<PAGE>

2000 ANNUAL REPORT
Merrill Merchants Bancshares, Inc.

CONTENTS

Financial Highlights                                         1
Letter to Shareholders                                       2
Management's Analysis of Operations                          5
Independent Auditors' Report                                13
Audited Financial Statements                                14
Corporate Directory                                         41
Employees                                                   43
Corporate Information                                       46

<TABLE>
<CAPTION>
                                               SELECTED FINANCIAL HIGHLIGHTS
                                       (Dollars in Thousands, Except Per Share Data)

------------------------------------------------------------------------------------------------------------------
 FOR THE YEAR                                        2000           1999           1998           1997        1996
------------------------------------------------------------------------------------------------------------------
<S>                                           <C>            <C>            <C>            <C>            <C>
Net income                                    $     2,619    $     2,247    $     1,916    $     1,402    $  1,120
Net interest income                                10,026          8,885          8,032          7,155       6,443
Non-interest income                                 3,155          2,602          2,211          1,724       1,489
Non-interest expense                                8,823          7,754          6,939          6,357       5,813
------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE
-----------------------------------------------------------------------------------------------------------------
Earnings per share:
   Basic                                      $      0.98    $      0.82    $      0.89    $      0.76    $   0.60
   Diluted                                           0.87           0.72           0.72           0.66        0.54
Dividends per share                                  0.25           0.20           0.13           0.03          --
Book value per share (1)                             9.00           8.37           7.97           6.26        5.53
Dividend payout ratio                               25.52%         24.71%         15.27%          3.23%         --
------------------------------------------------------------------------------------------------------------------
KEY RATIOS
------------------------------------------------------------------------------------------------------------------
Return on average assets                             1.16%          1.11%          1.05%          0.86%       0.78%
Return on average equity (1)                        11.69          10.52          12.97          13.63       12.28
Equity to assets at year end (1)                     9.45          10.15          10.30           6.14        6.11
Non-performing assets to total assets                0.25           0.15           0.08           0.13        0.45
Net charge-offs to average loans                     0.03           0.07           0.04           0.08        0.04
------------------------------------------------------------------------------------------------------------------
AT YEAR END
------------------------------------------------------------------------------------------------------------------
Total assets                                  $   246,413    $   213,747    $   199,743    $   178,619    $158,425
Loans receivable, net (2)                         163,265        133,948        125,632        117,171     103,979
Investment securities                              59,686         61,475         55,909         45,321      41,014
Deposits                                          200,451        168,578        164,128        146,312     126,704
Borrowed funds                                     20,076         19,069         13,508         20,236      18,991
      Shareholders' equity                         23,292         21,258         20,655         10,967       9,671
     </TABLE>

(1) Excludes effect of unrealized gains or losses on securities
(2) Excludes loans held for sale

                                     Page 1


<PAGE>


Dear Shareholders:

     Merrill Merchants Bancshares, Inc. entered the 21st century well-positioned
for another successful year. Despite the challenge of increasing competition
from all financial sectors, the Company achieved significant growth. Year 2000
was the eighth year of continuous growth for our Company since our start-up in
1992. Merrill Merchants has come a long way since then and we approach the
future with confidence and enthusiasm.

FINANCIAL PERFORMANCE

     A strong local economy, successful business development efforts, and branch
expansions in 2000 translated to 22% growth in the Company's loan portfolio and
15% growth in total assets to $246.4 million at December 31, 2000. The Company
reported net income of $2.6 million for 2000, an increase of 17% over the
previous year. Diluted earnings per share increased 21% to $.87 in 2000 compared
to $.72 in 1999. In December 2000, the Company increased its quarterly dividend
rate to $.07 per common share, representing a 17% increase.

TECHNOLOGY

     In February 2000, we completed a data processing conversion to the Jack
Henry & Associates System. Overall, the conversion went smoothly, and, as
anticipated, our new technology has enabled us to streamline service delivery
and provide new products and additional delivery channels, including Internet
banking. Customer response to Internet banking has been very positive, and we
have been delighted to see 4% of our customer base currently using the product.
Concurrent with the technology explosion of the new century comes a heightened
awareness of our responsibility to ensure the security of our operating system
and to protect the privacy of our customers. This is a responsibility we take
very seriously. New policies and procedures have been implemented to safeguard
our system and customer account information. Providing convenient, secure
financial services to our customers is foremost in our minds.

LENDING ACTIVITIES

     Meeting the credit needs of Maine people and Maine businesses remained a
priority for our Company in 2000, and loan growth was solid across all lines.
Small business lending grew 23%, while the installment

                                     Page 2


<PAGE>


consumer loan portfolio grew $4.6 million or 46% from activity generated by both
the finance company and the Bank. Construction lending and residential mortgage
lending experienced a 21% increase over the previous year.

     For the third consecutive year the Bank was honored by the Small Business
Administration (SBA) as the leading lender among community banks in the State of
Maine. This is a significant accomplishment, but perhaps even more noteworthy is
the fact we were the number two SBA lender among all banks in the state
regardless of asset size.

     Our loan quality remains strong. Non-performing loans as a percentage of
total loans were at .32% at December 31, 2000, comparing very favorably to the
latest data for our national peer group of banks which were at .61%. Loan
charge-offs, net of recoveries, amounted to $39,000 in 2000 compared to $94,000
in 1999.

TRUST & INVESTMENT SERVICES

     Our Trust & Investment Group experienced solid asset growth last year, not
withstanding extreme market volatility. Trust assets under administration
increased to $224.8 million, an increase of $35.4 million over the previous
year.

     As we have mentioned in the past, quality asset selection and adequate
diversification have been at the core of our investment philosophy. These
principles, among others, were tested and validated during the short-term market
swings last year. We remain unyielding in our belief that these principles will
continue to serve the best interests of our customers and their investment
objectives in the year 2001 and beyond.

     We were very pleased to welcome Jay Henderson as our new senior investment
officer in November. In our view, Jay brings outstanding investment experience
to our institution and customers.

COMMUNITY BUILDING

     Improving the quality of life in the communities where we work and live is
a commitment we support through charitable contributions and the volunteer
service of our employees. This year we were particularly pleased to assist the
United Way of Eastern Maine with the launch of their "Read for Success" program.
In addition to purchasing several hundred early childhood books for distribution
to local schools and day care centers, the Bank is providing teams of volunteer
readers on a weekly basis.

     Additionally, the Bank has supported a wide variety of social, economic,
educational and cultural programs. Two of our more notable contributions are
helping to enhance Bangor's Main Street and downtown

                                     Page 3


<PAGE>



area. The Maine Discovery Museum, a children's museum, is scheduled to open
early this year in the former Freese's building, and the University of Maine
Museum of Art will be relocating from the Orono campus to Norumbega Hall later
this year.

RECOGNITION

     People are the key to success in any endeavor, and we are very fortunate to
have a team of talented, dedicated individuals working for our Company. This
team recognizes the importance of being customer-focused in all that we do. In
our opinion this is what distinguishes us from the competition, and we're very
proud to acknowledge their many successes and accomplishments, particularly
related to our systems conversion.

     We would also like to acknowledge the contributions of two of our directors
who will be retiring as of the Annual Meeting in April. John Bacon and J. Donald
Mackintosh have both served as directors since 1992, and we will miss their
wisdom, wit and guidance. We would also like to recognize and applaud the
appointment of Louis H. Kornreich as the new U.S. Bankruptcy Judge in Maine. Lou
served as a director of our Bank from 1999 to the time of his appointment, and
we wish him every success with his new responsibilities.

LOOKING AHEAD

     For the upcoming year, we have set ambitious goals, including the
implementation of aggressive business development strategies. We remain
optimistic that a healthy regional economy and changes within the local
financial services arena will present opportunities for growth.

     During a year of unsettled markets, we were pleased to have the price of
our stock remain fairly stable. Although the price of our stock fell to $8.75
per share in a single trade on December 29, 2000, the average price of our stock
during the month of December was $10.34 per share.

     As ever, Merrill Merchants remains focused on providing service excellence
and increasing shareholder value. Thank you for your ongoing confidence in the
future of our Company. Sincerely,

/s/ Edwin N. Clift                                   /s/ William C. Bullock, Jr.
Edwin N. Clift                                       William C. Bullock, Jr.
President and Chief Executive Officer                Chairman

                                     Page 4


<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS

     Management's discussion and analysis may contain forward-looking statements
that are provided to assist in the understanding of anticipated future financial
performance. However, such performance involves risk and uncertainties which may
cause actual results to differ materially from those expressed in
forward-looking statements. For a discussion of these risks and uncertainties,
see the Company's Annual Report on Form 10-KSB for the year ended December 31,
2000. The Company disclaims any obligation to publically announce future events
or developments that may affect the forward-looking statements contained herein.

GENERAL

     Merrill Merchants Bancshares, Inc. (Company) owns all of the common stock
of Merrill Merchants Bank (Bank) and Maine Acceptance Corporation (MAC). The
Bank is a full-service community bank headquartered in Bangor, Maine, providing
a wide range of consumer, commercial, and trust and investment services through
its ten branches located in central and eastern Maine.

     Merrill Merchants Bank is committed to providing outstanding customer
service and building long term banking relationships with customers. Delivery on
this commitment through local decision-making and personal service has helped
distinguish Merrill Merchants from its competitors. This will continue to be
strategically significant as larger banks consolidate and their service delivery
channels become more depersonalized.

     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, automobile, mobile home and home equity loans.

     The Company's goal is to sustain profitable, controlled growth by focusing
on increased loan and deposit market share; managing yields on earning assets
and rates on interest-bearing liabilities; increasing non-interest income; and
being prepared for acquisitions and expansion opportunities within the financial
services industry.

REVIEW OF FINANCIAL STATEMENTS

     The Company declared a 3% stock dividend in 2000 and a 5% stock dividend in
1999. All financial data included herein has been restated to reflect the impact
of the stock dividends.

     The discussion and analysis that follows focuses on the factors affecting
the Company's financial condition at December 31, 2000, and 1999 and financial
results of operations during 2000 and 1999. This discussion should be read in
conjunction with the consolidated financial statements and notes included
elsewhere in this report.

RESULTS OF OPERATIONS

OVERVIEW

     The Company ended 2000 with consolidated assets of $246.4 million
representing growth of $32.7 million or 15%. Asset growth was attributable to
strong loan demand and a branch acquisition that resulted in $2.1 million in
loans and $6.5 million in deposits. The Company reported net income of $2.6
million or $.98 per basic share and $.87 per diluted share in 2000, as compared
to $2.2 million or $.82 per basic share and $.72 per diluted share in 1999. This
represented earnings growth of $372,000 or 17%. Return on average assets
increased to 1.16% in 2000 compared to 1.11% in 1999 and return on average
equity increased to 11.69% in 2000 from 10.52% in 1999.

                                     Page 5


<PAGE>


AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST INCOME

The following table sets forth, for the years indicated, information regarding
(i) the total dollar amount of interest income of the Company from
interest-earning assets and the resultant average yields; (ii) the total dollar
amount of interest expense on interest-bearing liabilities and the resultant
average costs; (iii) net interest income; (iv) net interest rate spread; and (v)
net interest margin.

<TABLE>
<CAPTION>

Year Ended December 31,                                         2000                                   1999
                                                 -----------------------------------   ------------------------------------
                                                   Average                               Average
(In Thousands)                                     Balance    Interest   Yield/Rate      Balance     Interest  Yield/Rate
                                                 -----------------------------------   ------------------------------------
 <S>                                               <C>           <C>          <C>        <C>          <C>            <C>
 Assets:
 Interest-earning assets:
      Loans (1)                                    $ 153,411    $ 14,708      9.59%      $ 130,720    $ 12,032       9.20%
      Investment securities (2)                       56,159       3,415      6.08%         57,127       3,129       5.48%
      Other earning assets                             1,771         111      6.27%          2,100         106       5.05%
                                                 -----------------------------------   ------------------------------------
           Total interest-earning assets             211,341      18,234      8.63%        189,947      15,267       8.04%
 Non-earning assets                                   15,064                                11,945
                                                 ------------                          ------------
 Total assets                                      $ 226,405                             $ 201,892
                                                 ============                          ============

 Liabilities and Shareholders' Equity:
 Interest-bearing liabilities:
      Savings deposits and interest-bearing
      checking                                        80,178       2,867      3.58%        $77,370       2,468       3.19%
      Certificates of deposit                         74,223       4,318      5.82%         58,757       3,163       5.38%
      Securities sold under agreement to
      repurchase                                      13,055         612      4.69%         13,299         513       3.86%
      Short-term borrowings                            2,989         188      6.29%          1,845          92       4.99%
      Long-term borrowings                             2,938         192      6.54%          1,932         123       6.37%
                                                 -----------------------------------   ------------------------------------
           Total interest-bearing liabilities        173,383       8,177      4.72%        153,203       6,359       4.15%
                                                 -----------------------------------   ------------------------------------
 Other liabilities                                    31,080
                                                                                            27,452
 Shareholders' equity                                 21,942                                21,237
                                                 ------------                          ------------
 Total liabilities and shareholders' equity        $ 226,405                             $ 201,892
                                                 ============                          ============
 Net interest income (2)                                        $ 10,057                               $ 8,908
                                                             ============                          ============
 Net interest rate spread                                                     3.91%                                  3.89%
                                                                         -----------                           ------------
 Net interest margin                                                          4.76%                                  4.69%
                                                                         ===========                           ============
</TABLE>

(1) Non-accruing loans included in computation of average balance. (2) Income
from investment securities and net interest income is presented on a
tax-equivalent basis by adjusting income and yields earned on tax-exempt
securities assuming a federal tax of 34%.

