For the quarter ended: March 31, 2003                          Commission File No. 841105-D

(207) 288-3314
(Registrant’s telephone number, including area code)

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 period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES: (X)            NO: ( )

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule12b-2).

YES: ( )            NO: (X)

Number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date:

Class of Common Stock                              Number of Shares Outstanding – May 9, 2003
    $2.00 Par Value                                                                       3,147,720

TABLE OF CONTENTS

INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

The Board of Directors
Bar Harbor Bankshares

We have reviewed the accompanying interim consolidated financial information of Bar Harbor Bankshares and Subsidiaries as of March 31, 2003 and 2002, and for the three-month periods ended March 31, 2003 and 2002. These financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. 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 United States generally accepted auditing standards, 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 United States generally accepted accounting principles.

/s/ BERRY, DUNN, McNEIL & PARKER

Portland, Maine
May 6, 2003

See Independent Accountants’ Review Report. The accompanying notes are an integral part of these consolidated financial statements.

Note 1: Basis of Presentation.

The accompanying March 31, 2003, and 2002 consolidated financial statements are unaudited. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. The income reported for the three months ended March 31, 2003 is not necessarily indicative of the results that may be expected for the year ending December 31, 2003.

Certain financial information, which is normally included in financial statements in accordance with United States generally accepted accounting principles, but not required for interim reporting purposes, has been omitted. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2002.

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.

Diluted net income per share reflects the effect of stock options outstanding during the period.

Certain 2002 balances have been reclassified to conform with the 2003 financial presentation.

Financial Accounting Standards Board (FASB) Interpretation Number 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" (FIN 45), an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34, was issued in November 2002.

The initial recognition and initial measurement provisions of this Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor’s fiscal year-end. The disclosure requirements in this Interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002.

Financial and standby letters of credit are included in the scope of FIN 45, while commercial letters of credit are not. A guarantor of financial and standby letters of credit is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee.

This Interpretation contains disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. This interpretation does not have a material effect on the Company's consolidated financial statements.

In 2003, FASB issued Statement of Financial Accounting Standards (SFAS) No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." The Statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under Statement 133.

The amendment requires contracts with comparable characteristics be accounted for similarly. This Statement clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative as discussed in Statement 133. In addition, it clarifies when a derivative contains a financing component that warrants special reporting in the statement of cash flows and amends certain other existing pronouncements.

SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, except as stated below, and for hedging relationships designated after June 30, 2003. The guidance should be applied prospectively.

The provisions of this Statement that relate to Statement 133 Implementation Issues that have been effective for fiscal quarters that began prior to June 15, 2003, should continue to be applied in accordance with their respective effective dates. In addition, certain provisions relating to forward purchases or sales of when-issued securities or other securities that do not yet exist, should be applied to existing contracts as well as new contracts entered into after June 30, 2003. SFAS No. 149 does not affect the Company's consolidated financial condition and results of operations.

Note 3: Line of Business Reporting

The Company manages and operates two major lines of business: Community Banking and Financial Services. Community Banking, through the wholly owned subsidiary Bar Harbor Banking and Trust Company (the "Bank"), includes lending and deposit-gathering activities and related services to businesses and consumers. Financial Services, through the wholly owned subsidiary BTI Financial Group (BTI) and its three operating subsidiaries, includes Dirigo Investments, Inc., a NASD registered broker-dealer; Block Capital Management, an SEC registered investment advisor; and Bar Harbor Trust Services, a Maine chartered trust company. The business lines are identified by the entities through which the product or service is delivered.

The reported lines of business results reflect the underlying core operating performance within the business units. Other is comprised of inter-company eliminations and parent company only items. Selected segment information is included in the following tables.

 THREE MONTHS ENDED MARCH 31, 2003
(Dollars in thousands)
(Unaudited)

Note 4: Goodwill

During the first half of 2002, the Company completed implementation of SFAS No. 142, "Goodwill and Other Intangible Assets", which requires most goodwill to be tested for impairment at least annually, rather than amortized over a period of time. The Company estimated the value of goodwill utilizing several standard valuation techniques, including discounted cash flow analysis, as well as an estimation of the impact of current business conditions on the long-term value of the goodwill carried on the balance sheet. Management and the Board of Directors determined the impact of the overall deterioration of the stock and bond markets on investor activities within its target market area had negatively impacted the value of the Company’s goodwill balance related to the acquisition of Dirigo Investments, Inc., its broker-dealer subsidiary of BTI. This resulted in an estimation of impairment of $247 thousand, net of tax recorded in quarter ended March 31, 2002.

Note 6: Legal Contingencies

Various legal claims arise from time to time in the normal course of business, which, in the opinion of management, will have no material effect on the Company’s consolidated financial statements.

Note 7: Income Taxes

The income tax provision for all periods presented differs from the expense that would result from applying the federal statutory rate of 34% to income before income taxes principally because of tax- exempt interest income.

Note 8: Stock Options

The Bar Harbor Bankshares and Subsidiaries Incentive Stock Option Plan (ISO) for officers and employees was established October 3, 2000, providing for the issuance of up to 450 thousand 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 fair market value on the date such option is granted. Initial option grants were made in 2001 totaling 225 thousand. During 2002 there were 162 thousand additional option grants. During 2003 there were 18 thousand additional option grants issued, bringing the total to 405 thousand options granted, all having a 5-7 year vesting schedule. No option shall be granted after October 3, 2010, ten years after the effective date of the ISO.

The Company accounts for these options in accordance with the 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 costs 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 net income and earnings per share would have been reduced to the pro forma amounts indicated below (in thousands except for per-share data):

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 all grants; dividend yield of 4.04% in 2003 and 3.93% in 2002, risk-free interest rate of 1.93% in 2003 and 2.23% in 2002, expected life of 3.5 years, and expected volatility of 8% in 2003 and 11% in 2002.

