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(Registrant's telephone number, including area code)

Inapplicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES   X  NO ___

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). YES ___  NO ___

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer", "accelerated filer" and smaller reporting company" in Rule 12b-2 of the Exchange Act: Large accelerated filer ___ Accelerated filer   X  Non-accelerated filer (do not check if a smaller reporting company) ___ Smaller reporting company ___

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TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS

BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2010 AND DECEMBER 31, 2009
(Dollars in thousands, except per share data)
(unaudited)

BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(Dollars in thousands, except per share data)
(unaudited)

BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(Dollars in thousands, except per share data)
(unaudited)

The accompanying notes are an integral part of these unaudited consolidated interim financial statements.

BAR HARBOR BANKSHARES AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
MARCH 31, 2010
(Dollars in thousands, except share data)
(unaudited)

The consolidated balance sheet at December 31, 2009, has been derived from audited consolidated financial statements at that date. The accompanying unaudited interim consolidated financial statements have been prepared in accordance with United States ("U.S.") generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X (17 CFR Part 210). Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, and notes thereto.

Note 2: Management’s Use of Estimates

Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, other-than-temporary impairments on securities, income tax estimates, and the valuation of intangible assets.

Allowance for Loan Losses: The allowance for loan losses (the "allowance") is a significant accounting estimate used in the preparation of the Company’s consolidated financial statements. The allowance is available to absorb losses on loans and is maintained at a level that, in management’s judgment, is appropriate for the amount of risk inherent in the loan portfolio, given past and present conditions. The allowance is increased by provisions charged to operating expense and by recoveries on loans previously charged-off, and is decreased by loans charged-off as uncollectible.

Arriving at an appropriate level of allowance involves a high degree of judgment. The determination of the adequacy of the allowance and provisioning for estimated losses is evaluated regularly based on review of loans, with particular emphasis on non-performing and other loans that management believes warrant special consideration. The ongoing evaluation process includes a formal analysis, which considers among other factors: the character and size of the loan portfolio, business and economic conditions, real estate market conditions, collateral values, changes in product offerings or loan terms, changes in underwriting and/or collection policies, loan growth, previous charge-off experience, delinquency trends, nonperforming loan trends, the performance of individual loans in relation to contract terms, and estimated fair values of collateral.

The allowance consists of allowances established for specific loans including impaired loans; allowances for pools of loans based on historical charge-offs by loan types; and supplemental allowances that adjust historical loss experience to reflect current economic conditions, industry specific risks, and other observable data.

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. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance, which also may necessitate future additions or reductions to the allowance, based on information available to them at the time of their examination.

Other-Than-Temporary Impairments on Investment Securities: One of the significant estimates relating to securities is the evaluation of other-than-temporary impairment. If a decline in the fair value of a security is judged to be other-than-temporary, and management does not intend to sell the security and believes it is more-likely-than-not the Company will not be required to sell the security prior to recovery of cost or amortized cost, the portion of the total impairment attributable to the credit loss is recognized in earnings, and the remaining difference between the security’s amortized cost basis and its fair value is included in other comprehensive income.

For impaired available-for-sale debt securities that management intends to sell, or where management believes it is more-likely-than-not that the Company will be required to sell, an other-than-temporary impairment charge is recognized in earnings equal to the difference between fair value and cost or amortized cost basis of the security. The fair value of the other-than-temporarily impaired security becomes its new cost basis.

The evaluation of securities for impairments is a quantitative and qualitative process, which is subject to risks and uncertainties and is intended to determine whether declines in the fair value of securities should be recognized in current period earnings. The risks and uncertainties include changes in general economic conditions, the issuer’s financial condition and/or future prospects, the effects of changes in interest rates or credit spreads and the expected recovery period of unrealized losses. The Company has a security monitoring process that identifies securities that, due to certain characteristics, as described below, are subjected to an enhanced analysis on a quarterly basis.

Securities that are in an unrealized loss position, are reviewed at least quarterly to determine if an other-than-temporary impairment is present based on certain quantitative and qualitative factors and measures. The primary factors considered in evaluating whether a decline in value of securities is other-than-temporary include: (a) the cause of the impairment; (b) the financial condition, credit rating and future prospects of the issuer; (c) whether the debtor is current on contractually obligated interest and principal payments; (d) the volatility of the securities’ fair value; (e) performance indicators of the underlying assets in the security including default rates, delinquency rates, percentage of nonperforming assets, loan to collateral value ratios, third party guarantees, current levels of subordination, vintage, and geographic concentration and; (f) any other information and observable data considered relevant in determining whether other-than-temporary impairment has occurred, including the expectation of the receipt of all principal and interest due.

For securitized financial assets with contractual cash flows, such as private label mortgage-backed securities, the Company periodically updates its best estimate of cash flows over the life of the security. The Company’s best estimate of cash flows is based upon assumptions consistent with the current economic recession, similar to those the Company believes market participants would use. If the fair value of a securitized financial asset is less than its cost or amortized cost and there has been an adverse change in timing or amount of anticipated future cash flows since the last revised estimate to the extent that the Company does not expect to receive the entire amount of future contractual principal and interest, an other-than-temporary impairment charge is recognized in earnings representing the estimated credit loss if management does not intend to sell the security and believes it is more-likely-than-not the Company will not be required to sell the security prior to recovery of cost or amortized cost. Estimating future cash flows is a quantitative and qualitative process that incorporates information received from third party sources along with certain assumptions and judgments regarding the future performance of the underlying collateral. In addition, projections of expected future cash flows may change based upon new information regarding the performance of the underlying collateral.

Goodwill and Identifiable Intangible Assets: In connection with acquisitions, the Company generally records as assets on its consolidated financial statements both goodwill and identifiable intangible assets, such as core deposit intangibles.

The Company evaluates whether the carrying value of its goodwill has become impaired, in which case the value is reduced through a charge to its earnings. Goodwill is evaluated for impairment at least annually, or upon a triggering event using certain fair value techniques. Goodwill impairment testing is performed at the segment (or "reporting unit") level. Goodwill is assigned to reporting units at the date the goodwill is initially recorded. Once goodwill has been assigned to the reporting units, it no longer retains its association with a particular acquisition, and all of the activities within a reporting unit, whether acquired or organically grown, are available to support the value of the goodwill.

The goodwill impairment analysis is a two-step test. The first step used to identify potential impairment, involves comparing each unit’s fair value to its carrying value including goodwill. If the fair value of a reporting unit exceeds its carrying value, applicable goodwill is considered not to be impaired. If the carrying value exceeds fair value, there is an indication of impairment and the second step is to measure the amount of impairment. At March 31, 2010, there was no indication of impairment.

At March 31, 2010 and December 31, 2009, the Company did not have any identifiable intangible assets on its consolidated balance sheet.

Basic earnings per share excludes dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company, such as the Company’s dilutive stock options.

The following is a reconciliation of basic and diluted earnings per share for the three months ended March 31, 2010 and 2009:

Securities’ Maturity Distribution: The following table summarizes the maturity distribution of the amortized cost and estimated fair value of securities available for sale as of March 31, 2010. Actual maturities may differ from the final maturities noted below because borrowers or issuers may have the right to prepay or call obligations with or without prepayment or call penalties. Mortgage-backed securities are allocated among the maturity groupings based on their final maturity dates.

Securities Impairment: As a part of the Company’s ongoing security monitoring process, the Company identifies securities in an unrealized loss position that could potentially be other-than-temporarily impaired.

