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BHB Form 10-K Review Response May 2011

BY FAX AND EDGAR

April 19, 2011

John P. Nolan

Sr. Asst. Chief Accountant

United States Securities and Exchange Commission

Division of Corporation Finance

100 F. Street, N.E.

Washington, D.C. 20549-4561

Re: Bar Harbor Bankshares

        Form 10-K for the Fiscal Year Ended December
31, 2010

        File No. 1-13349

Dear Mr. Nolan:

On behalf of Bar Harbor Bankshares (the "Company"), this letter is in
response to your comment letter dated April 6, 2011 related to the staff’s review of
the above-referenced Form 10-K filing. Set forth below are the staff’s comments in
bold italics followed by the Company’s responses to the staff’s comments.

    1.
    We note the significant increase in non-performing loans during fiscal
    2010 which was attributable to a $5,194 million commercial real estate development loan to
    a local, non-profit housing authority in support of an affordable housing project. So that
    the reader has a clear understanding of this lending relationship, please tell us and
    revise your future filings, to disclose the nature and terms of this loan including any
    associated guarantees. Since the loan is currently nonperforming you should address the
    viability of the project including the sources of repayment, current construction status,
    the underlying collateral and other pertinent information as well.

    The $5.194 million commercial real estate development loan to a local, non-profit
    housing authority in support of an affordable housing project pays monthly interest at the
    rate of 3.80% and matures in August of 2011. The loan is principally secured by the
    housing units from the project. There are no guarantees associated with this loan. The
    primary source of repayment is the sale of housing units, as well as the sale of certain
    affordability covenants associated with this project. Sales of both the housing units and
    the affordability covenants have continued during the past fifteen months and are expected
    to continue in the future. The project is fully constructed, and there is no further
    construction risk on the project. This loan is impaired and was put on non-accrual status
    during 2010. Based on our analysis of the present value of expected future cash flows, the
    Company established a specific reserve of $577,000 at December 31, 2010 on this loan. We
    will revise our future filings to include disclosures with additional information similar
    to above regarding this loan.

John P. Nolan

Sr. Asst. Chief Accountant

U.S. Securities and Exchange Commission

April 19, 2011

Page 2

    2.
    We note your portfolio segments and classes of financing receivables
    appear to be the same for purposes of providing the disclosures required by ASU 2010-20.
    Please tell us how you considered paragraphs 310-10-55-16 through 310-10-55-18 and
    310-10-55-22 when determining that further disaggregation of your portfolio segments was
    not necessary. For instance, it is unclear as to how you determined that there were not
    separate classes of financing receivables given that 33% of the total commercial real
    estate loans are to the lodging industry or the fact that you make construction loans that
    have different and unique characteristics and are included within the residential real
    estate mortgage loan portfolio segment.

    We acknowledge that our portfolio segments and classes of financing receivables are the
    same. In considering whether further disaggregation of our portfolio segments was
    necessary for purposes of determining our classes of financing receivables, we did
    consider the paragraphs you referenced above from ASU 2010-20. When determining what our
    classes should be in accordance with ASU 2010-20, we first considered categorization of
    borrowers and distinguished between commercial and consumer. We then disaggregated the
    commercial and consumer portfolios by type of financing receivables and type of collateral
    (i.e. real estate mortgages vs. non-real estate loans). Lastly, we disaggregated certain
    types of financing receivables (i.e. in the residential real estate class, we
    disaggregated home equity loans) and certain industry sectors (i.e. in the commercial and
    industrial and commercial real estate classes we disaggregated commercial construction and
    agriculture loans). Our loans are generally in the same geographic region, so there was no
    further disaggregation required with respect to geographic distribution. Based on the
    above consideration, we did not believe that further disaggregation from our portfolio
    segments were necessary in order to comply with ASU 2010-20.

    As mentioned above, our internal class-level distinctions within our commercial
    portfolio include disaggregating loans secured by real estate and those secured by
    non-real estate assets. Loans to the lodging industry are included within the commercial
    real estate class. We do not further disaggregate our commercial real estate class into a
    lodging class because these loans have similar risk characteristics to the rest of the
    commercial real estate class, despite the differing nature of the underlying collateral.
    Like the other loans in our commercial real estate class, these loans are generally
    underwritten to stable, mature and cash-flowing entities, and do not generally contain
    risks associated with new or start-up projects. Their success or failure is driven largely
    by the overall economy. We believe that the common reliance of borrowers in the commercial
    real estate class on general business risks, and not any real-estate specific risk, make
    further disaggregation unnecessary.

