U.S. SECURITIES AND EXCHANGE COMMISSION

                          WASHINGTON, D. C.  20549

                                 FORM 10-KSB

            ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                       SECURITIES EXCHANGE ACT OF 1934
                For the fiscal year ended September 30, 1998

                       Commission File No.:  01-13465

                           FALMOUTH BANCORP, INC.
               (Name of small business issuer in its charter)

              Delaware                               04-3337685
   (State or other jurisdiction of                (I.R.S. Employer
   incorporation or organization)                Identification No.)

               20 Davis Straits, Falmouth, Massachusetts 02540
                  (Address of principal executive offices)
                               (508) 548-3500
                         (Issuer's Telephone Number)

Securities registered pursuant to section 12(b) of the Exchange Act:
      Title of each class              Name of Exchange on which registered:
      Common Stock, par value $0.01           American Stock Exchange
       per share

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

      Check if there is no disclosure of delinquent filers in response to 
Item 405 of Regulation S-B is not contained in this form, and no disclosure 
will be contained, to the best of registrant's knowledge, in definitive 
proxy or information statements incorporated by reference in Part III of 
this Form 10-KSB or any amendment to this Form 10-KSB.    [X]

      The revenues for the issuer's fiscal year ended September 30, 1998 are 
$8,256,437

      State the aggregate market value of the voting and non-voting common 
equity held by non-affiliates computed by reference to the price at which 
the common equity was sold, as of a specified date within the last 60 days. 
On November 27, 1998: $19,031,908.

      State the number of shares outstanding of each of the issuer's classes 
of common equity, as of the latest practicable date. The Company had 
1,338,341 shares outstanding as of December 19, 1998.

                     DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the definitive proxy statement pursuant to Regulation 14A, 
which was delivered to the Commission for filing on December 18, 1998, and 
the 1998 Annual Report to Stockholders for the fiscal year ended September 
30, 1998, which has not previously been mailed to the Commission, are 
incorporated by reference into Part II and III of this report.

Transitional Small Business Disclosure Format (check one):
Yes       No   X  
    -----    -----

                              TABLE OF CONTENTS
                              -----------------

                                                                         Page
                                                                         ----

PART I

       ITEM 1.    BUSINESS                                                 1
       ITEM 2.    DESCRIPTION OF PROPERTY                                 27
       ITEM 3.    LEGAL PROCEEDINGS                                       27
       ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS     27

PART II

       ITEM 5.    MARKET FOR THE BANK'S COMMON STOCK
                   AND RELATED STOCKHOLDER MATTERS                        27
      ITEM 6.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 
                   CONDITION AND RESULTS OF OPERATIONS                    27
      ITEM 7.     FINANCIAL STATEMENTS                                    27
      ITEM 8.     CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON 
                   ACCOUNTING AND FINANCIAL DISCLOSURE                    27

PART III

      ITEM 9.     DIRECTORS AND PRINCIPAL OFFICERS OF THE BANK            28
      ITEM 10.    EXECUTIVE COMPENSATION                                  28
      ITEM 11.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND 
                   MANAGEMENT                                             28
      ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS          28
      ITEM 13.    EXHIBITS AND REPORTS ON FORM 8-K                        28

                                   PART I

ITEM 1.     BUSINESS

General

      Falmouth Bancorp, Inc. (the "Company" or "Bancorp"), a Delaware 
corporation, is the holding company for Falmouth Co-operative Bank (the 
"Bank"),  a Massachusetts-chartered stock co-operative bank.  The Bank 
converted to stock form on March 28, 1996, and issued 1,454,750 shares of 
common stock at $10.00 per share (the "Conversion").  On October 14, 1997, 
the Company acquired all of the capital stock of the Bank and stockholders 
of the Bank became stockholders of the Company in a share for share exchange 
pursuant to a plan of reorganization approved by the Bank's stockholders on 
January 21, 1997 (the "Reorganization") whereby the Bank became the wholly-
owned subsidiary of the Company.  At September 30, 1998, there were 
1,401,784 shares outstanding.  The Company's sole business activity is 
ownership of the Bank. The Company also makes investments in long and short-
term marketable securities and other liquid investments. The Company's 
Common Stock trades on the American Stock Exchange under the symbol "FCB."  
Unless otherwise disclosed, the information presented in this Report on Form 
10-KSB represents the activity of the Bank for fiscal 1997 and the period 
prior to the Reorganization, and the consolidated activity of Falmouth 
Bancorp, Inc. and subsidiaries thereafter.

      The Bank had total assets of $105.8 million as of September 30, 1998. 
The Bank conducts its business through an office located in Falmouth, 
Massachusetts, where it was originally founded in 1925 as a Massachusetts 
chartered mutual co-operative Bank, and two branches located in East 
Falmouth and North Falmouth, Massachusetts. The Bank's deposits are 
currently insured up to applicable limits by the Bank Insurance Fund of the 
Federal Deposit Insurance Corporation ("FDIC") and the Share Insurance Fund 
of the Co-operative Central Bank of Massachusetts. 

      The Bank's principal business consists of attracting deposits from the 
general public and using these funds to originate mortgage loans secured by 
one- to four-family residences located primarily in Falmouth, Massachusetts 
and surrounding areas and to invest in United States Government and Agency 
securities.

Business Strategy

      The Bank's business strategy is to operate as a well-capitalized, 
profitable and independent community bank dedicated to financing home 
ownership and consumer needs in its market area and to provide quality 
service to its customers. The Bank has implemented this strategy by: (i) 
closely monitoring the needs of customers and providing quality service; 
(ii) emphasizing consumer-oriented banking by originating residential 
mortgage loans and consumer loans, and by offering checking accounts and 
other financial services and products; (iii) focusing on expanding lending 
activities to produce moderate increases in loan originations; (iv) 
maintaining asset quality; (v) maintaining capital in excess of regulatory 
requirements; and (vi) producing stable earnings.

      The Bank serves its primary market area, the Massachusetts communities 
of Falmouth and Mashpee located in the Cape Cod region of Massachusetts, 
through its office in Falmouth, Massachusetts.  In February, 1997, the Bank 
opened a new branch located in East Falmouth and in August, 1997, the Bank 
opened a branch in North Falmouth.   In February 1998 and May 1998, the 
North Falmouth and East Falmouth offices respectively, moved to improved 
permanent facilities.  The Bank competes with fifteen branches of financial 
institutions (including national banks, savings banks, savings and loans and 
credit unions) which are headquartered outside its market area. The Bank is 
the only independent financial institution headquartered in Falmouth.

      To a lesser extent, the Bank also makes commercial real estate loans 
and consumer loans, including passbook loans, automobile, home equity and 
other consumer loans.  The Bank originates both fixed-rate and adjustable-
rate loans and emphasizes the origination of residential real estate 
mortgage loans with adjustable interest rates, and makes other investments 
which allow the Bank to more closely match the interest rate and maturities 
of its assets and liabilities.

Market Area

      The Bank considers its primary market area to be the communities of 
Falmouth and Mashpee in Barnstable County, which is located in the Cape Cod 
region of Massachusetts, approximately 72 miles south of Boston. The year-
round population of Barnstable County is over 200,000.  The majority of the 
Bank's lending has been in Falmouth and Mashpee. The Cape Cod region is a 
major recreational resort/retirement community, with seasonal tourism being 
the most significant economic activity. Falmouth's year-round population of 
29,585 (1996 census) increases to a summer population of approximately 
70,000. Visitors find accommodations in the many motels, hotels and inns in 
the area. Falmouth has approximately 44 miles of ocean and lake shoreline. 
There are nine harbors and inlets, some with docking and most with mooring 
facilities. Two major harbors offer access, via ferry, to the island of 
Martha's Vineyard with service to the island of Nantucket during the summer 
months from Woods Hole. In addition to swimming, boating, fishing and other 
forms of water recreation, Falmouth also has four public and two private 
golf courses.

      The major employers in the Falmouth area are the Woods Hole 
Oceanographic Institute, with approximately 800 employees, Falmouth 
Hospital, with 750 employees and Woods Hole, Martha's Vineyard and Nantucket 
Steamship Authority, with 500 employees. Other major employers include 
Marine Biological Laboratories and ORE International, Inc.

Employees

      At September 30, 1998, the Bank employed 27 full-time and 5 part-time 
employees.

Lending Activities

      General. The principal lending activity of the Bank is the origination 
of conventional mortgage loans for the purpose of purchasing or refinancing 
owner-occupied, one- to four-family residential properties in its designated 
community reinvestment area of the Massachusetts towns of Falmouth and 
Mashpee. To a lesser extent, the Bank also originates consumer loans 
including home equity and passbook loans and commercial loans. The Bank also 
originates and retains in its loan portfolio adjustable-rate loans and 
fixed-rate loans with maturities of up to 15 years. Historically, fixed-rate 
loans with terms in excess of 15 years were sold in the secondary market.  
Loan originations for the year ended September 30, 1998, achieved the 
unprecedented level of $45.1 million and were primarily single family 
residential loans.  During this period, the Bank was ranked as one of the 
largest producers of residential mortgage loans while achieving a greater 
market share.  The mortgage market in the Falmouth  area was unusually 
vigorous in both the purchase money and refinance categories during fiscal 
1998 due to the decline in the general level of interest rates and, in 
particular, rates on mortgage loans.  The Bank is a qualified 
seller/servicer for Federal National Mortgage Corporation ("FNMA") and was 
servicing $4.1 million  in loans for FNMA and $3.4 million with another 
mortgage company at September 30, 1998.  The Bank's five largest loans to 
one borrower, outstanding as of September 30, 1998, ranged from $400,000 to 
$1.04 million.

      Loan Portfolio. The following table presents selected data relating to 
the composition of the Bank's loan portfolio by type of loan on the dates 
indicated.

<TABLE>
<CAPTION>
                                                                      At September 30,
                              -------------------------------------------------------------------------------------------------
                                    1998                1997                1996                1995                1994
                              -----------------   -----------------   -----------------   -----------------   -----------------
                              Amount    Percent   Amount    Percent   Amount    Percent   Amount    Percent   Amount    Percent
                              ------    -------   ------    -------   ------    -------   ------    -------   ------    -------
                                                                   (Dollars in thousands)

<S>                           <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
Residential mortgage loans    $69,967    87.56%   $48,367    87.14%   $33,993    82.57%   $26,094    78.67%   $22,029    78.33%
Commercial real estate loans    4,054     5.07      2,425     4.37      4,347    10.56      3,538    10.67      3,111    11.06
Consumer loans                    566      .71        877     1.58        771     1.87        819     2.47        832     2.96
Home equity loans               3,897     4.88      2,756     4.96      1,683     4.09      1,890     5.70      2,150     7.65
Commercial loans                1,422     1.78      1,079     1.95        373      .91        830     2.49         --       --
                              -------   ------     ------   ------     ------   ------     ------   ------     ------   ------
Total loans                    79,906   100.00%    55,504   100.00%    41,167   100.00%    33,171   100.00%    28,122   100.00%
                              -------   ======     ------   ======     ------   ======     ------   ======     ------   ======

Less:
Unearned income                    45                  97                 143                 121                 101
Unadvanced  principal           1,679               1,025                 289                 102                 127
Allowance for loan losses         527                 501                 498                 445                 310
                              -------             -------             -------             -------             -------
Loans, net                    $77,655             $53,881             $40,237             $32,503             $27,584
                              =======             =======             =======             =======             =======
</TABLE>

      One- to Four-Family Residential Real Estate Lending. The primary 
emphasis of the Bank's lending activity is the origination of conventional 
mortgage loans secured by one- to four-family residential dwellings located 
in the Bank's primary market area. As of September 30, 1998, loans on one- 
to four-family residential properties accounted for 87.6% of the Bank's loan 
portfolio.

