BAR HARBOR BANKSHARES

Previous wording

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 months ended March 31, 2024 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 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" 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.

Current wording

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, 2024 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 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" 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.

Previous wording

Earnings*(first quarter 2024, compared to the same period of 2023)*

Current wording

Earnings*(second quarter 2024, compared to the same period of 2023)*

Previous wording

We are honored and proud to be recognized byForbes as one of the “World’s Best Banks” again for the second consecutive year in the first quarter 2024, based largely on service and trust metrics. Of the 75 US-based banks to make the list, Bar Harbor Bank & Trust is one of only three banks headquartered in Northern New England. We believe that this recognition is a reflection of our customers’ experience with us and their trust in Bar Harbor Bank & Trust.

Current wording

In the first quarter of 2024, we were recognized byForbes as one of the “World’s Best Banks” for the second consecutive year. Of the 75 US-based banks to make the list, Bar Harbor Bank & Trust is one of only three banks headquartered in Northern New England.

Previous wording

Total cash and cash equivalents were $76.2 million, compared to $94.8 million at year-end 2023. Interest-earning cash held with other banks totaled $45.3 million compared to $52.6 million at year-end 2023 and yielded 5.88% and 6.42%, respectively.

Current wording

Total cash and cash equivalents were $101.8 million, compared to $94.8 million at year-end 2023. Interest-earning cash held with other banks totaled $62.1 million compared to $52.6 million at year-end 2023 and yielded 5.65% and 6.42%, respectively.

Previous wording

Securities decreased to $527.6 million compared to $534.6 million at year-end 2023 driven by $485 thousand in net amortization, and $7.8 million of amortizing securities pay-downs offset by security purchases of $4.8 million. Fair value adjustments decreased the security portfolio by $64.9 million at quarter-end compared to $62.4 million at year-end. The year to date weighted average yield of the securities portfolio was 4.02% compared to 3.85% at year-end primarily due to a run-off of lower coupon fixed-rate securities. As of quarter-end and year-end, our securities portfolio had an average life of nine years with an effective duration of five years and all securities remain classified as available for sale to provide flexibility in asset funding and other opportunities as they arise.

Current wording

Securities decreased to $512.9 million compared to $534.6 million at year-end 2023 driven by $408 thousand in net amortization, and $22.0 million of amortizing securities pay-downs offset by security purchases of $18.1 million. Fair value adjustments decreased the security portfolio by $68.5 million at quarter-end compared to $62.4 million at year-end. The year to date weighted average yield of the securities portfolio was 4.00% compared to 3.85% at year-end primarily due to a run-off of lower coupon fixed-rate securities. As of quarter-end and year-end, our securities portfolio had an average life of nine years with an effective duration of five years and all securities remain classified as available for sale to provide flexibility in asset funding and other opportunities as they arise.

Previous wording

Total loans grew 2%, on an annualized basis and remained at $3 billion at the end of both the first quarter 2024 and fourth quarter 2023. Commercial loans grew by $35.1 million or 7% annualized primarily driven by a $22.7 million or 6% increase in commercial real estate and $12.4 million or 12% increase in commercial and industrial growth. Residential loans decreased by $16.7 million or 8% compared to the fourth quarter 2023, primarily due to continued lower demand for prevailing mortgage rates and sales into the secondary market. Tax exempt loans decreased by $4.7 million or 31% driven by payoffs within the first quarter 2024.

Current wording

Total loans grew 4%, on an annualized basis to $3.1 billion. Commercial loans grew by $103.7 million driven by an $82.6 million or 11% increase in commercial real estate and $21.1 million or 11% increase in commercial and industrial growth. Residential loans decreased by $35.2 million or 7% compared to the fourth quarter 2023, primarily due to continued lower demand for prevailing mortgage rates. Tax exempt loans decreased by $6.2 million or 21% driven by payoffs within the second quarter 2024.

Previous wording

The ACL remained flat at $28.4 million at the end of the first quarter 2024 compared to $28.1 million at the end of the fourth quarter 2023. Our ACL continues to be driven by a combination of portfolio loan growth, nominal credit movement and general macroeconomic trends. Non-accruing loans increased during the first quarter 2024 to $6.9 million from $5.5

Current wording

The ACL increased to $28.9 million at the end of second quarter 2024 compared to $28.1 million at the end of the fourth quarter 2023. Our ACL continues to be driven by a combination of portfolio loan growth, nominal credit movement and general macroeconomic trends. Non-accruing loans increased during the second quarter 2024 to $6.3 million from $5.5 million in the fourth quarter 2023, but declined 6% on a year-over-year basis. Charge-offs and specific reserves on non-accruing loans remain nominal, with these non-accruing relationships supported by relatively strong collateral values.

