BAR HARBOR BANKSHARES (BHB)

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

​

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, 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 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).

​

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.

​

53

Table of Contents

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.

​

QUARTERLY PERFORMANCE SUMMARY

Financial Highlights (quarter ended March 31, 2026, compared to the same period of 2025 unless otherwise stated)

​

COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2026 AND DECEMBER 31, 2025

Cash and cash equivalents

Total cash and cash equivalents were $82.2 million at the end of the first quarter 2026, compared to $80.8 million at the end of the fourth quarter 2025. Interest-earning deposits with other banks increased to $46.6 million at the end of the first quarter 2026, compared to $35.9 million at the end of the fourth quarter 2025 and yielded 3.90% and 4.53%, respectively. The increase in cash balances was driven primarily by loan payoffs during the quarter.

​

Available for Sale Debt Securities

Available-for-sale debt securities were $598.0 million compared to $597.4 million at the end of the fourth quarter 2025. Net unrealized losses increased to $52.4 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 $6.7 million in unrealized losses on fair value hedged municipal securities.  During the quarter there were purchases of $25.2 million,  paydowns and calls of $19.3 million and net accretion of $411 thousand. The quarter-to-date weighted average yield of the securities portfolio was 4.05% compared to 4.03% at the end of the fourth quarter 2025. As of the first quarter 2026 and the fourth quarter 2025, the securities portfolio had an average life of 7.6 years and 7.1 years respectively, with an effective duration of 5.4 years and 5.2 years, respectively. At the end of the first quarter 2026 all securities remain classified as available for sale.

​

Federal Home Loan Bank Stock

Federal Home Loan Bank  stock decreased $1.7 million to $9.6 million at the end of the first quarter 2026 compared to $11.3 million at the end of the fourth quarter 2025 primarily driven by the decrease in wholesale borrowings.

​

Loans Held for Sale

Loans held for sale were $11.5 million in the first quarter 2026 compared to $5.3 million in the fourth quarter 2025 as we originated $23.6 million in loans held for sale and sold $16.2 million in loans during the quarter.

​

Loans

Total loans decreased $20.6 million to $3.6 billion in the first quarter 2026 compared to the fourth quarter 2025 driven primarily by commercial real estate payoffs. Commercial real estate loans decreased $30.2 million primarily due to one early payoff of $14.4 million and $24.4 million in loans that matured and paid off during the quarter. Commercial and industrial loans increased 24% on an annualized basis and included $16.6 million of originations during the quarter. Residential real estate loans decreased $8.1 million during the quarter primarily driven by increased prepayment activity and offset in part by a $12.0 million residential loan purchase. Consumer loans remained relatively flat with a decrease of $348 thousand due to paydowns on home equity lines of credit.

​

Allowance for Credit Losses

The allowance for credit losses (“ACL”) on loans remained stable at $34.3 million at the end of the first quarter 2026 compared to $34.1 million at the end of the fourth quarter 2025. The activity in the ACL is reflective of loan portfolio

54

Table of Contents

changes and credit quality indicators. The allowance for credit losses to total loans coverage ratio for the first quarter 2026 was in line with the fourth quarter 2025 at 0.96% versus 0.94%.

​

Other Assets

Premises and equipment increased in the first quarter 2026 to $58.9 million compared to $58.2 million at the end of the fourth quarter 2025 driven by renovation projects. Bank owned life insurance decreased $6.4 million or 7% driven by death benefit pay outs that occurred at the end of the first quarter 2026, partially offset by increases in cash surrender value. Other assets increased $12.7 million primarily due to a non-cash transfer between loans and other assets as the result of the payoff timing of a loan participation which settled within one day of quarter-end.

​

Deposits

Total deposits were $3.9 billion at the end of the first quarter 2026 compared to $3.8 billion at the end of the fourth quarter of 2025. The increase was driven primarily by $17.2 million in new customer non-maturity deposits. Non-interest bearing demand deposits decreased $19.5 million and was offset by a $15.2 million increase in interest-bearing demand, a $14.0 million increase in savings and a $28.6 million increase in money market deposits. Time deposits increased $8.2 million during the quarter due to $4.8 million in new customer time deposits and an $18.0 million increase in brokered deposits, which was offset in part by maturities.

