As filed with the Securities and Exchange Commission on October 15, 2004

                           Registration No. 333- 
               UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C. 20549

                                   FORM S-4
           REGISTRATION STATEMENT UNDER  THE SECURITIES ACT OF 1933

                      FIRST NATIONAL LINCOLN CORPORATION
            (Exact name of Registrant as specified in its charter)

          Maine                      6021                      01-0404322
(State or other jurisdiction  (Primary Standard            (I.R.S.  Employer
     of incorporation             Industrial                 Identification
     or organization)       Classification Code No.)              No.)

                        223 Main Street,  P.O. Box 940
                        Damariscotta, Maine 04543-0940
                                (207) 563-3195
    (Address, including zip code and telephone number, including area code,
                 of Registrant's principal executive offices)

                             Daniel R. Daigneault
                    President and Chief Executive Officer
                     First National  Lincoln Corporation
                         223 Main Street,  P.O. Box 940
                         Damariscotta, Maine 04543-0940
                                (207) 563-3195
 (Name, address, including zip code, and telephone number, including area code,
                             of agent for service)

                                with a copy to:
        Keith C. Jones, Esq.                        James B. Zimpritch, Esq.
         Verrill Dana, LLP                             Pierce Atwood LLP
        One Portland Square                   One Monument Square, P.O. Box 586
       Portland, Maine  04101                     Portland, Maine  04112-0586
           (207) 791-1100                               (207) 774-4000

       Approximate date of commencement of proposed sale to the public:
              Upon consummation of the merger described herein.

       If the securities being registered on this Form are being offered
 in connection with the formation of a holding company and there is compliance
           with General Instruction G, check the following box. __

    If this Form is filed to register additional securities for an offering 
 pursuant to Rule 462(b) under the Securities Act, check the following box and
     list the Securities Act registration statement number of the earlier 
          effective registration statement for the same offering. __

   If this Form is a post-effective amendment filed pursuant to Rule 462(d)
 under the Securities Act, check the following box and list the Securities Act
 registration statement number of the earlier effective registration statement
                       for the same offering. __





Calculation of Registration Fee


-------------------------------------------------------------------------------
                                     Proposed      Proposed
                                     Maximum        Maximum
Title of Each Class    Amount    Offering  Price   Aggregate     Amount  of
Of Securities to be    to be        Per Share      Offering     Registration
    Registered       Registered      Or Unit        Price(1)       Fee(1)
-------------------------------------------------------------------------------
 Common Stock, par
value $.01 per share    N/A           $42.00      $47,598,600      $6,031
-------------------------------------------------------------------------------

(1)     Estimated solely for the purpose of calculation of the registration 
fee. In accordance with Rule 457(o) under the Securities Act of 1933, the 
number of shares is not set forth herein. Pursuant to Rule 457(o), the 
registration fee has been computed on the basis of the maximum aggregate 
offering price of the shares of the Registrant's common stock expected to be 
issued upon consummation of the merger of FNB Bankshares ("FNB") with and into 
the Registrant, taking into account the maximum number of shares of FNB 
(1,133,300) that may be exchanged, including shares issuable upon the exercise 
of outstanding options to acquire FNB common stock.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES 
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE 
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT 
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE 
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME 
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), 
MAY DETERMINE.





























[FNLC LOGO]                                                   [FNB LOGO]

To the shareholders of First National Lincoln Corporation and FNB Bankshares:

A MERGER PROPOSAL -- YOUR VOTE IS VERY IMPORTANT 

     The Boards of Directors of First National Lincoln Corporation ("FNLC') and 
FNB Bankshares ("FNB") have approved an agreement to merge our two companies. 
Also, it is expected that FNB's bank subsidiary, The First National Bank of Bar 
Harbor, will be merged with The First National Bank of Damariscotta, the bank 
subsidiary of FNLC, to create a single bank subsidiary of the combined company. 
The resulting bank subsidiary will have 14 banking offices and three investment 
management offices serving coastal Maine communities from Brunswick to Calais. 
As a result of the merger, the combined company will have assets of 
approximately $870 million, with combined loans of approximately $602 million 
and combined deposits of approximately $570 million, based upon June 30, 2004 
balances. In addition, the combined bank will have more than $265 million of 
investments under management. We believe the combined company will enhance our 
ability to serve the financial needs of our communities, which will enable us 
to enhance long-term shareholder value for both companies. 

     In the proposed merger, FNB will merge into FNLC and FNLC will issue 
shares of its common stock to the shareholders of FNB in exchange for their 
shares in FNB. Each outstanding share of FNB is expected to be converted into 
FNLC stock valued at $42.00. The actual exchange ratio, and hence the number of 
FNLC shares into which FNB stock will be converted, will vary depending on the 
per share market price of FNLC common stock prior to closing, but FNB 
shareholders will receive not less than 1.91, nor more than 2.47, shares of 
FNLC for each share of FNB they hold. The common stock of FNLC (ticker symbol 
FNLC) trades on the Nasdaq Stock Market, Inc.'s National Market. We urge you to 
obtain current market quotations for FNLC common stock. 

     We expect the merger will qualify as a reorganization for federal income 
tax purposes. Accordingly, FNB shareholders generally will not recognize any 
gain or loss for federal income tax purposes on the exchange of shares of FNB 
common stock for FNLC common stock in the merger, except with respect to any 
cash received instead of fractional shares of common stock of the combined 
company. Upon completion of the merger, we estimate that FNB's former 
shareholders will own between approximately 21% and 26 % of the common stock of 
FNLC.

     At our respective special meetings, which will be held on [              
], 2004, in addition to other business, we will each ask our common 
shareholders to approve the merger. Information about these meetings and the 
merger is contained in this document. In particular, see "Risk Factors" 
beginning on page __. We urge you to read this document carefully and in its 
entirety. 

     Whether or not you plan to attend your special meeting, please return your 
completed proxy card as soon as possible to make sure that your shares are 
represented at the meeting. If you do not vote, it will have the same effect as 
voting against the merger.

     Each of our Boards of Directors unanimously recommends that shareholders 
vote "FOR" the merger. We strongly support this combination of our companies 
and join our Boards in their recommendations.

         Daniel R. Daigneault                         Tony C. McKim
 President and Chief Executive Officer    President and Chief Executive Officer
  First National  Lincoln Corporation                FNB  Bankshares

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES 
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE ISSUED IN 
CONNECTION WITH THE MERGER OR DETERMINED IF THIS DOCUMENT IS ACCURATE OR 
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES TO BE ISSUED IN CONNECTION WITH THE MERGER ARE NOT SAVINGS OR 
DEPOSIT ACCOUNTS OR OTHER OBLIGATIONS OF THE FIRST NATIONAL BANK OF 
DAMARISCOTTA OR THE FIRST NATIONAL BANK OF BAR HARBOR, AND THEY ARE NOT INSURED 
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
THE INFORMATION IN THIS DOCUMENT IS NOT COMPLETE AND MAY BE CHANGED. FNLC MAY 
NOT SELL THE SECURITIES BEING OFFERED BY USE OF THIS DOCUMENT UNTIL THE 
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, OF 
WHICH THIS DOCUMENT IS A PART, IS DECLARED EFFECTIVE. THIS DOCUMENT IS NOT AN 
OFFER TO SELL THESE SECURITIES, AND FNLC IS NOT SOLICITING AN OFFER TO BUY 
THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.

This document is dated ________________________, 2004, and is first being 
mailed to shareholders of First National Lincoln Corporation and FNB Bankshares 
on or about ____________________________, 2004.









































REFERENCES TO ADDITIONAL INFORMATION

This document incorporates important business and financial information about 
FNLC from documents that may not be included in or delivered with this 
document. You can obtain copies of documents incorporated by reference in this 
document but not otherwise accompanying this document through the Securities 
and Exchange Commission website at http:/www.sec.gov or by requesting them in 
writing or by telephone from FNLC at the following address and telephone 
number:

FIRST NATIONAL LINCOLN CORPORATION
223 Main Street
P.O. Box 940
Damariscotta, Maine 04543-0940
Attention: Carrie A. Warren
(207) 563-3195

You will not be charged for any of these documents that you request. If you 
would like to request documents, please do so by _______________________, 2004 
in order to receive them before your special meeting.

See "Where You Can Find More Information" on page __.






































FIRST NATIONAL LINCOLN CORPORATION
223 Main Street
Damariscotta, Maine 04543-0940
(207) 563-3195


NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on ______________________________, 2004

To the shareholders of First National Lincoln Corporation:

We will hold a special meeting of shareholders of First National Lincoln 
Corporation ("FNLC") at       .m., local time, on ___________________, 2004, at 
_________________________________ Maine, for the following purposes:


1. to consider and vote upon a proposal to approve an agreement and plan of 
merger, dated as of August 25, 2004, between First National Lincoln Corporation 
and FNB Bankshares, as described in the attached document;

2. to consider and vote upon a proposal to adjourn the special meeting to a 
later date or dates, if necessary, to permit further solicitation of proxies in 
the event there are not sufficient votes at the time of the special meeting to 
approve the merger agreement; and

3. to transact such other business as may properly come before the special 
meeting or any adjournment or postponement of the special meeting.


We have fixed the close of business on __________________________, 2004 as the 
record date for the determination of shareholders entitled to notice of and to 
vote at the special meeting. Only holders of FNLC common stock of record at the 
close of business on that date will be entitled to notice of and to vote at the 
special meeting or any adjournment or postponement of the special meeting.

Our Board of Directors has determined that the merger agreement is in the best 
interests of FNLC and its shareholders and unanimously recommends that 
shareholders vote "FOR" approval of the merger agreement.

Your vote is very important. Even if you plan to be present at the special 
meeting, please promptly complete, sign, date and return your proxy card in the 
enclosed envelope. Failure to vote your shares will have the same effect as a 
vote against the merger agreement.

By Order of the Board of Directors


Charles A. Wootton
Clerk

Damariscotta, Maine
______________________, 2004








FNB BANKSHARES
102 Main Street
Bar Harbor, Maine 04609
(207) 288-3341


NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on _____________________________, 2004

To the shareholders of FNB Bankshares:

We will hold a special meeting of shareholders of FNB Bankshares at 
________________________ _.m., local time, on __________________________, 2004, 
at _______________________________, Maine, for the following purposes:


1. to consider and vote upon a proposal to approve an agreement and plan of 
merger, dated as of August 25, 2004, between First National Lincoln Corporation 
and FNB Bankshares, as described in the attached document;

2. to consider and vote upon a proposal to adjourn the special meeting to a 
later date or dates, if necessary, to permit further solicitation of proxies in 
the event there are not sufficient votes at the time of the special meeting to 
approve the merger agreement; and

3. to transact such other business as may properly come before the special 
meeting or any adjournment or postponement of the special meeting.


We have fixed the close of business on ______________________, 2004 as the 
record date for the determination of shareholders entitled to notice of and to 
vote at the special meeting. Only holders of FNB common stock of record at the 
close of business on that date will be entitled to notice of and to vote at the 
special meeting or any adjournment or postponement of the special meeting.

If the merger agreement is approved by shareholders at the special meeting and 
the merger is consummated, any shareholder of record as of the record date for 
the special meeting (i) who delivers to FNB, before the shareholder vote on the 
merger agreement, a written objection to the merger stating that he, she or it 
intends to demand payment for his, her or its shares through the exercise of 
his, her or its statutory appraisal rights; (ii) whose shares are not voted in 
favor of approving the merger agreement; and (iii) who satisfies the 
requirements set forth in the appraisal notice delivered by FNB or its 
successor within the time period set forth therein, shall be entitled to 
receive payment for his, her or its shares. FNB, its successor and any such 
shareholder shall in such case have the rights and duties and shall follow the 
procedures set forth in 13-C M.R.S.A. ch. 13, which are described under "The 
Merger -- Appraisal Rights" in the accompanying document and a copy of which 
are attached as Annex III to such document.

Our Board of Directors has determined that the merger agreement is in the best 
interests of FNB and its shareholders and unanimously recommends that 
shareholders vote "FOR" approval of the merger agreement.







Your vote is very important. Even if you plan to be present at the special 
meeting, please promptly complete, sign, date and return your proxy card in the 
enclosed envelope. Failure to vote your shares will have the same effect as a 
vote against the merger agreement.

By Order of the Board of Directors

Ronald J. Wrobel, Clerk
Bar Harbor, Maine
________________________, 2004


















































TABLE OF CONTENTS

                                                                           Page
REFERENCES TO ADDITIONAL INFORMATION     

QUESTIONS AND ANSWERS ABOUT VOTING PROCEDURES FOR THE SPECIAL MEETINGS

SUMMARY

RISK FACTORS

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

GENERAL INFORMATION

THE FNLC SPECIAL MEETING
     Time, Date and Place
     Matters to be Considered
     FNLC Shares Outstanding and Entitled to Vote; Record Date
     How to Vote Your FNLC Shares
     FNLC Votes Required
     Solicitation of FNLC Proxies
     Recommendations of the FNLC Board of Directors

THE FNB SPECIAL MEETING
     Time, Date and Place
     Matters to be Considered
     FNB Shares Outstanding and Entitled to Vote; Record Date
     How to Vote Your FNB Shares

FNB Votes Required
     Solicitation of FNB Proxies
     Recommendations of the FNB Board of Directors

THE MERGER (FNLC and FNB Proposal 1)
     General
     Background of the Merger
     FNB's Reasons for the Merger
     FNLC's Reasons for the Merger
     Opinion of FNB's Financial Advisor
     Analyses of RBC Capital Markets
     Merger Consideration
     Procedures for Exchanging FNB Common Stock Certificates
     Treatment of FNB Stock Options
     Conditions to the Merger
     Regulatory Approvals
     FNB Business Pending the Merger
     FNB Board of Directors' Covenant to Recommend the Merger Agreement
     No Solicitation by FNB
     Representations and Warranties of the Parties
     Effective Time of the Merger
     Amendment of the Merger Agreement
     Termination of the Merger Agreement
     Interests of Certain Persons in the Merger
     Certain Employee Matters
     Bank Merger
     Resale of FNLC Common Stock
     Federal Income Tax Consequences
     Accounting Treatment of the Merger

                                                                           Page
     Expenses of the Merger
     Listing of the FNLC Common Stock
     Termination Fee
     Shareholder Agreements
     Appraisal Rights
     Operations of FNLC After the Merger

ADJOURNMENT OF THE SPECIAL MEETING (FNB and FNLC Proposal 2)

MARKET FOR FNLC COMMON STOCK AND DIVIDENDS

MARKET FOR FNB COMMON STOCK AND DIVIDENDS

INFORMATION ABOUT FNLC
     General
     FNLC Management and Additional Information

INFORMATION ABOUT FNB
     General
FNB's Management's Discussion and Analysis
     FNB Management and Additional Information
     SUPERVISION AND REGULATION OF FNLC AND FNB
     General
     Activities and Other Limitations
     Capital and Operational Requirements
     Distributions
     "Source of Strength" Policy
     Sarbanes-Oxley Act of 2002

DESCRIPTION OF FNLC CAPITAL STOCK
     FNLC Common Stock
     Other Provisions
     Transfer Agent

COMPARISON OF THE RIGHTS OF SHAREHOLDERS

CERTAIN BENEFICIAL OWNERS OF FNB COMMON STOCK

LEGAL OPINION

EXPERTS

PROPOSALS FOR THE 2005 FNLC ANNUAL MEETING

WHERE YOU CAN FIND MORE INFORMATION

ANNEXES:
      Annex I   Agreement and Plan of Merger, dated as of August 25, 2004, 
                between FNLC and FNB
      Annex II  Opinion of RBC Capital Markets Corporation
      Annex III Chapter 13 of the Maine Business Corporation Act
      Annex IV  FNB Financial Statements







QUESTIONS AND ANSWERS
ABOUT VOTING PROCEDURES FOR THE SPECIAL MEETINGS

Q:     What do I need to do now?

A:     After you have carefully read this document, indicate on your proxy card 
how you want your shares to be voted. Then sign, date and mail your proxy card 
in the enclosed prepaid return envelope as soon as possible. This will enable 
your shares to be represented and voted at your special meeting.

Q:     Why is my vote important?

A:     The merger agreement must be approved by holders of at least 67% of the 
outstanding shares of FNB common stock and by the holders of at least a 
majority of the outstanding shares of FNLC common stock. If you do not vote it 
will have the same effect as a vote against the merger agreement.

Q:     If my shares are held in "street name" by my broker or bank, will my 
broker or bank automatically vote my shares for me?

A:     No. Your broker, bank or other nominee will not be able to vote shares 
held by it in street name on your behalf without instructions from you. You 
should instruct your broker, bank or other nominee to vote your shares, 
following the directions your broker, bank or other nominee provides.

Q:     What if I fail to instruct my broker or bank?

A:     If you fail to instruct your broker, bank or other nominee to vote your 
shares, it will have the same effect as a vote against the merger agreement.

Q:     Can I attend the meeting and vote my shares in person?

A:     Yes. All FNB shareholders are invited to attend the FNB special meeting. 
FNB shareholders of record on     , 2004 can vote in person at that special 
meeting. All FNLC shareholders are invited to attend the FNLC special meeting. 
FNLC shareholders of record on          , 2004 can vote in person at that 
special meeting. If your shares are held in street name, then you are not the 
shareholder of record and you must ask your broker, bank or other nominee how 
you can vote at your special meeting.

Q:     Can I change my vote?

A:     Yes. If you have not voted through your broker, bank or other nominee, 
there are three ways you can change your vote after you have sent in your proxy 
card.

*   First, you may send a written notice to the clerk of FNB or FNLC, as 
appropriate, stating that you would like to revoke your proxy before the 
special meeting.
*   Second, you may complete and submit a new proxy card before your special 
meeting. Any earlier proxies will be revoked automatically.
*   Third, if you are a record holder, you may attend your special meeting and 
vote in person. Any earlier proxy will be revoked. However, simply attending 
the special meeting without voting will not revoke your proxy.

If you have instructed a broker, bank or other nominee to vote your shares, you 
must follow directions you receive from your broker, bank or other nominee to 
change your vote.

Page 1
Q:     Should I send in my stock certificates now?

A:     No. You should not send in your stock certificates at this time. If you 
are an FNB shareholder, you will be sent instructions for surrendering your FNB 
common stock certificates in exchange for FNLC shares after we complete the 
merger. If you are an FNLC shareholder, you will keep your existing shares, 
which will remain outstanding and unchanged following the merger.

Q.     Why am I receiving this document?

A.     We are delivering this document to you because it is serving as both a 
joint proxy statement of FNB and FNLC and a prospectus of FNLC. It is a joint 
proxy statement because it is being used by our Boards of Directors to solicit 
the proxies of our respective common shareholders for the votes on the merger. 
It is a prospectus because FNLC is offering shares of its common stock in 
exchange for shares of FNB common stock if the merger is completed.

Q:     Whom should I call with questions?

A:     If you have questions about the merger or how to submit your proxy or 
voting instruction card, or if you need additional copies of this document or 
the enclosed proxy card or voting instruction card, you should contact:

    If you are an FNLC shareholder:             If you are an FNBshareholder:
  First National Lincoln Corporation                    FNB Bankshares
         223 Main Street                               102  Main Street
          P.O.  Box 940                                  P.O. Box 258
   Damariscotta, Maine  04543-0940                 Bar Harbor, Maine 04609
     Attention: Carrie A. Warren                 Attention: Robin Sue McLeod

          (207) 563-3195                                (207) 288-3341




























Page 2
SUMMARY

     This summary highlights selected information from this document and may 
not contain all of the information that is important to you. To understand the 
merger fully and for a more complete description of the legal terms of the 
merger, you should read carefully this entire document, including the merger 
agreement and the other documents to which we have referred you. See "Where You 
Can Find More Information" on page __. Page references are included in this 
summary to direct you to a more complete description of the topics.

     Throughout this document, "FNB," refers to FNB Bankshares, "FNBBH" refers 
to FNB's banking subsidiary, The First National Bank of Bar Harbor, "FNLC" 
refers to First National Lincoln Corporation and "FNBD" refers to The First 
National Bank of Damariscotta, FNLC's banking subsidiary. Also, the proposed 
merger between FNB and FNLC is referred to as the "merger," the merger between 
FNBBH and FNBD as the "bank merger" and the Agreement and Plan of Merger, dated 
as of August 25, 2004, between FNB and FNLC as the "merger agreement." The 
terms "we" and "our" refer to both FNLC and FNB.

Parties to the Proposed Merger (Pages __ and __)

     FNLC.     FNLC was incorporated under the Maine Business Corporation Act 
on January 15, 1985, for the purpose of becoming the parent holding company of 
FNBD. The common stock of FNBD is the principal asset of FNLC, which has no 
other subsidiaries. FNBD was chartered as a national bank under the laws of the 
United States on May 30, 1864. FNBD has seven offices in Mid-Coast Maine, 
including its principal office located on Main Street, Damariscotta, Maine and 
six branch offices located at U.S. Route 1, Waldoboro, Maine; Townsend Avenue, 
Boothbay Harbor, Maine; Route 27, Wiscasset, Maine; U.S. Route 1, Rockport, 
Maine; Elm Street, Camden, Maine; and Route 1, Rockland, Maine. FNBD offers 
investment management and personal trust services through Pemaquid Advisors, a 
division of FNBD, which has three offices on Bristol Road, Damariscotta, Maine, 
Pleasant Street, Brunswick, Maine, and Townsend Avenue, Boothbay Harbor, Maine. 
FNBD also maintains an Operations Center at the corner of Bristol Road and 
Cross Street in Damariscotta. The mailing address of FNLC's principal executive 
office is 223 Main Street, P.O. Box 940, Damariscotta, Maine 04543-0940, and 
the telephone number for FNLC's executive offices is (207) 563-3195. FNBD 
offers a full range of banking services and products to individuals, businesses 
and governments throughout its market areas, including commercial, consumer and 
trust investment services. As of June 30, 2004, FNLC's outstanding shares 
consisted of one class of common stock, $.01 par value per share, of which 
there were 7,342,690 shares outstanding and held of record by approximately 
1,000 shareholders.

     FNB.     FNB was incorporated under the Maine Business Corporation Act on 
December 3, 1984, for the purpose of becoming the parent holding company of 
FNBBH. The common stock of FNBBH is the principal asset of FNB, which has no 
other subsidiaries. FNBBH was chartered as a national bank under the laws of 
the United States on November 17, 1888. FNBBH has seven full-service banking 
offices in the "Down East" region of Maine's Hancock and Washington counties. 
The mailing address of FNB's principal executive office is 102 Main Street, 
P.O. Box 258, Bar Harbor, Maine 04609, and the telephone number for FNB's 
executive offices is (207) 288-3341. FNBBH offers a full range of banking 
services and products to individuals, businesses and governments throughout its 
market areas, including commercial, consumer and trust investment services. As 
of June 30, 2004, FNB's outstanding shares consisted of one class of common 
stock, $.80 par value per share, of which there were 1,046,497 shares 
outstanding and held of record by approximately 315 shareholders.

Page 3
     FNB Shareholders will Receive Whole Shares of FNLC Common Stock in 
Exchange for Each Share of FNB Common Stock Pursuant to the Merger; FNLC 
Shareholders Will Keep Their Shares (Page __)

     We propose a merger in which FNB will merge with and into FNLC. If the 
merger is completed, each outstanding share of FNB common stock (subject to 
certain exceptions) will be converted into the right to receive a number of 
whole shares of FNLC common stock determined by dividing $42.00 by the average 
sales price of FNLC common stock prior to the merger, provided that FNB 
shareholders will not receive more than 2.47, nor less than 1.91, FNLC shares 
for each FNB share they hold and will receive cash in lieu of any fractional 
share interest. The average sales price shall be the sum of the average of the 
high and low sales price reported for each trading day during the 30-day period 
ending with the fifth business day prior to the merger, divided by the number 
of trading days during such period. 

     FNLC will not issue fractional shares. Instead, FNB shareholders will 
receive the value of any fractional share interest in cash based on the average 
sales price of FNLC common stock prior to the merger computed in the same 
manner as used to determine the exchange ratio in the merger.

     If you are an FNB shareholder, you will need to surrender your FNB common 
stock certificates to receive the appropriate merger consideration, but you 
should not send in any certificates now. Shortly after the merger is completed, 
you will receive detailed instructions on how to exchange your FNB shares. 

     FNLC shareholders will keep their shares, which will remain outstanding 
and unchanged as shares of FNLC, following the merger.

Comparative Per Share Market Price Information (Page __)

     Shares of FNLC currently trade on the Nasdaq Stock Market Inc.'s National 
Market under the symbol "FNLC". Shares of FNB are not traded on any exchange, 
but are traded in the over-the-counter market. On August 24, 2004, the last 
trading day preceding public announcement of the proposed merger for which a 
trade in FNLC common stock was reported, the last sales price reported for FNLC 
common stock was $17.50 per share. On August 25, 2004, the last trading day 
preceding public announcement of the proposed merger for which a trade in FNB 
common stock was reported, the last sales price reported for FNB common stock 
was $24.75 per share. On _________________, 2004, the last sales price reported 
for FNLC common stock was $ ______ per share and the last sales price reported 
for FNB common stock was $ ______ per share.

     The exact number of shares of FNLC common stock which FNB shareholders 
will be entitled to receive as a result of the merger will be based on the high 
and low sales prices reported for each trading day during the 30-day  period 
ending with the fifth business day prior to the merger. Based on the average 
high and low prices of FNLC common stock during the 30-day period ended on 
September 30, 2004, the exchange ratio would be 2.18 of shares of FNLC common 
stock for each share of FNB common stock.

     FNLC cannot assure you that its stock price will continue to trade at the 
prices shown above. You should obtain current stock price quotations for FNLC 
common stock from a newspaper, via the internet or by calling your broker.





Page 4
Dividend Policy (Page __)

     We currently pay regular cash dividends to our respective shareholders. 
During the third quarter of 2004, FNLC declared a regular quarterly cash 
dividend of 11.5 cents per share of FNLC common stock. FNLC currently intends 
to continue to pay a quarterly cash dividend to its shareholders. On September 
28, 2004, FNB declared a quarterly cash dividend of 16.0 cents per share of FNB 
common stock. Pursuant to the merger agreement, FNB may continue to declare and 
pay regular semi-annual dividends at a rate not in excess of $0.33 per share on 
FNB common stock during the period prior to consummation of the merger, and to 
the extent necessary so that FNB shareholders do not fail to receive a dividend 
for any semi-annual period with respect to their FNB shares, or following the 
merger, for any quarterly period with respect to the FNLC shares received in 
the merger, a quarterly dividend at the same annualized rate as regular 
dividends paid by FNB, on the same record date provided by FNLC for its 
quarterly dividend.

The Exchange of FNLC Common Stock for FNB Common Stock in the Merger has been 
structured as a Tax-Free Transaction (Page __)

     We expect to receive an opinion of counsel to the effect that, based on 
certain facts, representations and assumptions, the merger will be treated as a 
"reorganization" for federal income tax purposes and, accordingly, FNB 
shareholders generally will not recognize any gain or loss on the conversion of 
shares of FNB common stock solely into shares of FNLC common stock. However, 
FNB shareholders generally will be taxed if they receive cash instead of any 
fractional share of FNLC common stock that the FNB shareholder would otherwise 
be entitled to receive. Our obligation to complete the merger is conditioned on 
our receipt of the same opinion, dated as of the effective date of the merger, 
regarding the federal income tax treatment of the merger to us and the 
shareholders of FNB.

     Tax matters are complicated, and the tax consequences of the merger to an 
FNB shareholder will depend upon the facts of that shareholder's particular 
situation. In addition, FNB shareholders may be subject to state, local or 
foreign tax laws that are not discussed herein. Accordingly, we strongly urge 
FNB shareholders to consult their own tax advisors for a full understanding of 
the tax consequences to them of the merger.

FNLC's Board of Directors Recommends Approval of the Merger (Page __)

     Based on FNLC's reasons for the merger described herein, the FNLC Board of 
Directors believes that the merger is fair to its shareholders and in their 
best interests and unanimously recommends that FNLC shareholders vote "FOR" 
approval of the merger agreement. 

Date, Time and Location of FNLC Special Meeting (Page __)

     The FNLC special meeting will be held at ____ _..m., local time, on 
__________________, 2004, at ________________________, Maine. At the special 
meeting, FNLC shareholders will be asked (i) to approve the merger agreement, 
(ii) to approve a proposal to adjourn the special meeting if necessary to 
permit further solicitation of proxies in the event there are not sufficient 
votes at the time of the special meeting to approve the merger agreement, and 
(iii) to act on any other matters that may properly come before the special 
meeting.



Page 5
Record Date and Voting Rights for the FNLC Special Meeting (Page __)

     FNLC shareholders are entitled to vote at the FNLC special meeting if they 
owned shares of FNLC common stock as of the close of business on _____________, 
2004. FNLC shareholders will have one vote at the special meeting for each 
share of FNLC common stock they owned on that date.

     Shareholders of record may vote by proxy or by attending the special 
meeting and voting in person. Each proxy returned to FNLC (and not revoked) by 
a holder of FNLC common stock will be voted in accordance with the instructions 
indicated thereon. If no instructions are indicated, the proxy will be voted 
"FOR" approval of the merger agreement and "FOR" the proposal to adjourn the 
special meeting if necessary to permit further solicitation of proxies on the 
proposal to approve the merger agreement.

Approval of the Merger Agreement Requires a Majority Vote by FNLC Shareholders 
(Page __)

     The affirmative vote of the holders of a majority of the outstanding 
shares of FNLC common stock is necessary to approve the merger agreement on 
behalf of FNLC. Not voting, or failure by a beneficial owner to instruct a 
broker, bank or other nominee how to vote shares held for the beneficial owner, 
will have the same effect as voting against the merger agreement. Any 
adjournment of the special meeting will require the affirmative vote of the 
holders of a majority of the outstanding shares of FNLC present at the special 
meeting, regardless of whether a quorum is present.

Management of FNLC Owns Shares Which May Be Voted at the FNLC Special Meeting 
(Pages __)

     The directors and executive officers of FNLC and their respective 
affiliates collectively owned approximately ____% of the outstanding shares of 
FNLC common stock as of the record date for the FNLC special meeting. 

FNB's Board of Directors Recommends Approval of the Merger (Page __)

     Based on FNB's reasons for the merger described herein, including the 
fairness opinion of RBC Capital Markets, the FNB Board of Directors believes 
that the merger is fair to FNB shareholders and in their best interests and 
unanimously recommends that FNB shareholders vote "FOR" approval of the merger 
agreement. 

FNB's Financial Advisor Believes that the Merger Consideration is Fair to FNB 
Shareholders (Page __)

     Among other factors considered in deciding to approve the merger, the FNB 
Board of Directors received the opinion of its financial advisor, RBC Capital 
Markets Corporation, a member company of RBC Financial Group, that, as of 
August 25, 2004 (the date on which the FNB Board of Directors approved the 
merger agreement), the merger consideration was fair to the holders of FNB 
common stock from a financial point of view. The opinion was reaffirmed by RBC 
Capital Markets Corporation as of the date on which this document was first 
mailed to FNB shareholders, and is included as Annex II. FNB shareholders 
should read this opinion completely to understand the assumptions made, matters 
considered and limitations of the review undertaken by RBC Capital Markets in 
providing its opinion. The opinion of RBC Capital Markets is directed to the 
FNB Board of Directors and does not constitute a recommendation to any 
shareholder as to any 

Page 6
matters relating to the merger. To date, FNB has paid RBC Capital Markets a 
$25,000 retainer fee and $75,000 for the fairness opinion rendered by it. In 
addition, FNB has agreed to pay RBC Capital Markets, upon consummation of the 
merger, a contingency fee which is estimated to amount to approximately 
$240,000, based on the $42.00 per share merger consideration.

Date, Time and Location of FNB Special Meeting (Page __)

     The FNB special meeting will be held at _______ _..m., local time, on 
___________________, 2004, at ____________________________, Maine. At the 
special meeting, FNB shareholders will be asked (i) to approve the merger 
agreement, (ii) to approve a proposal to adjourn the special meeting if 
necessary to permit further solicitation of proxies in the event there are not 
sufficient votes at the time of the special meeting to approve the merger 
agreement, and (iii) to act on any other matters that may properly come before 
the special meeting.

Record Date and Voting Rights for the FNB Special Meeting (Page __)

     FNB shareholders are entitled to vote at the FNB special meeting if they 
owned shares of FNB common stock as of the close of business on ______________, 
2004. FNB shareholders will have one vote at the special meeting for each share 
of FNB common stock they owned on that date.

     Shareholders of record may vote by proxy or by attending the special 
meeting and voting in person. Each proxy returned to FNB (and not revoked) by a 
holder of FNB common stock will be voted in accordance with the instructions 
indicated thereon. If no instructions are indicated, the proxy will be voted 
"FOR" approval of the merger agreement, and "FOR" the proposal to adjourn the 
special meeting if necessary to permit further solicitation of proxies on the 
proposal to approve the merger agreement.

Approval of the Merger Agreement Requires a 67% Vote by FNB Shareholders (Page 
__)

     The affirmative vote of the holders of a 67% of the outstanding shares of 
FNB common stock is necessary to approve the merger agreement on behalf of FNB. 
Not voting, or failure by a beneficial owner to instruct a broker, bank or 
other nominee how to vote shares held for the beneficial owner, will have the 
same effect as a vote against the merger agreement. Any adjournment of the 
special meeting will require the affirmative vote of the holders of a majority 
of the outstanding shares of FNB present at the special meeting, regardless of 
whether a quorum is present.

Management of FNB Owns Shares Which May Be Voted at the FNB Special Meeting 
(Pages __)

     The directors and executive officers of FNB and their respective 
affiliates collectively owned approximately ____% of the outstanding shares of 
FNB common stock as of the record date for the FNB special meeting. The 
directors of FNB who are also officers of FNB, have entered into shareholder 
agreements with FNLC pursuant to which they have agreed to vote approximately 
9.9% of the votes entitled to be cast at the special meeting in favor of the 
merger agreement.





Page 7
We Must Meet Several Conditions to Complete the Merger (Page __)

     Completion of the merger depends on meeting a number of conditions, 
including the following:

* our respective shareholders must approve the merger agreement;
* we must receive all required regulatory approvals for the merger and for the 
bank merger, and any waiting periods required by law must have passed;
* there must be no law, injunction or order enacted or issued preventing 
completion of the merger or the bank merger;
* we must receive a legal opinion confirming the tax-free nature of the merger;
* the FNLC common stock to be issued in the merger must have been listed for 
trading on the Nasdaq Stock Market's National Market;
* the representations and warranties of each of FNLC and FNB in the merger 
agreement must be accurate, subject to exceptions that would not have a 
material adverse effect on FNLC and FNB, respectively;
* we must each have complied in all material respects with our respective 
covenants in the merger agreement; and
* shares as to which appraisal rights have been exercised shall not represent 
10% or more of the outstanding FNB common stock.

     Unless prohibited by law, either of us could elect to waive a condition 
that has not been satisfied and complete the merger anyway. We cannot be 
certain whether or when any of the conditions to the merger will be satisfied, 
or waived where permissible, or that the merger will be completed.

We Must Obtain Regulatory Approvals to Complete the Merger (Page __)

     To complete the merger and the bank merger, we need the prior approval of 
or waiver from the Federal Reserve Board, the Office of the Comptroller of the 
Currency of the United States and the Maine Bureau of Financial Institutions. 
The U.S. Department of Justice is able to provide input into the approval 
process of federal banking agencies and will have between 15 and 30 days 
following any approval of a federal banking agency to challenge the approval on 
antitrust grounds. We have filed all necessary applications and notices with 
the applicable regulatory agencies. We cannot predict, however, whether the 
required regulatory approvals will be obtained or whether any such approvals 
will have conditions which would be detrimental to FNLC following completion of 
the merger.

We may Terminate the Merger Agreement (Page __)

     We can mutually agree at any time to terminate the merger agreement before 
completing the merger, even if our shareholders have already voted to approve 
it.

Either of us also can terminate the merger agreement:

* if any required regulatory approval for consummation of the merger or the 
bank merger is not obtained;
* if the merger is not completed by May 31, 2005;
* if the shareholders of either company do not approve the merger agreement; or
* if the other company breaches any of its representations, warranties or 
obligations under the merger agreement in a manner which would reasonably be 
expected to have a material adverse effect on it and the breach cannot be or 
has not been cured within 30 days of notice of the breach.



Page 8
     In addition, FNLC may terminate the merger agreement at any time prior to 
the FNB special meeting if the FNB Board of Directors withdraws or modifies its 
recommendation to the FNB shareholders that the merger agreement be approved in 
any way which is adverse to FNLC, or breaches its covenants requiring the 
calling and holding of a meeting of shareholders to consider the merger 
agreement and prohibiting the solicitation of other offers. FNB also may 
terminate the merger agreement at any time prior to the special meeting in 
order to concurrently enter into an acquisition agreement or similar agreement 
with respect to an unsolicited "superior proposal," as defined in the merger 
agreement, which has been received and considered by FNB in compliance with the 
applicable terms of the merger agreement, provided that FNB has notified FNLC 
at least five business days in advance of any such action and given FNLC the 
opportunity during such period, if FNLC elects in its sole discretion, to 
negotiate amendments to the merger agreement which would permit FNB to proceed 
with the proposed merger with FNLC. Termination of the merger agreement as a 
result of the circumstances discussed in this paragraph may require FNB to pay 
FNLC a termination fee of $1.5 million. See "Termination Fee," on page __.

We may Amend and Extend the Merger Agreement (Page __)

     We may amend the merger agreement at any time before the merger actually 
takes place, and may agree to extend the time within which any action required 
by the merger agreement is to take place. No amendment may be made after the 
special meeting which by law requires further approval by our shareholders, 
without obtaining such approval.

FNB's Directors and Executive Officers Have Some Interests in the Merger that 
Differ From the Interests of FNB Shareholders (Page __)

     Some of FNB's directors and executive officers have agreements and stock 
options that provide them with interests in the merger that are different from, 
or in addition to, the interests of other FNB shareholders. FNBBH has entered 
into employment continuity agreements with its executive officers Tony C. 
McKim, Daniel Lay, Jeffrey Dalrymple and Ronald Wrobel which generally provide 
that if the officer's employment is terminated or he elects to resign within 30 
days of a change in control of FNBBH or FNB the officer will have the right to 
receive a lump sum severance payment. If the merger is consummated, the 30-day 
period will be extended to 24 months and certain other changes will be made in 
these agreements. In addition, pursuant to the merger agreement, Tony C. McKim 
and Mark N. Rosborough will be appointed to the Board of Directors of FNLC upon 
consummation of the merger. FNLC also has agreed to honor the indemnification 
obligations of FNB to FNB's directors, officers and employees, as well as to 
permit FNB to purchase liability insurance for FNB's directors and officers for 
a six-year period following the merger, subject to the terms of the merger 
agreement.

     The Board of Directors of FNB was aware of the foregoing interests (other 
than the identity of the second director to be appointed to FNLC's Board) and 
other interests of executive officers of FNB in the merger and considered them, 
among other matters, in approving the merger agreement and the merger.

FNB is Prohibited from Soliciting Other Offers (Page __)

     FNB has agreed that, while the merger is pending, it will not initiate or, 
subject to some limited exceptions, engage in discussions with any third party 
other than FNLC regarding extraordinary transactions such as a merger, business 
combination or sale of substantially all of its assets or sale of 10% or more 
of its outstanding capital stock.

Page 9
The Merger Will be Accounted for Under the Purchase Method (Page __)

     FNLC will use the purchase method of accounting to account for the merger. 
The total purchase price will be allocated to the assets acquired and 
liabilities assumed, based on their fair values. To the extent that this 
purchase price exceeds the fair value of the net tangible assets acquired at 
the effective time of the merger, FNLC will allocate the excess purchase price 
to intangible assets, including goodwill. In accordance with Statement of 
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," 
issued in July 2001, the goodwill resulting from the merger will not be 
amortized to expense; however, core deposit and other intangibles with definite 
useful lives recorded by FNLC in connection with the merger will be amortized 
to expense in accordance with the these rules.

Shareholders of FNLC and FNB Have Different Rights (Page __)

     Shareholders of FNB who receive shares of FNLC common stock in exchange 
for their shares of FNB common stock will become shareholders of FNLC and their 
rights as shareholders of FNLC will be governed by FNLC's articles of 
incorporation and bylaws. Although both FNLC and FNB are Maine corporations 
subject to the Maine Business Corporation Act, the rights of shareholders of 
FNLC differ in certain respects from the rights of shareholders of FNB.

Termination Fee (Page __)

     FNB must pay FNLC a termination fee of $1.5 million if the merger 
agreement is terminated under specified circumstances.

FNB's Shareholders Have Appraisal Rights (Page __)

     Under Maine law, holders of FNB common stock have the right, if the merger 
is consummated and all requirements of Maine law are satisfied, to receive 
payment equal to the fair value of their shares of FNB common stock, determined 
in the manner set forth in Maine law. The procedures which must be followed in 
connection with the exercise of appraisal rights by shareholders are described 
herein under "The Merger - Appraisal Rights" and in 13-C M.R.S.A. ch. 13, a 
copy of which is attached as Annex III to this document. A shareholder seeking 
to exercise appraisal rights must deliver to FNB, before the shareholder vote 
on the merger agreement at the special meeting, a written objection to the 
merger stating that he, she or it intends to demand payment for his, her or its 
shares, if the merger agreement is approved, through the exercise of his, her 
or its statutory appraisal rights and must not vote his, her or its shares in 
favor of approval of the merger agreement. Failure to take any required step in 
connection with the exercise of such rights may result in termination or waiver 
thereof.

The Shares of FNLC Common Stock to be Issued in the Merger will be listed on 
Nasdaq (Page __)

     Pursuant to the merger agreement, the shares of FNLC common stock issued 
in connection with the merger will be listed on the Nasdaq Stock Market's 
National Market.







Page 10
Unaudited Comparative Per Share and Selected Financial Data

     The following tables show per share financial information reflecting the 
merger of FNLC and FNB (which is referred to as "pro forma" information) and 
summary historical data for each of FNLC and FNB. The pro forma information 
assumes that the acquisition of FNB had been completed on the dates and at the 
beginning of the earliest periods indicated.

     FNLC expects that the merger will result in certain one-time 
reorganization and restructuring expenses. The pro forma income and dividends 
data do not reflect any anticipated reorganization and restructuring expenses 
resulting from the merger. It is also anticipated that the merger will provide 
the combined company with certain financial benefits that include reduced 
operating expenses and opportunities to earn more revenue. The pro forma 
information does not reflect any of these anticipated cost savings or benefits. 
Therefore, the pro forma information, while helpful in illustrating the 
financial characteristics of the merger under one set of assumptions, does not 
attempt to predict or suggest future results. The pro forma information also 
does not attempt to show how the combined company actually would have performed 
had FNLC and FNB been combined throughout the indicated periods.

      The summary historical financial data of FNLC has been derived from 
financial information that FNLC has included in prior filings with the SEC. 
Certain amounts in the historical financial data of FNB have been reclassified 
to conform with the historical financial statement presentation of FNLC. When 
you read the summary financial information provided in the following tables, 
you should also read the more detailed financial information included elsewhere 
in this document and in documents regarding FNLC incorporated herein. See Annex 
IV, and "Where You Can Find More Information," on page __.

Unaudited Comparative Per Share Data 

-------------------------------------------------------------------------------
                                       FNLC                     FNB
                                   Common Stock            Common Stock
                                   ------------            ------------
                                          Pro Forma                 Pro Forma
                              Historical  Combined(1) Historical  Equivalent(2)
-------------------------------------------------------------------------------
Net income per basic share:                         
  Six Months Ended June 30, 2004    0.54      0.52          1.06       1.13
  Year ended December 31, 2003      1.02      0.96          1.92       2.09
Net income per diluted share:
  Six Months Ended June 30, 2004    0.53      0.51          1.00       1.11
  Year ended December 31, 2003      1.00      0.94          1.86       2.05
Dividends declared per share:
  Six Months Ended June 30, 2004    0.21      0.21          0.30       0.46
  Year ended December 31, 2003      0.38      0.38          0.47       0.83
Book value per share:
  June 30, 2004                     6.74      9.55         15.06      20.82
  December 31, 2003                 6.57      9.35         14.66      20.38
Tangible book value per share:
  June 30, 2004                     6.73      6.79         15.06      14.80
  December 31, 2003                 6.55      6.58         14.66      14.34
-------------------------------------------------------------------------------




Page 11
(1) Pro forma combined amounts are calculated by adding together the historical 
amounts reported by FNLC and FNB, as adjusted for: (i) the estimated purchase 
accounting adjustments to be recorded (consisting of mark-to-market valuation 
adjustments for assets acquired and liabilities assumed and adjustments for 
intangible assets established, and the resultant amortization/accretion of 
certain of such adjustments over appropriate future periods), (ii) lower net 
interest income related to funding the cash portion of the purchase price and 
(iii) the estimated number of additional shares of FNLC common stock to be 
issued in connection with the merger. The number of shares used in the 
calculations assumes an exchange ratio of 2.18 shares of FNLC for each FNB 
share, based upon an average sales price of $19.22 per share for FNLC common 
stock during the 30-day period ended September 30, 2004. The average sales 
price shall be the sum of the average of the high and low sales price reported 
for each trading day during the 30-day period ending with the fifth business 
day prior to the merger, divided by the number of trading days during such 
period.
(2) Pro forma equivalent amounts are calculated by multiplying the pro forma 
combined amounts by an assumed exchange ratio of 2.18, as explained above.
(3) It is anticipated that the initial dividend rate will be equal to the 
current dividend rate of FNLC. Accordingly, pro forma combined dividends per 
share of FNLC common stock represent the historical dividends per common share 
paid by FNLC. 





































Page 12
Selected Consolidated Financial Data of FNLC 
(Dollars in Thousands, Except Per Share Data) 

-------------------------------------------------------------------------------
                      June 30,                     December 31,
                      -------   -----------------------------------------------
                         2004      2003      2002      2001      2000      1999
-------------------------------------------------------------------------------
Balance Sheet Data:
Total assets          613,972   568,812   494,068   434,466   393,216   341,287
Securities            141,301   136,689   122,073   108,186   105,220    87,999
Total loans and
  leases, net (1)     438,853   394,695   328,374   298,304   262,628   230,491
Goodwill and 
  other intangibles       125       125        63         -         -         -
Deposits              386,573   359,077   334,224   262,689   254,566   205,458
Borrowings            173,661   157,822   113,365   131,357   102,919   105,048
Shareholders' equity   49,515    47,718    42,695    37,334    33,160    28,662
Nonperforming assets    1,566     1,537     1,070       667     2,366       681
Book value per share     6.74      6.57      5.89      5.20      4.65      4.03
Tangible book value 
  per share              6.73      6.55      5.89      5.20      4.65      4.03
-------------------------------------------------------------------------------




































Page 13
-------------------------------------------------------------------------------
                  Six Months Ended               For the Years Ended
                       June 30                       December 31,
                  ----------------  -------------------------------------------
                     2004     2003     2003     2002     2001     2000     1999
-------------------------------------------------------------------------------
Operations Data:
Interest and 
  dividend income $14,538  $13,672  $27,540  $29,307  $30,062  $27,923  $23,540
Interest expense    4,353    5,408    9,796   12,204   15,031   15,153   11,591
                  -------  -------  -------  -------  -------  -------  -------
Net interest 
  income           10,185    8,264   17,744   17,103   15,031   12,770   11,949
Provision for 
  loan losses         480      450      907    1,323    1,230      700      645
                  -------  -------  -------  -------  -------  -------  -------
Net interest income
  after provision   9,705    7,814   16,837   15,780   13,801   12,070   11,304
                  -------  -------  -------  -------  -------  -------  -------
Net securities 
  gains (losses)        -        -        -        -       73        -        -
Other non-interest 
  income            2,222    2,433    5,148    4,951    3,825    2,967    2,808
Non-interest 
  expense           6,357    5,515   11,600   11,545    9,978    8,537    7,789
                  -------  -------  -------  -------  -------  -------  -------
Income before income 
  tax expense       5,570    4,732   10,385    9,186    7,721    6,500    6,323
Income tax expense  1,589    1,324    2,958    2,679    2,228    1,893    1,872
                  -------  -------  -------  -------  -------  -------  -------
Net income         $3,981   $3,408   $7,427   $6,507   $5,493   $4,607   $4,451
                  =======  =======  =======  =======  =======  =======  =======
-------------------------------------------------------------------------------
Net income per share:
Basic               $0.54    $0.47    $1.02    $0.90    $0.77    $0.64    $0.61
Diluted              0.53     0.46     1.00     0.88     0.75     0.63     0.59
Dividends per share  0.21     0.18     0.38     0.33     0.27     0.22     0.17
-------------------------------------------------------------------------------
Other Data:
Return on 
  average assets     1.39     1.35     1.41     1.39     1.33     1.27     1.39
Return on 
  average equity    16.37    15.68    16.39    16.34    15.51    15.15    15.67
Average equity to 
  average assets     8.47     8.63     8.58     8.49     8.55     8.36     8.88
Net interest 
  margin(2)          3.92     3.65     3.73     4.00     3.99     3.88     4.12
Tier 1 leverage 
  capital at 
  end of period      7.95     8.31     8.06     8.19     8.56     8.58     9.00
Dividend payout 
  ratio             39.51    39.01    37.13    36.16    35.65    34.20    27.17
Efficiency ratio(3) 48.91    49.06    48.32    50.49    50.60    52.06    50.93
Nonperforming assets 
  to total assets    0.27     0.23     0.29     0.27     0.20     0.69     0.30
-------------------------------------------------------------------------------
(1) Does not include loans held for sale.
(2) Ratios are on a fully-tax equivalent basis. 
(3) The efficiency ratio represents operating expenses as a percentage of net 
interest income and noninterest income, excluding securities transactions. 


Selected Consolidated Financial Data of FNB
(Dollars in Thousands, Except for Per Share Data) 

-------------------------------------------------------------------------------
                      June 30,                     December 31,
                      -------   -----------------------------------------------
                         2004      2003      2002      2001      2000      1999
-------------------------------------------------------------------------------
Balance Sheet Data:
Total assets          227,521   219,634   195,414   184,629   175,271   150,423
Securities             30,309    35,356    32,635    30,911    40,928    34,382
Total loans and 
  leases, net (1)     175,210   159,138   147,306   138,787   113,056   101,462
Goodwill and other 
  intangibles               -         -         -         -         -         -
Deposits              185,793   185,712   162,088   137,923   125,413   115,953
Borrowings             24,296    16,607    17,622    32,504    36,324    22,540
Shareholders' equity   15,760    15,323    13,975    12,486    12,054    10,365
Nonperforming assets      842     1,029     1,085     4,542     2,363     1,704
Book value per share    15.06     14.66     13.24     11.86     11.06      9.42
Tangible book value 
  per share             15.06     14.66     13.24     11.86     11.06      9.42
-------------------------------------------------------------------------------




































Page 15
-------------------------------------------------------------------------------
                  Six Months Ended               For the Years Ended
                       June 30                       December 31,
                  ----------------  -------------------------------------------
                     2004     2003     2003     2002     2001     2000     1999
-------------------------------------------------------------------------------
Operations Data:  
Interest and 
  dividend income  $5,292   $5,320  $10,524  $11,501  $12,997  $12,512  $10,283
Interest expense    1,247    1,397    2,693    3,652    5,408    5,550    4,472
                  -------  -------  -------  -------  -------  -------  -------
Net interest 
  income            4,045    3,923    7,831    7,849    7,589    6,962    5,811
Provision for 
  loan losses         120      180      410      822      600      410      565
                  -------  -------  -------  -------  -------  -------  -------
Net interest income 
  after provision   3,925    3,743    7,421    7,027    6,989    6,552    5,246
                  -------  -------  -------  -------  -------  -------  -------
Net securities 
  gains (losses)        -      -      -           40      307       18        9
Other non-interest 
  income            1,777    1,433    3,647    2,987    2,603    2,508    2,008
Non-interest 
expense             4,213    3,832    8,321    8,082    8,093    7,153    6,510
                  -------  -------  -------  -------  -------  -------  -------
Income before income 
  tax expense       1,489    1,344    2,747    1,972    1,806    1,925      753
Income tax expense    377      355      728      495      516      580      239
                  -------  -------  -------  -------  -------  -------  -------
Net income         $1,112     $989   $2,019   $1,477   $1,290   $1,345     $514
                  =======  =======  =======  =======  =======  =======  =======
-------------------------------------------------------------------------------
Net income per share:  
Basic               $1.06    $0.94    $1.92    $1.40    $1.21    $1.23    $0.47
Diluted              1.00     0.91     1.86     1.37     1.19     1.23     0.47
Dividends per share  0.30     0.18     0.47     0.37     0.30     0.27     0.23
-------------------------------------------------------------------------------
Other Data:  
Return on 
  average assets     1.00     1.01     0.99     0.78     0.72     0.83     0.36
Return on 
  average equity    14.23    13.82    13.90    11.20    10.50    12.00     4.90
Average equity to 
  average assets     7.06     7.13     7.11     6.71     6.89     6.77     7.34
Net interest 
  margin(2)          4.13     4.44     4.30     4.49     4.63     4.79     4.53
Tier 1 leverage 
  capital at end 
  of period          6.98     7.40     6.80     6.80     6.80     7.30     7.40
Dividend payout 
  ratio             28.30    19.15    24.14    26.19    24.46    21.62    50.00
Efficiency ratio(3) 71.77    72.08    73.22    73.11    75.21    74.15    81.59
Nonperforming assets 
  to total assets    0.43     0.42     0.39     0.58     2.56     1.36     1.73
-------------------------------------------------------------------------------
(1) Does not include loans held for sale.
(2) Ratios are on a fully-tax equivalent basis. 
(3) The efficiency ratio represents operating expenses as a percentage of net 
interest income and noninterest income, excluding securities transactions. 
RISK FACTORS

     Upon completion of the merger, FNB shareholders will receive shares of 
FNLC common stock. Prior to deciding whether or not to approve the transaction, 
FNB shareholders should be aware of and consider the following risks and 
uncertainties that are applicable to the merger, in addition to the other 
information contained in or incorporated by reference into this document, 
including the matters addressed under the caption "Cautionary Statement 
Concerning Forward-Looking Statements" on page __.

The value of the stock consideration and number of FNLC shares to be received 
by FNB shareholders may vary with fluctuations in FNLC's stock price.

     If the merger is completed, each outstanding share of FNB common stock 
(subject to certain exceptions) will be converted into the right to receive a 
number of whole shares of FNLC common stock determined by dividing $42.00 by 
the average sales price of FNLC common stock prior to the merger, provided that 
FNB shareholders will not receive more than 2.47, nor less than 1.91, FNLC 
shares for each FNB share they hold and will receive cash in lieu of any 
fractional share interest. The average sales price shall be the sum of the 
average of the high and low sales price reported for each trading day during 
the 30-day period ending with the fifth business day prior to the merger, 
divided by the number of trading days during such period. The market price of 
the FNLC common stock at the time former shareholders of FNB receive 
certificates evidencing shares of FNLC common stock following the merger may be 
higher or lower than the market price at the date of this document, on the date 
of the FNB special meeting or on the date of the merger. Changes in the price 
of the FNLC common stock may result from a variety of factors, including 
general market and economic conditions, changes in the business, operations or 
prospects of FNLC and regulatory considerations. Accordingly, at the time of 
the special meetings, you will not know the exact value of the stock 
consideration to be received by FNB shareholders or the exchange ratio used to 
determine the number of shares of FNLC common stock to be received when the 
merger is completed. As a consequence of the maximum and minimum established 
for the exchange ratio, it is possible that FNB shareholders will receive 
shares of FNLC having an aggregate value of less than (or more than) $42.00 in 
exchange for each share of FNB stock. In addition, there will be a time period 
between the completion of the merger and the time at which former FNB 
shareholders actually receive certificates evidencing FNLC common stock. Until 
stock certificates are received, FNB shareholders will not be able to sell 
their FNLC shares in the open market and, thus, will not be able to avoid 
losses resulting from any decline in the trading price of the FNLC common stock 
during this period.

Directors and officers of FNB have interests in the merger that differ from the 
interests of shareholders.

     When considering the recommendation of FNB's Board of Directors, FNB 
shareholders should be aware that some executive officers and directors of FNB 
have interests in the merger that differ from their interests. For example, 
certain executive officers have entered into agreements with FNBBH which 
provide benefits in the event of a termination of the executive officer's 
employment following the merger. These agreements may create potential 
conflicts of interest. These and certain other additional interests of FNB's 
directors and executive officers may cause some of these persons to view the 
proposed transaction differently than other FNB shareholders view it. See 
"Interests of Certain Persons in the Merger" beginning on page __.


Page 17
Failure to successfully integrate operations and personnel following merger 
could reduce future earnings.

     The failure to integrate successfully the operational systems, data 
processing, operating procedures and technologies of FNBD and FNBBH following 
the merger, particularly the transition of FNBBH's data systems to the platform 
currently used by FNLC, could have a material adverse effect on the results of 
operations of the combined company. In addition, the success of the merger is 
dependent in part upon the integration of key personnel from FNB into the 
management structure of FNLC, including Messrs. Tony McKim, Daniel Lay, Ronald 
Wrobel and Jeffrey Dalrymple. Following the merger, departments and business 
processes will be re-assigned among the existing work forces and locations of 
both FNBD and FNBBH. The failure to retain the services of any key FNB employee 
or to redeploy personnel and reassign business processes successfully could 
have a material adverse effect on the integration of the two companies and the 
results of operations of the surviving bank

Costs may exceed the anticipated benefits of the merger.

     The merger and integration of our systems and procedures will also involve 
significant cost and substantial management time and effort, which FNLC 
anticipates may disrupt its operating activities and may adversely affect 
FNLC's ability to realize the anticipated benefits of the merger. Achieving the 
anticipated benefits of the merger will depend on, among other things, FNLC's 
ability to realize anticipated cost savings and to combine our businesses in a 
manner that does not materially disrupt the existing customer relationships of 
FNB or result in decreased revenues from the loss of customers and that permits 
growth opportunities to occur. If FNLC is not able to successfully achieve 
these objectives, the anticipated benefits of the merger may not be realized 
fully or at all or may take longer to realize than expected. 

The market price of shares of FNLC common stock may be affected by factors 
which are different from those affecting shares of FNB common stock; limited 
market for FNLC Stock.

     Some of FNLC's current products, services and markets differ from those of 
FNB and, accordingly, the results of operations of FNLC after the merger may be 
affected by factors different from those currently affecting the results of 
operations of FNB. For a discussion of our businesses and of certain factors to 
consider in connection with those businesses, see the documents incorporated by 
reference into this document and referred to under "Where You Can Find More 
Information" on page __, and information included in this document under 
"Information about FNB," beginning on page __. In addition, while FNLC's common 
stock is currently listed for trading on the Nasdaq Stock Market's National 
Market, the average daily trading volume of such stock is low, which may affect 
the ability of an FNB shareholder to sell a large amount of FNLC stock received 
as a result of the merger in a short period of time or at a favorable price.












Page 18
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

     This document and the documents incorporated herein by reference contain 
forward-looking statements by us within the meaning of the federal securities 
laws. These forward-looking statements include information about the financial 
condition, results of operations and business of FNLC upon completion of the 
merger, including statements relating to the estimated cost savings that might 
be realized from the merger, and the transaction fees and expenses expected to 
be incurred in connection with the merger. This document also includes forward-
looking statements about the consummation and anticipated timing of the merger, 
the exchange ratio and the tax-free nature of the merger. In addition, any of 
the words "believes," "expects," "anticipates," "estimates," "predicts" and 
similar expressions indicate forward-looking statements. These forward-looking 
statements involve certain risks and uncertainties. Actual results may differ 
materially from those contemplated by the forward-looking statements due to, 
among others, the following factors:

* we may not realize cost savings from the merger or the bank merger;
* we may suffer deposit attrition, customer loss or revenue loss following the 
bank merger;
* competitive pressure among depository and other financial institutions may 
increase significantly;
* we may encounter costs or difficulties related to the integration of our 
businesses;
* changes in the interest rate environment may reduce interest margins;
* general economic or business conditions, either nationally or in the markets 
in which we do business, may be less favorable than expected, resulting in, 
among other things, a deterioration in credit quality or a reduced demand for 
credit;
* legislation or changes in regulatory requirements, including changes in 
accounting standards, may adversely affect the businesses in which we are 
engaged;
* adverse changes may occur in the securities markets; and 
* our competitors may have greater financial resources and develop products and 
technology that enable those competitors to compete more successfully than we 
do.

     Management of FNLC and FNB each believes that the forward-looking 
statements about their respective companies are reasonable; however, you should 
not place undue reliance on them. Forward-looking statements are not guarantees 
of performance. They involve risks, uncertainties and assumptions. The future 
results and shareholder values of FNLC following completion of the merger may 
differ materially from those expressed in these forward-looking statements. 
Many of the factors that will determine these results and values are beyond our 
ability to control or predict.

     We expressly qualify in their entirety all forward-looking statements 
attributable to either of us or any person acting on our behalf by the 
cautionary statements contained or referred to in this section.










Page 19
GENERAL INFORMATION

     This document constitutes an FNB proxy statement and is being furnished to 
all record holders of FNB common stock in connection with the solicitation of 
proxies by the Board of Directors of FNB to be used at a special meeting of 
shareholders of FNB to be held on ______________, 2004 and any adjournment or 
postponement of the FNB special meeting. It also constitutes an FNLC proxy 
statement and is being furnished to all record holders of FNLC common stock in 
connection with the solicitation of proxies by the Board of Directors of FNLC 
to be used at a special meeting of shareholders of FNLC to be held on 
_____________, 2004 and any adjournment or postponement of the FNLC special 
meeting. The purposes of both special meetings are to consider and vote upon 
the merger agreement between FNLC and FNB, which provides, among other things, 
for the merger of FNB with and into FNLC, and a proposal to adjourn the special 
meeting if necessary to solicit additional votes on the merger agreement. 

      This document also constitutes a prospectus of FNLC relating to the FNLC 
common stock to be issued to holders of FNB common stock upon completion of the 
merger. Based on (i) the number of shares of FNB common stock outstanding on 
the record date for the special meeting, (ii) the number of shares of FNB 
common stock issuable upon the exercise of employee and director stock options 
outstanding on such date, and (iii) an assumed exchange ratio of 2.18 based 
upon the price of FNLC stock during the 30-day period ended September 30, 2004, 
approximately 2,283,000 shares of FNLC common stock will be issuable upon 
completion of the merger. The actual total number of shares of FNLC common 
stock to be issued in the merger will depend on the number of shares of FNB 
common stock outstanding at the time of the merger and the actual exchange 
ratio.

      FNLC has supplied all information contained or incorporated by reference 
herein relating to FNLC, and FNB has supplied all information contained herein 
relating to FNB.



























Page 20
THE FNLC SPECIAL MEETING

Time, Date and Place

     A special meeting of shareholders of FNLC will be held at 
__________________ _..m., local time, on __________________________, 2004 at 
__________________, Maine.

Matters to be Considered

     The purposes of the FNLC special meeting are to consider and approve the 
merger agreement, to consider and approve a proposal to adjourn the special 
meeting if necessary to permit further solicitation of proxies in the event 
there are not sufficient votes at the time of the special meeting to approve 
the merger agreement, and to consider any other matters that may be properly 
submitted to a vote at the special meeting. At this time, the FNLC Board of 
Directors is unaware of any matters, other than specifically set forth in the 
preceding sentence, that may be presented for action at the special meeting.

FNLC Shares Outstanding and Entitled to Vote; Record Date

     The close of business on ______________________, 2004 has been fixed by 
FNLC as the record date for the determination of holders of FNLC common stock 
entitled to notice of and to vote at the special meeting and any adjournment or 
postponement of the FNLC special meeting. At the close of business on the 
record date, there were _______________ shares of FNLC common stock outstanding 
and entitled to vote. Each share of FNLC common stock entitles the holder to 
one vote at the FNLC special meeting on all matters properly presented at the 
meeting.

How to Vote Your FNLC Shares

      FNLC shareholders of record may vote by proxy or by attending the special 
meeting and voting in person. If you choose to vote by proxy, simply mark the 
enclosed proxy card, date and sign it, and return it in the postage-paid 
envelope provided.

     If your FNLC shares are held in the name of a bank, broker or other holder 
of record, you will receive instructions from the holder of record that you 
must follow in order for your FNLC shares to be voted. Also, please note that 
if the holder of record of your FNLC shares is a broker, bank or other nominee 
and you wish to vote at the FNLC special meeting, you must bring a letter from 
the broker, bank or other nominee confirming that you are the beneficial owner 
of the shares and authorizing you to vote those shares.

      Any FNLC shareholder executing a proxy may revoke it at any time before 
it is voted by:
* delivering to the clerk of FNLC prior to the special meeting a written notice 
of revocation addressed to First National Lincoln Corporation, P.O. Box 940, 
Damariscotta, Maine 04543-0940 (Attention: Charles A. Wootton, Clerk);
* delivering to FNLC prior to the FNLC special meeting a properly executed 
proxy with a later date; or
* attending the special meeting and giving notice of such revocation in person.

      Attendance at the FNLC special meeting will not, in and of itself, 
constitute revocation of a proxy.



Page 21
     Each proxy returned to FNLC (and not revoked) by a holder of FNLC common 
stock will be voted in accordance with the instructions indicated thereon. If 
no instructions are indicated, the proxy will be voted "FOR" approval of the 
merger agreement and "FOR" the proposal to adjourn the special meeting if 
necessary to permit further solicitation of proxies on the proposal to approve 
the merger agreement.

     At this time, the FNLC Board of Directors is unaware of any matters, other 
than set forth above, that may be presented for action at the special meeting. 
If other matters are properly presented, however, the persons named as proxies 
will vote in accordance with their judgment with respect to such matters.

FNLC Vote Required

     A quorum, consisting of the holders of a majority of the issued and 
outstanding shares of FNLC common stock, must be present in person or by proxy 
before any action may be taken at the special meeting. Abstentions will be 
treated as shares that are present for purposes of determining the presence of 
a quorum but will not be counted in the voting on a proposal.

     The affirmative vote of the holders of a majority of the outstanding 
shares of FNLC common stock, voting in person or by proxy, is necessary to 
approve the merger agreement on behalf of FNLC. The affirmative vote of a 
majority of the votes cast on the matter at the special meeting is required to 
approve the proposal to adjourn the special meeting if necessary to permit 
further solicitation of proxies on the proposal to approve the merger agreement 
and any other matter properly submitted to shareholders for their consideration 
at the special meeting.

     Any "broker non-votes" submitted by brokers or nominees in connection with 
the special meeting will not be counted for purposes of determining the number 
of votes cast on a proposal but will be treated as present for quorum purposes. 
"Broker non-votes" are shares held by brokers or nominees as to which voting 
instructions have not been received from the beneficial owners or the persons 
entitled to vote those shares and the broker or nominee does not have 
discretionary voting power under the applicable New York Stock Exchange rules. 
Under these rules, the proposals to approve the merger agreement and to adjourn 
the special meeting are not items on which brokerage firms may vote in their 
discretion on behalf of their clients if such clients have not furnished voting 
instructions within ten days of the special meeting. Because the proposal to 
approve the merger agreement is required to be approved by the holders of a 
majority of the outstanding shares of FNLC common stock, abstentions and broker 
"non-votes" will have the same effect as a vote against the proposal to approve 
the merger agreement. For the same reason, the failure of an FNLC shareholder 
to vote by proxy or in person at the special meeting will have the effect of a 
vote against this proposal. Because of the vote required to adjourn the special 
meeting, abstentions and broker "non-votes" will have no effect on this 
proposal.

     The directors and executive officers of FNLC and their respective 
affiliates collectively owned approximately ______% of the outstanding shares 
of FNLC common stock as of the record date for the FNLC special meeting.

     As of the close of business on the record date for the FNLC special 
meeting, neither FNB nor, to the knowledge of FNB, any of its directors and 
executive officers, beneficially owned any shares of FNLC common stock.



Page 22
Solicitation of FNLC Proxies

     FNLC will bear its costs of mailing this document to its shareholders, as 
well as all other costs incurred by it in connection with the solicitation of 
proxies from its shareholders on behalf of its Board of Directors, except that 
we will share equally the cost of printing this document. In addition to 
solicitation by mail, the directors, officers and employees of FNLC may solicit 
proxies from shareholders of FNLC in person or by telephone, telegram, 
facsimile or other electronic methods without compensation other than 
reimbursement for their actual expenses.

     Arrangements also will be made with brokerage firms and other custodians, 
nominees and fiduciaries for the forwarding of solicitation material to the 
beneficial owners of stock held of record by such persons, and FNLC will 
reimburse such custodians, nominees and fiduciaries for their reasonable out-
of-pocket expenses in connection therewith.

Recommendations of the FNLC Board of Directors

The FNLC Board of Directors has approved the merger agreement and the 
transactions contemplated by the merger agreement. Based on FNLC's reasons for 
the merger described in this document, the Board of Directors of FNLC believes 
that the merger is in the best interests of FNLC's shareholders and unanimously 
recommends that FNLC shareholders vote "FOR" approval of the merger agreement. 
See "FNLC's Reasons for the Merger" beginning on page __. The FNLC Board of 
Directors also unanimously recommends that FNLC shareholders vote "FOR" the 
proposal to adjourn the special meeting if necessary to solicit additional 
proxies to vote in favor of the merger agreement.































Page 23
THE FNB SPECIAL MEETING

Time, Date and Place

     A special meeting of shareholders of FNB will be held at _______________ 
_..m., local time, on ______________, 2004 at the _______________________, 
Maine.

Matters to be Considered

     The purposes of the FNB special meeting are to consider and approve the 
merger agreement, to consider and approve a proposal to adjourn the FNB special 
meeting if necessary to permit further solicitation of proxies in the event 
there are not sufficient votes at the time of the FNB special meeting to 
approve the merger agreement and to consider any other matters that may be 
properly submitted to a vote at the FNB special meeting. At this time, the FNB 
Board of Directors is unaware of any matters, other than specifically set forth 
in the preceding sentence, that may be presented for action at the special 
meeting.

FNB Shares Outstanding and Entitled to Vote; Record Date

      The close of business on _______, 2004 has been fixed by FNB as the 
record date for the determination of holders of FNB common stock entitled to 
notice of and to vote at the FNB special meeting and any adjournment or 
postponement of the special meeting. At the close of business on the record 
date, there were ____________ shares of FNB common stock outstanding and 
entitled to vote. Each share of FNB common stock entitles the holder to one 
vote at the special meeting on all matters properly presented at the meeting.

How to Vote Your FNB Shares

     FNB shareholders of record may vote by proxy or by attending the FNB 
special meeting and voting in person. If you choose to vote by proxy, simply 
mark the enclosed proxy card, date and sign it, and return it in the postage-
paid envelope provided.

     If your FNB shares are held in the name of a bank, broker or other holder 
of record, you will receive instructions from the holder of record that you 
must follow in order for your FNB shares to be voted. Also, please note that if 
the holder of record of your FNB shares is a broker, bank or other nominee and 
you wish to vote at the FNB special meeting, you must bring a letter from the 
broker, bank or other nominee confirming that you are the beneficial owner of 
the shares and authorizing you to vote those shares.

     Any FNB shareholder executing a proxy may revoke it at any time before it 
is voted by:
* delivering to the clerk of FNB prior to the special meeting a written notice 
of revocation addressed to FNB Bankshares, P.O. Box 258, Bar Harbor, Maine 
04609 (Attention: Ronald J. Wrobel, Clerk);
* delivering to FNB prior to the special meeting a properly executed proxy with 
a later date; or
* attending the FNB special meeting and giving notice of such revocation in 
person.

     Attendance at the FNB special meeting will not, in and of itself, 
constitute revocation of a proxy.


Page 24
     Each proxy returned to FNB (and not revoked) by a holder of FNB common 
stock will be voted in accordance with the instructions indicated thereon. If 
no instructions are indicated, the proxy will be voted "FOR" approval of the 
merger agreement and "FOR" the proposal to adjourn the special meeting if 
necessary to permit further solicitation of proxies on the proposal to approve 
the merger agreement.

     At this time, the FNB Board of Directors is unaware of any matters, other 
than set forth above, that may be presented for action at the special meeting. 
If other matters are properly presented, however, the persons named as proxies 
will vote in accordance with their judgment with respect to such matters.

FNB Vote Required

     A quorum, consisting of the holders of a majority of the issued and 
outstanding shares of FNB common stock, must be present in person or by proxy 
before any action may be taken at the special meeting. Abstentions will be 
treated as shares that are present for purposes of determining the presence of 
a quorum but will not be counted in the voting on a proposal.

     Article VI of FNB's bylaws requires a specific vote to approve "business 
combinations" such as the merger. As a result, the affirmative vote of the 
holders of 67% of the outstanding shares of FNB common stock, voting in person 
or by proxy, is necessary to approve the merger agreement on behalf of FNB. The 
affirmative vote of a majority of the votes cast on the matter at the FNB 
special meeting is required to approve the proposal to adjourn the special 
meeting if necessary to permit further solicitation of proxies on the proposal 
to approve the merger agreement and any other matter properly submitted to 
shareholders for their consideration at the special meeting.

     Any "broker non-votes" submitted by brokers or nominees in connection with 
the FNB special meeting will not be counted for purposes of determining the 
number of votes cast on a proposal but will be treated as present for quorum 
purposes. "Broker non-votes" are shares held by brokers or nominees as to which 
voting instructions have not been received from the beneficial owners or the 
persons entitled to vote those shares and the broker or nominee does not have 
discretionary voting power under the applicable New York Stock Exchange rules. 
Under these rules, the proposals to approve the merger agreement and to adjourn 
the special meeting are not items on which brokerage firms may vote in their 
discretion on behalf of their clients if such clients have not furnished voting 
instructions within ten days of the special meeting. Because the proposal to 
approve the merger agreement is required to be approved by the holders of 67% 
of the outstanding shares of FNB common stock, abstentions and broker "non-
votes" will have the same effect as a vote against the proposal to approve the 
merger agreement at the special meeting. For the same reason, the failure of an 
FNB shareholder to vote by proxy or in person at the special meeting will have 
the effect of a vote against this proposal. Because of the vote required for 
the proposal to adjourn the special meeting, abstentions and broker "non-votes" 
will have no effect on this proposal.










Page 25
     The directors and executive officers of FNB and their respective 
affiliates collectively owned approximately _____% of the outstanding shares of 
FNB common stock as of the record date for the special meeting. Directors of 
FNB who are also executive officers hold of record common shares entitling them 
to cast approximately 9.9% of the votes entitled to be cast at the FNB special 
meeting and have entered into shareholder agreements with FNLC pursuant to 
which they have agreed to vote such shares in favor of the merger agreement. 
See "Certain Beneficial Owners of FNB Common Stock" on page __ and "Shareholder 
Agreements" on page __.

     As of the close of business on the record date for the FNB special 
meeting, neither FNLC nor, to the knowledge of FNLC, any of its directors and 
executive officers, beneficially owned any shares of FNB common stock.

Solicitation of FNB Proxies

     FNB will bear its costs of mailing this document to its shareholders, as 
well as all other costs incurred by it in connection with the solicitation of 
proxies from its shareholders on behalf of its Board of Directors, except that 
we will share equally the cost of printing this document. In addition to 
solicitation by mail, the directors, officers and employees of FNB may solicit 
proxies from shareholders of FNB in person or by telephone, telegram, facsimile 
or other electronic methods without compensation other than reimbursement for 
their actual expenses.

     Arrangements also will be made with brokerage firms and other custodians, 
nominees and fiduciaries for the forwarding of solicitation material to the 
beneficial owners of stock held of record by such persons, and FNB will 
reimburse such custodians, nominees and fiduciaries for their reasonable out-
of-pocket expenses in connection therewith.

Recommendations of the FNB Board of Directors

     The FNB Board of Directors has approved the merger agreement and the 
transactions contemplated by the merger agreement. Based on FNB's reasons for 
the merger described in this document, including the fairness opinion of RBC 
Capital Markets, the Board of Directors of FNB believes that the merger is in 
the best interests of FNB's shareholders and unanimously recommends that FNB 
shareholders vote "FOR" approval of the merger agreement. See "FNB's Reasons 
for the Merger" beginning on page __. The FNB Board of Directors also 
unanimously recommends that FNB shareholders vote "FOR" approval of the 
proposal to adjourn the special meeting if necessary to solicit additional 
proxies to vote in favor of the merger agreement.
















Page 26
THE MERGER 
(FNLC and FNB Proposal 1)

     The following information describes the material aspects of the merger 
agreement and the merger. This description does not purport to be complete and 
is qualified in its entirety by reference to the annexes to this document, 
including the merger agreement. You are urged to carefully read the annexes in 
their entirety.

General

     Under the terms and conditions set forth in the merger agreement, FNB will 
be merged with and into FNLC. At the effective time of the merger, each share 
of common stock of FNB outstanding immediately before the effective time of the 
merger (except as provided below) will, by virtue of the merger and without any 
action on the part of the shareholder, be converted into the right to receive 
the number of whole shares of FNLC common stock determined by dividing $42.00 
by the average sales price of FNLC common stock prior to the merger, provided 
that FNB shareholders will not receive more than 2.47, nor less than 1.91, FNLC 
shares for each FNB share they hold, and cash in lieu of any fractional share 
interest. The average sales price shall be the sum of the average of the high 
and low sales price reported for each trading day during the 30-day period 
ending with the fifth business day prior to the merger, divided by the number 
of trading days during such period.

     Shares of FNB common stock held by FNLC or FNB, other than in a fiduciary 
capacity or in satisfaction of a debt previously contracted, or by FNB 
shareholders who have elected appraisal rights, will not be converted into the 
right to receive the merger consideration upon consummation of the merger.