The following discussion and analysis of financial condition and results of operations of the Company and its subsidiaries should be read in conjunction with the consolidated financial statements and notes thereto, and selected financial and statistical information appearing elsewhere in this Form 10-Q. The purpose of this discussion is to highlight significant changes in the financial condition and results of operations of the Company and its subsidiaries.

Certain information is discussed on a fully taxable equivalent basis. Specifically, included in first quarter 2003 and 2002 net interest income was $397 and $374 thousand of tax-exempt interest income from certain tax-exempt investment securities and loans, which effectively resulted in a reduction of the Company’s income tax expense of $170 and $150 thousand, respectively. The table included on page 15 of this Form 10-Q provides a reconciliation of tax-equivalent financial information to the Company’s consolidated financial statements, which have been prepared in accordance with Generally Accepted Accounting Principles. Management believes the disclosure of tax-equivalent net interest income information improves the clarity of financial analysis, and is particularly useful to investors in understanding and evaluating the changes and trends in the Company’s results of operations.

Certain amounts for 2002 have been reclassified to conform with the presentation used in 2003.

Unless otherwise noted, all dollars are expressed in thousands except per share data.

FORWARD LOOKING STATEMENTS DISCLAIMER

The following discussion, as well as certain other statements contained in this Form 10-Q, or incorporated herein by reference, contain statements which may be considered to be forward-looking within the meaning of the Private Securities Litigation and Reform Act of 1995 (the "PSLRA"). You can identify these forward-looking statements by the use of words like "strategy," "expects," "plans," "believes," "will," "estimates," "intends," "projects," "goals," "targets," and other words of similar meaning. You can also identify them by the fact that they do not relate strictly to historical or current facts. For these statements, the Company claims the protection of the safe harbor for forward-looking statements provided by the PSLRA.

(i) the Company’s success is dependant to a significant extent upon general economic conditions in Maine and Maine’s ability to attract new business;

(ii) the Company’s earnings depend to a great extent on the level of net interest income (the difference between interest income earned on loans and investments and the interest expense paid on deposits and borrowings) generated by the Bank and thus the Bank’s results of operations may be adversely affected by increases or decreases in interest rates;

(iii) the banking business is highly competitive and the profitability of the Company depends on the Bank’s ability to attract loans and deposits in Maine, where the Bank competes with a variety of traditional banking and nontraditional institutions such as credit unions and finance companies;

(iv) a significant portion of the Bank’s loan portfolio is comprised of commercial loans and loans secured by real estate, exposing the Company to the risks inherent in financings based upon analysis of credit risk, the value of underlying collateral, and other more intangible factors which are considered in making commercial loans and, accordingly, the Company’s profitability may be negatively impacted by judgment errors in risk analysis, by loan defaults, and the ability of certain borrowers to repay such loans during a downturn in general economic conditions;

(v) a significant delay in or inability to execute strategic initiatives designed to grow revenues and or control expenses; and

(vi) significant changes in the extensive laws, regulations, and policies governing bank holding companies and their subsidiaries could alter the Company’s business environment or affect its operations.

The forward looking statements contained herein represent the Company’s judgment as of the date of this Form 10-Q, and the Company cautions readers not to place undue reliance on such statements. The Company disclaims any obligation to publicly update or revise any forward-looking statement contained in the foregoing discussion, or elsewhere in this Form 10-Q, except to the extent required by federal securities laws.

Management’s discussion and analysis of the Company’s financial condition are based on the consolidated financial statements which are prepared in accordance with accounting principles generally accepted in the United States. The preparation of such financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Management evaluates its estimates, including those related to the allowance for loan losses and review of goodwill for impairment, on an ongoing basis. Management bases its estimates on historical experience and 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 and assumptions under different assumptions or conditions.

Management believes the allowance for loan losses is a significant accounting estimate used in the preparation of the Company’s consolidated financial statements. The allowance for loan losses, which is established through a charge to the provision for loan losses, is based on management’s evaluation of the level of allowance required in relation to the probable loss exposure in the loan portfolio. Management regularly evaluates the allowance for loan losses for adequacy by taking into consideration factors such as previous loss experience, the size and composition of the portfolio, current economic and real estate market conditions and the performance of individual loans in relation to contract terms and estimated fair values of properties to be foreclosed. The use of different estimates or assumptions could produce different provisions for loan losses. Refer to the discussion of "Credit Risk" in the "Risk Management" section of this report and for a detailed description of management’s estimation process and methodology related to the reserve for loan losses.

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. At March 31, 2003, the carrying value of goodwill amounted to $375. 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, premises and equipment, mortgage servicing rights, and the overall collectibility of loans and receivables. The use of different estimates or assumptions could produce different estimates of carrying value.

The Company reported net income of $1,304 or fully diluted earnings per share of 41 cents, for the three months ended March 31, 2003, compared with $963, or fully diluted earnings per share of 30 cents for the same period a year earlier, representing increases of 35.4% and 36.7%, respectively.

Included in prior year earnings was an after tax charge of $247, resulting from the cumulative effect from change in accounting required by the adoption of a new accounting standard, SFAS No. 142, "Goodwill and Other Intangible Assets". Excluding this adjustment, the quarter-over-quarter increases in net income and fully diluted earnings per share amounted to 7.8% and 10.8%, respectively.

The return on average assets and return on average shareholders’ equity for the first quarter of 2003 were 0.98% and 9.84% respectively, compared with 0.78% and 7.46% for the first quarter of 2002.