    The construction portfolio that is included in our residential real estate class totals
    $5.7 million. As this portfolio is not significant to our total loan portfolio or the
    residential real estate class, the Company does not believe that further disaggregation is
    necessary. As the construction portfolio increases in size, we will consider
    disaggregation in the future.

    3.
    We note that the effective date section of the summary of ASU 2010-20
    encourages, but does not require, comparative disclosure for earlier periods. We note you
    did not provide comparative information for many of your credit quality disclosures. To
    the extent the information required for comparative disclosure is reasonably available,
    please consider providing comparative footnote disclosure in all future filings
    considering the significant benefit this information provides investors and the objective
    of the ASL.

John P. Nolan

Sr. Asst. Chief Accountant

U.S. Securities and Exchange Commission

April 19, 2011

Page 3

    We will consider providing comparative footnote disclosure in all future filings to the
    extent the information is reasonably available.

    4.
    Please tell us and revise your disclosures in future filings to address
    the following:

      The policy for recording payments received on nonaccrual receivables
        in accordance with ASC 310-10-50-6(b);

      The policy for recognizing interest income on impaired loans,
        including how cash receipts are recorded in accordance with ASC 310-10-50-15(b); and

      The related amount of interest income recognized in accordance with
        ASC 310-10-50-15(c)(1).

    When a loan is classified as nonaccrual or impaired, any payments received are
    typically applied to reduce the principal balance of the loan. In situations where the
    Company reasonably believes there is no longer doubt regarding the ultimate collectability
    of principal on a nonaccrual or impaired loan, subsequent interest payments received are
    recorded as interest income on the cash basis in accordance with the contractual terms.

    For the years ended December 31, 2010, 2009 and 2008, the Company did not recognize any
    interest income on impaired loans using a cash-basis method of accounting during the time
    within those periods that the loans were impaired.

    We will revise our future filings to include these disclosures

    5.
    We note your disclosure on within Note 3 as it relates to "other
    assets especially mentioned" of loans which are considered to be within this specific
    classification due to a variety of factors. These factors may cause the loan officer to
    improperly supervise the credit due to a lack of expertise, inadequate loan agreement, the
    poor condition of or lack of control over collateral, failure to obtain proper loan
    documentation or any other possible situations or circumstances. Each of these factors
    disclosed would seem to be representative of a well defined weakness requiring
    classification within the "substandard" category. Please address as to why the
    current classification is appropriate. Further, tell us whether these loans as classified
    within this category are performing or nonperforming. You should also address how this
    particular internal risk rating relates to the likelihood of loss in accordance with ASC
    310-10-50-30.

    We believe the loans classified as "other assets especially mentioned" are
    appropriately classified as they do not contain any well-defined weaknesses that would
    require a substandard risk rating. As described in Note 3 to our consolidated financial
    statements included in our 2010 Form 10K, these loans have "potential
    weaknesses" that, "if left uncorrected, … may result in deterioration of
    the repayment prospects …. at some future date."

    All loans within this risk rating are performing. The Company’s policy requires
    any commercial loans in non-accrual status be rated substandard or doubtful.

    With respect to ASC 310-10-50-30, if potential weaknesses on loans classified as
    "other assets especially mentioned" are left uncorrected, there is a likelihood
    of loss. Based on historical experience, loans in this category have a higher likelihood
    of loss than "Pass" rated loans, and

John P. Nolan

Sr. Asst. Chief Accountant

U.S. Securities and Exchange Commission

April 19, 2011

Page 4

    therefore, a higher loss factor is assigned. However, as loans in this category exhibit
    potential weaknesses instead of well defined weaknesses, they have not reached the point
    where it is probable we will not receive all our principal and interest payments in
    accordance with contractual terms. As a result, these loans are not considered impaired.

* * * * *

The Company acknowledges that:

  The Company is responsible for the adequacy and accuracy of the disclosure in the
    filing;

  Staff comments or changes to disclosure in response to staff comments do not foreclose
    the Commission from taking any action with respect to the filing; and

  The Company may not assert staff comments as a defense in any proceeding initiated by
    the Commission or any person under the federal securities laws of the United States.

Should you have any questions concerning the above responses, please do not hesitate to
call me at (207) 288-9343.

Respectfully submitted,

 /s/Joseph M. Murphy

Joseph M. Murphy

President & CEO

Bar Harbor Bankshares