Background of the Merger

     As part of their on-going efforts to improve FNB's community banking 
franchise and enhance shareholder value, FNB's management and Board of 
Directors have periodically considered various strategic alternatives, 
including continuing as an independent institution, growing internally, or 
entering into a strategic combination with, or being acquired by, another 
institution. At least annually over the last few years, management and the 
Board have specifically focused on the strategic alternatives available to FNB. 
     Consistent with these efforts, and in the ordinary course of business 
dealings, Tony C. McKim, President, Chief Executive Officer and a director of 
FNB, has from time to time had informal conversations with directors and 
management of other Maine banking institutions. During one such conversation 
initiated by another Maine financial institution's chief executive officer in 
December 2003, the topic of a potential strategic transaction between FNB and 
the other party was discussed. This conversation was general in nature and was 
followed with another discussion in January 2004, after which Mr. McKim 
informed the FNB Board of the other institution's informal solicitation, and 
suggested that the Board consider a more formal process regarding a potential 
business combination.

     On January 27, 2004, FNB's Board of Directors created a special committee 
to consider potential business combinations and the processes to be followed in 
the pursuit of a potential sale of FNB. The committee consisted of Mr. McKim, 
Mark N. Rosborough (a non-employee director and the Chairman of the Board), 
William K. McFarland (a non-employee director), and Steven K. Parady (an 
employee director). Daniel Lay, a senior vice president of FNBBH and head of 
its Trust Department, was asked to assist the committee. The committee was 

Page 27
charged specifically with responsibility to manage the process for a potential 
sale of FNB and to report to the Board of Directors. The committee was not 
given any authority to bind or commit FNB without a further vote of the Board 
of Directors. 

     Later in January 2004, Mr. McKim initiated informal discussions with the 
chief executive officer of another Maine financial institution about a 
potential transaction between FNB and that party. These discussions were also 
general in nature.

     In February, 2004, Messrs. McKim and Lay discussed with FNB's legal 
counsel, Pierce Atwood LLP, various issues and considerations that might be 
expected in a merger or acquisition transaction, as well as the possible 
engagement of a financial advisor to assist FNB in connection with the pursuit 
of  a possible business combination, including rendering a fairness opinion on 
any resulting transaction. Together they identified potential financial 
advisors to be interviewed.

     On February 23, 2004, the FNB committee met at the offices of Pierce 
Atwood in Portland, Maine. Legal counsel reviewed with committee members their 
fiduciary obligations to FNB's shareholders and their obligations in connection 
with a proposed combination with another company. At that meeting, the 
committee also interviewed selected financial advisors. The committee 
subsequently reported to the FNB Board its recommendation to engage RBC Capital 
Markets Corporation as its exclusive financial advisor to assist FNB in 
pursuing a business combination. 

     Near the end of February 2004, Mr. McKim made a preliminary contact with 
the chief executive officer of another Maine financial institution regarding a 
possible business combination. The conversation was again general in nature, 
with the other party indicating that it would like to review a package from 
FNB's financial advisor, but otherwise would not participate in further 
discussions.

     On March 23, 2004, FNB engaged RBC Capital Markets as its exclusive 
financial advisor in connection with pursuing a business combination.

     Throughout April and May, 2004, Mr. McKim and Mr. Lay participated in a 
number of conversations and exchanges of information with RBC Capital Markets 
about FNB. Included in the information provided to RBC Capital Markets were 
customary materials requested by RBC Capital Markets to facilitate its drafting 
of a confidential information memorandum for FNB to make available to 
prospective acquirors. 

     On May 3, 2004, Mr. McKim, Mr. Lay and Pierce Atwood met with RBC Capital 
Markets at its offices in Boston, Massachusetts to address preliminary due 
diligence items and identify financial institutions to which the confidential 
information memorandum might be sent. RBC Capital Markets also articulated its 
views with respect to a possible timetable for a business combination.

     On June 11, 2004, members of the FNB committee met with RBC Capital 
Markets in Bar Harbor, Maine to review a draft of the confidential information 
memorandum and to finalize the list of financial institutions that RBC Capital 
Markets would contact on FNB's behalf. The list was finalized at seven 
institutions, including FNLC.




Page 28
     On June 14, 2004, the FNB committee approved the confidential information 
memorandum and provided RBC Capital Markets with the authority to contact the 
institutions from the list of seven institutions identified.

     From June 14, 2004 through June 18, 2004, RBC Capital Markets contacted 
these seven financial institutions to determine whether such institutions would 
have an interest in pursuing exploratory discussions with regard to a strategic 
transaction with a Maine bank. During this period, a representative of RBC 
Capital Markets contacted Robert B. Gregory, the non-employee chairman of 
FNLC's Board of Directors. During this same week and the following week, six 
institutions, including FNLC, elected to execute confidentiality agreements 
providing for, among other things, the confidentially of information to be 
exchanged in connection with their consideration of a potential transaction 
with FNB, the nondisclosure of any negotiations regarding such transaction and 
prohibition on FNB and such other party contacting or soliciting the other's 
employees.

     After each of the six institutions had signed a confidentiality agreement, 
RBC Capital Markets spoke by telephone with each institution's executive 
management to discuss in general terms FNB and each institution's possible 
interest in pursuing a strategic transaction with FNB and to explain the 
process FNB had elected to follow with respect to such a transaction.

     Five institutions, including FNLC, requested copies of the confidential 
information memorandum, which RBC Capital Markets provided to each institution 
subsequent to receipt of that institution's executed confidentiality agreement.

     During the last half of June and the first week of July 2004, Mr. McKim, 
Mr. Lay and representatives of RBC Capital Markets engaged in discussions, 
answered questions, and provided information to each of these five 
institutions. These discussions involved a wide range of topics, including the 
perceived advantages of a possible business combination between FNB and the 
various interested parties and, where relevant, their corresponding financial 
advisors, questions regarding the process with respect to such a transaction 
and additional information necessary to enable each institution to submit a 
written initial non-binding indication of interest, including financial terms.

     On June 22, 2004, after consulting with senior management and other FNLC 
Board members, Mr. Gregory wrote to RBC Capital Markets confirming FNLC's 
interest in pursuing a transaction with FNB and laying out his view of the 
advantages of such a transaction.

     On June 30, 2004, FNLC submitted its initial indication of interest to RBC 
Capital Markets. 

     By July 7, 2004, the deadline for the submission of the written initial 
non-binding indication of interest, RBC Capital Markets had received three 
indications, including one from FNLC, all of which RBC Capital Markets 
immediately forwarded to Mr. McKim, Mr. Lay and Pierce Atwood. Two of the five 
institutions that originally requested copies of the confidential information 
memoranda elected to withdraw from the process. 

     From July 8, 2004 through July 11, 2004, Mr. McKim and Mr. Lay discussed 
with RBC Capital Markets certain aspects of each of the written initial non-
binding indications of interest.




Page 29
     On July 12, 2004, a telephonic meeting was held among the FNB committee, 
RBC Capital Markets and Pierce Atwood to update the members of the committee on 
the status of the transaction process and to discuss the merits of the three 
written initial non-binding indications of interest. The committee elected to 
eliminate one of the three bidders as that institution's written initial 
indication of interest was not competitive with the others on a financial 
basis. The committee then agreed to allow RBC Capital Markets to contact the 
two remaining parties, including FNLC, to inform them of the committee's 
decision and request that the remaining two institutions continue with the 
transaction process.

     On July 13, 2004, RBC Capital Markets contacted all three prospective 
purchasers to inform them of the committee's decision. RBC Capital Markets 
informed two institutions, one of which was FNLC, of the plans for the coming 
weeks with respect to scheduled due diligence, document requests and meeting 
times with Mr. McKim and Mr. Lay. Later that day, Messrs. McKim, Lay and 
Rosborough met with management and two outside directors of FNLC. The 
discussion included FNLC's interest in FNB, business culture issues, the 
transaction process, and potential treatments of outstanding FNB stock options. 

     From July 14, 2004 to July 29, 2004, Mr. McKim and Mr. Lay met or spoke 
telephonically on numerous occasions with officers and representatives of both 
remaining parties and their financial advisors, where applicable, to discuss a 
range of issues that each party considered important to that institution's 
evaluation of a strategic transaction with FNB. In addition, during this time 
period, the two remaining parties conducted financial, business, regulatory and 
legal due diligence, including reviews of documents at FNBBH and at off-site 
locations to which Mr. McKim had delivered relevant due diligence 
documentation. 

     On July 15, 2004, Mr. Gregory and Daniel R. Daigneault, the President and 
CEO of FNLC, made a presentation to the full FNLC Board on the current state of 
discussions regarding a possible business combination with FNB and received 
instructions to proceed with the discussions and attempt to reach an agreement 
on both monetary and non-monetary terms, as requested by the RBC Capital 
Markets solicitation for offers. 

     On July 16, 2004, Mr. Gregory met Mr. McKim in Thomaston, Maine to discuss 
FNLC's interest in a business combination, the reasons for FNB's desire to 
pursue the transaction process, and issues surrounding the potential 
combination of the two management teams. 

     On July 17, 2004, Mr. Gregory had a conference call with Mr. McKim and Mr. 
Lay to further discuss issues surrounding the potential merger of management 
teams in a business combination between FNLC and FNB. Mr. Gregory subsequently 
requested RBC Capital Markets to assemble documents for review before final 
offers were to be presented. 

     On July 22, 2004, Messrs. Gregory and Daigneault, together with Charles A. 
Wootton, a Senior Vice President of FNBD, F. Stephen Ward, the Treasurer and 
Chief Financial Officer of FNLC, and Carrie Warren, the Executive Secretary of 
FNBD, met with RBC Capital Markets and Mr. McKim in Bar Harbor to review 
documents and ask questions about FNB and FNBBH as part of FNLC's due diligence 
review. 

     On July 27, 2004, FNLC finalized a revised offer and sent it to RBC 
Capital Markets for consideration.


Page 30
     By July 30, 2004, the announced deadline for the submission of written 
final indications of interest, RBC Capital Markets had received the two 
remaining parties' final indications, which RBC Capital Markets immediately 
forwarded to Mr. McKim, Mr. Lay and Pierce Atwood. 

     On August 2, 2004, Mr. McKim, Mr. Lay, RBC Capital Markets and Pierce 
Atwood convened via conference call to assess the remaining parties' final 
indications of interest, at which time a number of issues were identified that 
required clarification from each remaining party in order to permit FNB and its 
advisors to compare the final bids, arrive at a final decision and select a 
winning party. It was concluded from the conference call that RBC Capital 
Markets would, with FNB's assistance, draft and distribute to each of the two 
final parties separate letter requests for clarification of that party's final 
offer. These letters were sent on August 3, 2004.

     On August 5, 2004, RBC Capital Markets received responses from the two 
remaining parties. RBC Capital Markets immediately forwarded these to Mr. 
McKim, Mr. Lay and Pierce Atwood. Mr. McKim, Mr. Lay, RBC Capital Markets and 
Pierce Atwood subsequently participated in a conference call to discuss the 
clarification points from the two letters and concluded that the information 
provided was sufficient to warrant the selection of a winning party.

     On August 6, 2004, a telephonic meeting was held by the FNB committee, 
with RBC Capital Markets and Pierce Atwood also participating, to update the 
members on the status of the transaction process and discuss the merits of the 
two final indications of interest. RBC Capital Markets advised the committee 
that, based on a number of factors, it believed that the FNLC proposal was 
superior and thus the committee should recommend to the Board of Directors that 
FNB pursue the negotiation of a definitive merger agreement with FNLC. 
Following the presentations by management, RBC Capital Markets and Pierce 
Atwood, and discussion among its members, the committee unanimously agreed to 
make such recommendation to the Board of Directors of FNB.

     On August 10, 2004, a special meeting of the FNB Board was held to address 
the recommendation of the committee. Senior management of FNB, Pierce Atwood 
and RBC Capital Markets (telephonically) participated in the meeting. Prior to 
the meeting, RBC Capital Markets furnished to the members of the Board its 
financial analysis of the bids and of the two bidders. Mr. McKim updated the 
Board of Directors on the transaction process and described the events leading 
up to the committee's recommendation. Pierce Atwood reviewed with the Board its 
fiduciary obligations to shareholders. RBC Capital Markets reviewed with the 
directors the information that had been provided in advance of the meeting, 
describing its analysis, the process that had been followed, a comparison of 
the final bids, the attributes of FNLC and its stock as a currency, FNLC's 
performance, metrics and fundamentals, its liquidity, and related matters. RBC 
Capital Markets indicated its overall positive view of the FNLC bid. 
Management, RBC Capital Markets and Pierce Atwood addressed questions from 
Board members. The FNB Board then unanimously voted to authorize FNB's officers 
to pursue negotiation of a definitive merger agreement with FNLC, substantially 
in accordance with FNLC's final written proposal. That evening, Mr. McKim and 
RBC Capital Markets called Mr. Gregory and informed him that the FNB Board had 
unanimously authorized management to proceed with negotiations for a binding 
merger agreement with FNLC. The next morning RBC Capital Markets informed the 
other party of the Board of Directors' decision.





Page 31
     On August 10, the Board of Directors of FNLC met to discuss the status of 
the transaction process and to authorize Mr. Gregory and management to 
negotiate a definitive agreement with FNB.

     On August 12, 2004, FNB's counsel provided FNLC and its counsel, Verrill 
Dana, LLP, with a draft of the merger agreement. Representatives of FNB and 
FNLC negotiated the merger agreement and the other ancillary documents over the 
next two weeks. Among the items discussed during the course of negotiations 
were the treatment of certain outstanding options to acquire FNB stock, the 
application of a general "material adverse effect" condition to the parties' 
obligations under the agreement, the number of FNB directors that would be 
appointed to the FNLC Board of Directors after the merger, the suspension of 
FNLC's stock repurchase program and the treatment of employee benefit and 
compensation matters. During this time, FNLC continued its due diligence 
investigation of financial and business matters affecting FNB.

     On August 19, 2004, at a regularly scheduled meeting of FNLC's Board, 
Messrs. Gregory and Daigneault updated directors on the status of negotiations 
with FNB and on FNLC's continuing due diligence review of FNB.

     On August 25, 2004, the FNLC Board met to review the terms of the draft 
merger agreement and the results of FNLC's continued due diligence 
investigation. At that meeting, the FNLC Board determined that the merger was 
in the best interests of FNLC shareholders, approved the merger agreement and 
recommended that shareholders approve the merger agreement and the transactions 
contemplated therein. The FNLC Board also authorized Mr. Daigneault to execute 
and deliver the merger agreement on behalf of FNLC. 

     Later on August 25, 2004, the Board of Directors of FNB reviewed the 
proposed definitive merger agreement at a special meeting called for that 
purpose. Prior to the meeting the directors had received a copy of the proposed 
agreement, a memorandum from Pierce Atwood summarizing the material provisions 
of the proposed agreement, and copies of FNLC's most recent filings with the 
SEC on Forms 10-K and 10-Q, as well as FNLC's most recent annual report to 
shareholders. Management reviewed with the Board developments since the August 
10, 2004 Board meeting. Pierce Atwood reviewed with the Board the negotiations 
that had taken place and the terms of the proposed definitive merger agreement. 
RBC Capital Markets again reviewed with the Board FNB's and FNLC's respective 
financial, operational and stock performance on a historical and pro forma 
basis under various assumptions, the current mergers and acquisitions market 
for financial institutions and FNB's and FNLC's respective historical and 
current market values and projected market values under various scenarios. RBC 
Capital Markets then reviewed the financial aspects of the proposed transaction 
that had been negotiated and delivered its opinion that the merger 
consideration was fair to FNB's shareholders from a financial point of view. 
After extensive review and discussion, FNB's Board of Directors unanimously 
approved the transaction and instructed management to execute and deliver the 
merger agreement. 

     Following the FNB Board meeting, Pierce Atwood contacted counsel for FNLC 
to inform them of the FNB Board's approval of the merger agreement and to 
arrange for its execution. Late in the evening of August 25, 2004, the merger 
agreement was executed and delivered by FNB and FNLC. The next morning, before 
the opening of the equity markets, FNB and FNLC issued a joint press release 
announcing the execution of the definitive merger agreement.




Page 32
FNB's Reasons for the Merger

     After careful consideration, FNB's Board of Directors determined that the 
merger agreement is advisable, in the best interests of FNB's shareholders and 
on terms that are fair to the shareholders of FNB. Accordingly, the FNB Board 
of Directors approved the merger agreement and the merger, and unanimously 
recommends that FNB shareholders vote "FOR" approval of the merger agreement.

     FNB's Board of Directors consulted with senior management and FNB's 
financial and legal advisors and considered a number of factors, including 
those set forth below, in reaching its decision to approve the merger agreement 
and the transactions contemplated by the merger agreement and to unanimously 
recommend that FNB's shareholders vote "FOR" adoption and approval of the 
merger agreement.

     The following discussion of FNB's reasons for the merger contains a number 
of forward-looking statements that reflect the current views of FNB with 
respect to future events that may have an effect on its future financial 
performance. Forward-looking statements are subject to risks and uncertainties. 
Actual results and outcomes may differ materially from the results and outcomes 
discussed in the forward-looking statements. Cautionary statements that 
identify important factors that could cause or contribute to differences in 
results and outcomes include those discussed under "Cautionary Statements 
Regarding Forward-Looking Statements" on page___.

     Status of the Banking Industry. The FNB Board of Directors considered the 
current and prospective economic, regulatory and competitive climate facing FNB 
and independent community banking organizations generally, including but not 
limited to margin pressure, limited prospects for deposit growth, rising 
expenses, slowing revenue growth, the impact of prolonged maintenance of a 
historically low federal funds interest rate, the importance of capitalizing on 
developing opportunities in the banking and finance industries, the pace and 
scope of consolidation in the banking industry and competition from larger 
institutions with greater resources than FNB. The FNB Board also considered the 
challenges facing FNB in remaining an independent community banking 
institution, the lack of opportunities for growth through acquisitions and the 
impacts of these factors on increasing shareholder value.

     Review of Prospects of Remaining Independent. FNB's Board of Directors 
considered FNB's financial condition, results of operations and business and 
earnings prospects in various interest rate environments if it were to remain 
an independent entity, and the likely benefits to shareholders, compared with 
the value of the merger consideration being offered by FNLC. 

     Review of Historical Performances. Together with management and its 
financial advisors, the FNB Board of Directors reviewed and considered the 
respective businesses, operations, asset quality, financial condition, 
earnings, competitive positions and stock price performance of FNB and FNLC. 
The FNB Board also noted the relative illiquidity of the FNB common stock as 
compared to the FNLC common stock.

     Compatibility of Cultures. The FNB Board of Directors considered the 
similar community banking cultures and business philosophies of the two 
companies, particularly with respect to customer service, efficiency, credit 
quality, product diversification and meeting local banking needs and the 
companies' compatible management teams. The FNB Board of Directors was 
particularly cognizant of FNLC's focus on providing community banking services.


Page 33
     Projected Strength of Combined Entity. The FNB Board of Directors 
considered the projected market capitalization and market position of the 
combined entity (and in particular the increasing importance of economies of 
scale and access to greater financial resources to capitalize on opportunities 
in the banking and financial services markets), the diversification of the 
companies' asset and deposit bases, the introduction of several new products 
and services not presently offered by FNB, and the ability of the combined 
company to compete more effectively in Mid-Coast Maine.

     Geographic Fit of Branch Networks. The FNB Board considered the 
geographic span of FNLC's branch network, its extension by FNB's branch 
network, and the effect that such complementary geographic coverage would have 
on the combined enterprise's ability to prosper in its banking markets.

     Projected Cost Savings. The FNB Board of Directors considered the 
financial effects of the proposed transaction, including the potential cost 
savings (resulting from back office efficiencies, consolidations and other cost 
savings) and enhanced revenue anticipated from the merger, and the effects of 
the merger on the risk-based and leverage capital ratios of the combined 
company and its subsidiary banks.

     Effects on Employees and Customers. The FNB Board of Directors considered 
the likely impact of the proposed merger on the employees and customers of FNB 
and its subsidiaries, and on the communities in which FNB presently conducts 
its business. Considered especially were the expanded range of financial 
services the combined company would be well situated to offer. In particular, 
the FNB Board of Directors considered the potential that a merger with FNLC 
might be expected to provide FNB employees with continued employment, career 
advancement and other benefits that might not be available to the employees if 
FNB were to remain independent.

     Continued Board Representation. The FNB Board also considered the benefit, 
to FNB and the communities it serves, of the appointment of two members of 
FNB's Board to the Board of FNLC, as well as FNLC's agreement to consider 
appointment of a third individual from FNB's market area to the Board of FNLC. 

     Merger Consideration. FNB's Board considered the amount and form of the 
consideration offered by FNLC in relation to the estimated value of FNB's 
common stock. In particular the FNB Board of Directors considered the premium 
represented by the consideration to be offered to the holders of FNB common 
stock in the merger. The consideration valuation of $42.00 represented a 
premium of 69.4% to the last trading price of FNB common stock of $24.80 on 
August 23, 2004. The FNB Board also considered that the merger consideration, 
in the form of FNLC stock, would provide FNB shareholders with the ability to 
continue to participate in the growth of the combined company on a tax-deferred 
basis but also with the benefit of the increased liquidity of the FNLC common 
stock. In addition, the FNB Board noted that the value of the merger 
consideration, $42.00 per share, was subject to limits, or "collars," thereby 
ensuring that fluctuations in the FNLC stock price would not affect the value 
of the overall consideration to be received by the FNB shareholders beyond the 
agreed limits.

     Dividend Enhancement. FNB's Board also considered that (i) based on a 
hypothetical two-for-one exchange ratio, (ii) assuming continuation of FNLC's 
current annual dividend rate of $0.44 per share, (iii) assuming continuation of 
FNB's current and budgeted annual dividend rate of $0.63, and (iv) continuation 
of FNLC's dividend practices,  FNB shareholders would realize an annual cash 
dividend increase of approximately 40% (an increase of $0.25, from $0.63 to 
$0.88, per share of FNB common stock).
Page 34
     Advice from FNB's Financial Advisor. Among other factors considered, FNB's 
Board of Directors also considered the presentations made by RBC Capital 
Markets with respect to the proposed consideration to be offered to the holders 
of FNB common stock in the merger. The FNB Board of Directors considered RBC 
Capital Markets' oral opinion, confirmed in writing, that as of the date of its 
opinion, the consideration to be received by FNB's shareholders in connection 
with the merger was fair from a financial point of view. The full text of this 
opinion is attached to this document as Annex II.

     Certain Terms of the Merger Agreement. In evaluating the adequacy of the 
consideration to be received, the FNB Board of Directors considered the terms 
of the merger agreement, including the following:

* The provisions providing for a fixed value of the stock consideration payable 
to the FNB shareholders, with limits on the exchange ratio due to changes in 
the FNLC stock price prior to the closing of the merger;
* The provisions pertaining to FNB's ability in certain circumstances to 
withdraw its recommendation of the merger to the FNB shareholders and FNB's 
ability to recommend another transaction to the FNB shareholders and pursue 
such transaction in certain circumstances;
* The provisions providing salary and benefits continuation for FNB employees; 
and
* The provisions providing protection of executive termination benefits and the 
benefits to be made available to former FNB employees, if any, terminated after 
the merger.

     The FNB Board noted that the termination fee provision of the merger 
agreement could have the effect of discouraging alternative proposals for a 
business combination between FNB and a third party. However, the Board of 
Directors concluded that the amount of the fee that FNB would be obligated to 
pay and the circumstances under which it may be payable are typical for 
transactions of this size and type, are not likely to discourage any such 
proposals and were necessary to induce FNLC to enter into the merger agreement.

     Limited Closing Conditions and Likelihood of Obtaining Approval. The FNB 
Board of Directors considered the limited nature of the closing conditions 
included in the merger agreement and the likelihood of obtaining the regulatory 
and shareholder approvals that would be required in order to consummate the 
merger within a reasonable time frame.

     Tax Treatment of Merger. The FNB Board of Directors considered the 
treatment of the merger as a tax-free reorganization for federal income tax 
purposes. The FNB Board also noted that generally FNB common shareholders who 
receive FNLC common stock in exchange for shares of FNB common stock are not 
expected to recognize gain or loss for United States federal income tax 
purposes in connection with the receipt of such FNLC common stock, except for 
taxes payable in respect of cash received instead of fractional shares.

     In considering the opinion of RBC Capital Markets that the consideration 
to be received by FNB's shareholders in connection with the merger is fair from 
a financial point of view, the FNB Board took into account that the various 
types of financial analyses ordinarily used to support this type of opinion 
inevitably have limitations. These limitations were explained to the FNB Board 
by RBC Capital Markets at the time the FNB Board considered and approved the 
merger and the merger agreement.




Page 35
     The foregoing discussion of the information and factors considered by 
FNB's Board of Directors, while not exhaustive, includes the material factors 
considered by the Board of Directors. In view of the variety of factors 
considered in connection with its evaluation of the merger, FNB's Board of 
Directors did not find it practicable to, and did not, quantify or otherwise 
assign relative or specific weight or values to any of these factors, and 
individual directors may have given different weights to different factors.

Opinion of FNB's Financial Advisor

      Pursuant to an engagement letter dated as of March 23, 2004, FNB retained 
RBC Capital Markets Corporation, a member company of RBC Financial Group, to 
act as its financial advisor in connection with the merger. On August 25, 2004, 
the Board of Directors of FNB held a meeting to evaluate the proposed merger. 
At this meeting, RBC Capital Markets rendered its oral and written opinion 
that, as of that date and based upon and subject to the factors and assumptions 
set forth in its opinion, the merger consideration was fair, from a financial 
point of view, to the FNB shareholders. 

     RBC Capital Markets is a nationally-recognized investment banking and 
advisory firm. RBC Capital Markets as part of its investment banking business 
is regularly engaged in the valuation of businesses and their securities in 
connection with mergers and acquisitions, negotiated underwritings, private 
placements and valuations for corporate and other purposes.

     In the ordinary course of its business, RBC Capital Markets may actively 
trade shares of FNB's common stock and shares of FNLC's common stock for its 
own account and the accounts of its customers, may continue to do so, and, 
accordingly, may at any time hold long or short positions in such securities. 

     FNB did not provide specific instructions to, or place any limitation on, 
RBC Capital Markets with respect to the procedures to be followed or factors to 
be considered by RBC Capital Markets in performing its analyses or providing 
its opinion.

     The full text of the RBC Capital Markets opinion rendered on August 25, 
2004, which describes, among other things, the assumptions made, matters 
considered, and qualifications and limitations on the review undertaken by RBC 
Capital Markets is attached as Annex II to this Proxy Statement/Prospectus and 
is incorporated in this document by reference. FNB shareholders are urged to 
read RBC Capital Markets' opinion carefully and in its entirety. This opinion 
was reaffirmed by RBC Capital Markets, in accordance with the terms of its 
engagement with FNB, as of the date on which this proxy statement is first 
mailed to FNB shareholders.

     RBC Capital Markets' opinion is directed to, and may only be relied upon 
by, the Board of Directors of FNB and addresses only the fairness, from a 
financial point of view, of the merger consideration to be paid to FNB 
shareholders. The opinion does not address any other aspect of the merger or 
any related transaction, constitute a recommendation to any shareholder as to 
how to vote at the FNB special meeting or comment on the form of consideration 
received. The summary of the fairness opinion set forth in this document is 
qualified in its entirety by reference to the full text of the opinion.






Page 36
     In arriving at its opinion, RBC Capital Markets, among other things:

* reviewed and analyzed the financial terms in the draft merger agreement dated 
August 25, 2004;
* reviewed and analyzed certain publicly available financial and other data 
with respect to FNB and FNLC and certain other historical operating data 
relating to FNB and FNLC made available to RBC Capital Markets from published 
sources and from the internal records of FNB and FNLC; 
* conducted discussions with members of the senior management of FNB with 
respect to the business prospects and financial outlook of FNB independently 
and as combined with FNLC;
* conducted discussions with members of the senior management of FNLC with 
respect to the business prospects and financial outlook of FNLC independently 
and as combined with FNB; 
* received and reviewed financial forecasts prepared by FNB's management on the 
potential future performance of FNB as a stand-alone entity;  
* reviewed publicly available materials and reports with respect to the 
business and financial outlook of FNLC;
* reviewed the publicly reported prices and trading activity for FNLC common 
stock and FNB common stock;
* compared the financial performance of FNLC and FNB and the prices of FNLC 
common stock and FNB common stock with that of certain other publicly traded 
companies and their securities that RBC Capital Markets deemed comparable;
* reviewed the financial terms, to the extent publicly available, of certain 
merger transactions that RBC Capital Markets deemed comparable to the proposed 
merger; and
* compared the relative contribution to certain balance sheet and income 
statement items of each company with their pro-forma ownership in the combined 
company. 

     In RBC Capital Markets' review, it also took into account an assessment of 
general economic, market and financial conditions and certain industry trends 
and related matters.

     In rendering its opinion, RBC Capital Markets assumed and relied upon 
without independent verification the accuracy and completeness of the 
information reviewed by it for the purposes of its opinion. FNB provided RBC 
Capital Markets with forecasted financial information through December 31, 
2007. With respect to these financial projections and projected cost savings 
and synergies provided by FNB resulting from the merger, RBC Capital Markets 
assumed that they have been reasonably prepared on bases reflecting the best 
currently available estimates and judgments of the future financial performance 
of FNB. RBC Capital Markets is not an expert in the evaluation of allowances 
for loan losses, and neither made an independent evaluation of the adequacy of 
the allowances for loan losses of FNB or FNLC, nor reviewed any individual 
credit files of FNB or FNLC or was requested to conduct such a review. As a 
result, RBC Capital Markets has assumed that the respective allowances for loan 
losses for FNB and FNLC are adequate to cover such losses and will be adequate 
on a pro forma basis for the combined entity.

     For purposes of rendering its opinion, RBC Capital Markets assumed that, 
in all respects material to its analyses:

* the executed version of the merger agreement was in all material respects 
identical to the last draft reviewed by RBC Capital Markets;
* the merger will be consummated pursuant to the terms of such agreement, 
without amendments thereto and without waiver by any party of any conditions or 
obligations thereunder;

Page 37
* the representations and warranties of each party contained in such agreement 
are true and correct, and each party will perform all of the covenants and 
agreements required to be performed by it under such agreement; and
* the transaction will qualify as a tax-free reorganization for United States 
federal income tax purposes and all governmental, regulatory and other consents 
and approvals contemplated by such agreement will be obtained and, in the 
course of obtaining any of those consents, no restrictions will be imposed or 
waivers made that would have an adverse effect on the contemplated benefits of 
the merger.

     In performing its analysis for its opinion, RBC Capital Markets relied 
upon the closing prices of FNB's common stock and FNLC's common stock as of 
August 23, 2004. Accordingly, RBC Capital Markets assumed that the respective 
closing prices of FNB's common stock and FNLC's common stock did not materially 
change as of August 25, 2004.

     RBC Capital Markets did not make any independent valuation or appraisal of 
the assets or liabilities (contingent or otherwise) of FNB, nor did FNB furnish 
it with any such appraisals. RBC Capital Markets did not assume any obligation 
to conduct, and did not conduct, any physical inspection of the property or 
facilities of FNB or FNLC. Its opinion is necessarily based on financial, 
economic, market and other conditions as in effect on, and the information made 
available to RBC Capital Markets as of, the date thereof. RBC Capital Markets 
did not undertake to reaffirm or revise the opinion or otherwise comment upon 
any events occurring after the date it was rendered and, except as set forth in 
its engagement with FNB, does not have any obligation to update, revise or 
reaffirm this opinion.

Analyses of RBC Capital Markets

     In performing its analyses, RBC Capital Markets made numerous assumptions 
with respect to industry performance, general business, economic, market and 
financial conditions and other matters, many of which are beyond the control of 
RBC Capital Markets, FNB and FNLC. Any estimates contained in the analyses 
performed by RBC Capital Markets are not necessarily indicative of actual 
values or future results which may be significantly more or less favorable than 
suggested by these analyses. Additionally, estimates of the value of businesses 
or securities do not purport to be appraisals or to reflect the prices at which 
such businesses or securities might actually be sold. Accordingly, these 
analyses and estimates are inherently subject to substantial uncertainty. The 
RBC Capital Markets opinion was among several factors taken into consideration 
by FNB's Board of Directors in making its determination to approve the merger 
agreement and the merger. In addition, FNB's Board did not rely on a single 
analysis in making its determination. Consequently, the analyses described 
below should not be viewed as determinative of the decision of FNB's Board of 
Directors or management with respect to the fairness of the merger 
consideration.

     The following is a summary of the material financial analyses presented by 
RBC Capital Markets to the Board of Directors of FNB on August 25, 2004 in 
connection with the rendering of its opinion on that date. The summary is not a 
complete description of the analyses underlying the RBC Capital Markets opinion 
or the presentation made by RBC Capital Markets to FNB's Board of Directors, 
but summarizes the material analyses performed and presented in connection with 
its opinion. The preparation of a fairness opinion is a complex analytic 
process involving various determinations as to the most appropriate and 
relevant methods of financial analysis and the application of those methods to 
the particular circumstances. Therefore, a fairness opinion is not readily 
susceptible to partial analysis or summary description.
Page 38
     In arriving at its opinion, RBC Capital Markets did not attribute any 
particular weight to any analysis or factor that it considered, but rather made 
qualitative judgments as to the significance and relevance of each analysis and 
factor. The financial analyses summarized below include information presented 
in tabular format. Accordingly, RBC Capital Markets believes that its analyses 
and the summary of its analyses must be considered as a whole and that 
selecting portions of its analyses and factors or focusing on the information 
presented below in tabular format, without considering all analyses and factors 
covered by it or the full narrative description of the financial analyses, 
including the methodologies and assumptions underlying the analyses, could 
create a misleading or incomplete view of the process underlying its analyses 
and opinion. The tables alone do not constitute a complete description of the 
financial analyses performed by RBC Capital Markets.

Calculation of Transaction Value. 

     RBC Capital Markets reviewed the terms of the merger and noted that 
pursuant to the merger agreement, each issued and outstanding share of FNB 
common stock will be converted into, and shall be canceled in exchange for, the 
right to receive the number of shares of FNLC common stock which is equal to 
the quotient determined by dividing (x) $42.00 by (y) the average share price 
of the FNLC common stock; provided, however, that the exchange ratio shall be 
not more than 2.47 and not less than 1.91 shares of FNLC common stock per share 
of FNB common stock. The average share price of FNLC's common stock shall mean 
the sum of the average of the high and low sales price of a share of FNLC's 
common stock, for each trading day for which a high and low sales price is 
reported on Nasdaq (as reported by an authoritative source), during the 30-day 
period ending with the fifth business day immediately preceding the closing 
date, divided by the number of trading days for which a high and low price is 
so reported during such period. In addition, FNLC will pay up to approximately 
$2.7 million in cash to retire certain outstanding FNB stock options, with the 
remaining options to be converted into options to acquire FNLC stock.

     RBC Capital Markets noted that, for purposes of the analysis accompanying 
its fairness opinion, the most recently available closing price of FNB common 
stock preceding the FNB Board meeting on August 25, 2004 was $24.80 and that 
the most recent closing price of FNLC common stock was $18.80. RBC Capital 
Markets also noted that, based on the per share merger consideration, cash out 
of FNB stock options and roll-over of FNB stock options, the transaction had an 
implied aggregate value of approximately $47.9 million as of August 25, 2004.

     Transaction Pricing Multiple Analysis. Based on the closing prices 
referenced above the merger consideration to be paid to FNB shareholders was 
approximately $47.9 million as of August 25, 2004. RBC Capital Markets then 
calculated the merger consideration value as a multiple of FNB's last twelve 
months' earnings of approximately $2.1 million, FNB's estimated earnings for 
the year 2004 (based on FNB management's estimate as of August 25, 2004 of 
approximately $2.2 million), FNB's estimated earnings for the year 2005 (based 
on FNB management's estimate as of August 25, 2004 of approximately $2.3 
million) and FNB's stated book value and its stated tangible book value (based 
on financial data for the period ended June 30, 2004). RBC Capital Markets also 
calculated the premium to the per share closing price of FNB's common stock on 
August 23, 2004. The results of RBC Capital Markets' analysis are set forth in 
the following table.





Page 39
     Merger consideration as a multiple or percentage of, or premium to, FNB's:

Multiple of last twelve months' earnings .................. 22.4x
Multiple to estimated year 2004 earnings .................. 22.1x
Multiple to estimated year 2005 earnings .................. 21.1x
Price to book value .......................................  304%
Price to tangible book value ..............................  314%
Premium to FNB's closing stock price on August 23, 2004 ... 69.4%

     Peer Group Stock Trading Analysis - FNB. RBC Capital Markets compared 
selected operating and stock market results of FNB to the publicly available 
corresponding data for the following companies, which, excluding Camden 
National Corporation with assets of approximately $1.4 billion, are 
northeastern banks with assets between $100 million and $700 million and return 
on average equity greater than 4.0%, that RBC Capital Markets determined were 
comparable to FNB:

Camden National Corporation          Merrill Merchants Bancshares, Inc.
Community Bancorp                    Salisbury Bancorp, Inc.
Cornerstone Bancorp, Inc.            Union Bankshares, Inc.
Factory Point Bancorp, Inc.          Wilton Bank
First National Lincoln Corporation        

     The following table compares selected financial data of FNB with 
corresponding median data for the companies selected by RBC Capital Markets, 
which data is based on financial data at or for the year-to-date ended June 30, 
2004 and market prices as of August 23, 2004.

-------------------------------------------------------------------------------
                                                         FNB  Peer Group Median
-------------------------------------------------------------------------------
Return on average assets                                0.95%             1.35%
Return on average equity                               13.36%            14.58%
Loans / Deposits                                       95.50%             88.1%
Tangible equity / Tangible assets                       6.93%             8.17%
Market value / Assets                                  11.41%            19.83%
Market value / Book value                              164.9%            222.5%
Market value / Tangible book value                     170.2%            240.0%
Market value / Last twelve months' earnings per share   12.9x             15.8x
Market value / Core deposits                           14.79%            28.64%
-------------------------------------------------------------------------------

     Peer Group Analysis - FNLC. RBC Capital Markets also compared selected 
operating and stock market results of FNLC to the publicly available 
corresponding data for the following companies which, excluding Camden National 
Corporation with assets of approximately $1.4 billion, are northeastern banks 
with assets between $200 million and $800 million, that RBC Capital Markets 
determined were comparable to FNLC:

Bar Harbor Bankshares                    FNB Bankshares
Beverly National Corporation             Merrill Merchants Bancshares, Inc.
Cambridge Bancorp                        Northway Financial, Inc.
Camden National Corporation              Patriot National Bancorp, Inc.
Community Bancorp                        Salisbury Bancorp, Inc.
Community Bank & Trust Company           Slade's Ferry Bancorp
Connecticut River Bancorp, Inc.          Union Bankshares Company
Cornerstone Bancorp, Inc.                Union Bankshares, Inc.
Factory Point Bancorp, Inc.              Wainwright Bank & Trust Company
First Litchfield Financial Corporation   Westbank Corporation
Page 40
     The following table compares selected financial data of FNLC with 
corresponding median data for the companies selected by RBC Capital Markets, 
which data is based on financial data at or for the year-to-date ended June 30, 
2004 and market prices as of August 23, 2004.

-------------------------------------------------------------------------------
                                                         FNLC Peer Group Median
-------------------------------------------------------------------------------
Return on average assets                                1.39%             0.98%
Return on average equity                               16.37%            11.77%
Loans / Deposits                                       114.7%             84.9%
Tangible equity / Tangible assets                       8.05%             7.81%
Market value / Assets                                  22.50%            13.81%
Market value / Book value                              278.9%            185.2%
Market value / Tangible book value                     279.8%            195.6%
Market value / Last twelve months' earnings             17.4x             15.8x
Market value / Core deposits                           42.82%            20.19%
-------------------------------------------------------------------------------

     Comparative Merger Analysis. RBC Capital Markets also compared the 
foregoing analyses to comparable data from selected northeastern merger 
transactions in the banking and thrift industries that have occurred since 
January 1, 2003. The following transactions were reviewed by RBC Capital 
Markets in this process:

-------------------------------------------------------------------------------
Acquiror                                   Acquiree
-------------------------------------------------------------------------------
Webster Financial Corporation              First City Bank
Fulton Financial Corporation               First Washington Financial Corp.
Leesport Financial Corp.                   Madison Bancshares Group, Ltd.
Sun Bancorp, Inc.                          Community Bancorp of New Jersey
Fairfield County Bank Corp.                Bank of Westport
Community Bank Systems, Inc.               First Heritage Bank
National Penn Bancshares, Inc.             Peoples First, Inc.
Salisbury Bancorp, Inc.                    Canaan National Bancorp, Inc.
Shore Bancshares, Inc.                     Midstate Bancorp, Inc.
Lakeland Bancorp, Inc.                     Newton Financial Corporation
Harleysville National Corporation          Millennium Bank
Banknorth Group, Inc.                      First & Ocean Bancorp
Royal Bank of Scotland, Plc                Community Bancorp, Inc.
South Shore Savings Bank                   Horizon Bank & Trust Company
Provident Bancorp, Inc.                    E.N.B. Holding Company, Inc.
Community Bank Systems, Inc.               Grange National Banc Corp.
Webster Financial Corp.                    North American Bank & Trust Company
Univest Corporation of Pennsylvania        Suburban Community Bank
National Penn Bancshares, Inc.             HomeTowne Heritage Bank
Lakeland Bancorp, Inc.                     CSB Financial Corp.
Woori Financial Group                      PanAsia Bank NA
Univest Corporation of Pennsylvania        First County Bank
-------------------------------------------------------------------------------

     The following table compares selected pro forma financial data of the FNB 
/ FNLC merger with corresponding median data from northeastern merger 
transactions selected by RBC Capital Markets. For the transactions selected by 
RBC Capital Markets, the comparable data used was taken as of the announcement 
date of those transactions. 


Page 41
-------------------------------------------------------------------------------
                                           FNLC /FNB   Comparable Merger Median
-------------------------------------------------------------------------------
Price / Book value                            303.8%                     250.6%
Price / Tangible book value                   314.1%                     260.5%
Price / Assets                                 21.0%                      22.6%
Premium to core deposits                       18.6%                      20.9%
Price to last twelve months' earnings          22.4x                      22.3x
Premium to market value                        69.4%                      39.2%
-------------------------------------------------------------------------------

     RBC Capital Markets further selected comparable bank and thrift industry 
merger transactions within the state of Maine that have occurred since January 
1, 2000. The following transactions were reviewed by RBC Capital Markets in 
this process:

-------------------------------------------------------------------------------
Acquiror                                  Acquiree
-------------------------------------------------------------------------------
Chittenden Corporation                    Ocean National Corporation
Norway Bancorp                            First Coastal Corporation
Chittenden Corporation                    Maine Bank Corp.
Union Bankshares Company                  Mid-Coast Bancorp, Inc.
-------------------------------------------------------------------------------

     The following table compares selected financial data of the FNB / FNLC 
merger with corresponding median data from the Maine merger transactions 
selected by RBC Capital Markets. For the transactions selected by RBC Capital 
Markets, the comparable data used was taken as of the announcement date of 
those transactions. 

-------------------------------------------------------------------------------
                                           FNLC /FNB        Maine Merger Median
-------------------------------------------------------------------------------
Price / Book value                            303.8%                     199.8%
Price / Tangible book value                   314.1%                     200.4%
Price / Assets                                 21.0%                      18.4%
Premium to core deposits                       18.6%                      14.5%
Price to last twelve months' earnings          22.4x                      20.2x
Premium to market value                        69.4%                     125.6%
-------------------------------------------------------------------------------

     No transaction used in the analysis described above is identical to the 
FNB / FNLC transaction. Accordingly, an analysis of the results of the 
foregoing involves complex considerations and judgments concerning financial 
and operating characteristics and other factors that could affect the merger, 
public trading or other values of the companies to which FNB and FNLC are being 
compared. In addition, mathematical analyses, such as determining median, are 
not of themselves meaningful methods of using comparable transaction data or 
comparable company data.

     Discounted Cash Flow Analysis. RBC Capital Markets performed a discounted 
cash flow analysis to estimate a range of present values per share of FNB 
common stock assuming FNB operated as a stand-alone entity. This range was 
determined by adding (i) the present value of future cash flows derived from 
applying an optimal leverage ratio to the projected financial performance of 
FNB through December 31, 2009, and (ii) the present value of the terminal value 
of FNB common stock, which is a representation of the value of the entity over 
the long term.
Page 42
     In calculating a terminal value of FNB common stock, RBC Capital Markets 
applied terminal earnings multiples of 12.0x, 14.0x and 16.0x to year 2009 
projected earnings. The cash flows and terminal values were then discounted 
back using discount rates of 14.0%, 15.0% and 16.0%. RBC Capital Markets viewed 
these rates as the appropriate range of discount rates for a company with FNB's 
operating history and risk characteristics.

     In performing this analysis, RBC Capital Markets projected FNB's earnings 
estimates through 2009 based on FNB's management forecasts and FNB's historical 
performance. RBC Capital Markets determined that the present value range of the 
FNB common stock is from $28.95 to $39.79 per share. This compares favorably to 
the $42.00 value per share of FNB common stock to be received by FNB 
shareholders in the merger.

     The analysis set forth in the discounted cash flow analysis discussion 
does not necessarily indicate actual values or actual future results and does 
not purport to reflect the prices at which any securities may trade at the 
present or at any time in the future. The discount rates applied to FNB 
referred to in the paragraphs above were based on several factors, including 
RBC Capital Markets' knowledge of FNB and the industry in which it operates, 
the business risk of FNB and the overall interest rate environment. The 
discounted free cash flow analysis is a widely used valuation methodology, but 
the results of this methodology are highly dependent upon the numerous 
assumptions that must be made, including earnings growth rates, dividend payout 
rates, terminal values and discount rates.

     Affordability Valuation Analysis. RBC Capital Markets analyzed and 
calculated a range of values which a sophisticated buyer would assign to FNB 
assuming such buyer had a required internal rate of return of 14.0%, 16.0% and 
18.0%. This valuation methodology is similar to the discounted cash flow 
analysis set forth above, and uses the same financial projections, the same 
terminal value price-to-earnings multiples of 12.0x, 14.0x and 16.0x to FNB's 
year 2009 projected earnings, and the same optimal leverage ratio to the 
projected financial performance of FNB through December 31, 2009. The analysis 
also uses anticipated cost savings equal to approximately 15% of FNB's non-
interest expense.

     In performing this analysis, RBC Capital Markets determined that the 
present value range of the FNB common stock is from $26.27 to $42.05 per share. 
This compares favorably to the $42.00 value per share of FNB common stock to be 
received by FNB shareholders in the merger.


















Page 43
     Pro Forma Financial Impact. Based on the per share merger consideration of 
$42.00, RBC Capital Markets also analyzed the pro forma per share financial 
impact of the merger on FNLC's earnings per share ("EPS") and cash earnings per 
share for 2005 and 2006 calculated under generally accepted accounting 
principles ("GAAP"). RBC Capital Markets also analyzed the pro forma financial 
impact of the merger on FNLC's book value per share, tangible book value per 
share and leverage ratio. This analysis was based on managements' earnings 
estimates and estimated pre-tax cost-savings synergies of approximately 15% of 
FNB's non-interest related expenses. The analysis indicated that the impact of 
the merger would be marginally dilutive to FNLC EPS on a GAAP basis for 2005 
and would be marginally accretive, or additive, to FNLC on a GAAP basis for 
2006. The analysis indicated that the impact of the merger would be accretive, 
or additive, to FNLC on a cash earnings per share basis for both 2005 and 2006. 
The analysis further indicated that the merger would be accretive to FNLC's 
book value per share, dilutive to, or decrease, FNLC's tangible book value per 
share, and dilutive to FNLC's leverage ratio. The following table sets forth 
the results of RBC Capital Markets' analysis. All projected results are for 
2005 unless otherwise specified.

---------------------------------------------------
                             Accretion / (Dilution)
---------------------------------------------------
FNLC GAAP EPS Impact        
   - 2005                                   (1.31%)
   - 2006                                    0.82%
FNLC Cash EPS Impact        
   - 2005                                    1.39%
   - 2006                                    3.28%
FNLC Book Value per share                   44.23%
FNLC Tangible Book Value per share          (8.91%)
FNLC Leverage Ratio                         (8.68%)
---------------------------------------------------

     The results referenced above are projections. Actual operating and 
financial results achieved by the pro forma combined company will vary from 
projected results and variations may be material as a result of business and 
operational risks, the timing, amount and costs associated with achieving cost 
savings and revenue enhancements, as well as other factors.

     Pursuant to a letter agreement between FNB and RBC Capital Markets, dated 
as of March 23, 2004, FNB agreed to pay RBC Capital Markets for financial 
advisory services rendered through the closing of the merger. Based on the 
aggregate merger consideration, the aggregate fee payable to RBC Capital 
Markets is approximately $340,000, of which $25,000 was paid as a retainer, 
$75,000 became due when the fairness opinion was rendered by RBC Capital 
Markets, and the balance of which is contingent upon closing of the merger. FNB 
also agreed, among other things, to reimburse RBC Capital Markets for certain 
expenses incurred in connection with services provided by RBC Capital Markets, 
and to indemnify RBC Capital Markets and its affiliates from and against 
certain liabilities and expenses, which may include certain liabilities under 
federal securities laws, in connection with its engagement.








Page 44
FNLC's Reasons for Merger

     In evaluating the proposed merger, the FNLC Board of Directors consulted 
with FNLC's management, as well as its legal counsel and accountants, and 
considered a number of factors. The material factors considered by the Board in 
reaching its decision to approve the merger and recommend unanimously that FNLC 
shareholders vote "FOR" approval of the merger are described below.

     This discussion of FNLC's reasons for the merger contains a number of 
forward-looking statements that reflect the current views of FNLC with respect 
to future events that may have an effect on its future financial performance. 
Forward-looking statements are subject to risks and uncertainties. Actual 
results and outcomes may differ materially from the results and outcomes 
discussed in the forward-looking statements. Cautionary statements that 
identify important factors that could cause or contribute to differences in 
results and outcomes include those discussed under "Cautionary Statement 
Concerning Forward-Looking Statements" on page __. 

     Review of Historic Performance. Together with management, the FNLC Board 
reviewed and considered historical information concerning the business, 
operations, competitive position, financial performance and condition, earnings 
and prospects of FNB, taking into account FNLC's due diligence review of FNB's 
business.

     Geographic Fit and Growth Opportunities. The merger of the bank 
subsidiaries of FNLC and FNB will extend the reach of FNLC's franchise from its 
current seven Mid-Coast Maine branches in Lincoln and Knox counties by the 
addition of seven branches in semi-contiguous markets in the "Down East" 
coastal Maine counties of Hancock and Washington not currently served by FNLC. 
The FNLC Board believes that the combined entity will be a stronger, larger 
community bank offering services to both existing and new customers in its 
markets more effectively than either bank could offer if the merger were not to 
occur, primarily in FNB's market area, where the combined company's legal 
lending limit will be significantly higher than FNB's limit prior to the 
merger.

     Projected Strength of Combined Entity. The FNLC Board considered the 
projected regulatory capital and market position of the combined entity, and 
believes the larger size would provide the opportunity to compete more 
effectively, especially in the Down East coastal Maine markets now served by 
FNB. In addition, the FNLC Board expects the combined companies to benefit from 
economies of scale and access to greater financial resources in order to 
capitalize on opportunities in the banking and investment management markets. 
The merger will also allow greater customer and geographic diversification of 
the two companies' asset and deposit bases.

     Greater Total Market Capitalization and Liquidity. The total market 
capitalization of the combined companies will represent a substantial increase 
over FNLC's total market capitalization prior to the merger. The FNLC Board 
believes that the increased total market capitalization of the combined company 
should provide enhanced liquidity for shareholders and enhance the appeal of 
FNLC stock as an investment choice. The FNLC Board also believes that size of 
the combined company will increase the recognition and credibility it has 
within the banking and financial services industries. 





Page 45
     Compatibility of Cultures and Tradition. The FNLC Board considered the 
similar community banking cultures and business philosophies of the two 
companies, particularly with respect to customer service, efficiency, credit 
quality, product diversification and meeting local banking needs and the 
companies' compatible management teams. The FNLC Board was particularly 
cognizant of FNB's focus on providing community banking services and the 
history of two nationally chartered institutions bearing the name "The First 
National Bank" with century-plus traditions in their markets. 

     Earnings. The FNLC Board believes that the merger will result in improved 
long-term earnings growth and value-enhanced opportunities through operating 
efficiencies and increased capitalization for the combined entity that the bank 
subsidiaries would not have if the merger were not to occur. Savings are 
expected accrue in the form of operational efficiencies, primarily from the 
elimination of outsourced services by FNB which will be provided directly by 
FNLC after the merger.

     Terms and Conditions of the Merger Agreement. The FNLC Board considered 
the terms and conditions of the merger agreement in consultation with legal 
counsel and viewed the terms and conditions as favorable to FNLC and its 
shareholders. 

     The FNLC Board also considered certain potentially negative factors which 
could arise from the merger. These factors included, among others, the 
significant transaction costs involved in connection with the merger, the 
substantial management time and effort required to effectuate the merger and 
integrate the businesses of FNB and FNLC and the related disruption to FNLC's 
operating activities. The FNLC Board also considered the risk that the combined 
companies may be unable to successfully integrate the operating practices of 
FNLC and FNB and the possibility that the anticipated benefits of the merger 
might not be fully realized. In addition, the FNLC Board considered the 
regulatory and shareholder approvals required for the completion of the merger. 
For a more detailed discussion of the risk factors considered by the FNLC 
Board, see "Risk Factors" beginning on page __. The FNLC Board also evaluated 
the benefits of the transaction to be received by certain officers and 
directors of FNB. See "Interests of Certain Persons in the Merger" on page __. 
The FNLC Board did not believe that the negative factors were sufficient, 
either individually or collectively, to outweigh the advantages of the merger. 

     The foregoing discussion of the information and factors considered by the 
FNLC Board is not intended to be exhaustive, but includes the material factors 
considered by the FNLC Board. The FNLC Board did not assign relative weights to 
the above factors or determine that any factor was of greater importance than 
another. A determination of various weights would, in the view of the FNLC 
Board, be impractical. Rather, the FNLC Board viewed its position and 
recommendations as being based on the totality of the information presented to 
and considered by it. In addition, individual members of the FNLC Board may 
have given different weights to different factors. 

     The FNLC Board has unanimously approved and adopted the merger agreement 
and the matters and transactions contemplated thereby, including the merger, 
and recommends that FNLC shareholders vote "FOR" approval of the merger. 







Page 46
Merger Consideration 

     Upon consummation of the merger, each outstanding share of FNB common 
stock (except for shares held by FNB or FNLC other than in a fiduciary capacity 
and any shares as to which appraisal rights have been exercised) will be 
converted into the number of whole shares of FNLC common stock determined by 
dividing $42.00 by the average sales price of FNLC common stock prior to the 
merger, provided that FNB shareholders will not receive more than 2.47, nor 
less than 1.91, FNLC shares for each FNB share they hold.

     For purposes of the merger agreement, the "average sales price" means the 
sum of the average of the high and low sales prices reported on Nasdaq for each 
trading day during the 30-day period ending with the fifth business day prior 
to the effective date of the merger, divided by the number of trading days 
during such period. The following table illustrates the number of shares of 
FNLC stock that would be issuable to FNB shareholders in exchange for each FNB 
share in the merger depending on the average sales price of FNLC common stock 
determined in accordance with the merger agreement. The average sales price to 
be used in the calculation will be rounded to the nearest one-tenth cent.

------------------------------------------------------------------
Average sales price of FNLC stock     Number of FNLC shares
as of effective date of merger        issuable for each FNB share
------------------------------------------------------------------
$22.00 and above                                           1.91
$21.00                                                     2.00
$20.00                                                     2.10
$19.00                                                     2.21
$18.00                                                     2.33
$17.00 and below                                           2.47
------------------------------------------------------------------

     The value of the FNLC common stock to be received by FNB shareholders will 
depend on the market price of the FNLC common stock prior to the effective time 
of the merger. The market price of FNLC common stock is subject to change at 
all times based on the future financial condition and operating results of 
FNLC, future market conditions and other factors. The market price of the FNLC 
common stock at the effective time of the merger or at the time that FNB 
shareholders actually receive stock certificates evidencing those shares may be 
higher or lower than recent prices. For further information concerning the 
historical prices of the FNLC common stock, see "Market for Common Stock and 
Dividends" on page __. FNB shareholders are urged to obtain current market 
prices for FNLC common stock in connection with voting their shares on the 
merger agreement at the FNB special meeting.

     No fractional shares of FNLC common stock will be issued in connection 
with the merger. Instead, FNLC will make a cash payment to each FNB shareholder 
who would otherwise receive a fractional share based on the average sales price 
of FNLC common shares computed as of the effective time of the merger.










Page 47
Procedures for Exchanging of FNB Common Stock Certificates

     Within five business days after the completion of the merger, the exchange 
agent (which will be a bank or trust company selected by FNLC), will mail to 
each holder of record of FNB common stock a letter of transmittal and 
instructions for use in effecting the surrender of the certificates in exchange 
for the merger consideration allocated to them. Upon surrender of a stock 
certificate for FNB common stock for exchange and cancellation to the exchange 
agent, together with a duly executed letter of transmittal, the holder of such 
certificate will be entitled to receive such merger consideration allocated to 
him or her and the certificate for FNB common stock so surrendered will be 
canceled.

     No stock certificates representing fractional shares of FNLC common stock 
will be issued upon the surrender for exchange of FNB stock certificates. In 
lieu of the issuance of any such fractional share, FNLC will pay to each former 
shareholder of FNB who otherwise would be entitled to receive a fractional 
share of FNLC common stock an amount in cash determined by multiplying the 
fraction of a share of FNLC common stock which such holder would otherwise be 
entitled to receive pursuant to the merger agreement by the average sales price 
of FNLC common stock as of the effective date of the merger calculated as 
provided for the merger consideration. No interest will be paid or accrued on 
any cash in lieu of fractional shares.

     FNB shareholders who receive shares of FNLC common stock in the merger 
will receive dividends on FNLC common stock or other distributions declared 
after the completion of the merger only if they have surrendered their FNB 
stock certificates. Only then will they be entitled to receive all previously 
withheld dividends and distributions, without interest.

     After completion of the merger, no transfers of FNB common stock issued 
and outstanding immediately prior to the completion of the merger will be 
allowed. FNB stock certificates that are presented for transfer after the 
completion of the merger will be canceled and exchanged for the appropriate 
merger consideration.

     FNLC will only issue an FNLC stock certificate in a name other than the 
name in which a surrendered FNB stock certificate is registered if the person 
submitting the FNB stock certificate presents the exchange agent with all 
documents required to show and effect the unrecorded transfer of ownership of 
the shares of FNB common stock formerly represented by such FNB stock 
certificate, and shows that such person paid any applicable stock transfer 
taxes.

     If an FNB stock certificate has been lost, stolen or destroyed, the FNB 
shareholder may be required to deliver an affidavit and a lost certificate bond 
as a condition to receiving any FNLC stock certificate to which he or she may 
be entitled.

     FNB shareholders should not return their FNB stock certificates with the 
enclosed proxy, and stock certificates should not be forwarded to FNLC, FNB or 
any other party until they have received the transmittal forms.







Page 48
Treatment of FNB Stock Options

     At the effective time of the merger, each option to purchase shares of FNB 
common stock granted under FNB's stock option plan, which is outstanding and 
unexercised immediately prior thereto, whether or not then vested and 
exercisable, will cease to represent a right to acquire shares of FNB common 
stock and, except for certain options held by officers of FNB, will be 
converted automatically into the right to receive cash in the amount of $42.00 
for each share subject to the option less the exercise price per share of the 
option, subject to downward adjustment should the average sales price of FNLC 
common stock as calculated under the merger agreement fall below $17.00. If the 
average sales price is below $17.00, the cash price to be paid to the holders 
of options to purchase FNB shares shall be the average sales price multiplied 
by 1.91, less the exercise price per share of the option.

     Certain options held by officers and directors of FNB will instead be 
converted into options to purchase shares of FNLC common stock. The options 
which will be converted are as follows:

--------------------------------------------------------------------------
                                                                 Number of
                                                                FNB Shares
                                                                Subject to
Holder                 Exercise Price      Expiration Date          Option
--------------------------------------------------------------------------
Steven K. Parady                $8.93            7/30/2011           3,675
Mark N. Rosborough              $8.93            7/30/2011           2,250
Tony C. McKim                   $8.93            7/30/2011          14,205
Ronald J. Wrobel                $8.93            7/30/2011           6,500
Jeffrey C. Dalrymple            $8.93            7/30/2011           5,000
Daniel M. Lay                   $8.93            7/30/2011           9,000
--------------------------------------------------------------------------
  TOTAL                                                             40,630
--------------------------------------------------------------------------

     FNLC will assume these FNB stock options in accordance with the terms of 
the FNB stock option plan and stock option agreement by which they are 
evidenced, including without limitation all terms pertaining to the 
acceleration and vesting of the holder's option exercise rights, except that 
from and after the effective time of the merger:
* FNLC and the options committee of the Board of Directors of FNLC shall be 
substituted for FNB and the FNB Board of Directors as the administrators of the 
FNB stock option plan;
* each FNB stock option assumed by FNLC will be exercisable solely for shares 
of FNLC common stock;
* the number of shares of FNLC common stock subject to such FNB stock option 
will be equal to the number of shares of FNB common stock subject to such FNB 
stock option immediately before the effective time of the merger multiplied by 
the exchange ratio, rounded down to the nearest share; and
* the per share exercise price under each such FNB stock option will be 
adjusted by dividing the per share exercise price under each such FNB stock 
option by the exchange ratio, rounded up to the nearest cent.

     Pursuant to the merger agreement, FNLC agreed to register under the 
Securities Act of 1933 the shares of FNLC common stock issuable upon exercise 
of the substitute stock options to be issued pursuant to the merger agreement 
within five business days after consummation of the merger.


Page 49
Conditions to the Merger

     Completion of the merger is subject to the satisfaction of certain 
conditions set forth in the merger agreement, or the waiver of such conditions 
by the party entitled to do so, at or before the closing date of the merger. 
Each party's obligation to consummate the merger under the merger agreement is 
subject to the following conditions:
* the holders of 67% of the outstanding FNB common stock and a majority of the 
outstanding FNLC common stock must vote affirmatively to approve the merger 
agreement;
* all regulatory approvals required to consummate the merger and the bank 
merger by any governmental authority must have been obtained and shall remain 
in full force and effect, all statutory waiting periods in respect thereof must 
have expired, and no required approval can contain any condition, restriction 
or requirement which FNLC's Board of Directors reasonably determines in good 
faith would, individually or in the aggregate, materially reduce the benefits 
of the merger and the bank merger to such a degree that FNLC would not have 
entered into the merger agreement had such conditions, restrictions or 
requirements been known as of the date of the merger agreement;
* no statute, rule, regulation, judgment, decree, injunction or other order may 
have been enacted, issued, promulgated, enforced or entered which prohibits, 
restricts or makes illegal the consummation of the merger or the bank merger;
* the registration statement of FNLC of which this document is a part must have 
become effective under the Securities Act of 1933, and no stop order suspending 
the effectiveness of such registration statement shall have been issued and no 
proceedings for that purpose shall have been initiated by the SEC and not 
withdrawn;
* the shares of FNLC common stock to be issued in connection with the merger 
must have been listed for trading on the Nasdaq Stock Market's National Market; 
and
* each of us must have received an opinion of Verrill Dana, LLP (or in the 
absence of such firm's opinion, an opinion of Pierce Atwood LLP) to the effect 
that the merger will constitute a reorganization within the meaning of Section 
368(a) of the Internal Revenue Code.

     In addition to the foregoing conditions, the obligation of FNLC to 
consummate the merger under the merger agreement is subject to the following 
conditions, which may be waived by FNLC:
* the representations and warranties of FNB in the merger agreement must be 
true and correct as of the date of the merger agreement and as of the effective 
time of the merger, except as to any representation or warranty which 
specifically relates to an earlier date and except that the representations and 
warranties of FNB will be deemed true and correct unless the failure or 
failures of those representations and warranties to be true and correct has had 
or is reasonably likely to have a material adverse effect on FNB;
* FNB must have performed in all material respects all obligations required to 
be performed by it at or prior to consummation of the merger;
* FNLC must have received a certificate from specified officers of FNB 
attesting to compliance with the foregoing conditions;
* shares as to which FNB shareholders have exercised appraisal rights must 
represent  less than10% of the outstanding FNB common stock;
* FNLC shall have received an opinion from Pierce Atwood LLP, in substantially 
the form provided in the merger agreement;
* each director of FNB who is also an officer shall have entered into a 
shareholder agreement with FNLC, which condition was satisfied at the time the 
merger agreement was signed  (see "Shareholder Agreements" on page __); and
* FNLC shall have received such certificates of FNB's officers or others and 
such other documents to evidence fulfillment of the conditions to its 
obligations as FNLC may reasonably request.
Page 50
     In addition to the other conditions set forth above, the obligation of FNB 
to consummate the merger under the merger agreement is subject to the following 
conditions, which may be waived by FNB:
* the representations and warranties of FNLC in the merger agreement must be 
true and correct as of the date of the merger agreement and as of the effective 
time of the merger, except as to any representation or warranty which 
specifically relates to an earlier date and except that the representations and 
warranties of FNLC will be deemed true and correct unless the failure or 
failures of those representations and warranties to be true and correct has had 
or is reasonably likely to have a material adverse effect on FNLC;
* FNLC must have performed in all material respects all obligations required to 
be performed by it at or prior to consummation of the merger;
* FNB must have received a certificate from specified officers of FNLC 
attesting to compliance with the foregoing conditions;
* FNB shall have received an opinion from Verrill Dana, LLP, counsel to FNLC, 
in substantially the form provided in the merger agreement; and
* FNB shall have received such certificates of FNLC's officers or others and 
such other documents to evidence fulfillment of the conditions to its 
obligations as FNB may reasonably request.

     Under the terms of the merger agreement, a material adverse effect on 
either FNLC or FNB is defined to mean any effect that (1) is material and 
adverse to the financial position, results of operations or business of such 
entity and its subsidiaries taken as a whole or (2) would materially impair the 
ability of such entity and its subsidiaries to perform their respective 
obligations under the merger agreement or the bank merger agreement or 
otherwise materially impede the consummation of the transactions contemplated 
by the merger agreement. However, under the terms of the merger agreement, none 
of the following would be deemed to constitute a material adverse effect on any 
entity:
* changes in banking, corporate or tax laws or regulations of general 
applicability or interpretations of them by governmental authorities;
* changes in United States generally accepted accounting principles or 
regulatory accounting requirements applicable to banks or their holding 
companies generally;
* changes in interest rates or general economic conditions affecting banks and 
their holding companies generally;
* modifications or changes to valuation policies and practices, or expenses 
incurred, in connection with the transactions contemplated by the merger 
agreement or restructuring charges taken in connection with them; and
* with respect to FNB only, the effects of any action or omission taken with 
the prior consent of FNLC or as otherwise contemplated by the merger agreement.

















Page 51
Regulatory Approvals

     Consummation of the merger is subject to prior receipt of all required 
approvals of, and consents to, the merger and the bank merger by all applicable 
federal and state regulatory authorities.

     Federal Reserve Board. The merger is subject to the prior approval of or 
waiver from the Federal Reserve Board under Section 3 of the Bank Holding 
Company Act of 1956, as amended. Pursuant to the Bank Holding Company Act, the 
Federal Reserve Board may not approve the merger if:
* such transaction would result in a monopoly or would be in furtherance of any 
combination or conspiracy to monopolize or attempt to monopolize the business 
of banking in any part of the United States; or
* the effect of such transaction, in any section of the country, may be 
substantially to lessen competition, or tend to create a monopoly, or in any 
manner restrain trade, unless in each case the Federal Reserve Board finds that 
the anticompetitive effects of the proposed transaction are clearly outweighed 
in the public interest by the probable effect of the transaction in meeting the 
convenience and needs of the communities to be served. In every case, the 
Federal Reserve Board is required to consider the financial and managerial 
resources and future prospects of the bank holding company or companies and the 
banks concerned and the convenience and needs of the communities to be served. 
Under the Community Reinvestment Act of 1977, the Federal Reserve Board also 
must take into account the record of performance of each participating bank 
holding company in meeting the credit needs of the entire community, including 
low and moderate-income neighborhoods, served by each bank holding company and 
its subsidiaries. In addition, the Bank Holding Company Act requires that the 
Federal Reserve Board take into account the record of compliance of each bank 
holding company with applicable state community reinvestment laws. Applicable 
regulations require publication of notice of an application for approval of the 
merger and an opportunity for the public to comment on the application in 
writing and to request a hearing.

     Any transaction approved by the Federal Reserve Board may not be completed 
until 30 days after such approval, during which time the U.S. Department of 
Justice may challenge such transaction on antitrust grounds and seek divesture 
of certain assets and liabilities. With the approval of the Federal Reserve 
Board and the U.S. Department of Justice, the waiting period may be reduced to 
15 days.

     Section 225.12(d)(2) of the Federal Reserve Board's Regulation Y provides 
that the approval of the Federal Reserve Board is not required for certain 
acquisitions by bank holding companies if the acquisition has a component that 
will be approved by a federal supervisory agency under the Bank Merger Act and 
certain other requirements are met. Under this regulation, the acquiring bank 
holding company must submit a notice to the Federal Reserve Board at least ten 
days prior to the transaction and no application for approval of the proposed 
acquisition under the Bank Holding Company Act will be required unless the 
Federal Reserve Board informs the proposed acquirer to the contrary prior to 
expiration of this period. FNLC believes that the proposed merger and bank 
merger satisfy these requirements and, accordingly, has submitted a notice to 
the Federal Reserve Board under this regulation.







Page 52
     OCC.  The parties currently intend to merge FNB's banking subsidiary, 
FNBBH, into FNBD immediately after the merger of FNB into FNLC. The bank merger 
is subject to the prior approval of the Office of the Comptroller of the 
Currency of the United States under the Bank Merger Act. The bank merger is 
expected to qualify for expedited review and a streamlined application, which 
means it would be approved 45 days after receipt by the OCC of the appropriate 
application, or the 15th day following the close of the comment period, and 
FNLC has submitted a streamlined application to the OCC. The OCC will review 
the bank merger under statutory criteria which are substantially the same as 
those required to be considered by the Federal Reserve Board in evaluating 
transactions for approval under Section 3 of the Bank Holding Company Act, as 
discussed above, except that the OCC will not conduct an independent antitrust 
analysis of the bank merger if the Federal Reserve Board does so. Applicable 
regulations require publication of notice of the application for approval of 
the bank merger and an opportunity for the public to comment on the application 
in writing and to request a hearing.

     Any transaction approved by the OCC may not be completed until 30 days 
after such approval, during which time the U.S. Department of Justice may 
challenge such transaction on antitrust grounds and seek divestiture of certain 
assets and liabilities. With the approval of the OCC and the U.S. Department of 
Justice, the waiting period may be reduced to 15 days.

     State Approvals and Notices. The prior approval of the Superintendent of 
the Bureau of Financial Institutions of the State of Maine is required under 
Sections 1013(1)(A) and 1015 of Title 9-B of the Maine Revised Statutes for the 
acquisition by a Maine financial institution holding company such as FNLC of 
more than 5% of the voting shares of a Maine financial institution holding 
company such as FNB. Under Maine law, the Maine Superintendent shall not 
approve an application for such a transaction unless he determines, after a 
consideration of all relevant evidence, that it would contribute to the 
financial strength and success of the applicant and promote the convenience and 
advantage of the public. 

     Status of Applications and Notices. We have filed all required 
applications and notices with applicable regulatory authorities in connection 
with the merger and the bank merger. There can be no assurance that all 
requisite approvals will be obtained, that such approvals will be received on a 
timely basis or that such approvals will not impose conditions or requirements 
which, individually or in the aggregate, would so materially reduce the 
economic or business benefits of the transactions contemplated by the merger 
agreement to FNLC that had such condition or requirement been known FNLC, in 
its reasonable judgment, would not have entered into the merger agreement. If 
any such condition or requirement is imposed, FNLC may elect not to consummate 
the merger. See "Conditions to the Merger" beginning on page __.














Page 53
FNB Business Pending the Merger

     The merger agreement contains certain covenants of the parties regarding 
the conduct of their respective businesses pending consummation of the merger. 
These covenants, which are contained in Article IV of the merger agreement 
included as Annex I hereto, are briefly described below.

     Pending consummation of the merger, FNB may not, and will cause each FNB 
subsidiary not to, among other things, take the following actions without the 
prior written consent of FNLC:
* conduct its business other than in the ordinary and usual course consistent 
with past practice or fail to use reasonable best efforts to preserve its 
business organization, keep available the present services of its employees and 
preserve for itself and FNLC the goodwill of the customers of FNB and its 
subsidiaries and others with whom business relations exist;
* issue, sell or otherwise permit to become outstanding, or authorize the 
creation of, any additional shares of stock or permit any additional shares of 
stock to become subject to grants of stock options, other than upon the 
exercise of stock options outstanding on the date of the merger agreement under 
FNB's stock option plan;
* declare any dividend on its capital stock, other than regular semi-annual 
cash dividends on the FNB common stock at a rate not in excess of $0.33 per 
share and to the extent necessary so that FNB shareholders do not fail to 
receive a dividend for any semi-annual period with respect to their FNB shares, 
or following the merger, for any quarterly period with respect to the FNLC 
shares received in the merger, a quarterly dividend at the same annualized rate 
as regular dividends paid by FNB, on the same record date provided by FNLC for 
its quarterly dividend;
* amend its articles of incorporation and bylaws or the articles and bylaws (or 
equivalent documents) of any subsidiary;
* take specified actions with respect to its business, including without 
limitation enter into or amend an employment, consulting or severance agreement 
with, or increase the rate of compensation of, its directors, officers or 
employees; enter into, establish, adopt or amend any employee benefit plan; 
purchase or sell assets or deposits; make capital expenditures; change its 
methods of accounting; enter into, amend or modify material contracts; settle 
litigation claims; enter into new businesses; change its principal policies; 
enter into derivatives contracts; incur indebtedness; make certain real estate 
investments; make or modify loans outside of the ordinary course; or acquire 
any debt security or equity investment of a type or in an amount that is not 
permissible for a national bank; except in the case of each of the foregoing as 
permitted by the merger agreement;
* take any action that would prevent or impede the merger from qualifying as a 
reorganization under the Internal Revenue Code;
* take any action that would result in (1) any of the representations and 
warranties of FNB not being true and correct in any material respect at or 
prior to the effective time of the merger, (2) any of the conditions to 
consummation of the merger set forth in the merger agreement not being 
satisfied or (3) a material violation of the merger agreement or the bank 
merger agreement, except in each case as may be required by applicable law and 
regulation; or
* agree to do any of the foregoing.







Page 54
     The merger agreement also provides that pending consummation of the merger 
FNLC may not, and will cause each subsidiary of FNLC not to, take the following 
actions without the prior written consent of FNB:
* take any action that would result in (1) any of the representations and 
warranties of FNLC not being true and correct in any material respect at or 
prior to the effective time of the merger, (2) any of the conditions to the 
merger set forth in the merger agreement not being satisfied or (3) a material 
violation of the merger agreement or the bank merger agreement, except in each 
case as may be required by applicable law and regulation; or
* agree to do any of the foregoing.

FNB Board of Directors' Covenant to Recommend the Merger Agreement

     Pursuant to the merger agreement, the FNB Board of Directors is required 
to recommend that FNB shareholders approve the merger agreement at all times 
prior to and during the meeting of FNB shareholders at which the merger 
agreement is to be considered by them. However, nothing in the merger agreement 
prevents the FNB Board of Directors from withholding, withdrawing, amending or 
modifying its recommendation if it determines, after consultation with its 
outside counsel, that such action is legally required in order for the 
directors of FNB to comply with their fiduciary duties to the FNB shareholders 
under applicable law, provided that any such action in connection with an 
"acquisition proposal" must comply with the requirements described under "No 
Solicitation by FNB" below.

No Solicitation by FNB

    The merger agreement provides that neither FNB nor any of its subsidiaries 
shall, and that FNB shall direct and use its reasonable best efforts to cause 
its and each such subsidiary's directors, officers, employees, agents and 
representatives not to, directly or indirectly, initiate, solicit, encourage or 
otherwise facilitate any inquiries or the making of any proposal or offer with 
respect to a merger, reorganization, share exchange, consolidation or similar 
transaction involving, or any purchase of all or substantially all of the 
assets of, FNB or more than 10% of the outstanding equity securities of FNB or 
any of its subsidiaries (any such proposal or offer is hereinafter referred to 
as an "acquisition proposal"). In the merger agreement, FNB also agreed that 
neither it nor any of its subsidiaries shall, and that FNB shall direct and use 
its reasonable best efforts to cause its and each such subsidiary's directors, 
officers, employees, agents and representatives not to, directly or indirectly, 
engage in any negotiations concerning, or provide any confidential information 
or data to, or have any discussions with, any person relating to an acquisition 
proposal, or otherwise facilitate any effort or attempt to make or implement an 
acquisition proposal. However, nothing in the merger agreement prevents FNB or 
its Board of Directors from:
* complying with its disclosure obligations under federal or state law;
* providing information in response to a request therefor by a person who has 
made an unsolicited bona fide written acquisition proposal if the FNB Board of 
Directors receives from the person so requesting such information an executed 
confidentiality agreement;
* engaging in any negotiations or discussions with any person who has made an 
unsolicited bona fide written acquisition proposal; or







Page 55
* recommending such an acquisition proposal to the shareholders of FNB, if and 
only to the extent that in each of the last three cases referred to above, (1) 
the FNB Board of Directors determines in good faith after consultation with 
outside legal counsel that such action would be required in order for its 
directors to comply with their respective fiduciary duties under applicable law 
and (2) the FNB Board of Directors determines in good faith after consultation 
with its financial advisor that such acquisition proposal, if accepted, is 
reasonably likely to be consummated, taking into account all legal, financial 
and regulatory aspects of the proposal and the person making the proposal and 
would, if consummated, result in a transaction more favorable to FNB's 
shareholders from a financial point of view than the merger with FNLC. An 
acquisition proposal which is received and considered by FNB in compliance with 
the requirements set forth in the merger agreement and which meets the 
requirements set forth in the preceding sentence is referred to as a "superior 
proposal." FNB is required to notify FNLC if any such inquiries, proposals or 
offers are received by, any such information is requested from, or any such 
discussions or negotiations are sought to be initiated or continued with, FNB 
or any of its representatives as soon as FNB becomes aware of the same.

