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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2004

OR

Commission File No. 0-28190

CAMDEN NATIONAL CORPORATION

(Exact name of registrant as specified in its charter)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

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

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

Outstanding at November 3, 2004: Common stock (no par value) 7,634,975 shares.

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CAMDEN NATIONAL CORPORATION

FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2004

TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INDEPENDENT ACCOUNTANTS’ REPORT

The Shareholders and Board of Directors

Camden National Corporation

We have reviewed the accompanying interim consolidated financial information of Camden National Corporation and Subsidiaries as of September 30, 2004, and for the nine-month and three-month periods ended September 30, 2004 and 2003. These financial statements are the responsibility of the Company’s management.

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

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

Berry, Dunn, McNeil & Parker

Portland, Maine

October 29, 2004

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Camden National Corporation and Subsidiaries

Consolidated Statements of Income

(unaudited)

See Independent Accountants’ Report.

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

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Camden National Corporation and Subsidiaries

Consolidated Statements of Income

(unaudited)

See Independent Accountants’ Report.

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

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Camden National Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

(unaudited)

Camden National Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

(unaudited)

See Independent Accountants’ Report.

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

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Camden National Corporation and Subsidiaries

Consolidated Statements of Condition

See Independent Accountants’ Report.

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

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Camden National Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(unaudited)

See Independent Accountants’ Report.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures required by accounting principles generally accepted in the United States of America for complete presentation of financial statements. In the opinion of management, the consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the consolidated statements of condition of Camden National Corporation, as of September 30, 2004, and December 31, 2003, the consolidated statements of income for the nine and three months ended September 30, 2004 and September 30, 2003, the consolidated statements of comprehensive income for the nine and three months ended September 30, 2004 and September 30, 2003 and the consolidated statements of cash flows for the nine months ended September 30, 2004 and September 30, 2003. All significant intercompany transactions and balances are eliminated in consolidation. The income reported for the nine-month period ended September 30, 2004 is not necessarily indicative of the results that may be expected for the full year. The information in this report should be read in conjunction with the consolidated financial statements and accompanying notes included in the December 31, 2003 Annual Report on Form 10-K.

NOTE 2 – EARNINGS PER SHARE

Basic earnings per share data is computed based on the weighted average number of common shares outstanding during each period. Potential common stock, which consists of incentive stock options granted to key members of management and the Board of Directors, is considered in the calculation of weighted average shares outstanding for diluted earnings per share, and is determined using the treasury method.

The following tables set forth the computation of basic and diluted earnings per share:

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NOTE 3 – DERIVATIVE FINANCIAL INSTRUMENTS

The Company has interest rate protection agreements with notional amounts of $30.0 million at September 30, 2004 that will mature in February 2005. Under these agreements, the Company exchanges a variable rate asset for a fixed rate asset, thus protecting certain asset yields from falling interest rates. In accordance with Statement of Financial Accounting Standards (SFAS) No. 133, management designated these swap agreements as cash-flow hedges since they convert a portion of the loan portfolio from a variable rate based upon the Prime Rate to a fixed rate. The hedge relationship is estimated to be 100% effective; therefore, there is no impact on the statement of income resulting from changes in fair value. The fair values of the swap agreements are recorded in the Statement of Condition with the offset recorded in the Statement of Comprehensive Income.

NOTE 4 – CORE DEPOSIT INTANGIBLE

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

Amortization expense related to the core deposit intangible for the nine- and three-month periods ended September 30, 2004 amounted to $678,000 and $223,000, respectively. Amortization expense for the nine- and three-month periods ended September 30, 2003 amounted to $706,000 and $235,000, respectively. The expected amortization expense for the remaining amortization period ending December 31, 2008 is estimated to be $908,000 per year through December 31, 2007 and $454,000 for the year ending December 31, 2008.

NOTE 5 – GOODWILL

The carrying value of the Company’s goodwill balances, including the related impairment loss, is as follows:

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During the second quarter of 2004, the Company completed a transaction in which UnitedKingfield Bank, a wholly-owned subsidiary, purchased and assumed certain deposit liabilities and assets of the Greenville Junction, Maine branch of another institution, while simultaneously selling certain deposit liabilities and assets of its Jackman, Maine branch to that institution. As a result of the transaction, the Company recorded $473,000 of banking goodwill. As of June 30, 2004, in accordance with SFAS No. 142, the Company completed its annual review of the goodwill and determined that there has been no impairment.

