CAMDEN NATIONAL CORP (Form: 10-Q, Received: 08/08/2008 13:05:28)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2008

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 0-28190

CAMDEN NATIONAL CORPORATION

(Exact name of registrant as specified in its charter)

MAINE

01-0413282

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)


2 ELM STREET, CAMDEN, ME		04843
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (207) 236-8821

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods 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 ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date:

Outstanding at August 6, 2008: Common stock (no par value) 7,686,441 shares.

CAMDEN NATIONAL CORPORATION

Form 10-Q for the quarter ended June 30, 2008

TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT


		PAGE
PART I. FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS

	Report of Independent Registered Public Accounting Firm	3

	Consolidated Statements of Condition June 30, 2008 and December 31, 2007	4

	Consolidated Statements of Income Six Months Ended June 30, 2008 and 2007	5

	Consolidated Statements of Income Three Months Ended June 30, 2008 and 2007	6

	Consolidated Statements of Changes in Shareholder’s Equity Six Months Ended June 30, 2008 and 2007	7

	Consolidated Statements of Cash Flows Six Months Ended June 30, 2008 and 2007	8

	Notes to Consolidated Financial Statements Six Months Ended June 30, 2008 and 2007	9-21

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	22-34

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	35-36

ITEM 4.	CONTROLS AND PROCEDURES	36

PART II. OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	36

ITEM 1A.	RISK FACTORS	36

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	37

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	37

ITEM 4.	SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS	37

ITEM 5.	OTHER INFORMATION	37

ITEM 6.	EXHIBITS	38

SIGNATURES		39

EXHIBIT INDEX		40

EXHIBITS

Page 2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Shareholders and Board of Directors

Camden National Corporation

We have reviewed the accompanying interim consolidated financial information of Camden National Corporation and Subsidiaries as of June 30, 2008, and for the six-month and three-month periods ended June 30, 2008 and 2007. These financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is to express an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

Berry, Dunn, McNeil & Parker

Portland, Maine

August 8, 2008

Page 3

Camden National Corporation and Subsidiaries

Consolidated Statements of Condition


*(In thousands, except number of shares)*	June 30, 2008			December 31, 2007
	*(unaudited)*			*(audited)*
Assets
Cash and due from banks	$	36,373		$	28,790
Securities available for sale, at market		554,516			423,108
Securities held to maturity (fair value $41,751 and $41,013 at June 30, 2008 and December 31, 2007, respectively)		42,132			40,726
Loans, less allowance for loan and lease losses of $17,266 and $13,653 at June 30, 2008 and December 31, 2007, respectively		1,509,692			1,131,986
Premises and equipment, net		27,068			19,650
Other real estate owned		296			400
Interest receivable		8,982			7,098
Bank-owned life insurance		35,301			21,864
Core deposit intangible		4,837			320
Goodwill		42,383			3,991
Other assets		52,015			38,855

Total assets	$	2,313,595		$	1,716,788

Liabilities
Deposits:
Demand	$	184,409		$	141,858
NOW		198,191			132,331
Money market		289,875			298,677
Savings		131,328			85,931
Certificates of deposit		605,427			459,254

Total deposits		1,409,230			1,118,051

Borrowings from Federal Home Loan Bank		453,716			271,558
Other borrowed funds		206,261			142,492
Junior subordinated debentures		43,342			36,083
Capital lease obligation		1,266			—
Note payable		202			10,000
Due to broker		5,000			—
Accrued interest and other liabilities		22,433			18,401

Total liabilities		2,141,450			1,596,585

Shareholders’ Equity
Common stock, no par value; authorized 20,000,000 shares, issued and outstanding 7,686,441 and 6,513,573 shares on June 30, 2008 and December 31, 2007, respectively		2,814			2,522
Surplus		46,051			2,629
Retained earnings		123,831			114,289
Accumulated other comprehensive (loss) income
Net unrealized (losses) gains on securities available for sale, net of tax		(197	)		1,516
Net unrealized losses on post-retirement plans, net of tax		(354	)		(753	)

Total accumulated other comprehensive (loss) income		(551	)		763

Total shareholders’ equity		172,145			120,203

Total liabilities and shareholders’ equity	$	2,313,595		$	1,716,788

See Report of Independent Registered Public Accounting Firm.

The accompanying notes are an integral part of these Consolidated Financial Statements.

Page 4

Camden National Corporation and Subsidiaries

Consolidated Statements of Income

(unaudited)


*(In thousands, except number of shares and per share data)*	Six Months Ended June 30,
	2008			2007
Interest Income
Interest and fees on loans	$	49,724		$	43,057
Interest on U.S. government and sponsored enterprise obligations		12,509			9,473
Interest on state and political subdivision obligations		1,352			822
Interest on federal funds sold and other investments		1,455			818

Total interest income		65,040			54,170

Interest Expense
Interest on deposits		16,501			18,652
Interest on other borrowings		12,035			9,563
Interest on junior subordinated debentures		1,443			1,181

Total interest expense		29,979			29,396

Net interest income		35,061			24,774
Provision for Loan and Lease Losses		950			100

Net interest income after provision for loan and lease losses		34,111			24,674

Non-interest Income
Service charges on deposit accounts		2,692			1,744
Other service charges and fees		1,335			878
Income from fiduciary services		3,378			2,428
Brokerage and insurance commissions		723			429
Mortgage servicing income (expense), net		(215	)		58
Life insurance earnings		578			385
Gain on sale of securities		180			—
Other income		384			329

Total non-interest income		9,055			6,251

Non-interest Expenses
Salaries and employee benefits		13,051			9,285
Net occupancy		2,081			1,384
Furniture, equipment and data processing		1,834			1,111
Amortization of core deposit intangible		504			428
Other expenses		6,704			4,856

Total non-interest expenses		24,174			17,064

Income before income taxes		18,992			13,861
Income Taxes		5,691			4,136

Net Income	$	13,301		$	9,725

Per Share Data
Basic earnings per share	$	1.73		$	1.47
Diluted earnings per share		1.73			1.47
Cash dividends per share	$	0.49		$	0.48
Weighted average number of shares outstanding		7,694,326			6,601,741

See Report of Independent Registered Public Accounting Firm.

The accompanying notes are an integral part of these Consolidated Financial Statements.

Page 5

Camden National Corporation and Subsidiaries

Consolidated Statements of Income

(unaudited)


	Three Months Ended June 30,
*(In thousands, except number of shares and per share data)*	2008			2007
Interest Income
Interest and fees on loans	$	24,410		$	21,558
Interest on U.S. government and sponsored enterprise obligations		6,361			4,721
Interest on state and political subdivision obligations		676			411
Interest on federal funds sold and other investments		684			491

Total interest income		32,131			27,181

Interest Expense
Interest on deposits		7,559			9,182
Interest on other borrowings		5,983			5,073
Interest on junior subordinated debentures		691			594

Total interest expense		14,233			14,849

Net interest income		17,898			12,332
Provision for Loan and Lease Losses		450			—

Net interest income after provision for loan and lease losses		17,448			12,332

Non-interest Income
Service charges on deposit accounts		1,465			899
Other service charges and fees		696			451
Income from fiduciary services		1,701			1,229
Brokerage and insurance commissions		405			230
Mortgage servicing income (expense), net		(85	)		32
Life insurance earnings		285			197
Other income		185			169

Total non-interest income		4,652			3,207

Non-interest Expenses
Salaries and employee benefits		6,399			4,639
Net occupancy		992			696
Furniture, equipment and data processing		982			567
Amortization of core deposit intangible		194			214
Other expenses		3,346			2,383

Total non-interest expenses		11,913			8,499

Income before income taxes		10,187			7,040
Income Taxes		3,080			2,097

Net Income	$	7,107		$	4,943

Per Share Data
Basic earnings per share	$	0.92		$	0.75
Diluted earnings per share		0.92			0.75
Cash dividends per share	$	0.25		$	0.24
Weighted average number of shares outstanding		7,695,798			6,582,291

See Report of Independent Registered Public Accounting Firm.

The accompanying notes are an integral part of these Consolidated Financial Statements.

Page 6

Camden National Corporation and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity

(unaudited)


*(In thousands, except number of shares and per share data)*	Common Stock		Surplus			Retained Earnings			Net Unrealized Gains (Losses) on Securities Available for Sale			Net Unrealized Losses on Derivative Instruments			Net Unrealized Losses on Post- retirement Plans			Total Shareholders’ Equity
Balance at December 31, 2006	$	2,450	$	2,584		$	105,959		$	(2,985	)	$	(198	)	$	(758	)	$	107,052

Net income		—		—			9,725			—			—			—			9,725
Change in unrealized losses on derivative instruments, net of taxes of $10		—		—			—			—			(20	)		—			(20	)
Change in net unrealized losses on securities available for sale, net of taxes of $1,051		—		—			—			(1,951	)		—			—			(1,951	)
Change in net unrealized losses on post-retirement plans, net of taxes of $10		—		—			—			—			—			(20	)		(20	)

Total comprehensive income		—		—			9,725			(1,951	)		(20	)		(20	)		7,734
Equity compensation expense		—		144			—			—			—			—			144
Exercise of stock options and issuance of restricted stock (total 10,150 shares)		80		(76	)		235			—			—			—			239
Purchase of common stock (113,950 shares)		—		(171	)		(4,305	)		—			—			—			(4,476	)
Cash dividends declared ($0.48/ share)		—		—			(3,184	)		—			—			—			(3,184	)

Balance at June 30, 2007	$	2,530	$	2,481		$	108,430		$	(4,936	)	$	(218	)	$	(778	)	$	107,509


Balance at December 31, 2007	$	2,522	$	2,629		$	114,289		$	1,516		$	—		$	(753	)	$	120,203

Net income		—		—			13,301			—			—			—			13,301
Change in net unrealized gains on securities available for sale, net of taxes of $922		—		—			—			(1,713	)		—			—			(1,713	)
Change in net unrealized losses on post-retirement plans, net of taxes of $(215)		—		—			—			—			—			399			399

Total comprehensive income		—		—			13,301			(1,713	)		—			399			11,987
Shares issued during acquisition of Union Bankshares Company (1,222,497 shares)		—		43,523			—			—			—			—			43,523
Equity compensation expense		—		118			—			—			—			—			118
Exercise of stock options and issuance of restricted stock (total 9,733 shares)		292		(146	)		—			—			—			—			146
Purchase of common stock (59,362 shares)		—		(73	)		(1,844	)		—						—			(1,917	)
Cash dividends declared ($0.25/ share)		—		—			(1,915	)		—			—			—			(1,915	)

Balance at June 30, 2008	$	2,814	$	46,051		$	123,831		$	(197	)	$	—		$	(354	)	$	172,145

See Report of Independent Registered Public Accounting Firm.

The accompanying notes are an integral part of these Consolidated Financial Statements.

Page 7

Camden National Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(unaudited)


	Six Months Ended June 30,
*(In thousands)*	2008			2007
Operating Activities
Net Income	$	13,301		$	9,725
Adjustment to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses		950			100
Depreciation and amortization		962			728
Equity compensation costs		118			144
Decrease (increase) in interest receivable		212			(301	)
Amortization of core deposit intangible		504			428
Gain on sale of securities		(180	)		—
Decrease (increase) in other assets		743			(442	)
Decrease in other liabilities		(2,744	)		(3	)

Net cash provided by operating activities		13,866			10,379

Investing Activities
Acquisition of Union Bankshares Company		(29,299	)		—
Proceeds from maturities of securities held to maturity		55			439
Proceeds from sales and maturities of securities available for sale		122,845			41,125
Purchase of securities held to maturity		(39	)		—
Purchase of securities available for sale		(135,924	)		(58,948	)
Change in Federal Home Loan Bank stock		—			(1,877	)
Purchase of bank-owned life insurance		(3,000	)		—
Premium received on deposit sale		1,400			—
Net (increase) decrease in loans		(15,336	)		26,921
Change in federal funds sold		—			(300	)
Net decrease in other real estate owned		224			125
Purchase of premises and equipment		(756	)		(2,934	)

Net cash (used in) provided by investing activities		(59,830	)		4,551

Financing Activities
Net decrease in deposits		(24,734	)		(52,823	)
Proceeds from Federal Home Loan Bank borrowings		188,727			50,000
Repayments on Federal Home Loan Bank borrowings		(179,782	)		(54,218	)
Net change in short-term Federal Home Loan Bank borrowings		35,410			40,405
Net increase in other borrowed funds		44,184			31,752
Decrease in note payable		(10,006	)		—
Increase (decrease) in due to broker		5,000			(24,354	)
Purchase of common stock		(1,917	)		(4,476	)
Exercise of stock options and stock issuance under option plans		146			239
Cash dividends paid		(3,481	)		(3,184	)

Net cash provided by (used in) financing activities		53,547			(16,659	)

Net increase (decrease) in cash and cash equivalents		7,583			(1,729	)
Cash and cash equivalents at beginning of year		28,790			33,358

Cash and cash equivalents at end of period	$	36,373		$	31,629

Supplemental disclosures of cash flow information:
Interest paid	$	29,411		$	30,683
Income taxes paid		5,049			3,562
Non-cash transactions:
Common stock issued in acquisition		43,523			—

See Report of Independent Registered Public Accounting Firm.

The accompanying notes are an integral part of these Consolidated Financial Statements.

Page 8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures required by accounting principles generally accepted in the United States of America (US GAAP) for complete presentation of financial statements. In the opinion of management, the consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the consolidated statements of condition of Camden National Corporation (the “Company”) as of June 30, 2008 and December 31, 2007, the consolidated statements of income for the six and three months ended June 30, 2008 and 2007, the consolidated statements of changes in shareholders’ equity for the six months ended June 30, 2008 and 2007, and the consolidated statements of cash flows for the six months ended June 30, 2008 and 2007. All significant intercompany transactions and balances are eliminated in consolidation. Certain items from the prior year were reclassified to conform to the current year presentation. The income reported for the six- and three-month periods ended June 30, 2008 are not necessarily indicative of the results that may be expected for the full year. The information in this report should be read in conjunction with the consolidated financial statements and accompanying notes included in the December 31, 2007 Annual Report on Form 10-K.

On January 3, 2008, the Company acquired all of the outstanding common stock of Union Bankshares Company of Ellsworth, Maine, including its principal wholly-owned subsidiary, Union Trust Company, (collectively “Union Trust”). Immediately after the acquisition, Union Trust Company was merged into Camden National Bank. The financial results of Union Bankshares Company are included in the Company’s quarterly results beginning on the January 3, 2008 acquisition date.

NOTE 2 – EARNINGS PER SHARE

Basic earnings per share data is computed based on the weighted average number of common shares outstanding during each period. Potential common stock is considered in the calculation of weighted average shares outstanding for diluted earnings per share, and is determined using the treasury stock method. The following table sets forth the computation of basic and diluted earnings per share:


	Six Months Ended June 30,
*(Dollars in thousands, except number of shares and per share data)*	2008		2007
Net income, as reported	$	13,301	$	9,725

Weighted average shares outstanding		7,694,326		6,601,741
Effect of dilutive potential common stock		4,646		4,908

Adjusted weighted average shares and assumed conversion		7,698,972		6,606,649

Basic earnings per share	$	1.73	$	1.47
Diluted earnings per share	$	1.73	$	1.47

	Three Months Ended June 30,
	2008		2007
Net income, as reported	$	7,107	$	4,943

Weighted average shares outstanding		7,695,798		6,582,291
Effect of dilutive potential common stock		4,469		58

Adjusted weighted average shares and assumed conversion		7,700,267		6,582,349

Basic earnings per share	$	0.92	$	0.75
Diluted earnings per share	$	0.92	$	0.75

Page 9

At June 30, 2008, the Company had 98,450 shares of potential common stock, in the form of stock options, which were anti-dilutive as the exercise price was greater than the market price of the common stock. At June 30, 2007, the Company had 32,750 shares of potential common stock that were anti-dilutive, all of which were stock options. At June 30, 2008, the Company had 58,200 non-vested stock option grants, none of which were in-the-money options. At June 30, 2007, the Company had 81,850 non-vested stock option grants, of which 49,100 were in-the-money options.

NOTE 3 – DERIVATIVE FINANCIAL INSTRUMENTS

Through the acquisition of Union Trust, the Company acquired a cap agreement with a cap rate of 5.50%, notional amount of $20.0 million, and an expiration date of March 15, 2010. The fair value of the cap agreement at June 30, 2008 was $18,000 and was recorded in other assets. The Company considers this instrument to be an economic hedge, thus, changes in fair value are recorded in the Statement of Income.

As part of originating mortgage loans, the Company may enter into rate lock agreements with customers, which are considered derivatives under Statement of Financial Accounting Standards (“SFAS”) No. 133, Accounting for Derivative Instruments and Hedging Activities . At June 30, 2008 and December 31, 2007, based upon the pipeline of mortgage loans with rate lock commitments and the change in fair value of those commitments due to changes in market interest rates, the Company determined the balance sheet impact was not material.