Representations and Warranties of the Parties

    Pursuant to the merger agreement, each of us made certain customary 
representations and warranties relating to our respective companies, 
subsidiaries, businesses and matters related to the merger. For detailed 
information concerning these representations and warranties, reference is made 
to Article V of the merger agreement included as Annex I hereto. Such 
representations and warranties generally must remain accurate through the 
completion of the merger unless the fact or facts that caused a breach of a 
representation and warranty has not had or is not reasonably likely to have a 
material adverse effect on the party making the representation and warranty. 
See "Conditions to the Merger" beginning on page __.

Effective Time of the Merger

     The merger will become effective upon the filing of articles of merger 
with the Secretary of State of the State of Maine pursuant to the Maine 
Business Corporation Act, unless a different date and time is specified as the 
effective time in such documents. Articles of merger will be filed only after 
the satisfaction or waiver of all conditions to the merger set forth in the 
merger agreement on a date selected by FNLC after such satisfaction or waiver 
which is not later than the later of (A) five business days after such 
satisfaction or waiver or (B) the first month end following such satisfaction 
or waiver, or on such other date as we may mutually agree upon.

     A closing will take place immediately prior to the effective time of the 
merger or on such other date as we may mutually agree upon.

Amendment of the Merger Agreement

     We may amend the merger agreement at any time before the merger actually 
takes place, and may agree to extend the time within which any action required 
by the merger agreement is to take place. No amendment may be made after the 
special meeting which by law requires further approval by the shareholders of 
FNB and FNLC without obtaining such approval.





Page 56
Termination of the Merger Agreement

The merger agreement may be terminated:
* by mutual consent of the parties;
* by a non-breaching party if the other party (1) breaches any covenants or 
undertakings contained in the merger agreement or (2) breaches any 
representations or warranties contained in the merger agreement, in each case 
if such breach has not been cured within thirty days after notice from the 
terminating party and which breach would be reasonably expected, individually 
or in the aggregate with other breaches, to result in a material adverse effect 
with respect to the breaching party;
* by either party if the merger is not consummated by May 31, 2005, unless the 
failure to consummate the merger is due to a breach by the party seeking such 
termination of its obligations under the merger agreement or, if FNB is seeking 
to terminate, by any director and executive officer of FNB through such 
director and executive officer's breach of his respective shareholder 
agreement;
* by either party if any required regulatory approval for consummation of the 
merger or the bank merger is not obtained;
* by either party if the shareholders of FNB or FNLC do not approve by the 
requisite vote the merger agreement at the meetings of the shareholders of FNB 
and FNLC duly called for such purpose;
* by FNLC, prior to the special meeting, if FNB shall have breached the 
covenants described under "No Solicitation by FNB" on page __, the FNB Board of 
Directors shall have failed to recommend that the shareholders of FNB approve 
the merger agreement or has withdrawn, modified or changed such recommendation 
in a manner which is adverse to FNLC, or FNB breaches its covenants requiring 
the calling and holding of a meeting of shareholders to consider the merger 
agreement; and
* by FNB, at any time prior to the special meeting, in order to concurrently 
enter into an acquisition agreement or similar agreement with respect to an 
unsolicited "superior proposal," as defined in the merger agreement and under 
"No Solicitation by FNB" on page __, which has been received and considered by 
FNB in compliance with the applicable terms of the merger agreement, provided 
that FNB has notified FNLC at least five business days in advance of any such 
action and given FNLC the opportunity during such period, if FNLC elects in its 
sole discretion, to negotiate amendments to the merger agreement which would 
permit FNB to proceed with the proposed merger with FNLC.

Interests of Certain Persons in the Merger

    When FNB shareholders are considering the recommendation of FNB's Board of 
Directors with respect to approving the merger agreement, they should be aware 
that some directors and executive officers of FNB may be deemed to have 
interests in the merger in addition to their interests as shareholders 
generally. The FNB Board of Directors was aware of these factors and considered 
them, among other matters, in approving the merger agreement and the merger. 
These interests are described below.

     Stock Options.  The merger agreement provides that at the effective time 
of the merger each outstanding and unexercised option to purchase shares of FNB 
common stock granted pursuant to the FNB stock option plans will cease to 
represent the right to acquire shares of FNB common stock. All outstanding 
options to purchase FNB common stock that are presently unvested shall become 
fully vested and exercisable in the event of a change of control, as defined in 
the relevant plan, which would include the merger.



Page 57
     Except for certain options held by executive officers and directors of 
FNB, outstanding options of FNB will be converted automatically into the right 
to receive cash in the amount of $42.00 for each share subject to the option 
less the exercise price per share of the option, subject to downward adjustment 
should the average sales price of FNLC common stock as calculated under the 
merger agreement fall below $17.00. Certain options held by executive officers 
of FNB will be converted into options to purchase shares of FNLC common stock. 
See "Treatment of FNB Stock Options" on page __. 

     At the record date for the special meeting, the directors, executive 
officers, and certain other employees of FNB held options to purchase an 
aggregate of 126,208 shares of FNB common stock. Of these, options to purchase 
40,630 shares of FNB common stock held by Messrs. Parady, Rosborough, McKim, 
Wrobel, Dalrymple and Lay, will be converted into options to acquire shares of 
FNLC common stock in accordance with the merger agreement, and the remainder of 
the outstanding options to acquire FNB shares along with the remaining options 
held by directors, executive officers, and all other optionees of FNB, will be 
converted into the right to receive cash as provided in the merger agreement. 
Directors, executive officers, and all other optionees of FNB will each receive 
cash equal to $42.00 less the applicable exercise price for remaining options 
in accordance with the merger agreement. The total amount to retire options to 
acquire FNB shares not converted as part of the merger will be $2,567,127. The 
following table lists the unexercised options to purchase FNB common stock held 
by FNB's directors, executive officers, and all other optionees as a group, as 
of the record date of the special meeting, as well as the options which will be 
converted into options to purchase FNLC stock in accordance with the merger 
agreement and those which will be converted into the right to receive cash.

-------------------------------------------------------------------------------
                              Total      Options to   Options to          Total
                        unexercised    be converted be converted           cash
                            options to FNLC options      to cash       proceeds
-------------------------------------------------------------------------------
 Loren H. Clarke              2,850               -        2,850        $90,605
 Jeffrey C. Dalrymple        11,250           5,000        6,250        193,006
 Wiliam C. Fernald            2,286               -        2,286         66,642
 David J. Fletcher            1,725               -        1,725         53,398
 Gregory R. Grant             5,100               -        5,100        164,030
 Milton Albert Harmon Jr      4,900               -        4,900        158,405
 Carroll E. Harper            3,600               -        3,600        109,853
 Daniel M. Lay               18,000           9,000        9,000        261,120
 William K. McFarland         4,350               -        4,350        134,658
 Tony C. McKim               30,750          14,205       16,545        492,388
 Steven K. Parady             6,225           3,675        2,550         70,558
 Mark N. Rosborough           3,222           2,250          972         28,493
 Ronald J. Wrobel            14,400           6,500        7,900        224,739
 All Other Optionees         17,550               -       17,550        519,233
-------------------------------------------------------------------------------
                            126,208          40,630       85,578     $2,567,127
===============================================================================









Page 58
     Agreements with Executive Officers of FNB.  Pursuant to the merger 
agreement, FNLC agreed to honor employment continuity agreements and certain 
other arrangements already in effect between FNBBH and each of Messrs. McKim, 
Lay, Dalrymple and Wrobel, subject to certain amendments.

     The employment continuity agreements provide that if the employment of an 
executive officer is terminated, or he elects to resign, within 30 days 
following a "change of control" of FNBBH, the executive will receive a lump sum 
severance payment equal to 299% of his "base amount' within 10 days after such 
termination or resignation. The term "change in control" is defined to include 
the direct or indirect acquisition of 25% or more of the combined voting power 
of the outstanding securities of FNBBH by a person other than FNB. If effected, 
the merger would constitute a change of control. The employment continuity 
agreements define "base amount" by reference to applicable provisions of the 
Internal Revenue Code. Under those provisions, the term "base amount" means, in 
general, the average annual compensation paid to the executive by FNBBH that 
was includible in his gross income for the most recent five taxable years 
ending before the date on which the change in control occurs. The employment 
continuity agreements provide that if the payments due thereunder, alone or 
together with other payments the executive is entitled to receive from FNBBH on 
account of the change in control, would constitute a "parachute payment" under 
federal income tax law, the payment under the employment continuity agreement 
would be reduced to the largest amount that would not be subject to the excise 
tax applied to parachute payments. Under the current terms of each employment 
continuity agreement, each executive agrees that if he receives payments 
thereunder he will not accept employment with any financial institution which 
has an office or branch in Hancock County for a period of one year from the 
date of his termination or resignation.

     The merger agreement calls for each employment continuity agreement to be 
amended as of the effective time to (i) establish that each executive's base 
salary as of December 31, 2004 will be considered the "base amount" for 
purposes of determining the maximum payment to be made under his agreement, 
(ii) extend from 30 days to 24 months the period during which a termination or 
resignation will trigger the severance payments, and (iii) expand the 
geographic scope of the restrictive covenant so as to prohibit an executive 
from accepting employment with a financial institution having an office or 
branch in any of Knox, Lincoln, Hancock or Washington counties, Maine. It is 
anticipated that Messrs. McKim, Lay, Dalrymple and Wrobel will sign amendments 
to their employment continuity agreements to effect the proposed amendment, 
effective on the date of the merger.

     Assuming that the merger is consummated, the employment continuity 
agreements are amended (as described above) and there are no changes in their 
base salaries before January 1, 2005, Messrs. McKim, Lay, Dalrymple and Wrobel 
would be entitled to receive approximately $464,000, $296,000, $283,000 and 
$256,000, respectively, subject to reduction to the extent that such amounts 
exceed the maximum permitted without imposition of excise tax under Section 
280G of the Internal Revenue Code, under his respective employment continuity 
agreements if his employment were terminated or he were to resign during the 
twenty-four month period following the merger. Each severance payment would be 
made in a single lump sum.







Page 59
          In addition to the employment continuity agreements, each of the four 
executives is a party to a split dollar agreement with FNBBH. The split dollar 
agreements require FNBBH to pay all premiums due on each of the insurance 
policies issued on the lives of the executives, which are subject to the terms 
of the split dollar agreements. Under the split dollar agreements, FNBBH is the 
owner of each policy, but certain rights with respect to each policy may have 
been "endorsed" over to the executive and each executive has the right to 
designate a beneficiary to receive a death benefit from one or more of the 
policies insuring his life. For Mr. McKim, the amount of the death benefit is 
$250,000; for Messrs. Lay, Dalrymple and Wrobel the death benefit is $150,000. 
As currently in effect, the split dollar agreements provide that any proceeds 
in excess of the death benefit will be paid to FNBBH. If an executive ceases to 
be employed by FNBBH before attaining age 65, his benefits under the split 
dollar agreement are forfeited. Finally, under certain circumstances (including 
a termination of the split dollar agreement), FNBBH must offer to sell the 
underlying insurance policies to the executives for a payment equal to the cash 
surrender value of the policies. If the split dollar agreements are not 
terminated by FNBBH prior to the date of the merger, FNLC will assume FNBBH's 
obligation under the split dollar agreements.

     Board of Directors and Executive Officers of FNLC following merger.  
Pursuant to the merger agreement, Mr. McKim and one other director of FNB will 
be added to the FNLC Board of Directors as of the date of the merger to serve 
on the same basis as other directors of FNLC. We have determined that the 
second director will be Mark N. Rosborough. Subject to compliance with their 
fiduciary duties, the FNLC Board will nominate Mr. McKim for election at FNLC's 
next annual meeting to serve until the 2007 annual meeting and Mr. Rosborough 
to serve until the 2006 annual meeting. FNLC's Board of Directors has also 
agreed to consider nominating another person who is a resident of the area 
served by FNBBH  to serve as a director following the first FNLC annual meeting 
after the merger on the same basis as other directors of FNLC. See "FNB 
Management and Additional Information", starting on page __, for further 
information regarding Messrs. McKim and Rosborough.

     FNLC directors do not receive compensation for serving as such. Each 
current director of FNLC also serves on the Board of Directors of FNBD. 
Currently, directors of FNBD receive $550 for each directors meeting attended 
and $300 for each meeting attended of a committee of which the director is a 
member. In addition, non-employee directors of FNBD are reimbursed for 85% of 
the cost of the director's health insurance premiums. FNB nominees who are 
elected to the Board of Directors of FNLC will also be elected to the Board of 
FNBD.

     In accordance with the terms of the merger agreement, all employees of FNB 
or FNBBH as of the effective time will become employees of FNLC or FNBD. We 
expect Mr. McKim to become the Executive Vice President of FNLC and Executive 
Vice President of FNBD and Messrs. Lay, Dalrymple and Wrobel to assume 
management positions with FNBD at salaries equivalent to their current 
salaries, or $155,300, $98,999, $94,500, and $85,690 for Messrs. McKim, Lay, 
Dalrymple and Wrobel, respectively. See "FNB Management and Additional 
Information", starting on page __, for further information regarding Messrs. 
McKim, Lay, Dalrymple and Wrobel.







Page 60
     Indemnification and Insurance.  FNB's directors and officers are entitled 
to continuing indemnification against certain liabilities by virtue of 
provisions contained in FNB's bylaws and the merger agreement. Pursuant to the 
merger agreement, FNLC agreed to indemnify and hold harmless each present and 
former director, officer and employee of FNB or an FNB subsidiary determined as 
of the effective time of the merger against any costs or expenses (including 
reasonable attorneys' fees), judgments, fines, losses, claims, damages or 
liabilities incurred in connection with any claim, action, suit, proceeding or 
investigation, whether civil, criminal, administrative or investigative, 
arising out of matters existing or occurring at or prior to the effective time 
of the merger, whether asserted or claimed prior to, at or after the effective 
time of the merger, arising in whole or in part out of or pertaining to the 
fact that he or she was a director, officer, employee, fiduciary or agent of 
FNB or a subsidiary of FNB or is or was serving at the request of FNB or a 
subsidiary of FNB as a director, officer, employee, fiduciary or agent of 
another corporation, partnership, joint venture, trust or other enterprise, 
including without limitation matters related to the negotiation, execution and 
performance of the merger agreement or the consummation of any of the 
transactions contemplated by the merger agreement, to the fullest extent to 
which such indemnified parties would be entitled under the bylaws of FNB or the 
constituent documents of any FNB subsidiary, as applicable, or any agreement, 
arrangement or understanding disclosed by FNB to FNLC pursuant to the merger 
agreement, in each case as in effect on the date of the merger agreement. 
Pursuant to the merger agreement, FNLC also generally agreed to honor all 
limitations on liability existing in favor of these indemnified parties as 
provided in the articles of incorporation, bylaws or similar governing 
instruments of FNB and its subsidiaries as in effect as of the date of the 
merger agreement with respect to matters occurring prior to the effective time 
of the merger.

     Pursuant to the merger agreement, FNB shall purchase an extended reporting 
period endorsement under FNB's existing directors' and officers' liability 
insurance which covers persons who are currently covered by FNB's directors' 
and officers' liability insurance that shall provide such directors and 
officers with coverage for a period of six years after the effective time of 
the merger on terms no less favorable than those in effect on the date of the 
merger agreement; provided, however, that FNB may substitute for its existing 
coverage a policy or policies providing substantially comparable coverage and 
containing terms and conditions no less favorable than those in effect on the 
date of the merger agreement if necessary or advisable to obtain such extension 
of coverage.

     Other than as set forth above, no director or executive officer of FNB has 
any direct or indirect material interest in the merger, except insofar as 
ownership of FNB common stock might be deemed such an interest. See "Certain 
Beneficial Owners of FNB Common Stock" on page __.

Certain Employee Matters

     The merger agreement contains certain agreements of the parties with 
respect to various employee matters, which are briefly described below.








Page 61
     Pre-Merger Covenants. Pursuant to the merger agreement, FNB will not, and 
will cause FNBBH not to, enter into or amend or renew any employment 
arrangement except normal compensation increases and hiring in the ordinary 
course of business subject to certain limits, changes required by law, changes 
required contractually, grants or awards to newly-hired employees consistent 
with past practice and increases in the premium costs of insured employee 
benefits. FNB or FNBBH may pay discretionary bonuses in the ordinary course of 
business and consistent with past practice to employees for services rendered 
during the period January 1, 2004 to the effective time of the merger of up to 
$200,000 in the aggregate for all employees. These bonuses will be reduced in 
the case of any individual recipient to the extent necessary to ensure that the 
bonus, either alone or in combination with the payment of other amounts, would 
not be nondeductible by FNB or FNBBH for federal income tax purposes pursuant 
to Section 280G of the Internal Revenue Code or subject to the excise tax 
imposed under Section 4999 of the Code.

     Pursuant to the merger agreement, FNB and/or FNBBH may make cash 
contributions to FNBBH's 401(k) Plan for the 2004 calendar year as long as the 
total amount of such cash contributions do not exceed the amount derived by 
application of the calendar 2003 formula based on calendar 2004 compensation 
levels.

     Post-Merger Covenants. Following the merger, FNLC will honor all benefit 
obligations and contract rights of current or former employees of FNB and its 
subsidiaries provided that FNLC may at any time amend or terminate any FNB 
benefit plan in accordance with its terms. As soon as administratively 
practicable after the effective time of the merger, FNLC will take all 
reasonable action so that employees of FNB and its subsidiaries will be 
entitled to participate in the FNLC employee benefit plans of general 
applicability to the same extent as similarly-situated employees of FNLC and 
its subsidiaries. For purposes of determining eligibility to participate in, 
the vesting of benefits and for all other purposes, other than for accrual of 
pension benefits, under the FNLC employee benefit plans, FNLC will recognize 
years of service with FNB and its subsidiaries to the same extent as such 
service was credited for such purpose by FNB, provided that the recognition of 
such service shall not result in the duplication of benefits or violate the 
law.

     If employees of FNB or any of its subsidiaries become eligible to 
participate in a medical, dental or health plan of FNLC, FNLC will cause each 
such plan to:
* waive any preexisting condition limitations to the extent such conditions are 
covered under the applicable medical, health or dental plans of FNLC,
* provide full credit under such plans for any deductibles, co-payment and out-
of-pocket expenses incurred by the employees and their beneficiaries during the 
portion of the calendar year prior to such participation, and
* waive any waiting period limitation or evidence of insurability requirement 
which would otherwise be applicable to such employee on or after the effective 
time of the merger to the extent such employee had satisfied any similar 
limitation or requirement under an analogous plan prior to the effective time 
of the merger.








Page 62
     All employees of FNB or an FNB subsidiary as of the effective time of the 
merger will become employees of FNLC or an FNLC subsidiary as of such time, and 
FNLC or an FNLC subsidiary will use its best efforts to give such persons 
(other than any person who is party to an employment agreement, a severance 
agreement or a special termination agreement) at least 60 days' prior written 
notice of any job elimination during the 90-day period after the effective time 
of the merger. Subject to such 60-day notice requirement, FNLC or an FNLC 
subsidiary will have no obligation to continue the employment of any employee 
of FNB or an FNB subsidiary and nothing contained in the merger agreement will 
be deemed to give any employee of FNB or any FNB subsidiary a right to 
continuing employment with FNLC or an FNLC subsidiary after the effective time 
of the merger. An employee of FNB or an FNB subsidiary (other than an employee 
who is party to an employment agreement, a severance agreement or a special 
termination agreement) who is involuntarily terminated other than for cause 
within two years following the effective time of the merger will be entitled to 
receive severance payments equal to one week's compensation for each year of 
service with FNB or an FNB subsidiary.

     For a period of two years following the effective time of the merger, FNLC 
will provide job counseling and outplacement services to all employees of FNB 
and its subsidiaries whose employment was terminated other than for cause, 
disability or retirement at or following the effective time of the merger. 
During that period, FNLC also will notify those former employees who wish to 
continue to be so notified of opportunities for positions with FNLC or an FNLC 
subsidiary for which FNLC reasonably believes such persons are qualified and 
will consider any application for such positions submitted by such persons. 
However, any decision to offer employment to any such person will be made in 
the sole discretion of FNLC.

     In the merger agreement, FNB agreed to take the steps to terminate FNB's 
employee stock ownership plan and provide that the account of each participant 
in the plan become fully vested and nonforfeitable as of the effective time of 
the merger.

Bank Merger

     Pursuant to the merger agreement, FNBBH will be merged with and into FNBD, 
as soon as practicable following consummation of the merger.

Resale of FNLC Common Stock

     The FNLC common stock issued pursuant to the merger will be freely 
transferable under the Securities Act of 1933, except for shares issued to any 
FNB shareholder who may be deemed to be an affiliate of FNLC for purposes of 
Rule 144 promulgated under the Securities Act of 1933 or an affiliate of FNB 
for purposes of Rule 145 promulgated under the Securities Act of 1933. 
Affiliates will include persons (generally executive officers, directors and 
10% shareholders) who control, are controlled by or are under common control 
with (1) FNLC or FNB at the time of the special meeting or (2) FNLC at or after 
the effective time of the merger.









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     Rule 145 will restrict the sale of FNLC common stock received in the 
merger by affiliates and certain of their family members and related interests. 
Generally speaking, during the year following the effective time of the merger, 
a person who is an affiliate of FNB at the time of the special meeting, 
provided he or she is not an affiliate of FNLC at or following the effective 
time of the merger, may publicly resell any FNLC common stock received by him 
or her in the merger, subject to certain limitations as to, among other things, 
the amount of FNLC common stock sold by him or her in any three-month period 
and as to the manner of sale. After the one-year period, such affiliates may 
resell their shares without such restrictions so long as there is adequate 
current public information with respect to FNLC as required by Rule 144. 
Persons who are affiliates of FNLC after the effective time of the merger may 
publicly resell the FNLC common stock received by him or her in the merger 
subject to similar limitations and subject to certain filing requirements 
specified in Rule 144. At the present time, it is not anticipated that any 
affiliates of FNB will become affiliates of FNLC after the merger, other than 
Messrs. McKim, Lay, Dalrymple, Wrobel and Rosborough.

     The ability of affiliates to resell shares of FNLC common stock received 
in the merger under Rules 144 or 145 as summarized herein generally will be 
subject to FNLC's having satisfied its reporting requirements under the 
Securities Exchange Act of 1934 for specified periods prior to the time of 
sale. Affiliates also would be permitted to resell FNLC common stock received 
in the merger pursuant to an effective registration statement under the 
Securities Act of 1933 or another available exemption from the Securities Act 
of 1933 registration requirements. Neither the registration statement of which 
this prospectus/proxy statement is a part nor this prospectus/proxy statement 
cover any resales of FNLC common stock received by persons who may be deemed to 
be affiliates of FNLC or FNB in the merger.

     FNB has agreed in the merger agreement to use its reasonable best efforts 
to cause each person who may be deemed to be an affiliate of it for purposes of 
Rule 145 to deliver to FNLC a letter agreement intended to ensure compliance 
with the Securities Act of 1933.

























Page 64
Federal Income Tax Consequences

     General.  The following is a description of the material federal income 
tax consequences of the merger to shareholders of FNB, which is based upon the 
opinion of Verrill Dana, LLP, counsel to FNLC. The federal income tax laws are 
complex and the tax consequences of the merger may vary depending upon each FNB 
shareholder's individual circumstances or tax status. Accordingly, this 
description is not a complete description of all of the consequences of the 
merger and, in particular, may not address federal income tax considerations 
that may affect the treatment of FNB shareholders subject to special treatment 
under United States federal income tax law (including, for example, foreign 
persons, financial institutions, dealers in securities, traders in securities 
who elect to apply a mark-to-market method of accounting, insurance companies, 
tax-exempt entities, holders who acquired their shares of FNB common stock 
pursuant to the exercise of an employee stock option or right or otherwise as 
compensation and holders who hold FNB common stock as part of a "hedge," 
"straddle" or "conversion transaction"). In addition, no opinion is expressed 
with respect to the tax consequences of the merger under applicable foreign, 
state or local laws or under any federal tax laws other than those pertaining 
to the income tax. This description is based on laws, regulations, rulings and 
judicial decisions as in effect on the date of this prospectus/proxy statement, 
without consideration of the particular facts or circumstances of any holder of 
FNB common stock. These authorities are all subject to change and any such 
change may be made with retroactive effect. No assurance can be given that, 
after any such change, this description would not be different.

     Tax matters are very complicated, and the tax consequences of the merger 
to an FNB shareholder will depend upon the facts of his or her particular 
situation. Accordingly, we strongly urge each FNB shareholder to consult his or 
her own tax advisor to determine the particular federal, state, local or 
foreign income or other tax consequences to him or her of the merger.

     The Merger.  Based on facts and representations and assumptions regarding 
factual matters that were provided by us and that are consistent with the state 
of facts that we believe will be existing as of the effective time of the 
merger, the opinion of Verrill Dana, LLP with respect to the material federal 
income tax consequences of the merger is as follows.
* The merger, when consummated in accordance with the terms of the merger 
agreement, will constitute a "reorganization" within the meaning of Section 
368(a) of the Internal Revenue Code and, accordingly, neither FNLC nor FNB will 
recognize any taxable gain or loss as a result of the merger.

     An FNB shareholder will not recognize gain or loss on the exchange for 
such shareholder's shares of FNB common stock pursuant to the merger except to 
the extent the FNB shareholder receives cash in lieu of a fractional share 
interest in FNLC common stock. The shareholder's tax basis in the FNLC common 
stock received pursuant to the merger will equal such shareholder's tax basis 
in the shares of FNB common stock being exchanged, reduced by any amount 
allocable to a fractional share interest of FNLC common stock for which cash is 
received. The holding period of FNLC common stock received will include the 
holding period of the shares of FNB common stock being exchanged.








Page 65
     Cash in Lieu of Fractional Shares.  No fractional shares of FNLC common 
stock will be issued in the merger. An FNB shareholder who receives cash in 
lieu of such a fractional share will be treated as having received such 
fractional share pursuant to the merger and then as having exchanged such 
fractional share for cash in a redemption by FNLC. An FNB shareholder will 
generally recognize capital gain or loss on such a deemed redemption of the 
fractional share in an amount determined by the excess of the amount of cash 
received and the shareholder's tax basis in the fractional share. Any capital 
gain or loss will be long-term capital gain or loss if the FNB common stock 
exchanged was held for more than one year.

     Shareholders Who Exercise Appraisal Rights.  Holders of FNB common stock 
who exercise appraisal rights with respect to the merger, as discussed under 
"Appraisal Rights" beginning on page __, and who receive cash in respect of 
their shares of FNB common stock will recognize capital gain or loss in an 
amount equal to the difference between the amount of cash received and the 
shareholder's aggregate tax basis for such shares of FNB common stock, which 
gain or loss will be long-term capital gain or loss if such shares of FNB 
common stock were held for more than one year. If, however, any such FNB 
shareholder constructively owns shares of FNB common stock that are exchanged 
for shares of FNLC common stock in the merger or owns shares of FNLC common 
stock actually or constructively after the merger, the attribution to the 
shareholder of stock owned by a related party may prevent the payment of cash 
for shares pursuant to the exercise of appraisal rights from qualifying for 
capital gain rates and instead result in any gain being treated as the 
distribution of a dividend. Under the constructive ownership rules under the 
Internal Revenue Code, a shareholder may be treated as owning stock that is 
actually owned by another person or entity. FNB shareholders should consult 
their tax advisors as to the possibility that all or a portion of any cash 
received in exchange for their shares of FNB common stock will be treated as a 
dividend.

     An FNB shareholder who exercises appraisal rights in part and receives 
both FNLC common stock and cash consideration in exchange for all of his or her 
shares of FNB common stock generally will recognize gain, but not loss, to the 
extent of the lesser of:
* the excess, if any, of (a) the sum of the aggregate fair market value of the 
FNLC common stock received (including any fractional share of FNLC common stock 
deemed to be received and exchanged for cash) and the amount of cash received 
(excluding any cash received in lieu of a fractional share of FNLC common 
stock) over (b) the shareholder's aggregate tax basis in the shares of FNB 
common stock exchanged in the merger; and
* the amount of cash received by such shareholder.

     For this purpose, gain or loss must be calculated separately for each 
identifiable block of shares surrendered in the exchange, and a loss realized 
on one block of shares may not be used to offset gain realized on another block 
of shares. Any such gain will be long-term capital gain if the shares of FNB 
common stock exchanged were held for more than one year, unless the receipt of 
cash has the effect of a distribution of a dividend under the provisions of the 
Internal Revenue Code, in which case such gain will be treated as a dividend to 
the extent of such shareholder's ratable share of the undistributed accumulated 
earnings and profits of FNB. FNB shareholders who are considering exercising 
appraisal rights should consult their tax advisors as to the possibility that 
all or a portion of any cash received in exchange for their FNB common stock 
will be treated as a dividend.



Page 66
     An FNB shareholder's aggregate tax basis in the FNLC common stock received 
pursuant to the merger will equal such shareholder's aggregate tax basis in the 
shares of FNB common stock being exchanged, reduced by any amount allocable to 
a fractional share interest of FNLC common stock for which cash is received and 
by the amount of any cash consideration received, and increased by the amount 
of taxable gain, if any, recognized by such shareholder in the merger 
(including any portion of such gain that is treated as a dividend).

     Closing Opinion.  It is a condition precedent to the obligations of FNLC 
and FNB to effect the merger that they receive an opinion from Verrill Dana, 
LLP (or in the absence of such firm's opinion, an opinion of Pierce Atwood 
LLP), dated as of the effective time of the merger, with respect to the federal 
income tax consequences of the merger described under the subheading "The 
Merger" on page __. Such opinion will be based upon facts existing at the 
effective time of the merger, and in rendering such opinion, counsel will 
require and rely upon facts, representations and assumptions that will be 
provided by FNLC, FNB and others.

     We have not sought and will not seek any ruling from the Internal Revenue 
Service regarding any matters relating to the merger, and as a result there can 
be no assurance that the Internal Revenue Service will not disagree with or 
challenge any of the conclusions described herein.

     Backup Withholding.  Non-corporate holders of FNB common stock may be 
subject to information reporting and backup withholding on any cash payments 
they receive. FNB shareholders will not be subject to backup withholding, 
however, if they:
* furnish a correct taxpayer identification number and certify that they are 
not subject to backup withholding on the substitute Form W-9 or successor form 
included in the letter of transmittal they will receive; or
* demonstrate that they are otherwise exempt from backup withholding.

     Any amounts withheld under the backup withholding rules will be allowed as 
a refund or credit against an FNB shareholder's United States federal income 
tax liability, provided the shareholder furnishes the required information to 
the Internal Revenue Service.

     Reporting Requirements.  FNB shareholders who receive FNLC common stock as 
a result of the merger will be required to retain records pertaining to the 
merger and will be required to file with their United States federal income tax 
return for the year in which the merger takes place a statement setting forth 
certain facts relating to the merger.

















Page 67
Accounting Treatment of the Merger

     The merger will be accounted for under the purchase method of accounting 
under accounting principles generally accepted in the United States of America. 
Under this method, FNB's assets and liabilities as of the date of the merger 
will be recorded at their respective fair values and added to those of FNLC. 
Any difference between the purchase price for FNB and the fair value of the 
identifiable net assets acquired (including core deposit intangibles) will be 
recorded as goodwill. In accordance with Statement of Financial Accounting 
Standards No. 142, "Goodwill and Other Intangible Assets," issued in July 2001, 
the goodwill resulting from the merger will not be amortized to expense, but 
instead will be reviewed for impairment at least annually and to the extent 
goodwill is impaired, its carrying value will be written down to its implied 
fair value and a charge will be made to earnings. Core deposit and other 
intangibles with definite useful lives recorded by FNLC in connection with the 
merger will be amortized to expense in accordance with the new rules. The 
financial statements of FNLC issued after the merger will reflect the results 
attributable to the acquired operations of FNB beginning on the date of 
completion of the merger. The unaudited per share pro forma financial 
information contained herein has been prepared using the purchase method of 
accounting. See "Summary -- Unaudited Comparative Per Share and Selected 
Financial Data" beginning on page __.

Expenses of the Merger

     The merger agreement provides that each of FNB and FNLC will bear and pay 
all costs and expenses incurred by it in connection with the transactions 
contemplated by the merger agreement, including fees and expenses of its own 
financial consultants, accountants and counsel, except that expenses of 
printing this document will be shared equally between us.

Listing of the FNLC Common Stock

     FNLC has agreed to use its reasonable best efforts to cause the shares of 
FNLC common stock to be issued in the merger to be listed for trading on the 
Nasdaq Stock Market's National Market before the completion of the merger, 
subject to official notice of issuance.

Termination Fee

     The merger agreement provides that FNB must pay FNLC a $1.5 million 
termination fee under the circumstances described below:
* if the merger agreement is terminated by FNLC for any of the reasons 
described in the penultimate bullet point under "Termination of the Merger 
Agreement" on page __  or by FNB for the reasons described in the last bullet 
point in such section, FNB must pay the termination fee to FNLC concurrently 
with the termination of the merger agreement; or












Page 68
* if (x) the merger agreement is terminated by FNLC pursuant to the second 
bullet point under "Termination of the Merger Agreement" on page __  or by 
either FNLC or FNB because the shareholders of FNB have not approved the merger 
agreement as required, and in the case of any termination referenced in this 
bullet point an acquisition proposal (as defined under "No Solicitation by FNB" 
on page __) shall have been publicly announced or otherwise communicated or 
made known to the Board of Directors of FNB (or any person shall have publicly 
announced, communicated or made known an intention, whether or not conditional, 
to make an acquisition proposal) at any time after the date of the merger 
agreement and prior to the time that shareholders of FNB vote on the merger 
agreement or the date of termination of the merger agreement, as applicable, 
and (y) within 18 months after such termination FNB or a subsidiary of FNB 
enters into an agreement with respect to an acquisition proposal or consummates 
a transaction which is the subject of an acquisition proposal, then FNB shall 
pay to FNLC the termination fee on the date of execution of such agreement or 
consummation of a transaction which is the subject of an acquisition proposal, 
as applicable, provided that if the date of execution of such agreement is 
after 12 months but within 18 months after such termination of the merger 
agreement, the termination fee shall be payable by FNB to FNLC only upon 
consummation of a transaction which is the subject of an acquisition proposal, 
regardless whether such consummation occurs within 18 months after termination 
of the merger agreement.

     Any termination fee that becomes payable pursuant to the merger agreement 
shall be paid by wire transfer of immediately available funds to an account 
designated by FNLC.

     If FNB fails to timely pay the termination fee to FNLC, FNB will be 
obligated to pay the costs and expenses incurred by FNLC to collect such 
payment, together with interest.

Shareholder Agreements

     In connection with the execution of the merger agreement, each director of 
FNB who was also an officer of FNB (that is, Messrs. Rosborough, McKim and 
Parady) entered into a shareholder agreement with FNLC pursuant to which each 
director agreed that at any meeting of the shareholders of FNB, or in 
connection with any written consent of the shareholders of FNB, the director 
shall:
* appear at such meeting or otherwise cause all shares of FNB common stock held 
of record by him to be counted as present thereat for purposes of calculating a 
quorum; and
* vote (or cause to be voted), in person or by proxy, or deliver a written 
consent (or cause a consent to be delivered) covering, all shares of FNB common 
stock held of record by him:
* in favor of adoption and approval of the merger agreement,
* against any action or agreement that would result in a breach of any 
covenant, representation or warranty or any other obligation or agreement of 
FNB contained in the merger agreement or of the director contained in the 
shareholder agreement and
* against any acquisition proposal (as defined in the merger agreement) or any 
other action, agreement or transaction that is intended, or could reasonably be 
expected, to materially impede, interfere or be inconsistent with, delay, 
postpone, discourage or materially and adversely affect consummation of the 
merger or the shareholder agreement.




Page 69
     Pursuant to the shareholder agreement, such directors also agreed not to, 
directly or indirectly, sell, transfer, pledge, assign or otherwise dispose of, 
or enter into any contract, option, commitment or other arrangement or 
understanding with respect to the sale, transfer, pledge, assignment or other 
disposition of, any of the shares of FNB common stock held of record by him 
prior to the meeting at which shareholders of FNB will consider the merger 
agreement.

     The shareholder agreements will remain in effect until the earlier of the 
effective time of the merger or the termination of the merger agreement in 
accordance with its terms.

     FNB also agreed to use its reasonable best efforts to cause those persons 
who may be deemed to be affiliates of FNB pursuant to Rule 145 under the 
Securities Act of 1933 to deliver to FNLC prior to the date of the special 
meeting a written agreement containing certain restrictions on the transfer of 
shares of FNLC common stock acquired in the merger which are intended to ensure 
compliance with applicable federal securities laws in connection with the 
transfer of such shares. See "Resale of FNLC Common Stock" on page __.

Appraisal Rights

     The following is a summary of Chapter 13 of the Maine Business Corporation 
Act, which sets forth the procedures that FNB shareholders must follow in order 
to object to the proposal to approve and adopt the merger agreement and demand 
statutory appraisal rights. The full text of Chapter 13 is included as Annex 
III to this document. Failure to follow those provisions exactly could result 
in the loss of an FNB shareholder's appraisal rights. See "Federal Income Tax 
Consequences" beginning on page __ for a discussion of the tax consequences of 
exercising appraisal rights.

     FNB shareholders who desire to exercise their appraisal rights must 
satisfy each of the applicable conditions of Chapter 13. The shareholder must 
file with FNB, before the vote on the proposal relating to the merger agreement 
is taken, a written objection to the proposed merger that states that the 
shareholder intends to demand payment for his, her or its shares. The written 
objection should be filed with FNB at FNB Bankshares, P.O. Box 258, Bar Harbor, 
Maine 04609, Attention: Ronald J. Wrobel, Clerk. The written objection must 
specify the shareholder's name and mailing address, that the shareholder 
objects to the proposal regarding the merger agreement and that he, she or it 
is demanding appraisal of his, her or its shares of FNB common stock.

     FNB shareholders electing to exercise their appraisal rights must not vote 
for approval of the merger agreement. If a shareholder returns a signed proxy 
but does not specify a vote against approval of the merger agreement or a 
direction to abstain, the proxy will be voted "FOR" approval of the merger 
agreement, which will have the effect of waiving that shareholder's appraisal 
rights. Also, voting against, abstaining from voting, or failing to vote with 
respect to the merger agreement alone will not constitute a demand for 
appraisal for purposes of Maine law.

     Within 10 days after the merger becomes effective, FNLC, as the surviving 
corporation, must notify by registered or certified mail each shareholder who 
has satisfied the requirements for demanding appraisal that the merger has 
become effective. The notice from FNLC will not, itself, create any rights in 
its recipient to payment for his, her or its shares of FNB common stock, but 
shall include a form, together with instructions by which a shareholder may 
make a demand, and, among other things, FNLC's estimate of the fair value of 
the shares in question.
Page 70
     If, within the time period set forth in the notice (which must be between 
40 to 60 days after the date FNLC mails the notice), any shareholder to whom 
FNLC was required to give notice returns the form (together with his, her or 
its share certificates, in the case of certificated shares), certifying that 
his, her or its beneficial ownership of the shares in question was acquired 
before the effective date of the merger, and that he, she or it did not vote in 
favor of the transaction, that the shareholder thereby perfects his, her or its 
right to payment from FNLC for his, her or its shares of FNB common stock.

     FNLC, within 30 days after the form and other required materials are due, 
shall pay in cash to any shareholder who has satisfied the above requirements 
its estimate of the fair value of the shareholder's shares, plus interest, and 
provide to the shareholder, among other things, certain FNB financial 
statements, unless the shareholder shall have timely withdrawn from the 
appraisal process by written notice to FNLC. 

     If a shareholder fails to certify in a timely manner that beneficial 
ownership of all his, her or its shares for which appraisal rights are asserted 
was acquired before the effective date of the merger, but has otherwise 
complied with the above requirements, the corporation may elect to withhold 
payment from the shareholder, but shall provide, in addition to the information 
which would otherwise be provided to the shareholder together with payment, an 
offer to pay (together with instructions for obtaining payment) for after-
acquired shares.

     If dissatisfied with FNLC's payment or offer, a shareholder may, within 30 
days after receiving FNLC's payment or offer of payment, notify FNLC in writing 
of his, her or its estimate of the fair value of the shares. If such a 
shareholder has been paid, he, she or it must demand payment of his, her or its 
estimate, plus interest, less any payment already made. If such a shareholder 
has received an offer, but not payment, he, she or it must reject the offer and 
demand the amount of his, her or its estimate, plus interest.

     If FNLC and the objecting shareholder are unable to agree upon the value 
of the FNB common stock, FNLC shall, within 60 days after receiving the 
objecting shareholder's payment demand, petition the appropriate court in 
Lincoln County to determine the fair value of the shares in question, plus 
interest. If FNLC shall fail to commence such an action within the 60-day 
period, it shall pay the amount demanded, plus interest. 

     If FNLC files such an action, it must name all shareholders who have 
demanded payment for their shares and with whom FNLC has not yet reached 
agreement as to the value of the FNB common stock held by them, and must serve 
all parties with a copy of the petition. 

     After a hearing, the court will enter a decree determining the fair value 
of the FNB common stock owned by the objecting shareholders who have become 
entitled to the valuation of and payment for their shares and will order FNLC 
to make payment, together with interest, if any, to the objecting shareholders 
entitled thereto upon the transfer by them of the certificates representing 
their shares of FNB common stock. The value of the shares will be determined as 
of the day preceding the date of the shareholder vote approving and adopting 
the merger agreement using customary and current valuation concepts and 
techniques generally employed for entities similar to FNB, without discounting 
for lack of marketability or minority status, and will exclude any element of 
value arising from the expectation or accomplishment of the merger.



Page 71
     The costs associated with the proceeding, including the fees and expenses 
of court-appointed appraisers, and of counsel and experts retained by any 
party, may be assessed by the court, as the court deems equitable.

     Any objecting shareholder who has demanded payment for his, her or its 
shares of FNB common stock will not thereafter be entitled to notice of any 
shareholders' meeting, to vote such shares for any purpose or to receive any 
dividends or distributions on the stock (except dividends or distributions 
payable to shareholders of record as of a date before the date of the vote 
approving the merger agreement) unless:
* a proceeding to determine the fair value of the FNB common stock is not 
commenced within the statutory time period;
* a proceeding, if filed, has been dismissed as to such shareholder; or
* such shareholder has, with the written approval of FNLC, as successor to FNB, 
delivered a written withdrawal of his, her or its objections and an acceptance 
of the merger.

     Notwithstanding the above three bullet points, inclusive, the shareholder 
shall only have the rights of a shareholder who did not demand payment for his, 
her or its FNB common stock as provided by Chapter 13 of the Maine Business 
Corporation Act.

     The enforcement by an objecting shareholder of his, her or its right to 
receive payment for his, her or its shares in this manner will be an exclusive 
remedy, except that the shareholder may still bring or maintain an appropriate 
proceeding to obtain relief on the ground that the merger will be or is illegal 
or fraudulent as to such shareholder.

     Written notices and demands addressed by a shareholder to FNLC shall be 
sent to First National Lincoln Corporation, P.O. Box 940, Damariscotta, Maine 
04543-0940, Attention: Charles A. Wootton, Clerk.

Operations of FNLC After the Merger

     FNLC expects to achieve some cost savings subsequent to the merger from 
the elimination of services now outsourced by FNB and integration of back-
office operations. In addition, because FNBBH will be merged with and into 
FNBD, the costs associated with FNB operating as a separate regulated bank will 
be eliminated.

     Because of the uncertainties inherent in merging two financial 
institutions, changes in the regulatory environment and changes in economic 
conditions, no assurances can be given that any particular level of cost 
savings will be realized, that any such cost savings will be realized over the 
time period currently anticipated or that such cost savings will not be offset 
to some degree by increases in other expenses, including expenses related to 
integrating the two companies or by declines in revenues due to deposit loss or 
other causes. Although management of FNLC has performed substantial financial 
analysis of the proposed merger, identification of all cost savings associated 
with the merger has not been completed. Moreover, no assurances can be given 
that cost savings will be realized at any given time in the future.

     It is anticipated that transaction costs will be incurred in connection 
with the merger for investment banking, legal and accounting services. These 
costs will be assigned to FNLC's goodwill and none will be charged to earnings 
as a special charge related to the merger transaction. 



Page 72
ADJOURNMENT OF THE SPECIAL MEETING
(FNB and FNLC Proposal 2)

     In the event that there are not sufficient votes to constitute a quorum or 
approve the adoption of the merger agreement at the time of the special 
meetings, the merger agreement could not be approved unless the meeting was 
adjourned to a later date or dates in order to permit further solicitation of 
proxies. In order to allow proxies that have been received by us at the time of 
the special meeting to be voted for an adjournment, if necessary, We have 
submitted the question of adjournment to shareholders as a separate matter for 
their consideration. Our Boards of Directors unanimously recommend that their 
respective shareholders vote "FOR" the adjournment proposal. If it is necessary 
to adjourn the special meetings, no notice of the adjourned meeting is required 
to be given to shareholders, other than an announcement at the applicable 
special meeting of the hour, date and place to which the special meeting is 
adjourned.











































Page 73
MARKET FOR FNLC COMMON STOCK AND DIVIDENDS

     The common stock of FNLC (ticker symbol FNLC) trades on the Nasdaq Stock 
Market's National Market. As of June 30, 2004, there were 7,342,690 shares of 
FNLC common stock outstanding, which were held by approximately 1,000 
shareholders of record. The last known transaction in FNLC's stock before the 
date of this document was on _____________, 2004 at $ ____ per share. There are 
no warrants outstanding with respect to FNLC's common stock, and, other than 
options issued under FNLC's 1995 Stock Option Plan, FNLC has no securities 
outstanding which are convertible into common equity. 

     The following table reflects the high and low prices of actual sales of 
FNLC common stock in each quarter of 2004, 2003 and 2002. Such quotations do 
not reflect retail mark-ups, mark-downs or brokers' commissions.

-------------------------------------------------------------------------------
           2004                   2003                  2002
-------------------------------------------------------------------------------
                 High         Low        High         Low       High        Low
1st Quarter   $ 16.833    $ 14.800    $ 12.500    $ 10.000    $ 9.400   $ 7.250
2nd Quarter     24.520      15.083      13.767      11.173     10.667     9.117
3rd Quarter     19.700      17.000      14.333      13.060     10.333     8.533
4th Quarter                             17.017      14.167     11.500     9.000
-------------------------------------------------------------------------------

     The table below sets forth the cash dividends declared by FNLC in the last 
two fiscal years:

-------------------------------------------------------------------------------
    Date Declared            Amount Per Share             Date Payable
-------------------------------------------------------------------------------
    March 27, 2002                     $0.077             April 30, 2002
    June 20, 2002                      $0.080             July 31, 2002
    September 19, 2002                 $0.083             October 31, 2002
    December 19, 2002                  $0.087             January 31, 2003
-------------------------------------------------------------------------------
    March 20, 2003                     $0.090             April 30, 2003
    June 19, 2003                      $0.093             July 31, 2003
    September 25, 2003                 $0.097             October 31, 2003
    December 18, 2003                  $0.100             January 30, 2004
-------------------------------------------------------------------------------
    March 11, 2004                     $0.103             April 30, 2004
    June 17, 2004                      $0.110             July 30, 2004
    September 16, 2004                 $0.115             October 29, 2004
-------------------------------------------------------------------------------

     All per share data presented above has been adjusted to reflect the three-
for-one stock split, effected through a 200% stock dividend, paid June 1, 2004, 
to FNLC shareholders of record on May 12, 2004.

     The ability of FNLC to pay cash dividends depends on receipt of dividends 
from FNBD. Dividends may be declared by FNBD out of its net profits as the 
directors deem appropriate, subject to the limitation that the total of all 
dividends declared by FNBD in any calendar year may not exceed the total of its 
net profits for that year plus retained net profits of the preceding two years. 
FNBD is also required to maintain minimum amounts of capital-to-total-risk-
weighted-assets, as defined by banking regulators. At June 30, 2004, FNBD was 
required to have minimum Tier 1 and Tier 2 risk-based capital ratios of 4.00% 
and 8.00%, respectively. FNBD's actual ratios were 10.98% and 12.09%, 
respectively, as of June 30, 2004.
MARKET FOR FNB COMMON STOCK AND DIVIDENDS

     The common stock of FNB (ticker symbol FBSH) trades on the NASD Over-the-
Counter Market. The following table reflects the high and low prices of actual 
sales in each quarter of 2003 and 2002. On April 2, 2004, FNB effected a 3-for-
1 stock split.  The split was accomplished by issuing a 200% stock dividend.  
The information below is all on a post-split basis.  Such quotations do not 
reflect retail mark-ups, mark-downs or brokers' commissions.

-------------------------------------------------------------------------------
                       2004                     2003                  2002
-------------------------------------------------------------------------------
                   High        Low       High        Low       High         Low
1st Quarter     $ 22.05    $ 18.43    $ 13.17    $ 12.47    $ 11.42    $ 11.17
2nd Quarter       24.68      22.05      14.83      12.52      12.00      11.17
3rd Quarter       41.90      23.50      17.50      14.50      12.33      11.55
4th Quarter                             19.00      17.25      13.83      12.02
-------------------------------------------------------------------------------

     The last known transaction of FNB's stock before the date of this document 
was $ _____ per share on ________________________ 2004. There are no warrants 
outstanding with respect to FNB's common stock, and FNB has no securities 
outstanding which are convertible into common equity other than options issued 
under FNB's Stock Option Plan.

     The table below sets forth the cash dividends declared by FNB in the last 
two fiscal years and in 2004 through June 30, 2004:

-------------------------------------------------------------------
    Date Declared          Amount Per Share*     Date Payable
-------------------------------------------------------------------
    May 28, 2002                  $0.15000     June 30, 2002
    November 26, 2002              0.21666     December 30, 2002
-------------------------------------------------------------------
    May 27, 2003                   0.18333     June 30, 2003
    November 25, 2003              0.28333     December 30, 2003
-------------------------------------------------------------------
    May 25, 2004                   0.30000     June 30, 2004
    September 28, 2004             0.16000     October 29, 2004
-------------------------------------------------------------------
* adjusted to reflect 2004 stock dividend.

     The ability of FNB to pay cash dividends depends on receipt of dividends 
from FNBBH. Dividends may be declared by FNBBH out of its net profits as the 
directors deem appropriate, subject to the limitation that the total of all 
dividends declared by FNBBH in any calendar year may not exceed the total of 
its net profits for that year plus retained net profits of the preceding two 
years. FNBBH is also required to maintain minimum amounts of capital-to-total-
risk-weighted-assets, as defined by banking regulators. At June 30, 2004, FNBBH 
was required to have minimum Tier 1 and Tier 2 risk-based capital ratios of 
4.00% and 8.00%, respectively. FNBBH's actual ratios were 8.8% and 10.1%, 
respectively, as of June 30, 2004.

     FNB contributes shares to FNBBH's employee stock ownership plan. During 
2003, 1,350 shares were contributed to this Plan.  There were no contributions 
to the plan during the first six months of 2004.



Page 75
INFORMATION ABOUT FNLC

General

     FNLC was incorporated under the Maine Business Corporation Act on January 
15, 1985, for the purpose of becoming the parent holding company of FNBD. The 
common stock of FNBD is the principal asset of FNLC, which has no other 
subsidiaries. As of September 30, 2004, FNLC's outstanding shares consisted of 
one class of common stock, $.01 par value per share, of which there were 
7,350,040 shares outstanding and held of record by approximately 1,000 
shareholders.

     FNBD was chartered as a national bank under the laws of the United States 
on May 30, 1864. FNBD's capital stock consists of one class of common stock, of 
which 120,000 shares, par value $2.50 per share, are authorized and 
outstanding. All of FNBD's common stock is owned by the FNLC.

     FNBD has seven offices in Mid-Coast Maine, including its principal office 
located on Main Street, Damariscotta, Lincoln County, Maine and six branch 
offices located at U.S. Route 1, Waldoboro, Maine; Townsend Avenue, Boothbay 
Harbor, Maine; Route 27, Wiscasset, Maine; U.S. Route 1, Rockport, Maine; Elm 
Street, Camden, Maine; and U.S. Route 1, Rockland, Maine. FNBD also maintains 
an Operations Center at the corner of Bristol Road and Cross Street in 
Damariscotta. The mailing address of FNLC's principal executive office is 223 
Main Street, P.O. Box 940, Damariscotta, Maine 04543-0940, and the telephone 
number for FNLC's executive offices is (207) 563-3195

     FNBD emphasizes personal service to the community, concentrating on retail 
banking. FNBD's customers are primarily small businesses and individuals for 
whom FNBD offers a wide variety of services, including checking, savings and 
investment accounts, consumer and commercial and mortgage loans. The banking 
business in FNBD's market area historically has been seasonal with lower 
deposits in the winter and spring and higher deposits in the summer and fall. 
This swing is fairly predictable and has not had a materially adverse effect on 
FNBD.

     In addition to providing traditional banking services, FNBD provides 
investment management and private banking services through Pemaquid Advisors, 
which is an operating division of FNBD. In 2000, FNBD separated its Trust and 
Investment Services Department into a separate division with a different brand 
identity. Under the name of Pemaquid Advisors, the division is focused on 
taking advantage of opportunities created as larger banks have altered their 
personal service commitment to clients not meeting established account 
criteria. Pemaquid Advisors is able to offer a comprehensive array of private 
banking, financial planning, investment management and trust services to 
individuals, businesses, non-profit organizations and municipalities of varying 
asset size, and to provide the highest level of personal service. The staff 
includes investment and trust professionals with extensive experience.

     In June, 2001, FNBD acquired White Pine Asset Management of Portland, 
Maine, which then became part of Pemaquid Advisors. Pemaquid Advisors operates 
from offices on Bristol Road in Damariscotta, Maine, Pleasant Street, in 
Brunswick, Maine, and Townsend Avenue, in Boothbay Harbor, Maine.






Page 76
     FNBD has concentrated on extending business loans to customers in the 
Bank's primary market area and to extending investment and trust services to 
clients with accounts of all sizes. FNBD's management also makes decisions 
based upon, among other things, the knowledge of FNBD's employees regarding the 
communities and customers in the Bank's primary market area. The individuals 
employed by FNBD, to a large extent, reside near the branch offices and thus 
are generally familiar with their communities and customers. This is important 
in local decision-making and allows the Bank to respond to customer questions 
and concerns on a timely basis and fosters quality customer service.

FNLC Management and Additional Information

     Certain information relating to executive compensation, benefit plans, 
voting securities and the principal holders thereof, certain relationships and 
related transactions and other related matters as to FNLC is incorporated by 
reference or set forth in FNLC's annual report on Form 10-K for the year ended 
December 31, 2003 and its quarterly reports on Form 10-Q for the three months 
ended March 31, 2004 and June 30, 2004 which are incorporated herein by 
reference. FNLC or FNB shareholders desiring copies of such documents may 
contact FNLC at its address or telephone number indicated under "Where You Can 
Find More Information" on page __.






































Page 77
INFORMATION ABOUT FNB

General

     FNB was incorporated under the general business laws of the State of Maine 
on May 7, 1985, for the purpose of becoming the parent holding company of 
FNBBH. The common stock of FNBBH is the principal asset of FNB, which has no 
other subsidiaries. As of September 30, 2004, FNB's shares consisted of one 
class of common stock, $.80 par value per share, of which there were 
approximately 315 shareholders of record and 1,045,272 shares outstanding, 
adjusted for a 3-to-1 stock split on April 2, 2004 accomplished by issuing a 
200% stock dividend.  All figures in this document related to FNB common stock 
and values per share are on a post-split basis.

     FNBBH was chartered as a national bank under the laws of the United States 
on November 17, 1888. FNBBH's capital stock consists of one class of common 
stock of which 7,500 shares, par value $90.00 per share, are authorized, 
issued, and outstanding. All of FNBBH's common stock is owned by FNB.

     FNBBH has seven offices in Down East Maine, including its principal office 
located on Main Street, Bar Harbor, Hancock County, Maine and seven branch 
offices located at 350 Main St, Southwest Harbor, Maine; Seal Cove Road, 
Southwest Harbor, Maine; 235 High St., Ellsworth, Maine; 102 Washington St., 
Eastport, Maine; 1 South St., Blue Hill, Maine; 161 North Street, Calais, 
Maine; and 102B Main St., Northeast Harbor, Maine. 

     FNBBH emphasizes personal service to the community, concentrating on 
retail banking. Customers are primarily small businesses and individuals for 
whom FNBBH offers a wide variety of services, including checking, savings and 
investment accounts, consumer and commercial and mortgage loans. The banking 
business in FNBBH's market area historically has been seasonal with lower 
deposits in the winter and spring and higher deposits in the summer and fall. 
This swing is fairly predictable and has not had a materially adverse effect on 
FNBBH.

     In addition to providing traditional banking services, FNB provides trust 
and investment management services through its Trust and Investment Services 
Department. The Trust and Investment Services Department offers investment 
management and trust services to individuals, businesses, non-profit 
organizations and municipalities of varying asset size. The staff includes 
investment and trust professionals with extensive experience.

     As of June 30, 2004 FNB had total assets amounting to $227.5 million, 
loans amounting to $177.3 million, and deposits amounting to $185.8 million.

     FNBBH has concentrated on extending business loans to customers in FNBBH's 
primary market area and to extending investment and trust services to clients 
with accounts of all sizes. FNBBH's management also makes decisions based upon, 
among other things, the knowledge of FNBBH's employees regarding the 
communities and customers in FNBBH's primary market area. The individuals 
employed by FNBBH, to a large extent, reside near the branch offices and thus 
are generally familiar with their communities and customers. This is important 
in local decision-making and allows FNBBH to respond to customer questions and 
concerns on a timely basis and fosters quality customer service.

     FNBBH's ability to make decisions close to the marketplace, management's 
commitment to providing quality banking products, the caliber of the 
professional staff, and the community involvement of FNBBH's employees are all 
factors affecting FNBBH's ability to be competitive.
Page 78
Employees

     At June 30, 2004, FNB had 84 employees and full-time equivalency of 82 
employees.  FNB enjoys good relations with its employees. A variety of employee 
benefits, including health, group life and disability insurance, a defined 
contribution retirement plan, and an incentive bonus plan, are available to 
qualifying officers and employees.

Properties

     The principal office of FNBBH is located in Bar Harbor, Maine, and serves 
the people of Bar Harbor, Mount Desert, Southwest Harbor, Tremont, and Trenton. 
A branch office opened in Southwest Harbor in 1952, which is located 
approximately fifteen miles from Bar Harbor, serving the population of 
Southwest Harbor, Tremont, Swans Island and the Cranberry Islands.

     In 1967, FNBBH opened a branch office in Calais, which is situated 
approximately 115 miles from Bar Harbor. Calais is located in Washington County 
which is contiguous to Hancock County.  This office serves the communities of 
Calais, Princeton, Baileyville, Robbinston, Charlotte, Alexander, Baring, and 
Red Beach, Maine; St. Stephen, New Brunswick, Canada; and neighboring areas.

     In 1971, a branch office was opened in Ellsworth, which is approximately 
twenty-two miles from Bar Harbor. This office serves the towns of Ellsworth, 
Lamoine, Trenton, Surry, Franklin, Sullivan, Hancock, Waltham, Mariaville, Otis 
and neighboring areas.

     In 1988 a drive up facility was opened in Southwest Harbor which is 
located approximately one mile from the Southwest Harbor branch.  

     In 1990, a branch was opened in Eastport, Maine. This office serves the 
communities of Eastport, Perry, Pembroke, Dennysville, Robbinston and 
neighboring areas.

     In June of 1998, FNBBH opened its branch in Northeast Harbor. The office 
serves the towns of Mount Desert, Islesford, and neighboring areas.

     In December of 1999 a branch was opened in Blue Hill located inside the 
Tradewinds supermarket.  This was FNBBH's first supermarket branch. In August 
of 2004 a free standing branch was opened in Blue Hill adjacent to the 
supermarket and the supermarket branch was closed. The Blue Hill branch serves 
the communities of Blue Hill, Surry, Brooklin, Deer Isle, Stonington, 
Penobscot, Sedgwick and neighboring areas.

     FNB owns all of its facilities except for the land on which the Ellsworth 
branch is located, the Calais branch, the Southwest Harbor drive-up facility 
and the Northeast Harbor branch, for which FNBBH has entered into long-term 
leases. Management believes that FNBBH's current facilities are suitable and 
adequate in light of its current needs and its anticipated needs over the near 
term.









Page 79
FNB SELECTED FINANCIAL DATA


-------------------------------------------------------------------------------
Dollars in thousands, except for per share amounts
Years ended December 31,              2003     2002     2001     2000     1999
-------------------------------------------------------------------------------
Summary of Operations
Operating Income                  $ 14,171   14,528   15,907   15,038   12,300
Operating Expense                   11,014   11,734   13,501   12,702   10,981
Net Interest Income                  7,830    7,849    7,589    6,962    5,810
Provision for Loan Losses              360      722      600      410      565
Net Income                           2,019    1,477    1,290    1,344      514

Per Common Share Data (b)
Net Income
   Basic                              1.92     1.40     1.21     1.23     0.47
   Diluted                            1.86     1.37     1.19     1.23     0.47
Cash Dividends (Declared)             0.47     0.37     0.30     0.27     0.23
Book Value                           14.66    13.24    11.86    11.06     9.42
Market Value                         18.33    13.83    12.08     9.00     8.83

Financial Ratios
Return on Average Equity(a)           13.9%    11.2%    10.5%    12.0%     4.9%
Return on Average Assets(a)           0.99     0.78     0.72     0.83     0.36
Average Equity to Average Assets      7.11     6.71     6.89     6.77     7.34
Net Interest Margin (Tax-Equivalent)  4.30     4.49     4.63     4.79     4.53
Dividend Payout Ratio (Declared)     24.14    26.19    24.46    21.62    50.00
Allowance for Loan Losses/Total Loans 1.23     1.14     1.18     1.28     1.11
Non-Performing Loans to Total Loans   0.53     0.76     3.37     2.09     2.54
Non-Performing Assets to Total Assets 0.39     0.58     2.56     1.36     1.73
Efficiency Ratio (Tax-Equivalent)(c) 73.22    73.11    75.21    74.15    81.59

At Year End
Total Assets                     $ 219,634  195,414  184,629  175,271  150,423
Total Loans                        161,127  149,006  140,442  114,517  102,597
Total Investment Securities         35,356   32,635   30,911   40,928   34,382
Total Deposits                     185,712  162,088  137,923  125,412  115,953
Total Shareholders' Equity          15,323   13,975   12,486   12,054   10,365
-------------------------------------------------------------------------------
                                                                 High      Low
Market price per common share of stock during 2003            $ 19.00    12.47
-------------------------------------------------------------------------------

(a) Annualized using a 365-day basis 
(b) Adjusted for a three-for-one stock split, in the form of a 200% stock
    dividend, payable April 2, 2004, to shareholders of record on March 22, 
2004.
(c) FNB uses the following formula in calculating its efficiency ratio:

Non-Interest Expense  -  Loss on Securities Sales - Loss on Mortgage Sales
------------------------------------------------------------------------------
Tax-Equivalent Net Interest Income + Non-Interest Income - Gains on Securities 
- Gains on Mortgage Sales

------------------------------------------------------------------------------



Page 80
-----------------------------------------------------------------------------
                                     For the six months     For the quarters
Dollars in thousands,                     ended June 30,       ended June 30,
except for per share amounts           2004        2003      2004        2003
-----------------------------------------------------------------------------
Summary of Operations                   
Operating Income                     $7,069      $6,753     $3,554     $3,455
Operating Expense                     5,580       5,409      2,842      2,764
Net Interest Income                   4,045       3,923      2,042      2,006
Provision for Loan Losses               120         180         60         90
Net Income                            1,112         989        531        506
-----------------------------------------------------------------------------
Per Common Share Data(b)                   
Basic Earnings per Share              $1.06       $0.94      $0.50      $0.48
Diluted Earnings per Share             1.00        0.91       0.47       0.47
Cash Dividends Declared                0.30        0.18       0.30       0.18
Book Value                            15.06       14.17      15.06      14.17
Market Value                          24.25       14.50      24.25      14.50
-----------------------------------------------------------------------------
Financial Ratios                    
Return on Average Equity (a)          14.23%      13.82%     13.50%     13.72%
Return on Average Assets (a)           1.00%       1.01%       .93%      1.03%
Average Equity to Average Assets       7.06%       7.13%      6.87%      7.54%
Net Interest Margin Tax-Equivalent (a) 4.13%       4.44%      4.09%      4.62%
Dividend Payout Ratio                 28.30%      19.15%     62.06%     36.53%
Allowance for Loan
  Losses to Total Loans                1.14%       1.19%      1.14%      1.19%
Non-Performing Loans                  
  to Total Loans                       0.55%       0.54%      0.47%      0.45%
Non-Performing Assets
  to Total Assets                      0.43%       0.42%      0.37%      0.35%
Efficiency Ratio (Tax-Equivalent)(c)  71.77%      72.08%     75.80%     75.30%
-----------------------------------------------------------------------------
At Period End                   
Total Assets                        227,521     200,156     227,521   200,156
Total Loans                         177,261     155,248     177,261   155,248
Total Investment Securities          30,309      24,744      30,309    24,744
Total Deposits                      185,793     169,254     185,793   169,254
Total Shareholders' Equity           15,760      14,959      15,760    14,959
-----------------------------------------------------------------------------

(a) Annualized using a 365-day basis 
(b) Adjusted for a three-for-one stock split, in the form of a 200% stock
    dividend, payable April 2, 2004, to shareholders of record on March 22, 
2004.
(c) FNB uses the following formula in calculating its efficiency ratio:

Non-Interest Expense  -  Loss on Securities Sales - Loss on Mortgage Sales
------------------------------------------------------------------------------
Tax-Equivalent Net Interest Income + Non-Interest Income - Gains on Securities 
- Gains on Mortgage Sales
------------------------------------------------------------------------------







Page 81
FNB MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

NOTE: The following section discusses FNB's financial condition and results of 
operations for the years ended December 31, 2003, 2002 and 2001, and for the 
six months ended June 30, 2004. It should be read in conjunction with FNB's 
financial statements for the corresponding periods contained in Annex IV.

Overview

     FNB was incorporated in the State of Maine on January 15, 1985, to become 
the parent holding company of FNBBH. FNB generates almost all of its revenues 
from FNBBH, which was chartered as a national bank under the laws of the United 
States on November 17, 1888. FNBBH has seven offices in Down East Maine, 
including its principal office in Bar Harbor, as well as branch offices in 
Ellsworth, Southwest Harbor, Northeast Harbor, Blue Hill, Calais and Eastport. 
FNBBH emphasizes personal service to the communities it serves, concentrating 
primarily on small businesses and individuals.

     FNB does not have operations separate from its bank subsidiary. FNBBH 
offers a wide variety of traditional banking services and derives the majority 
of its revenues from net interest income - the spread between what it earns on 
loans and investments and what it pays for deposits and borrowed funds. While 
net interest income typically increases as earning assets grow, the spread can 
vary up or down depending on the level and direction of movements in interest 
rates. Management believes FNBBH has limited exposure to changes in interest 
rates, as discussed in "Interest Rate Risk Management" on page __. In addition, 
the banking business in FNBBH's market area historically has been seasonal with 
lower deposits in the winter and spring and higher deposits in the summer and 
fall. This seasonal swing is fairly predictable and has not had a materially 
adverse effect on FNBBH.

     Non-interest income is FNBBH's secondary source of revenue and includes 
fees and service charges on deposit accounts, fees for processing merchant 
credit card receipts, income from the sale and servicing of mortgage loans, and 
income from trust and investment management services. Gains on the sale of 
mortgages have been substantial in 2002 and 2003 as low interest rates have 
caused more purchases and refinances. This trend has continued into 2004 as 
rates have remained low. The activity is expected to subside as a large portion 
of the mortgage portfolio has refinanced.

     FNB posted record earnings in 2003, 2002, and 2000, with 2001 earnings 
four percent lower than in 2000. During this four-year period, FNB focused on 
market share, asset growth, asset quality, and increased efficiency to increase 
its profitability. In 2000, FNB's management set five year goals of becoming a 
high-performing bank, establishing goals of return on equity of 15.0% and 
return on assets of 1.0%. In 2003 these goals were nearly reached with a return 
on average equity of 13.9% and return on average assets of 0.99%. Through June 
30, 2004, FNB earned a return on average equity of 14.2% and return on average 
assets of 1.0%. The Holden branch, which was an under performing location, was 
sold in February 2000. Impaired loans were reduced by approximately $1.5 
million in 2000 and decreased from $3,762,000 at December 31, 1999 to $847,000 
as of December 31, 2003.

     FNB's efficiency ratio in 2003 amounted to 73.22%, versus 73.11% in 2002. 
The efficiency ratio was up slightly in 2003 but has improved over the past 
five years from a high of 81.59% in 1999 as a result of higher net income and a 
focus on controlling operating expenses. Year to date through June 30, 2004 the 
efficiency ratio amounted to 71.77%.

Page 82
FNB Critical Accounting Policies

     Management's discussion and analysis of FNB's financial condition is based 
on the consolidated financial statements which are prepared in accordance with 
accounting principles generally accepted in the United States. The preparation 
of such financial statements requires management 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, management evaluates its estimates, including those related to 
the allowance for loan losses and the valuation of mortgage servicing rights. 
FNB management bases its estimates on historical experience and on various 
other assumptions that are believed to be reasonable under the circumstances, 
the results of which form the basis for making judgments about the carrying 
values of assets that are not readily apparent from other sources. Actual 
results are likely to differ from the amount derived from management's 
estimates and assumptions, and such differences could be substantial.

     FNB's management believes the allowance for loan losses is a critical 
accounting policy that requires the most significant estimates and assumptions 
used in the preparation of the consolidated financial statements. The allowance 
for loan losses is based on FNB management's evaluation of the level of the 
allowance required in relation to the estimated loss exposure in the loan 
portfolio. Management believes the allowance for loan losses is a significant 
estimate and therefore regularly evaluates it for adequacy by taking into 
consideration factors such as prior loan loss experience, the character and 
size of the loan portfolio, business and economic conditions and management's 
estimation of potential losses. The use of different estimates or assumptions 
could produce different provisions for loan losses. The allowance for loan 
losses is discussed in more detail under "Assets and Asset Quality" on page __.

     The valuation of mortgage servicing rights is also a critical accounting 
policy which requires significant estimates and assumptions. FNBBH often sells 
mortgage loans it originates and retains the ongoing servicing of such loans, 
receiving a fee for these services, generally 0.25% of the outstanding balance 
of the loan per annum. Mortgage servicing rights are recognized when they are 
acquired through sale of loans and are reported in other assets. They are 
amortized into non-interest income in proportion to, and over the period of, 
the estimated future net servicing income of the underlying financial assets. 
FNB's management uses an independent firm which specializes in the valuation of 
mortgage servicing rights to determine the fair value recorded on the balance 
sheet. This includes an evaluation for impairment based upon the fair value of 
the rights, which can vary depending upon current interest rates and prepayment 
expectations, as compared to amortized cost. Impairment is determined by 
stratifying rights by predominant characteristics, such as interest rates and 
terms. The use of different assumptions could produce a different valuation for 
both mortgage servicing rights and impairment.













Page 83
FNB Results of Operations
-------------------------------------------------------------------------------

     Net income for the year ended December 31, 2003 was $2.019 million -- the 
highest ever recorded by FNB. This represents a 36.7%, or $542,000, increase 
from net income of $1.477 million posted in 2002 and is $729,000, or 56.5%, 
above 2001 net income of $1.290 million. The results are attributable to strong 
asset growth, improved asset quality, increased non-interest income and 
controlled operating expenses.

     FNB's net income for the six months ended June 30, 2004 equaled $1.112 
million versus net income of $989,000 for the corresponding period ended June 
30, 2003. This represents a $123,000, or 12.5%, increase.

FNB Net Interest Income

     Net interest income in 2003 was $7.831 million, a decrease of $18,000, or 
0.2%, from the $7.849 million posted by FNB in 2002. While significant growth 
in earning assets was posted in 2003, at the same time FNB experienced margin 
compression as a result of Federal Reserve policy on interest rates.

     FNB's net interest income for the six months ended June 30, 2004 was 
$4.045 million, an increase of $122,000, or 3.1%, over the $3.923 million 
realized for the six months ended June 30, 2003.

     Asset growth was responsible for FNB's net interest income, on a tax-
equivalent basis, increasing by $466,000 in 2003, while margin compression 
reduced the increase by $420,000, resulting in a net decrease of $10,000 after 
adjusting for other decreasing factors of $56,000.

     The following tables present changes in interest income and expense 
attributable to changes in interest rates, volume, and rate/volume for 
interest-earning assets and interest-bearing liabilities of FNB. Tax-exempt 
income is calculated on a tax-equivalent basis, using a 35.0% tax rate in 2003, 
2002 and 2001.

-------------------------------------------------------------------------------
Year ended December 31, 2003 compared to 2002
Dollars in thousands               Volume       Rate   Rate/volume1    Total
-------------------------------------------------------------------------------
Interest on earning assets
Interest-bearing deposits         $    1         -          (1)          -
Investment securities                 26       (470)        (7)        (451)
Loans held for sale                  123         (8)       (25)          90
Loans                                413       (981)       (40)        (608)
-------------------------------------------------------------------------------
Total interest income                563     (1,459)       (73)        (969)
-------------------------------------------------------------------------------
Interest expense
Deposits                             357       (813)       (99)        (555)
Other borrowings2                   (260)      (226)        82         (404)
-------------------------------------------------------------------------------
Total interest expense                97     (1,039)       (17)        (959)
-------------------------------------------------------------------------------
Change in net interest income     $  466       (420)       (56)         (10)
===============================================================================



Page 84
-------------------------------------------------------------------------------
Year ended December 31, 2002 compared to 2001
Dollars in thousands               Volume       Rate   Rate/volume1      Total
-------------------------------------------------------------------------------
Interest on earning assets
Interest-bearing deposits          $    1         (2)            -          (1)
Investment securities                (184)      (593)           44        (733)
Loans held for sale                    (7)        (4)            1         (10)
Loans                               1,431     (1,779)         (239)       (587)
-------------------------------------------------------------------------------
Total interest income               1,241     (2,378)         (194)     (1,331)
-------------------------------------------------------------------------------
Interest expense
Deposits                             (100)      (983)           25      (1,058)
Other borrowings2                    (309)      (497)          108        (698)
-------------------------------------------------------------------------------
Total interest expense               (409)    (1,480)          133      (1,756)
-------------------------------------------------------------------------------
Change in net interest income      $1,650       (898)         (327)        425
===============================================================================
1 Represents the change attributable to a combination of change in rate 
  and change in volume.
2 Includes federal funds purchased.

     The following table presents, for the years ended December 31, 2003, 2002 
and 2001, the interest earned or paid for each major asset and liability 
category, the average yield for each major asset and liability category, and 
the net yield between assets and liabilities. Tax-exempt income has been 
calculated on a tax-equivalent basis using a 35% rate. Unrecognized interest on 
non-accrual loans is not included in the amount presented, but the average 
balance of non-accrual loans is included in the denominator when calculating 
yields.



























Page 85
-------------------------------------------------------------------------------
Years ended December 31,           2003              2002             2001
                            ---------------   --------------   ---------------
                              Amount    Avg     Amount   Avg     Amount    Avg
                                  of  Yield/        of Yield/        of  Yield/
Dollars in thousands        interest   Rate   interest  Rate   interest   Rate
-------------------------------------------------------------------------------
Interest-earning assets
Interest-bearing deposits   $      1   0.61%         1  1.49%         2   6.46%
Investments                    1,311   3.59%     1,762  4.90%     2,495   6.43%
Loans held for sale              132   6.27%        42  7.83%        52   8.51%
Loans                          9,469   6.21%    10,077  6.88%    10,664   8.25%
-------------------------------------------------------------------------------
Total interest-earning 
 assets                       10,913   5.71%    11,881  6.49%    13,213   7.83%
-------------------------------------------------------------------------------
Interest-bearing liabilities
Deposits                       2,380   1.64%     2,935  2.27%     3,993   3.01%
Other borrowings                 313   1.93%       717  2.82%     1,415   4.34%
-------------------------------------------------------------------------------
Total interest-bearing 
liabilities                    2,693   1.67%     3,652  2.36%     5,407   3.27%
-------------------------------------------------------------------------------
Net interest income         $  8,220             8,229            7,806
===============================================================================
Interest rate spread                   4.04%            4.13%             4.56%
Net interest margin                    4.30%            4.49%             4.63%
-------------------------------------------------------------------------------

FNB Non-Interest Income

     Non-interest income increased by 20.5% from $3.027 million in 2002 to 
$3.647 million in 2003. The increase was attributable to increased income on 
mortgage origination and servicing due to higher volumes of loan sales in a 
favorable interest rate climate, increased merchant credit card volume and 
increased document preparation fees on loans. Non-interest income increased 
4.0% in 2002 to $3.027 million from 2001's level of $2.91 million. The increase 
was attributable to increased income on mortgage origination and servicing due 
to higher volumes of loan sales, document preparation fees on loans, and 
increased merchant credit card volume offset by a decrease in gains on sales of 
securities.

     FNB's non-interest income amounted to $1.77 million in the first six 
months of 2004 which was an increase of $0.337 million, or 23.5%, over the 
$1.433 million during the first six months of 2003. FNB introduced an overdraft 
protection product in January of 2004 which was the primary factor causing an 
86.0%, or $153,000, increase in service charges on deposit accounts in the six 
months ended June 30, 2004 over the same period in 2003. 

FNB Non-Interest Expense

     Non-interest expense increased 2.97% to $8.32 million in 2003 from $8.08 
million in 2002. The increase was the result of increased expenses related to 
the merchant credit card program. In 2002, non-interest expense stayed 
substantially the same as in 2001, decreasing to $8.08 million from $8.09 
million. There were increases in salaries and benefits, occupancy and 
equipment, and merchant credit card program expenses. There was a drop of $.268 
million in realized losses on securities available to $0.038 million in 2002 
from $.306 million in 2001.
Page 86

     Non-interest expense of $4.2 million for the six months ended June 30, 
2004 is an increase of 10% over non-interest expense of $3.8 million for the 
first six months of 2003. Normal increases in the costs of personnel, products 
and services as well as increases in merchant credit card processing fees, due 
to increased volume, and publicity and advertising, due to marketing efforts, 
were primary causes of the increase.