      The Bank's mortgage loan originations are for terms of up to 30 years, 
amortized on a monthly basis with interest and principal due each month. 
Residential real estate loans often remain outstanding for significantly 
shorter periods than their contractual terms as borrowers may refinance or 
prepay loans at their option, without penalty. Conventional residential 
mortgage loans granted by the Bank customarily contain "due-on-sale" clauses 
which permits the Bank to accelerate the indebtedness of the loan upon 
transfer of ownership of the mortgaged property.

      The Bank makes conventional mortgage loans and it uses standard FNMA 
documents to allow for the sale of loans in the secondary mortgage market. 
The Bank's lending policies generally limit the maximum loan-to-value ratio 
on mortgage loans secured by owner-occupied properties to 95% of the lesser 
of the appraised value or purchase price of the property, with the condition 
that private mortgage insurance is required on loans with a loan-to-value 
ratio in excess of 80%.

      The Bank, since the early 1980s, has offered adjustable-rate mortgage 
loans with terms of up to 30 years. Adjustable-rate loans offered by the 
Bank include loans which reprice every one, three and five years and provide 
for an interest rate which is based on the interest rate paid on United 
States Treasury securities of a corresponding term, plus a margin of 2.75%. 
The Bank currently offers adjustable-rate loans with initial rates below 
those which would prevail under the foregoing computations, based upon the 
Bank's determination of market factors and competitive rates for adjustable-
rate loans in its market area. For adjustable-rate loans, borrowers are 
qualified at the initial rate plus an anticipated upward adjustment of 200 
basis points.

      The Bank retains all adjustable-rate mortgages it originates. The 
Bank's adjustable-rate mortgages include caps on increases or decreases of 
2% per year, and 6% over the life of the loan (3% per adjustment, and 5% 
over the life of the loan for three-year adjustable-rate loans). The 
retention of adjustable-rate mortgage loans in the Bank's loan portfolio 
helps reduce the Bank's exposure to increases in interest rates. However, 
there are unquantifiable credit risks resulting from potential increased 
costs to the borrower as a result of repricing of adjustable-rate mortgage 
loans. It is possible that during periods of rising interest rates, the risk 
of default on adjustable-rate mortgage loans may increase due to the upward 
adjustment of interest cost to the borrower.

      During the year ended September 30, 1998, the Bank originated $7.9 
million in adjustable-rate mortgage loans and $30.4 million in fixed-rate 
mortgage loans.  Approximately 15.9% of all loan originations during fiscal 
1998 were refinancings of loans already in the Bank's loan portfolio.  At 
September 30, 1998, the Bank's loan portfolio included $25.7 million in 
adjustable-rate one- to four-family residential mortgage loans or 32.9% of 
the Bank's total loan portfolio, and $43.0 million in fixed-rate one- to 
four-family residential mortgage loans, or 55.0% of the Bank's total loan 
portfolio.

      The Bank engages in a limited amount of construction lending usually 
for the construction of single family residences. Most are 
construction/permanent loans structured to become permanent loans upon the 
completion of construction. All construction loans are secured by first 
liens on the property. Loan proceeds are disbursed as construction 
progresses and inspections warrant. Loans involving construction financing 
present a greater risk than loans for the purchase of existing homes, since 
collateral values and construction costs can only be estimated at the time 
the loan is approved. Due to the small amount of construction loans in the 
Bank's portfolio, the risk in this area is limited.

      Commercial Real Estate Loans. At September 30, 1998, the Bank's 
commercial real estate loan portfolio totaled $4.1  million, or 5.07% of 
total loans. The Bank's largest loan is a commercial loan with an 
outstanding balance of $725,000 at September 30, 1998 secured by an office 
complex located in Falmouth, Massachusetts.

      Commercial real estate lending entails additional risks compared with 
one- to four-family residential lending. For example, commercial real estate 
loans typically involve large loan balances to single borrowers or groups of 
related borrowers and the payment experience on such loans is typically 
dependent on the successful operation of a real estate project and/or the 
collateral value of the commercial real estate securing the loan. At 
September 30, 1998, all of the Bank's commercial real estate loans were 
performing.

      Home Equity Loans. The Bank also originates home equity loans which 
are loans secured by available equity based on the appraised value of one- 
to four-family residential property. If the Bank currently holds the first 
mortgage on the property securing the loan, home equity loans will be made 
for up to 80% of the tax assessed or appraised value of the property (less 
the amount of the first mortgage). If the Bank does not hold the first 
mortgage, home equity loans are limited to 70% of the appraised value of the 
property (less the amount of the first mortgage). Home equity loans have an 
adjustable interest rate which ranges from 0% to 1% above the prime rate as 
reported in The Wall Street Journal and have terms of ten years or less. At 
September 30, 1998, the Bank had $8.4 million in home equity loans with 
unused credit available to existing borrowers of $4.7 million.

      Consumer Loans. The Bank's consumer loans consist of passbook loans, 
and other consumer loans, including automobile loans. At September 30, 1998, 
the consumer loan portfolio totaled $566,000 or 0.71% of total loans. 
Consumer loans generally are offered for terms of up to five years at fixed 
interest rates. Consumer loans do not exceed $15,000 individually. 
Management expects to continue to promote consumer loans as part of its 
strategy to provide a wide range of personal financial services to its 
customers and as a means to increase the yield on the Bank's diversified 
loan portfolio.

      The Bank makes loans up to 90% of the amount of the depositor's 
savings account balance. The interest rate on the loan is 4.0% higher than 
the rate being paid on regular savings accounts and 3% higher than the rate 
being paid on certificates of deposit.  The Bank also makes other consumer 
loans, which may or may not be secured. The terms of such loans usually 
depend on the collateral. At September 30, 1998, the total amount of 
passbook and other consumer loans was $444,000.

      The Bank makes loans for automobiles, both new and used, directly to 
the borrowers. The loans are generally limited to 80% of the purchase price 
or the retail value listed by the National Automobile Dealers Book.  The 
terms of the loans are determined by the age and condition of the 
collateral. Collision insurance policies are required on all these loans. At 
September 30, 1998, the total amount of automobile loans was $122,000. 

      Consumer loans generally are originated at higher interest rates than 
residential mortgage loans but also tend to have a higher credit risk than 
residential loans due to the loan being unsecured or secured by rapidly 
depreciable assets. Despite these risks, the Bank's level of consumer loan 
delinquencies generally has been low. No assurance can be given, however, 
that the Bank's delinquency rate on consumer loans will continue to remain 
low in the future, or that the Bank will not incur future losses on these 
activities.

      Commercial Loans. In August 1994, the Bank hired a commercial loan 
officer with over 18 years of experience in commercial lending in the 
Falmouth market for the purpose of establishing a commercial lending program 
for the Bank. The Bank is pursuing on a selective basis the origination of 
commercial loans to meet the working capital and short-term financing needs 
of established local businesses. Unless otherwise structured as a mortgage 
on commercial real estate, such loans are generally be limited to terms of 
five years or less. Substantially all such commercial loans have variable 
interest rates tied to the prime rate as reported in The Wall Street 
Journal. Whenever possible, the Bank collateralizes these loans with a lien 
on commercial real estate, or alternatively, with a lien on business assets 
and equipment and the personal guarantees from principals of the borrower. 
Commercial loans do not presently comprise a significant portion of the 
Bank's loan portfolio. At September 30, 1998 the Bank's commercial loan 
portfolio totaled $1.4 million.

      Commercial business loans generally are considered to involve a higher 
degree of risk than residential mortgage loans because the collateral may be 
in the form of intangible assets and/or inventory subject to market 
obsolescence. Commercial loans also may involve relatively large loan 
balances to single borrowers or groups of related borrowers, with the 
repayment of such loans typically dependent on the successful operation and 
income stream of the borrower. Such risks can be affected significantly by 
economic conditions. In addition, commercial business lending generally 
requires substantially greater oversight efforts compared to residential 
real estate lending.

      Loan Commitments. The Bank makes a 60-day loan commitment to 
borrowers. At September 30,1998, the Bank had $4.5 million in loan 
commitments outstanding, for the origination of one- to four-family 
residential real estate loans.

      Loan Solicitation Origination and Loan Fees. The Bank originates loans 
through its main office located in Falmouth, Massachusetts and two branch 
offices located in East and North Falmouth.  Loan originations are derived 
from a number of sources, including the Bank's existing customers, 
referrals, realtors, advertising and "walk-in" customers at the Bank's 
offices.

      The Bank has one full-time residential loan originator who is 
compensated by salary and commission. The originator meets with applicants 
at their convenience and location and is in regular contact with real estate 
brokers, attorneys, accountants, building contractors, developers and others 
in the Bank's local market area. The Bank increased its advertising in 
locally distributed newspapers and has utilized local radio advertising to 
increase market share of residential loan originations.

      Upon receipt of a loan application from a prospective borrower, a 
credit report and verifications are ordered to verify specific information 
relating to the loan applicant's employment, income and credit standing. For 
all mortgage loans, an appraisal of real estate intended to secure the 
proposed loan is obtained from an independent fee appraiser who has been 
approved by the Bank's Board of Directors. Fire and casualty insurance are 
required on all loans secured by improved real estate.

      Insurance on other collateral is required unless waived by the loan 
committee. The Board of Directors of the Bank has the responsibility and 
authority for the general supervision over the loan policies of the Bank. 
The Board has established written lending policies for the Bank. All 
applications for residential and commercial real estate mortgages and 
commercial business loans must be ratified by the Bank's Board of Directors. 
In addition, certain designated officers of the Bank have limited authority 
to approve consumer loans.

      Interest rates charged by the Bank on all loans are primarily 
determined by competitive loan rates offered in its market area and the Bank 
generally charges an origination fee on new mortgage loans. The origination 
fees, net of direct origination costs, are deferred and amortized into 
income over the life of the loan. At September 30, 1998, the amount of 
deferred loan origination fees was $288,000.

