The discussions set forth below and in the documents we incorporate by reference herein contain certain statements that may be considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. The Company may make written or oral forward-looking statements in other documents we file with the Securities Exchange Commission, in our annual reports to shareholders, in press releases and other written materials and in oral statements made by our officers, directors or employees. You can identify forward-looking statements by the use of the words "believe," "expect," "anticipate," "intend," "estimate," "assume," "will," "should" and other expressions which predict or indicate future events or trends and which do not relate to historical matters. You should not rely on forward-looking statements, because they involve known and unknown risks, uncertainties and other factors, some of which are beyond the control of the Company. These risks, uncertainties and other factors may cause the actual results, performance or achievements of the Company to be materially different from the anticipated future results, performance or achievements expressed or implied by the forward-looking statements.

Some of the factors that might cause these differences include, but are not limited to, the following:

· general, national, regional or local economic conditions which are less favorable than anticipated, including fears of global recession and continued sub-prime and credit issues, impacting the performance of the Company's investment portfolio, quality of credits or the overall demand for services;

· changes in loan default and charge-off rates could affect the allowance for loan losses;

· declines in the equity and financial markets which could result in impairment of goodwill;

· reductions in deposit levels could necessitate increased and/or higher cost borrowing to fund loans and investments;

· declines in mortgage loan refinancing, equity loan and line of credit activity which could reduce net interest and non-interest income;

· changes in the domestic interest rate environment and inflation, as substantially all of the assets and virtually all of the liabilities are monetary in nature;

· further actions by the U.S. government and Treasury Department, similar to the Federal Home Loan Mortgage Corporation conservatorship, which could have a negative impact on the Company's investment portfolio and earnings;

· misalignment of the Company's interest-bearing assets and liabilities;

· increases in loan repayment rates affecting interest income and the value of mortgage servicing rights; and

· changes in accounting rules, Federal and State laws, Internal Revenue Service regulations, and other regulations and policies governing financial holding companies and their subsidiaries which may impact our ability to take appropriate action to protect our financial interests in certain loan situations.

You should carefully review all of these factors, and be aware that there may be other factors that could cause differences, including the risk factors listed in Item 1A. Risk Factors within our Annual Report on Form 10-K for the year ended December 31, 2008. Readers should carefully review the risk factors described therein and should not place undue reliance on our forward-looking statements.

These forward-looking statements were based on information, plans and estimates at the date of this report, and we do not promise to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.

In preparing the Consolidated Financial Statements, management is required to make significant estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from our current estimates, as a result of changing conditions and future events. Several estimates are particularly critical and are susceptible to significant near-term change, including the allowance for loan losses ("ALL"), accounting for acquisitions and review of goodwill and other identifiable intangible assets for impairment, valuation of other real estate owned, other than temporary impairment of investments, accounting for postretirement plans and income taxes. Our significant accounting policies and critical estimates are summarized in Note 1 of our Annual Report on Form 10-K for the year ended December 31, 2008.

Allowance for Loan Losses. In preparing the Consolidated Financial Statements, the ALL requires the most significant amount of management estimates and assumptions. The ALL, which is established through a charge to the provision for loan losses, is based on our evaluation of the level of the allowance required in relation to the estimated loss exposure in the loan portfolio. We regularly evaluate the ALL for adequacy by taking into consideration, among other factors, local industry trends, management's ongoing review of individual loans, trends in levels of watched or criticized assets, an evaluation of results of examinations by regulatory authorities and other third parties, analyses of historical trends in charge-offs and delinquencies, the character and size of the loan portfolio, business and economic conditions and our estimation of probable losses.