​

Borrowings

Total borrowings decreased $53.9 million in the first quarter 2026 to $215.7 million compared to $269.6 million in the fourth quarter 2025. The decrease was driven by cash inflows from loan payoffs and increased deposits.

​

Equity

The Company's book value per share was $32.13 at  the end of the first quarter 2026 compared to $31.88 at the end of the fourth quarter 2025.  Tangible book value per share (non-GAAP) was $22.71 at the end of the first quarter 2026, compared to $22.41 at the end of the fourth quarter 2025.

​

​

COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2026 AND MARCH 31, 2025

​

Net Income

First quarter 2026 GAAP net income was $13.5 million, or $0.81 per diluted share, and adjusted earnings (Non-GAAP) was $14.7 million, or $0.88 per diluted share, compared to GAAP net income of $10.2 million, or $0.66 per diluted share, and adjusted earnings (Non-GAAP) of $10.5 million or $0.68 per diluted share in the first quarter of 2025.

​

Interest and Dividend Income

Total interest and dividend income increased by 16%, or $7.7 million, to $55.3 million in the first quarter 2026 compared to $47.5 million in the prior year. Yields on earning assets grew to 5.27% in the first quarter 2026 compared to 5.16% in the first quarter 2025. The increase was driven by year-over-year loan yield expansion primarily due to the acquisition of $413.4 million in loans from the acquisition of Woodsville. The yield on commercial real estate loans grew to 5.68% in the first quarter 2026 from 5.58% in the first quarter 2025. The residential loan yield increased to 4.64% for the first quarter 2026 from 4.22% in the first quarter of 2025. Total loan yield growth was partially offset by a decrease in the commercial and industrial yield to 6.13% for the first quarter 2026 from 6.57% in the first quarter 2025 driven by the decrease in rates of adjustable-rate loans.

​

Net Interest Income and Net Interest Margin

The net interest margin was 3.54% in the first quarter 2026 compared to 3.17% in the same quarter 2025. As loan balances grew year-over-year the yield on loans expanded 8 basis points to 5.50% compared to 5.42% in the same period of 2025. Interest-bearing deposit costs decreased year-over-year to 2.19% compared to 2.52% in the same period of 2025.

​

Total interest expense decreased $153 thousand in the first quarter 2026 compared to the first quarter 2025. Deposit costs were down $623 thousand year-over-year.  Borrowing costs increased $470 thousand, or 16% year-over-year, driven by the subordinated debt acquired from Woodsville.

55

Table of Contents

Provision for Credit Losses

The provision for credit losses on loans in the first quarter 2026 was $305 thousand compared to a recapture of $57 thousand in the same period of 2025. The provision reflects minimal net charge-offs of $42 thousand, portfolio changes and credit quality indicators. There was no provision for investment losses in the current year compared to a $636 thousand provision in the first quarter 2025. We had a loss on available-for-sale debt securities of $1.0 million during the first quarter 2026. The loss relates to a write-down on a pre

[Excerpt truncated for page length; source filing is linked above.]

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)

​

​

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.

​

39

Table of Contents

SELECTED FINANCIAL DATA

​

40

Table of Contents

​

41

Table of Contents

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:

42

Table of Contents

RATE/VOLUME ANALYSIS

The following table presents the effects of rate and volume changes on the fully taxable equivalent net interest income. Tax exempt interest revenue is shown on a tax-equivalent basis for proper comparison. For each category of interest- earning assets and interest-bearing liabilities, information is provided with respect to changes attributable to (1) changes in rate (change in rate multiplied by prior year volume), (2) changes in volume (change in volume multiplied by prior year rate), and (3) changes in volume/rate (change in rate multiplied by change in volume) have been allocated proportionately based on the absolute value of the change due to the rate and the change due to volume.