Net interest income is the principal component of the Company’s income stream and represents the difference or spread between interest generated from earning assets and the interest expense incurred on deposits and borrowed funds. Net interest income is entirely generated by the Bank. Fluctuations in market interest rates as well as volume and mix changes in earning assets and interest bearing liabilities can materially impact net interest income. For the three months ended March 31, 2003 net interest income represented 73.3% of total revenue, compared with 77.0% for the same period in 2002.

For the quarter ended March 31, 2003, net interest income on a fully tax equivalent basis amounted to $5,050, compared with $4,888 in 2002, representing an increase of $162, or 3.3%. The increase in net interest income was principally attributed to average earning asset growth of $41,525 or 8.9% between periods, as the net interest margin declined 22 basis points.

The net interest margin is determined by dividing tax equivalent net interest income by average interest -earning assets. The interest rate spread represents the difference between the average tax equivalent yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities. The net interest margin is generally higher than the interest rate spread due to the additional income earned on those assets funded by non-interest-bearing liabilities, primarily demand deposits and shareholders’ equity.

Net Interest Income Analysis: The following table sets forth an analysis of net interest income by each major category of interest earning assets and interest bearing liabilities for the three months ended March 31, 2003, and 2002, respectively:

Net Interest Margin Summary: The following table summarizes the net interest margin components over the last five quarters. Factors contributing to the changes in net interest income and the net interest margin are outlined in the succeeding discussion and analysis.

During the quarter ended March 31, 2003 the net interest margin amounted to 4.03%, reversing the declining trend experienced throughout 2002. The decline in the average rate paid on interest bearing liabilities exceeded the decline in yield on interest earning assets by 17 basis points, compared with the prior quarter. Notwithstanding this improvement, the net interest margin continues to be pressured by the prolonged, historically low interest rate environment, causing yield declines on variable rate earning assets and accelerated payment speeds on fixed rate earning assets.

Contributing to this change was a 69 basis point decrease in the yield on average earning assets between periods, reflecting declines in the Fed Funds targeted rate and a parallel shift in the Treasury yield curve. The yield on the loan portfolio declined 78 basis points between periods to 6.79% in the current quarter, while the yield on total investments declined 67 basis points to 5.23%. The decline in total interest income attributed to lower yields was largely offset by growth in average earning assets, principally loans, which increased $45,086 or 14.8%, compared with the same quarter in 2002.

Average earning assets, as a percent of average total assets remained relatively constant between periods, amounting to 93.8% for the three months ended March 31, 2003, compared with 93.6% for the same period in 2002.

Interest Expense – Total interest expense for the quarter ended March 31, 2003 amounted to $2,841 compared with $3,148 for the same quarter in 2002, representing a decrease of $307, or 9.8%. The decrease in interest expense was principally attributed to a 58 basis point decline in the cost of interest bearing liabilities, from 3.22% during the first quarter of 2002 to 2.64% in the current quarter.

The cost of interest bearing deposits declined 67 basis points between periods to 1.79% in the current quarter, and was reflective of the declining interest rate environment including the continued replacement of maturing time deposits at lower rates.

The cost of borrowings declined 47 basis points to 3.99% in the current quarter, compared with the first quarter of 2002. Consistent with its asset and liability management strategies the Bank continued to extend the maturities on a portion of its borrowings to preserve the sensitivity of net interest income in a rising rate environment. While the use of longer maturity borrowings to fund earning assets naturally results in less net interest income, they more closely match the maturities of fixed rate earning assets being added to the Company’s balance sheet. The Bank has been deliberate in its efforts to hedge the interest rate risk associated with the addition of fixed rate earning assets to the balance sheet during a period of historically low interest rates.

The decline in total interest expense resulting from lower interest rates was offset in part by a $39,000 increase in total average interest bearing liabilities between periods.

Rate / Volume Analysis: The following table sets forth a summary analysis of the relative impact on net interest income of changes in the average volume of interest earning assets and interest bearing liabilities, and changes in average rates on such assets and liabilities. The income from tax-exempt assets has been adjusted to a fully tax equivalent basis, thereby allowing uniform comparisons to be made. Because of the numerous simultaneous volume and rate changes during the periods analyzed, it is not possible to precisely allocate changes to volume or rate. For presentation purposes, changes which are not solely due to volume changes or rate changes have been allocated to these categories in proportion to the relationships of the absolute dollar amounts of the change in each.

In addition to net interest income, non-interest income is a significant source of revenue for the Company and an important factor in its results of operations. Likewise, non-interest expense represents a significant category of expense for the Company.

For the quarter ended March 31, 2003, non-interest income amounted to $1,804 compared with $1,418 for the same quarter in 2002, representing an increase of $386, or 27.2%.

As more fully disclosed in Note 3 to the consolidated financial statements, the Company manages and operates two major lines of business: Community Banking and Financial Services. The following discussion and analysis of other operating income and expenses focuses on each business segment separately:

Non-interest Income: Non-interest income from Community Banking represented 70.1% of the Company’s total first quarter non-interest income, compared with 56.6% for the same quarter in 2002.

For the quarter ended March 31, 2003, the Bank’s non-interest income amounted to $1,264, compared with $802 during the same quarter in 2002, representing an increase of $462, or 57.6%.

First quarter non-interest income benefited from a $523 increase in net gains on the sale of investment securities, compared with the first quarter of 2002. Attractive market interest rates presented opportunities to reposition a portion of the Bank’s investment securities portfolio during the quarter, particularly in light of accelerated payment speeds on certain mortgaged backed securities held in the available for sale portfolio. There is no assurance that the recording of securities gains will continue in future periods at these levels. It is important to note, however, that the available for sale investment securities portfolio is managed on a total return basis, in concert with well-structured asset and liability management policies established by the Bank’s Board of Directors. The Bank will continue to respond to changes in market interest rates, changes in securities pre-payment or extension risk, changes in the availability of and yields on alternative investments, and its needs for liquidity.

