<PAGE>


                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                   FORM 10-KSB


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


                   For the fiscal year ended December 31, 1999


                         Commission File No.: 000-24715


                       MERRILL MERCHANTS BANCSHARES, INC.
                 (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)


        MAINE                                            01-0471507
(STATE OR OTHER JURISDICTION OF             (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)


                      201 MAIN STREET, BANGOR, MAINE 04401
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
                                 (207) 942-4800
                (ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)


Securities registered pursuant to section 12(g) of the Exchange Act:


                     COMMON STOCK, PAR VALUE $1.00 PER SHARE
                                (TITLE OF CLASS)


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

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

         The revenues for the issuer's fiscal year ended December 31, 1999 are
$17,846,000.

         State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was sold, as of a specified date within the last 60 days. On
January 31, 2000: $15,378,020

         State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date. The Company had 2,588,127
shares outstanding as of March 1, 2000.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the definitive proxy statement pursuant to Regulation 14A,
which was delivered to the Commission for filing on March 16, 2000, and the 1999
Annual Report to Shareholders for the fiscal year ended December 31, 1999, are
incorporated by reference into Part II and III of this report.

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

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                                TABLE OF CONTENTS

<TABLE>
<S>      <C>               <C>                                                            <C>

PART I

         ITEM 1.           BUSINESS.........................................................1
         ITEM 2.           DESCRIPTION OF PROPERTY.........................................21
         ITEM 3.           LEGAL PROCEEDINGS...............................................22
         ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............22

PART II

         ITEM 5.           MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
                           STOCKHOLDER   MATTERS...........................................22
         ITEM 6.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                           CONDITION AND RESULTS OF OPERATIONS.............................22
         ITEM 7.           FINANCIAL STATEMENTS............................................22
         ITEM 8.           CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON
                           ACCOUNTING AND FINANCIAL DISCLOSURE.............................23

PART III

         ITEM 9.           DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY;
                           COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT...............23
         ITEM 10.          EXECUTIVE COMPENSATION..........................................23
         ITEM 11.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                           MANAGEMENT......................................................23
         ITEM 12.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................23
         ITEM 13.          EXHIBITS, LIST AND REPORTS ON FORM 8-K..........................23

SIGNATURES

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FORWARD LOOKING STATEMENTS

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


<PAGE>


                                     PART I


ITEM 1.  BUSINESS

GENERAL

         Merrill Merchants Bancshares, Inc. (the "Company"), a Maine corporation
organized in March 1992, is a registered bank holding company under the Bank
Holding Company Act of 1956, as amended ("BHCA"). The Company is also a
registered Financial Holding Company under BHCA. In October 1992, the Company
became the bank holding company for Merrill Merchants Bank (the "Bank") and
holds 100% of the Bank's outstanding common stock (the "Bank Stock"). In January
1999, the Company established Maine Acceptance Corporation ("MAC"), a finance
company. The Company, through its ownership of the Bank and MAC, is engaged in a
general commercial and retail banking business, along with trust and investment
services. Unless the context otherwise requires, references herein to the
Company shall include the Company and the Bank, on a consolidated basis.

         The Company is an entity legally separate and distinct from the Bank.
The only sources of the Company's income and cash flow are any dividends paid on
the Bank Stock, tax benefits received by the Company and earnings from amounts
deposited by the Company in interest bearing accounts and investments.

         The Bank was established in 1992 to purchase certain assets and assume
certain liabilities of certain branch banking offices formerly held by a large
out of state bank. Merrill Merchants Bank is headquartered in Bangor, Maine,
which is located 76 miles north of Augusta, Maine, the state capital. Presently,
the Bank maintains ten branch banking offices (collectively, the "Branch Banks")
in eight area communities. The three Bangor offices provide city-wide
convenience and are complemented by: (i) an office in Brewer, Bangor's sister
city located on the eastern shore of the Penobscot River; (ii) a branch in
Orono, home of the University of Maine, the State's flagship campus; (iii) a
branch in Pittsfield, a small rural town of 4,000 people located about 30 miles
southwest of Bangor; (iv) a convenience store branch in Orrington which serves
as a satellite office to the Brewer Branch; (v) a convenience store branch in
Milford which serves as a satellite office to the Orono Branch; (vi) a branch in
Holden, a small town located next to Brewer; and (vii) a supermarket branch in
Newport, a small town neighboring Pittsfield, approximately 25 miles southwest
of Bangor. The Newport Branch is located at the juncture of Interstate 95 and
Route 2, which is the main travel route to the winter and summer tourist area of
the Moosehead Lake Region. In addition to the Branch Banks, the Bank has seven
ATM locations in its primary market area.

         The Bank conducts a general commercial and retail banking business that
includes the acceptance of deposits from the general public and the application
of those funds to the origination of a variety of commercial loans, commercial
and residential real estate loans and consumer loans. The Bank has also
established a Trust and Investment Services Department, which has grown since
inception in April 1994 to $189.4 million in assets under management as of
December 31, 1999. As of December 31, 1999, the Company had total assets of
$213.7 million, loans, net of allowances, of $133.9 million, total deposits of
$168.6 million and shareholders' equity of $21.3 million.

         The Bank's income is derived principally from interest and fees earned
in connection with its lending activities, interest and dividends on investment
securities, and service charges and fees on deposit and trust accounts. Its main
expenses are the interest paid on deposits and operating expenses. The Bank's
customer deposits are insured, up to the applicable limits, by the Federal
Deposit Insurance Corporation ("FDIC").

         COMMUNITY BANKING STRATEGY

         Having identified the need for community banking services in its market
area, the Bank has worked to position itself as a service-oriented community
bank. The Bank is staffed by experienced management personnel, most of whom
reside in the area and who know the Bank's customers and are able to provide
personalized service for these customers. This strategy has been deliberately
developed and implemented at a time when consolidation within the industry has
resulted in an increasing depersonalization among the larger financial
institutions. The Bank has focused on fostering


<PAGE>


banking relationships with customers which include multiple financial services
that range from basic checking to investment management accounts.

         As a part of this strategy, the Company and the Bank have attracted
local business people, who actively promote the Bank in the community, to serve
on their Boards of Directors. In an effort to broaden the community's awareness
of the Bank and attract new business, the Company has also obtained additional
investments in and support for the Bank from local investors.

         The Bank is active in small business lending and has earned the
designation "Preferred Lender" by the Small Business Administration (SBA). The
Bank is the only community bank in the State to have been awarded this
distinction. The Bank is also active in residential mortgage lending, and a
number of products, including government insured loan programs, are available to
meet the demands of both the consumer and the commercial market. The Company's
affiliations with third party data processors have enabled the Bank to deliver
high technology products such as automated telephone banking, banking by
personal computer, and check imaging while maintaining a local, friendly flavor
in its Branch Banks. This same strategy has been implemented by the Trust and
Investment Services Department which is also serving many clients who appreciate
the personal attention and customer service provided locally. The depository
custody services and investment advisory services provided by the Trust
Department are supported through its affiliation with The Northern Trust
Company.

         MARKET AREA AND COMPETITION

         The Bank's primary market area, Greater Bangor, is at the center of
commercial activity for the northeastern and central region of the State of
Maine. Nearly 100,000 people live in the Bank's primary market area. The Bank is
part of a strategic link to Canada, as Bangor is the closest U.S. metropolitan
area to Eastern Quebec and the Canadian Maritime provinces. Many regional and
national companies site their operations in the Bangor area. Services, trades,
manufacturing and government are the four largest fields of employment in the
metropolitan Bangor region. Bangor is also a healthcare center for central,
eastern and northern Maine. The City is a regional financial center and is also
serviced by several statewide and regional accounting firms, law firms,
insurance companies and security and investment firms. Bangor is also a hub for
government services, with many local, state and federal offices located within
the city. Bangor is accessible by multiple exits from Interstate 95, a major
interstate highway which transits the eastern seaboard of the United States.
Major routes to all regions of the state bisect Bangor from various directions.
Bangor International Airport provides domestic and international passenger and
cargo service for a significant portion of the state. The Bank has targeted this
same area as its focus for possible expansion of the franchise. Any such
expansion would occur with carefully selected de novo branching or taking
advantage of opportunities created as the large regional banks consolidate and
sell or close branches.

         The financial services landscape has changed considerably over the past
five years in the Bank's primary market area, Greater Bangor. Two large out of
state banks have continued to experience local change as a result of mergers and
acquisitions at the regional and national level. The State's largest Maine-based
bank, with a strong presence in the local market, has also experienced
considerable change as it has acquired greater market share through acquisitions
in-state and out-of-state. A large locally-based bank has expanded its line of
financial services and acquired an extensive branch network beyond the local
market. Credit unions have continued to expand their membership and the scope of
banking services offered. Non-banking entities such as brokerage houses,
mortgage companies and insurance companies are offering very competitive
products. Many of these entities and institutions have resources substantially
greater than those available to the Bank and are not subject to the same
regulatory restrictions as the Company and the Bank. Interstate banking also
could intensify competition if out of state institutions increasingly take
advantage of recent legislation liberalizing interstate banking and branching
opportunities in Maine.