FNB Net Income

     Net income for 2003 was $2.019 million - a 36.7%, or $0.542 million, 
increase from net income of $1.477 million that was posted in 2002. While net 
interest income decreased 0.2%, the significant increase in non-interest income 
and decrease in provision for loan losses played a major role in FNB's overall 
performance. Diluted earnings per share for the year ended December 31, 2003 
increased 36% to $1.86, compared to $1.37 in 2002, and $1.19 in 2001. Both 
earnings per share and net income reported by FNB set new records in 2003. Book 
value per share was $14.66 on December 31, 2003, up from $13.24 on December 31, 
2002 and $11.86 on December 31, 2001. Net income for the year ended December 
31, 2002 was $1.477 million - a 14.5% or $.187 million increase from net income 
of $1.29 million that was posted in 2001. Increased net interest income, higher 
levels of non-interest income and controlled operating expenses were the major 
factors in these results.

     Net income of $1.11 million through the first six months of 2004 increased 
12% over net income of $.99 million for the same period in 2003. Provisions for 
loan losses in the six months ended June 30, 2004 amounted to $120,000 versus 
$180,000 for the same period in 2003.

FNB Key Ratios

     Return on average assets in 2003 was .99%, up from .78% in 2002 and .72% 
in 2001. Return on average equity was 13.9% in 2003, compared to 11.2% in 2002 
and 10.5% in 2001. The increase in 2003 was primarily due to the record 
earnings caused by the factors noted above.

     Annualized return on average assets for the first six months of 2004 was 
1%, down slightly from 1.01% during the same period in 2003. Annualized return 
on average equity was 14.23% for the first six months of 2004, up from 13.82% 
for the first six months of 2003. FNB's efficiency ratio for the first six 
months of 2004 was 71.77%, compared to 72.08% for the same period in 2003.

FNB Investment Management and Fiduciary Activities

     As of December 31, 2003, FNBBH's trust and investment services department 
had assets under management with a market value of $113 million, consisting of 
590 trust accounts, estate accounts, agency accounts, custody accounts, and 
self-directed individual retirement accounts. This compares to December 31, 
2002 when 603 accounts with market value of $90.8 million were under 
management. The growth in assets under management during 2003 was the result of 
a combination of new assets as well as an increase in the market value of 
existing assets. Increased business development efforts resulted in the 
increase in new accounts opened in 2003 and the first six months of 2004.

     As of June 30, 2004 assets under management consisted of 566 accounts with 
a market value of $124 million. Fiduciary income amounted to $.323 million 
during the first six months of 2004, an increase of $.094 million, or 41%, over 
the $.229 million generated during the first six months of 2003.

Page 87
FNB Average Daily Balance Sheets

The following table shows FNB's average daily balance sheets for the
years ended December 31, 2003, 2002 and 2001.
-------------------------------------------------------------------------------
Dollars in thousands
Years ended December 31,                2003            2002            2001
-------------------------------------------------------------------------------
Cash and due from banks            $   7,186           6,537           6,070
Interest-bearing deposits                108              47              32
Federal funds sold                     6,227           4,565           2,949
Investments
   U.S. Treasury securities
     & government agencies             8,430           6,895          11,450
   Obligations of states
     & political subdivisions          7,430           7,681           3,262   
Other securities                      14,399          16,808          21,153
-------------------------------------------------------------------------------
Total investments                     30,259          31,384          35,865
-------------------------------------------------------------------------------
Loans held for sale                    2,103             533             613
-------------------------------------------------------------------------------
Loans
   Commercial                         89,126          83,427          75,428
   Consumer                            7,637           6,782           5,995
   State and municipal                 9,202           7,024           4,290
   Real estate                        48,742          49,897          43,549
-------------------------------------------------------------------------------
   Total loans                       154,707         147,130         129,262
Allowance for loan losses              1,873           1,561           1,606
-------------------------------------------------------------------------------
   Net loans                         152,834         145,569         127,656
Fixed assets                           3,148           3,072           3,518
OREO                                      --              34              --
Other assets                           2,901           2,548           2,503
-------------------------------------------------------------------------------
      Total assets                 $ 204,766         194,289         179,206
===============================================================================





















Page 88
FNB Average Daily Balance Sheets, Continued


-------------------------------------------------------------------------------
Dollars in thousands
Years ended December 31,                2003            2002            2001
-------------------------------------------------------------------------------
Deposits
   Demand                          $  26,964          24,499          22,340
   NOW                                38,375          30,216          20,495
   Money market                       14,239           9,272           5,722
   Savings                            42,847          41,500          38,977
   Certificates of deposit            40,045          36,511          34,102
   Certificates of deposit
     over $100,000                     9,546          11,833          10,954
-------------------------------------------------------------------------------
Total deposits                       172,016         153,831         132,590
Federal funds purchased                  916             574           1,479 
Securities sold under agreements
    to repurchase                      9,398          12,351          15,458
FHLB short term advances               3,043           8,505          10,797
FHLB long term advances                2,500           2,800           3,000
Treasury, tax & loan deposits            354           1,208           1,827
Other liabilities                      1,871           1,901           1,657
-------------------------------------------------------------------------------
   Total liabilities                 190,098         181,170         166,808
-------------------------------------------------------------------------------
Common stock                             298             300             300
Additional paid in capital               784             755             755
Retained earnings                     14,431          12,754          12,050
Treasury stock                          (845)           (690)           (707)
 ------------------------------------------------------------------------------
   Total capital                      14,668          13,119          12,398
-------------------------------------------------------------------------------
     Total liabilities and capital $ 204,766         194,289         179,206
===============================================================================























Page 89
FNB Average Daily Balance Sheets

The following table shows FNB's average daily balance sheets for the six-month 
periods ended June 30, 2004 and 2003

--------------------------------------------------------------------------
                                          Six-Month Periods ended June 30,
Dollars in thousands                                 2004            2003
--------------------------------------------------------------------------
Cash and due from banks                           $ 7,198       $   6,157
Interest bearing deposits                             134             142
Federal funds sold                                    505             690
Investments
 U.S. Treasury securities & government agencies    10,257           6,640
 Obligations of states & political subdivisions     7,735           7,201
 Other securities                                  15,028          15,309
                                                 ---------       ---------
Total investments                                  33,020          29,150
                                                 ---------       ---------
Loans held for sale                                 1,090           1,264
                                                 ---------       ---------
Loans
   Commercial                                      96,164          88,164
   Consumer                                         8,331           7,724
   State and municipal                             13,363           8,085
   Real estate                                     53,591          49,976
                                                 ---------       ---------
   Total loans                                    171,449         153,949
Allowance for loan losses                          (2,031)         (1,810)
                                                 ---------       ---------
   Net loans                                      169,418         152,139
                                                 ---------       ---------
Bank premises and equipment, net                    3,821           3,049
Other assets                                        6,085           2,412
                                                 ---------       ---------
   Total assets                                  $221,271       $ 195,003
                                                 =========       =========






















Page 90
FNB Average Daily Balance Sheets, Continued


--------------------------------------------------------------------------
                                          Six-Month Periods ended June 30,
Dollars in thousands                                 2004            2003
--------------------------------------------------------------------------
Deposits 
   Demand                                        $ 29,318       $  23,089
   NOW                                             40,082          35,440
   Money market                                    20,612          10,262
   Savings                                         44,653          40,635
   Certificates of deposit                         39,763          40,127
   Certificates of deposit over $100,000           10,428           9,525
                                                 ---------       ---------
Total deposits                                    184,856         159,078
                                                 ---------       ---------
Federal funds purchased                             2,340           1,847
Securities sold under agreements
    to repurchase                                  10,138           8,885
FHLB short term advances                            3,780           5,920
FHLB long term advances                             2,500           2,500
Treasury, tax & loan deposits                         200             569
Other liabilities                                   1,828           1,905
                                                 ---------       ---------
   Total liabilities                              205,642         180,704
                                                 ---------       ---------
Common stock                                          600             300
Additional paid-in capital/surplus                    350             755
Retained earnings                                  15,622          13,635
Net unrealized gain on
   securities available for sale                      207             294
Treasury stock                                     (1,150)           (685)
                                                 ---------       ---------
   Total shareholders' equity                      15,629          14,299
                                                 ---------       ---------
   Total liabilities and shareholders' equity    $221,271       $ 195,003
                                                 =========       =========
---------------------------------------------------------------------------




















Page 91
FNB Assets and Asset Quality
-------------------------------------------------------------------------------

     FNB experienced 12.4% asset growth in 2003, with the loan portfolio 
increasing by $12.091 million, or 8.12%, and the investment portfolio 
increasing $2.721 million, or 8.86%. Total assets increased by $24.2 million 
from $195.4 million to $219.6 million. Asset growth was funded with deposits, 
which increased $23.6 million, or 14.6%. Net interest margin decreased from 
4.49% in 2002 to 4.30% in 2003 resulting in a decrease in tax-equivalent net 
interest income of $0.01 million, or 0.12%, to $8.219 million. In FNB 
management's opinion, significant improvements have been made to loan quality 
over the past three years. FNBBH's loan delinquency ratio decreased in 2003 to 
0.50% at year end, versus 0.85% on December 31, 2002 and 1.50% on December 31, 
2001. The percentage of classified loans to Tier 1 capital decreased in 2003 to 
8.75%, versus 18.70% on December 31, 2002 and 41.43% on December 31, 2001. In 
FNB management's opinion, there has been no pattern or trend in loan 
delinquencies which is of concern. The levels seen in 2003 and 2002 are 
reflective of FNBBH's ability to control loan quality and resolve delinquency 
issues quickly.

     FNB's total assets increased from $200.2 million at June 30, 2003 to 
$227.5 million at June 30, 2004, an increase of 13.7%. Total loans increased by 
$21.8 million, or 14.2%, while the investment portfolio decreased by $1.9 
million, or 5.8%, over the same period. 

FNB Investment Activities

     During 2003, FNB's investment portfolio increased 8.3% to end the year at 
$35.36 million, compared to $32.6 million on December 31, 2002. Much of the 
Company's investment portfolio consists of callable securities, and the 
declining interest rate environment in 2003 resulted in a number of these 
securities being called by issuers. FNB was able to replace these securities at 
favorable levels and post a $2.7 million net growth in the portfolio in 2003. 
Due to calls on U.S. Government Agency securities and pay downs on mortgage-
backed securities, FNB's total investments decreased to $30.3 million on June 
30, 2004, a decrease of 16.8% from December 31, 2003.

     FNB's investment securities are classified into two categories: securities 
available for sale and securities to be held to maturity, with substantially 
all of FNB's investment securities held in the available for sale category. 
Securities available for sale consist primarily of debt securities which FNB 
management intends to hold for indefinite periods of time. They may be used as 
part of FNB's funds management strategy, and may be sold in response to changes 
in interest rates, changes in prepayment risk, changes in liquidity needs, a 
need to increase capital ratios, or for other similar reasons. Securities to be 
held to maturity consist primarily of debt securities that FNB has acquired 
solely for long-term investment purposes, rather than for trading or future 
sale. For securities to be categorized as held to maturity, FNB management must 
have the intent and FNB must have the ability to hold such investments until 
their respective maturity dates. FNB does not hold trading account securities.

     All investment securities are managed in accordance with a written 
investment policy adopted by FNB's Board of Directors. It is FNB's general 
policy that investments be limited to government debt obligations, time 
deposits, banker's acceptances, corporate bonds and commercial paper with one 
of the three highest ratings given by a nationally recognized rating agency.



Page 92
     In 2003, the growth in FNB's investment portfolio was primarily in U.S. 
Government Agency securities. These were selected to provide earnings on 
seasonal deposits above the fed funds rate and to enhance the portfolio's 
overall yield while not materially adding to FNB's level of interest rate risk. 
The following table sets forth FNB's investment securities at their carrying 
amounts as of December 31, 2003, 2002, and 2001.

-------------------------------------------------------------------------------
Dollars in thousands                        2003          2002          2001
-------------------------------------------------------------------------------
Securities available for sale
U.S. Treasury and agency               $  12,520          8,726        5,024
Mortgage-backed securities                13,174         14,901       16,358
State and political subdivisions           7,246          6,527        6,988
Corporate securities                          --             --           --
Federal Home Loan Bank stock               1,896          1,896        1,896
Federal Reserve Bank stock                    40             40           40
Other equity securities                       --             --           --
-------------------------------------------------------------------------------
                                       $  34,876         32,090       30,306
-------------------------------------------------------------------------------
Securities to be held to maturity
State and political subdivisions             480            545          605
-------------------------------------------------------------------------------
                                             480            545          605
-------------------------------------------------------------------------------
Total securities                       $  35,356         32,635       30,911
===============================================================================































Page 93
     The following table sets forth certain information regarding the yields 
and expected maturities of FNB's investment securities as of December 31, 2003. 
Yields on tax-exempt securities have been computed on a tax-equivalent basis 
using a tax-rate of 35%. Mortgage-backed securities are presented according to 
their final contractual maturity date, while the calculated yield takes into 
effect the intermediate cashflows from repayment of principal which results in 
a much shorter average life.

-------------------------------------------------------------------------------
                              Available for sale            Held to maturity
                              ------------------            ----------------
Dollars in thousands                Fair   Yield to   Amortized    Yield to
                                   value   maturity        cost    maturity
-------------------------------------------------------------------------------
U.S. Treasury and agency
Due in 1 year or less          $       -          -     $     -           -
Due in 1 to 5 years                1,501       2.50%          -           -
Due in 5 to 10 years               9,415       2.14%          -           -
Due after 10 years                 1,604       4.23%          -           -
-------------------------------------------------------------------------------
                                  12,520       2.45%          -           -
-------------------------------------------------------------------------------
Mortgage-backed securities
Due in 1 year or less                 12       5.59%          -           -
Due in 1 to 5 years                  446       2.70%          -           -
Due in 5 to 10 years               7,131       4.00%          -           -
Due after 10 years                 5,585       5.03%          -           -
-------------------------------------------------------------------------------
                                  13,174       4.37%          -           -
-------------------------------------------------------------------------------
State and political subdivisions
Due in 1 year or less                  -          -           -          -
Due in 1 to 5 years                    -          -          90       3.80%
Due in 5 to 10 years                 124       3.20%        390       3.80%
Due after 10 years                 7,122       4.79%          -          -
-------------------------------------------------------------------------------
                                   7,246       4.76%        480       3.80%
-------------------------------------------------------------------------------
Corporate debt securities
Due in 1 year or less                  -          -           -          -
Due in 1 to 5 years                    -          -           -          -
Due in 5 to 10 years                   -          -           -          -
Due after 10 years                     -          -           -          -
-------------------------------------------------------------------------------
                                       -          -           -          -
-------------------------------------------------------------------------------
Equity securities                  1,936       3.11%          -          -
-------------------------------------------------------------------------------
                              $   34,876       3.69%       $480       3.80%
===============================================================================









Page 94
FNB Lending Activities

     FNB's loan portfolio experienced growth during 2003, with the most 
significant increases seen in commercial real estate loans and municipal loans 
offset by a decrease in residential loans. The decrease in residential loans 
was in large part due to refinances of portfolio loans that were subsequently 
sold on the secondary market. Total loans were $161.1 million at December 31, 
2003, an 8.1% increase from total loans of $149 million at December 31, 2002. 
This continues the loan growth trend experienced by FNB over the past five 
years.

     Total loans grew by 10.1% from December 31, 2003 to June 30, 2004, 
increasing $16.2 million to $177 million. Year-over-year, total loans at the 
end of June 2004 increased by $22 million, or 14.4%, from June 30, 2003. 
Residential real estate loans grew by 16% and commercial real estate loans by 
7.9%, with other categories remaining relatively unchanged.

     The following tables summarize FNBBH's loan portfolio as of December 31, 
2003, 2002, 2001, 2000 and 1999.

 
-----------------------------------------------------------------------------------------------------------------
Dollars in thousands                                        
As of December 31,                 2003             2002             2001              2000             1999
-----------------------------------------------------------------------------------------------------------------
                                                                             
Commercial loans                                             
   Real estate            $ 75,531   46.9%  $ 66,557   44.7%  $ 65,187   46.4%  $ 55,693   48.6%  $ 50,415  49.1%
   Other                    17,616   10.9%    16,469   11.0%    15,204   10.8%    12,763   11.2%     9,302   9.1%
Residential real estate loans                                             
   Construction              9,272    5.7%     5,655    3.8%     5,308    3.8%     2,421    2.1%     1,730   1.7%
   Term                     39,640   24.6%    46,469   31.2%    43,816   31.2%    35,014   30.6%    33,932  33.0%
Consumer loans               7,865    4.9%     7,610    5.1%     6,103    4.4%     5,510    4.8%     4,952   4.8%
Municipal                   11,203    7.0%     6,246    4.2%     4,824    3.4%     3,118    2.7%     2,367   2.3%
                           -------  ------   -------  ------   -------  ------   -------  ------   ------- ------
Total                     $161,127  100.0%  $149,006  100.0%  $140,442  100.0%  $114,519  100.0%  $102,698 100.0%
                           =======  ======   =======  ======   =======  ======   =======  ======   ======= ======
-----------------------------------------------------------------------------------------------------------------


     The following table sets forth certain information regarding the 
contractual maturities of FNBBH's loan portfolio as of December 31, 2003.

-----------------------------------------------------------------------
Dollars in thousands       < 1 Year 1-5 Years   > 5 years       Total  
-----------------------------------------------------------------------
Commercial real estate     $  7,447    26,317      39,471      73,235 
Commercial other              6,014    10,601         993      17,608 
Residential real estate       5,115     8,481      28,783      42,379 
Residential construction      8,824        --           4       8,828 
Consumer                      2,059     1,947       3,868       7,874 
Municipal                     5,003     1,904       4,296      11,203 
-----------------------------------------------------------------------
 Totals                    $ 34,462    49,250      77,415     161,127 
=======================================================================




Page 95


     The following table provides a listing of loans by category, excluding
loans held for sale, between variable and fixed rates as of December 31, 2003.

-------------------------------------------------------------------------------
Dollars in thousands                                Amount         % of total
-------------------------------------------------------------------------------
Variable-rate loans
   Commercial loans                               $83,652             51.9%
   Consumer loans                                   2,888              1.8%
   Equity loans                                     6,473              4.0%
   Residential adjustable-rate mortgages           18,717             11.6%
-------------------------------------------------------------------------------
Total variable-rate loans                         111,730             69.3%
Fixed-rate loans                                   49,397             30.7%
-------------------------------------------------------------------------------
Total loans                                      $161,127            100.0%
===============================================================================

FNB Loan Concentrations

     FNBBH has a significant amount of loans related to the tourist industry. 
As of December 31, 2003 FNBBH had $12.3 million in lodging loans and $6.9 
million in restaurant loans, representing 7.6% and 4.3%, respectively, of its 
total loan portfolio.

     Loan concentrations as of June 30, 2004, remained very similar to the 
concentrations at December 31, 2003.

FNB Loans Held for Sale

     In 2003, FNBBH sold a large volume of residential mortgages into the 
secondary market in order to take advantage of increased mortgage underwriting 
opportunities resulting from lower interest rates. The sale of these loans in 
2003 resulted in a higher level of non-interest income. Loans held for sale are 
carried at the lower of cost or market value, which was $1.06 million at 
December 31, 2003 compared to $1.23 million at December 31, 2002.

    Loans held for sale decreased to $.168 million at June 30, 2004, from $1.06 
million at December 31, 2003 as mortgage rates began to rise.

FNB Allowance for Loan Losses and Loan Loss Experience

     The allowance for loan losses represents the amount available for credit 
losses inherent in FNB's loan portfolio. Loans are charged off when they are 
deemed uncollectible, after giving consideration to factors such as the 
customer's financial condition, underlying collateral and guarantees, as well 
as general and industry economic conditions.

     In general, FNB determines the appropriate overall reserve for loan losses 
based upon periodic, systematic reviews of its portfolio to identify inherent 
losses based on management's judgment about various qualitative factors. These 
reviews result in the identification and quantification of loss factors, which 
are used in determining the amount of the allowance for loan losses. FNB 
periodically evaluates prevailing economic and business conditions, industry 
concentrations, changes in the size and characteristics of the portfolio and 
other pertinent factors. Portions of the allowance for loan losses are 
quantified to cover the estimated losses inherent in each loan category based 
on the results of this detailed review process.

Page 96
     Commercial loans are individually reviewed and assigned a credit risk 
rating from "1" (low risk of loss) to "7" (high risk of loss). For non-impaired 
loans with a credit risk rating of "1" to "6", estimated loss factors based on 
historical loss experience (ranging from two to five years) are used to 
calculate a loan loss reserve for each credit risk rating classification. 
Qualitative adjustments are also made based upon FNB management's assessment of 
prevailing economic conditions, trends in volumes and terms of loans, levels 
and trends in delinquencies and non-accruals, and the effect of changes in 
lending policies. A specific allocation is made for impaired loans, or loans no 
longer accruing interest as a result of the deemed uncollectibility of interest 
due, which are measured at the net present value of future cash flows, 
discounted at the loan's effective interest rate, or at fair market value of 
collateral if the loan is collateral dependent. The combination of these 
analyses provides the basis for the determination of the commercial loan 
portion of the allowance for loan losses.

      Consumer loans, which include residential mortgages, home equity 
loans/lines, and direct/indirect loans, are generally evaluated as a group 
based on product type. The determination of the consumer loan portion of the 
allowance for loan losses is based on a three-year average of annual historical 
losses, adjusted for the qualitative factors noted above.

     The results of all analyses are reviewed and discussed by the Risk 
Management Committee of FNB's Board of Directors. An integral component of 
FNB's risk management process is to ensure the proper quantification of the 
reserve for loan losses based upon an analysis of risk characteristics, 
demonstrated losses, loan segmentations, and other factors. The reserve 
methodology is reviewed on a periodic basis and modified as appropriate. Based 
on this analysis, including the aforementioned assumptions, FNB believes that 
the allowance for loan losses is adequate as of December 31, 2003. Although 
management utilizes its best judgment in providing for possible losses, there 
can be no assurance FNBBH will not have to increase its provision for possible 
losses in the future due to increases in non-performing assets or otherwise, 
which would adversely affect the results of operations.

     The following table reflects FNBBH's allowance for loan losses by category 
of loan as of December 31, 2003, 2002, 2001, 2000 and 1999. 

-------------------------------------------------------------------------------
Dollars in thousands
As of December 31,   2003        2002         2001         2000         1999
-------------------------------------------------------------------------------
Real estate    $  485   30%    420   35%    313   35%    380   33%    306   35%
Commercial      1,169   65%  1,035   60%  1,201   61%    879   62%    694   60%
Consumer          335    5%    245    5%    141    4%    204    5%    135    5%
-------------------------------------------------------------------------------
Total          $1,989  100%  1,700  100%  1,655  100%  1,463  100%  1,135  100%
===============================================================================

     The percentage is the amount of loans in each category as a percent of 
total loans for the stated year.

     FNB's reserve for loan losses as a percent of loans as of June 30, 2004 
was 1.14%. The commercial category includes commercial real estate loans. As of 
June 30, 2004 the allocation remained relatively unchanged from December 31, 
2003.



Page 97
     Net loans charged off by FNB in 2003 were $0.071 million, or 0.05%, of 
average loans outstanding for the year, which is significantly lower than the 
level of net charge-offs in the past five years. This compares to net loan 
charge-offs of $0.677 million, or 0.46%, in 2002 and $0.408 million, or 0.32%, 
in 2001. The following table summarizes the activity with respect to loan 
losses for the years ended December 31, 2003, 2002, 2001, 2000 and 1999.

-------------------------------------------------------------------------------
Dollars in thousands
As of December 31,                    2003     2002     2001     2000     1999
-------------------------------------------------------------------------------
Balance at beginning of period      $1,700    1,655    1,463    1,135      847
Loans charged off:
Commercial 1                           45       858      383      131      242
Real estate mortgage                    2        19        2       30       72
Consumer                               60        68       67       29       43
-------------------------------------------------------------------------------
Total                                 107       945      452      190      357
-------------------------------------------------------------------------------
Recoveries on loans previously
  charged off:
Commercial 1                           19       220       34       92       57
Real estate mortgage                   --        10       --       11        3
Consumer                               17        38       10        5       20
-------------------------------------------------------------------------------
Total                                  36       268       44      108       80
-------------------------------------------------------------------------------
Net loans charged off                  71       677      408       82      277
Provision for loan losses             360       722      600      410      565
-------------------------------------------------------------------------------
Balance at end of period           $1,989     1,700    1,655    1,463    1,135
===============================================================================
Ratio of net loans charged off to
   average loans outstanding         0.05%     0.46%    0.32%    0.08%    0.28%
===============================================================================
1 Includes commercial real estate loans

     During 2003, a provision for loan losses of $0.360 million was made to the 
allowance for loan losses, compared to a provision of $0.722 million in 2002, 
and $0.600 million in 2001. In FNB management's opinion, this decreased level 
of provision for loan losses in 2003 was appropriate given the amount of growth 
in the loan portfolio and the overall credit quality of the portfolio. At 
December 31, 2003, the allowance for loan losses stood at $1.989 million, or 
1.23%, of total loans outstanding. This compares to $1.7 million, or 1.14%, of 
total loans outstanding at December 31, 2002, and $1.655 million, or 1.18%, of 
total loans outstanding at December 31, 2001. In FNB management's opinion, past 
levels of provision to the allowance for loan losses have been adequate, as 
demonstrated by net loans charged off shown in the table above. 

     During the first six months of 2004, charge-offs amounted to $90,000, 
recoveries amounted to $32,000, and additional provision for loan losses 
amounted to $120,000; resulting in an allowance for loan losses  of $2.051 
million, or 1.15%, of total loans as of June 30, 2004.






Page 98
FNB Non-Performing Assets

     FNBBH's loan delinquency ratio decreased in 2003 and was 0.65% on December 
31, 2003, versus 0.73% on December 31, 2002. The aggregate dollar amount of 
loans more than 90 days past-due or on non-accrual status decreased during 2003 
by $.056 million. In FNB management's opinion, there has been significant 
improvement in the levels of non-performing assets over the past two years in 
part due to the increased efforts of management. These efforts include more 
timely follow up on delinquent loans and creation of a troubled debt committee 
which is active in establishing action plans to address delinquent and non-
performing loans. The following table sets forth a summary of delinquent loans 
(more than ninety days past due) by category and total loans carried on a non-
accrual basis as of December 31, 2003, 2002, 2001, 2000 and 1999.

-------------------------------------------------------------------------------
Dollars in thousands
As of December 31,                        2003    2002    2001    2000    1999
-------------------------------------------------------------------------------
Commercial real estate & business       $  519     804   3,748   1,922     616
Residential real estate                    253     173     649     325     981
Consumer                                   257     108     145     116     107
-------------------------------------------------------------------------------
Total                                    1,029   1,085   4,542   2,363   1,704
===============================================================================
Non-accrual loans included
   in above total                       $  705     704   4,211   2,095   1,388
===============================================================================

     FNBBH places a loan on non-accrual status only after a careful review of 
the loan circumstances and a determination that payment in full of principal 
and/or interest is not expected. For the year ended December 31, 2003, gross 
interest income that would have been reported for non-accrual loans if the 
loans had been current in accordance with their original terms amounted to 
$31,070 and the amount of interest income on those loans that was included in 
net income amounted to $5,236.

     FNBBH's other real estate owned remained at zero, as it has been at 
December 31, each of the last five years. Other real estate owned and 
repossessed assets are comprised of properties or other assets acquired through 
a foreclosure proceeding, or acceptance of a deed or title in lieu of 
foreclosure. These categories may also include properties which secure loans 
where FNBBH obtains possession of the underlying collateral from the borrower 
or other assets repossessed in connection with non-real estate loans.

     As of June 30, 2004 delinquent loans amounted to $.22 million and non-
accrual loans amounted to $.842 million.













Page 99
FNB Funding, Liquidity and Capital Resources
-------------------------------------------------------------------------------

     FNBBH's principal sources of funding are deposits and borrowed funds from 
the Federal Home Loan Bank. FNBBH has a comprehensive liquidity management 
program in place. It maintains adequate funding for its assets by monitoring 
anticipated sources and uses of funding. In addition to acquiring deposits in 
its local market, FNBBH also has the ability to quickly obtain funding through 
wholesale brokers. FNB had funding through wholesale brokers of $7 million at 
June 30, 2004 and $5 million at December 31, 2003. FNBBH's liquidity position 
is further supplemented with a $5.0 million credit line with a correspondent 
bank.

     FNBBH maintains an available for sale portfolio of securities to enhance 
its overall liquidity position, although it has not found it necessary to 
liquidate securities to meet short-term liquidity needs. Instead, FNBBH uses 
less costly Federal Home Loan Bank advances for this purpose. FHLB borrowings 
amounted to $8.5 million at June 30, 2004; $2.5 million at December 31, 2003; 
and $3.66 million at June 30, 2003. FNBBH had a higher level of borrowings at 
June 30, 2004 than at year-end 2003 to fund the strong loan growth that 
occurred in the first six months of 2004. At December 31, 2003, FNB had a net 
unrealized gain of $.254 million (net of $.131 million in deferred income 
taxes) on available for sale securities. This unrealized gain is in line with 
FNB management's expectations given the drop in interest rates experienced in 
2003.

     FNB's deposit balances generally increase during the summer and autumn 
months of each year due to increased seasonal business activity. In 2003, the 
maximum amount of deposits at any month end was $191.1 million on October 31. 
Because of uncertainty about future interest rates, in recent years investors 
have shown a preference for short-term deposits which could reprice quickly 
should rates rise.

     As of December 31, 2003, FNB had primary sources of liquidity of $32.5 
million, or 14.8% of its assets. It is FNB management's opinion that this is 
adequate. FNBBH has established guidelines for liquidity management, with 
policies and procedures prescribed in its funds management policy. FNB 
management has not seen any recent significant deposit trends which would have 
a material effect on FNBBH's liquidity position.

     As of June 30, 2004, FNB had primary sources of liquidity of $18.9 
million, or 8.3%, of its assets. The decrease in sources of liquidity from 
December 31, 2003 is a typical seasonal fluctuation caused by the seasonal 
decrease in deposits. 

FNB Deposits

     FNBBH realized an increase in deposits of 14.6% in 2003, compared to a 
17.5% increase in 2002 and a 10.0% increase in 2001. Much of the growth in 2003 
was seen in core deposits, which are typically added at favorable cost relative 
to borrowed funds. FNBBH added many new relationships with municipalities in 
2003 which helped increase deposits.







Page 100
     FNBBH's average cost of deposits (including non-interest-bearing accounts) 
was 1.38% for the year ended December 31, 2003, compared to 1.91% for the year 
ended December 31, 2002 and 3.01% for the year ended December 31, 2001. This 
reduction in average cost of deposits over the past two years is consistent 
with the policy for lower interest rates set by the Open Market Committee of 
the Federal Reserve Board. The following table sets forth the average daily 
balance for FNBBH's principal deposit categories for each period.

-------------------------------------------------------------------------------
Dollars in thousands                                                   %growth
Years ended December 31,         2003         2002         2001   2003 vs.2002
-------------------------------------------------------------------------------
Demand deposits                $ 27,378       24,507       22,280        11.7%
NOW accounts                     38,573       30,503       20,052        26.5%
Money market accounts            14,560        9,363        5,764        55.5%
Savings                          42,824       41,346       39,094         3.6%
Certificates of deposit          49,656       48,258       45,379         2.9%
-------------------------------------------------------------------------------
Total deposits                 $172,991      153,977      132,569        12.3%
===============================================================================

     The following table sets forth the average cost of each category of 
interest-bearing deposits for the periods indicated.

-------------------------------------------------------------------------------
Years ended December 31,                      2003          2002          2001
-------------------------------------------------------------------------------
NOW accounts                                 0.84%         1.12%         1.74%
Money market accounts                        1.20%         2.21%         3.28%
Savings accounts                             0.98%         1.60%         3.02%
Certificates of deposit                      2.98%         3.54%         5.10%
-------------------------------------------------------------------------------
Total interest-bearing deposits              1.40%         1.92%         3.04%
===============================================================================

     Of all certificates of deposit, $31.4 million, or 63.7%, will mature by 
December 31, 2004. As of December 31, 2003, FNBBH held a total of $13.7 million 
in certificate of deposit accounts with balances in excess of $100,000. The 
following table summarizes the time remaining to maturity for these 
certificates of deposit:

-------------------------------------------------------------------------------
Dollars in thousands
-------------------------------------------------------------------------------
Within 3 months                                                        $   718
3 months through 6 months                                                3,793
6 months through 12 months                                               1,735
Over 12 months                                                           7,491
-------------------------------------------------------------------------------
Total                                                                  $13,737
===============================================================================

     Total deposits amounted to $185.8 million at June 30, 2004, an increase of 
7.5% from December 31, 2003 and an increase of 9.7% from June 30, 2003. The 
average cost remained at 1.4% for the first six months of 2004 and the 
allocation by category remains similar. 



Page 101
FNB Borrowed Funds

     FNB' borrowed funds consists mainly of repurchase agreements and advances 
from the Federal Home Loan Bank (FHLB) which are secured by FHLB stock, 
selected commercial real estate loans, and qualifying first mortgage loans. At 
FHLB, FNBBH has a credit line of $5.0 million for overnight borrowings, plus 
short-term and long-term advance capacity of $19.0 million. 

     FNBBH participates in the Note Option Depository which is offered by the 
U.S. Treasury Department. Under this program, FNBBH accumulates tax deposits 
made by its customers and is eligible to receive additional Treasury Direct 
investments up to an established maximum balance of $30 million. The balances 
invested by the Treasury are increased and decreased at the discretion of the 
Treasury. The deposits are generally made at interest rates that are favorable 
in comparison to other borrowings. The balances on the Treasury Tax & Loan note 
at December 31, 2003, 2002 and 2001 were $.05 million, $2.5 million and $1.0 
million, respectively.

     The following table sets forth certain information regarding FNB's short-
term borrowings.

-------------------------------------------------------------------------------
Dollars in thousands                          2003           2002          2001
-------------------------------------------------------------------------------
Securities sold under agreements to
repurchase
   Amount outstanding at year-end          $14,057         12,267       19,282
   Weighted average interest rate
      at year-end                             1.08%          1.41%        1.90%
   Maximum amount outstanding at
      any month-end during the year        $14,057         16,304       19,407
   Average amounts outstanding during
      the year                               9,392         12,362       15,402
   Weighted average interest rate
      for the year                            1.20%          1.76%        2.12%
-------------------------------------------------------------------------------
FHLB short-term advances                  
   Amount outstanding at year-end               --            355        9,722
   Weighted average interest rate
      at year-end                               --           5.75%        4.68%
   Maximum amount outstanding at
      any month-end during the year          8,292         16,192       16,926
   Average amounts outstanding during
      the year                               3,199          8,663        9,086
   Weighted average interest rate
      for the year                            1.48%          3.80%        4.83%
-------------------------------------------------------------------------------

     As of June 30, 2004 borrowed funds totaled $20.1 million, consisting of 
FHLB advances amounting to $8.5 million, repurchase agreements amounting to 
$9.3 million, and Treasury Tax & Loan advances of $2.3 million. Borrowings for 
the first six months of 2004 averaged $18.9 million with an average cost of 
1.64%.






Page 102
FNB Capital Resources

     FNB's Capital at December 31, 2003 was sufficient to meet the requirements 
of regulatory authorities. For the year, average equity to average assets was 
7.11% in 2003, versus 6.72% in 2002. Leverage capital of FNB, or total 
shareholders' equity divided by average total assets for the current quarter 
less goodwill and any net unrealized gain or loss on securities available for 
sale, stood at 6.80% on December 31, 2003, versus 6.77% in 2002.

     At December 31, 2003, FNB had tier-one risk-based capital of 9.25% and 
tier-two risk-based capital of 10.50%, versus 9.57% and 10.82%, respectively, 
in 2002. The declines are due to asset growth exceeding capital growth. To be 
rated "well-capitalized", regulatory requirements call for minimum tier-one and 
tier-two risk-based capital ratios of 6.00% and 10.00%, respectively. FNB's 
actual levels of capitalization were above the standards to be rated "well-
capitalized" by regulatory authorities. During 2003, FNB declared semi-annual 
cash dividends of $0.183 and $0.283 per share, adjusted to reflect the 2004 
stock dividend. FNB's dividend payout ratio was 24.14% of earnings in 2003, 
26.19% in 2002, and 24.46% in 2001.

     In determining future dividend payout levels, FNB's Board of Directors 
carefully analyzes capital requirements and earnings retention, as set forth in 
FNB's Dividend Policy. The ability of FNB to pay cash dividends to its 
shareholders depends on receipt of dividends from its subsidiary, FNBBH. FNBBH 
may pay dividends to the extent FNBBH's directors deem appropriate, subject to 
the limitation that the total of all dividends declared by FNBBH in any 
calendar year may not exceed the total of its net profits of that year combined 
with its retained net profits of the preceding two years. The amount available 
for dividends in 2004 will be that year's net income plus $2.6 million. A total 
of $.49 million in dividends was declared in 2003. 

     FBB management knows of no present trends, events or uncertainties that 
will have, or are reasonably likely to have, a material effect on capital 
resources, liquidity, or results of operations.

     Capital ratios for both FNB and FNBBH remained above levels required in 
order to be "well capitalized" as of June 30, 2004. 






















Page 103
FNB Contractual Obligations and Off-Balance Sheet Activities

The following table sets forth the contractual obligations and commitments to 
extend credit of FNB as of December 31, 2003:

-------------------------------------------------------------------------------
                                          Less than     1-3      4-5  More than
Dollars in thousands               Total    1 Year    Years    Years   5 Years
-------------------------------------------------------------------------------
Borrowed funds                   $ 16,607    14,107      500       --    2,000
Operating leases                      781       133      233      237      178
Certificates of deposit            49,308    31,405   11,958    5,945       --
-------------------------------------------------------------------------------
Total contractual obligations    $ 66,696    45,645   12,691    6,182    2,178
===============================================================================
Unused lines, collateralized
   by residential real estate    $ 17,075    17,075       --      --        --
Other unused commitments            5,259     5,259      --      --        --
Standby letters of credit           1,230     1,230       --      --        --
Commitments to extend credit       17,486    17,486       --      --        --
-------------------------------------------------------------------------------
Total loan commitments and
   unused lines of credit        $ 41,050    41,050       --      --        --
===============================================================================

     FNB is party to financial instruments with off-balance sheet risk in the 
normal course of business to meet the financing needs of its customers. These 
include commitments to originate loans, commitments for unused lines of credit, 
and standby letters of credit. The instruments involve, to varying degrees, 
elements of credit risk in excess of the amount recognized in the consolidated 
balance sheets. Commitments for unused lines are agreements to lend to a 
customer provided there is no violation of any condition established in the 
contract and generally have fixed expiration dates. Standby letters of credit 
are conditional commitments issued by FNBBH to guarantee a customer's 
performance to a third party. The credit risk involved in issuing letters of 
credit is essentially the same as that involved in extending loans to 
customers. As of December 31, 2003, FNB's off-balance-sheet activities 
consisted entirely of commitments to extend credit.

FNB Capital Purchases

In 2003, FNB made capital purchases totaling $318,000. This cost will be 
amortized over an average of twelve years, adding approximately $27,000 to pre-
tax operating costs per year. The capital purchases include equipment related 
to technology.

     During the first six months of 2004, $890,000 was capitalized by FNB as 
part of the construction of the new branch in Blue Hill which opened in early 
August. There were no other significant capital purchases during the first six 
months of 2004. 

Effect of Future Interest Rates on Post-retirement Benefit Liabilities

In evaluating FNB's post-retirement benefit liabilities, FNB management 
believes changes in discount rates will not have a significant impact on future 
operating results or financial condition.



Page 104
FNB Risk Management
-------------------------------------------------------------------------------

     Market risk is the risk of loss arising from adverse changes in the fair 
value of financial instruments due to changes in interest rates, and FNBBH's 
market risk is composed primarily of interest rate risk. FNBBH's 
Asset/Liability Committee ("ALCO") is responsible for reviewing the interest 
rate sensitivity position of FNB and establishing policies to monitor and limit 
exposure to interest rate risk. All guidelines and policies established by ALCO 
have been approved by FNB's Board of Directors.

FNB Asset/Liability Management

     The primary goal of asset/liability management is to maximize net interest 
income within the interest rate risk limits set by ALCO. Interest rate risk is 
monitored through the use of two complementary measures: static gap analysis 
and earnings simulation modeling. While each measurement has limitations, taken 
together they present a reasonably comprehensive view of the magnitude of 
interest rate risk in FNB, the level of risk through time, and the amount of 
exposure to changes in certain interest rate relationships.

     Static gap analysis measures the amount of repricing risk embedded in the 
balance sheet at a point in time. It does so by comparing the differences in 
the repricing characteristics of assets and liabilities. A gap is defined as 
the difference between the principal amount of assets and liabilities which 
reprice within a specified time period. The cumulative one-year gap, at year-
end 2003, was -10.8% of total assets. Core deposits with non-contractual 
maturities are presented as repricing in the first months time frame of the 
analysis. 

     The gap repricing distributions include principal cash flows from 
residential mortgage loans and mortgage-backed securities in the time frames in 
which they are expected to be received. Mortgage prepayments are estimated by 
applying industry median projections of prepayment speeds to portfolio segments 
based on coupon range and loan age.
























Page 105
     FNB's summarized static gap, as of December 31, 2003, is presented in the 
following table:

------------------------------------------------------------------------------
                                    0-90      91-365          1-5           5+
Dollars in thousands                days        days        years        years
------------------------------------------------------------------------------
 Investment securities at
    amortized cost              $ 13,499       6,521       13,485        7,167
 Loans held for sale               1,061           -            -            -
 Loans                            72,066      45,997       30,709       10,392
 Other interest-earning assets       386           -            -            -
 Non-rate-sensitive assets             -           -            -       18,351
------------------------------------------------------------------------------
 Total assets                   $ 87,012      52,518       44,194       35,910
==============================================================================
 Interest-bearing deposits      $114,226      22,589       17,791       31,233
 Borrowed funds                   14,107           -          500        2,000
 Non-rate-sensitive liabilities
   and equity                          -           -            -       17,188
------------------------------------------------------------------------------
 Total liabilities and equity   $128,333      22,589       18,291       50,421
==============================================================================
 Period gap                     $(41,321)     29,929       25,903      (14,511)
 Percent of total assets         (18.81%)      13.63%       11.79%      (6.61%)
==============================================================================
 Cumulative gap (current)       $(41,321)    (11,392)      14,511            -
 Percent of total assets         (18.81%)     (5.19%)        6.61%        0.00%
==============================================================================

     The earnings simulation model forecasts one- and two-year net interest 
income under a variety of scenarios that incorporate changes in the absolute 
level of interest rates as well as basis risk, as represented by changes in the 
shape of the yield curve and changes in interest rate relationships. FNB 
management evaluates the effects on income of alternative interest rate 
scenarios against earnings in a stable interest rate environment. This analysis 
is also most useful in determining the short-run earnings exposures to changes 
in customer behavior involving loan payments and deposit additions and 
withdrawals.

     The June 30, 2004 simulation model projects 2004 net interest income would 
increase by approximately 0.58% of stable-rate net interest income if rates 
fall gradually by one percentage point over the next four months, and decrease 
by approximately 0.70% if rates rise gradually by one percentage point. Both 
scenarios are well within ALCO's policy limits. FNB management believes this 
reflects a reasonable interest rate risk position. Within an eighteen month 
horizon and assuming no additional movement in rates, the model forecasts that 
net interest income would be lower than that earned in a stable rate 
environment by 4.07% in a falling rate scenario and increase by 1.94% in a 
rising rate scenario.









Page 106
     This dynamic simulation model includes assumptions about how the balance 
sheet is likely to evolve through time and in different interest rate 
environments. Loans and deposits are projected to maintain stable balances. All 
maturities, calls and prepayments in the securities portfolio are assumed to be 
reinvested in similar assets. Mortgage loan prepayment assumptions are 
developed from industry median estimates of prepayment speeds for portfolios 
with similar coupon ranges and seasoning. Non-contractual deposit volatility 
and pricing are assumed to follow historical patterns. The sensitivities of key 
assumptions are analyzed quarterly and reviewed by ALCO.

     A summary of FNB's interest rate risk simulation modeling, as of December 
31, 2003 and 2002 is presented in the following table:

------------------------------------------------------------------------------
Changes in Net Interest Income                           2003             2002
------------------------------------------------------------------------------
Year 1
Projected change if rates decrease by 1.0%              +0.73%           -0.58%
Projected change if rates increase by 2.0%              -3.44%           -1.12%
------------------------------------------------------------------------------
Year 2
Projected change if rates decrease by 1.0%              -5.57%           -7.04%
Projected change if rates increase by 2.0%              +9.02%          -12.11%
------------------------------------------------------------------------------

     A variety of financial instruments can be used to manage interest rate 
sensitivity. These may include the securities in the investment portfolio, 
interest rate swaps, and interest rate caps and floors. Frequently called 
interest rate derivatives, interest rate swaps, caps and floors have 
characteristics similar to securities but possess the advantages of 
customization of the risk-reward profile of the instrument, minimization of 
balance sheet leverage and improvement of liquidity. As of December 31, 2003, 
FNB was not using any derivative instruments for interest rate risk management.


























Page 107
FNB Other Information
-------------------------------------------------------------------------------

Impact of Recently Issued Accounting Standards on FNB

In April 2003, the Financial Accounting Standards Board (FASB) issued Statement 
of Financial Accounting Standards (SFAS) No. 149, "Amendment of Statement 133 
on Derivative Instruments and Hedging Activities." The Statement amends and 
clarifies accounting for derivative instruments, including certain derivative 
instruments embedded in other contracts, and for hedging activities under 
Statement 133. SFAS 149 is effective for contracts entered into or modified 
after June 30, 2003, except as stated below and for hedging relationships 
designated after June 30, 2003. The guidance should be applied prospectively. 
The provisions of this Statement that relate to Statement 133 Implementation 
Issues that have been effective for fiscal quarters that began prior to June 
15, 2003, should continue to be applied in accordance with their respective 
effective dates. In addition, certain provisions relating to forward purchases 
or sales of when-issued securities or other securities that do not yet exist, 
should be applied to existing contracts as well as new contracts entered into 
after June 30, 2003. SFAS No. 149 does not affect FNB's consolidated financial 
condition and results of operations.

     In May 2003, FASB issued Statement No. 150, "Accounting for Certain 
Financial Instruments with Characteristics of both Liabilities and Equity." 
This Statement establishes standards for how an issuer classifies and measures 
certain financial instruments with characteristics of both liabilities and 
equity. It requires that an issuer classify a financial instrument that is 
within its scope as a liability (or an asset in some circumstances). This 
Statement is effective for financial instruments entered into or modified after 
May 31, 2003, and otherwise is effective at the beginning of the first interim 
period beginning after June 15, 2003, except for mandatory redeemable financial 
instruments of nonpublic entities. This Statement does not impact the Company's 
consolidated financial statements as FNB does not have financial instruments 
with characteristics of both liabilities and equity.

     FASB's Emerging Issues Task Force, in its Issue No. 03-1, has issued new 
disclosure requirements with respect to investment securities with unrealized 
losses that have not been classified as other-than-temporary. Companies are 
required to disclose separately investments that have had continual unrealized 
losses for twelve months or more, and those that have had continual unrealized 
losses for less than twelve months. For investments in the former category, a 
narrative disclosure is required that would allow financial statement users to 
understand the positive and negative information management considered in 
reaching the conclusion that the impairments are not other-than-temporary. The 
new disclosure requirements, which are effective for years ending after 
December 15, 2003, did not have a material impact on FNB's consolidated 
financial statements.












Page 108
     In December 2003, the President signed the Medicare Prescription Drug, 
Improvement and Modernization Act of 2003 (the Act) into law. The Act includes 
the following two new features to Medicare (Medicare Part D) that could affect 
the measurement of the accumulated postretirement benefit obligation (APBO) and 
net periodic postretirement benefit cost for the Plan: a subsidy to plan 
sponsors that is based on 28% of an individual beneficiary's annual 
prescription drug costs between $250 and $5,000 and the opportunity for a 
retiree to obtain a prescription drug benefit under Medicare. The effects of 
the Act on the APBO or net periodic postretirement benefit cost are not 
reflected in the financial statements or accompanying notes. Pending specific 
authoritative guidance on the accounting for the federal subsidy could require 
FNB to change previously reported information when the guidance is issued.

     In December 2003, FASB issued a revised version of SFAS 132, "Employers' 
Disclosures about Pensions and Other Postretirement Benefits." The Statement 
retains all of the previous requirements and introduces additional disclosure 
requirements and interim reporting requirements. SFAS 132 (revised 2003) is 
effective for years ending after December 15, 2003.

     In May 2004, the Financial Accounting Standards Board (FASB) issued FASB 
Staff Position (FSP) No. 106-2. The FSP supersedes FSP No. 106-1, which was 
issued to address the accounting impact of the Medicare Prescription Drug, 
Improvement and Modernization Act of 2003 (the Act). The Act includes a 
prescription drug benefit under Medicare Part D and a federal subsidy to 
sponsors of retiree health care benefit plans that provide a benefit that is at 
least actuarially equivalent to Medicare Part D.

     FSP No. 106-2 applies only to sponsors of single-employer plans for which 
(1) the employer concludes that prescription drug benefits under the plan are 
actuarially equivalent to Medicare Part D and thus qualify for the subsidy, and 
(2) the expected amount of the subsidy will offset or reduce the employer- 
sponsor's share of the plan's prescription drug coverage. The FSP provides 
accounting guidance and required disclosures. For public companies, the FSP is 
effective for the first interim or annual period beginning after June 15, 2004. 
Management has not determined the effect of FSP 106-2 on FNB's Consolidated 
Financial Statements.























Page 109
FNB Quarterly Financial Information

-------------------------------------------------------------------------------
Dollars in thousands                     2003 Q1   2003 Q2   2003 Q3   2003 Q4
-------------------------------------------------------------------------------
Balance Sheets
Cash                                    $  7,615    16,162    27,198    15,211
Investments                               29,697    24,744    27,771    35,356
Net loans                                154,474   153,638   158,073   160,199
Other assets                               5,308     5,612     6,017     8,868
-------------------------------------------------------------------------------
   Total assets                         $197,094   200,156   219,059   219,634
===============================================================================
Deposits                                $161,215   169,254   189,677   185,712
Borrowed funds                            19,392    14,305    12,372    16,607
Other liabilities                          2,034     1,638     1,839     1,992
Shareholders' equity                      14,453    14,959    15,171    15,323
-------------------------------------------------------------------------------
   Total liabilities & equity           $197,094   200,156   219,059   219,634
===============================================================================

Income Statements
Interest income                         $  2,635     2,685     2,619     2,585
Interest expense                             718       679       639       657
-------------------------------------------------------------------------------
   Net interest income                     1,917     2,006     1,980     1,928
   Provision for loan losses                  90        90        90       140
-------------------------------------------------------------------------------
Net interest income after provision        1,827     1,916     1,890     1,788
Non-interest income                          663       770     1,229       985
Non-interest expense                       1,837     1,995     2,367     2,122
-------------------------------------------------------------------------------
   Income before taxes                       653       691       752       651
Income taxes                                 170       185       220       153
-------------------------------------------------------------------------------
   Net income                           $    483       506       532       498
===============================================================================
Basic earnings per share                $   .46      .48      .50      .48
Diluted earnings per share              $   .44      .47      .49      .46
-------------------------------------------------------------------------------



















Page 110
-------------------------------------------------------------------------------
Dollars in thousands                     2002 Q1   2002 Q2   2002 Q3   2002 Q4
-------------------------------------------------------------------------------
Balance Sheets
Cash                                    $  9,484    11,637    16,855     9,564
Investments                               32,556    27,779    34,553    32,635
Net loans                                144,143   148,276   146,509   148,533
Other assets                               6,127     6,447     5,854     4,682
-------------------------------------------------------------------------------
   Total assets                         $192,310   194,139   203,771   195,414
===============================================================================
Deposits                                $141,526   151,505   172,822   162,088
Borrowed funds                            36,437    27,691    15,146    17,622
Other liabilities                          1,902     1,826     1,967     1,729
Shareholders' equity                      12,445    13,117    13,836    13,975
-------------------------------------------------------------------------------
   Total liabilities & equity           $192,310   194,139   203,771   195,414
===============================================================================

Income Statements
Interest income                         $  2,817     2,930     2,893     2,861
Interest expense                             961       957       898       836
-------------------------------------------------------------------------------
   Net interest income                     1,856     1,973     1,995     2,025
   Provision for loan losses                 338       150       150       184
-------------------------------------------------------------------------------
Net interest income after provision        1,518     1,823     1,845     1,841
Non-interest income                          609       564     1,016       838
Non-interest expense                       1,769     1,963     2,316     2,034
-------------------------------------------------------------------------------
   Income before taxes                       358       424       545       645
Income taxes                                  75        95       137       188
-------------------------------------------------------------------------------
   Net income                           $    283       329       408       457
===============================================================================
Basic earnings per share                $   0.27      0.31      0.39      0.43
Diluted earnings per share              $   0.26      0.31      0.38      0.42
-------------------------------------------------------------------------------





















Page 111
FNB Directors, Management and Additional Information

Pursuant to the Merger Agreement, Messrs. Rosborough and McKim will become 
directors of FNLC following the merger, and Messrs. McKim, Wrobel, Dalrymple 
and Lay will become executive officers of FNLC. See "Interests of Certain 
Persons in the Merger" on page __.

    Mark N. Rosborough (56) has served as a Director of FNB and FNBBH since 
1989. Mr. Rosborough is currently the Chairman of the Board of Directors of 
FNB. He is the owner of J.T. Rosborough Insurance Agency in Ellsworth, Maine. 

     Tony C. McKim (37), President and Chief Executive Officer of FNB, has over 
16 years of experience in the banking industry.  He joined FNB in 1992 as an 
internal auditor and prior to becoming President and Chief Executive Officer in 
2000, spent 8 years in numerous positions within FNBBH including Controller, 
Vice President and Controller, Senior Vice President, Chief Financial Officer 
and Chief Operating Officer. Prior to joining FNBBH, Mr. McKim spent four years 
in Public Accounting with Albin Randall & Bennett in Portland, Maine. Mr. McKim 
is an active member of the Hancock and Washington County communities, serving 
as a member of the Board of Directors of many local, regional and state 
organizations including MDI Hospital, Maine Health Alliance, Coastal Acadia 
Development Corporation, Maine Bankers Association, Acadian Youth Football 
League and Trenton Little League.  Mr. McKim received his Bachelor of Science 
degree with distinction from the University of Maine.

     Ronald J. Wrobel (47), Senior Vice President and Chief Financial Officer 
of FNB, received his undergraduate degree from the University of Maine at 
Presque Isle and his Masters in Accounting from the Graduate School at Bowling 
Green University. His professional career began at Agway, Inc., a farmers' 
cooperative. Subsequently, Mr. Wrobel joined KPMG Peat Marwick in Portland, 
Maine and spent seven years as a CPA specializing in banking and other 
industries. In 1992, Mr. Wrobel joined FNBBH, initially as loan review officer, 
then Vice President of Risk Management, and for the last four years, as Senior 
Vice President, Chief Financial Officer and Chief Operations Officer. He is an 
active member of the community and currently serves as Past President and Board 
Member of the Rotary Club, Treasurer and member of the Board of the YMCA, 
member of Kebo Valley Country Club, and Town of Bar Harbor Warrant Committee.

     Jeffrey C. Dalrymple (48), Senior Vice President, Customer Relations of 
FNBBH, has almost 25 years of banking experience. He joined FNBBH as Senior 
Vice President, Customer Relations in 1998 and currently leads FNBBH's 
relationship management efforts and initiatives.  Prior to joining FNBBH, Mr. 
Dalrymple spent three years at Key Bank in Bangor, serving as Vice President - 
Commercial Lending.  Previously, Mr. Dalrymple spent 11 years with Maine 
National Bank fulfilling various roles including Teller, Branch Manager, 
Manager and Vice President - Commercial Lending.  Mr. Dalrymple is a graduate 
of Colby College with a B.A. degree in Economics and Business.

     Daniel M. Lay, Esq. (43), Senior Vice President and Senior Trust Officer 
of FNBBH, performed his undergraduate studies at Norwich University and earned 
his law degree from the New England School of Law in Boston, Massachusetts in 
1990.  His career in banking began with State Street Bank and Trust in Boston 
where he worked in both the Legal and Mutual Funds Divisions from 1985-1990.  
Prior to joining FNBBH in 1993, Mr. Lay was an associate counsel with the firm 
of Eaton, Peabody, Bradford & Veague, P.A. in Bangor, Maine.  In 1999, Mr. Lay 
was promoted to Senior Vice President and Senior Trust Officer. He is a member 
of the Maine State Bar Association, serves as President of the Board of 
Trustees for the S.P.C.A. of Hancock County and is a member of the Trust 
Committee of the Maine Banker's Association.
Page 112
FNB Executive Compensation

      The table below sets forth the cash compensation and certain other 
compensation paid to the President & Chief Executive Officer of FNB during 
2003, 2002 and 2001. No other Executive Officers of FNB received compensation 
in excess of $100,000 for the years ended December 31, 2003, 2002 and 2001.

-------------------------------------------------------------------------------
                                   Annual                             Long-Term
                                Compensation                       Compensation
Name                -----------------------------             ------------
And                                                         Other    Securities
Principal                                                  Annual    Underlying
Position              Year     Salary     Bonus(1)   Compensation(2)    Options
-------------------------------------------------------------------------------
Tony C. McKim         2003  $ 137,800     $ 20,200        $ 9,771        9,000
President and CEO     2002  $ 130,000     $ 10,312        $10,006          -0-
                      2001  $ 120,000     $  7,162        $ 9,002       21,750
-------------------------------------------------------------------------------
(1) Bonuses are listed in the year earned and normally accrued. Such bonuses 
may be paid in the following year.
(2) Amounts shown include contributions paid by FNB to the account of the 
President and Chief Executive Officer in the 401(k) Plan. In 2003 FNB and FNBBH 
contributed to FNBBH's 401(k)Plan a matching amount for the salary deferred by 
Mr. McKim equal to 25.0% of the first 10% of contributions of his earnings and 
a discretionary profit-sharing component of $4,343 for 2003, $5,032 in 2002 and 
$5,211 for 2001, of his earnings. These percentages were equivalent to the 
401(k) Plan match and profit sharing contributions made for all eligible 
employees.  (b) Also included is the economic value of split dollar life 
insurance benefits provided to Mr. McKim under the Life Insurance Endorsement 
Split Dollar Plan agreement for Bank Owned Life Insurance. This value was $493 
for 2003 and 2002 and $328 for 2001. The value for contributions made on Mr. 
McKim's behalf to the FNBBH Employee Stock Ownership Plan was $1,085 in 2003 
and $1,016 in 2002.

      Long-term compensation may be distinguished from annual compensation by 
the time frame for which performance results are measured to determine awards. 
While annual compensation covers a calendar year, long-term compensation is 
provided through the Company's stock option plan, which covers a period of two 
to ten years. The following table sets forth information with respect to the 
named executives and all other employees concerning grants of stock options 
during 2003:

















Page 113
-------------------------------------------------------------------------------
Options/SARs Granted in Last Fiscal Year
-------------------------------------------------------------------------------
                         Individual Grants                   Potential realized
                         -----------------                     value at assumed
                          Percent                               annual rates of
                         of total                            stock appreciation
             Number of   options/                            for option term(1)
            securities       SARs Exercise                  -------------------
            underlying granted to  or base                                     
              options/  employees    price                                     
                  SARs  in fiscal      per   Expiration                        
               granted       year    share         date         5%        10%  
-------------------------------------------------------------------------------
Tony C. McKim    9,000      21.2%   $15.02   11/11/2013   $  220,000 $  351,000
All other 
   employees/
   directors    33,450      78.8%   $15.02   11/11/2013   $  819,000 $1,303,000
-------------------------------------------------------------------------------
All             42,450     100.0%   $15.02   11/11/2013   $1,039,000 $1,654,000
-------------------------------------------------------------------------------
1) The dollar gains under these columns result from calculations assuming 5% 
and 10% growth rates compounded over a 10-year period as set by the Securities 
and Exchange Commission and are not intended to forecast future price 
appreciation of the Company's common stock. The gains reflect a future value 
based upon growth at these prescribed rates. The values have not been 
discounted to present value. It is important to note that options have value to 
the listed executive and to all option recipients only if the stock price 
advances beyond the exercise price shown on the table during the effective 
option period.

      The following table sets forth information with respect to exercisable 
and unexercisable options held as of August 31, 2004:

-------------------------------------------------------------------------------
Aggregated Option/SAR Exercises in 2003 and 2004 through 
August 25, 2004 Option/SAR Values
-------------------------------------------------------------------------------
                                          Number of
                                   securities underlying   Value of unexercised
                                     unexercised options       in-the-money
                       Shares          at period end      options at period end
                     acquired         ------------------  ---------------------
                           on    Value   Exer-  Unexer-       Exer-     Unexer-
                     exercise realized cisable  cisable     cisable     cisable
-------------------------------------------------------------------------------
Tony C. McKim             -0- $    -0-  16,313   14,437  $   506,845  $ 393,779
All other employees
        & directors     7,706 $ 77,470  40,642   54,818  $ 1,302,335 $1,455,255
-------------------------------------------------------------------------------
All optionees           7,706 $ 77,470  56,955   69,255  $ 1,809,180 $1,849,034
-------------------------------------------------------------------------------







Page 114
SUPERVISION AND REGULATION OF FNLC AND FNB

General

     FNLC and FNB, as registered bank holding companies under the Bank Holding 
Company Act of 1956, as amended, are subject to the supervision of, and 
examination by, the Federal Reserve Board. We are also subject to Maine law 
governing Maine financial institution holding companies. FNBD, FNLC's wholly-
owned banking subsidiary, and FNBBH, FNB's wholly-owned banking subsidiary, are 
each national banks subject to regulation, supervision and examination by the 
Office of the Comptroller of the Currency ("OCC"). The following discussion 
summarizes certain aspects of those federal banking laws and regulations that 
affect FNLC, FNB and their subsidiaries.

Activities and Other Limitations

     Bank holding companies are required to obtain the prior approval of the 
Federal Reserve Board before acquiring more than 5% of any class of voting 
stock of any bank that is not already majority owned by the bank holding 
company. Pursuant to the Riegle-Neal Interstate Banking and Branching 
Efficiency Act of 1994, a bank holding company generally may acquire banks in 
states other than its home state beginning September 29, 1995, without regard 
to the permissibility of such acquisitions under state law, but subject to any 
state requirement that the bank has been organized and operating for a minimum 
period of time, not to exceed five years, and the requirement that the bank 
holding company, prior to or following the proposed acquisition, controls no 
more than 10% of the total amount of deposits of insured depository 
institutions in the United States and less than 30% of such deposits in that 
state (or such lesser or greater amount set by state law). Generally, bank 
holding companies are required to obtain prior approval of the Federal Reserve 
Board to engage in any new activity or to acquire more than 5% of any class of 
voting stock of any company.

     Unless a bank holding company elects to become a financial holding company 
under amendments to the Bank Holding Company Act effected by the Gramm-Leach-
Bliley Act, the activities of a bank holding company and those of companies 
that it controls or in which it holds more than 5% of the voting stock are 
limited to banking, managing or controlling banks, furnishing services to or 
performing services for their subsidiaries or any other activity that the 
Federal Reserve Board had determined to be so closely related to banking or 
managing or controlling banks as to be a proper incident thereto as of November 
11, 1999, the day before the date of enactment of the Gramm-Leach-Bliley Act.

     Effective March 11, 2000, the Gramm-Leach-Bliley Act permits bank holding 
companies to become financial holding companies and thereby affiliate with 
securities firms and insurance companies and engage in other activities that 
are financial in nature. A bank holding company may become a financial holding 
company if each of its subsidiary banks is well capitalized under the prompt 
corrective action provisions in federal laws and regulations, is well managed 
and has at least a satisfactory rating under the Community Reinvestment Act by 
filing a declaration with the Federal Reserve Board that the bank holding 
company seeks to become a financial holding company. FNLC became a financial 
holding company under the Bank Holding Company Act effective August 31, 2000, 
while FNB became a financial holding company under the Bank Holding Company Act 
effective October 3, 2001.




Page 115
     No regulatory approval is required for a financial holding company to 
acquire a company, other than a bank or savings association, engaged in 
activities that are financial in nature or incidental to activities that are 
financial in nature, as determined by the Federal Reserve Board. The Gramm-
Leach-Bliley Act defines "financial in nature" to include securities 
underwriting, dealing and market making; sponsoring mutual funds and investment 
companies; insurance underwriting and agency; merchant banking activities; and 
activities that the Federal Reserve Board has determined to be closely related 
to banking. A national bank also may engage, subject to limitations on 
investment, in activities that are financial in nature, other than insurance 
underwriting, insurance company portfolio investment, real estate development 
and real estate investment, through a financial subsidiary of the bank, if the 
bank is well capitalized, well managed and has at least a satisfactory 
Community Reinvestment Act rating. Subsidiary banks of a financial holding 
company or national banks with financial subsidiaries which own financial 
subsidiaries engaged in insurance brokerage activities, must continue to be 
well capitalized and well managed in order for the financial holding company or 
the national bank to continue to engage in activities that are financial in 
nature without regulatory actions or restrictions, which could include 
divestiture of the financial in nature subsidiary or subsidiaries. In addition, 
a financial holding company or a bank may not acquire a company that is engaged 
in activities that are financial in nature unless each of the subsidiary banks 
of the financial holding company or the bank has a Community Reinvestment Act 
rating of satisfactory or better. 

Capital and Operational Requirements

     The Federal Reserve Board, the OCC and the FDIC have issued substantially 
similar risk-based and leverage capital guidelines applicable to U.S. banking 
organizations. In addition, those regulatory agencies may from time to time 
require that a banking organization maintain capital above the minimum levels, 
whether because of its financial condition or actual or anticipated growth. The 
Federal Reserve Board risk-based guidelines define a three-tier capital 
framework. "Tier 1 capital" generally consists of common and qualifying 
preferred shareholders' equity, less certain intangibles and other adjustments. 
"Tier 2 capital" and "Tier 3 capital" generally consist of subordinated and 
other qualifying debt, preferred stock that does not qualify as Tier 1 capital 
and the allowance for credit losses up to 1.25% of risk-weighted assets.

     The sum of Tier 1, Tier 2 and Tier 3 capital, less investments in 
unconsolidated subsidiaries, represents qualifying "total capital," at least 
50% of which must consist of Tier 1 capital. Risk-based capital ratios are 
calculated by dividing Tier 1 capital and total capital by risk-weighted 
assets. Assets and off-balance sheet exposures are assigned to one of four 
categories of risk weights, based primarily on relative credit risk. The 
minimum Tier 1 capital ratio is 4% and the minimum total capital ratio is 8%. 
At June 30, 2004, FNLC's Tier 1 and total risk-based capital ratios under these 
guidelines were 11.51% and 12.62%, respectively, and FNB's were 8.89% and 
10.13%, respectively.

     The "leverage ratio" requirement is determined by dividing Tier 1 capital 
by adjusted average total assets. Although the stated minimum ratio is 3%, most 
banking organizations are required to maintain ratios of at least 100 to 200 
basis points above 3%. At June 30, 2004, FNLC's and FNB's leverage ratios were 
7.95% and 6.98%, respectively.




Page 116
     Federal bank regulatory agencies require banking organizations that engage 
in significant trading activity to calculate a capital charge for market risk. 
Significant trading activity means trading activity of at least 10% of total 
assets or $ 1 billion, whichever is smaller, calculated on a consolidated basis 
for bank holding companies. Federal bank regulators may apply the market risk 
measure to other banks and bank holding companies as the agency deems necessary 
or appropriate for safe and sound banking practices. Each agency may exclude 
organizations that it supervises that otherwise meet the criteria under certain 
circumstances. The market risk charge will be included in the calculation of an 
organization's risk-based capital ratios. Neither FNLC nor FNB is currently 
subject to this annual capital charge.

     The Federal Deposit Insurance Corporation Improvement Act of 1991 
("FDICIA"), among other things, identifies five capital categories for insured 
depository institutions (well capitalized, adequately capitalized, 
undercapitalized, significantly undercapitalized and critically 
undercapitalized) and requires the respective U.S. federal regulatory agencies 
to implement systems for "prompt corrective action" for insured depository 
institutions that do not meet minimum capital requirements within such 
categories. FDICIA imposes progressively more restrictive constraints on 
operations, management and capital distributions, depending on the category in 
which an institution is classified. Failure to meet the capital guidelines 
could also subject a banking institution to capital raising requirements. An 
"undercapitalized" bank must develop a capital restoration plan and its parent 
holding company must guarantee that bank's compliance with the plan. The 
liability of the parent holding company under any such guarantee is limited to 
the lesser of 5% of the bank's assets at the time it became undercapitalized or 
the amount needed to comply with the plan. Furthermore, in the event of the 
bankruptcy of the parent holding company, such guarantee would take priority 
over the parent's general unsecured creditors. In addition, FDICIA requires the 
various regulatory agencies to prescribe certain non-capital standards for 
safety and soundness related generally to operations and management, asset 
quality and executive compensation and permits regulatory action against a 
financial institution that does not meet such standards.

     The various federal bank regulatory agencies have adopted substantially 
similar regulations that define the five capital categories identified by 
FDICIA, using the total risk-based capital, Tier 1 risk-based capital and 
leverage capital ratios as the relevant capital measures. Such regulations 
establish various degrees of corrective action to be taken when an institution 
is considered undercapitalized. Under the regulations, a "well capitalized" 
institution must have a Tier 1 capital ratio of at least 6%, a total risk-based 
capital ratio of at least 10% and a leverage ratio of at least 5% and not be 
subject to a capital directive order. An "adequately capitalized" institution 
must have a Tier 1 capital ratio of at least 4%, a total risk-based capital 
ratio of at least 8% and a leverage ratio of at least 4%, or 3% in some cases. 
Under these guidelines, each of our banking subsidiaries is considered "well 
capitalized."











Page 117
     The federal bank regulatory agencies also have adopted regulations which 
mandate that regulators take into consideration concentrations of credit risk 
and risks from non-traditional activities, as well as an institution's ability 
to manage those risks, when determining the adequacy of an institution's 
capital. That evaluation will be made as part of the institution's regular 
safety and soundness examination. Banking agencies also have adopted final 
regulations requiring regulators to consider interest rate risk (when the 
interest rate sensitivity of an institution's assets does not match the 
sensitivity of its liabilities or its off-balance sheet position) in the 
determination of a bank's capital adequacy. Concurrently, banking agencies have 
proposed a methodology for evaluating interest rate risk. The banking agencies 
do not intend to establish an explicit risk-based capital charge for interest 
rate risk but will continue to assess capital adequacy for interest rate risk 
under a risk assessment approach based on a combination of quantitative and 
qualitative factors and have provided guidance on prudent interest rate risk 
management practices.

Distributions

     We both derive funds for cash distributions to our respective shareholders 
primarily from dividends received from our respective banking subsidiaries. 
Each of our banking subsidiaries is subject to various general regulatory 
policies and requirements relating to the payment of dividends, including 
requirements to maintain capital above regulatory minimums. The appropriate 
federal and state regulatory authorities are authorized to determine under 
certain circumstances relating to the financial condition of the bank or bank 
holding company that the payment of dividends would be an unsafe or unsound 
practice and to prohibit payment thereof.

     In addition to the foregoing, our ability (and that of our respective 
banking subsidiaries) to pay dividends may be affected by the various minimum 
capital requirements and the capital and non-capital standards established 
under FDICIA, as described above. The right of FNLC and FNB and their 
respective shareholders and creditors to participate in any distribution of the 
assets or earnings of our respective subsidiaries is further subject to the 
prior claims of creditors of such subsidiaries.

"Source of Strength" Policy

     According to Federal Reserve Board policy, bank holding companies are 
expected to act as a source of financial strength to each subsidiary bank and 
to commit resources to support each such subsidiary. This support may be 
required at times when a bank holding company may not be able to provide such 
support. Similarly, under the cross-guarantee provisions of the Federal Deposit 
Insurance Act, in the event of a loss suffered or anticipated by the FDIC -- 
either as a result of default of a banking or savings institution subsidiary of 
a bank holding company or related to FDIC assistance provided to a subsidiary 
in danger of default -- the other banking subsidiaries of such bank holding 
company, if any, may be assessed for the FDIC's loss, subject to certain 
exceptions.









Page 118
Sarbanes-Oxley Act of 2002

     The Sarbanes-Oxley Act of 2002, which generally establishes a 
comprehensive framework to modernize and reform the oversight of public company 
auditing, improve the quality and transparency of financial reporting by those 
companies and strengthen the independence of auditors. Certain of the new 
legislation's more significant reforms are noted below.
* The new legislation creates a public company accounting oversight Board which 
is empowered to set auditing, quality control and ethics standards, to inspect 
registered public accounting firms, to conduct investigations and to take 
disciplinary actions, subject to SEC oversight and review. The new Board will 
be funded by mandatory fees paid by all public companies. The new legislation 
also improves the Financial Accounting Standards Board, giving it full 
financial independence from the accounting industry.
* The new legislation strengthens auditor independence from corporate 
management by, among other things, limiting the scope of consulting services 
that auditors can offer their public company audit clients.
* The new legislation heightens the responsibility of public company directors 
and senior managers for the quality of the financial reporting and disclosure 
made by their companies. Among other things, the new legislation provides for a 
strong public company audit committee that will be directly responsible for the 
appointment, compensation and oversight of the work of the public company 
auditors.
* The new legislation contains a number of provisions to deter wrongdoing. CEOs 
and CFOs will have to certify that company financial statements fairly present 
the company's financial condition. If a misleading financial statement later 
resulted in a restatement, the CEO and CFO must forfeit and return to the 
company any bonus, stock or stock option compensation received in the twelve 
months following the misleading financial report. The new legislation also 
prohibits any company officer or director from attempting to mislead or coerce 
an auditor. Among other reforms, the new legislation empowers the SEC to bar 
certain persons from serving as officers or directors of a public company; 
prohibits insider trades during pension fund "blackout periods"; directs the 
SEC to adopt rules requiring attorneys to report securities law violations; and 
requires that civil penalties imposed by the SEC go into a disgorgement fund to 
benefit harmed investors.
* The new legislation imposes a range of new corporate disclosure requirements. 
Among other things, the new legislation requires public companies to report all 
off-balance-sheet transactions and conflicts, as well as to present any pro 
forma disclosures in a way that is not misleading and in accordance with 
requirements to be established by the SEC. The new legislation also accelerated 
the required reporting of insider transactions, which now generally must be 
reported by the end of the second business day following a covered transaction; 
requires that annual reports filed with the SEC include a statement by 
management asserting that it is responsible for creating and maintaining 
adequate internal controls and assessing the effectiveness of those controls; 
and requires companies to disclose whether or not they have adopted an ethics 
code for senior financial officers, and, if not, why not, and whether the audit 
committee includes at least one "financial expert," a term which is to be 
defined by the SEC in accordance with specified requirements. The new 
legislation (and regulations promulgated thereunder) requires the NASD and 
national securities exchanges to adopt corporate governance measures aimed at, 
among other things, enhancing Board oversight at listed companies over the 
audit process and scrutiny of potential conflict of interest transactions. The 
new legislation also requires the SEC, based on certain enumerated factors, to 
regularly and systematically review corporate filings.



Page 119
* The new legislation contains provisions which generally seek to limit and 
expose to public view possible conflicts of interest affecting securities 
analysts.
* Finally, the new legislation imposes a range of new criminal penalties for 
fraud and other wrongful acts, as well as extends the period during which 
certain types of lawsuits can be brought against a company or its insiders.





















































Page 120
DESCRIPTION OF FNLC CAPITAL STOCK

     FNLC is currently authorized to issue up to 18,000,000 shares of FNLC 
common stock. This is the only class of stock which FNLC is authorized to 
issue. The capital stock of FNLC does not represent or constitute a deposit 
account and is not insured by the FDIC.

     The following description of FNLC capital stock does not purport to be 
complete and is qualified in all respects by reference to FNLC's articles of 
incorporation, as amended, and bylaws and the Maine Business Corporation Act.

FNLC Common Stock

     General.  Each share of FNLC common stock has the same relative rights and 
is identical in all respects with each other share of FNLC common stock. The 
FNLC common stock is not subject to call for redemption and, upon receipt by 
FNLC of the shares of FNB common stock surrendered in exchange for FNLC common 
stock, each share of FNLC common stock offered hereby will be fully paid and 
non-assessable.

     Voting Rights.  Each holder of FNLC common stock is entitled to one vote 
for each share held on all matters voted upon by shareholders, and shareholders 
are not permitted to cumulate votes in elections of directors.

     Dividends.  The holders of the FNLC common stock are entitled to such 
dividends as may be declared from time to time by the FNLC Board of Directors 
out of funds legally available therefor.

     Preemptive Rights.  Holders of FNLC common stock do not have any 
preemptive rights with respect to any shares which may be issued by FNLC in the 
future; thus, FNLC may sell shares of FNLC common stock without first offering 
them to the then holders of the FNLC common stock.

     Liquidation.  In the event of any liquidation, dissolution or winding up 
of FNLC, the holders of the FNLC common stock would be entitled to receive, 
after payment of all debts and liabilities of FNLC, all assets of FNLC 
available for distribution.

Other Provisions

     The articles of incorporation and bylaws of FNLC contain a number of 
provisions that may have the effect of discouraging or delaying attempts to 
gain control of FNLC, including provisions:
* classifying the FNLC Board of Directors into three classes to serve for three 
years with one class being elected annually;
* authorizing the FNLC Board of Directors to fix the size of the FNLC Board of 
Directors between five and 25 directors;
* authorizing directors to fill vacancies in the FNLC Board of Directors; and
* requiring an increased vote of shareholders to approve specified business 
combinations with persons beneficially owning 10% or more of the FNLC's common 
stock (or any person who is, or within the previous two years was, an affiliate 
or associate of such persons) unless the business combination has been approved 
by a majority of FNLC's directors who are not affiliated or associated with the 
interested shareholder and who were  FNLC directors prior to the time the 
interested shareholder acquired such an interest in FNLC shares.