Service charges on deposit accounts during the first quarter posted a moderate decline compared with the same quarter last year. This was principally the result of depositors continuing to consolidate small balance accounts, as well as modifying their behavior with respect to overdraft activity. Income from mortgage servicing also declined between periods, as the Bank has been holding originated mortgages while the payment speeds on its serviced mortgage loan portfolio have increased dramatically in reaction to historically low interest rates.

Non-interest Expense: Non-interest expense from Community Banking represented 77.4% of the Company’s total first quarter non-interest expense, compared with 76.2% in the first quarter of 2002.

For the three months ended March 31, 2003, the Bank’s total non-interest expense amounted to $3,664 compared with $3,199 during the first quarter of 2002, representing an increase of $465, or 14.5%. The increase in non-interest expense was principally attributed to salary and employee benefits expenses, reflecting strategic additions to staff, employee compensation increases, and increases in subsidized employee health insurance and deferred compensation.

The increase in first quarter non-interest expense was also attributed to a write down of obsolete supplies inventory amounting to $60, and an uninsured customer fraud loss amounting to $30. First quarter occupancy expenses posted a $37 increase over the same period in 2002 and were principally attributed to the Bank’s recent occupation of office space at its affiliate, BTI Financial Group in Ellsworth, Maine.

Non-interest income: Non-interest income from Financial Services (BTI Financial Group) represented 33.8% of the Company’s total first quarter non-interest income, compared with 47.4% during the same period in 2002.

For the three months ended March 31, 2003, non-interest income at BTI Financial Group (BTI) amounted to $609, compared with $672 during the same quarter in 2002, representing a decrease of $63, or 9.4%.

The decline in fee income was principally attributed to a significant decrease in the market value of assets under management at Block Capital Management and Bar Harbor Trust Services and was reflective of the overall decline in the stock market between periods compounded by restrained investor confidence. Fees charged to clients are derived principally from the market values of assets managed. At March 31, 2003, assets under management totaled $180,451, compared with $234,002 at March 31, 2002, representing a decrease of $53,551, or 22.9%. Total first quarter revenue at Dirigo Investments improved 10.7% compared with the same quarter in 2002, despite recent geopolitical uncertainties and a continued industry slowdown in retail investor activities.

Non-interest expense: Non-interest expense from Financial Services represented 18.6% of the Company’s first quarter non-interest expense, compared with 22.3% in the first quarter of 2002.

For the quarter ended March 31, 2003, BTI’s non-interest expense amounted to $880, compared with $937 during the same quarter in 2002, representing a decrease of $57, or 6.1%.

The decline in non-interest expense was attributed to a combination of several factors. First quarter 2003 salaries and employee benefit expenses declined $87 or 20.1% compared with the same quarter in 2002, and were principally the result of management and staffing changes. Occupancy expenses declined between periods, resulting from the downsizing of the Bangor, Maine office in late 2002 and the Banks recent occupation of office space in the BTI headquarters complex in Ellsworth, Maine. Expense reductions were also achieved in a variety of other operating areas as BTI continued pursuing austerity initiatives to more closely match expenses with revenues. The expense reductions were offset in part by legal and professional services amounting to $143, representing an increase of $103 compared with the first quarter of 2002. BTI may receive reimbursement for a portion of these legal and professional expenses from its insurance carrier.

The Company’s effective tax rate for the three-month periods ended March 31, 2003 and 2002 amounted to 27.5% and 27.1%, respectively. The income tax provisions for these periods is less than the expense that would result from applying the federally statutory rate of 34% to income before income taxes principally because of tax exempt interest income on certain investment securities and loans.

At March 31, 2003 total assets amounted to $540,722 representing a decrease of $13,096 or 2.4% compared with December 31, 2002, and an increase of $42,413 or 8.5% compared with the same date in 2002.

The banking business in the Bank’s market area historically has been seasonal, with lower deposits in the winter and spring and higher deposits in the summer and fall. These seasonal swings have been fairly predictable and have not had a material adverse impact on the Bank. The decline in total assets from year-end reflects a seasonal decline in total deposits of $12,201 or 3.8%. The Bank generally adjusts for seasonal deposit changes through the use of borrowed funds and/or cash flows from the investment securities portfolio. During the current quarter the investment securities portfolio declined $11,134, or 6.9%.

The increase in total assets over March 31, 2002, was attributed to growth in the Bank’s loan portfolio, amounting to $41,208 and primarily the result of strong consumer real estate loan growth.

LOAN PORTFOLIO SUMMARY

Total Loans: Total loans at March 31, 2003 amounted to $352,167, compared with $351,535 at December 31, 2002, representing an increase of $632 or 0.2% compared with December 31, 2002, and an increase of $41,208 or 13.3%, compared with the same date in 2002.

The small increase in loan balances compared to year-end principally reflects the seasonality of certain local businesses and their corresponding borrowing needs for carrying seasonal inventory and maintaining adequate operating cash flow.

The 13.3% growth in the loan portfolio over March 31, 2002 levels was principally attributed to strong consumer real estate lending. Origination activity has benefited from a favorable market interest rate environment, a stable local economy, and initiatives designed to expand our product offerings and attract new customers while continuing to leverage our existing customer base.

At March 31, 2003 real estate loans comprised 84.5% of the loan portfolio, compared with 86.8% at December 31, 2002 and 82.8% at the same date in 2002. The continued strength in the local real estate markets, both residential and commercial, has led to record property values. The Bank recognizes the impact this trend may have on the loan portfolio and origination pipeline. Reviews of our underwriting standards are conducted periodically to ensure that the quality of the loan portfolio is not jeopardized by unrealistic loan to value ratios or debt service levels. To date, there has been no significant deterioration in the performance or risk characteristics of the real estate loan portfolio.