ANALYSIS OF CHANGES IN NET INTEREST INCOME

The following table presents the components of the Company's net interest income
as attributed to volume and rate on a tax-equivalent basis assuming a Federal
tax rate of 34%. The net change attributable to the combined impact of volume
and rate has been solely allocated to the change in volume.

<TABLE>
<CAPTION>


Year Ended December 31,                                  2000                          1999
                                            ----------------------------  -------------------------------
(In Thousands)                                    Increase (Decrease)          Increase (Decrease)
                                                   Due to Change in:            Due to Change in:
                                            ----------------------------  -------------------------------
                                             Volume      Rate     Total    Volume      Rate        Total
                                            --------   -------   -------  --------    -------    --------
<S>                                         <C>        <C>       <C>       <C>        <C>        <C>
 Interest-earning assets:
    Loans                                   $ 2,175    $   501   $ 2,676   $   807    $  (430)   $   377
    Investment securities                       (59)       345       286       480       (182)       298
    Other earning assets                        (21)        26         5        (1)        (4)        (5)
                                            -------    -------   -------   -------    -------    -------
      Total interest income                   2,095        872     2,967     1,286       (616)       670
                                            -------    -------   -------   -------    -------    -------
 Interest-bearing liabilities:
    Savings deposits and interest-bearing
    checking                                    100        299       399       274       (208)        (6)
    Certificates of deposit                     900        255     1,155        83       (156)       (73)
    Securities sold under agreement to
    repurchase                                  (11)       110        99        44        (45)        (1)
    Short-term borrowings                        72         24        96        (4)       (10)       (14)
    Long-term borrowings                         66          3        69       (77)       (24)      (101)
                                            -------    -------   -------   -------    -------    -------
      Total interest expense                  1,127        691     1,818       320       (515)      (195)
                                            -------    -------   -------   -------    -------    -------
 Change in net interest income              $   968    $   181   $ 1,149   $   966    $  (101)   $   865
                                            =======    =======   =======   =======    =======    =======
</TABLE>


                                     Page 6



<PAGE>


NET INTEREST INCOME

     The Company's primary source of operating income is net interest income.
Net interest income on a taxable equivalent basis was $10.1 million for 2000 and
$8.9 million for 1999. Net interest income is the difference between the income
earned on earning assets and the interest paid on interest-bearing liabilities.
Both net interest income and the net interest margin, which is net interest
income expressed as a percentage of average earning assets, are affected by the
volume and mix of earning assets and interest-bearing liabilities and the
interest rates earned or paid on them.

     Net interest income increased by $1.1 million or 13%, on a taxable
equivalent basis in 2000 compared to 1999. This increase was due to growth in
the loan portfolio and an increase in the yield on average earning assets. The
Company's net interest margin increased to 4.76% for 2000 compared to 4.69% for
1999 due to the combination of earning asset yield improvement and the shift in
asset mix as average loans to average assets increased to 68% in 2000 compared
to 65% in 1999. The Federal Funds rate as set by the Federal Reserve averaged
6.24% in 2000 and 5.02% in 1999.

     Interest income increased to $18.2 million or 19% in 2000. The increase was
driven by growth in the average earning assets of $21.4 million or 11% and an
increase in the yield on average earning assets to 8.63% in 2000 from 8.04% in
1999.

     Interest expense increased to $8.2 million in 2000 from $6.4 million in
1999, representing a 29% increase. This increase was a result of growth in
average interest-bearing liabilities of $20.2 million or 13% and an increase in
the cost of funds to 4.72% in 2000 from 4.15% in 1999.

     Management currently anticipates that net interest income will continue to
increase in 2001 due to expected growth in earning assets (primarily loans),
although a decline in the net interest margin is expected due to industry-wide
pricing pressure on loans and deposits and the anticipation of future reductions
in the Federal Funds rate.

NON-INTEREST INCOME

     Non-interest income was $3.2 million for 2000, an increase of $553,000 or
21% over 1999. Other fee income for 2000 includes a one-time gain of $297,000
resulting from the demutualization of an insurance company for which the Bank
received and subsequently sold common stock. The Company continues to experience
growth in fee income categories with increases in service fees on deposit
accounts of 13%, trust fees of 19% and merchant processing fees of 33%.

     Trust fees increased to $967,000 in 2000 compared to $816,000 in 1999. The
market value of client assets under administration increased $35.4 million, or
19%, to $224.8 million at December 31, 2000 compared with trust assets of $189.4
million at December 31, 1999. The increase in trust assets was achieved through
new business development and market value appreciation.

     Gain on the sale of mortgage loans decreased to $158,000 for 2000 compared
to $221,000 for 1999 due to the decline in mortgage refinancing activity
resulting from higher interest rates in 2000. The Company's portfolio of
residential mortgages of $69.3 million serviced for secondary market investors
increased by $3.1 million, or 5%, from December 31, 1999, to December 31, 2000.

     The generation of mortgage sale gains and trust fees is dependent on the
market and economic conditions and, as a result, there can be no assurance that
income levels reported in prior periods can be achieved in the future.

NON-INTEREST EXPENSE

     Non-interest expense increased $1.1 million or 14% for 2000. The increase
was primarily related to the increase in salaries and employee benefits of
$709,000 and the increase in other expenses of $407,000. The Company's
efficiency ratio (non-interest expense divided by the sum of net interest income
and fee income) improved to 66.9% for 2000 compared to 67.5% for 1999.

                                     Page 7


<PAGE>


     Salaries and employee benefits expense totaled $4.7 million for 2000 and
includes a non-recurring charge of $238,000 resulting from restructuring and
amending the Company's supplemental executive retirement plan. Personnel costs
in 2000 increased 12%, when excluding the one-time charge, as a result of normal
annual salary increases, new staffing needs for the two new convenience store
branches, the newly acquired Holden branch and additional staffing required for
the data processing system conversion. In addition, other non-interest expense
increased 21% for 2000 reflecting increases in delivery costs, telephone
expenses, office supplies and merchant and credit card processing expenses

     Annual operating expenses are also expected to increase in future periods
due to future branching and product expansion.

BALANCE SHEET REVIEW

LOANS

     The Bank offers a broad range of personal and business loan products. Total
loans (which excludes loans held for sale) of $165.9 million grew $29.7 million
or 22% from December 31, 1999. Activity was robust across all loan types.
Commercial loan balances increased $8.7 million or 26% in 2000 and now represent
26% of the total loan portfolio compared to 25% in 1999. Real estate lending was
strong in 2000 with commercial real estate loans increasing $10.1 million or 21%
and residential and home construction lending increasing $5.4 million or 21%.
Consumer loans ended the year at $14.6 million representing growth of $4.6
million in 2000, a 46% increase over 1999. The strong consumer loan activity was
generated by new loans originated by MAC of $3.7 million and Bank generated
consumer loans of $969,000.

     The average yield on loans increased to 9.59% in 2000 from 9.20% in 1999.
This increase is the result of higher interest rates in 2000 (the prime rate
average was 9.24% for 2000 and 8.02% for 1999). Management anticipates pressure
on yields on loans due to increased competition from banks and non-traditional
credit providers and lower interest rates in 2001.

INVESTMENT SECURITIES

     The investment portfolio provides liquidity, diversification and earnings
to the Company. The investment portfolio represents 24% of the Company's total
assets. The portfolio is comprised primarily of U.S. Treasury securities, U.S.
Government agencies and collateralized mortgage obligations. Substantially all
of the Company's securities are AAA or equivalently rated. Total investment
securities decreased slightly in 2000 by $1.8 million to $59.7 million at
December 31, 2000 due to strong loan demand. The Company changed its investment
mix during 2000 by increasing its holdings in mortgage-backed securities and
collateralized mortgage obligations (which currently represent 48% of the
investment portfolio compared to 35% at December 31, 1999) and reducing its U.S.
Treasury security holdings to 12% at December 31, 2000, compared to 24% the
previous year. The average yield on the investment portfolio increased to 6.08%
in 2000 compared to 5.48% in 1999 as a result of maturing investments being
reinvested at higher interest rates.

CASH AND CASH EQUIVALENTS

     Total cash and cash equivalents of $11.9 million at December 31, 2000
increased by $2.7 million compared to 1999 year-end balances. The increase in
cash levels of 30% was temporary and related to the timing of cash items in
process of collection.

DEPOSITS

     Deposits are the major source of the Company's funds for lending, investing
and other general business purposes. Deposits are attracted principally from
within the Company's primary market area through the offering of a broad variety
of deposit products, including checking accounts, money market accounts, savings
accounts, certificates of deposit (including jumbo certificates in denominations
of $100,000 or more) and retirement savings plans.


                                     Page 8

<PAGE>

     Total average deposits were $183.6 million for 2000 compared to $162.2
million for 1999, an increase of $21.4 million or 13%. The higher interest rate
environment resulted in a shift in the Company's deposit base from savings
accounts into higher yielding money market accounts and certificates of deposit.
The average balance for interest checking and money markets increased 32%,
certificates of deposit increased 26% and non-interest checking balances
increased 12% in 2000 compared to the average for 1999. The average balance for
savings accounts declined by 13% in 2000 and at December 31, 2000, savings
accounts represented 19% of the total deposits compared to 27% at December 31,
1999. At December 31, 2000, interest checking and money market accounts
represent 25% of total deposits compared to 19% in 1999 and certificates of
deposit as a percentage of total deposits increased to 40% in 2000 from 38% in
1999.

     Due to the higher interest rate environment, the average yield on savings
deposits and interest-bearing checking balances increased to 3.58% in 2000 from
3.19% in 1999 and the average yield on certificates of deposit increased to
5.82% in 2000 from 5.38% in 1999.

     The Company's focus on quality customer service and the branch acquisition
contributed to the deposit growth in 2000. The Company continues to develop
consumer and commercial deposit relationships through referrals and additional
contacts within its market area.

BORROWINGS AND ACCRUED EXPENSES AND OTHER LIABILITIES

     The Company's primary source of funding, other than deposits, is securities
sold under agreement to repurchase. Average balances for securities sold under
repurchase agreements were $13.1 million in 2000 and $13.3 million in 1999.
These are collateralized by U.S. government obligations. Other short-term
borrowings include federal funds purchased, Federal Home Loan Bank (FHLB)
advances, commercial lines of credit, treasury tax and loan deposits and
interest-bearing demand notes due to the U.S. Treasury.

     Accrued expenses and other liabilities decreased $2.2 million to $2.3
million at December 31, 2000. The decrease related to accruing for the purchase
of $3.0 million of investment securities at December 31, 1999 that settled in
2000.

ASSET QUALITY

     Management seeks to maintain a high quality of assets through prudent
underwriting and sound lending practices. Approximately 22% of the Company's
loan portfolio is collateralized by first liens on primarily owner-occupied
residential homes which have historically carried a relatively low credit risk.
The Bank also maintains a commercial real estate portfolio comprised primarily
of owner-occupied commercial businesses.

     The Bank participates in government guaranteed loan programs including the
Small Business Administration ("SBA"), Rural Development ("RD") and the Finance
Authority of Maine ("FAME"). At December 31, 2000, total loans under these
programs totaled $15.0 million of which $11.2 million, or 7% of the total loan
portfolio outstanding, is guaranteed by the various federal and state government
entities.

     The Company continues to focus on asset quality issues and emphasizes loan
review and underwriting procedures. The Bank utilizes the services of a
consultant, M&M Consulting, LLC, (a joint venture owned 50% by the Company), to
perform periodic loan and documentation review. Management has established a
risk rating and review process with the objective of quickly identifying,
evaluating and initiating necessary corrective action for all commercial and
commercial real estate loans. The goal of the risk rating process is to address
the watch list, substandard and non-performing loans, as early as possible.
These components of risk management are integral elements of the Bank's loan
program which have contributed to the loan portfolio performance to date.
Nonetheless, management maintains a cautious outlook in attempting to anticipate
the potential effects of uncertain economic conditions (both locally and
nationally).

                                     Page 9


<PAGE>


NONPERFORMING ASSETS

     Nonperforming assets consist of non-accrual loans, other loans past due
over 90 days and other real estate owned. Non-performing assets at December 31,
2000, were $574,000 compared to $316,000 at December 31, 1999. Total
nonperforming assets as a percentage of total assets increased to .25% at
December 31, 2000, compared to .15% at December 31, 1999.