Effective April 1, 2009, the Company adopted FSP FAS 115-2, Recognition and Presentation of Other-than Temporary Impairments, now included in the FASB Accounting Standards Codification as part of FASB ASC 320-10-65, Investments – Debt and Equity Securities. This new accounting standard amended the OTTI guidance included in GAAP for debt securities, which among other things clarified the interaction of the factors that should be considered when determining whether a debt security is other-than-temporarily impaired and changed the presentation and calculation of OTTI on debt securities in the financial statements. Additionally, when adopting this accounting standard, an entity is required to record a cumulative-effect adjustment as of the beginning of the period of adoption to reclassify the non-credit component of a previously recognized other-than-temporary impairment from retained earnings to accumulated other comprehensive income (loss) if the entity does not intend to sell the security and it is not likely that the entity will be required to sell the security before recovery of its amortized cost. Upon the adoption of this accounting standard the Company recognized the effect of applying it as a change in accounting principle. The Company recognized a $937 cumulative effect of initially applying this standard as an adjustment to retained earnings as of April 1, 2009, with a corresponding adjustment to accumulated other comprehensive income (loss).

Prior to the adoption of the new accounting standard, in the first quarter of 2009 the Company recorded other-than-temporary impairment losses of $1,007 related to five available-for-sale, non-agency residential mortgage-backed securities because the Company could no longer conclude it was probable that it would recover all of the principal and interest on these securities. This charge represented the total amount of unrealized losses on these securities at March 31, 2009 and was recorded within net securities gains in the Company’s consolidated statement of income.

For the three months ended March 31, 2010, the Company recognized total OTTI losses of $298 in the statement of income (before taxes) related to eight, available-for sale, private label mortgage-backed securities where the Company had previously determined that these securities were other-than-temporarily impaired. In all cases the OTTI losses represented management’s best estimate of additional credit losses on the collateral underlying these securities. The $298 in additional estimated credit losses, net of taxes, were previously recorded in unrealized gains or losses on securities available-for-sale within accumulated other comprehensive income or loss, a component of total shareholders’ equity on the Company’s consolidated balance sheet.

The $298 of OTTI losses recognized in first quarter 2010 earnings represented management’s best estimate of credit losses inherent in the securities based on discounted, bond-specific future cash flow projections using assumptions about cash flows associated with the pools of loans underlying each security. In estimating those cash flows the Company considered loan level credit characteristics, current delinquency and nonperforming loan rates, current levels of subordination and credit support, recent default rates and future constant default rate estimates, loan to collateral value ratios, recent collateral loss severities and future collateral loss severity estimates, recent prepayment rates and future prepayment rate assumptions, and other estimates of future collateral performance.

As of March 31, 2010, the total OTTI losses included in accumulated other comprehensive income amounted to $1,451 net of tax, compared with $1,808 at December 31, 2009. These OTTI losses related to twelve private label mortgage-backed securities, with a total unamortized cost of $7,101 at March 31, 2010.

The following table summarizes the fair value of securities with continuous unrealized losses for less than 12 months and those that have been in a continuous unrealized loss position for 12 months or longer as of March 31, 2010 and December 31, 2009. All securities referenced are debt securities. At March 31, 2010, and December 31, 2009, the Company did not hold any common stock or other equity securities in its securities portfolio.

For securities with unrealized losses, the following information was considered in determining that the impairments were not other-than-temporary:

• Debt obligations of U.S. Government-sponsored enterprises: As of March 31, 2010, the total unrealized losses on these securities amounted to $141, compared with $227 at December 31, 2009. All of these securities were credit rated "AAA" by the major credit rating agencies. Management’s analysis indicated that these securities have minimal credit risk, as these enterprises play a vital role in the nation’s financial markets. Company management believes that the unrealized losses at March 31, 2010 were attributed to changes in current market yields and pricing spreads for similar securities since the date the underlying securities were purchased, and does not consider these securities to be other-than-temporarily impaired at March 31, 2010.

• Mortgage-backed securities issued by U.S. Government-sponsored enterprises: As of March 31, 2010, the total unrealized losses on these securities amounted to $71, compared with $3 at December 31, 2009. All of these securities were credit rated "AAA" by the major credit rating agencies. Company management believes these securities have minimal credit risk, as these enterprises play a vital role in the nation’s financial markets. Management’s analysis indicates that that the unrealized losses at March 30, 2010 were attributed to changes in current market yields and pricing spreads for similar securities since the date the underlying securities were purchased, and does not consider these securities to be other-than-temporarily impaired at March 31, 2010.

• Mortgage-backed securities issued by U.S. Government agencies: As of March 31, 2010, the total unrealized losses on these securities amounted to $8, compared with $21 at December 31, 2009. All of these securities were credit rated "AAA" by the major credit rating agencies. Management’s analysis indicates that these securities bear no credit risk because they are backed by the full faith and credit of the United States. The Company attributes the unrealized losses at March 31, 2010 to changes in current market yields and pricing spreads for similar securities since the date the underlying securities were purchased, and does not consider these securities to be other-than-temporarily impaired at March 31, 2010.

• Private label mortgage-backed securities: As of March 31, 2010, the total unrealized losses on the Bank’s private label mortgage-backed securities amounted to $4,351, compared with $5,428 at December 31, 2009. The Company attributes the unrealized losses at March 31, 2010 to the current market environment for non-agency mortgage-backed securities, a seriously declining housing market, significantly elevated levels of home foreclosures, risk related market pricing discounts for non-agency mortgage-backed securities and credit rating downgrades on certain private label MBS owned by the Company. Based upon the foregoing considerations and the expectation that the Company will receive all of the future contractual cash flows on these securities, the Company does not consider there to be any additional other-than-temporary impairment with respect to these securities at March 31, 2010.

• Obligations of states of the U.S. and political subdivisions thereof: As of March 31, 2010, the total unrealized losses on the Bank’s municipal securities amounted to $3,849, compared with $3,835 at December 31, 2009. The Bank’s municipal securities are supported by the general taxing authority of the municipality and in the cases of school districts, are supported by state aid. At March 31, 2010 all municipal bond issuers were current on contractually obligated interest and principal payments. At March 31, 2010, the Bank’s municipal bond portfolio did not contain any below investment grade securities as reported by major credit rating agencies.

The Company attributes the unrealized losses at March 31, 2010 to changes in prevailing market yields and pricing spreads since the date the underlying securities were purchased, driven in part by current market concerns about the prolonged economic recession and the impact it might have on the future financial stability of municipalities throughout the country. Accordingly, the Company does not consider these municipal securities to be other-than-temporarily impaired at March 31, 2010.

At March 31, 2010, the Company had no intent to sell nor believed it is more likely than not that it would be required to sell any of its impaired securities as identified and discussed immediately above, and therefore did not consider these securities to be other-than-temporarily impaired as of that date.

Securities Gains and Losses: The following table summarizes realized gains and losses and other-than-temporary impairment losses on securities available for sale for the three months ended March 31, 2010 and 2009.

Note 5: Retirement Benefit Plans

The Company has non-qualified supplemental executive retirement agreements with certain retired officers. The agreements provide supplemental retirement benefits payable in installments over a period of years upon retirement or death. The Company recognized the net present value of payments associated with the agreements over the service periods of the participating officers. Interest costs continue to be recognized on the benefit obligations.

The Company also has supplemental executive retirement agreements with certain current executive officers. These agreements provide a stream of future payments in accordance with individually defined vesting schedules upon retirement, termination, or upon a change of control.

The following table summarizes the net periodic benefit costs for the three months ended March 31, 2010 and 2009:

Note 6: Commitments and Contingent Liabilities

The Company’s wholly owned subsidiary, Bar Harbor Bank & Trust (the "Bank"), is a party to financial instruments in the normal course of business to meet financing needs of its customers. These financial instruments include commitments to extend credit, unused lines of credit, and standby letters of credit.

Commitments to originate loans, including unused lines of credit, are agreements to lend to a customer provided there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank uses the same credit policy to make such commitments as it uses for on-balance-sheet items, such as loans. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the borrower.