Credit Risk: Credit risk is managed through loan officer authorities, loan policies, the Bank’s Senior Loan Committee, oversight from the Bank’s Senior Credit Officer, Director’s Loan Committee, and the Bank’s Board of Directors. Management follows a policy of continually identifying, analyzing and grading credit risk inherent in the loan portfolio. An ongoing independent review, subsequent to Management’s review, of individual credits is performed by an independent loan review function, which reports to the Audit Committee of the Board of Directors.

Non-performing Loans: Non-performing loans include loans on non-accrual status, loans which have been treated as troubled debt restructurings and loans past due 90 days or more and still accruing interest. The following table sets forth the details of non-performing loans at the dates indicated:

TOTAL NONPERFORMING LOANS

The Bank continued to maintain its non-performing loans at lower levels than in prior years and attributes this success to the strengthening of its credit administration process and underwriting standards. At March 31, 2003, total non-performing loans amounted to $1,546, or 0.44% of total loans, compared with 0.33% at December 31, 2002 and 0.74% at the same date last year. At March 31, 2003, the Bank’s reserve for possible loan losses expressed as a percent of non-performing loans was 337%, compared with 190% at the same date last year and 424% at December 31, 2002.

While the non-performing loan ratios continue to reflect favorably on the quality of the loan portfolio, the Bank is cognizant of softening economic conditions overall and a weakening in certain industry segments in particular, and is managing credit risk accordingly. Future levels of non-performing loans will be influenced by economic conditions, including the impact of those conditions on the Bank’s customers, interest rates, and other factors existing at the time.

Other Real Estate Owned: When a real estate loan goes to foreclosure and the Bank purchases the property, the property is transferred from the loan portfolio to Other Real Estate Owned (OREO) at its fair value. If the loan balance is higher than the fair value of the property, the difference is charged to the allowance for loan losses at the time of the transfer. At March 31, 2003, Other Real Estate Owned amounted to $40, compared with $80 at December 31, 2002 and $54 at the same date a year earlier.

Allowance for Loan Losses and Provision: The allowance for loan losses ("allowance") is available to absorb losses on loans. The determination of the adequacy of the allowance and provisioning for estimated losses is evaluated quarterly based on review of loans, with particular emphasis on non-performing and other loans that management believes warrant special consideration.

The allowance is maintained at a level that is, in management’s judgment, appropriate for the amount of risk inherent in the loan portfolio given past, present and expected conditions, and adequate to provide for probable losses. Reserves are established for specific loans including impaired loans, a pool of reserves based on historical charge-offs by loan types, and supplemental reserves to reflect current economic conditions, industry specific risks, and other observable data. Loan loss provisions are recorded and the allowance is increased when loss is identified and deemed likely.

While management uses available information to recognize losses on loans, changing economic conditions and the economic prospects of the borrowers may necessitate future additions or reductions to the allowance.

During the three month period ended March 31, 2003, the Bank provided $150 to the allowance for loan losses compared with $300 for the same period in 2002. The decrease in the provision for loan losses reflects an overall strengthening in credit quality between periods, aided by relatively low charge-off experience. Since March 31, 2002 the allowance for loan losses has increased $837, or 19.1%.

The Bank’s loan loss experience continued its positive trend between reporting periods. For the three months ended March 31, 2003, recoveries on previously charged off loans exceeded loans charged off by $88, or 0.03% of average loans outstanding. Net loan charge offs for the same period in 2002 amounted to $93, or 0.03% of average loans outstanding.

The following table details changes in the allowance for loan losses and summarizes loan loss experience by loan type for three-month periods ended March 31, 2003 and 2002.

During the quarter ended March 31, 2003 there were no significant changes in the allocation of the allowance for loan losses by loan type. The following table presents the breakdown of the allowance by loan type at March 31, 2003 and December 31, 2002.

At March 31, 2003, the adequacy analysis resulted in a need for specific reserves of $3,592, general reserves of $580, impaired reserves of $505, and other reserves of $536.

Specific reserves are determined by way of individual review of commercial loan relationships in excess of $250, combined with reserves calculated against total outstanding loans by category using the Bank’s historical loss experience and other observable data. General reserves account for the risk and probable loss inherent in certain pools of industry and geographic concentrations within the loan portfolio. Impaired reserves consider all consumer loans over 90 days past due and impaired commercial loans which are fully reserved within the specific reserves via individual review and specific allocation of probable loss for loan relationships over $250, and pool reserves for smaller impaired loans. The Bank had no troubled debt restructurings during the three months ended March 31, 2003 and 2002, and all of its impaired loans were considered collateral dependent and were adequately reserved.

There were no major changes in loan concentrations during the three-month period ended March 31, 2003. However, changes were made to the allowance calculation to incorporate loss estimates relating to emerging issues in the blueberry industry, to which the Bank has extended credit, principally centered in Washington County, Maine. Over the past two years blueberry inventories have grown, as increased supplies have exceeded demand both here and abroad and prices have softened. At March 31, 2003, the adequacy analysis of the allowance incorporates management’s estimate of inherent losses associated with this industry segment.

Based upon the process employed and giving recognition to all attendant factors associated with the loan portfolio, management considers the allowance for loan losses at March 31, 2003, to be appropriate for the risks inherent in the loan portfolio and resident in the local and national economy as of that date.

For the quarter ended March 31, 2003, total average investment securities, including Fed Funds Sold, money market funds and time deposits with other banks, represented 31.0% of total interest earning assets and generated 25.7% of the Company’s tax equivalent interest income compared with 34.5% and 29.1%, respectively, during the same period in 2002.

At March 31, 2003 investment securities totaled $151,166, compared with $162,300 at December 31, 2002 representing a decrease of $11,134, or 6.9%. Comparing March 31, 2003 totals with the same date in 2002, investment securities have increased $4,534, or 3.1%.