         Over the past decade, due to more liberal interstate banking laws,
northeastern and central Maine has seen an increase in acquisitions of
locally-owned Maine-based banks, including Maine-based banks in the Bank's
primary


                                       -2-

<PAGE>


market area, by non-local entities. It has been the observation of the Company's
management that these acquisitions often result in customer dissatisfaction as
the decision-making on loans, marketing, and other aspects of the acquired
banks' businesses are shifted from local bank management possessing independent
decision-making power to management operating under policies and guidelines from
corporate headquarters in other states. The Company believes that this shift
often results in delayed decision-making by management which is not familiar
with the needs of the acquired bank's customers or the communities they serve.
Individuals and small businesses are particularly sensitive to these changes
since they may not fit the product parameters established by the larger banks.

         Thus, the Company believes that there will continue to be a need for a
bank in the Bank's primary market area with local management having
decision-making power and emphasizing loans to small and medium sized businesses
and to individuals. The Bank has concentrated on extending business loans to
such customers in the Bank's primary market area and to extending trust services
to clients with accounts of all sizes. The Bank's management also makes
decisions based upon, among other things, the knowledge of the Bank's employees
regarding the communities and customers in the Bank's primary market area. The
individuals employed by the Bank, to a large extent, reside near the Branch
Banks and thus are generally familiar with the Branch Banks' 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.

         The Trust and Investment Services Department of the Bank has taken
advantage of opportunities created as the larger banks have altered their
personal service commitment to clients not meeting established account criteria.
The Bank is able to offer a comprehensive array of trust and investments
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 attorneys as well as investment and employee benefits
professionals with trust and banking experience.

         The Bank has worked and will continue to work to position itself to be
competitive in its market area. The Bank'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 the
Bank's employees are all factors affecting the Bank's ability to be competitive.
If the Company and the Bank are unable to compete successfully, however, the
business and operations could be adversely affected.

         LENDING ACTIVITIES

         The Bank has experienced loan growth since it was established in
October 1992. One of the primary factors contributing to the growth has been an
experienced local lending group. Many commercial lending relationships have been
developed by the Bank as a result of long standing business associations over
many years. Many of the Bank's officers have held lending positions with Bangor
area banks for in excess of twenty years. Management believes that these
relationships have been not only instrumental in loan growth but in developing
quality customers.

         The Company strives to provide a full range of financial products and
services to small and medium-sized businesses and consumers. The Bank has an
established Officer Loan Committee which meets weekly to review and approve
credits and a Director Loan Committee which meets monthly, or as necessary, to
approve credits in excess of $250,000. The Bank's loan mix is subject to the
discretion of its Board of Directors and the demands of the local marketplace.
Management has established relationships with local area legal and accounting
professionals to cultivate referrals by hosting informational meetings at the
Bank. Asset quality is a top priority for the Bank and a significant
consideration in business development efforts.


                                       -3-

<PAGE>


         COMMERCIAL AND COMMERCIAL REAL ESTATE LENDING

         Loans in this category principally include loans to service, retail,
medical, wholesale and light manufacturing businesses. Commercial loans are made
based on the management, financial strength and repayment ability of the
borrower. As of December 31, 1999, commercial and commercial real estate loans
represented the largest class of loans at $82.8 million or 61% of total loans.
The Bank participates in government guaranteed lending including programs with
the Finance Authority of Maine (FAME) and Rural Development (RD). The Bank
originated the second highest number of SBA loans in the State of Maine for the
SBA Maine District Office during its 1999 and 1998 fiscal year. The Bank is the
only community bank in the state to have been awarded designation as a Preferred
Lender by the SBA.

         The Bank's commercial real estate loans are ordinarily made at variable
rates of interest, and amortized up to fifteen years, although some loans are
originated for terms of five years or less at fixed rates of interest. A broad
range of short-to-medium term commercial loans, both collateralized and
uncollateralized are made available to businesses for working capital (including
inventory and receivables), business expansion (including acquisition and
development of real estate and improvements) and the purchase of equipment and
machinery. The purpose of a particular loan generally determines its structure.
The commercial real estate loans are secured by a variety of properties,
including buildings occupied by small-to-medium sized businesses, apartment
complexes and non-owner/user office and retail business.

         The Bank's commercial loans primarily are underwritten in the Bank's
primary market area on the basis of the borrowers' ability to service such debt
from income. Many of these loans involve lines of credit written at variable
rates of interest on a demand basis, or for terms not exceeding one year, while
others are written on a term basis typically for up to five years, generally at
variable rates of interest. As a general practice, the Bank takes as collateral
a security interest in any available real estate, equipment or other chattel
although such loans may also be made on an uncollateralized basis. As additional
security for commercial loans, the Bank normally requires the personal guarantee
of the principals and may require financial performance covenants.

         Commercial loans generally present a higher level of risk than
one-to-four-family residences due to the concentration of principal in a limited
number of loans and borrowers, the effect of general economic considerations in
commercial properties and the increased difficulty of evaluating and monitoring
these types of loans. In addition, the repayment of loans secured by commercial
real estate is typically dependent on the successful operation of the related
business activities.

         RESIDENTIAL MORTGAGE LENDING

         The Bank endeavors to meet the needs of its individual customers by
making residential mortgage loans. Residential loans include the origination of
conventional mortgages, residential lot loans and residential acquisition,
development and construction loans for the purchase or construction of
single-family housing or lots. The Bank offers fixed and adjustable rate
mortgages ("ARMs"). With these loans, the real estate normally constitutes the
primary collateral.

         Loans in this category include both portfolio loans which are held by
the Bank until maturity and loans which are sold on the secondary market. In the
case of secondary market loans, all servicing rights are retained by the Bank
which maintains the service connection to the customer. The Bank participates in
government guaranteed programs and has also helped coordinate several innovative
programs including a partnership with Penquis Community Action Program in their
"Own Me" program which assists low income women in the purchase of a home, and
housing workshops for the hearing impaired.


                                       -4-

<PAGE>


         As of December 31, 1999, residential loans accounted for a total of
$23.4 million representing 17% of total loans. The Bank's secondary market
servicing portfolio stands at $66.2 million.

         The Bank offers one-year ARMs with rate adjustments tied to the weekly
average rate of U.S. Treasury securities adjusted to a constant one-year
maturity with specified minimum and maximum interest rate adjustments. The
interest rates on a majority of these mortgages are adjusted yearly with
limitations on upward adjustments of 2% per adjustment period and 6% over the
life of the loan. The Bank generally charges a higher interest rate if the
property is not owner-occupied. It has been the Bank's experience that the
proportion of fixed-rate and adjustable-rate loan originations depends in large
part on the level of interest rates. As interest rates fall, there is generally
a reduced demand for ARMs and, as interest rates rise, there is generally an
increased demand for ARMs.

         Fixed and adjustable rate mortgage loans collateralized by single
family residential real estate generally have been originated in amounts of no
more than 80% of appraised value. However, in some instances, the Bank may lend
in excess of 80% of the value of the property collateralizing the loan. The
Bank, in most cases, requires title, fire and extended casualty insurance to be
obtained by the borrower, and, where required by applicable regulations, flood
insurance. The Bank maintains its own errors and omissions insurance policy to
protect against loss in the event of failure of a mortgagor to pay premiums on
fire and other hazard insurance policies. Although the contractual loan payment
period for single family residential real estate loans is generally for a 15 to
30 year period, such loans often remain outstanding for significantly shorter
periods than their contractual terms. The Bank charges no penalty for prepayment
of mortgage loans. Mortgage loans originated by the Bank customarily include a
"due on sale" clause giving the Bank the right to declare a loan immediately due
and payable in the event, among other matters, that the borrower sells or
otherwise disposes of the real property subject to a mortgage. In general, the
Bank enforces due on sale clauses.

         HOME EQUITY LENDING

         The Company originates home equity loans on a fixed and variable
interest rate basis. At December 31, 1999, fixed rate loans totaled $10.7
million and variable rate loans amounted to $7.4 million. Fixed rate loans are
for terms of 5 to 10 years with monthly amortization required and interest rates
ranging from 8.5% to 12.5%. Interest rates on variable rate loans are 1.50% to
2.00% over the prime interest rate. These home equity loans are generally
secured by a second mortgage on the principal residential property.

         CONSUMER LENDING

          Consumer loans made by the Bank have included home improvement,
automobile, boat and recreation vehicle loans, credit cards and overdraft
protection accounts. The Bank's consumer loan portfolio consists primarily of
loans to individuals for various consumer purposes. A majority of these loans
are for terms of less than 60 months and although generally collateralized by
liens on various personal assets of the borrower may be made uncollateralized.
Consumer loans are made at fixed and variable interest rates.

         Maine Acceptance Corporation, a finance company which opened for
business in Bangor on March 1, 1999, provides indirect auto and recreational
vehicle lending, as well as other types of direct loans, including personal
unsecured, recreational vehicle, auto, mobile home and home equity loans.

         Consumer loans are attractive to the Company because they typically
have a shorter term and carry higher interest rates than that charged on other
types of loans. Consumer loans, however, do pose additional risks of
collectibility when compared to traditional types of loans granted by commercial
banks, such as residential mortgage loans. In many instances, the Company is
required to rely on the borrower's ability to repay since the collateral may be
of reduced value at the time of collection. Accordingly, the initial
determination of the borrower's ability to repay is of primary importance in the
underwriting of consumer loans.


                                       -5-

<PAGE>


         Consumer loans totaled approximately $10.0 million and represented 7%
of the Company's loan portfolio at December 31, 1999. Such loans bear interest
at fixed rates ranging from 9% to 18%.