Page 121
     In addition to the foregoing, in certain instances the issuance of 
authorized but unissued shares of FNLC common stock may have an anti-takeover 
effect by making it more difficult and/or expensive to acquire FNLC.

     Sections 1109 and 1110 of the Maine Business Corporation Act also may have 
some anti-takeover effect. Section 1109 of the Maine Business Corporation Act 
generally provides that a Maine corporation which has a class of voting stock 
registered or traded on a national securities exchange or under the Securities 
Exchange Act of 1934, such as FNLC, may not engage in any business combination 
for five years following an "interested stockholder's" "stock acquisition date" 
unless the business combination is (1) approved by the corporation's Board of 
Directors prior to that "interested stockholder's" "stock acquisition date" or 
(2) approved, subsequent to that "interested stockholder's" "stock acquisition 
date," by the Board of Directors of the Maine corporation and authorized by the 
holders of a majority of the outstanding voting stock of the corporation not 
beneficially owned by that "interested stockholder" or any affiliate or 
associate thereof or by persons who are either directors or officers and also 
employees of the corporation. An "interested stockholder" is defined to include 
any person, firm or entity that is directly or indirectly the beneficial owner 
of 25% or more of the outstanding voting stock of the corporation, other than 
by reason of a revocable proxy given in response to a proxy solicitation 
conducted in accordance with the Securities Exchange Act 1934 which is not then 
reportable on a Schedule 13D under the Securities Exchange Act of 1934, and 
"stock acquisition date" is defined to mean the date that any person, firm or 
entity first becomes an "interested stockholder" of that corporation.

     Section 1110 of the Maine Business Corporation Act generally provides 
shareholders of a Maine corporation which has a class of voting shares 
registered or traded on a national securities exchange or registered under the 
Securities Exchange Act of 1934, with the right to demand payment of an amount 
equal to the fair value of each voting share in the corporation held by the 
shareholder from a person or group of persons which become a "controlling 
person," which generally is defined to mean an individual, firm or entity (or 
group thereof) which has voting power over at least 25% of the outstanding 
voting shares of the corporation. Such a demand must be submitted to the 
"controlling person" within 30 days after the "controlling person" provides 
required notice to the shareholders of the acquisition or transactions which 
resulted in such person or group becoming a "controlling person." Section 1110 
could be interpreted to provide that a person or group of persons could become 
a "controlling person" for purposes of such section by soliciting and acquiring 
revocable proxies to vote at least 25% of the voting shares of a corporation.

Transfer Agent

     The transfer agent and registrar for the FNLC common stock is FNBD.














Page 122
COMPARISON OF THE RIGHTS OF SHAREHOLDERS

     Both FNLC and FNB are Maine corporations subject to the provisions of the 
Maine Business Corporation Act. When the merger is completed, shareholders of 
FNB who receive shares of FNLC common stock in exchange for their shares of FNB 
common stock will become shareholders of FNLC and their rights as shareholders 
of FNLC will be governed by the articles of incorporation and bylaws of FNLC.

     Under the new Maine Business Corporation Act, the validity of any 
provision of the articles of incorporation or the bylaws of a Maine corporation 
existing on July 1, 2003 can be determined by reference to the law that was in 
effect at the time when the provision was adopted or with reference to the new 
law, whichever supports the validity of such provision. A provision of a 
corporation's articles of incorporation or bylaws that was valid under the law 
in existence at the time the provision was adopted remains in effect, 
notwithstanding a contrary provision of the new law, until repealed or amended 
by voluntary act of the corporation. As a result, provisions in the articles of 
incorporation or bylaws of FNB or FNLC which were adopted pursuant to the 
previous Maine Business Corporation Act continue to be valid even if they could 
not be adopted pursuant to the current Maine Business Corporation Act.

     The following summary is not intended to be a complete statement of the 
differences affecting the rights of FNB shareholders who become FNLC 
shareholders, but rather summarizes the more significant differences affecting 
the rights of such shareholders; the summary is qualified in its entirety by 
reference to the articles of incorporation and bylaws of FNB and FNLC and 
applicable laws and regulations.

Mergers, Consolidations and Sales of Assets

     FNB. The articles of incorporation of FNB contain provisions which 
prohibit the Corporation from entering into a "business combination," as 
defined in the articles, without the approval and recommendation to the 
shareholders by an affirmative vote of not fewer than 80% of FNB's entire Board 
of Directors, and the affirmative vote of the holders of not less than 67% of 
FNB's outstanding capital stock entitled to vote thereon (excluding, for 
purposes of both the number of shares voted in favor and the total number of 
shares outstanding, shares beneficially owned by a "related party," as defined 
the articles, proposing such business combination). These special requirements 
shall not apply if the proposed business combination shall have been approved 
by a majority of the "continuing directors," also as defined in the articles, 
and only the affirmative vote, if any, required by law, the articles or the 
bylaws shall be required. In determining whether to approve a business 
combination, FNB's directors are required to consider (i) the long-term social 
and economic impact of the proposed business combination, (ii) the experience 
and integrity of the acquiring person or entity, and (iii) the financial 
condition, earnings prospects, and management philosophy of the acquiring 
person or entity. 











Page 123
     FNB's bylaws contain similar provisions that, to the extent they conflict 
with the above-described articles provisions, are superseded by them. Certain 
requirements that are not inconsistent with the articles continue to apply. For 
example, the FNB bylaws contain a provision that, under certain circumstances 
(such as the merger), requires a greater vote to approve business combinations 
than the articles. Specifically, while the articles permit shareholder approval 
-- in the case of a business combination that has been approved by a majority 
of continuing directors -- by the affirmative vote of the holders of a majority 
of the outstanding shares of FNB's common stock, the bylaws (whose provisions, 
drafted under the former Maine corporate law, are grandfathered) retain 
special, greater voting requirements even in non-related party transactions. 

     FNLC. The articles of FNLC contain a provision which prohibits FNLC from 
engaging in a "business combination" with an "interested stockholder," each as 
defined in the articles, without the affirmative vote of not less than 80% of 
the votes entitled to be cast by all the holders of all outstanding shares of 
stock entitled to vote (notwithstanding that no vote may be necessary, or that 
a lesser percentage vote may be specified by law or otherwise). Notwithstanding 
the foregoing, the above requirements shall not apply if the proposed business 
combination shall have been approved by a majority of the "continuing 
directors," also as defined in the articles. In addition to the above 
requirements, FNLC is prohibited from engaging in a "control transaction," as 
defined in the articles, without the approval of a majority of the directors of 
the corporation and the affirmative vote of not less than 66 2/3% of the votes 
entitled to be cast by the holders of all outstanding shares of stock entitled 
to vote (again, notwithstanding that no vote may be necessary, or that a lesser 
percentage vote may be specified by law or otherwise). 

Authorized Capital Stock

     FNB. FNB's articles authorize the issuance of up to 2,000,000 shares of 
FNB common stock, $0.80 par value per share, of which _________ shares were 
outstanding as of the record date for the FNB special meeting, and up to 
100,000 shares of preferred stock, no par value per share, of which no shares 
are issued and outstanding. 

     FNLC. FNLC's articles authorize the issuance of up to 18,000,000 shares of 
FNLC common stock, $0.01 par value per share, of which _________ shares were 
outstanding as of the record date for the FNLC special meeting. 

Classification and Size of Board of Directors

     FNB. FNB's articles provide that the FNB Board of Directors may increase 
or decrease the number of directors of FNB by resolution, provided that the 
Board may not increase the number of directors by more than 2 persons between 
successive annual meetings of the shareholders, and that no decrease in the 
number of directors shall have the effect of shortening the term of an 
incumbent director, and provided further in each case that the minimum number 
of directors shall be 5 and the maximum number of directors shall be 25. 
Currently, the number of directors of FNB is 10, and such directors are divided 
into three classes.








Page 124
     FNLC. The bylaws of FNLC provide that the number of directors of FNLC 
shall be fixed within the minimum and maximum provided in FNLC's articles of 
incorporation by resolution duly adopted from time to time by the Board of 
Directors of FNLC, provided that the Board may not increase the number of 
directors by more than 2 persons between annual meetings. The articles provide 
that the minimum number of directors shall be 5 and the maximum number of 
directors shall be 25. Currently, the number of directors of FNLC is 10, and 
such directors are divided into three classes. Pursuant to the merger 
agreement, at least two additional directors are intended to be added to the 
Board by FNLC. See "Board of Directors of FNLC Following Merger" on page __. 

Director Qualifications 

     FNB. FNB's bylaws provide that no person shall be eligible to serve as a 
director unless he or she is the actual and beneficial owner of shares of FNB 
common stock with an aggregate fair market value of not less than $7,500. 

     FNLC. FNLC's bylaws provide that no person shall be eligible to serve as a 
director unless he or she is the actual and beneficial owner of shares of FNLC 
common stock with an aggregate fair market value of at least $15,000. 

Director Nominations and Shareholder Proposals

     FNB. FNB's bylaws generally provide that nominations by shareholders of 
candidates for election as directors (and other shareholder proposals) must be 
made in writing and delivered to or received by the clerk of FNB 90 days or 
more before the date of an annual shareholders' meeting, and no later than 10 
days following the date on which notice of a special meeting of shareholders is 
given, if the nomination or proposal is to be submitted at a special meeting. 
Each such notice shall set forth information concerning the nominee, the 
nominating shareholder and other information specified in FNB's bylaws.

     FNLC. FNLC's bylaws provide that a shareholder wishing to nominate a 
director or bring other business before the annual meeting must be a record 
shareholder and have given timely notice in writing to the Clerk of FNLC 
containing specific information required by FNLC's bylaws. Any such nominations 
or proposals should be mailed to: Clerk, First National Lincoln Corporation, 
223 Main Street, P.O. Box 940, Damariscotta, Maine 04543-0940 and must be 
received by FNLC between 90 and 135 days before the anniversary date of the 
prior year's annual meeting, unless the annual meeting is to be held on a date 
more than thirty days before or after such anniversary date, in which case the 
notice must be received not later than 10 days after FNLC announces publicly 
the intended date of the annual meeting.

Special Meetings of Shareholders

     FNB. Pursuant to the bylaws of FNB, special meetings of the shareholders 
of FNB may be called by FNB's President, by its Chairman of the Board of 
Directors, by a majority of the Board of Directors or of the executive 
committee, or by the holders of not less than 25% of the shares entitled to 
vote at the meeting. 

     FNLC. Pursuant to the bylaws of FNLC, special meetings of the shareholders 
of FNLC may be called by FNLC's President, by its Chairman of the Board of 
Directors, by a majority of the Board of Directors or of the executive 
committee, or by the holders of not less than 10% of the shares entitled to 
vote at the meeting


Page 125
Notice of Meetings; Record Dates

     FNB. FNB's bylaws require that written notice of the annual and any 
special meeting be delivered to each shareholder of record not less than 10 and 
no more than 60 days prior to the meeting date. Similarly, upon proper request 
by a person entitled to call a special meeting of shareholders, the President 
is required deliver notice of such meeting to the shareholders not less than 10 
and no more than 60 days after receipt of such request. For purposes of 
determining shareholders entitled to notice of or to vote at any shareholders' 
meeting, the Board shall fix a record date not more than 60 days or less than 
10 days prior to the date designated for the particular action.

     FNLC. FNLC's bylaws purport to require that written notice of the annual 
and any special meeting be delivered to each shareholder of record not less 
than 10 and no more than 60 days prior to the meeting date. Similarly, the FNLC 
bylaws state that, upon proper request by a person entitled to call a special 
meeting of shareholders, the President is required deliver notice of such 
meeting to the shareholders not less than 10 and no more than 60 days after 
receipt of such request. For purposes of determining shareholders entitled to 
notice of or to vote at any shareholders' meeting, the bylaws also provide that 
the Board fix a record date not more than 70 days or less than 10 days prior to 
the date designated for the particular action.  

Certain Amendments to Articles of Incorporation

     FNB. With certain exceptions, amendments to the provisions of FNB's 
articles concerning business combinations, require the affirmative vote of not 
less than 80% of the entire Board of Directors and not less than 67% of FNB's 
outstanding capital stock.

     FNLC. With certain exceptions, amendments to the provisions of FNLC's 
articles concerning business combinations, require the affirmative vote of not 
less than 80% of the entire Board of Directors and not less than 66 2/3% of 
FNLC's outstanding capital stock.

Indemnification of Directors and Officers

     FNB. FNB's bylaws provide generally that FNB shall indemnify directors and 
certain executive officers of FNB, and may indemnify other officers, employees 
and agents of FNB, against all liabilities incurred by such persons in 
connection with any brought or threatened proceeding in which such person is 
involved by reason of the fact that he or she is or was a director, officer, 
employee or agent of the corporation or serving at the request of the 
corporation in a comparable capacity on behalf of another legal entity, 
provided that no indemnification shall be provided to any indemnified person to 
the extent that such person shall have been adjudicated in any proceeding not 
to have acted in good faith in the reasonable belief that the action of such 
person was in the best interest of FNB, or, with respect to a criminal 
proceeding, to have had reasonable cause to believe that his or her conduct was 
unlawful.









Page 126
     FNLC. FNLC's bylaws provide that FNLC shall indemnify any person who was 
or is a party or is threatened to be made a party to any threatened, pending or 
completed action or proceeding by reason of the fact that he or she is or was a 
director, officer, employee or agent of FNLC, or serving at the request of the 
corporation in a comparable capacity on behalf of another legal entity, against 
expenses, including attorneys' fees, judgments, fines and amounts paid in 
settlement actually and reasonably incurred by such person in connection with 
such action, provided that no indemnification shall be provided to any 
indemnified person to the extent that such person shall have been adjudicated 
in any proceeding not to have acted in good faith in the reasonable belief that 
the action of such person was in the best interest of FNLC, or, with respect to 
a criminal proceeding, to have had reasonable cause to believe that his or her 
conduct was unlawful.

Regular Meetings of Directors

     FNB. FNB's bylaws require its Board to hold regular meetings at least 
monthly. 

     FNLC. FNLC's bylaws require its Board to hold regular meetings at least 
quarterly. 

Inspection of Corporate Records

     FNB. FNB's bylaws do not contain a provision governing the inspection of 
corporate records by shareholders.

     FNLC. As expressly permitted by the Maine Business Corporation Act, FNLC's 
bylaws require a shareholder who wishes to inspect corporate records to first 
notify FNLC in writing, specifying the records he or she wishes to inspect and 
his or her purpose in seeking the inspection. FNLC may condition inspection on 
receipt of undertakings intended to preserve the confidentiality of any 
nonpublic financial information or other competitively sensitive information 
about FNLC or its business, to pay FNLC's reasonable costs in making any of the 
requested records available and, in the event of a breach by the shareholder, 
to indemnify FNLC against its reasonable costs of enforcing any restrictions on 
use of the requested records. FNLC may also, as a condition to the disclosure 
of any nonpublic information or other competitively sensitive information, and 
as a condition to the disclosure of personal information about shareholders, 
directors, officers or employees of FNLC, require the shareholder to execute a 
confidentiality agreement.


















Page 127
CERTAIN BENEFICIAL OWNERS OF FNB COMMON STOCK

      The following table sets forth the number of shares of common stock of 
FNB beneficially owned as of September 17, 2004 by (i) each person known by FNB 
to own beneficially more than five percent of FNB's common stock, (ii) each 
current director of FNB (iii) the named executive officer, and (iv) all 
executive officers and directors of FNB as a group. Except as otherwise 
indicated below, each of the directors and executive officers has sole voting 
and investment power with respect to all shares of stock beneficially owned as 
set forth opposite his name.

Directors & Executive Officers
-------------------------------------------------------------------------------
                                                                Shares  Percent
Name                     Position                               Owned(2)  Owned
-------------------------------------------------------------------------------
Loren H. Clarke          Director of FNBBH and FNB               12,225   1.17%
William C. Fernald       Director of FNBBH and FNB               20,444   1.95%
David J. Fletcher        Director of FNBBH and FNB                7,875       *
Milton Albert Harmon Jr  Director of FNBBH and FNB                8,373       *
Carroll E. Harper        Director of FNBBH and FNB                2,558       *
Steven K. Parady         Director of FNBBH and FNB               31,943   3.05%
Gregory R. Grant         Director of FNBBH and FNB                6,496       *
William K. McFarland     Director of FNBBH and FNB                9,079       *
Tony C. McKim            President, Chief Executive Officer      41,678   3.98%
                         and Director of FNBBH and FNB     
Mark N. Rosborough       Director of FNBBH and FNB               46,931   4.49%
-------------------------------------------------------------------------------
Total Ownership of all Directors and 
Executive Officers as a group                                   237,570  22.70%
-------------------------------------------------------------------------------
Owners of 5% or More     None
-------------------------------------------------------------------------------
* Less than one percent of total outstanding shares

(1) For purposes of this table, beneficial ownership has been determined in 
accordance with the provisions of Rule 13d-3 promulgated under the Securities 
Exchange Act of 1934, as amended. In general, a person is deemed to be the 
beneficial owner of a security if he has or shares the power to vote or to 
direct the voting of the security or the power to dispose or direct the 
disposition of the security, or if he has the right to acquire beneficial 
ownership of the security within 60 days. The figure set forth includes 
director's qualifying shares owned by each person. 
(2) Includes exercisable stock options.















Page 128
LEGAL OPINION

The validity of the FNLC common stock to be issued in the merger will be passed 
upon for FNLC by Verrill Dana, LLP of Portland, Maine.

EXPERTS

The consolidated financial statements of FNLC as of December 31, 2003 and 2002, 
and for each of the years in the three-year period ended December 31, 2003 have 
been incorporated by reference herein from FNLC's annual report on Form 10-K 
for the year ended December 31, 2003 in reliance on the report of Berry, Dunn, 
McNeil and Parker LLC, independent certified public accountants, incorporated 
by reference herein, and upon the authority of said firm as experts in 
accounting and auditing.

The consolidated financial statements of FNB as of December 31, 2003 and 2002, 
and for each of the years in the three-year period ended December 31, 2003 have 
been included in this document and the annexes hereto in reliance on the report 
of Berry, Dunn, McNeil and Parker LLC, independent certified public 
accountants, included in Annex IV hereto, and upon the authority of said firm 
as experts in accounting and auditing.

PROPOSALS FOR THE 2005 FNLC ANNUAL MEETING

Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, the deadline 
for the submission of proposals by shareholders for inclusion in the proxy 
statement and form of proxy to be used by FNLC in connection with the next 
annual meeting of shareholders of FNLC, is November 20, 2004. In addition, 
FNLC's bylaws provide that anyone wishing to nominate a director or bring other 
business before the annual meeting must be a record shareholder and must give 
notice in writing to the Clerk of FNLC containing specific information required 
by FNLC's bylaws that is received between December 13, 2004 and January 27, 
2005, provided that if the annual meeting is held on a date more than 30 days 
before or after April 27, 2005, the shareholder notice shall be timely if 
received not later than 10 days after FNLC announces publicly the intended date 
of the annual meeting, through a press release, SEC filing or otherwise. Any 
such nominations or proposals should be mailed to: Clerk, First National 
Lincoln Corporation, 223 Main Street, P.O. Box 940, Damariscotta, Maine 04543-
0940.




















Page 129
WHERE YOU CAN FIND MORE INFORMATION

     FNLC files annual, quarterly and current reports, proxy statements and 
other information with the Securities and Exchange Commission. You may read and 
copy any reports, proxy statements or other information filed by FNLC at the 
Commission's public reference room in Washington, D.C., which is located at the 
following address: Public Reference Room, Judiciary Plaza, Room 1024, 450 Fifth 
Street, N.W., Washington, D.C. 20549.

     You can request copies of these documents, upon payment of a duplicating 
fee, by writing to the Commission. Please call the Commission at 1-800-SEC-0330 
for further information on the operation of the Commission's public reference 
rooms. FNLC's Commission filings are also available to the public from document 
retrieval services and at the Commission's internet website 
(http://www.sec.gov).

     FNLC has filed with the Commission a registration statement on Form S-4 
under the Securities Act and the rules and regulations thereunder. This 
document is a part of that registration statement. As permitted by the 
Commission's rules, this document does not contain all of the information you 
can find in the registration statement. The registration statement is available 
for inspection and copying as set forth above.

     The Commission allows FNLC to "incorporate by reference" into this 
document, which means that FNLC can disclose important information to you by 
referring you to another document filed separately with the Commission. The 
information incorporated by reference is considered to be part of this 
document, except for any information superseded by information contained in 
later filed documents incorporated by reference in this document. FNLC 
incorporates by reference the documents filed by it with the Commission listed 
below and any future filings made by it with the Commission under Sections 
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 prior to the 
later of the date of the FNB Special Meeting, or the date on which the offering 
of FNLC common shares under this document terminated.


FNLC SEC Filings (File No. 0-26589)               Period/Date
Annual Report on Form 10-K               Year ended December 31, 2003
Quarterly Report on Form 10-Q          Three Months Ended March 31, 2004
                                                and June 30, 2004
Current Reports on Form 8-K        Filed on  January 22, 2004,  March 15, 2004,
                                 April 22, 2004, April 27, 2004, June 17, 2004,
                                 July 22, 2004, July 29, 2004, August 26, 2004,
                                     August 27, 2004, September 16, 2004 and
                                                 October 7, 2004.

     You may request a copy of documents incorporated by reference in this 
document but not otherwise accompanying this document, at no cost, by writing 
or telephoning FNLC at the following address:

FIRST NATIONAL LINCOLN CORPORATION
223 Main Street
P.O. Box 940
Damariscotta, Maine 04543-0940
Attention: Carrie A. Warren
(207) 563-3195



Page 130
     To obtain timely delivery, you should request desired information no later 
than five business days prior to the date of your special meeting.

     You should rely only on the information contained or incorporated by 
reference in this document. Neither FNLC nor FNB has authorized anyone else to 
provide you with information that is different from that which is contained in 
this document. Neither FNLC nor FNB is making an offer to sell or soliciting an 
offer to buy any securities other than the FNLC common stock to be issued by 
FNLC in the merger, and neither FNLC nor FNB is making an offer of such 
securities in any state where the offer is not permitted. The information 
contained in this document speaks only as of its date unless the information 
specifically indicates that another date applies.















































Page 131
ANNEX I

-------------------------------------------------------------------------------



















                         AGREEMENT AND PLAN OF MERGER 
                         DATED AS OF  AUGUST 25, 2004
                                    BETWEEN
                      FIRST NATIONAL LINCOLN CORPORATION
                                      AND
                                 FNB BANKSHARES































------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER, dated as of August 25, 2004 (this "Agreement"), 
between FIRST NATIONAL LINCOLN CORPORATION ("Parent") and FNB BANKSHARES (the 
"Company"). 

RECITALS 
     A.   The Company.    The Company is a Maine corporation, having its 
principal place of business in Bar Harbor, Maine 
     B.    Parent.    Parent is a Maine corporation, having its principal place 
of business in Damariscotta, Maine. 
     C.    Intention of the Parties.    It is the intention of the parties to 
this Agreement that the Merger provided for herein be treated as a 
"reorganization" under Section 368(a) of the Internal Revenue Code of 1986, as 
amended (the "Code"). 
     D.    Board Action.    The respective Boards of Directors of each of 
Parent and the Company have determined that it is in the best interests of 
their respective companies and their shareholders to consummate the Merger 
provided for herein. 
     E. Shareholder Agreements.  As a material inducement to Parent to enter 
into this Agreement, and simultaneously with, the execution of this Agreement, 
each director who is also an officer of the Company, namely Messrs. McKim, 
Rosborough and Parady, is entering into an agreement, in the form of Annex A 
hereto (collectively, the "Shareholder Agreements") pursuant to which he has 
agreed, among other things, to vote his shares of Company Stock (as defined 
herein) in favor of this Agreement. 
     NOW, THEREFORE, in consideration of the premises and of the mutual 
covenants, representations, warranties and agreements contained herein the 
parties agree as follows: 
    































Page I - 1
ARTICLE I

CERTAIN DEFINITIONS 
     1.01.    Certain Definitions.    The following terms are used in this 
Agreement with the meanings set forth below: 
     "Acquisition Proposal" has the meaning set forth in Section 6.08.
     "Acquisition Agreement" has the meaning set forth in Section 8.01(g).
     "Additional Director" has the meaning set forth in Section 6.15.
     "Agreement" means this Agreement, as amended or modified from time to time 
in accordance with Section 9.02. 
     "Articles of Merger" has the meaning set forth in Section 2.02(a). 
     "Average Share Price" has the meaning set forth in Section 3.01(b)(2). 
     "Bank Insurance Fund" means the Bank Insurance Fund maintained by the 
FDIC. 
     "Bank Merger Agreement" has the meaning set forth in Section 6.13. 
     "Bank Merger" has the meaning set forth in Section 6.13. 
     "Bank Secrecy Act" means the Bank Secrecy Act of 1970, as amended. 
     "Benefit Plans" has the meaning set forth in Section 5.03(m)(i). 
     "Business Day" means Monday through Friday of each week, except a legal 
holiday recognized as such by the U.S. Government or any day on which banking 
institutions in the State of Maine  are authorized or obligated to close. 
     "Certificate" means any certificate which immediately prior to the 
Effective Time represented shares of Company Common Stock. 
     "Closing" and "Closing Date" have the meanings set forth in Section 
2.02(b). 
     "Code" has the meaning set forth in the recitals to this Agreement. 
     "Community Reinvestment Act" means the Community Reinvestment Act of 1977, 
as amended. 
     "Company" has the meaning set forth in the preamble to this Agreement. 
     "Company Affiliates" has the meaning set forth in Section 6.07. 
     "Company Articles" means the Articles of Incorporation of the Company, as 
amended. 
     "Company Bank" means First National Bank of Bar Harbor, a national banking 
association. 
     "Company Board" means the Board of Directors of the Company. 
     "Company Bylaws" means the Bylaws of the Company, as amended. 
     "Company Common Stock" means the common stock of the Company. 
       "Company ESOP" means the Company's Employee Stock Ownership Plan, as 
amended.
     "Company 401(k) Plan" means the First National Bank of Bar Harbor 401(k) 
Savings Plan. 
     "Company Group" means any "affiliated group" (as defined in Section 
1504(a) of the Code without regard to the limitations contained in Section 
1504(b) of the Code) that includes the Company and its Subsidiaries or any 
predecessor of or any successor to the Company (or to another such predecessor 
or successor). 
     "Company Intellectual Property" has the meaning set forth in Section 
5.03(u).
     "Company Loan Property" has the meaning set forth in Section 5.03(o)(i). 
     "Company Meeting" has the meaning set forth in Section 6.02. 
       "Company Preferred Stock means the Serial Preferred Stock of the 
Company.
     "Company Stock" means, collectively, the Company Common Stock and the 
Company Preferred Stock. 
     "Company Options" means the options to acquire Company Common Stock. 
     "Company Regulatory Authorities" has the meaning set forth in Section 
5.03(i). 


Page I - 2
     "Company Stock Option Plan" means the Company's Stock Option Plan dated 
July 31, 2001. 
     "Derivatives Contract" has the meaning set forth in Section 5.03(r). 
     "Disclosure Schedule" has the meaning set forth in Section 5.01. 
     "Dissenting Shares" has the meaning set forth in Section 3.05. 
       "D&O Insurance" has the meaning set forth in Section 6.11 (c).
       "D&O Tail Coverage" has the meaning set forth in Section 6.11(c).
       "ECA Agreements" has the meaning set forth in Section 6.12(b).
     "Effective Date" has the meaning set forth in Section 2.02(a). 
     "Effective Time" has the meaning set forth in Section 2.02(a). 
     "Employees" has the meaning set forth in Section 5.03(m). 
     "Environmental Laws" has the meaning set forth in Section 5.03(o). 
     "Equal Credit Opportunity Act" means the Equal Credit Opportunity Act, as 
amended. 
     "Equity Investment" means (i) an Equity Security; and (ii) an ownership 
interest in any company or other entity, any membership interest that includes 
a voting right in any company or other entity, any interest in real estate; and 
any investment or transaction which in substance falls into any of these 
categories even though it may be structured as some other form of investment or 
transaction. 
     "Equity Security" means any stock (other than adjustable-rate preferred 
stock, money market (auction rate) preferred stock or other instrument 
determined by the OCC to have the character of debt securities), certificate of 
interest or participation in any profit-sharing agreement, collateral-trust 
certificate, preorganization certificate or subscription, transferable share, 
investment contract, or voting-trust certificate; any security convertible into 
such a security; any security carrying any warrant or right to subscribe to or 
purchase any such security; and any certificate of interest or participation 
in, temporary or interim certificate for, or receipt for any of the foregoing. 
     "ERISA" means the Employee Retirement Income Security Act of 1974, as 
amended. 
     "ERISA Affiliate" has the meaning set forth in Section 5.03(m)(iii). 
     "Exchange Act" means the Securities Exchange Act of 1934, as amended, and 
the rules and regulations thereunder. 
     "Exchange Agent" has the meaning set forth in Section 3.02(a). 
     "Exchange Ratio" has the meaning set forth in Section 3.01(b)(1), subject 
to adjustment pursuant to Section 3.06. 
     "Fair Housing Act" means the Fair Housing Act, as amended. 
     "FDIC" means the Federal Deposit Insurance Corporation. 
     "Federal Reserve Act" means the Federal Reserve Act, as amended. 
     "Federal Reserve Board" means the Board of Governors of the Federal 
Reserve System. 
     "GAAP" means accounting principles generally accepted in the United States 
of America. 
     "Governmental Authority" means any federal, state or local court, 
administrative agency or commission or other governmental authority or 
instrumentality. 
     "Hazardous Substance" has the meaning set forth in Section 5.03(o). 
     "Indemnified Parties" and "Indemnifying Party" have the meanings set forth 
in Section 6.11(a).          
     "Insurance Policies" has the meaning set forth in Section 5.03(x). 
     "IRS" means the Internal Revenue Service.
     "Leases" has the meaning set forth in Section 5.03(t)
     "Liens" means any charge, mortgage, pledge, security interest, 
restriction, claim, lien or encumbrance. 
     "Loans" has the meaning set forth in Section 4.01(r). 



Page I - 3
     "Maine Superintendent" means the Superintendent of the Bureau of Banking 
of the State of Maine. 
     "Material Adverse Effect" means, with respect to Parent or the Company any 
effect that (i) is material and adverse to the financial position, results of 
operations or business of Parent and its Subsidiaries taken as a whole or the 
Company and its Subsidiaries taken as a whole, as the case may be, or (ii) 
would materially impair the ability of any of Parent and its Subsidiaries or 
the Company and its Subsidiaries to perform their respective obligations under 
this Agreement or the Bank Merger Agreement or otherwise materially impede the 
consummation of the Transactions; provided, however, that Material Adverse 
Effect shall not be deemed to include the impact of (a) changes in banking, 
corporate or tax laws or regulations of general applicability or 
interpretations thereof by Governmental Authorities, (b) changes in GAAP or 
regulatory accounting requirements applicable to banks or bank holding 
companies generally, (c) changes in interest rates or general economic 
conditions affecting banks and their holding companies generally, (d) any 
modifications or changes to valuation policies and practices, or expenses 
incurred, in connection with the Transactions or restructuring charges taken in 
connection with the Transactions, in each case in accordance with GAAP, and (e) 
with respect to the Company, the effects of any action or omission taken with 
the prior consent of Parent or as otherwise contemplated by the Agreement. 
     "Material Contracts" has the meaning set forth in Section 5.03(k)(i). 
     "MBCA" means the Maine Business Corporation Act, as amended. 
     "Merger" has the meaning set forth in Section 2.01(a). 
     "Merger Consideration" means the number of whole shares of Parent Common 
Stock, plus cash in lieu of any fractional share interest, into which shares of 
Company Common Stock shall be converted pursuant to the provisions of Article 
III. 
     "Nasdaq" means The Nasdaq Stock Market, Inc.'s NASDAQ National Market or 
such national securities exchange on which the Parent Common Stock may be 
listed. 
     "National Labor Relations Act" means the National Labor Relations Act, as 
amended. 
     "OCC" means the Office of the Comptroller of the Currency. 
     "Option Cash-Out Amount" means, for each Company Option a cash amount 
equal to the difference between (x) the exercise price applicable to such 
Company Option and (y) $42.00; provided, however, that if the Average Share 
Price is less than $17.00, "(y)" shall equal the product of the Exchange Ratio 
and the Average Share Price.
     "OREO" means other real estate owned. 
     "Parent" has the meaning set forth in the preamble to this Agreement. 
     "Parent Articles" means the Articles of Incorporation of Parent, as 
amended. 
"Parent Bank" means The First National Bank of Damariscotta and any successor 
thereto.
     "Parent Benefits Plans" has the meaning set forth in Section 6.12(a). 
     "Parent Board" means the Board of Directors of Parent. 
     "Parent Bylaws" means the Bylaws of Parent, as amended. 
     "Parent Common Stock" means the common stock of Parent. 
     "Parent Regulatory Authorities" has the meaning set forth in Section 
5.04(k). 
     "Pension Plan" has the meaning set forth in Section 5.03(m)(ii). 
     "Person" means any individual, bank, corporation, partnership, 
association, joint-stock company, business trust, limited liability company or 
unincorporated organization. 




Page I - 4
     "Previously Disclosed" by a party shall mean information set forth in a 
section of its Disclosure Schedule corresponding to the section of this 
Agreement where such term is used. 
     "Proxy Statement" has the meaning set forth in Section 6.03(a). 
     "Registration Statement" has the meaning set forth in Section 6.03(a). 
     "Rights" means, with respect to any Person, warrants, options, rights, 
convertible securities and other arrangements or commitments which obligate the 
Person to issue or dispose of any of its capital stock or other ownership 
interests. 
     "Rollover Option" means the Company Options described in Exhibit 3.08 that 
are to be converted into options for Parent Common Stock pursuant to Section 
3.08.
     "SEC" means the Securities and Exchange Commission. 
     "SEC Documents" has the meaning set forth in Section 5.04(g). 
     "Securities Act" means the Securities Act of 1933, as amended, and the 
rules and regulations thereunder. 
     "Shareholder Agreements" has the meaning set forth in the recitals to this 
Agreement.
     "Subsidiary" and "Significant Subsidiary" have the meanings ascribed to 
those terms in Rule 1-02 of Regulation S-X of the SEC. 
     "Superior Proposal" has the meaning set forth in Section 6.08. 
     "Surviving Corporation" has the meaning set forth in Section 2.01(a).
     "Tax" and "Taxes" mean all federal, state, local or foreign income, gross 
income, gains, gross receipts, sales, use, ad valorem, goods and services, 
capital, production, transfer, franchise, windfall profits, license, 
withholding, payroll, employment, disability, employer health, excise, 
estimated, severance, stamp, occupation, property, environmental, custom 
duties, unemployment or other taxes of any kind whatsoever, together with any 
interest, additions or penalties thereto and any interest in respect of such 
interest and penalties. 
     "Tax Returns" means any return, declaration or other report (including 
elections, declarations, schedules, estimates and information returns) with 
respect to any Taxes. 
      "Termination Fee" has the meaning set forth in Section 8.02(b).
     "Transactions" means the Merger and the Bank Merger and any other 
transaction contemplated by this Agreement. 
    






















Page I - 5
ARTICLE II

THE MERGER 
     2.01.    The Merger.    
     (a)    The Merger.    Subject to the terms and conditions of this 
Agreement, at the Effective Time, the Company shall merge with and into Parent 
in accordance with the applicable provisions of the MBCA (the "Merger"), and 
the separate corporate existence of the Company shall cease and Parent shall 
survive and continue to exist as a corporation incorporated under the MBCA 
(Parent, as the surviving corporation in the Merger, sometimes being referred 
to herein as the "Surviving Corporation"). 
     (b)    Name.    The name of the Surviving Corporation shall be "First 
National Lincoln Corporation." 
     (c)    Articles and Bylaws.    The Articles of Incorporation and Bylaws of 
Parent immediately after the Merger shall be the Parent Articles and the Parent 
Bylaws as in effect immediately prior to the Merger. 
     (d)    Directors and Officers of the Surviving Corporation.    The 
directors and officers of Parent immediately after the Merger shall be the 
directors and officers of Parent immediately prior to the Merger, and the 
individuals appointed as directors as provided in Section 6.15, until such time 
as their successors shall be duly elected and qualified. 
     (e)    Authorized Capital Stock.    The authorized capital stock of the 
Surviving Corporation upon consummation of the Merger shall be as set forth in 
the Parent Articles immediately prior to the Merger. 
     (f)    Effect of the Merger.    At the Effective Time, the effect of the 
Merger shall be as provided in Section 1106 of the MBCA. Without limiting the 
generality of the foregoing, and subject thereto, at the Effective Time, all 
the property, rights, privileges, powers and franchises of the Company shall 
vest in the Surviving Corporation, and all debts, liabilities, obligations, 
restrictions, disabilities and duties of the Company shall become the debts, 
liabilities, obligations, restrictions, disabilities and duties of the 
Surviving Corporation. 
     (g)    Additional Actions.    If, at any time after the Effective Time, 
the Surviving Corporation shall consider that any further assignments or 
assurances in law or any other acts are necessary or desirable to (i) vest, 
perfect or confirm, of record or otherwise, in the Surviving Corporation its 
right, title or interest in, to or under any of the rights, properties or 
assets of the Company acquired or to be acquired by the Surviving Corporation 
as a result of, or in connection with, the Merger, or (ii) otherwise carry out 
the purposes of this Agreement, the Company, and its proper officers and 
directors, shall be deemed to have granted to the Surviving Corporation an 
irrevocable power of attorney to execute and deliver all such proper deeds, 
assignments and assurances in law and to do all acts necessary or proper to 
vest, perfect or confirm title to and possession of such rights, properties or 
assets in the Surviving Corporation and otherwise to carry out the purposes of 
this Agreement, and the proper officers and directors of the Surviving 
Corporation are fully authorized in the name of the Surviving Corporation or 
otherwise to take any and all such action. 
     2.02    Effective Date and Effective Time; Closing.    
     (a)  Subject to the satisfaction or waiver of the conditions set forth in 
Article VII (other than those conditions that by their nature are to be 
satisfied at the consummation of the Merger, but subject to the fulfillment or 
waiver of those conditions), the parties shall cause Articles of Merger 
relating to the Merger (the "Articles of Merger") to be filed with the 
Secretary of State of the State of Maine pursuant to the MBCA on (i) a date 
selected by Parent after such satisfaction or waiver which is no later than the 
later of (A) five Business Days after such satisfaction or waiver or (B) the 


Page I - 6
first month end following such satisfaction or waiver, or (ii) such other date 
to which the parties may mutually agree in writing. The Merger provided for 
herein shall become effective upon such filings or on such date as may be 
specified therein. The date of such filings or such later effective date is 
herein called the "Effective Date." The "Effective Time" of the Merger shall be 
the time of such filings or as set forth in such filings. 
     (b)  A closing (the "Closing") shall take place immediately prior to the 
Effective Time at 10:00 a.m., local time, at the offices of Pierce Atwood LLP 
in Portland, Maine, or at such other place, at such other time, or on such 
other date as the parties may mutually agree upon (such date, the "Closing 
Date"). At the Closing, there shall be delivered to Parent and the Company the 
opinions, certificates and other documents required to be delivered under 
Article VII hereof. 
    













































Page I - 7
ARTICLE III

CONSIDERATION; ELECTION AND EXCHANGE PROCEDURES 
     3.01.    Conversion of Shares.    At the Effective Time, by virtue of the 
Merger and without any action on the part of a holder of shares of Company 
Common Stock: 
     (a)  Each share of Parent Common Stock that is issued and outstanding 
immediately prior to the Effective Time shall remain issued and outstanding and 
shall be unchanged by the Merger. 
     (b)  (1) Subject to Sections 3.04, 3.05 and 3.06, each share of Company 
Common Stock issued and outstanding immediately prior to the Effective Time 
shall be converted into, and shall be canceled in exchange for, the right to 
receive, the number of shares of Parent Common Stock which is equal to the 
quotient (the "Exchange Ratio") determined by dividing (x) $42.00 by (y) the 
Average Share Price of the Parent Common Stock ; provided, however, that the 
Exchange Ratio shall be not more than 2.47 and not less than 1.91.
     (2)  For purposes of this Agreement, the "Average Share Price" of the 
Parent Common Stock shall mean the sum of the average of the high and low sales 
price of a share of Parent Common Stock, for each trading day for which a high 
and low sales price is reported on Nasdaq (as reported by an authoritative 
source), during the 30 day period ending with the fifth Business Day 
immediately preceding the Effective Date, divided by the number of trading days 
for which a high and low price is so reported during such period. 
     3.02.    Exchange Procedures.    
     (a)  Parent shall designate an exchange agent to act as agent (the 
"Exchange Agent") for purposes of conducting the exchange procedure described 
in Section 3.01.  At the Effective Time, for the benefit of the holders of 
Certificates, Parent shall deliver to the Exchange Agent one or more 
certificates evidencing the aggregate number of shares of Parent Common Stock 
issuable. The Exchange Agent shall not be entitled to vote or exercise any 
rights of ownership with respect to the shares of Parent Common Stock held by 
it from time to time hereunder, except that it shall receive and hold all 
dividends or other distributions paid or distributed with respect to such 
shares for the account of the persons entitled thereto. 
     (b)  Each holder of an outstanding Certificate or Certificates who has 
surrendered such Certificate or Certificates to the Exchange Agent will, upon 
acceptance thereof by the Exchange Agent, be entitled to a certificate or 
certificates representing the number of whole shares of Parent Common Stock and 
cash in respect of any fractional shares as provided in Section 3.04, into 
which the aggregate number of shares of Company Common Stock previously 
represented by such Certificate or Certificates surrendered shall have been 
converted pursuant to this Agreement and any other distribution theretofore 
paid with respect to Parent Common Stock issuable in the Merger, in each case 
without interest. The Exchange Agent shall accept such Certificates upon 
compliance with such reasonable terms and conditions as the Exchange Agent may 
impose to effect an orderly exchange thereof in accordance with normal exchange 
practices. Each outstanding Certificate which prior to the Effective Time 
represented Company Common Stock and which is not surrendered to the Exchange 
Agent in accordance with the procedures provided for herein shall, except as 
otherwise herein provided, until duly surrendered to the Exchange Agent be 
deemed to evidence ownership of the number of shares of Parent Common Stock 
into which such Company Common Stock shall have been converted or the right to 
receive cash in respect of any fractional shares as provided in Section 3.04. 
After the Effective Time, there shall be no further transfer on the records of 
the Company of Certificates representing shares of Company Common Stock and if 
such Certificates are presented to the Company for transfer, they shall be 
cancelled against delivery of certificates for Parent Common Stock or cash as 


Page I - 8
herein above provided. No dividends which have been declared will be remitted 
to any person entitled to receive shares of Parent Common Stock under Section 
3.01 until such person surrenders the Certificate or Certificates representing 
Company Common Stock, at which time such dividends shall be remitted to such 
person, without interest. 
     (c)  The Exchange Agent and Parent, as the case may be, shall not be 
obligated to deliver a certificate or certificates representing shares of 
Parent Common Stock to which a holder of Company Common Stock would otherwise 
be entitled as a result of the Merger or cash in respect of any fractional 
shares as provided in Section 3.04 until such holder surrenders the Certificate 
or Certificates representing the shares of Company Common Stock for exchange as 
provided in this Section 3.02, or, in default thereof, an appropriate affidavit 
of loss and indemnity agreement and/or a bond in an amount as may be reasonably 
required in each case by Parent. If any certificates evidencing shares of 
Parent Common Stock are to be issued in a name other than that in which the 
Certificate evidencing Company Common Stock surrendered in exchange therefor is 
registered, it shall be a condition of the issuance thereof that the 
Certificate so surrendered shall be properly endorsed or accompanied by an 
executed form of assignment separate from the Certificate and otherwise in 
proper form for transfer and that the person requesting such exchange pay to 
the Exchange Agent any transfer or other tax required by reason of the issuance 
of a certificate for shares of Parent Common Stock in any name other than that 
of the registered holder of the Certificate surrendered or otherwise establish 
to the satisfaction of the Exchange Agent that such tax has been paid or is not 
payable. 
     (d)  Any portion of the shares of Parent Common Stock and cash delivered 
to the Exchange Agent by Parent pursuant to Section 3.02(a) that remains 
unclaimed by the shareholders of the Company for six months after the Effective 
Time (as well as any proceeds from any investment thereof) shall be delivered 
by the Exchange Agent to Parent. Any shareholders of Company who have not 
theretofore complied with Section 3.02(b) shall thereafter look only to Parent 
for the consideration deliverable in respect of each  share of Company Common 
Stock such shareholder holds as determined pursuant to this Agreement without 
any interest thereon.  Neither the Exchange Agent nor any party to this 
Agreement shall be liable to any holder of stock represented by any Certificate 
for any consideration paid to a public official pursuant to applicable 
abandoned property, escheat or similar laws. Parent and the Exchange Agent 
shall be entitled to rely upon the stock transfer books of the Company to 
establish the identity of those persons entitled to receive the consideration 
specified in this Agreement, which books shall be conclusive with respect 
thereto. In the event of a dispute with respect to ownership of stock 
represented by any Certificate, Parent and the Exchange Agent shall be entitled 
to deposit any consideration represented thereby in escrow with an independent 
third party and thereafter be relieved with respect to any claims thereto. 
     (e)  Notwithstanding anything in this Agreement to the contrary, 
Certificates surrendered for exchange by any Company Affiliate shall not be 
exchanged for certificates representing shares of Parent Common Stock to which 
such Company Affiliate may be entitled pursuant to the terms of this Agreement 
until Parent has received a written agreement from such person as specified in 
Section 6.07. 
     3.03.    Rights as Shareholders; Stock Transfers.    At the Effective 
Time, holders of Company Stock shall cease to be, and shall have no rights as, 
shareholders of the Company other than to receive the consideration provided 
under this Article III. After the Effective Time, there shall be no transfers 
on the stock transfer books of the Company or the Surviving Corporation of 
shares of Company Stock. 



Page I - 9
     3.04.    No Fractional Shares.    Notwithstanding any other provision of 
this Agreement, neither certificates nor scrip for fractional shares of Parent 
Common Stock shall be issued in the Merger. Each holder of Company Common Stock 
who otherwise would have been entitled to a fraction of a share of Parent 
Common Stock (after taking into account all Certificates delivered by such 
holder) shall receive in lieu thereof cash (without interest) in an amount 
determined by multiplying the fractional share interest to which such holder 
would otherwise be entitled by the Average Share Price, rounded to the nearest 
whole cent. No such holder shall be entitled to dividends, voting rights or any 
other rights in respect of any fractional share. 
     3.05.    Dissenting Shares.    Notwithstanding Section 3.02 above, each 
outstanding share of Company Common Stock the holder of which has perfected 
his, her or its right to dissent under the MBCA and has not effectively 
withdrawn or lost such right as of the Effective Time (the "Dissenting Shares") 
shall not be converted into or represent a right to receive shares of Parent 
Common Stock hereunder, and the holder thereof shall be entitled only to such 
rights as are granted by the MBCA. The Company shall give Parent prompt notice 
upon receipt by the Company of any such written demands for payment of the fair 
value of such shares of Company Common Stock and of withdrawals of such demands 
and any other instruments provided pursuant to the MBCA. If any holder of 
Dissenting Shares shall fail to perfect or shall have effectively withdrawn or 
lost the right to dissent at or prior to the Effective Time, the Dissenting 
Shares held by such holder shall be converted into a right to receive Parent 
Common Stock and cash in respect of any fractional shares as provided in 
Section 3.04 in accordance with the applicable provisions of this Agreement.  
If any holder of Dissenting Shares shall have effectively withdrawn or lost the 
right to dissent (through failure to perfect or otherwise) after the Effective 
Time, the Dissenting Shares held by such holder shall be converted into the 
right to receive Parent Common Stock and cash in respect of any fractional 
shares in accordance with the applicable provisions of this Agreement as Parent 
or the Exchange Agent shall determine. Any payments made in respect of 
Dissenting Shares shall be made by the Surviving Corporation.
     3.06.    Anti-Dilution Provisions.    If, between the date hereof and the 
Effective Time, the shares of Parent Common Stock shall be changed into a 
different number or class of shares by reason of any reclassification, 
recapitalization, split-up, combination, exchange of shares or readjustment, or 
a stock dividend thereon shall be declared with a record date within said 
period, the Exchange Ratio shall be adjusted accordingly. 
     3.07.    Withholding Rights.    Parent (through the Exchange Agent, if 
applicable) shall be entitled to deduct and withhold from any amounts otherwise 
payable pursuant to this Agreement to any holder of shares of Company Common 
Stock or Company Options such amounts as Parent is required under the Code or 
any state, local or foreign tax law or regulation thereunder to deduct and 
withhold with respect to the making of such payment. Any amounts so withheld 
shall be treated for all purposes of this Agreement as having been paid to the 
holder of Company Common Stock or Company Options in respect of which such 
deduction and withholding was made by Parent. 
     3.08.    Company Options.    
     (a)  At the Effective Time, each Company Option (other than a Rollover 
Option) which is then outstanding, whether or not exercisable, shall become 
fully vested and exercisable, and shall cease to represent a right to acquire 
shares of Company Common Stock.  All such Company Options (other than Rollover 
Options) shall, at the Effective Time, be converted automatically into the 
right to receive the Option Cash-Out Amount.  Each Rollover Option shall be 
converted automatically into an option to purchase shares of Parent Common 
Stock, and Parent shall assume each such Rollover Option, in accordance with 



Page I - 10
the terms of the Company Stock Option Plan and stock option or other agreement 
by which it is evidenced, except that from and after the Effective Time, (i) 
Parent and the Options Committee of its Board of Directors shall be substituted 
for the Company and its Board of Directors (which administers the Company Stock 
Option Plan), (ii) each Rollover Option assumed by Parent may be exercised 
solely for shares of Parent Common Stock, (iii) the number of shares of Parent 
Common Stock subject to such Rollover Option shall be equal to the number of 
shares of Company Common Stock subject to such Rollover Option immediately 
prior to the Effective Time multiplied by the Exchange Ratio, provided that any 
fractional shares of Parent Common Stock resulting from such multiplication 
shall be rounded down to the nearest share, and (iv) the per share exercise 
price under each such Rollover Option shall be adjusted by dividing the per 
share exercise price under each such Rollover Option by the Exchange Ratio, 
provided that such exercise price shall be rounded up to the nearest cent.  
Parent and the Company agree to take all necessary steps to effect the 
foregoing provisions of this Section 3.08(a) and Section 3.07.
     (b)  Within five Business Days after the Effective Time, Parent shall file 
a registration statement on Form S-8 (or any successor or other appropriate 
forms), with respect to the shares of Parent Common Stock subject to the 
options referred to in paragraph (a) of this Section 3.08 and shall use its 
reasonable efforts to maintain the current status of the prospectus or 
prospectuses contained therein for so long as such options remain outstanding.
    




































Page I - 11
ARTICLE IV

ACTIONS PENDING ACQUISITION 
     4.01.    Forbearances of the Company.    From the date hereof until the 
Effective Time, except as expressly contemplated or permitted by this Agreement 
or as Previously Disclosed, without the prior written consent of Parent, the 
Company will not, and will cause each of its Subsidiaries not to: 
     (a)    Ordinary Course.    Conduct its business other than in the ordinary 
and usual course consistent with past practice or fail to use reasonable best 
efforts to preserve its business organization, keep available the present 
services of its employees and preserve for itself and Parent the goodwill of 
the customers of the Company and its Subsidiaries and others with whom business 
relations exist. 
     (b)    Capital Stock.    Issue, sell or otherwise permit to become 
outstanding, or authorize the creation of, any additional shares of stock or 
permit any additional shares of stock to become subject to grants of stock 
options, other than upon the exercise of Company Options outstanding on the 
date hereof under the Company Stock Option Plan. 
     (c)    Dividends; Etc.    (a) Make, declare, pay or set aside for payment 
any dividend on or in respect of, or declare or make any distribution on any 
shares of Company Stock, other than (A) subject to Section 6.14 hereof, regular 
semi-annual cash dividends at a rate not in excess of $.33 per share on the 
Company Common Stock, after taking into account any dividend under clause (B), 
(B) to the extent necessary to effect the purposes of Section 6.14 and subject 
to the provision of prior written notice to, and consultation with, the Parent, 
quarterly cash dividends, at the same annualized rate as the regular dividends 
paid by the Company, on the same record date provided by Parent with respect to 
dividends payable to Parent shareholders, and (C) dividends from wholly-owned 
Subsidiaries to the Company, or another wholly-owned Subsidiary of the Company, 
or (b) directly or indirectly adjust, split, combine, redeem, reclassify, 
purchase or otherwise acquire, any shares of its capital stock. Parent shall 
give the Company advance notice of the determination of any record date with 
respect to the payment of any dividend on Parent Common Stock.
     (d)    Compensation; Employment Agreements; Etc.    Enter into or amend or 
renew any employment, consulting, severance or similar agreements or 
arrangements with any director, officer or employee of the Company or its 
Subsidiaries or grant any salary or wage increase or increase any employee 
benefit (including incentive or bonus payments), except (i)  normal individual 
increases in compensation to employees in the ordinary course of business 
consistent with past practice, provided that no such increase with respect to 
any individual employee shall result in an annualized adjustment of more than 
4% of such employee's compensation and provided that any such increases to all 
employees since June 30, 2004 shall not exceed 3.5% in the aggregate, (ii)  
other changes that are required by applicable law, (iii) to satisfy contractual 
obligations existing as of the date hereof and set forth in Schedule 4.01(d) of 
the Company's Disclosure Schedule, (iv)  grants or awards to newly-hired 
employees consistent with past practice, (v) discretionary bonuses in the 
ordinary course of business and consistent with past practice to employees of 
the Company or the Company Bank for services rendered during the period from 
January 1, 2004 to the Effective Time of up to $200,000 in the aggregate for 
all employees, provided that in the case of any individual recipient any such 
bonus, either alone or in combination with the payment of other amounts payable 
to the recipient in the event his or her employment is terminated following the 
Merger, would not be nondeductible by the Company or the Company Bank (or their 
successors) under Section 280G of the Code and subject to the excise tax 
imposed under Section 4999 of the Code, and (vi) any increase in the premium 
costs of an existing insured employee benefit. Notwithstanding anything to the 


Page I - 12
contrary set forth in this Agreement, prior to the Closing Date, the Company 
and its Subsidiaries shall be permitted to make cash contributions to the 
Company 401(k) Plan for the 2004 calendar year as long as the total amount of 
such cash contributions do not exceed the amount derived by application of the 
calendar 2003 formula based on calendar 2004 compensation levels. 
     (e)    Hiring.    Hire any person as an employee of the Company or any of 
its Subsidiaries or promote any employee, except (i) to satisfy contractual 
obligations existing as of the date hereof and set forth on Schedule 4.01(e) of 
the Company's Disclosure Schedule and (ii) persons hired or promoted to fill 
any vacancies arising after the date hereof and whose employment is terminable 
at the will of the Company or a Subsidiary of the Company, as applicable, and 
(iii)  any person to be hired or promoted who would have a base salary, 
including any guaranteed bonus or any similar bonus, considered on an annual 
basis of less than $50,000. 
     (f)    Benefit Plans.    Enter into, establish, adopt or amend (except (i) 
as may be required by applicable law, subject to the provision of prior written 
notice to, and consultation with, the Parent, (ii) to satisfy contractual 
obligations existing as of the date hereof and set forth on Schedule 4.01(f) of 
the Company's Disclosure Schedule, or (iii) with respect to the Company's 
401(k) Plan, as, and to the extent necessary, to allow the Company to make the 
contribution to the Company's 401(k) Plan that is contemplated by the last 
sentence of Section 4.01(d)) any pension, retirement, stock option, stock 
purchase, savings, profit sharing, deferred compensation, consulting, bonus, 
group insurance or other employee benefit, incentive or welfare contract, plan 
or arrangement, or any trust agreement (or similar arrangement) related 
thereto, in respect of any current or former director, officer or employee of 
the Company or its Subsidiaries or take any action to accelerate the vesting or 
exercisability of stock options, restricted stock or other compensation or 
benefits payable thereunder, except that the Company shall accelerate the 
vesting of Company Options in a manner consistent with Section 3.08(a).  The 
Company shall take such action as may be reasonably requested by Parent to 
terminate one or more of the Benefits Plans effective as of the Effective Time.
     (g)    Dispositions.    Sell, transfer, mortgage, encumber or otherwise 
dispose of or discontinue any of its assets, deposits, business or properties 
except in the ordinary course of business consistent with past practice and in 
a transaction that, together with all other such transactions, is not material 
to the Company and its Subsidiaries taken as a whole. 
     (h)    Acquisitions.    Acquire (other than by way of foreclosures or 
acquisitions of control in a bona fide fiduciary capacity or in satisfaction of 
debts previously contracted in good faith, in each case in the ordinary and 
usual course of business consistent with past practice) all or any portion of 
the assets, business, deposits or properties of any other entity. 
     (i)    Capital Expenditures.    Make any capital expenditures other than 
capital expenditures in the ordinary course of business consistent with past 
practice in amounts not exceeding $50,000 individually or $250,000 in the 
aggregate. 
     (j)    Governing Documents.    Amend the Company Articles or Company 
Bylaws or the articles of incorporation or bylaws (or equivalent documents) of 
any Subsidiary of the Company. 
     (k)    Accounting Methods.    Implement or adopt any change in its 
accounting principles, practices or methods, other than as may be required by 
changes in laws or regulations or GAAP. 
     (l)    Contracts.    Except in the ordinary course of business consistent 
with past practice or as otherwise permitted under this Section 4.01, enter 
into or terminate any Material Contract or amend or modify in any material 
respect any of its existing Material Contracts. 



Page I - 13
     (m)    Claims.    Enter into any settlement or similar agreement with 
respect to any action, suit, proceeding, order or investigation to which the 
Company or any of its Subsidiaries is or becomes a party after the date of this 
Agreement, which settlement, agreement or action involves payment by the 
Company and its Subsidiaries of an amount which exceeds $50,000 and/or would 
impose any material restriction on the business of the Company or create 
precedent for claims that are reasonably likely to be material to the Company 
and its Subsidiaries taken as a whole. 
     (n)    Banking Operations.    Enter into any new material line of 
business; change its material lending, investment, underwriting, risk and asset 
liability management and other material banking and operating policies, except 
as required by applicable law, regulation or policies imposed by any 
Governmental Authority; or file any application or make any contract with 
respect to branching or site location or branching or site relocation. 
     (o)    Derivatives Contracts.    Enter into any Derivatives Contract, 
except in the ordinary course of business consistent with past practice. 
     (p)    Indebtedness.    Incur any indebtedness for borrowed money (other 
than deposits, federal funds purchased, cash management accounts, borrowings 
from the Federal Reserve Bank of Boston and securities sold under agreements to 
repurchase, in each case in the ordinary course of business consistent with 
past practice) or assume, guarantee, endorse or otherwise as an accommodation 
become responsible for the obligations of any other Person, other than in the 
ordinary course of business consistent with past practice. 
     (q)    Investment Securities.    Acquire (other than by way of 
foreclosures or acquisitions in a bona fide fiduciary capacity or in 
satisfaction of debts previously contracted in good faith, in each case in the 
ordinary course of business consistent with past practice) (i) any debt 
security or Equity Investment of a type or in an amount that is not permissible 
for a national bank or (ii) any other debt security other than in the ordinary 
course of business consistent with past practice; or restructure or materially 
change its investment securities portfolio, through purchases, sales or 
otherwise, or the manner in which such portfolio or any securities therein are 
classified under GAAP or reported for regulatory purposes. 
     (r)    Loans.    Make, renew or otherwise modify any loan, loan 
commitment, letter of credit or other extension of credit (collectively, 
"Loans") other than in the ordinary course of business consistent with past 
practice. 
     (s)    Investments in Real Estate.    Make any investment or commitment to 
invest in real estate or in any real estate development project (other than by 
way of foreclosure or acquisitions in a bona fide fiduciary capacity or in 
satisfaction of a debt previously contracted in good faith, in each case in the 
ordinary course of business consistent with past practice). 
     (t)    Transactions with Affiliates.    Except pursuant to agreements or 
arrangements in effect on the date hereof, pay, loan or advance any amount to, 
or sell, transfer or lease any properties or assets (real, personal or mixed, 
tangible or intangible) to, or enter into any agreement or arrangement with, 
any of its officers or directors or any of their immediate family members or 
any affiliates or associates (as such terms are defined under the Exchange Act) 
of any of its officers or directors other than compensation in the ordinary 
course of business consistent with past practice. 
      (u)  Taxes.    Except as may be required by applicable laws or 
regulations, make or change any material Tax election, file any material 
amended Tax Return, enter into any material closing agreement, settle or 
compromise any material liability with respect to Taxes, or consent to any 
extension or waiver of the limitation period applicable to any material Tax 
claim or assessment. For purposes of this subparagraph (u), "material" shall 
mean affecting or relating to $50,000 or more of Taxes. 


Page I - 14
     (u)    Compliance with Agreements.    Knowingly commit any act or omission 
which constitutes a material breach or default by the Company or any of its 
Subsidiaries under any agreement with any Governmental Authority or under any 
Material Contract, lease or other agreement or material license to which any of 
them is a party or by which any of them or their respective properties is 
bound. 
     (v)    Environmental Assessments.    Foreclose on or take a deed or title 
to any commercial real estate without first conducting a Phase I environmental 
assessment of the property or foreclose on any commercial real estate if such 
environmental assessment indicates the presence of a Hazardous Substance in 
amounts which, if such foreclosure were to occur, would be material.  
    (w)   Adverse Actions.    (i) Take any action that would, or is reasonably 
likely to, prevent or impede the Merger from qualifying as a reorganization 
within the meaning of Section 368(a) of the Code, or (ii) take any action that 
is intended or is reasonably likely to result in (x) any of its representations 
and warranties set forth in this Agreement being or becoming untrue in any 
material respect at any time at or prior to the Effective Time, (y) any of the 
conditions to the Merger set forth in Article VII not being satisfied or (z) a 
material violation of any provision of this Agreement or the Bank Merger 
Agreement, except, in each case, as may be required by applicable law or 
regulation. 
     (x)    Commitments.    Enter into any contract with respect to, or 
otherwise agree or commit to do, any of the foregoing. 
     4.02.    Forbearances of Parent.    From the date hereof until the 
Effective Time, except as expressly contemplated or permitted by this 
Agreement, without the prior written consent of the Company, Parent will not, 
and will cause each of its Subsidiaries not to: 
     (a)    Adverse Actions.    (i) Take any action that would, or is 
reasonably likely to, prevent or impede the Merger from qualifying as a 
reorganization within the meaning of Section 368(a) of the Code or (ii) take 
any action that is intended or is reasonably likely to result in (x) any of its 
representations and warranties set forth in this Agreement being or becoming 
untrue in any material respect at any time at or prior to the Effective Time, 
(y) any of the conditions to the Merger set forth in Article VII not being 
satisfied or (z) a material violation of any provision of this Agreement or the 
Bank Merger Agreement, except, in each case, as may be required by applicable 
law or regulation. 
     (b)    Commitments.    Enter into any contract with respect to, or 
otherwise agree or commit to do, any of the foregoing. 
     (c) Suspension of Stock Buy-back Program.  Purchase or acquire, for its 
own account, any shares of Parent Common Stock, except for non-market 
repurchases of Parent Common Stock from employees of Parent.
    
















Page I - 15
ARTICLE V

REPRESENTATIONS AND WARRANTIES 
     5.01.    Disclosure Schedules.    On or prior to the date hereof, Parent 
has delivered to the Company a schedule and the Company has delivered to Parent 
a schedule (respectively, its "Disclosure Schedule") setting forth, among other 
things, items the disclosure of which is necessary or appropriate either in 
response to an express disclosure requirement contained in a provision hereof 
or as an exception to one or more representations or warranties contained in 
Section 5.03 or 5.04 or to one or more of its covenants contained in Article 
IV; provided, however, that (a) no such item is required to be set forth in a 
Disclosure Schedule as an exception to a representation or warranty if its 
absence would not be reasonably likely to result in the related representation 
or warranty being deemed untrue or incorrect under the standard established by 
Section 5.02, and (b) the mere inclusion of an item in a Disclosure Schedule as 
an exception to a representation or warranty shall not be deemed an admission 
by a party that such item represents a material exception or fact, event or 
circumstance or that, absent such inclusion in the Disclosure Schedule, such 
item is or would be reasonably likely to result in a Material Adverse Effect. 
     5.02.    Standard.    No representation or warranty of the Company or 
Parent contained in Sections 5.03 or 5.04, respectively, shall be deemed untrue 
or incorrect, and no party hereto shall be deemed to have breached a 
representation or warranty, as a consequence of the existence of any fact, 
event or circumstance unless such fact, circumstance or event, individually or 
taken together with all other facts, events or circumstances inconsistent with 
any representation or warranty contained in Section 5.03 or 5.04, has had or is 
reasonably likely to have a Material Adverse Effect on the party making such 
representation or warranty.
     5.03.    Representations and Warranties of the Company.    Subject to 
Sections 5.01 and 5.02 and except as Previously Disclosed, the Company hereby 
represents and warrants to Parent:
     (a)    Organization, Standing and Authority.    The Company is duly 
organized, validly existing and in good standing under the laws of the State of 
Maine. The Company is duly qualified to do business and is in good standing in 
each jurisdiction where its ownership or leasing of property or assets or the 
conduct of its business requires it to be so qualified. The Company has in 
effect all federal, state, local and foreign governmental authorizations 
necessary for it to own or lease its properties and assets and to carry on its 
business as now conducted. The Company Articles and Company Bylaws, copies of 
which have been delivered to Parent, are true, complete and correct copies of 
such documents as in effect on the date of this Agreement.
     (b)    Company Capital Stock.    The authorized capital stock of the 
Company consists solely of 2,000,000 shares of Company Common Stock, of which  
1,047,722 shares are outstanding as of the date hereof, and 100,000 shares of 
Serial Preferred Stock, of which none are outstanding as of the date hereof.  
The outstanding shares of Company Common Stock have been duly authorized and 
validly issued and are fully paid and non-assessable, and none of the 
outstanding shares of Company Common Stock have been issued in violation of the 
preemptive rights of any Person. Section 5.03(b) of the Company's Disclosure 
Schedule sets forth for each Company Stock Option, the name of the grantee, the 
date of the grant, the type of grant, the status of the option grant as 
qualified or non-qualified under Section 422 of the Code, the number of shares 
of Company Common Stock subject to each option, the number of shares of Company 
Common Stock subject to options that are currently exercisable and the exercise 
price per share. Except as set forth in the preceding sentence, there are no 
shares of Company Stock reserved for issuance, the Company does not have any 



Page I - 16
Rights issued or outstanding with respect to Company Stock, and the Company 
does not have any commitment to authorize, issue or sell any Company Stock. 
     (c)    Subsidiaries.    
     (i)    (A) The Company has Previously Disclosed a list of all of its 
Subsidiaries together with the jurisdiction of organization of each such 
Subsidiary, (B) the Company owns, directly or indirectly, all the issued and 
outstanding equity securities of each of its Subsidiaries, (C) no equity 
securities of any of its Subsidiaries are or may become required to be issued 
(other than to the Company) by reason of any Right or otherwise, (D) there are 
no contracts, commitments, understandings or arrangements by which any of its 
Subsidiaries is or may be bound to sell or otherwise transfer any of its equity 
securities (other than to the Company or any of its wholly-owned Subsidiaries), 
(E) there are no contracts, commitments, understandings, or arrangements 
relating to the Company's rights to vote or to dispose of such securities and 
(F) all the equity securities of the Company's Subsidiaries held by the Company 
or its Subsidiaries are fully paid and nonassessable and are owned by the 
Company or its Subsidiaries free and clear of any Liens. 
     (ii)  Except for securities and other interests held in a fiduciary 
capacity and beneficially owned by third parties or taken in consideration of 
debts previously contracted, the Company does not own beneficially, directly or 
indirectly, any equity securities or similar interests of any Person or any 
interest in a partnership or joint venture of any kind other than its 
Subsidiaries and stock in the Federal Reserve Bank of Boston and the Federal 
Home Loan Bank of Boston. 
       (iii)  Each of the Company's Subsidiaries has been duly organized and is 
validly existing in good standing under the laws of the jurisdiction of its 
organization and is duly qualified to do business and in good standing in the 
jurisdictions where its ownership or leasing of property or the conduct of its 
business requires it to be so qualified. The articles of incorporation, bylaws 
and similar governing documents of each Subsidiary of the Company, copies of 
which have been delivered to Parent, are true, complete and correct copies of 
such documents as in effect as of the date of this Agreement.
      (iv)  The Company Bank is the only Subsidiary of the Company that is an 
insured depository institution. The deposit accounts of the Company Bank are 
insured by the Bank Insurance Fund in the manner and to the maximum extent 
provided by applicable law, and the Company Bank has paid all deposit insurance 
premiums and assessments required by applicable laws and regulations. 
     (d)    Corporate Power; Minute Books.    Each of the Company and its 
Subsidiaries has the corporate power and authority to carry on its business as 
it is now being conducted and to own all its properties and assets; and the 
Company has the corporate power and authority to execute, deliver and perform 
its obligations under this Agreement and to consummate the Transactions, 
subject to receipt of all necessary approvals of Governmental Authorities and 
the approval of the Company's shareholders of this Agreement. The minute books 
of the Company and each of its Subsidiaries contain true, complete and accurate 
records of all meetings and other corporate actions held or taken since 
December 31, 1999 of their respective shareholders and Boards of Directors 
(including committees of their respective Boards of Directors).
       (e)    Corporate Authority.    Subject to the approval of this Agreement 
by the holders of 67% of the outstanding Company Common Stock, this Agreement 
and the Transactions have been authorized and adopted by all necessary 
corporate action of the Company and the Company Board on or prior to the date 
hereof. The Company Board has directed that this Agreement be submitted to the 
Company's shareholders for approval at a meeting of such shareholders and, 
except for the approval and adoption of this Agreement by the affirmative vote 
of the holders of a 67% of the outstanding shares of Company Common Stock, no 
other vote of the shareholders of the Company is required by law, the Company 


Page I - 17
Articles, the Company Bylaws or otherwise to approve this Agreement and the 
Transactions. The Company has duly executed and delivered this Agreement and, 
assuming due authorization, execution and delivery by Parent, this Agreement is 
a valid and legally binding obligation of the Company, enforceable in 
accordance with its terms (except as enforceability may be limited by 
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent 
transfer and similar laws of general applicability relating to or affecting 
creditors' rights or by general equity principles). 
     (f)    Regulatory Approvals; No Defaults.    
     (i)    No consents or approvals of, or waivers by, or filings or 
registrations with, any Governmental Authority or with any third party are 
required to be made or obtained by the Company or any of its Subsidiaries in 
connection with the execution, delivery or performance by the Company or the 
Company Bank of this Agreement and the Bank Merger Agreement, as applicable, or 
to consummate the Transactions, except for (A) filings of applications or 
notices with, and approvals or waivers by, the Federal Reserve Board, the OCC, 
and the Maine Superintendent, as required, (B) filings with the SEC and state 
securities authorities, as applicable, in connection with the submission of 
this Agreement for the approval of the holders of Company Common Stock and the 
issuance of Parent Common Stock in the Merger, (C) the filing of Articles of 
Merger with the Secretary of State of the State of Maine pursuant to the MBCA, 
(D) the approval of this Agreement by the holders of 67% of the outstanding 
shares of Company Common Stock and (E) such corporate approvals and such 
consents or approvals of, or waivers by, or filings or registrations with, 
certain of the foregoing federal and state banking agencies in connection with 
the Bank Merger. As of the date hereof, the Company is not aware of any reason 
why the approvals set forth above and referred to in Section 7.01(b) will not 
be received in a timely manner and without the imposition of a condition, 
restriction or requirement of the type described in Section 7.01(b). 
     (ii)  Subject to receipt, or the making, of the consents, approvals, 
waivers and filings referred to in the preceding paragraph and the expiration 
of related waiting periods, the execution, delivery and performance of this 
Agreement and the Bank Merger Agreement by the Company and the Company Bank, as 
applicable, and the consummation of the Transactions do not and will not (A) 
constitute a breach or violation of, or a default under, or give rise to any 
Lien, any acceleration of remedies or any right of termination under, any law, 
rule or regulation or any judgment, decree, order, governmental permit or 
license, or agreement, indenture or instrument of the Company or any of its 
Subsidiaries or to which the Company or any of its Subsidiaries or any of their 
respective properties is subject or bound, (B) constitute a breach or violation 
of, or a default under, the articles of incorporation or bylaws (or similar 
governing documents) of the Company or any of its Subsidiaries or (C) require 
any consent or approval under any such law, rule, regulation, judgment, decree, 
order, governmental permit or license, agreement, indenture or instrument. 
     (g)    Financial Reports; Undisclosed Liabilities.   (i)    The Company 
has previously made available to Parent copies of  (i) the consolidated balance 
sheet of the Company and its Subsidiary as of December 31, 2003, December 31, 
2002 and December 31, 2001, and the related consolidated statements of income, 
changes in shareholders' equity and cash flows for the fiscal years ended 
December 31, 2003, 2002 and 2001, in each case accompanied by the audit report 
of Berry, Dunn, McNeil and Parker LLC, independent accountants with respect to 
the Company, and (ii) the unaudited consolidated balance sheet of the Company 
and its Subsidiary as of June 30, 2004 and the related unaudited consolidated 
statements of income, cash flows and changes in shareholders' equity for the 
three month and six month periods then ended. The December 31, 2003 
consolidated balance sheet of the Company (including the related notes and 
schedules thereto) fairly presents the consolidated financial position of the 


Page I - 18
Company and its Subsidiary as of its date, and the other financial statements 
referred to in this Section 5.03(g) (including any related notes and schedules 
thereto, where applicable) fairly present (subject, in the case of unaudited 
statements, to recurring audit adjustments normal in nature and amount and the 
absence of notes), the results of consolidated operations and consolidated 
financial position of the Company and its Subsidiary for the respective fiscal 
periods or as of the respective dates therein set forth; each of such 
statements (including any related notes and schedules thereto, where 
applicable) has been prepared in accordance with GAAP consistently applied 
during the periods involved, except in each case as may be noted therein. The 
books and records of the Company and its Subsidiaries have been, and are being, 
maintained in accordance with GAAP and any other applicable legal and 
accounting requirements and reflect only actual transactions.
     (ii)  Since December 31, 2003, neither the Company nor any of its 
Subsidiaries has incurred any liability other than in the ordinary course of 
business consistent with past practice (excluding the incurrence of expenses 
related to this Agreement and the transactions contemplated hereby). 
     (iii)  Since December 31, 2003, (A) the Company and its Subsidiaries have 
conducted their respective businesses in the ordinary and usual course 
consistent with past practice (excluding the incurrence of expenses related to 
this Agreement and the transactions contemplated hereby) and (B) no event has 
occurred or circumstance arisen that, individually or taken together with all 
other facts, circumstances and events (described in any paragraph of this 
Section 5.03 or otherwise), is reasonably likely to have a Material Adverse 
Effect with respect to the Company. 
     (iv)  No agreement pursuant to which any loans or other assets have been 
or shall be sold by the Company or its Subsidiaries entitled the buyer of such 
loans or other assets, unless there is material breach of a representation or 
covenant by the Company or its Subsidiaries, to cause the Company or its 
Subsidiaries to repurchase such loan or other asset or the buyer to pursue any 
other form of recourse against the Company or its Subsidiaries. Except for 
regular semi-annual cash dividends on the Company Common Stock and a stock 
dividend of two shares of Company Common Stock per share of Company Common 
Stock paid April 2, 2004, since December 31, 2003, no cash, stock or other 
dividend or any other distribution with respect to the stock of the Company or 
any of its Subsidiaries have been declared, set aside or paid. No shares of the 
stock of the Company have been purchased, redeemed or otherwise acquired, 
directly or indirectly, by the Company since December 31, 2003, and no 
agreements have been made to do the foregoing. 
     (h)    Litigation.    No litigation, claim or other proceeding before any 
court or governmental agency is pending against the Company or any of its 
Subsidiaries and, to the Company's knowledge, no such litigation, claim or 
other proceeding has been threatened and there are no facts which could 
reasonably give rise to such litigation, claim or other proceeding. 
     (i)    Regulatory Matters.    
     (i)    The Company and each of its Subsidiaries have timely filed all 
reports, registrations and statements, together with any amendments required to 
be made with respect thereto, that they were required to file since December 
31, 1999 with any Governmental Authority, and have paid all fees and 
assessments due and payable in connection therewith. Except for normal 
examinations conducted by any Governmental Authority in the regular course of 
the business of the Company and its Subsidiaries, no Governmental Authority has 
initiated any proceeding, or to the knowledge of the Company, investigation 
into the business or operations of the Company or any of its Subsidiaries since 
December 31, 1999.  Each of the Company and the Company Bank is "well 
capitalized" and "well managed" as those terms are defined in applicable laws 
and regulations, and the Company Bank has a Community Reinvestment Act rating 
of "satisfactory" or better.