NOTE 4 – INVESTMENTS

Management evaluates investments for other-than-temporary impairment based on the type of investment and the period of time the investment has been in an unrealized loss position. At June 30, 2008, the Company had a greater than 12 months unrealized loss of $833,000, the majority of which was comprised of mortgage-backed securities issued by either the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”), and collateralized mortgage obligations. Management believes that the unrealized loss positions are primarily due to the changes in the interest rate environment, there is little risk of loss or default from the counterparties, and the Company has the ability and intent to hold the securities for the foreseeable future, therefore, the securities are not considered other-than-temporarily impaired. Investments with unrealized losses at June 30, 2008 and December 31, 2007, and the length of time they have been in a continuous loss position, are as follows:


	June 30, 2008
	Less than 12 months					12 months or more					Total
*(Dollars in thousands)*	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Obligations of states and political subdivisions	$	42,071	$	(800	)	$	—	$	—		$	42,071	$	(800	)
Mortgage-backed securities		139,536		(1,086	)		6,435		(162	)		145,971		(1,248	)
Other debt securities		54,707		(1,069	)		15,679		(671	)		70,386		(1,740	)
Equity securities		1,558		(442	)		—		—			1,558		(442	)

Total	$	237,872	$	(3,397	)	$	22,114	$	(833	)	$	259,986	$	(4,230	)


	December 31, 2007
	Less than 12 months					12 months or more					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Obligations of U.S. government sponsored enterprises	$	—	$	—		$	11,993	$	(5	)	$	11,993	$	(5	)
Obligations of states and political subdivisions		6,421		(25	)		1,585		(6	)		8,006		(31	)
Mortgage-backed securities		111		(1	)		87,202		(838	)		87,313		(839	)
Other debt securities		13,180		(59	)		12,575		(175	)		25,755		(234	)
Equity securities		1,820		(180	)		—		—			1,820		(180	)

Total	$	21,532	$	(265	)	$	113,355	$	(1,024	)	$	134,887	$	(1,289	)

At June 30, 2008, the Company held auction rate securities totaling $20.0 million, or 3.2%, of the investment portfolio ($10.0 million in Auction Pass-Through Certificates, Series 2007-8 Class A Certificates relating to FHLMC 6.02% Non-Cumulative Perpetual Preferred Stock, Series X, $5.0 million Auction Pass-Through Certificates Series 2007-1 Class A Certificates relating to FHLMC 5.1% Non-Cumulative Preferred Stock, 5.57% Non-Cumulative Perpetual Preferred Stock and 5.9% Non-Cumulative Perpetual Preferred Stock and $5.0 million in Duff & Phelps (DNP) Select Income Fund Auction Preferred Stock) which have recently failed at auction. Management believes the failed auctions are a temporary liquidity event related to this asset class of securities. We are currently collecting all amounts due according to contractual terms and have the ability and intent to hold the securities until they clear auction, are called, or mature; therefore, the securities are not considered other-than-temporarily impaired.

Page 10

NOTE 5 – CORE DEPOSIT INTANGIBLE

The Company has a core deposit intangible asset related to the acquisition of bank branches between 1995 and 1998 and the recent acquisition of Union Trust. The core deposit intangible is amortized on a straight-line basis over 10 years, and reviewed for possible impairment when it is determined that events or changed circumstances may affect the underlying basis of the asset. The carrying amount is as follows:


	June 30, 2008
*(Dollars in thousands)*	Union Trust Acquisition		1995 – 1998 Branch Acquisitions		Total
Core deposit intangible, cost	$	5,020	$	9,424	$	14,444
Accumulated amortization		251		9,356		9,607

Core deposit intangible, net	$	4,769	$	68	$	4,837


	December 31, 2007
*(Dollars in thousands)*	Union Trust Acquisition		1995 – 1998 Branch Acquisitions		Total
Core deposit intangible, cost	$	—	$	9,424	$	9,424
Accumulated amortization		—		9,104		9,104

Core deposit intangible, net	$	—	$	320	$	320

Amortization expense related to the core deposit intangible for the six- and three-month periods ended June 30, 2008 amounted to $504,000 and $194,000, respectively. Amortization expense related to the core deposit intangible for the six- and three-month periods ended June 30, 2007 amounted to $428,000 and $214,000, respectively. The expected amortization expense for each year for the next five years is estimated to be $822,000 in 2008 and $502,000 for years 2009 through 2012.

NOTE 6 – GOODWILL

At June 30, 2008 and December 31, 2007, the value of the Company’s goodwill, including the related impairment loss, is as follows:


	June 30, 2008
*(Dollars in thousands)*	Banking		Financial Services			Total
Goodwill, at cost	$	35,323	$	7,750		$	43,073
Transitional impairment loss		—		(690	)		(690	)

Goodwill, net	$	35,323	$	7,060		$	42,383


	December 31, 2007
*(Dollars in thousands)*	Banking		Financial Services			Total
Goodwill, at cost	$	473	$	4,208		$	4,681
Transitional impairment loss		—		(690	)		(690	)

Goodwill, net	$	473	$	3,518		$	3,991

During the first quarter of 2008, the Company acquired $38.4 million of goodwill related to the acquisition of Union Trust, which was allocated between the Banking and Financial Services reporting units, with allocations of $34.9 million and $3.5 million, respectively. At June 30, 2008, in accordance with SFAS No. 142, Goodwill and Other Intangible Assets , the Company completed its annual review of the Financial Services goodwill and determined that there had been no additional impairment.

Page 11

NOTE 7 – COMMON STOCK REPURCHASE

In June 2007, the Board of Directors of the Company approved the 2007 Common Stock Repurchase Program, which permits the Company to purchase up to 750,000 shares of its authorized and issued common stock for a one-year period, expiring July 1, 2008. The authority may be exercised from time to time and in such amounts as market conditions warrant. Any repurchases are intended to make appropriate adjustments to the Company’s capital structure, including meeting share requirements related to employee benefit plans and for general corporate purposes. Through June 30, 2008, the Company has repurchased 59,362 shares at an average price of $32.29 per share under the 2007 Program, of which 18,019 were purchased during the second quarter of 2008 at an average price of $32.15.

In June 2008, the Board of Directors of the Company extended the Common Stock Repurchase Program for an additional one year period, expiring July 1, 2009, authorizing the Company to purchase up to 750,000 shares during the year for the same reasons noted under the prior year plan.

NOTE 8 – SHAREHOLDERS’ EQUITY

Stock-Based Compensation

On April 29, 2003, the shareholders of the Company approved the 2003 Stock Option and Incentive Plan (the “current plan”). The maximum number of shares of stock reserved and available for issuance under this Plan is 800,000 shares. Awards may be granted in the form of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, deferred stock, unrestricted stock, performance share and dividend equivalent rights, or any combination of the preceding, and the exercise price shall not be less than 100% of the fair market value on the date of grant in the case of incentive stock options, or 85% of the fair market value on the date of grant in the case of non-qualified stock options. No stock options are exercisable more than ten years after the date the stock option is granted. Prior to April 29, 2003, the Company had three stock option plans. Under all three plans, the options were immediately vested when granted, and expire ten years from the date the option was granted. The exercise price of all options equaled the market price of the Company’s stock on the date of grant.

On January 1, 2006, the Company adopted the provisions of SFAS No. 123 (revised 2004) Share-Based Payment (SFAS No. 123(R)), using a modified prospective application. The Company had previously adopted the expense provisions of SFAS No. 123, thus adoption of SFAS No. 123(R) did not have a material effect on the statements of condition or results of operations of the Company.

Restricted Stock Awards

In January 2005, under the current plan, the Company granted 4,687 shares of restricted stock, all of which vest over a three-year period. In March 2007, under the current plan, the Company granted 6,873 shares of restricted stock, all of which vest over a three-year period. In April 2008, the Company granted 4,205 shares of restricted stock which vest on June 30, 2009. As of June 30, 2008, 2,044 of the restricted stock awards have been forfeited. The Company recorded approximately $62,700 of compensation expense and $22,000 of related tax benefit for the first six months of 2008, of which $46,500 of compensation expense and $16,300 of related tax benefit was recorded in the second quarter. The Company recorded approximately $46,700 of compensation expense and $16,300 of related tax benefit for the first six months of 2007, of which $31,200 of compensation expense and $10,900 of related tax benefit was recorded in the second quarter.

Page 12

A summary of the status of the Company’s nonvested restricted stock awards as of June 30, 2008, and changes during the six-month period ended on that date, is presented below.


	June 30, 2008
	Number of Shares	Weighted-average Grant Date Fair Value
Nonvested at beginning of period	7,776	$	43.28
Granted during the period	4,205		33.30
Vested during the period	3,193		42.04
Forfeited during the period	702		44.15

Nonvested at end of period	8,086	$	38.51

At the closing price on June 30, 2008 of $23.28, the total fair value of restricted stock awards vested during the period was $74,300.

Management Stock Purchase Plan

The Management Stock Purchase Plan (MSPP), which is a component of the current plan, provides equity incentive compensation to selected management employees of the Company. Participants in the Plan who are senior executives of the Company are required to receive restricted shares in lieu of a portion of their annual incentive bonus, if any, while certain other officers may elect to receive restricted shares in lieu of a portion of their annual incentive bonus. Restricted shares are granted at a discount of one-third of the fair market value of the stock on the date of grant. Restricted shares will vest two years after the date of grant if the participant remains employed by the Company for such period, unless the participant reaches age 60 with at least 10 years of service, at which time there is immediate vesting of existing and new purchases under the MSPP. During the first quarter of 2008, under the MSPP, the Company granted 3,398 shares of restricted stock at a discounted price of $21.05, none of which have been forfeited. During the first quarter of 2007, under the MSPP, the Company granted 934 shares of restricted stock at a discounted price of $29.67, of which 96 shares have been forfeited. Related to the discount on the restricted stock, the Company recorded approximately $12,800 of compensation expense and $4,500 of related tax benefit for the first six months of 2008, of which $4,600 of compensation expense and $1,600 of related tax benefit was recorded in the second quarter. The Company recorded approximately $12,700 of compensation expense and $4,400 of related tax benefit for the first six months of 2007, of which $6,200 of compensation expense and $2,200 of related tax benefit was recorded in the second quarter.

A summary of the status of the Company’s nonvested restricted stock under the MSPP as of June 30, 2008, and changes during the six-month period ended on that date, is presented below.


	June 30, 2008
	Number of Shares	Weighted-average Grant Date Fair Value
Nonvested at beginning of period	5,047	$	12.18
Granted during the period	3,398		10.40
Vested during the period	4,345		11.70
Forfeited during the period	6		14.84

Nonvested at end of period	4,094	$	11.21

Long-term Performance Share Plan

The Long-term Performance Share Plan, which is a component of the current plan, is intended to create incentives for certain executive officers of the Company and to thus allow the Company to attract and retain in its employ persons who will contribute to the future success of the Company. It is further the intent of the Company that awards made under this plan will be used to achieve the twin goals of aligning executive incentive compensation with increases in shareholder value and using equity compensation as a tool to retain key employees. The long-term performance period is a period of three consecutive fiscal years beginning on January 1 of the first year and ending on December 31 of the third year. Awards for the three year performance period January 1, 2006—December 31, 2008 are based upon the attainment of certain thresholds of tangible book value and return on average equity over the three-year period. Awards for the three year performance

Page 13

periods January 1, 2007—December 31, 2009 and January 1, 2008—December 31, 2010 are based upon the attainment of certain thresholds of revenue growth and the efficiency ratio over the three-year periods. The current aggregate amount of awards based on actual and projected results for the three-year performance period January 1, 2007—December 31, 2009 is $334,000 and, as of June 30, 2008, $167,000 has been recorded as compensation expense. The current aggregate amount of awards, based on actual and projected results for the three-year performance periods January 1, 2006—December 31, 2008 and January 1, 2008—December 31, 2010, is not considered material and no related expense has been recognized.

Defined Contribution Retirement Plan

Approved during the first quarter of 2008, the Defined Contribution Retirement Plan (“DCRP”), which is a component of the current plan, is an unfunded deferred compensation plan for the benefit of a group of senior management employees of the Company. Participation in the DCRP by an employee must be approved by the Company’s Compensation Committee. Annually, on March 15 ^th or the closest business day, the Compensation Committee will credit to an account administered by the Company 10% of each participant’s annual base salary and bonus for the prior performance period. Annual credits to a participant’s account will be denominated in Deferred Stock Awards based on the fair market value of the common stock of the Company on the date of grant. Deferred Stock Awards are the right to receive a share of common stock of the Company upon the satisfaction of certain restrictions. Vesting occurs ratably from the date of participation until the participant reaches the age of 65, at which time the participant is 100% vested. Upon retirement or termination of employment, the participant will receive shares of common stock equal to the Deferred Stock Awards in the account multiplied by the vested percentage, reduced by the amount to be withheld for income taxes. During the first quarter of 2008, the Company granted 1,469 deferred stock awards under the DCRP, none of which have vested.

Stock Option Awards

During the first quarter of 2008, the Company issued, under the current plan, 750 incentive stock options to employees, all of which vest over a five-year period. During the first quarter of 2007, the Company issued, under the current plan, 35,250 incentive stock options to employees, all of which vest over a five-year period. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants: in 2008, dividend yield of 3.0%, expected volatility of 27.09%, risk-free interest rate of 2.98%, and expected lives of 5.7 years; in 2007, dividend yield of 2.1%, expected volatility of 26.66%, risk-free interest rate of 4.77%, and expected lives of 5.0 years. Expected volatilities are based on the historical volatility of the Company’s stock, and other factors. The risk-free rate for periods within the contractual life of the option is based on the US Treasury yield curve in effect at the time of the grant. The Company uses historical data, such as option exercise and employee termination rates, to calculate the expected option life.

Related to the incentive stock option grants and in accordance with the provisions of SFAS No. 123(R), the Company recorded approximately $42,300 of compensation expense during the first six months of 2008, of which $32,700 was in the second quarter. The Company recorded approximately $84,200 of compensation expense during the first six months of 2007, of which $42,300 was in the second quarter.

A summary of the status of the Company’s stock option plans as of June 30, 2008, and changes during the six-month period ended on that date is presented below.


	June 30, 2008
	Number of Shares	Weighted-average Exercise Price		Weighted-average Remaining Contractual Term	Aggregate Intrinsic Value ($000)
Outstanding at beginning of year	112,897	$	36.75
Granted during the period	750		31.57
Exercised during the period	2,175		20.14
Forfeited during the period	6,250		37.22

Outstanding at end of period	105,222	$	37.03	7.3	$	17

Exercisable at end of period	47,022	$	34.48	6.5	$	17

Page 14

The weighted-average grant date fair value of options granted during the six-month period ended June 30, 2008 was $6.73. The total intrinsic value of options exercised during the six-month period ended June 30, 2008 was $27,750.

A summary of the status of the Company’s nonvested stock options as of June 30, 2008, and changes during the six-month period ended on that date, is presented below.


	June 30, 2008
	Number of Shares	Weighted-average Grant Date Fair Value
Nonvested at beginning of year	81,700	$	9.26
Granted during the period	750		6.73
Vested during the period	20,200		8.95
Forfeited during the period	4,050		8.85

Nonvested at end of period	58,200	$	9.40

At the closing price on June 30, 2008 of $23.28, the total fair value of stock options vested during the period was $470,250.

The following table summarizes information related to options at June 30, 2008:


	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding	Remaining Contractual Life	Weighted-average Exercise Price		Number Exercisable	Weighted-average Exercise Price
$10.00 - $19.99	2,272	0.5	$	16.29	2,272	$	16.29
$20.00 - $29.99	4,500	4.6		23.08	4,500		23.08
$30.00 - $39.99	68,950	7.1		35.43	34,350		35.46
$40.00 - $49.99	29,500	8.6		44.51	5,900		44.51

	105,222	7.3	$	37.03	47,022	$	34.48

As of June 30, 2008, there was $559,600 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the current plan, which is expected to be recognized over a weighted-average period of 1.7 years.

NOTE 9 – MORTGAGE SERVICING RIGHTS

Residential real estate mortgages are originated by the Company both for portfolio and for sale into the secondary market. The Company may sell its loans to institutional investors such as Freddie Mac. Under loan sale and servicing agreements with the investor, the Company generally continues to service the residential real estate mortgages. The Company pays the investor an agreed-upon rate on the loan, which is less than the interest rate the Company receives from the borrower. The Company retains the difference as a fee for servicing the residential real estate mortgages. As required by SFAS No. 156, Accounting for Servicing of Financial Assets—an amendment of SFAS No. 140, the Company capitalizes mortgage servicing rights at their fair value upon sale of the related loans, amortizes the asset over the estimated life of the serviced loan, and periodically assesses the asset for impairment. The balance of capitalized mortgage servicing rights, net of a valuation allowance, included in other assets at June 30, 2008 and 2007 and December 31, 2007 was $848,000, $224,000, and $142,000, respectively, which equaled the net book value of these rights. The fair market value of the mortgage servicing rights approximated $1.1 million, $791,000 and $775,000, respectively, at June 30, 2008 and 2007 and December 31, 2007. In evaluating the reasonableness of the carrying values of mortgage servicing rights, the Company obtains third party valuations based on loan level data including note rate, type and term of the underlying loans. The model utilizes a variety of assumptions, the most significant of which are loan prepayment assumptions and the discount rate used to discount future cash flows. Prepayment assumptions, which are impacted by loan rates and terms, are calculated using a three-month moving average of weekly prepayment data published by the Public Securities Association and modeled against the serviced loan portfolio by the third party valuation specialist. The discount rate is the quarterly average 10-year US

Page 15

Treasury rate plus 5.0%. Other assumptions include delinquency rates, foreclosure rates, servicing cost inflation, and annual unit loan cost. All assumptions are adjusted periodically to reflect current circumstances. Amortization of the mortgage servicing rights, as well as write-offs of capitalized rights due to prepayments of the related mortgage loans, are recorded as a charge against mortgage servicing income.