The decline in investment securities during the quarter principally reflects accelerated pay-downs of mortgage-backed securities and the exercise of callable features on certain government agency securities, the proceeds of which were utilized to replace the seasonal outflow of deposits.

The investment securities portfolio primarily consists of United States Government agency securities, obligations of state and political subdivisions, mortgage-backed securities, and corporate bonds. The overall objective of the Company’s investment strategy for this portfolio is to maintain an appropriate level of liquidity, diversify earning assets, manage interest rate risk, and generate acceptable levels of net interest income.

In light of the historically low interest rate environment over the past year, the investment strategy has been focused on maintaining a relatively short duration, thereby reducing exposure to sustained increases in interest rates. This is achieved through investments in securities with predictable cash flows and relatively short average lives, and the purchase of certain adjustable rate instruments.

The most significant funding source continues to be core customer deposits that are gathered through the Bank’s retail branch network.

Total deposits declined $12,201 during the first quarter compared with year-end, reflecting the historical seasonality of the Bank’s deposit base.

At March 31, 2003 total deposits amounted to $309,814 compared with $287,930 at the same date in 2002, representing an increase of $21,884, or 7.6%. While all categories of deposits posted year-over-year increases, the growth was led by money market and savings accounts, posting an increase of $14,384, or 16.2%. Depositor preference has been that of greater liquidity, given general economic and market conditions.

Borrowed funds principally consist of advances from the Federal Home Loan Bank and, to a lesser extent, securities sold under agreements to repurchase. Borrowings are principally utilized to support the Bank’s investment portfolio and, to a lesser extent, fund loan growth.

At March 31, 2003 total borrowings amounted to $169,276, essentially unchanged from year-end totals. Compared with March 31, 2002, total borrowings have increased $16,419, or 10.7%. The increase in borrowed funds was used to fund loan originations, as loan growth outpaced deposit growth by $19,324 during the period.

The following table sets forth the Company’s regulatory capital at March 31, 2003 and December 31, 2002, under the rules applicable at that date.

As directed by new Section 13(j) of the Securities Exchange Act of 1934, added by Section 401(a) of the Sarbanes-Oxley Act of 2002, the Company must disclose and explain its "off-balance sheet arrangements". The definition of "off-balance sheet arrangement" includes any contractual arrangement to which an unconsolidated entity is a party, under which the Company has:

1. any obligation under certain guarantee contracts;
2. a retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets;
3. any obligation under certain derivative instruments;
4. any obligation under a material variable interest held by the Company in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the registrant, or engages in leasing, hedging, or research and development services with the Company.

Stand-by Letters of Credit: The Bank guarantees the obligations or performance of certain customers by issuing standby letters of credit to third parties. These letters of credit are sometimes issued in support of third party debt. The risk involved in issuing standby letters of credit is essentially the same as the credit risk involved in extending loan facilities to customers, and they are subject to the same origination, portfolio maintenance and management procedures in effect to monitor other credit products. The amount of collateral obtained, if deemed necessary by the Bank upon issuance of a standby letter of credit, is based upon managements credit evaluation of the customer. At March 31, 2003, outstanding standby letters of credit totaled $5,069, compared with $2,800 and $4,343 at December 31, 2002 and March 31, 2002, respectively.

Other Off-Balance Sheet Arrangements: At March 31, 2003 the Company did not have any other "off-balance sheet arrangements" that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.

The Bank is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit and interest rate swap agreements.

Commitments to Extend Credit: Commitments to extend credit represent agreements to lend to a customer provided there is no violation of any condition established in the contract. These commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of these commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis using the same credit policies as it does for its balance sheet instruments. The amount of collateral obtained, if deemed necessary by the Bank upon the issuance of commitment, is based on management’s credit evaluation of the customer.

The following table summarizes the Bank’s commitments to extend credit:

Derivative Instruments / Counter-party Risk: As part of the Bank’s overall asset liability / management strategy, the Bank periodically uses derivative instruments to minimize significant unplanned fluctuations in earnings and cash flows caused by interest rate volatility. The Bank’s interest rate risk management strategy involves modifying the re-pricing characteristics of certain assets and liabilities so that changes in interest rates do not have a significant adverse effect on net interest income, the net interest margin and cash flows. Derivative instruments that management periodically uses as part of its interest rate risk management strategy include interest rate swaps, caps and floors. These instruments are factored into the Bank’s overall interest rate risk position. A policy statement, approved by the Board of Directors of the Bank, governs use of derivative instruments.

At March 31, 2003 the Bank had two outstanding derivative instruments, both interest rate swaps. The details are summarized as follows:

The interest rate swap agreements hedge a defined pool of the Bank’s home equity loans yielding an interest rate of prime, which at March 31, 2003 was 4.25%. The Bank is required to pay a counter party monthly variable rate payments indexed to prime, while receiving monthly fixed rate payments based upon interest rates of 6.425% and 6.250% over the term of each respective agreement.

The following table summarizes the contractual cash flows of the interest rate swap agreements outstanding at March 31, 2003, based upon the current Prime interest rate:

The credit risk associated with the interest rate swap agreements is the risk of non-performance by the counter-party to the agreements. However, management does not anticipate non-performance by the counter-party, and regularly reviews the credit quality of the counter-party from which the instruments have been purchased.

The interest rate swap agreements qualify as a cash flow hedges, and as of March 31, 2003 had total unrealized gains of $324 thousand. In accordance with the Statement of Financial Accounting Standards (SFAS) 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", the unrealized gain is recorded in the statement of condition with the offset recorded in the statement of changes in equity as other comprehensive income. The use of the interest rate swap agreements increased interest income by $91 during the three months ended March 31, 2003. There were no interest rate swap agreements outstanding during the first quarter of 2002.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Interest Rate Risk: Interest rate risk is the most significant market risk affecting the Company. Other types of market risk, such as foreign exchange risk and commodity price risk, do not arise in the normal course of the Company’s business activities.