     Loans are placed on non-accrual status when, in the judgment of management,
principal repayment is doubtful, whether current or past due. When a loan is
placed on non-accrual status, previously accrued but unpaid interest is deducted
from interest income. As a matter of policy, interest is generally not accrued
on loans past due 90 days or more. The Bank does not return a loan to accrual
status until it is brought current with respect to both principal and interest,
future payments are no longer in doubt, and the loan has been performing for at
least six consecutive months.

PROVISION AND ALLOWANCE FOR LOAN LOSSES

     The provision for loan losses is a result of management's periodic analysis
of the adequacy of the allowance for loan losses. The provision for loan losses
was $423,000 for 2000 and $345,000 for 1999, an increase of $78,000 or 23%. The
allowance for loan losses represented 1.60% of loans outstanding at December 31,
2000, as compared to 1.67% at December 31, 1999. Net charge-offs were $39,000
during 2000 or .03% of average loans outstanding, as compared to $94,000 in 1999
or .07%. The low level of net loan charge-offs is indicative of the Company's
loan quality and credit administration standards and the generally good economic
environment existing in the Company's primary market area.

     The allowance for loan losses is maintained at a level determined to be
adequate by management to absorb future charge-offs of loans deemed
noncollectible. This allowance is increased by provisions charged to operating
expense and by recoveries on loans previously charged off. A high degree of
judgment is necessary to determine the appropriate level of allowance for loan
losses and requires management's ongoing evaluation of adequacy. The evaluation
process includes, among other things, industry standards, management's
experience, the Bank's historical loan loss experience, evaluation of economic
conditions and regular reviews of delinquencies and loan portfolio quality.
Although management believes it uses the best information available to make
determinations with respect to the allowance for loan losses, future adjustments
may be necessary if economic conditions differ from the economic conditions in
the assumptions used in making the final determinations.

     Future provisions for loan losses depend on such factors as asset quality,
net loan charge-offs, loan growth and other criteria discussed above. The
appropriate level of the allowance for loan losses and the corresponding
provision will continue to be determined quarterly. Management anticipates that
there will be a provision for loan losses in 2001; however, the specific amount
cannot be determined at this time. Changes in circumstances affecting the
various factors of the Company's methodology will determine the provision amount
in 2001.

ASSET/LIABILITY MANAGEMENT

MARKET RISK

     Market risk is the risk of loss in a financial instrument arising from
adverse changes in market rates/prices such as interest rates, foreign currency
exchange rates, commodity prices and equity prices. The Company's primary market
risk exposure is interest rate risk. The ongoing monitoring and management of
this risk is an important component of the Company's asset/liability management
process which is governed by policies established by its Board of Directors that
are reviewed and approved annually.

     The Board of Directors delegates responsibility for carrying out the
asset/liability management policies to its Asset/Liability Committee ("ALCO").
In this capacity, ALCO

                                     Page 10


<PAGE>


develops guidelines and strategies impacting the Company's asset/liability
management process based upon estimated market risk sensitivity, policy limits
and overall market interest rate levels/trends.

INTEREST RATE RISK

     Interest rate risk represents the sensitivity of earnings to changes in
market interest rates. As interest rates change, the interest income and expense
streams associated with the Company's financial instruments also change thereby
impacting net interest income ("NII"), the primary component of the Company's
earnings. ALCO utilizes the results of a detailed and dynamic simulation model
to quantify the estimated exposure of NII to sustained interest rate changes.
While ALCO routinely monitors simulated NII sensitivity over a rolling two-year
horizon, it also utilizes additional tools to monitor potential longer-term
interest rate risk.

     The simulation model captures the impact of changing interest rates on the
interest income received and interest expense paid on all assets and liabilities
reflected on the Company's statement of financial condition. This sensitivity
analysis is compared to ALCO policy limits which specify a maximum tolerance
level for NII exposure over a one year horizon, assuming no balance sheet
growth, given both a 200 basis point (bp) upward and downward shift in interest
rates. A parallel and pro rata shift in rates over a 12 month period is assumed.

LIQUIDITY

     Liquidity represents the ability to meet both asset growth and deposit
withdrawals. Many factors affect a company's ability to meet liquidity needs,
including changes in the markets served, its asset-liability mix, its reputation
and credit standing in the market and general economic conditions. In addition
to traditional in-market deposit sources, the Company has other sources of
liquidity, including proceeds from maturing investment securities and loans, the
sale of investment securities, Federal Funds through correspondent bank
relationships and FHLB borrowings. Additional liquidity is available in the loan
portfolio through sale of residential mortgages and the guaranteed portion of
SBA loans. Management believes that the current level of liquidity is sufficient
to meet current and future funding requirements.

CAPITAL

     At December 31, 2000, shareholders' equity totaled $23.3 million or 9.5% of
total assets, as compared to $21.3 million or 10.0% at December 31, 1999. The
increase in shareholders' equity was attributable to: net income of $2.6
million; change in unrealized gain on securities of $444,000; stock option
exercises of $200,000, less net share repurchases of $539,000; and $731,000 in
cash dividends.

     Capital guidelines issued by the Federal Reserve Board require the Company
to maintain certain ratios. The Company's risk based capital ratios for Tier 1
and Tier 2 Capital (as defined by federal banking agency regulations) at
December 31, 2000 of 13.78% and 15.21%, respectively, exceed regulatory
guidelines for a "well capitalized" financial institution. The Company's Tier 1
and Tier 2 risk based capital ratios at December 31, 1999 were 15.96% and
17.44%, respectively. The Bank is also subject to federal regulatory capital
requirements. At December 31, 2000, the Bank was deemed to be "well capitalized"
under the applicable regulations.

     On April 28, 2000, the Board of Directors approved its second stock
repurchase program authorizing the Company to repurchase up to 129,416 shares of
the Company's common stock. The Company has repurchased 132,850 shares of the
255,416 shares authorized under the first and second stock repurchase programs.
These shares will be repurchased into treasury for the purpose of funding the
expected exercise of stock options.

                                    Page 11


<PAGE>


IMPACT OF NEW ACCOUNTING STANDARDS

     Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 137, and
SFAS No. 138 "Accounting for Certain Derivative Instruments and Certain Hedging
Activities," are effective for all fiscal quarters of all fiscal years beginning
after June 15, 2000. These statements set accounting and reporting standards for
derivative instruments and hedging activities. They require an entity to
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. These statements are expected to
have no impact on the Company as it has not engaged in any derivative
transactions.

     SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" is effective for transfers occurring after
March 31, 2001. SFAS No. 140 replaces SFAS No. 125. This statement is expected
to have no material impact to the Company's consolidated financial condition and
results of operations.

MARKET FOR COMMON STOCK

     Market prices (as quoted by Nasdaq) and cash dividends paid, per share of
the Company's common stock, by calendar quarter for the past two years are
listed below. Per share data information has been adjusted to reflect the 3% and
5% stock dividend in 2000 and 1999, respectively.

<TABLE>
<CAPTION>
                                                                2000
---------------- ------------------------ ------------------------ ------------------------ ------------------------
                     Fourth Quarter            Third Quarter           Second Quarter            First Quarter
---------------- ------------------------ ------------------------ ------------------------ ------------------------
<S>                                <C>                      <C>                      <C>                      <C>
High                              $11.19                   $11.25                   $12.13                   $10.92
Low                                 8.44                    10.00                     8.75                     6.50
Close                               8.75                    11.25                    11.25                     9.00
Dividend Paid                        .07                      .06                      .06                      .06

</TABLE>


<TABLE>
<CAPTION>
                                                                1999
---------------- ------------------------ ------------------------ ------------------------ ------------------------
                     Fourth Quarter            Third Quarter           Second Quarter            First Quarter
---------------- ------------------------ ------------------------ ------------------------ ------------------------
<S>                               <C>                      <C>                      <C>                      <C>
High                              $11.89                   $11.77                   $11.89                   $12.86
Low                                 8.74                    10.56                    10.19                    10.17
Close                               8.98                    11.17                    11.41                    11.17
Dividend Paid                        .06                      .05                      .05                      .05
</TABLE>


     As of December 31, 2000, the Company had approximately  1,055  shareholders
of record and 2,586,396 shares outstanding.

     There are significant regulatory limitations on the Company's ability to
pay dividends depending on the dividends it receives from its subsidiary,
Merrill Merchants Bank, which are subject to regulations and the Bank's
continued compliance with all regulatory capital requirements and the overall
health of the institution. In addition, the Company has a class of cumulative
preferred stock, meaning that if dividends are not paid when declared, they will
accumulate and be payable in full before any dividends are paid on common stock.
See notes 15 and 18 of the notes to the consolidated financial statements for a
discussion of the preferred stock and the Bank's regulatory matters,
respectively.

                                     Page 12


<PAGE>



                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Shareholders
Merrill Merchants Bancshares, Inc.

     We have audited the accompanying consolidated statements of financial
condition of Merrill Merchants Bancshares, Inc. and Subsidiaries as of December
31, 2000 and 1999, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Merrill Merchants Bancshares, Inc. and Subsidiaries at December 31, 2000 and
1999 and the consolidated results of their operations and their consolidated
cash flows for the years then ended in conformity with generally accepted
accounting principles.



/s/Berry, Dunn, McNeil & Parker
BERRY DUNN MCNEIL & PARKER
Portland, Maine
January 11, 2001


                                     Page 13


<PAGE>


               MERRILL MERCHANTS BANCSHARES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
<TABLE>
<CAPTION>

ASSETS
                                                                                      DECEMBER 31,
                                                                                    2000         1999
                                                                                    ----         ----
<S>                                                                            <C>          <C>
Cash and due from banks                                                        $  11,796    $   9,081
Interest-bearing deposits with banks                                                  57           41
                                                                               ---------    ---------
       Total cash and cash equivalents                                            11,853        9,122
Investment securities
   Available for sale                                                             59,686       61,213
   To be held to maturity                                                           --            262
Loans held for sale                                                                  827          381
Loans receivable                                                                 165,923      136,222
   Less allowance for loan losses                                                  2,658        2,274
                                                                               ---------    ---------
       Net loans receivable                                                      163,265      133,948
Other real estate owned                                                               90           50
Properties and equipment, net                                                      3,642        3,074
Cash surrender value of life insurance                                             2,768        2,656
Deferred income tax benefit                                                          624          570
Accrued income and other assets                                                    3,658        2,471
                                                                               ---------    ---------
       Total assets                                                            $ 246,413    $ 213,747
                                                                               =========    =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits                                                                $  34,209    $  27,639
Savings and NOW deposits                                                          86,975       77,759
Certificates of deposit                                                           79,267       63,180
                                                                               ---------    ---------
           Total deposits                                                        200,451      168,578
Securities sold under agreements to
   repurchase (term and demand)                                                   14,168       13,791
Other borrowed funds                                                               5,908        5,278
Accrued expenses and other liabilities                                             2,294        4,542
Mandatory convertible debentures                                                     300          300
                                                                               ---------    ---------
           Total liabilities                                                     223,121      192,489
                                                                               ---------    ---------
Commitments (Notes 7, 8, 14, 18 and 19)
Shareholders' equity
   Convertible cumulative preferred stock, par value
       $1; authorized 50,000 shares, issued and outstanding
       19,566 shares                                                                  20           20
   Common stock, $1 par value; 4,000,000 shares authorized;
       shares issued 2,661,450 and outstanding 2,586,396 in 2000; and
       shares issued 2,583,986 and outstanding 2,517,739 in 1999                   2,661        2,584
   Capital surplus                                                                17,958       17,220
   Retained earnings                                                               3,436        2,618
   Accumulated other comprehensive income (loss)
       Unrealized gain (loss) on securities available for sale, net of tax
       of $4 and $(224) in 2000 and 1999, respectively                                 9         (435)
   Treasury stock, at cost - 75,054 shares in 2000 and 66,247 shares in 1999        (792)        (749)
                                                                               ---------    ---------
           Total shareholders' equity                                             23,292       21,258
                                                                               ---------    ---------
           Total liabilities and shareholders' equity                          $ 246,413    $ 213,747
                                                                               =========    =========

</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                     Page 14


<PAGE>


               MERRILL MERCHANTS BANCSHARES, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>

