(207) 288-3314
(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   Xx  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    x  Non-accelerated filer (do not check if a smaller reporting company)___   Smaller reporting company___

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): YES:  ___  NO:   X   x 

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date:

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31,JUNE 30, 2010 AND DECEMBER 31, 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
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED MARCH 31,JUNE 30, 2010 AND 2009
(Dollars in thousands, except per share data)
(unaudited)

(1) Included in other comprehensive income,loss, net of tax.tax

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

BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREESIX MONTHS ENDED MARCH 31,JUNE 30, 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
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREESIX MONTHS ENDED MARCH 31,JUNE 30, 2010 AND 2009
(Dollars in thousands)
(unaudited)

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

BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE AND SIX MONTHS ENDED MARCH 31,JUNE 30, 2010 AND 2009
(Dollars in thousands)
(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,JUNE 30, 2010
(Dollars in thousands, except share data)
(unaudited)

Note 1: Basis of Presentation

The accompanying consolidated interim financial statements are unaudited. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All inter-company transactions have been eliminated in consolidation. Amounts in the prior period financial statements are reclassified whenever necessary to conform to current period presentation. The net income reported for the three and six months ended March 31,June 30, 2010, is not necessarily indicative of the results that may be expected for the year ending December 31, 2010, or any other interim periods.

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

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

Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, 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, nonperformingnon-performing 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-saleavailable 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 nonperformingnon-performing 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.

Income Taxes: The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. If current available information indicates that it is more-likely-than-not that deferred tax assets will not be realized, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Significant management judgment is required in determining income tax expense and deferred tax assets and liabilities. As of March 31,June 30, 2010 and December 31, 2009, there was no valuation allowance for deferred tax assets. Deferred tax assets are included in other assets on the consolidated balance sheet.

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,June 30, 2010, there was no indication of impairment.

At March 31,June 30, 2010 and December 31, 2009, the Company did not have any identifiable intangible assets on its consolidated balance sheet.

Any changes in the estimates used by the Company to determine the carrying value of its goodwill, or which otherwise adversely affect their value or estimated lives, would adversely affect the Company’s consolidated results of operations.

Note 3: Earnings Per Share

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 and six months ended March 31,June 30, 2010 and 2009:

Note 4: Securities Available For Sale

The following tables summarize the securities available for sale portfolio as of March 31,June 30, 2010 and December 31, 2009:

Securities’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,June 30, 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.impaired ("OTTI").

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,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,June 30, 2010, the Company recognized total OTTI losses of $298$242 in the statement of income (before taxes) related to eight, available-forfour, available for sale, private label mortgage-backed securities, wherethree of which 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 credit losses or additional credit losses on the collateral underlying these securities. The $298

For the six months ended June 30, 2010, the Company recognized total OTTI losses of $540 in additional estimatedthe statement of income (before taxes) related to nine, available for sale, private label mortgage-backed securities, all but one of which the Company had previously determined were other-than-temporarily impaired. In all cases the OTTI losses represented management’s best estimate of credit losses net of taxes, were previously recorded in unrealized gains or additional credit 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.collateral underlying these securities.

The $298$540 of year-to-date 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 nonperformingnon-performing 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.

Despite some rising levels of delinquencies, defaults and losses in the underlying residential mortgage loan collateral, given credit enhancements resulting from the structures of the individual securities, the Company currently expects as of March 31, 2010 that it will recover the amortized cost basis of its private label mortgage-backed securities as depicted in the table below and has therefore concluded that such securities were not other-than-temporarily impaired as of that date.securities. Nevertheless, given recent market conditions, it is possible that adverse changes in repayment performance and fair value could occur in future periods that could impact the Company’s current best estimates.estimates and expectations.

The following table displays the beginning balance of OTTI related to credit losses on debt securities held by the Company at the beginning of the current reporting period for which the other than credit related portion of the OTTI was included in accumulated other comprehensive income (net of tax), as well as changes in credit losses recognized in pre-tax earnings for the quarter ended March 31,June 30, 2010.

As of March 31,June 30, 2010, the total OTTI losses included in accumulated other comprehensive income amounted to $1,451$1,186 net of tax, compared with $1,808 at December 31, 2009. These OTTI losses related to twelvethirteen private label mortgage-backed securities, with a total unamortized cost of $7,101$7,352 at March 31,June 30, 2010.

As of March 31,June 30, 2010, based on a review of each of the remaining securities in the securities portfolio, the Company concluded that it expects to recover its amortized cost basis for such securities. This conclusion was based on the issuers’ continued satisfaction of the securities obligations in accordance with their contractual terms and the expectation that they will continue to do so through the maturity of the security, the expectation that the Company will receive the entire amount of future contractual cash flows, as well as the evaluation of the fundamentals of the issuers’ financial condition and other objective evidence. Accordingly, the Company concluded that the declines in the values of those securities were temporary and that any additional other-than-temporary impairment charges were not appropriate at March 31,June 30, 2010. As of that date, the Company did not intend to sell nor anticipated that it would more likely than not be required to sell any of its impaired securities, that is, where fair value is less than the cost basis of the security.

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,June 30, 2010 and December 31, 2009. All securities referenced are debt securities. At March 31,June 30, 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,June 30, 2010, the total unrealized losses on these securities amounted to $141,$9, 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 MarchJune 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,June 30, 2010.

• Mortgage-backed securities issued by U.S. Government agencies: Government-sponsored enterprises: As of March 31,June 30, 2010, the total unrealized losses on these securities amounted to $8,$468, 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 Government-sponsored enterprises play a vital role in the nation’s financial markets. Management’s analysis indicates that the unrealized losses at June 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 June 30, 2010.

• Mortgage-backed securities issued by U.S. Government agencies: As of June 30, 2010, the total unrealized losses on these securities amounted to $4, 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,June 30, 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,June 30, 2010.

• Private label mortgage-backed securities:securities: As of March 31,June 30, 2010, the total unrealized losses on the Bank’s private label mortgage-backed securities amounted to $4,351,$3,466, compared with $5,428 at December 31, 2009. The Company attributes the unrealized losses at March 31,June 30, 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 MBSmortgage-backed securities 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,June 30, 2010.

• Obligations of states of the U.S. and political subdivisions thereof: As of March 31,June 30, 2010, the total unrealized losses on the Bank’s municipal securities amounted to $3,849,$3,266, 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,June 30, 2010, all municipal bond issuers were current on contractually obligated interest and principal payments. At March 31,June 30, 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,June 30, 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,June 30, 2010.

At March 31,June 30, 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 and six months ended March 31,June 30, 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 and six months ended March 31,June 30, 2010 and 2009:

The Company is expected to recognize $378 of expense for the foregoing plans for the year ended December 31, 2010. The Company is expected to contribute $222$242 to the foregoing plans in 2010. As of March 31,June 30, 2010, the Company had contributed $54.99.

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,June 30, 2010 and December 31, 2009:

As of March 31,June 30, 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.

At March 31,June 30, 2010, the Bank had two outstanding, off-balance sheet, derivative instruments. These derivative instruments were interest rate floor agreements, with notional principal amounts totaling $30,000. The details are summarized as follows:

Interest Rate Floor Agreements

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 and six months ended March 31,June 30, 2010, total cash flows received from counterparties amounted to $210,$219 and $429, compared with $214$220 and $434 for the same periodperiods in 2009. The cash flows received from counterparties were recorded in interest income.

At March 31,June 30, 2010, the total fair value of the interest rate floor agreements was $450$236 compared with $671 at December 31, 2009. The fair values of the interest rate floor agreements are included in other assets on the Company’s consolidated balance sheets. Changes in the fair value, representing unrealized gains or losses, are recorded in accumulated other comprehensive income (loss).

The premiums paid on the interest rate floor agreements are being recognized as reductions of interest income over the duration of the agreements using the floorlet method. During the three and six months ended March 31,June 30, 2010, $20$21 and $41 of the premium was recognized as a reduction of interest income.income, respectively. At March 31,June 30, 2010, the remaining unamortized premiums totaled $36,$15, compared with $56 at December 31, 2009. During the next twelve months, the entire amount of the premiums will be recognized as reductions of interest income, decreasing the interest income related to the hedged pool of Prime-based loans.

A summary of the hedging related balances follows:

Note 8: Fair Value Measurements

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.

The most significant instruments that the Company values are securities, all of which fall into Level 2 in the fair value hierarchy. The securities in the available for sale portfolio are priced by independent providers. In obtaining such valuation information from third parties, the Company has evaluated their valuation methodologies used to develop the fair values in order to determine whether valuations are appropriately placed within the fair value hierarchy and whether the valuations are representative of an exit price in the Company’s principal markets. The Company’s principal markets for its securities portfolios are the secondary institutional markets, with an exit price that is predominantly reflective of bid level pricing in those markets. Additionally, the Company periodically tests the reasonableness of the prices provided by these third parties by obtaining fair values from other independent providers and by obtaining desk bids from a variety of institutional brokers.

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 foregoing valuation methodologies may produce fair value calculations that may not be fully indicative of net realizable value or reflective of future fair values. While Company management believes these valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

The following tables summarize financial assets and financial liabilities measured at fair value on a recurring basis as of March 31,June 30, 2010 and December 31, 2009, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

The Company also makes fair value measurements on a non-recurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The fair value of our mortgage servicing rights ("MSRs") was estimated using Level 2 inputs. MSRs do not trade in an active, open market with readily observable prices. As such, we determine the fair value of our MSRs using a projected cash flow model that considers loan type, loan rate and maturity, discount rate assumptions, estimated fee income and cost to service, and estimated prepayment speeds.

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.

There were no nonrecurring fair value measurements during the three months ended March 31, 2009.

The Company had collateral dependent impaired loans with a carrying value of $3,639 which had specific reserves included in the allowance of $586 at March 31, 2010.

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.

Note 9: Fair Value of Financial Instruments

The Company discloses fair value information about financial instruments for which it is practicable to estimate fair value. Fair value estimates are made as of a specific point in time based on the characteristics of the financial instruments and relevant market information. Where available, quoted market prices are used. In other cases, fair values are based on estimates using present value or other valuation techniques. These techniques involve uncertainties and are significantly affected by the assumptions used and judgments made regarding risk characteristics of various financial instruments, discount rates, estimates of future cash flows, future expected loss experience and other factors. Changes in assumptions could significantly affect these estimates. Derived fair value estimates cannot be substantiated by comparison to independent markets and, in certain cases, could not be realized in an immediate sale of the instrument.

Fair value estimates are based on existing financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Accordingly, the aggregate fair value amounts presented do not purport to represent the underlying market value of the Company.

The following describes the methods and significant assumptions used by the Company in estimating the fair values of significant financial instruments:

Cash and cash equivalents:Cash Equivalents: For cash and cash equivalents, including cash and due from banks and other short-term investments with maturities of 90 days or less, the carrying amounts reported on the consolidated balance sheet approximate fair values.

Loans: For variable rate loans that re-price frequently and have no significant change in credit risk, fair values are based on carrying values. The fair value of other loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

Deposits: The fair value of deposits with no stated maturity is equal to the carrying amount. The fair value of time deposits is based on the discounted value of contractual cash flows, applying interest rates currently being offered on wholesale funding products of similar maturities. The fair value estimates for deposits do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of alternative forms of funding ("deposit base intangibles").

Borrowings: For borrowings that mature or re-price in 90 days or less, carrying value approximates fair value. The fair value of the Company’s remaining borrowings is estimated by using discounted cash flows based on current rates available for similar types of borrowing arrangements taking into account any optionality.

Accrued interest receivableInterest Receivable and payable:Payable: The carrying amounts of accrued interest receivable and payable approximate their fair values.

Off-balance sheet financial instrumentsOff-Balance Sheet Financial Instruments: The Company’s off-balance sheet instruments consist of loan commitments and standby letters of credit. Fair values for standby letters of credit and loan commitments were insignificant.

A summary of the carrying values and estimated fair values of the Company’s significant financial instruments at March 31,June 30, 2010, and December 31, 2009, follows:

Note 10: Recently Adopted Accounting Standards

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.

Accounting for transfers of Financial Assets: In June 2009, the FASB issued new accounting guidance relating to accounting for transfers of financial assets to eliminate the exceptions for qualifying special purpose entities from the consolidation guidance and an exception that permitted sale accounting for certain mortgage securitizations when a transferor has not surrendered control over the transferred assets. 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 recognition and measurement provisions of the amended guidance should be applied to transfers that occur on or after the effective date. Additionally, on and after the effective date, the concept of a qualifying special-purpose entity will no longer be relevant for accounting purposes. Therefore, formerly qualifying special-purpose entities will be evaluated for consolidation on and after the effective date in accordance with applicable consolidation guidance, including the new accounting guidance relating to the consolidation of variable interest entities discussed in the previous paragraph. The adoption of this accounting standard did not impact the Company’s consolidated financial statements.

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s discussion and analysis, which follows, focuses on the factors affecting the Company’s consolidated results of operations for the three and six months ended March 31,June 30, 2010 and 2009, and financial condition at March 31,June 30, 2010, and December 31, 2009, and where appropriate, factors that may affect future financial performance. The following discussion and analysis of financial condition and results of operations of the Company and its subsidiaries should be read in conjunction with the consolidated financial statements and notes thereto, and selected financial and statistical information appearing elsewhere in this report on Form 10-Q.

Amounts in the prior period financial statements are reclassified whenever necessary to conform to current period presentation.

Unless otherwise noted, all dollars are expressed in thousands except share data.

Use of Non-GAAP Financial Measures: Certain information discussed below is presented on a fully taxable equivalent basis. Specifically, included in firstsecond quarter 2010 and 2009 interest income was $879$877 and $633,$828, respectively, of tax-exempt interest income from certain investment securities and loans. For the six months ended June 30, 2010 and 2009, the amount of tax-exempt income included in interest income was $1,755 and $1,461, respectively.

An amount equal to the tax benefit derived from this tax exempt income has been added back to the interest income totals discussed in certain sections of this Management’s Discussion and Analysis, representing tax equivalent adjustments of $416 and $296$393 in the firstsecond quarter of 2010 and 2009, respectively, and $832 and $689 for the six months ended June 30, 2010 and 2009, respectively, which increased net interest income accordingly. The analysis of net interest income tables included in this report on Form 10-Q provide a reconciliation of tax equivalent financial information to the Company's consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles.

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.

FORWARD LOOKING STATEMENTS DISCLAIMER

Certain statements, as well as certain other discussions contained in this quarterly report on Form 10-Q, or incorporated herein by reference, contain statements which may be considered to be forward-looking within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. You can identify these forward-looking statements by the use of words like "strategy," "expects," "plans," "believes," "will," "estimates," "intends," "projects," "goals," "targets," and other words of similar meaning. You can also identify them by the fact that they do not relate strictly to historical or current facts.

Investors are cautioned that forward-looking statements are inherently uncertain. Forward-looking statements include, but are not limited to, those made in connection with estimates with respect to the future results of operation, financial condition, and the business of the Company which are subject to change based on the impact of various factors that could cause actual results to differ materially from those projected or suggested due to certain risks and uncertainties. Those factors include but are not limited to:

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.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

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.

EXECUTIVE OVERVIEW

Summary Results of Operations

The Company reported consolidated net income available to common shareholders of $3,051$2,712 for the quarter ended March 31,June 30, 2010, compared with $2,625 in$2,488 for the firstsecond quarter of 2009, representing an increase of $426,$224, or 16.2%9.0%. NetThe Company’s diluted earnings per share amounted to $0.71 for the second quarter of 2010, compared with $0.85 for the second quarter of 2009, representing a decline of $0.14, or 16.5%.

