certain instances) are as follows:

<TABLE>
<CAPTION>
                                                                 Amortized      Market
                                                                   Cost          Value
                                                                 ---------     ---------

            <S>                                                  <C>           <C>
            Due in one year or less                              $ 200,000     $ 194,000
            Due after one year through five years                  549,109       539,125
            Due after five years through ten years                 200,000       178,000
                                                                 -----------------------
                                                                 $ 949,109     $ 911,125
                                                                 =======================
</TABLE>

      Included in U.S. Agency Obligations at March 31, 1997 are two inverse
      floater structured notes maturing in 1998 and 2003, with amortized costs
      totalling $400,000 and market values totalling $372,000.

      Investment Securities Available for Sale
      ----------------------------------------

      The amortized cost and market values of available for sale investment
      securities at March 31, 1997 is presented below:

<TABLE>
<CAPTION>
                                                                                Gross         Gross
                                                                Amortized     Unrealized    Unrealized      Market
                                                                  Cost          Gains         Losses         Value
                                                               -----------    ----------    ----------    -----------

      <S>                                                      <C>             <C>           <C>          <C>
      Debt securities:
        U.S. Treasury Obligations                              $   497,578     $    --       $   618      $   496,960
        U.S. Agency Obligations                                    750,000          --         3,000          747,000
                                                               ------------------------------------------------------
                                                                 1,247,578          --         3,618        1,243,960
 
      Mutual fund                                                  561,084       3,618            --          564,702

      Required investment in Federal Home Loan Bank stock          622,000          --            --          622,000

      Other                                                         10,000          --            --           10,000
                                                               ------------------------------------------------------
                                                               $ 2,440,662     $ 3,618       $ 3,618      $ 2,440,662
                                                               ======================================================
</TABLE>

      During 1996 investment securities were sold for proceeds of $508,942 and
      gross realized gains of $6,748.

      Investment securities available for sale at March 31, 1996 consisted of a
      mutual fund for which cost of $528,673 approximated market, the required
      investment in Federal Home Loan Bank stock, carried at cost, of $548,300,
      and other investments of $10,000.

      The March 31, 1997 amortized cost and estimated market value of debt
      securities by contractual maturity (without giving effect to earlier
      "call" dates in certain instances) are as follows:

<TABLE>
<CAPTION>
                                                               Amortized       Market
                                                                 Cost           Value
                                                              -----------    -----------

            <S>                                               <C>            <C>
            Due in one year or less                           $   497,578    $   496,960
            Due after one year through five years                 750,000        747,000
            Due after five years through ten years                     --             --
                                                              --------------------------
                                                              $ 1,247,578    $ 1,243,960
                                                              ==========================
</TABLE>

      Federal Home Loan Bank stock is pledged as described in note 10. At March
      31, 1997, another investment security with carrying value of $250,000 was
      pledged to secure deposits.


4.    Mortgage-Backed Securities
      --------------------------

      Mortgage-backed securities classified as held to maturity, at March 31,
      1997 and 1996, consisted of the following:

<TABLE>
<CAPTION>
                                                                         March 31,
                                                       ---------------------------------------------
                                                             1997                     1996
                                                       -----------------     -----------------------
                                                       Book       Market       Book         Market
                                                       Value      Value        Value         Value
                                                       -----      ------     ---------     ---------

      <S>                                              <C>        <C>        <C>           <C>
      Federal Home Loan Mortgage Corporation           $  --      $   --     $ 218,323     $ 219,775
                                                       =============================================
</TABLE>

      Estimated market values for such securities consisted of gross unrealized
      gains $1,452 at March 31, 1996.


5.    Loans
      -----

      Loans at March 31, 1997 and 1996 consisted of the following:

<TABLE>
<CAPTION>
                                                                 1997             1996
                                                             ------------     ------------

         <S>                                                 <C>              <C>
         Real estate mortgage - residential                  $ 36,066,310     $ 33,125,498
         Real estate mortgage - commercial                      6,314,688        4,509,243
         Construction                                           1,404,668          226,048
         Other commercial                                       1,406,317          838,425
         Home equity                                            1,300,254        1,372,391
         Passbook loans                                           281,967          309,842
         Installment and other                                  3,529,009        2,670,721
                                                             -----------------------------

                                                               50,303,213       43,052,168
         Less undisbursed amounts on construction loans          (908,758)        (213,999)
                                                             -----------------------------

                                                             $ 49,394,455     $ 42,838,169
                                                             =============================
</TABLE>

      Loans serviced for others at March 31, 1997, 1996 and 1995 totalled
      $7,269,828, $7,030,478, and $5,242,665, respectively. On April 1, 1996,
      Statement of Financial Accounting Standards (SFAS) No. 122, Accounting
      for Mortgage Servicing Rights (an Amendment to Statement No. 65) became
      effective for the Company. The impact of adoption was not material to the
      financial position or results of operations of the Company.