(In Thousands, Except Number of Shares
and Per Share Data)                                     YEARS ENDED DECEMBER 31,
                                                               2000      1999
                                                               ----      ----
<S>                                                            <C>       <C>
Interest and dividend income
   Interest and fees on loans                                  $14,708   $12,032
   Interest on investment securities                             3,271     2,826
   Dividends on investment securities                              113       280
   Interest on federal funds sold                                  111       106
                                                               -------   -------
       Total interest and dividend income                       18,203    15,244
                                                               -------   -------
Interest expense
   Interest on deposits                                          7,185     5,631
   Interest on borrowed funds                                      992       728
                                                               -------   -------
       Total interest expense                                    8,177     6,359
                                                               -------   -------
       Net interest income                                      10,026     8,885
Provision for loan losses                                          423       345
                                                               -------   -------
       Net interest income after provision for loan losses       9,603     8,540
                                                               -------   -------
Other income
   Service charges on deposit accounts                             658       583
   Other service charges and fees                                  835       689
   Trust fees                                                      967       816
   Net gain on sale of mortgage loans                              158       221
   Other                                                           537       293
                                                               -------   -------
       Total other income                                        3,155     2,602
                                                               -------   -------
Other expense
   Salaries and employee benefits                                4,665     3,956
   Occupancy expense                                               694       633
   Equipment expense                                               637       484
   Data processing                                                 493       754
   Other                                                         2,334     1,927
                                                               -------   -------
       Total other expense                                       8,823     7,754
                                                               -------   -------
Income before income taxes                                       3,935     3,388
Income tax expense                                               1,316     1,141
                                                               -------   -------
       Net income                                              $ 2,619   $ 2,247
                                                               =======   =======

Per share data
   Basic earnings per common share                             $  0.98   $  0.82
                                                               =======   =======
   Diluted earnings per common share                           $  0.87   $  0.72
                                                               =======   =======

</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                                     Page 15


<PAGE>



               MERRILL MERCHANTS BANCSHARES, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>

(IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
                                                                                  Unrealized
                                    Convertible                                  Gain (Loss)
                                    Cumulative                                  on Securities               Total
                                     Preferred   Common    Capital    Retained    Available   Treasury  Shareholders'
                                       Stock      Stock    Surplus    Earnings     for Sale     Stock      Equity
                                     ---------  ---------  --------   --------    --------    --------    --------
 <S>                                  <C>        <C>        <C>        <C>         <C>         <C>         <C>
Balance at December 31, 1998         $     20   $  2,388   $ 15,527   $  2,638    $     82    $   --      $ 20,655
Net income                               --         --           --      2,247          --        --         2,247
Change in unrealized gain (loss)
   on securities available for
   sale, net of deferred income
   taxes of $(267)                       --         --         --         --          (517)       --          (517)
                                     --------   --------   --------   --------    --------    --------    --------
Total comprehensive income               --         --         --        2,247        (517)       --         1,730
Common stock options exercised,
   96,132 shares                         --           74        177       (111)       --           161         301
5% common stock dividend
   declared                              --          122      1,424     (1,546)       --          --          --
Treasury stock purchased (80,258
   shares at an average price of
$ 11.34)                                 --         --         --          --         --          (910)       (910)
Tax benefit related to exercise of
   stock options                         --         --           92       --          --          --            92
Common stock cash dividend
  declared, $.20 per share               --         --         --         (538)       --          --          (538)
Convertible cumulative preferred
   stock dividends declared, $3.68
   per share                             --         --         --          (72)       --          --           (72)
                                     --------   --------   --------   --------    --------    --------    --------

Balance at December 31, 1999         $     20   $  2,584   $ 17,220   $  2,618    $   (435)   $   (749)   $ 21,258
Net income                               --         --         --        2,619        --          --         2,619
Change in unrealized gain (loss)
   on securities available for
   sale, net of deferred income
   taxes of $228                         --         --         --         --           444        --           444
                                     --------   --------   --------   --------    --------    --------    --------
Total comprehensive income               --         --         --        2,619         444        --         3,063
Common stock options exercised,
   43,949 shares                         --         --         --         (296)       --           496         200
3% common stock dividend
   declared                              --           77        697       (775)       --          --            (1)
Treasury stock purchased (52,592
   shares at an average price of
$10.25)                                  --         --         --         --          --          (539)       (539)
Tax benefit related to exercise of
   stock options                         --         --           41       --          --          --            41
Common stock cash dividend
  declared, $.25 per share               --         --         --         (647)       --          --          (647)
Convertible cumulative preferred
   stock dividends declared, $5.02
   per share                             --         --         --          (83)       --          --           (83)
                                     --------   --------   --------   --------    --------    --------    --------

Balance at December 31, 2000         $     20   $  2,661   $ 17,958   $  3,436    $      9    $   (792)   $ 23,292
                                     ========   ========   ========   ========    ========    ========    ========

</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                     Page 16


<PAGE>


               MERRILL MERCHANTS BANCSHARES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

(IN THOUSANDS)                                                                      YEARS ENDED DECEMBER 31,
                                                                                        2000        1999
                                                                                        ----        ----
<S>                                                                                 <C>         <C>
Cash flows from operating activities
   Net income                                                                       $  2,619    $  2,247
   Adjustments to reconcile net income to net
    cash provided by operating activities
      Depreciation                                                                       431         298
      Amortization                                                                       348         170
      Net amortization on investment securities                                           15         196
      Deferred income taxes                                                             (282)       (114)
      Provision for loan losses                                                          423         345
      Gain on equity securities received from
         demutualization of insurance company                                           (297)       --
      Net gain on sale of mortgage loans,
         investment securities, and property and equipment                              (119)       (158)
      Net change in:
         Loans held for sale                                                            (446)      2,494
         Deferred loan fees                                                                2          (4)
         Accrued income and other assets                                                (522)       (312)
         Accrued expenses and other liabilities                                          731         181
                                                                                    --------    --------
             Net cash provided by operating activities                                 2,903       5,343
                                                                                    --------    --------
Cash flows from investing activities
   Net loans made to customers                                                       (27,815)     (8,838)
   Acquisition of premises and equipment and computer software                        (1,147)       (726)
   Purchase of investment securities available for sale                              (35,125)    (50,136)
   Proceeds from sales and maturities of investment securities
      Sales and maturities of available for sale securities                           34,825      46,151
      Maturities of held to maturity securities                                          262         407
   Proceeds from sale of other real estate owned                                        --            49
   Proceeds from sale of premises and equipment                                           19         153
                                                                                    --------    --------
             Net cash used in investing activities                                   (28,981)    (12,940)
                                                                                    --------    --------
Cash flows from financing activities
   Net increase in demand, savings and NOW deposits                                   12,180         454
   Net increase in certificates of deposit                                            13,424       3,996
   Net increase in securities sold under
     agreement to repurchase                                                             111       2,044
   Net increase (decrease) in other borrowed funds                                       (52)      3,046
   Long term advances from the Federal Home Loan Bank                                  2,000       1,000
   Payments of long-term advances                                                     (1,318)       (229)
   Cash received in branch acquisition                                                 3,534        --
   Dividends paid on convertible cumulative preferred stock
     and common stock                                                                   (731)       (610)
   Proceeds from stock issuance                                                          200         301
   Purchase of treasury stock                                                           (539)       (910)
                                                                                    --------    --------
             Net cash provided by financing activities                                28,809       9,092
                                                                                    --------    --------
 Net  increase in cash and cash equivalents                                            2,731       1,495
Cash and cash equivalents, beginning of year                                           9,122       7,627
                                                                                    --------    --------
Cash and cash equivalents, end of year                                              $ 11,853    $  9,122
                                                                                    ========    ========

Supplemental disclosures of cash flow information
   Cash paid for interest                                                           $  7,875    $  6,342
   Transfers to other real estate owned                                                   40         177
   Income tax paid                                                                     1,493       1,327

</TABLE>

   The accompanying notes are an integral part of these consolidated financial
statements.

                                     Page 17


<PAGE>


               MERRILL MERCHANTS BANCSHARES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999

      (PRESENTED IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          The accounting and reporting policies conform to generally accepted
     accounting principles and to general practice within the banking industry.
     The following is a summary of the significant accounting and reporting
     policies.

     NATURE OF  BUSINESS

          Merrill Merchants Bancshares, Inc. (Company) is a financial holding
     company that owns all of the common stock of Merrill Merchants Bank (Bank)
     and Maine Acceptance Corporation (MAC). The Bank operates branches in
     Bangor (three offices), Brewer, Holden, Milford, Newport, Orono, Orrington,
     and Pittsfield, Maine.

          The Bank's lending activities are conducted principally in central
     Maine. The Bank grants single family and multi-family residential loans,
     commercial real estate loans, commercial loans, and a variety of consumer
     loans. In addition, the Bank grants loans for the construction of
     residential homes, multi-family properties and commercial real estate
     properties. Most loans granted by the Bank are either collateralized by
     real estate or guaranteed by federal and local governmental authorities.
     The ability and willingness of the single family residential and consumer
     borrowers to honor their repayment commitments is generally dependent on
     the level of overall economic activity within the borrowers' geographic
     areas and real estate values. The ability and willingness of commercial
     real estate, commercial and construction loan borrowers to honor their
     repayment commitments is generally dependent on the health of the real
     estate economic sector in the borrowers' geographic areas and the general
     economy.

          Maine Acceptance Corporation, a finance company located in Bangor,
     Maine, provides indirect auto and recreational vehicle lending, as well as
     other types of loans, including personal unsecured, recreational vehicles,
     automobiles, mobile homes, and home equity loans.

          The Bank is under the supervision of the Board of Governors of the
     Federal Reserve System and the Maine Bureau of Banking, and its deposits
     are insured by the Federal Deposit Insurance Corporation (FDIC).

     ESTIMATES

          The preparation of financial statements in conformity with generally
     accepted accounting principles requires management to make estimates and
     assumptions that affect the reported amounts of assets and liabilities and
     disclosure of contingent assets and liabilities at the date of the
     financial statements and the reported amounts of revenues and expenses
     during the reporting period. Actual results could differ from those
     estimates.

          Material estimates that are particularly susceptible to significant
     change in the near term relate to the determination of the allowance for
     loan losses and the valuation of real estate acquired in connection with
     foreclosures or in satisfaction of loans. In connection with the
     determination of the allowance for loan losses and the carrying value of
     real estate owned, management obtains independent appraisals for
     significant properties.

     FINANCIAL STATEMENT PRESENTATION

          The accompanying consolidated financial statements include the
     accounts of Merrill Merchants Bancshares, Inc. and its wholly-owned
     subsidiaries, Merrill Merchants Bank, a state-chartered bank and Maine
     Acceptance Corporation. All intercompany accounts and transactions have
     been eliminated in the consolidated financial statements.

                                     Page 18


<PAGE>



          SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
     Information," requires a company to disclose certain income statement and
     balance sheet information by operating segment. Since the Company's
     operations include only its banking and financing activities, no additional
     disclosure standards are required by the Statement.


     INVESTMENT SECURITIES

          Investment debt securities that management has the ability and intent
     to hold to maturity are classified as held to maturity and carried at
     amortized cost. Other marketable securities are classified as available for
     sale and are carried at fair value. Unrealized gains and losses on
     securities available for sale, net of income taxes, are recognized as
     direct increases or decreases in shareholders' equity. Market values of
     securities are obtained from independent market sources. Cost of securities
     sold is recognized using the specific identification method.

          Premiums are amortized and discounts are accreted using methods
     approximating the interest method.


     LOANS HELD FOR SALE

          Residential mortgage loans originated and intended for sale in the
     secondary market are carried at the lower of aggregate cost or estimated
     market value. Gains or losses on sales of loans are recognized at the time
     of sale and are based upon the difference between the selling price and the
     carrying amount of loans sold.


     OTHER REAL ESTATE OWNED

          Other real estate owned (OREO) includes real estate and repossessed
     personal property held for sale which have been acquired principally
     through foreclosure or a similar conveyance of title. Real estate may be
     considered to be in-substance foreclosed and included in OREO, prior to the
     conveyance of title when specific criteria are met. Both foreclosed and
     in-substance foreclosed real estate, as well as repossessed personal
     property, are carried at the lower of their recorded amounts or fair value
     less estimated costs of disposal. Any write-downs at, or prior to, the
     dates of acquisition are charged to the allowance for loan losses.
     Subsequent write-downs are recorded in other expense. Expenses incurred in
     connection with holding such assets and gains and losses upon sale are
     included in other expense or other income.


     LOANS RECEIVABLE

          Loans receivable that management has the intent and ability to hold
     for the foreseeable future or until maturity or pay-off are reported at
     their outstanding principal adjusted for any charge-offs, the allowance for
     loan losses, and any deferred fees or costs.

          Interest on loans is accrued and credited to income based on the
     principal amount outstanding. The accrual of interest on loans is
     discontinued when, in the opinion of management, there is an indication
     that the borrower may be unable to meet payments as they become due or the
     loan becomes past due 90 days or more unless the credit is well-secured and
     in process of collection. Upon such discontinuance, all unpaid accrued
     interest is reversed. Interest income is subsequently recognized only to
     the extent cash payments are received.

          The allowance for loan losses is maintained at a level adequate to
     absorb probable losses. Management determines the adequacy of the allowance
     based upon reviews of individual credits, recent loss experience, current
     economic conditions, the risk characteristics of the various categories of
     loans and other pertinent factors. Loans deemed uncollectible are charged
     to the allowance. Provisions for loan losses and recoveries on loans
     previously charged off are added to the allowance.

