BAR HARBOR BANKSHARES (BHB)

ITEM 2.           MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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The following is management’s discussion and analysis of the major factors that influenced our results of operations and financial condition as of and for the three and six months ended June 30, 2026 and should be read in conjunction with our unaudited consolidated financial statements and condensed notes thereto included elsewhere in this Form 10-Q as well as our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K. The following discussion contains "forward-looking statements" that reflect our future plans, estimates, beliefs and expected performance. We caution that assumptions, expectations, projections, intentions or beliefs about future events may, and often do, vary from actual results and the differences can be material. Factors that could cause such differences are discussed in the sections titled "Cautionary Statement Regarding Forward-Looking Statements", “Part I, Item 1.A. Risk Factors” in the Form 10-K, and "Part II, Item 1A. Risk Factors" in this Form 10-Q. All amounts, dollars and percentages presented in this Form 10-Q are rounded and therefore approximate.

GENERAL

The Company is a bank holding company headquartered in Maine, providing a broad array of banking and nonbanking products and services to businesses and consumers primarily within our three-state footprint. The Company's primary sources of revenue, through the Bank, are net interest income (predominantly from loans and investment securities) and noninterest income (principally fees and other revenue from financial services provided to customers or ancillary services tied to loans and deposits).

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NON-GAAP FINANCIAL MEASURES

Our accounting and reporting policies conform to GAAP and the prevailing practices in the financial services industry. However, we also evaluate our performance by reference to certain additional financial measures discussed in this Form 10-Q that we identify as being “non-GAAP financial measures.” In accordance with SEC rules, we classify a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, as the case may be, in the most directly comparable measure calculated and presented in accordance with GAAP as in effect from time to time in the United States in our statements of income, balance sheets or statements of cash flows. Non-GAAP financial measures do not include operating and other statistical measures or ratios or statistical measures calculated using exclusively either financial measures calculated in accordance with GAAP, operating measures or other measures that are not non-GAAP financial measures or both.

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The non-GAAP financial measures that we discuss in this Form 10-Q should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner in which we calculate the non-GAAP financial measures that we discuss in this Form 10-Q may differ from that of other companies reporting measures with similar names. You should understand how such other banking organizations calculate their financial measures similar or with names similar to the non-GAAP financial measures we have discussed in this Form 10-Q when comparing such non-GAAP financial measures.

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QUARTERLY PERFORMANCE SUMMARY

Financial Highlights (quarter ended June 30, 2026, compared to the same period of 2025 unless otherwise stated)

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COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2026 AND DECEMBER 31, 2025

Cash and cash equivalents

Total cash and cash equivalents were $104.4 million at the end of the second quarter 2026, compared to $80.8 million at the end of the fourth quarter 2025. Interest-earning deposits with other banks increased to $58.1 million at the end of the second quarter 2026, compared to $35.9 million at the end of the fourth quarter 2025 and yielded 3.92% and 4.53%, respectively. The increase in cash balances was driven primarily by loan payoffs as well as end of quarter timing.

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Available for Sale Debt Securities

Available-for-sale debt securities were $601.8 million compared to $597.4 million at the end of the fourth quarter 2025. The increase was driven by $52.6 million in purchases offset in part by $30.2 million in paydowns and $15.2 million in sales, calls and maturities. Net unrealized losses increased to $50.4 million at quarter-end compared to $47.5 million at the end of the fourth quarter 2025 due to the interest rate environment. The total unrealized losses include $5.4 million in unrealized losses on fair value hedged municipal securities.  The quarter-to-date weighted average yield of the securities portfolio was 4.06% compared to 4.03% at the end of the fourth quarter 2025. As of the second quarter 2026 and the fourth quarter 2025, the securities portfolio had an average life of 7.2 years and 7.1 years respectively, with an effective duration of 5.2 years for both periods. At the end of the second quarter 2026 all securities remain classified as available for sale.

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Federal Home Loan Bank Stock

Federal Home Loan Bank  stock increased $2.1 million to $13.4 million at the end of the second quarter 2026 compared to $11.3 million at the end of the fourth quarter 2025 primarily driven by the increase in wholesale borrowings.

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Loans Held for Sale

Loans held for sale were $10.2 million in the second quarter 2026 compared to $5.3 million in the fourth quarter 2025 as we originated $47.3 million in loans held for sale and sold $42.4 million in loans during the first and second quarter 2026.

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Loans

Total loans increased $8.3 million to $3.6 billion in the second quarter 2026. Commercial real estate loans decreased $10.0 million primarily due to $130.6 million in maturities, payoffs and paydowns and was offset in part by originations of $120.6 million. Commercial and industrial loans increased $39.5 million and included $48.5 million of originations during the first two quarters of 2026. Residential real estate loans decreased $18.5 million to $983.3 million at the end of the second quarter 2026 compared to $1.0 billion at the end of the fourth quarter 2025,  primarily driven by increased prepayment activity. Consumer loans were $132.6 million at the end of the second quarter 2026 compared to $128.0 million at the end of the fourth quarter 2025 primarily driven by $10.6 million in originations during the period.

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Allowance for Credit Losses

The allowance for credit losses (“ACL”) on loans was $32.2 million at the end of the second quarter 2026 compared to $34.1 million at the end of the fourth quarter 2025. The change in the allowance was primarily driven by a $3.3 million charge-off related to a previously disclosed non-accruing relationship that was transferred into other real estate owned in

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the second quarter 2026. The loan was previously reserved for and the charge-offs recorded reflect the Company's best estimate of the property's fair value based on underlying appraisal and market information.