​

​

43

Table of Contents

NON-GAAP FINANCIAL MEASURES

​

Our accounting and reporting policies conform to accounting principles generally accepted in the United States of America ("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 Annual Report 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, that are included or excluded, 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.

​

These non-GAAP measures are intended to provide the reader with additional supplemental perspectives on operating results, performance trends, and financial condition. Non-GAAP financial measures are not a substitute for GAAP measures; they should be read and used in conjunction with the Company's GAAP financial information. Because non-GAAP financial measures presented in this Annual Report are not measurements determined in accordance with GAAP and are susceptible to varying calculations, these non-GAAP financial measures, as presented, may not be comparable to other similarly titled measures presented by other companies. A reconciliation of non-GAAP financial measures to GAAP measures is provided herein. In all cases, it should be understood that non-GAAP measures do not depict amounts that accrue directly to the benefit of shareholders. An item which management excludes when computing non-GAAP financial measures can be of substantial importance to the Company’s results for any particular quarter or year. Each non-GAAP measure used by the Company in this Annual Report as supplemental financial data should be considered in conjunction with the Company's GAAP financial information. The Company utilizes these non-GAAP financial measures for purposes of measuring our performance against our peer group and other financial institutions and analyzing our internal performance. We also believe these non-GAAP financial measures help investors better understand the Company’s operating performance and trends and allow for better performance comparisons to other banks. In addition, these non-GAAP financial measures remove the impact of unusual items that may obscure trends in the Company’s underlying performance.

The non-GAAP financial measures that we discuss in this Annual Report 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 Annual Report 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 Annual Report when comparing such non-GAAP financial measures. The following reconciliation table provides a more detailed analysis of these, and reconciliation for, each of non-GAAP financial measures.

​

44

Table of Contents

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

​

The following table summarizes the reconciliation of non-GAAP items for the time periods presented:

​

45

Table of Contents

​

46

Table of Contents

COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2025 AND 2024

Cash and cash equivalents

Total cash and cash equivalents at December 31, 2025 were $80.8 million, compared to $72.2 million at December 31, 2024. Interest-earning deposits held with other banks totaled $35.9 million at year-end 2025 compared to $37.9 million at year-end 2024 carrying a yield of 4.53% in 2025 versus 5.54% in 2024.

​

Available-for-sale debt securities

Securities totaled $597.4 million at year-end 2025 and $521.0 million at year-end 2024. The increase is primarily due to $115.0 million in securities from the Woodsville acquisition.  During 2025, security purchases totaled $91.0 million and were offset by $43.6 million in sales and $99.8 million of maturities, calls and pay-downs of amortizing securities. The sales primarily consisted of $40.8 million of lower yielding securities from the acquisition of Woodsville. Fair value adjustments decreased the security portfolio by $47.5 million in 2025 compared to a $62.3 million unrealized loss in 2024. The weighted average yield of the securities portfolio was 3.97% as of December 31, 2025 compared to 3.94% at year-end 2024. At the end of 2025, our securities portfolio had an average life of 7.1 years with an effective duration of 5.2 years and an average life of 8.5 and an effective duration of 4.8 at year-end 2024. All securities remain classified as available for sale to provide flexibility in loan funding and management of our cost of funds.

​

Federal Home Loan Bank stock

FHLB Stock was $11.3 million at year-end 2025, compared to $12.2 million at year-end 2024. Activity during 2025 consisted of $4.4 million acquired from Woodsville and purchases of $11.7 million offset by redemptions of $17.0 million due to paydowns of wholesale borrowings.

​

Loans held for sale

Loans held for sale increased to $5.3 million at year-end 2025 compared to $1.2 million at year-end 2024. The increase was driven by the interest rate environment and demand for wholesale loans. During 2025 we sold $52.4 million of loans held for sale resulting in a net gain of $724 thousand, during 2024 we sold $54.9 million of loans held for sale resulting in a net gain of $663 thousand.