During the first quarter of 2010, the Federal Home Loan Mortgage Corporation ("Freddie Mac") and the Federal National Mortgage Association ("Fannie Mae") announced they would buy back an approximate $200 billion backlog of seriously delinquent mortgages contained in many residential mortgage-backed securities ("MBS") previously sold to investors, including the Bank. These cumulative repurchases were completed during the second quarter. As a result of these repurchases, prepayments on the Bank’s MBS portfolio and the related bond premium amortization were accelerated, reducing second quarter net interest income by approximately $350 and reducing net income available to common shareholders and diluted earnings per share by approximately $227 and $0.06, respectively. Because of the absence of published data, it is not possible to precisely determine how many seriously delinquent loans were contained in any given securitized mortgage pool.

The Company’s annualized return on average shareholders’ equity ("ROE") amounted to 10.76% for the quarter, compared with 12.47% in the second quarter of 2009. The decline in second quarter ROE compared with the second quarter of 2009 was principally attributed to a $12,441 or 14.0% increase in average shareholders equity, which amounted to $101,099 in the second quarter. The Company’s annualized return on average assets ("ROA") amounted to 1.01% for the quarter, compared with 1.03% in the second quarter of 2009.

For the six months ended June 30, 2010, the Company’s net income available to common shareholders amounted to $2,398,$5,110, compared with $2,403$4,891 for the quartersame period in 2009, representing an increase of $219, or 4.5%. Diluted earnings per share amounted to $1.34 for the six months ended March 31,June 30, 2010, compared with $1.68 for the same period in 2009, representing a decline of $5,$0.34, or 0.2%20.2%.

As previously reported, during the first quarter of 2010 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 diluted earnings per share, after Preferred Stock dividendsdeclines in second quarter and accretion of Preferred Stock discount, amounted to $0.63 for the first quarter of 2010, compared with $0.82 for the first quarter of 2009, representing a decline of $0.19, or 23.2%. The decline in first quarteryear-to-date 2010 diluted earnings per share compared with the first quarter of 2009 was largely attributedreflect the Company’s previously reported issuance of 882,021 shares of its common stock, the proceeds from which were primarily used to repurchase all of the Preferred Stock sold to the Treasury. The decline in first quarter 2010 diluted earnings per share was also attributed to the acceleration of $496 thousandshares of Preferred Stock discount accretion in connection with the Company’s repurchase of its Preferred Stock fromheld by the Treasury.

For the six months ended June 30, 2010, the Company’s ROE amounted to 11.01%, compared with 12.71% for the same period in 2009. The Company’s annualized return on average shareholders’ equity ("ROE")ROA amounted to 11.24%1.09%, compared with 1.04% for the quarter, compared with 12.98% in the first quarter ofsix months ended June 30, 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,June 30, 2010, net interest income on a tax-equivalent basis amounted to $8,474,$8,211, representing an increasea decline of $238$1,025 or 2.9%11.1% compared with the firstsecond quarter of 2009. The increasedecline 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 eighta 38 basis point decline in the Bank’s tax-equivalent net interest margin.margin, combined with a $7,136 decline in average earning assets compared with the second quarter of 2009.

For the three months ended March 31, 2010, the tax-equivalentThe Bank’s net interest margin amounted to 3.34%,3.17% for the second quarter 2010, representing a decline of 837 basis points compared with the firstsecond quarter of 2009. The decline in the net interest margin from the firstsecond quarter of 2009 was largely attributed to earning asset yields, which declined 838 basis points more than the cost of interest bearing liabilities, largelyin part reflecting a moderate shift from short-term funding to higher cost long-term funding on the Bank’s balance sheet. Considering the current near zeronear-zero percent short-term funding rates and the steepnessshape 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. Factors contributing to the decline in earning asset yields included the ongoing re-pricing of certain loans and the replacement of high-yielding securities cash flows during a period of historically low market yields.

The Bank’s second quarter net interest income and net interest margin were also negatively impacted by the accelerated MBS security premium amortization related to the aforementioned cumulative repurchases of seriously delinquent mortgage loans by FNMA and FHLMC, which reduced net interest income by approximately $350 and the net interest margin by approximately 14 basis points.

For the six months ended June 30, 2010, net interest income on a tax-equivalent basis amounted to $16,685, representing a decline of $787, or 4.5%, compared with the same period in 2009. The decline in net interest income was principally attributed to the Bank’s tax-equivalent net interest margin, which amounted to 3.26% for the six months ended June 30, 2010, representing a decline of 23 basis points compared with the same period in 2009. The decline in the net interest margin was largely attributed to earning asset yields, which declined 23 basis points more than the cost of interest bearing liabilities, in part reflecting a historically low interest rate environment and a moderate shift from short-term funding to long term funding.

The Bank’s year-to-date net interest income and net interest margin were also negatively impacted by the accelerated MBS security premium amortization related to aforementioned FNMA and FHLMC repurchases, which reduced net interest income by approximately $420 and the net interest margin by approximately 8 basis points.

• Non-interest Income: For the three months ended March 31,June 30, 2010, total non-interest income amounted to $1,910,$1,795, representing an increase of $306$426 or 19.1%31.1%, compared with the firstsecond quarter of 2009. The increase in first quarter non-interest income compared with the first quarter of 2009 was principally attributed to increases in

Total securities gains, net of other than temporaryother-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,$263 in the second quarter, compared with a net loss of $40 in the second quarter of 2009, representing an increase of $142 or 34.5% compared with the first quarter of 2009. First quarter$303. The $263 in net securities gains were comprised of realized gains on the sale of securities amounting to $852, partially$505, largely offset by OTTIother-than-temporary impairment losses of $298$242 on certain available-for-sale,available for sale, non-agency residential mortgage-backed securities.

Trust and other financial services fees amounted to $696 in the second quarter, representing an increase of $108 or 18.4% compared with the second quarter of 2009. Assets under management at June 30, 2010, stood at $267,980, representing an increase of $26,117 or 10.8 % compared with June 30, 2009.

For the threesix months ended March 31,June 30, 2010, total non-interest income amounted to $3,705, representing an increase of $732 or 24.6% compared with the same period in 2009.

Total securities gains, net of other-than-temporary impairment losses, amounted to $817 for the six months ended June 30, 2010, compared with $372 for the same period in 2009, representing an increase of $445. The $817 in net securities gains were comprised of realized gains on the sale of securities amounting to $1,357, partially offset by other-than-temporary impairment losses of $540 on certain available for sale, non-agency residential mortgage backed securities.

For the six months ended June 30, 2010, credit and debit card service charges and fees amounted to $252,$526, representing an increase of $76 thousand$98 or 43.2%22.9% compared with the first quarter ofsame period in 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, trustTrust and other financial services fees amounted to $640,$1,336 for the six months ended June 30, 2010, representing an increase of $68$176, or 11.9%15.2%, compared with the first quarter of 2009. Following a recoverysame period 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,June 30, 2010, total non-interest expense amounted to $5,205,$5,392, representing an increasea decline of $41,$160, or 0.8%2.9%, compared with the firstsecond quarter of 2009.

For the three months ended March 31, 2010, total salaries and employee benefits expenseFDIC deposit insurance assessments amounted to $2,943,$266 for the quarter, representing an increasea decline of $187$322 or 6.8%54.8% compared with the firstsecond quarter of 2009. This decline was principally attributed to a $495 emergency special FDIC assessment recorded in the second quarter of 2009. The first quarter increase in salaries and employee benefitsspecial assessment was levied on all FDIC insured financial institutions.

For the six months ended June 30, 2010, total non-interest expense amounted to $10,597, representing a decline of $119, or 1.1%, compared with the first quartersame period in 2009.

FDIC deposit insurance assessments amounted to $530 for the six months ended June 30, 2010, representing a decline of 2009$151 or 22.2% compared with the same period in 2009. This decline 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 attainedthe aforementioned special FDIC assessment recorded 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 firstsecond quarter of 2009. DepositIn addition, 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 increasesdecline in first quarter non-interest expense compared withfor the first quarter of 2009 were partially offset bysix months ended June 30, 2010 was also attributed to a $168$181 write-down of certain non-marketable venture capital equity investment funds considered other-than-temporarily impaired inrecorded during the first quarterhalf 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.

For the six months ended June 30, 2010, salaries and employee benefits expense amounted to $5,862, representing an increase of $425, or 7.8%, compared with the same period in 2009. The increase in salaries and employee benefits 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 $135 of employee health insurance credits attained in the first quarter and an additional $135 in the second quarter of 2010, based on favorable claims experience.

• 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 and six months ended March 31,June 30, 2010, the Company’s efficiency ratioratios amounted to 52.8%55.3% and 54.0%, significantly better than industry averages.compared with 52.0% and 53.2% for the same periods in 2009, respectively.

• Income Taxes: For the three and six months ended March 31,June 30, 2010, total income taxes amounted to $1,212,$936 and $2,148, representing an increasedeclines of $122$133 and $11, or 11.2%12.4% and 0.5% compared with the first quarter of 2009.same periods in 2009, respectively. The Company’s effective tax raterates amounted to 28.4% in25.7% and 27.2% for the first quarter,three and six months ended June 30, 2010, compared with 29.3%27.9% and 28.6% for the same periods in the first quarter of 2009. Fluctuations2009, respectively. The fluctuation in the Company’s effective tax rate arerates was generally attributed to increaseschanges in the level of non-taxable income in relation to taxable income.

Summary Financial Condition

At March 31,June 30, 2010 the Company’s total assets stood at $1,056,306,$1,084,547, representing a declinean increase of $16,075,$12,166, or 1.5%1.1%, compared with December 31, 2009.

• Loans: Total loans ended the firstsecond quarter at $672,112,$684,826, representing an increase of $2,620,$15,334, or 0.4%2.3%, compared with December 31, 2009. Commercial loanLoan growth slowed during the quarter, with total outstanding balances unchangedwas led by commercial loans, which were up $12,929, or 3.5%, compared with year-endDecember 31, 2009. Led by a $2,044 increase in

Consumer loans, which principally consist of residential real estate mortgage loans and home equity loans, total consumer loans increased $1,106 during the quarter,$1,428 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%0.5% compared with December 31, 2009. WhileThis increase was principally attributed to home equity loans, which were up $2,709 or 4.9% compared with December 31, 2009.

Residential mortgage loan activity slowed during the first half of 2010, largely reflecting current economic conditions and uncertainties with respect to further real estate market declines in the communities served by the Bank, and to a lesser extent the expiration of the first time home buyers tax credit. The Bank’s residential real estate mortgage portfolio posted a decline of $1,217, or 0.5%, compared with December 31, 2009. Loans originated and closed $6,876 in residential mortgage loans during the first quarter, this amount wassix months ended June 30, 2010, were more than offset by cash flows and principal pay-downs from the residential mortgage loan portfolio.

• Credit Quality: While theThe Bank’s non-performing loans trended upwarddeclined $1,270 or 12.9% during the first quarter, the rate of increase slowed significantly compared with the prior three quarters.second quarter. At March 31,June 30, 2010, total non-performing loans amounted to $9,809$8,539, representing a decline of $637 or 1.46%6.9%, compared with December 31, 2009. At June 30, 2010, total non-performing loans represented 1.25% of total loans, representing a decline of twelve basis points compared with $9,176, or 1.37% at December 31, 2009.

During the first quarter ofsix months ended June 30, 2010, the Bank enjoyed a relatively low level of loan loss experience. Total net loan charge-offs amounted to $148 representing a decline of $57$394 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%of 0.12%, compared with 0.13% in$224 thousand, or annualized net charge-offs to average loans outstanding of 0.07%, during the first quarterhalf of 2009.

For the three and six months ended March 31,June 30, 2010, the Bank recorded a provisionprovisions for loan losses of $500,$550 thousand and $1.1 million, representing a declinedeclines of $165, or 24.8%,$285 thousand and $450 thousand, compared with the same periods in 2009, respectively. The provisions recorded during the first quartersix months of 2009. The decline in the provision for loan losses principally reflected2010 were higher than historical norms, largely reflecting a slowingcontinuance in the overall level of credit deterioration, combined withbut aided by relatively low levels of net loan charge-offs and relatively flat loan portfolio growth during the first quarter.half of 2010.

The Bank maintains an allowance for loan losses (the "allowance") which is available to absorb probable losses on loans. 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. At June 30, 2010, the allowance stood at $8,166,$8,470, representing an increase of $352$656 or 4.5%8.4% compared with December 31, 2009. At March 31, 2010, theThe allowance expressed as a percentage of total loans stood at 1.21%,1.24% at quarter end, up from 1.17% at December 31, 2009. The increase in the allowance was principally attribeted to continued credit detrioration in the Bank's loan portfolio, including an increase in potential problem loans. Company management believes this is reflective of depressed economic conditions, including elevated unemployment levels and declining real estate values in the markets served by the Bank.

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 alaysis regarding non-performing loans, potential problem loans and the allowance.

• Securities: Total securities ended the firstsecond quarter at $332,819,$343,413, representing a decline of $14,207,$3,613, or 4.1%1.0%, compared with December 31, 2009. The decline in the securities portfolio was principally attributed to pay-downs on mortgage-backed securities,MBS, the cash flows from which were not fully reinvested, largely due to prevailing market conditionsyields and interest rate risk considerations. Securities purchased during the first six months of 2010 principally consisted of MBS issued by U.S. Government agencies and sponsored enterprises.

For the quarter ended June 30, 2010, total average securities amounted to $339,521, representing a decline of $29,763 or 8.1%, compared with the second quarter of 2009. Since the second quarter of 2009, the Bank de-leveraged a portion of the securities portfolio in consideration of historically low market yields and the corresponding interest rate risk should interest rates begin to rise. While this action inhibited the growth of the Bank’s net interest income in the near term, Company management believed the long-term risks outweighed the short-term rewards.

• 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.deposits and NOW accounts.

Total deposits ended the firstsecond quarter at $664,815,$668,285, representing an increase of $23,642,$27,112, or 3.7%4.2%, compared with December 31, 2009. Total retail deposits ended the firstsecond quarter at $555,952,$565,227, up $6,769$16,044 or 1.2%2.9% compared with December 31, 2009. Retail deposit growth was principally attributed to time deposits and savings and money market accounts, with demand deposits and NOW accounts posting a combined seasonal decline of $11.6 million,$5,076 or 8.8%.3.8%

Brokered deposits obtained from the national market ended the firstsecond quarter at $108,863,$103,058, representing an increase of $16.9 million,$11,068, or 18.3%12.0%, 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 quarterhalf of 2010, the Bank shifted a portion of its short-term collateralized short- term borrowings to short-termlong-term brokered deposits in favor of meaningfully lowerhistorically low rates of interest.interest and a stronger on-balance sheet liquidity position.

• Borrowings: Total borrowings ended the firstsecond quarter at $286,280,$307,354, representing a decline of $25.3 million,$4,275, or 8.1%1.4%, 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.deposits at historically low interest rates.

• 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,June 30, 2010, the Company’s Tier I Leverage, Tier I Risk-based, and Total Risk-based capital ratios were 8.93%9.01%, 13.31%13.33% and 15.17%15.19%.

At March 31,June 30, 2010, the Company’s tangible common equity ratio stood at 9.16%9.25%, 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 firstsecond quarter of 2010, unchanged compared with the same quarter in 2009. The Company’s Board of Directors recently declared a secondthird quarter 2010 regular cash dividend of $0.26 per share of common stock.

