BAR HARBOR BANKSHARES, 10-K405, 1999-03-30

BAR HARBOR BANKSHARES
10-K405, 1999-03-30
STATE COMMERCIAL BANKS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549

FORM 10-K

Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (fee required) For the
fiscal year ended December 31, 1998.
Commission File No. 0-13666

BAR HARBOR BANKSHARES

State or other jurisdiction of incorporation or
organization: Maine
IRS Employer Identification Number:
01-0393663
Address: P O Box 400, 82 Main Street, Bar Harbor,
ME Zip Code:04609-0400
Registrant's telephone number, including area code:
(207) 288-3314

Securities registered pursuant to Section 12(g) of the
Act:
Title of Class: Common Stock.
Par Value $2.00 per share

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 XX

Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K (229.405
of this chapter) is not contained herein, and will not
be contained, to the best of registrant's knowledge, in
definite proxy or information statements incorporated
by reference in Part III of this Form 10-K or any
amendment to this form 10-K.

The aggregate market value of the voting stock held by
non-affiliates of the registrant, as of January 31,
1999 is:
Common stock, $2.00 par value
$81,785,833

The number of shares outstanding of each of the
registrant's classes of common stock, as of January 31,
1999 is:
Common stock
3,443,614

Documents incorporated by Reference:
(1) portions of the Annual Report to Stockholders for
the year ended December 31, 1998 are incorporated by
reference into Part II, Items 6 through 8 and Part IV,
Item 14 of the Form 10-K.
INDEX
<TABLE>
<CAPTION>
NUMBER ITEM PAGE
<S> <C> <C>
1. Business 3-4
2. Properties 4-5
3. Legal Proceedings 5
4. Submission of Matters to a Vote of 5
Security Holders
5. Market for Registrant's Common
Equity and Related Stockholders 6
Matters
6. Selected Financial Data 6
7. Management's Discussion and Analysis
of Financial Condition and Results 6-18
of Operation
7a. Quantitative and Qualitative
Disclosures about Market Risk 19-
20
8. Consolidated Financial Statements
and Supplementary Data 20
9. Changes in and Disagreements with
Accountants on Accounting and 20
Financial Disclosure
10. Directors and Executive Officers of 21-
the Registrant 22
11. Executive Compensation 23-
26
12. Security Ownership of Certain 27
Beneficial Owners and Management
13. Certain Relationships and Related 28
Transactions
14. Exhibits, Financial Statement 29-
Schedules and Reports on Form 8-K 30
</TABLE>
PART I

ITEM 1. BUSINESS

Bar Harbor Bankshares, ("the Company"), was
incorporated January 19, 1984. As of December 31, 1998,
the Company's securities consisted of one class of
common stock ("the Common Stock"), par value of $2.00
per share, of which there are 3,443,614 shares
outstanding held of record by approximately 1,072
stockholders.

The accompanying consolidated financial statements
include the accounts of the company and its wholly
owned subsidiary, Bar Harbor Banking and Trust Company
("the Bank"). All inter-company balances and
transactions have been eliminated in the accompanying
financial statements.

The Bank conducts substantially the same business
operations as a typical full service, independent,
community bank. It has ten offices in coastal Maine,
including its principal office located at 82 Main
Street, Bar Harbor, Hancock County, and adjacent
Washington County. The Hancock County offices are
located at Main Street, Northeast Harbor; Main Street,
Southwest Harbor; Main Street, Blue Hill; route #15,
Deer Isle; corner of High and Washington Streets,
Ellsworth; and Main Street, Winter Harbor. The
Washington County offices are located at the corner of
Routes 1 and 1A, Milbridge; Main Street, Machias; and
Washington Street, Lubec. The Bank performs its
operations, check clearing, technology and mail
services in its Operations Center located on Avery Lane
in Ellsworth, Maine. In addition, the Bank's Trust
Department has an office at One Cumberland Place,
Bangor, Maine.

The Bank is a retail bank serving primarily individual
customers, small retail establishments, seasonal
lodging, campgrounds and restaurants. As a coastal bank
it serves the lobstering, fishing and aquaculture
industries. It also serves Maine's wild blueberry
industry through its Washington County offices. The
Bank has not made any material changes in its mode of
conducting business during the past five years.

The Bank operates in a highly competitive market.
Competition among banks in Maine has increased in
recent years as a result of aggressive acquisition
programs by statewide holding companies and by
completely open interstate banking. The Bank continues
to be one of the largest independent commercial banks
in the State of Maine.

In the Bank's immediate service area there are two
other independent commercial banks, one Savings and
Loan Association, three savings bank branch offices and
three commercial banks which are offices owned by
holding companies based outside the state.

The Bank has a broad deposit base and loss of any one
depositor or closely aligned group of depositors would
not have a materially adverse effect on its business.
Approximately 85% of the Bank's deposits are in
interest bearing accounts. The Bank has paid, and
anticipates that it will continue to pay, current
competitive rates on certificates of deposit, IRAs, NOW
and money market accounts and does not anticipate loss
of these deposits.

The Bank provides the normal banking services offered
by a commercial bank including checking accounts, NOW
accounts, all forms of savings and time deposit
accounts, individual retirement accounts, safe deposit
boxes, collections, travelers checks, night depository
services, direct deposit payroll services, credit
cards, personal money orders, bank-by-mail and club
accounts and drive-up facilities at all offices. During
1998, the Bank introduced TeleDirect, an interactive
voice response system through which customers can get
product information, check balances and activity on
their accounts as well as perform transfers between
their own accounts. The Bank also has arrangements with
other institutions for the provision of certain
services which it does not provide directly, such as
computerized payroll services. In addition, the Bank
operates a large Trust Department, including an office
in Bangor, Maine. Market value for the assets held in
the Trust Department as of December 31, 1998 was $385
million compared to $357 million in 1997 and included
$21.4 million in new business.

The Bank has Automated Teller Machines (ATMs) located
in each of its ten branch locations. These ATMs access
major networks for use of the Bank's cards throughout
the United States including the Plus and NYCE systems
as well as the major credit card networks.

In addition to the foregoing, the Bank offers lending
services including consumer credit in the form of
installment loans, overdraft protection (stand-by
credit), VISA credit card accounts, student loans,
residential mortgage loans and home equity loans. It
offers business loans to individuals, partnerships and
corporations for capital construction, the purchase of
real estate and working capital. Business loans are
provided primarily to organizations and individuals in
the tourist, health care, blueberry, shipbuilding and
fishing and aquaculture industries as well as to the
usual small businesses associated with small coastal
communities. Certain larger loans which would exceed
the Bank's lending limits are written on a
participation basis with correspondent banks, with the
Bank retaining only such portions of those loans as are
within its lending limits. The Bank also provides trust
and estate planning services to its customers. The
principal market area for all of the Bank's services
consists of Hancock and Washington Counties. The Bank's
policy for lending limits is up to 20% of its equity to
any borrower provided that the loans are secured and
approved by the Directors Loan Committee. This
committee is chaired by Sheldon F. Goldthwait, Jr.,
President and CEO of the Bank, and includes members of
the Bank's Board of Directors.

As a state chartered bank, the Bank has the Bureau of
Banking of the State of Maine and the Federal Deposit
Insurance Corporation as bank regulatory agencies
responsible for its supervision. In addition, as a bank
holding company, the Federal Reserve Bank supervises
the Company.

The Bank is not engaged in any material research
activities relating to the development of new services
or the improvement of existing services except in the
normal course of business activities. In order to
better serve its customers, it is the Bank's intent to
convert its major banking software systems in the first
quarter of 2000. This conversion will include lending,
deposit, general ledger, teller and item image
applications. As of December 31, 1998, the Bank
employed 176 persons in a full or part-time basis. The
President, Executive Vice President, Senior Vice
President of the Trust Department, Senior Vice
President and Treasurer, and Vice President in charge
of Human Resources are employed by the Bank as well as
serve as officers of the Company. The Company does not
compensate them for their services. There are no
employees of the Company.

ITEM 2. PROPERTIES

The eleven parcels of real estate owned and utilized by
the Bank for its operations are described below:

1. The principal office of the Bank is located at 82
Main Street, Bar Harbor, Maine and includes a building
housing banking facilities and administrative offices
and an adjacent 35 car customer parking lot. The
building was renovated in 1998.

2. An office is located at Main Street, Northeast
Harbor, Maine. This property consists of a building
constructed in 1974 and underwent interior renovations
in 1998 to better meet the Bank's needs at that
location.

3. An office is located on Main Street, Southwest
Harbor, Maine. This property consists of a building
constructed in 1975 which was added to and renovated in
1989 to better meet the needs at that location.

4. An office is located at Church Street, Deer Isle,
Maine. This property consists of a building constructed
in 1974 which was added to and renovated in 1994 to
better meet the needs at that location.

5. An office is located on Main Street, Blue Hill,
Maine. This property consists of a building constructed
in 1960 which was renovated in 1989 to better meet the
needs at that location.

6. An office is located at Main Street, Milbridge,
Maine. This property consists of a building constructed
in 1974 to which a vestibule was added in 1994 to house
an ATM which helps to better meet the needs at that
location.

7. An office is located at Washington Street, Lubec,
Maine. This branch consists of a building constructed
in 1990 and is adequate for the Bank's needs at that
location.

8. An office is located at High Street, Ellsworth,
Maine. This branch consists of a building constructed
in 1982 which is adequate for the Bank's current needs
at that location.

9. An office is located at Main Street, Winter Harbor.
This branch consists of a building constructed in 1995
and is adequate for the Bank's needs at that location.

10. An office is located on Main Street, Machias,
Maine. This branch was purchased from Key Bank of Maine
in May, 1990, and was renovated in 1995 to better meet
the Bank's needs at that location.

11. An Operations Center is located on Avery Lane,
Ellsworth, Maine and houses the Bank's operations,
check clearing, technology, training and mail
departments beginning in January of 1997.

A parcel of land adjacent to the Blue Hill branch was
purchased in 1981.

ITEM 3. LEGAL PROCEEDINGS
Not applicable.

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

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS

High and low bids for each quarter of 1998 and 1997 are
listed below (per quotes from The Bangor Daily News
through September 23, 1997), the date of listing on the
American Stock Exchange. Per share data information has
been adjusted to reflect the 100% stock dividend
described above.
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
High High High High
Low Low Low Low
<S> <C> <C> <C> <C>
1998 29.00 to 29.50 to 24.875 25.25 to 25.00 to
25.125 19.25 17.00
1997 19.375 to 21.375 to 24.188 to 31.00 to
17.50 18.188 19.875 24.563
</TABLE>
As of January 1, 1999, there were 1,072 registered
holders of record of Bar Harbor Bankshares common
stock.

Dividends paid by the Company in 1998 and 1997:
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
1998 $0.16 $0.17 $0.17 $0.17
1997 $0.14 $0.15 $0.15 $0.16
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA

Selected financial information for the past five years
is contained on Page 3 of the Company's Annual Report
to Shareholders for the year ended December 31, 1998
and is incorporated herein by reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information contained in the section captioned
"Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Company's
Annual Report is incorporated herein by reference.

AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST
EARNINGS
(Amounts in Thousands)
1998
<TABLE>
<CAPTION>
AVERAGE YIELD/
BALANCE INTEREST RATE
<S> <C> <C> <C>
ASSETS
Loans $224,406 $21,290 9.49%
Taxable Investment Securities 111,111 7,450 6.71%
Non-Taxable Investment 6,650 424 6.37%
Securities
Fed. Funds Sold & Money Market 955 47 4.92%
Funds
Total Interest-Earning Assets $343,122 $29,211 8.51%
Non-Interest Earning Assets:
Total Cash and Due from 10,856
Less: Allowance for Losses (4,721)
Bank Premises and Equipment 7,823
Other Assets 6,577
TOTAL ASSETS $363,657

LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest Bearing Demand $41,872 $622 1.48%
Deposits
Savings Deposits 57,791 1,650 2.86%
Time Deposits 116,262 6,267 5.39%
Repurchase Agreements and Short 39,644 2,133 5.38%
Term Borrowings
Long Term Borrowings 22,849 1,301 5.69%

TOTAL INTEREST BEARING $278,418 $11,973 4.30%
LIABILITIES

Non-Interest Bearing
Liabilities:
Non-Interest Bearing Demand 38,890
Deposits
Other Liabilities 2,177
Stockholders' Equity 44,172
TOTAL LIABILITIES AND $363,657
STOCKHOLDERS'
EQUITY
NET EARNING ASSETS $64,704
NET INTEREST INCOME/NET $17,238 4.21%
INTEREST SPREAD
NET INTEREST MARGIN 5.02%
</TABLE>

AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST
EARNINGS
(Amounts in Thousands)
1997
<TABLE>
<CAPTION>
AVERAGE YIELD/
BALANCE INTEREST RATE
<S> <C> <C> <C>
ASSETS
Loans $217,295 $21,028 9.68%
Taxable Investment Securities 96,195 6,792 7.06%
Non-Taxable Investment 10,653 651 6.11%
Securities
Fed. Funds Sold & Money Market 900 47 5.23%
Funds
Total Interest-Earning Assets $325,043 $28,518 8.77%
Non-Interest Earning Assets:
Total Cash and Due from 9,797
Less: Allowance for Losses (4,465)
Bank Premises and Equipment 7,738
Other Assets 6,442
TOTAL ASSETS $344,555

LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest Bearing Demand $39,532 $668 1.69%
Deposits
Savings Deposits 52,455 1,334 2.54%
Time Deposits 122,491 6,791 5.54%
Repurchase Agreements and Short 40,769 2,238 5.49%
Term Borrowings
Long Term Borrowings 11,486 679 5.91%

TOTAL INTEREST BEARING $266,733 $11,710 4.39%
LIABILITIES

Non-Interest Bearing
Liabilities:
Non-Interest Bearing Demand 36,545
Deposits
Other Liabilities 1,805
Stockholders' Equity 39,472

TOTAL LIABILITIES AND
STOCKHOLDERS' $344,555
EQUITY
NET EARNING ASSETS $58,310
NET INTEREST INCOME/NET $16,808 4.38%
INTEREST SPREAD
NET INTEREST MARGIN 5.17%

</TABLE>
AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST
EARNINGS
(Amounts in Thousands)
1996
<TABLE>
<CAPTION>
AVERAGE YIELD/
BALANCE INTEREST RATE
<S> <C> <C> <C>
ASSETS
Loans $207,188 $20,303 9.80%
Taxable Investment Securities 93,607 6,422 6.86%
Non-Taxable Investment 12,940 767 5.93%
Securities
Fed. Funds Sold & Money Market 557 30 5.47%
Funds
Total Interest-Earning Assets $314,292 $27,522 8.76%
Non-Interest Earning Assets:
Total Cash and Due from 8,878
Less: Allowance for Losses (4,262)
Bank Premises and Equipment 6,880
Other Assets 6,183
TOTAL ASSETS $331,971

LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest Bearing Demand $ 38,036 $ 618 1.62%
Deposits
Savings Deposits 54,503 1,371 2.52%
Time Deposits 124,427 6,899 5.54%
Repurchase Agreements and Short
Term Borrowings 37,519 2,030 5.41%
Long Term Borrowings 6,768 363 5.37%

TOTAL INTEREST BEARING $261,253 $11,281 4.27%
LIABILITIES

Non-Interest Bearing
Liabilities:
Non-Interest Bearing Demand 33,408
Deposits
Other Liabilities 1,735
Stockholders' Equity 35,575

TOTAL LIABILITIES AND
STOCKHOLDERS' $331,971
EQUITY
NET EARNING ASSETS $ 53,039
NET INTEREST INCOME/NET $ 16,241 4.49%
INTEREST SPREAD
NET INTEREST MARGIN 5.17%

</TABLE>

NOTES TO AVERAGE BALANCE SHEET

1. Tax-exempt income is calculated at coupon rate,
not adjusted on a tax equivalent basis.

2. At December 31, 1998, loans on non-accrual status
totaled $1,744,000. These loans are included in the
loan category on the preceding Average Balance Sheet.
If interest had been accrued on such loans, interest
income on loans would have been $107,400 higher in
1998.

3. Based on information reported by the Uniform Bank
Performance Report, the Bank's net interest margin
remains above the national average for peer banks, and
has remained at higher than average levels for a number
of years. The Bank is a community bank which focuses
its efforts on customer relationships and good service
while remaining competitive in the demand for loans,
both in the commercial and consumer sectors. The spread
and margin for the Bank have been decreasing over the
past three years, as competition for the same customers
within the Bank's market area continues to grow. The
average yield on the Bank's earning assets dropped to
8.51% from 8.77% as of December 31, 1998. This had an
impact on the net interest margin for the Bank, which
dropped on average by 15 basis points when comparing
1998 to 1997. In comparison, the average rate on the
bank's earning assets remained flat in 1997 as compared
to 1996 and the cost of interest bearing liabilities
increased by 7 basis points. The net interest spread
dropped from 1996 to 1997 by 6 basis points and the
average net interest margin was 5.17% for 1997. While
year end deposits remained flat between year end 1996
and 1997, on average, non-interest bearing liabilities
increased in 1997 over 1996 by $3.1 million. The Bank
continues to seek quality loans, broadening its
customer base as the spread tightens. The effect of
rates and volumes is exemplified further in the Rate
Volume Analysis as found below.
RATE VOLUME ANALYSIS
The following table represents a summary of the changes
in interest earned and interest paid as a result of
changes in rates and changes in volumes.

For each category of earning assets and interest
bearing liabilities, information is provided with
respect to changes attributable to change in rate
(change in rate multiplied by old volume) and change in
volume (change in volume multiplied by old rate). The
change in interest due to both volume and rate has been
allocated to volume and rate changes in proportion to
the relationships of the absolute dollar amounts of the
change in each.

YEAR-ENDED DECEMBER 31, 1998
COMPARED TO DECEMBER 31, 1997
INCREASES (DECREASES) DUE TO:
<TABLE>
<CAPTION>
VOLUME RATE NET
<S> <C> <C> <C>
Loans $680 ($418) $262
Taxable Investment Securities 1,005 (357) 648
Non-taxable Investment Securities (254) 27 (227)
Federal Funds Sold and Money 4 6 10
Market Funds

TOTAL EARNING ASSETS $1,435 ($742) $693

Deposits $131 ($385) ($254)
Repurchase Agreements and Short (61) (44) (105)
Term Borrowings
Long Term Borrowings 648 (26) 622
TOTAL INTEREST BEARING $718 ($455) $263
LIABILITIES
NET CHANGE IN INTEREST $717 ($287) $430
</TABLE>

YEAR-ENDED DECEMBER 31, 1997
COMPARED TO DECEMBER 31, 1996
INCREASES (DECREASES) DUE TO:
<TABLE>
<CAPTION>
VOLUME RATE NET
<S> <C> <C> <C>
Loans $981 ($256) $725
Taxable Investment Securities 180 183 363
Non-taxable Investment Securities (139) 23 (116)
Federal Funds Sold and Money 20 4 24
Market Funds

TOTAL EARNING ASSETS $1,042 ($46) $996

Deposits $23 ($118) ($95)
Repurchase Agreements and Short
Term 110 98 208
Borrowings
Long Term Borrowings 276 40 316
TOTAL INTEREST BEARING $409 $ 20 $429
LIABILITIES
NET CHANGE IN INTEREST $633 ($ 66) $567
</TABLE>

SUMMARY OF INVESTMENT PORTFOLIO

The information presented below is to facilitate the
analysis and comparison of sources of income and
exposure to risks.
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C.
U. S. Treasury Securities and
Obligations of Other U. S.
Government $5,690 $13,250 $11,750
Agencies
Mortgage Backed Securities:
U. S. Government 88,101 57,913 49,255
Agencies
Other 6,668 5,082 6,812
Obligations of State and
Political 5,634 8,105 12,392
Subdivisions
Other Bonds 7,069 1,001 2,508
SECURITIES HELD TO MATURITY $113,162 $85,351 $82,717

Obligations of Other U. S.
Government 12,332 8,803 13,337
Agencies
Mortgage Backed Securities:
U. S. Government 4,936 5,233 5,430
Agencies
Marketable Equity Securities 576 572 617

SECURITIES AVAILABLE FOR SALE $17,844 $14,608 $19,384
</TABLE>

MATURITY SCHEDULE FOR INVESTMENTS HELD TO MATURITY
At December, 1998
<TABLE>
<CAPTION>
Greater Greater
than One than Five Greater
One Year or year to Years to than Ten
Less Five Years Ten Years Years
<S> <C> <C> <C> <C>
Obligations of Other U. S.
Government Agencies $ 750 $ 2,250 $ 2,690 $ 0
Average Yield 6.63% 6.60% 6.79%

Mortgage-backed Securities:
U. S. Government Agencies 1,428 3,517 12,908 70,248
Average Yield 6.89% 6.40% 6.66% 6.90%

Mortgage-backed Securities:
Other 0 620 2,382 3,666
Average Yield 5.28% 6.46% 7.07%

Obligations of State and
Political Subdivisions 1,152 2,657 1,290 535
Average Yield 5.73% 6.86% 5.40% 6.80%

Other Bonds 0 6,304 765 0
Average Yield 6.27% 6.50%

TOTAL $ 3,330 $ 15,348 $ 20,035 $ 74,449
</TABLE>
MATURITY SCHEDULE FOR INVESTMENT
AVAILABLE FOR SALE AT DECEMBER 31, 1998
(at fair value)
<TABLE>
<CAPTION>
Greater
One Year One Year than Five Greater
or Less to Years to than Ten
Five Ten Years Years
Years
<S> <C> <C> <C> <C>
Obligations of Other
U. S. Government $ 500 $ 1,004 $ 10,828 0
Agencies
Average Yield 7.53% 6.07% 6.47%
Mortgage-Backed
Securities: 0 0 0 4,936
U. S. Government
Agencies
Average Yield 7.52%
TOTAL $ 500 $ 1,004 $ 10,828 $ 4,936
</TABLE>
Mortgage backed securities are included based upon the
final maturity date of the security.