​

Loans

Loans were $3.6 billion at year-end 2025, compared to $3.1 billion at year-end 2024.  Loan growth was driven by the $413.4 million in loans acquired from Woodsville. Total commercial loans in 2025 were $2.4 billion, growing 6% on an annualized basis, excluding the impact of acquired loans, compared to $2.1 billion at year-end 2024. Commercial growth included $690.9 million in originations during the year, partially offset by payoffs and paydowns. Total residential loans increased to $1.1 billion at year-end 2025 from $888.3 million at year-end 2024, primarily as a result of $248.5 million in acquired loans. Consumer loans were $128.8 million at year-end 2025 compared to $102.2 million at year-end 2024 and included $21.4 million in loans acquired from Woodsville.

​

Allowance for Credit Losses on Loans

The allowance for credit losses on loans was $34.1 million at December 31, 2025 compared to $28.7 million as of December 31, 2024. The increase was primarily driven by $4.0 million in reserves on non-PCD loans and $1.6 million in reserves on PCD loans from the Woodsville acquisition. Net charge-offs were $950 thousand in 2025 compared to $353 thousand in 2024 driven by the resolution of three commercial and industrial loans. The net charge-offs to average loans ratio remains strong at 0.03% in 2025 compared to 0.01% in 2024.

​

Premises and Equipment

Premises and equipment increased $7.0 million at December 31, 2025 to $58.2 million compared to $51.2 million at December 31, 2024, driven by $6.6 million in acquired assets from the Woodsville acquisition. We sold $406 thousand of premises held for sale in 2025 that resulted in a gain of $189 thousand. The gain from premises held for sale was offset by the disposal of certain acquired assets resulting in a loss of $446 thousand for a net loss on premises and equipment of $257 thousand.

​

​

​

47

Table of Contents

Goodwill and Other Intangibles

Goodwill increased to $141.8 million in 2025 compared to $119.5 million at year-end 2024. During the year the Company acquired Woodsville which led to the increase in goodwill of $22.3 million. Other intangibles increased $12.5 million in 2025 driven by $14.0 million from the acquisition partially offset by amortization of $1.5 million.

​

Other Assets

Total other assets increased $16.6 million to $200.8 million at December 31, 2025 from $184.2 million as of December 31, 2024. The increase is driven by the cash surrender value of bank-owned life insurance income which increased $14.4 million primarily due to the acquisition of Woodsville. Deferred tax assets increased $6.6 million and was offset in part by other assets decreasing $4.4 million.

​

Deposits

Total deposits increased $553.6 million to $3.8 billion at the end of 2025 compared to $3.3 billion at the end of 2024. The overall increase in deposits is due to the acquisition of $531.3 million from Woodsville. Non-maturity deposits, excluding acquired deposits, increased $38.9 million during 2025 primarily due to interest-bearing demand deposits. Excluding the impact of acquired deposits, time deposits decreased $16.6 million during the year primarily due to $86.0 million in brokered deposit maturities.

Borrowings

Total borrowings decreased $21.0 million to $269.6 million at December 31, 2025 compared to $290.6 million as of December 31, 2024. Acquired FHLB borrowings totaled $98.0 million, of which $15.0 million of advances were paid off shortly after the acquisition date. Senior borrowings decreased $33.2 million during the year as loan paydowns, deposits and proceeds from the investment portfolio were utilized to decrease borrowing levels. Subordinated borrowings increased $12.2 million primarily due to $11.2 million of subordinated borrowings from the Woodsville acquisition.

​

Derivative Financial Instruments and Other Liabilities

Other liabilities totaled $60.4 million at December 31, 2025 compared to $66.6 million as of December 31, 2024. The decrease was primarily driven by a $10.0 million reduction in the fair value of customer loan swaps, partially offset by increased unpaid services and $2.6 million in unearned income related to contract negotiations from the Woodsville acquisition.The reserve for unfunded commitments increased $796 thousand at the end of 2025 to $3.8 million compared to $3.1 million at December 31, 2024, which are also recorded in other liabilities.