The Bank guarantees the obligations or performance of customers by issuing standby letters of credit to third parties. These standby letters of credit are primarily issued in support of third party debt or obligations. The risk involved in issuing standby letters of credit is essentially the same as the credit risk involved in extending loan facilities to customers, and they are subject to the same credit origination, portfolio maintenance and management procedures in effect to monitor other credit and off-balance sheet instruments. Exposure to credit loss in the event of non-performance by the counter-party to the financial instrument for standby letters of credit is represented by the contractual amount of those instruments. Typically, these standby letters of credit have terms of five years or less and expire unused; therefore, the total amounts do not necessarily represent future cash requirements.

The following table summarizes the contractual amounts of commitments and contingent liabilities as of March 31, 2010 and December 31, 2009:

As of March 31, 2010 and December 31, 2009, the fair value of the standby letters of credit was not significant to the Company’s consolidated financial statements.

Note 7: Financial Derivative Instruments

As part of its overall asset and liability management strategy, the Bank periodically uses derivative instruments to minimize significant unplanned fluctuations in earnings and cash flows caused by interest rate volatility. The Bank’s interest rate risk management strategy involves modifying the re-pricing characteristics of certain assets and liabilities so that changes in interest rates do not have a significant effect on net income.

The Company recognizes all of its derivative instruments on the consolidated balance sheet at fair value. On the date the derivative instrument is entered into, the Bank designates whether the derivative is part of a hedging relationship (i.e., cash flow or fair value hedge). The Bank formally documents relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking hedge transactions. The Bank also assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives used in hedging transactions are highly effective in offsetting the changes in cash flows or fair values of hedged items.

Changes in fair value of derivative instruments that are highly effective and qualify as a cash flow hedge are recorded in other comprehensive income or loss. Any ineffective portion is recorded in earnings. For fair value hedges that are highly effective, the gain or loss on the hedge and the loss or gain on the hedged item attributable to the hedged risk are both recognized in earnings, with the differences (if any) representing hedge ineffectiveness. The Bank discontinues hedge accounting when it is determined that the derivative is no longer highly effective in offsetting changes of the hedged risk on the hedged item, or management determines that the designation of the derivative as a hedging instrument is no longer appropriate.

During 2005, interest rate floor agreements were purchased to limit the Bank’s exposure to falling interest rates on two pools of loans indexed to the Prime interest rate. Under the terms of the agreements, the Bank paid premiums of $186 and $69 for the right to receive cash flow payments if the Prime interest rate falls below the floors of 6.00% and 6.50%, thus effectively ensuring interest income on the pools of prime-based loans at minimum rates of 6.00% and 6.50% for the duration of the agreements. The interest rate floor agreements were designated as cash flow hedges.

For the three months ended March 31, 2010, total cash flows received from counterparties amounted to $210, compared with $214 for the same period in 2009. The cash flows received from counterparties were recorded in interest income.

A summary of the hedging related balances follows:

The Company measures fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact.

The Company’s fair value measurements employ valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The Company uses a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets (Level 1 measurements) for identical assets or liabilities and the lowest priority to unobservable inputs (Level 3 measurements). The fair value hierarchy is as follows:

Level 1 – Valuation is based on unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 – Valuation is based on quoted prices for similar instruments in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and model-based techniques for which all significant assumptions are observable in the market.

Level 3 – Valuation is principally generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates that market participants would use in pricing the asset or liability. Valuation techniques include use of discounted cash flow models and similar techniques.

The level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

Securities Available for Sale: All securities and major categories of securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from independent pricing providers. The fair value measurements used by the pricing providers consider observable data that may include dealer quotes, market maker quotes and live trading systems. If quoted prices are not readily available, fair values are determined using matrix pricing models, or other model-based valuation techniques requiring observable inputs other than quoted prices such as market pricing spreads, credit information, callable features, cash flows, the U.S. Treasury yield curve, trade execution data, market consensus prepayment speeds, default rates, and the securities’ terms and conditions, among other things.

Derivative Instruments: Derivative instruments are reported at fair value utilizing Level 2 inputs. The Company obtains independent dealer market price estimates to value its Prime interest rate floors. Derivative instruments are priced by independent providers using observable market data and assumptions with adjustments based on widely accepted valuation techniques. A discounted cash flow analysis on the expected cash flows of each derivative reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, implied volatilities, transaction size, custom tailored features, counterparty credit quality, and the estimated current replacement cost of the derivative instrument.

The following tables summarize financial assets and financial liabilities measured at fair value on a recurring basis as of March 31, 2010 and December 31, 2009, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

The following table summarizes financial assets and financial liabilities measured at fair value on a non-recurring basis as of March 31, 2010, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value.

Mortgage servicing rights represent the value associated with servicing residential mortgage loans. Servicing assets and servicing liabilities are reported using the fair value measurement method. In evaluating the carrying values of mortgage servicing rights, the Company obtains third party valuations based on loan level data including note rate, type and term of the underlying loans. As such, the Company classifies mortgage servicing rights as nonrecurring measurements using Level 2 inputs.

A summary of the carrying values and estimated fair values of the Company’s significant financial instruments at March 31, 2010 and December 31, 2009 follows:

Determining the Primary Beneficiary of a Variable Interest Entity: In June 2009, the Financial Accounting Standards Board (the "FASB") released new accounting guidance relating to the consolidation of variable interest entities to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity. The amended guidance instead requires a reporting entity to qualitatively assess the determination of the primary beneficiary of a variable interest entity based on whether the reporting entity has the power to direct the activities that most significantly impact the variable interest entity’s economic performance and has the obligation to absorb losses or the right to receive benefits of the variable interest entity that could potentially be significant to the variable interest entity. The amended guidance requires ongoing reassessments of whether the reporting entity is the primary beneficiary of a variable interest entity. The amended guidance was effective as of the beginning of the first annual reporting period that begins after November 15, 2009 (January 1, 2010 for the Company), for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. The adoption of this accounting guidance did not impact the Company’s consolidated financial statements.

Management believes the disclosure of tax equivalent net interest income information improves the clarity of financial analysis, and is particularly useful to investors in understanding and evaluating the changes and trends in the Company's results of operations. Other financial institutions commonly present net interest income on a tax equivalent basis. This adjustment is considered helpful in the comparison of one financial institution's net interest income to that of another institution, as each will have a different proportion of tax-exempt interest from their earning asset portfolios. Moreover, net interest income is a component of a second financial measure commonly used by financial institutions, net interest margin, which is the ratio of net interest income to average earning assets. For purposes of this measure as well, other financial institutions generally use tax equivalent net interest income to provide a better basis of comparison from institution to institution. The Company follows these practices.

You should carefully review all of these factors as well as the risk factors set forth in Item 1A. Risk Factors contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. There may be other risk factors that could cause differences from those anticipated by management.

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

The Company’s significant accounting policies are more fully enumerated in Note 1 to the Consolidated Financial Statements included in Item 8 of its December 31, 2009, report on Form 10-K. The reader of the financial statements should review these policies to gain a greater understanding of how the Company’s financial performance is reported.

Management’s discussion and analysis of the Company’s financial condition and results of operations are based on the Consolidated Financial Statements, which are prepared in accordance with U.S. generally accepted accounting principles. The preparation of such financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Management evaluates its estimates on an ongoing basis. Management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis in making judgments about the carrying values of assets that are not readily apparent from other sources. Actual results could differ from the amount derived from management’s estimates and assumptions under different assumptions or conditions. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, other than temporary impairments on securities, income tax estimates, and the evaluation of intangible assets. The use of these estimates is more fully described in Part I, Item 1, Note 2 of the consolidated financial statements in this quarterly report on Form 10-Q.

The Company reported consolidated net income of $3,051 for the quarter ended March 31, 2010, compared with $2,625 in the first quarter of 2009, representing an increase of $426, or 16.2%. Net income available to common shareholders amounted to $2,398, compared with $2,403 for the quarter ended March 31, 2009, representing a decline of $5, or 0.2%.