RESULTS OF OPERATIONS

Net Interest Income

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,June 30, 2010, net interest income on a tax equivalent basis amounted to $8,474,$8,211, compared with $8,236$9,236 in the firstsecond quarter of 2009, representing an increasea decline of $238,$1,025, or 2.9%11.1%. As more fully discussed below, the increasedecline in the Bank’s firstsecond quarter 2010 tax-equivalent net interest income compared with the firstsecond quarter of 2009 was principally attributed to average earning asset growth of $52,049, or 5.3%, offset in part by an eighta 37 basis point decline in the tax equivalentBank’s net interest margin.margin and, to a lesser extent, a $7,136 or 0.7% decline in average earning assets.

For the six months ended June 30, 2010, net interest income on a tax-equivalent basis amounted to $16,685, compared with $17,472 for the same period in 2009, representing a decline of $787, or 4.5%. As more fully discussed below, the decline tax-equivalent net interest income was principally attributed to a 23 basis point decline in the Bank’s net interest margin, partially offset by a $22,206 or 2.2% increase in average earning assets compared with the six months ended June 30, 2009.

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 summarizestables summarize the Company’s average balance sheets and components of net interest income, including a reconciliation of tax equivalent adjustments, for the three and six months ended March 31,June 30, 2010 and 2009, respectively:

AVERAGE BALANCE SHEET AND
ANALYSIS OF NET INTEREST INCOME
THREE MONTHS ENDED
MARCH 31,JUNE 30, 2010 AND 2009

	2010			2009			2010			2009
	Average Balance	Interest	Weighted Average Rate	Average Balance	Interest	Weighted Average Rate	Average Balance	Interest	Weighted Average Rate	Average Balance	Interest	Weighted Average Rate
Interest Earning Assets:
Loans (1,3)	$ 669,602	$ 8,614	5.22%	$ 638,263	$ 8,756	5.56%	$  682,107	$ 8,850	5.20%	$   659,645	$ 8,806	5.35%
Taxable securities (2)	279,210	3,598	5.23%	275,861	4,068	5.98%	278,762	3,025	4.35%	310,553	4,537	5.86%
Non-taxable securities (2,3)	62,763	1,158	7.48%	45,747	834	7.39%	60,759	1,146	7.57%	58,731	1,115	7.61%
Total securities	341,973	4,756	5.64%	321,608	4,902	6.18%	339,521	4,171	4.93%	369,284	5,652	6.14%
Federal Home Loan Bank stock	16,068	---	0.00%	15,082	---	0.00%	16,068	---	0.00%	15,898	---	0.00%
Fed funds sold, money market funds,
and time deposits with other banks	229	---	0.00%	870	2	0.93%
Fed funds sold, money market funds, and time
deposits with other banks							372	---	0.00%	377	---	0.00%
Total Earning Assets	1,027,872	13,370	5.28%	975,823	13,660	5.68%	1,038,068	13,021	5.03%	1,045,204	14,458	5.55%
Non-Interest Earning Assets:
Cash and due from banks	5,886			6,154			7,484			8,091
Allowance for loan losses	(8,157)			(5,616)			(8,377)			(6,219)
Other assets (2)	38,968			28,167			38,360			28,298
Total Assets	$ 1,064,569			$1,004,528			$1,075,535			$1,075,374
Interest Bearing Liabilities:
Deposits	$ 611,445	$ 2,478	1.64%	$ 522,676	$ 2,800	2.17%	$   629,945	$ 2,473	1.57%	$   575,147	$ 2,636	1.84%
Borrowings	286,558	2,418	3.42%	346,685	2,624	3.07%	289,746	2,337	3.24%	358,069	2,586	2.90%
Total Interest Bearing Liabilities	898,003	4,896	2.21%	869,361	5,424	2.53%	919,691	4,810	2.10%	933,216	5,222	2.24%
Rate Spread			3.07%			3.15%			2.93%			3.31%
Non-Interest Bearing Liabilities:
Demand and other non-interest bearing deposits	51,124			48,177			49,661			48,342
Other liabilities	5,317			4,961			5,084			5,158
Total Liabilities	954,444			922,499			974,436			986,716
Shareholders' equity	110,125			82,029			101,099			88,658
Total Liabilities and Shareholders' Equity	$ 1,064,569			$1,004,528			$1,075,535			$1,075,374
Net interest income and net interest margin (3)		8,474	3.34%		8,236	3.42%		8,211	3.17%		9,236	3.54%
Less: Tax Equivalent adjustment		(416)			(296)			(416)			(393)
Net Interest Income		$ 8,058	3.18%		$7,940	3.30%		$ 7,795	3.01%		$ 8,843	3.39%

(1)  For purposes of these computations, non-accrual loans are included in average loans.
(2)  For purposes of these computations, unrealized gains (losses) on available-for-saleavailable for sale securities are recorded in other assets.
(3)  For purposes of these computations, net interest income and net interest margin are reported on a tax equivalent basis.

AVERAGE BALANCE SHEET AND
ANALYSIS OF NET INTEREST INCOME
SIX MONTHS ENDED
JUNE 30, 2010 AND 2009

	2010			2009
			Weighted			Weighted
	Average		Average	Average		Average
	Balance	Interest	Rate	Balance	Interest	Rate
Interest Earning Assets:
Loans (1,3)	$    675,889	$17,464	5.21%	$   649,013	$17,562	5.46%
Taxable securities (2)	278,985	6,623	4.79%	293,303	8,605	5.92%
Non-taxable securities (2,3)	61,756	2,304	7.52%	52,275	1,949	7.52%
Total securities	340,741	8,927	5.28%	345,578	10,554	6.16%
Federal Home Loan Bank stock	16,068	---	0.00%	15,492	---	0.00%
Fed funds sold, money market funds, and time
deposits with other banks	213	---	0.00%	622	2	0.65%
Total Earning Assets	1,032,911	26,391	5.15%	1,010,705	28,118	5.61%
Non-Interest Earning Assets:
Cash and due from banks	7,766			8,059
Allowance for loan losses	(8,268)			(5,919)
Other assets (2)	37,664			27,302
Total Assets	$1,070,073			$1,040,147
Interest Bearing Liabilities:
Deposits	$    620,746	$ 4,951	1.61%	$    549,056	$ 5,436	2.00%
Borrowings	288,161	4,755	3.33%	352,408	5,210	2.98%
Total Interest Bearing Liabilities	908,907	9,706	2.15%	901,464	10,646	2.38%
Rate Spread			3.00%			3.23%
Non-Interest Bearing Liabilities:
Demand and other non-interest bearing deposits	50,379			48,260
Other liabilities	5,200			5,061
Total Liabilities	964,486			954,785
Shareholders' equity	105,587			85,362
Total Liabilities and Shareholders' Equity	$1,070,073			$1,040,147
Net interest income and net interest margin (3)		16,685	3.26%		17,472	3.49%
Less: Tax Equivalent adjustment		(832)			(689)
Net Interest Income		$15,853	3.10%		$16,783	3.35%

(1)  For purposes of these computations, non-accrual loans are included in average loans.
(2)  For purposes of these computations, unrealized gains (losses) on available for sale securities are recorded in other assets.
(3)  For purposes of these computations, net interest income and net interest margin are reported on a tax equivalent basis.

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,June 30, 2010, the tax equivalent net interest margin amounted to 3.34%3.17%, compared with 3.42%3.54% in the firstsecond quarter of 2009, representing a decline of eight37 basis points. The decline in the net interest margin from the firstsecond quarter of 2009 was largely attributed earning asset yields, which declined eight38 basis points more than the cost of interest bearing liabilities, largelyin part reflecting the historically low interest rate environment and 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 steepnessshape 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.

During the first quarter of 2010 the Federal Home Loan Mortgage Corporation ("FHLMC" or "Freddie Mac") and the Federal National Mortgage Association ("FNMA" or "Fannie Mae") announced they would buy back an approximate $200 billion backlog of seriously delinquent mortgages contained in certain residential MBS previously sold to investors, including the Company. These cumulative repurchases were completed during the three months ended June 30, 2010. The Bank’s second quarter net interest margin and net interest income were negatively impacted by the accelerated MBS premium amortization related to the aforementioned repurchases by Fannie Mae and Freddie Mac, which reduced the net interest margin by approximately 14 basis points and net interest income by approximately $350. Because of the absence of published data, it is not possible to precisely determine how many seriously delinquent loans were contained in any given securitized mortgage pool.

During the default wave of 2007-present, Fannie Mae and Freddie Mac had not been routinely buying back mortgage loans out of securitized pools when they became seriously delinquent. Instead, these government-sponsored enterprises continued to advance principal and interest on the loans, buying them back at the earlier of the date when (1) a loan is modified, (2) a loan proceeds through foreclosure, (3) the loan reaches the maximum delinquency allowed under the pool prospectus (typically 24 months), or (4) they arbitrarily decide to buy it back sometime after passing 120 days delinquent. Given the size of the backlog of seriously delinquent loans, it became apparent that Fannie Mae and Freddie Mac had not been electing to repurchase most seriously delinquent loans out timely since 2007. In effect, these government sponsored enterprises incurred a cost of funds equal to the mortgage pool coupons, but may have managed to defer some loss recognition. Going forward, while Fannie Mae and Freddie Mac have avoided setting specific guidelines for future purchases, given the funding now available from the U.S. Treasury and new accounting requirements to bring their off-balance sheet mortgage guarantees on the balance sheet, it appears likely that both will be quicker to repurchase loans when they become 120 days delinquent. As a result, repurchases of delinquent loans will likely be steadier, preventing the kind of backlog that had accumulated and the highly abnormal bond premium amortization experienced by investors during the six months ended June 30, 2010, including the Company.

For the six months ended June 30, 2010, the tax equivalent net interest margin amounted to 3.26%, compared with 3.49% for the same period in 2009, representing a decline of 23 basis points. The decline in the net interest margin from the first half of 2009 was largely attributed to earning asset yields, which declined 23 basis points more than the cost of interest bearing liabilities, in part reflecting the historically low interest rate environment and the previously discussed moderate shift from short-term funding to higher cost, long-term funding on the Bank’s balance sheet. The Bank’s year-to-date net interest margin and net interest income were also negatively impacted by the previously discussed accelerated MBS premium amortization related to the Fannie Mae and Freddie Mac repurchases, which during the six months ended June 30, 2010 reduced the net interest margin by approximately 8 basis points and net interest income by approximately $420.

The following table summarizes the net interest margin components, on a quarterly basis, over the past two years. Factors contributing to the changes in the net interest margin are enumerated in the following discussion and analysis.

NET INTEREST MARGIN ANALYSIS
FOR QUARTER ENDED

WEIGHTED AVERAGE RATES	2010		2009					2008
Quarter:	1		4	3	2	1		4	3	2
Interest Earning Assets:
Loans (1,3)	5.22%		5.16%	5.27%	5.35%	5.56%		5.93%	6.09%	6.19%
Taxable securities (2)	5.23%		5.31%	5.64%	5.86%	5.98%		5.81%	5.89%	5.88%
Non-taxable securities (2,3)	7.48%		7.53%	7.13%	7.61%	7.39%		7.02%	6.88%	6.77%
Total securities	5.64%		5.70%	5.90%	6.14%	6.18%		5.97%	6.02%	6.00%
Federal Home Loan Bank stock	0.00%		0.00%	0.00%	0.00%	0.00%		2.46%	3.00%	3.98%
Fed Funds sold, money market funds,
and time deposits with other banks	0.00%		0.00%	1.33%	0.00%	0.93%		2.16%	3.13%	3.00%
Total Earning Assets	5.28%		5.26%	5.40%	5.55%	5.68%		5.88%	6.02%	6.08%
Interest Bearing Liabilities:
Demand and other non-interest      bearing deposits	1.64%		1.73%	1.79%	1.84%	2.17%		2.62%	2.72%	2.92%
Borrowings	3.42%		3.34%	3.19%	2.90%	3.07%		3.67%	3.92%	4.21%
Total Interest Bearing Liabilities	2.21%		2.27%	2.29%	2.24%	2.53%		3.00%	3.14%	3.36%
Rate Spread	3.07%		2.99%	3.11%	3.31%	3.15%		2.88%	2.88%	2.72%
Net Interest Margin (3)	3.34%		3.27%	3.38%	3.54%	3.42%		3.21%	3.22%	3.07%
Net Interest Margin without      Tax Equivalent Adjustments	3.18%		3.10%	3.23%	3.39%	3.30%		3.10%	3.12%	2.97%

WEIGHTED AVERAGE RATES	2010			2009					2008
Quarter:	2	1		4	3	2	1		4	3
Interest Earning Assets:
Loans (1,3)	5.20%	5.22%		5.16%	5.27%	5.35%	5.56%		5.93%	6.09%
Taxable securities (2)	4.35%	5.23%		5.31%	5.64%	5.86%	5.98%		5.81%	5.89%
Non-taxable securities (2,3)	7.57%	7.48%		7.53%	7.13%	7.61%	7.39%		7.02%	6.88%
Total securities	4.93%	5.64%		5.70%	5.90%	6.14%	6.18%		5.97%	6.02%
Federal Home Loan Bank stock	0.00%	0.00%		0.00%	0.00%	0.00%	0.00%		2.46%	3.00%
Fed Funds sold, money market funds, and time
deposits with other banks	0.00%	0.00%		0.00%	1.33%	0.00%	0.93%		2.16%	3.13%
Total Earning Assets	5.03%	5.28%		5.26%	5.40%	5.55%	5.68%		5.88%	6.02%
Interest Bearing Liabilities:
Demand and other non-interest bearing deposits	1.57%	1.64%		1.73%	1.79%	1.84%	2.17%		2.62%	2.72%
Borrowings	3.24%	3.42%		3.34%	3.19%	2.90%	3.07%		3.67%	3.92%
Total Interest Bearing Liabilities	2.10%	2.21%		2.27%	2.29%	2.24%	2.53%		3.00%	3.14%
Rate Spread	2.93%	3.07%		2.99%	3.11%	3.31%	3.15%		2.88%	2.88%
Net Interest Margin (3)	3.17%	3.34%		3.27%	3.38%	3.54%	3.42%		3.21%	3.22%
Net Interest Margin without      Tax Equivalent Adjustments	3.01%	3.18%		3.10%	3.23%	3.39%	3.30%		3.10%	3.12%

(1) For purposes of these computations, non-accrual loans are included in average loans.
(2) For purposes of these computations, unrealized gains (losses) on available-for-saleavailable for sale securities are recorded in other assets.
(3) For purposes of these computations, net interest income and net interest margin are reported on a tax equivalent basis.

The weighted average cost of interest bearing liabilities amounted to 2.21%2.10% in the firstsecond quarter of 2010, compared with 2.53%2.24% in the firstsecond quarter of 2009, representing a decline of 3214 basis points. However, the weighted average yield on average earning assets amounted to 5.28%5.03% in the firstsecond quarter of 2010, compared with 5.68%5.55% in the firstsecond quarter of 2009, representing a decline of 4052 basis points. In short, since the firstsecond 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 eight38 basis points.

For the six months ended June 30, 2010, the weighted average cost of interest bearing liabilities amounted to 2.15%, compared with 2.38% for the same period in 2009, representing a decline of 23 basis points. However, the weighted average yield on average earning assets amounted to 5.15% compared with 5.61% during the six months ended June 30, 2009, representing a decline of 46 basis points. Comparing the first six months of 2010 with the same period in 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 23 basis points.

Should interest rates continue at current levels, Company management anticipates the net interest margin will remain relatively stable over the next twelve months as assets and liabilities are expected to re-price or be replaced proportionally into the current low interest rate environment.