In determining the appropriate level of ALL, we use a methodology to systematically measure the amount of estimated loan loss exposure inherent in the loan portfolio. The methodology includes four elements: (1) identification of loss allocations for certain specific loans, (2) loss allocation factors for certain loan types based on credit grade and loss experience, (3) general loss allocations for other environmental factors, and (4) unallocated allowance. The specific component relates to loans that are classified as doubtful, substandard or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The methodology is in accordance with accounting principles generally accepted in the United States of America ("US GAAP"), specifically, Statement of Financial Accounting Standards ("SFAS") No. 114, Accounting by Creditors for Impairment of a Loan - an amendment of FASB Statements No. 5 and
15. We use a risk rating system to determine the credit quality of our loans and apply the related loss allocation factors. In assessing the risk rating of a particular loan, we consider, among other factors, the obligor's debt capacity, financial condition and flexibility, the level of the obligor's earnings, the amount and sources of repayment, the performance with respect to loan terms, the adequacy of collateral, the level and nature of contingencies, management strength, and the industry in which the obligor operates. These factors are based on an evaluation of historical information, as well as subjective assessment and interpretation of current conditions. Emphasizing one factor over another, or considering additional factors that may be relevant in determining the risk rating of a particular loan but which are not currently an explicit part of our methodology, could impact the risk rating assigned to that loan. We periodically reassess and revise the loss allocation factors used in the assignment of loss exposure to appropriately reflect our analysis of loss experience. Portfolios of more homogenous populations of loans including residential mortgages and consumer loans are analyzed as groups taking into account delinquency rates and other economic conditions which may affect the ability of borrowers to meet debt service requirements, including interest rates and energy costs. We also consider the results of regulatory examinations, historical loss ranges, portfolio composition, and other changes in the portfolio. An additional allocation is determined based on a judgmental process whereby management considers qualitative and quantitative assessments of other environmental factors. For example, a significant portion of our loan portfolio is concentrated among borrowers in southern Maine and a substantial portion of the portfolio is collateralized by real estate in this area. Another portion of the commercial and commercial real estate loans are to borrowers in the hospitality, tourism and recreation industries. Finally, an unallocated portion of the total allowance is maintained to allow for shifts in portfolio composition.

Since the methodology is based upon historical experience and trends as well as management's judgment, factors may arise that result in different estimations. Significant factors that could give rise to changes in these estimates may include, but are not limited to, changes in economic conditions in our market area, concentration of risk, declines in local property values, and results of regulatory examinations. While management's evaluation of the ALL as of March 31, 2009 determined the allowance to be appropriate, under adversely different conditions or assumptions, we may need to increase the allowance. The Corporate Risk Management group reviews the ALL with the Camden National Bank Board of Directors on a monthly basis. A more in-depth review of the ALL, including the methodology for calculating and allocating the ALL, is reviewed with the Company's Board of Directors, as well as the Camden National Bank Board of Directors, on a quarterly basis.

Accounting for Acquisitions and Review of Goodwill and Identifiable Intangible Assets for Impairment. We are required to record assets acquired and liabilities assumed at their fair value, which is an estimate determined by the use of internal or other valuation techniques. These valuation estimates result in goodwill and other intangible assets and are subject to ongoing periodic impairment tests and are evaluated using various fair value techniques. Impairment evaluations are required to be performed annually and may be required more frequently if certain conditions indicating potential impairment exist. If we were to determine that our goodwill was impaired, the recognition of an impairment charge could have an adverse impact on our results of operations in the period that the impairment occurred or on our financial position. Goodwill is evaluated for impairment using several standard valuation techniques including discounted cash flow analyses, as well as an estimation of the impact of business conditions. The use of different estimates or assumptions could produce different estimates of carrying value.

Valuation of Other Real Estate Owned ("OREO"). Periodically, we acquire property in connection with foreclosures or in satisfaction of debt previously contracted. The valuation of this property is accounted for individually at the lower of the "book value of the loan satisfied" or its net realizable value on the date of acquisition. At the acquisition date, if the net realizable value of the property is less than the book value of the loan, a charge or reduction in the ALL is recorded. If the value of the property becomes permanently impaired, as determined by an appraisal or an evaluation in accordance with our appraisal policy, we will record the decline by charging against current earnings. Upon acquisition of a property, a current appraisal or broker's opinion must substantiate market value for the property.