As previously reported, during the first quarter the Company redeemed all 18,751 shares of its Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the "Preferred Stock"), sold to the U.S. Department of the Treasury (the "Treasury") in the first quarter of 2009 as part of the Capital Purchase Program established by the Treasury under the Emergency Economic Stabilization Act of 2008. The Preferred Stock repurchased by the Company had a current carrying value of $18,255, net of $496 unaccreted discount. As a result of the repurchase, the Company accelerated the accretion of the discount and recorded a total reduction in shareholders’ equity of $18,751, reducing first quarter net income available to common shareholders and diluted earnings per common share by $496 thousand and $0.13, respectively.

The Company’s annualized return on average shareholders’ equity ("ROE") amounted to 11.24% for the quarter, compared with 12.98% in the first quarter of 2009. The decline in first quarter ROE compared with the first quarter of 2009 was principally attributed to a $28,096 or 34.3% increase in average shareholders equity, which amounted to $110,125 in the first quarter. Total shareholders’ equity ended the first quarter at $99,659, reflecting the repurchase of the Company’s Preferred Stock from the Treasury during the quarter.

The Company’s annualized return on average assets ("ROA") amounted to 1.16% for the quarter, compared with 1.06% in the first quarter of 2009.

• Net Interest Income: For the three months ended March 31, 2010, net interest income on a tax-equivalent basis amounted to $8,474, representing an increase of $238 or 2.9% compared with the first quarter of 2009. The increase in first quarter 2010 net interest income compared with the first quarter of 2009 was principally attributed to earning asset growth of $52,049, or 5.3%, offset in part by an eight basis point decline in the net interest margin.

For the three months ended March 31, 2010, the tax-equivalent net interest margin amounted to 3.34%, representing a decline of 8 basis points compared with the first quarter of 2009. The decline in the net interest margin from the first quarter of 2009 was largely attributed earning asset yields, which declined 8 basis points more than the cost of interest bearing liabilities, largely reflecting a moderate shift from short-term funding to higher cost, long-term funding on the Bank’s balance sheet. Considering the current near zero percent short-term funding rates and the steepness of the U.S. Treasury yield curve, the Bank’s interest rate risk management strategy has been focused on protecting net interest income over a long-term horizon, particularly in a rising interest rate environment. While this strategy pressures earnings in the near term, Company management believes the long term-risks associated with funding the balance sheet short far outweigh the short-term rewards.

• Non-interest Income: For the three months ended March 31, 2010, total non-interest income amounted to $1,910, representing an increase of $306 or 19.1% compared with the first quarter of 2009. The increase in first quarter non-interest income compared with the first quarter of 2009 was principally attributed to increases in securities gains net of other than temporary impairment ("OTTI") losses, credit and debit card service charges and fees and trust and other financial service fees.

For the three months ended March 31, 2010, total securities gains net of OTTI losses amounted to $554, representing an increase of $142 or 34.5% compared with the first quarter of 2009. First quarter net securities gains were comprised of realized gains on the sale of securities amounting to $852, partially offset by OTTI losses of $298 on certain available-for-sale, non-agency, residential mortgage-backed securities.

For the three months ended March 31, 2010, credit and debit card service charges and fees amounted to $252, representing an increase of $76 thousand or 43.2% compared with the first quarter of 2009. This increase was principally attributed to continued growth of the Bank’s demand deposits and NOW accounts, higher levels of merchant credit card processing volumes, and continued success with a program that offers rewards for certain debit card transactions.

For the three months ended March 31, 2010, trust and other financial services fees amounted to $640, representing an increase of $68 or 11.9% compared with the first quarter of 2009. Following a recovery in the equity markets, assets under management at March 31, 2010 rose to $276,563, up $6,448 from year-end 2009 and representing an increase of $53,065 or 23.7% compared with March 31, 2009.

• Non-interest Expense: For the three months ended March 31, 2010, total non-interest expense amounted to $5,205, representing an increase of $41, or 0.8%, compared with the first quarter of 2009.

For the three months ended March 31, 2010, total salaries and employee benefits expense amounted to $2,943, representing an increase of $187 or 6.8% compared with the first quarter of 2009. The first quarter increase in salaries and employee benefits compared with the first quarter of 2009 was principally attributed to increases in employee health insurance premiums, normal increases in base salaries, as well as changes in staffing levels and mix. The foregoing increases were partially offset by a $150 employee health insurance expense credit attained in the first quarter of 2010 based on favorable claims experience.

For the three months ended March 31, 2010, FDIC insurance assessments amounted to $264, representing an increase of $171, or 183.9%, compared with the first quarter of 2009. Deposit insurance premiums for all FDIC insured banks have increased as a result of the FDIC’s plan to reestablish the Deposit Insurance Fund to levels required by the Federal Deposit Reform Act of 2005.

The foregoing increases in first quarter non-interest expense compared with the first quarter of 2009 were partially offset by a $168 write-down of certain non-marketable venture capital equity investment funds considered other-than-temporarily impaired in the first quarter of 2009. These investment funds, which generally qualify for Community Reinvestment Act credit, represent socially responsible venture capital investments in small businesses throughout Maine and New England. These write-downs principally reflected the impact current economic conditions have had on these funds.

• Efficiency Ratio: The Company’s efficiency ratio, or non-interest operating expenses divided by the sum of tax-equivalent net interest income and non-interest income other than net securities gains and other-than-temporary impairments, measures the relationship of operating expenses to revenues. Low efficiency ratios are typically a distinguishing characteristic of high performing financial institutions. For the three months ended March 31, 2010, the Company’s efficiency ratio amounted to 52.8%, significantly better than industry averages.

• Income Taxes: For the three months ended March 31, 2010, total income taxes amounted to $1,212, representing an increase of $122 or 11.2% compared with the first quarter of 2009. The Company’s effective tax rate amounted to 28.4% in the first quarter, compared with 29.3% in the first quarter of 2009. Fluctuations in the Company’s effective tax rate are generally attributed to increases in the level of non-taxable income in relation to taxable income.

At March 31, 2010 total assets stood at $1,056,306, representing a decline of $16,075, or 1.5%, compared with December 31, 2009.

• Loans: Total loans ended the first quarter at $672,112, representing an increase of $2,620, or 0.4%, compared with December 31, 2009. Commercial loan growth slowed during the quarter, with total outstanding balances unchanged compared with year-end 2009. Led by a $2,044 increase in home equity loans, total consumer loans increased $1,106 during the quarter, or 0.4%. Tax-exempt loans to municipalities increased $1,461, or 10.3%.

Residential mortgage loan activity also slowed during the quarter, with total outstanding balances posting a decline of $744 or 0.3% compared with December 31, 2009. While the Bank originated and closed $6,876 in residential mortgage loans during the first quarter, this amount was more than offset by cash flows and principal pay-downs from the residential mortgage loan portfolio.

• Credit Quality: While the Bank’s non-performing loans trended upward during the first quarter, the rate of increase slowed significantly compared with the prior three quarters. At March 31, 2010, total non-performing loans amounted to $9,809 or 1.46% of total loans, compared with $9,176, or 1.37% at December 31, 2009.

During the first quarter of 2010 the Bank enjoyed a low level of loan loss experience. Total net loan charge-offs amounted to $148 representing a decline of $57 thousand or 27.8% compared with the first quarter of 2009. For the three months ended March 31, 2010, annualized net charge-offs to average loans outstanding amounted to 0.09%, compared with 0.13% in the first quarter of 2009.

For the three months ended March 31, 2010, the Bank recorded a provision for loan losses of $500, representing a decline of $165, or 24.8%, compared with the first quarter of 2009. The decline in the provision for loan losses principally reflected a slowing in the overall level of credit deterioration, combined with relatively flat loan portfolio growth during the first quarter.