The following summarizes mortgage servicing rights capitalized and amortized, along with the activity in the related valuation allowance:


	Six Months Ended June 30,
*(Dollars in thousands)*	2008			2007
Balance of loans serviced for others	$	199,768		$	102,781

Mortgage Servicing Rights:
Balance at beginning of year	$	142		$	324
Acquired from Union Trust		1,199			—
Amortization charged against mortgage servicing income		(459	)		(101	)
Change in valuation allowance		(34	)		1

Balance at end of period	$	848		$	224

Valuation allowance:
Balance at beginning of year	$	(1	)	$	(2	)
(Increase) reduction of impairment reserve		(34	)		1

Balance at end of period	$	(35	)	$	(1	)

NOTE 10 – EMPLOYEE BENEFIT PLANS

Post-retirement Plan

The Company’s post-retirement plan provides medical and life insurance to certain eligible retired employees. The components of the net periodic benefit cost are:


	Six Months Ended June 30,
*(Dollars in thousands)*	2008		2007
Service cost	$	32	$	28
Interest cost		68		36
Amortization of prior service cost		—		(10	)
Recognized net actuarial loss		—		2

Net periodic benefit cost	$	100	$	56


	Three Months Ended June 30,
	2008		2007
Service cost	$	16	$	14
Interest cost		34		18
Amortization of prior service cost		—		(5	)
Recognized net actuarial loss		—		1

Net periodic benefit cost	$	50	$	28

Page 16

Amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive loss:


	June 30,
*(Dollars in thousands)*	2008			2007
Net actuarial loss	$	95		$	88
Net deferred tax benefit		(33	)		(30	)

Total accumulated other comprehensive loss	$	62		$	58

Weighted-average discount rate assumption used to determine benefit obligation		6.25	%		6.00	%
Weighted-average discount rate assumption used to determine net benefit cost		6.25	%		6.00	%

For 2008, the Company does not expect to recognize any of the net actuarial loss recorded in accumulated other comprehensive loss as a component of net periodic benefit cost. The Company’s expected benefit payments for the third quarter of 2008 are $10,500 and the expected benefit payments for all of 2008 are $42,000. The expected contribution for 2008 is $198,000.

Supplemental Executive Retirement Plan

The Company also sponsors an unfunded, non-qualified supplemental executive retirement plan (“SERP”) for certain officers. The agreement provides that current active participants, with 5 years of service (vested) and a calculated benefit under the plan, will be paid a life annuity upon retirement at age 55 or older, while vested participants who leave the Company prior to age 55 will be paid a 15-year benefit starting at age 65. For those eligible for benefits, the agreement provides for a minimum 15-year guaranteed benefit for all vested participants. The components of the net periodic benefit cost are:


	Six Months Ended June 30,
*(Dollars in thousands)*	2008		2007
Service cost	$	192	$	154
Interest cost		130		130
Amortization of prior service cost		10		10
Recognized net actuarial loss		—		26

Net periodic benefit cost	$	332	$	320


	Three Months Ended June 30,
	2008		2007
Service cost	$	146	$	77
Interest cost		65		65
Amortization of prior service cost		5		5
Recognized net actuarial loss		—		13

Net periodic benefit cost	$	216	$	160

Amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive loss:


	June 30,
*(Dollars in thousands)*	2008			2007
Net actuarial loss	$	304		$	944
Prior service cost		146			163
Net deferred tax benefit		(158	)		(387	)

Total accumulated other comprehensive loss	$	292		$	720

Weighted-average discount rate assumption used to determine benefit obligation		6.25	%		5.90	%
Weighted-average discount rate assumption used to determine net benefit cost		6.25	%		5.90	%

Page 17

The amount in accumulated other comprehensive loss expected to be recognized as a component of net periodic benefit cost in 2008 is $18,500 of prior service cost. For 2008, the Company does not expect to recognize any of the net actuarial loss recorded in accumulated other comprehensive loss as a component of net periodic benefit cost. The Company’s expected benefit payments for the third quarter of 2008 are $52,750 and the expected benefit payments for all of 2008 are $211,000. The expected contribution for 2008 is $663,000.

The Company, through its acquisition of Union Trust, maintains a nonqualified deferred compensation plan for the benefit of certain key employees of the former Union Trust. Life insurance policies were acquired to generate income to offset the cost of the plan, and the amount of annual benefit is indexed to the financial performance of each insurance policy owned by the Company.

Pension Plan

The Company, through its acquisition of Union Trust, has a noncontributory defined benefit pension plan covering substantially all permanent full-time employees of the former Union Trust, which was frozen on May 15, 2005. The Company is currently in the process of liquidating this plan. The Company’s expected benefit payments for the third quarter of 2008 are $77,500 and the expected benefit payments for all of 2008 are $310,000. The Company has a $2.7 million liability related to this plan classified in other liabilities, and is not expected to make any contribution for 2008.

NOTE 11 – ALLOWANCE FOR LOAN AND LEASE LOSSES

Changes in the allowance for loan and lease losses were as follows:


	Six Months Ended June 30,						Three Months Ended June 30,
*(Dollars in thousands)*	2008			2007			2008			2007
Beginning balance	$	13,653		$	14,933		$	16,979		$	14,873
Acquired from Union Trust		4,369			—			—			—
Provision for loan and lease losses		950			100			450			—
Charge-offs:
Recoveries		365			474			316			154
Loans charged off		(2,071	)		(1,580	)		(479	)		(1,100	)

Net charge-offs		(1,706	)		(1,106	)		(163	)		(946	)

Ending balance	$	17,266		$	13,927		$	17,266		$	13,927

ALLL to total loans		1.13	%		1.17	%
Non-performing loans to total loans		0.90	%		0.56	%
Net charge-offs to total loans		0.11	%		0.09	%

NOTE 12 – RECENT ACCOUNTING PRONOUNCEMENTS

In September 2006, FASB issued SFAS No. 157, Fair Value Measurements . SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with US GAAP, and expands disclosures about fair value measurements. The statement establishes a fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 157-2, Effective Date of FASB Statement No. 157 , which delays the effective date for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. Although this Statement does not require any new fair value measurements, it has expanded our fair value disclosures.

Page 18

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities , which gives entities the option to measure eligible financial assets and financial liabilities at fair value on an instrument-by-instrument basis. The election to use the fair value option is available when an entity first recognizes a financial asset or financial liability. Subsequent changes in fair value must be recorded in earnings. SFAS No. 159 contains provisions to apply the fair value option to existing eligible financial instruments at the date of adoption. This statement is effective as of the beginning of an entity’s first fiscal year after November 15, 2007. The Company did not elect the fair value option under SFAS No. 159 for any financial assets or financial liabilities.

In March 2008, FASB issued SFAS No. 161, “ Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133 .” SFAS No. 161 is intended to enhance the current disclosure framework in SFAS No. 133. This Statement has the same scope as SFAS No. 133. FASB Statement No. 133 requires that objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation. SFAS No. 161 better conveys the purpose of derivative use in terms of the risk that the entity is intending to manage, disclosing the fair values of the derivative instruments and their gains and losses in a tabular format, as well as disclosing information about credit-risk-related contingent features. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. Management does not expect implementation of SFAS No. 161 to have a material impact on the financial statements of the Company.

NOTE 13 – FAIR VALUE

Fair Value Measurement

SFAS No. 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS No. 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value: Level 1: Quoted prices (unadjusted) or identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date, Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data, and Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Assets and liabilities measured at fair value on a recurring basis are summarized below.


	Fair Value Measurements at June 30, 2008, Using
*(Dollars in thousands)*	June 30, 2008		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Securities available for sale	$	554,516	$	6,811	$	547,705	$	—
Assets and liabilities measured at fair value on a nonrecurring basis are summarized below.

	Fair Value Measurements at June 30, 2008, Using
*(Dollars in thousands)*	June 30, 2008		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Impaired loans	$	13,586	$	—	$	13,586	$	—
Mortgage servicing rights		1,055		—		1,055		—

Page 19

NOTE 14 – ACQUISITIONS

On January 3, 2008, the Company acquired all of the outstanding common stock of Union Bankshares Company of Ellsworth, Maine, including its principal wholly-owned subsidiary, Union Trust Company, for $72.6 million. The acquisition was accounted for as a purchase in accordance with SFAS No. 141, Business Combinations, and the fair values of the assets acquired and liabilities assumed were calculated in accordance with SFAS No. 157, Fair Value Measurements . The agreement provided for the acquisition of Union Bankshares Company with and into the Company, with the Company being the surviving corporation. Promptly thereafter, Union Trust Company merged with and into Camden National Bank with Camden National Bank being the surviving institution. The acquisition brings together two Maine-based community banking institutions, each with a 100-plus year history, and provides a natural extension of the Company’s geographic reach to Hancock County and the Downeast Maine area, while adding 16,000 households and businesses to which Camden National Bank can market its expanded products and services. The trust department of Union Trust became part of the Company’s trust and investment subsidiary, Acadia Trust, N.A. The operating results of Union Trust have been included with those of the Company since the acquisition date.

Under the terms of the agreement, the Company issued 1,222,497 shares of the Company’s common stock valued at $43.5 million, and paid $29.0 million in cash in exchange for all outstanding Union Trust shares. The value of the common stock issued was determined based on the trailing average for the 10-day period before the terms of the acquisition were agreed to and announced, excluding the high and low prices for that period.

The Company’s cost to acquire Union Trust was as follows (in thousands):


Cash paid to Union Trust shareholders	$	29,028
Common stock issued to Union Trust shareholders		43,523

Total consideration		72,551
Professional fees and other acquisition costs		1,186

Total acquisition cost	$	73,737

The following table summarizes the fair values of the assets acquired and liabilities assumed at January 3, 2008, the date of acquisition, including the SFAS No. 157 fair value hierarchy, if applicable. The items notated with an (a) in the table below are nonfinancial assets and liabilities for which the implementation has been delayed in accordance with FASB Staff Position 157-2, Effective Date of FASB Statement No. 157.


*(Dollars in thousands)*	Fair Value			SFAS No. 157 Fair Value Hierarchy
Cash and cash equivalents	$	17,028		Level 1
FRB and FHLB stock		8,025		Level 2
Securities		121,408		Level 1
Loans, net		362,235		Level 2
Fixed assets		9,162		(a)
Bank-owned life insurance		9,478		Level 2
Prepaid expenses and other assets		9,074		(a)
Identified intangible assets		5,773		(a)
Goodwill		38,350		(a)

Total assets acquired	$	580,533

Deposits	$	(331,545	)	Level 2
Borrowings		(158,080	)	Level 2
Long-term debt		(7,224	)	Level 2
Accrued expense and other liabilities		(9,947	)	(a)

Total liabilities assumed	$	(506,796	)

Total acquisition cost	$	73,737

Page 20

The $5.8 million of acquired intangible assets, which is subject to amortization, includes $5.0 million of core deposit intangible, which has a weighted-average life of approximately 10 years, and $753,000 of Trust relationship intangible, which also has a weighted-average life of approximately 10 years.

The goodwill recognized in the acquisition of approximately $38.4 million was allocated between the Banking and Financial Services reporting units, with allocations of $34.9 million and $3.5 million, respectively. The goodwill is not expected to be deductible for tax purposes.

As part of the acquisition, the Company transferred the lease and other fixed assets of a branch facility, and sold the related deposits, to another financial institution. As part of the sale of deposits, the Company received a deposit premium of $1.4 million, which was recorded in goodwill.

The unaudited pro forma financial information includes only the comparable prior periods as the acquisition was near the beginning of the current period, and thus is reflected in the actual results for the six and three months ended June 30, 2008. The pro forma information assumes that the Union Trust acquisition was consummated on January 1, 2007, and is based on information available and certain assumptions that the Company believes are reasonable. This pro forma information is presented for informational purposes only and is not necessarily indicative of the results of future operations. The pro forma information is as follows:


*(in thousands, except per share data)*	Six Months Ended June 30, 2007		Three Months Ended June 30, 2007
Interest income	$	70,775	$	35,555
Interest expense		37,110		18,832

Net interest income		33,665		16,723
Provision for loan and lease losses		130		15

Net interest income after provision		33,535		16,708
Non-interest income		9,222		4,721
Non-interest expense		25,368		12,690

Income before income taxes		17,389		8,739
Income taxes		5,109		2,557

Net income	$	12,280	$	6,182

Basic earnings per share	$	1.57	$	0.79
Diluted earnings per share	$	1.57	$	0.79

Page 21

ITEM 2. MANAGEMENT’S DISCUSSION OF FINANCIAL CONDITION

AND RESULTS OF OPERATION

FORWARD LOOKING INFORMATION

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 SEC, in our annual reports to stockholders, 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 could be less favorable than anticipated, including fears of 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 and lease losses;

•

adverse weather conditions and increases in energy costs could negatively impact State and local tourism, thus potentially affecting the ability of loan customers to meet their repayment obligations;

•

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;

•

continuation of increases in short-term market interest rates without a corresponding increase in longer-term market interest rates, adversely affecting net interest income;

•

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

•

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

•

changes in accounting rules, Federal and State laws, regulations and policies governing financial holding companies and their subsidiaries;

•

changes in industry-specific and information system technology creating operational issues or requiring significant capital investment;

•

changes in the size and nature of the Company’s competition, including industry consolidation and financial services provided by non-bank entities affecting customer base and profitability;

•

risks related to the acquisition of Union Bankshares Company with and into the Company, including but not limited to staffing issues, adverse customer service issues, and failing to meet the financial objectives of the acquisition;

•

changes in the global geo-political environment, such as acts of terrorism and military action; and

•

changes in the assumptions used in making such forward-looking statements.

You should carefully review all of these factors, and you should be aware that there might be other factors that could cause these differences, including, among others, the risk factors listed in Item 1A. Risk Factors within our Annual Report on Form 10-K for the year ended December 31, 2007. 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.

Page 22

CRITICAL ACCOUNTING POLICIES

Management’s discussion and analysis of our financial condition are based on the consolidated financial statements, which are prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP). The preparation of such financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those noted below. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis in making judgments about the carrying values of assets that are not readily apparent from other sources. Under different assumptions or conditions, actual results could differ from the amount derived from our existing estimates.

Allowance for Loan and Lease Losses. In preparing the Consolidated Financial Statements, the ALLL requires the most significant amount of management estimates and assumptions. The ALLL, which is established through a charge to the provision for loan and lease 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 ALLL 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. We use a risk rating system to determine the credit quality of our loans. In assessing the risk rating of a particular loan, among the factors considered include the obligor’s debt capacity and financial flexibility, the level of the obligor’s earnings, the amount and sources of repayment, the level and nature of contingencies, management strength, and the industry and geography in which the obligor operates. These factors are based on an evaluation of historical information, as well as subjective assessment and interpretation. 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 by us to that loan. We also apply judgment to derive loss factors associated with each credit facility. These loss factors are determined by facility structure, collateral and type of obligor. The use of different estimates or assumptions could produce different provisions for loan and lease losses, which would affect our earnings. A smaller provision for loan and lease losses results in higher net income, and when a greater amount of provision for loan and lease losses is necessary, the result is lower net income. Monthly, the Corporate Risk Management group reviews the ALLL with the CNB Board of Directors. On a quarterly basis, a more in-depth review of the ALLL, including the methodology for calculating and allocating the ALLL, is reviewed with our Board of Directors, as well as the Camden National Bank Board of Directors. For further ALLL information, refer to Item 1A. Risk Factors and the Notes to Consolidated Financial Statements.

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 time of acquisition, if the net realizable value of the property is less than the book value of the loan, a charge or reduction in the ALLL 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 showing a charge against current earnings. Upon acquisition of a property, a current appraisal or a broker’s opinion must substantiate “market value” for the property.

Allowance for Credit Losses . The allowance for credit losses covers our portfolio of lending related commitments. We assess the need for an allowance for lending-related commitments based upon, among other factors, the amount of open commitments, the financial condition of the borrower, and historical losses on credit commitments. In addition, all draw downs on credit commitments undergo underwriting processes in accordance with our Loan Policy, thus must meet the same underwriting standards.

Page 23

Other-Than-Temporary Impairment . 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 securities 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.

Mortgage Servicing Rights. Servicing assets are recognized as separate assets when servicing rights are acquired through sale of residential mortgage assets. Capitalized servicing rights are reported in other assets and are amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial residential mortgage assets. Servicing assets are evaluated for impairment based upon the fair value of the rights as compared to amortized costs. Fair value is determined based upon discounted cash flows using market-based assumptions. In periods of falling market interest rates, accelerated loan prepayment speeds can adversely impact the fair value of these mortgage-servicing rights relative to their book value. In the event that the fair value of these assets was to increase in the future, we can recognize the increased fair value to the extent of the impairment allowance but cannot recognize an asset in excess of its amortized book value. When the book value exceeds the fair value, an impairment of these servicing assets, as a result of changes in observable market data relating to market interest rates, loan prepayment speeds and other factors, could impact our financial condition and results of operations either positively or adversely. We have engaged a recognized third party to periodically evaluate the valuation of the mortgage servicing rights asset.

Valuation of Acquired Assets and Liabilities . 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. Such assets are subject to ongoing periodic impairment tests and are evaluated using various fair value techniques.

Impairment of Goodwill and Other Intangibles . SFAS No. 142, Goodwill and Other Intangibles , addresses the method of identifying and measuring goodwill and other intangible assets acquired in a business combination, eliminates further amortization of goodwill, and requires periodic impairment evaluations of goodwill. 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. We prepare the valuation analyses, which are then reviewed by the Board of Directors. Different estimates or assumptions are also utilized to determine the appropriate carrying value of other assets including, but not limited to, property, plant and equipment, core deposit intangible, and the overall collectibility of loans and receivables.

Interest Income Recognition. Interest on loans is included in income as earned based upon interest rates applied to unpaid principal. Interest is not accrued on loans 90 days or more past due unless they are adequately secured and in the process of collection or on other loans when we believe collection is doubtful. All loans considered impaired are non-accruing. Interest on non-accruing loans is recognized as income when the ultimate collectibility of interest is no longer considered doubtful. When a loan is placed on non-accrual status, all interest previously accrued, but not collected, is reversed against current-period interest income; therefore, an increase in loans on non-accrual status reduces interest income. If a loan is removed from non-accrual status, all previously unrecognized interest is collected and recorded as interest income.