Other Than Temporary Impairment of Investments. We record an investment impairment charge at the point we believe an investment has experienced a decline in value that is other than temporary. In determining whether an other than temporary impairment has occurred, we review information about the underlying investment that is publicly available, analysts' reports, applicable industry data and other pertinent information, and assess our ability to hold the security for the foreseeable future. The investment is written down to its current market value at the time the impairment is deemed to have occurred. Future adverse changes in market conditions, continued poor operating results of underlying investments or other factors could result in further losses that may not be reflected in an investment's current carrying value, possibly requiring an additional impairment charge in the future.

Accounting for Postretirement Plans. We use a December 31 measurement date to determine the expenses for our postretirement plans and related financial disclosure information. Postretirement plan expense is sensitive to changes in eligible employees (and their related demographics) and to changes in the discount rate and other expected rates, such as medical cost trend rates. As with the computations of plan expense, cash contribution requirements are also sensitive to such changes.

Income Taxes. We account for income taxes by deferring income taxes based on estimated future tax effects of differences between the tax and book basis of assets and liabilities considering the provisions of enacted tax laws. These differences result in deferred tax assets and liabilities, which are included in the Consolidated Statement of Condition. We must also assess the likelihood that any deferred tax assets will be recovered from future taxable income and establish a valuation allowance for those assets determined not likely to be recoverable. Judgment is required in determining the amount and timing of recognition of the resulting deferred tax assets and liabilities, including projections of future taxable income. Although we have determined a valuation allowance is not required for all deferred tax assets, there is no guarantee that these assets will be recognizable. Although not currently under review, income tax returns for the years ended December 31, 2005 through 2007 are open to audit by federal and Maine authorities. If we, as a result of an audit, were assessed interest and penalties, the amounts would be recorded through other non-interest expense.

Executive Overview

For the three months ended March 31, 2009:

Net income of $6.2 million for the three-month period ended March 31, 2009 increased $20,000, compared to the three-month period ended March 31, 2008. Net income per diluted share increased 1.3% to $0.81, compared to $0.80 per diluted share earned during the first three months of 2008. The following were major factors contributing to the results of the first three months of 2009 compared to the same period of 2008:

· Net interest income on a fully-taxable equivalent basis for the first quarter of 2009 increased 7.5% to $18.9 million due to lower funding costs and an improvement in the net interest margin.

· The provision for loan losses of $1.7 million increased $1.2 million in the first three months of 2009 compared to the same period of 2008 as a result of an increase in net charge-offs and non-performing assets.

· For the three months ended March 31, 2009, net charge-offs totaled $1.7 million, or an annualized rate of 0.46% of average loans, compared to $1.5 million, or 0.41%, for the same period of 2008. Non-performing assets as a percentage of total assets amounted to 0.89% and 0.70% at March 31, 2009 and 2008, respectively.

· Non-interest income for the first three months of 2009 was $4.6 million, a 3.6% increase over the first quarter of 2008. The increase was driven by an increase in mortgage banking income, including mortgage-servicing income and gains on the sale of loans, in part offset by a decline in income from fiduciary services at Acadia Trust, N.A. ("AT").

· We recorded net gains on our investment securities portfolio totaling $180,000 in the first quarter of 2008 primarily due to a restructuring of the portfolio acquired from Union Bankshares Company ("Union Bankshares").

· Non-interest expense for the first three months of 2009 was $12.3 million, an increase of $30,000, or 0.25%, over the first quarter of the prior year, which was primarily due to an increase in regulatory assessments and in foreclosed properties and collection costs, in part offset by a 14.9% decline in salary and benefit costs and a decrease in the amortization of the core deposit intangible.

Financial condition at March 31, 2009 compared to December 31, 2008:

· Total loans at March 31, 2009 were $1.5 billion, a decrease of $22.4 million compared to December 31, 2008. The decline in loan balances was primarily in the commercial and commercial real estate portfolios.

· Investment securities declined $15.9 million at March 31, 2009 compared to December 31, 2008 due to security prepayments.

· Total liabilities at March 31, 2009 of $2.1 billion decreased $53.6 million, or 2.5%, as borrowings decreased $45.7 million, primarily in FHLB borrowings, due to the decline in earning asset balances.

· Shareholders' equity increased 3.4% due to current year earnings and other comprehensive income, in part offset by dividends declared.