      Loan Maturities. The following table sets forth certain information at 
September 30, 1998 regarding the dollar amount of loans maturing in the 
Bank's portfolio based on their contractual terms to maturity, including 
scheduled repayments of principal. Demand loans, loans having no stated 
schedule of repayments and no stated maturity, and overdrafts are reported 
as due in one year or less.

<TABLE>
<CAPTION>
                                          At September 30, 1998(1)
                                      ---------------------------------
                                       Real       Consumer       Total
                                      Estate      and Other      Loans
                                      ---------------------------------
                                               (In thousands)

<S>                                   <C>          <C>          <C>
Total loans scheduled to mature:
  In one year or less                 $ 3,279      $ 1,855      $ 5,134
  After one year through five years     2,980          898        3,878
  Beyond five years                    65,821        3,349       69,170
                                      ---------------------------------
    Total                             $72,080      $ 6,102      $78,182
                                      =================================

Loan balance by type scheduled to
 mature after one year:
  Fixed                               $43,437      $ 1,243      $44,680
  Adjustable                          $25,364      $ 3,004      $28,368

--------------------
<F1>  Net of unearned income and unadvanced principal.

</TABLE>

      Originations and Sales of Loans. The following table sets forth 
information with respect to originations and sales of loans during the 
periods indicated.    In recent years, the Bank has been retaining more of 
its fixed-rate residential loans in excess of 15-year term with the intent 
of selling such loans service retained.

<TABLE>
<CAPTION>
                                                  Years Ended September 30,
                                  --------------------------------------------------------
                                    1998        1997        1996        1995        1994
                                    -----       ----        ----        ----        ----
                                                       (In thousands)

<S>                               <C>          <C>         <C>         <C>         <C>
Beginning balance(1)              $ 54,382     $40,735     $32,948     $27,894     $29,233
                                  --------------------------------------------------------
Mortgage loan originations(2)       41,356      18,712      13,090       8,722       6,214
Consumer loan originations           2,015       3,145       1,844         964         613
Commercial loan originations         1,752       1,710       1,321       1,127           -
Less:
  Amortization and payoffs(3)      (14,286)     (9,920)     (8,468)     (5,310)     (5,496)
  Transfers to OREO                      -           -           -           -           -
                                  --------------------------------------------------------
  Net loans originated              30,837      13,647       7,787       5,503       1,331
                                  --------------------------------------------------------
  Total loans sold                  (7,037)          -           -        (449)     (2,670)
                                  --------------------------------------------------------
Ending balance(1)                 $ 78,182     $54,382     $40,735     $32,948     $27,894
                                  ========================================================

--------------------
<F1>  Net of unearned income and unadvanced principal.
<F2>  Includes residential and commercial real estate loans.
<F3>  Includes unadvanced principal.

</TABLE>

      Non-Performing Assets, Asset Classification and Allowances for Losses. 
Loans are reviewed on a regular basis and are placed on a non-accrual status 
when, in the opinion of management, the collection of principal and interest 
are doubtful.

      Real estate acquired by the Bank as a result of foreclosure is 
classified as real estate owned until such time as it is sold. When such 
property is acquired, it is recorded at the lower of the unpaid principal 
balance or its fair value. Any required write-down of the loan to its fair 
value is charged to the allowance for loan losses.

<TABLE>
<CAPTION>
                                               At September 30,
                                   -----------------------------------------
                                   1998     1997     1996     1995     1994
                                   ----     ----     ----     ----     ----
                                            (Dollars in thousands)

<S>                                <C>      <C>      <C>      <C>      <C>
Loans 30-89 days past due
 (not included in non-
 performing loans)                 $ 65     $290     $ 81     $ --     $  62

Loans 30-89 days past due as a
 percent of total loans             .08%     .53%     .20%      --%      .22%

Non-performing loans:
  (90 days past due)               $ --     $ 30     $ 14     $ --     $ 322

OREO                               $ --     $ --     $ --     $ --     $  --

    Total non-performing
     assets                        $ --     $ 30     $ 14     $ --     $ 322

Non-performing loans as a
 percent of total loans              --%     .06%     .03%      --%     1.15%

Non-performing assets as a
 percent of total assets             --%     .03%     .02%      --%      .43%

</TABLE>

      During the year ended September 30, 1998, no gross interest income 
would have been recorded on loans accounted for on a non-accrual basis if 
the loans had been current throughout the period. No interest on such loans 
was included in income during the respective periods. At September 30, 1998, 
management was not aware of any loans not currently classified as non-
accrual, 90 days past due or restructured but which may be so classified in 
the near future because of concerns over the borrower's ability to comply 
with repayment terms.

      Federal and state regulations require each banking institution to 
classify its asset quality on a regular basis. In addition, in connection 
with examinations of such banking institutions, federal and state examiners 
have authority to identify problem assets and, if appropriate, classify 
them. An asset is classified substandard if it is determined to be 
inadequately protected by the current net worth and paying capacity of the 
obligor or of the collateral pledged, if any. As a general rule, the Bank 
will classify a loan as substandard if the Bank can no longer rely on the 
borrower's income as the primary source for repayment of the indebtedness 
and must look to secondary sources such as guarantors or collateral. An 
asset is classified as doubtful if full collection is highly questionable or 
improbable. An asset is classified as loss if it is considered 
uncollectible, even if a partial recovery could be expected in the future. 
The regulations also provide for a special mention designation, described as 
assets which do not currently expose a banking institution to a sufficient 
degree of risk to warrant classification but do possess credit deficiencies 
or potential weaknesses deserving management's close attention.  Assets 
classified as substandard or doubtful require a banking institution to 
establish general allowances for loan losses. If an asset or portion thereof 
is classified loss, a banking institution must either establish specific 
allowances for loan losses in the amount of the portion of the asset 
classified loss, or charge off such amount. Examiners may disagree with a 
banking institution's classifications and amounts reserved.  If a banking 
institution does not agree with an examiner's classification of an asset, it 
may appeal this determination to the FDIC Regional Director.  At September 
30, 1998, the Bank had no assets classified as special mention or doubtful, 
and $95,078 in assets designated as substandard and $4,517 classified as 
loss.

      In originating loans, the Bank recognizes that credit losses will 
occur and that the risk of loss will vary with, among other things, the type 
of loan being made, the creditworthiness of the borrower over the term of 
the loan, general economic conditions and, in the case of a secured loan, 
the quality of the security for the loan. It is management's policy to 
maintain an adequate general allowance for loan losses based on, among other 
things, the Bank's and the industry's historical loan loss experience, 
evaluation of economic conditions and regular reviews of delinquencies and 
loan portfolio quality. Further, after properties are acquired following 
loan defaults, additional losses may occur with respect to such properties 
while the Bank is holding them for sale. The Bank increases its allowances 
for loan losses and losses on real estate owned by charging provisions for 
possible losses against the Bank's income. Specific reserves also are 
recognized against specific assets when warranted.

      Results of recent examinations by bank regulators indicate that these 
regulators may be applying more conservative criteria in evaluating real 
estate market values, requiring significantly increased provisions for 
potential loan losses.  While Falmouth believes it has established its 
existing allowances for loan losses in accordance with generally accepted 
accounting principles, there can be no assurance that regulators, in 
reviewing the Bank's loan portfolio, will not request the Bank to increase 
its allowance for loan losses, thereby negatively affecting the Bank's 
financial condition and earnings.

      In December 1993, the banking regulatory agencies, including the FDIC, 
adopted a policy statement regarding maintenance of an adequate allowance 
for loan and lease losses and an effective loan review system. This policy 
includes an arithmetic formula for checking the reasonableness of an 
institution's allowance for loan loss estimate compared to the average loss 
experience of the industry as a whole. Examiners will review an 
institution's allowance for loan losses and compare it against the sum of 
(i) 50% of the portfolio that is classified doubtful; (ii) 15% of the 
portfolio that is classified as substandard; and (iii) for the portions of 
the portfolio that have not been classified (including those loans 
designated as special mention), estimated credit losses over the upcoming 
twelve months given the facts and circumstances as of the evaluation date. 
This amount is considered neither a "floor" nor a "safe harbor" of the level 
of allowance for loan losses an institution should maintain, but examiners 
will view a shortfall relative to the amount as an indication that they 
should review management's policy on allocating these allowances to 
determine whether it is reasonable based on all relevant factors.

      The following table analyzes activity the Bank's allowance for loan 
losses for the periods indicated.

<TABLE>
<CAPTION>
                                                              Year Ended September 30,
                                            ----------------------------------------------------------
                                             1998            1997         1996        1995        1994
                                             ----            ----         ----        ----        ----
                                                               (Dollars in thousands)

<S>                                         <C>            <C>          <C>          <C>         <C>
Average loans, net                          $69,258        $ 47,288     $ 36,387     $30,244     $28,283

Period-end total loans                       78,182(1)       54,382       40,735      32,948      27,894

Allowance for loan losses at
 beginning of period                            501             498          445        310          277

Loans charged-off                                 -               -            -          -           (2)

Recoveries                                        -               3            2        135           26

Provision charged to operations                  26               -           51          -            9
                                            ------------------------------------------------------------

Allowance for loan losses at
 end of period                              $   527        $    501     $    498     $  445      $   310
                                            ============================================================

Ratios:
Allowance for loan losses as
 a percentage of period end total loans         .68%            .92%        1.22%      1.35%        1.11%

Allowance for loan losses as a
 percentage of non-performing loans               -%       1,670.00%    3,557.14%         -%       96.27%

Net charge-offs to average loans,
 net                                              -               -            -          -            -

Net charge-offs to allowance for
 loan losses                                      -               -            -          -            -

--------------------
<F1>   Net of unearned income and unadvanced principle.

</TABLE>

      The following table sets forth a breakdown of the allowance for loan 
losses by loan category at the dates indicated. Management believes that the 
allowance can be allocated by category only on an approximate basis. These 
allocations are not necessarily indicative of future losses and do not 
restrict the use of the allowance to absorb losses in any loan category.