Page 24

Accounting for Post-retirement Plans . We use a December 31 measurement date to determine the expenses for our post-retirement plans and related financial disclosure information. Post-retirement 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 trends rates. As with the computations on plan expense, cash contribution requirements are also sensitive to such changes.

Tax Estimates . 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, 2006, 2005 and 2004 are open to audit by federal and Maine authorities. If the Company, as a result of an audit, was assessed interest and penalties, the amounts would be recorded through other non-interest expense.

RESULTS OF OPERATIONS

Executive Overview

For the six months ended June 30, 2008:

Net income increased $3.6 million, or 36.8%, for the six-month period ended June 30, 2008 compared to the six-month period ended June 30, 2007. Net income per diluted share increased 17.7% to $1.73, compared to $1.47 per diluted share earned during the first six months of 2007. The following were major factors contributing to the results of the first six months of 2008 compared to the same period of 2007:

•

The Company completed its acquisition of Union Bankshares Company (“Union”) on January 3, 2008, thus the results of Union Bankshares and its wholly-owned subsidiary, Union Trust Company, have been included in the results of the Company since that date. The 36.8% increase in net income is primarily a result of the acquisition. As partial consideration for the acquisition, the Company issued 1.2 million shares of common stock, thus impacting the earnings per share calculation, which increased 17.7% for the first six months of 2008 compared to the same period in 2007.

•

Net interest income increased $10.3 million, or 41.5%, which was a net result of:

•

an increase in interest income of $10.9 million, or 20.1%, which was primarily due to increased earning asset balances resulting from the Union acquisition and earnings on investments as new securities were added at higher yields than maturities, and

•

an increase in interest expense of $583,000, or 2.0%, primarily due to the net impact of increased average borrowings resulting from the Union acquisition, mostly offset by a decrease in the overall cost of funds.

•

Provision for loan and lease losses increased $850,000 primarily due to the deterioration of a select number of credits and greater stress in the Company’s loan portfolio brought on by a weakening economy.

•

Non-interest income increased $2.8 million, or 44.9%, primarily due to an increase in income from fiduciary services at Acadia Trust, N.A. and in brokerage and insurance commissions at Acadia Financial Consultants driven by the increases in assets under management resulting from the Union acquisition, and an increase in service charges on deposit accounts and other service charges due the addition of several thousand new accounts related to the Union acquisition.

•

Non-interest expense increased $7.1 million, or 41.7%, primarily due to an increase in salary and benefits resulting from the Union acquisition and normal salary and benefit increases, an increase in net occupancy and fixed asset costs resulting from the addition of branches resulting from the Union acquisition, and an increase in other expenses due to one-time merger integration costs.

Page 25

For the three months ended June 30, 2008:

Impacted by the Union acquisition, net income increased $2.2 million, or 43.8%, for the three-month period ended June 30, 2008 compared to the three-month period ended June 30, 2007, and earnings per diluted share increased 22.7% to $0.92 compared to $0.75 per diluted share earned during the second quarter of 2007. The following were major factors contributing to the results of the second quarter of 2008 compared to the same period of 2007:

•

Net interest income increased $5.6 million, or 45.1%, which was a result of:

•

an increase in interest income of $5.0 million, or 18.2%, which was primarily due to increased earning asset balances resulting from the Union acquisition, and

•

a decrease in interest expense of $616,000, or 4.1%, primarily due to the net impact of a decrease in the rates paid on deposits, partially offset by increased average borrowings resulting from the Union acquisition.

•

Provision for loan and lease losses increased $450,000 primarily due to the deterioration of a select number of credits and greater stress in the Company’s loan portfolio brought on by a weakening economy.

•

Non-interest income increased $1.4 million, or 45.1%, primarily due to an increase in income from fiduciary services at Acadia Trust, N.A. and in brokerage and insurance commissions at Acadia Financial Consultants driven by the increases in assets under management resulting from the Union acquisition, and an increase in service charges on deposit accounts and other service charges due the addition of several thousand new accounts related to the Union acquisition.

•

Non-interest expense increased $3.4 million, or 40.2%, primarily due to an increase in salary and benefits resulting from the Union acquisition and normal salary and benefit increases, and an increase in net occupancy and fixed asset costs resulting from the addition of branches resulting from the Union acquisition.

Financial condition at June 30, 2008 compared to December 31, 2007:

•

Loans increased $381.3 million, or 33.3%, as the Company acquired $366.6 million in loans in the Union acquisition and had net growth in the loan portfolio.

•

Investments increased $132.8 million, or 28.6%, as the Company acquired $121.4 million in investments in the Union acquisition, and pre-invested anticipated cash flows early in 2008 in anticipation of a declining rate environment.

•

Deposits increased $291.2 million, or 26.0%, as the Company assumed $331.5 million in deposits in the Union acquisition, partially offset by a reduction in the use of brokered certificates of deposit.

•

Total borrowings increased $249.7 million, or 54.3%, as the Company assumed $165.3 million in borrowings in the Union acquisition, increased its overnight borrowings, and continued to shift from brokered deposits to wholesale borrowings due to favorable pricing.

Net Interest Income

Net interest income, on a fully taxable equivalent basis, for the six months ended June 30, 2008 was $35.9 million, a $10.5 million, or 41.1%, increase compared to the net interest income of $25.5 million for the first six months of 2007. We experienced an increase in interest income on investments of $4.5 million, or 38.4%, during the first six months of 2008 compared to the same period in 2007, due to increases in volumes related to the Union acquisition and a pre-investment of cash flows, and an increase in yields as a result of new investments added to the portfolio toward the end of 2007 at higher yields than maturing investments. Interest income on loans increased $6.6 million, or 15.2%, during the six-month period of 2008 compared to the same period of 2007, due to an overall increase in the average balance of loans outstanding related to the Union acquisition, partially offset by a 65 basis point decline in the yield on loans as the Prime Rate decreases have had a negative impact on income on adjustable rate loans. Total interest expense increased $560,000, or 1.9%, during the first six months of 2008 compared to the same period in 2007. This increase was the result of volume increases in borrowings as a result of the Union acquisition, increased overnight borrowings, and

Page 26

increased wholesale borrowings. The impact of the increase in borrowing volumes was partially offset by declines in rates paid on borrowings and retail deposit products due to declines in market rates. In addition, during the first six months of 2008, we recorded $1.4 million of interest expense related to the junior subordinated debentures, which was $262,000 higher than the first six months of 2007 as the Company assumed additional debentures in the Union acquisition. Primarily reflecting the return to a positively-sloped yield curve and the impact of the Union acquisition, the net interest margin (net interest income expressed as a percentage of average interest-earning assets) for the first six months of 2008 was 3.37%, a 31 basis point improvement from the 3.06% reported for the same period of 2007.

Net interest income, on a fully taxable equivalent basis, for the three months ended June 30, 2008 was $18.3 million, a 44.5%, or $5.6 million, increase compared to $12.7 million in net interest income for the same period in 2007. The increase was primarily due to the impact of the Union acquisition and a decrease in the cost of funds due to recent declines in short-term rates.

The following tables, which present changes in interest income and interest expense by major asset and liability category for six months ended June 30, 2008 and 2007, illustrate the impact of average volume growth and rate changes. The income from tax-exempt assets, municipal investments and loans, has been adjusted to a tax-equivalent basis, thereby allowing a uniform comparison to be made between asset yields. Changes in net interest income are the result of interest rate movements, changes in the amounts and mix of interest-earning assets and interest-bearing liabilities, and changes in the level of non-interest-earning assets and non-interest-bearing liabilities. We may utilize derivative financial instruments, such as interest rate swap agreements, which could have an effect on net interest income. The average amount of non-accrual loans can also affect the average yield on all outstanding loans. Average non-accrual loans for the six month periods ended June 30, 2008 and 2007 were $12.9 million and $9.1 million, respectively.

ANALYSIS OF CHANGES IN NET INTEREST MARGIN


	Six Months Ended June 30, 2008					Six Months Ended June 30, 2007
*(Dollars in thousands)*	Amount of Interest			Average Yield/Cost		Amount of Interest			Average Yield/Cost
Interest-earning assets:
Investments (including federal funds sold)	$	16,053		5.20	%	$	11,598		5.03	%
Loans		49,897		6.61	%		43,325		7.26	%

Total interest-earning assets		65,950		6.20	%		54,923		6.63	%

Interest-bearing liabilities:
Demand deposits		—		0.00	%		—		0.00	%
NOW accounts		863		0.94	%		186		0.36	%
Savings accounts		420		0.64	%		153		0.34	%
Money market accounts		4,273		2.48	%		6,966		4.57	%
Certificates of deposit		9,478		3.81	%		8,647		4.45	%
Junior subordinated debentures		1,443		6.70	%		1,181		6.60	%
Borrowings		12,035		3.75	%		9,562		4.57	%
Brokered certificates of deposit		1,506		4.51	%		2,763		4.11	%

Total interest-bearing liabilities		30,018		2.88	%		29,458		3.65	%

Net interest income (fully-taxable equivalent)		35,932					25,465
Less: fully-taxable equivalent adjustment		(871	)				(691	)

	$	35,061				$	24,774

Net Interest Rate Spread (fully-taxable equivalent)				3.32	%				2.98	%
Net Interest Margin (fully-taxable equivalent)				3.37	%				3.06	%

Notes: Nonaccrual loans are included in total loans. Tax-exempt interest was calculated using a rate of 35% for fully-taxable equivalent.

Page 27

AVERAGE BALANCE SHEETS


	Six Months Ended June 30,
*(Dollars in thousands)*	2008		2007
Interest-earning assets:
Investments (including federal funds sold)	$	616,894	$	461,011
Loans		1,517,522		1,203,897

Total interest-earning assets		2,134,416		1,664,908

Cash and due from banks		36,079		28,814
Other assets		139,643		72,651
Less allowance for loan and lease losses		17,450		14,842

Total assets	$	2,292,688	$	1,751,531

Sources of funds:
Demand deposits	$	176,916	$	141,785
NOW accounts		185,235		103,035
Savings accounts		132,862		90,299
Money market accounts		346,954		307,174
Certificates of deposits		500,163		392,184
Junior subordinated debentures		43,331		36,083
Borrowings		644,728		421,652
Brokered certificates of deposit		67,142		135,671

Total sources of funds		2,097,331		1,627,883

Other liabilities		25,699		14,495
Shareholders' equity		169,658		109,153

Total liabilities and shareholders’ equity	$	2,292,688	$	1,751,531

ANALYSIS OF VOLUME AND RATE CHANGES ON

NET INTEREST INCOME


	June 30, 2008 Over June 30, 2007
*(Dollars in thousands)*	Change Due to Volume			Change Due to Rate			Total Change
Interest-earning assets:
Investments (including federal funds sold)	$	3,910		$	545		$	4,455
Loans		11,353			(4,781	)		6,572

Total interest income		15,263			(4,236	)		11,027

Interest-bearing liabilities:
NOW accounts		149			528			677
Savings accounts		73			194			267
Money market accounts		907			(3,600	)		(2,693	)
Certificates of deposit		2,394			(1,563	)		831
Junior subordinated debentures		239			23			262
Borrowings		5,086			(2,613	)		2,473
Brokered certificates of deposit		(1,403	)		146			(1,257	)

Total interest expense		7,445			(6,885	)		560

Net interest income *(fully taxable equivalent)*	$	7,818		$	2,649		$	10,467

Page 28

Provision for Loan and Lease Losses

Provisions are made in order to maintain the ALLL at a level that we believe is reasonable and reflective of the overall risk of loss inherent in the loan portfolio. During the first six months of 2008, we provided $950,000 of expense to the ALLL compared to $100,000 in the same period of 2007. See Note 11 in the Notes to the Consolidated Financial Statements for an ALLL roll forward. The determination of an appropriate level of ALLL, and subsequent provision for loan and lease losses, which affects earnings, is based on our analysis of various economic factors and review of the loan portfolio, which may change due to numerous factors including loan growth, payoffs of lower quality loans, recoveries on previously charged-off loans, improvement in the financial condition of the borrowers, risk rating downgrades/upgrades and charge-offs. We utilize a comprehensive approach toward determining the ALLL, which includes an expanded risk rating system that enables us to adequately identify the risks being undertaken, as well as migration within the overall loan portfolio.

Despite being proactive on all matters relating to risk management, we have not been immune from the adverse effects of weakening national and local economies on a select number of credits within the Company’s loan portfolio. This is evidenced by our non-performing loans to total loans ratio, which at 0.90% at June 30, 2008 is up from 0.56% at June 30, 2007. In addition, non-performing assets increased from $11.0 million, or 0.96%, of total loans at December 31, 2007, to $14.0 million, or 0.92% of total loans at June 30, 2008. Net charge-offs to total average loans through June 30, 2008 was 0.11% compared to 0.09% for the same period a year ago. Actual net charge-offs were $1.7 million for the first six months of 2008 compared to $1.1 million in 2007. The allowance for loan and lease losses to total loans has decreased slightly to 1.13% versus a year ago of 1.17%, and is 125.6% of non-performing loans at June 30, 2008. These indicators are below historic levels reflecting the impact of the previously mentioned economic effects and the acquisition of the Union loan portfolio. Certain ratios and other indicators improved for the quarter ended June 30, 2008, compared to March 31, 2008, as detailed in the following table.


	At or for the Quarter Ended
*(dollars in thousands)*	June 30, 2008			March 31, 2008
Non-performing assets to total loans		0.92	%		1.06	%
Non-performing assets to total assets		0.61	%		0.70	%
Non-performing loans to total loans		0.90	%		1.02	%
ALLL to non-performing assets		122.98	%		105.43	%
ALLL to non-performing loans		125.62	%		109.18	%
Criticized assets to total loans		2.74	%		3.23	%
Classified assets to total loans		3.18	%		3.22	%
Past dues loans to total loans
(30+ days past due and still accruing)		0.20	%		0.41	%
Non-accrual loans to ALLL		78.69	%		85.78	%

Loans 90+ days past due and still accruing	$	158		$	987
Non-accrual loans		13,586			14,565
Other real estate owned (OREO)	$	296		$	554

We remain vigilant in the monitoring of asset quality and continue to be proactive in resolving credit issues and managing through the economic cycle. While we feel that our loan portfolio has been performing well overall, as indicated by the current overall delinquency level of 0.20% at June 30, 2008. However, we believe the economy is still in the early stages of a credit cycle correction and could be negatively affected by national, regional and local economic impacts. We continue to have concerns regarding various industries, and do not yet know how the economy will bear out. An additional future risk factor is a potential change in federal and state regulations which may impact a bank’s ability to take appropriate action to protect its financial interests in certain loan situations.

We believe that the actions taken in the first half of the year to increase our provision have been prudent given the risks and uncertainties in the economy at this time. At June 30, 2008, the ALLL of $17.3 million, or 1.13% of total loans outstanding, was appropriate given the current economic conditions in our service area and the condition of the loan portfolio, although if conditions continue to deteriorate, more provision may be needed and we may experience an increase in our OREO balance. As a percentage of total loans outstanding, the ALLL was 1.17% and 1.19% at June 30, 2007 and December 31, 2007, respectively.

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Non-interest Income

Total non-interest income increased $2.8 million, or 44.9%, for the six months ended June 30, 2008, compared to the six months ended June 30, 2007. Income from fiduciary services increased $950,000, or 39.1%, due to increases in assets under administration at Acadia Trust, N.A. related to the Union acquisition, partially offset by market value declines in the portfolio reflecting the negative performance of the stock market during the first half of 2008. Brokerage and insurance commission income increased $294,000, or 68.5%, primarily due to increased assets under management resulting from the Union acquisition. Service charges on deposit accounts increased $948,000, or 54.4%, primarily due to the addition of over 16,000 deposit accounts resulting from the Union acquisition and increases in fees collected on insufficient funds. Other service charges and fees increased $457,000, or 52.1%, primarily due to the Union acquisition and increased debit card transaction fee income. As part of a restructuring of certain securities acquired during the Union acquisition, we recorded a gain on sale of securities of $180,000.

Total non-interest income increased $1.4 million, or 45.1%, during the second quarter of 2008 compared to the second quarter of 2007 as income from fiduciary services increased $472,000, or 38.4%, due to acquisition-related increases in assets under administration at Acadia Trust, N.A., and brokerage and insurance commission income increased $175,000, or 76.1%, due to increased sales activity at Acadia Financial Consultants also due to the Union acquisition. Service charges on deposit accounts and other service charges and fees increased $566,000 and $245,000, respectively, primarily due to the addition of over 16,000 deposit accounts resulting from the Union acquisition, increases in fees collected on insufficient funds and increased debit card transaction fee income.

Non-interest Expense

Total non-interest expense increased $7.1 million, or 41.7%, for the six-month period ended June 30, 2008 compared to the six months ended June 30, 2007. Salary and employee benefit costs increased $3.8 million, or 40.6%, primarily due to the Union acquisition, including the retention of additional staff to facilitate the integration, and normal salary and benefit increases. Net occupancy and fixed asset costs were up $697,000, or 50.4%, and $723,000, or 65.1%, respectively, primarily due to the addition of 10 branches resulting from the Union acquisition. Other non-interest expenses increased $1.8 million, or 38.1%, for the first six months of 2008 compared to the first six months of 2007, primarily due to integration costs associated with the Union acquisition, increased foreclosure and collection costs related to the increase in non-performing assets, and other incremental cost increases resulting from the Union acquisition, such as courier costs, debit card program costs, postage, and donations. The efficiency ratio (non-interest expense / net interest income plus non-interest income) was 54.80% for the six months ended June 30, 2008, a slight decrease from the 55.00% recorded in the same period of 2007.