Page I - 19
(ii)  Neither the Company nor any of its Subsidiaries nor any of their 
respective properties is a party to or is subject to any order, decree, 
agreement, memorandum of understanding or similar arrangement with, or a 
commitment letter or similar submission to, or extraordinary supervisory letter 
from, any federal or state governmental agency or authority charged with the 
supervision or regulation of financial institutions or issuers of securities or 
engaged in the insurance of deposits or the supervision or regulation of it 
(collectively, the "Company Regulatory Authorities"). The Company and its 
Subsidiaries have paid all assessments made or imposed by any Company 
Regulatory Authority. 
     (iii)  Neither the Company nor any of its Subsidiaries has been advised 
by, or has any knowledge of facts which could give rise to an advisory notice 
by, any Company Regulatory Authority that such Company Regulatory Authority is 
contemplating issuing or requesting (or is considering the appropriateness of 
issuing or requesting) any such order, decree, agreement, memorandum of 
understanding, commitment letter, supervisory letter or similar submission. 
     (j)    Compliance With Laws.    Each of the Company and its Subsidiaries: 
     (i)    is in  compliance with all applicable federal, state, local and 
foreign statutes, laws, regulations, ordinances, rules, judgments, orders or 
decrees applicable thereto or to the employees conducting such businesses, 
including, without limitation, the Equal Credit Opportunity Act, the Fair 
Housing Act, the Community Reinvestment Act, the Home Mortgage Disclosure Act, 
the Bank Secrecy Act, Truth in Lending and Bank Privacy laws, the Uniting and 
Strengthening America by Providing Appropriate Tools Required to Intercept and 
Obstruct Terrorism Act of 2001  and all other applicable fair lending laws and 
other laws relating to discriminatory business practices; 
     (ii)  has all permits, licenses, authorizations, orders and approvals of, 
and has made all filings, applications and registrations with, all Governmental 
Authorities that are required in order to permit them to own or lease their 
properties and to conduct their businesses as presently conducted; all such 
permits, licenses, certificates of authority, orders and approvals are in full 
force and effect and, to the Company's knowledge, no suspension or cancellation 
of any of them is threatened; and 
     (iii)  has received, since December 31, 2001, no notification or 
communication from any Governmental Authority (A) asserting that the Company or 
any of its Subsidiaries is not in compliance with any of the statutes, 
regulations or ordinances which such Governmental Authority enforces or (B) 
threatening to revoke any license, franchise, permit or governmental 
authorization (nor, to the Company's knowledge, do any grounds for any of the 
foregoing exist). 
     (k)    Material Contracts; Defaults.    
     (i)    Neither the Company nor any of its Subsidiaries is a party to, 
bound by or subject to any agreement, contract, arrangement, commitment or 
understanding (whether written or oral) (i) with respect to the employment of 
any directors, officers, employees or consultants, (ii) which would entitle any 
present or former director, officer, employee or agent of the Company or its 
Subsidiaries to indemnification from the Company or its Subsidiaries (other 
than indemnity provisions of their respective bylaws), (iii) which would be a 
material contract (as defined in Item 601(b)(10) of Regulation S-K of the SEC 
if the Company or its Subsidiary, as the case may be, were subject to the 
Exchange Act) to be performed after the date of this Agreement, (iv) which is a 
consulting agreement (including data processing, software programming and 
licensing contracts) not terminable on 60 days or less notice and involving the 
payment of more than $50,000 per annum, or (v) which restricts the conduct of 
any business by the Company or any of its Subsidiaries (collectively, "Material 
Contracts"). The Company has Previously Disclosed and made available to Parent 
true and correct copies of each such document. 


Page I - 20
     (ii)  Neither the Company nor any of its Subsidiaries is in  default under 
any contract, agreement, commitment, arrangement, lease, insurance policy or 
other instrument to which it is a party, by which its respective assets, 
business, or operations may be bound or affected, or under which it or its 
respective assets, business, or operations receives benefits, and there has not 
occurred any event that, with the lapse of time or the giving of notice or 
both, would constitute such a default. No power of attorney or similar 
authorization given directly or indirectly by the Company or any of its 
Subsidiaries is currently outstanding. 
     (l)    No Brokers.    No action has been taken by the Company or any of 
its Subsidiaries that would give rise to any valid claim against any party 
hereto for a brokerage commission, finder's fee or other like payment with 
respect to the Transactions, excluding a Previously Disclosed fee to be paid to 
RBC Capital Markets Corporation, a member company of RBC Financial Group. 
     (m)    Employee Benefit Plans.    
     (i)    All benefit and compensation plans, contracts, policies or 
arrangements covering current or former employees of the Company and its 
Subsidiaries (the "Employees") and current or former directors of the Company 
including, but not limited to, "employee benefit plans" within the meaning of 
Section 3(3) of ERISA, and deferred compensation, stock option, stock purchase, 
stock appreciation rights, stock based, incentive and bonus plans (the 
"Benefits Plans"), are Previously Disclosed in the Disclosure Schedule. True 
and complete copies of all Benefit Plans including, but not limited to, any 
trust instruments and insurance contracts forming a part of any Benefit Plans 
and all amendments thereto have been provided or made available to Parent, and 
where no such documents exist with respect to a Benefit Plan, a written summary 
of such Benefit Plan has been provided to or made available to Parent.
     (ii)  All Benefits Plans other than "multiemployer plans" within the 
meaning of Section 3(37) of ERISA, covering Employees, to the extent subject to 
ERISA, are, and have been administered, in substantial compliance with ERISA, 
and, if applicable, the Code, including the filing requirements thereof. Each 
Benefit Plan which is an "employee pension benefit plan" within the meaning of 
Section 3(2) of ERISA (a "Pension Plan") and which is intended to be qualified 
under Section 401(a) of the Code, has received a favorable determination letter 
from the IRS (or with respect to a master or prototype plan, has an opinion 
letter from the IRS to the effect that such plan so qualifies).  The Pension 
Plans have been administered in accordance with the written terms of the plan 
documents  and the Company is not aware of any circumstances likely to result 
in revocation of any such favorable determination letter (or withdrawal of such 
opinion letter) or the loss of the qualification of such Pension Plan under 
Section 401(a) of the Code. There is no  pending or, to the Company's 
knowledge, threatened litigation relating to the Benefits Plans. Neither the 
Company nor any of its Subsidiaries has engaged in a transaction with respect 
to any Benefit Plan or Pension Plan that, assuming the taxable period of such 
transaction expired as of the date hereof, could subject the Company or any of 
its Subsidiaries to a tax or penalty imposed by either Section 4975 of the Code 
or Section 502(i) of ERISA . 
     (iii)  No liability under Subtitle C or D of Title IV of ERISA has been or 
is expected to be incurred by the Company or any of its Subsidiaries with 
respect to any ongoing, frozen or terminated "single-employer plan," within the 
meaning of Section 4001(a)(15) of ERISA, currently or formerly maintained by 
any of them, or the single-employer plan of any entity which is considered one 
employer with the Company under Section 4001 of ERISA or Section 414 of the 
Code (an "ERISA Affiliate"). Neither the Company nor any of its Subsidiaries is 
obligated to contribute to any multiemployer plan, and neither has incurred, or 
expects to incur, any withdrawal liability with respect to a multiemployer plan 
under Subtitle E of Title IV of ERISA (regardless of whether based on 


Page I - 21
contributions of an ERISA Affiliate). No notice of a "reportable event," within 
the meaning of Section 4043 of ERISA for which the 30-day reporting requirement 
has not been waived, has been required to be filed for any Pension Plan or by 
any ERISA Affiliate within the 12-month period ending on the date hereof or 
will be required to be filed in connection with the transactions contemplated 
by this Agreement. 
     (iv)  All contributions required to be made under the terms of any Benefit 
Plan have been timely made or have been reflected on the financial statements 
of the Company provided to Parent to the extent required by the terms of any 
such Benefit Plan and to the extent required by GAAP.  Neither any Pension Plan 
nor any single-employer plan of an ERISA Affiliate has an "accumulated funding 
deficiency" (whether or not waived) within the meaning of Section 412 of the 
Code or Section 302 of ERISA and no ERISA Affiliate has an outstanding funding 
waiver. Neither the Company nor any of its Subsidiaries has provided, or is 
required to provide, security to any Pension Plan or to any single-employer 
plan of an ERISA Affiliate pursuant to Section 401(a)(29) of the Code. 
     (v)  Neither the Company nor any of its Subsidiaries has any obligations 
for retiree health or retiree life benefits under any Benefit Plan, other than 
coverage as may be required under Section 4980B of the Code or Part 6 of Title 
I of ERISA, or under the continuation of coverage provisions of the laws of any 
state or locality. Except as Previously Disclosed, the Company or any of its 
Subsidiaries may amend or terminate any such Benefit Plan under which such 
obligations for retiree health or retiree life exist at any time without 
incurring any liability thereunder. 
     (vi)  Except as provided in Section 3.08(a) with respect to the 
acceleration of Company Options and except as provided in Section 6.12(f) with 
respect to the Company ESOP, none of the execution of this Agreement, 
shareholder approval of this Agreement or consummation of the transactions 
contemplated by this Agreement will (A) entitle any employees of the Company or 
any of its Subsidiaries to severance pay or any increase in severance pay upon 
any termination of employment after the date hereof, (B) accelerate the time of 
payment or vesting or trigger any payment or funding (through a grantor trust 
or otherwise) of compensation or benefits under, increase the amount payable or 
trigger any other material obligation pursuant to, any of the Benefit Plans, 
(C) result in any breach or violation of, or a default under, any of the 
Benefit Plans or (D) result in any payment that would be a "parachute payment" 
to a "disqualified individual" as those terms are defined in Section 280G of 
the Code, without regard to whether such payment is reasonable compensation for 
personal services performed or to be performed in the future.
           (vii)    Each of the "group health plans" (as defined in 45 C.F.R. 
s. 160.103) sponsored by the Company or any Subsidiary has been timely amended 
as required to comply with the Health Insurance Portability and Accountability 
Act of 1996 ("HIPAA") and the rules and regulations promulgated thereunder and 
all such plans have been administered in conformity with HIPAA and applicable 
rules and regulations promulgated thereunder.  All policies, forms, notices, 
plan amendments, and agreements adopted or entered into by the Company or such 
Subsidiary with respect to its group health plans have been Previously 
Disclosed.  Neither the Company nor any Subsidiary is aware of, or has receive 
notice of, an impermissible use or disclosure of "protected health information" 
(as defined in 45 C.F.R. s. 164.501) that would require an accounting of such 
use or disclosure (as required under 45 C.F.R. s. 164.528).
     (n)    Labor Matters.    Neither the Company nor any of its Subsidiaries 
is a party to or is bound by any collective bargaining agreement, contract or 
other agreement or understanding with a labor union or labor organization, nor 
is the Company or any of its Subsidiaries the subject of a proceeding asserting 
that it has committed an unfair labor practice (within the meaning of the 
National Labor Relations Act) or seeking to compel the Company or any of its 


Page I - 22
Subsidiaries to bargain with any labor organization as to wages or conditions 
of employment, nor is there any strike or other labor dispute involving it or 
any of its Subsidiaries pending or, to the Company's knowledge, threatened, nor 
is the Company or any of its Subsidiaries aware of any activity involving its 
employees seeking to certify a collective bargaining unit or engaging in other 
organizational activity. 
     (o)    Environmental Matters.    
     (i)    The Company and its Subsidiaries are in compliance with applicable 
Environmental Laws; (ii) to the Company's knowledge, no real property 
(including buildings or other structures) currently or formerly owned or 
operated by the Company or any of its Subsidiaries, or any property in which 
the Company or any of its Subsidiaries has held a security interest, Lien or a 
fiduciary or management role ("Company Loan Property"), has been contaminated 
with, or has had any release of, any Hazardous Substance except in compliance 
with Environmental Laws; (iii) neither the Company nor any of its Subsidiaries 
could be deemed the owner or operator of, or has participated in the management 
regarding Hazardous Substances of, any Company Loan Property which has been 
contaminated with, or has had any release of, any Hazardous Substance except in 
compliance with Environmental Laws; (iv) neither the Company nor any of its 
Subsidiaries has any liability for any Hazardous Substance disposal or 
contamination on any third party property; (v) neither the Company nor any of 
its Subsidiaries has received any notice, demand letter, claim or request for 
information alleging any violation of, or liability under, any Environmental 
Law; (vi) neither the Company nor any of its Subsidiaries is subject to any 
order, decree, injunction or other agreement with any Governmental Authority or 
any third party relating to any Environmental Law; (vii) to the Company's 
knowledge, there are no circumstances or conditions (including the presence of 
asbestos, underground storage tanks, lead products, polychlorinated biphenyls, 
prior manufacturing operations, dry-cleaning, or automotive services) involving 
the Company or any of its Subsidiaries, any currently or formerly owned or 
operated property, or any Company Loan Property, that could reasonably be 
expected to result in any claims, liability or investigations against the 
Company or any of its Subsidiaries, result in any restrictions on the 
ownership, use, or transfer of any property pursuant to any Environmental Law, 
or adversely affect the value of any Company Loan Property; and (viii) the 
Company has Previously Disclosed and made available to Parent copies of all 
environmental reports or studies, sampling data, correspondence and filings in 
its possession or reasonably available to it relating to the Company, its 
Subsidiaries and any currently or formerly owned or operated property or any 
Company Loan Property. 
     As used herein, the term "Environmental Laws" means any federal, state or 
local law, regulation, order, decree, permit, authorization, opinion or agency 
requirement relating to: (A) the protection or restoration of the environment, 
health, safety, or natural resources, (B) the handling, use, presence, 
disposal, release or threatened release of any Hazardous Substance or (C) 
wetlands, indoor air, pollution, contamination or any injury or threat of 
injury to persons or property in connection with any Hazardous Substance; and 
the term "Hazardous Substance" means any substance that is: (A) listed, 
classified or regulated pursuant to any Environmental Law, (B) any petroleum 
product or by-product, asbestos-containing material, lead-containing paint or 
plumbing, polychlorinated biphenyls, radioactive materials or radon or (C) any 
other substance which is the subject of regulatory action by any Governmental 
Authority in connection with any Environmental Law. 
     (p)    Tax Matters.    
     (i)(A)  All Tax Returns that are required to be filed on or before the 
Effective Date (taking into account any extensions of time within which to file 
which have not expired) by or with respect to the Company Group have been or 


Page I - 23
will be timely filed on or before the Effective Date, (B) all such Tax Returns 
are or will be true and complete , (C) all Taxes shown to be due on the Tax 
Returns referred to in clause (A) have been or will be timely paid in full, (D) 
the Tax Returns referred to in clause (A) have been examined by the IRS or the 
appropriate Tax authority or the period for assessment of the Taxes in respect 
of which such Tax Returns were required to be filed has expired, (E) all 
deficiencies asserted or assessments made as a result of examinations conducted 
by any taxing authority have been paid in full, (F) no  issues that have been 
raised by the relevant taxing authority in connection with the examination of 
any of the Tax Returns referred to in clause (A) are currently pending and (G) 
no member of the Company Group has waived any statutes of limitation with 
respect to any Taxes of the Company or any of its Subsidiaries. 
     (ii)  The Company has made available to Parent true and correct copies of 
the United States federal income Tax Returns filed by the Company and its 
Subsidiaries for each of the three most recent fiscal years for which such 
returns have been filed. 
     (iii)  Neither the Company nor any of its Subsidiaries has any liability 
with respect to income, franchise or similar Taxes that accrued on or before 
June 30, 2004 in excess of the amounts accrued or subject to a reserve with 
respect thereto that are reflected in the Company's unaudited financial 
statements dated as of June 30, 2004 and provided to Parent. 
     (iv)  Neither the Company nor any of its Subsidiaries is a party to any 
Tax allocation or sharing agreement, is or has been a member of an affiliated 
group filing consolidated or combined Tax Returns (other than a group the 
common parent of which is or was the Company) or otherwise has any liability 
for the Taxes of any Person (other than the Company and its Subsidiaries). 
     (v)  No closing agreements, private letter rulings, technical advice 
memoranda or similar agreement or rulings have been entered into or issued by 
any taxing authority with respect to the Company and its Subsidiaries. Neither 
the Company nor any of its Subsidiaries has entered into any "tax shelter" or 
"listed transaction" within the meaning provided in the Code and the 
regulations, rules and procedures promulgated pursuant thereto or any similar 
transaction.
     (vi)  Neither the Company nor any of its Subsidiaries maintains any 
compensation plans, programs or arrangements the payments under which would not 
reasonably be expected to be deductible as a result of the limitations under 
Section 162(m) of the Code and the regulations issued thereunder. 
     (vii) As of the date hereof, the Company has no reason to believe that any 
conditions exist that might prevent or impede the Merger from qualifying as a 
reorganization within the meaning of Section 368(a) of the Code. 
     (viii)(A) No Tax is required to be withheld pursuant to Section 1445 of 
the Code as a result of the Transactions and (B) all Taxes that the Company or 
any of its Subsidiaries is or was required by law to withhold or collect have 
been duly withheld or collected and, to the extent required by applicable law, 
have been paid to the proper Governmental Authority or other Person. 
     (q)    Investment Securities.    The Company has previously disclosed the 
book and market value as of June 30, 2004 of the investment securities, 
mortgage backed securities and securities held for sale of the Company and its 
Subsidiaries, as well as, with respect to such securities, descriptions 
thereof, CUSIP numbers, book values, fair values and coupon rates.
     (r)  Risk Management Instruments.    Neither the Company nor any of its 
Subsidiaries is a party or has agreed to enter into an exchange traded or over-
the-counter equity, interest rate, foreign exchange or other swap, forward, 
future, option, cap, floor or collar or any other contract that is not included 
on the balance sheet and is a derivatives contract (including various 
combinations thereof) (each, a "Derivatives Contract") or owns securities that 
(i) are referred to generically as "structured notes," "high risk mortgage 


Page I - 24
derivatives," "capped floating rate notes" or "capped floating rate mortgage 
derivatives" or (ii) are likely to have changes in value as a result of 
interest or exchange rate changes that significantly exceed normal changes in 
value attributable to interest or exchange rate changes, except for those 
Derivatives Contracts and other instruments legally purchased or entered into 
in the ordinary course of business, consistent with safe and sound banking 
practices and regulatory guidance. All of such Derivatives Contracts or other 
instruments, are legal, valid and binding obligations of the Company or any of 
its Subsidiaries enforceable in accordance with their terms (except as 
enforcement may be limited by general principles of equity whether applied in a 
court of law or a court of equity and by bankruptcy, insolvency and similar 
laws affecting creditors' rights and remedies generally), and are in full force 
and effect. The Company and its Subsidiaries have duly performed in all   
respects all of their  obligations thereunder to the extent that such 
obligations to perform have accrued; and, to the Company's knowledge, there are 
no breaches, violations or defaults or allegations or assertions of such by any 
party thereunder which would have or would reasonably be expected to have a 
Material Adverse Effect on the Company. 
     (s)    Loans; Nonperforming and Classified Assets.    
     (i)    Each Loan on the books and records of the Company and its 
Subsidiaries, was made and has been serviced in all  respects in accordance 
with customary lending standards in the ordinary course of business, is 
evidenced in all   respects by appropriate and sufficient documentation and, to 
the knowledge of the Company, constitutes the legal, valid and binding 
obligation of the obligor named therein in accordance with such documentation, 
subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent 
transfer and similar laws of general applicability relating to or affecting 
creditor's rights or by general equity principles. 
     (ii)  The Company has Previously Disclosed as to the Company and each 
Company Subsidiary as of the latest practicable date: (A) any written or, to 
the Company's knowledge, oral Loan under the terms of which the obligor is 90 
or more days delinquent in payment of principal or interest, or to the 
Company's knowledge, in default of any other  provision thereof; (B) each Loan 
which has been classified as "substandard," "doubtful," "loss,"  "pass watch, " 
"non-accrual" or "special mention" (or words of similar import) by the Company, 
a Company Subsidiary or an applicable regulatory authority (it being understood 
that no representation is being made that the FDIC, the OCC or the Maine 
Superintendent would agree with the loan classifications established by the 
Company); (C) a listing of the OREO acquired by foreclosure or by deed-in-lieu 
thereof, including the book value thereof; and (D) each Loan with any director, 
executive officer or five percent or greater shareholder of the Company or a 
Company Subsidiary, or to the best knowledge of the Company, any Person 
controlling, controlled by or under common control with any of the foregoing. 
     (iii)  The loan documents with respect to each Loan were in   compliance 
with applicable laws and regulations and the Company's lending policies at the 
time of origination of such Loans and are complete and correct. 
     (iv)  Except as Previously Disclosed, neither the Company nor any of its 
Subsidiaries is a party to any agreement or arrangement with (or otherwise 
obligated to) any Person which obligates the Company or any of its Subsidiaries 
to repurchase from any such Person any Loan or other asset of the Company or 
its Subsidiary. 
     (t)    Properties.    All real and personal property owned by the Company 
or a Subsidiary of the Company or presently used by any of them in its 
respective business is in an adequate condition (ordinary wear and tear 
excepted) and is sufficient to carry on its business in the ordinary course of 
business consistent with its past practices. The Company has good and 
marketable title free and clear of all Liens to all of the   properties and 


Page I - 25
assets, real and personal, reflected on the consolidated statement of financial 
condition of the Company as of December 31, 2003 or acquired after such date, 
other than properties sold by the Company in the ordinary course of business, 
except (i) Liens for current taxes and assessments not yet due or payable (ii) 
pledges to secure deposits and other Liens incurred in the ordinary course of 
its banking business, (iii) such imperfections of title, easements and 
encumbrances, if any, as are not material in character, amount or extent and 
(iv) as reflected on the consolidated statement of financial condition of the 
Company as of December 31, 2003. All real and personal property   leased or 
licensed by the Company or a Subsidiary of the Company is held pursuant to 
leases or licenses ("Leases") which are valid and enforceable in accordance 
with their respective terms and such leases will not terminate or lapse prior 
to the Effective Time. There has not occurred any event, and no condition 
exists that would constitute a termination event or a  breach by the Company or 
any Company Subsidiary of, or default by the Company or any Company Subsidiary 
in, the performance of any covenant, agreement or condition contained in any 
Lease, and to the Company's knowledge, no lessor under any such Lease is in   
breach or default in the performance of any   covenant, agreement or condition 
contained in such Lease. The Company and the Company Subsidiaries have paid all 
rents and other charges to the extent due under such Leases.
     (u)    Intellectual Property.    The Company and each Subsidiary of the 
Company owns or possesses valid and binding licenses and other rights to use 
without payment of any   amount all   patents, copyrights, computer programs, 
whether in source code or object code form (including all software, data bases 
and compilations, and the documentation thereto), trade secrets, trade names, 
service marks and trademarks used in its businesses ("Company Intellectual 
Property"), all of which have been Previously Disclosed by the Company, and 
none of the Company or any of its Subsidiaries has received any notice of 
conflict with respect thereto that asserts the right of others. The Company and 
each of its Subsidiaries have performed in all   respects all the obligations 
required to be performed by them and are not in default under any contract, 
agreement, arrangement or commitment relating to any of the foregoing. To the 
knowledge of the Company, the conduct of the business of the Company and its 
Subsidiaries does not violate, misappropriate or infringe on the intellectual 
property rights of others. The consummation of the Merger and the Bank Merger 
will not result in the loss or impairment of the right of the Company or any of 
its Subsidiaries to own or use any of the Company Intellectual Property, and 
Parent will have substantially the same rights to own or use the Company 
Intellectual Property following the consummation of the Merger and the Bank 
Merger as the Company and its Subsidiaries had prior to the consummation of the 
Merger and the Bank Merger, subject to the receipt of consents of the 
applicable counterparties to any licenses to use Company Intellectual Property.
     (v)    Fiduciary Accounts.    The Company and each of its Subsidiaries has 
properly administered all accounts for which it acts as a fiduciary, including 
but not limited to accounts for which it serves as a trustee, agent, custodian, 
personal representative, guardian, conservator or investment advisor, in 
accordance with the terms of the governing documents and applicable laws and 
regulations. Neither the Company nor any of its Subsidiaries, nor any of their 
respective directors, officers or employees, has committed any breach of trust 
with respect to any fiduciary account and the records for each such fiduciary 
account are true and correct and accurately reflect the assets of such 
fiduciary account. 
     (w)    Books and Records.    The books and records of the Company and its 
Subsidiaries have been fully, properly and accurately maintained in all  
respects, and there are no  inaccuracies or discrepancies of any kind contained 
or reflected therein, and they fairly present the financial position of the 
Company and its Subsidiaries. 


Page I - 26
     (x)    Insurance.    The Company has Previously Disclosed all of the   
insurance policies, binders, or bonds currently maintained or owned by the 
Company or any of its Subsidiaries ("Insurance Policies"). The Company and its 
Subsidiaries are insured with reputable insurers against such risks and in such 
amounts as the management of the Company reasonably has determined to be 
prudent in accordance with industry practices. All the Insurance Policies are 
in full force and effect; the Company and its Subsidiaries are not in  default 
thereunder; and all claims thereunder have been filed in due and timely 
fashion. 
     (y)    Allowance For Loan Losses.    The Company's allowance for loan 
losses is, and shall be as of the Effective Date, in compliance with the 
Company's existing methodology for determining the adequacy of its allowance 
for loan losses as well as the standards established by applicable Governmental 
Authorities and the Financial Accounting Standards Board and is and shall be 
adequate under all such standards. 
     (z)    Transactions With Affiliates.    All "covered transactions" between 
a Company Bank and an "affiliate" within the meaning of Sections 23A and 23B of 
the Federal Reserve Act have been in compliance with such provisions and the 
regulations of the Federal Reserve Bank thereunder. 
     (aa)    Required Vote; Antitakeover Provisions.    
     (i)    The affirmative vote of the holders of 67% of the issued and 
outstanding shares of Company Common Stock is necessary to approve this 
Agreement and the Transactions on behalf of the Company. No other vote of the 
shareholders of the Company is required by law, the Company Articles, the 
Company Bylaws or otherwise to approve this Agreement and the Transactions. 
     (ii)  Based on the representation and warranty of Parent contained in 
Section 5.04(m), no "control share acquisition," "business combination 
moratorium," "fair price" or other form of antitakeover statute or regulation 
is applicable to this Agreement or the Transactions. 
     (bb)    Fairness Opinion.    The Company Board has received the written 
opinion of RBC Capital Markets Corporation, a member company of RBC Financial 
Group, to the effect that as of the date hereof the Merger Consideration is 
fair to the holders of Company Common Stock from a financial point of view. 
     (cc)    Transactions in Securities.    Neither the Company nor any 
Subsidiary of the Company has purchased or sold, or caused to be purchased or 
sold, any shares of Company Common Stock or other securities issued by the 
Company during any period when the Company was in possession of material 
nonpublic information. 
     (dd)    Disclosure.    The representations and warranties contained in 
this Section 5.03, when considered as a whole, do not contain any untrue 
statement of a material fact or omit to state any material fact necessary in 
order to make the statements and information contained in this Section 5.03 not 
misleading. 
     (ee)    Ownership of Parent Common Stock.    None of Company or any of its 
Subsidiaries, or to Company's knowledge, any of its other affiliates or 
associates (as such terms are defined under the Exchange Act), owns 
beneficially or of record, directly or indirectly, or is a party to any 
agreement, arrangement or understanding for the purpose of acquiring, holding, 
voting or disposing of, shares of Parent Common Stock (other than shares held 
in a fiduciary capacity that are beneficially owned by third parties or as a 
result of debts previously contracted) which in the aggregate represent 5% or 
more of the outstanding Parent Common Stock.
     5.04.    Representations and Warranties of Parent.    Subject to Sections 
5.01 and 5.02 and except as Previously Disclosed, Parent hereby represents and 
warrants to the Company as follows: 
     (a)    Organization, Standing and Authority.    Parent is duly organized, 
validly existing and in good standing under the laws of the State of Maine. 


Page I - 27
Parent is duly qualified to do business and is in good standing in each 
jurisdiction where its ownership or leasing of property or assets or the 
conduct of its business requires it to be so qualified. Parent has in effect 
all federal, state, local and foreign governmental authorizations necessary for 
it to own or lease its properties and assets and to carry on its business as it 
is now conducted. 
     (b)    Parent Stock.    
     (i)    As of the date hereof, the authorized capital stock of Parent 
consists solely of 18,000,000 shares of Parent Common Stock, of which 7,348,971 
shares were outstanding as of the date hereof. The outstanding shares of Parent 
Common Stock have been duly authorized and validly issued and are fully paid 
and non-assessable, and none of the shares of Parent Common Stock have been 
issued in violation of the preemptive rights of any Person. As of the date 
hereof, there are no Rights authorized, issued or outstanding with respect to 
the capital stock of Parent, except for (i) shares of Parent Common Stock 
issuable pursuant to the Parent Benefits Plans and (ii) by virtue of this 
Agreement. 
     (ii)  The shares of Parent Common Stock to be issued in exchange for 
shares of Company Common Stock in the Merger, when issued in accordance with 
the terms of this Agreement, will be duly authorized, validly issued, fully 
paid and nonassessable and the issuance thereof is not subject to any 
preemptive right. 
     (c)    Subsidiaries.    
     (i)    As of the date hereof, the only subsidiary of Parent which 
constitutes a Significant Subsidiary is the Parent Bank. The Parent Bank has 
been duly organized and is validly existing in good standing under the laws of 
the United States and is duly qualified to do business and in good standing in 
the jurisdictions where its ownership or leasing of property or the conduct of 
its business requires it to be so qualified. The Parent Bank is duly licensed 
by the OCC, and its deposits are insured by the Bank Insurance Fund 
administered by the FDIC in the manner and to the maximum extent provided by 
law. 
     (ii)  As of the date hereof, (A) Parent owns, directly or indirectly, all 
the issued and outstanding equity securities of the Parent Bank, (B) no equity 
securities of the Parent Bank are or may become required to be issued (other 
than to Parent) by reason of any Right or otherwise, (C) there are no 
contracts, commitments, understandings or arrangements by which the Parent Bank 
is or may be bound to sell or otherwise transfer any of its equity securities 
(other than to Parent or any of its wholly-owned Subsidiaries) and (D) there 
are no contracts, commitments, understandings, or arrangements relating to 
Parent's rights to vote or to dispose of such securities. 
     (d)    Corporate Power.    Each of Parent and the Parent Bank has the 
corporate power and authority to carry on its business as it is now being 
conducted and to own all its properties and assets. Parent has the corporate 
power and authority to execute, deliver and perform its obligations under this 
Agreement and to consummate the Transactions, subject to the receipt of all 
necessary approvals of Governmental Authorities and the approval of the holders 
of a majority of the Parent Common Stock of this Agreement. 
     (e)    Corporate Authority.    This Agreement and the Transactions have 
been authorized by all necessary corporate action of Parent and the Parent 
Board. This Agreement has been duly executed and delivered by Parent and, 
assuming due authorization, execution and delivery by the Company, this 
Agreement is a valid and legally binding agreement of Parent enforceable in 
accordance with its terms (except as enforceability may be limited by 
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent 
transfer and similar laws of general applicability relating to or affecting 
creditors' rights or by general equity principles). 


Page I - 28
     (f)    Regulatory Approvals; No Defaults.    
     (i)    No consents or approvals of, or waivers by, or filings or 
registrations with, any Governmental Authority or with any third party are 
required to be made or obtained by Parent or any of its Subsidiaries in 
connection with the execution, delivery or performance by Parent and the Parent 
Bank of this Agreement and the Bank Merger Agreement, as applicable, or to 
consummate the Transactions, except for (A) filings of applications or notices 
with and approvals or waivers by the Federal Reserve Board, the OCC, the Maine 
Superintendent, as required, with copies to the Department of Justice and 
Federal Trade Commission pursuant to the exemption from filing under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976 provided by 15 U.S.C.A. s. 
18a(c)(7), (B) filings with the SEC and state securities authorities, as 
applicable, in connection with the submission of this Agreement for the 
approval of the holders of Company Common Stock and the issuance of Parent 
Common Stock in the Merger, (C) application for, and the approval of, the 
listing on Nasdaq of the Parent Common Stock to be issued in the Merger, (D) 
the approval of this Agreement by the holders of a majority of the outstanding 
shares of Parent Common Stock, (E) the filing of Articles of Merger with the 
Secretary of State of the State of Maine pursuant to the MBCA, and (F) such 
corporate approvals and such consents or approvals of, or waivers by, or 
filings or registrations with, certain of the foregoing federal and state 
banking agencies in connection with the Bank Merger. As of the date hereof, 
Parent is not aware of any reason why the approvals set forth above and 
referred to in Section 7.01(b) will not be received in a timely manner and 
without the imposition of a condition, restriction or requirement of the type 
described in Section 7.01(b). 
     (ii)  Subject to receipt, or the making, of the consents, approvals, 
waivers and filings referred to in the preceding paragraph and expiration of 
the related waiting periods, the execution, delivery and performance of this 
Agreement and the Bank Merger Agreement by Parent and the Parent Bank, as 
applicable, and the consummation of the Transactions do not and will not (A) 
constitute a breach or violation of, or a default under, or give rise to any 
Lien, any acceleration of remedies or any right of termination under, any law, 
rule or regulation or any judgment, decree, order, governmental permit or 
license, or agreement, indenture or instrument of Parent or of any of its 
Subsidiaries or to which Parent or any of its Subsidiaries or properties is 
subject or bound, (B) constitute a breach or violation of, or a default under, 
the articles of incorporation or bylaws (or similar governing documents) of 
Parent or any of its Subsidiaries or (C) require any consent or approval under 
any such law, rule, regulation, judgment, decree, order, governmental permit or 
license, agreement, indenture or instrument. 
     (g)    Financial Reports and SEC Documents; Material Adverse Effect.    
     (i)    Parent's Annual Report on Form 10-K for the fiscal year ended 
December 31, 2003 and all other reports, registration statements, definitive 
proxy statements or information statements filed or to be filed by it 
subsequent to December 31, 2001 under the Securities Act, or under Section 
13(a), 13(c), 14 or 15(d) of the Exchange Act in the form filed or to be filed 
(collectively, "SEC Documents") with the SEC, as of the date filed or to be 
filed, (A) complied or will comply in all  respects as to form with the 
applicable requirements under the Securities Act or the Exchange Act, as the 
case may be and (B) did not and will not contain any untrue statement of a 
material fact or omit to state a material fact required to be stated therein or 
necessary to make the statements therein, in the light of the circumstances 
under which they were made, not misleading, except that information as of a 
later date shall be deemed to modify information as of an earlier date; and 
each of the balance sheets contained in or incorporated by reference into any 
such SEC Document (including the related notes and schedules thereto) fairly 


Page I - 29
presents, or will fairly present, the financial position of Parent and its 
Subsidiaries as of its date, and each of the statements of income and changes 
in shareholders' equity and cash flows or equivalent statements in such SEC 
Documents (including any related notes and schedules thereto) fairly presents, 
or will fairly present, the results of operations, changes in shareholders' 
equity and changes in cash flows, as the case may be, of Parent and its 
Subsidiaries for the periods to which they relate, in each case in accordance 
with GAAP consistently applied during the periods involved, except in each case 
as may be noted therein. 
     (ii)  Since June 30, 2004, no event has occurred or circumstance arisen 
that, individually or taken together with all other facts, circumstances and 
events (described in any paragraph of this Section 5.04 or otherwise), is 
reasonably likely to have a Material Adverse Effect with respect to Parent. 
     (h)    Litigation.    No litigation, claim or other proceeding before any 
court or governmental agency is pending against Parent or its Subsidiaries and, 
to Parent's knowledge, no such litigation, claim or other proceeding has been 
threatened and there are no facts which could reasonably give rise to such 
litigation, claim or other proceeding. 
     (i)    No Brokers.    No action has been taken by Parent or its 
Subsidiaries that would give rise to any valid claim against any party hereto 
for a brokerage commission, finder's fee or other like payment with respect to 
the Transactions. 
     (j)    Tax Matters.    As of the date hereof, Parent does not have any 
reason to believe that any conditions exist that might prevent or impede the 
Merger from qualifying as a reorganization within the meaning of Section 368(a) 
of the Code. 
     (k)    Regulatory Matters.    
     (i)    Neither Parent nor any of its Subsidiaries nor any of their 
respective properties is a party to or is subject to any order, decree, 
agreement, memorandum of understanding or similar arrangement with, or a 
commitment letter or similar submission to, or extraordinary supervisory letter 
from, any federal or state governmental agency or authority charged with the 
supervision or regulation of financial institutions or issuers of securities or 
engaged in the insurance of deposits or the supervision or regulation of it 
(collectively, the "Parent Regulatory Authorities"). Parent and its 
Subsidiaries have paid all assessments made or imposed by any Parent Regulatory 
Authority. 
     (ii)  Neither Parent nor any its Subsidiaries has been advised by, or has 
any knowledge of facts which could give rise to an advisory notice by, any 
Parent Regulatory Authority that such Parent Regulatory Authority is 
contemplating issuing or requesting (or is considering the appropriateness of 
issuing or requesting) any such order, decree, agreement, memorandum of 
understanding, commitment letter, supervisory letter or similar submission. 
     (l)    Compliance With Laws.    Each of Parent and its Subsidiaries: 
     (i)    is in  compliance with all applicable federal, state, local and 
foreign statutes, laws, regulations, ordinances, rules, judgments, orders or 
decrees applicable thereto or to the employees conducting such businesses, 
including, without limitation, the Equal Credit Opportunity Act, the Fair 
Housing Act, the Community Reinvestment Act, the Home Mortgage Disclosure Act, 
the Bank Secrecy Act, Truth in Lending and Bank Privacy laws, the Uniting and 
Strengthening America by Providing Appropriate Tools Required to Intercept and 
Obstruct Terrorism Act of 2001 and all other applicable fair lending laws and 
other laws relating to discriminatory business practices; 
     (ii)  has all permits, licenses, authorizations, orders and approvals of, 
and has made all filings, applications and registrations with, all Governmental 
Authorities that are required in order to permit them to own or lease their 
properties and to conduct their businesses as presently conducted; all such 


Page I - 30
permits, licenses, certificates of authority, orders and approvals are in full 
force and effect and, to Parent's knowledge, no suspension or cancellation of 
any of them is threatened; and 
     (iii)  has received, since December 31, 1999, no notification or 
communication from any Governmental Authority (A) asserting that Parent or any 
of its Subsidiaries is not in compliance with any of the statutes, regulations 
or ordinances which such Governmental Authority enforces or (B) threatening to 
revoke any license, franchise, permit or governmental authorization (nor, to 
Parent's knowledge, do any grounds for any of the foregoing exist). 
     (m)    Ownership of Company Common Stock.    None of Parent or any of its 
Subsidiaries, or to Parent's knowledge, any of its other affiliates or 
associates (as such terms are defined under the Exchange Act), owns 
beneficially or of record, directly or indirectly, or is a party to any 
agreement, arrangement or understanding for the purpose of acquiring, holding, 
voting or disposing of, shares of Company Common Stock (other than shares held 
in a fiduciary capacity that are beneficially owned by third parties or as a 
result of debts previously contracted) which in the aggregate represent 5% or 
more of the outstanding Company Common Stock. 
     (n)    Financial Ability.     Each of Parent and Parent Bank is, and 
immediately following completion of the Transactions will be, in compliance 
with all capital requirements applicable to it. 
     (o)    Disclosure.    The representations and warranties contained in this 
Section 5.04, when considered as a whole, do not contain any untrue statement 
of a material fact or omit to state any material fact necessary in order to 
make the statements and information contained in this Section 5.04 not 
misleading. 


    

 




























Page I - 31
ARTICLE VI

COVENANTS 
     6.01.    Reasonable Best Efforts.    Subject to the terms and conditions 
of this Agreement, each of the Company and Parent agrees to use its reasonable 
best efforts in good faith to take, or cause to be taken, all actions, and to 
do, or cause to be done, all things necessary, proper or desirable, or 
advisable under applicable laws, so as to permit consummation of the 
Transactions as promptly as practicable and otherwise to enable consummation of 
the Transactions, including the satisfaction of the conditions set forth in 
Article VII hereof, and shall cooperate fully with the other party hereto to 
that end. 
     6.02.    Shareholder Approval.    The Company agrees to take, in 
accordance with applicable law and the Company Articles and Company Bylaws, all 
action necessary to convene as soon as reasonably practicable a special meeting 
of its shareholders to consider and vote upon the approval of this Agreement 
and any other matters required to be approved by the Company's shareholders for 
consummation of the Transactions (including any adjournment or postponement, 
the "Company Meeting"). Except with the prior approval of Parent, no other 
matters shall be submitted for the approval of the Company shareholders at the 
Company Meeting. The Company Board shall at all times prior to and during such 
meeting recommend such approval and shall take all reasonable lawful action to 
solicit such approval by its shareholders; provided that nothing in this 
Agreement shall prevent the Company Board from withholding, withdrawing, 
amending or modifying its recommendation if the Company Board determines, after 
consultation with its outside counsel, that such action is legally required in 
order for the directors to comply with their fiduciary duties to the Company 
shareholders under applicable law; provided, further, that Section 6.08 shall 
govern the withholding, withdrawing, amending or modifying of such 
recommendation in the circumstances described therein. 
     6.03.    Registration Statement.    
     (a)  Parent agrees to prepare a registration statement on Form S-4 or 
other applicable form (the "Registration Statement") to be filed by Parent with 
the SEC in connection with the issuance of Parent Common Stock in the Merger 
(including the proxy statement and prospectus and other proxy solicitation 
materials of the Company constituting a part thereof (the "Proxy Statement") 
and all related documents). The Company shall prepare and furnish such 
information relating to it and its directors, officers and shareholders as may 
be reasonably required in connection with the above referenced documents based 
on its knowledge of and access to the information required for said documents, 
and the Company, and its legal, financial and accounting advisors, shall have 
the right to review in advance such Registration Statement prior to its filing. 
The Company agrees to cooperate with Parent and Parent's counsel and 
accountants in requesting and obtaining appropriate opinions, consents and 
letters from its financial advisor and independent auditor in connection with 
the Registration Statement and the Proxy Statement. Provided that the Company 
has cooperated as described above, Parent agrees to file, or cause to be filed, 
the Registration Statement and the Proxy Statement with the SEC as promptly as 
reasonably practicable. Each of the Company and Parent agrees to use its 
reasonable best efforts to cause the Registration Statement to be declared 
effective under the Securities Act as promptly as reasonably practicable after 
the filing thereof. Parent also agrees to use its reasonable best efforts to 
obtain all necessary state securities law or "Blue Sky" permits and approvals 
required to carry out the transactions contemplated by this Agreement. After 
the Registration Statement is declared effective under the Securities Act, the 
Company shall promptly mail at its expense the Proxy Statement to its 
shareholders. 


Page I - 32
     (b)  Each of the Company and Parent agrees that none of the information 
supplied or to be supplied by it for inclusion or incorporation by reference in 
(i) the Registration Statement shall, at the time the Registration Statement 
and each amendment or supplement thereto, if any, becomes effective under the 
Securities Act, contain any untrue statement of a material fact or omit to 
state any material fact required to be stated therein or necessary to make the 
statements therein not misleading and (ii) the Proxy Statement and any 
amendment or supplement thereto shall, at the date(s) of mailing to 
shareholders and at the time of the Company Meeting, contain any untrue 
statement of a material fact or omit to state any material fact required to be 
stated therein or necessary to make the statements therein not misleading. Each 
of the Company and Parent further agrees that if such party shall become aware 
prior to the Effective Date of any information furnished by such party that 
would cause any of the statements in the Registration Statement or the Proxy 
Statement to be false or misleading with respect to any material fact, or to 
omit to state any material fact necessary to make the statements therein not 
false or misleading, to promptly inform the other parties thereof and to take 
the necessary steps to correct the Registration Statement or the Proxy 
Statement. 
     (c)  Parent agrees to advise the Company, promptly after Parent receives 
notice thereof, of the time when the Registration Statement has become 
effective or any supplement or amendment has been filed, of the issuance of any 
stop order or the suspension of the qualification of Parent Common Stock for 
offering or sale in any jurisdiction, of the initiation or, to the extent 
Parent is aware thereof, threat of any proceeding for any such purpose, or of 
any request by the SEC for the amendment or supplement of the Registration 
Statement or for additional information. 
     6.04.    Regulatory Filings.    
     (a)  Each of Parent and the Company and their respective Subsidiaries 
shall cooperate and use their respective reasonable best efforts to prepare all 
documentation, to effect all filings and to obtain all permits, consents, 
approvals and authorizations of all third parties and Governmental Authorities 
necessary to consummate the Transactions and any other transactions 
contemplated by this Agreement; and any initial filings with Governmental 
Authorities shall be made by Parent as soon as reasonably practicable after the 
execution hereof. Each of Parent and the Company shall have the right to review 
in advance, and to the extent practicable each shall consult with the other, in 
each case subject to applicable laws relating to the exchange of information, 
with respect to all written information submitted to any third party or any 
Governmental Authority in connection with the Transactions. In exercising the 
foregoing right, each of such parties agrees to act reasonably and as promptly 
as practicable. Each party hereto agrees that it shall consult with the other 
parties hereto with respect to the obtaining of all permits, consents, 
approvals, waivers and authorizations of all third parties and Governmental 
Authorities necessary or advisable to consummate the Transactions, and each 
party shall keep the other parties apprised of the status of material matters 
relating to completion of the Transactions. 
     (b)  Each party agrees, upon request, to furnish the other parties with 
all information concerning itself, its Subsidiaries, directors, officers and 
shareholders and such other matters as may be reasonably necessary or advisable 
in connection with any filing, notice or application made by or on behalf of 
such other parties or any of their respective Subsidiaries to any third party 
or Governmental Authority. 
     6.05.    Press Releases.    The Company and Parent shall consult with each 
other before issuing any press release with respect to the Transactions or this 
Agreement and shall not issue any such press release or make any such public 
statements without the prior consent of the other party, which shall not be 


Page I - 33
unreasonably withheld; provided, however, that a party may, without the prior 
consent of the other party (but after such consultation, to the extent 
practicable in the circumstances), issue such press release or make such public 
statements as may upon the advice of outside counsel be required by law or the 
rules or regulations of Nasdaq. The Company and Parent shall cooperate to 
develop all public announcement materials and make appropriate management 
available at presentations related to the Transactions as reasonably requested 
by the other party. 
     6.06.    Access; Information.    
     (a)  The Company agrees that upon reasonable notice and subject to 
applicable laws relating to the exchange of information, it shall afford Parent 
and Parent's officers, employees, counsel, accountants and other authorized 
representatives such access during normal business hours throughout the period 
prior to the Effective Time to the books, records (including, without 
limitation, Tax Returns and work papers of independent auditors), properties 
and personnel of the Company and the Company Bank and to such other information 
relating to the Company or the Company Bank as Parent may reasonably request 
and, during such period, it shall furnish promptly to Parent all information 
concerning the business, properties and personnel of the Company and the 
Company Bank as Parent may reasonably request.  Parent has, prior to the 
execution and delivery of this Agreement, been given access to and the 
opportunity to examine certain materials provided by the Company, including the 
year-end financials, credit files, ALCO packages and minutes, loan loss reserve 
adequacy reports and loan risk analyses, and an opportunity to ask questions of 
and to receive answers from officers and representatives of the Company and the 
Subsidiaries.  As of the date of this Agreement, the Parent has, in all 
material respects, completed its review of the materials so provided by the 
Company and the Subsidiaries.
     (b)  Parent agrees that upon reasonable notice and subject to applicable 
laws relating to the exchange of information, it shall afford the Company and 
its authorized representatives such access to Parent's personnel as the Company 
may reasonably request. 
     (c)  Each party agrees that it will not, and will cause its 
representatives not to, use any information obtained pursuant to this Section 
6.06 (as well as any other information obtained prior to the date hereof in 
connection with the entering into of this Agreement) for any purpose unrelated 
to the consummation of the Transactions. Subject to the requirements of law, 
each party shall keep confidential, and shall cause its representatives to keep 
confidential, all information and documents obtained pursuant to this Section 
6.06 (as well as any other information obtained prior to the date hereof in 
connection with the entering into of this Agreement) unless such information 
(i) was already known to such party, (ii) becomes available to such party from 
other sources not known by such party to be bound by a confidentiality 
obligation, (iii) is disclosed with the prior written approval of the party to 
which such information pertains or (iv) is or becomes readily ascertainable 
from publicly available sources. In the event that this Agreement is terminated 
or the Transactions shall otherwise fail to be consummated, each party shall 
promptly cause all copies of documents or extracts thereof containing 
information and data as to another party hereto to be returned to the party 
which furnished the same. No investigation by any party of the business and 
affairs of any other party shall affect or be deemed to modify or waive any 
representation, warranty, covenant or agreement in this Agreement, or the 
conditions to any party's obligation to consummate the Transactions. 
     (d)   No investigation by Parent of the business and affairs of the 
Company shall affect or be deemed to modify or waive any representation, 
warranty, covenant or agreement in this Agreement, or the conditions to the 
obligations of Parent to consummate the Merger. 


Page I - 34
     6.07.    Affiliates.    The Company shall use its reasonable best efforts 
to identify those persons who may be deemed to be "affiliates" of the Company 
within the meaning of Rule 145 promulgated by the SEC under the Securities Act 
(the "Company Affiliates") and to cause each person so identified to deliver to 
Parent as soon as practicable, and in any event prior to the date of the 
Company Meeting, a written agreement to comply with the requirements of Rule 
145 under the Securities Act in connection with the sale or other transfer of 
Parent Common Stock received in the Merger, which agreement shall be in a form 
reasonably satisfactory to Parent. 
     6.08.    Acquisition Proposals.    The Company agrees that neither it nor 
any of its Subsidiaries shall, and that it shall direct and use its reasonable 
best efforts to cause its and each such Subsidiary's directors, officers, 
employees, agents and representatives not to, directly or indirectly, initiate, 
solicit, encourage or otherwise facilitate any inquiries or the making of any 
proposal or offer with respect to a merger, reorganization, share exchange, 
consolidation or similar transaction involving, or any purchase of all or 
substantially all of the assets of the Company or more than 10% of the 
outstanding equity securities of the Company or any of its Subsidiaries (any 
such proposal or offer being hereinafter referred to as an "Acquisition 
Proposal"). The Company further agrees that neither the Company nor any of its 
Subsidiaries shall, and that it shall direct and use its reasonable best 
efforts to cause its and each such Subsidiary's directors, officers, employees, 
agents and representatives not to, directly or indirectly, engage in any 
negotiations concerning, or provide any confidential information or data to, or 
have any discussions with, any Person relating to an Acquisition Proposal, or 
otherwise facilitate any effort or attempt to make or implement an Acquisition 
Proposal; provided, however, that nothing contained in this Agreement shall 
prevent the Company or the Company Board from (A) complying with its disclosure 
obligations under federal or state law; (B) providing information in response 
to a request therefor by a Person who has made an unsolicited bona fide written 
Acquisition Proposal if the Company Board receives from the Person so 
requesting such information an executed confidentiality agreement; (C) engaging 
in any negotiations or discussions with any Person who has made an unsolicited 
bona fide written Acquisition Proposal or (D) recommending such an Acquisition 
Proposal to the shareholders of the Company, if and only to the extent that, in 
each such case referred to in clause (B), (C) or (D) above, (i) the Company 
Board determines in good faith (after consultation with outside legal counsel) 
that such action would be required in order for its directors to comply with 
their respective fiduciary duties under applicable law and (ii) the Company 
Board determines in good faith (after consultation with its financial advisor) 
that such Acquisition Proposal, if accepted, is reasonably likely to be 
consummated, taking into account all legal, financial and regulatory aspects of 
the proposal and the Person making the proposal and would, if consummated, 
result in a transaction more favorable to the Company's shareholders from a 
financial point of view than the Merger. An Acquisition Proposal which is 
received and considered by the Company in compliance with this Section 6.08 and 
which meets the requirements set forth in clause (D) of the preceding sentence 
is herein referred to as a "Superior Proposal." The Company agrees that it will 
immediately cease and cause to be terminated any existing activities, 
discussions or negotiations with any parties conducted heretofore with respect 
to any Acquisition Proposals. The Company agrees that it will notify Parent if 
any such inquiries, proposals or offers are received by, any such information 
is requested from, or any such discussions or negotiations are sought to be 
initiated or continued with, the Company or any of its representatives as soon 
as the Company becomes aware of the same. 




Page I - 35
     6.09.    Certain Policies.    Prior to the Effective Date, each of the 
Company and its Subsidiaries shall, consistent with GAAP, the rules and 
regulations of the SEC and applicable banking laws and regulations, modify or 
change its loan, OREO, accrual, reserve, tax, litigation and real estate 
valuation policies and practices (including loan classifications and levels of 
reserves) so as to be applied on a basis that is consistent with that of 
Parent; provided, however, that no such modifications or changes need be made 
prior to the satisfaction of the conditions set forth in Section 7.01(b); and 
further provided that in any event, no accrual or reserve made by the Company 
or any of its Subsidiaries pursuant to this Section 6.09 shall constitute or be 
deemed to be a breach, violation of or failure to satisfy any representation, 
warranty, covenant, agreement, condition or other provision of this Agreement 
or otherwise be considered in determining whether any such breach, violation or 
failure to satisfy shall have occurred. The recording of any such adjustments 
shall not be deemed to imply any misstatement of previously furnished financial 
statements or information and shall not be construed as concurrence of the 
Company or its management with any such adjustments. 
     6.10.    Nasdaq Listing.    Parent agrees to use its reasonable best 
efforts to list, prior to the Effective Date, on the Nasdaq the shares of 
Parent Common Stock to be issued in connection with the Merger. 
     6.11.    Indemnification.    
     (a)  From and after the Effective Time, Parent (the "Indemnifying Party") 
shall indemnify and hold harmless each present and former director, officer and 
employee of the Company or a Company Subsidiary, as applicable, determined as 
of the Effective Time (the "Indemnified Parties") against any costs or expenses 
(including reasonable attorneys' fees), judgments, fines, losses, claims, 
damages or liabilities incurred in connection with any claim, action, suit, 
proceeding or investigation, whether civil, criminal, administrative or 
investigative, arising out of matters existing or occurring at or prior to the 
Effective Time, whether asserted or claimed prior to, at or after the Effective 
Time, arising in whole or in part out of or pertaining to the fact that he or 
she was a director, officer, employee, fiduciary or agent of the Company or any 
Company Subsidiary or is or was serving at the request of the Company or any of 
the Company Subsidiaries as a director, officer, employee, fiduciary or agent 
of another corporation, partnership, joint venture, trust or other enterprise, 
including without limitation matters related to the negotiation, execution and 
performance of this Agreement or consummation of the Transactions, to the 
fullest extent which such Indemnified Parties would be entitled under the 
Company Articles and Company Bylaws or equivalent documents of any Company 
Subsidiary, as applicable, or any agreement, arrangement or understanding which 
has been Previously Disclosed by the Company pursuant to this Section, in each 
case as in effect on the date hereof. Without limiting the foregoing, Parent 
also agrees that limitations on liability existing in favor of the Indemnified 
Parties as provided in the Company Articles and Company Bylaws or similar 
governing documents of the Company Subsidiaries as in effect on the date hereof 
with respect to matters occurring prior to the Effective Time shall survive the 
Merger and the Bank Merger and shall continue in full force and effect from and 
after the Effective Time. 
     (b)  Any Indemnified Party wishing to claim indemnification under this 
Section 6.11, upon learning of any such claim, action, suit, proceeding or 
investigation, shall promptly notify the Indemnifying Party, but the failure to 
so notify shall not relieve the Indemnifying Party of any liability it may have 
to such Indemnified Party if such failure does not actually prejudice the 
Indemnifying Party. In the event of any such claim, action, suit, proceeding or 
investigation (whether asserted before or after the Effective Time), (i) the 
Indemnifying Party shall have the right to assume the defense thereof and the 
Indemnifying Party shall not be liable to such Indemnified Parties for any 


Page I - 36
legal expenses of other counsel or any other expenses subsequently incurred by 
such Indemnified Parties in connection with the defense thereof, except that if 
the Indemnifying Party elects not to assume such defense or counsel for the 
Indemnified Parties advises that there are issues which raise conflicts of 
interest between the Indemnifying Party and the Indemnified Parties, the 
Indemnified Parties may retain counsel which is reasonably satisfactory to the 
Indemnifying Party, and the Indemnifying Party shall pay, promptly as 
statements therefor are received, the reasonable fees and expenses of such 
counsel for the Indemnified Parties (which may not exceed one firm in any 
jurisdiction), (ii) the Indemnified Parties will cooperate in the defense of 
any such matter, (iii) the Indemnifying Party shall not be liable for any 
settlement effected without its prior written consent and (iv) the Indemnifying 
Party shall have no obligation hereunder in the event that a federal or state 
banking agency or a court of competent jurisdiction shall determine that 
indemnification of an Indemnified Party in the manner contemplated hereby is 
prohibited by applicable laws and regulations. 
     (c)  The Company shall purchase an extended reporting period endorsement 
(the "D & O Tail Coverage") under the Company's existing directors' and 
officers' liability insurance (the "D&O Insurance") which covers persons who 
are currently covered by the Company's D&O Insurance that shall provide such 
directors and officers with coverage for a period of six years after the 
Effective Time on terms no less favorable than those in effect on the date 
hereof and at the Effective Time shall provide evidence of such D & O Tail 
Coverage to Parent; provided, however, that  the Company may substitute for its 
existing coverage a policy or policies providing substantially comparable 
coverage and containing terms and conditions no less favorable than those in 
effect on the date hereof if necessary or advisable to obtain such extension of 
coverage.
     (d)  If Parent or any of its successors or assigns shall consolidate with 
or merge into any other entity and shall not be the continuing or surviving 
entity of such consolidation or merger or shall transfer all or substantially 
all of its assets to any other entity, then and in each case, proper provision 
shall be made so that the successors and assigns of Parent shall assume the 
obligations set forth in this Section 6.11. 
     6.12    Benefit Plans.    
     (a)  As soon as administratively practicable after the Effective Time, 
Parent shall take all reasonable action so that employees of the Company and 
its Subsidiaries shall be entitled to participate in each employee benefit 
plan, program or arrangement of Parent of general applicability (the "Parent 
Benefits Plans") to the same extent as similarly-situated employees of Parent 
and its Subsidiaries (it being understood that inclusion of the employees of 
the Company and its Subsidiaries in the Parent Benefits Plans may occur at 
different times with respect to different plans), provided, however, that 
nothing contained herein shall require Parent or any of its Subsidiaries to 
make any grants to any former employee of the Company or its Subsidiaries under 
any discretionary equity compensation plan of Parent. Parent shall cause each 
Parent Benefits Plan in which employees of the Company and its Subsidiaries are 
eligible to participate to recognize, for purposes of determining eligibility 
to participate in, the vesting of benefits and for all other purposes (but not 
for accrual of pension benefits other than 401(k) benefits) under the Parent 
Benefit Plans, the service of such employees with the Company and its 
Subsidiaries to the same extent as such service was credited for such purpose 
by the Company; provided, however, that such service shall not be recognized to 
the extent that such recognition would result in a duplication of benefits or 
in a violation of any applicable non-discrimination rules. 




Page I - 37
     (b)  At and following the Effective Time, Parent shall honor, and the 
Surviving Corporation shall continue to be obligated to perform, in accordance 
with their terms, all benefit obligations to, and contractual rights of, 
current and former employees of the Company and its Subsidiaries existing as of 
the Effective Date, as well as all employment, severance, deferred 
compensation, split dollar, supplemental retirement or "change-in-control" 
agreements, plans or policies of the Company which are Previously Disclosed; 
provided that nothing herein shall limit the ability of Parent, after the 
Effective Time, to amend or terminate any of the Company's Benefits Plans in 
accordance with their terms at any time; and provided further, that Section II 
(a) of the Employment Continuity Agreements of Messrs. McKim, Lay, Wrobel and 
Dalrymple (collectively, the "ECA Agreements") shall be amended as of the 
Effective Time (i) to establish the "base amount" as their respective base 
salaries as of December 31, 2004, (ii) to extend the 30 day period referred to 
therein to 24 months.  Parent acknowledges that the consummation of the Merger 
will constitute a "change-in-control" of the Company for purposes of any 
employee benefit plans, agreements and arrangements of the Company and (iii) to 
change the reference in Section IX thereof to "Hancock County, Maine" to "any 
of Knox, Lincoln, Hancock or Washington counties, Maine." 
     (c)  If employees of the Company or any of its Subsidiaries become 
eligible to participate in a medical, dental or health plan of Parent, Parent 
shall cause each such plan to (i) waive any preexisting condition limitations 
to the extent such conditions covered under the applicable medical, health or 
dental plans of Parent, (ii) provide full credit under such plans for any 
deductibles, co-payment and out-of-pocket expenses incurred by the employees 
and their beneficiaries during the portion of the calendar year prior to such 
participation, and (iii) waive any waiting period limitation or evidence of 
insurability requirement which would otherwise be applicable to such employee 
on or after the Effective Time to the extent such employee had satisfied any 
similar limitation or requirement under an analogous Plan prior to the 
Effective Time. 
     (d)  For the two year period following the Effective Time, Parent shall 
provide all employees of the Company and its Subsidiaries whose employment is 
terminated by Parent or a Parent Subsidiary other than for cause, disability or 
retirement at or following the Effective Time, and who so desires, job 
counseling and outplacement assistance services to a reasonable extent and for 
a reasonable period of time following such employees' termination of 
employment, and, shall, to a reasonable extent, assist any such employees in 
locating new employment and shall notify all such employees who request to be 
so notified of opportunities for positions with Parent or any of its 
Subsidiaries for which Parent reasonably believes such persons are qualified 
and shall consider any application for such positions submitted by such 
persons, provided, however, that any decision to offer employment to any such 
person shall be made in the sole discretion of Parent.  For purposes of this 
Section 6.12(d) and Section 6.12(e) below, a termination other than for cause 
shall include, but not be limited to, resignation following a reduction in pay 
or assignment to a work site located more than 20 miles from the employee's 
work site as of the Effective Time.
     (e)  All employees of the Company or a Company Subsidiary as of the 
Effective Time shall become employees of Parent or a Parent Subsidiary as of 
the Effective Time, and Parent or a Parent Subsidiary will use its reasonable 
best efforts to give such persons (other than any such person who is party to 
an employment agreement, a severance agreement or a special termination 
agreement, including an ECA Agreement) at least 60 days  prior written notice 
of any job elimination after the Effective Time for a period of 90 days 
following the Effective Time. Subject to such 60 day  notice requirement, 
Parent or a Parent Subsidiary shall have no obligation to continue the 


Page I - 38
employment of any such person and nothing contained herein shall give any 
employee of the Company or a Company Subsidiary the right to continue 
employment with Parent or a Parent Subsidiary after the Effective Time. An 
employee of the Company or a Company Subsidiary (other than an employee who is 
party to an employment agreement, a severance agreement or a special 
termination agreement, including an ECA Agreement) whose employment is 
involuntarily terminated other than for cause (as defined in Section 6.12(d) 
above) during the two year period following  the Effective Time shall be 
entitled to receive severance payments equal to one (1) week's compensation for 
each year of service of such employee with the Company and/or a Company 
Subsidiary, or such payments to which they may be entitled under any employee 
severance plan now in effect or hereafter adopted by the Parent or a Parent 
Subsidiary, whichever is greater. 
     (f)   As soon as practicable after the date hereof, the Company's Board of 
Directors shall take such corporate action as is necessary to terminate the 
First National Bank of Bar Harbor Employee Stock Ownership Plan (the "Company 
ESOP") and provide that the account of each participant in the Company ESOP 
shall become fully vested and nonforfeitable, in each case effective as of  the 
Effective Time and subject to the consummation of the Merger.  Following the 
Effective Time, the Parent shall be the sponsor of the Company ESOP and shall 
take any and all such further actions as may be necessary to terminate the 
Company ESOP and distribute the assets of the Company ESOP  to participants in 
the Company ESOP as soon as reasonably practicable after the receipt of a 
favorable determination letter on termination of the Company ESOP from the IRS 
confirming the qualified status of the Company ESOP upon termination, and 
Parent shall take the action necessary (including any amendment of Parent's 
401(k) plan) to permit the participants who are employees of Parent or its 
Subsidiaries as of the date of such distribution to roll any eligible rollover 
distributions over into Parent's 401(k) plan. As soon as practicable after the 
date hereof, if permitted by the applicable procedures of the Internal Revenue 
Service,  the Company shall  apply to the IRS for a favorable determination 
letter on the tax-qualified status of the Company ESOP on termination of the 
Company ESOP. 
     6.13.     Bank Merger.  If requested by Parent, Company shall take all 
action necessary and appropriate, including causing the entering into of an 
appropriate merger agreement (the "Bank Merger Agreement"), to cause the 
Company Bank to merge with and into the Parent Bank (the "Bank Merger") in 
accordance with applicable laws and regulations and the terms of the Bank 
Merger Agreement as soon as practicable after consummation of the Merger.
     6.14.    Coordination of Dividends.  After the date of this Agreement, the 
Company shall coordinate the declaration of any dividends in respect of the 
Company Common Stock and the record dates and payment dates relating thereto 
with that of the Parent Common Stock, it being the intention of the parties 
that the holders of Parent Common Stock or Company Common Stock shall not 
receive more than one dividend, or fail to receive one dividend, for any single 
semi-annual period with respect to their shares of Company Common Stock,  or 
for any single calendar quarter with respect to any shares of Parent Common 
Stock any holder of Company Common Stock receives in exchange therefor in the 
Merger. 
     6.15.    Board Representation.    Upon consummation of the Transactions, 
the Board of Directors of Parent shall increase the number of authorized 
directors who serve on its Board of Directors and appoint Mr. McKim and one 
other director of the Company, as mutually determined by the Company and Parent 
(the "Additional Director") to fill the vacancies created thereby and to serve 
on the same basis as other Parent directors until the first Annual Meeting of 
Parent's Shareholders following the Effective Time.  With respect to that 
Annual Meeting, the Board of Directors of Parent shall, subject to compliance 


Page I - 39
with the fiduciary duties of the Parent Board and any director qualification 
provisions of the Parent's bylaws, include Mr. McKim as a nominee (to serve as 
a director until the 2007 Annual Meeting), and the Additional Director as a 
nominee (to serve as a director until the 2006 Annual Meeting).  The Board of 
Directors shall consider including an additional resident of the area served by 
the Company Bank as a nominee to serve as a director following the first Annual 
Meeting of Parent's Shareholders following the Effective Time. 
     6.16.    Notification of Certain Matters.    Each of the Company and 
Parent shall give prompt notice to the other of any fact, event or circumstance 
known to it that (i) is reasonably likely, individually or taken together with 
all other facts, events and circumstances known to it, to result in any 
Material Adverse Effect with respect to it or (ii) would cause or constitute a 
material breach of any of its representations, warranties, covenants or 
agreements contained herein. From time to time prior to the Effective Time (and 
on the date prior to the Closing Date), each party will supplement or amend its 
Disclosure Schedules delivered in connection with the execution of this 
Agreement to reflect any matter which, if existing, occurring or known at the 
date of this Agreement, would have been required to be set forth or described 
in such Disclosure Schedules or which is necessary to correct any information 
in such Disclosure Schedules which has been rendered materially inaccurate 
thereby. No supplement or amendment to such Disclosure Schedules shall have any 
effect for the purpose of determining the accuracy of the representations and 
warranties of the parties contained in Article V in order to determine the 
fulfillment of the conditions set forth in Sections 7.02(a) or 7.03(a) hereof, 
as the case may be, or the compliance by the Company or Parent, as the case may 
be, with the respective covenants and agreements of such parties contained 
herein.
































Page I - 40
ARTICLE VII

CONDITIONS TO CONSUMMATION OF THE MERGER 
     7.01.    Conditions to Each Party's Obligation to Effect the Merger.    
The respective obligation of each of the parties hereto to consummate the 
Merger is subject to the fulfillment or, to the extent permitted by applicable 
law, written waiver by the parties hereto prior to the Closing Date of each of 
the following conditions: 
     (a)    Shareholder Approval.    This Agreement shall have been duly 
approved by the requisite vote of the holders of outstanding shares of Company 
Common Stock and Parent Common Stock.
     (b)    Regulatory Approvals.    All regulatory approvals required to 
consummate the Transactions shall have been obtained and shall remain in full 
force and effect and all statutory waiting periods in respect thereof shall 
have expired and no such approvals shall contain any conditions, restrictions 
or requirements which the Parent Board reasonably determines in good faith 
would, individually or in the aggregate, materially reduce the benefits of the 
Transactions to such a degree that Parent would not have entered into this 
Agreement had such conditions, restrictions or requirements been known at the 
date hereof. 
     (c)    No Injunction.    No Governmental Authority of competent 
jurisdiction shall have enacted, issued, promulgated, enforced or entered any 
statute, rule, regulation, judgment, decree, injunction or other order (whether 
temporary, preliminary or permanent) which is in effect and prohibits, 
restricts or makes illegal the consummation of the Transactions. 
     (d)    Registration Statement.    The Registration Statement shall have 
become effective under the Securities Act and no stop order suspending the 
effectiveness of the Registration Statement shall have been issued and no 
proceedings for that purpose shall have been initiated by the SEC and not 
withdrawn. 
     (e)    Listing.    The shares of Parent Common Stock to be issued in the 
Merger shall have been approved for listing on the Nasdaq. 
     (f)    Tax Opinion.    Each of Parent and the Company shall have received 
the written opinion of Verrill & Dana, LLP, in form and substance reasonably 
satisfactory to both the Company and Parent, dated as of the Effective Date, 
substantially to the effect that, on the basis of the facts, representations 
and assumptions set forth in such opinion which are consistent with the state 
of facts existing at the Effective Time, the Merger will be treated for Federal 
income tax purposes as a reorganization within the meaning of Section 368(a) of 
the Code. In rendering such opinion, such counsel may require and rely upon 
representations and covenants, including those contained in certificates of 
officers of Parent, the Company and others, reasonably satisfactory in form and 
substance to such counsel. In the event that each of Parent and the Company 
shall not have received such written opinion from Verrill & Dana, LLP, as 
provided above, then in such case this condition to closing will be deemed 
satisfied if each of Parent and the Company shall have received the foregoing 
written opinion from Pierce Atwood LLP subject to the foregoing requirements as 
to form and substance. 
     7.02.    Conditions to Obligation of the Company.    The obligation of the 
Company to consummate the Merger is also subject to the fulfillment or written 
waiver by the Company prior to the Closing Date of each of the following 
conditions: 
     (a)    Representations and Warranties.    The representations and 
warranties of Parent set forth in this Agreement, subject in all cases to the 
standard set forth in Section 5.02, shall be true and correct as of the date of 
this Agreement and as of the Effective Date as though made on and as of the 
Effective Date (except that representations and warranties that by their terms 


Page I - 41
speak as of the date of this Agreement or some other date shall be true and 
correct as of such date), and the Company shall have received a certificate, 
dated the Effective Date, signed on behalf of Parent by the Chief Executive 
Officer and the Chief Financial Officer of Parent to such effect. 
     (b)    Performance of Obligations of Parent.    Parent shall have 
performed in all material respects all obligations required to be performed by 
it under this Agreement at or prior to the Effective Time, and the Company 
shall have received a certificate, dated the Effective Date, signed on behalf 
of Parent by the Chief Executive Officer and the Chief Financial Officer of 
Parent to such effect. 
      (c)    Opinion of Counsel. The Company shall have received an opinion 
dated the Effective Date of Verrill & Dana, LLP, counsel to Parent, in 
substantially the form attached as Exhibit 7.02(c), which is attached hereto 
and made a part hereof.
(d)   Other Actions.    Parent shall have furnished the Company with such 
certificates of its respective officers or others and such other documents to 
evidence fulfillment of the conditions set forth in Sections 7.01 and 7.02 as 
the Company may reasonably request. 
     7.03.    Conditions to Obligation of Parent.    The obligation of Parent 
to consummate the Merger is also subject to the fulfillment or written waiver 
by Parent prior to the Closing Date of each of the following conditions: 
     (a)    Representations and Warranties.    The representations and 
warranties of the Company set forth in this Agreement, subject in all cases to 
the standard set forth in Section 5.02, shall be true and correct as of the 
date of this Agreement and as of the Effective Date as though made on and as of 
the Effective Date (except that representations and warranties that by their 
terms speak as of the date of this Agreement or some other date shall be true 
and correct as of such date), and Parent shall have received a certificate, 
dated the Effective Date, signed on behalf of the Company by the Chief 
Executive Officer and the Chief Financial Officer of the Company to such 
effect. 
     (b)    Performance of Obligations of Company.    The Company shall have 
performed in all material respects all obligations required to be performed by 
it under this Agreement at or prior to the Effective Time, and Parent shall 
have received a certificate, dated the Effective Date, signed on behalf of the 
Company by the Chief Executive Officer and the Chief Financial Officer of the 
Company to such effect. 
     (c)    Shareholder Agreements.    Shareholder Agreements, substantially in 
the form attached as Annex A hereto, shall have been executed and delivered by 
each director who is also an officer of the Company in connection with the 
Company's execution and delivery of this Agreement. 
     (d)    Dissenting Shares.    Dissenting Shares shall not represent 10% or 
more of the outstanding Company Common Stock. 
     (e)    Opinion of Counsel.  Parent shall have received an opinion dated 
the Effective Date of Pierce Atwood, counsel to the Company, in substantially 
the form attached as Exhibit 7.03(e), which is attached hereto and made a part 
hereof. 
(f)   Other Actions.    The Company shall have furnished Parent with such 
certificates of its officers or others and such other documents to evidence 
fulfillment of the conditions set forth in Sections 7.01 and 7.03 as Parent may 
reasonably request, and as may be reasonably required to assist Parent and its 
executives in meeting its obligations under the Sarbanes-Oxley Act of 2002 with 
respect to reporting the Transactions. 
    





Page I - 42
ARTICLE VIII

TERMINATION 
     8.01.    Termination.    This Agreement may be terminated, and the 
Transactions may be abandoned: 
     (a)    Mutual Consent.    At any time prior to the Effective Time, by the 
mutual consent of Parent and the Company if the Board of Directors of each so 
determines by vote of a majority of the members of its entire Board. 
     (b)    Breach.    At any time prior to the Effective Time, by Parent or 
the Company if its Board of Directors so determines by vote of a majority of 
the members of its entire Board, in the event of: (i) a breach by Parent or the 
Company, as the case may be, of any representation or warranty contained herein 
(subject to the standard set forth in Section 5.02), which breach cannot be or 
has not been cured within 30 days after the giving of written notice to the 
breaching party or parties of such breach; or (ii) a breach by Parent or the 
Company, as the case may be, of any of the covenants or agreements contained 
herein, which breach cannot be or has not been cured within 30 days after the 
giving of written notice to the breaching party or parties of such breach, 
which breach (whether under (i) or (ii)) would be reasonably expected, 
individually or in the aggregate with other breaches, to result in a Material 
Adverse Effect with respect to Parent or the Company, as the case may be. 
     (c)    Delay.    At any time prior to the Effective Time, by Parent or the 
Company if its Board of Directors so determines by vote of a majority of the 
members of its entire Board, in the event that the Transactions are not 
consummated by May 31, 2005, except to the extent that the failure of the 
Merger then to be consummated arises out of or results from the knowing action 
or inaction of (i) the party seeking to terminate pursuant to this Section 
8.01(c) or (ii) any of the Shareholders (if the Company is the party seeking to 
terminate), which action or inaction is in violation of its obligations under 
this Agreement or, in the case of the Shareholders, his, her or its obligations 
under the relevant Shareholder Agreement. 
     (d)    No Regulatory Approval.    By the Company or Parent, if its Board 
of Directors so determines by a vote of a majority of the members of its entire 
Board, in the event the approval of any Governmental Authority required for 
consummation of the Merger and the other transactions contemplated by this 
Agreement shall have been denied by final nonappealable action of such 
Governmental Authority or an application therefor shall have been permanently 
withdrawn at the request of a Governmental Authority. 
     (e)    No Shareholder Approval.    By either Parent or the Company if any 
approval of the shareholders of the Company or Parent contemplated by Section 
7.01(a) this Agreement shall not have been obtained by reason of the failure to 
obtain the required vote at the Company Meeting or Parent Meeting, as the case 
may be. 
     (f)    Failure to Recommend.    At any time prior to the Company Meeting, 
by Parent if (i) the Company shall have breached Section 6.08, (ii) the Company 
Board shall have failed to make its recommendation referred to in Section 6.02, 
withdrawn such recommendation or modified or changed such recommendation in a 
manner adverse in any respect to the interests of Parent, or (iii) the Company 
shall have materially breached its obligations under Section 6.02 by failing to 
call, give notice of, convene and hold the Company Meeting in accordance with 
Section 6.02. 
     (g)    Superior Proposal.    At any time prior to the Company Meeting, by 
the Company in order to concurrently enter into an acquisition agreement or 
similar agreement (each, an "Acquisition Agreement") with respect to a Superior 
Proposal which has been received and considered by the Company and the Company 
Board in compliance with Section 6.08 hereof, provided, however, that this 
Agreement may be terminated by the Company pursuant to this Section 8.01(g) 


Page I - 43
only after the fifth Business Day following the Company's provision of written 
notice to Parent advising Parent that the Company Board is prepared to accept a 
Superior Proposal, and only if, during such five-Business Day period, if Parent 
so elects in its sole discretion, the Company and its advisors shall have 
negotiated in good faith with Parent to make such adjustments in the terms and 
conditions of this Agreement as would enable Parent and the Company to proceed 
with the Transactions on such adjusted terms. 
     8.02.    Effect of Termination and Abandonment.    
     (a)  In the event of termination of this Agreement and the abandonment of 
the Merger pursuant to this Article VIII, no party to this Agreement shall have 
any liability or further obligation to any other party hereunder except (i) as 
set forth in this Section 8.02 and Section 9.01 and (ii) that termination will 
not relieve a breaching party from liability for any willful breach of any 
covenant, agreement, representation or warranty of this Agreement giving rise 
to such termination. 
     (b)  The Company shall pay Parent the sum of $1,500,000 (the "Termination 
Fee") if this Agreement is terminated as follows: 
     (i)    if this Agreement is terminated by Parent pursuant to Section 
8.01(f) or by the Company pursuant to Section 8.01(g), in either of which case 
payment shall be made to Parent concurrently with the termination of this 
Agreement; or 
     (ii)  if (x) this Agreement is terminated by (A) Parent pursuant to 
Section 8.01(b) or (B) by either Parent or the Company pursuant to Section 
8.01(e) as a result of the failure to obtain the required vote at the Company 
Meeting contemplated by Section 7.01(a) this Agreement and in the case of any 
termination pursuant to clause (A) or (B) an Acquisition Proposal shall have 
been publicly announced or otherwise communicated or made known to the Company 
Board (or any Person shall have publicly announced, communicated or made known 
an intention, whether or not conditional, to make an Acquisition Proposal) at 
any time after the date of this Agreement and prior to the taking of the vote 
of the shareholders of the Company contemplated by this Agreement at the 
Company Meeting, in the case of clause (B), or the date of termination, in the 
case of clause (A), and 
(y) within 18 months after such termination the Company or a Subsidiary of the 
Company enters into an agreement with respect to an Acquisition Proposal or 
consummates a transaction which is the subject of an Acquisition Proposal, then 
the Company shall pay to Parent the Termination Fee on the date of execution of 
such agreement or consummation of a transaction which is the subject of an 
Acquisition Proposal, provided that if the date of execution of such agreement 
is after 12 months but within 18 months after such termination of this 
Agreement, the Termination Fee shall be payable by the Company to Parent only 
upon consummation of a transaction which is the subject of an Acquisition 
Proposal, regardless whether such consummation occurs within 18 months after 
termination of this Agreement. 
Any amount that becomes payable pursuant to this Section 8.02(b) shall be paid 
by wire transfer of immediately available funds to an account designated by 
Parent. 
     (c)  The Company and Parent agree that the agreement contained in 
paragraph (b) of this Section 8.02 is an integral part of the transactions 
contemplated by this Agreement, that without such agreement Parent would not 
have entered into this Agreement and that such amounts do not constitute a 
penalty or liquidated damages in the event of a breach of this Agreement by the 
Company. If the Company fails to pay Parent the amounts due under paragraph (b) 
above within the time periods specified therein, the Company shall pay the 
costs and expenses (including reasonable legal fees and expenses) incurred by 
Parent in connection with any action in which Parent prevails, including the 
filing of any lawsuit, taken to collect payment of such amounts, together with 


Page I - 44
interest on the amount of any such unpaid amounts at the prime lending rate 
prevailing during such period as published in The Wall Street Journal, as it 
may vary, calculated on a daily basis from the date such amounts were required 
to be paid until the date of actual payment. 
    






















































Page I - 45
ARTICLE IX

MISCELLANEOUS 
     9.01.    Survival.    No representations, warranties, agreements and 
covenants contained in this Agreement shall survive the Effective Time (other 
than agreements or covenants contained herein that by their express terms are 
to be performed after the Effective Time) or the termination of this Agreement 
if this Agreement is terminated prior to the Effective Time (other than 
Sections 6.06(c), 8.02 and, excepting Section 9.12 hereof, this Article IX, 
which shall survive any such termination). Notwithstanding anything in the 
foregoing to the contrary, no representations, warranties, agreements and 
covenants contained in this Agreement shall be deemed to be terminated or 
extinguished so as to deprive a party hereto or any of its affiliates of any 
defense at law or in equity which otherwise would be available against the 
claims of any Person, including without limitation any shareholder or former 
shareholder. 
     9.02.    Waiver; Amendment.    Prior to the Effective Time, any provision 
of this Agreement may be (i) waived by the party benefited by the provision or 
(ii) amended or modified at any time, by an agreement in writing among the 
parties hereto executed in the same manner as this Agreement, except that after 
the Company Meeting no amendment shall be made which by law requires further 
approval by the shareholders of the Company without obtaining such approval. 
     9.03.    Counterparts.    This Agreement may be executed in one or more 
counterparts, each of which shall be deemed to constitute an original. 
     9.04.    Governing Law.    This Agreement shall be governed by, and 
interpreted in accordance with, the laws of the State of Maine applicable to 
contracts made and to be performed entirely within such State. 
     9.05    Expenses.    Each party hereto will bear all expenses incurred by 
it in connection with this Agreement and the transactions contemplated hereby, 
including fees and expenses of its own financial consultants, accountants and 
counsel and, in the case of Parent, the registration fee to be paid to the SEC 
in connection with the Registration Statement, except that expenses of printing 
the Proxy Statement shall be shared equally between the Company and Parent, and 
provided further that nothing contained herein shall limit either party's 
rights to recover any liabilities or damages arising out of the other party's 
willful breach of any provision of this Agreement. 
     9.06.    Notices.    All notices, requests and other communications 
hereunder to a party shall be in writing and shall be deemed given if 
personally delivered, telecopied (with confirmation) or mailed by registered or 
certified mail (return receipt requested) to such party at its address set 
forth below or such other address as such party may specify by notice to the 
parties hereto. 