         M&M JOINT VENTURE

         In 1996, the Bank and MSB Leasing, Inc. (a subsidiary of Machias
Savings Bank, a state chartered mutual savings bank) formed M&M Consulting
Limited Liability Company ("M&M"), a jointly owned subsidiary. M&M was
established to provide a review of various internal bank risk control functions.
M&M, which has a former FDIC examiner as one of its principals, provides the
Bank, Machias Savings Bank and approximately twenty other financial institutions
in Maine access to experienced individuals who are highly trained in loan
review, regulatory compliance, training and internal auditing in a
cost-efficient and timely manner.

         BRANCH EXPANSION

         The Company opened two new convenience store branches. The Orrington
branch opened in December 1999 and the Milford branch opened in January 2000.
Management believes that mini branches are a cost effective method of expanding
the Company's franchise and providing additional customer service.

         On January 3, 2000, the Bank entered into an agreement to purchase a
branch in Holden, Maine. The Bank assumed ownership of the banking operation and
facility on February 25, 2000. The Holden Branch had $2.1 million of loans and
$6.5 million of deposits as of February 25, 2000.


                                       -6-

<PAGE>


                      SELECTED CONSOLIDATED FINANCIAL DATA
                  (Dollars in thousands, except per share data)

         The following table presents selected consolidated financial data for
the Company. The data for the fiscal years ended December 31, 1999, 1998, 1997,
1996, and 1995 are derived from audited consolidated financial statements of the
Company. The selected financial data should be read in conjunction with, and is
qualified in its entirety by, the Consolidated Financial Statements and Notes
thereto, and Management's Discussion and Analysis of Financial Condition and
Results of Operations included in the Annual Report.

<TABLE>
<CAPTION>

                                                                       AT OR FOR THE YEAR ENDED DECEMBER 31,
                                                  -------------------------------------------------------------------------
                                                     1999            1998           1997           1996            1995
                                                  -------------------------------------------------------------------------
<S>                                                <C>             <C>            <C>            <C>             <C>
FINANCIAL CONDITION DATA:                                                   (Dollars in Thousands)
Total assets....................................   $213,747        $199,743       $178,619       $158,425        $135,744
Cash and cash equivalents.......................      9,122           7,627         10,164          8,591           6,723
Investment securities...........................     61,475          55,909         45,321         41,014          30,257
Loans receivable, net (1).......................    133,948         125,632        117,171        103,979          93,476
Deposits........................................    168,578         164,128        146,312        126,704         111,340
Repurchase agreements...........................     13,791          11,747         11,897         12,164          10,173
Other borrowed funds............................      5,278           1,461          5,144          2,832             192
Long-term debt..................................         --              --          2,895          3,695           4,000
Mandatory convertible debentures................        300             300            300            300             300
Shareholders' equity............................     21,258          20,655         10,967          9,671           8,761
INCOME STATEMENT DATA:
Interest and dividend income....................   $ 15,244        $ 14,586       $ 13,215       $ 11,826        $ 10,349
Interest expense................................      6,359           6,554          6,060          5,383           4,371
Net interest income.............................      8,885           8,032          7,155          6,443           5,978
Provision for loan losses.......................        345             360            355            360             355
Net interest income after provision for loan
  losses .......................................      8,540           7,672          6,800          6,083           5,623
Non-interest income.............................      2,602           2,211          1,724          1,489           1,302
Non-interest expense............................      7,754           6,939          6,357          5,813           5,407
Income before income taxes......................      3,388           2,944          2,167          1,759           1,518
Income tax expense..............................      1,141           1,028            765            639             551
Net income......................................      2,247           1,916          1,402          1,120             967
PER SHARE DATA:
Earnings per share-basic (2)....................        .85             .91            .78            .62             .52
Earnings per share-diluted (2)..................        .74             .74            .68            .55             .50
Cash dividends on Common Stock (2)..............        .21             .13            .03             --              --
Book value (2)(3)...............................       8.62            8.20           6.45           5.69            5.08
Weighted average shares outstanding (2).........  2,561,220       2,021,874      1,700,187      1,700,187       1,700,187
SELECTED FINANCIAL RATIOS AND OTHER DATA:
Return on average assets........................       1.11%           1.05%          0.86%          0.78%           0.80%
Return on average equity (3)....................      10.52           12.97          13.63          12.28           11.83
Net interest margin (4).........................       4.69            4.66           4.67           4.72            5.25
Net interest spread.............................       3.89            3.89           3.98           3.97            4.48
Non-performing assets to total assets (5).......       0.15            0.08           0.13           0.45            0.33
Non-performing loans to total loans (5).........       0.19            0.12           0.15           0.36            0.15
Allowance for loan losses to total loans........       1.67            1.58           1.44           1.38            1.18
Allowance for loan losses to non-performing
  loans (5).....................................     854.89         1330.92         933.15         384.62          760.40
Net loan charge-offs to average loans...........       0.07            0.04           0.08           0.04            0.21
Efficiency ratio (6)............................      67.50           67.74          71.60          73.29           74.27
CAPITAL RATIOS:
Tier 1 risk-based capital (7)...................      15.96%          16.39%          9.77%          9.53%           9.03%
Total risk-based capital (7)....................      17.44           17.89          11.30          11.10           10.63
Leverage ratio (7) (8)..........................      10.23          110.31          10.31           6.06            5.84
</TABLE>

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

(1)  Excludes loans held for sale.
(2)  Adjusted to reflect the 9:1 Stock Split, 5% stock dividends in 1999, 1998
     and 1997 and a 3% stock dividend in 1996.
(3)  Excludes unrealized gain or loss on securities available for sale net of
     taxes.
(4)  Represents net interest income as a percentage of average interest earning
     assets. Calculation is shown tax-effected for tax exempt interest income
     assuming a federal tax rate of 34%.
(5)  Non-performing assets consist of non-performing loans and other real estate
     owned. Non-performing loans consist of non-accrual loans and accruing loans
     90 days or more past due while other real estate owned consists of real
     estate acquired through foreclosure and real estate acquired by acceptance
     of a deed-in-lieu of foreclosure.
(6)  Non-interest expense divided by the sum of net interest income plus
     non-interest income.
(7)  The minimum regulatory capital ratios in order for the Company to be
     adequately capitalized are: Tier 1 capital - 4.00%; total risk-based
     capital -- 8.00%; and leverage ratio -- 4.00%
(8)  The leverage ratio is defined as the ratio of Tier 1 capital to average
     total assets.


                                       -7-

<PAGE>


LENDING ACTIVITIES

     The following table summarizes the composition of the Bank's loan portfolio
by type of loan at the dates indicated:

                                               LOAN PORTFOLIO COMPOSITION

<TABLE>
<CAPTION>

                                                                   AT DECEMBER 31,
                      ---------------------------------------------------------------------------------------------------------
                               1999                  1998                1997                 1996                  1995
                      ---------------------------------------------------------------------------------------------------------
                         AMOUNT     %         AMOUNT      %        AMOUNT      %         AMOUNT      %         AMOUNT      %
                         ------    ---        ------     ---       ------     ---        ------     ---        ------     ---
                                                               (Dollars in thousands)
<S>                     <C>        <C>       <C>         <C>      <C>         <C>       <C>         <C>       <C>         <C>
Real Estate
  Commercial.........   $ 49,161    36%      $ 48,896     38%     $ 40,984     34%      $ 34,908     33%      $ 31,915     34%
  Construction.......      1,937     2          1,833      1         3,012      3          1,941      1          1,420      2
  Residential........     23,390    17         22,279     18        26,638     22         23,827     23         21,051     22
  Home equity........     18,054    13         19,362     15        20,036     17         15,726     15         10,656     11
                         -------   ---        -------    ---      --------    ---       --------    ---       --------    ---
  Total real estate..     92,542    68         92,370     72        90,670     76         76,402     72         65,042     69
Commercial...........     33,686    25         28,322     22        20,757     18         22,049     21         21,747     23
Consumer.............      9,994     7          6,963      6         7,461      6          6,978      7          7,820      8
                        --------   ---       --------    ---      --------    ---       --------     --       --------    ---
    Total loans......   $136,222   100%      $127,655    100%     $118,888    100%      $105,429    100%       $94,609    100%
                                   ====                  ====                 ===                   ===                   ===
Less allowance for
loan losses..........     (2,274)              (2,023)              (1,717)               (1,450)               (1,133)
                        --------             --------             --------              --------              --------
Total................   $133,948             $125,632             $117,171              $103,979              $ 93,476
                        ========             ========             ========              ========              ========
</TABLE>


         The following table sets forth as of December 31, 1999, loans by
scheduled due date for the periods indicated. Loans maturing after one year are
further distinguished between those with predetermined interest rates and loans
which have floating or adjustable interest rates.