Total non-interest expense increased $3.4 million, or 40.2%, for the quarter ended June 30, 2008 compared to the same period of 2007, as salary and employee benefit costs increased $1.8 million, or 38.0% due to the Union acquisition, normal salary increases and higher incentive costs. Net occupancy and furniture and equipment costs combined increased $711,000, primarily due to the addition of 10 branches resulting from the Union acquisition. Other non-interest expenses increased $963,000, or 40.4%, for the second quarter of 2008 compared to the second quarter of 2007, primarily due to increased foreclosure and collection costs related to the increase in non-performing assets, and other incremental cost increases resulting from the Union acquisition, such as courier costs, debit card program costs, and postage.

Second Quarter 2008 Compared to First Quarter 2008

In comparing the second and first quarters of 2008, which represent the first two quarters following the Union acquisition, the Company highlighted the following results:

•

Earnings per diluted share of $0.92 were $0.12, or 15.0%, higher than the $0.80 reported in the first quarter.

•

Net income of $7.1 million was $913,000, or 14.8% greater than the $6.2 million reported in the first quarter.

•

Net interest income for the second quarter increased $735,000, or 4.3%, over the first quarter primarily due to a reduction in the cost of funds resulting from the continued declines in short-term rates.

Page 30

•

Non-interest income for the second quarter increased $249,000, or 5.7%, over the first quarter due to increased service charges on deposit accounts primarily related to an increase in insufficient funds fees collected, and brokerage and insurance commission income at Acadia Financial Consultants primarily related to increased annuity sales.

•

Non-interest expenses decreased $348,000 reflecting non-recurring integration-related costs recorded in the first quarter, and the run-off of core deposit intangible amortization related to the 1998 branch acquisition.

•

Due to the results noted above, the efficiency ratio improved to 52.83% for the second quarter compared to 56.85% for the first quarter.

•

Total assets increased $15.1 million from March 31 to June 30, which included an $8.8 million increase in the loan portfolio and a $2.7 million increase in the investment portfolio.

•

Total deposits increased $18.2 million during the second quarter to end at $1.4 billion.

•

Asset quality data improved quarter-on-quarter, as measured by a decrease in non-performing assets of $2.1 million, or 12.8%, a decrease in quarterly net charge-offs which were $1.5 million in the first quarter compared to $163,000 in the second quarter, and a decrease in non-performing loans to total loans which improved to 0.90% from 1.02%. The Company reduced the provision to $450,000 for the second quarter compared to $500,000 in the first quarter.

FINANCIAL CONDITION

Assets

During the six months of 2008, average assets of $2.3 billion increased $541.2 million, or 30.9%, compared to the same period in 2007. This increase was primarily the result of the Union acquisition, as described in Note 14 to the financial statements, partially offset by continued declines in the commercial loan portfolio. In addition to the assets acquired in the Union acquisition, we increased the average investment portfolio approximately $34.5 million, while the average loan portfolio experienced run-off of approximately $53.0 million, for the six months ended June 30, 2008 compared to the same period of 2007.

Total assets of $2.3 billion have increased $596.8 million, or 34.8%, since December 31, 2007, primarily resulting from the acquisition of $580.5 million of assets in the Union acquisition. In addition to the impact of the Union acquisition, investment balances increased $11.4 million resulting from a strategy to pre-invest a portion of expected 2008 cash flows prior to anticipated market rate declines, and the loan portfolio increased approximately $14.7 million, primarily in the consumer portfolio.

Liabilities and Shareholders’ Equity

During the first six months of 2008, average liabilities increased $480.7 million, or 29.3%, compared to the same period in 2007. This increase was primarily the result of the Union acquisition, as described in Note 14, partially offset by net declines in deposit balances (primarily in savings and transaction accounts) and brokered certificate of deposit portfolio. In addition to the liabilities assumed in the Union acquisition, we increased our average use of wholesale borrowings approximately $65.0 million due to favorable rates and terms, primarily in wholesale repurchase agreements and in overnight FHLB borrowings. The increase in borrowings was required due to declines in average deposits of approximately $23.8 million and brokered certificates of deposit of approximately $68.5 million.

Total liabilities have increased $544.9 million, or 34.1%, since December 31, 2007, to $2.1 billion at June 30, 2008, primarily due to the Union acquisition. Total deposits increased $291.2 million primarily due to the deposits assumed in the Union acquisition, partially offset by seasonal declines in transaction accounts, and a reduction in brokered certificates of deposit reflecting the shift to wholesale borrowings due to favorable pricing. We increased our borrowings $249.7 million which was comprised of the $165.3 million assumed in the Union acquisition, and increases in borrowings with the FHLBB (primarily overnight), and wholesale repurchase agreements. In addition, we recorded a $5.0 million due to broker liability related to a quarter-end trade date security purchase.

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Total shareholders’ equity at June 30, 2008 increased $51.9 million, or 43.2%, over the balance at December 31, 2007, as a result of the issuance of 1.2 million shares valued at $43.5 million related to the Union acquisition plus current year net income of $13.3 million, partially offset by a $1.3 million decrease in other comprehensive income primarily due to an increase in the unrealized loss position of the available for sale investment portfolio, $1.9 million used to repurchase common stock, and $1.9 million declared to shareholders in the form of a dividend.

Fair Value

In September 2006, FASB issued SFAS No. 157, Fair Value Measurements . SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. The statement establishes a fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 157-2, Effective Date of FASB Statement No. 157 , which delays the effective date for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. Although this Statement does not require any new fair value measurements, it has expanded our disclosures.

In accordance with SFAS No. 157, actual market prices (Level 1 inputs) and observable market information (Level 2 inputs) are considered in determining fair value of financial instruments, even if the markets for such instruments are less liquid than they were previously, unless Level 1 and Level 2 inputs are prices that are the result of a forced liquidation or distress sale; thus, Level 3 (unobservable) inputs are only used when Level 1 and Level 2 inputs are not available. We do not have assets and liabilities measured at fair value using Level 3 inputs.

LIQUIDITY

Liquidity needs require the availability of cash to meet the withdrawal demands of depositors and credit commitments to borrowers. Liquidity is defined as our ability to maintain availability of funds to meet customer needs, as well as to support our asset base. The primary objective of liquidity management is to maintain a balance between sources and uses of funds to meet our cash flow needs in the most economical and expedient manner. Due to the potential for unexpected fluctuations in both deposits and loans, active management of liquidity is necessary. We maintain various sources of funding and levels of liquid assets in excess of regulatory guidelines in order to satisfy varied liquidity demands. We monitor liquidity in accordance with internal guidelines and all applicable regulatory requirements. As of June 30, 2008 and 2007, our level of liquidity exceeded target levels. We believe that we currently have appropriate liquidity available to respond to liquidity demands. Sources of funds that we utilized consist of deposits, borrowings from the FHLBB and other sources, cash flows from operations, prepayments and maturities of outstanding loans, investments and mortgage-backed securities and the sales of mortgage loans.

Deposits continue to represent our primary source of funds. For the first six months of 2008, average deposits of $1.4 billion increased $239.1 million, or 20.4%, compared to the first six months of 2007, which was primarily the result of the Union acquisition, partially offset by declines in retail deposit balances and continued run-off in

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the brokered certificate of deposit portfolio. Included in the money market deposit category are deposits from Acadia Trust, N.A., representing client funds. The balance in the Acadia Trust, N.A. client money market account, which was $82.5 million on June 30, 2008, could increase or decrease depending upon changes in the portfolios of the clients of Acadia Trust, N.A.

Borrowings are used to supplement deposits as a source of liquidity. In addition to borrowings from the FHLBB, we purchase federal funds, sell securities under agreements to repurchase and utilize treasury tax and loan accounts. Average borrowings and long-term debt for the first six months of 2008 was $688.1 million, an increase of $230.3 million, over the first six months of 2007. The increase included the impact of the $165.3 million of borrowings assumed in the Union acquisition and $65.0 million in additional wholesale borrowings, primarily in repurchase agreements and overnight FHLBB borrowings. We secure borrowings from the FHLBB, whose advances remained the largest non-deposit-related, interest-bearing funding source, with qualified residential real estate loans, certain investment securities and certain other assets available to be pledged. The carrying value of loans pledged as collateral at the FHLBB was $709.1 million and $372.7 million at June 30, 2008 and 2007, respectively. The carrying value of securities pledged as collateral at the FHLBB was $157.4 million and $170.2 million at June 30, 2008 and 2007, respectively. Through our bank subsidiary, we have an available line of credit with FHLBB of $13.0 million at June 30, 2008 and 2007. We had no outstanding balance on the line of credit with the FHLBB at June 30, 2008 and 2007.

In addition to the liquidity sources discussed above, we believe the investment portfolio and residential loan portfolio provide a significant amount of contingent liquidity that could be accessed in a reasonable time period through sales of those portfolios. However, included in the investment portfolio are $20.0 million in auction rate securities which have recently failed at auction. As detailed in Note 4 of the notes to the consolidated financial statements, we are currently collecting all amounts due according to contractual terms and have the ability and intent to hold the securities until they clear auction, are called, or mature. We also believe that we have additional untapped access to the national brokered deposit market, commercial reverse repurchase transaction market and the Federal Reserve Bank discount window. These sources are considered as liquidity alternatives in our contingent liquidity plan. We believe that the level of liquidity is sufficient to meet current and future funding requirements. However, changes in economic conditions, including consumer saving habits and availability or access to the national brokered deposit and commercial repurchase markets, could significantly impact our liquidity position.

CAPITAL RESOURCES

Under Federal Reserve Board (“FRB”) guidelines, bank holding companies are required to maintain capital based on risk-adjusted assets. These capital requirements represent quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Our capital classification is also subject to qualitative judgments by our regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require us to maintain minimum amounts and ratios of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital to average assets (as defined). These guidelines apply to us on a consolidated basis. Under the current guidelines, banking organizations must maintain a risk-based capital ratio of 8%, of which at least 4% must be in the form of core capital (as defined). Our capital ratios and those of our bank subsidiary exceeded regulatory guidelines at June 30, 2008 and 2007. Our Tier 1 to risk-weighted assets was 10.77% and 11.80% at June 30, 2008 and 2007, respectively. In addition to risk-based capital requirements, the FRB requires bank holding companies to maintain a minimum leverage capital ratio of core capital to total assets of 4.0%. Total assets for this purpose do not include goodwill and any other intangible assets and investments that the FRB determines should be deducted. Our leverage ratio at June 30, 2008 and 2007 was 6.89% and 7.83%, respectively.

Although the junior subordinated debentures are recorded as a liability on our Statement of Condition, we are permitted, in accordance with regulatory guidelines, to include, subject to certain limits, the trust preferred securities in our calculation of risk-based capital. At June 30, 2008, the full $43.3 million of the trust preferred securities was included in Tier 1 and total risk-based capital.

Our principal cash requirement is the payment of dividends on our common stock as and when declared by the Board of Directors. We are primarily dependent upon the payment of cash dividends by our subsidiaries to service our commitments. We, as the sole shareholder of our subsidiaries, are entitled to dividends when and as declared by each subsidiary’s Board of Directors from legally available funds. We paid dividends to shareholders in the aggregate amount of $3.5 million and $3.2 million for first six months of 2008 and 2007, respectively.

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CONTRACTUAL OBLIGATIONS AND COMMITMENTS

In the normal course of business, we are a party to credit-related financial instruments with off-balance sheet risk, which are not reflected in the Consolidated Statements of Condition. These financial instruments include lending commitments and letters of credit. Those instruments involve varying degrees of credit risk in excess of the amount recognized in the Consolidated Statements of Condition. We follow the same credit policies in making commitments to extend credit and conditional obligations as we do for on-balance sheet instruments, including requiring similar collateral or other security to support financial instruments with credit risk. Our exposure to credit loss in the event of nonperformance by the customer is represented by the contractual amount of those instruments. Since many of the commitments are expected to expire without being drawn upon, the total amount does not necessarily represent future cash requirements. At June 30, 2008, we had the following levels of commitments to extend credit:


	Total Amount Committed		Commitment Expires in:
*(Dollars in thousands)*	Total Amount Committed		<1 year		1-3 years		4-5 years		>5 years
Letters of Credit	$	1,476	$	1,476	$	—	$	—	$	—
Other Commitments to Extend Credit		288,860		92,601		17,517		10,027		168,715

Total	$	290,336	$	94,077	$	17,517	$	10,027	$	168,715

We are a party to several off-balance sheet contractual obligations through lease agreements on a number of branch facilities. We have an obligation and commitment to make future payments under these contracts. Borrowings from the FHLBB consist of short- and long-term fixed and variable rate borrowings and are collateralized by all stock in the FHLBB and a blanket lien on qualified collateral consisting primarily of loans with first mortgages secured by one-to-four family properties, certain pledged investment securities and other qualified assets. Other borrowed funds include treasury, tax and loan deposits and securities sold under repurchase agreements. We have an obligation and commitment to repay all borrowings and debentures. These commitments, borrowings, junior subordinated debentures and the related payments are made during the normal course of business.

At June 30, 2008, we had the following levels of contractual obligations for the remainder of 2008 and the fiscal years thereafter:


	Total Amount of Obligations		Payments Due Per Period
*(Dollars in thousands)*	Total Amount of Obligations		<1 year		1-3 years		4-5 years		>5 years
Operating Leases	$	3,853	$	776	$	1,374	$	881	$	822
Capital Leases		824		13		31		33		747
Borrowings from the FHLBB		453,716		252,334		118,136		36,790		46,456
Commercial Repurchase Agreements		126,633		—		20,000		101,000		5,633
Junior Subordinated Debentures		43,342		—		—		—		43,342
Other Borrowed Funds		79,628		79,628		—		—		—
Note Payable		202		27		49		42		84
Other Long-Term Obligations		—		—		—		—		—

Total	$	708,198	$	332,778	$	139,590	$	138,746	$	97,084

We may use derivative instruments as partial hedges against large fluctuations in interest rates. We may also use interest rate swap and floor instruments to partially hedge against potentially lower yields on the variable prime rate loan category in a declining rate environment. If rates were to decline, resulting in reduced income on the adjustable rate loans, there would be an increased income flow from the interest rate swap and floor instruments. We may also use cap instruments to partially hedge against increases in short-term borrowing rates. If rates were to rise, resulting in an increased interest cost, there would be an increased income flow from the cap instruments. These financial instruments are factored into our overall interest rate risk position. We regularly review the credit quality of the counterparty from which the instruments have been purchased. At June 30, 2008, we had only a cap agreement with a notional amount of $20.0 million.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

MARKET RISK

Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates/prices, such as interest rates, foreign currency exchange rates, commodity prices and equity prices. Our primary market risk exposure is interest rate risk. The ongoing monitoring and management of this risk is an important component of our asset/liability management process, which is governed by policies established by the CNB Board of Directors, and are reviewed and approved annually. The Board of Directors’ Asset/Liability Committee (“Board ALCO”) delegates responsibility for carrying out the asset/liability management policies to the Management Asset/Liability Committee (“Management ALCO”). In this capacity, Management ALCO develops guidelines and strategies impacting our asset/liability management-related activities based upon estimated market risk sensitivity, policy limits and overall market interest rate levels/trends. The Management ALCO and Board ALCO jointly meet on a quarterly basis to review strategies, policies, economic conditions and various activities as part of the management of these risks.

Interest Rate Risk

Interest rate risk represents the sensitivity of earnings to changes in market interest rates. As interest rates change, the interest income and expense streams associated with our financial instruments also change, thereby impacting net interest income (“NII”), the primary component of our earnings. Board and Management ALCO utilize the results of a detailed and dynamic simulation model to quantify the estimated exposure of NII to sustained interest rate changes. While Board and Management ALCO routinely monitor simulated NII sensitivity over a rolling 2-year horizon, they also utilize additional tools to monitor potential longer-term interest rate risk.

The simulation model captures the impact of changing interest rates on the interest income received and interest expense paid on all interest-earning assets and interest-bearing liabilities reflected on our Statement of Condition, as well as for derivative financial instruments. None of the assets used in the simulation were held for trading purposes. This sensitivity analysis is compared to ALCO policy limits, which specify a maximum tolerance level for NII exposure over a 1-year horizon, assuming no balance sheet growth, given a 200 basis point upward and 100 basis point downward shift in interest rates. Although our policy specifies a 200 basis point downward shift, this could result in negative rates as many benchmark rates are currently below 2.00%. A parallel and pro rata shift in rates over a 12-month period is assumed. The following reflects our NII sensitivity analysis as measured during the second quarter of 2008.


Rate Change	Estimated Changes in NII
+200bp	(0.40	)%
-100bp	(0.40	)%

The preceding sensitivity analysis does not represent a forecast and should not be relied upon as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions including, among others, the nature and timing of interest rate levels, yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits and reinvestment/replacement of asset and liability cash flows. While assumptions are developed based upon current economic and local market conditions, we cannot make any assurances as to the predictive nature of these assumptions, including how customer preferences or competitor influences might change.