If to the Company to:                  If to Parent to:
FNB Bankshares                         First National Lincoln Corporation
102 Main Street                        223 Main Street, PO Box 940
Bar Harbor, Maine 04609                Damariscotta, ME 04543-0760
Attention: Tony C. McKim               Attention: Daniel R. Daigneault,
                                                  President and CEO
Fax: (207) 288-2469                    Fax: (207) 563-5085

With a copy to:                        With a copy to:
Pierce Atwood LLP                      Verrill & Dana, LLP
One Monument Square                    One Portland Square, PO Box 586
Portland, Maine 04101                  Portland, ME 04112-0586
Attention: James B. Zimpritch, Esq.    Attention: Keith C. Jones
Fax: (207) 791-1350                    Fax: (207) 774-7499


Page I - 46
       9.07.    Entire Understanding; No Third Party Beneficiaries.    This 
Agreement and the Shareholder Agreements represent the entire understanding of 
the parties hereto and thereto with reference to the Transactions, and this 
Agreement and the Shareholder Agreements supersede any and all other oral or 
written agreements heretofore made. Except for the Indemnified Parties' right 
to enforce Parent's obligation under Section 6.11, which are expressly intended 
to be for the irrevocable benefit of, and shall be enforceable by, each 
Indemnified Party and his or her heirs and representatives, nothing in this 
Agreement, expressed or implied, is intended to confer upon any Person, other 
than the parties hereto or their respective successors, any rights, remedies, 
obligations or liabilities under or by reason of this Agreement. 
     9.08.    Severability.    Except to the extent that application of this 
Section 9.08 would have a Material Adverse Effect on the Company or Parent, any 
term or provision of this Agreement which is invalid or unenforceable in any 
jurisdiction shall, as to that jurisdiction, be ineffective to the extent of 
such invalidity or unenforceability without rendering invalid or unenforceable 
the remaining terms and provisions of this Agreement or affecting the validity 
or enforceability of any of the terms or provisions of this Agreement in any 
other jurisdiction. If any provision of this Agreement is so broad as to be 
unenforceable, the provision shall be interpreted to be only so broad as is 
enforceable. In all such cases, the parties shall use their reasonable best 
efforts to substitute a valid, legal and enforceable provision which, insofar 
as practicable, implements the original purposes and intents of this Agreement. 
     9.09.    Enforcement of the Agreement.    The parties hereto agree that 
irreparable damage would occur in the event that any of the provisions of this 
Agreement were not performed in accordance with their specific terms or were 
otherwise breached. It is accordingly agreed that the parties shall be entitled 
to an injunction or injunctions to prevent breaches of this Agreement and to 
enforce specifically the terms and provisions hereof in any court of the United 
States or any state having jurisdiction, this being in addition to any other 
remedy to which they are entitled at law or in equity. 
     9.10.    Interpretation.    When a reference is made in this Agreement to 
Sections, Exhibits or Schedules, such reference shall be to a Section of, or 
Exhibit or Schedule to, this Agreement unless otherwise indicated. The headings 
contained in this Agreement are for reference purposes only and are not part of 
this Agreement. Whenever the words "include," "includes" or "including" are 
used in this Agreement, they shall be deemed to be followed by the words 
"without limitation." Whenever the words "as of the date hereof" are used in 
this Agreement, they shall be deemed to mean the day and year first above 
written (August 25 , 2004). 
     9.11.    Assignment.    No party may assign either this Agreement or any 
of its rights, interests or obligations hereunder without the prior written 
approval of the other party. Subject to the preceding sentence, this Agreement 
shall be binding upon and shall inure to the benefit of the parties hereto and 
their respective successors and permitted assigns. 
     9.12.    Alternative Structure.    Notwithstanding any provision of this 
Agreement to the contrary, Parent may at any time modify the structure of the 
acquisition of the Company set forth herein, subject to the prior written 
consent of the Company, which consent shall not be unreasonably withheld or 
delayed, provided that (i) the Merger Consideration to be paid to the holders 
of Company Common Stock is not thereby changed in kind or reduced in amount as 
a result of such modification, (ii) such modification will not adversely affect 
the tax treatment of the Company's shareholders as a result of receiving the 
Merger Consideration and (iii) such modification will not materially delay or 
jeopardize receipt of any required approvals of Governmental Authorities.




Page I - 47
       IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be 
executed in counterparts by their duly authorized officers, all as of the day 
and year first above written. 

      FIRST NATIONAL LINCOLN CORPORATION

      
By:     
 /s/ Daniel R. Daigneault
___________________________________________
 Name:      Daniel R. Daigneault
 Title:     President & CEO

      
FNB BANKSHARES

      
By:     
  /s/ Tony C. McKim
________________________________________
 Name:      Tony C. McKim
 Title:     President & CEO

          
               
               

 































Page I - 48
ANNEX A 

SHAREHOLDER AGREEMENT 

     SHAREHOLDER AGREEMENT (the "Agreement"), dated as of______________, 2004 
by and between _________________, a shareholder ("Shareholder") of FNB 
BANKSHARES,  a Maine corporation (the "Company"), and FIRST NATIONAL LINCOLN 
CORPORATION , a Maine corporation ("Parent"). All terms used herein and not 
defined herein shall have the meanings assigned thereto in the Merger Agreement 
(defined below). 
     WHEREAS, Parent and the Company have entered into an Agreement and Plan of 
Merger, dated as of the date hereof (the "Merger Agreement"), pursuant to which 
the Company will merge with and into Parent on the terms and conditions set 
forth therein (the "Merger") and, in connection therewith, outstanding shares 
of Company Common Stock will be converted into shares of Parent Common Stock 
and/or cash in the manner set forth therein; and 
     WHEREAS, Shareholder holds of record the shares of Company Common Stock 
identified on Annex I hereto (such shares being referred to as the "Shares"); 
and 
     WHEREAS, in order to induce Parent to enter into the Merger Agreement, 
Shareholder, solely in such Shareholder's capacity as a shareholder of the 
Company and not in any other capacity, has agreed to enter into and perform 
this Agreement. 
     NOW, THEREFORE, for good and valuable consideration, the receipt, 
sufficiency and adequacy of which are hereby acknowledged, the parties hereto 
agree as follows: 
     1.    Agreement to Vote Shares.    Shareholder agrees that at any meeting 
of the shareholders of the Company, or in connection with any written consent 
of the shareholders of the Company, Shareholder shall: 
     (i)    appear at each such meeting or otherwise cause the Shares to be 
counted as present thereat for purposes of calculating a quorum; and 
     (ii)  vote (or cause to be voted), in person or by proxy, or deliver a 
written consent (or cause a consent to be delivered) covering, all _______ 
Shares, (x) in favor of adoption and approval of the Merger Agreement and the 
Merger; (y) against any action or agreement that would result in a breach of 
any covenant, representation or warranty or any other obligation or agreement 
of the Company contained in the Merger Agreement or of Shareholder contained in 
this Agreement; and (z) against any Acquisition Proposal or any other action, 
agreement or transaction that is intended, or could reasonably be expected, to 
materially impede, interfere or be inconsistent with, delay, postpone, 
discourage or materially and adversely affect consummation of the Merger or 
this Agreement. 
     2.    No Transfers    Prior to the Company Meeting (as defined in the 
Merger Agreement), Shareholder agrees not to, directly or indirectly, sell 
transfer, pledge, assign or otherwise dispose of, or enter into any contract 
option, commitment or other arrangement or understanding with respect to the 
sale, transfer, pledge, assignment or other disposition of, any of the Shares 
if such sale, transfer, pledge, assignment or disposition could occur prior to 
the Company Meeting. In the case of any transfer by operation of law, this 
Agreement shall be binding upon and inure to the transferee(s). Any transfer or 
other disposition in violation of the terms of this Section 2 shall be null and 
void. 
     3.    Representations and Warranties of Shareholder.    Shareholder 
represents and warrants to and agrees with Parent as follows: 
     A.    Capacity.    Shareholder has all requisite capacity and authority to 
enter into and perform his, her or its obligations under this Agreement. 



Page I - 49
     B.    Binding Agreement.    This Agreement constitutes the valid and 
legally binding obligation of Shareholder, subject to bankruptcy, insolvency, 
fraudulent transfer, reorganization, moratorium and similar laws of general 
applicability relating to or affecting creditors' rights and to general equity 
principles. 
     C.    Non-Contravention.    The execution and delivery of this Agreement 
by Shareholder does not, and the performance by Shareholder of his, her or its 
obligations hereunder and the consummation by Shareholder of the transactions 
contemplated hereby will not, violate or conflict with, or constitute a default 
under, any agreement, instrument, contract or other obligation or any order, 
arbitration award, judgment or decree to which Shareholder is a party or by 
which Shareholder is bound, or any statute, rule or regulation to which 
Shareholder is subject or, in the event that Shareholder is a corporation, 
partnership, trust or other entity, any charter, bylaw or other organizational 
document of Shareholder. 
     D.    Ownership of Shares.    Shareholder has good title to all of the 
Shares as of the date hereof, and, except as set forth on Annex I hereto, the 
Shares are so owned free and clear of any liens, security interests, charges or 
other encumbrances. 
     4.    Specific Performance and Remedies.    Shareholder acknowledges that 
it will be impossible to measure in money the damage to Parent if Shareholder 
fails to comply with the obligations imposed by this Agreement and that, in the 
event of any such failure, Parent will not have an adequate remedy at law or in 
equity. Accordingly, Shareholder agrees that injunctive relief or other 
equitable remedy, in addition to remedies at law or in damages, is the 
appropriate remedy for any such failure and will not oppose the granting of 
such relief on the basis that Parent has an adequate remedy at law. Shareholder 
agrees that Shareholder will not seek, and agrees to waive any requirement for, 
the securing or posting of a bond in connection with Parent's seeking or 
obtaining such equitable relief. In addition, after discussing the matter with 
Shareholder, Parent shall have the right to inform any third party that Parent 
reasonably believes to be, or to be contemplating, participating with 
Shareholder or receiving from Shareholder assistance in violation of this 
Agreement, of the terms of this Agreement and of the rights of Parent 
hereunder, and that participation by any such persons with Shareholder in 
activities in violation of Shareholder's agreement with Parent set forth in 
this Agreement may give rise to claims by Parent against such third party. 
     5.    Term of Agreement; Termination.    
     A.    The term of this Agreement shall commence on the date hereof. 
     B.    This Agreement shall terminate upon the date, if any, of termination 
of the Merger Agreement in accordance with its terms. Upon such termination, no 
party shall have any further obligations or liabilities hereunder; provided, 
however, such termination shall not relieve any party from liability for any 
willful breach of this Agreement prior to such termination. 
     C.    If the Merger Agreement is not terminated in accordance with its 
terms, this Agreement (except for the provisions of Sections 3 and 8, which 
shall survive the Effective Time) shall terminate upon the Effective Time. Upon 
such termination, no party shall have any further obligations or liabilities 
under this Agreement; provided, however, such termination shall not relieve any 
party from liability for any willful breach of such Section prior to such 
termination. 
     6.    Entire Agreement.    This Agreement supersedes all prior agreements, 
written or oral, among the parties hereto with respect to the subject matter 
hereof and contains the entire agreement among the parties with respect to the 
subject matter hereof. This Agreement may not be amended, supplemented or 
modified, and no provisions hereof may be modified or waived, except by an 



Page I - 50
instrument in writing signed by each party hereto. No waiver of any provisions 
hereof by either party shall be deemed a waiver of any other provisions hereof 
by any such party, nor shall any such waiver be deemed a continuing waiver of 
any provision hereof by such party. 
     7.    Notices.    All notices, requests, claims, demands or other 
communications hereunder shall be in writing and shall be deemed given when 
delivered personally, upon receipt of a transmission confirmation if sent by 
telecopy or like transmission and on the next business day when sent by a 
reputable overnight courier service to the parties at the following addresses 
(or at such other address for a party as shall be specified by like notice): 

If to Parent:

First National Lincoln Corporation
223 Main Street
PO Box 940
Damariscotta, ME 04543-0760

Attention: Daniel R. Daigneault, President and CEO
Fax: (207) 563-5085

With a copy to:
Verrill & Dana, LLP
One Portland Square
PO Box 586
Portland, ME 04112-0586
 
Attention: Keith C. Jones
Fax: (207) 774-7499

If to Shareholder:

________________________________________

________________________________________

________________________________________

     8.    Miscellaneous.    
     A.    Severability.    If any provision of this Agreement or the 
application of such provision to any person or circumstances shall be held 
invalid or unenforceable by a court of competent jurisdiction, such provision 
or application shall be unenforceable only to the extent of such invalidity or 
unenforceability, and the remainder of the provision held invalid or 
unenforceable and the application of such provision to persons or 
circumstances, other than the party as to which it is held invalid, and the 
remainder of this Agreement, shall not be affected. 
     B.    Capacity.    The covenants contained herein shall apply to 
Shareholder solely in his or her capacity as a shareholder of the Company, and 
no covenant contained herein shall apply to Shareholder in his or her capacity 
as a director, officer or employee of the Company or in any other capacity. 
Nothing contained in this Agreement shall be deemed to apply to, or limit in 
any manner, the obligations of the Shareholder to comply with his or her 
fiduciary duties as a director of the Company. 
     C.    Counterparts.    This Agreement may be executed in one or more 
counterparts, each of which shall be deemed to be an original but all of which 
together shall constitute one and the same instrument. 


Page I - 51
     D.    Headings.    All Section headings herein are for convenience of 
reference only and are not part of this Agreement, and no construction or 
reference shall be derived therefrom. 
 
     E.    Choice of Law.    This Agreement shall be deemed a contract made 
under, and for all purposes shall be construed in accordance with, the laws of 
the State of Maine, without reference to its conflicts of law principles. 

     IN WITNESS WHEREOF, the parties hereto have executed and delivered this 
Agreement as of the date first written above. 

FIRST NATIONAL LINCOLN CORP.

      
By:________________________________________
Name:     
Title:     

      
[SHAREHOLDER]

________________________________________(Signature)

 
    
ANNEX I

Shareholder Agreement 

           Shares of Company
Common Stock
 Owned
of Record 
________________________________________           


      
      
      
      
 

 
















Page I - 52
Exhibit 3.08

Rollover Options

-----------------------------------------------------------------------------
                                                                    Number of
                                                                       Shares 
                                                                   Subject to
Name                         Exercise Price    Expiration Date         Option
-----------------------------------------------------------------------------
Steven K. Parady                      $8.93          7/30/2011          3,675

Mark N. Rosborough                    $8.93          7/30/2011          2,250

Tony C. McKim                         $8.93          7/30/2011         14,205

Ronald J. Wrobel                      $8.93          7/30/2011          6,500

Jeffrey C. Dalrymple                  $8.93          7/30/2011          5,000

Daniel M. Lay                         $8.93          7/30/2011          9,000
-----------------------------------------------------------------------------
     TOTAL                                                             40,630
=============================================================================



































Page I - 53
Exhibit 7.02(c)

[Form of Verrill & Dana, LLP Opinion]

______________, 200__

FNB Bankshares
102 Main Street
Bar Harbor, Maine  04609
Attention  Tony C. McKim

Re:     Agreement and Plan of Merger dated as of August __, 2004

Ladies and Gentlemen:

We have represented First National Lincoln Corporation, a Maine corporation 
("FNLC"), in connection with the execution and delivery of an Agreement and 
Plan of Merger by and between FNB Bankshares, a Maine corporation ("FNB"), and 
FNLC dated as of August ___, 2004 with respect to the merger of FNB with and 
into FNLC (the "Agreement").  This opinion is provided to you at the request of 
FNLC pursuant to Section 7.02(c) of the Agreement.

We have reviewed the Agreement and examined originals or copies of such records 
of FNLC, certificates of officers of FNLC and public officials, and other 
documents that we have deemed relevant and necessary as a basis for this 
opinion.  In such examination, we have assumed the genuineness of all 
signatures, the authenticity of all documents submitted to us as originals, the 
conformity to originals of documents submitted to us as copies, and the 
authenticity of the originals of such documents.

As to questions of fact material to this opinion, we have relied without 
independent verification upon representations contained in certificates of 
officers of FNLC and public officials.  For purposes of this opinion, we have 
also assumed the accuracy and completeness of all representations of FNB set 
forth in the Agreement or in certificates or other instruments delivered to 
FNLC at the closing of the transactions contemplated in the Agreement.

Based on the foregoing, and subject to the qualifications set forth below, we 
are of the opinion that:

1.     FNLC is a corporation duly incorporated, validly existing and in good 
standing under the laws of the State of Maine.  

2.     The authorized capital stock of FNLC consists of 18,000,000 shares of 
Common Stock, $0.01 par value per share.  We are advised by FNLC's transfer 
agent that _____ shares of the Common Stock of FNLC were issued and outstanding 
at the close of business on ___________, 200__.

3.     The Agreement has been duly authorized, executed, and delivered on 
behalf of FNLC.

4.     The Agreement constitutes the legal, valid, and binding obligation of 
FNLC, enforceable against FNLC in accordance with its terms, except as may be 
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent 
conveyance, or other laws affecting the rights and remedies of creditors 
generally, and general principles of equity, whether applied by a court of law 
or equity


Page I - 54
6.     The merger of FNB with and into FNLC will become effective, in 
accordance with the terms of the Articles of Merger executed by FNLC and FNB, 
as of ______ p.m. on the date upon which the Articles of Merger are filed with 
the Maine Secretary of State.

7.     Neither the execution and delivery by FNLC of, nor the performance by 
FNLC of its obligations under, the Agreement will constitute a violation by 
FNLC of, or any breach or default by FNLC under, its Articles of Incorporation 
or bylaws, the Articles of Organization and bylaws of FNLC's subsidiary, The 
First National Bank of Damariscotta (the "Bank") or any judgment, writ, order 
or decree, specific to FNLC or the Bank, of any court or other governmental 
authority of which we have knowledge.

We express no opinion herein concerning any matter involving choices or 
conflicts of law; or concerning the enforceability of any waiver of rights; 
exculpatory clause, indemnification against misconduct by an indemnitee or 
related person, or any provision purporting to supersede equitable principles 
of contract construction; or any matters involving tax or securities laws.

We are members of the Bar of the State of Maine and we are not expressing an 
opinion as to any matter relating to the laws of any jurisdiction other than 
the laws of the State of Maine.

As used herein, the term "knowledge" means the actual knowledge of those 
attorneys of this firm who have been principally involved in representing FNLC 
in connection with the transactions contemplated in the Agreement.

This opinion is intended for use by you in connection with the transactions 
contemplated in the Agreement and, except as set forth below, is not to be 
relied upon by any other person or in any other context.  The contents of this 
opinion are not to be quoted or otherwise disclosed to third parties, in whole 
or in part, without our prior written consent.  Subject to such limitations, 
you may furnish a copy of this opinion to your counsel, Pierce Atwood.

Very truly yours,



VERRILL & DANA, LLP




















Page I - 55
Exhibit 7.03(e)

[Form of Pierce Atwood LLP Opinion]

______________, 200__

First National Lincoln Corporation
[Address]

Re:     Agreement and Plan of Merger dated as of August __, 2004

Ladies and Gentlemen:

We have represented FNB Bankshares, a Maine corporation ("FNB"), in connection 
with the execution and delivery of an Agreement and Plan of Merger by and 
between First National Lincoln Corporation, a Maine corporation ("FNLC"), and 
FNB dated as of August ___, 2004with respect to the merger of FNB with and into 
FNLC (the "Agreement").  This opinion is provided to you at the request of FNB 
pursuant to Section 7.03(E) of the Agreement.

We have reviewed the Agreement and examined originals or copies of such records 
of FNB, certificates of officers of FNB and public officials, and other 
documents that we have deemed relevant and necessary as a basis for this 
opinion.  In such examination, we have assumed the genuineness of all 
signatures, the authenticity of all documents submitted to us as originals, the 
conformity to originals of documents submitted to us as copies, and the 
authenticity of the originals of such documents.

As to questions of fact material to this opinion, we have relied without 
independent verification upon representations contained in certificates of 
officers of FNB and public officials.  For purposes of this opinion, we have 
also assumed the accuracy and completeness of all representations of FNB set 
forth in the Agreement or in certificates or other instruments delivered to FNB 
at the closing of the transactions contemplated in the Agreement.

Based on the foregoing, and subject to the qualifications set forth below, we 
are of the opinion that:

1.     FNB is a corporation duly incorporated, validly existing and in good 
standing under the laws of the State of Maine.  

2.     The authorized capital stock of FNB consists of 2,000,000 shares of 
Common Stock.  We are advised by FNB's transfer agent that _____ shares of the 
Common Stock of FNB were issued and outstanding at the close of business on 
___________, 200__.

3.     The Agreement has been duly authorized, executed, and delivered on 
behalf of FNB.

4.     The Agreement constitutes the legal, valid, and binding obligation of 
FNB, enforceable against FNB in accordance with its terms, except as may be 
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent 
conveyance, or other laws affecting the rights and remedies of creditors 
generally, and general principles of equity, whether applied by a court of law 
or equity




Page I - 56
6.     The merger of FNB with and into FNLC will become effective, in 
accordance with the terms of the Articles of Merger executed by FNB and FNLC, 
as of ______ p.m. on the date upon which the Articles of Merger are filed with 
the Maine Secretary of State.

7.     Neither the execution and delivery by FNB of, nor the performance by FNB 
of its obligations under, the Agreement will constitute a violation by FNB of, 
or any breach or default by FNB under, its Articles of Incorporation or bylaws, 
the Articles of Organization and bylaws of FNB's subsidiary, The First National 
Bank of Bar Harbor (the "Bank") or any judgment, writ, order or decree, 
specific to FNB or the Bank, of any court or other governmental authority of 
which we have knowledge.

We express no opinion herein concerning any matter involving choices or 
conflicts of law; or concerning the enforceability of any waiver of rights; 
exculpatory clause, indemnification against misconduct by an indemnitee or 
related person, or any provision purporting to supersede equitable principles 
of contract construction; or any matters involving tax or securities laws.

We are members of the Bar of the State of Maine and we are not expressing an 
opinion as to any matter relating to the laws of any jurisdiction other than 
the laws of the State of Maine.

As used herein, the term "knowledge" means the actual knowledge of those 
attorneys of this firm who have been principally involved in representing FNB 
in connection with the transactions contemplated in the Agreement.

This opinion is intended for use by you in connection with the transactions 
contemplated in the Agreement and, except as set forth below, is not to be 
relied upon by any other person or in any other context.  The contents of this 
opinion are not to be quoted or otherwise disclosed to third parties, in whole 
or in part, without our prior written consent.  Subject to such limitations, 
you may furnish a copy of this opinion to your counsel, Pierce Atwood.

Very truly yours,



PIERCE ATWOOD LLP




















Page I - 57
Annex II

Opinion of RBC Capital Markets Corporation

August 25, 2004

CONFIDENTIAL
The Board of Directors
FNB Bankshares
102 Main Street
Bar Habor, ME  04609

Members of the Board:

     You have requested our opinion as to the fairness, from a financial point 
of view, to the shareholders of FNB Bankshares (the "Company"), of the Per 
Share Merger Consideration (as defined below) to be paid pursuant to the terms 
of the proposed Agreement and Plan of Merger dated as of August 25, 2004 (the 
"Agreement"), by and between the Company and First National Lincoln Corporation 
(the "Buyer"). Capitalized terms used herein shall have the meanings used in 
the Agreement, unless otherwise defined herein.

     Pursuant to the Agreement, the Company will merge (the "Merger") with and 
into the Buyer. The Buyer will pay the Merger Consideration of $42.00 per share 
to the Company's shareholders consisting of 100% Buyer stock, plus up to a 
maximum $3.0 million in cash to retire the Company's options, with any 
remaining options to be converted into options of the Buyer. The Merger 
Consideration shall be paid to the holders of Company common stock, and holders 
of Company common stock options shall be paid pursuant to the terms specified 
in the Agreement. The transaction is intended, and we have assumed it will 
qualify, as a reorganization within the meaning of Section 368(a) of the 
Internal Revenue Code of 1986, as amended. The terms and conditions of the 
Merger are set forth more fully in the Agreement.

     RBC Capital Markets Corporation ("RBC"), a member company of RBC Financial 
Group, as part of its investment banking services, is regularly engaged in the 
valuation of businesses and their securities in connection with mergers and 
acquisitions, corporate restructurings, underwritings, secondary distributions 
of listed and unlisted securities, private placements and valuations for 
corporate and other purposes. We are acting as financial advisor to the Company 
in connection with the Merger, and we will receive a fee for our services. This 
fee (the "Transaction Fee") is contingent upon the consummation of the Merger 
or a similar transaction involving the Company. We will also receive a fee for 
providing this opinion. The opinion fee is not contingent upon the consummation 
of the Merger. In addition, the Company has agreed to indemnify us for certain 
liabilities that may arise out of our engagement. In the ordinary course of 
business, RBC and/or its affiliates act as a market maker and broker in the 
publicly traded securities of the Company and receives customary compensation 
in connection therewith, and also actively trades securities of the Company for 
its own account and for the accounts of its customers and, accordingly, may at 
any time hold a long or short position in such securities. In its capacity as a 
broker of publicly traded securities, RBC and/or its affiliates may, for its 
own account or for the accounts of its customers, hold a long or short position 
in the securities of the Buyer.  

     In connection with our review of the Merger, and in arriving at our 
opinion, we have undertaken such review and inquiries as we deemed necessary or 
appropriate under the circumstances, including the following:  (i) reviewed and 

Page II - 1
analyzed the financial terms in the draft Agreement dated August 25, 2004; (ii) 
reviewed and analyzed certain publicly available financial and other data with 
respect to the Company and the Buyer and certain other historical operating 
data relating to the Company and the Buyer made available to us from published 
sources and from the internal records of the Company and the Buyer; (iii) 
conducted discussions with members of the senior management of the Company with 
respect to the business prospects and financial outlook of the Company 
independently and as combined; (iv) conducted discussions with members of the 
senior management of the Buyer with respect to the business prospects and 
financial outlook of the Buyer independently and as combined; (v) received and 
reviewed financial forecasts prepared by the Company's management on the 
potential future performance of the Company as a stand-alone entity;  (vi) 
reviewed publicly available materials and reports with respect to the business 
and financial outlook of the Buyer; (vii) reviewed the publicly reported prices 
and trading activity for the Buyer common stock and the Company common stock; 
(viii) compared the financial performance of the Buyer and the Company and the 
prices of the Buyer common stock and the Company common stock with that of 
certain other publicly traded companies and their securities that we have 
deemed comparable; (ix) reviewed the financial terms, to the extent publicly 
available, of certain merger transactions that we have deemed comparable; and 
(x) compared the relative contribution to certain balance sheet and income 
statement items of each company with their pro-forma ownership in the combined 
company. In addition, we have conducted such other analyses and examinations 
and considered such other financial, economic and market criteria as we have 
deemed necessary in arriving at our opinion.

     With respect to the data and discussions relating to the business 
prospects and financial outlook of the Buyer and the Company, upon advice of 
the Company, we have assumed that such data have been reasonably prepared on a 
basis reflecting the best currently available estimates and judgments of the 
management of the Buyer and the Company as to the future financial performance 
of the Buyer and the Company, and that the Buyer and the Company will perform 
substantially in accordance with such financial data and estimates. We express 
no opinion as to such financial data and estimates or the assumptions on which 
they were based. 

     In rendering our opinion, we have assumed and relied upon the accuracy and 
completeness of the financial, legal, tax, operating and other information 
provided to us by the Company and the Buyer (including, without limitation, the 
financial statements and related notes thereto of the Company and the Buyer, as 
well as other publicly available information with respect to the Company and 
the Buyer), and have not assumed responsibility for independently verifying and 
have not independently verified such information. We have not assumed any 
responsibility to perform, and have not performed, an independent evaluation or 
appraisal of any of the respective assets or liabilities, contingent or other, 
of the Company or the Buyer, and we have not been furnished with any such 
valuations or appraisals. We express no opinion regarding the liquidation value 
of any entity. In addition, we have (i) not assumed any obligation to conduct, 
and have not conducted, any physical inspection of the property or facilities 
of the Company or the Buyer, (ii) not made an independent evaluation of the 
adequacy of the allowance for loan losses of the Company or the Buyer, and 
(iii) not reviewed the individual credit files relating to the Company or the 
Buyer. We have assumed with your consent, that the respective allowances for 
loan losses will be adequate on a pro forma basis for the combined entity. 
Additionally, we have not been asked to consider and did not consider the 
possible effects of any litigation or other legal claims. With respect to all 
legal matters relating to the Company and the Buyer, we have relied on the 
advice of legal counsel to the Company.

Page II - 2
     We have assumed that the executed Agreement will be in all material 
respects identical to the last draft reviewed by us. We have also assumed the 
Merger will be consummated pursuant to the terms of the Agreement, without 
amendments thereto and without waiver by any party of any conditions or 
obligations thereunder. We have assumed in all respects material to our 
analysis, that the representations and warranties of each party contained in 
the Agreement are true and correct, and that each party will perform all of the 
covenants and agreements required to be performed by it under the Agreement. We 
have also assumed that all governmental, regulatory and other consents and 
approvals contemplated by the Agreement will be obtained and that in the course 
of obtaining any of those consents no restrictions will be imposed or waivers 
made that would have an adverse effect on the contemplated benefits of the 
Merger. 

     Our opinion speaks only as of the date hereof, is based on the conditions 
as they exist and information which we have been supplied as of the date 
hereof, and is without regard to any market, economic, financial, legal or 
other circumstances or event of any kind or nature which may exist or occur 
after such date. It should be understood that although subsequent developments 
may affect our opinion, we do not have any obligation to update, revise or 
reaffirm our opinion and we expressly disclaim any responsibility to do so. We 
are not expressing any opinion herein as to the prices at which the Buyer 
common stock has traded or will trade following the announcement or 
consummation of the Merger. 

     This opinion is provided for the information and assistance of the Board 
of Directors of the Company in connection with its consideration of the Merger. 
This opinion shall not be otherwise relied upon, published or otherwise used, 
nor shall any public references to us be made without our prior written 
approval, except as set forth in our engagement letter with you dated March 23, 
2004. 

     Our opinion addresses solely the fairness of the Merger Consideration to 
be paid in the Merger, from a financial point of view, to the shareholders of 
the Company. We have not reviewed, nor does our opinion in any way address, 
other Merger terms or arrangements, including without limitation the financial 
or other terms of any employment or non-competition agreement with Company 
management or any break-up or termination fee. Further, our opinion does not 
address, nor should it be construed to address, the relative merits of the 
underlying decision by the Board of Directors of the Company to authorize the 
Company to engage in the Merger compared to any alternative business strategies 
or transaction in which the Company might engage. Our opinion does not 
constitute a recommendation to any stockholder of the Company to take any 
action in connection with the Merger or otherwise.

     Based on our experience as investment bankers and subject to the 
foregoing, including the various assumptions and limitations set forth herein, 
it is our opinion that, as of the date hereof, the Merger Consideration to be 
paid in the Merger is fair, from a financial point of view, to the shareholders 
of the Company.


Very truly yours,


/s/ RBC Capital Markets Corporation

RBC CAPITAL MARKETS CORPORATION

Page II - 3
Annex III

APPRAISAL RIGHTS 
SUBCHAPTER I 
APPRAISAL RIGHTS AND PAYMENT FOR SHARES

s.1301. Definitions

     As used in this chapter, unless the context otherwise indicates, the 
following terms have the following meanings.

     1. Affiliate. "Affiliate" means:

A. A person that directly, or indirectly through one or more intermediaries, 
controls, is controlled by, or is under common control with another person; or 
B. A senior executive of a person described in paragraph A.

For purposes of section 1303, subsection 3, paragraphs B and C, a person is 
deemed to be an affiliate of its senior executives.

     2. Beneficial shareholder. "Beneficial shareholder" means a person who is 
the beneficial owner of shares held in a voting trust or by a nominee on the 
beneficial owner's behalf.

     3. Corporation. "Corporation" means the issuer of the shares held by a 
shareholder demanding appraisal and, for matters covered in sections 1323 to 
1332, includes the surviving entity in a merger.

     4. Fair value. "Fair value" means the value of a corporation's shares 
determined:

A. Immediately before the effectuation of the corporate action to which a 
shareholder objects; 
B. Using customary and current valuation concepts and techniques generally 
employed for similar businesses in the context of the transaction requiring 
appraisal; and 
C. Without discounting for lack of marketability or minority status except, if 
appropriate, for amendments to the corporation's articles of incorporation 
pursuant to section 1302, subsection 5.

     5. Interest. "Interest" means interest from the effective date of a 
corporate action until the date of payment, at the rate of interest on 
judgments in this State on the effective date of the corporate action.

     6. Preferred shares. "Preferred shares" means a class or series of shares 
whose holders have preference over any other class or series of shares with 
respect to distributions.

     7. Record shareholder. "Record shareholder" means a person in whose name 
shares are registered in the records of a corporation or the beneficial owner 
of shares to the extent of the rights granted by a nominee certificate on file 
with the corporation.

     8. Senior executive. "Senior executive" means a chief executive officer, 
chief operating officer, chief financial officer and anyone in charge of a 
principal business unit or function.

     9. Shareholder. "Shareholder" means both a record shareholder and a 
beneficial shareholder.
Page III - 1
s.1302. Appraisal rights

     A shareholder is entitled to appraisal rights and to obtain payment of the 
fair value of that shareholder's shares in the event of any of the following 
corporate actions:

     1. Merger to which corporation is party. Consummation of a merger to which 
a corporation is a party if:

A. Shareholder approval is required for the merger by section 1104 and the 
shareholder is entitled to vote on the merger, except that appraisal rights are 
not available to any shareholder of the corporation with respect to shares of 
any class or series that remain outstanding after consummation of the merger; 
or 
B. The corporation is a subsidiary and the merger is governed by section 1105;

     2. Share exchange to which corporation is party. Consummation of a share 
exchange to which the corporation is a party as the corporation whose shares 
will be acquired if the shareholder is entitled to vote on the exchange, except 
that appraisal rights are not available to any shareholder of the corporation 
with respect to any class or series of shares of the corporation that are not 
exchanged;

     3. Disposition of assets. Consummation of a disposition of assets pursuant 
to section 1202 if a shareholder is entitled to vote on the disposition;

     4. Fractional shares. An amendment of the corporation's articles of 
incorporation with respect to a class or series of shares that reduces the 
number of shares of a class or series owned by the shareholder to a fraction of 
a share if the corporation has the obligation or right to repurchase the 
fractional share so created;

     5. Other amendment. Any other amendment to the corporation's articles of 
incorporation, merger, share exchange or disposition of assets to the extent 
provided by the articles of incorporation, bylaws or a resolution of the 
corporation's board of directors;

     6. Domestication. Consummation of a domestication if the shareholder does 
not receive shares in the foreign corporation resulting from the domestication 
that have terms as favorable to the shareholder in all material respects and 
represent at least the same percentage interest of the total voting rights of 
the outstanding shares of the corporation as the shares held by the shareholder 
before the domestication;

     7. Conversion to nonprofit status. Consummation of a conversion of the 
corporation to nonprofit status pursuant to chapter 9, subchapter 2; or

     8. Conversion to unincorporated entity. Consummation of a conversion of 
the corporation to an unincorporated entity pursuant to chapter 9, subchapter 
4.

s.1303. Limitations on appraisal rights

     Notwithstanding section 1302, the availability of appraisal rights under 
section 1302, subsections 1 to 4, 6 and 8 is limited in accordance with this 
section.

     1. National listing; specific market value. Appraisal rights are not 
available for the holders of shares of any class or series of shares that:
Page III - 2
A. Is listed on the New York Stock Exchange or the American Stock Exchange or 
designated as a national market system security on an interdealer quotation 
system by the National Association of Securities Dealers; or 
B. Has at least 2,000 shareholders and the outstanding shares of such class or 
series have a market value of at least $20,000,000 exclusive of the value of 
such shares held by a corporation's subsidiaries, senior executives, directors 
and beneficial shareholders owning more than 10% of such shares.

     2. Date of determination. The applicability of subsection 1 is determined 
as of:

A. The record date fixed to determine the shareholders entitled to receive 
notice of and to vote at the meeting of shareholders to act upon a corporate 
action requiring appraisal rights pursuant to section 1302 to 1305; or 
B. The day before the effective date of a corporate action that requires 
appraisal rights if there is no meeting of shareholders.

     3. Exception. Notwithstanding subsection 1, appraisal rights are available 
pursuant to section 1302 to 1305 for the holders of any class or series of 
shares:

A. Who are required by the terms of a corporate action requiring appraisal 
rights pursuant to sections 1302 to 1305 to accept for such shares anything 
other than cash or shares of any class or any series of shares of any 
corporation, or any other proprietary interest of any other entity, that 
satisfies the standards set forth in subsection 1 at the time the corporate 
action becomes effective; 
B. When any of the shares or assets of a corporation are being acquired or 
converted, whether by merger, share exchange or otherwise, pursuant to a 
corporate action pursuant to sections 1302 to 1305 by a person, or by an 
affiliate of a person, who:

(1) Is, or at any time in the one-year period immediately preceding approval by 
the corporation's board of directors of the corporate action requiring 
appraisal rights was, the beneficial owner of 20% or more of the voting power 
of the corporation, excluding any shares acquired pursuant to an offer for all 
shares having voting power if such offer was made within one year prior to the 
corporate action requiring appraisal rights for consideration of the same kind 
and of a value equal to or less than that paid in connection with the corporate 
action; or 
(2) Directly or indirectly has, or at any time in the one-year period 
immediately preceding approval by the corporation's board of directors of the 
corporate action requiring appraisal rights had, the power, contractually or 
otherwise, to cause the appointment or election of 25% or more of the directors 
to the corporation's board of directors; or

C. When any of the shares or assets of a corporation are being acquired or 
converted, whether by merger, share exchange or otherwise, pursuant to a 
corporate action by a person, or by an affiliate of a person, who is, or at any 
time in the one-year period immediately preceding approval by the corporation's 
board of directors of the corporate action requiring appraisal rights pursuant 
to section 1302 was, a senior executive or director of the corporation or a 
senior executive of any affiliate of the corporation, and that senior executive 
or director, as a result of the corporate action, receives a financial benefit 
not generally available to other shareholders as such, other than:




Page III - 3
(1) Employment, consulting, retirement or similar benefits established 
separately and not as part of or in contemplation of the corporate action; 
(2) Employment, consulting, retirement or similar benefits established in 
contemplation of, or as part of, the corporate action that are not more 
favorable than those existing before the corporate action or, if more 
favorable, that have been approved on behalf of the corporation in the same 
manner as is provided in section 873; or 
(3) In the case of a director of the corporation who will, in the corporate 
action, become a director of the acquiring entity in the corporate action or 
one of its affiliates, rights and benefits as a director that are provided on 
the same basis as those afforded by the acquiring entity generally to other 
directors of such entity or such affiliate.

For the purposes of this subsection, the term "beneficial owner" means any 
person who, directly or indirectly, through any contract, arrangement or 
understanding, other than a revocable proxy, has or shares the power to vote or 
to direct the voting of shares, except that a member of a national securities 
exchange may not be considered to be a beneficial owner of securities held 
directly or indirectly by the member on behalf of another person solely because 
that member is the record holder of such securities if the member is precluded 
by the rules of such exchange from voting without instruction on contested 
matters or matters that may affect substantially the rights or privileges of 
the holders of the securities to be voted. When 2 or more persons agree to act 
together for the purpose of voting their shares of the corporation, each member 
of the group formed by that agreement is considered to have acquired beneficial 
ownership, as of the date of such agreement, of all voting shares of the 
corporation beneficially owned by any member of the group.

s.1304. Limitation or elimination of appraisal rights in articles of 
incorporation

     Notwithstanding section 1302 or 1303, the articles of incorporation of a 
corporation as originally filed or any amendment thereto may limit or eliminate 
appraisal rights for any class or series of preferred shares, but any 
limitation or elimination contained in an amendment to the articles of 
incorporation that limits or eliminates appraisal rights for any of those 
shares that are outstanding immediately prior to the effective date of that 
amendment or that the corporation is or may be required to issue or sell after 
the effective date of the amendment pursuant to any conversion, exchange or 
other right existing immediately before the effective date of that amendment 
does not apply to any corporate action that becomes effective within one year 
of that date if that action would otherwise afford appraisal rights.

s.1305. Challenge by shareholder

     A shareholder entitled to appraisal rights under this subchapter may not 
challenge a completed corporate action described in section 1302, other than 
those described in section 1303, subsection 3, unless the corporate action:

     1. Not authorized. Was not effectuated in accordance with the applicable 
provisions of chapter 9, 10, 11 or 12 or the corporation's articles of 
incorporation, bylaws or board of directors' resolution authorizing the 
corporate action; or

     2. Fraud; misrepresentation. Was procured as a result of fraud or material 
misrepresentation.



Page III - 4
s.1306. Assertion of appraisal rights

     1. Record shareholder assert appraisal rights. A record shareholder may 
assert appraisal rights as to fewer than all the shares registered in the 
record shareholder's name but owned by a beneficial shareholder only if the 
record shareholder objects with respect to all shares of the class or series 
owned by the beneficial shareholder and notifies the corporation in writing of 
the name and address of each beneficial shareholder on whose behalf appraisal 
rights are being asserted. The rights of a record shareholder who asserts 
appraisal rights for only part of the shares held of record in the record 
shareholder's name under this subsection must be determined as if the shares as 
to which the record shareholder objects and the record shareholder's other 
shares were registered in the names of different record shareholders.

     2. Beneficial shareholder; appraisal rights. A beneficial shareholder may 
assert appraisal rights as to shares of any class or series held on behalf of 
the shareholder only if the shareholder:

A. Submits to the corporation the record shareholder's written consent to the 
assertion of the rights no later than the date referred to in section 1322, 
subsection 2, paragraph B, subparagraph (2); and 
B. Does so with respect to all shares of the class or series that are 
beneficially owned by the beneficial shareholder.

SUBCHAPTER II 
PROCEDURE FOR EXERCISE OF APPRAISAL RIGHTS

s.1321. Notice of appraisal rights

     1. Meeting notice. If a proposed corporate action described in section 
1302 is to be submitted to a vote at a shareholders' meeting, the meeting 
notice must state that the corporation has concluded that shareholders are, are 
not or may be entitled to assert appraisal rights under this chapter. If the 
corporation concludes that appraisal rights are or may be available, a copy of 
this chapter must accompany the meeting notice sent to those record 
shareholders entitled to exercise appraisal rights.

     2. Notice of corporate action. In a merger pursuant to section 1105, the 
parent corporation shall notify in writing all record shareholders of the 
subsidiary who are entitled to assert appraisal rights that a corporate action 
became effective. The notice must be sent within 10 days after the corporate 
action became effective and include the materials described in section 1323.

s.1322. Notice of intent to demand payment

     If a proposed corporate action requiring appraisal rights under sections 
1302 to 1305 is submitted to a vote at a shareholders' meeting, a shareholder 
who wishes to assert appraisal rights with respect to any class or series of 
shares:

     1. Written notice. Shall deliver to the corporation before the vote is 
taken written notice of the shareholder's intent to demand payment if the 
proposed action is effectuated; and

     2. Not vote shares. May not vote, or cause or permit to be voted, any 
shares of the class or series in favor of the proposed action.

     A shareholder who does not satisfy the requirements of subsection 1 is not 
entitled to payment under this chapter.
Page III - 5
s.1323. Appraisal notice and form

     1. Written appraisal notice; form. If a proposed corporate action 
requiring appraisal rights under section 1302 becomes effective, a corporation 
must deliver a written appraisal notice and form required by subsection 2, 
paragraph A to all shareholders who satisfied the requirements of section 1322. 
In the case of a merger under section 1105, the parent shall deliver a written 
appraisal notice and form to all record shareholders who may be entitled to 
assert appraisal rights.

     2. Appraisal notice. The appraisal notice required by subsection 1 must be 
sent no earlier than the date a corporate action became effective and no later 
than 10 days after that date and must:

A. Supply a form that specifies the date of the first announcement to 
shareholders of the principal terms of the proposed corporate action and 
requires the shareholder asserting appraisal rights to certify:

(1) Whether or not beneficial ownership of those shares for which appraisal 
rights are asserted was acquired before that date; and 
(2) That the shareholder did not vote for the transaction;

B. Include the following information:

(1) Where the form must be sent and where certificates for certificated shares 
must be deposited and the date by which those certificates must be deposited, 
which date may not be earlier than the date for receiving the required form 
under subparagraph (2); 
(2) A date by which the corporation must receive the form, which date may not 
be fewer than 40 nor more than 60 days after the date the appraisal notice and 
form are sent, and a statement that the shareholder has waived the right to 
demand appraisal with respect to the shares unless the form is received by the 
corporation by the specified date; 
(3) A corporation's estimate of the fair value of the shares; 
(4) That, if requested in writing, a corporation will provide, to the 
shareholder so requesting, within 10 days after the date specified in 
subparagraph (2) the number of shareholders who return the forms by the 
specified date and the total number of shares owned by those shareholders; and 
(5) The date by which the notice to withdraw under section 1324 must be 
received, which date must be within 20 days after the date specified in 
subparagraph (2); and

C. Be accompanied by a copy of this chapter.

s.1324. Perfection of rights; right to withdraw

     1. Perfection of rights. A shareholder who receives notice pursuant to 
section 1323 and who wishes to exercise appraisal rights shall certify on the 
form sent by the corporation whether the beneficial owner of the shares 
acquired beneficial ownership of the shares before the date required to be set 
forth in the notice pursuant to section 1323, subsection 2, paragraph A. If a 
shareholder fails to make this certification, the corporation may elect to 
treat the shareholder's shares as after-acquired shares under section 1326. A 
shareholder who wishes to exercise appraisal rights shall execute and return 
the form and, in the case of certificated shares, deposit the shareholder's 
certificates in accordance with the terms of the notice by the date referred to 
in the notice pursuant to section 1323, subsection 2, paragraph B, subparagraph 
(2). Once a shareholder deposits that shareholder's certificates or, in the 

Page III - 6
case of uncertificated shares, returns the executed forms, that shareholder 
loses all rights as a shareholder, unless the shareholder withdraws pursuant to 
subsection 2.

     2. Withdraw from appraisal process. A shareholder who has complied with 
subsection 1 may nevertheless decline to exercise appraisal rights and withdraw 
from the appraisal process by notifying the corporation in writing by the date 
set forth in the appraisal notice pursuant to section 1323, subsection 2, 
paragraph B, subparagraph (5). A shareholder who fails to withdraw from the 
appraisal process may not thereafter withdraw without the corporation's written 
consent.

     3. Failure to execute and return form; nonpayment. A shareholder who does 
not execute and return the form and, in the case of certificated shares, 
deposit that shareholder's share certificates where required, each by the date 
set forth in the notice described in section 1323, subsection 2, is not 
entitled to payment under this chapter.

s.1325. Payment

     1. Fair value. Except as provided in section 1326, within 30 days after 
the form required by section 1323, subsection 2, paragraph B, subparagraph (2) 
is due, a corporation shall pay in cash to those shareholders who complied with 
section 1324, subsection 1 the amount the corporation estimates to be the fair 
value of their shares, plus interest.

     2. Additional information. The payment to each shareholder pursuant to 
subsection 1 must be accompanied by:

A. Financial statements of the corporation that issued the shares to be 
appraised, consisting of a balance sheet as of the end of a fiscal year ending 
not more than 16 months before the date of payment, an income statement for 
that year, a statement of changes in shareholders' equity for that year, and 
the latest available interim financial statements, if any; 
B. A statement of the corporation's estimate of the fair value of the shares, 
which estimate must equal or exceed the corporation's estimate given pursuant 
to section 1323, subsection 2, paragraph B, subparagraph (3); and 
C. A statement that shareholders described in subsection 1 have the right to 
demand further payment under section 1327 and that if any such shareholder does 
not do so within the time period specified in section 1327, that shareholder is 
deemed to have accepted the payment in full satisfaction of the corporation's 
obligations under this chapter.

s.1326. After-acquired shares

     1. Withhold payment. A corporation may elect to withhold payment required 
by section 1325 from any shareholder who did not certify that beneficial 
ownership of all of the shareholder's shares for which appraisal rights are 
asserted was acquired before the date set forth in the appraisal notice sent 
pursuant to section 1323, subsection 2, paragraph A.

     2. Notify shareholders. If a corporation elected to withhold payment under 
subsection 1, the corporation shall, within 30 days after the date by which the 
corporation must receive the form is given as required by section 1323, 
subsection 2, paragraph B, subparagraph (2) is due, notify all shareholders who 
are described in subsection 1:



Page III - 7
A. Of the information required by section 1325, subsection 2, paragraph A; 
B. Of the corporation's estimate of fair value pursuant to section 1325, 
subsection 2, paragraph B; 
C. That the shareholders may accept the corporation's estimate of fair value, 
plus interest, in full satisfaction of their demands or demand appraisal under 
section 1327; 
D. That those shareholders who wish to accept the offer pursuant to paragraph B 
must notify the corporation of their acceptance of the corporation's offer 
within 30 days after receiving the offer pursuant to paragraph B; and 
E. That those shareholders who do not satisfy the requirements for demanding 
appraisal under section 1327 are deemed to have accepted the corporation's 
offer pursuant to paragraph B.

     3. Shareholders who accept offer. Within 10 days after receiving the 
shareholder's acceptance pursuant to subsection 2, a corporation must pay in 
cash the amount it offered under subsection 2, paragraph B to each shareholder 
who agreed to accept the corporation's offer in full satisfaction of the 
shareholder's demand.

     4. Shareholders deemed to accept offer; payment. Within 40 days after 
sending the notice described in subsection 2, a corporation shall pay in cash 
the amount the corporation offered to pay under subsection 2, paragraph B to 
each shareholder described in subsection 2, paragraph E.


s.1327. Procedure if shareholder dissatisfied with payment or offer

     1. Notification; demand. A shareholder paid pursuant to section 1325 who 
is dissatisfied with the amount of the payment shall notify the corporation in 
writing of that shareholder's estimate of the fair value of the shares and 
demand payment of that estimate plus interest less any payment under section 
1325. A shareholder offered payment under section 1326 who is dissatisfied with 
that offer must reject the offer and demand payment of the shareholder's stated 
estimate of the fair value of the shares plus interest.

     2. Failure to notify corporation in writing. A shareholder who fails to 
notify a corporation in writing of that shareholder's demand to be paid the 
shareholder's stated estimate of the fair value plus interest under subsection 
1 within 30 days after receiving the corporation's payment or offer of payment 
under section 1325 or 1326 waives the right to demand payment under this 
section and is entitled only to the payment made or offered pursuant to those 
sections.

SUBCHAPTER III 
JUDICIAL APPRAISAL OF SHARES

s.1331. Court action

     1. Commence proceeding. If a shareholder makes demand for payment under 
section 1327 that remains unsettled, a corporation shall commence a proceeding 
within 60 days after receiving the payment demand and petition the court to 
determine the fair value of the shares and accrued interest. If the corporation 
does not commence the proceeding within the 60-day period, the corporation 
shall pay in cash to each shareholder the amount the shareholder demanded 
pursuant to section 1327 plus interest.




Page III - 8
     2. Appropriate court. A corporation shall commence the proceeding under 
subsection 1 in the appropriate court of the county where the corporation's 
principal office or, if there is no principal office, its registered office in 
this State is located. If the corporation is a foreign corporation without a 
registered office in this State, the corporation shall commence the proceeding 
in the county in this State where the principal office or registered office of 
the domestic corporation merged with the foreign corporation was located at the 
time of the transaction.

     3. Shareholders party to proceeding. A corporation shall make all 
shareholders whether or not residents of this State whose demands remain 
unsettled parties to the proceeding as in an action against their shares, and 
all parties must be served with a copy of the petition. Nonresidents may be 
served by registered or certified mail or by publication as provided by law.

     4. Jurisdiction; appraisers. The jurisdiction of the court in which the 
proceeding is commenced under subsection 2 is plenary and exclusive. The court 
may appoint one or more persons as appraisers to receive evidence and recommend 
a decision on the question of fair value. The appraisers have the powers 
described in the order appointing them or in any amendment to the order. The 
shareholders demanding appraisal rights under this chapter are entitled to the 
same discovery rights as parties in other civil proceedings. Shareholders 
demanding appraisal rights under this chapter do not have a right to a jury 
trial.

     5. Shareholder entitled to judgment. Each shareholder made a party to the 
proceeding under subsection 1 is entitled to judgment for the:

A. Amount, if any, by which the court finds the fair value of the shareholder's 
shares, plus interest, exceeds the amount paid by a corporation to the 
shareholder for the shares; or 
B. Fair value, plus interest, of the shareholder's shares for which a 
corporation elected to withhold payment under section 1326.

s.1332. Court costs and counsel fees

     1. Court costs. The court in an appraisal proceeding commenced under 
section 1331 shall determine all costs of the proceeding, including the 
reasonable compensation and expenses of appraisers appointed by the court. The 
court shall assess the costs against a corporation, except that the court may 
assess costs against all or some of the shareholders demanding appraisal, in 
amounts the court finds equitable, to the extent the court finds the 
shareholders acted arbitrarily, vexatiously or not in good faith with respect 
to the rights provided by this chapter.

     2. Counsel; expect fees. The court in an appraisal proceeding under 
section 1331 may also assess the fees and expenses of counsel and experts for 
the respective parties, in amounts the court finds equitable:

A. Against a corporation and in favor of any or all shareholders demanding 
appraisal if the court finds the corporation did not substantially comply with 
the requirements of section 1321, 1323, 1325 or 1326; or 
B. Against either a corporation or a shareholder demanding appraisal, in favor 
of any other party, if the court finds that the party against whom the fees and 
expenses are assessed acted arbitrarily, vexatiously or not in good faith with 
respect to the rights provided by this chapter.



Page III - 9
     3. Fees awarded from settlement. If the court in an appraisal proceeding 
under section 1331 finds that the services of counsel for any shareholder were 
of substantial benefit to other shareholders similarly situated and that the 
fees for those services should not be assessed against a corporation, the court 
may award to the counsel reasonable fees to be paid out of the amounts awarded 
the shareholders who were benefited.

     4. Corporation fails to make payment. To the extent a corporation fails to 
make a required payment pursuant to section 1325, 1326 or 1327, a shareholder 
may sue directly for the amount owed and, to the extent successful, is entitled 
to recover from the corporation all costs and expenses of the suit, including 
counsel fees.















































Page III - 10
Annex IV

FNB Financial Statements

Report of Management



     The Management of FNB Bankshares is responsible for the preparation, 
content, and integrity of the financial statements and other statistical data 
presented in this report. The financial statements have been prepared in 
conformity with U.S. generally accepted accounting principles and necessarily 
include amounts based on Management's best estimates and judgment. Management 
also prepared the other information in this report and is responsible
for its accuracy and consistency with the financial statements.

     FNB Bankshares maintains internal control systems designed to produce 
reliable financial statements. Management recognizes that although controls 
established for these systems are applied in a prudent manner, errors and 
irregularities may occur. However, Management believes that its internal 
accounting and reporting systems provide reasonable assurance that material 
errors or irregularities are prevented or would be detected and corrected on a 
timely basis.

     The Company's internal auditor continually reviews, evaluates, and 
monitors internal control systems and recommends programs to Management to 
further safeguard assets. The Board of Directors discharges its responsibility 
for financial statements through its Risk Management Committee. The Risk 
Management Committee regularly meets with the independent auditors, the 
internal auditor, and representatives of management to assure that each is 
meeting its responsibility. The Committee also reviews the independent and 
internal auditors' reports and findings as they are submitted throughout the 
year. Both the independent auditors and the internal auditor have direct access 
to the Risk Management Committee to discuss the scope and results of their 
work, the adequacy of internal controls, and the quality of financial 
reporting.



/s/ TONY C. MCKIM                            /s/ RONALD J. WROBEL

Tony C. McKim                                Ronald J. Wrobel
President & Chief Executive Officer          Treasurer & Chief Financial 
Officer















Page IV - 1
Report of Independent Auditors
Berry, Dunn, McNeil & Parker


The Board of Directors
FNB Bankshares and Subsidiary

     We have audited the consolidated balance sheets of FNB Bankshares and 
Subsidiary as of December 31, 2003 and 2002, and the related consolidated 
statements of income, changes in shareholders' equity and cash flows for each 
of the three years in the three-year period ended December 31, 2003. These 
consolidated financial statements are the responsibility of the Company's 
management. Our responsibility is to express an opinion on these consolidated 
financial statements based on our audits.

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

     In our opinion, the financial statements referred to above present fairly, 
in all material respects, the consolidated financial position of FNB Bankshares 
and Subsidiary as of December 31, 2003 and 2002, and the consolidated results 
of their operations and their consolidated cash flows for each of the three 
years in the three-year period ended December 31, 2003, in conformity with 
accounting principles generally accepted in the United States of America.


/s/ BERRY, DUNN, McNEIL & PARKER

Berry, Dunn, McNeil & Parker
Bangor, Maine
February 6, 2004
(except for Note 18, as to which date is August 25, 2004)




















Page IV - 2
Consolidated Balance Sheets
FNB Bankshares and Subsidiary

-------------------------------------------------------------------------------
As of December 31,                                      2003               2002
-------------------------------------------------------------------------------
Assets
Cash and due from banks                         $  9,511,000     $    7,339,000
Federal funds sold                                 5,700,000          2,225,000
-------------------------------------------------------------------------------
Cash and cash equivalents                         15,211,000          9,564,000
Securities available for sale                     32,940,000         30,154,000
Securities to be held to maturity (1)                480,000            545,000
Other investment securities                        1,936,000          1,936,000
Loans held for sale                                1,061,000          1,227,000
Loans receivable,                                161,127,000        149,006,000
Less allowance for loan losses                     1,989,000          1,700,000
-------------------------------------------------------------------------------
Net loans                                        159,138,000        147,306,000
Accrued interest receivable                        1,252,000          1,196,000
Premises and equipment                             3,396,000          2,975,000
Other assets                                       4,220,000            511,000
-------------------------------------------------------------------------------
Total assets                                   $ 219,634,000      $ 195,414,000
===============================================================================
(1) Market value of $483,000 at December 31, 2003 and $548,000 at December 31, 
2002.
































Page IV - 3
Consolidated Balance Sheets, Concluded
FNB Bankshares and Subsidiary

-------------------------------------------------------------------------------
As of December 31,                                       2003              2002
-------------------------------------------------------------------------------
Liabilities
Demand deposits                                 $  30,243,000     $  25,139,000
Savings and NOW deposits                          106,161,000        87,506,000
Other time deposits                                49,308,000        49,443,000
-------------------------------------------------------------------------------
Total deposits                                    185,712,000       162,088,000
Securities sold under agreement to repurchase      14,057,000        12,267,000
Other borrowed funds                                2,550,000         5,355,000
Accrued expenses and other liabilities              1,992,000         1,729,000
-------------------------------------------------------------------------------
Total liabilities                                 204,311,000       181,439,000
Commitments (notes 2, 6, 13, 14 and 16)
-------------------------------------------------------------------------------
Shareholders' equity
Common stock, par value $0.80; authorized
  2,000,000 shares, issued 1,125,000 shares           900,000           900,000
Additional paid-in capital                            357,000            55,000
Surplus                                               456,227           456,227
Retained earnings                                  14,513,773        12,984,773
Accumulated other comprehensive income
   Net unrealized gain on securities
    available for sale, net of deferred income 
taxes of $131,000 in 2003 and $139,000 in 2002        254,000           270,000
                                                   16,481,000        14,666,000
Less cost of treasury stock (79,728 and 69,834
shares in 2003 and 2002, respectively               1,158,000           691,000
-------------------------------------------------------------------------------
Total shareholders' equity                         15,323,000        13,975,000
-------------------------------------------------------------------------------
Total liabilities and shareholders' equity      $ 219,634,000     $ 195,414,000
===============================================================================
Common stock
Number of shares authorized                         2,000,000         2,000,000
Number of shares issued                             1,125,000         1,125,000
Number of shares outstanding                        1,045,272         1,055,166
-------------------------------------------------------------------------------
The accompanying footnotes are an integral part of these 
consolidated financial statements















Page IV - 4
Consolidated Statements of Income
FNB Bankshares and Subsidiary

-------------------------------------------------------------------------------
Years ended December 31,                         2003         2002         2001
-------------------------------------------------------------------------------
Interest and dividend income
Loans receivable                          $ 9,393,000  $ 9,938,000  $10,594,000
Securities available for sale                 999,000    1,401,000    2,144,000
Securities to be held to maturity              18,000       23,000       39,000
Federal funds sold                             53,000       73,000       95,000
Other investment securities                    61,000       66,000      125,000
-------------------------------------------------------------------------------
Total interest and dividend income         10,524,000   11,501,000   12,997,000
-------------------------------------------------------------------------------
Interest expense
Deposits                                    2,380,000    2,935,000    3,993,000
Securities sold under agreements to 
repurchase                                    113,000      226,000      562,000
Other borrowed funds                          200,000      491,000      853,000
-------------------------------------------------------------------------------
Total interest expense                      2,693,000    3,652,000    5,408,000
-------------------------------------------------------------------------------
Net interest income                         7,831,000    7,849,000    7,589,000
Provision for loan losses                     360,000      722,000      600,000
Provision for losses on loan commitments       50,000      100,000           --
-------------------------------------------------------------------------------
Net interest income after provision
   for loan losses                          7,421,000    7,027,000    6,989,000
-------------------------------------------------------------------------------
Noninterest income
Income from fiduciary activities              556,000      484,000      473,000
Service charges on deposit accounts           561,000      539,000      487,000
Other service charges and fees              1,853,000    1,596,000    1,392,000
Realized gains on securities
   available for sale                              --       40,000      307,000
Net gain on sale of bank assets                    --       13,000        4,000
Other                                         677,000      355,000      247,000
-------------------------------------------------------------------------------
Total noninterest income                    3,647,000    3,027,000    2,910,000
-------------------------------------------------------------------------------
Noninterest expenses
Salaries and employee benefits              4,180,000    4,207,000    4,143,000
Occupancy and equipment expense             1,151,000    1,124,000    1,072,000
Deposit insurance premium                      23,000       24,000       61,000
Realized losses on securities available 
for sale                                        1,000       38,000      306,000
Other                                       2,966,000    2,689,000    2,511,000
-------------------------------------------------------------------------------
Total noninterest expenses                  8,321,000    8,082,000    8,093,000
-------------------------------------------------------------------------------
Income before income taxes                  2,747,000    1,972,000    1,806,000
Income tax expense                            728,000      495,000      516,000
-------------------------------------------------------------------------------
Net income                                $ 2,019,000  $ 1,477,000  $ 1,290,000
===============================================================================



Page IV - 5
Consolidated Statements of Income, Concluded
FNB Bankshares and Subsidiary

-------------------------------------------------------------------------------
Years ended December 31,                         2003         2002         2001
-------------------------------------------------------------------------------
Basic earnings per share                  $      1.92  $      1.40  $      1.21
Diluted earnings per share                $      1.86  $      1.37  $      1.19
Cash dividends declared per share         $      0.47  $      0.37  $      0.30
Weighted average number of shares
   outstanding                              1,050,145    1,052,618    1,067,127
-------------------------------------------------------------------------------
The accompanying footnotes are an integral part of these 
  consolidated financial statements













































Page IV - 6
Consolidated Statements of Changes in Shareholders' Equity
FNB Bankshares and Subsidiary

 
------------------------------------------------------------------------------------------------------
Years ended December 31, 2003, 2002, and 2001           
------------------------------------------------------------------------------------------------------
                                                                      
                                                               Net
                                                               unrealized
                                                               gain (loss)                 Total
                              Additional                       on securities               share-
                 Common       paid-in               Retained   available      Treasury     holders'
                 Stock        capital   Surplus     earnings   for sale       Stock        Equity
------------------------------------------------------------------------------------------------------
Balance at 
   December 31,
   2000            900,000      55,000    456,227    10,921,773      44,000     (323,000)   12,054,000
======================================================================================================

Net income               -           -          -     1,290,000           -             -    1,290,000
Change in net 
  unrealized 
  gain on  
  securities 
  available for 
  sale, net of 
  deferred taxes
  and 
  reclassification
  adjustments            -           -          -             -    (156,000)            -     (156,000)
------------------------------------------------------------------------------------------------------
Total Comprehensive  
  income                 -           -          -     1,290,000    (156,000)            -    1,134,000
Cash dividends 
  declared               -           -          -      (318,000)          -             -     (318,000)
Repurchase of
  37,572 shares
  of treasury
  stock                  -           -          -             -           -      (388,000)    (388,000)
Sale of 353
  shares of 
  treasury stock         -           -          -             -           -         4,000        4,000
------------------------------------------------------------------------------------------------------
Balance at 
  December 31, 
  2001             900,000      55,000    456,227    11,893,773    (112,000)     (707,000)  12,486,000
======================================================================================================











Page IV - 7


------------------------------------------------------------------------------------------------------
                                                               Net
                                                               unrealized
                                                               gain (loss)                 Total
                              Additional                       on securities               share-
                 Common       paid-in               Retained   available      Treasury     holders'
                 Stock        capital   Surplus     earnings   for sale       Stock        Equity
------------------------------------------------------------------------------------------------------
Net income               -           -           -    1,477,000           -             -    1,477,000
Change in net 
  unrealized 
  gain on  
  securities 
  available for 
  sale, net of 
  deferred taxes
  and 
  reclassification
  adjustments            -           -           -            -     382,000             -      382,000
------------------------------------------------------------------------------------------------------
Total Comprehensive  
  income                 -           -           -    1,477,000     382,000             -    1,859,000
Cash dividends 
  declared               -           -           -     (386,000)          -             -     (386,000)
Repurchase of
  999 shares
  of treasury
  stocks                 -           -           -            -           -        (12,000)    (12,000)
Sale of 3,186
  shares of 
  treasury stock         -           -           -            -           -         28,000      28,000
------------------------------------------------------------------------------------------------------
Balance at 
  December 31, 
  2002             900,000      55,000    456,227    12,984,773     270,000    (691,000)    13,975,000
======================================================================================================























Page IV - 8


------------------------------------------------------------------------------------------------------
                                                               Net
                                                               unrealized
                                                               gain (loss)                 Total
                              Additional                       on securities               share-
                 Common       paid-in               Retained   available      Treasury     holders'
                 Stock        capital   Surplus     earnings   for sale       Stock        Equity
------------------------------------------------------------------------------------------------------
Net income               -           -           -    2,019,000           -             -    2,019,000
Change in net 
  unrealized 
  gain on  
  securities 
  available for 
  sale, net of 
  deferred taxes
  and 
  reclassification
  adjustments            -          -            -           -      (16,000)             -     (16,000)
------------------------------------------------------------------------------------------------------
     Total 
     comprehensive  
     income              -          -            -    2,019,000     (16,000)             -   2,003,000
Cash dividends 
  declared               -          -            -     (490,000)          -              -    (490,000)
Repurchase of
  54,000 shares
  of treasury
  stock                  -          -            -            -           -       (881,000)   (881,000)
Sale of 44,106
  shares of 
  treasury stock         -    302,000            -            -           -        414,000     716,000

------------------------------------------------------------------------------------------------------
Balance at 
  December 31, 
  2003             900,000    357,000      456,227   14,513,773     254,000     (1,158,000) 15,323,000
======================================================================================================

The accompanying footnotes are an integral part of these consolidated financial 
statements


















Page IV - 9


Consolidated Statements of Cash Flows
FNB Bankshares and Subsidiary

-------------------------------------------------------------------------------
Years ended December 31,                      2003          2002          2001
-------------------------------------------------------------------------------

Cash flows from operating activities:
  Net income                          $  2,019,000  $  1,477,000  $  1,290,000
Adjustments to reconcile net income
  to net cash provided by operating activities:
  Depreciation                             378,000       428,000       436,000
  Deferred income taxes                         --       104,000      (143,000)
  Provision for loan losses                360,000       722,000       600,000
  Net change in loans held for sale        166,000      (326,000)      835,000
  Net realized (gains) losses
  on securities available for sale           1,000        (2,000)       (1,000)
  Net loss on sale of other real 
  estate owned                                  --         2,000            --
  Net gain on sale of assets                    --       (13,000)       (4,000)
Amortization of premiums and 
  accretion of discounts on investments    201,000       353,000       (11,000)
  Decrease (increase) in accrued
  interest receivable                      (56,000)      230,000        66,000
  Decrease (increase) in other assets     (703,000)      230,000        71,000
  Increase in accrued expenses and 
  other liabilities                        263,000        13,000       236,000
-------------------------------------------------------------------------------
Net cash provided by operating
  activities                             2,629,000     3,218,000     3,375,000
-------------------------------------------------------------------------------
Cash flows from investing activities:
  Purchase of securities available for 
    sale                               (55,162,000) (24,459,000)   (28,085,000)
  Proceeds from sales and maturities
  available for sale                    52,151,000    22,902,000    37,817,000
  Proceeds from maturities of 
  securities to be held to maturity         65,000        60,000        60,000
  Net increase in loans                (12,191,000)   (9,401,000)  (26,331,000)
  Proceeds from sale of other real
  estate owned                                  --       158,000            --
  Purchase of life insurance policies   (3,000,000)           --            --
  Purchase of premises and equipment      (799,000)     (113,000)      (99,000)
-------------------------------------------------------------------------------
Net cash used in investing activities  (18,936,000)  (10,853,000)  (16,638,000)
-------------------------------------------------------------------------------













Page IV - 10
Consolidated Statements of Cash Flows, Concluded
FNB Bankshares and Subsidiary

-------------------------------------------------------------------------------
Years ended December 31,                      2003          2002          2001
-------------------------------------------------------------------------------

Cash flows from financing activities:
  Net increase in demand savings, 
  and NOW deposit accounts              23,759,000     21,469,000    4,464,000
  Net increase (decrease) in
    other time deposits                   (135,000)     2,696,000    8,046,000
  Net decrease in short-term 
  borrowings and securities sold
  under agreement to repurchase           (660,000)    (5,515,000)  (8,974,000)
  Proceeds from long-term borrowings     8,000,000      5,000,000    7,000,000
  Repayment of long-term debt           (8,355,000)   (14,367,000)  (1,846,000)
  Purchase of treasury stock              (881,000)       (12,000)    (388,000)
  Proceeds from sale of treasury stock     716,000         28,000        4,000
  Dividends paid                          (490,000)      (386,000)    (318,000)
-------------------------------------------------------------------------------
Net cash provided by
  financing activities                  21,954,000     8,913,000     7,988,000
-------------------------------------------------------------------------------
Net (decrease) increase in
  cash and cash equivalents              5,647,000     1,278,000    (5,275,000)
Cash and cash equivalents at
  beginning of year                      9,564,000     8,286,000    13,561,000
-------------------------------------------------------------------------------
Cash and cash equivalents at
  end of year                         $ 15,211,000  $  9,564,000  $  8,286,000
===============================================================================
Interest paid                         $  2,734,000  $  3,707,000  $  5,503,000
Income taxes paid                          858,000       463,000       632,000
Loans transferred to
    other real estate owned                     --       160,000            --
-------------------------------------------------------------------------------
The accompanying footnotes are an integral part of these 
  consolidated financial statements




















Page IV - 11
Nature of Business

     The Company provides a full range of banking services to individual and 
business customers in Down East Maine. The Company is subject to the 
regulations of certain federal agencies and undergoes periodic examinations by 
those regulatory authorities. 

NOTE 1.     Summary of Significant Accounting Policies

     The accounting and reporting policies of FNB Bankshares and Subsidiary 
conform to generally accepted accounting principles and to general practice 
within the banking industry. The following is a description of the significant 
policies.

Principles of Consolidation

     The consolidated financial statements include the accounts of FNB 
Bankshares (Company) and its wholly-owned subsidiary, First National Bank of 
Bar Harbor (Bank). All significant intercompany balances have been eliminated 
in consolidation.

     Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures 
about Segments of an Enterprise and Related Information," requires a company to 
disclose certain income statement and balance sheet information by operating 
segment. Since the Company's operations include only its banking and financing 
activities, no additional disclosures are required by the Statement.

Estimates

     The preparation of financial statements in conformity with generally 
accepted accounting principles requires management to make estimates and 
assumptions that affect the reported amounts of assets and liabilities and 
disclosures of contingent assets and liabilities as of the date of the 
financial statements and the reported amounts of revenues and expenses during 
the reporting period. Actual results could differ from those estimates. 

     Material estimates that are particularly susceptible to significant change 
in the near term relate to the determination of the allowance for loan losses 
and the valuation of real estate acquired in connection with foreclosures or in 
satisfaction of loans. In connection with the determination of the allowance 
for loan losses and the carrying value of real estate owned, management obtains 
independent appraisals for significant properties. 

Investment Securities

     The Company's accounting policies for investment securities are as 
follows:

Securities Available for Sale

     Securities available for sale consist of debt securities that the Company 
anticipates could be available for sale in response to changes in market 
interest rates, liquidity needs, changes in funding sources and other similar 
factors. These assets are specifically identified and are carried at fair 
value. Unrealized holding gains and losses for these assets are reported as a 
net amount in a separate component of stockholders' equity, net of deferred 
income taxes. When a decline in fair value is considered other than temporary, 
the loss is recognized in the consolidated statements of operations, resulting 
in the establishment of a new cost basis for the security.
Page IV - 12
     The components of unrealized holding gains and losses and related tax 
effects are as follows:

-------------------------------------------------------------------------------
                                              2003         2002          2001
-------------------------------------------------------------------------------
Unrealized holding gains(losses) on    
available for sale securities            $ (24,000)     580,000      (237,000)
Reclassification adjustment for (gains)
losses realized in income                $   1,000       (2,000)           --
-------------------------------------------------------------------------------
Net unrealized gains (losses)            $ (23,000)     578,000      (237,000)
Tax effect                                   7,000     (196,000)       81,000
-------------------------------------------------------------------------------
Net-of-tax amount                        $ (16,000)     382,000      (156,000)
===============================================================================

     Gains and losses on the sale of securities available for sale are 
determined using the specific identification method.

Securities to be Held to Maturity

     Securities to be held to maturity consist of debt securities that the 
Company has the positive intent and ability to hold until maturity. These 
securities are carried at amortized cost. When a decline in fair value is 
considered other than temporary, the loss is recognized in the consolidated 
statements of income, resulting in the establishment of a new cost basis for 
the security.