                                              LOAN MATURITY SCHEDULE

<TABLE>
<CAPTION>

                                                                       AT DECEMBER 31, 1999
                                             ---------------------------------------------------------------------------
                                                DUE IN
                                              ONE YEAR OR    DUE AFTER ONE YEAR      DUE AFTER 5
                                                 LESS        BUT BEFORE 5 YEARS        YEARS            TOTAL
                                             ---------------------------------------------------------------------------
                                                                    (Dollars in thousands)
<S>                                            <C>               <C>                   <C>             <C>
Real estate...............................     $18,183           $29,958               $44,401         $ 92,542
Commercial................................      16,430            12,620                 4,636           33,686
Consumer..................................       3,713             4,792                 1,489            9,994
                                               -------           -------               -------         --------
Total loans...............................     $38,326           $47,370               $50,526         $136,222
                                               =======           =======               =======         ========

Loans maturing after one year:
Predetermined interest rates..............                                                             $ 44,155
Floating or adjustable interest rates.....                                                               53,741
                                                                                                       --------
Total.....................................                                                             $ 97,896
                                                                                                       ========
</TABLE>


                                       -8-

<PAGE>


         The following is a summary of non-performing assets at December 31,
1999 and 1998:
                                               NON-PERFORMING ASSETS

<TABLE>
<CAPTION>

                                                                     AT DECEMBER 31,
                                        ----------------------------------------------------------------------------
                                           1999             1998            1997            1996             1995
                                           ----             ----            ----            ----             ----
                                                                  (Dollars in thousands)
<S>                                        <C>              <C>             <C>             <C>              <C>
Loans:
     Non-accrual loans.............        $266             $148            $181            $250             $148
     Loans 90 days or more past
     due but still accruing........           -                4               3             127                1
     Restructured loans............           -                -               -               -                -
                                           ----             ----            ----            ----             ----
        Non-performing loans.......         266              152             184             377              149
OREO...............................          50               12              43             340              304
                                           ----             ----            ----            ----             ----

     Non-performing assets.........        $316             $164            $227            $717             $453
                                           ====             ====            ====            ====             ====
Non-performing loans as a
percentage of total loans..........        0.19%            0.12%           0.15%           0.36%            0.15%

Non-performing assets as a
percentage of total assets.........        0.15%            0.08%           0.13%           0.45%            0.33%

Non-performing assets as a
percentage of total loans and
OREO...............................        0.23%            0.13%           0.19%           0.68%            0.47%
</TABLE>

         At December 31, 1999, loans on non-accrual status totaled $266,000.
Interest income not recognized on non-accrual loans was $28,000 in 1999. There
was no interest income recognized on non-accrual loans in 1999.

         ADVERSELY CLASSIFIED ASSETS

         The Bank's management adversely classifies certain assets as "doubtful"
or "loss" based on criteria established under banking regulations. An asset is
considered substandard if inadequately protected by the current net worth and
paying capacity of the obligor or of the collateral pledged, if any. Substandard
assets include those characterized by the "distinct possibility" that the
insured institution will sustain "some loss" if existing deficiencies are not
corrected. Assets classified as doubtful have all the weaknesses inherent in
those classified substandard with the added characteristic that the weaknesses
present make "collection or liquidation in full," on the basis of currently
existing facts, conditions, and values, "highly questionable and improbable."
Assets classified as loss are those considered "uncollectible" and of such
little value that their continuance as assets without the establishment of a
specific loss reserve is not warranted.

         At December 31, 1999, the Bank had $1.9 million of loans that were
classified as substandard and $190,000 classified as doubtful. This compares to
$1.3 million and $341,000 of loans that were classified as substandard and
doubtful at December 31, 1998. The Bank had no loans which were classified as
loss at either date. Delinquent loans may or may not be adversely classified
depending upon management's judgment with respect to each individual loan. As of
December 31, 1999 and 1998, the portion of loans guaranteed by either the SBA,
RD or FAME amounted to approximately 17% and 25% of the total loan balances
adversely classified, respectively. At December 31, 1999, included in the $2.1
million of loans that were classified as substandard and doubtful were $2.0
million of performing loans. This compares to $1.5 million of adversely
classified performing loans as of December 31, 1998. These amounts constitute
loans that, in the opinion of management, could potentially migrate to
non-performing or loss status.


                                       -9-

<PAGE>


ALLOWANCE FOR LOAN LOSSES

         The following table sets forth activity in the Bank's allowance for
loan losses during the years indicated:

                                          SUMMARY OF LOAN LOSS EXPERIENCE

<TABLE>
<CAPTION>
                                                                   YEAR ENDED DECEMBER 31,
                                       -------------------------------------------------------------------------------------
                                             1999             1998             1997             1996             1995
                                             ----             ----             ----             ----             ----
                                                                  (Dollars in thousands)
<S>                                        <C>              <C>             <C>               <C>              <C>
Total net loans outstanding at the
end of year (1).....................       $133,948         $125,632        $117,171          $103,979         $93,476

Average net loans outstanding during
the year (1)........................       $127,595         $119,144        $109,263          $ 98,407         $86,034

Allowance for loan losses, beginning
of year ............................       $  2,023         $  1,717        $  1,450          $  1,133         $   958

Loans charged off during the period:
           Real estate:
              Commercial............            (66)               -              (6)                -             (18)
              Residential...........              -              (20)            (16)                -            (140)
              Home equity...........              -               (7)              -                 -               -
           Commercial...............            (10)             (20)            (23)              (16)            (10)
           Consumer.................            (49)             (31)            (55)              (32)            (15)
                                           --------         --------        --------          --------         -------
                 Total..............           (125)             (78)           (100)              (48)           (183)
                                           --------         --------        --------          --------         -------
Recoveries of loans previously
charged off:
           Real estate:
              Commercial............              -                -               -                 -               -
              Residential...........             22               22              12                 -               -
              Home equity...........              -                -               -                 -               -
           Commercial...............              7                -               -                 2               -
           Consumer.................              2                2               -                 3               3
                                           --------         --------        --------          --------         -------
                 Total..............             31               24              12                 5               3
                                           --------         --------        --------          --------         -------
Net loans charged off during the year           (94)             (54)            (88)              (43)           (180)
                                           --------         --------        --------          --------         -------
Provisions charged to income
statement...........................            345              360             355               360             355
                                           --------         --------        --------          --------         -------
Allowance for loan losses, end of
year................................         $2,274           $2,023        $  1,717          $  1,450         $ 1,133
                                           ========         ========        ========          ========         =======
Ratios:

Net charge-offs to average loans
outstanding.........................           0.07%            0.04%           0.08%             0.04%           0.21%

Net charge-offs to loans, end of
period..............................           0.07%            0.04%           0.07%             0.04%           0.19%

Allowance for loan losses to average
loans outstanding...................           1.75%            1.67%           1.55%             1.45%           1.30%

Allowance for loan losses to loans,
end of year.........................           1.67%            1.58%           1.44%             1.38%           1.18%

Allowance for loan losses to
non-performing loans................         854.89%         1330.92%         933.15%           384.62%         760.40%
</TABLE>

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

(1) Excludes loans held for sale.


                                      -10-
<PAGE>


         The following table sets forth the breakdown of the allowance for loan
losses by loan category for the periods indicated. management believes that the
allowance can be allocated by category only on an approximate basis. The
allocation of an allowance to each category is not necessarily indicative of
future losses and does not restrict the use of the allowance to absorb losses in
any other category.

<TABLE>
<CAPTION>

                                                              AT DECEMBER 31,
                  ----------------------------------------------------------------------------------------------------------
                           1999                   1998                 1997                1996                  1995
                  ----------------------------------------------------------------------------------------------------------
                                   % OF                 % OF                 % OF                 % OF                 % OF
                                 LOANS TO             LOANS TO             LOANS TO             LOANS TO             LOANS TO
                                  TOTAL                 TOTAL                TOTAL                TOTAL                TOTAL
                    AMOUNT        LOANS     AMOUNT      LOANS     AMOUNT     LOANS    AMOUNT      LOANS    AMOUNT      LOANS
                    ------        -----     ------      -----     ------     -----    ------      -----    ------      -----
                                                          (Dollars in Thousands)
<S>                 <C>            <C>     <C>           <C>      <C>         <C>     <C>          <C>     <C>          <C>
Commercial and
Commercial Real
Estate (1).......   $1,111          61%    $  999         60%     $  989       52%    $  696        54%    $  656        57%
Construction.....       10           2          9          1          15        3         10         1          7         2
Residential......      122          17        120         18         134       22        123        23        109        22
Home equity......      179          13        193         15         199       17        157        15        106        11
Consumer.........      272           7        179          6         200        6        161         7        160         8
Unallocated......      580           -        523          -         180        -        303         -         95         -
                    ------         ---     ------        ---      ------      ---     ------       ---     ------       ---
Total allowance
for loan losses..   $2,274         100%    $2,023        100%     $1,717      100%    $1,450       100%    $1,133       100%
                    ======         ===     ======        ===      ======      ===     ======       ===     ======       ===
</TABLE>

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

(1)      Commercial and commercial real estate loans have been combined in
         allocating the allowance for loan losses as the Company utilizes an
         internal risk rating system for these loans on a consolidated basis.

         The unallocated portion of the allowance for loan losses increased to
$580,000 at December 31, 1999 from $523,000 at December 31, 1998. Management
determined an increase in the unallocated portion of the allowance to be
necessary in 1999 due to a number of factors impacting the local economy that
have not yet been fully reflected in the financial information provided by
borrowers. These factors include a continued deterioration in trade with Canada,
due to the currency exchange rate imbalance and provincial sales taxes; another
relatively weak holiday season for retailers; and depressed conditions in
certain natural resource-based industries, such as commercial fishing, timber
and agriculture. While these factors are not yet identifiable with respect to
specific borrowers, the bank has determined an overall increase in the allowance
for loan losses to be necessary to provide for resultant expected losses.

         INVESTMENT ACTIVITIES

         The Company's investment portfolio serves three important functions:
first, it enables the adjustment of the balance sheet's sensitivity to changes
in interest rate movements; second, it provides an outlet for investing excess
funds; and third, it provides liquidity. The investment portfolio is structured
to maximize the return on invested funds within conservative risk guidelines.