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,June 30, 2010, total interest and dividend income on a tax-equivalent basis amounted to $13,370,$13,021, compared with $14,458 in the second quarter of 2009, representing a decline of $290,$1,437, or 2.1%, compared with the first quarter of 2009.9.9%. The decline in interest and dividend income was principally attributed to a 4052 basis point decline in the weighted average earning asset yield largely offset byand, to a lesser extent, a $7,136 or 0.7% decline in average earning asset growth of $52,049, or 5.3%,

Theassets. Factors contributing to the decline in the weighted average earning asset yield was principally attributedincluded the aforementioned impact of the cumulative buyback of loans contained in certain MBS amounting to approximately $350, and the ongoing re-pricing of certain loans and replacement of high yielding securities cash flows during a period of 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.market yields.

For the quarter ended March 31,June 30, 2010, interest income from the loan portfolio amounted to $8,614,$8,850, representing a declineslight increase of $142, or 1.6%,$44, compared with the firstsecond quarter of 2009. The decline in loan interest income was attributed to a 34 basis point decline inWhile the weighted average yield on the loan portfolio yield, which indeclined 15 basis points to 5.20%, the first quarter of 2010 amounted to 5.22% compared with 5.56% in the first quarter of 2009. The impact of thethis decline in the weighted average loan portfolio yield was almost entirelyessentially offset by average loan portfolio growth of $31,339,$22,462, or 4.9%3.4%.

For the quarter ended March 31,June 30, 2010, interest income from the Bank’s securities portfolio amounted to $4,756,$4,171, representing a decline of $146,$1,481, or 3.0%26.2%, compared with the firstsecond quarter of 2009. The decline in securities interest income was principally attributed to a 54$29,763 or 8.1% decline in average securities, compared with the second quarter of 2009. Since the second quarter of 2009, the Bank de-leveraged a portion of the securities portfolio in consideration of historically low market yields and the corresponding interest rate risk should market yields and interest rates begin to rise. The decline in interest income from securities was also attributed to a 121 basis point decline in the weighted average portfolio yield to 4.93%, principally reflecting a 60 basis point negative impact associated with the previously discussed cumulative buyback of loans contained in certain MBS. The decline securities portfolio yield which insince the firstsecond quarter of 2010 amounted to 5.64% compared with 6.18% in2009 also reflects the first quarterreplacement of 2009. Since the first quarter of 2009,high yielding securities cash flows from the securities portfolio principally pay-downsduring a period of historically low market yields.

As depicted on mortgage-backed securities, were largely replacedthe rate/volume analysis table below, comparing the three months ended June 30, 2010 with lower yielding securities, reflecting prevailing market yields and the durationsame quarter in 2009, the decreased volume of securities addedtotal average earning assets on the balance sheet contributed $126 to the portfolio.decline in total tax-equivalent interest income, while the impact of the lower weighted average earning asset yield contributed $1,311 to the decline in total tax-equivalent interest income.

For the six months ended June 30, 2010, total interest and dividend income on a tax-equivalent basis amounted to $26,391, compared with $28,118 for the same period in 2009, representing a decline of $1,727, or 6.1%. The impactdecline in interest and dividend income was principally attributed to a 46 basis point decline in the weighted average earning asset yield, partially offset by average earning asset growth of $22,206, compared with the first six months of 2009. Factors contributing to the decline in the weighted average earning asset yield included the aforementioned impact of the cumulative buyback of loans contained in certain MBS, and the ongoing re-pricing of certain loans and replacement of securities cash flows during a period of historically low market yields.

For the six months ended June 30, 2010, interest income from the loan portfolio amounted to $17,464, representing a slight increase of $98, compared with the same period in 2009. While the weighted average yield on the loan portfolio declined 25 basis points to 5.21%, the impact of this decline was largelyessentially offset by average securitiesloan portfolio growth of $20,365,$26,876, or 6.3%4.1%.

For the six months ended June 30, 2010, interest income from the Bank’s securities portfolio amounted to $8,927, representing a decline of $1,627, or 15.4%, compared with the same period in 2009. The decline in interest income from securities was principally attributed to an 88 basis point decline in the weighted average portfolio yield to 5.28%, principally reflecting a 25 basis point negative impact associated with the previously discussed cumulative buyback of loans contained in certain MBS, combined with the replacement of high yielding securities cash flows from the portfolio during a period of historically low market yields. To a lesser extent, the decline in interest income from securities also reflects a $4,837 or 1.4% decline in average securities compared with the first quartersix months of 2009.

For the threesix months ended March 31,June 30, 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. For the six months ended June 30, 2010, the average balance of FHLB stock on the Bank’s balance sheet amounted to $16,068.

As depicted on the rate/volume analysis table, below, comparing the threesix months ended March 31,June 30, 2010, with the same quarterperiod 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.yield contributed $2,390 to the decline in total tax-equivalent interest income, offset in part by a positive $663 attributed to the increased volume of total average earning assets on the Bank’s balance sheet.

Interest Expense: For the three months ended March 31,June 30, 2010, total interest expense amounted to $4,896,$4,810, compared with $5,424$5,222 in the firstsecond quarter of 2009, representing a decline of $528,$412, or 9.7%7.9%. The decline in interest expense was attributed to a 3214 basis point decline in the weighted average cost of interest bearing liabilities, largely offset by an increasecombined with a $13,525 decline in total average interest bearing liabilities of $28,642, or 3.3%, when comparing the three months ended March 31, 2010 with the same quarter in 2009.liabilities. The decline in the average cost of interest bearing funds was principally attributed to prevailing, historically low short-term and long-term market interest rates since the first quarter of 2009, with maturing time deposits being added or replaced at a lower cost.cost and other interest bearing deposits re-pricing into the lower interest rate environment.

For the three months ended March 31,June 30, 2010, the total weighted average cost of interest bearing liabilities amounted to 2.21%2.10%, compared with 2.53%2.24% for the same quarter in 2009, representing a decline of 3214 basis points. The weighted average cost of interest bearing deposits declined 5327 basis points to 1.64%1.57%, compared with the first quarter of 2009. The weighted average cost of borrowed funds increased 3534 basis points to 3.42%3.24%, 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,June 30, 2010, with the same quarter in 2009, the impact of the lower weighted average rate paid on interest bearing liabilities contributed $549$169 to the decline in interest expense, partially offset by an increase of $21 attributed towhile the impact of the increaseddecreased volume of average interest bearing liabilities contributed $243.

For the six months ended June 30, 2010, total interest expense amounted to $9,706, compared with $10,646 for the same period in 2009, representing a decline of $940, or 8.8%. The decline in interest expense was attributed to a 23 basis point decline in the weighted average cost of interest bearing liabilities, partially offset by a $7,443 or 0.8% increase in total average interest bearing liabilities.

The decline in the average cost of interest bearing liabilities was principally attributed to prevailing, historically low short-term and long-term market interest rates since the first half of 2009. The total weighted average cost of interest bearing liabilities amounted to 2.15%, compared with 2.38% for the same period in 2009, representing a decline of 23 basis points. The weighted average cost of interest bearing deposits declined 39 basis points to 1.61%, while the weighted average cost of borrowed funds increased 35 basis points to 3.33%, principally reflecting the addition of long-term borrowings to the Bank’s balance sheet.

As depicted on the rate/volume analysis table below, comparing the six months ended June 30, 2010, with the same period in 2009, the impact of the lower weighted average rate paid on interest bearing liabilities contributed $700 to the decline in interest expense, while the impact of the volume of average interest bearing liabilities contributed $240.

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.

ANALYSIS OF VOLUME AND RATE CHANGES ON NET INTEREST INCOME
THREE MONTHS ENDED MARCH 31,JUNE 30, 2010 VERSUS MARCH 31,JUNE 30, 2009
INCREASES (DECREASES) DUE TO:

				Average	Average	Total
	Average Volume	Average Rate	Total Change	Volume	Rate	Change
Loans (1,3)	$ 431	$    (573)	$(142)	$  299	$   (255)	$      44
Taxable securities (2)	49	(519)	(470)	(464)	(1,048)	(1,512)
Non-taxable securities (2,3)	310	14	324	39	(8)	31
Investment in Federal Home Loan Bank stock	---	---	---
Fed funds sold, money market funds, and time deposits with other banks	(1)	(1)	(2)
TOTAL EARNING ASSETS	$ 789	$(1,079)	$(290)	$(126)	$(1,311)	$(1,437)
Interest bearing deposits	478	(800)	(322)	252	(415)	(163)
Borrowings	(457)	251	(206)	(495)	246	(249)
TOTAL INTEREST BEARING LIABILITIES	$ 21	$ (549)	$(528)	$(243)	$   (169)	$  (412)
NET CHANGE IN NET INTEREST INCOME	$ 768	$ (530)	$ 238	$ 117	$(1,142)	$(1,025)

(1)  For purposes of these computations, non-accrual loans are included in average loans.
(2)  For purposes of these computations, unrealized gains (losses) on available-for-saleavailable for sale securities are recorded in other assets.
(3)  For purposes of these computations, net interest income and net interest margin are reported on a tax equivalent basis.

ANALYSIS OF VOLUME AND RATE CHANGES ON NET INTEREST INCOME
SIX MONTHS ENDED JUNE 30, 2010 VERSUS JUNE 30, 2009
INCREASES (DECREASES) DUE TO:

	Average	Average	Total
	Volume	Rate	Change
Loans (1,3)	$  731	$  (829)	$    (98)
Taxable securities (2)	(420)	(1,562)	(1,982)
Non-taxable securities (2,3)	353	2	355
Fed funds sold, money market funds, and time
deposits with other banks	(1)	(1)	(2)
TOTAL EARNING ASSETS	$  663	$(2,390)	$(1,727)
Interest bearing deposits	713	(1,198)	(485)
Borrowings	(953)	498	(455)
TOTAL INTEREST BEARING LIABILITIES	$(240)	$   (700)	$  (940)
NET CHANGE IN NET INTEREST INCOME	$ 903	$(1,690)	$  (787)

(1) For purposes of these computations, non-accrual loans are included in average loans.
(2) For purposes of these computations, unrealized gains (losses) on available for sale securities are recorded in other assets.
(3) For purposes of these computations, net interest income and net interest margin are reported on a tax equivalent basis.

Provision for Loan Losses

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 theThe Bank’s non-performing loans trended upwarddeclined $1,270 or 12.9% during the first quarter, the rate of increase slowed significantly compared with the prior three quarters.second quarter. At March 31,June 30, 2010, total non-performing loans amounted to $9,809$8,539, or 1.46%1.25% 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%99.2% at March 31,June 30, 2010, compared with 85%85.2% at December 31, 2009.

DuringFor the first quarter ofsix months ended June 30, 2010, total net loan charge-offs amounted to $148,$394, representing a declinean increase of $57, or 27.8%,$170 compared with the first quarter ofsame period in 2009. For the quartersix months ended March 31,June 30, 2010, annualized net charge-offs to average loans outstanding amounted to 0.09%0.12%, compared with 0.13%0.07% for the same quarterperiod in 2009.

For the three and six months ended March 31,June 30, 2010, the provision for loan losses (the "provision") amounted to $500,$550 and $1,050, compared with $665$835 and $1,500 for the same periods in the first quarter of 2009, representing a declinedeclines of $165,$285 and $450, or 24.8%. The decline34.1% and 30.0%, respectively. Despite the year-over-year declines in the provision, principally reflectedthe amounts recorded during the first six months of 2010 were higher than historical norms, largely reflecting a slowingcontinuance in the overall level of credit deterioration, but aided by relatively low levels of net loan charge-offs and relatively flat loan portfolio growth during the first quarter.half of 2010.

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.

Non-interest Income

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,June 30, 2010, total non-interest income amounted to $1,910,$1,795, compared with $1,604$1,369 for the same quarter in 2009, representing an increase of $306$426 or 19.1%31.1%.

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 partythird-party broker.

For the three months ended March 31,June 30, 2010, income from trust and other financial services amounted to $640,$696, compared with $572$588 for the same quarter in 2009, representing an increase of $68,$108, or 11.9%18.4%. Following aFor the six months ended June 30, 2010 income from trust and other financial services amounted to $1,336, compared with $1,160 for the same period in 2009, representing an increase of $176, or 15.2%

Reflecting some recovery in the equity markets and additional new business, assets under management ended the second quarter at March 31, 2010 rose to $276,563, up $6,448 from December 31,$267,980, compared with $241,863 at June 30, 2009, and representing an increase of $53,065$26,117, or 23.7% compared with March 31, 2009.10.8%.

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,June 30, 2010, income from service charges on deposit accounts amounted to $314,$372, compared with $309$360 for the same quarter in 2009, representing an increase of $5$12 or 1.6%3.3%. For the six months ended June 30, 2010, income from service charges on deposits amounted to $686, compared with $669 for the same period in 2009, representing an increase of 2.5%.

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 underOn November 12, 2009, the Federal Reserve issued amendments to Regulation E implementing certain provisions of the Electronic Fund Transfer ActAct.  The new rules, which became effective on July 1, 2010, restrict the ability of a bank to offer overdraft protection to deposit customers without their consent and to derive fees from overdraft programs. Bank management believes these amendments will prohibit financial institutions from charging consumers fees for paying overdrafts on automated teller machines ("ATM") and one-time debit card transactions, unlessnot have 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. Overdraftsmaterial adverse impact on the paymentCompany’s financial condition or results of checksoperations.

Mortgage Banking Activities: This income is principally derived from gains on sales of residential mortgage loans into the secondary market and regular electronic bill payments are not covered by this new rule. Before opting in,ongoing retained mortgage loan servicing fees.

For the consumer must be provided a notice that explains the financial institution’s overdraft services, including the fees associated with the service,three and the consumer’s choices. Financial institutions must provide consumers who do not opt insix months ended June 30, 2010, income from mortgage banking activities amounted to $44 and $69, representing declines of $26 and $4, or 37.1% and 5.5% compared 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.periods in 2009, respectively. During the first half of 2010, substantially all residential mortgage loan originations were held in the Bank’s loan portfolio, whereas during the same period in 2009 certain residential Mortgage loan originations were sold into the secondary market with customer servicing retained.

Credit and Debit Card Service Charges and Fees: This income is principally derived from the Bank’s Visa debit card product, merchant credit card processing fees and fees associated with Visa credit cards.

For the three months ended March 31,June 30, 2010, credit and debit card service charges and fees amounted to $252$274, compared with $176$252 in the firstsecond quarter of 2009, representing an increase of $76,$22, or 43.2%8.7%. ThisFor the six months ended June 30, 2010, credit and debit card service charges and fees amounted to $526, compared with $428 for the same period in 2009, representing an increase wasof $98, or 22.9%.

The increases in credit and debit card service charges and fees were 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,June 30, 2010, total net securities gains amounted to $852,$505, compared with $412$414 in the firstsecond quarter of 2009, representing an increase of $440,$91, or 106.8%22.0%. The $852total securities gains recorded in firstthe second quarter of 2010 and 2009 were comprised entirely of realized gains on the sale of securities.

For the six months ended June 30, 2010, total securities gains amounted to $1,357 compared with $826 for the same period in 2009, representing an increase of $531, or 64.3%. The total net securities gains recorded during the six months ended June 30, 2010 were comprised entirely of realized gains on the sale of securities. The $412 in first quarter 2009total net securities gains recorded during the six months ended June 30, 2009, were comprised of $1,419 in realized gains on the sale of securities amounting to $1,833, largely offset by $1,007 in OTTI losses .other-than-temporary impairment ("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-agencyavailable for sale, private label 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-saleavailable 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 and six months ended March 31,June 30, 2010 and 2009, 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,June 30, 2010, net OTTI losses recognized in earnings amounted to $298,$242, compared with none$454 in the second quarter of 2009, representing a decline of $212, or 46.7%. The OTTI losses recorded in the second quarter of 2010 related to four, available for sale, private label mortgage-backed securities, three of which the Company had previously determined to be other-than-temporarily impaired. In all cases the OTTI losses represented management’s best estimate of credit losses or additional credit losses on the collateral underlying these securities. The $242 in 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.