The allowance for loan losses (the "allowance") stood at $8,166, representing an increase of $352 or 4.5% compared with December 31, 2009. At March 31, 2010, the allowance expressed as a percentage of total loans stood at 1.21%, up from 1.17% at December 31, 2009.

• Securities: Total securities ended the first quarter at $332,819, representing a decline of $14,207, or 4.1%, compared with December 31, 2009. The decline in the securities portfolio was principally attributed to pay-downs on mortgage-backed securities, the cash flows from which were not fully reinvested, largely due to prevailing market conditions and interest rate risk considerations.

• Deposits: Historically, the banking business in the Bank’s market area has been seasonal, with lower deposits in the winter and spring and higher deposits in summer and autumn. The timing and extent of seasonal swings have varied from year to year, particularly with respect to demand deposits.

Total deposits ended the first quarter at $664,815, representing an increase of $23,642, or 3.7%, compared with December 31, 2009. Total retail deposits ended the first quarter at $555,952, up $6,769 or 1.2% compared with December 31, 2009. Retail deposit growth was principally attributed to time deposits, with demand deposits and NOW accounts posting a combined seasonal decline of $11.6 million, or 8.8%.

Brokered deposits obtained from the national market ended the first quarter at $108,863, representing an increase of $16.9 million, or 18.3%, compared with December 31, 2009. Brokered deposits are generally utilized to help support the Bank’s earning asset growth, while maintaining its strong, on-balance sheet liquidity position via secured borrowing lines of credit with the Federal Home Loan Bank and the Federal Reserve Bank. During the first quarter the Bank shifted a portion of its collateralized short- term borrowings to short-term brokered deposits in favor of meaningfully lower rates of interest.

• Borrowings: Total borrowings ended the first quarter at $286,280, representing a decline of $25.3 million, or 8.1%, compared with December 31, 2009. The first quarter decline in borrowings was principally attributed to the decline in the securities portfolio, combined with the aforementioned funding shift to brokered deposits.

• Capital: As previously reported, in the first quarter of 2010 the Company redeemed all 18,751 shares of its Preferred Stock sold to the Treasury, consisting of $18,751 in principal. Following the redemption of the Preferred Stock, the Company and the Bank continued to exceed regulatory requirements for "well-capitalized" institutions. Under the capital adequacy guidelines administered by the Bank’s principal regulators, "well-capitalized" institutions are those with Tier I leverage, Tier I Risk-based, and Total Risk-based ratios of at least 5%, 6% and 10%, respectively. At March 31, 2010, the Company’s Tier I Leverage, Tier I Risk-based, and Total Risk-based capital ratios were 8.93%, 13.31% and 15.17%.

At March 31, 2010, the Company’s tangible common equity ratio stood at 9.16%, up from 8.60% at December 31, 2009.

• Shareholder Dividends: The Company paid regular cash dividends of $0.26 per share of common stock in the first quarter of 2010, unchanged compared with the same quarter in 2009. The Company’s Board of Directors recently declared a second quarter 2010 regular cash dividend of $0.26 per share of common stock.

RESULTS OF OPERATIONS

Net interest income is the principal component of the Company's income stream and represents the difference or spread between interest generated from earning assets and the interest expense paid on deposits and borrowed funds. Net interest income is entirely generated by the Bank. Fluctuations in market interest rates as well as volume and mix changes in earning assets and interest bearing liabilities can materially impact net interest income.

Total Net Interest Income: For the three months ended March 31, 2010, net interest income on a tax equivalent basis amounted to $8,474, compared with $8,236 in the first quarter of 2009, representing an increase of $238, or 2.9%. As more fully discussed below, the increase in the Bank’s first quarter 2010 net interest income compared with the first quarter of 2009 was principally attributed to average earning asset growth of $52,049, or 5.3%, offset in part by an eight basis point decline in the tax equivalent net interest margin.

Factors contributing to the changes in net interest income and the net interest margin are more fully enumerated in the following discussion and analysis.

Net Interest Income Analysis: The following table summarizes the Company’s average balance sheets and components of net interest income, including a reconciliation of tax equivalent adjustments, for the three months ended March 31, 2010 and 2009, respectively:

Net Interest Margin: The net interest margin, expressed on a tax equivalent basis, represents the difference between interest and dividends earned on interest-earning assets and interest paid to depositors and other creditors, expressed as a percentage of average earning assets.

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

For the three months ended March 31, 2010, the tax equivalent net interest margin amounted to 3.34%, compared with 3.42% in the first quarter of 2009, representing a decline of eight basis points. The decline in the net interest margin from the first quarter of 2009 was largely attributed earning asset yields, which declined eight basis points more than the cost of interest bearing liabilities, largely reflecting a moderate shift from short-term funding to higher cost, long-term funding on the Bank’s balance sheet. Considering the current near zero percent short-term funding rates and the steepness of the U.S. Treasury yield curve, the Bank’s interest rate risk management strategy has been focused on protecting net interest income over a long-term horizon, particularly in a rising interest rate environment. While this strategy pressures earnings in the near term, Company management believes the long term-risks associated with funding the balance sheet short outweigh the short-term rewards.

The weighted average cost of interest bearing liabilities amounted to 2.21% in the first quarter of 2010, compared with 2.53% in the first quarter of 2009, representing a decline of 32 basis points. However, the weighted average yield on average earning assets amounted to 5.28% in the first quarter of 2010, compared with 5.68% in the first quarter of 2009, representing a decline of 40 basis points. In short, since the first quarter of 2009 the decline in the Bank’s weighted average yield on its earning asset portfolios exceeded the decline in the weighted average cost of interest bearing liabilities by eight basis points.

The Bank’s interest rate sensitivity position is more fully described below in Part I, Item 3 of this report on Form 10-Q, Quantitative and Qualitative Disclosures About Market Risk.

Interest and Dividend Income: For the three months ended March 31, 2010, total interest and dividend income on a tax-equivalent basis amounted to $13,370, representing a decline of $290, or 2.1%, compared with the first quarter of 2009. The decline in interest and dividend income was attributed to a 40 basis point decline in the weighted average earning asset yield, largely offset by average earning asset growth of $52,049, or 5.3%,

The decline in the weighted average earning asset yield was principally attributed to historically low short-term and long-term interest rates, the impact of which continued to reduce the weighted average yield on the Bank’s loan and securities portfolios.

For the quarter ended March 31, 2010, interest income from the Bank’s securities portfolio amounted to $4,756, representing a decline of $146, or 3.0%, compared with the first quarter of 2009. The decline in securities interest income was attributed to a 54 basis point decline in the weighted average securities portfolio yield, which in the first quarter of 2010 amounted to 5.64% compared with 6.18% in the first quarter of 2009. Since the first quarter of 2009, cash flows from the securities portfolio, principally pay-downs on mortgage-backed securities, were largely replaced with lower yielding securities, reflecting prevailing market yields and the duration of securities added to the portfolio. The impact of the decline in the weighted average securities portfolio yield was largely offset by average securities growth of $20,365, or 6.3%, compared with the first quarter of 2009.

For the three months ended March 31, 2010, the Bank did not record any Federal Home Loan Bank ("FHLB") stock dividends, unchanged compared with the first quarter of 2009. In the first quarter of 2009, the FHLB of Boston advised its members that it is focusing on preserving capital in response to other-than-temporary impairment losses it had sustained, declining capital ratios and ongoing market volatility. Accordingly, dividend payments were suspended for all of 2009, and it is unlikely that dividends will be paid in 2010.

As depicted on the rate/volume analysis table below, comparing the three months ended March 31, 2010 with the same quarter in 2009, the increased volume of average earning assets on the balance sheet contributed $768 to total interest income, but was largely offset by a decline of $530 attributed to the impact of the lower weighted average earning asset yield.