          Loans considered to be impaired are reduced to the present value of
     expected future cash flows or to the fair value of collateral, by
     allocating a portion of the allowance for loan losses to such loans. If
     these allocations cause the allowance for loan losses to require an
     increase, such increase is included in the provision for loan losses.


     LOAN SERVICING

          The cost of mortgage servicing rights is amortized in proportion to,
     and over the period of, estimated net servicing



                                     Page 19



<PAGE>



     revenues. Impairment of mortgage servicing rights is assessed based on
     the fair value of those rights. Fair values are estimated using discounted
     cash flows based on a current market interest rate. For purposes of
     measuring impairment, the rights are stratified based on loan type,
     investor type, and interest rate. The amount of impairment recognized is
     the amount by which the capitalized mortgage servicing rights for a stratum
     exceed their fair value.

     PROPERTIES AND EQUIPMENT

          Properties and equipment are stated at cost, less accumulated
     depreciation. The provision for depreciation is computed on the
     straight-line method and by accelerated methods over the estimated useful
     lives of the assets.

     GOODWILL AND ORGANIZATION COSTS

          Goodwill is being amortized using the straight-line method over seven
     and fifteen years. Prior to 1999, organization costs were amortized using
     the straight-line method over seven years. Upon adoption of Statement of
     Position No. 98-5 in January 1999, the unamortized balance of organization
     costs of $44 was expensed.

     LOAN ORIGINATION FEES AND COSTS

          Loan origination fees and certain direct origination costs are
     capitalized and recognized as an adjustment of the yield on the related
     loan.

     INCOME TAXES

          The Company records deferred tax assets and liabilities for future tax
     consequences attributable to differences between the financial statement
     carrying amounts of assets and liabilities and their respective tax bases.
     Deferred tax assets and liabilities are measured using enacted tax rates
     expected to apply to taxable income in the years in which those temporary
     differences are expected to be recovered or settled.

     OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS

          In the ordinary course of business, the Bank has entered into
     off-balance-sheet financial instruments consisting of commitments to extend
     credit, letters of credit and unadvanced commitments under commercial and
     home equity lines of credit, credit cards, and overdraft protection
     accounts. Such financial instruments are recorded in the consolidated
     financial statements when they become payable.

     CASH AND CASH EQUIVALENTS

     For the purpose of  presentation  in the  consolidated  statements  of cash
     flows, cash and cash equivalents are defined as cash and due from banks and
     interest-bearing deposits with banks.

     EARNINGS PER SHARE

          The basic earnings per share computation is based upon the
     weighted-average number of shares of stock outstanding during the period.
     Potential common stock is considered in the calculation of weighted-average
     shares outstanding for diluted earnings per share.

          The Company declared a 3% stock dividend in 2000 and a 5% stock
     dividend in 1999. Earnings and cash dividends per share and
     weighted-average shares outstanding have been retroactively restated to
     reflect the stock dividends.

     IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

          Statement of Financial Accounting Standards (SFAS) No. 133,
     "Accounting for Derivative Instruments and Hedging Activities," as amended
     by SFAS No. 137, and SFAS No. 138 "Accounting for Certain Derivative
     Instruments and Certain Hedging Activities," are effective for all fiscal
     quarters of all fiscal years beginning after June 15, 2000. These
     statements set accounting and reporting standards for derivative
     instruments and hedging activities. They require an entity to recognize all
     derivatives as either assets or liabilities in the balance sheet and
     measure those instruments at fair value. These statements are expected to
     have no impact on the Company as it has not engaged in any derivative
     transactions.

          SFAS No. 140, "Accounting for Transfers and Servicing of Financial
     Assets and Extinguishments of Liabilities" is


                                     Page 20


<PAGE>


     effective  for  transfers  occurring  after  March 31,  2001.  SFAS No. 140
     replaces  SFAS No.  125.  This  statement  is  expected to have no material
     impact to the  Company's  consolidated  financial  condition and results of
     operations.

2.   CASH AND CASH EQUIVALENTS

          The Federal Reserve Board requires the Bank to maintain a rolling
     average compensating balance of $400 in amounts on deposit. The Company
     maintains its cash in bank deposit accounts which, at times, may exceed
     federally insured limits. The Company has not experienced any losses in
     such accounts. The Company believes it is not exposed to any significant
     risk with respect to these accounts.

3.   INVESTMENT SECURITIES

          The carrying amounts of investment securities as shown in the
     consolidated statements of financial condition and their approximate fair
     values at December 31, 2000, and 1999 were as follows:

     SECURITIES AVAILABLE FOR SALE


<TABLE>
<CAPTION>
                                 Amortized  Unrealized   Unrealized  Fair
                                   Cost       Gains        Losses    Value
                                 ---------  ---------    ---------  --------

<S>                              <C>        <C>         <C>         <C>
DECEMBER 31, 2000
U.S. Treasury securities         $  7,021   $     12    $    (16)   $  7,017
U.S. Government agencies and
  corporations                     16,794         86         (14)     16,866
Mortgage-backed securities and
  collateralized mortgage
  obligations                      28,305        185        (108)     28,382
State and local government
  debt securities                   2,514       --          --         2,514
Certificates of deposit             3,663       --          --         3,663
Other securities                    1,376       --          (132)      1,244
                                 --------   --------    --------    --------

                                 $ 59,673   $    283    $   (270)   $ 59,686
                                 ========   ========    ========    ========
</TABLE>


     SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
                                   Amortized  Unrealized   Unrealized  Fair
                                     Cost       Gains        Losses    Value
                                   ---------  ---------    ---------  --------

<S>                                <C>        <C>         <C>         <C>
DECEMBER 31, 1999
U.S. Treasury securities           $ 15,132   $      2    $   (129)   $ 15,005
U.S. Government agencies and
  corporations                       16,617       --          (140)     16,477
Mortgage-backed securities and
  collateralized mortgage
  obligations                        21,524       --          (323)     21,201
State and local government
  debt securities                     1,620       --          --         1,620
U.S. Government and agency money
  market funds                        2,632       --          --         2,632
Certificates of deposit               2,971       --          --         2,971
Other securities                      1,376       --           (69)      1,307
                                   --------   --------    --------    --------
                                   $ 61,872   $      2    $   (661)   $ 61,213
                                   ========   ========    ========    ========
</TABLE>
                                     Page 21



<PAGE>

SECURITIES HELD TO MATURITY
<TABLE>
<CAPTION>

                                        Amortized  Unrealized  Unrealized  Fair
                                           Cost       Gains      Losses    Value
                                        ---------  ---------   ---------  --------

<S>                                       <C>        <C>         <C>        <C>
DECEMBER 31, 1999
Mortgage-backed securities and
  collateralized mortgage obligations     $262       $--         $ (1)      $261
                                          ====       ====        ====       ====

</TABLE>


          At December 31, 2000, investment securities with amortized cost of
     $30,885 and fair value of $30,977 were pledged to secure public deposits,
     treasury tax and loan deposits and borrowings and for other purposes
     required or permitted by law.

          The amortized cost and fair value of debt securities at December 31,
     2000 by contractual maturity are shown below. Expected maturities will
     differ from contractual maturities because borrowers may have the right to
     call or prepay obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>

     SECURITIES AVAILABLE FOR SALE

                                                 Amortized            Fair
                                                   Cost               Value
                                                  -------           --------
     <S>                                          <C>               <C>
     Due in one year or less                      $17,336           $17,308
     Due from one to five years                    12,315            12,406
     Due from five to ten years                     7,586             7,587
     Due after ten years                           21,059            21,141
                                                  -------           -------
                                                  $58,296           $58,442
                                                   ======            ======

</TABLE>
                                     Page 22


<PAGE>


          Mortgage-backed securities and collateralized mortgage obligations are
     allocated among the above maturity groupings based on their final maturity
     dates.

          During 2000 and 1999, the Company sold investment securities available
     for sale for total proceeds of $14,461 and $17,512, respectively. The sales
     resulted in gross realized gains of $46 and gross realized losses of $8 for
     2000 and gross realized losses of $36 for 1999.

4.   LOANS RECEIVABLE

     The components of loans receivable were as follows:

<TABLE>
<CAPTION>

                                                     2000              1999
                                                     ----              ----
     <S>                                          <C>               <C>
     Commercial                                   $  42,459         $  33,711
     Commercial real estate                          59,305            49,161
     Construction                                     4,623             1,937
     Residential real estate                         26,112            23,390
     Home equity                                     18,830            18,054
     Consumer                                        14,622             9,994
     Less deferred loan fees                            (28)              (25)
                                                  ---------         ---------
          Total                                    $165,923          $136,222
                                                    =======           =======
</TABLE>

          Impaired loans recorded in conformity with SFAS No. 114, as amended by
     SFAS No. 118, totaled $467 and $337 at December 31, 2000, and 1999,
     respectively. The total allowance for loan losses related to these loans
     was $173 and $130 at December 31, 2000, and 1999, respectively. The average
     balance of outstanding impaired loans was $403 and $440 for 2000 and 1999,
     respectively. Interest income recognized for cash payments on impaired
     loans during 2000 and 1999 was not material to the consolidated financial
     statements.

5.   ALLOWANCE FOR LOAN LOSSES

          An analysis of the allowance for loan losses at December 31, 2000, and
     1999 is as follows:

<TABLE>
<CAPTION>
                                                  2000              1999
                                                  ----              ----
     <S>                                          <C>               <C>
     Balance at beginning of year                 $2,274            $2,023
     Add:      Provision for loan losses             423               345
               Recoveries of previous
                 charge-offs                          26                31
     Less:  Loans charged off                        (65)             (125)
                                                   -----            ------
     Balance at end of year                       $2,658            $2,274
                                                   =====             =====
</TABLE>

6.   MORTGAGE SERVICING

          The Bank services residential mortgage loans sold to investors under
     nonrecourse agreements amounting to $69,320 and $66,248 at December 31,
     2000, and 1999, respectively. Mortgage servicing rights of $314 and $352
     are capitalized and recorded at their estimated fair value at December 31,
     2000, and 1999, respectively and are included in other assets. Mortgage
     servicing rights of $132 and $172 were capitalized in 2000 and 1999,
     respectively and amortization of mortgage servicing rights was $170 in 2000
     and $80 in 1999.

7.   PROPERTIES AND EQUIPMENT

     Properties and equipment are comprised of the following:

                                    Page 23
<PAGE>
<TABLE>
<CAPTION>
                                                    2000              1999
                                                    ----              ----
     <S>                                          <C>               <C>
     Land and land improvements                   $   461           $   385
     Bank premises                                  2,228             1,760
     Furniture and equipment                        2,723             2,850
     Leasehold improvements                           254               209
                                                   ------            ------
         Total cost                                 5,666             5,204
         Less accumulated depreciation              2,024             2,130
                                                    -----             -----
         Net properties and equipment              $3,642            $3,074
                                                    =====             =====

</TABLE>

          Certain Bank facilities and equipment are leased under various
     operating leases. Rental expense was approximately $259 for 2000 and $235
     for 1999. Future minimum rental commitments under noncancelable leases at
     December 31, 2000 are:

<TABLE>
<CAPTION>

          <S>                             <C>
          2001                            $250
          2002                             193
          2003                             147
          2004                             131
          2005                              41
          Thereafter                        83
                                          ----
                Total                     $845
                                           ===

</TABLE>

8.   EMPLOYEE BENEFIT PLANS

          The Company has established a defined contribution pension plan under
     Section 401(k) of the Internal Revenue Code. Plan participants, who consist
     of all employees meeting minimum age and service requirements who elect to

                                     Page 24


<PAGE>


     participate, are permitted to contribute a percentage of their wages to the
     plan on a pre-tax basis.  The Company  matches a portion of each employee's
     contribution,  resulting  in an  expense  of $76 and $70 for 2000 and 1999,
     respectively.

          In 1997, the Company adopted a nonqualified supplemental executive
     retirement plan for the benefit of key employees. The plan was restructured
     and amended in 2000. Life insurance policies were acquired for the purpose
     of serving as the primary funding source. The amount of each annual benefit
     is indexed to the financial performance of each insurance policy owned by
     the Bank over the Bank's cost of funds expense. The present value of these
     benefits is being expensed over the employment service period which
     amounted to $333 for 2000 and $92 for 1999. The cash value of these
     policies was $2,768 and $2,656 at December 31, 2000, and 1999,
     respectively.

9.   DEPOSITS

          The aggregate amount of certificates of deposit with a minimum
     denomination of $100 was $25,410 and $12,982 at December 31, 2000, and
     1999, respectively.

     At December 31, 2000, the scheduled maturities of certificates of deposit
     are as follows:

<TABLE>
<CAPTION>

          <S>                             <C>
          2001                            $56,508
          2002                             15,675
          2003                              6,502
          2004                                431
          2005 and thereafter                 151
                                          -------
                                          $79,267
                                          =======
</TABLE>

10.  BORROWED FUNDS

          Securities sold under agreements to repurchase generally mature within
     one to four days from the transaction date. Other borrowed funds consist of
     Federal Home Loan Bank (FHLB) advances, commercial bank line of credit
     advances and treasury, tax and loan deposits. Treasury tax and loan
     deposits are repaid upon notification by the U.S. Treasury.