      Nonperforming loans (contractually past due and nonaccruing as to
      interest income) totalled $145,466 and $375,338 at March 31, 1997 and
      1996, respectively. Unrecognized accrued interest on such loans totalled
      $9,852 and $42,901 at March 31, 1997 and 1996, respectively.

      The Company adopted the provisions of SFAS No. 114, Accounting by
      Creditors for Impairment of Loan, as amended by SFAS No. 118, Accounting
      by Creditors for Impairment of a Loan - Income Recognition and
      Disclosures, effective April 1, 1995. Prior periods have not been
      restated. All loans have been evaluated for collectibility under the
      provisions of these statements.

<TABLE>
<CAPTION>
                                                                       1997          1996
                                                                     ---------     ---------
      <S>                                                            <C>           <C>
      Year-end approximate recorded investment in impaired
       loans with no valuation allowance                             $ 117,000     $ 360,000

      Year-end approximate total recorded investment in 
       impaired loans                                                  117,000       360,000

      Approximate average investment in impaired loans for
       the year                                                        151,000       317,000
</TABLE>

      No interest income was recognized on impaired loans during 1997 or 1996.
      Interest is generally recognized on impaired loans using the cash basis.

      Activity in loans to directors and officers who had outstanding balances
      greater than $60,000 during the year ended March 31, 1997 is shown below.

<TABLE>
<CAPTION>
         Balance                                                  Balance
      April 1, 1996        Additions        Reductions         March 31, 1997
      -------------        ---------        ----------         --------------

        <S>                <C>               <C>                 <C>
        $ 558,598          $ 66,064          $ 30,160            $ 594,502
        ==================================================================
</TABLE>


6.    Allowance for Loan Losses
      -------------------------

      Changes in the allowance for loan losses are provided below.

<TABLE>
<CAPTION>
                                                        Years Ended March 31,
                                                 -----------------------------------
                                                   1997         1996         1995
                                                 ---------    ---------    ---------

      <S>                                        <C>          <C>          <C>
      Balance, beginning of year                 $ 221,356    $ 183,683    $ 278,998
        Charge-offs                                (20,810)     (28,165)    (184,608)
        Recoveries                                   7,911        3,828        8,293
        Provisions for losses                       87,000       62,010       81,000
                                                 -----------------------------------

      Balance, end of year                       $ 295,457    $ 221,356    $ 183,683
                                                 ===================================
</TABLE>


7.    Real Estate Owned
      -----------------

      Real estate owned consisted of real estate acquired by foreclosure at
      March 31, 1997 and 1996:

      Activity in the allowance for losses on real estate owned and similar
      assets for the years ended March 31, 1997, 1996 and 1995 is shown below.

<TABLE>
<CAPTION>
                                                                         1997         1996         1995
                                                                       --------     --------     --------

      <S>                                                              <C>          <C>          <C>
      Balance, beginning of year                                       $ 23,000     $ 20,000     $ 18,664
        Provision for losses, included in real estate owned expense          --       38,789       20,000
        Charge-downs                                                    (23,000)     (35,789)     (18,664)
                                                                       ----------------------------------

      Balance, end of year                                             $     --     $ 23,000     $ 20,000
                                                                       ==================================
</TABLE>

      In addition to the provision for losses reflected above, amounts shown as
      "real estate owned" expense on the consolidated statements of income
      include taxes, insurance and other holding costs incurred by the Bank.


