Bar Harbor Bankshares

BHB

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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>

NUMBER ITEM PAGE

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-

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-

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.

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. All share and per

share data information included in the Form 10-K have

been restated to reflect the 100% stock dividend.

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>

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

High High High High

Low Low Low Low

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>

1st 2nd 3rd 4th

Quarter Quarter Quarter Quarter

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>

AVERAGE YIELD/

BALANCE INTEREST RATE

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>

AVERAGE YIELD/

BALANCE INTEREST RATE

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>

AVERAGE YIELD/

BALANCE INTEREST RATE

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>

VOLUME RATE NET

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>

VOLUME RATE NET

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>

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>

Greater Greater

than One than Five Greater

One Year or year to Years to than Ten

Less Five Years Ten Years Years

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>

Greater

One Year One Year than Five Greater

or Less to Years to than Ten

Five Ten Years Years

Years

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>

Greater Greater

One Year or than One than Five Greater

Less Year to Years to than Ten

Five Years Ten Years Years

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>

1998 1997 1996 1995 1994

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>

1998 % 1997 % 1996 % 1995 % 1994 %

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>

After One

One Year Year After

or Less through Five

Five Years

Years

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>

1998 1997 1996 1995 1994

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>

<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>

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

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

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>

ALLOWANCE FOR LOAN 1998 1997 1996 1995 1994

LOSSES

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>

1998 1997 1996

Average Average Average Average Average Average

Balance Rate Balance Rate Balance Rate

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>

Over Six

Over Three Months

Three Months or Months Through Through Over Twelve

Less Six Months Twelve Months

Months

$ 5,083 $ 4,040 $ 2,769 $1,741

</TABLE>

RETURN ON EQUITY AND ASSETS

<TABLE>

1998 1997 1996

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>

March June September December

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>

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

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>

-200 basis +200 basis

points points

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>

Notional Contract Maturity Fair

Principal Date Date Value

December 31,

1998

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>

ANNUAL COMPENSATION

Other Annual

Year Salary Incenti Compensation

($) ve ($) ($)

Sheldon F. Goldthwait, 1996 135,99 27,428 0

Jr. 0

President and 1997 155,00 19,737 0

Chief Executive Officer 1998 158,00 22,202 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

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>

LONG TERM COMPENSATION

AWARDS PAYOUT

Restric LTIP

ted Optional Payout

Year Stock SARs (#) s

Awards ($)

($)

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>

ALL OTHER COMPENSATION

($)

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

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 cost 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 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>

1993 1994 1995 1996 1997 1998

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>

Amount

of Percent

Director, Executive Officer Benefic of

or Nominee ial Class

Ownersh

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>

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

</TABLE>

<TABLE>

NO. EXHIBIT POSITION

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

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

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