The maturity schedule for securities available for sale
excludes marketable equity securities totaling
$576,000.

Yields on tax exempt bonds were not computed on a tax
equivalent basis.

The Bank does not hold any securities for a single
issuer, other than U. S. Government agencies and
corporations, where the aggregate book value of the
securities exceed 10% of the Bank's stockholders'
equity.

The maturities for the mortgage-backed securities are
shown at the stated maturity. If the Bank presented
mortgage-backed securities by average expected life,
the breakdown would be:
<TABLE>
<CAPTION>
Greater Greater
One Year or than One than Five Greater
Less Year to Years to than Ten
Five Years Ten Years Years
<S> <C> <C> <C> <C>
Mortgage-backed
Securities Held to 6,564 53,531 16,284 18,390
Maturity
Mortgage-backed
Securities Available 1,061 3,875 0 0
For Sale at Fair
Value
</TABLE>
Changes in the market value of the investment portfolio
follow national interest rate fluctuations. As national
interest rates dropped by 75 basis points during 1998,
the value of the portfolio increased with the total
unrealized gain approximating $1,091,000 at December
31, 1998 over book value. The Bank does not hold any
interest only or principal only bonds, nor does it hold
any debt securities whose market value could change to
a greater degree than traditional debt.
SUMMARY OF LOAN PORTFOLIO
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Real estate loans:
Construction & $ $ $ $ $
Development 11,366 7,925 8,906 8,072 4,595
Mortgage 168,25 158,592
8 146,041 135,06 124,62
8 0
Loans to finance
agricultural 10,308 9,993 9,370
production and other 10,092 10,377
loans to farmers
Commercial and 22,778 23,696 31,791
industrial loans 29,040 29,807

Loans to individuals
for household,
family and other 16,538 16,668 17,242 17,640 15,301
personal
expenditures
All other loans 138 209 319 7 22
Real Estate Under 49 56 320 794 295
Foreclosure

TOTAL LOANS $229,4 $217,13 $211,96 $201,7 $185,9
35 9 0 65 94

Less: Allowance
for possible loan 4,455 4,743 4,293 4,048 3,892
Loss
NET LOANS $224,9 $212,39 $207,66 $197,7 $182,1
80 6 7 17 02
</TABLE>

PAST DUE LOANS
The figures below represent loans past due 30 days or
more (% is percentage of loans outstanding for a
specific category of loans).
<TABLE>
<CAPTION>
1998 % 1997 % 1996 % 1995 % 1994 %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Construction &
246 2.2 129 1.6 247 2.8 214 2.7 77 1.7
Development
Real Estate 5,750 3.4 3,682 2.3 4,100 2.8 3,009 2.2 1,713 1.4
Commercial,
Industrial and 1,309 3.9 1,041 3.1 1,479 3.8 517 1.3 559 1.4
Other
Loans to 567 3.4 450 2.7 462 2.7 434 2.5 324 2.1
individuals
Loans past due
90 days or 1,710 0.8 774 0.4 733 0.4 849 0.4 892 0.5
more and
still accruing*
Non-Accruing 1,744 0.8 3,236 1.5 3,541 1.7 3,360 1.7 3,139 1.7
Loans
</TABLE>
*The percentage for loans past due 90 days or more and
still accruing and non-accruing loans relate to total
loans outstanding. Each loan in these categories is
also included in its past due loan category.

Loans that were non-performing as of December 31, 1997
and for which the real estate was acquired by the Bank
in 1998 totaled $473,600.

MATURITY SCHEDULE - LOAN PORTFOLIO
As of December 31, 1998
<TABLE>
<CAPTION>
After One
One Year Year After
or Less through Five
Five Years
Years
<S> <C> <C> <C>
Commercial, Financial
and $ 13,632 $ 8,794 $ 10,660
Agricultural
Real estate
Construction and Land $ 9,278 $ 2,088
Development
</TABLE>

The Bank makes construction loans on the basis of: a)
permanent financing from another financial institution,
or b) approval at the time of origination for permanent
financing by our own Bank. In addition, a number of
large commercial real estate loans are written and
priced on the basis of fixed rates with a three to five
year balloon payment. It is generally the intent of the
Bank to re-negotiate the rate and term of the loan at
the balloon maturity. Lines of credit are renewed
annually. There are consumer construction loans that
will either be sold to the secondary market upon
completion of construction or rolled into the permanent
portfolio of residential mortgage loans.

The total amount of commercial, financial and
agricultural, construction, and land development loans
with adjustable interest rates and maturities of
greater than one year is $12.7 million and with fixed
interest rates and maturities of greater than one year
is $8.9 million.

RISK ELEMENTS
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Loans accounted for on
a non- $1,744 $3,236 $3,541 $3,360 $3,139
accrual basis
Accruing loans
contractually past $1,710 $ 774 $ 733 $ $ 892
due 90-days or more 849
</TABLE>
It is the policy of management to review past due loans
on a monthly basis. Those loans 90-days or more past
due which are not well secured or in the process of
collection are designated as non-accruing. This
includes government guaranteed loans unless the
guaranteed portion has been sold. If interest had been
accruing on such loans, interest income on loans would
have been $107,400 higher in 1998. Interest collected
on these loans totaled $122,200 in 1998 and was
included in net income. Non-accrual loans and those
loans 90-days past due and still accruing represent
1.51% of average loans for 1998 and 1.85% for 1997.

Management is not aware of any potential problem loans
that are not included in the above table. The Bank
makes single-family residential loans, commercial real
estate loans, commercial loans, and a variety of
consumer loans. The Bank's lending activities are
conducted in north coastal Maine. Because of the Bank's
proximity to Acadia National Park, a large part of the
economic activity in the area is generated from the
hospitality business associated with tourism.

Loans to the hospitality industry (hotels and
restaurants) represent the highest loan concentration
by industry at 65% of capital, $30.5 million up from
$28.7 million in 1997. Other substantial loan
concentrations include fishing, which dropped from
$11.0 million in 1997 to $8 million in 1998, and
commercial and real estate development, decreasing
slightly from $13.9 million to $12.7 million. Credit
concentrations over $700,000 remained at approximately
$28 million. Eighty percent of the credits totaling
$700,000 or more are secured by real estate and have
loan to value ratios of no more than 70%.

As most loans granted by the Bank are collateralized by
real estate, the ability of the Bank's borrowers to
repay is dependent on the level of economic activity
and the level of real estate values in the Bank's
market area. Because of the increasing health of the
tourist industry and other industries in its market
area, the Bank has benefited from the economic well
being of its customers.

SUMMARY OF LOAN LOSSES

Delinquencies are reviewed on a monthly and quarterly
basis by senior management as well as the Board of
Directors. Information reviewed is used in determining
if and when loans represent potential losses to the
Bank. A determination of a potential loss could result
in a charge to the provision for loan losses, with an
increase to the reserve for possible loans so that
risks in the portfolio can be identified on a timely
basis and an appropriate reserve can be maintained.

The Bank utilizes the methodology for the review of the
allowance for loan losses to be in accordance with the
approach suggested by bank regulators through the
Interagency Policy Statement on Allowance for Loan and
Lease Losses dated December 1993. The reserve includes
specific reserves based on the review of specific
credits, a pool of reserves based on historical charge-
offs by loan types and supplementary reserves
reflecting concerns and loan concentrations by
industry, by customer and by general economic
conditions. The allocation has changed based on
concentration of loans in the fishing and tourist
related industries.

Charged off loans over the past five years as a
percentage of the average loan portfolio have remained
below three tenths of one percent, with the exception
in 1995. The percentage of net charged off loans to
average loans in 1997 represented the lowest percentage
(.08%) in the five years presented. In 1997, there was
a recovery of a single loan of $300,000 that was
charged off in a previous year; but, absent that
recovery, net charge offs would have been .22% of total
loans. For the years ended 1994 and 1995, the majority
of charge offs were commercial loans secured by real
estate or real estate mortgages. However, since 1996,
the majority of charge offs have been loans to
individuals and included many small loans and credit
card debt.

In 1993, a property on Main Street in Ellsworth was
written down by $100,000 to more closely reflect a
liquidation price. In 1994, the same property in
Ellsworth was written down by an additional $23,500.
This property was sold in 1995 for $120,000.
Additionally in 1994, three residential properties
owned by the Bank were written down by a total of
$58,000 to more closely reflect their market values.

Approximately 28% of the loans charged off in 1995
represented loans secured by real estate, and 39%
represented commercial credits. The increase in
commercial loan charge offs in 1995 included the charge
down of a large commercial loan. Recoveries totaled
$141,000 and $97,000 for the years ended 1994 and 1995,
respectively. In 1996, charged off loans to
individuals represented over half of the total charge
offs for that year and resulted from losses on
installment loans and credit cards. This pattern
continued in 1997 and 1998 with installment loans and
other consumer loans representing 78% and 57%,
respectively, of the total charge offs. Net losses in
the commercial and agricultural portfolios totaled
$177,000 or 28% of the net charged off loans for 1998.

Actual net loan charge offs for 1998 were higher than
estimated charge offs and were primarily attributable
to the weaker economy in part of the bank's market
area. Installment and other loans to individuals
followed national trends of problems with consumers'
extensions in unsecured debt as well as the economic
situation in part of the Bank's market area. Real
estate loan losses were lower than expected. The Bank
anticipated one large real estate charge off. This
property was sold, resulting in a smaller net charge
off.

Based on past experience and management's assessment of
the present loan portfolio, it is expected that net
loan charge offs for 1999 will not exceed $750,000.

<TABLE>
<CAPTION>
<S> <C>
Commercial $ 185,000
Real Estate mortgages $ 165,000
Installments and other loans to $ 400,000
individuals
</TABLE>
A breakdown of the allowance for possible loan losses
is as follows:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
Percent Percent Percent Percent Percent
of of of of of
Loans Loans Loans Loans Loans
in each in each in each in each in each
Categor Categor Categor Categor Categor
Amount y to Amount y to Amount y to Amount y to Amount y to
Total Total Total Total Total
Loans Loans Loans Loans Loans
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate $
Mortgages $1,240 78.31% 146 76.71% $1,054 73.26% $ 915 71.34% $ 1,666 69.63%
Installment
s and other
loans to 323 7.21% 2,939 7.68% 1,457 8.13% 1,469 8.74% 485 8.23%
individuals
Commercial,
financial
and 1,010 14.42% 481 15.51% 629 18.46% 278 19.92% 1,220 22.13%
Agricultura
l
Other 180 .06% 0 .10% 0 .15% 0 0.00% 0 .01%
Unallocated 1,702 .00% 1,177 .00% 1,153 0.00% 1,386 0.00% 521 .00%
TOTAL 4,455 100.00% $4,743 100.00% $4,293 100.00% $4,048 100.00% $ 3,892 100.00%
</TABLE>

SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
ALLOWANCE FOR LOAN 1998 1997 1996 1995 1994
LOSSES
<S> <C> <C> <C> <C> <C>
Balance at beginning $4,743 $4,293 $4,048 $3,892 $3,369
of period
Charge offs:
Commercial,
Financial, 217 102 195 377 122
Agricultural,
Others
Real Estate 113 27 131 256 267
Mortgages
Installments
and other loans 458 456 385 268 189
to Individuals
Total Charge Offs 788 585 711 901 578

Recoveries:
Commercial,
Financial, 40 169 73 20 47
Agricultural,
Others
Real Estate 21 154 94 20 54
Mortgages
Installments
and other loans 103 92 69 57 40
to Individuals
Total Recoveries 164 415 236 97 141

Net Charge Offs 624 170 475 804 437
Provision Charge to 336 620 720 960 960
Operations

Balance at End of $4,455 $4,743 $4,293 $4,048 $3,892
Period

Average loans
outstanding during $224,406 $217,295 $207,18 $195,179 $174,550
period 8

Net Charge Offs to
Average Loans .28 .08 .23 .41 .25
Outstanding
during Period
</TABLE>

SUMMARY OF DEPOSIT PORTFOLIO
<TABLE>
<CAPTION>
1998 1997 1996
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
<S> <C> <C> <C> <C> <C> <C>
Demand Deposits $38,890 $36,545 $
33,408
NOW Accounts 41,872 1.48% 39,532 1.69% 38,036 1.62%
Savings Accounts 57,791 2.86% 52,455 2.54% 54,503 2.52%
Time Deposits 116,262 5.39% 122,491 5.54% 124,427 5.54%
Total Deposits $254,815 $251,023 $250,374

</TABLE>
MATURITY SCHEDULE FOR TIME DEPOSITS $100,000 OR MORE AT
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Over Six
Over Three Months
Three Months or Months Through Through Over Twelve
Less Six Months Twelve Months
Months
<S> <C> <C> <C>
$ 5,083 $ 4,040 $ 2,769 $1,741
</TABLE>
RETURN ON EQUITY AND ASSETS
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Return on Average Assets 1.82% 1.86% 2.02%
Return on Average Equity 14.96% 16.27% 18.86%
Dividend Payout Ratio 34.92% 32.15% 30.22%
Average Equity Capital to
Average 12.14% 11.46% 10.72%
Assets Ratio
</TABLE>
As of January 1, 1999, there were approximately 1,072
holders of record of Bar Harbor Bankshares common
stock.

Dividends have been paid by the company during 1998 and
1997, as follows:
<TABLE>
<CAPTION>
March June September December
<S> <C> <C> <C> <C>
1998 $0.16 $0.17 $0.17 $0.17
1997 $0.14 $0.15 $0.15 $0.16
</TABLE>

SHORT TERM BORROWINGS
(In Thousands)
<TABLE>
<CAPTION>
Maximum Average Weighted
Balance Weighted Outstandi Amount Average
at end of Average ng at Outstandi Interest
Period Interest Month End ng During Rate During
Rate Year Year
<S> <C> <C> <C> <C> <C>
1998
FHLB Advances $26,000 5.26% $29,000 $22,849 5.69%
Repurchase $8,092 4.63% $10,192 $6,686 4.74%
Agreements

1997 $24,000 5.69% $45,125 $34,207 5.67%
FHLB Advances
Repurchase $4,474 5.12% $8,025 $5,244 4.61%
Agreements

1996
FHLB Advances $43,908 5.62% $41,000 $30,811 5.68&
Wholesale 0 0.00% $10,000 $ 583 5.47%
Repurchase
Agreements
Repurchase $8,246 4.14% $15,948 $7,693 3.93%
Agreements
</TABLE>
Repurchase agreements generally mature within one to
four days from the transaction date.

The terms for short-term FHLB advances taken in 1998
ranges from 7 days to 273 days and averaged 80 days.

The terms for short-term FHLB advances taken in 1997
range from 7 days to 365 days and averaged 62 days.

The terms for short-term FHLB advances taken in 1996
ranged from 2 days to 340 days and averaged 49 days.
The terms for wholesale repurchase agreements taken in
1996 ranged from 7 days to 14 days and averaged 8 days.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK

Market risk is the risk of loss in a financial
instrument arising from adverse changes in market
rates/prices such as interest rates, foreign currency
exchange rates, commodity prices, and equity prices.
The Company's primary market risk exposure is interest
rate risk. The ongoing monitoring and management of
this risk is an important component of the Company's
asset/liability management process which is governed by
policies established by its Board of Directors that are
reviewed and approved annually. The Board of Directors
delegates responsibility for carrying out the
asset/liability management policies to the
Asset/Liability Committee (ALCO). In this capacity,
ALCO develops guidelines and strategies impacting the
Company's asset/liability management related activities
based upon estimated market risk sensitivity, policy
limits and overall market interest rate levels/trends.

Interest Rate Risk

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

The simulation model captures the impact of changing
interest rates on the interest income received and
interest expense paid on all assets and liabilities
reflected on the Company's balance sheet as well as for
off balance sheet derivative financial instruments.
This sensitivity analysis is compared to ALCO policy
limits which specify a maximum tolerance level for NII
exposure over a one year horizon, assuming no balance
sheet growth, given both a 200 basis point (bp) upward
and downward shift in interest rates. A parallel and
pro rata shift in rates over a 12 month period is
assumed. The following reflects the Company's NII
sensitivity analysis as of December 31, 1998.

RATE CHANGE

<TABLE>
<CAPTION>
-200 basis +200 basis
points points
<S> <C> <C>
Year I
Net interest income $ 182 $ (161)
change ($)
Net interest income 1.11% (.98%)
change (%)
Year II
Net interest income $ (181) $ (340)
change ($)
Net interest income ( 1.14%) (2.14%)
change (%)
</TABLE>

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, including yield curve shape,
prepayments on loans and securities, deposit decay
rates, pricing decisions on loans and deposits,
reinvestment/replacement of asset and liability
cashflows, 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.

Also, as market conditions vary from those assumed in
the sensitivity analysis, actual results will also
differ due to: prepayment/refinancing levels likely
deviating from those assumed, the varying 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 internal/external variables.
Furthermore, the sensitivity analysis does not reflect
actions that ALCO might take in responding to or
anticipating changes in interest rates.

When appropriate, ALCO may utilize off balance sheet
instruments such as interest rate floors, caps and
swaps to hedge its interest rate risk position. A Board
of Directors approved hedging policy statement governs
use of these instruments. As of December 31, 1998 the
following derivative financial instruments were
outstanding:
<TABLE>
<CAPTION>
Notional Contract Maturity Fair
Principal Date Date Value
December 31,
1998
<S> <C> <C> <C> <C>
Interest rate $10,000 June 3, June 3, $ 3
floor 1994 1999
</TABLE>
The estimated effects of these derivative financial
instruments on the Company's earnings are included in
the sensitivity analysis presented above.

The derivative contract presented in the above table is
designed as a hedge in that it is utilized to modify
the interest rate characteristics of selected assets
and liabilities. The interest rate floor was purchased
to hedge the interest income on variable rate loans and
securities against the adverse effects of falling
interest rates. ALCO monitors the effectiveness of its
derivative hedge relative to its expectation that a
high correlation be maintained between the hedging
instrument and the related hedged assets/liabilities.

The interest rate floor is accounted for using the
accrual method with an income statement adjustment to
interest income or interest expense depending on
whether the hedged items are assets or liabilities. The
unamortized premiums associated with the floor is
presented on the balance sheet along with other prepaid
assets. Interest receivable under the floor contract is
reflected on the balance sheet along with other
interest receivable and payable amounts. Unrealized
gains or losses associated with this position is not
recognized in the financial statements.

While it is not the Company's practice to unwind
derivative hedges prior to their maturity, any
recognized gains/losses would be deferred on the
balance sheet and amoritzed to interest income or
expense, as required, over the remaining period of the
original hedge. To the extent that a hedge were to be
deemed ineffective due to a lack of correlation with
the hedged items or if the hedged items were to be
settled/terminated prior to maturity of the hedging
instrument, then unrecognized gains/losses associated
with the hedging instrument would be recognized in the
income statement with subsequent accruals and
gains/losses also included in the income statement in
the period they occur.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA

The financial statements and Report of Independent
Accountant required are contained in the Financial
Section on pages 1 through 22 of the Company's Annual
Report for the year ended December 31, 1998 and are
incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURES

Not applicable.
PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT

The following statements pertain to all individuals
listed below:

1. There are no arrangements or understandings between
any director or officer listed below and any other
person pursuant to which such director or officer was
selected as an officer or director.

2. There is no family relationship among any of the
directors and officers listed below.

3. None of the directors and officers listed below
have been involved in any bankruptcy, criminal, or
other proceeding set forth or described in sub-section
(f) of Item 401 of Regulation S-K as promulgated by the
Securities and Exchange Commission.