8.    Bank Premises and Equipment
      ---------------------------

      Bank premises and equipment at March 31, 1997 and 1996 consisted of the
      following:

<TABLE>
<CAPTION>
                                                                  1997           1996
                                                              -----------    ------------

            <S>                                               <C>            <C>
            Building and improvements                         $ 1,288,397    $  1,284,371
            Land and land improvements                            194,860         189,612
            Furniture, fixtures and equipment                     635,998         389,303
                                                              ---------------------------

                                                                2,119,255       1,863,286
      Less accumulated depreciation                               538,965         476,697
                                                              ---------------------------

      Net bank premises and equipment                         $ 1,580,290     $ 1,386,589
                                                              ===========================
</TABLE>


9.    Deposits
      --------

      Demand deposits include $429,273 and $578,289 of official and other
      outstanding checks drawn on the Bank at March 31, 1997 and 1996,
      respectively.

      Certificates of deposit in excess of $100,000 totalled approximately
      $2,636,052 at March 31, 1997 and $2,005,023 at March 31, 1996.

      Scheduled maturities for certificates of deposit at March 31, 1997 are as
      follows:

<TABLE>
<CAPTION>
             Year Ending
             --------------

             <S>                                            <C>
             March 31, 1998                                 $ 19,333,540
             March 31, 1999                                    2,734,896
             March 31, 2000                                    2,717,624
             March 31, 2001                                      634,409
             March 31, 2002                                      127,118
             Thereafter                                           12,245
</TABLE>

      Interest expense by type of deposit is shown below.

<TABLE>
<CAPTION>
                                                      1997           1996           1995
                                                   -----------    -----------    -----------

      <S>                                          <C>            <C>            <C>
      NOW accounts                                 $    70,486    $    72,855    $    66,917
      Savings                                          135,482        128,570        139,157
      Money market deposit accounts                    188,740        209,556        123,373
      Certificates of deposit                        1,514,948      1,561,752      1,179,837
                                                   -----------------------------------------

                                                   $ 1,909,656    $ 1,972,733    $ 1,509,284
                                                   =========================================
</TABLE>

      The weighted average interest rates at March 31, 1997 are as follows: NOW
      accounts - 2.22%; savings - 2.79%; money market deposit accounts - 4.12%
      and certificates of deposit - 5.95%.


10.   Advances From Federal Home Loan Bank
      ------------------------------------

      Advances from the Federal Home Loan Bank (FHLB) at March 31, 1997 and
      1996 consisted of the following:

<TABLE>
<CAPTION>
                                                         1997                            1996
                                             -----------------------------    --------------------------
                                               Interest                        Interest
                                                 Rates          Balance          Rates         Balance
                                             -------------    ------------    -----------    -----------

      <S>                                    <C>              <C>             <C>            <C>
      Advances maturing within:
        One year                             5.42% - 5.99%    $  6,750,000    4.5% - 6.0%    $ 4,525,000
        Two years                            5.56% - 7.12%       3,475,000           7.1%        500,000
        Three years                                    --               --    5.6% - 6.0%      2,225,000
        After three years                    2.00% - 6.15%       1,215,000           2.0%        215,000
                                                              ------------                   -----------

                                                              $ 11,440,000                   $ 7,465,000
                                                              ============                   ===========
</TABLE>

      The FHLB advances are generally secured by a blanket lien and not by any
      specific collateral. However, the Company is required to maintain an
      amount of qualified collateral at least sufficient to satisfy the
      regulatory collateral maintenance level. At March 31, 1997, the Bank's
      limitation on advances from the FHLB approximated $29,000,000.

      Additionally, the Bank has available a line of credit for short-term
      borrowings under the FHLB "Ideal Way" program totalling approximately
      $1,050,000. Federal Home Loan Bank stock is pledged to secure borrowings
      under this line. There were no borrowings under this line at March 31,
      1997 or 1996.


11.   Income Taxes
      ------------

      Income tax expense (benefit) for the years ended March 31, 1997, 1996 and
      1995 consisted of the following:

<TABLE>
<CAPTION>
                                                       1997         1996         1995
                                                     ---------    ---------    ---------

            <S>                                      <C>          <C>          <C>
            Currently payable:
              Federal                                $ 140,933    $ 146,300    $ 211,668
              State                                      7,000        8,694       10,806
                                                     -----------------------------------

                                                       147,933      154,994      222,474
            Deferred                                    (4,000)       2,000       26,000
                                                     -----------------------------------

                                                     $ 143,933    $ 156,994    $ 248,474
                                                     ===================================
</TABLE>

      Income taxes were computed as follows:

<TABLE>
<CAPTION>
                                                            Year Ended March 31,
                                                     -----------------------------------
                                                       1997         1996         1995
                                                     ---------    ---------    ---------