For the six months ended June 30, 2010, net OTTI losses recognized in earnings amounted to $540, compared with $454 thousand during the first quartersame period in 2009, representing an increase of 2009.$86, or 18.9%. 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).gains.

InThe OTTI losses recognized in earnings during the first quarterhalf of 2010 the Company recognized an additional $298 of OTTI losses in earnings on eight, available-for-sale, non-agency, residentialrelated to nine, available for sale, private label mortgage-backed securities, whereeight of which 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 credit losses or additional credit losses on the collateral underlying these securities. The $298$540 in additional estimated credit losses, on these securities, net of taxes, were previously recorded in unrealized gains or losses on securities available-for-saleavailable for sale within accumulated other comprehensive income or loss, a component of total shareholdersshareholders’ equity on the Company’s consolidated balance sheet.

For further information about other-than-temporary securities impairment losses recorded during the three and six months ended March 31,June 30, 2010 and 2009, refer to Notes 2 4 and 104 of the consolidated financial statements in Part I, Item 1 of this quarterly report on Form 10-Q.

Non-interest Expense

For the three months ended March 31,June 30, 2010, total non-interest expense amounted to $5,205,$5,392, compared with $5,164$5,552 in the firstsecond quarter of 2009, representing a decline of $160, or 2.9%. For the six months ended June 30, 2010, total non-interest expense amounted to $10,597, compared with $10,716 for the same period in 2009, representing an increase of $41,$119, or 0.8%1.1%.

Factors contributing to the changes in non-interest expense are enumerated in the following discussion and analysis.

Salaries and Employee Benefit Expenses: For the three months ended March 31,June 30, 2010, salaries and employee benefits expense amounted to $2,943,$2,919, compared with $2,681 in the second quarter of 2009, representing an increase of $187,$238, or 6.8%,8.9%. For the six months ended June 30, 2010, salaries and employee benefits expense amounted to $5,862, compared with $5,437 for the first quartersame period in 2009, representing an increase of 2009.$425, or 7.8%.

The increaseincreases in salaries and employee benefits expense 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$135 of employee health insurance expense creditcredits attained in the first quarter of 2010 and an additional $135 in the second quarter of 2010, based on favorable claims experience.

Occupancy Expenses: For the three and six months ended March 31,June 30, 2010, total occupancy expenses amounted to $372,$337 and $709, compared with $398$330 and $728 for the same quarterperiods in 2009, representing a declinedeclines of $26,$7 and $19, or 6.5%.2.1% and 2.6%, respectively. The declinedeclines in occupancy expense waswere principally attributed to lower utilities and grounds keeping costs.

Furniture and Equipment Expenses: For the three and six months ended March 31,June 30, 2010 and 2009, furniture and equipment expenses amounted to $352, unchanged$419 and $771, compared with $337 and $690 during the first quartersame period is 2009, representing increases of 2009. Furniture$82 and $81, or 24.3% and 11.7%, respectively. The increase in furniture and equipment expenses was principally includeattributed to depreciation expense, maintenance contract expenses, and miscellaneous equipment purchases and repairs, and personal property taxes.repairs.

FDIC Insurance Assessments: For the three months ended March 31,June 30, 2010, FDIC insurance assessments amounted to $264,$266, compared with $93$588 for the same quarter in 2009, representing an increasea decline of $171,$322, or 183.9%54.8%. This decline was principally attributed to a $495 emergency special assessment recorded in the second quarter of 2009. The special assessment was levied on all financial institutions

During 2009, the FDIC’s Deposit Insurance Fund ("DIF") posted record losses, causing the reserve ratio to fall well below 1.15%. A reserve ratio below 1.15% triggers the need for a DIF restoration plan in accordance with the FDI Reform Act of 2005 and conforming amendments. Pursuant to the Act, the FDIC must bring the reserve ratio back to 1.15% within five years. DepositIn addition to the 2009 special emergency assessment, 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 acceptable levels.

For the six months ended June 30, 2010, total FDIC assessments amounted to $530, compared with $681 for the same period in 2009, representing a decline of $151, or 22.2%. This decline was attributed to the 2009 special emergency assessment discussed immediately above.

Other Operating Expense: For the three months ended March 31,June 30, 2010, total other operating expense amounted to $1,197,$1,381, compared with $1,463 for$1,543 in the firstsecond quarter in 2009, representing a decline of $266,$162, or 18.2%10.5%. The decline in other operating expense was attributed to declines in a variety of expense categories including loan collection expenses, audit and regulatory examination fees, marketing costs, statement rendering costs, professional services fees, and miscellaneous losses.

For the six months ended June 30, 2010, total other operating expenses amounted to $2,578, compared with $3,006 for the same period in 2009, representing a decline of $428, or 14.2%. This decline was principally attributed to a $168$181 write-down of certain non-marketable venture capital equity investment funds considered other-than-temporarily impaired of which $168 was recorded in the first quarter of 2009 and $13 in the second 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 quartersix months of 2009 was also attributed to declines in loan collection expenses, charitable contributions, statement rendering expenses, audit and loan collectionregulatory examination fees, professional services fees and foreclosure expenses.miscellaneous losses.

Income Taxes

For the three months ended March 31,June 30, 2010, total income taxes amounted to $1,212,$936, compared with $1,090$1,069 in the firstsecond quarter of 2008,2009, representing an increasea decline of $122,$133, or 11.2%12.4%. For the six months ended June 30, 2010, total income taxes amounted to $2,148, compared with $2,159 for the same period in 2009, representing a decline of $11, or 0.5%.

The Company's effective tax raterates for the three and six months ended March 31,June 30, 2010 amounted to 28.4%25.7% and 27.2%, compared with 29.3%27.9% and 28.6% for the same periods 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.

FINANCIAL CONDITION

Total Assets

The Company’s assets principally consist of loans and securities, which at March 31,June 30, 2010 represented 63.6%63.1% and 31.5%31.7% of total assets, compared with 62.4% and 32.4% at December 31, 2009, respectively.

At March 31,June 30, 2010, the Company’s total assets amounted to $1,056,306,$1,084,547, compared with $1,072,381 at December 31, 2009, representing a declinean increase of $16,075,$12,166, or 1.5 %.1.1%.

Securities

The securities portfolio is primarily comprised of mortgage-backed securitiesMBS 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,June 30, 2010, the securities portfolio did not contain any pools of sub-prime mortgage-backed securities,subprime MBS, collateralized debt obligations or commercial mortgage-backed securities.MBS. 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")FHLMC or Federal National Mortgage Association ("FNMA"),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%33.0% of the Company’s average earning assets during the threesix months ended March 31,June 30, 2010 and generated 35.6%33.8% of total tax equivalent interest and dividend income, compared with 33.0%34.2% and 35.9%37.5% for the same period in the first quarter of 2009, respectively.

Securities available for sale represented 100% of total securities at March 31,June 30, 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,June 30, 2010, total net unrealized securities gains amounted to $2,231,$5,131, compared with $419 at December 31, 2009.2009, principally reflecting declining market yields during the first six months of 2010.

Total Securities: At March 31,June 30, 2010, total securities amounted to $332,819,$343,413, compared with $347,026 at December 31, 2009, representing a decline of $14,207$3,613 or 4.1%1.0%. The decline in the securities portfolio was principally attributed to pay-downs on mortgage-backed securities,MBS, the cash flows from which were not fully reinvested, largely due to prevailing market conditions and interest rate risk considerations.

The following tables summarize the securities available for sale portfolio as of March 31,June 30, 2010 and December 31, 2009:

	March 31, 2010
					June 30, 2010
Available for Sale:	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Estimated Fair Value	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Estimated Fair Value
Obligations of US Government-sponsored enterprises	$     2,797	$        21	$   141	$     2,677
Obligations of U.S. Government-sponsored enterprises					$    2,095	$      37	$       9	$    2,123
Mortgage-backed securities:
US Government-sponsored enterprises	213,649	8,513	71	222,091
US Government agencies	21,761	741	8	22,494
U.S. Government-sponsored enterprises					218,339	9,722	468	227,593
U.S. Government agencies					27,937	1,156	4	29,089
Private label	29,607	31	4,351	25,287	27,705	71	3,466	24,310
Obligations of states and political subdivisions thereof	62,774	1,345	3,849	60,270	62,206	1,358	3,266	60,298
Total	$330,588	$10,651	$8,420	$332,819	$338,282	$12,344	$7,213	$343,413

 

	December 31, 2009				December 31, 2009
Available for Sale:	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Estimated Fair Value	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Estimated Fair Value
Obligations of US Government-sponsored enterprises	$    2,770	$      13	$    227	$    2,556
Obligations of U.S. Government-sponsored enterprises					$  2,770	$      13	$ 227	$    2,556
Mortgage-backed securities:
US Government-sponsored enterprises	226,740	7,613	3	234,350
US Government agencies	21,522	606	21	22,107
U.S. Government-sponsored enterprises					226,740	7,613	3	234,350
U.S. Government agencies					21,522	606	21	22,107
Private label	31,754	27	5,428	26,353	31,754	27	5,428	26,353
Obligations of states and political subdivisions thereof	63,821	1,674	3,835	61,660	63,821	1,674	3,835	61,660
Total	$346,607	$9,933	$9,514	$347,026	$346,607	$9,933	$9,514	$347,026

Impaired Securities: The securities portfolio contains certain securities where amortized cost exceeds fair value, which at March 31,June 30, 2010, amounted to an excess of $8,420,$7,213, or 2.5%2.1% 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,June 30, 2010, unrealized losses on securities in a continuous unrealized loss position more than twelve-months amounted to $6,765,$6,186, 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-saleavailable 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

The Bank is a member of the Federal Home Loan Bank ("FHLB") of Boston.  The FHLB of Boston is a cooperatively owned wholesale bank for housing and finance in the six New England states. Its mission is to support the residential mortgage and community-development lending activities of its members, which include over 450 financial institutions across New England. As a requirement of membership in the FHLB of Boston, the Bank must own a minimum required amount of FHLB stock, calculated periodically based primarily on its level of borrowings from the FHLB.  The Bank uses the FHLB of Boston for most of its wholesale funding needs.

At March 31,June 30, 2010, the Bank’s investment in FHLB stock totaled $16,068, unchanged compared with December 31, 2009.

FHLB stock is a non-marketable equity security and therefore is reported at cost, which equals par value. Shares held in excess of the minimum required amount are generally redeemable at par value. However, in the first quarter of 2009 the FHLB announced a moratorium on such redemptions in order to preserve its capital in response to current market conditions and declining retained earnings. The minimum required shares are redeemable, subject to certain limitations, five years following termination of FHLB membership. The Bank has no intention of terminating its FHLB membership.

In the first quarter of 2009, the FHLB of Boston advised its members that it iswas 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 for all of 2009 were suspended.suspended and that continued to be the case during the six months ended June 30, 2010. The Company believes it is more likely than not that the suspension of FHLB stock dividends will continue throughout 2010.

The Company periodically evaluates its investment in FHLB stock for impairment based on, among other things, the capital adequacy of the FHLB of Boston and its overall financial condition. For the year ended December 31, 2009, the FHLB reported a loss of $186.8 million, following a net loss of $115.8 million in 2008. These net losses were entirely attributed to OTTI losses in the FHLB’s securities portfolio. The FHLB also reported that it remained in compliance with all regulatory capital ratios as of December 31, 2009, and, in the most recent information available, was classified "adequately capitalized" by its regulator, the Federal Housing Finance Agency.

The FHLB has the capacity to issue additional debt if necessary to raise cash. If needed, the FHLB also has the ability to secure funding available to government-sponsored enterprises through the U.S. Treasury. Based on the capital adequacy and the liquidity position of the FHLB, management believes there is no impairment related to the carrying amount of the Bank’s FHLB stock as of March 31,June 30, 2010. Further deterioration of the FHLB’s capital levels may require the Bank to deem its restricted investment in FHLB stock to be other-than-temporarily impaired. If evidence of impairment exists in future periods, the FHLB stock would reflect fair value using observable or unobservable inputs. The Bank will continue to monitor its investment in FHLB of Boston stock.

Loans

The loan portfolio is primarily secured by real estate in the counties of Hancock, Washington and Knox, Maine.

The following table summarizes the components of the Bank's loan portfolio as of the dates indicated.

LOAN PORTFOLIO SUMMARY

			June 30,	December 31,
	March 31,	December 31,	2010	2009
	2010	2009
Commercial real estate mortgages	$268,819	$269,776	$273,575	$269,776
Commercial and industrial loans	78,741	77,284	86,624	77,284
Agricultural and other loans to farmers	21,757	22,192	21,982	22,192
Total commercial loans	369,317	369,252	382,181	369,252
Residential real estate mortgages	225,006	225,750	224,533	225,750
Home equity loans	56,933	54,889	57,598	54,889
Consumer loans	4,471	4,665	4,601	4,665
Total consumer loans	286,410	285,304	286,732	285,304
Tax exempt loans	15,599	14,138	15,094	14,138
Deferred origination costs	786	798
Deferred origination costs, net			819	798
Total loans	672,112	669,492	684,826	669,492
Allowance for loan losses	(8,166)	(7,814)	(8,470)	(7,814)
Total loans net of allowance for loan losses	$663,946	$661,678	$676,356	$661,678

Total Loans: At March 31,June 30, 2010, total loans stood at $672,112,$684,826, compared with $669,492 at December 31, 2009, representing an increase of $2,620,$15,334, or 0.4%2.3%.

Commercial Loans: At March 31,June 30, 2010, total commercial loans amounted to $369,317,$382,181, compared with $369,252 at December 31, 2009, representing an increase of $65.$12,929, or 3.5%. Commercial loan growth has been challenged by a weakened economy, declining loan demand, and unrelenting competition for quality loans.

At March 31,June 30, 2010, commercial loans represented 54.9%55.8% of the Bank’s total loan portfolio, compared with 55.2% at December 31, 2009.

Consumer Loans: At March 31,June 30, 2010, total consumer loans, which principally consisted of residential real estate mortgage loans, amounted to $286,410,$286,732, compared with $285,304 at December 31, 2009, representing an increase of $1,106$1,428 or 0.4%0.5%, compared with December 31, 2009.

At March 31,June 30, 2010, the Bank’s residential mortgage loan portfolio totaled $225,006,$224,533, representing a decline of $744,$1,217, or 0.3%0.5%, compared with December 31, 2009. Residential mortgage loan origination activity slowed during the first three monthshalf of 2010, principallylargely reflecting increasescurrent economic conditions and uncertainties with respect to further real estate declines in residential mortgage loan interest rates, declining borrowerthe communities served by the Bank and, to a lesser extent the expiration of the first time home buyers credit. Borrower refinancing activity andalso slowed during the first half of 2010, in part reflecting declining appraised property values in the markets served by the Bank. WhileDuring the Bankfirst half of 2010, loans originated and closed $6,876 in residential real estate loans duringby the first quarter of 2010, this amount wasBank were more than offset by cash flows and principal pay-downs from the existing residential real estate loan portfolio.

At March 31,June 30, 2010, the Bank’s home equity loan portfolio totaled $56,933,$57,598, representing an increase of $2,044,$2,709, or 3.7%4.9%, compared with December 31, 2009.