4. Each of the directors listed below has been elected
to a three year term, except where the mandatory
retirement age of 75 years necessitated an election of
a shorter term, with one third of the Board of
Directors, as nearly as may be, standing for election
each year. Each director of the Company also serves as
a director of the Bank, and references below to the
year in which an individual was first elected refer to
the year in which s/he was first elected a director of
the Bank. All officers of the Company are elected
annually.

[1] Frederick F. Brown, Director, Age 72. Mr. Brown's
principal occupation during the past five years has
been as proprietor and owner of F. T. Brown Company,
which owns and operates a hardware store in Northeast
Harbor and as one-third owner of Island Plumbing &
Heating in Northeast Harbor. Mr. Brown first was
elected as a director on October 2, 1979.

[2] Robert C. Carter, Director, Age 55. Mr. Carter's
principal occupation is owner and operator of the
Machias Motor Inn and owner and operator of Carter's
Gun Shop, both located in Machias, Maine. Mr. Carter
was first elected as a director on October 1, 1996.

[3] Thomas A. Colwell, Director, Age 54. Mr. Colwell's
principal occupation during the past five years has
been as owner of Colwell Brothers, Inc. He also serves
as a member of the Board of Directors of the Maine
Lobster Pound Association and is a director of the
Island Medical Center. Mr. Colwell was first elected as
a director on October 1, 1991.

[4] Bernard K. Cough, Director, Age 71. Mr. Cough's
principal occupation during the past five years has
been owner/operator of several motels, including the
Atlantic Oakes Motel, Atlantic Eyrie Lodge, Inc.,
Brookside Motel, Bay View, Inc., and Ocean Gate, Inc.
Mr. Cough is also Treasurer of Cough Bros., Inc. and
President of Downeast Inns, Inc. Mr. Cough was first
elected as a director on October 1, 1985.

[5] Peter Dodge, Director, Age 55. Mr. Dodge is
President of the Peter Dodge Agency (a Maine
corporation) d/b/a the Merle B. Grindle Insurance
Agency in Blue Hill, Maine. He is a Trustee of George
Stevens Academy, and Director, Bagaduce Music Lending
Library. He was first elected as a director on October
6, 1987.

[6] Dwight L. Eaton, Senior Vice President and Trust
Officer, Age 63. Mr. Eaton's principal occupation
during the past five years has been as Senior Vice
President and Trust Officer of the Bank. He serves as
Vice President of the Company and was first appointed
for that position in 1987. He serves as Chairman and
Director of the Acadia Corporation. Mr. Eaton first was
elected as a Director on October 4, 1988.

[7] Ruth S. Foster, Director, Age 69. Mrs. Foster's
principal occupation is the President and principal
stockholder of Ruth Foster's, a children's clothing
store in Ellsworth, Maine. Mrs. Foster first was
elected as a director on October 7, 1986.

[8] Cooper F. Friend, Director, Age 44. Mr. Friend's
principal occupation is owner and President of Friend &
Friend, Inc.; and one-third owner of U-Store It in
Ellsworth, Maine. He also serves as President of
Recreational Motorsports Association of Maine, Chairman
of the Board of Directors of the James Russell Wiggins
Down East Family YMCA. Mr. Friend first was elected as
a director on October 1, 1997.

[9] Robert L. Gilfillan, Chairman of the Board of
Directors, Age 71. Mr. Gilfillan's principal occupation
during the past five years has been as the owner and
President of the West End Drug Company in Bar Harbor.
Mr. Gilfillan first was elected as a director on
November 5, 1957.

[10] Sheldon F. Goldthwait, Jr., President and Chief
Executive Officer, Age 60. Mr. Goldthwait was appointed
President and Chief Executive Officer of Bar Harbor
Banking and Trust Company January 1, 1995. Prior to
that he served as Executive Vice President of Bar
Harbor Banking and Trust Company. He serves as
Treasurer and Director of the Acadia Corporation. Mr.
Goldthwait first was elected as a director on October
4, 1988.

[11] Marlene S. Haskell, Senior Vice President of the
Bank, Age 46. Ms Haskell joined the Bank in 1990 as
Vice President in charge of Marketing. She was promoted
to Senior Vice President in August, 1997. Ms. Haskell's
responsibilities include Branch Administration and
Marketing.

[12] H. Lee Judd, Director, Age 53. Mr. Judd's
principal occupation during the past five years has
been as President of Hinckley Insurance Group and
President of Hinckley Real Estate, located in Southwest
Harbor, Maine. He also serves as President of the
Causeway Club and Chairman of the Board of Friends of
Acadia. Mr. Judd first was elected as a director on
October 1, 1997.

[13] James C. MacLeod, Director, Age 74. Mr. MacLeod is
retired. Mr. MacLeod served as Vice President of the
Bank until his retirement in December of 1987. He was
appointed as a Vice President of the Bank in 1972 and
was first elected as a director of the Bank on November
7, 1961.

[13] John P. McCurdy, Director, Age 67. Prior to his
retirement in 1991, Mr. McCurdy's principal occupation
was the owner and operator of McCurdy Fish Company of
Lubec, a processor of smoked herring. Mr. McCurdy first
was elected as a director on October 2, 1979.

[15] Jarvis W. Newman, Director, Age 63. Mr. Newman is
the owner of Newman Marine Brokerage, a boat brokerage
in Southwest Harbor and half owner of the Newman and
Gray Boatyard. Mr. Newman first was elected as a
Director on October 5, 1971.

[16] Lewis H. Payne, Executive Officer, Age 48. Mr.
Payne is the Executive Vice President of the Company
and of the Bank. He was first elected as Executive Vice
President of the Company in 1995.

[17] Robert M. Phillips, Director, Age 57. Mr.
Phillips is an officer of International Foods Network,
an exporter of a variety of food products, located in
Sullivan, Maine. He was first elected as a director on
October 5, 1993.

[18] John P. Reeves. Director, Age 64. Mr. Reeves is
retired. He was elected as President and Chief
Executive Officer of Bar Harbor Banking and Trust
Company in 1986 and retired in 1994. He first was
elected as a director on October 6, 1970.

[19] Marsha C. Sawyer, Executive Officer, Age 46. Mrs.
Sawyer is Vice President of the Bank and serves as
Clerk of the Company. She first was elected Clerk of
the Company in 1986.

[20] Gerald Shencavitz, Vice President of the Bank, Age
46. Mr. Shencavitz joined the Bank if April of 1998 and
is responsible for Operations and Information Systems
of the Bank.

[21] Lynda Z. Tyson, Director, Age 43. Mrs. Tyson is
Chief Operating Officer and Marketing Director of Tyson
& Partners, Inc., a marketing communications consulting
firm in Bar Harbor. Mrs. Tyson was first elected as a
director on October 5, 1993.

[22] Virginia M. Vendrell, Executive Officer, Age 49.
Ms. Vendrell is Senior Vice President, Treasurer, and
Chief Financial Officer of the Bank and Treasurer of
the Company. She was first elected Treasurer of the
Company in 1990.
ITEM 11. EXECUTIVE COMPENSATION

Officers of the Company do not, as such, receive
compensation. The following table sets forth cash
compensation received during the Bank's last fiscal
year by the executive officers for whom such
compensation exceeded $100,000.

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
Other Annual
Year Salary Incenti Compensation
($) ve ($) ($)
<S> <C> <C> <C> <C>

Sheldon F. Goldthwait, 1996 135,99 27,428 0
Jr. 0
President and 1997 155,00 19,737 0
0
Chief Executive Officer 1998 158,00 22,202 0
0
Dwight L. Eaton 1996 95,992 19,460 0
Senior Vice President and 1997 98,000 12,984 0
Trust Officer 1998 100,95 14,115 0
0
Lewis H. Payne 1996 88,594 17,634 0
Executive Vice President 1997 93,500 12,237 0
1998 99,300 13,683 0
Virginia M. Vendrell 1996 83,609 16,631 N/A
Senior Vice President and 1997 N/A N/A N/A
Chief Financial Officer 1998 90,000 12,626 0
</TABLE>

<TABLE>
<CAPTION>
LONG TERM COMPENSATION
AWARDS PAYOUT
Restric LTIP
ted Optional Payout
Year Stock SARs (#) s
Awards ($)
($)
<S> <C> <C> <C> <C>
Sheldon F. Goldthwait, 1996 0 0 0
Jr.
1997 0 0 0
1998 0 0 0
Dwight L. Eaton 1996 0 0 0
1997 0 0 0
1998 0 0 0
Lewis H. Payne 1996 0 0 0
1997 0 0 0
1998 0 0 0
Virginia M. Vendrell 1996 0 0 0
1997 0 0 0
1998 0 0 0
</TABLE>

<TABLE>
<CAPTION>
ALL OTHER COMPENSATION
($)
<S> <C> <C>
Sheldon F. Goldthwait, 1996 24,035
Jr.
1997 30,027
1998 52,906
Dwight L. Eaton 1996 36,175
1997 41,654
1998 48,104
Lewis H. Payne 1996 1,752
1997 1,848
1998 1,561
Virginia M. Vendrell 1996 570
1997 N/A
1998 138
</TABLE>

The Bank has an incentive plan in which all employees
who were on the payroll as of January 1st of a calendar
year and who worked through December 31st are eligible.
The computation is based on earnings per share growing
by 10% each year with 1992 being the base year. Once
the 10% growth is attained, a pool is created in which
all eligible employees receive the same percentage of
their salary in the form of an incentive payment.

COMPENSATION COMMITTEE

The Bank Board has appointed a six-member
Compensation Committee comprised of Directors Brown,
Dodge, Gilfillan, Phillips, Reeves, and Mr. Goldthwait,
who is a Director and also a member of management. The
Compensation Committee meets several times each year
and makes compensation recommendations for the ensuing
year to the Board of Directors.

The recommendations of the Committee are then
considered and voted upon by the Full Board. During
1998, Mr. Goldthwait was a member of the Compensation
Committee and also a director. He abstained from
participating in discussion, recommendations, or voting
regarding his own compensation. Mr. Reeves, who chairs
the Compensation Committee, is a former President of
the Company and the Bank.

COMPENSATION OF DIRECTORS

Each of the directors of the Company is a director of
the Bank and as such receives a fee of $250 for each
committee meeting attended and a $300.00 fee for
attending the monthly Full Board Meeting. The fee paid
for the Annual Meeting is $500.00 per member of the
Board of Directors. Meetings of the Board of Directors
of the Bank are held monthly. No directors' fees are
paid to the directors of the Company as such. Those
directors of the Bank who are also officers do not
receive directors' fees. The Chairman of the Board
receives an annual retainer of $3,000 in addition to
meeting fees.

EMPLOYEE BENEFIT PLANS

401(k) Plan
The Bank has a contributory 401(k) plan available to
full-time employees. Employees may contribute between
1% and 15% of their compensation, to which the Bank
will match 25% of the first 6% contributed. For the
years ended December 31, 1998, 1997, and 1996, the Bank
contributed $51,300, $49,500, and $52,000,
respectively. The Bank has a non-contributory plan. In
1998, 1997 and 1996, the Board of Directors voted to
credit each eligible participant's 401(k) account with
3% of salary. The total contributions made was
$127,400, $122,800 and $128,000 for the years ended
December 31, 1998, 1997and 1996, respectively.

Restricted Stock Purchase Plan
In 1997 and 1996, the Bank provided a restricted stock
purchase plan through which each employee could
purchase shares of Bar Harbor Bankshares stock at the
current fair market price as of a date determined by
the Board of Directors. These shares were available for
purchase through direct purchase or through the
employee's 401(k) accounts. In September of 1997, the
Company was listed on the American Stock Exchange,
making Bar Harbor Bankshares stock readily available
for transactions. Therefore, the restricted stock
purchase plan was terminated effective December 31,
1997.

At December 31, 1997, employees exercised their right
and purchased common stock totaling $73,000, with the
actual purchase transpiring in January of 1998.

At December 31, 1996, employees exercised their right
and purchased common stock totaling $90,000, with the
actual purchase transpiring in January of 1997.

The Bank has entered into agreements with Messrs.
Reeves, Goldthwait, and Eaton whereby those
individuals, or their beneficiaries, will receive upon
death or retirement, an annual supplemental pension
benefit over a period of 10 years in the amount of
$15,000 per annum (in the case of Mr. Reeves), and in
the amount of $10,000 per annum (in the case of Messrs.
Goldthwait and Eaton). This plan is unfunded and
benefits will be paid out of Bank earnings. Because
Mr. Reeves chose early retirement, he began drawing his
annual installment of $5,300 pursuant to this deferred
compensation arrangement as of January 1, 1995.

In 1993, the Company established a non-qualified
supplemental retirement plan for Messrs. Reeves, Eaton,
Goldthwait, and MacDonald. The agreements provide
supplemental retirement benefits payable in
installments over twenty years upon retirement or
death. The Company recognizes the costs associated with
the agreements over the service lives of the
participating officers. The cost relative to the
supplemental plan was $126,100, $115,700, and $106,500
for 1998, 1997, and 1996 respectively. The agreements
with Messrs. Reeves, Eaton, Goldthwait, and MacDonald
are in the amounts of $49,020,$22,600, $37,400 and
$7,700 respectively. Mr. Reeves began drawing his
annual installment of $49,020 as of January 1, 1995.

Officers of the Bank are entitled to participate in
certain group insurance benefits. In accordance with
Bank policy, all such benefits are available generally
to employees of the Bank.

PERFORMANCE GRAPH

The following graph illustrates the estimated yearly
percentage change in the Company's cumulative total
shareholder return on its common stock for each of the
last five years. For purposes of comparison, the graph
also illustrates comparable shareholder return of
American Stock Exchange (AMEX) banks as a group as
measured by the AMEX Market Index and the peer group
index as defined by AMEX. The graph assumes a $100
investment on December 31, 1993 in the common stock of
each of the Company, the AMEX peer group banks and the
AMEX Market Index as a group and measures the amount by
which the market value of each, assuming reinvestment
of dividends, has increased as of December 31 of each
calendar year since the base measurement point of
December 31, 1993.

The following graph is based upon a good faith
determination of approximate market value for each year
indicated based on information obtained from the
American Stock Exchange, in the case of its common
stock, and from anecdotal information available to the
Company as to the value at which its common stock has
traded in isolated transactions from time to time.
Therefore, although the graph represents a good faith
estimate of shareholder return as reflected by market
value, the valuations utilized are, of necessity,
estimates and may not accurately reflect the actual
value at which common stock has traded in particular
transactions as of any of the dates indicated.

The following information is presented in a line graph
in the printed Form 10-K:
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
Bar Harbor
Banking and 100.00 112.76 195.00 267.18 411.39 365.31
Trust Company
Peer Group 100.00 98.30 130.79 148.70 243.58 245.81
Index
AMEX Market 100.00 88.33 113.86 120.15 144.57 142.61
Index
</TABLE>

ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT

As of December 31, 1998, to the knowledge of the
Company, Bernard K. Cough was the only beneficial owner
of more than five percent of the Company's common
stock. Mr. Cough's address is 5 Norman Road, Bar
Harbor, Maine.

The following table lists, as of December 31, 1998, the
number of shares of Common Stock and the percentage of
the Common Stock represented thereby, beneficially
owned by each director and nominee for director, and by
all principal officers and directors of the Company as
a group.
<TABLE>
<CAPTION>
Amount
of Percent
Director, Executive Officer Benefic of
or Nominee ial Class
Ownersh
ip
<S> <C> <C>
Frederick F. Brown 25,140 *
Robert C. Carter 2,100 *
Thomas A. Colwell 5,400 *
Bernard K. Cough 172,220 5.00%
Peter Dodge 4,860 *
Dwight L. Eaton 8,968 *
Ruth S. Foster 3,350 *
Cooper F. Friend 3,200 *
Robert L. Gilfillan 79,930 2.32%
Sheldon F. Goldthwait, Jr. 30,408 *
H. Lee Judd 6,900 *
James C. MacLeod 40,600 1.18%
John P. McCurdy 6,600 *
Jarvis W. Newman 30,100 *
Robert M. Phillips 1,300 *
John P. Reeves 25,358 *
Lynda Tyson 1,400 *

Total ownership of all
Directors and Executive 457,270 13.28%
Officers of Company as a
group (22 persons).
* Less than one percent
</TABLE>
For purposes of this table, beneficial ownership has
been determined in accordance with the provisions of
Rule 13-d-3 promulgated under the Securities Exchange
Act of 1934 as amended. Direct beneficial ownership
includes shares held outright or jointly with others.
Indirect beneficial ownership includes shares held in
the same name of a director's spouse or minor children
or in trust for the benefit of a director or member of
his or her family. Indirect beneficial ownership does
not include, in the case of each director, 97,360
shares (2.83%) of the Common Stock held by two trusts
which shares, for purposes of voting, are allocated
equally among the directors of the bank under the terms
of the respective trust instruments. No director has
any other beneficial interest in such shares. Ownership
figures for directors and nominees include directors'
qualifying shares owned by each person named.

Management is not aware of any arrangement which could,
at a subsequent date, result in a change in control of
the company.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS

The Bank retains the firm of Tyson & Partners, Inc. to
assist with its marketing program. Lynda Z. Tyson, who
was elected to the Board of the Company and the Bank on
October 4, 1993, serves as that firm's Chief Operating
Officer as well as Director of Marketing. Management
believes that the fees charged by Tyson & Partners,
Inc. are at least as favorable as any which could have
been obtained from persons not affiliated with the
Bank.

The Bank has had, and expects to have in the future,
banking transactions in the ordinary course of its
business with directors, officers, principal
stockholders and their associates. These transactions
comprise of substantially the same terms, including
interest rates and collateral on the loans, as those
prevailing at the same time for comparable transactions
with others. Such loans have not and will not involve
more than normal risk of collectability or present
other unfavorable features.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K

(a) (1) The following financial statements are
incorporated by reference from Item 8 hereof: [Annual
Report to Stockholders, Financial Section, included
herein as Exhibit 13].
<TABLE>
<CAPTION>
ITEM PAGE
NUMBER
<S> <C>
Independent Auditor's Report 8
Consolidated Statements of Financial
Condition, 9
December 31, 1998 and 1997
Consolidate Statements of Earnings for
the years ended 10
December 31, 1998, 1997 and 1996
Consolidated Statements of Changes in
the Stockholders'
Equity for the years ended December 11
31, 1998, 1997 and
1996
Consolidated Statements of Cash Flows
for the years ended 12
December 31, 1998, 1997, and 1996
Notes to Consolidated Financial 13-23
Statements
(a) (2) Financial Statement Schedules
- See Item 14 (d) Form 10-K
(a) (3) Listing of Exhibits - see
Item 14 (c)
(b) Report on Form 8-K not
applicable
(c) Exhibits - Exhibit Index
</TABLE>

<TABLE>
<CAPTION>
NO. EXHIBIT POSITION
<S> <C> <C>
1. Underwriting Agreements Not Applicable
2. Plan of Acquisition, Incorporated by
reorganization agreement, reference to Form S-
liquidation, or succession 14 dated March 14,
1984
3. Articles of Incorporation and Incorporated by
Bylaws reference to Form S-
14 dated March 14,
1984
4. Instruments defining the rights
of security holders Not Applicable
5. Opinion re: legality Not Applicable
6. Opinion re: discount on capital Not Applicable
Shares
7. Opinion re: liquidation Not Applicable
preference
8. Opinion re: tax matters Not Applicable
9. Voting Trust Agreements Not Applicable
10. Material Contracts Incorporated by
reference to Form S-
14 dated March 14,
1984
11. Statement re: computation of Not Applicable
per share earnings
12. Statement of computation of Not Applicable
ratios
13. Annual Report to security Enclosed herewith
holders
14. Material foreign patents Not Applicable
15. Letter re: unaudited interim
financial information Not Applicable
16. Letter re: change in certifying Not Applicable
accountant
17. Letter re: director Not Applicable
resignations
18. Letter re: change in accounting Not Applicable
principles
19. Previously unfiled documents Not Applicable
20. Report furnished to security Not Applicable
holders
21. Other documents or statements to
security holders Not Applicable
22. Subsidiaries of the registrant Incorporated by
reference to Form S-
14 dated March 14,
1984
23. Published report regarding
matters submitted to vote of Not Applicable
security holders
24. Consents of experts and counsel Not Applicable
25. Power of Attorney Not Applicable
26. Statement of eligibility of Not Applicable
Trustee
27. Invitation for competitive bids Not Applicable
28. Additional Exhibits
(d) Financial Statement Not Applicable
Schedules
</TABLE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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
(Registrant)

/S/ Sheldon F. Goldthwait, Jr.
Sheldon F. Goldthwait, Jr.
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the
persons on behalf of the Registrant and in the
capacities and on the dates indicated.