      <S>                                            <C>          <C>          <C>
      At federal statutory rates                     $ 131,481    $ 156,550    $ 243,389
      State taxes, net of federal tax effect             4,620        5,738        7,132
      Other, net                                         7,832       (5,294)      (2,047)
                                                     -----------------------------------

                                                     $ 143,933    $ 156,994    $ 248,474
                                                     ===================================
</TABLE>

      At March 31, 1997 and 1996, the net deferred tax asset consisted of:

<TABLE>
<CAPTION>
                                                                            1997         1996
                                                                          ---------    ---------

      <S>                                                                 <C>          <C>
      Deferred tax assets, primarily related to loan loss reserves 
       and deferred loan fees                                             $ 128,100    $ 121,300
      Deferred tax liabilities, primarily related to depreciation           (30,100)     (27,300)
                                                                          ----------------------

                                                                          $  98,000    $  94,000
                                                                          ======================
</TABLE>

      Retained earnings at March 31, 1997 included approximately $590,000
      representing bad debt deductions allowed for tax purposes, for which no
      provision for income taxes has been made. If this portion of retained
      earnings is reduced for any purpose other than to absorb losses, income
      taxes would be imposed at the then applicable rates.


12.   Other Expenses
      --------------

      Included in other expenses for the years ended March 31, 1997, 1996 and
      1995 are:

<TABLE>
<CAPTION>
                                                   1997         1996         1995
                                                 ---------    ---------    ---------

      <S>                                        <C>          <C>          <C>
      Advertising                                $  25,678    $  30,524    $  24,217
      Taxes (other than income taxes)               61,191       50,553       39,393
      Data processing                              200,351      111,404       87,319
      Stockholder expenses                          58,456       53,017       33,163
      Audit and examination                         41,225       43,250       35,355
      Legal expense                                 17,912       14,528       17,947
      Other                                        254,993      244,676      199,325
                                                 -----------------------------------

                                                 $ 659,806    $ 547,952    $ 436,719
                                                 ===================================
</TABLE>


13.   Retirement Plans
      ----------------

      Pension Plan
      ------------

      The Company participates in an industry-sponsored defined benefit pension
      plan. This noncontributory plan includes all employees who meet age and
      years of service requirements. Pension expense totalled $34,968, $27,631
      and $19,140 for the years ended March 31, 1997, 1996 and 1995,
      respectively.

      The plan's assets are invested in fixed income securities and common
      stocks. Information relative to the Company's portion of accumulated plan
      benefits and assets available for benefits is not available. However, the
      latest annual report for the entire plan indicates that, as of June 30,
      1996, net assets available for benefits (approximately $1,474 million)
      exceeded the actuarial present value of accumulated plan benefits by
      approximately $385 million. The actuarial present value of accumulated
      plan benefits is based upon a discount rate of 7.5%.

      401(k) Plan
      -----------

      The Company offers a 401(k) plan to its employees and contributes a
      matching amount to participants; this matching amount is a portion of the
      employees' contribution. The Company's contributions in 1997 and 1996
      were $11,106 and $-0-, respectively.


14.   Commitments and Contingencies
      -----------------------------

      Unfunded loan commitments expose the Company to credit risk in excess of
      amounts recognized in the accompanying consolidated balance sheets. Total
      credit exposure related to these items is summarized below.

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

      <S>                                                  <C>            <C>
      Commitments for new loans                            $   428,500    $   462,000
      Unused home equity and other lines of credit           1,504,325      1,419,329
      Unfunded construction loans                              908,758        213,999
                                                           --------------------------

                                                           $ 2,841,583    $ 2,095,328
                                                           ==========================
</TABLE>

      Loan commitments include unfunded portions of real estate construction
      and other loans, and unused lines of credit. Loan commitments are subject
      to the same credit policies as loans and generally have expiration dates
      and termination clauses. The Company obtains collateral to secure loans
      based upon management's credit assessment of the counterparty. Collateral
      is usually in the form of real estate.

      The Bank is contingently liable for reimbursement of a governmental grant
      to a not-for-profit agency should that agency fail to comply with the
      provisions of that grant. The amount of the grant is $118,000 and the
      Bank has obtained a mortgage on the property owned by the agency to
      secure its contingent liability.