     Information concerning securities sold under agreements to repurchase is
     summarized as follows:

<TABLE>
<CAPTION>
                                                            2000           1999
                                                            ----           ----
          <S>                                              <C>          <C>
          Average balance during the year                  $13,055      $13,299
          Average interest rate during the year              4.69%        3.86%
          Average interest rate at end of the year           4.82%        4.35%
          Maximum month-end balance during the year         15,930       14,502
</TABLE>

          The Bank is required to own stock of the FHLB in order to borrow from
     the FHLB. FHLB advances are collateralized by a pledge of certain mortgage
     loans and by a lien on the Bank's FHLB stock of $583 at December 31, 2000,
     which is included in investment securities available for sale in the
     consolidated statements of financial condition. The Company, through its
     banking subsidiary, has an available line of credit with the FHLB of $3.5
     million.

          At December 31, 2000, the Company had used $110 of a $5 million
     commercial bank line of credit that expires in 2001. The floating rate note
     is based on the one month London Interbank Offer Rate plus 1.75% which was
     8.53% at December 31, 2000.

                                    Page 25
<PAGE>

     A summary of borrowings from the FHLB at December 31, 2000 is as follows:

<TABLE>
<CAPTION>
          FINAL MATURITY                  INTEREST RATE                 AMOUNT
          --------------                  -------------                 ------
          <S>                                  <C>                   <C>
          April 2001                           5.81%                 $     12
          August 2002                          6.18                       116
          June 2003                            7.31                       873
          June 2005                            7.34                       929
          August 2007                          6.47                       520
                                                                       ------
                                                                       $2,450
                                                                       ======

</TABLE>

     Maturities on FHLB borrowings are as follows:

<TABLE>
<CAPTION>

          <S>                        <C>
          2001                       $  639
          2002                          657
          2003                          485
          2004                          300
          2005                          211
          Thereafter                    158
                                     ------
               Total                 $2,450
                                      =====
</TABLE>

                                     Page 26

<PAGE>

11.  MANDATORY CONVERTIBLE DEBENTURES

          The Company issued $300 of mandatory convertible debentures which bear
     interest at 1% per annum in excess of the prime rate of interest of
     FleetBoston (formerly the Bank of Boston N.A.). Interest is payable on
     March 31, June 30, September 30, and December 31 of each year until the
     debentures are paid in full or converted into shares of common stock. On or
     prior to September 30, 2002, the holders of the debentures must convert the
     entire principal amount into shares of common stock of Merrill Merchants
     Bancshares, Inc. at a conversion rate equal to $4.16 of principal amount of
     debentures for one share of common stock, subject to adjustment for any
     recapitalization of common stock, such as a split or reverse split of
     common stock.

          The debentures are unsecured and any payment of interest or principal
     will be subordinated to the timely payment of principal and interest on all
     existing and future obligations of the Company for borrowed money from any
     bank, trust company, insurance company or other financial institution
     engaged in the business of lending money.

12.  INCOME TAXES

     The current and deferred components of income tax expense are as follows:

<TABLE>
<CAPTION>
                                                                    2000       1999
                                                                  -------    -------
     <S>                                                          <C>        <C>
     Current
        Federal                                                   $ 1,552    $ 1,216
        State                                                          46         39
                                                                  -------    -------

                                                                    1,598      1,255
     Deferred                                                        (282)      (114)
                                                                  -------    -------
                                                                  $ 1,316    $ 1,141
                                                                  =======    =======
</TABLE>

     The actual tax expense differs from the expected tax expense computed by
     applying the applicable U.S. federal corporate income tax rate to income
     before income taxes as follows:

<TABLE>
<CAPTION>
                                                                     2000       1999
                                                                     ----       ----
     <S>                                                          <C>        <C>
     Computed tax expense                                         $ 1,338    $ 1,152
     Increase (reduction) in income tax expense resulting from:
         Income from life insurance                                   (74)       (64)
         Tax exempt income                                            (59)       (45)
         State taxes, net of federal benefit                           30         26
         Other                                                         81         72
                                                                  -------    -------
                                                                  $ 1,316    $ 1,141
                                                                  =======    =======
</TABLE>

     The tax effects of temporary differences that give rise to deferred income
     tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
                                                      2000                    1999
                                              -------------------    --------------------
                                              Asset     Liability    Asset      Liability
                                              -----     ---------    -----      ---------
     <S>                                      <C>         <C>         <C>         <C>
     Allowance for loan losses                $537        $ --        $393        $ --
     Unrealized gain/loss on
         securities available for sale          --           4         224          --
     Depreciation and amortization              --          36          --          10
     Mortgage servicing rights                  --         107          --         120
     Deferred compensation                     196          --          71          --
     Other                                      38          --          12          --
                                              ----        ----        ----        ----
                                              $771        $147        $700        $130
                                              ====        ====        ====        ====
</TABLE>

                                    Page 27
<PAGE>

          Management expects the Company will realize all deferred income tax
     benefits to offset the income tax liabilities arising from the reversal of
     taxable temporary differences and taxable income generated in future years.
     Accordingly, the Company has not established a valuation allowance for
     deferred income tax benefits.

13.  RELATED PARTIES

          The Bank has entered into loan transactions with its directors,
     executive officers, significant shareholders and their affiliates (related
     parties). Such transactions were made in the ordinary course of business on
     substantially the same terms and conditions, including interest rates and
     collateral, as those prevailing at the same time for comparable
     transactions with other customers, and did not, in the opinion of
     management, involve more than normal credit

                                     Page 28


<PAGE>

     risk or present other unfavorable features. Loans to related parties which
     in aggregate exceed $60 were as follows:
<TABLE>
<CAPTION>

                                        2000       1999
                                        ----       ----
     <S>                             <C>        <C>
     Balance, January 1              $ 6,641    $ 4,999
     Loans made/advanced               4,471      2,842
     Repayments                       (2,472)    (1,200)
                                     -------    -------
     Balance, December 31            $ 8,640    $ 6,641
                                     =======    =======
</TABLE>

          Commitments, as described in Note 14, to related parties which in
     aggregate exceed $60 totaled $3,440 and $4,360 at December 31, 2000, and
     1999, respectively.

14.  FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

          The Bank is a party to financial instruments with off-balance-sheet
     risk in the normal course of business to meet the financing needs of its
     customers which involve, to varying degrees, elements of credit risk in
     excess of the amount recognized in the consolidated statements of financial
     condition. The Bank's exposure to credit loss in the event of
     nonperformance by the other party to the financial instrument for
     commitments to extend credit is represented by the contractual notional
     amount of those instruments. The Bank follows the same credit policies in
     making commitments and conditional obligations as it does for
     on-balance-sheet instruments, including requiring collateral or other
     security to support financial instruments with credit risk.

     The Bank's commitments at December 31, 2000, and 1999 are as follows:
<TABLE>
<CAPTION>
                                             2000      1999
                                             ----      ----
     <S>                                  <C>       <C>
     Commitments to extend credit         $ 5,704   $ 5,442
     Letters of credit                      1,685     1,420
     Unadvanced commitments
          Commercial lines of credit       23,505    20,963
          Construction lines of credit      1,808     1,598
          Home equity lines of credit      10,643     9,248
          Overdraft protection accounts     1,684     1,587
          Credit card lines                 2,910     2,554
</TABLE>

15.  SHAREHOLDERS' EQUITY

          The Company distributed a 3% stock dividend on February 29, 2000 and a
     5% stock dividend on February 26, 1999. Earnings per share for 2000 and
     1999 have been restated to reflect these stock dividends.

          Holders of preferred stock are entitled to dividends equal to the
     total stated value of $46.00 per share multiplied by the prime rate in
     effect from time to time as announced by FleetBoston. The dividends payable
     on the preferred stock are cumulative, meaning that if dividends are not
     paid when declared, they will accumulate and be payable in full before any
     dividends are paid on common stock. However, the payment of any dividends
     on or the redemption of the preferred stock is subordinate to the payment
     of any debt by the Company. The preferred stock is non-voting.

          Each share of preferred stock is convertible into 11.06 shares of
     common stock, adjusted for recapitalization of the common stock (such as a
     split or stock dividends). After October 1, 2002, and to the extent not
     previously converted into common stock, the preferred stock may be re-

                                    Page 29
<PAGE>

     deemed by the Company for a price equal to the sum of its stated value plus
     unpaid and accrued dividends. However, the preferred stock may not be
     called or redeemed by the Company unless approved in advance by the Federal
     Reserve Bank of Boston.

16.  OTHER EXPENSE

     Other expense amounts are summarized as follows for 2000 and 1999:

<TABLE>
<CAPTION>
                                                               2000     1999
                                                               ----     ----
     <S>                                                     <C>      <C>
     Merchant processing                                     $  460   $  354
     Professional fees                                          310      368
     Printing, postage, stationery, and supplies                281      200
     Advertising and promotion                                  226      221
     Telephone                                                  168      101
     Trust expense                                              160      136
     Travel, meetings, conventions, and employee education      111      109
         Other                                                  618      438
                                                             ------   ------
              Total                                          $2,334   $1,927
                                                             ======   ======
</TABLE>

17.  EARNINGS PER SHARE
          The following table sets forth the computation of basic and diluted
     earnings per share (in thousands, except for number of shares and per
     share data):

<TABLE>
<CAPTION>
                                                            2000              1999
                                                            ----              ----
<S>                                                     <C>            <C>
     Basic earnings per share
         Net income, as reported                         $     2,619    $     2,247
         Preferred stock dividends declared                      (83)           (72)
                                                         -----------    -----------
            Income available to common shareholders      $     2,536    $     2,175
                                                         ===========    ===========
         Weighted-average shares outstanding               2,592,074      2,638,057
                                                         ===========    ===========
         Basic earnings per share                        $      0.98    $      0.82
                                                         ===========    ===========

    Diluted earnings per share
         Net income, as reported                         $     2,619    $     2,247
         Interest on mandatory convertible debentures,
           net of tax                                             20             18
                                                         -----------    -----------
            Income available to common shareholders      $     2,639    $     2,265
                                                         ===========    ===========
         Weighted-average shares outstanding               2,592,074      2,638,057
         Effect of stock options, net of assumed
           treasury stock purchases                          164,610        228,307
         Effect of convertible preferred stock               216,352        216,352
         Effect of mandatory convertible debentures           72,114         72,114
                                                         -----------    -----------
            Adjusted weighted-average
              shares outstanding                           3,045,150      3,154,830
                                                         ===========    ===========
         Diluted earnings per share                      $      0.87    $      0.72
                                                         ===========    ===========
</TABLE>

     Options to purchase 22,660 shares of common stock at $10.32 were
     outstanding at December 31, 2000 but were not included in the computation
     of diluted earnings per share because the options' exercise price was
     greater than the average market price of the common stock.

18.  REGULATORY MATTERS
          The Company and Bank are subject to various regulatory capital
     requirements administered by the federal banking agencies. Failure to meet
     minimum capital requirements can initiate certain mandatory - and possibly
     additional discretionary - actions by regulators that, if undertaken, could
     have a direct material effect on the Company and Bank's consolidated
     financial statements. Under capital adequacy guidelines and the regulatory
     framework for prompt corrective action, the Company and Bank must meet
     specific capital guidelines that involve quantitative measures of the
     Company's and Bank's assets, liabilities and certain off-balance-sheet
     items as calculated under regulatory accounting practices. The Company's
     and Bank's capital amounts and classification are also subject to
     qualitative judgments by the regulators about components, risk weightings,
     and other factors.

          Quantitative measures established by regulation to ensure capital
     adequacy require the Company and Bank to maintain minimum amounts and
     ratios (set forth in the table below) of total and Tier I capital (as
     defined in the regulations) to risk-weighted assets (as defined), and of
     Tier I capital (as defined) to average assets (as defined). Management
     believes as of December 31, 2000, that the Company and Bank meet all
     capital adequacy requirements to which they are subject.

                                    Page 30
<PAGE>

          As of December 31, 2000, the most recent notification from the Federal
     Reserve Bank categorized the Company and Bank as well capitalized under the
     regulatory framework for prompt corrective action. To be categorized "well
     capitalized," the Company and Bank must maintain minimum total risk-based,
     Tier I risk-based, and Tier I leverage ratios as set forth in the table.
     There are no conditions or events since that notification that management
     believes have changed this category.

          The Company's and Banks actual capital amounts and ratios are also
     presented in the table. No deduction was made from capital for
     interest-rate risk in 2000 and 1999.