/S/ Sheldon F. Goldthwait, Jr. /S/ Virginia M.
Vendrell
Sheldon F. Goldthwait, jr. Virginia M. Vendrell
President and Director Chief Financial Officer
Chief Executive Officer Chief Accounting Officer

/s/ Robert L. Gilfillan /S/ Frederick F. Brown
Robert L. Gilfillan, Chairman Frederick F. Brown,
Director

/S/ Thomas A. Colwell
Thomas A. Colwell, Director

/S/ Bernard K. Cough /S/ Peter Dodge
Bernard K. Cough, Director Peter Dodge, Director

/S/ Dwight L. Eaton /S/ Ruth S. Foster
Dwight L. Eaton, Director Ruth S. Foster

/S/ Cooper F. Friend /S/ H. Lee Judd
Cooper F. Friend, Director H. Lee Judd, Director

/S/ James C. MacLeod /S/ John P. McCurdy
James C. MacLeod, Director John P. McCurdy,
Director

/S/ Robert M. Phillips /S/ Lynda Z. Tyson
Robert M. Phillips, Director Lynda Z. Tyson,
Director

(Front Cover)

(Sepiatone photo of Bar Harbor banking floor, 1929)

Caption: New Bar Harbor banking floor, 1929

(Inset full-color photo of Bar Harbor banking floor
renovation, 1998)

Bar Harbor Bankshares
1998 Annual Report

(LOGO)

Mission Statement

Bar Harbor Banking and Trust Company is an independent,
publicly owned, community bank pledged to providing
innovative, quality financial services to the people
and businesses of eastern Maine.

We take pride in our commitment to deliver our services
person-to-person, in a professional and efficient
manner while producing the maximum benefit for our
customers, employees and shareholders.

We are dedicated to providing a quality environment in
which employees are challenged to uphold our pledge to
excellence.

We demonstrate our responsibility as a good corporate
citizen through our support of the communities and
people we serve.
_
Table of Contents

Inside front cover Mission statement
Pages 2, 3 Five year summaries of
financial performance
Pages 4, 5 1998 year in review
Pages 6 - 9 Milestones -- 1887 to 1998
Pages 10 - 12 Directors, officers, employees
Inside back cover Shareholder information

Financial Section

Pages 1 - 6 Management's Discussion and
Analysis
Page 7 Independent Auditors' Report
Pages 8 - 11 Consolidated Statements of
Financial Condition
Pages 12 - 22 Notes to Consolidated Statements

Photography: Ken Woisard, Bar Harbor Banking and Trust
Company Archives,
Bar Harbor Historical Society

Design & Printing: Downeast Graphics & Printing, Inc.
_
Summary of Financial Performance

Bar graphs show the following information:

Net loans (In millions of dollars)

scale 0 to 250
1994 = 182, 1995 = 198, 1996 = 208, 1997 = 212, 1998 =
224

Total deposits (In millions of dollars)

scale 0 - 270
1994 = 226, 1995 = 251, 1996 = 252, 1997 = 252, 1998 =
266

Average assets (In millions of dollars)

scale 0- 400
1994 = 281, 1995 = 311, 1996 = 332, 1997 = 345, 1998 =
364

Average equity (In millions of dollars)

scale 0 - 50
1994 = 27, 1995 = 31, 1996 = 36, 1997 = 39, 1998 = 44

Net interest income (In millions of dollars)

scale 0 - 20
1994 = 14, 1995 = 15.5, 1996 = 16, 1997 = 16.8, 1998 =
17.2

Dividends per share (In dollars)
scale 0.00 to $.75
1994 = .37, 1995 = .43, 1996 = .59, 1997 = .60, 1998 =
.67

Dividend payout ratio (Percent)
scale: 0 to 50%
1994 = 25.75, 1995 = 25.07. 1996 = 30.22, 1997 = 32.15,
1998 = 34.92%

Net income (In thousands of dollars)
scale: 0 to 7,000
1994 = 4,900, 1995 = 5,800, 1996 = 6,700, 1997 = 6,400,
1998 = 6,600

Average equity/average assets (Percent)
scale: 0 to 15
1994 = 9.75, 1995 = 9.96, 1996 = 10.72, 1997 = 11.46,
1998 = 12.15
_
Five-Year Selected Financial Data
(In thousands, except per share data)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Balance sheet totals
Total assets $392,047 $342,726 $345,143 $326,609 $296,687
Net loans 224,980 212,396 207,667 197,718 182,102
Total deposits 266,448 251,903 251,676 251,471 225,545
Total equity 46,861 42,462 37,887 33,243 28,761
Average assets 363,657 344,554 331,971 311,112 281,169
Average equity 44,172 39,472 35,575 30,986 27,405

Statement of earnings
totals
Interest and dividend
income $29,211 $28,518 $27,522 $26,152 $21,795
Interest expense 11,973 11,710 11,281 10,624 7,676
Net interest income 17,238 16,808 16,241 15,528 14,119
Provision for loan 336 620 720 960 960
losses
Net interest income
after provision for 16,902 16,188 15,521 14,568 13,159
loan losses
Non-interest income
(including net
security gains 5,688 5,001 5,000 4,389 4,012
(losses))
Non-interest expense 12,865 11,801 10,913 10,471 10,161
Applicable income 3,118 2,966 2,899 2,616 2,096
taxes
Net earnings 6,607 6,422 6,709 5,879 4,914

Per share data
(restated for two-for-
one stock divided
declared in 1998)
Net earnings $1.92 $1.87 $1.95 $1.72 $1.44
Dividends $0.67 $0.60 $0.59 $0.43 $0.37
Weighted average
number of common 3,443,387 3,440,104 3,436,232 3,426,898 3,419,390
shares outstanding
Dividend payout ratio 34.92% 32.15% 30.22% 25.07% 25.75%
Total return -11.20% 53.97% 37.02% 72.93% 12.76%
Return on total 1.82% 1.86% 2.02% 1.89% 1.75%
average assets
Return on total 14.96% 16.27% 18.86% 18.97% 17.93%
average equity
Average 12.15% 11.46% 10.72% 9.96% 9.75%
equity/average assets
Efficiency ratio 56.95% 55.69% 53.18% 55.21% 59.18%
</TABLE.
BAR HARBOR BANKSHARES AND SUBSIDIARY

(Photo of Sheldon F. Goldthwait, Jr.)

Dear Shareholder:

As we move toward the end of this millennium, it
seems appropriate to review some of the milestones
we've passed, both personal and institutional, since
the Bank's founding in 1887. Perhaps such a review
will encourage and inspire us to take on the challenges
of the new millennium.

"Milestones," as a theme for this year's annual
report, will mean something different to everyone.
Personally, I have reached the ripe old age of sixty
with no serious mishaps along the way, and I feel much
younger than some of the people I remember from my past
who were certainly well shy of sixty.

The photograph on the next page brings back many
memories even though I was not there when it was taken.
There is no question that the setting is a bank. The
construction emphasizes strength, stability and
security. The message is "your money is safe," one
that is reinforced by the demeanor of the employees.

I had the good fortune to work with the two women
in the photo, and I remember one of the men, G.
Prescott Cleaves, from my childhood. Dora Brewer, in
the foreground, taught me to be a teller in the summer
of 1960. Louise Leland, in the back, was the
"paymaster" when I returned to the Bank in 1971. Both
of these women had strong local heritages. Both had
devoted their lives to their work, and for many
customers personified the Bank.

With the renovation of our Bar Harbor lobby in
1998, we seem to have come full circle. The finest and
most recurring compliment that I hear from customers
today is "Now it looks like a bank." A milestone.

And we are staffed by employees who are no less
dedicated than those in the photo. Although it will be
difficult to match the number of years of service by
Miss Brewer and Miss Leland, we have an impressive
record of years of banking service in our branches, our
loan officers, Trust Department, and just about
everywhere you look. This translates not only to
knowledge and service, but to continuity in banking
relationships. We are proud of our employees and their
devotion to their Bank and its customers.

(Photo of four Bank employees working at the teller
station in the Bank's original office building in Bar
Harbor, July, 1910.)

If you look carefully at the photo, you will find
no electrical cords, machines, or anything that
required batteries. Everything was manual. All
customer accounts were hand-posted to ledger cards. In
fact, there was nothing automated on the teller line
even in 1960. We had progressed to having some ledger
cards posted automatically, but there had really been
few technological advances in banking since our
founding.

More recently, technology has advanced at an
amazing pace both within and outside the Bank.
Technology is now a vital ingredient to properly
serving our customers and completing our daily work.
In 1998, we observed a technological milestone with the
introduction of TeleDirect, the automated telephone
voice response system that provides confidential twenty-
four hour access to customer loan and deposit
information.

Our financial results for 1998, were improved over
1997. Total income on loans and investments reached
record levels as did the interest paid on deposits and
loans, and we still had a record net interest income.
The assets under management by our Trust Department and
the resulting income set new highs. Even though non
interest expense also hit a new high, we have operating
ratios that are significantly better than the national
average for banks our size. We did have several
significant non-recurring non interest expense items
that are discussed more fully in the Management's
Review and Analysis section, without which our net
income achieved a milestone.

We have concluded yet another challenging year of
banking in the nineties and are actively working to do
everything humanly possible to prepare for the
millennium. This is an expensive and time consuming
process, but one that is absolutely necessary to insure
the viability of the Bank. We have not encountered any
significant or unresolvable situations, and are
confident that we will be able to provide our "Beyond
Best" customer service when we open the doors for
business in the new century.

Very truly yours,

(signature)

Sheldon F. Goldthwait, Jr.
President and Chief Executive Officer
(Photo of southwest corner of newly renovated exterior
of Bar Harbor branch.)

(LOGO)
Bar Harbor Bankshares
1998 Annual Report

FINANCIAL SECTION

(Inside cover page)

TABLE OF CONTENTS

Pages 1 - 6 Management's Discussion and
Analysis
Page 7 Independent Auditors' Report
Pages 8 - 11 Consolidated Financial Statements
Pages 12 - 22 Notes to Consolidated Financial
Statements

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

The following discussion and analysis of Bar Harbor
Bankshares' financial condition and operations should
be read in conjunction with the Consolidated Financial
Statements (beginning on page 8) and Notes to the
Consolidated Financial Statements (beginning on page
12).

BUSINESS

Bar Harbor Bankshares' wholly-owned subsidiary, Bar
Harbor Banking and Trust Company (the Bank), is an
independent community bank serving eastern Maine with
ten full-service commercial banking offices and an
eleventh office dedicated to trust services.

On December 7, 1887, Bar Harbor Bankshares' wholly-
owned subsidiary, Bar Harbor Banking and Trust Company
(the Bank) opened for business in the old Mt. Desert
Block of Bar Harbor. The Bank began with capital stock
of $50,000, a safe, a copy of the Revised Banking
Statutes, six chairs, a tin bread box for a check case,
and a simple business philosophy by serving its
customers well, the Bank's needs would be served.
Today, over 100 years later, the Bank has built a
reputation for establishing strong and lasting
"relationships" with its individual, business and
institutional customers.

Bar Harbor Banking and Trust Company is committed to
delivering its services in a personal, professional,
and efficient manner. The Bank offers a complete range
of accounts and services and competitive lending and
deposit interest rates. Additionally, the Bank ensures
that customers' accounts are readily accessible through
person-to-person service during regular banking hours
and through automated services during non-banking
hours.

The Bank's Trust Department is one of the largest among
independent banks in Maine. The Trust Department
offers traditional trust and estate planning services
as well as highly sophisticated, professionally managed
investment services designed to meet the specific
financial objectives of its clients.

One of Bar Harbor Banking and Trust Company's goals, as
a community bank, is to enhance the quality of life for
the people of eastern Maine. The Bank does this by
lending locally, in the towns and villages in its
service area, and by maintaining a strong charitable
giving and employee volunteer service program that
supports local civic and community organizations.

RESULTS OF OPERATIONS

Loans

The Bank's primary source of income is interest
generated from loans to its customers. The competition
for loans from bank and non-bank institutions entering
the eastern Maine marketplace has increased over the
past three years. In 1998 the total loan portfolio grew
by more than $12 million that represented a 5.6%
increase over 1997, returning to the level of growth
experienced in 1996 when compared to 1995, when the
portfolio grew by $10.2 million. In between, the
growth in 1997 of $5.1 million demonstrated a stable
year. For years 1998 and 1997, growth was due
principally to increases in the residential mortgage
portfolio. In 1998, the residential mortgage portfolio
grew by approximately $11 million. As a percentage of
total loans, consumer loans represent approximately 55%
and commercial loans 45%.

The Federal Reserve began its downward drop of interest
rates in September of 1998 by decreasing the federal
funds rate by 25 basis points. This was followed by
additional cuts of 50 basis points, bringing the prime-
lending rate of interest to 7.75% by year end. The
thirty-year Treasury rate began 1998 at 5.92%, ended
the year at 5.09%, with a low for the year in October
at 4.71%.

In the bank's loan portfolio, yields dropped from 9.83%
to 9.04%, averaging 9.27% for the year. This drop was
a result of declining indices for variable rate loans
and also the continuous growth of the lower yielding
consumer mortgage loan portfolio. The bank has been
offering three year fixed rate mortgage loans that
convert to a variable rate tied to a national index at
the end of the third year. Many of those loans will be
repricing in the year 2000 and should raise the yield.
Interest earned on the total loan portfolio increased
by $262,000 over 1997. This increase came from
increased interest earned due to volume increases
totaling $680,000 that was offset by a decrease of
$418,000 due to interest rate reductions.

During 1997, the yields on loans dropped 12 basis
points from 1996's yields. The increase in interest
income on loans in 1997 compared to 1996 was $725,000.
Interest income grew by $980,000 due to increased loan
volumes over 1996 and decreased by $255,000 due to
interest rate changes. This compares with an increase
in loan interest income in 1996 of $1 million when
compared to 1995. Of this increase, $1.2 million was
due to increased loan volume and $174,000 was a
reduction due to interest rate changes.

Loans to the hospitality industry (hotels and
restaurants) represent the highest loan concentration
by industry at 65% of capital, $30.5 million up from
$28.7 million in 1997. Other substantial loan
concentrations include fishing, which dropped from
$11.0 million in 1997 to $8 million in 1998,and
commercial and real estate development decreasing
slightly from $13.9 million to $12.7 million. Credit
concentrations over $700,000 remained at approximately
$28 million. Eighty percent of the credits totaling
$700,000 or more are secured by real estate and have
loan to value ratios of no more than 70%.

The Bank's underwriting process uses conservative loan
to value ratios and state and federal government
guarantee programs where appropriate.
In addition to loans to consumers and commercial
customers, the Bank originates and sells (or
participates in) loans to other lenders and investors.
The sale of loans allows the Bank to make more funds
available to its customers in its service area, while
the servicing provides income. In 1998, loans serviced
totaled $58.5 million compared to $64.7 million in
1997.

For the past three years, the Bank's allowance for
possible loan losses has approximated 2% of total
loans. This percentage is considerably higher than
peer banks as published through the Uniform Bank
Performance Report that report roughly a 1.50% ratio
for each of the past three years.

Each quarter, management performs a detailed analysis
of its loan portfolio to ensure there are adequate
reserves. Reserves are set aside for specific loans, a
pool of reserves based on historical charge offs by
loan types, and supplementary reserves to reflect
current economic conditions, credit concentrations,
industry concentrations, and loan policy changes.
Management also evaluates loan impairment quarterly.
The amount allocated in 1998 to the provision for
possible loan losses was $336,000, which was
substantially lower than previous years because of a
single recovery late in 1997. The recovery was in
excess of $300,000, which had been charged off in an
earlier year. Loans charged off in 1998 totaled
$788,000 while recoveries totaled $164,000. Net
charged off loans for 1998 represents 0.3% of total
loans.

The 1997 provision for loan losses was $620,000. After
gross charge offs of $585,000 and recoveries of
$415,000, reserves were increased to $4.7 million,
representing 2.2% of total loans or 25 times 1997's net
charge offs. Excluding the $300,000 recovery described
above, net charge offs would have been 0.2% when
compared to total loans. Instead they resulted in net
charge offs of less than 0.1%.

In 1998, approximately 57% of the net charge offs
resulted from losses in the consumer loan portfolio,
including installment loans, credit cards and overdraft
protection. Net losses in the commercial and
agricultural portfolios totaled $177,000 or 28% of the
net charged off loans for 1998. In 1997, the two loan
categories showing the highest percentage losses were
the consumer installment loan portfolio at $280,200 or
2.5% and consumer credit cards at $78,300 or 3.6%.

All loans 90 days or more past due at month end that
are not well secured and in the process of collection
are placed on non-accrual status.

Loans over 90 days past due, including loans on a non-
accrual basis, declined for a second year in a row from
1.8% to 1.5% as a percentage of total loans. The
overall level for delinquent loans is lower than the
bank has experienced in many years. Loans on a non-
accrual status decreased from $3.2 million at the end
of 1997 to $1.7 million, with loans past due over 90
days and still accruing increased from $774,000 in 1997
to $1.7 million in 1998. The decrease in non-accrual
loans and the increase in loans past due 90-days and
still accruing resulted from a review of well secured
loans that were in the process of collection, although
they were 90-days delinquent.

Quarterly, all loans over 90 days past due are reviewed
for possible charge off. Collection efforts continue
whether or not the loan is charged off, but if there is
a reasonable doubt about whether the loan is
collectible, it is charged off.

When a real estate loan goes to foreclosure and the
Bank buys the property, the property is transferred
from the loan portfolio to the Other Real Estate Owned
(OREO) portfolio 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 before the transfer takes place. Along with
using conservative valuations of OREO properties,
reserves are established to allow for selling expenses
that can be reasonably estimated.

At the end of 1998, the OREO portfolio consisted of
five properties at a total aggregate book value of
$144,131, with a reserve for expenses and carrying
costs of $15,700. At the end of 1997, the OREO balance
was $76,400 with a reserve of $17,500.
Investments

The investment portfolio adds liquidity,
diversification, and earnings to the Bank's financial
picture. The investment portfolio has grown to 35% of
the Bank's total assets and 37% of the Bank's earning
assets. Overall, the investment portfolio has grown by
$31 million or 29% when compared to 1997 and has been
an integral factor in the asset growth of $49 million.
In comparison, in 1997 the Bank's total assets declined
by $2.4 million from 1996.

With investments growing by $31 million and loans
growing by $12 million, funding came from various
sources. Sources of funding included increased
deposits of $14 million, advances from the Federal Home
Loan Bank (FHLB) of $30 million, maturities and called
securities of $37 million and principal payments from
the Bank's mortgage-backed securities approximating $21
million. Principal payments are generated from
consumers nationwide making their monthly mortgage
payments and refinancing mortgages.

During 1998, the yield of the entire investment
portfolio decreased on average by 16 basis points.
Those securities with taxable interest income earned an
average yield of 7.0% and 7.2% for years ended December
31, 1998 and 1997, respectively. During 1997, the yield
of the entire portfolio increased by 22 basis points.

Purchases in 1998 totaled $88.8 million, with $70.4
million guaranteed by the U.S. Government. Of the
government sponsored securities, $22.9 million
represented debentures with call dates between three
months and four years. $6.7 million of these callable
agencies were purchased as an alternative to selling
fed funds, yielding 6.65% and were called before
December 31, 1998. All callable debentures were placed
in the Bank's available for sale portfolio. Included
in the government sponsored securities purchased in
1998 were $47.5 million in mortgage backed securities.
Additionally, the bank purchased $12 million of
corporate debentures in 1998, with an average yield of
6.3% and maturities ranging from three to six years.

For year end 1997, although the net investment
portfolio decreased by $1.8 million when compared to
year end 1996, purchases for the year totaled $33.1
million, 99% of which are guaranteed by the U.S.
Government. Of these, $4 million were purchased with
call dates in the 3-6 month range as an alternative to
selling federal funds. An additional $10.2 million
have call dates during 1998 and another $3.3 million
are callable between 1999 and 2002. The average yield
on the callable debentures as of year end 1997 was
7.0%. In addition, $15 million of U.S. Government
sponsored mortgage-backed pools were purchased in 1997.

In 1998, interest and dividends earned on the Bank's
investments increased by $431,000 over 1997, of which
$755,000 was attributable to additional securities
purchased in 1998 with a reduction in earnings of
$324,000 because of declines in interest rates.

In 1997, interest and dividends earned on the Bank's
investments grew by $271,000 of which $62,000 was
attributable to additional securities purchased in 1997
and additional income of $209,000 due to increasing
yields. As the Bank's tax exempt portion of the
investment portfolio decreased, it was being replaced
by taxable securities, which accounts for a portion of
the increase in yields.