15.   Stock Option Plan
      -----------------

      The Company has a stock option plan under which an amount equal to 10% of
      the common stock of the Company is reserved for future issuance upon
      exercise of stock options granted to certain members of the Board of
      Directors, senior management and employees. The plan was initiated in
      November 1989 and became effective in July 1990 upon ratification by a
      vote of the stockholders. A summary of options granted (all of which were
      granted at market price on the date of grant), exercised and expired
      during 1997, 1996 and 1995 appears below.

<TABLE>
<CAPTION>
                                                                         Per Share Option Price
                                                             (Adjusted for 1994 and 1996 Stock Dividends)
                                                      ------------------------------------------------------------      Total
      Exercise Price:                                 $7.40      $9.48     $9.94      $11.21     $12.21     $14.05     Options
                                                      ------     -----     -----      ------     ------     ------     -------

      <S>                                             <C>        <C>       <C>        <C>        <C>        <C>        <C>
      Outstanding option shares, April 1, 1994         9,587     2,135       618       5,272        836         --      18,448

      Issued - 1995                                       --        --        --          --         --      1,852       1,852
        Exercised - 1995                              (5,122)     (515)       --        (412)        --         --      (6,049)
        Cancelled - 1995                                 (36)       --        --        (416)      (836)        --      (1,288)
                                                      ------------------------------------------------------------------------

      Outstanding option, shares March 31, 1995
       (all exercisable)                               4,429     1,620       618       4,444         --      1,852      12,963
      Exercised - 1996                                (1,072)       --        --        (100)        --         --      (1,172)
      Adjustment for stock dividend                      169        78        30         212         --         91         580
                                                      ------------------------------------------------------------------------

      Outstanding option shares, March 31, 1996
       (all exercisable)                               3,526     1,698       648       4,556         --      1,943      12,371
      Exercised - 1997                                  (435)     (398)     (648)       (877)        --        (50)     (2,408)
                                                      ------------------------------------------------------------------------

      Outstanding option shares, March 31, 1997
       (all exercisable)                               3,091     1,300        --       3,679         --      1,893       9,963
                                                      ========================================================================

      Options expire in                                 1999      2002      2002        2003                  2005
</TABLE>

      The Company has adopted the provisions of SFAS No. 123, Accounting for
      Stock-Based Compensation for all awards of stock options made after April
      1, 1996. There were no such awards in fiscal year 1997. In accordance
      with this Statement, the Company will be required to disclose pro forma
      effects of stock-based compensation on net income if any awards are
      granted in the future; as permitted by the Statement, the Company will
      continue to account for these options under the provisions of Accounting
      Principles Board Opinion No. 25, Accounting for Stock Issued to
      Employees.


16.   Fair Value of Financial Instruments
      -----------------------------------

      As required by Statement of Financial Accounting Standards No. 107, fair
      value estimates, methods, and assumptions are set forth below for the
      Company's estimated fair values of its financial instruments. Fair values
      have been calculated based on the value of one unit without regard to any
      premium or discount that may result from concentrations of ownership of a
      financial instrument, possible tax ramifications, or estimated
      transaction costs. If these considerations had been incorporated into the
      fair value estimates, the aggregate fair value amount could have changed.

      Management has made estimates of fair value discount rates that it
      believes to be reasonable. However, because there is no market for many
      of these financial instruments, management has no basis to determine
      whether the fair value presented above would be indicative of the value
      negotiated in the actual sale.

      Cash, Due from Banks and Federal Funds Sold
      -------------------------------------------

      The fair value of cash, due from banks and federal funds sold
      approximates their relative book values at March 31, 1997 and 1996, as
      these financial instruments have short maturities.

      Time Deposits
      -------------

      The fair value of time deposits is based on the discounted cash flows of
      the deposits using estimated market discount rates that reflect the
      interest rate risk inherent in the time deposit.

      Investment Securities and Mortgage-Backed Securities
      ----------------------------------------------------

      The fair value of investment securities and mortgage-backed securities is
      estimated based on bid prices published in financial newspapers or bid
      quotations received from securities dealers at or near March 31, 1997 and
      1996, except for FHLB stock which is valued at its cost since there is no
      market.

      Loans
      -----

      Fair values are estimated for portfolios of loans with similar financial
      characteristics. The fair values of performing loans are calculated by
      discounting scheduled cash flows through the estimated maturity using
      estimated market discount rates that reflect the credit and interest rate
      risk inherent in the loan. The estimates of maturity are based on the
      Company's historical experience with repayments for each loan
      classification, modified, as required, by an estimate of the effect of
      current economic, lending conditions and the effects of estimated
      prepayments.