<TABLE>
<CAPTION>
                                                                 At September 30,
                   --------------------------------------------------------------------------------------------------------------
                           1998                  1997                  1996                  1995                  1994
                   --------------------- --------------------- --------------------- --------------------- ----------------------

                            Percent of            Percent of            Percent of            Percent of            Percent of
                           Loans in Each         Loans in Each         Loans in Each         Loans in Each         Loans in Each
                            Category to           Category to           Category to           Category to           Category to
                   Amount   Total Loans  Amount   Total Loans  Amount   Total Loans  Amount   Total Loans  Amount   Total Loans
                   ------  ------------- ------  ------------- ------  ------------- ------  ------------- ------  -------------
                                                              (Dollars in thousands)

<S>                 <C>       <C>         <C>       <C>         <C>       <C>         <C>       <C>         <C>       <C>
Real estate 
 mortgage:
  Residential       $315       87.28%     $363       86.88%     $428       82.57%     $295       78.67%     $188       78.33%

  Commercial         113        5.19        64        4.46        32       10.56        96       10.67       103       11.06

Commercial loans,
 other                44        1.82        38        1.98         8        0.91        32        2.49         -           -

Consumer,
 including home
 equity loans         55        5.71       36         6.68        30        5.96        22        8.17        19       10.61
                    --------------------------------------------------------------------------------------------------------

Total allowance
 for loan losses    $527      100.00%    $501       100.00%     $498      100.00%     $445      100.00%     $310      100.00%
                    ========================================================================================================

</TABLE>

Investment Activities

      General. The Bank is required to maintain an amount of liquid assets 
appropriate for its level of net withdrawals from savings accounts and 
current borrowings. It has been generally the Bank's policy to maintain a 
liquidity portfolio in excess of regulatory requirements. At September 30, 
1998, the Bank's liquidity ratio was 28.34%. Liquidity levels may be 
increased or decreased depending upon the yields on investment alternatives, 
management's judgment as to the attractiveness of the yields then available 
in relation to other opportunities, management's expectations of the level 
of yield that will be available in the future and management's projections 
as to the short-term demand for funds to be used in Falmouth's loan 
origination and other activities.

      Interest income from investments in various types of liquid assets 
provides a significant source of revenue for the Bank.  In the late 1980s, 
the Bank maintained its conservative underwriting standards in an effort to 
avoid asset quality problems and chose instead to invest excess liquidity in 
its investment portfolio. The Bank's short-term investments include United 
States Treasury securities and United States Agency securities, commercial 
paper, bank certificates of deposits, equity securities, short-term 
corporate debt securities and overnight federal funds. The balance of the 
securities investments maintained by the Bank in excess of regulatory 
requirements reflects management's historical objective of maintaining 
liquidity at a level that assures the availability of adequate funds, taking 
into account anticipated cash flows and available sources of credit, for 
meeting withdrawal requests and loan commitments and making other 
investments.

      The Bank purchases securities through a primary dealer of United 
States Government obligations or such other securities dealers authorized by 
the Board of Directors and requires that the securities be delivered to the 
safekeeping agent (First National Bank of Boston) before the funds are 
transferred to the broker or dealer. The Bank purchases investment 
securities pursuant to an investment policy established by the Board of 
Directors.

      All securities and investments are recorded on the books of the Bank 
in accordance with generally accepted accounting principles. The Bank does 
not purchase securities and investments for trading. Effective October 1, 
1994, the Bank implemented SFAS 115. Available-for-sale securities are 
reported at fair value with unrealized gains or losses reported as a 
separate component of net worth. All purchases of securities and investments 
conform to the Bank's interest rate risk policy.

      The following table sets forth the scheduled maturities, average 
yields, amortized cost and market value for the Bank's investment securities 
at September 30, 1998.

<TABLE>
<CAPTION>
                                                                  September 30, 1998
                     -----------------------------------------------------------------------------------------------------------
                      One Year or Less   One to Five Years   Five to Ten Years   More than Ten Years  Total Investment Portfolio
                     ------------------  ------------------  ------------------  -------------------  --------------------------
                     Amortized  Average  Amortized  Average  Amortized  Average  Amortized  Average   Amortized  Average  Market
                       Cost      Yield     Cost      Yield     Cost      Yield     Cost      Yield      Cost      Yield   Amount
                     ---------  -------  ---------  -------  ---------  -------  ---------  -------   ---------  -------  ------
                                                                (Dollars in thousands)

<S>                   <C>        <C>      <C>        <C>       <C>       <C>      <C>        <C>       <C>        <C>     <C>
U.S. Government
 Obligations          $ 4,904    5.9%     $   --      --%      $ --       --%     $   --      --%      $ 4,904    5.9%    $ 4,917

Mortgage-backed
 Securities                --     --          --      --        475      7.6       2,239     7.5         2,714    7.5       2,796

Corporate Notes
 and Bonds              6,427    7.4       3,943     6.7         --       --          --      --        10,360    7.1      10,435
                      -------             ------               ----               ------               -------            -------

Total                 $11,321    6.8%     $3,943     6.7%      $475      7.6%     $2,239     7.5%       17,978    6.8%     18,148
                      =======             ======               ====               ======               =======            =======

Marketable Equity
 Securities                                                                                              5,423    5.1       5,854

FHLB Stock                                                                                                 563    6.5         563
                                                                                                       -------            -------

Total Investment
 Portfolio                                                                                             $23,964    6.4%    $24,565
                                                                                                       =======            =======

</TABLE>

      The following tables set forth information regarding the investment 
portfolio at the dates indicated.

<TABLE>
<CAPTION>
                                                             September 30, 1998
                                     -------------------------------------------------------------------
                                            Available-for-Sale                  Held-to-Maturity
                                     --------------------------------   --------------------------------
                                     Amortized   Market                 Amortized   Market
                                       Cost      Value     Percent(1)     Cost      Value     Percent(2)
                                     ---------   ------    ----------   ---------   ------    ----------
                                                           (Dollars in thousands)

<S>                                   <C>        <C>         <C>         <C>        <C>         <C>
Investment securities(3):
  U.S. government obligations         $ 3,705    $ 3,713      21.9%      $1,200     $1,204       17.0%

  Other bonds and obligations           4,997      5,053      29.9        5,362      5,382       76.0

  Marketable equity securities          5,423      5,854      34.6           --         --         --

  Mortgage-backed securities(4)         2,239      2,304      13.6          475        492        7.0
                                      ---------------------------------------------------------------

      Total Investment Portfolio      $16,364    $16,924     100.0%      $7,037     $7,078      100.0%
                                      ===============================================================
<CAPTION>
                                                             September 30,
                                     ----------------------------------------------------------------
                                            1998                  1997                    1996
                                      ------------------    -------------------     -----------------
                                      Amount     Percent    Amount      Percent     Amount    Percent
                                      ------     -------    ------      -------     ------    -------
                                                          (Dollars in thousands)

<S>                                   <C>         <C>       <C>         <C>         <C>       <C>
Investment securities(3):
  U.S. government obligations         $ 4,913      20.5%    $14,624      40.6%      $25,486    55.9%

  Other bonds and obligations          10,415      43.5      10,292      28.6        10,440    22.9

  Marketable equity securities          5,854      24.4       7,670      21.3         6,764    14.9

  Mortgage-backed securities(4)         2,779      11.6       3,411       9.5         2,863     6.3
                                      -------------------------------------------------------------

      Total Investment Portfolio      $23,961     100.0%    $35,997     100.0%      $45,553   100.0%
                                      =============================================================

--------------------
<F1>  As a percentage of market value.
<F2>  As a percentage of amortized cost.
<F3>  Includes $3.2  million invested in Bank Investment Fund One, a mutual 
      bond fund offered by the Co-operative Central Bank, a quasi-governmental 
      agency, and does not include interest-earning overnight deposits of 
      $5,581,233 or Federal Home Loan Bank Stock of $562,800.
<F4>  Consists of collateralized mortgage obligations, GNMA and FHLMC 
      certificates.

</TABLE>

Deposit Activity and Other Sources of Funds

      General. Deposits are the primary source of the Bank's funds for 
lending and other investment purposes. In addition to deposits, the Bank 
derives funds from principal repayments and interest payments on loans and 
investments as well as other sources arising from operations in the 
production of net earnings. Loan repayments and interest payments are a 
relatively stable source of funds, while deposit inflows and outflows are 
significantly influenced by general interest rates and money market 
conditions. Borrowings may be used on a short-term basis to compensate for 
reductions in the availability of funds from other sources, or on a longer 
term basis for general business purposes.

      Deposits. Deposits are attracted principally from within the Bank's 
primary market area through the offering of a broad selection of deposit 
instruments, including passbook savings, NOW accounts, demand deposits, 
money market accounts and certificates of deposit. Deposit account terms 
vary, with the principal differences being the minimum balance required, the 
time periods the funds must remain on deposit and the interest rate.

      The Bank's policies are designed primarily to attract deposits from 
local residents and businesses rather than to solicit deposits from areas 
outside its primary market. The Bank does not accept deposits from brokers 
due to the volatility and rate sensitivity of such deposits. Interest rates 
paid, maturity terms, service fees and withdrawal penalties are established 
by the Bank on a periodic basis. Determination of rates and terms are 
predicated upon funds acquisition and liquidity requirements, rates paid by 
competitors, growth goals and federal regulations.

      The following table sets forth the various types of deposit accounts 
at the Bank and the balances in these accounts at the dates indicated.

<TABLE>
<CAPTION>
                                                                    At September 30,
                       ----------------------------------------------------------------------------------------------------------
                              1998                  1997                  1996                  1995                  1994
                       ------------------    ------------------    ------------------    ------------------    ------------------
                       Amount     Percent    Amount     Percent    Amount     Percent    Amount     Percent    Amount     Percent
                       ------     -------    ------     -------    ------     -------    ------     -------    ------     -------
                                                                 (Dollars in thousands)

<S>                    <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Savings deposits       $16,583     20.3%     $15,828     21.9%     $13,986     21.1%     $13,921     21.5%     $16,092     24.2%

NOW accounts             6,601      8.1        6,983      9.7        5,674      8.5        5,562      8.6        5,261      7.9

Money market 
 deposits               11,056     13.6        9,111     12.6        7,770     11.7        8,441     13.0       10,268     15.5
                       --------------------------------------------------------------------------------------------------------

      Total             34,240     42.0       31,922     44.2       27,430     41.3       27,924     43.1       31,621     47.6
                       --------------------------------------------------------------------------------------------------------

Demand deposits          5,335      6.5        3,136      4.4          947      1.4          701      1.1          141      0.2

Certificates of
 deposit                41,944     51.5       37,133     51.4       38,066     57.3       36,157     55.8       34,666     52.2
                       --------------------------------------------------------------------------------------------------------

      Total deposits   $81,519    100.0%     $72,191    100.0%     $66,443    100.0%     $64,782   100.0%      $66,428    100.0%
                       ========================================================================================================

</TABLE>

      For more information on the Bank's deposit accounts, see Note 6 of 
Notes to Financial Statements.

      The following table indicates the amount of the Bank's certificates of 
deposit of $100,000 or more by time remaining until maturity at September 
30, 1998.

<TABLE>
<CAPTION>
                                             Certificates
               Maturity Period                of Deposit
      ---------------------------------     --------------
                                            (In thousands)

      <S>                                       <C>
      Within three months                       $2,303

      After three but within six months          1,630

      After six but within 12 months             2,055

      After 12 months                            2,033
                                                ------

      Total                                     $8,021
                                                ======

</TABLE>

      The following table sets forth the deposit activity of the Bank for 
the periods indicated.

