Quarterly Report pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 ~~For~~for the quarter ended ~~September 30, 2001~~March 31, 2002. Commission File No. 841105-D

Maine                                                                                                         01-0393663 ~~(State~~
(State or other jurisdiction of                                                                      (I.R.S. Employer
incorporation or organization)                                                                       Identification No.)
PO Box 400
82 Main Street, Bar Harbor, ME                                                                 04609-0400 ~~(Address~~
(Address of principal executive offices)                                                         (Zip Code) ~~Registrant's~~

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

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.

Indicate the number of shares outstanding of each of the ~~issuer's~~issuer’s classes of common stock as of ~~September 30, 2001:~~March 31, 2002:

We have reviewed the accompanying interim consolidated financial information of Bar Harbor Bankshares and Subsidiaries as of ~~September 30, 2001,~~March 31, 2002, and for the ~~three- and nine-month~~three-month periods ended ~~September 30, 2001~~March 31, 2002 and ~~2000.~~2001. These financial statements are the responsibility of the ~~Company's~~Company’s management.

We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit in accordance with U.S. generally accepted auditing standards, the objective of which is to express an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

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

PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS ~~BAR HARBOR BANKSHARES AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2001 AND DECEMBER 31, 2000 (in thousands, except number of shares and per share data)~~

BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2002 AND DECEMBER 31, 2001
(Dollar in thousands)

	March 31, 2002 (unaudited)	December 31, 2001
Assets
Cash and due from banks	$ 12,753	$ 17,355
Securities:
Available for sale, at market	116,761	106,743
Held to maturity (market value $27,863 and $24,943 at March 31, 2002 and December 31, 2001, respectively)	29,414	26,866
Other securities	457	8,464
Total securities	146,632	142,073
Loans	310,959	297,970
Allowance for possible loan losses	(4,376)	(4,169)
Loans, net of allowance	306,583	293,801
Premises and equipment	12,727	12,954
Other assets	19,989	21,020
TOTAL ASSETS	$498,684	$487,203

Liabilities
Deposits
Demand deposits	$ 37,399	$ 46,112
NOW accounts	46,312	45,685
Savings deposits	88,573	91,140
Time deposits	115,646	108,896
Total deposits	287,930	291,833
Securities sold under repurchase agreements	12,379	15,159
Borrowings from Federal Home Loan Bank	140,478	120,900
Other liabilities	5,358	6,773
TOTAL LIABILITIES	446,145	434,665

Commitments and contingent liabilities (Notes 4 and 5)
Shareholders’ Equity: Capital stock, par value $2.00; authorized 10,000,000 shares; issued 3,643,614 shares	7,287	7,287
Surplus	4,002	4,002
Retained earnings	44,467	43,875
Accumulated other comprehensive income Unrealized appreciation on securities available for sale, net of taxes of $683 and $880 at March 31, 2002, and December 31, 2001, respectively	1,325	1,707
Less: cost of 397,844 shares and 386,124 shares of treasury stock at March 31, 2002, and December 31, 2001, respectively	(4,542)	(4,333)

TOTAL SHAREHOLDERS’ EQUITY	52,539	52,538

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$498,684	$487,203

See ~~independent accountants' report.~~Independent Accountant’s Review Report. The accompanying notes are an integral part of these consolidated financial statements. 4 BAR HARBOR BANKSHARES AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (in thousands, except number of shares and per share data) (UNAUDITED)

BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(Dollars in thousands, except per share data)
(unaudited)

	2002	2001

Interest and dividend income:
Interest and fees on loans	$5,689	$6,007
Interest and dividends on securities and federal funds	2,275	2,755
Total interest and dividend income	7,964	8,762

Interest expense	3,148	4,477

Net interest income	4,816	4,285
Provision for possible loan losses	300	200
Net interest income after provision for possible loan losses	4,516	4,085

Noninterest income:
Trust and other financial services	651	965
Service charges on deposit accounts	349	558
Other service charges, commissions, and fees	58	53
Credit card service charges and fees	158	109
Other operating income	85	101
Net securities gains	39	--
Total noninterest income	1,340	1,786

Noninterest expenses:
Salaries and employee benefits	2,243	2,019
Occupancy expense	283	268
Furniture and equipment expense	372	360
Credit card expenses	120	97
Other operating expense	1,179	1,479
Total noninterest expenses	4,197	4,223

Income before income taxes	1,659	1,648
Income taxes	449	558

NET INCOME	$1,210	$1,090

See ~~independent accountants' report.~~Independent Accountant’s Review Report. The accompanying notes are an integral part of these consolidated financial statements. 5 BAR HARBOR BANKSHARES AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (in thousands, except number of shares and per share data) (UNAUDITED)

BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(Dollars in thousands, except per share data)
(unaudited)

See ~~independent accountants' report.~~Independent Accountant’s Review Report. The accompanying notes are an integral part of these consolidated financial statements. 6 ~~BAR HARBOR BANKSHARES AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (Unaudited)~~

BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(Dollars in thousands)
(unaudited)

	2002	2001
Cash flows from operating activities:
Net income	$ 1,210	$ 1,090
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	364	280
Provision for loan losses	300	200
Net amortization (accretion) of bond premium (discount)	(94)	4
Net change in other assets	1,228	589
Net change in other liabilities	(1,415)	(340)

Net cash provided by operating activities	1,593	1,823

Cash flows from investing activities:
Net change in Federal Funds sold	--	(18,000)
Purchases of securities held to maturity	(2,416)	--
Purchases of securities available for sale	(23,408)	--
Proceeds from maturity and principal paydowns of securities available for sale	7,788	2,784
Proceeds from call of securities available for sale	4,985	14,109
Net decrease(increase) in other securities	8,007	(37)
Net loans made to customers	(13,082)	(1,589)
Capital expenditures	(137)	(1,118)

Net cash used in investing activities	(18,263)	(3,851)

Cash flows from financing activities:
Net decrease in deposits	(3,903)	(8,013)
Net change in securities sold under repurchase agreements	(2,780)	1,608
Proceeds from Federal Home Loan Bank advances	23,800	20,000
Repayment of Federal Home Loan Bank advances	(7,122)	(26,804)
Net change in short term borrowed funds	2,900	16,152
Purchase of treasury stock	(209)	(449)
Payments of dividends	(618)	(631)

Net cash provided by financing activities	12,068	1,863

Net decrease in cash and cash equivalents	(4,602)	(165)
Cash and cash equivalents at beginning of period	17,355	10,580

Cash and cash equivalents at end of period	$12,753	$ 10,415

Non-cash transactions
Transfer from loans to other real estate owned	$ --	$ 25
Transfer of securities from held to maturity to available for sale	--	113,856

See ~~independent accountants' report.~~Independent Accountant’s Review Report. The accompanying notes are an integral part of these consolidated financial statements.

BAR HARBOR BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~(UNAUDITED)~~
(unaudited)

The accompanying ~~unaudited~~ consolidated financial statements have been prepared in accordance with generally accepted accounting principles and with the instructions to Form 10-Q, and therefore, they do not include all of the information and footnotes required by generally accepted accounting principles for complete presentation of financial statements.are unaudited. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. ~~All significant intercompany transactions and balances are eliminated in consolidation.~~ The income reported for the ~~2001 period~~three months ended March 31, 2002 is not necessarily indicative of the results that may be expected for the year ending December 31, ~~2001.~~2002.

Certain financial information which is normally included in financial statements in accordance with U. S. generally accepted accounting principles, but which is not required for interim reporting purposes, has been omitted. For further information, refer to the consolidated financial statements and footnotes thereto included in the ~~Company's~~Company’s annual report on Form 10-K for the year ended December 31, ~~2000.~~ 2001.