Previous wording

Total equity was $435.7 million at March 31, 2024 compared with $432.1 million at year-end. Tangible book value per share (non-GAAP) was $20.48 at March 31, 2024 compared with $20.28 at year-end. Equity included Fair value adjustments decreased the security portfolio by $64.9 million at quarter-end compared to $62.4 million at year-end.

Current wording

Total equity was $438.9 million at June 30, 2024 compared with $432.1 million at year-end. Tangible book value per share (non-GAAP) was $20.68 at June 30, 2024 compared with $20.28 at year-end. Equity including Fair value adjustments decreased the security portfolio by $68.5 million at quarter-end compared to $62.4 million at year-end.

Previous wording

COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND MARCH 31, 2023

Current wording

COMPARISON OF OPERATING RESULTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND JUNE 30, 2023

Previous wording

Net income was $10.1 million, compared to $13.0 million. Diluted earnings per share was $0.66, compared to $0.86. The decrease was primarily driven by a higher cost of funds offset by rising asset yields in the first quarter 2024.

Current wording

Net income in the second quarter 2024 was $10.3 million, compared to $10.8 million. Diluted earnings per share was $0.67, compared to $0.71. Net income for the first half of 2024 was $20.4 million, or $1.33 per diluted share compared to $23.8 million, or $1.57 per diluted share, in the same period of 2023. The decrease was primarily driven by a higher cost of funds partially offset by rising asset yields in the second quarter and first half of 2024.

Previous wording

Total interest and dividend income increased by $5.4 million or 13.4% to $45.8 million compared to $40.4 million in the first quarter 2023 primarily driven by the repricing of adjustable loans and originations of higher fixed rate loans within the commercial portfolio. The yield on commercial real estate loans grew 39 basis points to 5.47% at the end of the first quarter 2024 from 5.08% in the first quarter 2023. Commercial and industrial yield grew 79 basis points to yield 6.68% at the end of the first quarter 2024 compared to 5.89% at the end of the first quarter 2023. Increases in yields were driven by the current rate environment.

Current wording

Total interest and dividend income in the second quarter 2024 increased by $4.0 million or 9.23% to $46.8 million compared to $42.8 million in the second quarter 2023 primarily driven by the repricing of adjustable loans and originations of higher fixed rate loans within the commercial portfolio. The yield on commercial real estate loans grew to 5.61% at the end of the second quarter 2024 from 5.21% in the second quarter 2023. Commercial and industrial yield grew to 6.76% at the end of the second quarter 2024 compared to 6.42% at the end of the second quarter 2023. Increases in yields were driven by the current rate environment.

Previous wording

The provision for credit losses was $289 thousand compared to $798 thousand in the first quarter 2023 as net charge-offs to total loans continue to remain nominal. Credit quality continues to be strong as non-accruing loans to total loans declined 3 basis points to 0.23% at the end of the first quarter 2024 compared to 0.26% in the first quarter 2023. Total delinquent and non-accruing loans to total loans declined 15 basis points from 0.52% at the end of the first quarter 2023 to 0.37% in the first quarter 2024.

Current wording

The provision for credit losses in the second quarter 2024 was $585 thousand compared to $750 thousand in the second quarter 2023 as net charge-offs to total loans continue to remain nominal. Non-accruing loans to total loans declined to 0.20% at the end of second quarter 2024 compared to 0.22% in the second quarter 2023.

Previous wording

Non-interest expense was $23.7 million in the first quarter 2024 compared to $22.7 million in the first quarter 2023 driven by salary and benefits, marketing and other expenses. Salary and benefit expenses increased 4% or $477 thousand from the comparative quarter driven by cost of living increases in the first quarter 2024. Marketing expenses increased to $567 thousand compared to $409 thousand in the first quarter 2023. Other expenses increased to $4.4 million from $4.1 million in the first quarter of 2023 primarily due to increases in assessments, software expenses, and debit card replacement costs in the first quarter of 2024.

Current wording

Non-interest expense was $24.0 million in the second quarter 2024 compared to $23.4 million in the second quarter 2023 driven by salary and benefits, and other expenses partially offset by the gain on sale of our Avery Lane office and lower professional services fees. Salary and benefit expenses increased 5% or $637 thousand from the comparative quarter 2023 driven in part by stock compensation due to increases in stock price and lower loan origination fee deferrals in the second quarter 2024. Other expenses increased to $4.4 million from $4.2 million in the second quarter 2023 primarily due to increases in charitable contributions to the community, software expenses, and debit and ATM card expenses.

Previous wording

Income tax expense was $2.6 million in the first quarter 2024 compared with $3.6 million in the prior year quarter. The effective tax rate was 20.3% the first quarter 2024 compared to 21.6% the first quarter 2023.