<TABLE>
<CAPTION>
                                              Years Ended September 30,
                              ----------------------------------------------------------
                                1998         1997         1996        1995        1994
                                ----         ----         ----        ----        ----
                                                    (In thousands)

<S>                           <C>          <C>          <C>          <C>         <C>
Deposits                      $306,283     $179,911     $153,704     $84,785     $70,679

Withdrawals                    299,905      176,904      155,067      88,973      73,950
                              ----------------------------------------------------------

Net increase (decrease)
 before interest credited        6,378        3,007       (1,363)     (4,188)     (3,271)

Interest credited                2,950        2,740        2,786       2,542       2,128
                              ----------------------------------------------------------

Net increase (decrease)
 in deposits                  $  9,328     $  5,747     $  1,423     $(1,646)    $(1,143)
                              ==========================================================

</TABLE>

      Borrowings. Savings deposits historically have been the primary source 
of funds for the Bank's lending and investment activities and for its 
general business activities. The Bank is authorized, however, to use 
advances from the FHLB of Boston to supplement its supply of lendable funds 
and to meet deposit withdrawal requirements. Advances from the FHLB are 
secured by the Bank's stock in the FHLB and a portion of the Bank's mortgage 
loans.  The Bank had $7.6 million of FHLB advances outstanding at September 
30, 1998.

      The FHLB of Boston functions as a central reserve bank providing 
credit for savings institutions and certain other financial institutions. As 
a member, the bank is required to own capital stock in the FHLB and is 
authorized to apply for advances on the security of such stock and certain 
of its home mortgages and other assets (principally, securities which are 
obligations of, or guaranteed by the United States) provided certain 
standards related to creditworthiness have been met.

Competition

      The Bank experiences substantial competition both in attracting and 
retaining savings deposits and in the making of mortgage and other loans. 
Direct competition for savings deposits primarily comes from larger 
commercial banks and other savings institutions located in or near the 
Bank's primary market area which generally have significantly greater 
financial and technological resources than the Bank. Additional significant 
competition for savings deposits comes from credit unions, money market 
funds and brokerage firms. The primary factors in competing for loans are 
interest rates and loan origination fees and the range of services offered 
by the various financial institutions. Competition for origination of real 
estate loans normally comes from commercial banks, other thrift 
institutions, mortgage bankers, mortgage brokers and insurance companies. 
Management considers the Bank's competitors in its market area to consist of 
15 branches of financial institutions headquartered outside of its market 
area. The Bank is the only independent financial institution headquartered 
in Falmouth.

Employees

      At September 30, 1998, the Bank had 27 full-time and 5 part-time 
employees.  The Bank's employees are not represented by a collective 
bargaining agreement, and the Bank considers its relationship with its 
employees to be good.

                         FEDERAL AND STATE TAXATION

Federal Taxation

      General.  The following is intended only as a discussion of material 
federal income tax matters and does not purport to be a comprehensive 
description of the federal income tax rules applicable to the Bank or the 
Registrant. The Bank's federal income tax return was last audited for the 
tax year ended September 30, 1975.  For federal income tax purposes, the 
Company and the Bank, as members of the same affiliated group, file 
consolidated income tax returns on a September 30 fiscal year basis using 
the accrual method of accounting and are subject to federal income taxation 
in the same manner as other corporations with some exceptions, including 
particularly the Bank's tax reserve for bad debts, discussed below.

      Bad Debt Reserves.  The Bank, as a "small bank" (one with assets 
having an adjusted tax basis of $500 million or less) is permitted to 
maintain a reserve for bad debts with respect to "qualifying loans," which, 
in  general, are loans secured by certain interests in real property,  and 
to make, within specified formula limits, annual additions to the reserve 
which are deductible for purposes of computing the Bank's taxable income.  
Pursuant to the Small Business Job Protection Act of 1996, the Bank is now 
recapturing (taking into income) over a multi-year period a portion of the 
balance of its bad debt reserve as of September 30, 1996. See Note 9 to the 
consolidated financial statements.

      Distributions.  To that the extent that the Bank makes "non-dividend 
distributions" to the Company, such distributions will be considered to have 
been made from the Bank's "base year reserve," i.e., its reserve as of 
September 30, 1988, and then from the Bank's supplemental reserve for losses 
on loans, to the extent thereof, and an amount based on the amount 
distributed (but not in excess of the amount of such reserves) will be 
included in the Bank's income. Non-dividend distributions include 
distributions in excess of the Bank's current and accumulated earnings and 
profits, as calculated for federal income tax purposes, distributions in 
redemption of stock, and distributions in partial or complete liquidation. 
Dividends paid out of the Bank's current or accumulated earnings and profits 
will not be so included in the Bank's income.

      The amount of additional taxable income created from a non-dividend 
distribution is an amount that, when reduced by the tax attributable to the 
income, is equal to the amount of the distribution. Thus, if the Bank makes 
a non-dividend distribution to the Company, approximately one and one-half 
times the amount of such distribution (but not in excess of the amount of 
such reserves) would be includible in income, assuming a 34% federal 
corporate income tax rate. The Bank does not intend to pay dividends that 
would result in a recapture of any portion of its bad debt reserves.

      Corporate Alternative Minimum Tax. The Code imposes a tax ("AMT") on 
alternative minimum taxable income ("AMTI") at a rate of 20%.  Only 90% of 
AMTI can be offset by net operating loss carryovers of which the Bank 
currently has none.  AMTI is also adjusted by determining the tax treatment 
of certain items in a manner that negates the deferral of income resulting 
from the regular tax treatment of those items. Thus, the Bank's AMTI is 
increased by an amount equal to 75% of the amount by which the Bank's 
adjusted current earnings exceeds its AMTI (determined without regard to 
this adjustment and prior to reduction for net operating losses).  The Bank 
does not expect to be subject to the AMT. 

      Elimination of Dividends; Dividends Received Deduction.  The 
Registrant may exclude from its income 100% of dividends received from the 
Bank as a member of the same affiliated group of corporations.

State Taxation

      Massachusetts Taxation.  The Bank currently files a separate 
Massachusetts excise tax return, based on net income.  Prior to July, 1995, 
the Bank was subject to an annual Massachusetts excise (income) tax equal to 
12.54% of its pre-tax income.  In 1995, legislation was enacted to reduce 
the Massachusetts bank excise (income) tax rate and to allow Massachusetts-
based financial institutions to apportion income earned in other states.  
Further, this legislation expands the applicability of the tax to non-bank 
entities and out-of-state financial institutions.  The Massachusetts excise 
tax rate for co-operative banks is currently 11.32% of federal taxable 
income, adjusted for certain items.  It is anticipated that this rate will 
be gradually reduced over the next few years so that the Bank's tax rate 
will become 10.5% by March 31, 2000.  Taxable income includes gross income 
as defined under the Code, plus interest from bonds, notes and evidences of 
indebtedness of any state, including Massachusetts, less deductions, but not 
the credits, allowable under the provisions of the Code.  No deductions, 
however, are allowed for dividends received until July 1, 1999.  In 
addition, carryforwards and carrybacks of net operating losses are not 
allowed.

      The Bank's active subsidiary, Falmouth Securities Corporation, was 
established solely for the purpose of acquiring and holding investments 
which are permissible for banks to hold under Massachusetts law.  Falmouth 
Securities Corporation has qualified as a "security corporation" under 
Massachusetts law, qualifying it to take advantage of the 1.32% income tax 
rate on gross income applicable to companies that are so classified.  

      The Bank and the Company are not permitted to file a combined 
Massachusetts excise tax return.  The Company will be subject to 
Massachusetts corporate excise tax, which is determined by two measures:  
(1) the income measure, a tax of 9.5% on net income attributable to 
Massachusetts; and (2) the non-income measure, a tax of $2.60 per $1,000 
imposed on either (a) tangible property, if the corporation is a tangible 
property corporation, or (b) net worth, if the corporation is an intangible 
property corporation.  Unlike the definition of net income for purposes of 
the Bank's taxation, net operating loss carryovers and a 95% dividends 
received deduction for intercompany dividends is permissible for 
corporations.

      For additional information regarding taxation, see Note 9 of the Notes 
to Financial Statements.

      Delaware Taxation.  As a Delaware holding company not earning income 
in Delaware, the Company is exempt from Delaware corporate income tax but is 
required to file an annual report with and pay an annual franchise tax to 
the State of Delaware.

                         REGULATION AND SUPERVISION

General

      As a co-operative bank chartered by the Commonwealth of Massachusetts 
whose deposits are insured by the BIF of the FDIC, the Bank is subject to 
extensive regulation under state law with respect to many aspects of its 
banking activities; this state regulation is administered by the Division of 
Banks.  In addition, the FDIC levies assessments or deposit insurance 
premiums and is vested with authority to supervise the Bank and to exercise 
a broad range of enforcement powers.  Finally, the Bank is required to 
maintain reserves against deposits according to a schedule established by 
the Federal Reserve System.  These laws and regulations have been 
established primarily for the protection of depositors and the deposit 
insurance fund, not the Company's stockholders.

      The following references to the laws and regulations under which the 
Bank is regulated are brief summaries thereof, do not purport to be complete 
and are qualified in their entirety by reference to such laws and 
regulations.

Federal Banking Regulations

      Capital Requirements.  Under FDIC regulations, insured state-chartered 
banks that are not members of the Federal Reserve System ("state non-member 
banks") are required to maintain minimum levels of capital.  State non-
member banks must satisfy a leverage capital ratio of Tier 1 capital to 
total assets of at least 3% if the FDIC determines that the institution is 
not anticipating or experiencing significant growth and has well diversified 
risk, including no undue interest rate risk exposure, excellent asset 
quality, high liquidity, good earnings and is in general a strong banking 
organization, rated composite 1 under the Uniform Financial Institutions 
Ranking System (the CAMEL rating system) established by the Federal 
Financial Institutions Examination Council.  For all but the most highly 
rated institutions meeting the conditions set forth above, the minimum 
leverage capital ratio is 3% plus an additional "cushion" amount of at least 
100 to 200 basis points.  Tier 1 capital is the sum of common stockholders' 
equity, noncumulative perpetual preferred stock (including any related 
surplus) and minority investments in certain subsidiaries, less most 
intangible assets.  The FDIC and the federal banking regulators have 
proposed amendments to their minimum capital regulations to provide that the 
minimum leverage capital ratio for depository institutions, other than those 
that have been assigned the highest composite rating of 1 under the Uniform 
Financial Institutions Ratings System, will be 4% unless a higher leverage 
capital ratio is warranted by the particular circumstances or risk profile 
of the depository institution. 