NOTE 6 – STOCK REPURCHASE

On July 27, 2004, the Board of Directors of the Company voted to authorize the Company to purchase up to 5% or approximately 395,000 shares of its authorized and issued common stock. The authority may be exercised from time to time and in such amounts as market conditions warrant. Any repurchases are intended to make appropriate adjustments to the Company’s capital structure, including meeting share requirements related to employee benefit plans and for general corporate purposes. For the quarter ended September 30, 2004, the Company repurchased 35,972 shares of common stock at an average price of $32.34 under the current plan. On June 24, 2003, the Board of Directors of the Company voted to authorize the Company to purchase up to 5% or approximately 400,000 shares of its authorized and issued common stock for reasons similar to the current year plan. Under the prior year plan, the Company repurchased 301,958 shares of common stock at an average price of $29.61, of which 92,630 shares at an average price of $31.18 were purchased during the first two quarters of 2004.

NOTE 7 – TREASURY STOCK

The State of Maine has repealed and replaced its Business Corporation Act (Title 13-C of the Maine Revised Statutes). The new Business Corporation Act eliminates the concept of “treasury stock,” instead providing that shares of its stock acquired by a corporation simply constitute “authorized but unissued” shares. Accordingly, the Company retired all treasury stock during the second quarter of 2004, which reduced surplus by $831,000 and retained earnings by $20.9 million.

NOTE 8 – SHAREHOLDERS’ EQUITY

On April 29, 2003, the shareholders of the Company approved the 2003 Stock Option and Incentive Plan (the “current plan”). Prior to the approval, the Company had three stock option plans, which the Company accounted for under the recognition and measurement provisions of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. All options under the previous plans became vested or expired prior to 2003. On August 27, 2002, the Company announced that it adopted the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” prospectively to all employee awards granted, modified, or settled. During the first nine months of 2004, the Company issued, under the current plan, 10,000 stock options to employees. In general, these options vest over five years. During the first nine months of 2003, the Company issued 16,000 stock options to employees, which vested immediately and were expensed as options on the date of grant.

NOTE 9 – MORTGAGE SERVICING RIGHTS

Residential real estate mortgages are originated by the Company with the intent to hold in portfolio or to sell in the secondary market to institutional investors such as the Federal Home Loan Mortgage Corporation (Freddie Mac). Under loan sale and servicing agreements with the investor, the Company generally continues to service the residential real estate mortgages. A mortgage servicing right is created when the Company pays the investor an agreed-upon rate on the loan, which, including a guarantee fee paid to Freddie Mac, is less than the interest rate the Company receives from the borrower. The Company retains the difference as a fee for servicing the residential real estate mortgages. As required by SFAS No. 140, the Company capitalizes mortgage servicing rights at their fair value upon sale of the related loans and periodically assesses the asset for impairment. The balance of capitalized mortgage servicing rights, net of a valuation allowance, included in other assets at September 30, 2004 and 2003 was $843,000 and

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$902,000, respectively, which equaled the fair value of these rights. At December 31, 2003, the balance of capitalized mortgage servicing rights was $897,000. Amortization of the mortgage servicing rights, as well as write-offs of capitalized rights due to prepayments of the related mortgage loans, are recorded as a charge against mortgage servicing income. The Company’s assumptions with respect to prepayments, which are affected by the estimated average life of the loans, are adjusted periodically to reflect current circumstances. In evaluating the reasonableness of the carrying values of mortgage servicing rights, the Company obtains third party valuations based on loan level data including note rate, type and term of the underlying loans.

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

NOTE 10 – POST-RETIREMENT PLAN

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

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The Company’s expected contribution for the fourth quarter of 2004 is $43,875 and the expected contribution for all of 2004 is $175,500.

NOTE 11 – RECENT ACCOUNTING PRONOUNCEMENTS

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

FSP No. 106-2 applies only to sponsors of single-employer plans for which (1) the employer concludes that prescription drug benefits under the plan are actuarially equivalent to Medicare Part D and thus qualify for the subsidy, and (2) the expected amount of the subsidy will offset or reduce the employer-sponsor’s share of the plan’s prescription drug coverage. The FSP provides accounting guidance and required disclosures. For public companies, the FSP is effective for the first interim or annual period beginning after June 15, 2004. The effects of the Act on the accumulated projected benefit obligation or net periodic postretirement benefit cost are not reflected in the financial statements or accompanying notes because the Company is unable to conclude whether the benefits provided by the plan are actuarially equivalent to Medicare Part D under the Act.