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

Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowance for loan losses and the carrying value of real estate owned, management obtains independent appraisals for significant properties. The allowance for possible loan losses is maintained at a level adequate to absorb possible losses. Management determines the adequacy of the allowance based upon reviews of individual credits, recent loss experience, current economic conditions, the risk characteristics of the various categories of loans and other pertinent factors. Credits deemed uncollectible are charged to the allowance. Provisions for credit losses and recoveries on loans previously charged off are added to the allowance.

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

Certain ~~2000~~2001 and prior year balances have been reclassified to conform with the ~~2001~~2002 financial presentation.

Statement of ~~Financial Accounting Standards (SFAS) No. 133,~~Position (SOP) 01-6, "Accounting ~~for Derivative Instruments and Hedging~~by Certain Entities (Including Entities with Trade Receivables) That Lend to or Finance the Activities of Others," ~~as amended by SFAS No. 137 and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities",~~was issued in December 2001. The SOP is effective for financial statements issued for the fiscal years beginning after ~~June~~December 15, ~~2000. These statements set~~2001. The SOP reconciles and conforms the accounting and financial reporting ~~standards for derivative instruments~~provisions established by various Audit and hedging activities. They require an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. These statements have had no impact on the Company, as it has not engaged in any derivative transactions. SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities", is effective for transfers occurring after June 30, 2001. SFAS No. 140 replaces SFAS No. 125.Accounting Industry Guides. This statement ~~is expected to have no material impact to~~does not affect the ~~Company's~~Company’s consolidated financial condition and results of operations. See independent accountants' report. The accompanying notes are an integral part of these consolidated financial statements. 8 During 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations," and SFAS 142, "Goodwill and Other Intangible Assets." SFAS No. 141 improves the transparency of the accounting and reporting for business combinations by requiring that all business combinations be accounted for under a single method - the purchase method. Use of the pooling-of-interests method is no longer permitted. SFAS No. 141 requires that the purchase method be used for business combinations initiated after June 30, 2001. The Company is not impacted by this statement at this time. SFAS No. 142 requires that goodwill no longer be amortized to earnings, but instead be reviewed for impairment. The amortization of goodwill ceases upon adoption of the Statement, which will be January 1, 2002. The Company has not determined the impact of adopting SFAS No. 142. SFAS No. 143, Accounting for Asset Retirement Obligations, and SFAS No. 144, Accounting for the Impairment or Disposal of Long- Lived Assets, provide guidance concerning the recognition and measurement of an impairment loss for certain types of long-lived assets and obligations associated with the retirement of tangible long-lived assets. Management does not expect these statements to affect the Company's consolidated financial condition and results of operations.

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

The reported lines of business results reflect the underlying core operating performance within the business units. The Community Banking line of business in the first nine months of 2000 includes the pretax gain in non-interest income of $1,960,000 representing the sale of the Bank's trust operations to BTI. On an after tax basis, this gain is $1,313,000 as reflected in net income for the Bank. The effect of this internal transaction is eliminated in the Consolidated Totals. Other is comprised of inter-company eliminations and parent company only items. Selected segment information is included in the following table. ~~NINE MONTHS ENDED SEPTEMBER 30, (UNAUDITED)~~

~~See independent accountants' report.~~

	Community Banking	Financial Services	Other	Consolidated Totals

Net interest income	$4,806	$ 10	$ --	$4,816
Provision for loan losses	300	--	--	300
Net interest income after provision for loan losses	4,506	10	--	4,516
Non-interest income	724	672	(56)	1,340
Non-interest expense	3,199	937	61	4,197
Income (loss) before income tax	2,031	(255)	(117)	1,659
Income tax (benefit)	576	(87)	(40)	449
Net income (loss)	$1,455	$(168)	$ (77)	$1,210

	Community Banking	Financial Services	Other	Consolidated Totals

Net interest income	$4,279	$ 6	$ --	$4,285
Provision for loan losses	200	--	--	200
Net interest income after provision for loan losses	4,079	6	--	4,085
Non-interest income	846	965	(25)	1,786
Non-interest expense	3,099	1,117	7	4,223
Income (loss) before income tax	1,826	(146)	(32)	1,648
Income tax (benefit)	618	(49)	(11)	558
Net income (loss)	$1,208	$ (97)	$ (21)	$1,090

The ~~accompanying notes are an integral part~~Company has goodwill with a carrying amount of ~~these~~$750,000 and $804,707 as of March 31, 2002, and 2001 respectively and $750,000 as of December 31, 2001. Upon adoption of Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets," on January 1, 2002, amortization of goodwill was discontinued and the goodwill will be evaluated for impairment. Prior to the adoption of SFAS No. 142, goodwill was amortized on a straight-line basis over 10 to 15 years. Prior to June 30, 2002 management will determine whether there has been impairment of the goodwill as of January 1, 2002.

Following is the effect on net income and earnings per share had amortization of goodwill not been recorded in each period presented.

	For three months ended:
	March 31, 2002	March 31, 2001

Reported net income	$1,210	$1,090
Add: Goodwill amortization (net of tax)	--	12
Adjusted net income	$1,210	$1,102

Basic earnings per share:
Reported	$ 0.37	$ 0.33
Add: Goodwill amortization	--	--
Adjusted	$ 0.37	$ 0.33

Diluted earnings per share:
Reported	$ 0.37	$ 0.33
Add: Goodwill amortization	--	--
Adjusted	$ 0.37	$ 0.33

Various legal claims arise from time to time in the normal course of business which, in the opinion of management, will have no material effect on the Company’s consolidated financial statements. 9 ~~THREE MONTHS ENDED SEPTEMBER 30 (UNAUDITED)~~

Item 2. ~~MANAGEMENT'S~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ~~Certain matters discussed~~

The following discussion, as well as certain other statement contained in this ~~Report on~~ Form 10-Q, or incorporated herein by reference, contain statements which may be considered to be forward-looking ~~statements~~ within the meaning of Section 27A of the Securities Act of 1933, as Amended and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward looking statements to be covered by the safe harbor provisions for forward looking statements contained in the Private Securities Litigation and Reform Act of 1995 (the "PSLRA"). You can identify these forward-looking statements by the use of words like "strategy," "expects," "plans," "believes," "will," "estimates," "intends," "projects," "goals," "targets," and ~~is including this statement for purposes~~other words of similar meaning. You can also identify them by the fact that they do not relate strictly to historical or current facts. For these statements, the Company claims the protection of the safe harbor ~~provisions. The forward~~for forward-looking statements provided by the PSLRA. Forward looking statements ~~discussed~~include, but are not limited to, those made in ~~this Report on Form 10Q~~connection with estimates with respect to the future results of operation, financial condition, and business of the Company and its subsidiaries which are subject to ~~risks and uncertainties~~change based on the impact of various factors that could cause actual results to differ materially from those ~~projected. Such risks and uncertainties~~estimated. Those factors include but are not limited ~~to, those described~~to: changes in ~~Management's Discussion~~general, economic and ~~Analysis~~market conditions; the development of ~~Financial Condition~~an interest rate environment that adversely affects the interest rate spread or other income anticipated from the operation and ~~Results~~investments of ~~Operations. Changes to such risks and uncertainties, which could impact future~~the financial ~~performance, include, among other things, (1) competitive pressures in~~services group and/or the ~~banking industry; (2)~~Bank; significant changes in the ~~interest rate environment; (3) general~~ economic ~~conditions, either nationally~~scenario from that anticipated which could materially change credit quality trends and the ability to generate loans; significant delay in or ~~regionally; (4)~~inability to execute strategic initiative designed to grow revenues and/or control expenses; and significant changes in accounting, tax, or regulatory practices or requirements. The Company disclaims any obligation to publicly update or revise any forward-looking statement contained in the ~~regulatory environment; (5) changes~~foregoing discussion, or elsewhere in ~~business conditions~~this Form 10-Q. Certain amounts in the 2001 financial statements have been reclassified to conform to the presentation used in 2002 and ~~inflation; and (6) changes~~prior years.