Net Interest Income

Net interest income is our largest source of revenue and accounts for approximately 80% of total revenues. Net interest income reflects revenues generated through income from earning assets plus loan fees, less interest paid on interest-bearing deposits and borrowings. Net interest income is affected by changes in interest rates, by loan and deposit pricing strategies and competitive conditions, the volume and mix of interest-earning assets and interest-bearing liabilities, and the level of non-performing assets.

Net interest income was $18.9 million on a fully-taxable equivalent basis for the three months ended March 31, 2009, compared to $17.6 million for the first quarter of 2008, an increase of $1.3 million or 7.5%. The increase in net interest income is largely due to an improvement of 25 basis points in the net interest margin ("NIM"), to 3.58%, for the first three months of 2009. The increase in the net interest margin resulted from a decrease in the cost of funds, offset in part by a decrease in income on earning assets, both of which were caused by the decline in the rate environment over the 12 month period. Average interest-earning assets increased by $15.4 million for the quarter ended March 31, 2009 compared the same period in 2008, primarily due to increases in investment securities and consumer loans, partly offset by declines in balances in all other loan types. The yield on earning assets for the first quarter of 2009 decreased 63 basis points, reflecting a decline in the interest rate environment impacting both the investment and loan yields. Average interest-bearing liabilities increased $33.2 million for the quarter ended March 31, 2009 compared to the same period in 2008, primarily due to an increase in retail certificate of deposit accounts, in part offset by declines in money market deposit accounts. Total cost of funds decreased 101 basis points due to the decline in short-term interest rates.

The following table presents, for the periods noted, average balance sheets, interest income, interest expense, and the corresponding average yields earned and rates paid, as well as net interest income, net interest rate spread and NIM.

               Average Balance, Interest and Yield/Rate Analysis


                                       March 31, 2009                                March 31, 2008
                            Average                        Yield/         Average                        Yield/
(Dollars in Thousands)      Balance        Interest         Rate          Balance        Interest         Rate
        ASSETS
Interest-earning
assets:
Securities - taxable      $   586,207          7,270           5.03 %   $   540,221     $    6,911           5.15 %
Securities - nontaxable
(1)                            67,156            992           5.99 %        71,063          1,040           5.89 %
Federal funds sold                  -              -              - %         1,071              8           3.00 %
Loans (1) (2) :
Residential real estate       616,602          9,194           6.05 %       630,368          9,549           6.09 %
Commercial real estate        398,901          6,301           6.41 %       423,375          7,621           7.24 %
Commercial                    187,005          2,601           5.64 %       213,909          4,044           7.60 %
Municipal                      21,587            255           4.79 %        16,547            238           5.78 %
Consumer                      265,320          3,346           5.11 %       230,821          3,929           6.85 %
Total loans                 1,489,415         21,697           5.91 %     1,515,020         25,381           6.74 %
Total interest-earning
assets                      2,142,778         29,959           5.67 %     2,127,375         33,340           6.30 %
Cash and due from banks        27,409                                        37,804
Other assets                  154,854                                       138,078
Less: ALL                     (17,963 )                                     (17,796 )
Total assets              $ 2,307,078                                   $ 2,285,461
     LIABILITIES &
 SHAREHOLDERS' EQUITY
Interest-bearing
liabilities:
NOW accounts              $   184,008            226           0.50 %   $   189,181            465           0.99 %
Savings accounts              133,173            118           0.36 %       134,635            225           0.67 %
Money market accounts         294,653            896           1.23 %       366,341          2,636           2.89 %
Certificates of deposit       589,286          4,625           3.18 %       493,344          4,835           3.94 %
Total retail deposits       1,201,120          5,865           1.98 %     1,183,501          8,161           2.77 %
Broker deposits                83,247            529           2.58 %        70,384            781           4.46 %
Junior subordinated
debentures                     43,423            713           6.66 %        43,331            752           6.98 %
Borrowings                    617,206          3,934           2.58 %       614,532          6,052           3.96 %
Total wholesale funding       743,876          5,176           2.82 %       728,247          7,585           4.19 %
Total interest-bearing
liabilities                 1,944,996         11,041           2.30 %     1,911,748         15,746           3.31 %
   Demand deposits            173,130                                       178,507
   Other liabilities           21,070                                        27,190
   Shareholders' equity       167,882                                       168,016
Total liabilities and
shareholders' equity      $ 2,307,078                                   $ 2,285,461
Net interest income
(fully-taxable
equivalent)                                   18,918                                        17,594
Less: fully-taxable
equivalent adjustment                           (423 )                                        (431 )
                                          $   18,495                                    $   17,163
Net interest rate
spread (fully-taxable
equivalent)                                                    3.37 %                                        2.99 %
Net interest margin
(fully-taxable
equivalent)                                                    3.58 %                                        3.33 %