Interest rate risk can be defined as an exposure to movement in interest rates that could have an adverse impact on the Bank’s net interest income. Interest rate risk arises from the imbalance in the re-pricing, maturity and/or cash flow characteristics of assets and liabilities. Management’s objectives are to measure, monitor and develop strategies in response to the interest rate risk profile inherent in the Bank’s balance sheet. The objectives in managing the Banks balance sheet are to preserve the sensitivity of net interest income to actual or potential changes in interest rates, and to enhance profitability through strategies that promise sufficient reward for understood and controlled risk.

The Bank’s interest rate risk measurement and management techniques incorporate the re-pricing and cash flow attributes of balance sheet and off balance sheet instruments as they relate to current and potential changes in interest rates. The level of interest rate risk, measured in terms of the potential future effect on net interest income, is determined through the use of modeling and other techniques under multiple interest rate scenarios. Interest rate risk is evaluated in depth on a quarterly basis and reviewed by the Asset/Liability Committee ("ALCO") and the Board of Directors.

The Bank’s Asset Liability Management Policy, approved annually by the Board of Directors, establishes interest rate risk limits in terms of variability of net interest income under rising, flat and decreasing rate scenarios. It is the role of ALCO to evaluate the overall risk profile and to determine actions to maintain and achieve a posture consistent with policy guidelines.

The Bank utilizes an interest rate risk model widely recognized in the financial industry to monitor and measure interest rate risk. The model simulates the behavior of interest income and expense of all on and off-balance sheet instruments under different interest rate scenarios together with a dynamic future balance sheet. Interest rate risk is measured in terms of potential changes in net interest income based upon shifts in the yield curve.

The interest rate risk sensitivity model requires that assets and liabilities be broken down into components as to fixed, variable, and adjustable interest rates, as well as other homogeneous groupings, which are segregated as to maturity and type of instrument. The model includes assumptions about how the balance sheet is likely to evolve through time and in different interest rate environments. The model uses contractual re-pricing dates for variable products, contractual maturities for fixed rate products, and product specific assumptions for deposits accounts, such as money market accounts, that are subject to re-pricing based on current market conditions. Re-pricing margins are also determined for adjustable rate assets and incorporated in the model. Investment securities and borrowings with call provisions, are examined on an individual basis in each rate environment to estimate the likelihood of a call. Prepayment assumptions for mortgage loans and mortgage backed securities are developed from industry median estimates of prepayment speeds, based upon similar coupon ranges and seasoning. Cash flows and maturities are then determined, and for certain assets, prepayment assumptions are estimated under different rate scenarios. Interest income and interest expense are then simulated under several rate conditions including:

• A flat interest rate scenario in which today’s prevailing rates are locked in and the only balance sheet fluctuations that occur are due to cash flows, maturities, new volumes, and re-pricing volumes consistent with this flat rate assumption.
• A 100, 200, and 400 basis point rise or decline in interest rates applied against a parallel shift in the yield curve over a twelve- month period together with a dynamic balance sheet anticipated to be consistent with such interest rate changes.
• Various non-parallel shifts in the yield curve, including changes in either short-term or long-term rates over a twelve-month horizon, together with a dynamic balance sheet anticipated to be consistent with such interest rate changes.
• An extension of the foregoing simulations to each of two, three, four and five year horizons to determine the interest rate risk with the level of interest rates stabilizing in years two through five. Even though rates remain stable during this two to five year time period, re-pricing opportunities driven by maturities, cash flow, and adjustable rate products that will continue to change the balance sheet profile for each of the rate conditions.

Changes in net interest income based upon the foregoing simulations are measured against the flat interest rate scenario and actions are taken to maintain the balance sheet interest rate risk within established policy guidelines.

The following table summarizes the Bank’s net interest income sensitivity analysis as of March 31, 2003, over one and two year horizons and under different interest rate scenarios. In light of the Federal Funds rate of 1.25% on the date presented, the analysis incorporates a declining interest rate scenario of 100 basis points.

The Bank continues to be positively positioned for an upward interest rate environment over twelve and twenty-four month horizons. Based upon the information and assumptions in effect at March 31, 2003, management believes that a 200 basis point increase in interest rates over the next twelve months would increase net interest income by $523, or 2.69%. Should short-term interest rates rise and the yield curve flatten, management believes that a 200 basis point increase over the next twelve months would increase net interest income by $478, or 2.46%, and that a 400 basis point increase during this same period would increase net interest income by $1,273, or 6.55%.

The Bank’s net interest income continues to be moderately exposed to declining interest rates. Based upon the assumptions in effect at March 31, 2003, management believes that a 100 basis point decline in interest rates would decrease net interest income by $241 or 1.24% in year one, and $1,457 or 7.49% in year two. Management believes that a sustained 100 basis point decline in interest rates, or a Fed Funds Targeted rate of 0.25%, represents a scenario that is not likely to occur. Further, a repositioning of the balance sheet to hedge such a decline, would adversely impact net interest income in a rising rate environment, a scenario management believes is more likely to occur over the longer term.

Managing the Bank’s interest rate risk sensitivity has been challenging during this period of historically low interest rates. Over the past twelve months the yield curve has showed a relatively sharp, downward, parallel shift. As was anticipated by management through use of the model, the Bank’s net interest income was moderately impacted and, were it not for the growth in earning assets would have resulted in a period-over-period decline. Management expects interest rates will be susceptible to further declines during the remainder of 2003. However, management believes the current level of interest rate risk is acceptable.