Unless otherwise noted, all dollars are expressed in ~~security markets. Accordingly, the information set forth therein should be carefully considered when evaluating the business prospects~~thousands except per share data.

The Company reported consolidated net income of ~~the Company. The following is the review of Bar Harbor Bankshares (the Company) and its subsidiaries, Bar Harbor Banking and Trust Company and BTI Financial Group,~~$1,210, or $0.37 per fully diluted share, for the ~~nine~~three months ended ~~September 30, 2001. SUMMARY Total assets for the Company~~March 31, 2002. This compares with net income of ~~$466.3 million at September 30, 2001, are essentially the same as at December 31, 2000. Earnings were $2,682,000~~$1,090 or $0.33 per fully diluted share for the first ~~nine months~~quarter of 2001, representing increases of 11.0% and ~~$706,000 below~~12.1% respectively. The return on average total assets was 0.97% for the ~~earnings~~first quarter of 2002, compared with 0.93% for the same period in ~~2000.~~the prior year. The ~~principal reason~~return on average shareholders’ equity for the ~~decrease in earnings~~most recent quarter amounted to 9.21%, compared with 8.42% for the quarter ended March 31, 2001.

Net interest income, which represents the difference between interest earned on interest earning assets and interest incurred on interest bearing liabilities, is the ~~additional provision~~primary source of ~~$1 million, or $660,000 after taxes, that~~earnings. Net interest income is affected by the ~~Bank added to its allowance~~level and composition of assets, liabilities and equity, as well as changes in market interest rates.

The Company’s net interest income, on a fully tax equivalent basis, for ~~possible loan losses. This additional provision establishes~~ the ~~allowance for possible loan losses at a level that management feels is adequate to absorb possible future losses. Net income of $1,215,000 in the third quarter of 2001 represented~~three months ended March 31, 2002 was $4,966, representing an increase of ~~$70,000~~$660 or 15.3%, compared with $4,306 recorded for the same period in 2001. The increase in net interest income was principally attributed to $30,531 in average earning asset growth between periods, and a 31 basis point improvement in the Company’s net interest margin, from 4.01% to 4.32%.

Interest income - Interest income, on a fully tax equivalent basis, amounted to $8,114 for the quarter ended March 31, 2002, representing a decrease of $669, or 7.6%, when compared with $8,783 for the same period in 2001. Declining interest rates contributed $1,688 to the decreased interest income, offset by $1,019 in additional interest income generated by increased earning asset volume. In light of eight interest rate decreases and a 325 basis point drop in the federal funds targeted rate between reporting periods, the Company’s yield on average earning assets showed moderate declines. The yield on average earning assets declined 112 basis points to 7.06 % for the quarter ended March 31, 2002, when compared with 8.18% for the same period in 2001.

Loans - Average loans for the quarter ended March 31, 2002 totaled $305,187, representing an increase of $32,594, or 12.0%, when compared with the same period in 2001. The growth in average loans was entirely attributed to consumer real estate loans including home equity loans, which increased $34,533 compared with the same period in 2001. The tax equivalent yield on average loans between periods declined 138 basis points to 7.57% in the quarter ended March 31, 2002.

Investment securities - Average investment securities, including federal funds sold, money market funds and time deposits with other banks, totaled $160,946 for the quarter ended March 31, 2002, representing a decrease of $2,063, or 1.3% compared with the same period in 2001. The tax equivalent yield on investment securities declined 79 basis points to 6.09%, when compared with the same period in 2001.

Interest expense - Interest expense for the three months ended March 31, 2002 amounted to $3,148, representing a decrease of $1,329, or 29.7%, compared with the same period in 2001. The decrease in interest expense was principally attributed to a 166 basis point decline in the cost of interest bearing liabilities, from 4.88% to 3.22%, and was reflective of the significant declines in the federal funds targeted rate during the comparable period.

Deposits - Average deposit balances for the three months ended March 31, 2002 totaled $284,863 representing an increase of $14,761, or 5.5%, over the same period ~~last year. Although~~in 2001. Interest bearing deposits, which represent 86.5% of total ~~assets are at~~deposits, increased $13,819, or 5.9%, over the same ~~overall level as at December 31, 2000, the mix has changed over the past nine months. Investment securities of $137 million at September 30, 2001, including $15 million of short term~~period in 2001. The growth in deposits was led by money market ~~funds, decreased almost $25 million from December 31, 2000, due to called securities and prepayments~~accounts, which are classified with savings, posting an increase of ~~mortgage backed securities that were not replaced. Excluding these~~$18,948 or 27.2%, followed by NOW accounts, posting an increase $4,809 or 11.6%. The growth in money market account balances was partially offset by a decline in time accounts, presumably because of depositors’ unwillingness to commit to longer-term fixed rate investments ~~investment securities decreased almost $40 million since yearend 2000. These reductions occurred~~during a period of historically low interest rates. Brokered certificates of deposit amounted to $2,485 during the quarter ended March 31, 2002, whereas none were outstanding for the same period in ~~large measure because~~2001. For the ~~lower~~quarter ended March 31, 2002, the average cost of interest ~~rate environment made early pay-offs 10 and refinancings attractive~~bearing deposits amounted to ~~borrowers. At September 30,~~2.46% compared with 4.05% for the same period in 2001, ~~loans were approximately $20 million more than at December~~representing a decrease of 159 basis points.

Borrowed funds - Average borrowings for the quarter ended March 31, ~~2000, principally due~~2002 amounted to ~~seasonal borrowings by the bank's commercial customers and~~$150,327, representing an increase ~~in consumer real estate lending. BTI Financial Group (BTI)~~of $10,613, or 7.6%, a wholly owned financial services subsidiary of Bar Harbor Bankshares, was formed in the fall of 1999. BTI Financial Group's subsidiaries, Dirigo Investments, Inc., Bar Harbor Trust Services and Block Capital Management began operations in January of 2000. As a result of the formation of BTI, the Company has implemented segment reporting as required by Statement of Financial Accounting Standard (SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related Information." The formation of these three companies is expected to position BTI to more fully participate in various segments of the financial services industrycompared with the potential for significant growth. In mid-2000, a branch office of Dirigo Investments, Inc. was established in the Bangor, Maine, area including an office manager and a broker, expanding the potential market area. This office was further expanded with additional brokers in late 2000. At the end of the first quarter ~~2001, BTI moved into its newly renovated centralized facilities~~of 2001. The increase in ~~Ellsworth, Maine. REVIEW OF FINANCIAL CONDITION AT SEPTEMBER 30, 2001 AND DECEMBER 31, 2000 Total assets remained essentially level~~borrowings between December 31, 2000, and September 30, 2001, although the mix of these assets changed. Investment securities decreased a net $24.7 million from 2000 year end due to maturities, called issues, and paydowns of mortgage backed securities. Lower interest rates, precipitated by the Federal Reserve reducing the targeted federal funds rate by 350 basis points during the first nine months of 2001, have contributed to an acceleration of called securities, refinancings, and payoffs of securitized mortgages. Included in the balance of investment securities is $15 million of money market investments that were purchased principally from funding generated from the investment portfolio. The net incoming cash flow from the investment portfolio has been used to reduce borrowings from the Federal Home Loan Bank, which have decreased $19.5 million since December 31, 2000, andperiods was exclusively utilized to fund seasonal increases in cash and due from banks which was $6.3 million greater at September 30, 2001 than at yearend 2000. Loans increased $19.7 million during the first nine months of 2001 including a $5.2 million increase in commercial loans and a $14.5 million increase in consumer loans, primarily in real estate mortgages. At the end of the third quarter 2001, consumer loans represented 58% of the portfolio, which is consistent with year end 2000. The ratio of commercial loans tends to increase modestly in the second and third calendar quarters that are more seasonally active for commercial lending. Deposits at September 30, 2001 are $16.4 million greater than December 31, 2000, and include some seasonal increases that accumulate during the more active summer and autumn period in the Bank's market area. The Bank's reserve for possible loan losses as of September 30, 2001, is 1.37% of total loans compared to 1.56% at December 31, 2000. Management reviews the allocation to the reserve on a quarterly basis and funds the reserve as deemed necessary. This review includes a provision for specific accounts and impaired loans, provisions due to historic loan loss experience by loan type and reserves reflecting industry and credit concentrations, current local and national economic conditions, underwriting standards, and regulatory guidelines.growth. During the first ~~nine~~quarter of 2002, the average cost of borrowings amounted to 4.46%, representing a decrease of 180 basis points compared with the same period in 2001.