As of year end 1998, the Bank does not hold any
interest rate swap agreements. At the end of 1997, the
Bank held one interest rate swap agreement whereby the
Bank was receiving a fixed rate of interest and paying
a variable rate of interest on the notional amount of
$5 million. This exchange was not a funding
transaction, but a stream of interest payments. This
agreement matured in May of 1998. The net effect on
earnings of the interest rate swap agreement for 1998
and 1997 was a reduction in income of $8,400 and
$30,100 respectively. A second interest rate swap
matured in May of 1996. The net effect on earnings of
the interest rate swap agreements for 1996 was a
reduction in income of $21,150. Additionally, the Bank
has a 5-year interest rate floor, purchased in 1994,
that pays interest on a notional amount of $10 million
if the specified index falls below the floor rate. No
income has been recognized to date on this contract.
The interest rate risk factor in the swap and floor is
considered in the overall interest management strategy
of the Bank.

In 1998, the cost of borrowings increased by $516,000
due to increased borrowings of $30 million. The cost
of borrowings dropped 7 basis points on average from
1997 to 1998. The Bank's interest rates on core
deposits were reduced in the last quarter of the year
to reflect national changes in interest rates. While
total deposits equaled $14.5 million more on December
31, 1998 than on December 31,1997, on average they grew
by $3.8 million. The overall cost of deposits
decreased by $254,000. The cost of deposits increased
by $131,000 based on increased deposits, but was offset
by $385,000 due to the rate changes described above.
The Bank structured a new interest bearing deposit
account that resulted in approximately $20 million in
outstanding balances by year end.

During 1997, interest rates remained stable throughout
the year. The cost of the Bank's interest bearing
liabilities increased by $429,000 (3.8%) over 1996
based on average growth in interest bearing liabilities
of $5.5 million. At year end 1997, deposits were level
with 1996. Total borrowings comprised of securities
sold under repurchase agreements plus advances from the
FHLB were $8.5 million less than at year end 1996.

Other Operating Income

The Bank's other operating income for 1998 was $687,000
or 13.7% more than 1997. Income derived from Trust
services is included in other operating income and was
$202,000 or 8% more in 1998 when compared to 1997.
Included in other service charges, commissions and fees
are fees generated from the Bank's various electronic
card programs, VISA, merchant programs, ATM and check
card fees. Collectively, these programs earned
$160,000 more before expenses than in the previous
year. Discussion on the expenses incurred with these
programs may be found in the Other Operating Expense
section below. Security gains of $148,000 represent
closure on portions of the Bank's investment in a
regional venture capital fund.

The Bank's other operating income for 1997 was
comparable with 1996. Trust Department income before
expenses increased by $314,000 (14.2%) over 1996. This
increase was offset by reductions in service charges on
deposit accounts. Due to the conversion of banking
software, various service charges were waived for
customer relations reasons. While 1997 other operating
income was $202,000 below the previous year, 1996 other
operating income was increased by a non-recurring
receipt of life insurance proceeds of $278,000
following the death of past president and director
Robert H. Avery.

Trust

The Bank's Trust Department's total revenues before
expenses grew to $2.7 million, compared to $2.5 million
in 1997 and $2.2 million in 1996. Market value for the
assets held in the Trust Department as of December 31,
1998 was $385 million compared to $357 million in 1997
and included $21.4 million in new business. Business
development was significantly enhanced through the
marketing of the Trust Department's Professionally
Managed Investment Account (PMIA) introduced in 1998.

Other Operating Expenses

For 1998, other operating expenses grew by 9% as
compared to 1997 with the majority of the increase
coming from the general category of other expenses.
Included in other expenses for 1998 were project costs
of $246,000, which included consulting fees in
connection with the selection process for a new banking
software system for the commercial side of the bank,
approximately $14,000 in expenses for the Year 2000
initiative and costs incurred for a September 1998
Trust Department software conversion. Operating
expenses for handling the Bank's electronic card
programs exceeded last year's expenses by $298,000.
Additionally, in 1998 there is a charge for $340,000,
representing fraud losses sustained in the Bank's Visa
credit card processing operation. The bank was victim
to a scheme in which criminals generated Visa account
numbers and made fraudulent charges to customer
accounts. At the time the fraudulent activity started,
late December, the bank was in the final stages of re-
issuing all of it Visa cards. The re-issue included
advanced card security features, which, along with
immediate actions taken by the bank, curtailed most of
the fraudulent activity by year end. There was no
monetary loss to any bank customer. All appropriate
regulatory and law enforcement agencies were notified.
No further losses are anticipated.

In 1997, other operating expenses grew by 8.1% over
1996. Salaries and benefits were higher by $316,000
(5.6%) representing merit increases as well as
additional training and staffing necessitated by the
banking software conversion that took place in November
of 1996. Additionally, 1997 furniture and equipment
expense was $243,000 higher than in 1996 due primarily
to the increase in depreciation of technology, plant
and equipment acquired by the Bank in the past 12-18
months. This includes upgraded individual personal
computers, networking servers, and software and
hardware enabling the Bank to image checks, other
transaction documents, correspondence and legal
documents. It also includes the depreciation of the
Operations Center in Ellsworth and more powerful voice
and data communication equipment, linking the branches
to the central server at the Operations Center.
Telephone line charges increased by $86,000 (46%) over
1996, and is reflected under other operating expenses
below.

Other operating expenses increased $317,000 (8.5%) over
1996. This increase was comprised of non-capital
expenses incurred to complete the installation of
technological improvements begun in 1996.

In 1997, the Bank began outsourcing a large portion of
its internal audit function resulting in an increase of
$58,000 over 1996. The Bank incurred additional
technology consulting costs in 1998 to review banking
software systems and expects to incur additional
technology costs in the future.
Net Earnings

The Bank's net earnings as of December 31, 1998 were
$6.6 million and compare to 1997 and 1996 earnings of
$6.4 million and $6.7 million respectively.

The efficiency ratio, one of the more frequently quoted
performance measures for a bank, compares the
relationship between non-interest expense to net
interest income plus non-interest income. The lower
the percentage, the better the bank is monitoring its
expenses. According to the FDIC Quarterly Banking
Profile reporting on all FDIC insured commercial banks
in the Northeast, the Bank is below the average by more
than 5% with an efficiency ratio of 56.7%.

The Bank's earnings translate into a return on average
equity of 15.0%, compared to 16.3% in 1997 and 18.9% in
1996. Earnings per average weighted share in 1998 were
$1.92 compared to $1.87 in 1997 and $1.95 in 1996.
Return on average assets in 1998 was 1.8% compared to
1.9% for 1997 and 2.0% for 1996.

LIQUIDITY

A primary function of asset/liability management
includes assuring adequate liquidity that reflects the
ability of the Bank to meet the cash flow requirements
of its customers without significant loss to the Bank.
Liquidity comes from five sources in the balance sheet:
the Bank's investment portfolio, deposits, borrowings,
loan repayments, and profits.

Liquidity is needed to fund increased loan demand and
to cover the seasonal outflow of deposits during the
winter months. The Bank's investment portfolio not
only provides liquidity, but also diversification in
managed assets. The Bank maintains adequate liquidity
without having to sell portions of its investment
portfolio by pledging portions of its portfolio as
collateral for borrowings.

The December 31, 1998 investment summary indicated a
net unrealized gain of $1 million on the Bank's held to
maturity portfolio. On December 31, 1997, this
portfolio showed a net unrealized gain of $897,000. On
December 31, 1998, the Bank's available for sale
portfolio showed an unrealized gain of $76,000. This
portfolio had an unrealized gain of $36,000 as of
December 31, 1997. At year end 1998, the Bank's large
mortgage-backed security portfolio had a net unrealized
gain of $781,000. This compares to an unrealized gain
on the mortgage-backed securities portfolio in 1997 of
$587,000. The mortgage-backed securities portfolio has
an average life of 5.5 years, a modified duration of
3.85 years and is yielding an average of 6.5%, which is
more favorable than comparable securities with similar
average lives in the current market.

Deposits represent the Bank's primary source of funds.
For three years, total deposits have remained steady,
although there have been shifts within the specific
categories. Strong competition from both financial and
non-financial institutions and the strength of the
national economy and stock markets are providing
alternatives to traditional bank deposits. The
introduction of the new Investor's Choice account has
allowed the Bank to compete with more of the non-
traditional markets for funds. Bar Harbor Banking and
Trust Company does not purchase brokered deposits.

Investment maturities and principal payments on
mortgage-backed securities have served as sources of
liquidity along with cash on hand and loan repayments.
Over the past five years, the Bank has expanded its
sources to include advances available through the
Federal Home Loan Bank of Boston, as well as repurchase
agreements secured through several wholesale firms and
a seasonal borrowing line with the Federal Reserve Bank
of Boston. Through the above options, additional funds
available to the Bank at December 31, 1998 totaled $71
million; however, the Bank does not intend to borrow
funds to its maximum availability. These funds have
been used, in accordance with asset/liability
management objectives of the Bank, to purchase
investment securities and to fund deposit outflow.

The Bank's primary approach to measuring liquidity is
utilizing a Basic Surplus/Deficit model. It is used to
calculate liquidity over a 30-day and a 90-day time
horizon, by examining the relationship between
marketable assets after deducting pledged assets, and
short-term liabilities that are vulnerable to non-
replacement within a 30-day period. The 90-day
analysis extends to include a projection of subsequent
cash flow funding needs over an additional 60-day
horizon. The Bank's minimum policy level of liquidity
under this model is 5% of total assets for both time
horizons. As of December 31, 1998, the 30-day and 90-
day ratios are 20.5% and 16.4%, respectively. At
December 31, 1997, the ratios were 17.2% and 17.7%,
respectively. Management believes the Bank has adequate
liquidity available to respond both to expected and
unexpected liquidity needs based on the Basic
Surplus/Deficit model.

MARKET RISK

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

Asset/liability management has the role of maintaining
a balance between interest-sensitive earning assets and
interest-bearing liabilities. Effective management of
interest rate risk can protect the Bank against adverse
changes in interest rates and can enhance the Bank's
interest margins and earnings through periods of
changing interest rates. In times of rising interest
rates, Bar Harbor Banking and Trust Company will
maximize earnings if more loans and/or investments are
subject to rate changes than interest bearing
liabilities. As interest rates rise, the Bank monitors
its rate sensitivity seeking to ensure that both assets
and liabilities respond to changes in interest rates to
minimize the effect of those changes on net interest
income.

As of December 31, 1998, Bar Harbor Banking and Trust
Company was very evenly matched with $170 million in
assets and $184 million in liabilities that could be
repriced within one year. This limits the exposure of
interest rate risk to the bank on these funds. The
repricing structure for 1997 was similar, with $166
million in asset and $174 million in liabilities that
could be repriced within one year.

Management continues to watch economic trends with
respect to interest rates. The Bank is well balanced
with assets and liabilities repricing concurrently.
Based on simulations, if interest rates were to rise by
200 basis points and if the Bank were to maintain the
balance sheet as it stands today, the Bank would reduce
its net interest income by $200,000 during the next
twelve months and experience no change in interest
during the second year. If rates were to drop by 200
basis points, the Bank would experience an increase in
its net interest income of $182,000 in the first twelve
months and drop $181,000 during the second year.

Loan repayments and maturing investments are set forth
in the Statements of Cash Flows. Profits, the final
source of liquidity, also are detailed on the preceding
pages.

CAPITAL RESOURCES

Regulatory standards for bank capital adequacy require
that capital be at least 8% of risk-adjusted assets.
Bar Harbor Banking and Trust Company's total risk-based
capital ratio of 21.5% far exceeds the guidelines.
This means that the Bank is not restricted from paying
dividends.
Stockholders' equity increased by $4.4 million as of
December 31, 1998 and $4.6 million in 1997.

On December 8, 1998, the Board of Directors of the
Company declared a 100% stock dividend effected as a
stock split to owners of record as of December 28,
1998, payable on January 25, 1999. Per share data
information has been adjusted to reflect the 100% stock
dividend. Dividends of $2.3 million declared on the
Company's common stock represented a 35% dividend
payout ratio. Bar Harbor Bankshares' stock was priced
at $23.75 at year end 1998 and closed at $27.50 on
December 31, 1997.
A strong capital position, which is vital to the
continued profitability of the Bank, also promotes
customer confidence and provides a solid foundation for
future growth. Continued growth in stockholders'
equity has been achieved through reinvested earnings.

There are no known trends, events or uncertainties nor
any recommendations by any regulatory authority that
are reasonably likely to have a material effect on the
Company's liquidity, capital resource or operating
results.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

During 1998, the Company adopted Statements of
Accounting Standards (SFAS) 130, 131 and 132. The
adoption of SFAS 130, Reporting of Comprehensive
Income, required that certain items be reported under a
new category of income "Other Comprehensive Income".
Unrealized gains and losses on securities available for
sale is the only item included in Other Comprehensive
Income. SFAS 131 and 132 relate to disclosures about
segments and employee benefits, respectively. The
Company, through the branch network of the Subsidiary,
provides a broad range of financial services to
individuals and companies in eastern Maine. Operations
are managed and financial performance is evaluated on a
corporate wide basis. Accordingly, all of the
company's banking operations are considered to be
aggregated in one reportable operating segment. The
financial statements for 1998 and prior periods where
applicable, include the required additional disclosures
for SFAS No. 130 and 132. In addition, the Financial
Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities and SFAS No. 134, "Accounting for Mortgage-
Backed Securities Retained after the Securitization of
Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise", which are effective for fiscal years
beginning after June 15, 1999 and the first fiscal
quarter beginning July 1, 1999 respectively.
Management has not determined the impact of SFAS No.
133 or SFAS No. 134 on the financial statements.

YEAR 2000 RISK ASSESSMENT AND ACTION PLAN

It is anticipated that many computer applications will
not operate as intended past the year 1999 without
modifications. This is due to the practice of using
only two digits instead of four digits to identify a
year in the date field, for example: "98" instead of
"1998". On January 1, 2000, it is possible that some
systems with time sensitive software programs will
recognize the year as "00" and incorrectly interpret it
as "1900".

A Year 2000 committee consisting of the president of
the Bank, senior management and key department
employees was created to manage Year 2000 compliance
issues. The committee developed a global plan to
address the Company's exposure to potential problems
arising from the Year 2000. The plan follows the
Federal Financial Institution Examination Council
(FFIEC) guidelines. The Board of Directors approved
the Bank's Year 2000 global assessment and action plan
early in 1998 and reviews the committee's progress on a
routine basis. Progress of the committee's work is also
reviewed by the Bank's internal auditor and the federal
regulators. The Federal Deposit Insurance Company
(FDIC) has completed its Phase II audit of the Bank's
Year 2000 project. This audit focused on continued
progress in systems renovations, testing and
development of contingency plans.

Individual project plans for mission critical systems
were written. The Bank's core banking software systems
that run the deposit, loan, general ledger and item
processing applications are among those identified as
mission critical for the Bank. The banking software
that runs the deposit, loan, general ledger and other
applications was proxy tested and deemed compliant in
November of 1998. The Bank converted to that version
of the software on February 6, 1999. The Bank did not
incur any material costs to install this release. The
Bank's item processing software is scheduled to be
tested before June 30, 1999. The Bank's local and wide
area network includes Year 2000 versions for both
hardware and operating software. Technology is
critical to the Bank's operation and as the Bank has
remained current in its technology enhancements, it has
afforded compliance for this portion of the overall
project with little output of capital. Since all
software used by the Bank is provided by third party
vendors, these vendors are being monitored for their
compliance.

The Bank has also thoroughly reviewed its facilities,
including security and entry systems, telecommunication
lines, heating, air and fire suppression. The Bank is
monitoring the electric power industry's efforts for
compliance. As part of the Bank's contingency
planning, generators are being sized for each of its
ten branch locations.

The Bank is assessing its liquidity needs and approach
for funding sources. The two major counterparties for
sources of funds include the Federal Reserve Bank and
the Federal Home Loan Bank. Both parties have publicly
announced commitment and support for its member banks,
including making funds available quickly in the event
of an unexpected liquidity shortfall. The Federal
Reserve has increased its fiscal year 1999 print order
from the U.S. Treasury's Bureau of Engraving and
Printing, which will provide an adequate level of
inventory in Federal Reserve Bank vaults to meet
currency demand. Progress of these two governmental
agencies will be monitored for their preparation and
readiness.

The assessment of customers' preparedness and the
resulting impact on the institution began in the summer
of 1998 and follow up continues by the bank's lenders
on some of the larger credit customers. The Bank has a
concentration in the hospitality industry in its loan
portfolio; however, many of those credits are seasonal
businesses and will not open until late spring in 2000.
The Bank redesigned its loan application to incorporate
a question regarding the preparedness of the borrower
for the millennium. Over 5,200 business customers
received a brochure entitled "Is your business prepared
for Year 2000". The Bank participated in a Bank
Business Customer Seminar that was developed by the
Maine Bankers Association. Two sessions of this
program were attended by area businesses in October and
November of 1998.

Customer awareness continues with brochures sent with
statements for both deposit and loan customers, lobby
displays at each of the Bank's ten branch locations,
the initiation of the Bank's web site including a Y2K
section, and the introduction of joint public relations
initiatives with local peer banks.

Employee awareness continues with information published
routinely in the Bank's monthly newsletter and specific
Year 2000 awareness training for all employees.

The costs incurred so far by the Bank and the Company
as of December 31, 1998 totaled approximately $14,000
and have been used primarily for supplies and customer
awareness information. Since the Bank has stayed very
current in its technology, it does not anticipate any
major expenditure directly related to the Year 2000
issues. The budget for this project is approximately
$100,000 and includes approximately $30,000 in customer
awareness materials and $60,000 in upgrades of
ancillary software and testing of systems by staff.

As the Bank continues to test and monitor ongoing
systems for Year 2000 readiness, it is also developing
a contingency plan in case of unanticipated failures in
any of the Bank's systems. Although the Bank does not
expect any critical problems, the plan will identify
steps to handle any unforeseen issues. The plan has
identified seven core business processes that would be
critical for continued service to its customers. The
intent is to describe how the Bank will continue to
provide routine customer service if systems do not
perform as expected. Business impact analyses for each
of these processes have addressed the risk of inability
to offer service. The stakeholders of these seven
processes are currently developing business resumption
plans.

IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and related
notes, presented on subsequent pages of this report,
have been prepared in accordance with generally
accepted accounting principles. These principles
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. Unlike many
industrial companies, substantially all of the assets
and virtually all of the liabilities of Bar Harbor
Banking and Trust Company are monetary in nature. As a
result, interest rates have a more significant impact
on Bar Harbor Banking and Trust Company's performance
than the general level of inflation. Over short
periods of time, interest rates may not necessarily
move in the same direction or in the same magnitude as
inflation.

MARKET FOR COMMON STOCK

</TABLE>
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
<S> <C> <C> <C> <C>
1998 29.0 to 29.50 to 25.25 to 25.00 to
25.125 24.875 19.25 17.00
1997 19.375 to 21.375 to 24.188 to 31.00 to
17.50 18.188 19.875 24.563
</TABLE>

As of January 1, 1999, there were 1,072 registered
holders of record of Bar Harbor Bankshares common
stock.

Dividends paid by the Company in 1998 and 1997:
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
1998 $0.16 $0.17 $0.17 $0.17
1997 $0.14 E0.15 $0.15 $0.16
</TABLE>
INDEPENDENT AUDITORS' REPORT

(On Berry Dunn letterhead)

BDM&P LOGO
BERRY, DUNN, McNEIL & PARKER
CERTIFIED PUBLIC ACCOUNTANTS
MANAGEMENT CONSULTANTS
_______________________________________________________
_____
100 Middle Street / P.O. Box 1100, Portland, Maine
04104-1100 / (207 775-2387 / FAX (207) 774-2375

The Board of Directors
Bar Harbor Bankshares

We have audited the accompanying consolidated
statements of financial condition of Bar Harbor
Bankshares and Subsidiary as of December 31, 1998 and
1997, and the related consolidated statements of
earnings, changes in stockholders' equity, and cash
flows for each of the three years in the period ended
December 31, 1998. These financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to
above present fairly, in all material respects, the
consolidated financial position of Bar Harbor
Bankshares and Subsidiary as of December 31, 1998 and
1997, and the consolidated results of their operations
and their consolidated cash flows for each of the three
years in the period ended December 31, 1998, in
conformity with generally accepted accounting
principles.