         The composition of the investment portfolio as of December 31, 1999 was
51% U.S. Treasury notes and U.S. Government agencies and corporations, 35%
mortgage-backed securities and collateralized mortgage obligations and 14% other
securities. The comparable distributions for December 31, 1998 was 44% U.S.
Treasury notes and U.S. Government agencies and corporations, 38%
mortgage-backed securities and collateralized mortgage obligations and 18% other
securities.


                                     -11-

<PAGE>


         The following table sets forth the composition of the Company's
investment portfolio at the dates indicated:

                                    INVESTMENT SECURITIES PORTFOLIO COMPOSITION

<TABLE>
<CAPTION>
                                                                                    AT DECEMBER 31,
                                                         ----------------------------------------------------------------
                                                                1999                    1998                   1997
                                                                               (Dollars in thousands)
<S>                                                            <C>                     <C>                    <C>
Securities held to maturity (1):
    Mortgage-backed securities and collateralized
    mortgage obligations.........................              $   262                 $   668                $ 1,962
                                                               =======                 =======                =======
Securities available for sale (2):
    U.S. Treasury securities.....................              $15,005                 $20,304                $21,043
    U.S. Government agencies and corporations....               16,477                   4,034                  3,579
    Mortgage-backed securities and collateralized
    mortgage obligations.........................               21,201                  20,647                 15,851
    State and local government debt securities...                1,620                     621                  1,402
    U.S. Government and agency money market
    funds........................................                2,632                   5,081                    166
    Certificates of deposit......................                2,971                   3,664                    495
    Other securities (3).........................                1,307                     890                    823
                                                               -------                 -------                -------
    Total........................................              $61,213                 $55,241                $43,359
                                                               =======                 =======                =======
</TABLE>

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

(1)  Carried at amortized cost.
(2)  Carried at estimated market value.
(3)  Includes FHLB stock, Federal Reserve stock, FNMA stock and marketable
     equity securities.


               MATURITY SCHEDULE OF SECURITIES AVAILABLE FOR SALE

<TABLE>
<CAPTION>
                                                                       AT DECEMBER 31, 1999
                                                                         (AT MARKET VALUE)
                                ----------------------------------------------------------------------------------------------------
                                      ONE YEAR         OVER ONE YEAR         OVER 5 YEARS
                                      OR LESS         THROUGH 5 YEARS      THROUGH 10 YEARS     OVER 10 YEARS            TOTAL
                                      -------         ---------------      ----------------     -------------            -----
                                WEIGHTED            WEIGHTED             WEIGHTED             WEIGHTED            WEIGHTED
                                 AMOUNT   YIELD(1)   AMOUNT    YIELD(1)   AMOUNT    YIELD(1)   AMOUNT   YIELD(1)   AMOUNT   YIELD(1)
                                 ------   --------   ------    --------   ------    --------   ------   --------   ------   --------
<S>                             <C>       <C>       <C>        <C>       <C>        <C>       <C>       <C>       <C>       <C>
                                                                       (Dollars in thousands)
U.S. Treasury securities....... $ 7,008   5.48%     $ 7,997    5.18%     $   --       --      $   --      --      $15,005   5.32%
U.S. Government agencies and
    corporations...............   3,689   5.39%      12,788    6.05%         --       --          --      --       16,477   5.90%
Mortgaged-backed securities
  and collateralized mortgage
  obligations .................     179   6.28%         328    5.85%      6,617     6.06%      14,077   6.35%      21,201   6.25%
States and local government
  debt securities..............     958   6.17%         351    7.06%        311     7.33%          --     --        1,620   6.59%
U.S. Government and agency
  money market funds...........   2,632   4.79%          --      --          --       --           --     --        2,632   4.79%
Certificates of deposit........   2,971   5.99%          --      --          --       --           --     --        2,971   5.99%
Other securities...............   1,307   5.08%          --      --          --       --           --     --        1,307   5.08%
                                 ------   ----      -------    ----      ------     ----      -------   ----      -------   ----
Total.......................... $18,744   5.49%     $21,464    5.74%     $6,928     6.12%     $14,077   6.35%     $61,213   5.85%
                                =======   ====      =======    ====      ======     ====      =======   ====      =======   ====
</TABLE>

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

(1)  Yield is adjusted for the effect of tax-exempt securities assuming a
     Federal tax rate of 34%.


                                      -12-

<PAGE>


                MATURITY SCHEDULE OF SECURITIES HELD TO MATURITY

<TABLE>
<CAPTION>

                                                                        AT DECEMBER 31, 1999
                                                                        (AT AMORTIZED COST)
                                --------------------------------------------------------------------------------------------------
                                      ONE YEAR         OVER ONE YEAR         OVER 5 YEARS
                                      OR LESS         THROUGH 5 YEARS      THROUGH 10 YEARS     OVER 10 YEARS            TOTAL
                                      -------         ---------------      ----------------     -------------            -----
                                WEIGHTED            WEIGHTED             WEIGHTED             WEIGHTED            WEIGHTED
                                 AMOUNT    YIELD     AMOUNT    YIELD      AMOUNT    YIELD      AMOUNT   YIELD      AMOUNT   YIELD
                                 ------    -----     ------    -----      ------    -----      ------   -----      ------   -----
<S>                             <C>       <C>       <C>        <C>        <C>       <C>       <C>       <C>        <C>      <C>
                                                                       (Dollars in thousands)
Mortgage-backed securities
 and collateralized
 mortgage obligations....          --       --         --       --        $262      5.91%        --      --        $262     5.91%
</TABLE>

         DEPOSIT ACTIVITIES

         The following table sets forth the average balances and weighted
average rates for the Bank's categories of deposits for the periods indicated:

                       AVERAGE DEPOSIT BALANCES AND RATES

<TABLE>
<CAPTION>

                                                                    YEAR ENDED DECEMBER 31,
                           --------------------------------------------------------------------------------------------------------
                                          1999                               1998                              1997
                                                       % OF                               % OF                              % OF
                            AVERAGE      AVERAGE       TOTAL    AVERAGE     AVERAGE      TOTAL    AVERAGE     AVERAGE      TOTAL
                            BALANCE       RATE       DEPOSITS   BALANCE      RATE      DEPOSITS   BALANCE      RATE      DEPOSITS
                            -------       ----       --------   -------      ----      --------   -------      ----      --------
                                                                    (Dollars in thousands)
<S>                         <C>           <C>          <C>      <C>          <C>         <C>      <C>          <C>         <C>
Non-interest checking.....  $ 26,052        --          16%     $ 23,593       --         16%     $ 20,631       --         15%
Interest checking and
money market..............    28,884      2.13%         18%       25,772     2.32%        17%       23,794     2.29%        18%
Savings...................    48,486      3.82%         30%       43,007     4.36%        29%       32,717     4.40%        25%
Certificates of deposit...    58,757      5.38%         36%       57,220     5.66%        38%       55,306     5.68%        42%
                            --------                   ---      --------                 ---      --------                 ---
Total.....................  $162,179                   100%     $149,592                 100%     $132,448                 100%
                            ========                   ===      ========                 ===      ========                 ===
</TABLE>

         The Bank does not have a concentration of deposits from any one source,
the loss of which would have a material adverse effect on the business of the
Bank. Management believes that substantially all the Bank's depositors are
residents in its primary market area. The Bank has not sought brokered deposits
and does not intend to do so in the future.

         The following table summarizes at December 31, 1999 the Bank's
certificates of deposit of $100,000 or more by time remaining until maturity:

<TABLE>
<CAPTION>
                                                             DECEMBER 31, 1999
                                                          ----------------------
                                                          (Dollars in thousands)
   <S>                                                           <C>
   Maturity Period:
    Less than three months..............................         $ 3,454
    Over three months through six months................           3,914
    Over six months through twelve months...............           3,223
    Over twelve months..................................           2,391
                                                                 -------
       Total............................................         $12,982
                                                                 =======
</TABLE>


                                      -13-

<PAGE>


         SHORT-TERM BORROWINGS

         The borrowings utilized by the Bank primarily have been securities sold
under agreements to repurchase. Other short-term borrowings generally include
federal funds purchased, FHLB advances, treasury tax and loan deposits and
interest-bearing demand notes due to the U.S. Treasury, which are repaid upon
notification by the U.S. Treasury.

         The following table sets forth certain information regarding securities
sold under agreement to repurchase for the dates indicated:

<TABLE>
<CAPTION>

                                                                        AT OR FOR THE
                                                                   YEAR ENDED DECEMBER 31,
                                                     ----------------------------------------------------
                                                       1999                   1998                 1997
                                                       ----                   ----                 ----
                                                                   (Dollars in thousands)
<S>                                                   <C>                    <C>                 <C>
Average balances outstanding.................         $13,299                $12,163             $11,931
Maximum amount outstanding at any month-
   end during the year.......................         $14,502                $13,554             $12,991
Balance outstanding at end of year...........         $13,791                $11,747             $11,897
Weighted average rate during the year........            3.86%                  4.23%               4.28%
Weighted average rate at end of year.........            4.35%                  3.60%               4.30%
</TABLE>

FEDERAL AND STATE TAXATION

         GENERAL

         The Company, the Bank and MAC file a consolidated federal income tax
return on a fiscal year basis. Consolidated returns have the effect of
eliminating intercompany distributions, including dividends, from the
computation of consolidated taxable income for the taxable year in which the
distributions occur. Banks and bank holding companies are subject to federal
income taxes in the same manner as other corporations. In accordance with an
income tax sharing agreement, income tax charges or credits will be allocated to
the Company, the Bank and MAC on the basis of their respective taxable income or
loss included in the consolidated income tax return.