The following table sets forth an analysis of net interest income by each major category of interest earning assets on a fully tax equivalent basis, and interest bearing liabilities for the three months ended March 31, 2002, and 2001 respectively.

		2002			2001
	Average Balance	Interest	Average Rate	Average Balance	Interest	Average Rate
Interest Earning Assets:
Loans(1)	$ 305,187	$5,696	7.57%	$272,593	$6,017	8.95%
Investment securities	151,927	2,374	6.34%	156,465	2,674	6.93%
Fed Funds sold, money market funds, and time deposits with other banks	9,019	44	1.98%	6,544	92	5.70%
Total Investments	160,946	2,418	6.09%	163,009	2,766	6.88%
Total Earning Assets	466,133	8,114	7.06%	435,602	$8,783	8.18%

Non Interest Earning Assets:
Cash and due from banks	7,148			9,230
Other assets (2)	24,844			24,251
Total Assets	$ 498,125			$469,083


Interest Bearing Liabilities:
Deposits	$246,367	$ 1,493	2.46%	$232,548	$2,321	4.05%
Securities sold under repurchase agreements	14,353	82	2.32%	13,054	149	4.63%
Other borrowings	135,974	1,573	4.69%	126,660	2,007	6.43%
Total Borrowings	150,327	1,655	4.46%	139,714	2,156	6.26%
Total Interest Bearing Liabilities	396,694	3,148	3.22%	372,262	4,477	4.88%
Rate Spread			3.84%			3.30%

Non Interest Bearing Liabilities:
Demand deposits	38,496			37,554
Other liabilities	10,366			7,470
Total Liabilities	445,556			417,286
Shareholders' Equity	52,569			51,780
Total liabilities and Shareholders' Equity	$498,125			$469,066
Net Interest Income and Net Interest Margin (3)		4,966	4.32%		4,306	4.01%
Less: Tax Equivalent Adjustment		(150)			(21)
Net Interest Income		$ 4,816			$ 4,285

The following table sets forth a summary analysis of the relative impact on net ~~charge offs totaled $2,101,000 compared to $782,000 during the first nine months~~interest income of ~~2000. Included~~changes in the ~~2001 net charge-off total is an amount~~average volume of $1,063,000 related to one credit engaged in the fishing industry. During the 11 second quarter 2001, an additional provision to the allowance was recognized to establish the reserve at a level management feels is adequate to absorb possible future loan losses. The amounts below represent the total loan dollars past due as of September 30, 2001, and December 31, 2000.

Effective January 1, 2001, a substantial portion of the securities portfolio was reclassified from held to maturity to available for sale, as allowed by SFAS No. 133, as amended. This reclassification will permit more active management of the investment portfolio. Premises and equipment growth includes the purchase and renovation costs of the headquarters of BTI in Ellsworth, Maine, as well as properties adjacent to the Ellsworth branch office of the Bank and in front of BTI. At the end of the first quarter 2001, the building was substantially complete and occupancy by the BTI subsidiaries had begun. The Bank experiences a seasonal decline in its deposit base through late fall and the winter months through the spring. Deposits generally increase during the second and third quarters when economic activity in the Company's market area is more seasonally active. Deposits at September 30, 2001 are $16.4 million greater than 2000 year end, principally in demand and money market savings accounts. NET INTEREST INCOME Rates, volumes and the mix ofinterest earning assets and interest bearing liabilities, and ~~non-interest bearing liabilities affect net interest income. Comparing the first nine months of 2001 with the same period for 2000, net interest~~changes in average rates on such assets and liabilities. The income ~~decreased~~from tax-exempt assets has been adjusted to a ~~modest $240,000.~~fully tax equivalent basis, thereby allowing a uniform comparisons to be made. Because of the dramatic decrease in interest rates in 2001, interest income for the company decreased $815,000 during this nine month period compared to 2000, and interest expense declined by $575,000. Average earning assets of the Bank decreased $9.0 million between the two periods. Furthermore, a rapidly declining interest rate environment, increased competition reflected in loan pricing, reduced opportunity for attractive yields in high quality investments, the retirement of high yielding callable investments and paydowns of mortgage backed securities, and some residual of rapidly rising funding costs in 2000, have narrowed average net interest margins. In some instances, in 1999 and the first half of 2000, the Bank added fixed rate, longer-term assets to its Balance Sheet, but these assets were funded with shorter-term (one year or less) liabilities. As funding rates increased, the net interest income spread on these investments decreased because of the increasingly higher funding costs. While this compression has abated during 2001 because of declining interest rates, average funding costs from the Federal Home Loan Bank were still 5 basis points more in the first nine months of 2001 than in the first nine months of 2000, which contributes to the decrease in net interest income between periods. Interest and fees earned on loans for the first nine months of 2001 when compared to the first nine months of 2000, increased by $757,000 due to increases in average volumes of $11.6 million but overall by only $390,000 due to declining yields in the loan portfolio which decreased 18 basis points between the first nine months of 2000 and the first nine months of 2001. Because of declining interest rates in the first nine months of 2001 and the repricing attributes of the mix of loans, the overall yield on the loan 12 portfolio at the end of the third quarter 2001 has decreased approximately 24 basis points from the fourth quarter of 2000. Interest income from the securities portfolio was $1,507,000 less in the first nine months of 2001 than the same period in 2000 principally because of a $29.1 million reduction in the average portfolio between periods along with an 5 basis point reduction in yield. This decrease was caused by maturities, pay downs on mortgage backed securities, and the exercise by issuers of callable features because of the declining interest rate environment. The overall average yield of the portfolio was 6.64% in 2001, compared to a yield of 6.69% during the first nine months of 2000. Interest expense for the nine months ended September 30, 2001, decreased $575,000 compared to the same period in 2000. Most of this decrease was attributed to a decrease of $23.6 million in funding liabilities between the two periods offset by a 5 basis point overall increase in cost of these liabilities. Average deposit rates in the first nine months of 2001 were 3.20% compared to an average rate of 3.17% the same period last year. The cost of borrowings from the Federal Home Loan Bank, which in large measure were used to fund the leverage in the securities portfolio, increased 43 basis points to a 6.15% average cost in the first nine months of 2001 compared to the previous year's period. These increases were offset by a 28 basis point decrease in the cost of repurchase agreements. As these funding sources continue to reprice, primarily through maturities, the Company should realize lower funding costs in the near future. At September 30, 2001, outstanding borrowings from the Federal Home Loan Bank had a composite rate of 5.53%. 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 funding liabilities including demand deposits, 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 bothnumerous simultaneous volume and rate ~~has~~changes during the periods analyzed, it is not possible to precisely allocate changes to volume or rate. For presentation purposes, changes which are not solely due to volume changes or rate changes have been allocated to ~~volume and rate changes~~these categories in proportion to the relationships of the absolute dollar amounts of the change in each. ~~RATE VOLUME ANALYSIS NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2000 (dollars in thousands)~~