Equity

Total equity was $532.5 million at year-end 2025, compared with $458.4 million at year-end 2024. Book value per share was $31.88 as of December 31, 2025 compared with $30.00 at December 31, 2024.  Upon the acquisition of Woodsville each share of Guaranty’s common stock was converted into the right to receive 1.85 shares of the Company’s common stock, with cash paid in lieu of any fractional shares. The total consideration paid by the Company was $39.2 million and in total the Company issued 1.4 million shares of its common stock.

​

During 2025 and 2024, the Company declared and distributed regular cash dividends on its common stock in the aggregate amounts of $20.4 million and $17.8 million, respectively.  The Company’s 2025 dividend payout ratio amounted to 44%, compared with 42% in 2024.  Total cash dividends paid increased 7% in 2025 and was $1.26 per share of common stock, compared with $1.18 per share of common stock in 2024.

The Company and the Bank remained well-capitalized under regulatory guidelines at period end as further described in Note 13 – Shareholders’ Equity and Earnings Per Common Share on the Consolidated Financial Statements.

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024

Net Interest Income

Net interest income for 2025 was $134.5 million compared with $113.8 million in 2024. The net interest margin was 3.41% in 2025 compared to 3.15% in the prior year. The yield on earning assets totaled 5.28% at December 31, 2025 compared to 5.18% at December 31, 2024. The yield on loans was 5.53% in 2025 and 5.40% in 2024 primarily due to the acquisition of $413.4 million loans. Total loan yield growth was partially offset by a decrease in the commercial and

48

Table of Contents

industrial yield to 6.44% for 2025 from 6.75% in 2024 driven by the decrease in rates of adjustable-rate loans. Costs of interest-bearing deposits decreased in 2025 to 2.17% from 2.37% in 2024 while borrowing costs increased to 4.69% in 2025 from 4.40% in 2024.

Provision for Credit Losses

The provision for credit losses on loans was $4.6 million at December 31, 2025 compared to $955 thousand at December 31, 2024.  The increase was due to the $4.0 million reserve on non-PCD loans as a result of the Woodsville acquisition. The provision for credit losses on available-for-sale debt securities was $636 thousand in 2025 compared to $1.2 million in 2024. The provision for available-for-sale-debt securities was due to the deterioration in scheduled interest payments and estimated future cash flows of two corporate securities in 2024.

Non-Interest Income

Non-interest income in 2025 was $34.6 million compared to $36.9 million in 2024.  Trust management fees were $16.1 million in 2025 compared to $15.7 million in 2024 due to higher assets under management of $3.0 billion at year-end 2025 compared to $2.8 billion at year-end 2024. Customer service fees increased 8% to $16.0 million in 2025 from $14.8 million in 2024 driven by increased deposit balances due to the Woodsville acquisition. Customer derivative income increased $1.1 million year-over-year primarily driven by the interest rate environment and swap timing. The overall decrease was driven by the Company recognizing impairment losses of $4.6 million on available-for-sale debt securities in 2025. For further detail see Note 3 – Available-for-Sale Debt Securities on the Consolidated Financial Statements.

​

Non-Interest Expense

Non-interest expense increased to $117.7 million in 2025 compared to $96.0 million in 2024. The increase was primarily due to $10.6 million in acquisition, conversion and other expenses related to the Woodsville acquisition. Salaries and benefits expense increased $5.7 million to $60.5 million in 2025 mostly due to increased personnel from the acquisition. Other expenses increased $5.5 million driven by a $1.5 million increase in the provision for unfunded commitments, $742 thousand increase in occupancy and equipment and $582 thousand in amortization of other intangibles all of which are related to the acquisition of Woodsville.

Income Tax Expense

Income tax expense was $9.0 million for the year ended December 31, 2025 compared to $9.1 million for the year ended December 31, 2024. The effective tax rate was 19.6% in 2025 compared to 17.26% in 2024.

LIQUIDITY AND CASH FLOWS

Liquidity is measured by the ability to meet short-term cash needs at a reasonable cost or minimal loss. Favorable sources of liabilities are sought 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 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 liquidity position is actively managed through target ratios established under our liquidity and funding policy. Continual monitoring of these ratios, by using historical data and through forecasts under multiple rate and stress scenarios, allows the ability to employ strategies necessary to maintain adequate liquidity. The policy is to maintain a liquidity position of at least 8% of total assets. A portion of the deposit base has been historically seasonal in nature, with balances typically declining in the winter months through late spring, during which period the liquidity position tightens.