      The FDIC has also adopted risk-based capital guidelines to which the 
Bank is subject.  The guidelines establish a systematic analytical framework 
designed to make regulatory capital requirements sensitive to differences in 
risk profiles among banking organizations.  The FDIC guidelines require 
state non-member banks to maintain certain levels of regulatory capital in 
relation to regulatory risk-weighted assets.  The ratio of such regulatory 
capital to regulatory risk-weighted assets is referred to as the Bank's 
"risk-based capital ratio."  Risk-based capital ratios are determined by 
allocating assets and specified off-balance sheet items to four risk-
weighted categories ranging from 0% to 100%, with higher levels of capital 
being required for the categories perceived as representing greater risk.  
Under the FDIC's risk-weighting system, cash and securities backed by the 
full faith and credit of the U.S. government are given a 0% risk weight.  
Mortgage-backed securities that qualify under the Secondary Mortgage 
Enhancement Act, including those issued, or fully guaranteed as to principal 
and interest, by the FNMA or the Federal Home Loan Mortgage Corporation 
("FHLMC"), are assigned a 20% risk weight.  Single-family first mortgages 
not more than 90 days past due with loan-to-value ratios under 80%, multi-
family mortgages (maximum 36 dwelling units) with loan-to-value ratios under 
80% and average annual occupancy rates over 80%, and certain qualifying 
loans for the construction of one- to four-family residences pre-sold to 
home purchasers, are assigned a risk weight of 50%.  Consumer loans and 
commercial real estate loans, repossessed assets and assets more than 90 
days past due, as well as all other assets not specifically categorized, are 
assigned a risk weight of 100%.  The FDIC and the other federal banking 
regulators adopted, effective October 1, 1998, an amendment to their risk-
based capital guidelines that permits insured depository institutions to 
include in supplementary capital up to 45% of the pretax net unrealized 
holding gains on certain available-for-sale equity securities, as such gain 
are computed under the guidelines.

      State non-member banks must maintain a minimum ratio of qualifying 
total capital to risk-weighted assets of at least 8%, of which at least one-
half must be Tier 1 capital.  Qualifying total capital consists of Tier 1 
capital plus Tier 2 or supplementary capital items, which include allowances 
for loan losses in an amount of up to 1.25% of risk-weighted assets, 
cumulative preferred stock, preferred stock with a maturity of over 20 
years, and certain other capital instruments. The includable amount of Tier 
2 capital cannot exceed the amount of the institution's Tier 1 capital.  
Qualifying total capital is further reduced by the amount of the bank's 
investments in banking and finance subsidiaries that are not consolidated 
for regulatory capital purposes, reciprocal cross-holdings of capital 
securities issued by other banks and certain other deductions.    

      The Federal Deposit Insurance Corporation Improvement Act ("FDICIA") 
required each federal banking agency to revise its risk-based capital 
standards for insured institutions to ensure that those standards take 
adequate account of interest-rate risk ("IRR"), concentration of credit 
risk, and the risk of nontraditional activities, as well as to reflect the 
actual performance and expected risk of loss on multi-family residential 
loans.  In August 1995, the FDIC, along with the other federal banking 
agencies, adopted a regulation providing that the agencies will take account 
of the exposure of a bank's capital and economic value to the risks of 
changes in interest rates in assessing a bank's capital adequacy.  According 
to the agencies, applicable considerations include the quality of the bank's 
interest rate risk management process, the overall financial condition of 
the bank, and the level of other risks at the bank for which capital is 
needed.  Institutions with significant interest rate risk may be required to 
hold additional capital.  The agencies also issued a joint policy statement 
providing guidance on interest rate risk management, including a discussion 
of the critical factors affecting the agencies' evaluation of interest rate 
risk in connection with capital adequacy.  The agencies have determined not 
to proceed with a previously issued proposal to develop a supervisory 
framework for measuring interest rate risk and to require an explicit 
capital component for interest rate risk.

      The following table shows the Bank's leverage capital ratio, its Tier 
1 risk-based capital ratio, and its total risk-based capital ratio, at 
September 30, 1998.  The Bank exceeded the minimum capital adequacy 
requirements at September 30, 1998.

<TABLE>
<CAPTION>
                                                    At September 30, 1998
                                    -----------------------------------------------------
                                    Capital     Percent of       Capital       Percent of
                                    Amount      Assets(1)      Requirement     Assets(1)
                                    -------     ----------     -----------     ----------
                                                   (Dollars in thousands)

      <S>                           <C>           <C>            <C>             <C>
      Tier 1 leverage capital       $14,104       13.62%         $4,143          4.00%

      Tier 1 risk-based capital      14,104       22.47%          2,511          4.00%

      Total risk-based capital       14,631       23.31%          5,022          8.00%

--------------------
<F1>  For purposes of calculating the Tier 1 leverage capital ratio, assets 
      include adjusted total average assets.  In calculating Tier 1 risk -
      based capital and total risk-based capital ratio, assets include total 
      risk-weighted assets.

</TABLE>

Enforcement

      The FDIC has extensive enforcement authority over insured co-operative 
banks, including the Bank.  This enforcement authority includes, among other 
things, the ability to assess civil money penalties, to issue cease and 
desist orders and to remove directors and officers.  In general, these 
enforcement actions may be initiated in response to violations of laws and 
regulations and to unsafe or unsound practices.

      The FDIC has authority under federal law to appoint a conservator or 
receiver for an insured bank under certain circumstances.  The FDIC is 
required, with certain exceptions, to appoint a receiver or conservator for 
an insured state bank if that bank was "critically undercapitalized" on 
average during the calendar quarter beginning 270 days after the date on 
which the bank became "critically undercapitalized."  For this purpose, 
"critically undercapitalized" means having a ratio of tangible capital to 
total assets of less than 2%.  The FDIC may also appoint a conservator or 
receiver for a state bank on the basis of the institution's financial 
condition or upon the occurrence of certain events, including: (i) 
insolvency (whereby the assets of the bank are less than its liabilities to 
depositors and others); (ii) substantial dissipation of assets or earnings 
through violations of law or unsafe or unsound practices; (iii) existence of 
an unsafe or unsound condition to transact business; (iv) likelihood that 
the bank will be unable to meet the demands of its depositors or to pay its 
obligations in the normal course of business; and (v) insufficient capital, 
or the incurring or likely incurring of losses that will deplete 
substantially all of the institution's capital with no reasonable prospect 
of replenishment of capital without federal assistance.

Deposit Insurance

      The FDIC has adopted a risk-based deposit insurance assessment system.  
The FDIC assigns an institution to one of three capital categories based on 
the institution's financial information, as of the reporting period ending 
seven months before the assessment period, consisting of (1) well 
capitalized, (2) adequately capitalized or (3) undercapitalized, and one of 
three supervisory subcategories within each capital group.  The supervisory 
subgroup to which an institution is assigned is based on a supervisory 
evaluation provided to the FDIC by the institution's primary federal 
regulator and information that the FDIC determines to be relevant to the 
institution's financial condition and the risk posed to the deposit 
insurance funds.  An institution's assessment rate depends on the capital 
category and supervisory category to which it is assigned.  Assessment rates 
for BIF deposits currently range from 0 basis points to 27 basis points.  
The Bank's assessment rate is currently 0 basis points.  The FDIC is 
authorized to raise the assessment rates in certain circumstances, including 
to maintain or achieve the designated reserve ratio of 1.25%, which 
requirement the BIF currently meets.  The FDIC has exercised its authority 
to raise rates in the past and may raise insurance premiums in the future.  
If such action is taken by the FDIC, it could have an adverse effect on the 
earnings of the Bank.  In addition, recent legislation requires BIF-insured 
institutions like the Bank to assist in the payment of FICO bonds.

      Under the Deposit Insurance Funds Act of 1996 (the "Funds Act"), the 
assessment base for the payments on the FICO bonds was expanded to add, 
beginning January 1, 1997, the deposits of BIF-insured institutions, such as 
the Bank.  Until December 31, 1999, or such earlier date on which the last 
savings association ceases to exist, the rate of assessment for BIF-
assessable deposits shall be one-fifth of the rate imposed on SAIF-
assessable deposits.  The annual rate of assessments for the payments on the 
FICO bonds for the semi-annual period beginning on July 1, 1997 was 0.0126% 
for BIF-assessable deposits and 0.0630% for SAIF-assessable deposits.  For 
the semi-annual period beginning July 1, 1998, the rates of assessment for 
the FICO bonds is 0.0122% for BIF-assessable deposits and 0.0610 for SAIF-
assessable deposits.

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

Transactions with Affiliates and Insiders

      Transactions between state non-member banks and any affiliate are 
governed by Sections 23A and 23B of the Federal Reserve Act.  An affiliate 
of a bank is any company or entity which controls, is controlled by or is 
under common control with the bank.  Currently, a subsidiary of a bank that 
is not also a depository institution is not treated as an affiliate of the 
bank for purposes of Sections 23A and 23B, but the FRB has proposed treating 
any subsidiary of a bank that is engaged in activities not permissible for 
bank holding companies under the BHCA as an affiliate for purposes of 
Sections 23A and 23B.  Generally, Section 23A (i) limits the extent to which 
the bank or its subsidiaries may engage in "covered transactions" with any 
one affiliate to an amount equal to 10% of such bank's capital and surplus, 
and contains an aggregate limit on all such transactions with all affiliates 
to an amount equal to 20% of such capital and surplus and (ii) requires that 
all such transactions be on terms that are consistent with safe and sound 
banking practices.  The term "covered transaction" includes the making of 
loans, purchase of assets, issuance of guarantees and similar other types of 
transactions.  In addition, most extensions of credit by a bank to any of 
its affiliates must be secured by collateral in amounts ranging from 100% to 
130% of the loan amounts, depending on the type of collateral.  Section 23B 
requires that any covered transaction, and certain other transactions, 
including the bank's sale of assets and purchase of services from an 
affiliate must be on terms that are substantially the same, or at least as 
favorable, to the institution as those that would prevail in a comparable 
transaction with a non-affiliate.

      Banks are also subject to the restrictions contained in Section 22(h) 
of the Federal Reserve Act and the FRB's Regulation O thereunder on loans to 
executive officers, directors and principal stockholders.  Under Section 
22(h), loans to a director, an executive officer or a holder of more than 
10% of the shares of a bank, as well as certain affiliated interests of such 
persons, may not exceed, together with all other outstanding loans to such 
person and affiliated interests, the loans-to-one-borrower limit applicable 
to national banks (generally 15% of an institution's unimpaired capital and 
surplus) and all loans to all such persons in the aggregate may not exceed 
an institution's unimpaired capital and unimpaired surplus.  Regulation O 
also prohibits the making of loans in an amount greater than the lesser of 
$25,000 or 5% of capital and surplus but in any event over $500,000, to a 
director, executive officer and greater than 10% stockholder of a bank, and 
the respective affiliates of such a person, unless such loans are approved 
in advance by a majority of the board of directors of the bank, with any 
"interested" director not participating in the voting.  Further, the FRB 
pursuant to Regulation O requires that loans to directors, executive 
officers and principal stockholders (a) be made on terms substantially the 
same as those that are offered in comparable transactions to persons not 
affiliated with the bank and (b) follow credit underwriting procedures not 
less stringent than those prevailing for comparable transactions with 
persons not affiliated with the bank.  Regulation O also prohibits a 
depository institution from paying, with certain exceptions, an overdraft of 
any of the executive officers or directors of the institution or any of its 
affiliates unless the overdraft is paid pursuant to written pre-authorized 
extension of interest-bearing extension of credit or transfer of funds from 
another account at the bank.