The most significant factors affecting the changes in market risk exposure during the first six months of 2008 were a steeper yield curve and funding extensions at lower rates. A portion of these funding extensions include imbedded caps which will mitigate exposure to rising rates over the life of the cap. If rates remain at or near current levels and the balance sheet mix remains similar, net interest income is projected to trend slightly higher during the first year as funding reprices at lower rates, while assets yields are slower to decline. Beyond year one, net interest income is expected to level off as funding costs stabilize and move in tandem with asset yields. In a falling interest rate environment, net interest income is expected to decrease slightly during the first year, as floating rate asset yields reprice lower more quickly than funding costs. Beyond the first year, as

Page 35

opportunities to further reduce funding costs become more difficult and accelerated loan prepayments continue to drive asset yields lower, a more downward trend in net interest income is expected. In a sustained rising interest rate environment, net interest income is expected to initially trend slightly lower with increases in funding costs and slower rising asset yields. However, once funding costs stabilize and the asset base continues to reprice upward and replace lower yields net interest income is expected to increase in year two. If the yield curve were to flatten as rates rise, some of the benefit could be diminished. The risk in the various rate scenarios is well within our policy limits.

Periodically, if deemed appropriate, we use interest rate swaps, floors and caps, which are common derivative financial instruments, to hedge interest rate risk position. The Board of Directors has approved hedging policy statements governing the use of these instruments. As of June 30, 2008, we had a notional principal amount of $20.0 million in a cap agreement. Board and Management ALCO monitor derivative activities relative to its expectation and our hedging policies.

ITEM 4. CONTROLS AND PROCEDURES

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company’s management conducted an evaluation with the participation of the Company’s Chief Executive Officer and Chief Financial Officer (Principal Financial & Accounting Officer), regarding the effectiveness of the Company’s disclosure controls and procedures, as of the end of the last fiscal quarter covered by this report. In designing and evaluating the Company’s disclosure controls and procedures, the Company and its management recognize that any controls and procedures, no matter how well designed and operated, can provide only a reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating and implementing possible controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer (Principal Financial & Accounting Officer) concluded that they believe the Company’s disclosure controls and procedures are reasonably effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. The Company intends to continue to review and document the disclosure controls and procedures, including the internal controls and procedures for financial reporting, and may from time to time make changes to the disclosure controls and procedures to enhance their effectiveness and to ensure that the systems evolve with the Company’s business.

There was no change in the internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

No material litigation.

ITEM 1A.

RISK FACTORS

There have been no material changes in the Risk Factors described in Item 1A. of the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

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ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) None

(b) None

(c) In June 2007, the Board of Directors of the Company voted to authorize the Company to purchase up to 750,000 shares of its authorized and issued common stock. The authority, which expires on July 1, 2008, may be exercised from time to time and in such amounts as market conditions warrant. Any repurchases are intended to make appropriate adjustments to the Company’s capital structure, including meeting share requirements related to employee benefit plans and for general corporate purposes. During the second quarter of 2008, we made the following purchases under this plan:


Period	(a) Total Number of Shares Purchased	(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
4/1/08 – 4/30/08	319	$	33.04	319	708,338
5/1/08 – 5/31/08	11,400		32.79	11,400	696,938
6/1/08 – 6/30/08	6,300		30.95	6,300	690,638

Total	18,019	$	32.15	18,019	690,638

In June 2008, the Board of Directors extended the Common Stock Repurchase Program for an additional one year period, expiring July 1, 2009, authorizing the Company to purchase up to 750,000 shares during the year for the same reasons noted under the prior year plan.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

(a) The annual meeting of shareholders was held on April 29, 2008.

(b) Robert J. Campbell, Ward I. Graffam and John W. Holmes were elected as directors at the annual meeting. Ann W. Bresnahan, Robert W. Daigle, David C. Flanagan, Rendle A. Jones, James H. Page, Robin A. Sawyer, and Karen W. Stanley continued in office as directors after the meeting.

(c) Matters voted upon at the meeting. 1) To elect as director nominees – Robert J. Campbell (Total votes cast: 6,166,303, with 6,065,019 for and 101,284 withholding authority), Ward I. Graffam (Total votes cast: 6,166,303 with 5,874,669 for and 291,634 withholding authority) and John W. Holmes (Total votes cast: 6,166,303, with 5,581,578 for and 584,725 withholding authority) to serve a three-year term to expire at the annual meeting in 2011. 2) To ratify the selection of Berry, Dunn, McNeil & Parker as the Company’s independent registered public accounting firm for 2008 (Total votes cast: 6,166,303, with 6,145,153 for, 13,125 against, and 8,025 abstaining).

ITEM 5.

OTHER INFORMATION

None

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ITEM 6.

EXHIBITS

(a)

Exhibits

(3.i.1) The Articles of Incorporation of Camden National Corporation (incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q filed with the Securities and Exchange Commission on August 10, 2001)

(3.i.2) Articles of Amendment to the Articles of Incorporation of Camden National Corporation, as amended to date (incorporated by reference to Exhibit 3.3 to the Company’s Form 10-Q filed with the Securities and Exchange Commission on May 9, 2003)

(3.i.3) Articles of Amendment to the Articles of Incorporation of Camden National Corporation, as amended to date (incorporated by reference to Exhibit 3.i.3 to the Company’s Form 10-Q filed with the Securities and Exchange Commission on May 4, 2007)

(3.ii) The Bylaws of Camden National Corporation, as amended to date (incorporated by reference to Exhibit 99.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on March 10, 2008)

(10.1) The Company’s 2003 Stock Option and Incentive Plan *

(10.2) Employment Agreement between Camden National Corporation and Robert W. Daigle, dated as of April 29, 2008 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on May 1, 2008)

(10.3) Restricted Stock Agreement between Camden National Corporation and Robert W. Daigle, dated as of April 29, 2008 (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed with the Securities and Exchange Commission on May 1, 2008)

(10.4) Management Stock Purchase Plan, as amended April 29, 2008 (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed with the Securities and Exchange Commission on May 1, 2008)

(11.1) Statement re computation of per share earnings (Data required by SFAS No. 128, Earnings Per Share , is provided in Note 2 to the consolidated financial statements in this report)

(23.1) Consent of Berry, Dunn, McNeil & Parker relating to the financial statements of Camden National Corporation*

(31.1) Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934*

(31.2) Certification of Principal Financial & Accounting Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934*

(32.1) Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

(32.2) Certification of Principal Financial & Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

*	Filed herewith

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


CAMDEN NATIONAL CORPORATION
(Registrant)

/s/ Robert W. Daigle				August 8, 2008
Robert W. Daigle				Date
President and Chief Executive Officer

/s/ Susan M. Westfall				August 8, 2008
Susan M. Westfall				Date
SVP Corporate Controller and Principal
Financial & Accounting Officer

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Exhibit Index


		Page
(3.i.1)	The Articles of Incorporation of Camden National Corporation (incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q filed with the Securities and Exchange Commission on August 10, 2001)	-

(3.i.2)	Articles of Amendment to the Articles of Incorporation of Camden National Corporation, as amended to date (incorporated by reference to Exhibit 3.3 to the Company’s Form 10-Q filed with the Securities and Exchange Commission on May 9, 2003)	-

(3.i.3)	Articles of Amendment to the Articles of Incorporation of Camden National Corporation, as amended to date (incorporated by reference to Exhibit 3.i.3 to the Company’s Form 10-Q filed with the Securities and Exchange Commission on May 4, 2007)	-

(3.ii)	The Bylaws of Camden National Corporation, as amended to date (incorporated by reference to Exhibit 3.ii to the Company’s Form 10-Q filed with the Securities and Exchange Commission on May 4, 2007)	-

(10.1)	The Company’s 2003 Stock Option and Incentive Plan	41

(10.1)	Employment Agreement between Camden National Corporation and Robert W. Daigle, dated as of April 29, 2008 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on May 1, 2008)	-

(10.2)	Restricted Stock Agreement between Camden National Corporation and Robert W. Daigle, dated as of April 29, 2008 (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed with the Securities and Exchange Commission on May 1, 2008)	-

(10.3)	Management Stock Purchase Plan, as amended April 29, 2008 (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed with the Securities and Exchange Commission on May 1, 2008)	-

(11.1)	Statement re computation of per share earnings (Data required by SFAS No. 128, Earnings Per Share , is provided in Note 2 to the consolidated financial statements in this report)	-

(23.1)	Consent of Berry, Dunn, McNeil & Parker relating to the financial statements of Camden National Corporation	54

(31.1)	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934	55

(31.2)	Certification of Principal Financial & Accounting Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934	56

(32.1)	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	57

(32.2)	Certification of Principal Financial & Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	58

Page 40

EXHIBIT 10.1

CAMDEN NATIONAL CORPORATION

2003 STOCK OPTION AND INCENTIVE PLAN

Amended through 2008

SECTION 1: GENERAL PURPOSE OF THE PLAN; DEFINITIONS

The name of the plan is the Camden National Corporation 2003 Stock Option and Incentive Plan (the “Plan”). The purpose of the Plan is to encourage and enable the officers, employees, Independent Directors and other key persons (including consultants) of Camden National Corporation (the “Company”) and its Subsidiaries upon whose judgment, initiative and efforts the Company largely depends for the successful conduct of its business to acquire a proprietary interest in the Company. It is anticipated that providing such persons with a direct stake in the Company’s welfare will assure a closer identification of their interests with those of the Company, thereby stimulating their efforts on the Company’s behalf and strengthening their desire to remain with the Company. Except as provided in Section 8(g) below, from and after January 1, 2005, this Plan has been and will be operated within an applicable exemption from the restrictions of Code Section 409A, as more particularly described in Section 20(b) below.

The following terms shall be defined as set forth below:

“Act” means the Securities Act of 1933, as amended, and the rules and regulations thereunder.

“Administrator” is defined in Section 2(a).

“Award” or “Awards,” except where referring to a particular category of grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation Rights, Deferred Stock Awards, Restricted Stock Awards, Unrestricted Stock Awards, Performance Share Awards and Dividend Equivalent Rights.

“Board” means the Board of Directors of the Company.

“Change of Control” is defined in Section 17.

“Code” means the Internal Revenue Code of 1986, as amended, and any successor Code, and related rules, regulations and interpretations. Any reference to a particular section of the Code shall include a reference to any successor section of the Code.

“Committee” means the Committee of the Board referred to in Section 2.

“Covered Employee” means an employee who is a “Covered Employee” within the meaning of Section 162(m) of the Code.

“Deferred Stock Award” means Awards granted pursuant to Section 8.

“Dividend Equivalent Right” means Awards granted pursuant to Section 12.

“Effective Date” means the date on which the Plan is approved by stockholders as set forth in Section 19.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.

“Fair Market Value” of the Stock on any given date means the fair market value of the Stock as the closing price on the date of grant if that date is a trading date, or the closing price on the trading date just before the date of grant if the date of grant is not a trading date, in accordance with the Treasury Regulations issued under Code Section 409A. If the stock ceases to be readily tradable, the fair market value on the date of grant shall be the value determined in good faith by the Administration by the reasonable application of a reasonable valuation method as required by the Treasury Regulations issued under Code Section 409A.

“Incentive Stock Option” means any Stock Option designated and qualified as an “incentive stock option” as defined in Section 422 of the Code.

“Independent Director” means a member of the Board who is not also an employee of the Company or any Subsidiary.

“Non-Qualified Stock Option” means any Stock Option that is not an Incentive Stock Option.

“Option” or “Stock Option” means any option to purchase shares of Stock granted pursuant to Section 5.

“Performance Share Award” means Awards granted pursuant to Section 10.

“Performance Cycle” means one or more periods of time, which may be of varying and overlapping durations, as the Administrator may select, over which the attainment of one or more performance criteria will be measured for the purpose of determining a grantee’s right to and the payment of a Performance Share Award, Restricted Stock Award or Deferred Stock Award.

“Restricted Stock Award” means Awards granted pursuant to Section 7.

“Stock” means the Common Stock, no par value, of the Company, subject to adjustments pursuant to Section 3.

“Stock Appreciation Right” or “SAR” means any Award granted pursuant to Section 6.

“Subsidiary” means any corporation or other entity (other than the Company) in which the Company has a controlling interest, either directly or indirectly.

“Unrestricted Stock Award” means any Award granted pursuant to Section 9.

SECTION 2: ADMINISTRATION OF PLAN; ADMINISTRATOR AUTHORITY TO SELECT GRANTEES AND DETERMINE AWARDS

(a) Committee . The Plan shall be administered by either the Board or a committee of not less than two Independent Directors (in either case, the “Administrator”).

(b) Powers of Administrator . The Administrator shall have the power and authority to grant Awards consistent with the terms of the Plan, including the power and authority:

(i)

to select the individuals to whom Awards may from time to time be granted;

(ii)

to determine the time or times of grant, and the extent, if any, of Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock Awards, Deferred Stock Awards, Unrestricted Stock Awards, Performance Share Awards and Dividend Equivalent Rights, or any combination of the foregoing, granted to any one or more grantees;

(iii)

to determine the number of shares of Stock to be covered by any Award;

(iv)

to determine and modify from time to time the terms and conditions, including restrictions, not inconsistent with the terms of the Plan, of any Award, which terms and conditions may differ among individual Awards and grantees, and to approve the form of written instruments evidencing the Awards;

(v)

to accelerate at any time the exercisability or vesting of all or any portion of any Award;

(vi)

subject to the provisions of Section 5(a)(ii), to extend at any time the period in which Stock Options may be exercised;

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(vii)

to determine at any time whether, to what extent, and under what circumstances distribution or the receipt of Stock and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the grantee and whether and to what extent the Company shall pay or credit amounts constituting interest (at rates determined by the Administrator) or dividends or deemed dividends on such deferrals; and

(viii)

at any time to adopt, alter and repeal such rules, guidelines and practices for administration of the Plan and for its own acts and proceedings as it shall deem advisable; to interpret the terms and provisions of the Plan and any Award (including related written instruments); to make all determinations it deems advisable for the administration of the Plan; to decide all disputes arising in connection with the Plan; and to otherwise supervise the administration of the Plan.

All decisions and interpretations of the Administrator shall be binding on all persons, including the Company and Plan grantees.

(c) Delegation of Authority to Grant Awards . The Administrator, in its discretion, may delegate to the Chief Executive Officer of the Company all or part of the Administrator’s authority and duties with respect to the granting of Awards at Fair Market Value, to individuals who are not subject to the reporting and other provisions of Section 16 of the Exchange Act or “covered employees” within the meaning of Section 162(m) of the Code. Any such delegation by the Administrator shall include a limitation as to the amount of Awards that may be granted during the period of the delegation and shall contain guidelines as to the determination of the exercise price of any Stock Option or Stock Appreciation Right, the conversion ratio or price of other Awards and the vesting criteria. The Administrator may revoke or amend the terms of a delegation at any time but such action shall not invalidate any prior actions of the Administrator’s delegate or delegates that were consistent with the terms of the Plan.

(d) Indemnification . Neither the Board nor the Committee, nor any member of either or any delegatee thereof, shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with the Plan, and the members of the Board and the Committee (and any delegatee thereof) shall be entitled in all cases to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including, without limitation, reasonable attorneys’ fees) arising or resulting therefrom to the fullest extent permitted by law and/or under any directors’ and officers’ liability insurance coverage which may be in effect from time to time.

SECTION 3: STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION

(a) Stock Issuable . The maximum number of shares of Stock reserved and available for issuance under the Plan shall be 800,000 shares, subject to adjustment as provided in Section 3(b); provided that not more than 200,000 shares shall be issued in the form of Unrestricted Stock Awards, Restricted Stock Awards, or Performance Share Awards except to the extent such Awards are granted in lieu of cash compensation or fees. For purposes of this limitation, the shares of Stock underlying any Awards which are forfeited, canceled, reacquired by the Company, satisfied without the issuance of Stock or otherwise terminated (other than by exercise) shall be added back to the shares of Stock available for issuance under the Plan. Subject to such overall limitation, shares of Stock may be issued up to such maximum number pursuant to any type or types of Award; provided, however, that Stock Options or Stock Appreciation Rights with respect to no more than 30,000 shares of Stock may be granted to any one individual grantee during any one calendar year period. The shares available for issuance under the Plan may be authorized but unissued shares of Stock or shares of Stock reacquired by the Company and held in its treasury.

(b) Changes in Stock . Subject to Section 3(c) hereof, if, as a result of any reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Company’s capital stock, the outstanding shares of Stock are increased or decreased or are exchanged for a different number or kind of shares or other securities of the Company, or additional shares or new or different shares or other securities of the Company or other non-cash assets are distributed with respect to such shares of Stock or other securities, or, if, as a result of any merger or consolidation, sale of all or substantially all of the assets of the Company, the outstanding shares of Stock are converted into or exchanged for a different number or kind of securities of the Company or any successor entity (or a parent or subsidiary thereof), the Administrator shall make an appropriate or proportionate adjustment in (i) the maximum number of shares reserved for issuance under the Plan, including the maximum number of shares that may be issued in the form of Unrestricted Stock Awards, Restricted Stock Awards or

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Performance Share Awards, (ii) the number of Stock Options or Stock Appreciation Rights that can be granted to any one individual grantee and the maximum number of shares that may be granted under a Performance-based Award, (iii) the number and kind of shares or other securities subject to any then outstanding Awards under the Plan, (iv) the repurchase price per share subject to each outstanding Restricted Stock Award, and (v) the price for each share subject to any then outstanding Stock Options and Stock Appreciation Rights under the Plan, without changing the aggregate exercise price (i.e., the exercise price multiplied by the number of Stock Options and Stock Appreciation Rights) as to which such Stock Options and Stock Appreciation Rights remain exercisable. The adjustment by the Administrator shall be final, binding and conclusive. No fractional shares of Stock shall be issued under the Plan resulting from any such adjustment, but the Administrator in its discretion may make a cash payment in lieu of fractional shares.