~~13 NON-INTEREST~~ INCOME
THREE MONTHS ENDED MARCH 31, 2002, AND 2001
Increases(Decreases) Due to

	VOLUME	RATE	NET

Loans (1)	$ 960	$(1,281)	$(321)
Taxable investment securities	(466)	(310)	(776)
Non-taxable investment securities (1)	477	(1)	476
Federal funds sold, money market funds, and time deposits with other banks	48	(96)	(48)

TOTAL EARNING ASSETS	1,019	(1,688)	(669)

Deposits	147	(975)	(828)
Securities sold under repurchase agreements and short term borrowings	16	(83)	(67)
Other borrowings	160	(594)	(434)
TOTAL INTEREST BEARING LIABILITIES	323	(1,652)	(1,329)
NET CHANGE IN NET INTEREST INCOME (1)	$ 696	$ (36)	$ 660

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

For the three months ended March 31, 2002 non-interest income amounted to $1,340 compared with $1,786 for the same period in 2001, representing a decrease of $446, or 25.0%. Total non-interest expense amounted to $4,197 compared with $4,223 in the first quarter of 2001, representing a decrease of $26.

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

Non-interest income: Non-interest income from Community Banking represented 54.0% of the Company’s total first quarter non-interest income. For the three months ended March 31, 2002, the Banks non-interest income amounted to $724, compared with $846 during the same period in 2001, representing a decrease of $122, or 14.4%.

The decrease in non-interest income was entirely attributed to a decline in service charges on deposit accounts. In December of 2000 the Bank implemented various product and service fee enhancements and improved its management over fee waivers. As was anticipated, the initial impact on fee income was not fully sustained in the months following implementation, as small accounts were consolidated and certain customer habits, including overdraft activity, showed a substantial change.

Non-interest expense: Non-interest expense from Community Banking represented 76.2% of the Company’s total non-interest income for the ~~nine~~period ended March 31, 2002. For the three months ended ~~September 30,~~March 31, 2002 the Banks non-interest expense amounted to $3,199, compared with $3,099 during the same period in 2001, ~~totaled $5,665,000,~~representing an increase of $100, or 3.2%.

The increase in non-interest expense is principally attributed to increases in salaries and employee benefits. Throughout 2001 staff additions were made in customer service, credit administration and operational areas of the Bank, the full impact of which is ~~$936,000~~currently reflected.

Non-interest income: Non-interest income from Financial Services (BTI Financial Group) represented 50.1% of the Company’s total non-interest income for the period ended March 31, 2002. For the three months ended March 31, 2002 non-interest income at BTI Financial Group amounted to $672, compared with $965 during the same period in 2001, representing a decrease of $293, or 30.4%.

Included in BTI’s first quarter 2002 non-interest income is an adjustment of $162, representing a more ~~than~~accurate accrual of fee income. Excluding this adjustment, fee income actually declined $131, or 13.6%. The decline in fee income is principally attributed to a significant decline in the market value of assets under management at Block Capital Management and Bar Harbor Trust Services. Fees charged to clients are derived principally from the market values of assets managed. At March 31, 2002, assets under management totaled $234,002, compared with $258,982 for the same period in 2001, representing a decrease of $24,980, or 9.6%. First quarter fee income at Dirigo Investments also declined, and was principally due to recent changes in management and staff.

Non-interest expense: Non-interest expense from Financial Services represented 22.3% of the Company’s non-interest expense for the three months ended March 31, 2002. For the three months ended March 31, 2002 BTI’s non-interest expense amounted to $937, compared with $1,117 during the same period in 2001, representing a decrease of $180, or 16.1%.

Included in the first ~~nine months~~quarter 2001 non-interest expense are marketing campaign expenses totaling $172, as compared with $6 in ~~2000. This 20% increase is due principally to fee enhancements implemented by~~ the ~~Bank in late 2000, improved management of customer charges, and a 7% increase in BTI revenues from its three financial services subsidiaries. NON-INTEREST EXPENSE Non-interest~~quarter ended March 31, 2002. Occupancy expenses for the ~~nine~~period ended March 31, 2002 are $77 greater than the same period in 2001, and are a result of BTI’s purchase and renovation of a new headquarters complex located in Ellsworth Maine, and occupied in May 2001. Salary and benefits expense for the three-month period ended March 31, 2002 declined $45, or 9.4%, compared with the same period in 2001, and are the result of recent management changes and restructuring efforts.

The effective tax rate for the three months ended ~~September 30,~~March 31, 2002 was 27.1%, as compared with 33.9% for the same period of 2001. This decrease was principally attributed to the addition of $25,067 in tax-exempt investment securities to the Banks investment securities portfolio.

The following table represents the components of the Bank’s loan portfolio as of March 31, 2002 and December 31, 2001:

Summary of Loan Portfolio
March 31, 2002, and December 31, 2001 ~~totaled $13,152,000,~~

	March 31, 2002		December 31, 2001

Real estate loans
Construction and development	$ 16,828	5.41%	$ 20,348	6.83%
Mortgage	240,596	77.37%	229,634	77.07%
Loans to finance agricultural
production and other loans to farmers	6,681	2.15%	7,149	2.40%
Commercial and industrial loans	30,838	9.92%	22,158	7.43%

Loans to individuals for household,
family and other personal expenditures	13,870	4.46%	13,918	4.67%
All other loans	2,146	0.69%	3,699	1.24%
Real estate under foreclosure	--	0.00%	1,064	0.36%

TOTAL LOANS	310,959	100.00%	297,970	100.00%

Less: Allowance for possible loan losses	4,376		4,169

NET LOANS	$ 306,583		$ 293,801

Total loans – Total loans at March 31, 2002 amounted to $310,959 as compared with $297,970 at December 31, 2001, representing an increase of ~~$619,000,~~$12,989, or ~~4.9%~~4.4%. The growth in the loan portfolio was the principal factor underlying the $12,782 increase in the Company’s total assets compared with December 31 2001.

Loan growth during the quarter ended March 31, 2002 was principally attributed to consumer real estate and home equity loans, posting an increase over 2001 year-end of $13.2 million, or 7.7%. Much of this activity carried over from commitments made in late 2001 and, to a lesser extent, construction loans migrating to permanent financing. Commercial and industrial loans also showed strong growth during the quarter, increasing $8,680 or 39.2%. Growth in this category was attributed to new relationships as well as existing ones using their credit lines to build seasonal inventory levels. The decrease in all other loans was principally due to a decline in tax-exempt municipal loans, because of aggressive pricing in the Bank’s marketplace.

Credit Risk – Credit risk is managed through loan officer authorities, loan policies, the Bank’s Senior Loan Committee, oversight from the ~~first nine months~~Bank’s Senior Credit Officer, and the Bank’s Board of ~~2000. Over~~Directors. Management follows a policy of continually identifying, analyzing and grading credit risk inherent in the loan portfolio. An ongoing independent review, subsequent to management’s review, of individual credits is performed by an independent loan review function, which reports to the Audit Committee of the Board of Directors.

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

	March 31, 2002	December 31, 2001	March 31, 2001

Loans accounted for on a non-accrual basis	$2,073	$2,191	$1,010
Accruing loans contractually past due 90 days or more	227	151	6,758
	$2,300	$2,342	$7,768

Allowance for loan losses to non-performing loans	190%	178%	54%
Non-performing loans to total loans	0.74%	0.79%	2.85%
Allowance for loan losses to total loans	1.41%	1.40%	1.54%

At March 31, 2002, total non-performing loans amounted to $2,300, or 0.74% of total loans, and stood at its lowest level over the past ~~several months,~~five years.