      State chartered non-member banks are further subject to the 
requirements and restrictions against certain tying arrangements and on 
extensions of credit involving correspondent banks.  Specifically, a 
depository institution is prohibited from extending credit to or offering 
any other service, or fixing or varying the consideration for such extension 
of credit or service, on the condition that the customer obtain some 
additional service from the institution or certain of its affiliates or not 
obtain services of a competitor of the institution, subject to certain 
exceptions.  In addition, a depository institution with a correspondent 
banking relationship with another depository institution is prohibited from 
extending credit to the executive officers, directors, and holders of more 
than 10% of the stock of the other depository institution, unless such 
extension of credit is on substantially the same terms as those prevailing 
at the time for comparable transactions with other persons and does not 
involve more than the normal risk of repayment or present other unfavorable 
features.

Real Estate Lending Policies

      Under FDIC regulations which became effective March 19, 1993, state-
chartered nonmember banks must adopt and maintain written policies that 
establish appropriate limits and standards for extensions of credit that are 
secured by liens or interest in real estate or are made for the purpose of 
financing permanent improvements to real estate.  These policies must 
establish loan portfolio diversification standards, prudent underwriting 
standards, including loan-to-value limits, that are clear and measurable, 
loan administration procedures and documentation, approval and reporting 
requirements.  The real estate lending policies must reflect consideration 
of the Interagency Guidelines for Real Estate Lending Policies (the 
"Interagency Guidelines") that have been adopted by the federal bank 
regulators.

      The Interagency Guidelines, among other things, call upon a depository 
institution to establish internal loan-to-value limits for real estate loans 
that are not in excess of the following supervisory limits: (i) for loans 
secured by raw land, the supervisory loan-to-value limit is 65% of the value 
of the collateral; (ii) for land development loans (i.e., loans for the 
purpose of improving unimproved property prior to the erection of 
structures), the supervisory limit is 75%; (iii) for loans for the 
construction of commercial, multi-family or other nonresidential property, 
the supervisory limit is 80%; (iv) for loans for the construction of one- to 
four-family properties, the supervisory limit is 85%; and (v) for loans 
secured by other improved property (e.g., farmland, completed commercial 
property and other income-producing property including non-owner-occupied, 
one- to four-family property), the limit is 85%.  Although no supervisory 
loan-to-value limit has been established for owner-occupied, one- to four-
family and home equity loans, the Interagency Guidelines state that for any 
such loan with a loan-to-value ratio that equals or exceeds 90% at 
origination, an institution should require appropriate credit enhancement in 
the form of either mortgage insurance or readily marketable collateral.

Standards for Safety and Soundness

      Under FDICIA, each federal banking agency is required to prescribe, by 
regulation, safety and soundness standards for institutions under its 
authority.  The federal banking agencies, including the FDIC, have adopted 
standards covering internal controls, information systems and internal audit 
systems, loan documentation, credit underwriting, interest rate exposure, 
asset growth, employee compensation, fees, and benefits, asset quality and 
earnings sufficiency.  These standards are in the form of broad guidelines 
for performance that generally leave to each institution the methods for 
achieving the objectives.  The Bank believes it meets the FDIC's safety and 
soundness standards.

Federal Home Loan Bank System

      The Bank is a member of the FHLB System, which consists of 12 regional 
Federal Home Loan Banks subject to supervision and regulation by the Federal 
Housing Finance Board ("FHFB").  The Federal Home Loan Banks provide a 
central credit facility primarily for member institution.  As a member of 
the FHLB, the Bank is required to acquire and hold shares of capital stock 
in the FHLB in an amount at least equal to 1% of the aggregate unpaid 
principal of its home mortgage loans, home purchase contracts, and similar 
obligations at the beginning of each year, or 1/20 of its advances 
(borrowings) from the FHLB, whichever is greater.  Falmouth was in 
compliance with this requirement with an investment in FHLB of Boston stock 
at September 30, 1998, of $562,800.

      The FHLB of Boston serves as a reserve or central bank for its member 
institutions within its assigned region.  It is funded primarily from 
proceeds derived from the sale of consolidated obligations of the FHLB 
System.  It offers policies and procedures established by the FHFB and the 
Board of Directors of the FHLB of Boston.  Long-term advances may only be 
made for the purpose of providing funds for residential housing finance.

Federal Reserve System

      Pursuant to regulations of the FRB, a bank must maintain average daily 
reserves equal to 3.0% on the first $47.8 million of net transaction 
accounts, above an exempt amount of $4.7 million, plus 10% on the remainder.  
This percentage is subject to adjustment by the FRB.  Because required 
reserves must be maintained in the form of vault cash or in a non-interest 
bearing account at a Federal Reserve Bank, the effect of the reserve 
requirement is to reduce the amount of the institution's interest-earning 
assets.  As of September 30, 1998, the Bank met its reserve requirements.

Massachusetts Banking Laws and Supervision

      Massachusetts co-operative banks such as the Bank are also regulated 
and supervised by the Division of Banks.  The Division of Banks is required 
to regularly examine each state-chartered bank.  The approval of the 
Division of Banks is required to establish or close branches, to merge with 
another bank, to form a bank holding company, to issue stock or to undertake 
many other activities.  Any Massachusetts bank that does not operate in 
accordance with the regulations, policies and directives of the Division of 
Banks is subject to sanctions.  The Division of Banks may under certain 
circumstances suspend or remove directors or officers of a bank who have 
violated the law, conducted a bank's business in a manner which is unsafe, 
unsound or contrary to the depositors' interests, or been negligent in the 
performance of their duties.

      All Massachusetts-chartered co-operative banks are required to be 
members of the Co-operative Central Bank and are subject to its assessments.  
The Co-operative Central Bank maintains the Share Insurance Fund, a private 
deposit insurer, which insures all deposits in member banks in excess of 
FDIC deposit insurance limits.  In addition, the Co-operative Central Bank 
acts as a source of liquidity to its members in supplying them with low-cost 
funds, and purchasing certain qualifying obligations from them.

      Major changes in Massachusetts law in 1982 and 1983 substantially 
expanded the powers of co-operative banks.  Their powers were made virtually 
identical to those of state-chartered commercial banks.  The powers which 
Massachusetts-chartered co-operative banks can exercise under these laws are 
summarized below.

      Lending Activities.  A wide variety of mortgage loans may be made.  
Fixed-rate loans, adjustable-rate loans, variable-rate loans, participation 
loans, graduated payment loans, construction loans, condominium and co-
operative loans, second mortgage loans and other types of loans may be made 
in accordance with applicable regulations.  Mortgage loans may be made on 
real estate in Massachusetts or in another New England state if the bank 
making the loan has an office there or under certain other circumstances.  
In addition, certain mortgage loans may be made on improved real estate 
located anywhere in the United States.  Commercial loans may be made to 
corporations and other commercial enterprises with or without security.  
With certain exceptions, such loans may be made without geographic 
limitations.  Consumer and personal loans may be made with or without 
security and without geographic limitations.  Loans to individual borrowers 
generally will be limited to 20% of the total of the Bank's capital accounts 
and stockholders' equity.

      Investments Authorized.  Massachusetts-chartered co-operative banks 
have broad investment powers under Massachusetts law, including so-called 
"leeway" authority for investments that are not otherwise specifically 
authorized.  The investment powers authorized under Massachusetts law are 
restricted by federal law to permit only investments of the kinds that would 
be permitted for national banks.  The Bank has authority to invest in all of 
the classes of loans and investments that are permitted by its existing loan 
and investment policies.

      Payment of Dividends.  A co-operative bank only may pay dividends on 
its capital stock if such payment would not impair the bank's capital stock 
and surplus account.  No dividends may be paid to stockholders of a bank if 
such dividends would reduce stockholders' equity of the bank below the 
amount of the liquidation account required by Massachusetts conversion 
regulations.

      Branches.  With the approval of the Division of Banks, bank branches 
may be established in any city or town in Massachusetts.  In addition, co-
operative banks may operate automated teller machines at any of their 
offices or, with the approval of the Division of Banks, anywhere in 
Massachusetts.  Sharing of ATMs or "networking" is also permitted with the 
approval of the Division of Banks.  Massachusetts chartered co-operative 
banks may also operate ATMs outside of Massachusetts if permitted to do so 
by the law of the jurisdiction in which the ATM is located.

      Interstate Acquisitions.  In 1996, the Massachusetts legislature 
passed a new interstate banking statute in anticipation of the June 1, 1997 
effective date of the federal interstate banking law.  Pursuant to this 
statute, an out-of-state bank may (subject to various regulatory approvals 
and to reciprocity in its home state) establish and maintain bank branches 
in Massachusetts by (i) merging with a Massachusetts bank that has been in 
existence for at least three years, (ii) acquiring a branch or branches of a 
Massachusetts bank without acquiring the entire bank, or (iii) opening such 
branches de novo.  Massachusetts banks' ability to exercise similar 
interstate banking powers in other states depends upon the laws of the other 
states.  For example, according to the law of the bordering state of New 
Hampshire, out-of-state banks may acquire New Hampshire banks by merger, but 
may not establish de novo branches in New Hampshire.

      Other Powers.  Massachusetts-chartered co-operative banks may also 
lease machinery and equipment, act as trustee or custodian for tax qualified 
retirement plans, establish trust departments and act as professional 
trustee or fiduciary, provide payroll services for their customers, issue or 
participate with others in the issuance of mortgage-backed securities and 
establish mortgage banking companies and discount securities brokerage 
operations.  Some of these activities require the prior approval of the 
Division of Banks.

Regulation of Holding Company

      Federal Regulation.  The Company is subject to examination, regulation 
and periodic reporting under the BHCA, as administered by the FRB.  The FRB 
has adopted capital adequacy guidelines for bank holding companies on a 
consolidated basis substantially similar to those of the FDIC for the Bank.

      The Company is required to obtain the prior approval of the FRB and 
the Massachusetts Board of Bank Incorporation ("BBI") to acquire all, or 
substantially all, of the assets or any bank of bank holding company.  Prior 
FRB and BBI approval would be required for the Company to acquire direct or 
indirect ownership or control of any voting securities of any bank or bank 
holding company if, after giving effect to such acquisition, it would, 
directly or indirectly, own or control more than 5% of any class of voting 
shares of such bank or bank holding company.

      Bancorp will be required to give the FRB prior written notice of any 
purchase or redemption of its outstanding equity securities if the gross 
consideration for the purchase or redemption, when combined with the net 
consideration paid for all such purchases or redemptions during the 
preceding 12 months, is equal to 10% or more of Bancorp's consolidated net 
worth. The FRB may disapprove such a purchase or redemption if it determines 
that the proposal would constitute an unsafe and unsound practice, or would 
violate any law, regulation, FRB order or directive, or any condition 
imposed by, or written agreement with, the FRB.  Such notice and approval is 
not required for a bank holding company that would be treated as "well 
capitalized" under applicable regulations of the FRB, that has received a 
composite "1" or "2" rating at its most recent bank holding company 
inspection by the FRB, and that is not the subject of any unresolved 
supervisory issues.