For the three months ended March 31, 2010, the total weighted average cost of interest bearing liabilities amounted to 2.21%, compared with 2.53% for the same quarter in 2009, representing a decline of 32 basis points. The weighted average cost of interest bearing deposits declined 53 basis points to 1.64%, compared with the first quarter of 2009. The weighted average cost of borrowed funds increased 35 basis points to 3.42%, principally reflecting the addition of long-term borrowings to the Bank’s balance sheet, which meaningfully improved the Bank’s interest rate risk profile in a rising rate environment.

As depicted on the rate/volume analysis table below, comparing the three months ended March 31, 2010 with the same quarter in 2009, the impact of the lower weighted average rate paid on interest bearing liabilities contributed $549 to the decline in interest expense, partially offset by an increase of $21 attributed to the impact of the increased volume of average interest bearing liabilities.

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

The provision for loan losses reflects the amount necessary to maintain the allowance for loan losses (the "allowance") at a level that, in management’s judgment, is appropriate for the amount of inherent risk of probable loss in the Bank’s current loan portfolio.

While the Bank’s non-performing loans trended upward during the first quarter, the rate of increase slowed significantly compared with the prior three quarters. At March 31, 2010, total non-performing loans amounted to $9,809 or 1.46% of total loans, compared with $9,176, or 1.37% at December 31, 2009. The Bank’s allowance for loan losses expressed as a percentage of non-performing loans stood at 83% at March 31, 2010, compared with 85% at December 31, 2009.

During the first quarter of 2010 total net loan charge-offs amounted to $148, representing a decline of $57, or 27.8%, compared with the first quarter of 2009. For the quarter ended March 31, 2010, annualized net charge-offs to average loans outstanding amounted to 0.09%, compared with 0.13% for the same quarter in 2009.

For the three months ended March 31, 2010, the provision for loan losses (the "provision") amounted to $500, compared with $665 in the first quarter of 2009, representing a decline of $165, or 24.8%. The decline in the provision principally reflected a slowing in the overall level of credit deterioration, low levels of net loan charge-offs, and relatively flat loan portfolio growth during the first quarter.

Refer below to Item 2 of this Part I, Financial Condition, Loans, Allowance for Loan Losses, in this report on Form 10-Q for further discussion and analysis regarding the allowance.

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

For the three months ended March 31, 2010, total non-interest income amounted to $1,910, compared with $1,604 for the same quarter in 2009, representing an increase of $306 or 19.1%.

Factors contributing to the changes in non-interest income are enumerated in the following discussion and analysis:

Trust and Other Financial Services: Income from trust and other financial services is principally derived from fee income based on a percentage of the market value of client assets under management and held in custody and, to a lesser extent, revenue from brokerage services conducted through Bar Harbor Financial Services, an independent third party broker.

For the three months ended March 31, 2010, income from trust and other financial services amounted to $640, compared with $572 for the same quarter in 2009, representing an increase of $68, or 11.9%. Following a recovery in the equity markets, assets under management at March 31, 2010 rose to $276,563, up $6,448 from December 31, 2009 and representing an increase of $53,065 or 23.7% compared with March 31, 2009.

Service Charges on Deposits: This income is principally derived from deposit account overdraft fees, monthly deposit account maintenance and activity fees, and a variety of other deposit account related fees.

For the three months ended March 31, 2010, income from service charges on deposit accounts amounted to $314, compared with $309 for the same quarter in 2009, representing an increase of $5 or 1.6%. The increase in service charges on deposit accounts was principally attributed to an increase in deposit account overdraft fees, despite the fact that the Bank has not increased its deposit account fee amounts charged to customers since early 2007.

Effective July 1, 2010, a new federal banking rule under the Electronic Fund Transfer Act will prohibit financial institutions from charging consumers fees for paying overdrafts on automated teller machines ("ATM") and one-time debit card transactions, unless a consumer consents, or opts in, to the overdraft service for those type of transactions. If a consumer does not opt in, any ATM transaction or debit that overdraws the consumer’s account will be denied. Overdrafts on the payment of checks and regular electronic bill payments are not covered by this new rule. Before opting in, the consumer must be provided a notice that explains the financial institution’s overdraft services, including the fees associated with the service, and the consumer’s choices. Financial institutions must provide consumers who do not opt in with the same account terms, conditions and features (including pricing) that they provide to consumers who do opt in. The Bank does not charge its customers for paying overdrafts on ATM transactions and one-time debit card transactions.

For the three months ended March 31, 2010, credit and debit card service charges and fees amounted to $252 compared with $176 in the first quarter of 2009, representing an increase of $76, or 43.2%. This increase was principally attributed to continued growth of the Bank’s demand deposits and NOW accounts, higher levels of merchant credit card processing volumes, and continued success with a program that offers rewards for certain debit card transactions.

Net Securities Gains: For the three months ended March 31, 2010, net securities gains amounted to $852, compared with $412 in the first quarter of 2009, representing an increase of $440, or 106.8%. The $852 in first quarter 2010 net securities gains were comprised entirely of realized gains on the sale of securities. The $412 in first quarter 2009 net securities gains were comprised of $1,419 in realized gains on the sale of securities, largely offset by $1,007 in OTTI losses .

In the first quarter of 2009 the Company recorded $1,007 of OTTI losses as a component of net securities gains (losses). The Company concluded that unrealized losses on certain available-for-sale, non-agency mortgage-backed securities were other-than-temporarily impaired, because the Company could no longer conclude it was probable it would recover all of the principal and interest on these securities. Because these securities were being carried at fair value, estimated losses on these securities, net of tax, were previously recorded in unrealized losses on securities available-for-sale within accumulated other comprehensive loss, a component of total shareholders equity on the Company’s consolidated balance sheet. This OTTI was recorded prior to the Company’s adoption of a new accounting standard, which became effective April 1, 2009.

For further information about securities gains and losses and other-than-temporary impairment losses recorded during the three months ended March 31, 2010, refer to Notes 2 and 4 of the consolidated financial statements in Part I, Item 1 of this report on Form 10-Q.

Net Other-than-temporary Impairment Losses Recognized in Earnings: For the three months ended March 31, 2010, net OTTI losses recognized in earnings amounted to $298, compared with none during the first quarter of 2009. As discussed immediately above, in the first quarter of 2009 OTTI losses amounting to $1,007 were recorded as a component of net securities gains (losses).

In the first quarter of 2010 the Company recognized an additional $298 of OTTI losses in earnings on eight, available-for-sale, non-agency, residential mortgage-backed securities where the Company had previously determined that these securities were other-than-temporarily impaired. The $298 in additional estimated credit losses on these securities, net of taxes, were previously recorded in unrealized gains or losses on securities available-for-sale within accumulated other comprehensive income or loss, a component of total shareholders equity on the Company’s consolidated balance sheet.

For further information about other-than-temporary securities impairment losses recorded during the three months ended March 31, 2009, refer to Notes 2, 4 and 10 of the consolidated financial statements in Part I, Item 1 of this quarterly report on Form 10-Q.

For the three months ended March 31, 2010, total non-interest expense amounted to $5,205, compared with $5,164 in the first quarter of 2009, representing an increase of $41, or 0.8%.

Salaries and Employee Benefit Expenses: For the three months ended March 31, 2010, salaries and employee benefits expense amounted to $2,943, representing an increase of $187, or 6.8%, compared with the first quarter of 2009.

Occupancy Expenses: For the three months ended March 31, 2010, total occupancy expenses amounted to $372, compared with $398 for the same quarter in 2009, representing a decline of $26, or 6.5%. The decline in occupancy expense was principally attributed to lower utilities and grounds keeping costs.

Furniture and Equipment Expenses: For the three months ended March 31, 2010, furniture and equipment expenses amounted to $352, unchanged compared with the first quarter of 2009. Furniture and equipment expenses principally include depreciation expense, maintenance contract expenses, miscellaneous equipment purchases and repairs, and personal property taxes.