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

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

During the quarter ended March 31, 2002, the Company ~~has made additions~~provided $300 to ~~staff~~the allowance for loan losses compared with $200 for the same period in ~~critical customer related and operational areas, has implemented technological improvements throughout the Company, has increased staffing~~2001. Net loans charged off in the ~~credit administration area, and has expanded~~three months ended March 31, 2002 amounted to $93 compared with $242 for the ~~BTI network, particularly~~same period in 2001.

The following table details changes in the ~~Bangor market. Throughout~~allowance and summarizes loan loss experience for the ~~second quarter~~periods shown.

Summary of ~~2000,~~Loan Loss Experience
Three Months Ended
March 31, 2002, December 31, 2001 and March 31, 2001

	March 31 2002,	December 31, 2001	March 31, 2001

Balance at beginning of period	$ 4,169	$ 3,986	$ 4,236
Charge offs:
Commercial,financial, agricultural, others	38	�� 142	98
Real estate loans
Real estate-construction	--	--	--
Real estate-mortgage	67	89	39
Installments and other loans to individuals	34	87	138
Total charge offs	139	318	275

Recoveries:
Commercial, financial, agricultural, others	20	75	9
Real estate loans
Real estate-construction	--	--	--
Real estate-mortgage	7	62	14
Installments and other loans to individuals	19	14	10
Total recoveries	46	151	33

Net charge offs	93	167	242
Provision charged to operations	300	350	200

Balance at end of period	$ 4,376	$ 4,169	$ 4,194

Average loans outstanding during period	$305,187	$294,230	$272,593

Net charge offs to average loans outstanding during period	0.03%	0.06%	0.09%

The following table presents the ~~banking software conversion~~breakdown of the allowance by loan type at March 31, 2002 and December 31, 2001.

ALLOCATION OF ALLOWANCE FOR POSSIBLE LOAN LOSSES
at March 31, 2002, and December 31, 2001

	March 2002		December 2001
	Amount	Percent of Loans in Each Category to Total loans	Amount	Percent of Loans in Each Category to Total loans

Commercial, financial, and agricultural	$1,988	12.07%	$1,387	9.84%
Real estate loans:
Real estate-construction	112	5.41%	135	6.83%
Real estate-mortgage	1,598	77.37%	1,525	77.42%
Installments and other loans
to individuals	516	4.46%	855	4.67%
Other	--	0.69%	--	1.24%
Unallocated	162	0.00%	267	0.00%
TOTAL	$4,376	100.00%	$4,169	100.00%

At March 31, 2002, the adequacy analysis resulted in a need for specific reserves of $2,990, general reserves of $755, impaired reserves of $469, and other reserves of $162.

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

Loan delinquency levels have remained at low levels for several consecutive months. However, existing loan documentation and/or structural weaknesses for certain loans written in prior years continue to ~~Information Technology, Inc. (ITI) was completed. At that time,~~impede collection efforts in certain cases and have impacted the ~~Company began expense recognition~~level of ~~capitalized costs related to this system. This increase~~probable losses. These weaknesses are historical in ~~technology expenses is included~~nature and do not necessarily reflect current loan underwriting and documentation standards. The extent of these problems in the ~~first nine months of 2001, but had been only partially incurred~~entire loan portfolio is not entirely known; however, it is known that such problems exist and, accordingly, the allowance incorporates this knowledge.

Based upon the process employed and giving recognition to all attendant factors associated with the loan portfolio, management considers the allowance for loan losses at March 31, 2002 to be appropriate for the risks inherent in the ~~first nine months of 2000. During the second quarter of 2001, the Company began depreciation of the new BTI headquarters building~~loan portfolio and the related furniture, fixtures, and equipment. CAPITAL At September 30, 2001, the Company's capital to asset ratio is 11.4%, while the Bank has a leverage ratio of 9.44%, a risk- weighted Tier 1 ratio of 14.6% and a Total Capital ratio of 15.9%, allresident in the ~~well capitalized categories. These ratios compare to December 31, 2000, when the capital to asset ratio was 10.5% for the~~local and national economy as of that date.

The Company and the Bank ~~had~~are subject to the risk based capital guidelines administered by the Bank regulatory agencies. The risk based capital guidelines are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies, to account for off-balance sheet exposure and to minimize disincentives for holding liquid assets. Under these guidelines, assets and off-balance sheet items are assigned to broad risk categories, each with appropriate weights. The resulting capital ratios represent capital as a percentage of risk weighted assets and off-balance sheet items. The guidelines require all banks and bank holding companies to maintain a minimum ratio of total risk based capital to risk weighted assets of 8%, including a minimum ratio of Tier I capital to total risk weighted assets of 4% and a Tier I capital to average assets of 4% ("Leverage Ratio"). Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a material effect on the Company’s financial statements.

As of March 31, 2002, the Company and its banking subsidiary are considered well capitalized under the regulatory framework for prompt corrective action. Under the capital adequacy guidelines, a well capitalized institution must maintain a minimum total risk based capital to total risk weighted assets ratio of at least 10%, a minimum Tier I capital to total risk weighted assets ratio of at least 6%, and a minimum leverage ratio ~~risk-based Tier 1 ratio,~~of at least 5%.

The following table sets forth the Company’s regulatory capital at March 31, 2002 and ~~Total Capital ratio~~December 31, 2001, under the rules applicable at that date.

	March 31, 2002		December 31, 2001
	Amount	Ratio	Amount	Ratio

Total Capital to Risk Weighted Assets	$53,508	16.6%	$52,950	16.8%
Regulatory Requirement	25,797	8.0%	25,154	8.0%
Excess	$27,711	8.6%	$27,796	8.8%

Tier I Capital to Risk Weighted Assets	49,473	15.3%	49,017	15.6%
Regulatory Requirement	12,898	4.0%	12,577	4.0%
Excess	$36,575	11.3%	$36,440	11.6%

Tier I Capital to Average Assets	49,473	10.0%	49,017	10.3%
Regulatory Requirement	19,746	4.0%	18,997	4.0%
Excess	$29,727	6.0%	$30,020	6.3%

The Company’s principal source of ~~9.4%, 15.1%,~~funds to pay cash dividends and ~~16.4% respectively. Regulatory minimums for these risk based measures are 4% for leverage, 4% for Tier 1,~~support its commitments is derived from its banking subsidiary, Bar Harbor Banking and ~~8% for Total Capital.~~Trust Company. The Company ~~is primarily dependent upon~~declared dividends in the ~~payment~~aggregate amount of ~~cash dividends from its subsidiary Bank to service its commitments~~$618 and ~~pay dividends to its shareholders.~~$631 in the first three months of 2002 and 2001, respectively, at a rate of $0.19 per share. The ~~Bank's~~Bank’s principal regulatory agency, the ~~Federal Deposit Insurance Corporation,~~FDIC, currently limits Bank dividends to current earnings excluding securities gains while maintaining a ~~specified~~ Tier 1I leverage capital ratio ~~with which the~~of 8%, without prior approval. The Bank is in full ~~compliance.~~ compliance with these requirements and does not anticipate any impact on its ability to pay dividends at historical levels.

In November 1999, the Company announced a stock buyback plan. The Board of Directors of the Company has authorized the open market purchase of up to 10% of the Company’s outstanding shares of common stock, or 344,000 shares, with the program continuing through December 31, 2002. As of March 31, 2002, the Company had repurchased 197,844 shares of stock under the plan, at a total cost of $3,202 and an average price of $16.18. The Company holds the repurchased shares as treasury stock.