(signature: Berry, Dunn, McNeil & Parker)

Portland, Maine
February 18, 1999

Offices in: Bangor, Maine, Portland, Maine, Lebanon,
New Hampshire, Manchester, New Hampshire
_
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

BAR HARBOR BANKSHARES AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL
CONDITION
DECEMBER 31, 1998 AND 1997
(in thousands, except number of shares)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
ASSETS
Cash and Due from banks $11,511 $7,537
Securities available for sale 17,844 14,608
Securities held to maturity (market value
$114,177 in 1998; $86,248 in 1997) 113,162 85,351
Other securities 6,133 6,012
Loans held for sale 1,018 365
Loans, net of allowance for possible loan
losses of $4,455 in 1998 and $4,743 in 1997 224,980 212,396
Premises and equipment 7,951 7,658
Other assets 9,449 8,799
Total Assets $392,047 $342,726

Liabilities and stockholders' equity
Liabilities
Deposits
Demand Deposits $42,323 $36,837
NOW accounts 43,319 39,536
Savings deposits 67,620 53,378
Time deposits 113,187 122,152
Total Deposits 266,448 251,903
Securities sold under repurchase agreement 8,092 4,474
Advances from Federal Home Loan Bank 66,120 39,160
Other liabilities 4,526 4,727
Total liabilities 345,187 300,264
Commitments and contingent liabilities (Note
17)
Stockholders' Equity
Capital stock, par value $2; authorized
10,000,000 shares; issued 3,643,614 in 1998 7,287 7,284
and 3,641,166 in 1997
Surplus 4,002 3,932
Retained earnings 36,862 32,562
Net unrealized appreciation on securities
available for sale, net of tax 50 24
Less: Cost of 200,000 shares of Treasury (1,340) (1,340)
stock
Total stockholders' equity 46,861 42,462
Total liabilities and stockholders' equity $392,047 $342,726
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBEER 31, 1998, 1997 AND 1996
(in thousands, except number of shares and per share
data)

<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans $21,290 $21,028 $20,303
Interest and dividends on:
Taxable securities 7,074 6,415 6,099
Non-taxable securities 424 651 767
Equity Securities 423 424 353
Total interest and dividends 29,211 28,518 27,522
Interest expense:
Deposits 8,539 8,793 8,888
Borrowings 3,434 2,917 2,393
Total interest expense 11,973 11,710 11,281
Net interest income 17,238 16,808 16,241
Provision for loan losses 336 620 720
Net interest income after provision
for loan losses 16,902 16,188 15,521

Other operating income:
Trust department income 2,727 2,525 2,211
Service charges on deposit accounts 722 690 797
Other service charges, commissions 1,867 1,634 1,624
and fees
Other operating income 225 149 351
Net securities gains 148 3 17
5,688 5,001 5,000

Other operating expense:
Salaries and employee benefits 6,031 6,005 5,689
Occupancy expense 650 608 596
Furniture and equipment expense 1,214 1,155 911
Other operating expense 4,970 4,033 3,717
12,865 11,801 10,913

Earnings before Income Taxes 9,725 9,388 9,608
Income Taxes 3,118 2,966 2,899
Net Earnings $6,607 $6,422 $6,709

Per common share data
Net Earnings $1.92 $1.87 $1.95
Weighted average number of common
shares outstanding 3,443,3 3,440,1 3,436,2
87 04 32
</TABLE>
Bar Harbor Bankshares and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1998, 1997 and 1996
(in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating
activities:
Net earnings $6,607 $6,422 $6,709
Adjustments to reconcile net
earnings to net cash provided by
operating activities:
Depreciation 938 888 786
Deferred income taxes 248 (191) (73)
Provision for loan losses 336 620 720
Provision for losses on other real
estate owned 0 0 7
New loans originated for sale (17,684) *5,465) (8,266)
Proceeds from sale of mortgages held 17,068 5,450 8,250
for sale
Gain on sale of mortgages originated (218) (40) (169)
for sale
Net securities gains (148) (3) (17)
Net amortization of bond premium 249 137 269
Loss on sale of premises and 1 5 31
equipment
Net change in other assets (691) (234) (514)
Net change in other liabilities (200) 1,300 23
Net cash provided by operating 6,525 8,901 7,807
activities
Cash flows from investing
activities:
Net decrease in federal funds sold 9 2,000 1,800
Purchases of securities held to (72,428) (31,402 (18,320)
maturity )
Proceeds from maturity and principal
paydowns of securities held to 28,024 18,881 12,793
maturity
Proceeds from call of securities
held to maturity 16,346 9,750 4,750
Purchases of securities available (16,245) (1,253) (6,113)
for sale
Proceeds from maturity and principal
paydowns of available for sale 302 160 183
Proceeds from call of securities
available for sale 12,750 6,060 500
OTHER SECURITIES
Net decrease (increase) in other 22 (388) 55
securities
Net loans made to customers (13,485) (5,349) (11,121)
Capital expenditures (1,231) (1,069) (2,493)
Proceeds from sale of other real 505 199 331
estate owned
Proceeds from sale of fixed assets 0 16 397
Net cash used in investing (45,440) (2,395) (17,238)
activities

Cash flows from financing
activities:
Net change in savings, NOW and
demand deposits 23,510 218 5,178
Net change in time deposits (8,965) 10 (4,974)
Net change in securities sold under
repurchase agreements 3,618 (3,772) 2,455
Advances from Federal Home Loan Bank 50,0000 48,500 53,000
Repayment of advances from Federal
Home Loan Bank (30,500) (35,000 (28,900)
)
Net change in short term other 7,460 (8,248) (12,892)
borrowed funds
Proceeds from sale of capital stock 72 90 130
Payments of dividends (2,307) (2,065) *2,028)
Net cash provided (used) by
financing activities 42,889 (10,267 11,969
)

Net increase (decrease) in cash and
cash equivalents 3,996 (3,761) 2,538
Cash and cash equivalents at
beginning of year 7,537 11,298 8,760
Cash and cash equivalents at end of $11,533 $7,537 $11,298
year

Supplemental disclosures of cash
flow information:
Cash paid during the year for:
Interest $11,992 $11,683 $11,322
Income taxes, net of refunds $3,180 $2,596 $3,347
Non-cash transactions
Transfer from loans to real estate
owned (other $564 $0 $215

</TABLE>

BAR HARBOR BANKSHARES AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 and 1996
(in thousands, except number of shares and per share
data)

<TABLE>
<CAPTION>
NET
UNREALIZED
APPRECIATIO TOTAL
CAPITAL RETAINED N TREASURY STOCKHOLDERS
STOCK SURPLU EARNINGS (DEPRECIATI STOCK '
S ON) ON EQUITY
SECURITIES
AVAILABLE
FOR
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, $7,270 $3,726 $23,524 $63 ($1,340) $33,180
1995
Net Earnings, 1996 6,709 6,709
Net unrealized
depreciation on
securities available
for sale, net of tax
benefit of $86 (167) (167)
Total comprehensive
income 6,709 (167) 6,542
Cash dividends
declared ($0.59 per
share) (2,028) (2,028)
Sale of stock 9 120 130

Balance December 31, 7,279 3,847 28,205 (104) ($1,340) 37,991
1996
Net Earnings, 1997 6,422 6,422
Net unrealized
appreciation on
securities available
for sale, net of tax
of $66 128 128
Total comprehensive
income 6,422 128 6,550
Cash dividends
declared ($0.60 per
share) (2,065) (2,065)
Sale of stock 4,692 85 0 90
Balance December 31, 7,284 3,932 32,562 24 ($1,340) 42,438
1997
Net earnings, 1998 6,607 6,607
Net unrealized
appreciation on
securities available
for sale, net of tax
of $14 26 26
Total comprehensive
income 6,607 26 6,633
Cash dividends
declared ($0.67 per
share) (2,307) (2,307)
Sale of stock 3 70 73
Balance December 31, $7,287 $4,002 $36,862 $50 ($1,340) $46,861
1998
</TABLE>
NOTES TO CONSOLIDATED STATEMENTS

Bar Harbor Bankshares and Subsidiary
December 31, 1998, 1997, and 1996
(Tables presented in thousands)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business
Bar Harbor Bankshares, ("the Company") through its
wholly owned subsidiary, Bar Harbor Banking and Trust
Company,("the Bank") provides a full range of banking
services to individual and corporate customers
throughout eastern Maine. These banking services are
available in each of its ten branch locations. The
Bank is subject to the regulations of certain federal
and state agencies and undergoes periodic examination
by those regulatory authorities.

Basis of financial statement presentation
The financial statements have been prepared in
conformity with generally accepted accounting
principles. In preparing the financial statements,
management is required to make estimates and
assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and
liabilities as of the date of the balance sheet and
revenues and expenses for the period. Actual results
could differ significantly 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 allowances for
loan losses and real estate owned, management obtains
independent appraisals for significant properties.
Substantial portions of the Bank's loans are secured by
real estate in eastern Maine. In addition, all of the
real estate acquired through foreclosure is located in
those same markets. Accordingly, the ultimate ability
to collect on a substantial portion of the Bank's loan
portfolio and the recovery of the carrying amount on
real estate owned are susceptible to changes in market
conditions in eastern Maine.

Certain amounts in prior years have been restated to
conform with the current year presentation.

Principles of consolidation
The accompanying consolidated financial statements
include the accounts of Bar Harbor Bankshares and its
wholly owned subsidiary, Bar Harbor Banking and Trust
Company. All intercompany balances and transactions
have been eliminated in the accompanying consolidated
financial statements.

Segments
The Company, through the branch network of the Bank,
provides a broad range of financial services to
individuals and companies in eastern Maine. These
services include demand, savings and time deposits;
lending; credit card servicing; ATM processing and
trust services. Operations are managed and financial
performance is evaluated on a corporate-wide basis.
Accordingly, all of the Company's banking operations
are considered by management to be aggregated in one
reportable operating segment.

Comprehensive income
Under a new accounting standard, comprehensive income
is now reported for all periods. Comprehensive income
includes both net income and other comprehensive
income. Other comprehensive income includes the change
in unrealized gains and losses on securities available
for sale and is disclosed in the consolidated
statements as of changes in stockholders' equity.

Cash and due from banks
The Bank is required to comply with various laws and
regulations of the Federal Reserve Bank, which require
that the Bank maintain certain amounts of cash on
deposit and is restricted from investing those amounts.
In the normal course of business, the Bank has funds on
deposit at other financial institutions in amounts in
excess of the $100,000 that is insured by the FDIC. The
Bank has not experienced any losses in such accounts
and the Bank believes it is not exposed to any
significant risk with respect to these accounts.

Securities available for sale
Securities available for sale consist of certain
securities to be held for indefinite periods of time
which are reported at fair value with unrealized gains
and losses reported as a separate component of
stockholders' equity, net of tax effect. Gains and
losses on the sale of securities available for sale are
determined using the specific-identification method and
are shown separately in the statement of earnings.
Premiums and discounts are recognized in interest
income using the interest method over the period to
maturity.

Securities to be held to maturity
Debt securities for which the Bank has the positive
intent and ability to hold to maturity are reported at
cost, adjusted for amortization of premiums and
accretion of discounts that are recognized in interest
income using the interest method over the period to
maturity.

It is management's policy to acquire securities for
long-term investment purposes, rather than to acquire
such securities for purposes of trading. For this
reason, the Bank has not classified any of its
securities as trading.

Other securities
Other securities include Federal Home Loan Bank stock
and other non-marketable securities carried at cost.

Loans held for sale
Loans held for sale are individual residential mortgage
loans that qualify for sale in the secondary market to
the Federal Home Loan Mortgage Corporation (Freddie
Mac). These loans are closed and immediately sold
without recourse to Freddie Mac, with the Bank
retaining loan servicing on said loans. The Bank does
not pool mortgages for sale. Because loans are sold
immediately, the cost is considered to approximate
market value.

Loans
Interest on loans is accrued and credited to income
based on the principal amount of loans outstanding. The
accrual of interest income is discontinued when, in the
opinion of management, there is an indication that the
borrower may be unable to meet payments as they become
due and the loan is not well secured. Interest income
on impaired loans is reported on a cash basis when
received.

Loan origination fees and certain direct loan
origination costs are deferred and recognized in
interest income as an adjustment to the loan yield over
the life of the related loans. The Bank amortizes
these amounts using a method that approximates the
effective yield. The unamortized net deferred fees and
costs are included on the balance sheet with the
related loan balances.

The allowance for loan losses is established through a
provision for loan losses charged to operations. Loan
losses are charged against the allowance when
management believes that the collectibility of the loan
principal is unlikely. Recoveries on loans previously
charged off are credited to the allowance.

The allowance is an amount that management believes
will be adequate to absorb possible loan losses based
on evaluation of their collectibility and prior loss
experience. The evaluation takes into consideration
such factors as changes in the nature and volume of the
portfolio, overall portfolio quality, specific problem
loans, and current and anticipated economic conditions
that may affect the borrower's ability to pay.

While management uses available information to
recognize losses on loans, changing economic conditions
and the economic prospects of the borrowers may
necessitate future additions to the allowance. In
addition, various regulatory agencies, as an integral
part of their examination process, periodically review
the Bank's allowance for loan losses. Such agencies may
require the Bank to recognize additions to the
allowance based on their judgments about information
available to them at the time of their examination.

Impaired loans, including restructured loans, are
measured at the present value of expected future cash
flows discounted at the loan's effective interest rate,
at the loan's observable market price, or the fair
value of the collateral if the loan is collateral
dependent. Management takes into consideration
impaired loans in addition to the above mentioned
factors in determining the appropriate level of
allowance for loan losses.

Premises and Equipment
Premises and equipment and related improvements are
stated at cost less accumulated depreciation.
Depreciation is computed by the straight-line and
accelerated methods over the estimated useful lives of
the related assets. Repairs and maintenance charges
are expensed as incurred.

Other real estate owned (OREO)
Real estate acquired in satisfaction of a loan is
reported in other assets. Properties acquired by
foreclosure or deed in lieu of foreclosure are
transferred to OREO and recorded at the lower of cost
or fair market value less estimated costs to sell based
on appraised value at the date actually or
constructively received. Loan losses arising from the
acquisition of such property are charged against the
allowance for loan losses. OREO is stated at the lower
of cost or market. An allowance for losses on OREO is
maintained for subsequent valuation adjustments on a
specific property basis.

Income taxes
Deferred tax assets and liabilities are reflected at
currently enacted income tax rates applicable to the
period in which the deferred tax assets or liabilities
are expected to be realized or settled. As changes in
the tax laws or rates are enacted, deferred tax assets
and liabilities are adjusted through the provision for
income taxes.

Financial instruments with off-balance sheet risk
In the ordinary course of business the Bank has entered
into off-balance sheet financial instruments consisting
of commitments to extend credit, commitments under
credit-card arrangements, commercial letters of credit,
and standby letters of credit. Such financial
instruments are recorded in the financial statements
when they are funded or related fees are incurred or
received.

Interest rate exchange agreements (swaps) are accounted
for using the accrual method. Net interest income
(expense) resulting from the differential between
exchanging floating and fixed-rate interest payments is
recorded on a current basis.
Interest rate floors are contracts in which a floor is
established at a specified rate and period of time.
The premium paid for the contract is amortized over its
life. Any cash payments received are recorded as an
adjustment to net interest income.

Statements of cash flows
For purposes of the statements of cash flows, the Bank
considers cash on hand and amounts due from banks as
cash and cash equivalents.

Basic earnings per share
Basic earnings per share is calculated by dividing net
earnings by the number of weighted average shares
outstanding for the year. There are no diluted
earnings per share as there is no potential common
stock.

Fair value disclosures
The Bank in estimating its fair market value
disclosures for financial instruments used the
following methods and assumptions:

Cash and cash equivalents: The carrying amounts
reported in the statement of condition for cash and
cash equivalents approximate their fair values.

Securities available for sale, securities held to
maturity and other securities: Fair values for
investment securities are based on quoted market
prices, where available. If quoted market prices are
not available, fair values are based on quoted market
prices of comparable instruments.

Loans receivable: Fair values are estimated for
portfolios of loans with similar financial
characteristics. Loans are segregated by type such as
commercial, commercial real estate, residential
mortgage, credit card, and other consumer. Each loan
category is also segmented into fixed and variable rate
interest terms and by performing and non-performing
categories.

Fair value of all performing loans is calculated by
discounting scheduled cash flows through the estimated
maturity using estimated discount market rates. These
rates are based on independent market indices adjusted
for administrative costs and credit risk. Estimated
maturity is based on the weighted average of the
portfolio. Real estate and installment maturities are
adjusted for estimates of prepayment rates, with high
interest, longer term loans prepaying at a more rapid
rate.

Fair value for non-performing loans is determined on an
individual basis, taking into account management's
plans regarding potential time to resolution and
subsequent sale of collateral and the borrower's plan
for the continuance of principal and interest payments
along with the potential of the borrower to rebuild
equity in the loan collateral.

Deposits: The fair value of demand deposits, NOW
accounts and savings accounts is the amount payable on
demand. The fair value of fixed maturity certificates
of deposit is estimated using the rates currently
offered in the Bank's market for deposits of similar
remaining maturities.

Borrowings: The carrying amounts of federal funds
purchased, borrowings under repurchase agreements, and
other short-term borrowings maturing within 90 days
approximate their fair values. Fair values of other
short-term borrowings are estimated using discounted
cash flow analyses based on the Bank's current
incremental borrowing rates for similar types of
borrowing arrangements.

The fair values of the Bank's long-term borrowings
(other than deposits) are estimated using discounted
cash flow analyses, based on quoted market rates.

Accrued interest: The carrying amounts of accrued
interest approximate their fair values.

Off-balance sheet instruments: The Bank's off-balance
sheet instruments include interest rate swaps, floors
and loan commitments. Fair values for interest rate
swaps and floors are based on quoted market prices.
Fair values for loan commitments have not been
presented as the future revenue derived from such
financial instruments is not significant.

Effect of recent accounting pronouncements
During 1998, the Company adopted Statements of
Financial Accounting Standards (SFAS) No. 130, No. 131
and No. 132. The adoption of SFAS No. 130, "Reporting
Comprehensive Income", requires that certain items be
reported under a new category of income "Other
Comprehensive Income". Unrealized gains and losses on
securities available for sale is the only item included
in other comprehensive income.
SFAS No. 131 and No. 132 relate to disclosures about
segments and employee benefits, respectively. The
financial statements for 1998 and prior periods where
applicable, include the required additional disclosures
for SFAS No. 130, No. 131 and No. 132.
In addition, the Financial Accounting Standards Board
issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" and SFAS No. 134,
"Accounting for Mortgage-Backed Securities Retained
after the Securitization of Mortgage Loans Held for
Sale by a Mortgage Banking Enterprise", which are
effective for fiscal years beginning after June 15,
1999 and the first fiscal quarter beginning July 1,
1999 respectively. Management has not determined the
impact of SFAS No. 133 or SFAS No. 134 on the financial
statements.

2. INVESTMENT SECURITIES

The amortized cost of investment securities and their
approximate fair values
at December 31, 1998 and 1997 follows:

<TABLE>
<CAPTION>
1998
Gross Gross Estimated
Amortized Unrealiz Unreali Fair
Cost ed Gains zed Value
Losses
<S> <C> <C> <C> <C>
Available for Sale:
Obligations of U.S.
Gov't Agencies $12,249 $84 $1 $12,332
Mortgage Backed
Securities -U.S. Gov't 4,969 0 33 4,936
Agencies
Marketable Equity 550 26 0 576
Securities
Total Securities
Available for sale $17,768 $110 $34 $17,844
Held to Maturity:
Obligations of U. S.
Gov't Agencies $5,690 $47 $0 $5,737
Mortgage Backed
Securities-U.S. Gov't 88,101 941 145 88,897
Agencies
Mortgage Backed
Securities - Other 6,668 45 27 6,686
Obligations of states
of the U.S. and
political subdivisions 5,634 159 17 5,776
thereof
Other Bonds 7,069 49 37 7,081
Total securities held
to maturity $113,162 $2,241 $226 $114,177
</TABLE>

<TABLE>
<CAPTION>
1997
Gross Gross Estimated
Amortized Unrealiz Unreali Fair
Cost ed Gains zed Value
Losses
<S> <C> <C> <C> <C>
Available for Sale:
Obligations of U.S.
Gov't Agencies $8,751 $69 $17 $8,803
Mortgage Backed
Securities -U.S. Gov't 5,271 0 38 5,233
Agencies
Marketable Equity 550 22 0 572
Securities
Total Securities
Available for sale $14,572 $91 $55 $14,608
Held to Maturity:
Obligations of U. S.
Gov't Agencies $13,250 $33 $3 $13,280
Mortgage Backed
Securities-U.S. Gov't 57,913 725 105 58,533
Agencies
Mortgage Backed
Securities - Other 5,082 26 21 5,087
Obligations of states
of the U.S. and
political subdivisions 8,105 240 0 8,345
thereof
Other Bonds 1,001 2 0 1,003
Total securities held
to maturity $85,351 $1,026 $129 $86,248
</TABLE>

SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
Estimated Fair
Amortized Value
Cost
<S> <C> <C>
Due in one year or less $500 $500
Due after one year through five 1,000 1,004
years
Due after five years through ten 10,749 10,828
years
Due after ten years 0 0
Mortgage-backed securities 4,969 4,936
$17,218 $17,268
</TABLE>

SECURITIES HELD TO MATURITY
<TABLE>
<CAPTION>
Estimated
Amortized Fair Value
Cost
<S> <C> <C>
Due in one year or less $1,902 $1,922
Due in one year through five years 11,211 11,373
Due after five years through ten 4,745 4,764
years
Due after ten years 535 535
Mortgage-backed securities 94,769 95,583
$113,162 $114,177
</TABLE>

There were no sales of securities available for sale or
held
to maturity in 1998, 1997 or 1996.
U.S. Government securities having a carrying value of
approximately $25.1 million at December 31, 1998, and
$19.3 million at December 31, 1997 are pledged to
secure certain deposits and for other purposes as
required by law. Market values for these securities at
December 31, 1998 and 1997 were $25.4 million and $19.4
million, respectively.