Other Investment Securities

     Other investment securities consist of Federal Home Loan Bank (FHLB) stock 
and Federal Reserve Bank stock. These securities are carried at cost.

Premiums and Discounts

     Premiums are amortized and discounts are accreted using methods 
approximating the interest method.

Loans Held for Sale

     Loans originated and intended for sale in the secondary market are carried 
at the lower of cost or estimated fair value in the aggregate. Net unrealized 
losses, if any, are recognized through a valuation allowance by charges to 
income.

Loans Receivable

     Loans receivable that management has the intent and ability to hold for 
the foreseeable future, or until maturity or pay-off, are reported at their 
outstanding principal adjusted for any charge-offs, the allowance for loan 
losses, and any deferred fees or costs on originated loans. 

     Loan origination fees and certain direct origination costs are capitalized 
and recognized as an adjustment of the yield of the related loan.




Page IV - 13
     Interest on loans is accrued and credited to income based on the principal 
amount outstanding. Loans 30 days or more past due are considered delinquent. 
The accrual of interest on loans is discontinued at the time the loan is 90 
days delinquent unless the credit is well-secured and in process of collection. 
Loans are placed on nonaccrual or charged off at an earlier date if collection 
of principal or interest is considered doubtful.

     All interest accrued but not collected for loans that are placed on 
nonaccrual or charged off is reversed against interest income, unless 
management is satisfied the loan is well secured and the accrued interest is 
collectible. The interest on these loans is accounted for on the cash-basis or 
cost-recovery method, until qualifying for return to accrual. Loans are 
returned to accrual status when all the principal and interest amounts 
contractually due are brought current and future payments are reasonably 
assured.

     The allowance for loan losses is increased by charges to income and 
decreased by charge-offs, net of recoveries. Loans deemed uncollectible are 
charged to the allowance. Management's periodic evaluation of the adequacy of 
the allowance is based on the Bank's past loan loss experience, known and 
inherent risks in the portfolio, adverse situations that may affect the 
borrower's ability to repay, the estimated value of any underlying collateral, 
and current economic conditions.

     A loan is considered impaired when, based on current information and 
events, it is probable that the Bank will be unable to collect the scheduled 
payments of principal or interest when due according to the contractual terms 
of the loan agreement. Factors considered by management in determining 
impairment include payment status, collateral value, and the probability of 
collecting scheduled principal and interest payments when due. Loans that 
experience insignificant payment delays and payment shortfalls generally are 
not classified as impaired. Management determines the significance of payment 
delays and payment shortfalls on a case-by-case basis, taking into 
consideration all of the circumstances surrounding the loan and the borrower, 
including the length of the delay, the reasons for the delay, the borrower's 
prior payment record, and the amount of the shortfall in relation to the 
principal and interest owed. Impairment is measured on a loan by loan basis for 
commercial and construction loans by either the present value of expected 
future cash flows discounted at the loan's effective interest rate, the loan's 
obtainable market price, or the fair value of the collateral if the loan is 
collateral dependent. 

Loan Servicing

     The cost of mortgage servicing rights is amortized in proportion to, and 
over the period of, estimated net servicing revenues. Impairment of mortgage 
servicing rights is assessed based on the fair value of those rights. Fair 
values are estimated using discounted cash flows based on a current market 
interest rate. For purposes of measuring impairment, the rights are stratified 
based on loan type, investor type and interest rate. The amount of impairment 
recognized is the amount by which the capitalized mortgage servicing rights for 
a stratum exceed their fair value. Mortgage servicing rights are not material 
to the financial statements.






Page IV - 14
Foreclosed Real Estate

     Real estate properties acquired through, or in lieu of, loan foreclosure 
are to be sold and are initially recorded at fair value at the date of 
foreclosure establishing a new cost basis. After foreclosure, valuations are 
periodically performed by management and the real estate is carried at the 
lower of carrying amount or fair value less cost to sell. Revenue and expenses 
from operations and changes in the valuation allowance are included in loss on 
foreclosed real estate. The historical average holding period for such 
properties is six months.


Income Taxes

     Deferred tax assets and liabilities are reflected at currently enacted 
income tax rates applicable to the period in which the deferred tax assets or 
liabilities are expected to be realized or settled. As changes in tax laws or 
rates are enacted, deferred tax assets and liabilities are adjusted through the 
provision for income taxes.

Premises and Equipment

     Land is carried at cost. Bank premises, furniture and equipment, and 
leasehold improvements are carried at cost, less accumulated depreciation and 
amortization computed principally by the straight-line method over the 
estimated useful lives of the assets. 

Stock Options

     The Company established a stock option plan in 2001. Under the plan, the 
Company may grant options to its employees, directors and others for up to 
162,924 shares of common stock on a post-split basis. Both incentive stock 
options and non-qualified stock options may be granted under the plan. The 
exercise price of each option is determined by the Board of Directors, but 
shall in no instance be less than the fair market value on the date of grant. 
An option's maximum term is ten years.
 
     The Company applies Accounting Principles Board Opinion No. 25 and related 
interpretations in accounting for the stock option plan. Accordingly, no 
compensation cost has been recognized. The following table illustrates the 
effect on net income if the Company had applied the fair value recognition 
provisions of Statement of Financial Accounting Standards No. 123, Accounting 
for Stock-Based Compensation, to stock-based employee compensation.

-------------------------------------------------------------------------------
                                                   Year ended December 31
                                              2003          2002         2001
-------------------------------------------------------------------------------
Net income, as reported                 $2,019,000     1,477,000     1,290,000
Deduct, Total stock-based employee
compensation expense determined
under fair value based method of all
awards, net of related tax effects         (15,000)      (13,000)        
(5,000)
-------------------------------------------------------------------------------
Pro forma net income                    $2,004,000     1,464,000      1,285,000
===============================================================================


Page IV - 15
     The fair value of each option is estimated on the date of grant using the 
Black-Scholes option-pricing model with the following weighted-average 
assumptions: dividend yield of 3%, risk-free interest rates of 5% in 2003 and 
2002 and 6% in 2001, and expected lives of 2.5 years.

Off-Balance-Sheet Financial Instruments

     In the ordinary course of business the Company has entered into off-
balance-sheet financial instruments consisting of commitments to extend credit. 
Such financial instruments are recorded in the consolidated financial 
statements when they are funded.

Earnings per Share.

     Basic earnings per share data are based on the weighted average number of 
common shares outstanding during each year. Diluted earnings per share gives 
effect to the stock options outstanding, determined by the treasury stock 
method. The Company declared a 3-for-1 split of outstanding common stock in 
March 2004, effected in the form of a dividend. Earnings and cash dividends per 
share and information regarding shares outstanding have been retroactively 
restated to reflect the stock split.

Fair Values of Financial Instruments

     The following methods and assumptions were used by the Company in 
estimating fair values of financial instruments as disclosed herein:

Cash and cash equivalents. The carrying amounts of cash and cash equivalents 
approximate their fair value.

Investment securities. Fair values for securities, excluding restricted equity 
securities, are based on quoted market prices. The carrying values of other 
investment securities approximate fair values.

Mortgage loans held for sale. Fair values of mortgage loans held for sale are 
based on commitments on hand from investors or prevailing market prices.

Loans receivable. For variable-rate loans that reprice frequently and have no 
significant change in credit risk, fair values are based on carrying values. 
Fair values for other loans receivable are estimated by discounting future cash 
flows using the current rates at which similar loans would be made to borrowers 
with similar credit ratings.

Accrued interest. The carrying amounts of accrued interest approximate their 
fair values.

Life insurance contracts. The fair value of life insurance contracts is equal 
to their contractual cash surrender values.

Mortgage servicing rights. The fair value of mortgage servicing rights is based 
on market quotes for comparable instruments.








Page IV - 16
Deposit liabilities. The fair values disclosed for demand, savings and NOW 
deposits are, by definition, equal to the amount payable on demand at the 
reporting date (that is, their carrying amounts). The carrying amounts of 
variable-rate, fixed-term money-market accounts and certificates of deposit 
(CDs) approximate their fair values at the reporting date. Fair values for 
fixed-rate CDs are estimated using a discounted cash flow calculation that 
applies interest rates currently being offered on certificates to a schedule of 
aggregated expected monthly maturities on time deposits.

Short-term borrowings. The carrying amounts of borrowings under repurchase 
agreements maturing within 90 days approximate their fair values.

Other borrowed funds. The fair values of other borrowed funds are estimated 
using discounted cash flow analyses based on the Company's current incremental 
borrowing rates for similar types of borrowing arrangements.

Off-balance-sheet instruments. The Company's off-balance-sheet instruments 
consist of loan commitments. Fair values for loan commitments have not been 
presented as the future revenue derived from such financial instruments is not 
significant.

Reclassifications

     Certain prior year amounts have been reclassified to conform to the 
current year's presentation.

NOTE 2.    Cash and Due from Banks 

     The Federal Reserve Board requires the Company to maintain a target 
reserve balance. The amount of this reserve balance as of December 31, 2003 was 
$100,000. The Company maintains its cash in bank deposit accounts which, at 
times, may exceed federally insured limits. The Company has not experienced any 
losses in such accounts. The Company believes it is not exposed to any 
significant risk with respect to these accounts. 

NOTE 3.    Investment in Debt Securities

     Debt securities have been classified in the consolidated statements of 
financial condition according to management's intent. The carrying amounts of 
securities and their approximate fair values at December 31 were as follows:

-------------------------------------------------------------------------------
                                                   Gross      Gross Approximate
                                    Amortized Unrealized Unrealized        Fair
December 31, 2003                        Cost      Gains     Losses       Value
-------------------------------------------------------------------------------
Securities available for sale
U.S. Treasury and government
agency securities                 $12,517,000     15,000    12,000   12,520,000
Collateralized mortgage
obligations and other
mortgage-backed securities         13,080,000    141,000    47,000   13,174,000
Obligations of states and
political subdivisions              6,958,000    305,000    17,000    7,246,000
-------------------------------------------------------------------------------
                                  $32,555,000    461,000    76,000   32,940,000
===============================================================================


Page IV - 17
-------------------------------------------------------------------------------
                                                   Gross      Gross Approximate
                                    Amortized Unrealized Unrealized        Fair
December 31, 2002                        Cost      Gains     Losses       Value
-------------------------------------------------------------------------------
Securities available for sale
U.S. Treasury and government
agency securities                 $ 8,769,000     47,000        --    8,726,000
Collateralized mortgage
obligations and other   
mortgage-backed securities         14,683,000    265,000    47,000   14,901,000
Obligations of states and
political subdivisions              6,383,000    148,000     4,000    6,527,000
-------------------------------------------------------------------------------
                                  $29,745,000    460,000    51,000   30,154,000
===============================================================================

-------------------------------------------------------------------------------
                                                   Gross      Gross Approximate
                                    Amortized Unrealized Unrealized        Fair
                                         Cost      Gains     Losses       Value
-------------------------------------------------------------------------------
Securities to be held to maturity

December 31, 2003
Obligations of states and
political subdivisions               $480,000      3,000        --      483,000
===============================================================================

December 31, 2002
Obligations of states and
political subdivisions                $545,000      3,000        --      
548,000
===============================================================================

     The scheduled maturities of debt securities at December 31, 2003 were as 
follows:

-------------------------------------------------------------------------------
                                   Securities                 Securities
                             available for sale:        to be held to maturity:
                           Amortized          Fair     Amortized           Fair
                                Cost         Value          Cost          Value
-------------------------------------------------------------------------------
Due in 1 to 5 years        $1,501,000     1,501,000        90,000        91,000
Due in 5 to 10 years        9,536,000     9,539,000       390,000       392,000
Due in more than 10 years   8,438,000     8,726,000            --            --
Collateralized mortgage
obligations and other
mortgage-backed
securities                 13,080,000    13,174,000            --            -- 
-------------------------------------------------------------------------------
                          $32,555,000    32,940,000       480,000       483,000
===============================================================================

     Some securities have provisions whereby they may be called prior to their 
scheduled maturity dates.


Page IV - 18
     Unrealized losses relate to available for sale securities and are all 
considered to be temporary. Classification of securities with unrealized losses 
based on the length of time they have been in a continual loss position as of 
December 31, 2003 is as follows:

-------------------------------------------------------------------------------
                  Less Than 12 Months  12 Months or Longer                Total
                  -------------------  -------------------                -----
                      Fair Unrealized      Fair Unrealized      Fair Unrealized
                     Value     Losses     Value     Losses     Value     Losses
-------------------------------------------------------------------------------
U.S. Treasury
and government
agency 
securities      $ 2,031,000   12,000         --       --    2,031,000    12,000
Collateralized
mortgage 
obligations and
other mortgage-
backed 
securities        4,898,000   29,000     882,000   18,000   5,780,000    47,000
Obligations of
states and 
political
subdivisions        573,000   17,000         --       --      573,000    17,000
-------------------------------------------------------------------------------
                $ 7,502,000   58,000     882,000   18,000   8,384,000    76,000
===============================================================================

     Securities carried at approximately $20,255,000 and $22,773,000 at 
December 31, 2003 and 2002, respectively, were pledged to secure public funds, 
trust deposits and securities sold under agreements to repurchase, and for 
other purposes required or permitted by law.

NOTE 4.    Loans Receivable

     The components of loans in the consolidated statements of financial 
condition were as follows:

-------------------------------------------------------------------------------
                                                      2003                2002
-------------------------------------------------------------------------------
Commercial                                    $ 28,819,000          22,715,000
Real estate construction                         9,272,000           5,655,000
Commercial real estate                          75,531,000          66,557,000
Residential real estate                         39,578,000          46,437,000
Consumer loans                                   7,865,000           7,610,000
-------------------------------------------------------------------------------
Subtotal                                       161,065,000         148,974,000
Net deferred loan costs                             62,000              32,000
Allowance for loan losses                       (1,989,000)         (1,700,000)
-------------------------------------------------------------------------------

                                              $159,138,000         147,306,000
===============================================================================




Page IV - 19
     An analysis of the change in the allowance for loan losses follows:

-------------------------------------------------------------------------------
                                        2003             2002             2001
-------------------------------------------------------------------------------
Balance at beginning of year     $ 1,700,000        1,655,000        1,463,000
Loans charged off                   (107,000)        (945,000)        (452,000)
Recoveries on loans                   36,000          268,000           44,000
-------------------------------------------------------------------------------
Net loans charged off                (71,000)        (677,000)        (408,000)
Provision for loan losses            360,000          722,000          600,000
-------------------------------------------------------------------------------
Balance at end of year           $ 1,989,000        1,700,000        1,655,000
===============================================================================

     The following is a summary of information pertaining to impaired loans:

-------------------------------------------------------------------------------
                                       2003              2002              2001
-------------------------------------------------------------------------------
Impaired loans without
a valuation allowance             $ 705,000           704,000         3,054,000
Impaired loans with
a valuation allowance               142,000           431,000         1,675,000
-------------------------------------------------------------------------------
Total impaired loans              $ 847,000         1,135,000         4,729,000
===============================================================================
Valuation allowance related
to impaired loans                 $  29,000            60,000           686,000
===============================================================================
Average investment in
impaired loans                    $ 801,000         2,385,000         3,387,000
===============================================================================
Interest income recognized on 
impaired loans                    $   7,000            31,000            95,000
===============================================================================
Interest income recognized
on a cash basis on impaired
loans                             $   2,000            14,000            61,000
===============================================================================

     No additional funds are committed to be advanced in connection with 
impaired loans. 
















Page IV - 20
     At December 31, loans 90 days or more past due and still accruing, and 
loans on nonaccrual status, were as follows:

-------------------------------------------------------------------------------
                                        2003                      2002
-------------------------------------------------------------------------------
                             Past due 90               Past due 90
                            days or more              days or more
                               and still                 and still
                                accruing   Nonaccrual     accruing   Nonaccrual
-------------------------------------------------------------------------------
Real estate -
All other loans secured
by 1-4 family residential
properties                     $  38,000       215,000     39,000       134,000
Installment                           --            --         --         4,000
Student                          257,000            --    104,000            --
Commercial (time and
demand) and all other
loans                             29,000       490,000    238,000       566,000
-------------------------------------------------------------------------------
                               $ 324,000       705,000    381,000       704,000
===============================================================================

     The Company's lending activities are conducted primarily in northeastern 
coastal Maine. The Company grants single family and multi-family residential 
loans, commercial real estate loans, commercial loans, and a variety of 
consumer loans. In addition, the Company grants loans for the construction of 
residential homes, multi-family properties and commercial real estate 
properties. Most loans granted by the Company are either collateralized by real 
estate or guaranteed by federal and local governmental authorities. The ability 
and willingness of the single family residential and consumer borrowers to 
honor their repayment commitments is generally dependent on the level of 
overall economic activity within the borrowers' geographical areas and real 
estate values. The ability and willingness of commercial real estate, 
commercial and construction loan borrowers to honor their repayment commitments 
is generally dependent on the health of the real estate economic sector of the 
borrowers' geographical areas and general economy.

     A substantial portion of the Company's loan portfolio is comprised of 
loans made to borrowers in tourist-related industries. Thus, the ultimate 
collectibility of these loans could be dependent on the state of the industry. 
Loans outstanding to borrowers in tourist-related industries amounted to 
approximately $24,437,000 and $23,992,000 at December 31, 2003 and 2002, 
respectively.

NOTE 5.    Loan Servicing

     Mortgage loans serviced for others are not included in the accompanying 
consolidated statements of financial condition. The unpaid principal balances 
of mortgage loans serviced for others was $58,200,000, $35,250,000, and 
$24,724,000 at December 31, 2003, 2002 and 2001, respectively.

     Net gains on sales of loans were $413,000 for 2003, $157,000 for 2002, and 
$51,000 for 2001.




Page IV - 21
NOTE 6.    Premises and Equipment

     Components of properties and equipment included in the consolidated 
statements of financial condition at December 31, 2003 and 2002 were as 
follows:

-------------------------------------------------------------------------------
                                                         2003              2002
-------------------------------------------------------------------------------
Cost
Land                                              $   250,000           250,000
Bank premises                                       3,323,000         3,256,000
Construction in progress                              568,000            86,000
Furniture and equipment                             3,864,000         3,645,000
Leasehold improvements                                128,000           127,000
-------------------------------------------------------------------------------
Total cost                                          8,133,000         7,364,000
Less accumulated depreciation                       4,737,000         4,389,000
-------------------------------------------------------------------------------
                                                  $ 3,396,000         2,975,000
===============================================================================

     At December 31, 2003, the Bank had entered into a contract for 
construction of a branch in Blue Hill. Estimated costs to complete the project 
are $1,500,000. Certain Bank facilities and equipment are leased under various 
operating leases. Rental expense was $140,000 in 2003, $138,000 in 2002 and 
$135,000 in 2001.

     Future minimum rental commitments under non-cancelable leases are:

-------------------------------------------------------------------------------
2004                                                                   $133,000
2005                                                                    115,000
2006                                                                    118,000
2007                                                                    120,000
2008                                                                    117,000
Thereafter                                                              178,000
-------------------------------------------------------------------------------
                                                                      $ 781,000
===============================================================================

NOTE 7.    Deposits

     The aggregate amount of certificates of deposit, each with a minimum 
denomination of $100,000, was $13,737,000 and $15,066,000 in 2003 and 2002, 
respectively. At December 31, 2003, the scheduled maturities of certificates of 
deposit (in thousands) are as follows:

-------------------------------------------------------------------------------
2004                                                               $ 31,405,000
2005                                                                  8,122,000
2006                                                                  3,836,000
2007                                                                  4,251,000
2008                                                                  1,694,000
-------------------------------------------------------------------------------
Total                                                              $ 49,308,000
===============================================================================


Page IV - 22
NOTE 8.    Borrowed Funds

     Securities sold under agreements to repurchase generally mature within one 
to four days from the transaction date. All repurchase agreements are fully 
collateralized by government-backed securities. Other borrowed funds consist of 
Federal Home Loan Bank (FHLB) advances and treasury, tax and loan deposits. 
Treasury, tax and loan deposits, which total $50,000 at December 31, 2003 and 
$2,500,000 at December 31, 2002, generally are repaid upon notification by the 
U.S. Treasury.

     Information concerning securities sold under agreements to repurchase is 
summarized as follows.

-------------------------------------------------------------------------------
                                                   2003                    2002
-------------------------------------------------------------------------------
Average balance during the year             $ 9,392,000              12,362,000
Average interest rate during the year             1.20%                   1.76%
Maximum month-end balance during the year    14,057,000              16,304,000
-------------------------------------------------------------------------------

     At December 31, 2003 and 2002, the Bank had credit lines available of 
$5,000,000 and $2,000,000 from FHLB and Key Bank, respectively.

     The Company is required to own stock of the FHLB in order to borrow from 
the FHLB. FHLB advances are collateralized by a pledge of certain mortgage and 
other loans with a carrying value of $38,614,000 at December 31, 2003 and a 
lien on the Company's FHLB stock of $1,896,000 at December 31, 2003, which is 
included in other investment securities in the consolidated statement of 
financial condition.

     A summary of borrowings from the FHLB at December 31, 2003 and 2002 is as 
follows:

-------------------------------------------------------------------------------
                                          Interest Rate                  Amount
-------------------------------------------------------------------------------
December 31, 2003 Fixed advances           4.98% - 6.54%             $2,500,000
===============================================================================

December 31, 2002 Fixed advances           4.98% - 6.54%             $2,855,000
===============================================================================

Maturities are as follows:
-------------------------------------------------------------------------------
2005                                                                 $  500,000
2009                                                                  2,000,000
-------------------------------------------------------------------------------











Page IV - 23
NOTE 9.    Noninterest Expense

     Amounts included in other noninterest expense that individually exceed 1% 
of total interest and noninterest income are as follows:

-------------------------------------------------------------------------------
                                                   2003        2002        2001
-------------------------------------------------------------------------------
Credit card interchange and other expenses   $1,102,000     949,000     825,000
Item processing fees                            266,000     269,000     261,000
Publicity and advertising                       216,000     131,000     129,000
-------------------------------------------------------------------------------


NOTE 10.    Income Taxes

     The provision for income taxes consisted of the following for the years 
ended December 31:

-------------------------------------------------------------------------------
                                                  2003        2002        2001
-------------------------------------------------------------------------------
Current tax provision
Federal                                     $  688,000     360,000     630,000
State                                           40,000      31,000      29,000
-------------------------------------------------------------------------------
                                               728,000     391,000     659,000
Deferred federal                                    --     104,000    (143,000) 
-------------------------------------------------------------------------------
                                            $  728,000     495,000     516,000
===============================================================================

     The actual tax expense differs from the expected tax expense (computed by 
applying the applicable U.S. Federal corporate income tax rate to income before 
income taxes) as follows:

-------------------------------------------------------------------------------
                                       2003              2002             2001
-------------------------------------------------------------------------------
Expected tax expense            $   934,000           671,000          614,000
Non-taxable income                 (231,000)         (223,000)        (136,000)
State income taxes, net              25,000            20,000           18,000
Other                                    --            27,000           20,000
-------------------------------------------------------------------------------
                                $   728,000           495,000          516,000
===============================================================================

     Management expects the Company will realize all deferred income tax 
benefits to offset the income tax liabilities arising from the reversal of 
taxable temporary differences and taxable income generated in future years. 
Accordingly, the Company has not established a valuation allowance for deferred 
income tax benefits.

     Deferred tax assets and liabilities included in other assets at December 
31 consist of the following:




Page IV - 24
     Items that give rise to the deferred income tax assets and liabilities and 
the tax effect of each at December 31, 2003 and 2002 are as follows:

-------------------------------------------------------------------------------
                                                         2003             2002
-------------------------------------------------------------------------------
Allowance for loan losses                         $   571,000          456,000
Deferred loan fees                                    (51,000)         (51,000)
Post-retirement benefits                              387,000          379,000
Accelerated tax depreciation                         (183,000)        (191,000)
Unrealized gain on securities available for sale     (131,000)        (139,000)
Accrued interest on nonperforming loans                15,000           14,000
Other assets                                            4,000           13,000
Other liabilities                                    (203,000)         (79,000)
-------------------------------------------------------------------------------
Net deferred income tax asset                      $  409,000          402,000
===============================================================================

     These amounts are included in other assets on the balance sheets, except 
for the deferred tax liability on unrealized gains on securities available for 
sale which is included in other liabilities. The deferred income tax asset and 
liability at December 31, 2003 and 2002 are as follows:

-------------------------------------------------------------------------------
                                                         2003              2002
-------------------------------------------------------------------------------
Asset                                             $   977,000           862,000
===============================================================================
Liability                                         $   568,000           460,000
===============================================================================
     No valuation allowance is deemed necessary for the deferred tax asset.

NOTE 11.    Pension and Other Postretirement Benefits

     The Company has a defined contribution pension plan for its employees. 
Contributions under the Plan totaled $155,000 and $149,000 for 2003 and 2002, 
respectively. In addition to providing pension benefits, the Company provides 
certain life insurance and health insurance benefits on an unfunded basis for 
retired employees.

    Components of the net periodic benefit cost of this plan were as follows:

-------------------------------------------------------------------------------
                                               2003         2002          2001
-------------------------------------------------------------------------------
Service cost                               $  9,000        8,000        39,000
Interest cost                                90,000       85,000       103,000
Net amortization                             17,000       (6,000)       24,000
Special termination benefit                      --           --       179,000
-------------------------------------------------------------------------------
Net periodic benefit cost                  $116,000       87,000       345,000
===============================================================================
Other information regarding this plan is as follows:
Employer contribution                      $106,000       83,000        78,000
Weighted average assumptions
   as of December 31:
Discount rate                                 6.75%        7.25%         7.25%
-------------------------------------------------------------------------------

Page IV - 25
     The following tables set forth the accumulated post-retirement benefit 
obligation, funded status, and net periodic pension cost:

-------------------------------------------------------------------------------
At December 31,                                          2003             2002
-------------------------------------------------------------------------------
Change in benefit obligation
Benefit obligation at beginning of year:           $1,380,000        1,690,000
   Service cost                                         9,000            8,000
   Interest cost                                       90,000           85,000
   Benefits paid                                     (106,000)         (83,000)
   Actuarial loss                                      13,000          160,000
   Curtailment gain                                        --         (480,000)
-------------------------------------------------------------------------------
Accumulated benefit obligation, end of year        $1,386,000        1,380,000
Unrecognized net loss                               $(249,000)        (265,000)
-------------------------------------------------------------------------------
Accrued postretirement benefit cost                $1,137,000        1,115,000
===============================================================================

     The health care cost trend rate for the 2003 valuation decreased gradually 
from 7.5% for 2004 to 4.5% by the year 2013.

     A one-percentage-point change (increase and decrease) in assumed health 
care cost trend rates would have the following effects:
-------------------------------------------------------------------------------
                                                      Increase       Decrease
-------------------------------------------------------------------------------
Effect on total of service and interest cost 
   components                                         $  7,000      $ (6,000)
Effect on postretirement benefit obligation            101,000       (88,000)
-------------------------------------------------------------------------------

      In 2002, the Plan was substantially curtailed. Eligibility was limited to 
participants who were retired as of July 1, 1996 and active employees age 50 
and over in 1996.

       During 2002, the Company established an employee stock ownership plan 
for the benefit of substantially all employees. Contributions to the plan are 
at the discretion of the Board of Directors. The Company accrued $20,000 of 
expense in 2003 related to the plan. No expense related to the plan was 
recorded in 2002. Expense under the plan is measured based on the quoted market 
prices of shares committed to be contributed to the plan. Under the plan, the 
Company is obligated to repurchase shares allocated to employees at fair value. 
At December 31, 2003, 1,350 shares had been contributed to the Plan, and the 
fair value of the Company's shares was $18.33 per share on a post-split basis. 
No shares had been contributed to the plan at December 31, 2002.

      In December 2003, the President signed the Medicare Prescription Drug, 
Improvement and Modernization Act of 2003 (the Act) into law. The Act includes 
the following two new features to Medicare (Medicare Part D) that could affect 
the measurement of the accumulated postretirement benefit obligation (APBO) and 
net periodic postretirement benefit cost for the Plan:

      A subsidy to plan sponsors that is based on 28% of an individual 
beneficiary's annual prescription drug costs between $250 and $5,000



Page IV - 26
      The opportunity for a retiree to obtain a prescription drug benefit under 
Medicare

      The effects of the Act on the APBO or net periodic postretirement benefit 
cost are not reflected in the financial statements or accompanying notes. 
Pending specific authoritative guidance on the accounting for the federal 
subsidy could require the Company to change previously reported information 
when the guidance is issued.

NOTE 12.    Related Parties

     The Company has granted loans to its officers and directors and related 
borrowers in the normal course of business. Such loans aggregated $5,557,000 
and $4,862,000 at December 31, 2003 and 2002, respectively. Included in the 
2003 total are loans amounting to $3,080,000 to two of the Company's officers, 
directors, and related entities which exceed 5% of total stockholders' equity. 
Included in the 2002 total are loans amounting to $2,059,000 to two of the 
Company's officers, directors and related entities which exceed 5% of total 
stockholders' equity. Deposits from officers and directors and related entities 
were $1,454,000 and $967,000 at December 31, 2003 and 2002, respectively.

     A summary of loans to directors and executive officers, which in the 
aggregate exceed $60,000, is as follows:

-----------------------------------------------------------------------
Balance at January 1, 2003                                  $3,895,000
New loans                                                    2,219,000
Repayments                                                  (1,947,000)
=======================================================================
Balance at December 31, 2003                                 4,167,000
=======================================================================

NOTE 13.    Financial Instruments

     The Bank is a party to financial instruments with off-balance-sheet risk 
in the normal course of business to meet the financing needs of its customers. 
These financial instruments include commitments to extend credit and standby 
letters of credit. Those instruments involve, to varying degrees, elements of 
credit and interest-rate risk in excess of the amount recognized in the 
consolidated statements of financial condition. The contract or notional 
amounts of those instruments reflect the extent of the Bank's involvement in 
particular classes of financial instruments.

      The Bank's exposure to credit loss in the event of nonperformance by the 
other party to the financial institution for commitments to extend credit and 
standby letters of credit is represented by the contractual notional amount of 
those instruments. The Bank uses the same credit policies in making commitments 
and conditional obligations as it does for on-balance-sheet instruments. 

      Unless noted otherwise, the Bank does not require collateral or other 
security to support financial instruments with credit risk.








Page IV - 27
     The estimated fair values of financial instruments were as follows:

-------------------------------------------------------------------------------
                                December 31, 2003             December 31, 2002
                                Carrying    Estimated     Carrying   Estimated
                                  amount   fair value       amount   fair value
-------------------------------------------------------------------------------
Financial assets
Cash and cash equivalents   $ 15,211,000   15,211,000    9,564,000    9,564,000
Securities available
  for sale                    32,940,000   32,940,000   30,154,000   30,154,000
Securities to be
  held to maturity               480,000      483,000      545,000      548,000
Other investment securities    1,936,000    1,936,000    1,936,000    1,936,000
Loans held for sale            1,061,000    1,072,000    1,227,000    1,238,000
Loans receivable, net        159,138,000  158,241,000  147,306,000  146,806,000
Accrued interest receivable    1,252,000    1,252,000    1,196,000    1,196,000
Life insurance contracts       3,014,000    3,014,000           --           --
Mortgage servicing rights        454,000      614,000      238,000      275,000
-------------------------------------------------------------------------------
Financial liabilities
Deposits                  $(185,712,000)(186,566,000)(162,088,000)(162,980,000)
Securities sold under
agreements to repurchase    (14,057,000) (14,057,000) (12,267,000) (12,267,000)
Other borrowed funds         (2,550,000)  (3,027,000)  (5,355,000)  (5,878,000)
Accrued interest payable       (128,000)    (128,000)    (169,000)    (169,000)
-------------------------------------------------------------------------------

     A summary of the notional amounts of the Bank's financial instruments with 
off-balance-sheet risk follows:

-------------------------------------------------------------------------------
                                                         2003             2002
-------------------------------------------------------------------------------
Commitments to extend credit                      $17,486,000       17,558,000
Unadvanced portions of construction loans          10,528,000        4,576,000
Unadvanced commitments on lines of credit           9,764,000       10,933,000
Standby letters of credit                           1,230,000        1,154,000
Overdraft protection accounts                       2,042,000        1,848,000
-------------------------------------------------------------------------------

     Commitments to originate loans are agreements to lend to a customer 
provided there is no violation of any condition established in the contract. 
Commitments generally have fixed expiration dates or other termination clauses 
and may require payment of a fee. Since many of the commitments are expected to 
expire without being drawn upon, the total commitment amounts do not 
necessarily represent future cash requirements.

     The Company evaluates each customer's creditworthiness on a case-by-case 
basis. The amount of collateral obtained, if deemed necessary by the Company 
upon extension of credit, is based on management's credit evaluation of the 
borrower.

     Standby letters of credit are conditional commitments issued by the 
Company to guarantee the performance by a customer to a third party. The credit 
risk involved in issuing letters of credit is essentially the same as that 
involved in extending loan facilities to customers.


Page IV - 28
NOTE 14.    Stock Compensation Plan

     The following table sets forth the status of the plan as of December 31, 
2003, 2002 and 2001, and changes during the years then ended:

-------------------------------------------------------------------------------
                                                               Weighted Average
                                             Number of Shares    Exercise Price
-------------------------------------------------------------------------------
Balance at December 31, 2000                               --            $  --
     Granted during the year                           95,250             8.93
-------------------------------------------------------------------------------
Balance at December 31, 2001                           95,250             8.93
     Granted during the year                            3,750            10.25
     Exercised during the year                         (3,036)            8.93
-------------------------------------------------------------------------------
Balance at December 31, 2002                           95,964             8.98
     Granted during the year                           42,450            15.02
     Exercised during the year                         (5,256)            8.97
     Forfeited during the year                         (4,500)            8.93
-------------------------------------------------------------------------------
Balance at December 31, 2003                          128,658          $ 10.97
===============================================================================

     The number and weighted average exercise price of exercisable options was 
40,272 and $8.95 at December 31, 2003, and 20,778 and $8.93 at December 31, 
2002. There were no exercisable options at December 31, 2001. 

     The following information applies to options outstanding at December 31, 
2003:

-------------------------------------------------------------------------------
                                             Weighted Average            Number
                                     Number         Remaining         of shares
                                Outstanding  Contractual Life       Exercisable
-------------------------------------------------------------------------------
Options outstanding
$8.93                                82,647               7.5           39,522 
$10.25                                3,561               8.8              750 
$15.02                               42,450               9.8               -- 
-------------------------------------------------------------------------------
                                     128,658                            40,272
===============================================================================
















Page IV - 29
NOTE 15. Earnings Per Share

     The following tables provide detail for basic earnings per share and 
diluted earnings per share for the years ended December 31, 2003, 2002 and 
2001:

-------------------------------------------------------------------------------
                                            Income        Shares      Per-Share
For the Year Ended December 31, 2003    (Numerator) (Denominator)        Amount
-------------------------------------------------------------------------------
Net income as reported                 $ 2,019,000
-------------------------------------------------------------------------------
Basic EPS: Income available 
  to common shareholders               $ 2,019,000      1,050,145        $ 1.92
Effect of dilutive securities: 
  incentive stock options                                 35,965
-------------------------------------------------------------------------------
Diluted EPS: Income available 
  to common shareholders
  plus assumed conversions             $ 2,019,000      1,086,110        $ 1.86
===============================================================================

-------------------------------------------------------------------------------
                                            Income        Shares      Per-Share
For the Year Ended December 31, 2002    (Numerator) (Denominator)        Amount
-------------------------------------------------------------------------------
Net income as reported                 $ 1,477,000
-------------------------------------------------------------------------------
Basic EPS: Income available 
  to common shareholders               $ 1,477,000      1,052,618        $ 1.40
Effect of dilutive securities: 
  incentive stock options                                  22,762
-------------------------------------------------------------------------------
Diluted EPS: Income available 
  to common shareholders
  plus assumed conversions             $ 1,477,000      1,075,380        $ 1.37
===============================================================================

-------------------------------------------------------------------------------
                                            Income        Shares      Per-Share
For the Year Ended December 31, 2001    (Numerator) (Denominator)        Amount
-------------------------------------------------------------------------------
Net income as reported                 $ 1,290,000
-------------------------------------------------------------------------------
Basic EPS: Income available 
  to common shareholders               $ 1,290,000      1,067,127        $ 1.21
Effect of dilutive securities: 
  incentive stock options                                 12,940
-------------------------------------------------------------------------------
Diluted EPS: Income available 
  to common shareholders
  plus assumed conversions             $ 1,290,000      1,080,067        $ 1.19
===============================================================================

     All earnings per share calculations have been made using the weighted 
average number of shares outstanding for each year. All dilutive securities are 
incentive stock options granted to certain key members of Management. The 
dilutive number of shares has been calculated using the treasury method, 
assuming that all granted options were exercisable at each year end.
Page IV - 30
NOTE 16.    Regulatory Matters

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

     Quantitative measures established by regulation to ensure capital adequacy 
require the Bank to maintain minimum amounts and ratios (set forth in the table 
below) of total and Tier I capital (as defined in the regulations) to risk-
weighted assets (as defined), and of Tier I capital (as defined) to average 
assets (as defined). Management believes as of December 31, 2003 that the Bank 
meets all capital adequacy requirements to which it is subject.

     As of December 31, 2003, the most recent notification from the Office of 
the Comptroller of the Currency categorized the Bank as well capitalized under 
the regulatory framework for prompt corrective action. To be categorized as 
well capitalized, the Bank must maintain minimum total risk-based, Tier I risk-
based, and Tier I leverage ratios as set forth in the table. There are no 
conditions or events since that notification that management believes have 
changed the institution's category.

     The Bank's actual capital amounts and ratios are also presented in the 
table. No deduction was made from capital for interest-rate risk in 2003 or 
2002. The Company's capital amounts and ratios do not differ materially from 
those of the Bank.

-------------------------------------------------------------------------------
                                                                 Minimum to be
                                                     Minimum  well-capitalized
                                                 for capital      under prompt
                                                    adequacy corrective action
                                    Actual          purposes        provisions
-------------------------------------------------------------------------------
As of December 31, 2003
Tier 2 capital to             $ 16,910,000        12,881,000        16,101,000
   risk-weighted assets               10.5%              8.0%             10.0%
Tier 1 capital to               14,896,000         6,440,000         9,661,000
   risk-weighted assets                9.3%              4.0%              6.0%
Tier 1 capital to               14,896,000         8,760,000        10,950,000
    average assets                     6.8%              4.0%              5.0%
-------------------------------------------------------------------------------
As of December 31, 2002
Tier 2 capital to             $ 15,376,000        11,370,000        14,213,000
   risk-weighted assets               10.8%              8.0%             10.0%
Tier 1 capital to               13,599,000         5,685,000         8,528,000
   risk-weighted assets                9.6%              4.0%              6.0%
Tier 1 capital to               13,599,000         8,032,000        10,040,000
    average assets                     6.8%              4.0%              5.0%
-------------------------------------------------------------------------------

Page IV - 31
NOTE 17.    Parent Company Financial Information

     The following is summarized statement of financial condition information 
for FNB Bankshares as of December 31, 2003 and 2002.

-------------------------------------------------------------------------------
December 31,                                             2003             2002
-------------------------------------------------------------------------------
Assets
Cash and cash equivalents                        $    128,000           81,000
Investment in First National Bank of Bar Harbor    15,195,000       13,894,000
-------------------------------------------------------------------------------
                                                 $ 15,323,000       13,975,000
===============================================================================
Stockholders' equity
Common stock                                     $    900,000          900,000
Additional paid-in capital                            357,000           55,000
Surplus                                               456,227          456,227
Retained earnings                                  14,513,773       12,984,773
Net unrealized gain on securities available
  for sale                                            254,000          270,000
Less treasury stock                                (1,158,000)        (691,000)
-------------------------------------------------------------------------------
                                                 $ 15,323,000       13,975,000
===============================================================================

     FNB Bankshares had no material income or cash flow activity during 2003, 
2002 or 2001 other than the income from investment in First National Bank of 
Bar Harbor and the capital transactions described in the consolidated 
statements of changes in stockholders' equity.

     First National Bank of Bar Harbor paid dividends to FNB Bankshares 
amounting to $489,704 in 2003, $386,439 in 2002, and $318,239 in 2001.


NOTE 18. Subsequent Event

     On August 25, 2004, the Company entered into an agreement to merge into 
First National Lincoln Corporation (FNLC). Each share of the Company is 
expected to be converted into FNLC stock valued at $42.00. The merger is 
expected to be completed during the first quarter of 2005.


















Page IV - 32
INDEPENDENT ACCOUNTANTS' REVIEW REPORT


The Board of Directors and Shareholders
FNB Bankshares


     We have reviewed the accompanying interim consolidated financial 
information of FNB Bankshares and Subsidiary as of June 30, 2004 and 2003, and 
for the three-month and six-month periods then ended. 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

Bangor, Maine
September 17, 2004



























Page IV - 33
FNB BANKSHARES AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Unaudited)


------------------------------------------------------------------------------
(000 OMITTED except per share data          June 30,     June 30, December 31,
and number of shares)                          2004         2003         2003
------------------------------------------------------------------------------
Assets
Cash and due from banks                   $  10,657    $   8,737    $   9,511
Overnight funds sold                              -        7,425        5,700
                                            -------      -------      -------
     Cash and cash equivalents               10,657       16,162       15,211
                                            -------      -------      -------

Investments:
  Available for sale at market value         29,829       24,199       34,876
  Held to maturity at cost
     (market values $480 at 6/30/04,
     $548 at 6/30/03 and
     $483 at 12/31/03)                          480          545          480
Loans held for sale
  (fair value approximates cost)                168          267        1,061 
Loans                                       177,261      155,248      161,127
Less: allowance for loan losses               2,051        1,877        1,989
                                            -------      -------      -------
     Net loans                              175,210      153,371      159,138
                                            -------      -------      -------
Accrued interest receivable                   1,639        1,588        1,252
Premises and equipment at cost,
  net of accumulated depreciation             4,458        3,182        3,396

Other assets                                  5,080          842        4,220
                                            -------      -------      -------
        Total Assets                      $ 227,521    $ 200,156    $ 219,634
                                            =======      =======      =======























Page IV - 34
CONSOLIDATED BALANCE SHEETS, CONTINUED

-------------------------------------------------------------------------------
                                            June 30,     June 30,  December 31,
                                               2004         2003          2003
-------------------------------------------------------------------------------
Liabilities
Demand deposits                           $  30,827      $ 24,520    $  30,243
NOW deposits                                 37,644        36,055       43,608
Money market deposits                        20,101        17,075       18,388
Savings deposits                             46,392        42,026       44,165
Certificates of deposit                      39,858        39,428       39,171
Certificates $100,000 and over               10,971        10,150       10,137
                                            -------       -------      -------
     Total deposits                         185,793       169,254      185,712
                                            -------       -------      -------
Borrowed funds                               24,296        14,305       16,607
Other liabilities                             1,672         1,638        1,992
                                            -------       -------      -------
     Total Liabilities                      211,761       185,197      204,311
                                            -------       -------      -------

Shareholders' Equity
Common stock                                    837           900          900
Additional paid-in capital                        -            55          357
Surplus                                         456           456          456
Retained earnings                            14,583        13,779       14,514
Net unrealized gain (loss) on
  securities available for sale                (116)          455          254
Treasury stock                                    -          (686)      (1,158)
                                            -------       -------      -------
    Total Shareholders' Equity               15,760        14,959       15,323
                                            -------       -------      -------
       Total Liabilities
       & Shareholders' Equity             $ 227,521     $ 200,156    $ 219,634
                                            =======       =======      =======
-------------------------------------------------------------------------------
Number of shares authorized               6,000,000     6,000,000    6,000,000
Number of shares issued                   1,125,000     1,125,000    1,125,000
Number of shares outstanding              1,046,597     1,055,691    1,045,272
Book value per share                         $15.06        $14.17       $14.66
-------------------------------------------------------------------------------
Share and per share data have been adjusted to reflect the three-for-one stock 
split, in the form of a 200% stock dividend, payable April 2, 2004, to 
shareholders of record on March 22, 2004.
-------------------------------------------------------------------------------

See Independent Accountants' Review Report. The accompanying notes are an 
integral part of these consolidated financial statements.










Page IV - 35
FNB BANKSHARES AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

------------------------------------------------------------------------------
(000 OMITTED except per share data           For the six months ended June 30,
and number of shares)                                       2004         2003
------------------------------------------------------------------------------
Interest and dividend income
     Interest and fees on loans                         $  4,679     $  4,776
     Interest on Federal Funds Sold                            2            3
     
     Interest and dividends on investments                   611          541
                                                        --------     --------
     Total interest and dividend income                    5,292        5,320
                                                        --------     --------
Interest expense
     Interest on deposits                                  1,092        1,210
     Interest on borrowed funds                              155          187
                                                        --------     --------
     Total interest expense                                1,247        1,397
                                                        --------     -------- 
Net interest income                                        4,045        3,923
Provision for loan losses                                    120          180
                                                        --------     --------
    Net interest income after provision for loan losses    3,925        3,743
                                                        --------     --------
Non-interest income:
     Fiduciary income                                        323          229
     Service charges on deposit accounts                     501          269
     Mortgage origination and servicing income               134          144
     Other operating income                                  819          791
                                                        --------     --------
     Total other operating income                          1,777        1,433
                                                        --------     --------
Non-interest expense:
     Salaries and employee benefits                        2,059        1,946
     Expenses of premises & fixed assets                     539          540
     Losses on sales of securities available for sale          -            1
     Other                                                 1,615        1,345
                                                        --------     --------
     Total other operating expenses                        4,213        3,832
                                                        --------     --------
Income before income taxes                                 1,489        1,344
Applicable income taxes                                      377          355
                                                        --------     --------
NET INCOME                                              $  1,112     $    989
                                                        ========     ========
-----------------------------------------------------------------------------
Earnings per common share
     Basic earnings per share                              $1.06        $0.94
     Diluted earnings per share                            $1.00        $0.91
Cash dividends declared per share                          $0.30        $0.18
Weighted average number of shares outstanding          1,046,029    1,055,691
Incremental shares                                        63,412       30,230
Share and per share data have been adjusted to reflect the three-for-one stock
split, in the form of a 200% stock dividend, payable April 2, 2004, to 
shareholders of record on March 22, 2004.
-----------------------------------------------------------------------------
See Independent Accountants' Review Report. The accompanying notes are an 
integral part of these consolidated financial statements.
FNB BANKSHARES AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

------------------------------------------------------------------------------
(000 OMITTED except per share data             For the quarters ended June 30,
and number of shares)                                       2004         2003
------------------------------------------------------------------------------
Interest and dividend income
     Interest and fees on loans                         $  2,392     $  2,420
     Interest on Federal Funds Sold                            1            2

     Interest and dividends on investments                   291          263
                                                        --------     --------
     Total interest and dividend income                    2,684        2,685
                                                        --------     -------- 
Interest expense
     Interest on deposits                                    553          588
     Interest on borrowed funds                               89           91
                                                        --------     --------
     Total interest expense                                  642          679
                                                        --------     -------- 
Net interest income                                        2,042        2,006
Provision for loan losses                                     60           90
                                                        --------     --------
    Net interest income after provision for loan losses    1,982        1,916
                                                        --------     --------
Non-interest income:
     Fiduciary income                                        170          126
     Service charges on deposit accounts                     205          138
     Mortgage origination and servicing income                68           70
     Other operating income                                  428          436
                                                        --------     --------
     Total other operating income                            871          770
                                                        --------     --------
Non-interest expense:
     Salaries and employee benefits                        1,016          947
     Expenses of premises & fixed assets                     261          255
     Other                                                   863          793
                                                        --------     --------
     Total other operating expenses                        2,140        1,995
                                                        --------     --------
Income before income taxes                                   713          691
Applicable income taxes                                      181          185
                                                        --------     --------
NET INCOME                                              $    532     $    506
                                                        ========     ========
-----------------------------------------------------------------------------
Earnings per common share
     Basic earnings per share                              $0.51        $0.48
     Diluted earnings per share                            $0.48        $0.47
Cash dividends declared per share                          $0.30        $0.14
Weighted average number of shares outstanding          1,046,355    1,055,691
Incremental shares                                        67,941       31,061
Share and per share data have been adjusted to reflect the three-for-one stock
split, in the form of a 200% stock dividend, payable April 2, 2004, to 
shareholders of record on March 22, 2004.
-----------------------------------------------------------------------------
See Independent Accountants' Review Report. The accompanying notes are an 
integral part of these consolidated financial statements.
Page IV - 37
FNB BANKSHARES AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)

 
----------------------------------------------------------------------------------------------
For the six months ended June 30, 2004
----------------------------------------------------------------------------------------------
                                                                 
(000 omitted except for share data)                        Net
                                                           unrealized
                                                           gain                       Total
                 Number of  Common   Additional            on securities              share-
                 common     stock &  paid-in   Retained    available      Treasury    holders'
                 shares     surplus  capital   earnings    for sale       stock       equity
----------------------------------------------------------------------------------------------
Balance at
 December 31,
 2003            1,045,272  $1,356      $357    $14,514       $254         $(1,158)    $15,323
                 ---------  ------      ----    -------      -----         -------     -------
Net income               -       -         -      1,112          -               -       1,112
Net unrealized
  gain (loss) on
  securities
  available for
  sale                   -       -         -          -       (370)              -        (370)
                 ---------  ------      ----    -------      -----         -------     -------
Comprehensive
  income                 -       -         -      1,112       (370)              -         742
Cash dividends
  declared               -       -         -       (314)         -               -        (314)

Treasury stock
  sales              1,325       -        (1)         -          -              11          10
Retirement of
  treasury
   stock                 -     (63)     (355)    (1,084)         -           1,147           - 
                 ---------  ------      ----    -------      -----         -------     -------
Balance
  at June 30,
  2004           1,046,597  $1,293     $   -    $14,583      $(116)        $     -     $15,760
                 =========  ======      ====    =======      =====         =======     =======
----------------------------------------------------------------------------------------------

















Page IV - 38


CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY, CONTINUED


---------------------------------------------------------------------------------------------
For the six months ended June 30, 2003
----------------------------------------------------------------------------------------------
(000 omitted except for share data)                        Net
                                                           unrealized
                                                           gain                       Total
                 Number of  Common   Additional            on securities              share-
                 common     stock &  paid-in   Retained    available      Treasury    holders'
                 shares     surplus  capital   earnings    for sale       stock       equity
----------------------------------------------------------------------------------------------
Balance at
 December 31,
 2002            1,055,166  $1,356       $55    $12,984       $270           $(691)    $13,975
                 ---------  ------      ----    -------      -----         -------     -------
Net income               -       -         -        989          -               -         989
Net unrealized
  gain on
  securities
  available for
  sale                   -       -         -          -        185               -         185
                 ---------  ------      ----    -------      -----         -------     -------
Comprehensive
  income                 -       -         -        989        185               -       1,174
Cash dividends
  declared               -       -         -       (194)         -               -        (194)

Treasury stock
  sales                525       -         -          -          -               5           5
                 ---------  ------      ----    -------      -----         -------     -------
Balance
  at June 30,
  2003           1,055,691  $1,356       $55    $13,779       $455           $(686)    $14,959
                 =========  ======      ====    =======      =====         =======     =======
----------------------------------------------------------------------------------------------

Share and per share data have been adjusted to reflect the three-for-one stock 
split, in the form of a 200% stock dividend, payable April 2, 2004, to 
shareholders of record on March 22, 2004.

See Independent Accountants' Review Report. The accompanying notes are an 
integral part of these consolidated financial statements.















Page IV - 39


FNB BANKSHARES AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

-------------------------------------------------------------------------------
                                            For the six months ended June 30,
(000 omitted)                                             2004            2003
-------------------------------------------------------------------------------
Cash flows from operating activities
  Net income                                           $ 1,112           $ 989
  Adjustments to reconcile net income to
    net cash provided by operating activities:
      Depreciation                                         191             193
      Provision for loan losses                            120             180
      Net change in loans held for sale                    893             960
      
      Net increase in other assets and accrued interest (1,048)           (818)
      Net increase in other liabilities                   (320)            (91)
      Net amortization of
        premiums on investments                            130              79
                                                        ------          ------
        Net cash provided by operating activities        1,078           1,492
                                                        ------          ------
Cash flows from investing activities
     Proceeds from maturities, payments and calls of
       securities available for sale                     6,328          14,624
     
     
     Purchases of securities available for sale         (1,973)         (6,532)

     Net increase in loans                             (16,192)         (6,245)
     Capital expenditures                               (1,253)           (399)
                                                        ------          ------
          Net cash (used) provided by
             investing activities                      (13,090)          1,448
                                                        ------          ------
Cash flows from financing activities
     Net increase/(decrease) in demand deposits, 
         savings, money market and club accounts        (1,440)          7,031
     Net increase in
         certificates of deposit                         1,521             135

     Repayment on long-term borrowings                       -            (192)
     Net increase (decrease) in short-term borrowings    7,689          (3,125)
     Payment to repurchase common stock                      -              (2)
     Proceeds from sale of treasury stock                    2               5
     Dividends paid                                       (314)           (194)
                                                        ------          ------
          Net cash provided by financing activities      7,458           3,658
                                                        ------          ------










Page IV - 40
CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED

-------------------------------------------------------------------------------
                                            For the six months ended June 30,
                                                          2004          2003
-------------------------------------------------------------------------------

Net increase/(decrease) in cash and cash equivalents    (4,554)          6,598
Cash and cash equivalents at beginning of period        15,211           9,564
                                                        ------          ------
 Cash and cash equivalents at end of period            $10,657         $16,162
                                                        ======          ======
-------------------------------------------------------------------------------
Interest paid                                          $ 1,242         $ 1,431
Income taxes paid                                          320             435

-------------------------------------------------------------------------------
See Independent Accountants' Review Report. The accompanying notes are an 
integral part of these consolidated financial statements.








































Page IV - 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION

     FNB Bankshares (the "Company") is a financial holding company that owns 
all of the common stock of The First National Bank of Bar Harbor (the 
"Bank"). The accompanying unaudited consolidated financial statements have been 
prepared in accordance with U.S. generally accepted accounting principles for 
interim financial information and with the instructions to Form 10-Q and 
Article 10 of Regulation S-X. Accordingly, they do not include all of the 
information and footnotes required by generally accepted accounting principles 
for complete financial statements. In the opinion of Management, all 
adjustments (consisting of normal recurring accruals) considered necessary for 
a fair presentation have been included. All significant intercompany 
transactions and balances are eliminated in consolidation. The income reported 
for the 2004 period is not necessarily indicative of the results that may be 
expected for the year ending December 31, 2004. For further information, refer 
to the consolidated financial statements and footnotes thereto included in the 
Company's annual report for the year ended December 31, 2003.

     Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures 
about Segments of an Enterprise and Related Information," requires a company to 
disclose certain income statement and balance sheet information by operating 
segment. Since the Company's operations include only its banking and financing 
activities, no additional disclosures are required by the Statement.

NOTE 2 - COMMON STOCK

     On March 16, 2004, the Company's Board of Directors declared a three-for-
one split of the Company's common stock payable in the form of a 200% stock 
dividend to shareholders of record on March 22, 2004, with a payment date of 
April 2, 2004. All share and per share data included in the consolidated 
financial statements and elsewhere in this report have been restated to reflect 
the stock split.
     A summary of the status of the Company's Stock Option Plan as of June 30, 
2004, and changes during the six months then ended, is presented below.

-------------------------------------------------------------------------------
                                            Number of          Weighted Average
                                               Shares            Exercise Price
-------------------------------------------------------------------------------
Balance at December 31, 2003                  128,658                    $10.97
     Granted during the period                      0                         0
     Exercised during the period               (1,326)                     8.93
                                              -------                    ------
Balance at June 30, 2004                      127,332                    $10.99
                                              =======                    ======
-------------------------------------------------------------------------------











Page IV - 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

NOTE 3 - EARNINGS PER SHARE

     The following table sets forth the computation of basic and diluted 
earnings per share for the six months ended June 30, 2004 and 2003:

-----------------------------------------------------------------------------
For the six months ended June 30, 2004
-----------------------------------------------------------------------------
                                        Income         Shares       Per-Share
                                    (Numerator)  (Denominator)         Amount
-----------------------------------------------------------------------------
Net income as reported            $ 1,112,000      
                                    ---------
Basic EPS: Income available
 to common shareholders           $ 1,112,000       1,046,029         $ 1.06
Effect of dilutive securities:
 incentive stock options                               63,412
                                    ---------       ---------         ------
Diluted EPS: Income available
 to common shareholders plus
 assumed conversions              $ 1,112,000       1,109,441         $ 1.00
                                    =========       =========         ======
-----------------------------------------------------------------------------

-----------------------------------------------------------------------------
For the six months ended June 30, 2003
-----------------------------------------------------------------------------
                                        Income         Shares       Per-Share
                                    (Numerator)  (Denominator)         Amount
-----------------------------------------------------------------------------
Net income as reported              $ 989,000
                                      -------
Basic EPS: Income available
 to common shareholders             $ 989,000       1,055,691         $ 0.94
Effect of dilutive securities:
 incentive stock options                               30,230
                                      -------       ---------         ------
Diluted EPS: Income available
 to common shareholders plus
 assumed conversions                $ 989,000       1,085,921         $ 0.91
                                      =======       =========         ======
-----------------------------------------------------------------------------

     All earnings per share calculations have been made using the weighted 
average number of shares outstanding during the period. All of the dilutive 
securities are incentive stock options granted to certain key members of 
Management. The dilutive number of shares has been calculated using the 
treasury method, assuming that all granted options were exercisable at the end 
of each period.








Page IV - 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


     The following table sets forth the computation of basic and diluted 
earnings per share for the three months ended June 30, 2004 and 2003:

-----------------------------------------------------------------------------
For the three months ended June 30, 2004
-----------------------------------------------------------------------------
                                        Income         Shares       Per-Share
                                    (Numerator)  (Denominator)         Amount
-----------------------------------------------------------------------------
Net income as reported              $ 532,000      
                                      -------
Basic EPS: Income available
 to common shareholders             $ 532,000       1,046,355         $ 0.51
Effect of dilutive securities:
 incentive stock options                               67,941
                                      -------       ---------         ------
Diluted EPS: Income available
 to common shareholders plus
 assumed conversions                $ 532,000       1,114,296         $ 0.48
                                      =======       =========         ======
-----------------------------------------------------------------------------

-----------------------------------------------------------------------------
For the three months ended June 30, 2003
-----------------------------------------------------------------------------
                                        Income         Shares       Per-Share
                                    (Numerator)  (Denominator)         Amount
-----------------------------------------------------------------------------
Net income as reported              $ 506,000      
                                      -------
Basic EPS: Income available
 to common shareholders             $ 506,000       1,055,691         $ 0.48
Effect of dilutive securities:
 incentive stock options                               31,061
                                      -------       ---------         ------
Diluted EPS: Income available
 to common shareholders plus
 assumed conversions                $ 506,000       1,086,752         $ 0.47
                                      =======       =========         ======
-----------------------------------------------------------------------------

     All earnings per share calculations have been made using the weighted 
average number of shares outstanding during the period. All of the dilutive 
securities are incentive stock options granted to certain key members of 
Management. The dilutive number of shares has been calculated using the 
treasury method, assuming that all granted options were exercisable at the end 
of each period.









Page IV - 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


NOTE 4 - TREASURY STOCK

     A revision to the Maine Business Corporation Act provides that stock 
reacquired by a corporation be classified as "authorized but unissued", which 
eliminates the concept of treasury stock.
     In order to recognize the effect of the revision, the Company retired its 
treasury stock as of June 30, 2004 in accordance with the new statute. The 
78,403 shares so retired are available for reissuance as authorized, but 
unissued, shares.

NOTE 5 - POST RETIREMENT BENEFIT PLANS

     The Company provides certain life insurance and health insurance benefits 
on an unfunded basis for retired employees. In 2002, the Plan was substantially 
curtailed. Eligibility was limited to participants who were retired as of July 
1, 1996 and active employees age 50 and over in 1996.

     In December 2003, the President signed the Medicare Prescription Drug,
Improvement and Modernization Act of 2003 (the Act) into law. The Act includes
the following two new features to Medicare (Medicare Part D) that could affect
the measurement of the accumulated postretirement benefit obligation (APBO) and
net periodic postretirement benefit cost for the Plan: a subsidy to plan
sponsors that is based on 28% of an individual beneficiary's annual 
prescription drug costs between $250 and $5,000 and the opportunity for a 
retiree to obtain a prescription drug benefit under Medicare. The effects of 
the Act on the APBO or net periodic postretirement benefit cost are not 
reflected in the financial statements or accompanying notes. Pending specific 
authoritative guidance on the accounting for the federal subsidy could require 
the Company to change previously reported information when the guidance is 
issued. The following tables set forth the net periodic pension cost:

     Components of the net periodic benefit cost of this plan were as follows:

-------------------------------------------------------------------------------
                                       For the six months  For the three months
                                          ended June 30,       ended June 30,
In thousands of dollars                    2004   2003          2004   2003
-------------------------------------------------------------------------------
Components of net periodic benefit cost
   Service cost                             $ 5    $ 5           $ 2    $ 2
   Interest cost                             42     45            21     23
   Net amortization                           8      8             4      4
                                            ---    ---           ---    ---
Net periodic benefit cost                   $55    $58           $27    $29
                                            ===    ===           ===    ===
-------------------------------------------------------------------------------

     A weighted average discount rate of 6.25% and 6.75% was used in 2004 and 
2003, respectively, in determining both the accumulated benefit obligation and 
the net benefit cost. The measurement date for benefit obligations was as of 
year-end for both years presented. The estimated amount of related benefit 
expense in 2004 is $105,000.




Page IV - 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

     During 2002, the Company established an employee stock ownership plan for 
the benefit of substantially all employees. Contributions to the plan are at 
the discretion of the Board of Directors. The Company accrued $20,000 of 
expense in 2003 related to the plan. No expense related to the plan was 
recorded in 2002. Expense under the plan is measured based on the quoted market 
prices of shares committed to be contributed to the plan. Under the plan, the 
Company is obligated to repurchase shares allocated to employees at fair value. 
At December 31, 2003, 1,350 shares had been contributed to the Plan, and the 
fair value of the Company's shares was $18.33 per share on a post-split basis. 
No shares had been contributed to the plan at December 31, 2002 and no shares 
had been contributed to the plan during the first six months of 2004.


NOTE 6 - RECENT ACCOUNTING DEVELOPMENTS

     In May 2004, the Financial Accounting Standards Board (FASB) issued FASB 
Staff Position (FSP) No. 106-2. The FSP supersedes FSP No. 106-1, which was 
issued to address the accounting impact of the Medicare Prescription Drug, 
Improvement and Modernization Act of 2003 (the Act). The Act includes a 
prescription drug benefit under Medicare Part D and a federal subsidy to 
sponsors of retiree health care benefit plans that provide a benefit that is at 
least actuarially equivalent to Medicare Part D.
     FSP No. 106-2 applies only to sponsors of single-employer plans for which 
(1) the employer concludes that prescription drug benefits under the plan are 
actuarially equivalent to Medicare Part D and thus qualify for the subsidy, and 
(2) the expected amount of the subsidy will offset or reduce the employer-
sponsor's share of the plan's prescription drug coverage. The FSP provides 
accounting guidance and required disclosures. For public companies, the FSP is 
effective for the first interim or annual period beginning after June 15, 2004. 
Management has not determined the effect of FSP 106-2 on the Company's 
Consolidated Financial Statements.

NOTE 7. Subsequent Event

     On August 25, 2004, the Company entered into an agreement to merge into 
First National Lincoln Corporation (FNLC). Each share of the Company is 
expected to be converted into FNLC stock valued at $42.00. The merger is 
expected to be completed during the first quarter of 2005.



















Page IV - 46
PART II

INFORMATION NOT REQUIRED IN PROSPECTUS


Item 20. Indemnification of Directors and Officers. 

     Under Sections 857 et. seq. of the Maine Business Corporation Act, and 
except to the extent broader indemnification is authorized by a corporation's 
articles of incorporation, a corporation generally may indemnify an individual 
who is a party to a proceeding because that individual is a director of the 
corporation against liability incurred in the proceeding if the individual's 
conduct was in good faith and the individual reasonably believed (i) in the 
case of conduct in the individual's capacity as director, that the individual's 
conduct was in the best interests of the corporation (or participants in an 
employee benefit plan of the corporation with respect to service thereto); (ii) 
in all other cases, that the individual's conduct was at least not opposed to 
the best interests of the corporation; and (iii) in the case of any criminal 
proceeding, the individual had no reasonable cause to believe the individual's 
conduct was unlawful. Unless ordered by a court to do so, however, a 
corporation may not indemnify one of its directors (1) in connection with a 
proceeding by or in the right of the corporation, except for reasonable 
expenses incurred in connection with the proceeding if it is determined that 
the director has met the relevant standard of conduct set forth above; or (2) 
in connection with any proceeding with respect to conduct for which the 
director was adjudged liable on the basis that the director received a 
financial benefit to which the director was not entitled, whether or not 
involving action in the director's official capacity. Under the Maine Business 
Corporation Act, a corporation shall indemnify a director who was wholly 
successful, on the merits or otherwise, in the defense of any proceeding to 
which the director was a party because the director was a director of the 
corporation against reasonable expenses incurred by the director in connection 
with the proceeding. Under the Maine Business Corporation Act, a corporation 
generally may indemnify and advance expenses to an officer of the corporation 
who is a party to a proceeding because that officer is an officer of the 
corporation to the same extent as a director and, in the case of an officer who 
is not a director, to such further extent as may be provided the corporation's 
articles of incorporation, bylaws, a resolution of the corporation's Board of 
Directors or a contract, except no indemnification may be made to such a person 
for (1) liability in connection with a proceeding by or in the right of the 
corporation other than for reasonable expenses incurred in connection with the 
proceeding or (2) liability arising out of conduct that constitutes (i) receipt 
by the officer of a financial benefit to which the officer is not entitled; 
(ii) an intentional infliction of harm on the corporation or its shareholders; 
or (iii) an intentional violation of criminal law. 














Page 132
     FNLC's bylaws provide that FNLC shall indemnify any person who was or is a 
party or is threatened to be made a party to any threatened, pending or 
completed action, suit or proceeding by reason of the fact that he or she is or 
was a director, officer, employee or agent of FNLC, or is or was serving at the 
request of FNLC as a director, officer, employee or agent of another 
corporation, partnership, joint venture, trust, or other enterprise, against 
expenses, including attorneys' fees, judgments, fines and amounts paid in 
settlement actually and reasonably incurred by him or her in connection with 
such action, suit or proceeding; provided that no indemnification shall be 
provided for any person with respect to any matter as to which he or she shall 
have been finally adjudicated in any action, suit or proceeding not to have 
acted in the reasonable belief that his or her action was in the best interests 
of FNLC or, with respect to any criminal action or proceeding, had reasonable 
cause to believe that his or her conduct was unlawful.

     FNLC's bylaws provide that FNLC shall pay the expenses incurred by an 
indemnified person in advance of a final disposition of an action or proceeding 
upon (1) authorization by the Board of Directors in the manner provided in the 
bylaws, and (2) receipt by FNLC of a written undertaking by or on behalf of the 
indemnified person to repay such amount if the indemnified person is ultimately 
determined not to be entitled to indemnification under the bylaws.

     In addition, FNLC carries a liability insurance policy for its directors 
and officers. 



































Page 133
Item 21. Exhibits and Financial Statement Schedules.

The exhibits and financial statement schedules filed as a part of this 
Registration Statement are as follows: 

(a)     List of Exhibits:

-------------------------------------------------------------------------------
Exhibit	            Exhibit	                                   Location
No.		
-------------------------------------------------------------------------------
2.1   Agreement and Plan of Merger, dated as of August 25,                  (1)
      2004 between FNLC and FNB
2.2   Form of Shareholder Agreement, dated as of August 25,                 (1)
      2004 between FNLC and certain directors of FNB  
3.1   Conformed Articles of Incorporation of FNLC                           (2)
3.2   Conformed Bylaws of FNLC                                              (2)
4.1   Specimen Common Stock certificate                        (filed herewith)
5     Opinion of Verrill Dana, LLP regarding legality of 
      securities being registered                              (filed herewith)
8     Opinion of Verrill Dana, LLP regarding certain 
      federal income tax consequences                          (filed herewith)
23.1  Consent of Verrill Dana, LLP                           (contained in the 
                                                             opinions included 
                                                           as Exhibits 5 and 8)
23.2  Consent of Berry, Dunn, McNeil & Parker, LLC, 
      independent certified public accountants for FNLC        (filed herewith)
23.3  Consent of Berry, Dunn, McNeil & Parker, LLC, 
      independent certified public accountants for FNB         (filed herewith)
24    Powers of Attorney                                      (included in the
                                                        signature page to this
                                                        Registration Statement)
99.1  Form of proxy for the FNLC special meeting               (filed herewith)
99.2  Form of proxy for the FNB special meeting                (filed herewith)
99.3  Solicitation materials to be provided to 
      certain participants in FNB's ESOP                       (filed herewith)
99.4  Consent of Tony C. McKim                                 (filed herewith)
99.5  Consent of Mark N. Rosborough                            (filed herewith)
-------------------------------------------------------------------------------

(1)   Exhibit is included in Annex I to the Prospectus/Proxy Statement included 
herein.
(2)   Incorporated by reference to Current Report of Form 8-K filed by FNLC 
with the SEC on October 7, 2004.
(b)   Financial Statement Schedules. 

No financial statement schedules are filed because the required information is 
not applicable or is included in the consolidated financial statements or 
related notes. 










Page 134
Item 22. Undertakings 

(a)  The undersigned registrant hereby undertakes: 

(1)  To file, during any period in which offers or sales are being made, a 
post-effective amendment to this registration statement: 

(i)  to include any prospectus required by Section 10(a)(3) of the Securities 
Act of 1933; 

(ii)  to reflect in the prospectus any facts or events arising after the 
effective date of the registration statement (or the most recent post-effective 
amendment thereof) which, individually or in the aggregate, represent a 
fundamental change in the information set forth in the registration statement. 
Notwithstanding the foregoing, any increase or decrease in volume of securities 
offered (if the total dollar value of securities offered would not exceed that 
which was registered) and any deviation from the low or high end of the 
estimated maximum offering range may be reflected in the form of prospectus 
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the 
changes in volume and price represent no more than a 20% change in the maximum 
aggregate offering price set forth in the "Calculation of Registration Fee" 
table in the effective registration statement; and 

(iii)  to include any material information with respect to the plan of 
distribution not previously disclosed in the registration statement or any 
material change to such information in the registration statement. 

(2)  That, for the purpose of determining any liability under the Securities 
Act of 1933, each post-effective amendment shall be deemed to be a new 
registration statement relating to the securities offered therein, and the 
offering of such securities at that time shall be deemed to be the initial bona 
fide offering thereof. 

(3)  To remove from registration by means of a post-effective amendment any of 
the securities being registered which remain unsold at the termination of the 
offering. 

(b)  The undersigned registrant hereby undertakes that, for purposes of 
determining any liability under the Securities Act of 1933, each filing of the 
registrant's annual report pursuant to section 13(a) or section 15(d) of the 
Securities Exchange Act of 1934 (and, where applicable, each filing of an 
employee benefit plan's annual report pursuant to section 15(d) of the 
Securities Exchange Act of 1934) that is incorporated by reference in the 
registration statement shall be deemed to be a new registration statement 
relating to the securities offered therein, and the offering of such securities 
at that time shall be deemed to be the initial bona fide offering thereof. 

(c)  The undersigned registrant hereby undertakes as follows: that prior to any 
public reoffering of the securities registered hereunder through use of a 
prospectus which is a part of this registration statement, by any person or 
party who is deemed to be an underwriter within the meaning of Rule 145(c), the 
issuer undertakes that such reoffering prospectus will contain the information 
called for by the applicable registration form with respect to reofferings by 
persons who may be deemed underwriters, in addition to the information called 
for by the other Items of the applicable form. 




Page 135
(d)  The undersigned registrant undertakes that every prospectus (i) that is 
filed pursuant to paragraph (c) immediately preceding, or (ii) that purports to 
meet the requirements of Section 10(a)(3) of the Act and is used in connection 
with an offering of securities subject to Rule 415, will be filed as a part of 
an amendment to the registration statement and will not be used until such 
amendment is effective, and that, for purposes of determining any liability 
under the Securities Act of 1933, each such post-effective amendment shall be 
deemed to be a new registration statement relating to the securities offered 
therein, and the offering of such securities at that time shall be deemed to be 
the initial bona fide offering thereof. 

(e)  Insofar as indemnification for liabilities arising under the Securities 
Act of 1933 may be permitted to directors, officers and controlling persons of 
the registrant pursuant to the foregoing provisions, or otherwise, the 
registrant has been advised that in the opinion of the Securities and Exchange 
Commission such indemnification is against public policy as expressed in the 
Act and is, therefore, unenforceable. In the event that a claim for 
indemnification against such liabilities (other than the payment by the 
registrant of expenses incurred or paid by a director, officer or controlling 
person of the registrant in the successful defense of any action, suit or 
proceeding) is asserted by such director, officer or controlling person in 
connection with the securities being registered, the registrant will, unless in 
the opinion of its counsel the matter has been settled by controlling 
precedent, submit to a court of appropriate jurisdiction the question whether 
such indemnification by it is against public policy as expressed in the Act and 
will be governed by the final adjudication of such issue. 

(f)  The undersigned registrant hereby undertakes to respond to requests for 
information that is incorporated by reference into the prospectus pursuant to 
Items 4, 10(b), 11 or 13 of this form, within one business day of receipt of 
such request, and to send the incorporated documents by first class mail or 
other equally prompt means. This includes information contained in documents 
filed subsequent to the effective date of the registration statement through 
the date of responding to the request.  

(g)  The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company 
being acquired involved therein, that was not the subject of and included in 
the registration statement when it became effective. 




















Page 136
                                    SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant has 
duly caused this Registration Statement to be signed on its behalf by the 
undersigned, thereunto duly authorized, in the Town of Damariscotta, State of 
Maine, on this 15th day of October 2004.



FIRST NATIONAL LINCOLN CORPORATION

/s/ Daniel R. Daigneault 
________________________________________
By: Daniel R. Daigneault 
    President and Chief Executive Officer


Pursuant to the requirements of the Securities Act of 1933, this Registration 
Statement has been signed by the following persons in the capacities and on the 
dates indicated. Each person whose signature appears below hereby makes, 
constitutes and appoints Daniel R. Daigneault and F. Stephen Ward, and each of 
them severally, his or her true and lawful attorney, with full power to sign 
for such person and in such person's name and capacity indicated below, and 
with full power of substitution any and all amendments, including post-
effective amendments, to this Registration Statement on Form S-4, hereby 
ratifying and confirming such person's signature as it may be signed by said 
attorney to any and all amendments.


/s/ Malcolm E. Blanchard
_________________________________                       Date: October 15, 2004
Malcolm E. Blanchard
Director

/s/ Katherine M. Boyd
_________________________________                       Date: October 15, 2004
Katherine M. Boyd
Director

/s/ Daniel R. Daigneault
_________________________________                       Date: October 15, 2004
Daniel R. Daigneault
Director, President & Chief Executive Officer 
(principal executive officer)

/s/ Dana L. Dow
_________________________________                       Date: October 15, 2004
Dana L. Dow
Director

/s/ Robert B. Gregory
_________________________________                       Date: October 15, 2004
Robert B. Gregory
Director





Page 136


/s/ Randy A. Nelson
_________________________________                       Date: October 15, 2004
Randy A. Nelson
Director

/s/ Carl S. Poole, Jr.

_________________________________                    Date: October 15, 2004   
Carl S. Poole, Jr.
Director

/s/ Stuart G. Smith
_________________________________                    Date: October 15, 2004   
Stuart G. Smith
Director

/s/ David B. Soule, Jr.
_________________________________                    Date: October 15, 2004   
David B. Soule, Jr.
Director

/s/ Bruce B. Tindal
_________________________________                    Date: October 15, 2004   
Bruce B. Tindal
Director

/s/ F. Stephen Ward
_________________________________                    Date: October 15, 2004   
F. Stephen Ward
Treasurer & Chief Financial Officer
(principal financial and accounting officer)


























Page 138
Exhibit Index

-------------------------------------------------------------------------------
Exhibit Exhibit                                                      Location
No.     
-------------------------------------------------------------------------------
2.1     Agreement and Plan of Merger, dated as of August 25, 2004          (1)
        between FNLC and FNB
2.2     Form of Shareholder Agreement, dated as of August 25, 2004         (1)
        between FNLC and certain directors of FNB
3.1     Conformed Articles of Incorporation of FNLC                        (2)
3.2     Conformed Bylaws of FNLC                                           (2)
4.1     Specimen Common Stock certificate                                  (3)
5       Opinion of Verrill Dana, LLP regarding legality of                 (3)
        securities being registered
8       Opinion of Verrill Dana, LLP regarding certain                     (3)
        federal income tax consequences
23.1    Consent of Verrill Dana, LLP                                       (4)
23.2    Consent of Berry, Dunn, McNeil & Parker, LLC,                      (3)
        independent certified public accountants for FNLC
23.3    Consent of Berry, Dunn, McNeil & Parker, LLC,                      (3)
        independent certified public accountants for FNB
24      Powers of Attorney                                                 (5)
99.1    Form of proxy for the FNLC special meeting                         (3)
99.2    Form of proxy for the FNB special meeting                          (3)
99.3    Solicitation materials to be provided to certain                   (3)
        participants in FNB's ESOP
99.4    Consent of Tony C. McKim                                           (3)
99.5    Consent of Mark N. Rosborough                                      (3)
-------------------------------------------------------------------------------

(1)  Included in Annex I to the Prospectus/Proxy statement and incorporated 
herein by reference

(2)  Incorporated by reference to Current Report on Form 8-K filed by FNLC with 
the SEC on October 7, 2004.

(3)  Filed herewith.

(4)  Contained in the opinions included as Exhibits 5 and 8.

(5)  Included in the signature page to this Registration Statement.

















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FNLC DRAFT Revision 10 October 14, 2004