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

As market conditions vary from those assumed in the sensitivity analysis, actual results may also differ due to: prepayment/refinancing levels deviating from those assumed, the impact of interest rate change caps or floors on adjustable rate assets, the potential effect of changing debt service levels on customers with adjustable rate loans, depositor early withdrawals and product preference changes, and other such variables. The sensitivity analysis does not reflect additional actions that ALCO might take in responding to or anticipating changes in interest rates.

The Company actively manages its liquidity position through target ratios established under its asset/liability management policy. Continual monitoring of these ratios, both historical and through forecasts under multiple rate scenarios, allows the Company to employ strategies necessary to maintain adequate liquidity.

The Company uses a basic surplus/deficit model to measure its liquidity over 30- and 90-day time horizons. The relationship between liquid assets and short-term liabilities that are vulnerable to non-replacement are routinely monitored. The Company’s policy is to maintain its liquidity position at a minimum of 5% of total assets. At March 31, 2003, liquidity, as measured by the basic surplus/deficit model, was 8.3% for the both the 30 and 90-day horizons. A portion of the Company’s deposit bases is seasonal in nature, with balances typically declining in the winter months through late spring, during which period the Company’s liquidity position tightens.

The Company maintains a liquidity contingency plan approved by the Bank’s Board of Directors. This plan addresses the steps that would be taken in the event of a liquidity crisis, and identifies other sources of liquidity available to the Company.

ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES

Within 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of Company management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-14. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms. Disclosure controls and procedures means controls and other procedures of the Company that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. While the Company believes that its disclosure controls and procedures are effective, it intends to continue to examine, refine and formalize its disclosure controls and procedures and to monitor ongoing developments in this area.

There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to the date the Company carried out this evaluation.

The Company previously reported that Bonnie R. McFee, a former officer and employee of its wholly owned subsidiary BTI Financial Group ("BTI") and BTI’s subsidiary Dirigo Investments, notified BTI in January 2002 of her resignation from all of her positions and made monetary demands for severance and other benefits under her employment agreement. These matters were submitted to a binding arbitration proceeding in order to determine the rights of the parties. On April 4, 2003, the Company received a written "Arbitration Award" in which the independent arbitrator found in favor of the Company and BTI and rejected all of Ms. McFee’s claims under her employment agreement. This decision of the arbitrator with regard to Ms. McFee’s employment agreement claims is binding and final.

As previously reported, Roselle M. Neely filed a complaint dated May 31, 2002, in the United States District Court for the District of Maine naming the Company, the Bank, Bar Harbor Trust Services ("BHTS"), certain other subsidiaries, and certain existing or former management personnel as defendants. The complaint relates to a trust established by Mrs. Neely, for which BHTS has acted as trustee since May 2000 and for which the Bank formerly acted as trustee. Mrs. Neely alleges in part that BHTS improperly disregarded her investment instructions and that the defendants engaged in excessive trading for the purpose of generating commissions for its affiliated broker-dealer. She seeks an unspecified amount of money damages and punitive damages, plus interest and costs. The Company filed an answer denying all allegations of wrongdoing. In March 2003, the Company filed a motion for summary judgment on all counts of Mrs. Neely’s complaint. No ruling has yet been received on that motion.

The Company and its subsidiaries are also parties to certain other ordinary routine litigation incidental to the normal conduct of their respective businesses, which in the opinion of management will have no material effect on the Company’s consolidated financial statements.

 Item 1b: Regulatory Matters

As previously disclosed, the Bank entered into an agreement ("Agreement") in the third quarter of 2001 with its principal regulators, the Federal Deposit Insurance Corporation ("FDIC") and the Maine Bureau of Financial Institutions ("BFI").

Pursuant to that Agreement, the Bank has increased its allowance for loan losses, developed a classified asset reduction plan for certain commercial relationships, revised its credit administration plan, implemented certain revisions in its asset appraisal procedures, established a minimum capital threshold of 8% or 3% above the regulatory minimum of 5% for "well capitalized" banks, improved certain account reconciliation and call reporting procedures, addressed certain weaknesses in its information systems, improved its procedures to ensure its compliance with the "Bank Secrecy Act," and initiated a long term strategic planning process which has recently been completed and will be refreshed at least annually. The Bank has also implemented a policy of paying dividends to its parent, the Company, only from current earnings, exclusive of gains on the sale of securities, without prior approval of its principal regulators.

The Bank is providing updates covering the status of certain of the foregoing items to its principal regulators on a quarterly basis. In Management’s judgment, the Bank is adequately addressing the matters set forth in the Agreement.

(a) Exhibits.

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

BAR HARBOR BANKSHARES

/s/ Joseph M. Murphy

Date: May 14, 2003                                                          Joseph M. Murphy
                                                                                        Chief Executive Officer

        /s/ Gerald Shencavitz

Date: May 14, 2003                                                          Gerald Shencavitz
                                                                                        Chief Financial Officer

 CERTIFICATION

I, Joseph M. Murphy, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Bar Harbor Bankshares;
   
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
   
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
   
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d) for the registrant and we have:
   
1. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
   
2. evaluated the effectiveness of this registrant’s controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
   
3. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date.
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrant’s board of directors or persons performing the equivalent function:
   
1. all significant deficiencies in the design or operations of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
   
2. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls.
6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with respect to significant deficiencies and material weaknesses.

Date: May 14, 2003                                                                                       /s/ Joseph M. Murphy

                                                                                                                    Joseph M. Murphy
                                                                                                                    President and Chief Executive Officer

 

 

 

CERTIFICATION

I, Gerald Shencavitz, certify that:

Date: May 14, 2003                                                                    /s/ Gerald Shencavitz
                                                                             

                                                                            Gerald Shencavitz
                                                                            Chief Financial Officer