Tax Exempt Loans: At March 31,June 30, 2010, tax exempt loans, amounted to $15,599,$15,094, compared with $14,138 at December 31, 2009, representing an increase of $1,461,$956, or 10.3%6.8%.

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: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""subprime" lending. In referencing sub-primesubprime lending activities, bank management relies upon several sources, including Maine’s predatory lending law enacted January 1, 2008, and the "statement of sub-primesubprime mortgage lending" issued by the federal bank regulatory agencies (the "agencies") on June 29, 2007, which further references the expanded guidance for sub-primesubprime lending programs (the "expanded guidance"), issued by the agencies by press release dated January 31, 2001.

In the Expanded Guidance, the Agencies indicated that sub-primesubprime lending does not refer to individual sub-primesubprime loans originated and managed, in the ordinary course of business, as exceptions to prime risk selection standards. The Agencies recognize that many Prime loan portfolios will contain such accounts. The Agencies also excluded Prime loans that develop credit problems after origination and community development loans from the sub-primesubprime arena. According to the Expanded Guidance, sub-primesubprime loans are other loans to borrowers that display one or more characteristics of reduced payment capacity. Five specific criteria, which are not intended to be exhaustive and are not meant to define specific parameters for all sub-primesubprime borrowers and may not match all markets’ or institutions’ specific sub-primesubprime definitions, are set forth, including having a FICO (credit) score of 660 or lower. Based on the definitions and exclusions described above, Bank management considers the Bank as a Prime lender. Within the Bank’s residential mortgage loan portfolio there are loans that, at the time of origination, had FICO scores of 660 or below. However, as a portfolio lender, the Bank reviews all credit underwriting data including all data included in borrower credit reports and does not base its underwriting decisions solely on FICO scores. Bank management believes the aforementioned loans, when made, were amply collateralized and documented, and otherwise conformed to the Bank’s prime lending standards.

Credit Risk: Credit risk is managed through loan officer authorities, loan policies, and oversight from the Bank’s Senior Credit Officer, the Bank's Senior Loan Officers Committee, the Director's Loan Committee, and the Bank's Board of Directors. Management follows a policy of continually identifying, analyzing and grading credit risk inherent in the loan portfolio. An ongoing independent review, subsequent to management's review, of individual credits is performed by an independent loan review consulting firm, which reports to the Audit Committee of the Board of Directors.

As a result of management’s ongoing review of the loan portfolio, loans are placed on non-accrual status, either due to the delinquent status of principal and/or interest, or a judgment by management that, although payments of principal and or interest are current, such action is prudent because collection in full of all outstanding principal and interest is in doubt. Loans are generally placed on non-accrual status when principal and or interest is 90 days overdue, or sooner if judged appropriate by management. Consumer loans are generally charged-off when principal and/or interest payments are 120 days overdue, or sooner if judged appropriate by management.

Non-performing Loans: Non-performing loans include loans on non-accrual status, loans that have been treated as troubled debt restructurings and loans past due 90 days or more and still accruing interest. At March 31,June 30, 2010, total non-performing loans included one troubled debt restructuring (a residential real estate mortgage) amounting towith an outstanding principal balance of $301 unchanged compared with December 31, 2009. The following table sets forth the details of non-performing loans as of the dates indicated:

TOTAL NON-PERFORMING LOANS

	March 31,	December 31,	June 30,	December 31,
	2010	2009	2010	2009
Commercial real estate mortgages	$4,023	$3,096	$3,485	$3,096
Commercial construction and development	225	392	225	392
Commercial and industrial loans	421	237	298	237
Agricultural and other loans to farmers	1,898	1,848	1,708	1,848
Total commercial loans	6,567	5,573	5,716	5,573
Residential real estate mortgages	3,054	2,498	2,625	2,498
Home equity loans	132	304	92	304
Residential construction and development	---	24	---	24
Consumer loans	44	5	2	5
Total consumer loans	3,230	2,831	2,719	2,831
Total non-accrual loans	9,797	8,404	8,435	8,404
Accruing loans contractually past due 90 days or more	12	772	104	772
Total non-performing loans	$9,809	$9,176	$8,539	$9,176
Allowance for loan losses to non-performing loans	83%	85%	99%	85%
Non-performing loans to total loans	1.46%	1.37%	1.25%	1.37%
Allowance to total loans	1.21%	1.17%	1.24%	1.17%

The Bank’s non-performing loans trended upwarddeclined $1,270 or 12.9% during the first quarter, but the rate of increase slowed significantly compared with the prior three quarters.

second quarter. At March 31,June 30, 2010, total non-performing loans amounted to $9,809,$8,539, compared with $9,176 at December 31, 2009, representing an increasea decline of $633,$637, or 6.9%. At March 31,June 30, 2010, total non-performing loans amounted to 1.46%1.25% of total loans, compared with 1.37% at December 31, 2009, representing an increasea decline of ninetwelve basis points. One agricultural loan accounted for $1,500 or 15.3%17.6% of total non-performing loans at March 31,June 30, 2010.

Non-performing commercial real estate mortgages amounted to $4,023$3,485 at March 31,June 30, 2010, representing an increase of $927$389 compared with December 31, 2009. At March 31,June 30, 2010, non-performing commercial real estate loans were represented by fifteenthirteen business relationships, with outstanding balances ranging from $25 to $446.$415.

Non-performing residential real estate mortgages amounted to $3,054totaled $2,625 at March 31,June 30, 2010, representing an increase of $556$127 compared with December 31, 2009. At March 31,June 30, 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,June 30, 2010, accruing loans contractually past due 90 days or more totaled $12,$104, representing a decline of $760$668 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 ofBank’s non-performing loans to total loans ratio was well below industry averages and continued to reflect favorably on the overall quality of the loan portfolio at March 31,June 30, 2010, Bank management is cognizant of the continued softening of the real estate market, elevated unemployment rates and depressed economic conditions overall. Bank management recognizes that the current credit cycle has yet to reach a definitive turning point and it may be a while before the overall level of credit quality in the Bank’s loan portfolio shows meaningful and believes it is managing credit risk accordingly.lasting improvement. 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, consumer confidence 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.

Other Real Estate Owned: Real estate acquiredDelinquencies and Potential Problem Loans: In addition to the non-performing loans discussed above, the Bank also has loans that are 30 to 89 days delinquent. These loans amounted to $2,972 and $4,255 at June 30, 2010 and December 31, 2009, or 0.43% and 0.64% of total loans, respectively, net of any loans classified as non-performing that are within these delinquency categories. These loans and delinquency trends in satisfactiongeneral are considered in the evaluation of a loan is reported in other assets. Properties acquired by foreclosure or deed in lieu of foreclosure are transferred to other real estate owned ("OREO") and recorded at the lower of cost or fair market value less estimated costs to sell based on appraised value at the date actually or constructively received. Loan losses arising from the acquisition of such property are charged against the allowance for loan losses and the related determination of the provision for loan losses. Subsequent reductions

On at least a quarterly basis, the Bank applies an internal credit quality rating system to commercial loans that are either past due or fully performing, but exhibit certain characteristics that could reflect a potential weakness. Loans are placed on non-accrual status when the likely amount of future principal and interest payments are expected to be less than the contractual amounts, even if such loans are not 90 days past due.

Periodically, the Bank reviews the commercial loan portfolio for evidence of potential problem loans. Potential problem loans are loans that are currently performing in fair value belowaccordance with contractual terms, but where known information about possible credit problems of the carrying valueborrower causes doubt about the ability of the borrower to comply with the loan payment terms and may result in disclosure of such loans as non-performing at some time in the future.  Through the Bank’s on-going credit monitoring, it considers loans which, in its internal classification system, are chargedclassified as substandard but continue to other operating expenses. accrue interest to be potential problem loans.

At March 31,June 30, 2010, the Bank identified 25 commercial relationships totaling $12,089 as potential problem loans, or 1.77% of total OREO amounted to $782, compared with $854 atloans. At December 31, 2009, the Bank identified 16 commercial relationships totaling $2,938 as potential problem loans, or 0.39% of total loans. One commercial real estate development loan to a local, non-profit housing authority in support of an affordable housing project accounted for $5,169, or 56.5%, of the increase in potential problem loans since year-end 2009. Two properties comprisedFactors such as payment history, value of supporting collateral, and personal or government guarantees led the March 31, 2010 balance of OREO.Bank to conclude that the current risk exposure on potential problem loans did not warrant accounting for the loans as non-performing.

Allowance for Loan Losses: At March 31,June 30, 2010, the allowance stood at $8,166,$8,470, compared with $7,814 at December 31, 2009, representing an increase of $352,$656, or 4.5%8.4%. At March 31,June 30, 2010, the allowance expressed as a percentage of total loans stood at 1.21%1.24%, up from 1.17% at December 31, 2009. The increase in the allowance was principally attributed to continued deterioration in the overall credit quality of the Bank’s loan portfolio including the increase in non-performing loans andpotential problem loans. Company management believes this is reflective of depressed economic conditions, including elevated unemployment levels and declining real estate values in the markets served by the Bank.

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

The allowance is maintained at a level that, 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$3,259 as of March 31,June 30, 2010, compared with $4,416 as of December 31, 2009. The related allowances for loan losses on these impaired loans amounted to $786$673 as of March 31,June 30, 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-monthsix-month periods ended March 31,June 30, 2010 and 2009.

ALLOWANCE FOR LOAN LOSSES
THREESIX MONTHS ENDED
MARCH 31,JUNE 30, 2010 AND 2009

	2010	2009	2010	2009
Balance at beginning of period	$    7,814	$    5,446	$   7,814	$    5,446
Charge offs:
Commercial construction and development	167	---	167	---
Commercial real estate mortgages	5	52	182	52
Commercial and industrial loans	27	145	54	160
Residential real estate mortgages	60	2	106	19
Consumer loans	17	9	70	34
Total charge-offs	276	208	579	265
Recoveries:
Commercial and industrial loans			1	13
Agricultural and other loans to farmers			3	---
Residential real estate mortgages	118	---	146	23
Consumer loans	10	3	35	5
Total recoveries	128	3	185	41
Net charge-offs	148	205	394	224
Provision charged to operations	500	665	1,050	1,500
Balance at end of period	$    8,166	$    5,906	$    8,470	$    6,722
Average loans outstanding during period	$669,602	$638,263	$675,889	$649,013
Net charge-offs to average loans outstanding	0.09%	0.13%	0.12%	0.07%

The Bank’s loan loss experience improvedcontinued at relatively low levels during threesix months ended March 31,June 30, 2010, with net loan charge-offs amounting to $148,$394, or annualized net charge-offs to average loans outstanding of 0.09%0.12%, compared with $205,$224, or annualized net charge-offs to average loans outstanding of 0.13%0.07%, during the first quarterhalf of 2009.

There were no material changes in loan concentrations during the threesix months ended March 31,June 30, 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,June 30, 2010, is appropriate for the amount of risk inherent in the current loan portfolio and adequate to provide for estimated probable losses.

Other Real Estate Owned: Real estate acquired in satisfaction of a loan is reported in other assets. Properties acquired by foreclosure or deed in lieu of foreclosure are transferred to other real estate owned ("OREO") and recorded at the lower of cost or fair market value less estimated costs to sell based on appraised value at the date actually or constructively received. Loan losses arising from the acquisition of such property are charged against the allowance for loan losses. Subsequent reductions in fair value below the carrying value are charged to other operating expenses.

At June 30, 2010, the Bank had no OREO compared with $854 at December 31, 2009.

Deposits

During the three months ended March 31,June 30, 2010, the most significant funding source for the Bank’s earning assets continued to be retail deposits, gathered through its network of twelve banking offices throughout downeast and midcoast Maine.

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. These seasonal swings have been fairly predictable and have not had a materially adverse impact on the Bank. Seasonal swings in deposits have been typically absorbed by the Bank’s strong liquidity position, including borrowing capacity from the FHLB of Boston, and cash flows from the securities portfolio.

At March 31,June 30, 2010, total deposits stood at $664,815,$668,285, compared with $641,173 at December 31, 2009, representing an increase $23,642,$27,112, or 3.7%4.2%.

At March 31,June 30, 2010, total retail deposits stood at $555,952,$565,227, compared with $549,183 at December 31, 2009, representing an increase of $6,769,$16,044, or 1.2%2.9%. Reflecting the seasonality of the Bank’s deposit base, demand deposits and NOW accounts posted a combined decline of $11,597,$5,076, or 8.8%3.8%, compared with December 31, 2009. This decline was more than offset by a $17,935$14,481 or 5.9% increase in retail time deposits and a $6,639 or 3.9% increase in savings and money market accounts, compared with December 31, 2009.

At March 31,June 30, 2010, brokered time deposits obtained from the national market stood at $108,863,$103,058, compared with $91,990 at December 31, 2009, representing an increase of $16,873,$11,068, or 18.3%12.0%. 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 quarterhalf of 2010, the Bank shifted a portion of its collateralized short-term borrowings to longer-term brokered certificates of deposit in favor of meaningfully lowerhistorically low rates of interest and a stronger on-balance sheet liquidity.liquidity position.

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,June 30, 2010, the weighted average cost of retail time deposits was 1.90%1.89% compared with 2.05% at December 31, 2009. Given the current, historically low interest rate environment and continuing time deposit maturities, Company management anticipates that the weighted average cost of time deposits will continue to show moderate declines for the balance of 2010.

Borrowed Funds

Borrowed funds principally consist of advances from the FHLB of Boston and, to a lesser extent, borrowings from the Federal Reserve Bank of Boston and securities sold under agreements to repurchase. Advances from the FHLB of Boston are secured by stock in the FHLB of Boston, investment securities, and blanket liens on qualifying mortgage loans and home equity loans. Borrowings from the Federal Reserve Bank of Boston are principally secured by securities and liens on certain commercial loans.

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,June 30, 2010, total borrowings amounted to $286,280,$307,354, compared with $311,629 at December 31, 2009, representing a decline of $25,349,$4,275, or 8.1%1.4%, 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 costlong term brokered certificates of deposit.deposit at attractive interest rates.

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,June 30, 2010, long term borrowings with maturities of one year or greater represented 70.4%68.2% of total borrowings.

At March 31,June 30, 2010, total borrowings expressed as a percent of total assets amounted to 27.1%28.3%, compared with 29.1% December 31, 2009.

Capital Resources

Consistent with its long-term goal of operating a sound and profitable organization, during the first three months of 2010 the Company maintained its strong capital position and continued to be a ""well-capitalized" financial institution according to applicable regulatory standards. Management believes this to be vital in promoting depositor and investor confidence and providing a solid foundation for future growth.

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

As of March 31,June 30, 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,June 30, 2010, the Company’s Tier I Leverage, Tier I Risk-based, and Total Risk-based capital ratios were 8.94%9.01%, 13.31%13.33% and 15.16%.15.19%, respectively.

The following tables set forth the Company's and the Bank’s regulatory capital at March 31,June 30, 2010 and December 31, 2009, under the rules applicable at that date.