NOTE 12 – LITIGATION

The Company is a party to litigation and claims arising in the normal course of business. In addition to routine litigation incidental to its business, the Company’s subsidiary, Camden National Bank, was a defendant in a lawsuit brought by a former commercial customer. The customer claimed the Bank broke a verbal promise for a $300,000 loan to fund operating expenses of its ski resort. As a result of this litigation 20 of the original 21 counts were dismissed, leaving only the single breach of contract count, in which, the jury returned a verdict against Camden National Bank and awarded damages of $1.5 million. Management of Camden National Bank and the Company has reviewed this matter with counsel and the Company’s outside auditors. Management continues to believe that the allegations are unfounded and that it is probable that this judgment will be reversed upon appeal. A motion has been filed asking the judge to reverse the jury verdict and accompanying award of damages. Accordingly, no reserve for potential settlement expenditure has been recorded as of September 30, 2004.

ITEM 2. MANAGEMENT’S DISCUSSION OF FINANCIAL CONDITION

AND RESULTS OF OPERATION

FORWARD LOOKING INFORMATION

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

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

You should carefully review all of these factors, and you should be aware that there might be other factors that could cause these differences, including, among others, the factors listed under “Certain Factors Affecting Future Operating Results,” beginning on page 29 of our Annual Report on Form 10-K for the year ended December 31, 2003. Readers should carefully review the factors described under “Certain Factors Affecting Future Operating Results” and should not place undue reliance on our forward-looking statements.

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

CRITICAL ACCOUNTING POLICIES

Management’s discussion and analysis of the Company’s financial condition are based on the interim Consolidated Financial Statements and the related Notes presented above. The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. In addition, the preparation of such financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis in making judgments about the carrying values of assets that are not readily apparent from other sources. Actual results could differ from the amount derived from management’s estimates under different assumptions or conditions. On an ongoing basis, management evaluates its estimates, including those related to:

Allowance for Loan and Lease Losses (“ALLL”). In preparing the consolidated financial statements, the ALLL is highly dependent upon management estimates and assumptions. In determining the adequacy of the ALLL, management reviews the loan portfolio to ascertain whether there are specific loans, which require additional reserves, and to assess the collectibility of the loan portfolio in the aggregate. Non-performing loans are examined on an individual basis to determine the estimated probable loss on these loans. In addition, the

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ongoing evaluation process includes a formal analysis of the ALLL each quarter, which considers, among other factors, the current loan mix and loan volumes, loan growth, management’s ongoing review of individual loans, trends in the level of criticized or classified assets, an evaluation of results of examinations by regulatory authorities, analyses of historical trends in charge-off and delinquencies, and business and economic conditions affecting each loan category. The use of different estimates or assumptions could produce different provisions for loan and lease losses, which would affect the earnings of the Company. A smaller provision for loan and lease losses results in higher net income, and a greater amount of provision for loan and lease losses results in lower net income. Although management uses available information to establish the appropriate level of the ALLL, no assurance can be given that adverse economic conditions or other circumstances will not result in increased losses in the portfolio.

The Company uses a risk rating system to determine the credit quality of its loans. In assessing the risk rating of a particular loan, management makes certain assumptions, including assumptions regarding the obligor’s debt capacity, financial flexibility, the level of the obligor’s earnings and the ability to fulfill their obligations, the amount and sources of repayment, the level and nature of contingencies, and, with commercial loans, consideration has to be given to management strength, and the industry and geography in which the obligor operates. These factors are based on an evaluation of historical information, as well as subjective assessment and interpretation. Emphasizing one factor over another, or considering additional factors that may be relevant in determining the risk rating of a particular loan, but which are not currently an explicit part of the Company’s methodology, could impact the risk rating assigned by the Company to that loan. Wherever possible, the Company uses independent, verifiable data or the Company’s own historical loss experience in its models for estimating these loss factors. Many factors can affect management’s estimates of specific loss and expected loss, including volatility of default probabilities, rating migrations and loss severity. Management makes judgments as to which external data should be used, and when it should be used. Choosing data that is not reflective of the Company’s specific loan portfolio characteristics could affect loss estimates.