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Other Assets

Premises and equipment increased in the first half of 2026 to $61.2 million compared to $58.2 million at the end of the fourth quarter 2025 driven by renovation projects. Other real estate owned was $8.2 million at the end of the second quarter 2026 due to the aforementioned non-accruing loan, there was no other real estate owned as of December 31, 2025. Bank owned life insurance decreased $7.5 million driven by death benefit payouts that occurred at the end of the first quarter 2026 as well as an additional death benefit that was recognized in the second quarter 2026. Other assets increased $12.1 million primarily due to a $5.2 million change in the fair value of customer loan swaps.

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Deposits

Total deposits were $3.9 billion at the end of the second quarter 2026 compared to $3.8 billion at the end of the fourth quarter of 2025. The increase was driven primarily by $73.8 million in new customer non-maturity deposits. Non-interest bearing demand deposits increased $7.3 million, interest-bearing demand deposits increased $3.3 million, savings deposits remained flat at $635.3 million and money market deposits increased $17.0 million. The increase in money market deposits included $15.4 million in new accounts during 2026. Time deposits increased $5.1 million during the period primarily due to $6.5 million in new customer time deposits.

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Borrowings

Total borrowings increased $11.5 million at the end of the second quarter 2026 to $281.2 million compared to $269.6 million in the fourth quarter 2025. The increase was driven by increased wholesale borrowings to fund loan originations. Included in total borrowings as of June 30, 2026 was a $20.0 million outstanding subordinated note balance under the 2029 Notes. On July 7, 2026 following receipt of Federal Reserve approval, we notified the holders of the 2029 Notes of our intent to fully redeem the 2029 Notes on September 1, 2026.

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Equity

The Company's book value per share was $32.80 at the end of the second quarter 2026 compared to $31.88 at the end of the fourth quarter 2025.  Tangible book value per share (non-GAAP) was $23.43 at the end of the second quarter 2026, compared to $22.41 at the end of the fourth quarter 2025.

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COMPARISON OF OPERATING RESULTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2026 AND JUNE 30, 2025

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Net Income

Second quarter 2026 GAAP net income was $15.2 million, or $0.91 per diluted share, and adjusted earnings (Non-GAAP) was $15.4 million, or $0.92 per diluted share, compared to GAAP net income of $6.1 million, or $0.40 per diluted share, and adjusted earnings (Non-GAAP) of $10.8 million or $0.70 per diluted share in the second quarter of 2025.

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For the six months ended June 30, 2026, GAAP net income was $28.8 million, or $1.71 per diluted share, and adjusted earnings (Non-GAAP) was $30.2 million, or $1.79 per diluted share, compared to GAAP net income of $16.3 million, or $1.06 per diluted share, and adjusted earnings (Non-GAAP) of $21.2 million or $1.38 per diluted share for the six months ended June 30, 2025.

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Interest and Dividend Income

Total interest and dividend income increased by 15% to $55.9 million in the second quarter 2026 compared to $48.7 million in the prior year. Yields on earning assets grew to 5.29% in the second quarter 2026 compared to 5.23% in the second quarter 2025. The increase is driven by the securities yield expansion of 20 basis points to 4.06% in the second quarter 2026 compared to 3.86% in the same period of 2025. The increase is primarily due to $115.6 million in acquired investments from the acquisition of Woodsville Guaranty Savings Bank (“Woodsville”). The loan yield increased in part due to the acquisition of $413.4 million in loans from Woodsville but also includes $48.1 million in organic growth. Residential loan yield expansion was the primary driver as the yield increased to 4.62% for the second quarter 2026 from 4.14% in the second quarter of 2025. Total loan yield growth was partially offset by a decrease in the commercial and

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industrial yield to 6.17% for the second quarter 2026 from 6.41% in the second quarter 2025 driven by the decrease in rates

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion is management's analysis to assist in the understanding and evaluation of the consolidated financial condition and results of operations of the Company. It should be read in conjunction with the consolidated financial statements and footnotes and selected financial data presented elsewhere in this Annual Report. Within the tables presented, certain columns and rows may not sum due to the use of rounded numbers for disclosure purposes.  The detailed financial discussion that follows focuses on 2025 results compared to 2024. For a discussion of 2024 results compared to 2023, see the Company's Annual Report on Form 10-K for the year ended December 31, 2024.

GENERAL

The Company is a bank holding company headquartered in Maine, providing a broad array of banking and nonbanking products and services to businesses and consumers primarily within our three-state footprint. The Company's primary sources of revenue, through the Bank, are net interest income (predominantly from loans and investment securities) and noninterest income (principally fees and other revenue from financial services provided to customers or ancillary services tied to loans and deposits).

ANNUAL PERFORMANCE OVERVIEW

Financial Highlights (For the year ended December 31, 2025 compared to the same period of 2024)

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Acquisition of Guaranty Bancorp, Inc.

On August 1, 2025, we completed our acquisition of Guaranty Bancorp, Inc., the parent company of Woodsville Guaranty Savings Bank (“Woodsville”). After purchase accounting fair value adjustments, the acquisition added $658.1 million of total assets, including $413.4 million of loans, as well as $641.2 million of total liabilities, primarily consisting of $531.3 million in deposits and $109.2 million in borrowings and subordinated debt. Based on the $39.2 million consideration paid the Company recorded goodwill of $22.3 million and core deposit intangibles of $14.0 million in other intangibles related to the acquisition.

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SELECTED FINANCIAL DATA

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AVERAGE BALANCES AND AVERAGE YIELDS/RATES

The following table presents average balances (calculated using a daily average) and average rates and yields on a fully taxable equivalent basis for the periods indicated:

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