	Consolidated		For Capital Adequacy Purposes		To be well Capitalized under Prompt corrective Action provisions		Consolidated		For Capital Adequacy Purposes		To be well Capitalized under Prompt corrective Action provisions
	Actual Amount	Ratio	Required Amount	Ratio	Required Amount	Ratio	Actual Amount	Ratio	Required Amount	Ratio	Required Amount	Ratio
As of March 31, 2010
As of June 30, 2010
Total Capital
(To Risk-Weighted Assets)
Consolidated	$108,048	15.16%	$57,010	8.0%	N/A		$110,154	15.19%	$58,005	8.0%	N/A
Bank	$108,932	15.30%	$56,944	8.0%	$71,180	10.0%	$111,083	15.33%	$57,950	8.0%	$72,438	10.0%
Tier 1 Capital
(To Risk-Weighted Assets)
Consolidated	$ 94,836	13.31%	$28,496	4.0%	N/A		$ 96,638	13.33%	$29,003	4.0%	N/A
Bank	$ 95,720	13.45%	$28,472	4.0%	$42,708	6.0%	$ 97,567	13.47%	$28,975	4.0%	$43,463	6.0%
Tier 1 Capital
(To Average Assets)
Consolidated	$ 94,836	8.94%	$42,455	4.0%	N/A		$ 96,638	9.01%	$42,895	4.0%	N/A
Bank	$ 95,720	9.03%	$42,420	4.0%	$53,024	5.0%	$ 97,567	9.11%	$42,861	4.0%	$53,576	5.0%

 

	Consolidated		For Capital Adequacy Purposes		To be well Capitalized under Prompt corrective Action provisions
	Actual Amount	Ratio	Required Amount	Ratio	Required Amount	Ratio
As of December 31, 2009
Total Capital
(To Risk-Weighted Assets)
Consolidated	$122,615	17.14%	$57,241	8.0%	N/A
Bank	$123,383	17.26%	$57,175	8.0%	$71,469	10.0%
Tier 1 Capital
(To Risk-Weighted Assets)
Consolidated	$109,755	15.34%	$28,620	4.0%	N/A
Bank	$110,569	15.47%	$28,587	4.0%	$42,881	6.0%
Tier 1 Capital
(To Average Assets)
Consolidated	$109,755	10.35%	$42,431	4.0%	N/A
Bank	$110,569	10.43%	$42,395	4.0%	$52,993	5.0%

Series A Fixed Rate Cumulative Perpetual Preferred Stock and Warrant: As previously reported, on February 24, 2010 the Company redeemed all 18,751 shares of its Preferred Stock sold to Treasury.Treasury in connection with the Treasury’s Capital Purchase Program ("CPP"). The Company paid $18,774 to the Treasury to redeem the Preferred Stock, consisting of $18,751 of principal and $23 of accrued and unpaid dividends. The Company’s redemption of the Preferred Stock is not subject to additional conditions or stipulations from the Treasury.

The preferred stock that the Company repurchased for $18,751 had a current carrying value of $18,255 (net of $496 unaccreted discount) on the Company’s consolidated balance sheet. As a result of the repurchase, in the first quarter of 2010 the Company accelerated the accretion of the $496 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 shareholders by $496 and $0.13, respectively.

In the fourth quarter of 2009, the warrant (the "Warrant") received by the Treasury to purchase up to 104,910 shares of the Company’s common stock was reduced by one half to 52,455 shares as a result of the Company’s successful completion of a common stock offering in December 2009.

As previously announced, on July 28, 2010 the Company repurchased in its entirety the Warrant previously issued to the Treasury on January 16, 2009, in connection with the Company’s participation in the CPP. The Company is seeking agreement with the Treasury to repurchaserepurchased the Warrant for $250,000. The Warrant was previously exercisable for 52,455 shares of the Company’s common stock at its fair market value. However, there can be no assurance that the Company will reach agreement with the Treasury as to a fair market valuean exercise price of $26.81 per share. The repurchase of the Warrant is not expected to have any effect on the Company’s earnings or thatearnings per share for the third quarter of 2010. As a result of the Warrant repurchase, the Company will repurchasehas repurchased all securities issued to Treasury under the Warrant.

CPP.

Common Stock Offering: In December 2009 the Company completed its previously announced offering of 800,000 shares of common stock to the public at $27.50 per share. The net proceeds from this offering, after deducting underwriting discounts and estimated expenses amounted to $20,412. As previously reported, in January 2010 the Company completed the closing of the underwriter’s exercise of its over-allotment option to purchase an additional 82,021 shares of the Company’s common stock at a purchase price to the public of $27.50 per share. The Company received total net proceeds from the offering, including the exercise of the over allotment option, after deducting underwriting discounts and expenses, amounting to $22,442. All of the net proceeds from this offering are treated as Tier 1 capital for regulatory purposes. In February 2010, the Company used $18,751 of the net proceeds from this offering to repurchase all of its Series A preferred sharesPreferred Shares sold to the U.S. Department of the Treasury.

Trends, Events or Uncertainties: There are no known trends, events or uncertainties, nor any recommendations by any regulatory authority, that are reasonably likely to have a material effect on the Company’s capital resources, liquidity, or financial condition.

Cash Dividends: The Company's principal source of funds to pay cash dividends and support its commitments is derived from Bank operations.

The Company paid regular cash dividends of $0.26 per share of common stock in the firstsecond quarter of 2010, unchanged compared with the dividend paid for the same quarter in 2009. The Company’s Board of Directors recently declared a secondthird quarter 2010 regular cash dividend of $0.26 per share of common stock. The dividend will be paid JuneSeptember 15, 2010 to shareholders of record as of the close of business on May 18,August 17, 2010.

Stock Repurchase Plan:

In August 2008, the Company’s Board of Directors approved a program to repurchase of up to 300,000 shares of the Company’s common stock, or approximately 10.2% of the shares currently outstanding. The new stock repurchase program became effective as of August 21, 2008 and is authorized to continue for a period of up to twenty-four consecutive months. Depending on market conditions and other factors, these purchases may be commenced or suspended at any time, or from time to time, without prior notice and may be made in the open market or through privately negotiated transactions. As of March 31, 2010, theThe Company hadhas repurchased 66,782 shares of stock under this plan, at a total cost of $1,833 and an average price of $27.44 per share.share, though there were no shares repurchased under the plan during the quarter ending June 30, 2010. The Company recorded the repurchased shares as treasury stock.

Contractual Obligations

The Company is a party to certain contractual obligations under which it is obligated to make future payments. These principally include borrowings from the FHLB of Boston, consisting of short and long-term fixed rate borrowings, and collateralized by all stock in the FHLB of Boston, a blanket lien on qualified collateral consisting primarily of loans with first and second mortgages secured by one-to-four family properties, and certain pledged investment securities. The Company has an obligation to repay all borrowings from the FHLB of Boston.

The Company is also obligated to make payments on operating leases for its Bank branch office in Somesville, Maine and its office in Bangor, Maine.

The following table summarizes the Company’s contractual obligations at March 31,June 30, 2010. Borrowings are stated at their contractual maturity due dates and do not reflect call features, or principal amortization features, on certain borrowings.

CONTRACTUAL OBLIGATIONS
(Dollars in thousands)

		Payments Due By Period					Payments Due By Period
Description	Total Amount of Obligations	< 1 Year	> 1-3 Years	> 3-5 Years	> 5 Years	Total Amount of Obligations	< 1 Year	> 1-3 Years	> 3-5 Years	> 5 Years
Borrowings from Federal Home Loan Bank	$263,057	$66,575	$89,992	$87,490	$19,000	$285,227	$80,500	$94,237	$93,490	$17,000
Securities sold under agreements to repurchase	18,223	18,223	---	---	---	17,127	17,127	---	---	---
Junior subordinated debentures	5,000	---	---	---	5,000	5,000	---	---	---	5,000
Operating Leases	193	112	81	---	---	162	108	54	---	---
Total	$286,473	$84,910	$90,073	$87,490	$24,000	$307,516	$97,735	$94,291	$93,490	$22,000

All FHLB of Boston advances are fixed-rate instruments. Advances are payable at their call dates or final maturity dates. Advances are stated in the above table at their contractual final maturity dates. At March 31,June 30, 2010, the Bank had $75,000 in callable advances.

In the normal course of its banking and financial services business, and in connection with providing products and services to its customers, the Company has entered into a variety of traditional third party contracts for support services. Examples of such contractual agreements would include services providing ATM, Visa debit card processing, trust services accounting support, check printing, statement rendering and the leasing of T-1 telecommunication lines supporting the Company’s wide area technology network.

The majority of the Company’s core operating systems and software applications are maintained "in-house" with traditional third party maintenance agreements of one year or less.

Off-Balance Sheet Arrangements

The Company is, from time to time, a party to certain off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources, that may be considered material to investors.

Standby Letters of Credit: The Bank guarantees the obligations or performance of certain customers by issuing standby letters of credit to third parties. These letters of credit are sometimes issued in support of third party debt. 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 origination, portfolio maintenance and management procedures in effect to monitor other credit products. The amount of collateral obtained, if deemed necessary by the Bank upon issuance of a standby letter of credit, is based upon management's credit evaluation of the customer.

At March 31,June 30, 2010, commitments under existing standby letters of credit totaled $302,$370, compared with $372 at December 31, 2009. The fair value of the standby letters of credit was not significant as of the foregoing dates.

Off-Balance Sheet Risk

The Bank is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit and certain financial derivative instruments; namely, interest rate swap agreements and interest rate floor agreements.

Commitments to Extend Credit: Commitments to extend credit represent agreements by the Bank to lend to a customer provided there is no violation of any condition established in the contract. These commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.

Since many of these commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's creditworthiness on a case-by-case basis using the same credit policies as it does for its balance sheet instruments. The amount of collateral obtained, if deemed necessary by the Bank upon the issuance of commitment, is based on management's credit evaluation of the customer.

The notional or contractual amount for financial instruments with off-balance sheet risk as of March 31,June 30, 2010 and December 31, 2009:

	March 31, 2010		December 31, 2009
Commitments to originate loans	$  25,851		$  42,694
Unused lines of credit	80,698		78,607
Un-advanced portions of construction loans	18,706		12,565
Total	$125,255		$133,866

	June 30,		December 31,
	2010		2009
Commitments to originate loans	$  26,441		$ 42,694
Unused lines of credit	78,011		78,607
Un-advanced portions of construction loans	12,663		12,565
Total	$117,115		$133,866

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 adverse effect on net interest income. Derivative instruments that management periodically uses as part of its interest rate risk management strategy include interest rate swap agreements and interest rate floor agreements. A policy statement, approved by the Board of Directors of the Bank, governs use of derivative instruments.

At March 31,June 30, 2010, the Bank had two outstanding derivative instruments. These derivative instruments were interest rate floor agreements, with notional principal amounts totaling $30,000. The notional amounts of the financial derivative instruments do not represent exposure to credit loss. The Bank is exposed to credit loss only to the extent the counter-party defaults in its responsibility to pay interest under the terms of the agreements. Management does not anticipate non-performance by the counter-parties to the agreements, and regularly reviews the credit quality of the counter-parties from which the instruments have been purchased.

The details of the Bank’s financial derivative instruments as of March 31,June 30, 2010 are summarized below. Also refer to Note 7 of the consolidated financial statements in Part I, Item 1 of this report on Form 10-Q.

INTEREST RATE FLOOR AGREEMENTS

Notional Amount	Termination Date	Prime Strike Rate	Premium Paid	Unamortized Premium at 3/31/10	Fair Value 3/31/10	Cumulative Cash Flows Received	Termination Date	Prime Strike Rate	Premium Paid	Unamortized Premium at 6/30/10	Fair Value 6/30/10	Cumulative Cash Flows Received
$20,000	08/01/10	6.00%	$186	$21	$235	$887	08/01/10	6.00%	$186	$  5	$ 96	$1,024
$10,000	11/01/10	6.50%	$ 69	$15	$215	$558	11/01/10	6.50%	$ 69	$10	$140	$   640

Liquidity

Liquidity is measured by the Company’s ability to meet short-term cash needs at a reasonable cost or minimal loss. The Company seeks to obtain favorable sources of liabilities and to maintain prudent levels of liquid assets in order to satisfy varied liquidity demands. Besides serving as a funding source for maturing obligations, liquidity provides flexibility in responding to customer-initiated needs. Many factors affect the Company’s ability to meet liquidity needs, including variations in the markets served by its network of offices, its mix of assets and liabilities, reputation and credit standing in the marketplace, and general economic conditions.

The Bank actively manages its liquidity position through target ratios established under its Asset Liability Management Policy. Continual monitoring of these ratios, both historical and through forecasts under multiple rate scenarios, allows the Bank to employ strategies necessary to maintain adequate liquidity.

The Bank uses a basic surplus model to measure its liquidity over 30 and 90-day time horizons. The relationship between liquid assets and short-term liabilities that are vulnerable to non-replacement are routinely monitored. The Bank’s policy is to maintain a liquidity position of at least 4.0% of total assets. At March 31,June 30, 2010, liquidity, as measured by the basic surplus/deficit model, was 6.2%5.0% over the 30-day horizon and 5.2%5.3% over the 90-day horizon.

At March 31,June 30, 2010, the Bank had unused lines of credit and net unencumbered qualifying collateral availability to support its credit line with the FHLB of Boston approximating $65$80 million. The Bank also had capacity to borrow funds on a secured basis utilizing the Borrower In Custody ("BIC") program at the Federal Reserve Bank of Boston. At March 31,June 30, 2010 the Bank’s available secured line of credit at the Federal Reserve Bank of Boston stood at $143,731,$140,706, or 13.6%13.0% of the Company’s total assets. The Bank also has access to the national brokered deposit market, and has been using this funding source to bolster its on balance sheet liquidity position.

The Bank maintains a liquidity contingency plan approved by the Bank’s Board of Directors. This plan addresses the steps that would be taken in the event of a liquidity crisis, and identifies other sources of liquidity available to the Company. The Company believes that the level of liquidity is sufficient to meet current and future funding requirements. However, changes in economic conditions, including consumer savings habits and availability or access to the brokered deposit market could potentially have a significant impact on the Company’s liquidity position.

Impact of Inflation and Changing Prices

The Consolidated Financial Statements and the accompanying Notes to the Consolidated Financial Statements presented elsewhere in this report have been prepared in accordance with U.S. generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation.

Unlike many industrial companies, substantially all of the assets and virtually all of the liabilities of the Company are monetary in nature. As a result, interest rates have a more significant impact on the Company’s performance than the general level of inflation. Over short periods of time, interest rates and the U.S. Treasury yield curve may not necessarily move in the same direction or in the same magnitude as inflation.

While the financial nature of the Company’s consolidated balance sheets and statements of income is more clearly affected by changes in interest rates than by inflation, inflation does affect the Company because as prices increase the money supply tends to increase, the size of loans requested tends to increase, total Company assets increase, and interest rates are affected by inflationary expectations. In addition, operating expenses tend to increase without a corresponding increase in productivity. There is no precise method, however, to measure the effects of inflation on the Company’s financial statements. Accordingly, any examination or analysis of the financial statements should take into consideration the possible effects of inflation.

Recent Accounting Developments

The following information addresses new or proposed accounting standards that could have an impact on the Company’s financial condition or results of operations.

Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses: The primary objective of this guidance is to provide financial statement users with greater transparency about an entity’s allowance for credit losses and the credit quality of its financing receivables. This pronouncement requires additional disclosures to assist financial statement users in assessing an entity’s credit risk exposures and evaluating the adequacy of its allowance for credit losses.  The Company has determined that this pronouncement will not have a material impact on its financial condition or results of operations.

Accounting for Certain Tax Effects of the 2010 Health Care Reform Acts: For measuring the impact on deferred tax assets and liabilities based on provisions of enacted law, the impact of both Acts, the Health Care and Education Reconciliation Act of 2010 and the Patient Protection and Affordable Care Act, should be considered. This pronouncement requires that income tax deductions for the cost of providing prescription drug coverage will be reduced by the amount of any subsidy received. The Company have determined that this pronouncement will have no impact on its financial condition or results of operations.