3. LOANS

The following table shows the composition of the
Bank's loan portfolio as of December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Commercial loans:
Real estate - variable rate $57,619 $50,471
Real estate - fixed rate 4,073 9,801
Other - variable rate 24,292 24,430
Other 14,825 14,872
100,809 99,574
Tax exempt:
Variable rate 463 610
Fixed rate 1,586 1,190
2,049 1,800
Consumer:
Real estate - variable rate 60,265 56,333
Real estate - fixed rate 37,770 32,350
Home equity 13,244 11,545
Installment 10,726 11,177
Other 5,419 5,128
127,424 116,533

Real estate under foreclosure 49 56
Deferred origination fees, net (896) (824)
Allowance for loan losses (4,455) (4,743)
$224,980 $212,396
</TABLE>

At December 31, 1998 and 1997, loans on non-accrual
status totaled $1.7 million and $3.2 million,
respectively. Interest income not recognized on non-
accruing loans was $107,000, $363,000 and $314,000, in
1998, 1997 and 1996, respectively. In addition to loans
on non-accrual status at December 31, 1998 and 1997,
the Bank had loans past due greater than 90 days
totaling $1.7 million and $774,000, respectively. The
Bank continues to accrue interest on these loans
because it believes collection of the interest due is
reasonably assured. The Bank makes single family and
multi-family residential loans, commercial real estate
loans, commercial loans, and a variety of consumer
loans. The Bank's lending activities are conducted in
eastern Maine. Because of the Bank's proximity to
Acadia National Park, a large part of the economic
activity in the area is generated from the hospitality
business associated with tourism. At December 31,
1998, approximately $30.5 million of loans were made to
companies in the hospitality industry. Loans for
commercial and real estate development totaled $12.7
million. The loan portfolio at December 31, 1998 and
1997 consisted of 68% and 70%, respectively, of
variable rate loans. From the standpoint of large loans
to single borrowers, loans of $700,000 or more to one
borrower decreased as a percentage of stockholders'
equity to 65% in 1998 from 66% in 1997. Of these
larger loans, 70% are secured by real estate.

4. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for each of
the three years ended December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Balance, beginning of year $4,743 $4,293 $4,048
Provision for loan losses 336 620 720
Loans charged off 788 585 711
Less recoveries on loans
previously charged off 164 415 236
Net loans charged off 624 170 475

Balance, end of year $4,455 $4,743 $4,293
</TABLE>

Information regarding impaired loans is as follows for
each of the three years ended December 31:

<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Average investment in impaired loans $1,576 $2,045 $1,882
Interest income recognized on impaired
loans including interest income
recognized on cash basis 35 165 108
Balance of impaired loans 1,073 2,670 2,196
Portion of impaired loan balance for
which an allowance for credit losses is 1,073 2,670 2,196
allocated
Portion of allowance for loan losses
allocated to the impaired loan balance $42 $104 $128
</TABLE>

5. LOANS TO RELATED PARTIES

In the ordinary course of business, the Bank has
granted loans
to certain officers and directors and the companies
with which
they are associated. All such loans and commitments to
lend
were made under terms that are consistent with the
Bank's
normal lending policies.
Loans to related parties at December 31, 1998 and 1997
which
in aggregate exceed $60,000 were as follows:

<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Beginning balance $3,952 $3,807
New Loans 5,393 1,693
Less: repayments 2,102 1,548
Ending balance $7,243 $3,952
</TABLE>

6. MORTGAGE SERVICING

Mortgage servicing rights of $264,000 are capitalized
and recorded at their estimated fair value of $221,000
at December 31, 1998. Mortgage servicing rights of
$131,000 had an estimated fair value of $113,000 at
December 31, 1997. Mortgage servicing rights are
amortized over the estimated weighted average life of
the loans. Amortization of mortgage servicing rights
was $48,300 and $36,600 in 1998 and 1997, respectively.
The Bank services residential mortgage loans sold under
non-recourse agreements totaling $58.5 million and
$64.7 million in 1998 and 1997, respectively. Projected
changes in mortgage servicing values are based on an
analysis of market implied prepayment rates and reflect
the expected change in value based on current market
conditions.

7. PREMISES AND EQUIPMENT

The detail of premises and equipment is as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Land $ 561 $ 561
Buildings and improvements 7,378 6,737
Furniture and equipment 3,841 3,509
11,780 10,807
Less: accumulated depreciation 3,829 3,149
$7,951 $7,658
</TABLE>

8. OTHER REAL ESTATE OWNED

The following table summarizes the composition of
other real estate owned, which is included in other
assets:
<TABLE>
<CAPTION>
December 31
1998 1997
<S> <C> <C>
Real estate properties and other
assets acquired in settlement of $114 $ 76
loans
Less allowance for losses 16 17
$98 $59
</TABLE>

Changes in the allowance for other real estate owned
for each of the three years ended December 31 were as
follows:
<TABLE>
<CAPTION>

1998 1997 1996
<S> <C> <C> <C>
Balance, beginning January $17 $23 $26
Provision charged to income 0 0 7
Losses charged to provision 1 6 10

Balance, ending December 31 $16 $17 $23
</TABLE>

9. DEPOSITS

The aggregate amount of short-term jumbo certificates
of deposit, each with a minimum denomination of
$100,000, was $13.6 million and $13.8 million in 1998
and 1997, respectively.

A certificate of deposit of $1 million is
collateralized by a Federal National Mortgage
Association debenture of equal amount. Overdrafts in
the amount of $294,000 have been classified as loans at
December 31, 1998.

At December 31, 1998, the scheduled maturities of time
deposits are as follows:
<TABLE>
<S> <C>
1999 $88,761
2000 10,294
2001 4,301
2002 561
2003 and thereafter 838
Individual Retirement Accounts
(IRAs), without scheduled maturities 8,432
$113,18
7
</TABLE>

10. REPURCHASE AGREEMENTS

Securities sold under agreements to repurchase
generally
mature within one to four days from the transaction
date.

Information concerning securities sold under agreements
to repurchase
for 1998 and 1997 is summarized as follows:

<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Average daily balance during $6,686 $5,244
the year
Average interest rate during 4.74% 4.61%
the year
Maximum month-end balance
during the year $10,192 $8,025
Securities underlying the
agreements at year end were
under the Bank's control and
were as follows:
Carrying value $23,036 $16,560
Estimated fair value $23,359 $16,724
</TABLE>

11. ADVANCES FROM THE FEDERAL HOME LOAN BANK (FHLB)
A summary of advances from the FHLB is as follows:
<TABLE>
<CAPTION>
Total
Principa Range of Interest Rates Maturi
l December 31, 1998 ty
<S> <C> <C>
$28,250 4.95% to 6.05% 1999
5,870 5.48% to 6.10% 2001
3,000 5.71% 2002
9,000 5.37% to 5.84% 2003
5,000 5.49% 2005
15,000 4.99% to 5.68% 2008
$66,120
December 31, 1997
$25,500 5.26% to 7.05% 1998
5,000 5.75% to 6.05% 1999
5,660 5.48% to 6.10% 2001
3,000 5.71% 2002
$39,160
</TABLE>

All FHLB advances are fixed rate instruments. The Bank
has one
amortizing advance, payable in monthly installments of
$76,000,
maturing in February, 2001. The remaining advances are
payable
at their call dates or final maturity.
The Bank has $26 million in callable advances with
maturity dates
ranging from 2003 to 2008.
In addition to the above outstanding advances, other
FHLB funds
available to the Bank at December 31, 1998, totaled
approximately
$70.6 million. Pursuant to collateral agreements with
the FHLB,
advances are collateralized by all stock in the FHLB.
Qualifying
first mortgage loans, U. S. Government debentures and
U. S.
Government mortgage-backed securities totaling $91.2
million are
available as collateral for FHLB advances.

12. INCOME TAXES

The current and deferred components of income tax
expense
are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Current
Federal $2,771 $3,062 $2,877
State 99 95 95
2,870 3,157 2,972
Deferred 248 (191) (73)
$3,118 $2,966 $2,899
</TABLE>
The actual tax expense differs from the expected tax
expense
computed by applying the applicable U.S. Federal
corporate
income tax rate to earnings before income taxes as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Computed tax expense $3,307 $3,192 $3,267
Increase (reduction) in
income taxes resulting
from:
Officer's life insurance (38) (36) (88)
Tax exempt interest (177) (240) (290)
State taxes, net of federal
benefit 65 63 62
Other (39) (13) (52)
$3,118 $2,966 $2,899
</TABLE>

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

<TABLE>
<CAPTION>
1998 1997
Asset Liabili Asset Liabili
ty ty
<S> <C> <C> <C> <C>
Allowance for possible
losses on loans and
other real estate owned $1,277 $1,356
Capital loss carry 39 79
forward
Deferred loan
origination fees $30
Deferred compensation 399 349
Core deposit intangible 60 73
asset
Non-accrual interest 29 80
Postretirement benefit
obligation 656 665
Unrealized appreciation
(depreciation) on
securities available 26 $12
for sale
Depreciation 280 242
Other 25 76 25 40
$2,485 $412 $2,796 $294
</TABLE>

As of December 31, 1998 and 1997, the net deferred
income tax asset
amounted to $2.1 million and $2.5 million,
respectively, and is included
in other assets on the balance sheet. No valuation
allowance for
deferred taxes was required at December 31, 1998 or
1997.

13. STOCKHOLDERS' EQUITY
On December 28, 1998, the Board of Directors declared a
two-for-one stock dividend effected as a stock split to
all stockholders of record as of that date, which was
payable on January 25, 1999. All share and per share
data included in this annual report have been restated
to reflect the stock dividend.
Bar Harbor Bankshares' subsidiary, Bar Harbor Banking
and Trust Company, has the ability to pay dividends to
the parent subject to the minimum regulatory capital
requirements. At December 31, 1998,the amount
available for dividends was approximately $29 million.
The Bank is subject to various regulatory capital
requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements
can initiate certain mandatory, and possibly additional
discretionary actions by regulators that, if
undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance
sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and
classification are also subject to qualitative
judgments by the regulators about components, risk
weightings and other factors. Quantitative measures
established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier I
capital to risk-weighted assets
and average assets. Management believes, as of
December 31, 1998, that the Bank exceeds all capital
adequacy requirements to which it is subject. As of
December 31, 1998, the most recent notification from
the federal regulators categorized the Bank as well
capitalized under the regulatory framework for prompt
corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-
based, Tier I risk-based, and Tier I leverage ratios as
set forth in the following table. There are no
conditions or events since that notification that
management believes have changed the Bank's category.
The Bank's actual capital amounts and ratios are also
presented in the following table.

To be well
For capital capitalized
adequacy under prompt
purposes corrective
action
provisions
Actual Actual Actual
As of December 31, 1998 Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(To Risk-Weighted $50,075 19.0% $21,055 8.0% $26,319 10.0%
Assets)
Tier I Capital
(To Risk-Weighted $46,785 17.8% $10,528 4.0% $15,791 6.0%
Assets)
Tier I Capital
(To Average Assets) $46,785 12.9% $14,546 4.0% $18,183 5.0%

As of December 31, 1997
Total Capital
(To Risk-Weighted $45,117 21.5% $16,764 8.0% $20,955 10.0%
Assets)
Tier I Capital
(To Risk-Weighted $42,498 20.3% $8,382 4.0% $12,573 6.0%
Assets)
Tier I Capital
(To Average Assets) $42,498 12.3% $13,782 4.0% $17,228 5.0%
</TABLE>

Consolidated capital ratios of the Company would
approximate those of the Bank. At December 31, 1998 and
1997, the Company and its subsidiary, Bar Harbor
Banking and Trust Company, were in compliance with all
applicable regulatory requirements and had capital
ratios in excess of federal regulatory risk-based and
leverage requirements.

14. EMPLOYEE BENEFIT PLANS

The Company has two non-qualified supplemental
retirement plans for certain officers. The agreements
provide supplemental retirement benefits payable in
installments over a period of years upon retirement or
death. The Company recognizes the costs associated with
the agreements over the service lives of the
participating officers. For 1998, 1997 and 1996, the
expense of these supplemental plans was $138,600,
$127,600 and $118,000 respectively.
401(k) PLAN
The Bank has a contributory 401(k) plan available to
full-time employees. Employees may contribute between
1% and 15% of their compensation, to which the Bank
will match 25% of the first 6% contributed. For the
years ended December 31, 1998, 1997 and 1996, the Bank
contributed $51,300, $49,500 and $52,000, respectively.
The Bank has a non-contributory plan. In 1998, 1997 and
1996, the Board of Directors voted to credit each
eligible participant's 401(k) account with 3% of
salary. The total contribution made was $127,400,
$122,800 and $128,000 for the years ended December 31,
1998, 1997 and 1996, respectively. In 1997 and 1996,
the Bank provided a restricted stock purchase plan
through which each employee could purchase shares of
Bar Harbor Bankshares stock at the current fair market
price as of a date determined by the Board of
Directors. These shares
could be purchased through direct purchase or through
the employees' 401(k) accounts.

In September of 1997, the Company was listed on the
American Stock Exchange, making Bar Harbor Bankshares
stock readily available for transactions. Therefore,
the restricted stock purchase plan was terminated
effective December 31, 1997. At December 31, 1997,
employees exercised their right and purchased common
stock totaling $73,000, with the actual purchase
transpiring in January of 1998.

15. POSTRETIREMENT BENEFITS

The Company sponsors a postretirement benefit plan,
which provides medical and life insurance coverage to
all eligible employees. The cost of providing these
benefits is accrued during the active service period of
the employee. Net periodic postretirement benefit cost
includes the following components:

<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Service costs of benefits $15 $15 $18
earned
Interest cost on accumulated
postretirement benefit 108 101 101
obligation
Amortization (45) (47) (51)
Net periodic postretirement
benefit cost $78 $69 $68
</TABLE>

It is the Company's policy to fund the cost of
postretirement health care and life insurance plans as
claims and premiums are paid.

<TABLE>
<CAPTION>
Change in benefit obligation: 1998 1997
<S> <C> <C>
Benefit obligation at beginning of $1,899 $1,887
year
Service costs of benefits earned 15 15
Interest cost on accumulated
postretirement benefit obligation 108 101
Amortization (45) (47)
Benefits paid (56) (57)
Benefit obligation at end of year $1,921 $1,899
Accrued benefit cost included in
other liabilities $1,921 $1,899
</TABLE>

The accumulated postretirement benefit obligation
(APBO) was determined
using 7% for net periodic benefit cost and 8% weighted
average discount for accumulated postretirement benefit
obligations and no assumed compensation increase. The
health care cost trend rates were assumed to be 12% in
1998, gradually declining to 6% after 12 years and
remaining at that level thereafter. An increase in the
health care trend of 1% would increase the APBO by
approximately $93,000 and the net periodic cost by
$7,000. A decrease in the health care trend of 1%
would decrease the APBO by approximately $94,000 and
the net periodic cost by $7,000.

16. OTHER OPERATING EXPENSE

Other operating expense includes the following item
greater than 1% of revenues:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Merchant credit card $867 $624 $535
expense
</TABLE>

17. FINANCIAL INSTRUMENTS

The Bank is party to financial instrument 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 originate loans and
standby letter of credit, and an interest rate floor.
In 1997, the Bank was also party to an interest rate
swap agreement. Involved in these instruments, to
varying degrees, are elements of credit and interest
rate risk in excess of the amount recognized in the
consolidated balance sheet. The contract or notional
amounts of those instruments reflect the extent of the
involvement the Bank has in particular classes of
financial instruments. Commitments to originate loans
are agreements to lend to a customer provided there is
no violation of any condition established in the
contract. Commitments generally have fixed expiration
dates or other termination clauses and may require
payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future
cash requirements. The Bank evaluates each customer's
creditworthiness on a case by case basis. The amount
of collateral obtained, if deemed necessary by the Bank
upon extension of credit, is based on management's
credit evaluation of the borrower.
The Bank's exposure to credit loss in the event of non-
performance by the other party to the financial
instrument for commitments to extend credit and standby
letters of credit is represented by the contractual
notional amount of those instruments. The Bank uses
the same credit policies in making commitments and
conditional obligations as it does for its balance
sheet instruments. For interest rate floor and swap
transactions, the contract or notional amounts do not
represent exposure to credit loss. The Bank controlled
the credit risk of its interest rate swap agreement
through credit approvals, limits, and monitoring
procedures. The structure the Bank had entered into
was a fixed versus floating interest rate swap. The
Bank received interest payments at a fixed rate and
made payments at a variable rate. The notional or
contract amount for financial instruments with off-
balance sheet risk are:

1998 1997
<S> <C> <C>
Commitments to originate loans $ 6,394 $2,729
Unused lines and standby letters of 49,712 39,269
credit
Unadvanced portions of construction 5,849 5,887
loans
Interest rate swap 0 5,000
Interest rate floor $10,000 $10,000
</TABLE>

The estimated fair values of the Bank's financial
instruments were as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
Carryin Fair Carryin Fair
g Value g Value
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $11,511 $11,511 $7,537 $7,537
Securities available for 17,844 17,844 14,608 14,608
sale
Securities held to 113,162 114,177 85,351 86,248
maturity
Other securities 6,133 6,133 6,012 6,012
Loans held for sale 1,018 1,018 365 365
Loans receivable 224,980 231,537 212,396 223,094
Interest receivable 2,758 2,758 2,478 2,478
Financial liabilities:
Deposits 266,448 266,901 251,903 252,018
Securities sold under
repurchase
Agreements 8,092 8,092 4,474 4,474
Borrowings 66,120 65,534 39,160 39,018
</TABLE>

<TABLE>
<CAPTION>
Notiona Contract Maturity Fair
l date Date Value
Princip
al
<S> <C> <C> <C> <C>
December 31, 1998
Interest rate $10,000 June 3, June 3, $3
floor 1994 1999
December 31, 1997
Interest rate swap $ 5,000 May 4, May 4, ($13)
1993 1998
Interest rate $10,000 June 3, June 3, $3
floor 1994 1999
</TABLE>

18. QUARTERLY SUMMARIZED FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1998
Quarter 1 2 3 4 Year
<S> <C> <C> <C> <C> <C>
Interest and dividend $6,928 $7,194 $7,429 $7,660 $29,21
income 1
Interest expense 2,832 2,983 3,045 3,113 11,973
Net interest income 4,096 4,211 4,384 4,547 17,238
Provision for loan losses 84 84 84 84 336
Other non-interest income 1,182 1,270 1,685 1,551 5,688
Other non-interest 2,798 3,113 3,536 3,418 12,865
expense
Income before income 2,396 2,284 2,449 2,596 9,725
taxes
Income taxes 772 729 826 791 3,118
Net earnings $1,624 $1,555 $1,623 $1,805 $6,607
Earnings per share, in $0.47 $0.45 $0.47 $0.53 $1.92
dollars
</TABLE>

<TABLE>
<CAPTION>
1997
Quarter 1 2 3 4 Year
<S> <C> <C> <C> <C> <C>
Interest and dividend $6,907 $7,062 $7,372 $7,177 $28,51
income 8
Interest expense 2,865 2,987 2,952 2,906 $11,71
0
Net interest income 4,042 4,075 4,420 4,271 16,808
Provision for loan losses 180 180 180 80 $620
Other non-interest income 971 1,112 1,562 1,356 $5,001
Other non-interest 2,514 2,929 3,322 3,036 $11,80
expense 1
Income before income 2,319 2,078 2,480 2,511 9,388
taxes
Income taxes 744 663 789 770 $2,966
Net earnings $1,575 $1,415 $1,691 $1,741 $6,422
Earnings per share, in $0.46 $0.41 $0.49 $0.51 $1.87
dollars
</TABLE>

19. PARENT ONLY CONDENSED FINANCIAL STATEMENTS

The condensed financial statements of Bar Harbor
Bankshares as of December 31, 1998 and 1997, and for
each of the three years in the period ended December
31, 1998, are presented below:
BALANCE SHEETS

<TABLE>
<CAPTION>
December 31
1998 1997
<S> <C> <C>
Cash $355 $281
Investment in 46,506 42,181
subsidiaries
Total assets $46,861 $42,462

Stockholders' equity $46,861 $42,462
</TABLE>

STATEMENTS OF EARNINGS
Years Ended December 31

<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Dividend income from $2,308 $1,549 $2,029
subsidiary
Equity in undistributed
earnings of subsidy 4,299 4,873 4,680
Net earnings $6,607 $6,422 $6,709
</TABLE>

STATEMENTS OF CASH FLOWS
Years Ended December 31
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $6,607 $6,422 $6,709
Adjustment to reconcile net earnings to
net cash provided by operating
activities:
Equity in undistributed earnings of (4,299) (4,873) (4,680
subsidiary )
Net cash provided by operating 2,308 1,549 2,029
activities:

Cash flows from financing activities:
Proceeds from sale of stock 73 90 130
Dividends paid (2,307) (2,065) (2,028
)
Net cash used in financing activities (2,234) (1,975) (1,898
)
Net increase (decrease) in cash 74 (426) 131
Cash beginning of year 281 707 576
Cash, end of year $355 $281 $707

</TABLE>
Milestones: 1887 to 1998

(photo of original Bar Harbor Banking & Trust Co.
building, circa 1896)

A bank is born. Late in the year 1885, George H. Grant
and his partner Fred C. Lynam took the first step to
convert their Bar Harbor check cashing exchange into a
financial institution. They applied for a bank
charter, Mt. Desert Island's first, "Seeking to meet
the demands of the people." Bar Harbor Banking and
Trust Company's purpose has remained thus ever since.