                                     Page 31


<PAGE>
<TABLE>
<CAPTION>
                                                                                                   To be Well
                                                                      for Capital          Capitalized Under Prompt
                                                Actual             Adequacy Purposes      Corrective Action Provisions
                                                ------             -----------------      ----------------------------
                                          Amount      Ratio        Amount      Ratio        Amount         Ratio
                                          ------      -----        ------       -----      -------         -----
<S>                                       <C>         <C>          <C>              <C>          <C>            <C>
     As of December 31, 2000
       Total capital (to risk
         weighted assets)
         Consolidated                     $25,028      15.21%       $13,161      8.00%         N/A
         Bank                              19,183      12.10         12,687      8.00       $15,859         10.00%
       Tier I capital (to risk
         weighted assets)
         Consolidated                      22,664      13.78          6,581      4.00          N/A
         Bank                              17,194      10.84          6,343      4.00         9,515          6.00
       Tier I capital (to
         average assets)
         Consolidated                      22,664       9.50          9,540      4.00         N/A
         Bank                              17,194       7.38          6,991      3.00        11,652          5.00

     As of December 31, 1999
       Total capital (to risk
         weighted assets)
         Consolidated                     $23,389      17.44%       $10,728      8.00%         N/A
         Bank                              17,857      13.60         10,503      8.00       $13,129         10.00%
       Tier I capital (to risk
         weighted assets)
         Consolidated                      21,404      15.96          5,364      4.00          N/A
         Bank                              16,209      12.35          5,252      4.00         7,877          6.00
       Tier I capital (to
         average assets)
         Consolidated                      21,404      10.23          8,371      4.00         N/A
         Bank                              16,209       7.95          6,117      3.00        10,195          5.00
</TABLE>

19.    STOCK OPTIONS
           Under the Employee and Director Stock Option Plan, the incentive
       stock option plan (ISO) for officers and employees and the nonstatutory
       stock option plan (Non-ISO) for directors provide for the issuance of up
       to 698,541 shares of common stock. The purchase price of the stock
       covered by each option shall be its fair market value, which must be
       equal to at least 100% of the book value of common stock, on the date
       such option is granted. Options granted through 1997 were subject to an
       initial vesting period which ended on December 31, 1997, after which
       options become exercisable until May 26, 2003. Options granted after 1997
       were granted subject to an initial vesting period of one or two years,
       after which options become exercisable ten years from the grant date.

           The Company accounts for these options in accordance with Accounting
       Principles Board Opinion No. 25, "Accounting for Stock Issued to
       Employees." As the exercise price of each option equals the market price
       of the Company's stock on the date of grant, no compensation cost has
       been recognized for the plan. Had compensation cost for the plan been
       determined based on the fair value of the options at the grant dates
       consistent with the method described in SFAS No. 123, "Accounting for
       Stock-Based Compensation," the Company's 2000 and 1999 net income and
       earnings per share would have been reduced to the pro forma amounts
       indicated below.

                                    Page 32
<PAGE>

       (In thousands except for per-share data)
<TABLE>
<CAPTION>
                                                                          Earnings Per Share
                                                                          ------------------
                                                     Net Income         Basic           Diluted
                                                     ----------         -----           -------
<S>                                                   <C>              <C>               <C>
       2000
             As reported                               $2,619           $0.98            $0.87
             Pro forma                                  2,596            0.97             0.86
       1999
             As reported                                2,247            0.82             0.72
             Pro forma                                  2,230            0.82             0.71
</TABLE>

           The fair value of each option is estimated on the date of grant using
       the Black-Scholes options-pricing model with the following
       weighted-average assumptions used for


                                     Page 33


<PAGE>

       all grants in 2000 and 1999; dividend yield of 2.86% in 2000 and 2.59% in
       1999, risk-free interest rate of 5% in 2000 and 6% in 1999, expected
       lives of two years, and expected volatility of 22% in 2000 and 27% in
       1999.

           A summary of the status of the plan as of December 31, 2000, and
       1999, and changes during the years then ended, is presented below.

<TABLE>
<CAPTION>
                                                                 2000                                   1999
                                                   ------------------------------     -------------------------------
                                                                      Weighted                           Weighted
                                                     Number            Average          Number            Average
                                                    of Shares      Exercise Price      of Shares      Exercise Price
                                                    ---------      --------------      ---------      --------------
<S>                                                  <C>                <C>             <C>                <C>
    Outstanding at beginning of year                 433,120            $5.28           493,131            $5.16
    Granted during the year                           35,500             8.75            27,000            10.63
    Exercised during the year                        (43,949)            4.85           (96,132)            6.38
    Forfeited during the year                        (13,388)            7.33           (13,279)            4.77
    Additional shares for which
      options are exercisable due to
      stock dividends                                 12,450               --            22,400               --
                                                    --------        ---------          --------        ---------
    Outstanding at end of year                       423,733            $5.40           433,120            $5.28
                                                     =======                           ========
    Weighted-average fair value
    of options granted during the year                                  $1.20                              $1.84
</TABLE>

     The following information applies to options outstanding at December 31,
2000:

<TABLE>
<CAPTION>
                                               Options Outstanding                   Options Exercisable
                                               -------------------                   -------------------
                                                    Wtd. Avg.
                                     Number         Remaining       Wtd. Avg.        Number         Wtd. Avg.
                                       of          Contractual      Exercise           of           Exercise
Range of Exercise Price              Shares           Life            Price          Shares          Price
-----------------------              ------           ----            -----          ------          ------
<S>                                 <C>              <C>            <C>             <C>              <C>
       $ 4.25 - $ 6.36               367,573          1.4            $ 4.79          367,573          $4.79
       $ 8.75                         33,500          9.5              8.75               --             --
       $10.32                         22,660          8.5             10.32               --             --
</TABLE>

20.    BRANCH ACQUISITION
             On February 25, 2000, the Bank acquired a branch office in Holden,
       Maine from the First National Bank of Bar Harbor. The acquisition was
       accounted for under the purchase method of accounting for business
       combinations. Earnings of the acquired branch, from the date of
       acquisition through December 31, 2000, are included in the consolidated
       statement of income. The following is a summary of the transaction:

<TABLE>
<S>                                                                    <C>
       Loans and investments acquired                                  $ 2,091
       Fixed assets                                                        566
       Goodwill                                                            338
       Deposits, repurchase agreements and accrued interest             (6,529)
                                                                       -------
       Net cash and cash equivalents received                          $(3,534)
                                                                       =======
</TABLE>

21.    FAIR VALUE OF FINANCIAL INSTRUMENTS

                                    Page 34
<PAGE>

           Fair value estimates, methods and assumptions are set forth below for
       the Company's financial instruments.

       CASH AND CASH EQUIVALENTS
           The fair value of cash and due from banks and interest-bearing
       deposits with banks approximates their relative book values at December
       31, 2000, and 1999, as these financial instruments have short maturities.

       INVESTMENT SECURITIES
           The fair values of investment securities are estimated based on bid
       prices published in financial newspapers or bid quotations received from
       securities dealers.

       LOANS HELD FOR SALE
           The fair values of loans held for sale are based on quoted market
       prices from the Federal National Mortgage Association.

       LOANS RECEIVABLE
           Fair values are estimated for portfolios of loans receivable with
       similar financial characteristics. The fair values approximate carrying
       value for all loans with variable interest rates.

           The fair values of fixed rate loans are calculated by discounting
       scheduled cash flows through the estimated maturity using estimated
       market discount rates that reflect the risk inherent in the loan. The
       estimates of maturity are based on the Bank's historical experience with
       repayments for each loan classification, modified, as required, by an
       estimate of the effect of current economic

                                     Page 35


<PAGE>

       and lending conditions, and the effects of estimated prepayments.

           Management has made estimates of fair value using discount rates that
       it believes to be reasonable. However, because there is no market for
       many of these financial instruments, management has no basis to determine
       whether the fair value presented below would be indicative of the value
       negotiated in the actual sale.

       CASH SURRENDER VALUE OF LIFE INSURANCE
           The fair value is based on the actual cash surrender value of life
       insurance policies.

       ACCRUED INTEREST RECEIVABLE
           The fair value approximates the carrying value as this financial
       instrument has a short maturity. It is the Bank's policy to stop accruing
       interest on loans for which it is probable that the interest is not
       collectible. Therefore, the fair value of this financial instrument has
       been adjusted to reflect credit risk.

       CAPITALIZED MORTGAGE SERVICING RIGHTS
           The fair value of mortgage servicing rights is based on the expected
       present value of future mortgage servicing income, net of estimated
       servicing costs, considering market consensus loan prepayment
       predictions.

       DEPOSITS
           The fair value of deposits with no stated maturity, such as
       noninterest-bearing demand deposits, savings, NOW accounts and money
       market accounts, is equal to the amount payable on demand. The fair value
       of certificates of deposit is based on the discounted value of
       contractual cash flows. The discount rate is estimated using the rates
       currently offered for deposits of similar remaining maturities.

           The fair value estimates do not include the benefit that results from
       the low-cost funding provided by the deposits compared to the cost of
       borrowing funds in the market. If that value were considered, the fair
       value of the Bank's net assets could increase.

       BORROWED FUNDS
           The fair value of borrowed funds is based on the discounted value of
       contractual cash flows. The discount rate is estimated using the rates
       currently available for borrowings of similar remaining maturities.

       ACCRUED INTEREST PAYABLE
           The fair value approximates the book value as this financial
       instrument has a short maturity.

       OFF-BALANCE SHEET INSTRUMENTS
           The Company's off-balance sheet instruments consist of loan
       commitments. Fair values for loan commitments have not been presented as
       the future revenue derived from such financial instruments is not
       significant.

       LIMITATIONS
           Fair value estimates are made at a specific point in time, based on
       relevant market information and information about the financial
       instrument. These values do not reflect any premium or discount that
       could result from offering for sale at one time the Company's entire
       holdings of a par-

                                    Page 36
<PAGE>

       ticular financial instrument. Because no market exists for a significant
       portion of the Company's financial instruments, fair value estimates are
       based on judgments regarding future expected loss experience, current
       economic conditions, risk characteristics of various financial
       instruments, and other factors. These estimates are subjective in nature
       and involve uncertainties and matters of significant judgment and
       therefore cannot be determined with precision. Changes in assumptions
       could significantly affect the estimates.

            Fair value estimates are based on existing on and off balance
       sheet financial instruments without attempting to estimate the value of
       anticipated future business and the value of assets and liabilities that
       are not considered financial instruments. Other significant assets and
       liabilities that are not considered financial instruments include
       property and equipment and other real estate owned. In



                                     Page 37

<PAGE>

       addition, the tax ramifications related to the realization of the
       unrealized gains and losses can have a significant effect on fair value
       estimates and have not been considered in any of the estimates.

           A summary of the estimated fair values for the Company's significant
       financial instruments at December 31, 2000, and 1999 follows:
<TABLE>
<CAPTION>
                                                                    Estimate of
December 31, 2000                               Carrying Value       Fair Value
-----------------                               --------------       ----------
<S>                                                <C>                 <C>
Financial Assets
   Cash and cash equivalents                        $  11,853          $  11,853
   Investment securities                               59,686             59,686
   Loans held for sale                                    827                838
   Loans receivable, net                              163,265            163,170
   Cash surrender value of life insurance               2,768              2,768
   Accrued interest receivable                          1,441              1,441
   Capitalized mortgage servicing rights                  314                581
Financial Liabilities
   Deposits                                           200,451            200,476
   Accrued interest payable                               467                467
   Borrowed funds                                      20,376             20,408

December 31, 1999
-----------------
Financial Assets
   Cash and cash equivalents                        $   9,122         $    9,122
   Investment securities                               61,475             61,474
   Loans held for sale                                    381                381
   Loans receivable, net                              133,948            133,801
   Cash surrender value of life insurance               2,656              2,656
   Accrued interest receivable                          1,274              1,274
   Capitalized mortgage servicing rights                  352                352
Financial Liabilities
   Deposits                                           168,578            168,373
   Accrued interest payable                               165                165
   Borrowed funds                                      19,369             19,369
</TABLE>

22.  PARENT COMPANY FINANCIAL INFORMATION
          The following is summarized financial statement information for
     Merrill Merchants Bancshares, Inc. as of December 31, 2000, and 1999 and
     for the years then ended:

                      SUMMARIZED BALANCE SHEET INFORMATION

<TABLE>
<CAPTION>

ASSETS
                                                                         2000        1999
                                                                         ----        ----
<S>                                                                    <C>          <C>
     Cash                                                               $      9    $      7
     Investment securities (fair value of $329
         and $3,809 at December 31, 2000, and 1999,
         respectively)                                                       329       3,809
     Investment in subsidiaries                                           17,853      16,164
     Loan and interest receivable from subsidiary                          5,440       1,518
     Accrued income and other assets                                          --          18