FDIC Insurance Assessments: For the three months ended March 31, 2010, FDIC insurance assessments amounted to $264, compared with $93 for the same quarter in 2009, representing an increase of $171, or 183.9%.

Other Operating Expense: For the three months ended March 31, 2010, total other operating expense amounted to $1,197, compared with $1,463 for the first quarter in 2009, representing a decline of $266, or 18.2%. The decline in other operating expense was principally attributed to a $168 write-down of certain non-marketable venture capital equity investment funds considered other-than-temporarily impaired in the first quarter of 2009. These investment funds, which generally qualify for Community Reinvestment Act credit, represent socially responsible venture capital investments in small businesses throughout Maine and New England. These write-downs principally reflected the impact current economic conditions have had on these funds.

The decline in first quarter other operating expenses compared with the first quarter of 2009 was also attributed to declines in charitable contributions, statement rendering expenses, and loan collection and foreclosure expenses.

For the three months ended March 31, 2010, total income taxes amounted to $1,212, compared with $1,090 in the first quarter of 2008, representing an increase of $122, or 11.2%.

The Company's effective tax rate for the three months ended March 31, 2010 amounted to 28.4%, compared with 29.3% in the first quarter of 2009. The income tax provisions for these periods were less than the expense that would result from applying the federal statutory rate of 35% to income before income taxes, principally because of the impact of tax exempt interest income on certain investment securities, loans and bank owned life insurance.

Fluctuations in the Company’s effective tax rate are generally attributed to increases in the level of non-taxable income in relation to taxable income.

The Company’s assets principally consist of loans and securities, which at March 31, 2010 represented 63.6% and 31.5% of total assets, compared with 62.4% and 32.4% at December 31, 2009, respectively.

At March 31, 2010, the Company’s total assets amounted to $1,056,306, compared with $1,072,381 at December 31, 2009, representing a decline of $16,075, or 1.5 %.

The securities portfolio is primarily comprised of mortgage-backed securities issued by U.S. government agencies, U.S. government sponsored enterprises, and other non-agency, private label issuers. The portfolio also includes tax-exempt obligations of state and political subdivisions, and debt obligations of other U.S. government sponsored enterprises. At March 31, 2010, the securities portfolio did not contain any pools of sub-prime mortgage-backed securities, collateralized debt obligations or commercial mortgage-backed securities. Additionally, the Bank did not own any equity securities or have any corporate debt exposure in its securities portfolio, nor did it own any perpetual preferred stock in Federal Home Loan Mortgage Corporation ("FHLMC") or Federal National Mortgage Association ("FNMA"), or any interests in pooled trust preferred securities or auction rate securities.

Bank management considers securities as a relatively attractive means to effectively leverage the Bank’s strong capital position, as securities are typically assigned a significantly lower risk weighting for the purpose of calculating the Bank’s and the Company’s risk-based capital ratios. The overall objectives of the Bank’s strategy for the securities portfolio include maintaining appropriate liquidity reserves, diversifying earning assets, managing interest rate risk, leveraging the Bank’s strong capital position, and generating acceptable levels of net interest income.

The securities portfolio represented 33.3% of the Company’s average earning assets during the three months ended March 31, 2010 and generated 35.6% of total tax equivalent interest and dividend income, compared with 33.0% and 35.9% in the first quarter of 2009, respectively.

Securities available for sale represented 100% of total securities at March 31, 2010, and December 31, 2009. Securities available for sale are reported at their fair value with unrealized gains or losses, net of taxes, excluded from earnings but shown separately as a component of shareholders’ equity. At March 31, 2010, total net unrealized securities gains amounted to $2,231, compared with $419 at December 31, 2009.

Total Securities: At March 31, 2010, total securities amounted to $332,819, compared with $347,026 at December 31, 2009, representing a decline of $14,207 or 4.1%. The decline in the securities portfolio was principally attributed to pay-downs on mortgage-backed securities, the cash flows from which were not fully reinvested, largely due to prevailing market conditions and interest rate risk considerations.

Impaired Securities: The securities portfolio contains certain securities where amortized cost exceeds fair value, which at March 31, 2010, amounted to an excess of $8,420, or 2.5% of the amortized cost of the total securities portfolio. At December 31, 2009 this amount represented an excess of $9,514, or 2.7% of the total securities portfolio. As of March 31, 2010, unrealized losses on securities in a continuous unrealized loss position more than twelve-months amounted to $6,765, compared with $6,675 at December 31, 2009.

As a part of the Company’s ongoing security monitoring process, the Company identifies securities in an unrealized loss position that could potentially be other-than-temporarily impaired. If a decline in the fair value of an available-for-sale security is judged to be other-than-temporary, a charge is recorded in pre-tax earnings equal to the estimated credit losses inherent in the security.

Further information regarding impaired securities, other-than-temporarily impaired securities and evaluation of securities for impairment is incorporated by reference to above Notes 2 and 4 of the interim consolidated financial statements in Part I, Item 1 of this report on Form 10-Q.

Federal Home Loan Bank Stock

Total Loans: At March 31, 2010, total loans stood at $672,112, compared with $669,492 at December 31, 2009, representing an increase of $2,620, or 0.4%.

Commercial Loans: At March 31, 2010, total commercial loans amounted to $369,317, compared with $369,252 at December 31, 2009, representing an increase of $65. Commercial loan growth has been challenged by a weakened economy, declining loan demand, and unrelenting competition for quality loans.

At March 31, 2010, commercial loans represented 54.9% of the Bank’s total loan portfolio, compared with 55.2% at December 31, 2009.

Consumer Loans: At March 31, 2010, total consumer loans, which principally consisted of residential real estate mortgage loans, amounted to $286,410, representing an increase of $1,106 or 0.4%, compared with December 31, 2009.

At March 31, 2010, the Bank’s residential mortgage loan portfolio totaled $225,006, representing a decline of $744, or 0.3%, compared with December 31, 2009. Residential mortgage loan origination activity slowed during the first three months of 2010, principally reflecting increases in residential mortgage loan interest rates, declining borrower refinancing activity and declining appraised property values in the markets served by the Bank. While the Bank originated and closed $6,876 in residential real estate loans during the first quarter of 2010, this amount was more than offset by cash flows and principal pay-downs from the existing residential real estate loan portfolio.

At March 31, 2010, the Bank’s home equity loan portfolio totaled $56,933, representing an increase of $2,044, or 3.7%, compared with December 31, 2009.

Tax Exempt Loans: At March 31, 2010, tax exempt loans, amounted to $15,599, compared with $14,138 at December 31, 2009, representing an increase of $1,461, or 10.3%.

Tax-exempt loans principally include loans to local government municipalities and, to a lesser extent, not-for-profit organizations. Government municipality loans typically have short maturities (e.g., tax anticipation notes). Government municipality loans are normally originated through a bid process among local financial institutions and are typically priced aggressively, thus generating relatively narrow net interest margins.

Subprime mortgage lending: Subprime mortgage lending, which has been the riskiest sector of the residential housing market, is not a market that bank management has ever actively pursued. In general, the industry does not apply a uniform definition of what actually constitutes "sub-prime" lending. In referencing sub-prime lending activities, bank management relies upon several sources, including Maine’s predatory lending law enacted January 1, 2008, and the "statement of sub-prime mortgage lending" issued by the federal bank regulatory agencies (the "agencies") on June 29, 2007, which further references the expanded guidance for sub-prime lending programs (the "expanded guidance"), issued by the agencies by press release dated January 31, 2001.

The Bank’s non-performing loans trended upward during the first quarter, but the rate of increase slowed significantly compared with the prior three quarters.