Salaries are established. For the first seven years
after its founding, no one was paid at the Bank. Start-
up costs left no margin for salaries until 1894, nor
were there any employees besides officers. In 1894,
however, satisfactory compensation was finally
affordable. An annual fee for the president was set at
$200. The secretary and treasurer each received $500.

(Photo of original Northeast Harbor branch office circa
1914)

First branch office. In the early 1900s state
regulations made formal establishment of branches a
cumbersome process requiring a new charter. However,
community interest in a facility in Northeast Harbor
was strong and in 1914, the Bank's first branch was
established there.

(Photo of Bar Harbor office on fire, Feb. 23, 1929 with
firemen and bank employees exiting by windows and fire
escape)

A fortuitous fire. By 1928, the Bank was bulging at
the seams in its original office building in the Mount
Desert Block. Growth in staff and operations prompted
the Directors to deliberate the possibility of
acquiring additional space. On February 23, 1929, a
decision was made for them when a fire threatened to
consume the building. By June of that year, Mount
Desert Block had been rebuilt, and the Bank moved into
the building next to its original location.

Women in
management. In 1929, the Bank rewarded two decades of
devoted service by Louise Leland and Dora Brewer with
promotions. Leland was promoted to assistant
treasurer, and Brewer to trust officer. Since women
played a secondary role in Bar Harbor business, these
promotions provoked considerable local controversy, the
most tolerant of critics considering them to be "bold
steps for the times." History proved them to be wise
steps, however. For five decades, these two
extraordinary personalities set a standard for service
and professionalism for the Bank that remains today.

Toughing it out. Wall Street's "Black Friday" in
October of 1929 marked the beginning of the Great
Depression. While no one survived the next five grim
years unscathed, a tradition of self-sufficiency saved
the Bank and its community from the worst effects.
Nevertheless, the times called for drastic measures.
Bank salaries were cut by a flat 10%. Loans were made
with the greatest of care. Checks drawn on other banks
were credited only when the funds had been collected.
Mortgages were closely scrutinized. Interest was
discontinued on demand deposits. The semi-annual
dividend was lowered to 5%. Interest on savings
accounts was pared to 2.5%, and a service charge was
applied to checks. The Bank ultimately pulled itself
up by its own bootstraps and then helped the community
get back on its feet by not forcing mortgage
collections, and working out reasonable finance charges
and repayment schedules with its creditors.

(Photo of exterior of The Lubec Trust and Banking
Company circa 1936)

First acquisition. The Lubec Trust and Banking
Company, chartered in 1907, had fared poorly in the
Great Depression largely through undercapitalization.
As the Depression came to an end, the sardine industry
in Lubec needed greater resources than the local bank
could provide. Bar Harbor Banking and Trust Company
stepped in, and on July 1, 1936, the Lubec bank became
the Lubec Branch of the Bar Harbor Banking and Trust
Company.

50th Anniversary.
In the years following the Great Depression, Mt. Desert
Island experienced a strong economic recovery from
which the Bank also benefited. In 1937, the Bank's
50th anniversary year, resources totaled $6.223
million, up from $4.934 million only the year before.
Rapid financial strides and pride in the achievements
of half a century were cause for celebration. An
anniversary committee comprised of two of the Bank's
founders, Judge Deasy and Fred Lynam, and two members
of the Trust Department, Louise Leland and David
Rodick, planned the festivities.

(Photo of bank employee working with adding machine in
Bar Harbor branch circa 1940)

Modernization. After the Great Depression, the Bank
began a policy of continually upgrading equipment and
facilities to increase productivity and remain on the
cutting edge of banking in Maine. To this end, in
November of 1940, the Bank purchased a Burroughs Adding
Machine and a Dictaphone.

(Illustrated portraits of former Bank presidents Judge
Luere B. Deasy and Fred C. Lynam)

Orphaned. The deaths of founding fathers, Judge Luere
B. Deasy in 1940, and Fred C. Lynam in 1942, severed
the last links to the Bank's origins. Judge Deasy was
president from 1893 to 1929 and played an important
role in the business and civic life of Bar Harbor
including the creation of Acadia National Park. Fred
Lynam was president of the Bank from 1932 to 1942, and
remained firmly in the saddle until his demise. His
remarkable career spanned 60 years, and his influence
is still felt in the community today. Area high school
graduates benefit annually from scholarships created by
The Fred C. Lynam Trust.

(Photo of fish canning assembly line at the R. J.
Peacock Company, Lubec, circa 1941)

The war years.
Despite a period of financial turmoil and personal
sacrifice and uncertainty, the Bank's business
continued to grow. Resources nearly doubled between
1939 and 1945 to $12.556 million. Staff was increased
by three to a total of 21, and group life and group
health insurance benefits were instituted. Still,
renewed business activity at the end of the war in 1945
was much welcomed by the Bank.

A disastrous fire. For six days during October, 1947,
fires raged out of control on Mt. Desert Island
devastating 29 square miles and affecting 17,000 acres.
Three people died, hundreds were evacuated, and over
500 Bar Harbor residents were left homeless. 170 year
round residences, 67 summer homes, country clubs, three
large summer hotels, many of the smaller guest
lodgings, and a variety of workplaces were destroyed.
The Jackson Laboratory lost valuable research studies
and thousands of strains of mice. Damage estimates
ranged up to $11 million. Throughout this difficult
chapter in the island's history, Bank president,
Sheldon F. Goldthwait, Sr., assumed a leadership role,
acting as community spokesman and spearheading the
process of rebuilding and economic revitalization.

(Photo of exterior of Bar Harbor branch circa 1945)

Financial
milestones. Between the Bank's 50th and 75th
anniversary (1937-1962), total resources tripled and
trust accounts more than quadrupled. The Bank grew
from a modest, provincial institution to a powerful
leader in Maine banking.

(Photo of Dora Brewer)

Record tenure. In 1965, Dora Brewer died. She began
her career at the Bank in 1909 as an assistant
bookkeeper and later became a trust officer and
assistant treasurer. Her 56 years with the Bank is a
record that is unlikely ever to be broken.

(Photo of Agnes Salisbury)

Another
institution. In 1953, Agnes Salisbury was hired as a
secretary for Albert Cunningham who was later to become
president of the Bank. Shortly after being hired,
Agnes was "temporarily" delegated to the lobby to greet
customers and provide information. She remained there
until her retirement in 1989 having endeared herself to
generations of permanent residents and summer visitors
alike. Today, the Agnes Salisbury Award is given
annually to one or more Bank employees for outstanding
customer service.

(Photo of Bob Avery)

High tech,
high touch. Robert H. Avery became president in 1971,
and for 15 years guided the Bank through the most
dramatic growth period in its history. Early on, he
recognized the tremendous potential of the computer for
both operational efficiency and customer service. In
1984, he successfully married past and future by
integrating the Bank's traditional high touch brand of
personal service with high tech systems.

Ignominious beginning. On July 11, 1986, two weeks
after John Reeves had taken over from Bob Avery as
president, the Bank's only armed robbery occurred. A
middle-aged male entered the Bank's Blue Hill office
wearing dark glasses, lipstick, a faded bedspread worn
as a poncho, a floppy hat, and white beads.
Brandishing a homemade handgun, this local eccentric
made off with $71,000. As embarrassing as the episode
was, it ended well enough. Within a week, telltale
clues led the FBI to the "perp" ensconced in a palatial
suite at the Hyatt-Regency Hotel in Cambridge,
Massachusetts. He was apprehended and most of the
money was recovered.

Steadfastly independent. In the late 1980s merger
mania hit Maine banks. Small highly capitalized
community banks became prime acquisition targets for
larger in- state and out of state banks. Many of the
smaller banks succumbed to the temptation of short term
financial gain. The management and directors of Bar
Harbor Banking and Trust steadfastly resisted, choosing
instead to preserve ithe Bank's most valuable asset _ a
century of long-term relationships with its customers
and communities. Today, the Bank remains one of 14
independent community banks in the state.

(Photo of exterior of new Operations Center in
Ellsworth, 1996)

High tech, high touch revisited. In 1996, current Bank
president Sheldon, F. Goldthwait, Jr. stated: "The key
to competing successfully for the foreseeable future is
service. And the key to service is technology,
properly administered and with the human touch
retained." Toward that end, the Bank designed and
built a new centrally located operations center in
Ellsworth. This new facility gives employees the state-
of-the-art tools necessary to provide and deliver
outstanding financial service to our customers.

(Photo of Sheldon Goldthwait and president of American
Stock Exchange ringing the opening bell the day Bar
Harbor Bankshares was listed on the exchange.)

Bank goes public. On September 23, 1997, the Bank's
stock was listed on the American Stock Exchange,
trading under the symbol BHB. This was an important
move for stockholders as it ensures a more orderly
market and greater liquidity.
_
DIRECTORS, OFFICERS, EMPLOYEES

(Photo of Directors with the following caption)

(Standing from left to right) James C. MacLeod,
Bernard K. Cough, John P. McCurdy, Dwight L. Eaton,
Thomas A. Colwell, H. Lee Judd, Ruth S. Foster, Cooper
F. Friend, Robert M. Phillips, Frederick F. Brown
(Seated from left to right) Peter Dodge, Jarvis W.
Newman, Sheldon F. Goldthwait, Jr., Robert L.
Gilfillan, John P. Reeves, Lynda Z. Tyson, Robert C.
Carter.

BAR HARBOR BANKSHARES
AND BAR HARBOR BANKING AND TRUST COMPANY
BOARD OF DIRECTORS

Robert L. Gilfillan
Chairman of the Board
Bar Harbor

Frederick F. Brown
Northeast Harbor

Robert C. Carter
Machias

Thomas A. Colwell
Deer Isle

Bernard K. Cough
Bar Harbor

Peter Dodge
Blue Hill

Dwight L. Eaton
Bar Harbor

Ruth S. Foster
Ellsworth

Cooper F. Friend
Ellsworth

Sheldon F. Goldthwait, Jr.
Bar Harbor

H. Lee Judd
Southwest Harbor

James C. MacLeod
Bar Harbor

John P. McCurdy
Lubec

Jarvis W. Newman
Southwest Harbor

Robert M. Phillips
Sullivan

John P. Reeves
Bar Harbor

Lynda Z. Tyson
Salisbury Cove

BAR HARBOR BANKSHARES

Chairman of the Board
Robert L. Gilfillan

President
Sheldon F. Goldthwait, Jr.

Executive Vice President
Lewis H. Payne

Vice President
Dwight L. Eaton

Treasurer
Virginia M. Vendrell

Clerk
Marsha C. Sawyer

BAR HARBOR BANKING AND TRUST COMPANY
MANAGEMENT

President and Chief Executive Officer
Sheldon F. Goldthwait, Jr.*

Executive Vice President
Lewis H. Payne*

Senior Vice Presidents
Dwight L. Eaton*
Trust

Marlene S. Haskell*
Marketing and
Branch Administration

Virginia M. Vendrell*
Chief Financial Officer and
Treasurer

Vice Presidents
Paul G. Ahern
Trust Investments

Edwin A. Bonenfant
Trust Investments

Richard A. Burgess
Commercial Loans

Gregory W. Dalton
Commercial Loans

Richard S. Douglas
Trust

Anne C. Gibson
Trust

Margaret K. Hill
Risk and Facilities Management

E. Ray Huntley
Commercial Loans

Andrea G. Leonard
Consumer Loans

H. Stanley MacDonald
Commercial Loans

Sarah C. Robinson
Trust

Marsha C. Sawyer*
Human Resources

Gerald Shencavitz*
Operations

Geddes W. Simpson, Jr.
Trust

Michael E. Smith
Commercial Loans

Stephen H. Sprague
Consumer Loans

Assistant Vice Presidents

Michelle R. Bannister
Ellsworth Branch

Patricia J. Curtis
Blue Hill Branch

Thomas E. Estes, Sr.
Consumer Loans

John F. Gibbons, Jr.
Southwest Harbor Branch

Linda B. Stratton
Deer Isle Branch

Trust Officer
Faye A. Geel

Trust Operations Officer
Charlene H. Tibbetts

Banking Officers
Jane A. Chute
Machias Branch

Jenene J. Schneider
Milbridge Branch

Assistant Treasurer
Tuesdi J. Woodworth

Credit Administration Officer
Lottie B. Stevens

Assistant Trust Officer
Melanie J. Bowden

* Executive Officers

(Photo of Senior Management with the following caption)

(Standing from left to right) Sheldon F. Goldthwait,
Jr., Gerald Shencavitz, Marsha C. Sawyer, Lewis H.
Payne (Seated from left to right) Marlene S. Haskell,
Dwight L. Eaton, Virginia M. Vendrell.

BRANCH MANAGEMENT

Blue Hill
Patricia J. Curtis
Assistant Vice President

Sharon A. Grindle
Assistant Manager

Deer Isle
Linda B. Stratton
Assistant Vice President

Ellsworth
E. Ray Huntley
Regional Vice President

Michelle R. Bannister
Assistant Vice President

Lubec
Jane A. Chute
Manager (Interim)

Machias
Richard A. Burgess
Vice President

Jane A. Chute
Banking Officer

Lori A. Peakall-Cote
Assistant Manager

Milbridge
Jenene J. Schneider
Banking Officer

Paula S. Colwell
Assistant Manager

Northeast Harbor
Charlene M. Bucklin
Manager

Southwest Harbor
John F. Gibbons, Jr.
Assistant Vice President

Dianne L. Watson
Assistant Manager

Winter Harbor
Judith L. Newenham
Manager

_
EMPLOYEES

Gale L. Abbott
Shannon L. Ackley
Paul G. Ahern
Deena M. Allen
Julie A. Archer
Beverly A. Arsenault
June G. Atherton
Rebecca J. Atwater
Cheryl L. Bagley
Debra L. Baker
Stephanie A. Baker
Michelle R. Bannister
Karen R. Bean
Marcia T. Bender
Lorraine M. Benn
Terry D. Bickford
Edwin A. Bonenfant
Melanie J. Bowden
Laura A. Bridges
Steven R. Broschat
Charlene M. Bucklin
Richard A. Burgess
Jennifer L. Butler
Lisa L. Carlson
Elena M. Chapman
Patricia M. Chapman
Stephanie L. Chesley
Jane A. Chute
Robyne J. Clark
Brenda B. Colwell
Paula S. Colwell
Arthur G. Corliss, Jr.
Gale S. Coughlin
Barbara A. Crosthwaite
Sylvia B. Cunningham
Patricia J. Curtis
Gregory W. Dalton
Laura H. Danielson
Rachael M. Davis
Donna L. Day
Ann DeLill
Richard S. Douglas
Marilyn H. Dow
Dawn L. Dyer
Dwight L. Eaton
Julie M. Eaton
Pamela J. Eaton
Thomas E. Estes, Sr.
Pamela J. Farnsworth
Ernest F. Fernald
Andrea P. Foster
Judith W. Fuller
Faye A. Geel
Mischelle E. Gehan
Tracy M. Gellerson
John F. Gibbons, Jr.
Anne C. Gibson
Sheldon F. Goldthwait, Jr.
John B. Gooch
Keith N. Goodrich
McKenzie S. Grant
Marjorie E. Gray
Sharon A. Grindle
Annette J. Guertin
Carla A. Hall
Kelton I. Hallett
Marie E. Hardie
Christine L. Harding
Marlene S. Haskell
Nancy B. Hastings
Barbara F. Hepburn
Gail C. Higgins
Margaret K. Hill
Brenda M. Hitchcock
Margrethe Y. Hooper
Lara K. Horner
E. Ray Huntley
Jane L. Iverson
Valorie D. Jandreau
Robert F. Jordan
Maureen E. Kane
Kerry M. Kempton
Paula M. Lamoureux
Kenneth N. Larrabee
Robert J. Lavoie
Wendy S. Leach
Andrea G. Leonard
Dean G. Leppi
Marlene A. Lloyd
Kerry L. Lord
Lynn L. Lyons
Nadine S. Lyons
H. Stanley MacDonald
Diane MacFeat
Jennifer D. Madore
M. Joseph Marshall
Gloria J. Merrill
Judith F. Messer
Paula M. Michaud
Mary Jane Miltner
Sherry A. Mitchell
Debra S. Mitchell-Dow
Tanya E. Moon
Kelvin L. Mote
Willie M. McCauley
Dawn B. Nason
Cathy P. Nevel
Judith L. Newenham
Mary E. Newman
Alexandra Orcutt
Jane M. Parker
Lisa L. Parsons
Lewis H. Payne
Lori A. Peakall-Cote
Carol J. Pelletier
Bettina L. Perkins
Leah R. Perry
Bonita E. Poitras
Bonnie A. Poland
David B. Preble
Michele A. Prior
Julie A. Redman
Taffy F. Richardson
Wanda S. Ring
Nancy W. Robbins
Sarah C. Robinson
Amanda L. Salsbury
Debra A. Sanner
Marsha C. Sawyer
Rhonda L. Sawyer
Frank J. Schaefer
Jessica W. Schaefer
Jenene J. Schneider
Catherine P. Scovill
Clark F. Scoville
Gerald Shencavitz
Bridgette M. Shorey
Geddes W. Simpson, Jr.
Selina M. Sites
Marcia L. Slater
Michael E. Smith
Michelle M. Smith
Andrea L. Snow
Stephen H. Sprague
Ellen F. Stanley
Letitia S. Stanley
Lottie B. Stevens
Linda B. Stratton
Karen M. Tainter
Amanda L. Temple
Charlene H. Tibbetts
Terry E. Tracy
Sonja L. Vance
Allyson M. Wallace
Nancy J. Warner
Dianne L. Watson
Cheri R. Wentworth
Doris E. Williams
Tammy L. Williams
Tuesdi J. Woodworth
Carolyn A. Wright
Edward P. Wynn, Sr.
Jennifer L. Young
J. Christopher Young
Katy A. Young
Lisa M. Young
Mary A. Youngblood
Renee C. Zanke
Julie B. Zimmerman
Loretta M. Ziobro

_
(Inside back cover)

ANNUAL MEETING
Bar Harbor Bankshares

Tuesday, October 5, 1999, 11:00 A.M.

The Bank will provide, without charge, upon written
request, a copy of Bar Harbor Bankshares' Annual Report
to the Securities and Exchange Commission, Form
10-K. The Bank will also provide, upon request, Annual
Disclosure Statements for the Bar Harbor Banking and
Trust Company as of December 31, 1998.

Please contact:
Marsha C. Sawyer, Clerk
Bar Harbor Bankshares
PO Box 400
Bar Harbor, Maine 04609-0400

_
(Back Cover)

(photograph of BHB&T, 82 Main Street, circa 1900.
Caption: The Bar Harbor Banking and Trust Company at
82 Main Street in 1900.)

Bar Harbor Bankshares
P.O. Box 400
Bar Harbor, Maine
04609-0400

www.bhbt.com
_

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