The Administrator may also adjust the number of shares subject to outstanding Awards and the exercise price and the terms of outstanding Awards to take into consideration material changes in accounting practices or principles, extraordinary dividends, acquisitions or dispositions of stock or property or any other event if it is determined by the Administrator that such adjustment is appropriate to avoid distortion in the operation of the Plan, provided that no such adjustment shall be made in the case of an Incentive Stock Option, without the consent of the grantee, if it would constitute a modification, extension or renewal of the Option within the meaning of Section 424(h) of the Code.

For any Options or Stock Appreciation Rights issued on or after January 1, 2005, or which are not subject to the Code Section 409A “grandfather” provision, any changes in the capital structure of the Company under this Section 3(b) must be made proportionately in compliance with Treasury Regulation Section 1.409A-1(b)(5)(v), so that such Options or SAR’s remain exempt from the application of Code Section 409A.

(c) Mergers and Other Transactions . In the case of and subject to the consummation of (i) the dissolution or liquidation of the Company, (ii) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (iii) a merger, reorganization or consolidation in which the outstanding shares of Stock are converted into or exchanged for a different kind of securities of the successor entity and the holders of the Company’s outstanding voting power immediately prior to such transaction do not own a majority of the outstanding voting power of the successor entity immediately upon completion of such transaction, or (iv) the sale of all of the Stock of the Company to an unrelated person or entity (in each case, a “Sale Event”), all Options and Stock Appreciation Rights that are not exercisable immediately prior to the effective time of the Sale Event shall become fully exercisable as of the effective time of the Sale Event and all other Awards with conditions and restrictions relating solely to the passage of time and continued employment shall become fully vested and nonforfeitable as of the effective time of the Sale Event, except as the Administrator may otherwise specify with respect to particular Awards. Upon the effective time of the Sale Event, the Plan and all outstanding Awards granted hereunder shall terminate, unless provision is made in connection with the Sale Event in the sole discretion of the parties thereto for the assumption or continuation of Awards theretofore granted by the successor entity, or the substitution of such Awards with new Awards of the successor entity or parent thereof, with appropriate adjustment as to the number and kind of shares and, if appropriate, the per share exercise prices, as such parties shall agree (after taking into account any acceleration hereunder). In the event of such termination, each grantee shall be permitted, within a specified period of time prior to the consummation of the Sale Event as determined by the Administrator, to exercise all outstanding Options and Stock Appreciation Rights held by such grantee, including those that will become exercisable upon the consummation of the Sale Event; provided, however, that the exercise of Options and Stock Appreciation Rights not exercisable prior to the Sale Event shall be subject to the consummation of the Sale Event.

Notwithstanding anything to the contrary in this Section 3(c), in the event of a Sale Event pursuant to which holders of the Stock of the Company will receive upon consummation thereof a cash payment for each share surrendered in the Sale Event, the Company shall have the right, but not the obligation, to make or provide for a cash payment to the grantees holding Options and Stock Appreciation Rights in exchange for the cancellation thereof, in an amount equal to the difference between (A) the value as determined by the Administrator of the consideration payable per share of Stock pursuant to the Sale Event (the “Sale Price”) times the number of shares of Stock subject to outstanding Options and Stock Appreciation Rights (to the extent then exercisable at prices not in excess of the Sale Price) and (B) the aggregate exercise price of all such outstanding Options and Stock Appreciation Rights. Transactions under this provision must be made in a manner that the Options and SAR’s remain exempt from the application of Code Section 409A.

(d) Substitute Awards . The Administrator may grant Awards under the Plan in substitution for stock and

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stock based awards held by employees, directors or other key persons of another corporation in connection with the merger or consolidation of the employing corporation with the Company or a Subsidiary or the acquisition by the Company or a Subsidiary of property or stock of the employing corporation. The Administrator may direct that the substitute awards be granted on such terms and conditions as the Administrator considers appropriate in the circumstances. Any substitute Awards granted under the Plan shall not count against the share limitation set forth in Section 3(a).

SECTION 4: ELIGIBILITY

Grantees under the Plan will be such full or part-time officers and other employees, Independent Directors and key persons (including consultants and prospective employees) of the Company and its Subsidiaries as are selected from time to time by the Administrator in its sole discretion.

SECTION 5: STOCK OPTIONS

Any Stock Option granted under the Plan shall be in such form as the Administrator may from time to time approve.

Stock Options granted under the Plan may be either Incentive Stock Options or Non-Qualified Stock Options. Incentive Stock Options may be granted only to employees of the Company or any Subsidiary that is a “subsidiary corporation” within the meaning of Section 424(f) of the Code. To the extent that any Option does not qualify as an Incentive Stock Option, it shall be deemed a Non-Qualified Stock Option.

No Incentive Stock Option shall be granted under the Plan after January 28, 2013.

(a) Stock Options Granted to Employees, Independent Directors and Key Persons . The Administrator in its discretion may grant Stock Options to eligible employees, Independent Directors and key persons of the Company or any Subsidiary. Stock Options granted pursuant to this Section 5(a) shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Administrator shall deem desirable. If the Administrator so determines, Stock Options may be granted in lieu of cash compensation at the optionee’s election, subject to such terms and conditions as the Administrator may establish.

(i) Exercise Price . The exercise price per share for the Stock covered by a Stock Option granted pursuant to this Section 5(a) shall be determined by the Administrator at the time of grant but shall not be less than 100 percent of the Fair Market Value on the date of grant. If an employee owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10 percent of the combined voting power of all classes of stock of the Company or any parent or subsidiary corporation and an Incentive Stock Option is granted to such employee, the option price of such Incentive Stock Option shall be not less than 110 percent of the Fair Market Value on the grant date.

(ii) Option Term . The term of each Stock Option shall be fixed by the Administrator, but no Stock Option shall be exercisable more than 10 years after the date the Stock Option is granted. If an employee owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10 percent of the combined voting power of all classes of stock of the Company or any parent or subsidiary corporation and an Incentive Stock Option is granted to such employee, the term of such Stock Option shall be no more than five years from the date of grant.

(iii) Exercisability; Rights of a Stockholder. Stock Options shall become exercisable at such time or times, whether or not in installments, as shall be determined by the Administrator at or after the grant date. The Administrator may at any time accelerate the exercisability of all or any portion of any Stock Option. An optionee shall have the rights of a stockholder only as to shares acquired upon the exercise of a Stock Option and not as to unexercised Stock Options.

(iv) Method of Exercise . Stock Options may be exercised in whole or in part, by giving written notice of exercise to the Company, specifying the number of shares to be purchased. Payment of the purchase price may be made by one or more of the following methods to the extent provided in the Option Award agreement:

(A) In cash, by certified or bank check or other instrument acceptable to the Administrator;

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(B) Through the delivery (or attestation to the ownership) of shares of Stock that have been purchased by the optionee on the open market or that have been beneficially owned by the optionee for at least six months and are not then subject to restrictions under any Company plan. Such surrendered shares shall be valued at Fair Market Value on the exercise date; or

(C) Subject to compliance with applicable law, by the optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company for the purchase price; provided that in the event the optionee chooses to pay the purchase price as so provided, the optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Administrator shall prescribe as a condition of such payment procedure.

Payment instruments will be received subject to collection. The delivery of certificates representing the shares of Stock to be purchased pursuant to the exercise of a Stock Option will be contingent upon receipt from the optionee (or a purchaser acting in his stead in accordance with the provisions of the Stock Option) by the Company of the full purchase price for such shares and the fulfillment of any other requirements contained in the Option Award agreement or applicable provisions of laws. In the event an optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the number of shares of Stock transferred to the optionee upon the exercise of the Stock Option shall be net of the number of shares attested to.

(v) Annual Limit on Incentive Stock Options . To the extent required for “incentive stock option” treatment under Section 422 of the Code, the aggregate Fair Market Value (determined as of the time of grant) of the shares of Stock with respect to which Incentive Stock Options granted under this Plan and any other plan of the Company or its parent and subsidiary corporations become exercisable for the first time by an optionee during any calendar year shall not exceed $100,000. To the extent that any Stock Option exceeds this limit, it shall constitute a Non-Qualified Stock Option.

(b) Reload Options . At the discretion of the Administrator, Options granted under the Plan may include a “reload” feature pursuant to which an optionee exercising an option by the delivery of a number of shares of Stock in accordance with Section 5(a)(iv)(B) hereof would automatically be granted an additional Option (with an exercise price equal to the Fair Market Value of the Stock on the date the additional Option is granted and with such other terms as the Administrator may provide) to purchase that number of shares of Stock equal to the sum of (i) the number delivered to exercise the original Option and (ii) the number withheld to satisfy tax liabilities, with an Option term equal to the remainder of the original Option term unless the Administrator otherwise determines in the Award agreement for the original Option grant. This reload provision shall only be applicable if the operation thereof is exempt from the application of Code Section 409A.

(c) Non-transferability of Options . No Stock Option shall be transferable by the optionee otherwise than by will or by the laws of descent and distribution and all Stock Options shall be exercisable, during the optionee’s lifetime, only by the optionee, or by the optionee’s legal representative or guardian in the event of the optionee’s incapacity. Notwithstanding the foregoing, the Administrator, in its sole discretion, may provide in the Award agreement regarding a given Option that the optionee may transfer his Non-Qualified Stock Options to members of his immediate family, to trusts for the benefit of such family members, or to partnerships in which such family members are the only partners, provided that the transferee agrees in writing with the Company to be bound by all of the terms and conditions of this Plan and the applicable Option.

SECTION 6. STOCK APPRECIATION RIGHTS

(a) Nature of Stock Appreciation Rights . A Stock Appreciation Right is an Award entitling the recipient to receive an amount in cash or shares of Stock or a combination thereof having a value equal to the excess of the Fair Market Value of the Stock on the date of exercise over the exercise price of the Stock Appreciation Right, which price shall not be less than 100 percent of the Fair Market Value of the Stock on the date of grant (or more than the option exercise price per share, if the Stock Appreciation Right was granted in tandem with a Stock Option) multiplied by the number of shares of Stock with respect to which the Stock Appreciation Right shall have been exercised, with the Administrator having the right to determine the form of payment. The Stock Appreciation Rights issued hereunder are intended to be exempt from the application of Code Section 409A and shall be administered in compliance with Treasury Regulation Section 1.409A-1(b)(5)(i)(B).

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(b) Grant and Exercise of Stock Appreciation Rights . Stock Appreciation Rights may be granted by the Administrator in tandem with, or independently of, any Stock Option granted pursuant to Section 5 of the Plan. In the case of a Stock Appreciation Right granted in tandem with a Non-Qualified Stock Option, such Stock Appreciation Right may be granted either at or after the time of the grant of such Option. In the case of a Stock Appreciation Right granted in tandem with an Incentive Stock Option, such Stock Appreciation Right may be granted only at the time of the grant of the Option.

A Stock Appreciation Right or applicable portion thereof granted in tandem with a Stock Option shall terminate and no longer be exercisable upon the termination or exercise of the related Option.

(c) Terms and Conditions of Stock Appreciation Rights . Stock Appreciation Rights shall be subject to such terms and conditions as shall be determined from time to time by the Administrator, subject to the following:

(i)

Stock Appreciation Rights granted in tandem with Options shall be exercisable at such time or times and to the extent that the related Stock Options shall be exercisable.

(ii)

Upon exercise of a Stock Appreciation Right, the applicable portion of any related Option shall be surrendered.

(iii)

All Stock Appreciation Rights shall be exercisable during the grantee’s lifetime only by the grantee or the grantee’s legal representative.

(iv)

No dividends may be granted on Stock Appreciation Rights until exercised as provided in Section 12(d) below.

SECTION 7. RESTRICTED STOCK AWARDS

(a) Nature of Restricted Stock Awards . A Restricted Stock Award is an Award entitling the recipient to acquire, at such purchase price as determined by the Administrator, shares of Stock subject to such restrictions and conditions as the Administrator may determine at the time of grant (“Restricted Stock”). Conditions may be based on continuing employment (or other service relationship) and/or achievement of pre-established performance goals and objectives. The grant of a Restricted Stock Award is contingent on the grantee executing the Restricted Stock Award agreement. The terms and conditions of each such agreement shall be determined by the Administrator, and such terms and conditions may differ among individual Awards and grantees. Restricted Stock Awards granted hereunder are intended to comply with Code Section 83 and are thereby exempt from the application of Code Section 409A.

(b) Rights as a Stockholder . Upon execution of a written instrument setting forth the Restricted Stock Award and payment of any applicable purchase price, a grantee shall have the rights of a stockholder with respect to the voting of the Restricted Stock, subject to such conditions contained in the written instrument evidencing the Restricted Stock Award. Unless the Administrator shall otherwise determine, certificates evidencing the Restricted Stock shall remain in the possession of the Company until such Restricted Stock is vested as provided in Section 7(d) below, and the grantee shall be required, as a condition of the grant, to deliver to the Company a stock power endorsed in blank.

(c) Restrictions . Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of except as specifically provided herein or in the Restricted Stock Award agreement. If a grantee’s employment (or other service relationship) with the Company and its Subsidiaries terminates for any reason, the Company shall have the right to repurchase Restricted Stock that has not vested at the time of termination at its original purchase price, from the grantee or the grantee’s legal representative.

(d) Vesting of Restricted Stock . The Administrator at the time of grant shall specify the date or dates and/or the attainment of pre-established performance goals, objectives and other conditions on which the non-transferability of the Restricted Stock and the Company’s right of repurchase or forfeiture shall lapse. Subsequent to such date or

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dates and/or the attainment of such pre-established performance goals, objectives and other conditions, the shares on which all restrictions have lapsed shall no longer be Restricted Stock and shall be deemed “vested.” Except as may otherwise be provided by the Administrator either in the Award agreement or, subject to Section 15 below, in writing after the Award agreement is issued, a grantee’s rights in any shares of Restricted Stock that have not vested shall automatically terminate upon the grantee’s termination of employment (or other service relationship) with the Company and its Subsidiaries and such shares shall be subject to the Company’s right of repurchase as provided in Section 7(c) above.

(e) Waiver, Deferral and Reinvestment of Dividends . The Restricted Stock Award agreement may require or permit the immediate payment, waiver, deferral or investment of dividends paid on the Restricted Stock.

SECTION 8. DEFERRED STOCK AWARDS

(a) Nature of Deferred Stock Awards . A Deferred Stock Award is an Award of phantom stock units to a grantee, subject to restrictions and conditions as the Administrator may determine at the time of grant. Conditions may be based on continuing employment (or other service relationship) and/or achievement of pre-established performance goals and objectives. The grant of a Deferred Stock Award is contingent on the grantee executing the Deferred Stock Award agreement. The terms and conditions of each such agreement shall be determined by the Administrator, and such terms and conditions may differ among individual Awards and grantees. At the end of the deferral period, the Deferred Stock Award, to the extent vested, shall be paid to the grantee in the form of shares of Stock.

(b) Election to Receive Deferred Stock Awards in Lieu of Compensation . The Administrator may, in its sole discretion, permit a grantee to elect to receive a portion of the cash compensation or Restricted Stock Award otherwise due to such grantee in the form of a Deferred Stock Award. Any such election shall be made in writing and shall be delivered to the Company no later than the date specified by the Administrator and in accordance with rules and procedures established by the Administrator. The Administrator shall have the sole right to determine whether and under what circumstances to permit such elections and to impose such limitations and other terms and conditions thereon as the Administrator deems appropriate.

(c) Rights as a Stockholder . During the deferral period, a grantee shall have no rights as a stockholder; provided, however, that the grantee may be credited with Dividend Equivalent Rights with respect to the phantom stock units underlying his Deferred Stock Award, subject to such terms and conditions as the Administrator may determine.

(d) Restrictions . A Deferred Stock Award may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of during the deferral period.

(e) Termination . Except as may otherwise be provided by the Administrator either in the Award agreement or, subject to Section 15 below, in writing after the Award agreement is issued, a grantee’s right in all Deferred Stock Awards that have not vested shall automatically terminate upon the grantee’s termination of employment (or cessation of service relationship) with the Company and its Subsidiaries for any reason.

(f) Code Section 409A . Except as provided in Section 8(g) below, any Deferred Stock Awards issued on or after January 1, 2005, and any Deferred Stock Awards issued on or before December 31, 2004 which were not vested on that date, or which were modified for purposes of Code Section 409A on or after October 3, 2004 must be distributed to the participants so as to comply with the so-called “short-term deferral” exemption under Code Section 409A. As such, such Awards must be distributed no later than 2 ¹ / 2 months after the end of the later of the Company’s fiscal year or the taxable year of the Covered Employee in which the Awards are deemed vested for purposes of Code Section 409A.

(g) Defined Contribution Retirement Plan . The Company has established a Defined Contribution Retirement Plan (the “DCRP”) for the benefit of a select group of management employees effective January 1, 2008. This DCRP Plan constitutes a non-qualified deferred compensation plan as defined in Code Section 409A and is intended to comply with the requirement of Code Section 409A. The DCRP Plan grants Deferred Stock Awards subject to the restrictions contained in this Section 8. The operational provisions of the DCRP Plan, including the provisions therein relative to compliance with Code Section 409A, are incorporated by reference into this Plan and are hereby made a part hereof.

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SECTION 9. UNRESTRICTED STOCK AWARDS

Grant or Sale of Unrestricted Stock . The Administrator may, in its sole discretion, grant (or sell at such purchase price determined by the Administrator) an Unrestricted Stock Award to any grantee pursuant to which such grantee may receive shares of Stock free of any restrictions (“Unrestricted Stock”) under the Plan. Unrestricted Stock Awards may be granted in respect of past services or other valid consideration, or in lieu of cash compensation due to such grantee.