Derivatives and Hedging-Scope Exception Related to Embedded Credit Derivatives: This pronouncement clarifies the scope exception for embedded credit derivative features related to the transfer of credit risk in the form of subordination of one financial instrument to another. The amendments address how to determine which embedded credit derivative features, including those in collateralized debt obligations and synthetic collateralized debt obligations, are considered to be embedded derivatives that should not be analyzed for potential bifurcation and separate accounting.  The amendments in this pronouncement are effective for each reporting entity at the beginning of its first fiscal quarter beginning after June 15, 2010. The Company has determined that this pronouncement will not have a material effect on its financial condition or results of operations.

Fair Value Measurements and Disclosures - Improving Disclosures about Fair Value Measurements: This amended fair value measurement and disclosure guidance requires disclosure of significant transfers in and out of Level 1 and Level 2 fair value measurements and the reasons for the transfers and to require separate presentation of information about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. The amended guidance also clarifies existing requirements that (i) fair value measurement disclosures should be disaggregated for each class of asset and liability and (ii) disclosures about valuation techniques and inputs for both recurring and nonrecurring Level 2 and Level 3 fair value measurements should be provided. The guidance is effective for interim and annual periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010 and for interim periods within those years. The adoption of this guidance is not expected to impact the Company’s consolidated financial position or results of operations.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates/prices, such as interest rates, foreign currency exchange rates, commodity prices and equity prices. Interest rate risk is the most significant market risk affecting the Company. Other types of market risk do not arise in the normal course of the Company’s business activities.

Interest Rate Risk: Interest rate risk can be defined as an exposure to movement in interest rates that could have an adverse impact on the Bank's net interest income. Interest rate risk arises from the imbalance in the re-pricing, maturity and/or cash flow characteristics of assets and liabilities. Management's objectives are to measure, monitor and develop strategies in response to the interest rate risk profile inherent in the Bank's balance sheet. The objectives in managing the Bank's balance sheet are to preserve the sensitivity of net interest income to actual or potential changes in interest rates, and to enhance profitability through strategies that promote sufficient reward for understood and controlled risk.

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

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

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

The interest rate risk sensitivity model requires that assets and liabilities be broken down into components as to fixed, variable, and adjustable interest rates, as well as other homogeneous groupings, which are segregated as to maturity and type of instrument. The model includes assumptions about how the balance sheet is likely to evolve through time and in different interest rate environments. The model uses contractual re-pricing dates for variable products, contractual maturities for fixed rate products, and product specific assumptions for deposit accounts, such as money market accounts, that are subject to re-pricing based on current market conditions. Re-pricing margins are also determined for adjustable rate assets and incorporated in the model. Investment securities and borrowings with call provisions are examined on an individual basis in each rate environment to estimate the likelihood of a call. Prepayment assumptions for mortgage loans and mortgage backed securities are developed from industry median estimates of prepayment speeds, based upon similar coupon ranges and seasoning. Cash flows and maturities are then determined, and for certain assets, prepayment assumptions are estimated under different interest rate scenarios. Interest income and interest expense are then simulated under several hypothetical interest rate conditions including:

• A flat interest rate scenario in which current prevailing rates are locked in and the only balance sheet fluctuations that occur are due to cash flows, maturities, new volumes, and re-pricing volumes consistent with this flat rate assumption.

• A 200 basis point rise or decline in interest rates applied against a parallel shift in the yield curve over a twelve-month period together with a dynamic balance sheet anticipated to be consistent with such interest rate changes.

• Various non-parallel shifts in the yield curve, including changes in either short-term or long-term rates over a twelve-month horizon, together with a dynamic balance sheet anticipated to be consistent with such interest rate changes.

• An extension of the foregoing simulations to each of two, three, four and five year horizons to determine the interest rate risk with the level of interest rates stabilizing in years two through five. Even though rates remain stable during this two to five year time period, re-pricing opportunities driven by maturities, cash flow, and adjustable rate products will continue to change the balance sheet profile for each of the rate conditions.

Changes in net interest income based upon the foregoing simulations are measured against the flat interest rate scenario and actions are taken to maintain the balance sheet interest rate risk within established policy guidelines.

The following table summarizes the Bank's net interest income sensitivity analysis as of March 31,June 30, 2010, over one and two-year horizons. In light of the Federal Funds rate of 0% - 0.25% and the two-year U.S. Treasury of 1.02%0.60% on the date presented, the analysis incorporates a declining interest rate scenario of 100 basis points, rather than the 200 basis points, as would normally be the case.

INTEREST RATE RISK
CHANGE IN NET INTEREST INCOME FROM THE FLAT RATE SCENARIO
MARCH 31,JUNE 30, 2010

	-100 Basis Points Parallel Yield Curve Shift	+200 Basis Points Parallel Yield Curve Shift	+500 Basis Points Short-term Rates	-100 Basis Points Parallel Yield Curve Shift	+200 Basis Points Parallel Yield Curve Shift	+500 Basis Points Short-term Rates
Year 1
Net interest income change ($)	$(274)	$181	$(476)	$(406)	$458	$(84)
Net interest income change (%)	(0.81%)	0.54%	(1.41%)	(1.23%)	1.39%	(0.26%)
Year 2
Net interest income change ($)	$(493)	$2,291	$(453)	$(1,060)	$2,778	$591
Net interest income change (%)	(1.46%)	6.79%	(1.34%)	(3.22%)	8.44%	1.79%

As more fully discussed below, the March 31,June 30, 2010 interest rate sensitivity modeling results indicate that the Bank’s balance sheet is about evenly matched over the one-year horizon and is favorably positioned for parallel or non-parallel increases in short-term and long-term interest rates over the one and two-year horizons.

Assuming interest rates remain at or near their current levels and the Bank’s balance sheet structure and size remain at current levels, the interest rate sensitivity simulation model suggests that net interest income will remain relatively stable over the one year horizon and then begin to trend upward over the two year horizon and beyond. The upward trend over the two year horizon and beyond principally results from funding costs rolling over at lower prevailing rates while earning asset yields remain relatively stable.

Assuming short-term and long-term interest rates decline 100 basis points from current levels (i.e., a parallel yield curve shift) and the bank’s balance sheet structure and size remain at current levels, management believes net interest income will remain relatively stable over the one year horizon as reductions to funding costs essentially keep pace declining earning asset yields. Over the two year horizon, the interest rate sensitivity simulation model suggests the net interest margin will be pressured by accelerated cash flows on earning assets and the re-pricing of the Bank’s earning asset base, resulting in a slow downward trend in net interest income. Should the yield curve steepen as rates fall, the model suggests that accelerated earning asset prepayments will slow, resulting in a more stabilized level of net interest income. Management anticipates that continued earning asset growth will be needed to meaningfully increase the Bank’s current level of net interest income should both long-term and short-term interest rates decline in parallel.

Assuming the Bank’s balance sheet structure and size remain at current levels and the Federal Reserve increases short-term interest rates by 200 basis points with the balance of the yield curve shifting in parallel with these increases, management believes net interest income will remain relatively stabletrend upward over the twelve month horizon, then begin a strongone and steady recovery over the two year horizontwo-year horizons and beyond. The interest rate sensitivity simulation model suggests that as interest rates rise, the Bank’s funding costs will re-price slightly slower than its earning asset portfolios, causing a small increasemoderate increases in net interest income.income over the one-year horizon and a further strengthening over the two-year horizon and beyond. As funding costs begin to stabilize late in the first year of the simulation, the model suggests that the earning asset portfolios will continue to re-price at prevailing interest rate levels and cash flows from earning asset portfolios will be reinvested into higher yielding earning assets, resulting in a widening of spreads and improving levels of net interest income over the two year horizon and beyond. Management believes continuedmoderate earning asset growth will be necessary to meaningfully increase the current level of net interest income over the one year horizon should short-term and long-term interest rates rise in parallel. Over the two year horizon and beyond, management believes low to moderate earning asset growth will be necessary to meaningfully increase the current level of net interest income.

The interest rate sensitivity model is used to evaluate the impact on net interest income given certain non-parallel shifts in the yield curve, including changes in either short-term or long-term interest rates. The Federal Reserve addressed the current economic recession with changes in its monetary policy, by reducing the Federal Funds rate to historic levels. During 2007 and 2008 the targeted fed funds rate fell from 5.25% to a range of 0% to 0.25% where it stayed for all of 2009 and the first quarterhalf of 2010, whereas the 10 year U.S, Treasury note has remained essentially unchanged since 2007.declined only 100 basis points. Accordingly, management modeled a non-parallel shift in the yield curve assuming a 500 basis point increase in the short-term Federal Funds interest rate with the balance of the yield curve remaining unchanged. Using this future interest rate scenario, the interest rate sensitivity model suggests that net interest income will post a small to moderate declineremain stable over the one year horizon and then trend upward over the two year horizons,horizon and beyond, as funding costsearning asset yields re-price more quickly than earning asset yields.funding costs. Management believes moderate earning asset growth will be necessary to meaningfully increase the current level of net interest income should short-term interest rates increase 500 basis points.

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

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

ITEM 4. CONTROLS AND PROCEDURES

Company management evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this quarterly report. Based on such evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company's disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and regulations and are operating in an effective manner.

No change in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934) occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1: Legal Proceedings

The Company and its subsidiaries are parties to certain ordinary routine litigation incidental to the normal conduct of their respective businesses, which in the opinion of management based upon currently available information will have no material effect on the Company's consolidated financial statements.

Item 1A: Risk Factors

There have been no material changes to the Risk Factors previously disclosed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year-ended December 31, 2009.

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

(a)     None

(b)     None

(c)     Repurchases of Company Securities.

The following table provides information with respect to any repurchase of shares of the Company’s Preferred Stock and common stock made by or on behalf of the Company or any "affiliated purchaser" for the quarter ended March 31, 2010.

Period	Total Number of Shares Purchased(1)	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (2)
January 1-31, 2010	---	$ ---	---	---
February 1-28, 2010	18,751	$27.50	---	---
March 1-31, 2009	---	$ ---	---	---

(1) In February, 2010, the Company redeemed 18,751 shares of Preferred Stock from Treasury. The redemption of Preferred Stock is discussed above in this Report under "Capital Resources" "Series A Fixed Rate Cumulative Perpetual Preferred Stock and Warrant" and incorporated herein by reference.
(2) In August 2008, the Company’s Board of Directors approved a program to repurchase of up to 300,000 shares of the Company’s common stock, or approximately 10.2% of the shares then currently outstanding. The new stock repurchase program became effective as of August 21, 2008 and is authorized to continue for a period of up to twenty-four consecutive months. Depending on market conditions and other factors, these purchases may be commenced or suspended at any time, or from time to time, without prior notice and may be made in the open market or through privately negotiated transactions. The program will remain in effect until fully utilized or until modified, superseded or terminated.

In January 2009 the Company suspended purchases under the stock repurchase plan as required under the Preferred Stock Purchase Agreement with Treasury in connection with the Company’s participation in the CPP. In February 2010, the Company redeemed all of its Preferred Stock it sold to the Treasury as part of the CPP. The Company’s redemption of the Preferred Stock is not subject to any additional conditions or stipulations from the Treasury or the Company’s and the Bank’s principal regulators, including limitations on the Company’s ability to repurchase shares of its common stock.

During the quarter ended March 31,June 30, 2010, there were no purchases made by or on behalf of the Company or any "affiliated purchaser," of shares of the Company’s common stock pursuant to the Company’s previously announced program to repurchase up to 300,000 shares of Company common stock.

Item 3: Defaults Upon Senior Securities	None
Item 4:   (REMOVED AND RESERVED)	None

Item 4: (Removed and Reserved)

Item 5: Other Information

(a)     None

(b)     None

Item 6: Exhibits

            (a)     Exhibits.

EXHIBIT NUMBER
3.1	Articles of Incorporation, as amended to date		Incorporated herein by reference to Form 10-K, Part IV, Item 15, Exhibit 3.1, filed with the Commission on March 16, 2009.
3.2	Bylaws, as amended to date		Incorporated herein by reference to Form 8-K, Exhibit 3, filed with the Commission on December 17, 2008.
4	Instruments Defining Rights of Security Holders
4.1	Certificate of Designations, Fixed Rate Cumulative Perpetual Preferred Stock, Series A		Incorporated herein by reference to Form 8-K, Exhibit 3.1, filed with the Commission on January 21, 2009
4.2	Form of Specimen Stock Certificate for Series A Preferred Sock		Incorporated by reference to Form 8-K, Exhibit 4.1, filed with the Commission on January 21, 2009
4.3	Letter Agreement with U. S. Treasury for purchase of Series A Preferred Stock		Incorporated by reference to Form 8-K, Exhibit 10.1, filed with the Commission on January 21, 2009
4.4	Warrant to Purchase Shares of Company Common Stock issued to U.S. Treasury		Incorporated by reference to Form 8-K, Exhibit 4.2, filed with the Commission on January 21, 2009
4.54.3	Debt Securities Purchase Agreement		Incorporated herein by reference to Form 10-K, Part IV, Item 15, Exhibit 4.5, filed with the commission on March 16, 2009.
4.64.4	Form of Subordinated Debt Security of Bar Harbor Bank & Trust		Incorporated herein by reference to Form 10-K, Part IV, Item 15, Exhibit 4.6, filed with the commission on March 16, 2009.
10	Material Contracts
10.1	2010 Annual Incentive Plan for Certain Executive Officers of the Company		Incorporated by reference to Form 10-K, Part 4, Item 15, Exhibit 10.25 filed with the Commission March 16, 2010 (Commission Number 0-13666)
11.1	Statement re computation of per share earnings		Data required by SFAS No. 128, Earnings Per Share, is provided in Note 3 to the consolidated financial statements in this report on Form 10-Q.
31.1	Certification of the Chief Executive Officer under Rule 13a-14(a)/15d-14(a)		Filed herewith.
31.2	Certification of the Chief Financial Officer under Rule 13a-14(a)/15d-14(a)		Filed herewith.
32.1	Certification of Chief Executive Officer under 18 U.S.C. Section 1350		Filed herewith.
32.2	Certification of Chief Financial Officer under 18 U.S.C. Section 1350		Filed herewith.

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

	BAR HARBOR BANKSHARES (Registrant)
	/s/Joseph M. Murphy
Date: May 10,August 9, 2010	Joseph M. Murphy
	President & Chief Executive Officer
	/s/Gerald Shencavitz
Date: May 10,August 9, 2010	Gerald Shencavitz
	Executive Vice President, Chief Financial Officer & Principal Accounting Officer

 

Exhibit Index

3.1	Articles of Incorporation, as amended to date
3.2	Bylaws, as amended to date
4	Instruments Defining Rights of Security Holders
4.1	Certificate of Designations, Fixed Rate Cumulative Perpetual Preferred Stock, Series A
4.2	Form of Specimen Stock Certificate for Series A Preferred Sock
4.3	Letter Agreement with U. S. Treasury for purchase of Series A Preferred Stock
4.4	Warrant to Purchase Shares of Company Common Stock issued to U.S. Treasury
4.5	Debt Securities Purchase Agreement
4.64.4	Form of Subordinated Debt Security of Bar Harbor Bank & Trust
10.1	2010 Annual Incentive Plan for Certain Executive Officer of the Company
11.1	Statement re computation of per share earnings
31.1	Certification of the Chief Executive Officer under Rule 13a-14(a)/15d-14(a)
31.2	Certification of the Chief Financial Officer under Rule 13a-14(a)/15d-14(a)
32.1	Certification of Chief Executive Officer under 18 U.S.C. Section 1350
32.2	Certification of Chief Financial Officer under 18 U.S.C. Section 1350