                                    Page 38
<PAGE>

     Deferred income tax benefit                                              90          55
                                                                        --------    --------
              Total assets                                              $ 23,721    $ 21,571
                                                                        ========    ========
     LIABILITIES AND SHAREHOLDERS' EQUITY
     Liabilities
         Accrued expenses and other liabilities                         $     19    $     13
         Note payable                                                        110          --
         Mandatory convertible debentures                                    300         300
                                                                        --------    --------
              Total liabilities                                              429         313
                                                                        --------    --------
     Shareholders' equity
         Convertible cumulative preferred stock                               20          20
         Common stock                                                      2,661       2,584
         Capital surplus                                                  17,958      17,220
         Retained earnings                                                 3,436       2,618
         Accumulated other comprehensive income (loss)
              Unrealized gain (loss) on securities available for sale          9        (435)
         Treasury stock                                                     (792)       (749)
                                                                        --------    --------
              Total shareholders' equity                                  23,292      21,258
                                                                        --------    --------
              Total liabilities and shareholders' equity                $ 23,721    $ 21,571
                                                                        ========    ========
</TABLE>


                                     Page 39
<PAGE>

                   SUMMARIZED STATEMENTS OF INCOME INFORMATION

<TABLE>
<CAPTION>
                                                                          2000       1999
                                                                        -------    -------
<S>                                                                 <C>        <C>
     Dividends from bank subsidiary                                      $ 1,257    $ 1,118
     Interest income on loan from subsidiary                                 331         35
     Interest and dividend income on investments                             105        269
                                                                         -------    -------
         Total income                                                      1,693      1,422
     Interest expense on borrowed funds                                       39         27
     Operating expenses                                                       88        165
                                                                         -------    -------
         Total expenses                                                      127        192
                                                                         -------    -------
     Income before income tax expense                                      1,566      1,230
     Income tax expense                                                      101         38
                                                                         -------    -------
     Income before equity in undistributed net income (loss)
         of subsidiaries                                                   1,465      1,192
     Equity in undistributed net income (loss) of subsidiaries             1,154      1,055
                                                                         -------    -------
         Net income                                                      $ 2,619    $ 2,247
                                                                         =======    =======

               SUMMARIZED STATEMENTS OF CASH FLOWS INFORMATION
                                                                            2000       1999
                                                                         -------    -------
     Cash flows from operating activities
         Net income                                                      $ 2,619    $ 2,247
         Adjustments to reconcile net income to
           net cash provided  by operating activities
         Deferred income tax benefit                                          22         14
         Equity in undistributed net income (loss) of subsidiaries        (1,154)    (1,055)
         Decrease in accrued income and other assets                          18          4
         Increase (decrease) in accrued expenses and other liabilities         6        (22)
                                                                         -------    -------
               Net cash provided by operating activities                   1,511      1,188
                                                                         -------    -------
               Cash flows from investing activities
                   Proceeds from sales and maturities of investment
                   securities                                              5,737      6,806
                   Purchase of investment securities                      (2,314)    (5,086)
                   Advances to subsidiaries                               (3,972)    (1,683)
                                                                         -------    -------
               Net cash provided (used) by investing activities             (549)        37
                                                                         -------    -------

     Cash flows from financing activities
         Dividends paid on convertible cumulative preferred stock            (83)       (72)
         Dividends paid on common stock                                     (648)      (538)
         Proceeds from note payable                                          110         --
         Proceeds from issuance of common stock                              200        301
         Purchase of treasury shares                                        (539)      (910)
                                                                         -------    -------
               Net cash used by financing activities                        (960)    (1,219)
                                                                         -------    -------
     Net increase in cash and cash equivalents                                 2          6
     Cash and cash equivalents, beginning of year                              7          1
                                                                         -------    -------
     Cash and cash equivalents, end of year                              $     9    $     7
                                                                         =======    =======
</TABLE>
                                    Page 40

<PAGE>

                       Merrill Merchants Bancshares, Inc.

BOARD OF DIRECTORS

William C. Bullock, Jr., Chairman
     Merrill Merchants Bancshares, Inc., Bangor, Maine

Edwin N. Clift, President & Chief Executive Officer
     Merrill Merchants Bancshares, Inc., Bangor, Maine

John S. Bacon, President
     Bacon Printing Company, Bangor, Maine

Joseph H. Cyr, President
     John T. Cyr & Sons, Inc., Old Town, Maine

Perry B. Hansen, Chairman & Chief Executive Officer
     THE National Bank, Bettendorf, Iowa

J. Donald Mackintosh, Investor
     Northeast Harbor, Maine

Frederick A. Oldenburg, Jr., M.D., Director
     Penobscot Respiratory, P.A., Bangor, Maine

Dennis L. Shubert, M.D., Ph.D., Investor
     Bangor, Maine

Susan B. Singer, Vice President & Comptroller
     MTL, Inc., Hermon, Maine

OFFICERS                                            MAINE ACCEPTANCE CORPORATION

Chairman                                            Board of Directors
William C. Bullock, Jr.
                                                    Edwin N. Clift
President & Chief Executive Officer                 Lloyd D. Robinson
Edwin N. Clift                                      John R. Graham III

Treasurer                                           Officers
Deborah A. Jordan                                   Charles W. Hart
                                                    President
Secretary                                           Floyd W. Libby
James A. MacLeod, Esquire                           Vice President
                                                    Deborah A. Jordan
Clerk                                               Treasurer/Secretary
Louis H. Kornreich, Esquire

                                     Page 41


<PAGE>

Merrill Merchants Bank
BOARD OF DIRECTORS

William C. Bullock, Jr., Chairman
     Merrill Merchants Bank, Bangor, Maine

Edwin N. Clift, President & Chief Executive Officer
     Merrill Merchants Bank, Bangor, Maine

John S. Bacon, President
     Bacon Printing Company, Bangor, Maine

Joseph H. Cyr, President
     John T. Cyr & Sons, Inc., Old Town, Maine

John R. Graham III, President
     Automatic Distributors, Bangor, Maine

Perry B. Hansen, Chairman & Chief Executive Officer
     THE National Bank, Bettendorf, Iowa

Charles M. Hutchins, Vice President
     Alternative Energy, Inc., Bangor, Maine

Joseph P. Irish, President
     Waldo County Oil, Troy, Maine

Louis H. Kornreich, Esquire
     Gross, Minsky & Mogul, Bangor, Maine

Robert E. Knowles, Investor
     Unity, Maine

J. Donald Mackintosh, Investor
     Northeast Harbor, Maine

Frederick A. Oldenburg, Jr., M.D., Director
     Penobscot Respiratory, P.A., Bangor, Maine

Lloyd D. Robinson, Investor
     Hermon, Maine

Dennis L. Shubert, M.D., Ph.D., Investor
     Bangor, Maine

Susan B. Singer, Vice President & Comptroller
     MTL, Inc., Hermon, Maine

                                     Page 42


<PAGE>

SENIOR MANAGEMENT

William C. Bullock, Jr.
Chairman

Edwin N. Clift
President & Chief Executive Officer

Charles W. Hart
Executive Vice President, Retail Banking

Deborah A. Jordan
Executive Vice President, Chief Financial Officer

William P. Lucy
Executive Vice President, Commercial Banking

James A. MacLeod, Esquire
Senior Vice President, Trust & Investment Services

Jane H. Madigan
Senior Vice President, Marketing & Human Resources

Lynne A. Spooner
Senior Vice President, Mortgage Banking

Reginald C. Williams, Jr.
Senior Vice President, Operations

Sara E. Carr
Vice President, Compliance & Security

Susan L. Rush
Vice President, Systems Administration

                                     Page 43


<PAGE>

EMPLOYEES

ACCOUNTING                                 LOAN OPERATIONS
Linda G. England                           Judy M. Byram
Deborah A. Jordan*                         Judith D. Kelly
Janet L. Kochis                            Linda M. Libby
Pamela J. Mugnai                           Marni A. Singer
Lorraine M. Therrien*                      Jerina K. Warner*

ADMINISTRATION                             MORTGAGE LENDING
William C. Bullock, Jr.*                   Alison J. Bailey*
Edwin N. Clift*                            Paula I. Hatch
Stephen R. Crockett                        Lynne A. Spooner*
Marilyn M. Harlow                          Tricia T. Tibbetts
Charles W. Hart*                           Thomas A. Tilley*
Julie A. Kelly                             Danelle L. Weston
                                           Stacey J. Young
BANK OPERATIONS
Scott D. Bennett                           SYSTEMS ADMINISTRATION
Michael J. Moody                           Thomas W. Austin
Donna M. Poland                            Susan L. Rush*
Susan V. Terrillion                        Jason D. Simsay
Reginald C. Williams, Jr.*

COMMERCIAL LENDING                         TRUST & INVESTMENTS
Fred A. Brown                              Meris J. Bickford, Esquire*
Angela T. Butler*                          Jacqueline A. Bouchey*
Alyson A. Coffin                           Barbara Giovino*
Jerry C. Jarrell*                          John R. Henderson*
Jonathan S. Lander*                        James A. MacLeod, Esquire*
William P. Lucy*                           Valrie G. Smith
Lewis H. Payne*                            Marion R. Syversen
Cindy L. Rickman                           Holly A. Vetelino
                                           Ellen N. Ziobron
COMPLIANCE
Sara E. Carr*                              MAINE ACCEPTANCE CORPORATION
Mark A. Trapela                            Robert J. Gardner*
                                           Kim M. Kirchdorfer
DEPOSIT OPERATIONS                         Floyd W. Libby*
Cindy L. Allen
Clarice J. Hannan
Linda M. Lizotte
Kathleen G. Prescott*

HUMAN RESOURCES
Cynthia L. Leighton
Jane H. Madigan*

                                     Page 44
<PAGE>

BRANCH OFFICES

Bangor, 201 Main Street                    Milford
Alena J. Bonenfant                         Angela R. Madore
Jody E. Holmes                             Kelly A. Shorey
Janet L. Lane
Jill R. MacDonald                          Newport
Priscilla A. Pullen                        Cynthia J. Brawn
Stacie A. Severance                        Marjorie J. Downing*
Betsy A. Simpson*                          Nancy M. Gudroe
Mary E. Tinto                              Melissa M. Mallory
                                           Debra L. Murray
Bangor, Stillwater Avenue
Joseph W. Arps, III                        Orono
George E. Dandaneau*                       Brent A. Folster*
Lynne M. Gray                              Gwendolyn A. King
Betsy B. Hanscom                           Darleen M. Lanphere
Heather L. Henderson                       Kathleen Spruce
Deanna L. Ouellette                        Michelle M. Thurston
Kim K. Patoka
Jason R. Wilkes                            Orrington
                                           Marla J. Billings
Bangor, Union Street                       Ronald J. Landry
Theresa M. Brooks
Jennifer C. Coutts                         Pittsfield
Jayne T. Dickey                            Nancy L. Bellfleur
Patricia L. Eldridge                       Suzanne M. Mercier
Lori A. Pardun                             Andrew C. Reed*
Marlene D. Thomas*                         Carole L. Robinson
                                           Micheline K. Ross
Brewer                                     Dianne L. Roy
Eva M. Charity
Diane Hewett                               * Officers
Bonita L. Hodgins
Linda J. Kenney
Carol L. Littlefield
John P. Thayer*
Jessica L. Welch

Holden
Gail L. Doucette
Delores D. Landry
Diane T. Pearson
Cindy F. Post

                                     Page 45

<PAGE>

CORPORATE INFORMATION
CORPORATE HEADQUARTERS
     Merrill Merchants Bancshares, Inc.
     201 Main Street
     Bangor, Maine 04401
     207-942-4800

INQUIRIES AND FINANCIAL INFORMATION
     Analysts, shareholders and other investors seeking financial information
including our 2000 Annual Report on Form 10-KSB should contact Deborah Jordan,
Chief Financial Officer and Manager of Investor Relations at 207-942-2494.

     News media and others seeking general information should contact Jane
Madigan, Senior Vice President and Manager of Media Relations at 207-990-4075.

INTERNET
     Our internet address is www.merrillmerchants.com or via electronic mail:
info@merrillmerchants.com

STOCK LISTING
     Merrill Merchants Bancshares, Inc. is traded over the counter on the Nasdaq
National Market system under the symbol MERB.

TRANSFER AGENT
     Shareholder inquiries regarding change of address or title should be
directed to:
     Trust & Investment Services Department
     Merrill Merchants Bank
     201 Main Street
     Bangor, Maine 04401
     207-990-4070

INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
     Berry Dunn McNeil and Parker
     100 Middle Street
     Portland, Maine 04104

ANNUAL SHAREHOLDER MEETING
     The annual meeting of shareholders will be at 5:00 p.m. on Thursday, April
19, 2001, at Pilot's Grill, 1528 Hammond Street, Bangor, Maine.

BRANCH LOCATIONS
Bangor                              Holden                      Orono
     201 Main Street                Route 1A                    69 Main Street
     920 Stillwater Avenue
     992 Union Street               Milford                     Orrington
                                    2 Main Street               191 River Road
Brewer
     366 Wilson Street              Newport                     Pittsfield
                                    Newport Plaza               27 Main Street


                                     Page 46