Monthly, the Corporate Risk Management Group reviews the ALLL with the board of directors of each bank subsidiary. On a quarterly basis, a more in depth review of the ALLL, including the methodology for calculating and allocating the ALLL, is reviewed with the Company’s board of directors, as well as the board of directors for each subsidiary bank.

Other Real Estate Owned. Periodically, the Company acquires property in connection with foreclosures or in satisfaction of debt previously contracted. The valuation of this property is accounted for individually at the lower of the “book value of the loan satisfied” or its net realizable value on the date of acquisition. At the time of acquisition, if the net realizable value of the property is less than the book value of the loan a reduction to the ALLL is recorded. If the value of the property becomes permanently impaired, as determined by an appraisal or an evaluation in accordance with the Company’s appraisal policy, the Company will record the decline by showing a charge against current earnings. Upon acquisition of a property valued at $25,000 or more, a current appraisal or a broker’s opinion must substantiate “market value” for the property.

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

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Valuation of Acquired Assets and Liabilities. Management utilizes numerous techniques to estimate the value of various assets held by the Company. Management utilized various methods to determine the appropriate carrying value of goodwill as required under Statement of Financial Accounting Standards (“SFAS”) No. 142. In addition, goodwill from a purchase acquisition is subject to ongoing periodic impairment tests. Goodwill is evaluated for impairment using several standard valuation techniques including discounted cash flow analyses, as well as an estimation of the impact of business conditions. Different estimates or assumptions are also utilized to determine the appropriate carrying value of other assets including, but not limited to, property, plant and equipment, overall collectibility of loans and receivables. The use of different estimates or assumptions could produce different estimates of carrying value. Management prepares the valuation analyses, which are then reviewed by the Board of Directors of the Company.

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

RESULTS OF OPERATIONS

Executive Overview

Net income increased $508,000, or 10.7%, for the quarter ended September 30, 2004 compared to the third quarter last year. The following were major factors contributing to the results of the third quarter of 2004:

Net Interest Income

The Company’s net interest income, on a fully taxable equivalent basis, for the nine months ended September 30, 2004 was $36.5 million, a 1.4%, or $497,000, increase over the net interest income of $36.0 million for the first nine months of 2003. Interest income on loans increased $1.1 million, or 2.5%, during the nine-month period of 2004 compared to the same period of 2003. The Company experienced a decrease in interest income

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on investments during the first nine months of 2004 compared to the same period in 2003 due to decreases in volumes and yields resulting from a low interest rate environment. The Company’s total interest expense decreased $1.1 million during the first nine months of 2004 compared to the same period in 2003. This decrease was the result of the low interest rate environment, which was somewhat offset by increased short-term borrowing volumes needed to fund loan growth. Net interest income, expressed as a percentage of average interest-earnings assets for the first nine months of 2004 and 2003, was 3.76% and 4.05%, respectively.

Net interest income for the three months ended September 30, 2004 was $12.0 million, a 2.6%, or $309,000, increase compared to $11.7 million in net interest income for the same period in 2003.

The following tables, which present changes in interest income and interest expense by major asset and liability category for the nine months ended September 30, 2004 and 2003, illustrate the impact of average volume growth and rate changes. The income from tax-exempt assets, municipal investments and loans, has been adjusted to a tax-equivalent basis, thereby allowing a uniform comparison to be made between asset yields. Changes in net interest income are the result of interest rate movements, changes in the amounts and mix of interest-earning assets and interest-bearing liabilities, and changes in the level of non-interest-earning assets and non-interest-bearing liabilities. The Company utilizes derivative financial instruments such as interest rate swap agreements that have an effect on net interest income. There was an increase in net interest income of $608,000 during the first nine months of 2004 compared to an increase of $606,000 in the first nine months of 2003 due to the net impact of the derivative financial instruments. The average amount of non-accrual loans can also affect the average yield on all outstanding loans. Average non-accrual loans for the periods ended September 30, 2004 and 2003 were $5.9 million and $4.5 million, respectively.

ANALYSIS OF CHANGES IN NET INTEREST MARGIN

Notes: Nonaccrual loans are included in total loans. Tax exempt interest was calculated using a

        rate of 35% for fully-taxable equivalent

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AVERAGE BALANCE SHEETS