Current wording

Income tax expense was $2.5 million in the second quarter 2024 compared with $2.8 million in the prior year quarter. The effective tax rate was 19.8% the second quarter 2024 compared to 20.8% the second quarter 2023.

Previous wording

As of March 31, 2024, available same-day liquidity totaled approximately $1.1 billion, including cash, borrowing capacity at FHLB and the Federal Reserve Discount Window and various lines of credit. Additional sources of liquidity include cash flows from operations, wholesale deposits, cash flow from our amortizing securities and loan portfolios. As of March 31, 2024, we had unused borrowing capacity at the FHLB of $426.1 million, unused borrowing capacity at the Federal Reserve of $90.9 million and unused lines of credit totaling $51.0 million, in addition to $76.2 million in cash.

Current wording

As of June 30, 2024, available same-day liquidity totaled approximately $1.2 billion, including cash, borrowing capacity at FHLB and the Federal Reserve Discount Window and various lines of credit. Additional sources of liquidity include cash flows from operations, wholesale deposits, cash flow from our amortizing securities and loan portfolios. As of June 30, 2024, we had unused borrowing capacity at the FHLB of $364.8 million, unused borrowing capacity at the Federal Reserve of $92.3 million and unused lines of credit totaling $41.0 million, in addition to $101.8 million in cash.

Previous wording

We expect to continue our current practice of paying quarterly cash dividends with respect to our common stock subject to our Board of Directors’ discretion to modify or terminate this practice at any time and for any reason without prior notice. We believe our quarterly dividend rate per share as approved by our Board of Directors, enables us to balance our multiple objectives of managing our business and returning a portion of our earnings to our shareholders. Historically, and a practice we intend to continue, our principal cash expenditure is the payment of dividends on our common stock, if as and when declared by our Board of Directors. Dividends were paid to our shareholders in the aggregate amount of $4.2

Current wording

We expect to continue our current practice of paying quarterly cash dividends with respect to our common stock subject to our Board of Directors’ discretion to modify or terminate this practice at any time and for any reason without prior notice. We believe our quarterly dividend rate per share as approved by our Board of Directors, enables us to balance our multiple objectives of managing our business and returning a portion of our earnings to our shareholders. Historically, and a practice we intend to continue, our principal cash expenditure is the payment of dividends on our common stock, if as and when declared by our Board of Directors. Dividends were paid to our shareholders in the aggregate amount of $8.7 million and $8.1 million for the six months ended June 30, 2024 and 2023, respectively. All dividends declared and distributed by us will be in compliance with applicable state corporate law and regulatory requirements.

Previous wording

Our off-balance sheet arrangements are limited to standby letters of credit whereby the Bank guarantees the obligations or performance of certain customers. 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 such letters of credit 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.

Current wording

Our off-balance sheet arrangements are limited to standby letters of credit whereby the Bank guarantees the obligations or performance of certain customers. 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 such letters of credit are subject to the same origination, portfolio maintenance and management

Previous wording

Our Consolidated Financial Statements were prepared in accordance with GAAP and follow general practices within the industries in which we operate. The most significant accounting policies we follow are presented in Note 1—“Summary of Significant Accounting Policies” of the Consolidated Financial Statements to our Form 10-K. Application of these principles requires us to make estimates, assumptions, and judgments that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Most accounting policies are not considered by management to be critical accounting policies. Several factors are considered in determining whether or not a policy is critical in the preparation of the Consolidated Financial Statements. These factors include among other things, whether the policy requires management to make difficult, subjective, and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. The accounting policies which we believe to be most critical in preparing our Consolidated Financial Statements are presented in the section titled “Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates” included in our Form 10-K. There have been no significant changes in our application of critical accounting policies since December 31, 2023. Refer to Note 1 – “Basis of Presentation - Recent Accounting Pronouncements” of the consolidated financial statements for discussion of accounting pronouncements issued but yet to be adopted and implemented.

Current wording

Our Consolidated Financial Statements were prepared in accordance with GAAP and follow general practices within the industries in which we operate. The most significant accounting policies we follow are presented in Note 1—“Summary of Significant Accounting Policies” of the Consolidated Financial Statements to our Form 10-K. Application of these principles requires us to make estimates, assumptions, and judgments that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Most accounting policies are not considered by management to be critical accounting policies. Several factors are considered in determining whether or not a policy is critical in the preparation of the Consolidated Financial Statements. These factors include among other things, whether the policy requires management to make difficult, subjective, and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. The accounting policies which we believe to be most critical in preparing our Consolidated Financial Statements are presented in the section titled “Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates” included in our Form 10-K. There have been no significant changes in our application of critical accounting policies and estimates since December 31, 2023. Refer to Note 1 – “Basis of Presentation - Recent Accounting Pronouncements” of the consolidated financial statements for discussion of accounting pronouncements issued but yet to be adopted and implemented.