Asset/Liability Management – In managing its asset portfolios, the Bank utilizes funding and capital resources within well-defined credit, investment, interest rate and liquidity risk guidelines. Loans and investment securities are the Bank’s primary earning assets with additional capacity invested in money market instruments. The Bank, through its management of liabilities, attempts to provide stable and flexible sources of funding within established liquidity and interest rate risk guidelines. This is accomplished through core deposit products offered within the markets served, as well as through the prudent use of borrowed funds.

The Bank’s objectives in managing its balance sheet are to preserve the sensitivity of net interest income to actual or potential changes in interest rates, and to enhance profitability through strategies that promise sufficient reward for understood and controlled risk.

Interest Rate Risk – Interest rate risk can be defined as an exposure to movement in interest rates that could have an adverse impact on the Bank’s net interest income. Interest rate risk arises naturally from the imbalance in the re-pricing, maturity and/or cash flow characteristics of assets and liabilities. Management’s objectives are to measure, monitor and develop strategies in response to the interest rate risk profile inherent in the Bank’s balance sheet.

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

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

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

The model requires that assets and liabilities be broken down into components as to fixed, variable, and adjustable interest rates as well as other homogeneous groupings, which are segregated as to maturity and type of instrument. Cash flows and maturities are then determined and, for certain assets, prepayment assumptions are estimated under different rate scenarios. Re-pricing margins are also determined for adjustable rate assets. Interest income and interest expense are then simulated under several rate conditions including:

Changes in net interest income based upon the foregoing simulations are measured against the flat interest rate scenario and actions are taken to maintain the balance sheet interest rate risk within established policy guidelines. In addition to the parallel simulation, interest rate risk is regularly measured under various non-parallel yield curve shifts, pricing, and balance sheet assumptions.

The following table summarizes the bank’s net interest income sensitivity analysis as of March 31, 2002, over one and two year horizons.

INTEREST RATE RISK
CHANGE IN NET INTEREST INCOME FROM THE FLAT RATE SCENERIO
MARCH 31, 2002

The Bank’s net interest income sensitivity position at March 31, 2002, did not significantly change as compared with December 31, 2001. While the Bank continued to extend fixed rate loans, the matched duration of funding sources mitigated the potential future impact on the net interest margin. The Company continues to be positively positioned in an upward rate environment over twelve and twenty-four month horizons, while moderately exposed in a sustained declining rate environment in year two of that horizon; a scenario management believes is not likely.

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

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

When appropriate, ALCO may use off-balance sheet instruments such as interest rate floors, caps and swaps to hedge its interest rate risk position. A policy statement, approved by the board of directors of the Bank, governs use of these instruments. There were no off-balance sheet instruments in place during 2001, or in the first quarter of 2002.

Liquidity Risk - Liquidity is measured by the ~~Bank's~~Company’s ability to meet short-term cash needs at a reasonable cost or ~~minimum loss~~minimal loss. The Company seeks to obtain favorable sources of liabilities and to maintain prudent levels of liquid assets in order to satisfy varied liquidity demands. Besides serving as a funding source for maturing obligations, liquidity provides flexibility in responding to customer initiated needs. Many factors affect the ~~Bank. Liquidity management involves the~~Company’s ability to meet ~~cash flow requirements~~liquidity needs, including variations in the markets served by its network of offices, its ~~customers, which may come from depositors withdrawing funds or borrowers requiring funds~~mix of assets and liabilities, reputation and credit standing in the marketplace, and general economic conditions.

The Company actively manages its liquidity position through target ratios established under its asset/liability management policy. Continual monitoring of these ratios, both historical and through forecasts under multiple rate scenarios, allows the Company to ~~meet credit needs. Without~~employ strategies necessary to maintain adequate ~~liquidity management, the Bank would not be able to meet the needs of the individuals and communities it serves.~~ liquidity.

The ~~Bank~~Company uses a ~~Basic Surplus/Deficit~~basic surplus/deficit model to measure its liquidity over ~~a 30-day~~30- and 90-day time ~~horizon.~~horizons. The relationship between liquid assets and short-term liabilities that are vulnerable to non-replacement ~~within a 30-day period is examined.~~are routinely monitored. The ~~Bank's~~Company’s policy 14 is to maintain its liquidity position at a minimum of 5% of total assets. ~~Liquidity~~At March 31, 2002, liquidity, as measured by the ~~Basic Surplus/Deficit~~basic surplus/deficit model, was ~~12.0% as of September 30, 2001,~~5.4% for the 30-day ~~horizon~~horizon. Including the Company’s unused line of credit at the Federal Home Loan Bank, which amounted to $46,900 basic surplus stood at 14.9%.

In the third quarter of 2001, the Bank entered into an agreement ("Agreement") with its principal regulators, the Federal Deposit Insurance Corporation ("FDIC") and ~~10.3%~~the Maine Bureau of Financial Institutions ("BFI").

Pursuant to that Agreement, the Bank has increased its allowance for loan losses, developed a classified asset reduction plan for certain commercial relationships, revised its credit administration plan, implemented certain revisions in its asset appraisal procedures, established a minimum capital threshold of 8% or 3% above the ~~90-day horizon.~~regulatory minimum of 5% for "well capitalized" banks, improved certain account reconciliation procedures, addressed certain weaknesses in its information systems, improved its procedures to ensure its compliance with the "Bank Secrecy Act," and initiated a long term strategic planning process which is currently underway. The ~~Bank's position with regard~~Bank has also implemented a policy of paying dividends to ~~interest rate sensitivity consists~~its parent, the Company, only from current earnings, exclusive of gains on the sale of securities, without prior approval of its principal regulators.

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

Paul G. Ahern and Bonnie R. McFee, both former executive officers and employees of BTI, resigned their positions in January 2002 and have since made monetary demands for severance benefits under their employment agreements. Mr. Ahern was also a director of the Company until his resignation in January 2002. BTI disputes that either employee is entitled to the benefits that they have demanded, and arbitration proceedings have commenced under the terms of each employment agreement in order to determine the rights of the parties.

Both Mr. Ahern and Ms. McFee also have threatened other legal action against the Company and BTI, including the possible initiation of shareholder derivative actions. In response to this threatened legal action, and as provided for under Maine law, the Company has appointed an independent committee of directors to investigate the allegations and demands made by Mr. Ahern and Ms. McFee. That investigation is ongoing as of the date of this report.

In April 2002 the Company filed in Maine Superior Court, County of Hancock, complaints for declaratory relief against both Mr. Ahern and Ms. McFee seeking, among other things, declarations that: the demands made by Mr. Ahern and Ms. McFee are not the proper subjects of a shareholder derivative action in that they seek remedies not appropriate to such an action; neither Mr. Ahern nor Ms. McFee can fairly and adequately represent the interests of the Company or of its ~~assets~~shareholders in connection with the shareholder derivative actions which they have threatened; and ~~liabilities for repricing within a year. The gap analysis~~neither Mr. Ahern nor Ms. McFee have standing, or the right, to initiate the threatened shareholder derivative actions against the Company. This litigation is pending at the time of this report.

Various legal claims arise from time to time in the current interest rate environment shows the Bank with approximately $43.4 million more assets than liabilities that would be repriced within twelve months. If rates were to rise by 200 basis points, net interest income could increase by $365,000normal course of business which, in the ~~first year, and increase by $992,000 during~~opinion of management, will have no material effect on the second year. If rates were to drop by 200 basis points and using a parallel yield curve shift in rates, simulations based on a static balance sheet indicate that the Bank's net interest income could decrease by approximately $575,000 during the first year of the drop, and decrease its income in the second year by $2.4 million. Although targeted federal funds rates have decreased 100 basis points since September 30, 2001, a continued drop totalling 200 basis points may be unlikely, thereby moderating any reduction in net interest income from falling rates. 15 PART II OTHER INFORMATION Item 1 Legal Proceedings None Company’s consolidated financial statements.