      Fair values of any significant nonperforming loans are based on estimated
      cash flows discounted using a rate commensurate with the risk associated
      with the estimated cash flows. Assumptions regarding credit risk, cash
      flows, and discount rates are judgmentally determined using available
      market information and historical information.

      Accrued Interest Receivable
      ---------------------------

      The fair market value of this financial instrument approximates the book
      value as this financial instrument has a short maturity.

      Deposit Liabilities
      -------------------

      The fair value of deposits with no stated maturity, such as
      non-interest-bearing demand deposits, savings, and NOW accounts, and
      money market and checking accounts, is equal to the amount payable on
      demand as of March 31, 1997 and 1996. The fair values of certificates of
      deposit are based on the discounted value of contractual cash flows. The
      discount rate is estimated using the rates currently offered for deposits
      of similar remaining maturities.

      The fair value estimates do not include the benefit that results from the
      low-cost funding provided by the deposit liabilities compared to the cost
      of borrowing funds in the market. If that value was considered at March
      31, 1997 and 1996, the fair value of the Bank's net assets would
      increase.

      Advances from the Federal Home Loan Bank
      ----------------------------------------

      The fair value of advances from the Federal Home Loan Bank is based upon
      the discounted value of contractual cash flows, with a discount rate
      based upon rates currently offered for similar remaining maturities.

      Commitments to Extend Credit
      ----------------------------

      The fair value of commitments to extend credit cannot be reasonably
      estimated without incurring excessive costs as the Company does not
      charge fees for such commitments and there is no ready market for this
      financial instrument.

      Limitations
      -----------

      Fair value estimates are made at a specific point in time, based on
      relevant market information and information about the financial
      instrument. These values do not reflect any premium or discount that
      could result from offering for sale at one time the Company's entire
      holdings of a particular financial instrument. Because no market exists
      for a significant portion of the Company's financial instruments, fair
      value estimates are based on judgments regarding future expected loss
      experience, current economic conditions, risk characteristics of various
      financial instruments, and other factors. These estimates are subjective
      in nature and involve uncertainties and matters of significant judgment
      and therefore cannot be determined with precision. Changes in assumptions
      could significantly affect the estimates.

      Fair value estimates are based on existing on and off balance sheet
      financial instruments without attempting to estimate the value of
      anticipated future business and the value of assets and liabilities that
      are not considered financial instruments. Other significant assets and
      liabilities that are not considered financial instruments include the
      deferred tax assets, Company premises and equipment, and other real
      estate owned. In addition, the tax ramifications related to the
      realization of the unrealized gains and losses can have a significant
      effect on fair value estimates and have not been considered in any of the
      estimates.

      The carrying and estimated fair values of financial instruments at March 
      31, 1997 and 1996 are summarized below, in thousands of dollars:

<TABLE>
<CAPTION>
                                                                1997                     1996
                                                        --------------------     --------------------
                                                        Carrying      Fair       Carrying      Fair
                                                         Value       Value        Value       Value
                                                        --------    --------     --------    --------

      <S>                                               <C>         <C>          <C>         <C>
      Assets:
        Cash and cash equivalents                       $  3,136    $  3,136     $  2,727    $  2,727
        Time deposits                                      1,089       1,093        1,781       1,787
        Investments and mortgage-backed securities         3,390       3,352        4,652       4,610
        Loans and loans held for sale                     49,044      49,663       43,025      43,034
        Accrued interest receivable                          304         304          315         315

      Liabilities:
        Deposit liabilities                               42,181      42,301       41,817      41,865
        Borrowed funds                                    11,440      11,280        7,465       7,354
</TABLE>


17.   Mid-Coast Bancorp, Inc.
      -----------------------

      Condensed financial statements for Mid-Coast Bancorp, Inc. at March 31,
      1997 and 1996 and for the years ended March 31, 1997, 1996 and 1995 are
      presented below.