         FEDERAL INCOME TAXATION

         Although the Bank's income tax liability is determined under provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), which is
applicable to all taxpayers or corporations, Sections 581 through 597 of the
Code apply specifically to financial institutions.

         The two primary areas in which the treatment of financial institutions
differ from the treatment of other corporations under the Code are in the areas
of bond gains and losses and bad debt deductions. Bond gains and losses
generated from the sale or exchange of portfolio instruments are generally
treated for financial institutions as ordinary gains and losses as opposed to
capital gains and losses for other corporations, as the Code considers bond
portfolios held by banks to be inventory in a trade or business rather than
capital assets. Banks are allowed a statutory method for calculating a reserve
for bad debt deductions. Based on the asset size of the Bank, it is permitted to
maintain a bad debt reserve calculated on an experience method, based on
charge-offs for the current and preceding five years or a "grandfathered" base
year reserve, if larger.


                                      -14-

<PAGE>


         STATE AND LOCAL TAXATION

         The Company on a consolidated basis is subject to a separate state
franchise tax in lieu of state corporate income tax. The amount of the tax is
the sum of 1% of Maine net income and $.08 per $1,000 of Maine assets as defined
in Maine law. Maine assets are the corporation's total end of the year assets as
reported on the federal income tax return. Maine net income is the corporation's
net income or loss as reported on the federal income tax return which is
apportioned to Maine under Maine law.

                           SUPERVISION AND REGULATION

         Bank holding companies and state banks are extensively regulated under
both federal and state law. These laws and regulations are intended to protect
depositors, not shareholders. To the extent that the following information
describes statutory and regulatory provisions, it is qualified in its entirety
by reference to the particular statutory and regulatory provisions. Any change
in the applicable law or regulation may have a material effect on the business
and prospects of the Company and the Bank.

         FINANCIAL HOLDING COMPANY REGULATION

         On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Financial Services Modernization Act of 1999 (the "Act"),
federal legislation intended to modernize the financial services industry by
establishing a comprehensive framework to permit affiliations among commercial
banks, insurance companies, securities firms and other financial service
providers.

         Under the Act, bank holding companies may elect to be regulated as
financial holding companies. Financial holding companies may engage in
activities that are financial in nature or incidental or complementary to
activities which are financial in nature. Bank holding companies may qualify to
become a financial holding company if:

          -    each of its depository institution subsidiaries is "well
               capitalized";

          -    each of its depository institution subsidiaries is "well
               managed";

          -    each of its depository institution subsidiaries has at least a
               "satisfactory" Community Reinvestment Act rating at its most
               recent examination; and

          -    the bank holding company has filed a certification with the
               Federal Reserve Board that it elects to become a financial
               holding company.

         The Company filed an election to be treated as a financial holding
company with the Federal Reserve Bank of Boston in March 2000. As a result, the
Company is currently regulated as a financial holding company. As a financial
holding company, the Company may conduct those activities which are considered
financial in nature under a new section 4(k) of the BHCA. These activities
include:

          -    Activities permissible for bank holding companies prior to the
               enactment of the Act;

          -    Lending, exchanging, transferring, investing for others, or
               safeguarding money or securities;

          -    Underwriting and selling insurance;

          -    Providing financial, investment, or advisory services;


                                      -15-

<PAGE>


          -    Selling pools of assets;

          -    Underwriting, dealing in, or making a market in securities; and

          -    Merchant banking.

         The FRB also has the power to determine by regulation or order
additional financial activities which would be permissible for financial holding
companies. In addition, in order to commence a new activity Merrill Merchants
Bank must have received a "satisfactory" on its latest CRA exam.

         GENERAL

         As a bank holding company and the financial holding company, the
Company is subject to the regulation and supervision of the Federal Reserve
under the BHCA. The Company is also subject to the regulation and supervision of
the Maine Bureau of Banking by virtue of provisions of Maine law which govern
financial institution holding companies such as the Company. Under applicable
federal law, the Company must obtain the approval of the Federal Reserve Board
before it acquires all or substantially all of the assets of a bank or another
bank holding company, merges or consolidates with another bank holding company,
or acquires direct or indirect ownership or control of any voting shares of a
bank or bank holding company if, after such acquisition, it would own or control
more than 5% of any class of voting shares of such bank or bank holding company
(unless it already owns or controls a majority of such shares). Similarly, under
applicable Maine law, the Company must obtain the prior approval of the Maine
Superintendent of the Bureau of Banking before acquiring more than 5% of the
voting shares of a Maine financial institution or of any financial institution
holding company which directly or indirectly controls a Maine financial
institution. Under certain circumstances, the Company may be required to obtain
Federal Reserve Board approval before redeeming any of its equity securities in
an amount in excess of 10% of its net worth in any twelve-month period.
Furthermore, under certain circumstances, any redemptions, dividends, or
distributions with respect to the Company's Common Stock and Preferred Stock may
be considered an unsafe or unsound practice by the Federal Reserve Board.

         Before any "company," as defined in the BHCA, may acquire "control," as
defined in the BHCA, over the Company, the prior approval of the Federal Reserve
Board generally is required. In addition, before any individual or entity which
is not required to seek prior approval from the Federal Reserve Board may
acquire control of the Company, prior notice to the Federal Reserve Board
generally is required. Similarly, notice to and approval by the Maine
Superintendent of the Bureau of Banking is required before any "financial
institution holding company," as defined in the Maine Banking Code, may acquire
more than 5% of a Maine financial institution or Maine financial institution
holding company.

         The Bank is also subject to continued regular supervision and
examination by applicable federal and state banking agencies. The Bank is a
Maine state-chartered bank that is a member of the Federal Reserve System. The
Federal Reserve exercises primary supervision over the Bank through periodic
examination. The Bank is also subject to regulation by the FDIC as well as the
Bureau. The FDIC has authority to terminate insurance for accounts pursuant to
procedures established for that purpose. The Bank must comply with various
requirements and restrictions under federal and state law, including
requirements to maintain reserves against deposits, restrictions on the types
and amounts of loans that may be granted and the interest that may be charged
thereon and limitations on the types of investments that may be made and the
types of services that may be offered. Various consumer laws and regulations
also affect the operations of the Bank. In addition to the impact of regulation,
commercial banks are affected significantly by the actions of the Federal
Reserve Board as it attempts to control the money supply and credit availability
in order to influence the economy.


                                      -16-

<PAGE>


         PAYMENT OF DIVIDENDS

         The Company is a legal entity separate and distinct from the Bank. The
principal source of cash flow of the Company, including cash flow to pay
dividends on its stock or principal and interest on debt, if any, is dividends
from the Bank. There are statutory and regulatory limitations on the payment of
dividends by the Bank to the Company, as well as by the Company to its
shareholders.

         In addition to the statutory prohibition against the withdrawal of any
portion of the Bank's capital and certain statutory limitations on the payment
of dividends, under Maine law the Bank may not pay dividends if it is insolvent
or if the payment of such dividends would render the Bank insolvent. In
addition, Maine law generally requires that dividends may be paid only out of
either unreserved and unrestricted earned surplus or out of the unreserved and
unrestricted net earnings of the then current and preceding fiscal years. If the
dividends are to be paid only out of net earnings, shareholders must be notified
of the source of the dividend and of the fact that there was no earned surplus
from which to pay the dividend.

         The payment of dividends by any state bank that is a member of the
Federal Reserve System is affected by the requirement to maintain adequate
capital pursuant to the capital adequacy guidelines issued by the Federal
Reserve Board. The regulations and restrictions on dividends paid by the Bank
may limit the Company's ability to obtain funds from such dividends for its cash
needs, including funds for payment of operating expenses, and dividends on the
Common Stock.

         If, in the opinion of the applicable federal bank regulatory authority,
a depository institution or holding company is engaged in or is about to engage
in an unsafe or unsound practice (which, depending on the financial condition of
the depository institution or holding company, could include the payment of
dividends), such authority may require, after notice and hearing (except in the
case of an emergency proceeding where there is no notice or hearing), that such
institution or holding company cease and desist from such practice. The federal
banking agencies have indicated that paying dividends that deplete a depository
institution's or holding company's capital base to an inadequate level would be
such an unsafe and unsound banking practice. Moreover, the Federal Reserve and
the FDIC have issued policy statements which provide that bank holding companies
and insured depository institutions generally should only pay dividends out of
current operating earnings. In addition, under the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"), a FDIC-insured depository
institution may not pay any dividend if payment would cause it to become
undercapitalized or once it is undercapitalized. See "FDICIA."

         The payment of dividends by the Company and the Bank also may be
affected or limited by other factors, such as the requirement to maintain
adequate capital above regulatory guidelines.

         TRANSACTIONS WITH AFFILIATES AND INSIDERS

         The Bank is subject to Section 23A of the Federal Reserve Act, which
places limits on the amount of loans or extensions of credit to, or investments
in, or certain other transactions with, affiliates, including the Company. In
addition, limits are placed on the amount of advances to third parties
collateralized by the securities or obligations of affiliates. Most of these
loans and certain other transactions must be secured in prescribed amounts. The
Bank is also subject to Section 23B of the Federal Reserve Act, which, among
other things, prohibits an institution from engaging in transactions with
certain affiliates unless the transactions are on terms substantially the same,
or at least as favorable to such institution or its subsidiaries, as those
prevailing at the time for comparable transactions with non-affiliated
companies.