SECTION 10. PERFORMANCE SHARE AWARDS

(a) Nature of Performance Share Awards . A Performance Share Award is an Award entitling the recipient to acquire shares of Stock upon the attainment of specified performance goals. The Administrator may make Performance Share Awards independent of or in connection with the granting of any other Award under the Plan. The Administrator in its sole discretion shall determine whether and to whom Performance Share Awards shall be made, the performance goals, the periods during which performance is to be measured, and all other limitations and conditions.

(b) Rights as a Stockholder . A grantee receiving a Performance Share Award shall have the rights of a stockholder only as to shares actually received by the grantee under the Plan and not with respect to shares subject to the Award but not actually received by the grantee. A grantee shall be entitled to receive a stock certificate evidencing the acquisition of shares of Stock under a Performance Share Award only upon satisfaction of all conditions specified in the Performance Share Award agreement (or in a performance plan adopted by the Administrator).

(c) Termination . Except as may otherwise be provided by the Administrator either in the Award agreement or, subject to Section 15 below, in writing after the Award agreement is issued, a grantee’s rights in all Performance Share Awards shall automatically terminate upon the grantee’s termination of employment (or cessation of service relationship) with the Company and its Subsidiaries for any reason.

(d) Acceleration, Waiver, Etc . At any time prior to the grantee’s termination of employment (or other service relationship) by the Company and its Subsidiaries, the Administrator may in its sole discretion accelerate, waive or, subject to Section 15, amend any or all of the goals, restrictions or conditions applicable to a Performance Share Award.

SECTION 11. PERFORMANCE-BASED AWARDS TO COVERED EMPLOYEES

Notwithstanding anything to the contrary contained herein, if any Restricted Stock Award, Deferred Stock Award or Performance Share Award granted to a Covered Employee is intended to qualify as “Performance-based Compensation” under Section 162(m) of the Code and the regulations promulgated thereunder (a “Performance-based Award”), such Award shall comply with the provisions set forth below:

(a) Performance Criteria . The performance criteria used in performance goals governing Performance-based Awards granted to Covered Employees may include any or all of the following: (i) the Company’s return on equity, assets, capital or investment: (ii) pre-tax or after-tax profit levels of the Company or any Subsidiary, a division, an operating unit or a business segment of the Company, or any combination of the foregoing; (iii) cash flow, funds from operations or similar measure; (iv) total shareholder return; (v) changes in the market price of the Stock; (vi) sales or market share; or (vii) earnings per share.

(b) Grant of Performance-based Awards . With respect to each Performance-based Award granted to a Covered Employee, the Committee shall select, within the first 90 days of a Performance Cycle (or, if shorter, within the maximum period allowed under Section 162(m) of the Code) the performance criteria for such grant, and the achievement targets with respect to each performance criterion (including a threshold level of performance below which no amount will become payable with respect to such Award). Each Performance-based Award will specify the amount payable, or the formula for determining the amount payable, upon achievement of the various applicable performance targets. The performance criteria established by the Committee may be (but need not be) different for each Performance Cycle and different goals may be applicable to Performance-based Awards to different Covered Employees.

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(c) Payment of Performance-based Awards . Following the completion of a Performance Cycle, the Committee shall meet to review and certify in writing whether, and to what extent, the performance criteria for the Performance Cycle have been achieved and, if so, to also calculate and certify in writing the amount of the Performance-based Awards earned for the Performance Cycle. The Committee shall then determine the actual size of each Covered Employee’s Performance-based Award, and, in doing so, may reduce or eliminate the amount of the Performance-based Award for a Covered Employee if, in its sole judgment, such reduction or elimination is appropriate.

(d) Maximum Award Payable . The maximum Performance-based Award payable to any one Covered Employee under the Plan for a Performance Cycle is 30,000 Shares (subject to adjustment as provided in Section 3(b) hereof).

SECTION 12: DIVIDEND EQUIVALENT RIGHTS

(a) Dividend Equivalent Rights . A Dividend Equivalent Right is an Award entitling the grantee to receive credits based on cash dividends that would have been paid on the shares of Stock specified in the Dividend Equivalent Right (or other award to which it relates) if such shares had been issued to and held by the grantee. A Dividend Equivalent Right may be granted hereunder to any grantee as a component of another Award or as a freestanding award. The terms and conditions of Dividend Equivalent Rights shall be specified in the Award agreement. Dividend equivalents credited to the holder of a Dividend Equivalent Right may be paid currently or may be deemed to be reinvested in additional shares of Stock, which may thereafter accrue additional equivalents. Any such reinvestment shall be at Fair Market Value on the date of reinvestment or such other price as may then apply under a dividend reinvestment plan sponsored by the Company, if any. Dividend Equivalent Rights may be settled in cash or shares of Stock or a combination thereof, in a single installment or installments. A Dividend Equivalent Right granted as a component of another Award may provide that such Dividend Equivalent Right shall be settled upon exercise, settlement, or payment of, or lapse of restrictions on, such other award, and that such Dividend Equivalent Right shall expire or be forfeited or annulled under the same conditions as such other award. A Dividend Equivalent Right granted as a component of another Award may also contain terms and conditions different from such other award.

(b) Interest Equivalents . Any Award under this Plan that is settled in whole or in part in cash on a deferred basis may provide in the grant for interest equivalents to be credited with respect to such cash payment. Interest equivalents may be compounded and shall be paid upon such terms and conditions as may be specified by the grant.

(c) Termination . Except as may otherwise be provided by the Administrator either in the Award agreement or, subject to Section 15 below, in writing after the Award agreement is issued, a grantee’s rights in all Dividend Equivalent Rights or interest equivalents shall automatically terminate upon the grantee’s termination of employment (or cessation of service relationship) with the Company and its Subsidiaries for any reason.

(d) Code Section 409A . No dividends shall be paid or credited on Stock Appreciation Rights or on unexercised Options which would have the effect of reducing the exercise price of the option or Stock Appreciation Right base price below Fair Market Value on the date of the grant in violation of Code Section 409A and the Treasury Regulations issued thereunder.

SECTION 13. TAX WITHHOLDING

(a) Payment by Grantee . Each grantee shall, no later than the date as of which the value of an Award or of any Stock or other amounts received thereunder first becomes includable in the gross income of the grantee for Federal income tax purposes, pay to the Company, or make arrangements satisfactory to the Administrator regarding payment of, any Federal, state, or local taxes of any kind required by law to be withheld with respect to such income. The Company and its Subsidiaries shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the grantee. The Company’s obligation to deliver stock certificates to any grantee is subject to and conditioned on tax obligations being satisfied by the grantee.

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(b) Payment in Stock . Subject to approval by the Administrator, a grantee may elect to have the minimum required tax withholding obligation satisfied, in whole or in part, by (i) authorizing the Company to withhold from shares of Stock to be issued pursuant to any Award a number of shares with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the withholding amount due, or (ii) transferring to the Company shares of Stock owned by the grantee with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the withholding amount due.

SECTION 14. TRANSFER, LEAVE OF ABSENCE, ETC.

For purposes of the Plan, the following events shall not be deemed a termination of employment:

(a) a transfer to the employment of the Company from a Subsidiary or from the Company to a Subsidiary, or from one Subsidiary to another; or

(b) an approved leave of absence for military service or for sickness, or for any other purpose approved by the Company, if the employee’s right to re-employment is guaranteed either by a statute or by contract or under the policy pursuant to which the leave of absence was granted or if the Administrator otherwise so provides in writing.

SECTION 15. AMENDMENTS AND TERMINATION

The Board may, at any time, amend or discontinue the Plan and the Administrator may, at any time, amend or cancel any outstanding Award for the purpose of satisfying changes in law or for any other lawful purpose, but no such action shall adversely affect rights under any outstanding Award without the holder’s consent. Except as provided in Section 3(b) or 3(c), in no event may the Administrator exercise its discretion to reduce the exercise price of outstanding Stock Options or effect repricing through cancellation and re-grants. If and to the extent determined by the Administrator to be required by the relevant securities exchange or by the Code to ensure that Incentive Stock Options granted under the Plan are qualified under Section 422 of the Code or to ensure that compensation earned under Awards qualifies as performance-based compensation under Section 162(m) of the Code, if and to the extent intended to so qualify, Plan amendments shall be subject to approval by the Company stockholders entitled to vote at a meeting of stockholders. Nothing in this Section 15 shall limit the Administrator’s authority to take any action permitted pursuant to Section 3(c).

SECTION 16. STATUS OF PLAN

With respect to the portion of any Award that has not been exercised and any payments in cash, Stock or other consideration not received by a grantee, a grantee shall have no rights greater than those of a general creditor of the Company unless the Administrator shall otherwise expressly determine in connection with any Award or Awards. In its sole discretion, the Administrator may authorize the creation of trusts or other arrangements to meet the Company’s obligations to deliver Stock or make payments with respect to Awards hereunder, provided that the existence of such trusts or other arrangements is consistent with the foregoing sentence.

SECTION 17. CHANGE OF CONTROL PROVISIONS

Upon the occurrence of a Change of Control as defined in this Section 17:

(a) Except as otherwise provided in the applicable Award agreement, each outstanding Stock Option and Stock Appreciation Right shall automatically become fully exercisable.

(b) Except as otherwise provided in the applicable Award Agreement, conditions and restrictions on each outstanding Restricted Stock Award, Deferred Stock Award and Performance Share Award which relate solely to the passage of time and continued employment will be removed. Performance or other conditions (other than conditions and restrictions relating solely to the passage of time and continued employment) will continue to apply unless otherwise provided in the applicable Award agreement.

(i) any “Person,” as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than the Company, any of its Subsidiaries, or any trustee, fiduciary or other person or entity holding securities under any employee benefit plan or trust of the Company or any of its Subsidiaries), together with all “affiliates” and “associates” (as such terms are defined in Rule 12b-2 under the Exchange Act) of such person, shall become the “beneficial owner” (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25 percent or more of the combined voting power of the Company’s then outstanding securities having the right to vote in an election of the Company’s Board of Directors (“Voting Securities”) (in such case other than as a result of an acquisition of securities directly from the Company); or

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(ii) persons who, as of the Effective Date, constitute the Company’s Board of Directors (the “Incumbent Directors”) cease for any reason, including, without limitation, as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board, provided that any person becoming a director of the Company subsequent to the Effective Date shall be considered an Incumbent Director if such person’s election was approved by or such person was nominated for election by either (A) a vote of at least a majority of the Incumbent Directors or (B) a vote of at least a majority of the Incumbent Directors who are members of a nominating committee comprised, in the majority, of Incumbent Directors; but provided further, that any such person whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of members of the Board of Directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board, including by reason of agreement intended to avoid or settle any such actual or threatened contest or solicitation, shall not be considered an Incumbent Director; or

(iii) the consummation of a consolidation, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Corporate Transaction”); excluding, however, a Corporate Transaction in which the stockholders of the Company immediately prior to the Corporate Transaction, would, immediately after the Corporate Transaction, beneficially own (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, shares representing in the aggregate more than 50 percent of the voting shares of the corporation issuing cash or securities in the Corporate Transaction (or of its ultimate parent corporation, if any); or

(iv) the approval by the stockholders of any plan or proposal for the liquidation or dissolution of the Company.

Notwithstanding the foregoing, a “Change of Control” shall not be deemed to have occurred for purposes of the foregoing clause (i) solely as the result of an acquisition of securities by the Company which, by reducing the number of shares of Voting Securities outstanding, increases the proportionate number of shares of Voting Securities beneficially owned by any person to 25 percent or more of the combined voting power of all then outstanding Voting Securities; provided , however , that if any person referred to in this sentence shall thereafter become the beneficial owner of any additional shares of Voting Securities (other than pursuant to a stock split, stock dividend, or similar transaction or as a result of an acquisition of securities directly from the Company) and immediately thereafter beneficially owns 25 percent or more of the combined voting power of all then outstanding Voting Securities, then a “Change of Control” shall be deemed to have occurred for purposes of the foregoing clause (i).

SECTION 18. GENERAL PROVISIONS

(a) No Distribution; Compliance with Legal Requirements . The Administrator may require each person acquiring Stock pursuant to an Award to represent to and agree with the Company in writing that such person is acquiring the shares without a view to distribution thereof.

No shares of Stock shall be issued pursuant to an Award until all applicable securities law and other legal and stock exchange or similar requirements have been satisfied. The Administrator may require the placing of such stop-orders and restrictive legends on certificates for Stock and Awards as it deems appropriate.

(b) Delivery of Stock Certificates . Stock certificates to grantees under this Plan shall be deemed delivered for all purposes when the Company or a stock transfer agent of the Company shall have mailed such certificates in the United States mail, addressed to the grantee, at the grantee’s last known address on file with the Company.

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(c) Other Compensation Arrangements; No Employment Rights . Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, including trusts, and such arrangements may be either generally applicable or applicable only in specific cases. The adoption of this Plan and the grant of Awards do not confer upon any employee any right to continued employment with the Company or any Subsidiary.

(d) Trading Policy Restrictions . Option exercises and other Awards under the Plan shall be subject to such Company’s insider trading policy, as in effect from time to time.

(e) Designation of Beneficiary . Each grantee to whom an Award has been made under the Plan may designate a beneficiary or beneficiaries to exercise any Award or receive any payment under any Award payable on or after the grantee’s death. Any such designation shall be on a form provided for that purpose by the Administrator and shall not be effective until received by the Administrator. If no beneficiary has been designated by a deceased grantee, or if the designated beneficiaries have predeceased the grantee, the beneficiary shall be the grantee’s estate.

(f) Specified Employees. If a Covered Employee in the Plan is classified as a so-called “Specified Employee” of the Company or a subsidiary of the Company and if the 409A “Specified Employee” restriction is applicable, any Code Section 409A deferred compensation payable under this Plan or any other deferred compensation project subject to Code Section 409A, may not be made before the date which is six (6) months after the date of the Covered Employee’s separation from service (or, if earlier, the date of the Covered Employee’s death) in accordance with Code Section 409A(a)(2)(B)(i) and the Treasury Regulations issued thereunder.

SECTION 19. EFFECTIVE DATE OF PLAN

This Plan shall become effective upon approval by the holders of a majority of the votes cast at a meeting of stockholders at which a quorum is present. Subject to such approval by the stockholders and to the requirement that no Stock may be issued hereunder prior to such approval, Stock Options and other Awards may be granted hereunder on and after adoption of this Plan by the Board.

SECTION 20. GOVERNING LAW

(a) General. This Plan and all Awards and actions taken thereunder shall be governed by, and construed in accordance with, the laws of the State of Maine, applied without regard to conflict of law principles.

(b) Code Section 409A. All Options and Stock Appreciation Rights issued hereunder on or after January 1, 2005 are intended to be exempt from the application of Code Section 409A as they are or will be issued at fair market value on the date of the grant. All Options, Stock Appreciation Rights and other Rights issued hereunder prior to January 1, 2005 are exempt from Code Section 409A due to the “grandfather” provision therein (and have not been subject to a “material modification” for Code Section 409A purposes after October 3, 2004), or are exempt from Code Section 409A due to being issued at Fair Market Value (and compliance with the exemption requirements of Treasury Regulation Section 1.409A-1(b)(5)), or due to being distributed within the “short-term deferral period” under Code Section 409A after vesting. The Restricted Stock Awards under Section 7 are issued in compliance with Code Section 83 and are thereby exempt from Code Section 409A. Except as provided in Section 8(g) above, all other compensation provided hereunder is intended to qualify for an exemption from Code Section 409A due to the fact that such compensation is immediately taxable and therefore does not constitute “deferred compensation” under Code Section 409A, or will be distributed within the so-called “short-term deferral period” after vesting. Any interpretations or administrative actions necessary to implement these provisions shall be made so that such Options, Stock Appreciation Rights or compensation is exempt from compliance with Code Section 409A, except for the deferred compensation plan described in Section 8(g) above, which will be administered and operated in compliance with Code Section 409A.

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Exhibit #23.1

Consent of Independent Registered Public Accounting Firm

As the independent registered public accountants of Camden National Corporation, we hereby consent to the incorporation of our report included in this Form 10-Q, into the Company’s previously filed Registration Statements File Numbers 333-95157, 333-68598, 333-106403, 333-108214 and 333-146238.

Berry, Dunn, McNeil & Parker

Portland, Maine

August 8, 2008

Page 41

Exhibit #31.1

CERTIFICATION

I, Robert W. Daigle, certify that:

I have reviewed this quarterly report on Form 10-Q of Camden National Corporation;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: August 8, 2008

/s/ Robert W. Daigle

Robert W. Daigle

President and Chief Executive Officer

Exhibit #31.2

CERTIFICATION

I, Susan M. Westfall, certify that:

I have reviewed this quarterly report on Form 10-Q of Camden National Corporation;

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: August 8, 2008

/s/ Susan M. Westfall

Susan M. Westfall

SVP Corporate Controller and Principal Financial & Accounting Officer

Exhibit #32.1

Certification of Periodic Financial Report

Pursuant to 18 U.S.C. Section 1350

The undersigned officer of Camden National Corporation (the “Company”) hereby certifies that the Company’s quarterly report on Form 10-Q for the period ended June 30, 2008 to which this certification is being furnished as an exhibit (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. This certification is provided pursuant to 18 U.S.C. Section 1350 and Item 601(b)(32) of Regulation S-K (“Item 601(b)(32)”) promulgated under the Securities Act of 1933, as amended (the “Securities Act”), and the Exchange Act. In accordance with clause (ii) of Item 601(b)(32), this certification (a) shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to liability of this section, and (b) shall not be deemed to be incorporated by reference into any filing under the Securities Act of the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

Exhibit #32.2

Certification of Periodic Financial Report

Pursuant to 18 U.S.C. Section 1350

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company