                                 Balance Sheets

<TABLE>
<CAPTION>
                                                                    1997           1996
                                                                 -----------    -----------
      <S>                                                        <C>            <C>
      Assets:
        Due from the Bank                                        $    51,568    $     3,124
        Investment in the Bank                                     5,025,628      4,922,953
                                                                 --------------------------

            Total assets                                         $ 5,077,196    $ 4,926,077
                                                                 ==========================

      Liabilities and stockholders' equity:
        Accounts payable                                         $     1,651    $        --
        Stockholders' equity                                       5,075,545      4,926,077
                                                                 --------------------------

            Total liabilities and stockholders' equity           $ 5,077,196    $ 4,926,077
                                                                 ==========================
</TABLE>

                            Statements of Operations

<TABLE>
<CAPTION>
                                                                     1997         1996         1995
                                                                   ---------    ---------    ---------

      <S>                                                          <C>          <C>          <C>
      Operating expenses                                           $   9,900    $  15,125    $   8,510
                                                                   -----------------------------------

      Loss before equity in earnings of subsidiary                    (9,900)     (15,125)      (8,510)

      Equity in earnings of subsidiary:
        Remitted                                                     150,000           --      100,000
        Unremitted                                                   102,675      318,572      375,885
                                                                   -----------------------------------

                                                                     252,675      318,572      475,885
                                                                   -----------------------------------

     Net income                                                    $ 242,775    $ 303,447    $ 467,375
                                                                   ===================================

</TABLE>

                            Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                      1997         1996         1995
                                                                    ---------    ---------    ---------

      <S>                                                           <C>          <C>          <C>
      Cash flows from operating activities:
        Net income                                                  $ 242,775    $ 303,447    $ 467,375
        Adjustments to reconcile net income to net cash 
         used by operating activities:
          Equity in unremitted earnings of subsidiary                (102,675)    (318,572)    (375,885)
                                                                    -----------------------------------

        Net cash provided (used) by operating activities              140,100      (15,125)      91,490

      Cash flows from financing activities:
        Issuance of common stock                                       23,895        9,395       44,569
        Increase in due to the Bank                                     1,651           --           --
        Dividends paid                                               (117,202)    (109,362)     (86,442)
                                                                    -----------------------------------

        Net cash used by financing activities                         (91,656)     (99,967)     (41,873)
                                                                    -----------------------------------

      Net increase in cash and due from banks                          48,444     (115,092)      49,617

      Cash and due from banks at beginning of year                      3,124      118,216       68,599
                                                                    -----------------------------------

      Cash and due from banks at end of year                        $  51,568    $   3,124    $ 118,216
                                                                    ===================================
</TABLE>



Stockholders' Information

Directors

Waite W. Weston
Chairman of the Board
Owner, Weston's Hardware

Robert W. Spear
Vice Chairman of the Board
Owner, Spear Farm, Inc.

Wesley E. Richardson
President, Chief Executive Officer and
Treasurer of the Bank

Samuel Cohen
Attorney at Law

Lincoln Davis, III
Owner, Stetson & Pinkham Mercury

Ronald E. Dolloff
Retired Principal

Maynard Prock
Owner, Prock Marine

Sharon E. Crowe
Public Relations, Sebasticook County Hospital

Lincoln O. Orff
Real Estate Broker


Executive Officers

Wesley E. Richardson
President, Chief Executive Officer and
Treasurer

Robert E. Carter, Jr.
Vice President



Transfer Agent and Registrar
Inquiries regarding stockholder administration and services should be directed
to:

         American Stock Transfer and Trust Company
         40 Wall Street
         New York, New York 10005
         (800) 937-5449

Independent Auditors
Baker Newman & Noyes,
   Limited Liability Company
100 Middle Street
Portland, Maine 04101
(207) 879-2100

Legal Counsel
Thacher Proffitt & Wood
1500 K Street, N.W., Suite 200
Washington, D.C.  20005
(202) 347-8400

Stock Information

The Bank's Common Stock trades on
the NASDAQ Smallcap System under
the symbol "MCBN."

Investor Relations
Inquiries regarding Mid-Coast 
Bancorp Inc. should be directed to:

         Robert E. Carter, Jr.
         Mid-Coast Bancorp, Inc.
         c/o The Waldoboro Bank, F.S.B.
         1768 Atlantic Highway
         P.O. Box 589
         Waldoboro, Maine 04752

Annual Meeting of Stockholders
The Bank's Annual Meeting of Stockholders will be held at 3:00 p.m. Eastern
Standard time on Wednesday, July 16, 1997, at the Samoset Resort, Rockport,
Maine. Holders of common stock as of the close of business on June 2, 1997 will
be eligible to vote.