                                      -17-

<PAGE>


         CAPITAL ADEQUACY

         The federal banking agencies have adopted risk-based capital guidelines
for banks and bank holding companies. The minimum guideline for the ratio of
total capital to risk-weighted assets ("Total Risk Based Capital" ratio) for
"adequately capitalized" institutions is 8%. The minimum adequate capitalization
guideline for the ratio of Tier 1 Capital to risk-weighted assets ("Tier 1 Risk
Based Capital" ratio) is 4%.

         In addition, the federal banking agencies have established minimum
leverage ratio guidelines for banks and bank holding companies. Their guidelines
provide for a minimum ratio of Tier 1 Capital to average assets, less goodwill
and certain other intangible assets (the "Leverage Ratio"), of 3% for banks that
meet certain specific criteria and 4% for other institutions. The Company's
Leverage Ratio at December 31, 1999 was 10.2%. Failure to meet capital
guidelines could subject a bank to a variety of enforcement remedies, including
the termination of deposit insurance by the FDIC, and to certain restrictions on
its business. See "FDICIA."

         HOLDING COMPANY STRUCTURE AND SUPPORT OF THE BANK

         Because the Company is the parent holding company of the Bank, its
right to participate in the assets of any subsidiary upon the Bank's liquidation
or reorganization will be subject to the prior claims of the subsidiary's
creditors (including depositors in the case of bank subsidiaries) except to the
extent that the Company may itself be a creditor with recognized claims against
the subsidiary.

         Under the Federal Deposit Insurance Act (the "FDIA"), a depository
institution insured by the FDIC can be held liable for any loss incurred by, or
reasonably expected to be incurred by the FDIC in connection with (i) the
default of a commonly-controlled FDIC-insured depository institution or (ii) any
assistance provided by the FDIC to any commonly-controlled FDIC-insured
depository institution "in danger of default." "Default" is defined generally as
the appointment of a conservator or receiver and "in danger of default" is
defined generally as the existence of certain conditions indicating that a
default is likely to occur in the absence of regulatory assistance. The FDIC's
claim for damages is superior to claims of depositors, secured creditors and
holders of subordinated debt (other than affiliates) of the commonly controlled
insured depository institution. The Bank is subject to these cross-guarantee
provisions.

         The following table sets forth capital ratios required by the Federal
Reserve to be maintained by the Company in order for the Company to be
adequately capitalized, and the Company's actual ratios of capital to total
regulatory or risk-weighted assets, as applicable, at December 31, 1999.


<TABLE>
<CAPTION>

                                   COMPANY REGULATORY
                                        MINIMUM                COMPANY                BANK
                              ------------------------------------------------------------------
<S>                                     <C>                   <C>                     <C>
Tier 1 capital...............            4.00%                 15.96%                 12.35%
Total risk-based capital.....            8.00%                 17.44%                 13.60%
</TABLE>

         FDICIA

         The FDICIA requires the federal banking regulators to take "prompt
corrective action" in respect of FDIC insured depository institutions that do
not meet minimum capital requirements. The FDICIA established five capital
tiers: "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" and "critically undercapitalized." An
FDIC-insured depository institution is well capitalized if it maintains a
Leverage Ratio of at least 5%, a risk adjusted Tier 1 Capital Ratio of at least
6% and a Total Capital Ratio of at least 10% and is not subject to a directive,
order or written agreement to meet and maintain


                                      -18-

<PAGE>


specific capital levels. An insured depository institution is defined to be
adequately capitalized if it meets all of its minimum capital requirements as
described above. In addition, an insured depository institution will be
considered undercapitalized if it fails to meet any minimum required measure,
significantly undercapitalized if it is significantly below any such measure and
critically undercapitalized if it fails to maintain a level of tangible equity
equal to not less than 2% of total assets. An insured depository institution may
be deemed to be in a capitalization category that is lower than is indicated by
its actual capital position if it receives an unsatisfactory examination rating.

         The capital-based prompt corrective action provisions of FDICIA and
their implementing regulations apply to FDIC-insured depository institutions and
are not directly applicable to holding companies which control such institution.
However, the Federal Reserve Board has indicated that, in regulating bank
holding companies, it will take appropriate action at the holding company level
based on an assessment of the effectiveness of supervisory actions imposed upon
subsidiary depository institutions pursuant to such provisions and regulations.

         FDICIA generally prohibits an FDIC-insured depository institution from
making any capital distribution (including payment of dividends) or paying any
management fee to its holding company if the depository institution would
thereafter be undercapitalized.

         Undercapitalized depository institutions are subject to restrictions on
borrowing from the Federal Reserve. In addition, undercapitalized depository
institutions are subject to growth limitations and are required to submit
capital restoration plans. A depository institution's holding company must
guarantee the capital plan, up to an amount equal to the lesser of 5% of the
depository institution's assets at the time it becomes undercapitalized or the
amount of the capital deficiency when the institution fails to comply with the
plan. The federal banking agencies may not accept a capital plan without
determining, among other things, that the plan is based on realistic assumptions
and is likely to succeed in restoring the depository institution's capital. If a
depository institution fails to submit an acceptable plan, it is treated as if
it is significantly undercapitalized.

         Significantly undercapitalized depository institutions may be subject
to a number of requirements and restrictions, including orders to sell
sufficient voting stock to become adequately capitalized, requirements to reduce
total assets and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized depository institutions are subject to appointment
of a receiver or conservator.

         The Company and the Bank, at December 31, 1999 and 1998, were "well
capitalized" under the criteria discussed above.

         FDIC INSURANCE PREMIUMS

         The Bank is required to pay semiannual FDIC deposit insurance
assessments. Each financial institution is assigned to one of three capital
groups -- well capitalized, adequately capitalized or undercapitalized -- and
further assigned to one of three subgroups within a capital group, on the basis
of supervisory evaluations by the institution's primary federal and, if
applicable, state supervisors and other information relevant to the
institution's financial condition and the risk posed to the FDIC deposit
insurance fund. The actual assessment rate applicable to a particular
institution (and any applicable refund) will, therefore, depend in part upon the
risk assessment classification so assigned to the institution by the FDIC. The
FDIC is authorized by federal law to raise insurance premiums in certain
circumstances. Any increase in premiums would have an adverse effect on the Bank
and the Company's earnings. Under the FDIA, insurance of deposits may be
terminated by the FDIC upon a finding that the institution has engaged in unsafe
and unsound practices, is in an unsafe or unsound condition to continue
operations or has violated any applicable law, regulation, rule, order or
condition imposed by a federal bank regulatory agency.


                                      -19-

<PAGE>


         INTERSTATE BANKING

         The acquisition by the Company of more than 5% of the outstanding
voting securities or substantially all of the assets of a bank located outside
of the State of Maine is regulated by the BHCA. Such acquisition is also subject
to the law of the state in which the bank to be acquired is located. Under
certain circumstances, the Company might not be permitted to acquire an interest
in another bank located outside Maine. Further, any company attempting to
acquire control of the Company or the Bank also may be subject to certain
limitations on interstate banking. Even assuming that the law of the state in
which the bank is located permits acquisition, the Maine Banking Code requires
prior approval of the Superintendent of the Bureau of Banking for certain
acquisitions of more than 5% of a financial institution having operations
conducted outside of Maine.

         The status of interstate banking legislation adopted by individual
states has been in a constant state of change in recent years. While federal law
has substantially liberalized interstate banking, a number of states have
adopted some form of legislation which limits interstate banking by bank holding
companies.

         INTERSTATE ACT

         Subject to certain conditions and exceptions, the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 ("Interstate Act"), (i)
permits bank holding company acquisitions of banks of a minimum age of up to
five years as established by state law in any state, (ii) permits mergers of
national and state banks across state lines unless the state has opted out of
the interstate bank merger provisions, (iii) permits branching de novo by
national and state banks into other states and (iv) permits certain interstate
bank agency activities one year after enactment. Subject to certain limitations,
Maine law permits out of state financial institutions, federal associations and
national banks to establish de novo branches or to acquire branches in Maine.

         COMMUNITY REINVESTMENT ACT

         The Community Reinvestment Act requires that, in connection with
examinations of financial institutions within their jurisdiction, the Federal
Reserve, the FDIC, the Office of the Comptroller of the Currency and the Office
of Thrift Supervision evaluate the record of such financial institutions in
meeting the credit needs of their local communities, including low and moderate
income neighborhoods, consistent with the safe and sound operation of those
institutions. These factors are also considered in evaluating mergers,
acquisitions and applications to open a branch or facility.

