Report of Independent Registered Public Accounting Firm

Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of assets held at end of year and schedule of reportable transactions are presented for the purpose of additional analysis and are not a required part of the basic financial statements but are supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. These supplemental schedules are the responsibility of the Plan’s management. The supplemental schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole.

/s/KPMG LLP

Albany, New York
June 22, 2009

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BAR HARBOR BANKSHARES 401(k) PLAN

Notes to Financial Statements

December 31, 2008 and 2007

(1)    Description of Plan

The following description of the Bar Harbor Bankshares (the Company or the Plan Sponsor) 401(k) Plan (the Plan) provides only general information. Participants should refer to the Plan document for a more complete description of the Plan’s provisions.

(a)    General

The Plan is a defined contribution plan covering all employees of the Company who have achieved the age of 20-1/2. There is no service requirement for eligibility. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA).

        (b)         Contributions

Each year, participants may contribute up to 50% (limited to regulatory ceilings) of pretax annual compensation, as defined in the Plan. Participants who have attained age 50 before the end of the Plan year are eligible to make catch-up contributions (limited to regulatory ceilings). Participants may also contribute amounts representing distributions from other qualified defined benefit, IRA’s, or defined contribution plans. Participants direct the investment of their contributions into investment options offered by the Plan.

The Plan currently offers investment options for participants. During 2008, the Company matched 100% up to the first 3% of each participant’s salary deferred and 50% on deferrals from 4% to 5% of each participant’s salary. During 2007, the Company matched 100% up to the first 3% of each participant’s salary deferred and 50% on deferrals from 3% to 5% of each participant’s salary. The Company match is 100% vested immediately and invested in the same manner as the participant has directed for their contributions. Additional profit sharing amounts may be contributed at the option of the Company’s board of directors and, if provided, are vested immediately and invested as directed by the participant. Additional contributions of $0 and $450 were made in 2008 and 2007, respectively.

(c)      Participants’ Accounts

Each participant’s account is credited with the participant’s contribution, allocations of the Company’s match, and profit sharing contributions along with an allocation, based upon a participant’s account balance, of any earnings or losses. The Company pays Plan expenses. The benefit to which a participant is entitled is the benefit that can be provided from the Participant’s vested account.

(d)      Vesting

Participants are vested immediately in their personal contributions and the Company’s contributions.

(e)     Plan Termination

Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants would remain 100% vested in all funds represented by their account balance.

 

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BAR HARBOR BANKSHARES 401(k) PLAN

Notes to Financial Statements

December 31, 2008 and 2007

        (f)         Payment of Benefits

On termination of service due to death, disability, or retirement, a participant may elect to receive payment either (a) in a lump-sum amount equal to the value of the vested interest in his or her account or (b) in annual installments. For termination of service for other reasons, a participant may receive the value of the vested interest in his or her account as a lump-sum distribution. Participants with balances in their accounts of less than $5,000 must take a lump sum distribution.

        (g)         Participant Loans

Participants may borrow from their accounts the lesser of $50,000 or 50% of the account balance. Participants may carry up to two loans secured by the balance in their account. Loans are generally fixed rate and are written with an interest rate of 1% over Prime. Existing loans presently range from 5% to 9.25%. Principal and interest is paid according to amortization schedules through biweekly payroll deductions.

        (h)         Risks and Uncertainties

The Plan invests in various investment securities. Investment securities are exposed to various risks such as interest rates and market risks. Due to the level of risk associated with investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants’ account balances and the amounts reported in the statement of net assets available for benefits.

(2)    Summary of Significant Accounting Policies

        (a)         Basis of Presentation

The Plan’s financial statements have been prepared on an accrual basis of accounting. Benefits are recorded when paid. Cash equivalents are generally funds held in the Wilmington Prime Money Market Fund at December 31, 2008 and Fiserv Trust Institutional Money Market Fund at December 31, 2007. Amounts in prior year’s financial statements are reclassified when necessary to conform with current year’s presentation.

        (b)         Investments and Participant Loans

The Plan’s investments are valued on a daily basis, using established market values. Participant loans are valued at their outstanding balances, which approximate fair value. Purchases and sales of securities are recorded on a trade-date basis. Dividends are recorded on the ex-dividend date.

        (c)         Use of Estimates

The preparation of financial statements, in conformity with U.S. generally accepted accounting principles, require management to make estimates and assumptions affecting the reported amounts of assets and liabilities and changes therein, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates. The current economic environment has increased the degree of uncertainty inherent in those estimates and assumptions.

 

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BAR HARBOR BANKSHARES 401(k) PLAN

Notes to Financial Statements

December 31, 2008 and 2007

(3)    Investments

Investments, including those that represent 5% or more of the net assets available for benefits, at December 31, 2008 or 2007 are as follows:

								2008		2007
Money market funds:
	Wilmington Prime Money Market Fund						$	986,883		—
	Fiserv Trust Institutional Money Market Fund							—		844,024
Mutual funds:
	American Growth Fund Inc							948,599		1,553,846
	American Europacific Growth Fund							564,789		641,800
	American New Perspective Fund							411,684		531,372
	Intermediate Bond Fund America							555,620		566,214
	Investment Company of America							589,305		1,040,124
	MFS Total Return Fund A							469,652		557,299
	Blackrock – Mid Cap Value Equity Fund Class A							480,928		918,637
	Blackrock – Aurora Class A							376,315		807,864
	Vanguard 500 Index Fund Signal Shares							517,907		817,492
Common stock:
	Bar Harbor Bankshares							1,499,946		1,407,958

 

During 2008 and 2007, the Plan’s investments (depreciated) appreciated in value (including realized gains and losses on investments bought, sold, and held during the year) as follows:

								Year ended December 31
								2008		2007
Mutual funds							$	(2,707,454)		387,096
Common stock of Bar Harbor Bankshares								(299,936)		(15,019)
							$	(3,007,390)		372,077

(4)    Fair Values of Financial Instruments

The Plan adopted Statement of Financial Accounting Standard No. 157, Fair Value Measurements (SFAS No. 157), on January 1, 2008. SFAS No. 157 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:

• Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

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BAR HARBOR BANKSHARES 401(k) PLAN

Notes to Financial Statements

December 31, 2008 and 2007

• Level 2 – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

• Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement (i.e. supported by little or no market activity).

(5)    Income Tax Status

The Internal Revenue Service has issued an opinion letter dated December 19, 2001 to the sponsor of the Plan that the form of the Plan and underlying trust, as then designed, were in compliance with the applicable requirements of the Internal Revenue Code (IRC) and therefore the Plan is exempt from income taxes. Although the Plan has been amended since receiving the opinion letter, the plan administrator believes that the Plan is designed and is currently being operated in compliance with the applicable requirements of the IRC.

(6)     Party-in-Interest Transactions

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See accompanying report of independent registered public accounting firm

BAR HARBOR BANKSHARES 401(k) PLAN

Notes to Financial Statements

December 31, 2008 and 2007

BAR HARBOR BANKSHARES 401(k) PLAN

Notes to Financial Statements

December 31, 2008 and 2007

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors
Bar Harbor Bankshares:

We consent to the incorporation by reference in the registration statement on Form S-8 (File No. 333-122941) of Bar Harbor Bankshares of our report dated June 22, 2009 relating to the statements of net assets available for benefits of the Bar Harbor Bankshares 401 (k) Plan as of December 31, 2008 and 2007 and the related statements of changes in net assets available for benefits for the years then ended, which report appears in the December 31, 2008 annual report on Form 11-K of Bar Harbor Bankshares 401 (k) Plan.

/s/ KPMG LLP

Albany, New York
June 29, 2009