(1) Reported on tax-equivalent basis calculated using a rate of 35%.

(2) Loans held for sale and non-accrual loans are included in total average loans.

Provision and Allowance for Loan Losses

The ALL is our best estimate of inherent risk of loss in the loan portfolio as of the balance sheet date. The ALL was $17.7 million, or 1.20% of total loans, at March 31, 2009, compared to $17.7 million, or 1.18% of total loans, at December 31, 2008. For the quarter ended March 31, 2009, our provision for loan losses charged to earnings amounted to $1.7 million, compared to $500,000 for the first quarter of 2008. The increase in the provision was based on management's assessment of various factors affecting the loan portfolio, including, among others, our ongoing evaluation of credit quality, with particular emphasis on the commercial and commercial real estate portfolio, and general economic conditions. For the three months ended March 31, 2009, net charge-offs totaled $1.7 million, or an annualized rate of 0.46% of average loans, compared to $1.5 million, or 0.41%, for the same period of 2008. Year-to-date charge-off activity for 2009 is centered in commercial and commercial real estate loans. See additional ALL discussion under the caption "Asset Quality."

Non-Interest Income

Non-interest income increased to $4.6 million for the quarter ended March 31, 2009, compared to $4.4 million for the same period of 2008, resulting from increases in mortgage banking income of $585,000 due to the loan sales in the first quarter of 2009 and $102,000 in earnings on bank-owned life insurance due to policy purchases in 2008. Income from fiduciary services at AT decreased $323,000, or 19.3%, resulting from market value declines in assets under administration. During the first quarter of 2008, the Company recorded a $180,000 gain on security sales resulting from the restructuring of certain investment securities acquired from Union Bankshares.

Non-Interest Expenses

Total non-interest expense increased $30,000, or 0.25%, for the quarter ended March 31, 2009 compared to the same period of 2008. The increase was due to a $711,000 increase in regulatory assessments related to the increase in the FDIC deposit insurance assessment rate and the full utilization, in 2008, of assessment credits, and a $653,000 increase in foreclosed properties and collection costs primarily related to the $666,000 valuation allowance on other real estate owned. The increases were offset by a $994,000, or 14.9%, decline in salary and benefit costs as the first quarter of 2008 included higher staffing levels to facilitate the Union Bankshares merger. Also, the amortization of the core deposit intangible decreased $185,000 as the 1998 branch purchases were fully amortized in 2008.

Overview

Total assets at March 31, 2009 were $2.3 billion, a decrease of $48.0 million, or 2.0%, from December 31, 2008. The change in assets consisted primarily of a $22.4 million decrease in loans, a $15.9 million decrease in investments, and a $6.4 million decrease in cash and due from banks. Total liabilities decreased $53.6 million as borrowings decreased $45.7 million and total deposits (including brokered deposits) decreased $8.3 million. Total shareholders' equity increased $5.6 million, which was a result of current year earnings and other comprehensive income, partially offset by dividends declared to shareholders.

During the first three months of 2009, average assets of $2.3 billion increased $21.6 million, or 0.9%, compared to the same period in 2008. This increase was primarily the result of a $42.1 million increase in the investment securities portfolio, partially offset by a decline in average loans of $25.6 million. Average liabilities increased $21.8 million for the three months ended March 31, 2009 compared to the same period of 2008, primarily due to a $25.1 million increase in average deposits (including brokered deposits).

Assets

Investments. At March 31, 2009, investment security balances of $654.2 million . . .