         OTHER REGULATIONS

         Interest and certain other charges collected or contracted for by banks
are subject to state usury laws and certain federal laws concerning interest
rates. The Bank's loan operations are also subject to certain federal laws
applicable to credit transactions, such as the federal Truth-In-Lending Act
governing disclosures of credit terms to consumer borrowers, the Home Mortgage
Disclosure Act of 1975 requiring financial institutions to provide information
to enable the public and public officials to determine whether a financial
institution is fulfilling its obligation to help meet the housing needs of the
community it serves, the Equal Credit Opportunity Act prohibiting discrimination
on the basis of race, creed or other prohibited factors in extending credit, the
Fair Credit Reporting Act of 1978 governing the use and provision of information
to credit reporting agencies, the Fair Debt Collection Act governing the manner
in which consumer debts may be collected by collection agencies and the rules
and regulations of the various federal agencies charged with the responsibility
of implementing such federal laws. The deposit operations of the Bank also are
subject to the Right to Financial Privacy Act, which imposes a duty to maintain
confidentiality of consumer financial records and prescribes procedures for
complying


                                      -20-

<PAGE>


with administrative subpoenas of financial records, and the Electronic Funds
Transfer Act and Regulation E issued by the Federal Reserve Board to implement
that act, which govern automatic deposits to and withdrawals from deposit
accounts and customers' rights and liabilities arising from the use of automated
teller machines and other electronic banking services.

ITEM 2.       DESCRIPTION OF PROPERTY

         Over the past seven years, the Company has made improvements to or
relocated from nearly all of the properties it acquired in connection with the
Bank's formation. The most significant project was the 1997 two-story expansion
and renovation of its headquarters building at 201 Main Street. This increased
the size of the structure from 8,000 to a total of 17,000 square feet, and
includes a large branch, commercial, trust and administrative offices as well as
a board room and two conference rooms. The property is located at the gateway to
downtown Bangor and the enhancements to the site have significantly improved the
area. The site suits the Company's present needs and further expansion is
available on the premises if the needs of the Company change in the future.

         992 UNION STREET BRANCH, BANGOR

         In 1997, the Bank relocated from a small, outdated facility at 559
Union Street to a new branch at the Airport Plaza Mall located at 992 Union
Street. This branch includes a spacious lobby, three comfortable offices, a
conference room and kitchen. Adequate parking and convenient access to the
multi-lane drive up and ATM are added benefits.

         920 STILLWATER AVENUE, BANGOR

         In 1994, the Bank relocated from an office within the Bangor Mall to a
spacious facility located in the CrossRoads Plaza. This office includes the
branch and the Residential Mortgage Department and its operational staff. This
location features a multi-lane drive up and ATM and provides service to another
ATM located inside the Bangor Mall.

         366 WILSON STREET, BREWER

         In 1995, the Company sold the original Brewer branch building on North
Main Street and relocated to the present location. This is a leased facility
which had been recently renovated by another bank. It features a multi-lane
drive-up and ATM and is conveniently located at the center of the Brewer
business district.

         69 MAIN STREET, ORONO

         The Orono branch is also located near the center of town on the first
floor of a former bank building. The Company assumed this lease in 1992 and has
made some cosmetic improvements to the facility since that time. In 1998, an ATM
was installed at the site to complement the existing drive-up services.

         27 MAIN STREET, PITTSFIELD

         The Pittsfield branch, which was acquired by the Bank as part of the
start-up, is a historic two story Main Street building with approximately 12,600
square feet of space.


                                      -21-

<PAGE>


         NEWPORT PLAZA, NEWPORT

         In 1997, the Company opened its first branch in a locally owned
supermarket in Newport. This facility is unlike most supermarket banks in that
it includes a drive-up as well as in-store tellers and loan and customer service
personnel.

         191 RIVER ROAD, ORRINGTON

         In November 1999, the Bank opened its first mini branch in a newly
constructed convenience store owned by R. H. Foster. The branch occupies
approximately 300 square feet within the store and includes a traditional
teller station plus a customer service desk and ATM.

         2 MAIN STREET, MILFORD

         In January 2000, the Bank opened a second mini branch in an R. H.
Foster owned convenience store. The branch occupies approximately 250 square
feet of space within the store and includes a traditional teller station and
customer service desk, plus a drive-up window and an ATM.

         1007 MAIN ROAD, HOLDEN

         On February 25, 2000, the Bank acquired this branch from The First
National Bank of Bar Harbor. The branch is a free standing building constructed
in 1992 containing approximately 3,500 square feet of space. The branch includes
a multi-lane drive-up with a full-service ATM, full lobby, two offices, a
conference room, and a full basement.

ITEM 3.       LEGAL PROCEEDINGS

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

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

         None.


                                     PART II

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

         The following information included in the Merrill Merchants Bancshares,
Inc. 1999 Annual Report to Stockholders (the "Annual Report") is incorporated
herein by reference: "Market for Common Stock."

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

         The following information included in the Annual Report is incorporated
herein by reference: "Selected Financial Highlights" on page 2 and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 6 through 14 of the Annual Report.


                                      -22-

<PAGE>


ITEM 7.       FINANCIAL STATEMENTS

         The following information included in the Annual Report is incorporated
herein by reference: "Audited Financial Statements and Notes to Consolidated
Financial Statements" on pages 15 through 32 of the Annual Report.

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

         None.

                                    PART III


ITEM 9.       DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY; COMPLIANCE
              WITH SECTION 16(A) OF THE EXCHANGE ACT

         The following information included in the Company's 1999 Proxy
Statement for the 2000 Annual Meeting of Shareholders ("Proxy Statement") is
incorporated herein by reference: "Election of Directors," "Nominees, Continuing
and Retiring Directors," "Executive Officers," and "Section 16(a) Beneficial
Ownership Reporting Compliance."

ITEM 10.      EXECUTIVE COMPENSATION

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

ITEM 11.       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
               MANAGEMENT

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

ITEM 12.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

ITEM 13.      EXHIBITS, LIST AND REPORTS ON FORM 8-K

     (a)      The following financial statements included in the 1999 Annual
              Report are incorporated herein by reference:

              Consolidated Statements of Financial Condition -- December 31,
              1999 and 1998;

              Consolidated Statements of Income -- Years Ended December 31,
              1999 and 1998;

              Consolidated Statements of Changes in Shareholders Equity --
              December 31, 1999 and 1998;

              Consolidated Statements of Cash Flows -- Years Ended December 31,
              1999 and 1998; and

              Notes to Consolidated Financial Statements -- Years Ended
              December 31, 1999 and 1998.


                                      -23-

<PAGE>


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

3.1    Articles of Incorporation of Merrill Merchants Bancshares, Inc.*

3.2    By-laws of Merrill Merchants Bancshares, Inc.*

4      Specimen Stock Certificate of Merrill Merchants Bancshares, Inc.*

10.1   Operating Agreement between the Company and M&M Consulting Limited
       Liability Company.*

10.2   Services Agreements between the Company and M&M Consulting Limited
       Liability Company.*

10.3   Data Processing Services Agreement between the Company and M&I Data
       Services, a Division of Marshall & Ilsley Corporation.*

10.4   Financial Services Agreement with Financial Institutions Service
       Corporation.*

10.5   Form of Life Insurance Endorsement Method Split Dollar Plan Agreement.*

10.6   Form of Unfunded Deferred Compensation Agreement.*

10.7   Form of Executive Supplemental Retirement Plan.*

10.8   Form of Mandatory Convertible Debentures.*

10.9   Correspondent Trust Services Agreement with Northern Trust Company.*

10.10  Stock Option Plan, as amended.*

10.11  Form of Stock Option Agreement.*

10.12  1998 Directors' Deferred Compensation Plan.*

13     Annual Report to Shareholders for the Year Ended December 31, 1999.

21     Subsidiaries of the Registrant.

23     Consent of Berry Dunn McNeil & Parker.

27     Financial Data Schedule.**

99     2000 Proxy Statement (previously filed on March 16, 2000).

---------------
*Incorporated by reference to the Company's Registration Statement on Form SB-2
(File No. 333-56197), and any amendments thereto filed with the Securities and
Exchange Commission.

**Filed in electronic format only.

     (c)      Reports on Form 8-K.

         None.


                                      -24-

<PAGE>


SIGNATURES

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

MERRILL MERCHANTS BANCSHARES, INC.

By:  /s/ Edwin N. Clift
     -------------------------------------
     PRESIDENT AND CHIEF EXECUTIVE OFFICER

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

<TABLE>
<CAPTION>

             NAME                             TITLE                           DATE

<S>                                        <C>                               <C>

/s/ Edwin N. Clift
------------------------------------        Director, President and Chief     March 16, 2000
Edwin N. Clift                              Executive-Officer
                                            (Principal executive officer)

/s/ Deborah A. Jordan
------------------------------------        Treasurer (Principal financial    March 16, 2000
Deborah A. Jordan                           officer)

/s/ William C. Bullock, Jr.                 Chairman of the Board             March 16, 2000
------------------------------------
William C. Bullock, Jr.

/s/ Joseph H. Cyr                           Director                          March 16, 2000
------------------------------------
Joseph H. Cyr

/s/ Perry B. Hansen                         Director                          March 16, 2000
------------------------------------
Perry B. Hansen

/s/ Leonard E. Minsky                       Director                          March 16, 2000
------------------------------------
Leonard E. Minsky

/s/ Frederick A. Oldenburg, Jr., M.D.       Director                          March 16, 2000
------------------------------------
Frederick A. Oldenburg, Jr., M.D.

/s/ Dennis L. Shubert, M.D., Ph.D.          Director                          March 16, 2000
------------------------------------
Dennis L. Shubert, M.D., Ph.D.

/s/ Susan B. Singer                         Director                          March 16, 2000
------------------------------------
Susan B. Singer

/s/ Harold S. Wright                        Director                          March 16, 2000
------------------------------------
Harold S. Wright

</TABLE>


                                      -25-