      The status of Bancorp as a registered bank holding company under the 
BHCA will not exempt it from certain federal and state laws and regulations 
applicable to corporations generally, including, without limitation, certain 
provisions of the federal securities laws.

      In addition, a bank holding company is prohibited generally from 
engaging in, or acquiring 5% or more of any class of voting securities of 
any company engaged in, non-banking activities.  One of the principal 
exceptions to this prohibition is for activities found by the FRB to be so 
closely related to banking or managing or controlling banks as to be a 
proper incident thereto.  Some of the principal activities that the FRB has 
determined by regulation to be so closely related to banking as to be a 
proper incident thereto are:  (i) making or servicing loans; (ii) performing 
certain data processing services; (iii) providing discount brokerage 
services; (iv) acting as fiduciary, investment or financial advisor; (v) 
leasing personal or real property; (vi) making investments in corporations 
or projects designed primarily to promote community welfare; and (vii) 
acquiring a savings and loan association.

      Under FIRREA, depository institutions are liable to the FDIC for 
losses suffered or anticipated by the FDIC in connection with the default of 
a commonly controlled depository institution or any assistance provided by 
the FDIC to such an institution in danger of default.  This law would have 
potential applicability if Bancorp ever acquired as a separate subsidiary a 
depository institution in addition to the Bank.  There are no current plans 
for such an acquisition.

      Subsidiary banks of a bank holding company are subject to certain 
quantitative and qualitative restrictions imposed by the Federal Reserve Act 
on any extension of credit to, or purchase of assets from, or letter of 
credit on behalf of, the bank holding company or its subsidiaries, and on 
the investment in or acceptance of stocks or securities of such holding 
company or its subsidiaries as collateral for loans.  In addition, 
provisions of the Federal Reserve Act and FRB regulations limit the amounts 
of, and establish required procedures and credit standards with respect to, 
loans and other extensions of credit to officers, directors and principal 
stockholders of the Bank, Bancorp, any subsidiary of Bancorp and related 
interests of such persons.  Moreover, subsidiaries of bank holding companies 
are prohibited from engaging in certain tie-in arrangements (with the 
holding company or any of its subsidiaries) in connection with any extension 
of credit, lease or sale of property or furnishing of services.  See 
"Regulation and Supervision - Transactions with Affiliates and Insiders."

Federal Securities Laws

      The Company's Common Stock is registered with the SEC under Section 
12(b) of the Securities Exchange Act of 1934 (the "Exchange Act").  The 
Company is subject to the information, proxy solicitation, insider trading 
restrictions and other requirements under the Exchange Act.

ITEM 2.     DESCRIPTION OF PROPERTY.

      The following table sets forth certain information at September 30, 
1998 regarding Falmouth's office facilities, and certain other information 
relating to the properties at that date.

<TABLE>
<CAPTION>
                              Year Completed or     Square         Net Book Value
                                  Acquired          Footage     at September 30, 1998
                              -----------------     -------     ---------------------

    <S>                             <C>             <C>               <C>
    Main Office:
    20 Davis Straits                1978            10,696            $275,550
    Falmouth, MA 02540

    Branch Offices:
    North Falmouth, MA              1998             1,706             850,404
    78 County Rd.
    N. Falmouth, MA 02556

    East Falmouth, MA               1998             2,380             602,915
    397 E. Falmouth Hwy
    E. Falmouth, MA 02536

</TABLE>

      At September 30, 1998, the net book value of Falmouth's computer 
equipment and other furniture, fixtures and equipment at its office totaled 
$379,475.  For more information, see Note 5 of Notes to Financial 
Statements.

ITEM 3.     LEGAL PROCEEDINGS.

      Although the Bank and the Company, from time to time, are involved in 
various legal proceedings in the normal course of business, there are no 
material legal proceedings to which the Bank or the Company, its directors 
or its officers is a party or to which any of its property is subject as of 
the date of this Form 10-KSB.

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      None.

                                   PART II

ITEM 5.     MARKET FOR THE BANK'S COMMON STOCK AND RELATED STOCKHOLDER
            MATTERS

      The following information included in the Falmouth Bancorp, Inc. 1998 
Annual Report to Stockholders (the "Annual Report") is incorporated herein 
by reference: "Market for the Bank's Common Stock." 

ITEM 6.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS

      The following information included in the Falmouth Bancorp, Inc. 1998 
Annual Report to Stockholders (the "Annual Report") is incorporated herein 
by reference: "Management's Discussion and Analysis of Financial Condition 
and Results of Operations" and "Financial Highlights" on pages 3 through 18 
of the Annual Report.

ITEM 7.     FINANCIAL STATEMENTS 

      The following information included in the Annual Report is 
incorporated herein by reference: "Financial Statements and Notes to 
Financial Statements."

ITEM 8.     CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
            FINANCIAL DISCLOSURE

      None.

                                  PART III

ITEM 9.     DIRECTORS AND PRINCIPAL OFFICERS OF THE BANK

      The following information included in the Company's 1998 Proxy 
Statement for the 1999 Annual Meeting of Stockholders ("Proxy Statement") is 
incorporated herein by reference: "Election of Directors,"  "Nominees and 
Continuing Directors," "Executive Officers,"  and "Section 16(a) Beneficial 
Ownership Reporting Compliance."

ITEM 10.    EXECUTIVE COMPENSATION

      The following information included in the Proxy Statement is 
incorporated herein by reference: "Proposal 1 - Election of Directors - 
Directors' Compensation," "- Compensation Table," "- Certain Employee 
Benefit Plans and Employment Agreements" and "- Transactions with Certain 
Related Persons."

ITEM 11.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following information included in the Proxy Statement is 
incorporated herein by reference:
"Stock Ownership of Management" and "Security Ownership of Certain 
Beneficial Owners."

ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The following information included in the Proxy Statement is 
incorporated herein by reference:
"Transactions with Certain Related Persons."

ITEM 13.    EXHIBITS AND REPORTS ON FORM 8-K

      (a)   (1)   The following financial statements included in the 1998 
                  Annual Report are incorporated herein by reference:

                      Balance Sheets - At September 30, 1998 and 1997;
                      Statements of Income - Years Ended September 30, 1998, 
                       1997 and 1996;
                      Statements of Changes in Stockholders' Equity - Years 
                       Ended September 30, 1998, 1997 and 1996;
                      Statements of Cash Flows - Years Ended September 30, 
                       1998, 1997 and 1996; and
                      Notes to Financial Statements - Years Ended September 
                       30, 1998, 1997 and 1996

      (b)  Exhibits.  The following exhibits are either filed as part of 
                      this report or are incorporated herein by reference:

 3.1    Certificate of Incorporation of Falmouth Bancorp, Inc.(1)
 3.2    By-laws of Falmouth Bancorp, Inc.(1)
 4.3    Specimen Stock Certificate of Falmouth Bancorp, Inc.(1).
10.1    1997 Stock Option Plan for Outside Directors, Officers and Employees 
        of Falmouth Bancorp, Inc.(1)
10.2    1997 Recognition and Retention Plan for Outside Directors, Officers 
        and Employees of Falmouth Bancorp, Inc.(1)
10.3    Agreement and Plan of Reorganization by and among Falmouth Co-
        operative Bank and Falmouth Bancorp, Inc., dated November 25, 1997(1)
10.4    Employment Agreement by and between Falmouth Co-operative Bank and 
        Santo Pasqualucci.(1)
10.5    Employment Agreement by and between Falmouth Co-operative Bank and 
        George Young.(1)
10.6    Falmouth Co-operative Bank Employee Stock Ownership Plan.(1)
10.7    Falmouth Bancorp, Inc. Employee Stock Ownership Trust.(1)
13      Annual Report to Stockholders for the Year Ended September 30, 1998.
21      Subsidiaries of the Registrant.(2)
23.1    Consent of Shatswell, MacLeod & Company, P.C.
27      Financial Data Schedule.*

[FN]
--------------------
<F1>  Incorporated herein by reference Registration Statement on Form S-4 
      (Registration No. 333-16931), as filed with the Securities and 
      Exchange Commission on November 27, 1996.
<F2>  Incorporated herein by reference Registration Statement on Form 10-KSB 
      for the year ended September 30, 1997, as filed with the Securities 
      and Exchange Commission on December 29, 1997.

<F*>  Filed in electronic format only.

</FN>

a.    Reports on Form 8-K.
None.

      This Form 10-KSB contains certain forward looking statements 
consisting of estimates with respect to the financial condition, results of 
operations and business of the Bank and the Company that are subject to 
various factors which could cause actual results to differ materially from 
these estimates.  These factors include:  changes in general, economic and 
market conditions, or the development of an adverse interest rate 
environment that adversely affects the interest rate spread or other income 
anticipated from the Bank's or the Company's operations and investments.

                                 SIGNATURES

      In accordance with Section 13 or 15(d) of the Exchange Act, the 
registrant caused this report to be signed on its behalf by the undersigned, 
thereunto duly authorized.

FALMOUTH BANCORP, INC.

By: /s/ Santo P. Pasqualucci
    -------------------------------------
    President and Chief Executive Officer

      In accordance with the Exchange Act, this report has been signed below 
by the following persons on behalf of the registrant and in the capacities 
and on the dates indicated.

          Name                           Title                      Date
          ----                           -----                      ----

/s/ Santo P. Pasqualucci     Director, President and Chief    December 15, 1998
--------------------------   Executive Officer
Santo P. Pasqualucci         (Principal executive officer)


/s/ George E. Young, III     Vice President and Chief         December 15, 1998
--------------------------   Financial Officer (Principal
George E. Young, III         financial officer)

/s/ John W. Holland, Jr.     Director                         December 15, 1998
--------------------------
John W. Holland, Jr.

/s/ James A. Keefe           Director                         December 15, 1998
--------------------------
James A. Keefe

/s/ Gardner L. Lewis         Director                         December 15, 1998
--------------------------
Gardner L. Lewis

/s/ John J. Lynch, Jr.       Director                         December 15, 1998
--------------------------
John J. Lynch, Jr.

/s/ Ronald L. McLane         Director                         December 15, 1998
--------------------------
Ronald L. McLane

/s/ Eileen C. Miskell        Director                         December 15, 1998
--------------------------
Eileen C. Miskell

/s/ Robert H. Moore          Director                         December 15, 1998
--------------------------
Robert H. Moore

/s/ Walter A. Murphy         Director                         December 15, 1998
--------------------------
Walter A. Murphy

/s/ William E. Newton        Director                         December 15, 1998
--------------------------
William E. Newton

/s/ Armand Ortins            Director                         December 15, 1998
--------------------------
Armand Ortins