At March 31, 2010, total non-performing loans amounted to $9,809, compared with $9,176 at December 31, 2009, representing an increase of $633, or 6.9%. At March 31, 2010, non-performing loans amounted to 1.46% of total loans, compared with 1.37% at December 31, 2009, representing an increase of nine basis points. One agricultural loan accounted for $1,500 or 15.3% of total non-performing loans at March 31, 2010.

Non-performing commercial real estate mortgages amounted to $4,023 at March 31, 2010, representing an increase of $927 compared with December 31, 2009. At March 31, 2010, non-performing commercial real estate loans were represented by fifteen business relationships, with outstanding balances ranging from $25 to $446.

Non-performing residential real estate mortgages amounted to $3,054 at March 31, 2010, representing an increase of $556 compared with December 31, 2009. At March 31, 2010, non-performing residential real estate loans were represented by twenty-nine, conventional, 1-4 family mortgage loans, with outstanding balances ranging from $4 to $457.

At March 31, 2010, accruing loans contractually past due 90 days or more totaled $12, representing a decline of $760 compared with December 31, 2009.

The Bank attributes the overall stability of the loan portfolio to mature credit administration processes and disciplined underwriting standards, aided by a local economy that is faring better than the country as a whole. The Bank maintains a centralized loan collection and managed asset department, providing timely and effective collection efforts for problem loans.

While the level of non-performing loans to total loans ratio was well below industry averages and continued to reflect the overall quality of the loan portfolio at March 31, 2010, Bank management is cognizant of the continued softening of the real estate market, elevated unemployment rates and depressed economic conditions overall, and believes it is managing credit risk accordingly. Future levels of non-performing loans may be influenced by economic conditions, including the impact of those conditions on the Bank’s customers, including debt service levels, declining collateral values, tourism activity, and other factors existing at the time. Management believes the economic activity and conditions in the local real estate markets will continue to be significant determinants of the quality of the loan portfolio in future periods and, thus, the Company’s results of operations and financial condition.

At March 31, 2010 total OREO amounted to $782, compared with $854 at December 31, 2009. Two properties comprised the March 31, 2010 balance of OREO.

Allowance for Loan Losses: At March 31, 2010, the allowance stood at $8,166, compared with $7,814 at December 31, 2009, representing an increase of $352, or 4.5%. At March 31, 2010, the allowance expressed as a percentage of total loans stood at 1.21%, up from 1.17% at December 31, 2009. The increase in the allowance was principally attributed to the increase in non-performing loans and depressed economic conditions, including elevated unemployment levels and declining real estate values in the markets served by the Bank.

The allowance is maintained at a level that, in management’s judgment, is appropriate for the amount of risk inherent in the current loan portfolio, and adequate to provide for estimated, probable losses. Allowances are established for specific impaired loans, a pool of reserves based on historical net loan charge-offs by loan types, and supplemental reserves that adjust historical net loss experience to reflect current economic conditions, industry specific risks, and other qualitative and environmental considerations impacting the inherent risk of loss in the current loan portfolio.

Specific allowances for impaired loans are determined based upon a discounted cash flows analysis, or as expedient, a collateral shortfall analysis. The amount of loans considered to be impaired totaled $5,188 as of March 31, 2010, compared with $4,416 as of December 31, 2009. The related allowances for loan losses on these impaired loans amounted to $786 as of March 31, 2010, compared with $513 as of December 31, 2009.

Management recognizes that early and accurate recognition of risk is the best means to reduce credit losses. The Bank employs a comprehensive risk management structure to identify and manage the risk of loss. For consumer loans, the Bank identifies loan delinquency beginning at 10-day delinquency and provides appropriate follow-up by written correspondence or personal contact. Non-residential mortgage consumer loan losses are recognized no later than the point at which a loan is 120 days past due. Residential mortgage losses are recognized during the foreclosure process, or sooner, when that loss is quantifiable and reasonably assured. For commercial loans, the Bank applies a risk grading system, which stratifies the portfolio and allows management to focus appropriate efforts on the highest risk components of the portfolio. The risk grades include ratings that correlates substantially with regulatory definitions of "Pass," "Other Assets Especially Mentioned," "Substandard," "Doubtful," and "Loss."

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. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance, which also may necessitate future additions or reductions to the allowance, based on information available to them at the time of their examination.

The following table details changes in the allowance and summarizes loan loss experience by loan type for the three-month periods ended March 31, 2010 and 2009.

There were no material changes in loan concentrations during the three months ended March 31, 2010.

Based upon the process employed and giving recognition to all attendant factors associated with the loan portfolio, Company management believes the allowance for loan losses at March 31, 2010, is appropriate for the amount of risk inherent in the current loan portfolio and adequate to provide for estimated probable losses.

At March 31, 2010, total deposits stood at $664,815, compared with $641,173 at December 31, 2009, representing an increase $23,642, or 3.7%.

At March 31, 2010, total retail deposits stood at $555,952, compared with $549,183 at December 31, 2009, representing an increase of $6,769, or 1.2%. Reflecting the seasonality of the Bank’s deposit base, demand deposits and NOW accounts posted a combined decline of $11,597, or 8.8%, compared with December 31, 2009. This decline was more than offset by a $17,935 increase in retail time deposits compared with December 31, 2009.

At March 31, 2010, brokered time deposits obtained from the national market stood at $108,863, compared with $91,990 at December 31, 2009, representing an increase of $16,873, or 18.3%. Brokered deposits are generally utilized to help support the Bank’s earning asset growth, while maintaining its strong, on-balance sheet liquidity position via secured borrowing lines of credit with the FHLB of Boston and the Federal Reserve Bank of Boston. During the first quarter of 2010, the Bank shifted a portion of its collateralized short-term borrowings to brokered certificates of deposit in favor of meaningfully lower rates of interest and stronger on-balance sheet liquidity.

Bank management believes it has exercised restraint with respect to overly aggressive deposit pricing strategies, and has sought to achieve an appropriate balance between retail deposit growth and wholesale funding levels, while considering the associated impacts on the Bank’s net interest margin and liquidity position. In offering retail time deposits, the Bank generally prices these deposits on a relationship basis. At March 31, 2010, the weighted average cost of retail time deposits was 1.90% compared with 2.05% at December 31, 2009. Given the current interest rate environment and continuing time deposit maturities, management anticipates that the weighted average cost of time deposits will continue to show moderate declines for the balance of 2010.

Borrowed Funds

The Bank utilizes borrowed funds in leveraging its strong capital position and supporting its earning asset portfolios. Borrowed funds are principally utilized to support the Bank’s investment securities portfolio and, to a lesser extent, fund loan growth. Borrowed funds also provide a means to help manage balance sheet interest rate risk, given the Bank’s ability to select desired amounts, terms and maturities on a daily basis.

At March 31, 2010, total borrowings amounted to $286,280, compared with $311,629 at December 31, 2009, representing a decline of $25,349, or 8.1%, compared with December 31, 2009. The decline in total borrowings was principally attributed to the decline in the Bank’s securities portfolio, combined with the aforementioned funding shift to lower cost brokered certificates of deposit.

Consistent with the Bank’s asset and liability management strategy, the Bank has been adding long term borrowings to the balance sheet to protect net interest income in a rising rate environment. At March 31, 2010, long term borrowings with maturities of one year or greater represented 70.4% of total borrowings.

At March 31, 2010, total borrowings expressed as a percent of total assets amounted to 27.1%, compared with 29.1% December 31, 2009.

Capital Resources

As of March 31, 2010, the Company and the Bank were 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 Tier I leverage ratio of at least 5%. At March 31, 2010, the Company’s Tier I Leverage, Tier I Risk-based, and Total Risk-based capital ratios were 8.94%, 13.31% and 15.16%.

The following tables set forth the Company's and the Bank’s regulatory capital at March 31, 2010 and December 31, 2009, under the rules applicable at that date.