~~Nominee elected as~~
Name	Position

Joseph M. Murphy	Director ~~Term Expires For Against Abstain Paul G. Ahern~~
Dean S. Read	Director
Ruth S. Foster	Director
John P. Reeves	Chairman
Bernard K. Cough ~~2004 2004 2004 2003 2,235,926 2,235,594 2,235,926 2,235,926 - -- - -- - -- - -- 42,559 42,790 42,559 42,559~~	Director

The vote to set the number of Directors for the ensuing year at nine was as follows:

The vote to ratify the Board of Directors’ selection of Berry, Dunn, McNeil & Parker as independent auditors of the Company and its Subsidiaries for the ensuing year was as follows:

Item 6 Exhibits and Reports on Form 8-K ~~Form 8-K filed September 5, 2001, reporting Item 5, "Other Events". Company reported~~

(b) Reports on Form 8-K that "the Board of Directors of Bar Harbor Bankshares (the "Corporation") has voted to approve the hiring of a new Chief Executive Officer of the Corporation to replace Dean S. Read. Mr. Read will continue

Current Reports on Form 8-K have been filed as the President and Chief Executive Officer of Bar Harbor Banking and Trust Company, a wholly-owned subsidiary of the Corporation, and will continue to serve as Chief Executive Officer of the Corporation until such time as his successor has been selected and approved by the Corporation's Board of Directors." 16 follows:

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

Chief Financial Officer 17 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BAR HARBOR BANKSHARES Date: November 9, 2001 Dean S. Read Chief Executive Officer Date: November 9, 2001 Gerald Shencavitz Chief Financial Officer 17

		Page No.
PART 1	FINANCIAL INFORMATION

Item 1.	FINANCIAL STATEMENTS (unaudited)

	Independent ~~Accountants'~~Accountants’ Review Report	3

	Financial ~~Statements 4-7~~ Statements:

	Consolidated Balance Sheets at ~~September 30, 2001~~ March 31, 2002 and December 31, ~~2000~~ 2001	4

	Consolidated Statements of Income for the Three ~~and Nine~~ Months ended ~~September 30,~~March 31, 2002 and 2001 ~~and 2000~~	5

	Consolidated Statements of Changes in ~~Shareholders'~~ Shareholders’ Equity for the ~~Nine~~Three Months ended ~~September 30,~~March 31, 2002 and 2001 ~~and 2000~~	6

	Consolidated Statements of Cash Flow for the ~~Nine~~ Three Months ended ~~September 30,~~March 31, 2002 and 2001 ~~and 2000~~	7

	Notes to Consolidated Financial Statements ~~8-10~~	8

Item 2. ~~Management's~~	Management’s Discussion and Analysis of Financial Condition and Results of Operations ~~10- 15~~	10

Item 3.	Quantitative and Qualitative Disclosure About Market Risk 15	22


PART II	OTHER INFORMATION

Item 1.	Legal Proceedings 16	25

Item 2.	Changes in Securities and Use of Proceeds 16	25

Item 3.	Defaults Upon Senior Securities 16	25

Item 4.	Submission of Matters to a Vote of Security Holders 16	26

Item 5	Other Information 16	26

Item 6	Exhibits and Reports on Form 8-K 16	27

	Signature Page 17	28

	-100 basis points	+200 basis points	+300 basis points

Year 1
Net interest income change ($)	($297)	$438	$627
Net interest income change (%)	-1.55%	2.29%	3.27%

Year 2
Net interest income change ($)	($1,516)	$1,339	$1,764
Net interest income change (%)	-7.19%	6.99%	9.21%

Nominee elected as Director	Term Expires	For	Against	Abstain

Thomas A. Colwell	2005	2,160,961	18,229	0
Dwight L. Eaton	2005	2,144,334	34,556	0
Cooper F. Friend	2005	2,151,230	27,659	0

3.1 and 3.2	Articles of Incorporation and Bylaws	(i) Articles as amended July 11, 1995 are incorporated by reference to Form S-14 filed with the Commission March 26, 1984 (Commission File Number 2-90171). (ii) Bylaws as amended to date are incorporated by reference to Form 10-K, Item 14 (a)(3) filed with the Commission March 28, 2002.

10	Material Contracts

	10.1 Deferred Compensation Plans	Incorporated by reference to Form 10-K filed with the Commission March 31, 1987 (Commission File Number 0-13666).

	10.2 Paul Ahern Employment Contract	Incorporated by reference to Form 10-K filed with the Commission March 30, 2001.

10.3	Incentive Stock Option Plan of 2000	Incorporated by reference to Form 10-K, Item 14(a)(3) filed with the Commission on March 28, 2002.

Date Current Report Filed	Item	Description

February 6, 2002	5 – Other Events	Concerning the resignations of two Company executive employees, Mr. Paul Ahern and Ms. Bonnie McFee and resignation of Warren Cook as a Company Director.

February 8, 2002	5 – Other Events	Concerning an interview given by then Company President and CEO Dean S. Read, on February 6, 2002, and published in a financial industry newsletter on February 7, 2002.
February 28, 2002	5 – Other Events	Concerning the following: (a) Hiring of Joseph M. Murphy as Company President and CEO effective February 25, 2002, and his election to Company Board of Directors. (b) Election of Cooper F. Friend to Company Board of Directors effective February 25, 2002.

Computation of Net Income Per Share:

Weighted average number of capital stock shares outstanding
Basic	3,251,551	3,300,447
Effect of dilutive employee stock options	38,435	--
Diluted	3,289,987	3,300,447

NET INCOME PER SHARE
Basic	$0.37	$0.33
Diluted	$0.37	$0.33

Dividends per share	$0.19	$0.19

	CAPITAL STOCK	SURPLUS	RETAINED EARNINGS	NET UNREALIZED APPRECIATION (DEPRECIATION) ON SECURITIES AVAILABLE FOR SALE	TREASURY STOCK	TOTAL SHAREHOLDERS’ EQUITY

Balance, December 31, 2000	$7,287	$4,002	$42,854	$ (76)	$(3,560)	$50,507
Net income	--	--	1,090	--	--	1,090
Cumulative effect to record unrealized depreciation on securities held to maturity transferred to securities available for sale, net of tax benefit of $14	--	--	--	(28)	--	(28)
Net unrealized appreciation on securities available for sale, net of tax of $535	--	--	--	1,075	--	1,075
Total comprehensive income	--	--	1,090	1,047	--	2,137
Cash dividends declared ($0.19 per share)	--	--	(631)	--	--	(631)
Purchase of treasury stock (30,100 shares)	--	--	--	--	(449)	(449)
Balance March 31, 2001	$7,287	$4,002	$43,313	$ 971	$(4,009)	$51,564



Balance, December 31, 2001	$7,287	$4,002	$43,875	$1,707	$(4,333)	$52,538
Net income	--	--	1,210	--	--	1,210
Net unrealized depreciation on securities available for sale, net of tax benefit of $197	--	--	--	(382)	--	(382)
Total comprehensive income	--	--	1,210	(382)	--	828
Cash dividends declared ($0.19 per share)	--	--	(618)	--	--	(618)
Purchase of treasury stock (11,720 shares)	--	--	--	--	(209)	(209)
Balance March 31, 2002	$7,287	$4,002	$44,467	$1,325	$(4,542)	$52,539

	2002	2001	Change	Change
Non-interest income	$ 724	$ 846	$122	14.4%
Non-interest expense	$3,199	$3,099	$100	3.2%

Exhibit Number

2	Plan of Acquisition, Reorganization, Agreement, Liquidation, or Succession	Incorporated by reference to Form S-14 filed with the Commission March 26, 1984 (Commission Number 2-90171).

For	Against	Abstain

2,148,334	15,951	14,905

For	Against	Abstain

2,110,943	8,305	59,943