A liquidity contingency plan is 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. Management 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 liquidity position.

The existing cash and cash equivalents (including an interest-bearing deposit at the FRB Boston), securities available for sale and cash flows from operating activities will be sufficient to meet anticipated cash needs for at least the next

49

Table of Contents

12 months. Future working capital needs will depend on many factors, including the rate of business and revenue growth. To the extent cash and cash equivalents, securities available for sale and cash flows from operating activities are insufficient to fund future activities, the need to raise additional funds through debt arrangements or public or private debt or equity financings may be utilized. The need to raise additional funds may be needed in the event it is determined in the future to effect one or more acquisitions of banks or businesses. If additional funding is required, we may not be able to obtain debt arrangements or to effect an equity or debt financing on terms acceptable or at all.

Capital Resources

Consistent with our long-term goal of operating a sound and profitable organization, at December 31, 2025, we continue 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.

At December 31, 2025, available same-day liquidity totaled approximately $1.0 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 the Company's amortizing securities and loan portfolios. At December 31, 2025, we had unused borrowing capacity at the FHLB of $259.1 million, unused borrowing capacity at the Federal Reserve of $94.0 million and unused lines of credit totaling $41.0 million.

​

Purchase Obligations

In the normal course of conducting our banking and financial services business, and in connection with providing products and services to our customers, a variety of traditional third-party contracts for support services have been entered into. Examples of such contractual agreements include, but are not limited to: services providing core banking systems, ATM and debit card processing, trust services software, accounting software and the leasing of T-1 telecommunication lines and other technology infrastructure supporting our network.  These types of purchase obligations that will come due during 2026 is approximately $10.3 million as of December 31, 2025 which is expected to be funded by cash flows generated from our operations.

Impact of Inflation and Changing Prices

A banking organization’s assets and liabilities are primarily monetary. Changes in the rate of inflation do not have as great an impact on the financial condition of a bank as do changes in interest rates. Moreover, interest rates do not necessarily change at the same percentage as inflation. Accordingly, changes in inflation are not expected to have a material impact on the Company.

The FOMC often applies contractionary monetary policies during times of high inflation, resulting in elevated interest rates.  Elevated interest rates may lower the market value of existing balance sheet assets and often result in a significant unrealized loss position.  These lower market values may negatively affect the Bank’s liquidity position as it results in a lower value of the Bank’s liquid assets.

IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

Please refer to the notes on Recently Adopted Accounting Principles and Future Application of Accounting Pronouncements in Note 1 – Summary of Significant Accounting Policies of the Consolidated Financial Statements.

50

Table of Contents

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Note 1 – Summary of Significant Accounting Policies to our audited Consolidated Financial Statements for the year ended December 31, 2025 contains a summary of significant accounting policies. Various elements of these accounting policies, by their nature, are subject to estimation techniques, valuation assumptions and other subjective assessments. Certain assets are carried in the consolidated statements of financial condition at estimated fair value or the lower of cost or estimated fair value. Policies with respect to the methodology used to determine the allowance for credit losses is a critical accounting policy and estimate because of its importance to the presentation of our financial condition and results of operations. The critical accounting policy involves a higher degree of complexity and requires management to make difficult and subjective judgments which often require assumptions or estimates about highly uncertain matters. The use of different judgments, assumptions, and estimates could result in material differences in the results of operations or financial condition.

Allowance for credit losses on loans (the “allowance”)

The estimate of expected credit losses on collectively evaluated loans is based on relevant information about current conditions, past events, and reasonable and supportable forward-looking forecasts regarding collectability of the reported amounts. Management employs a process and methodology to estimate the allowance for credit losses (“ACL”) on collectively evaluated loans that evaluates both quantitative and qualitative components. The methodology for evaluating the quantitative component involves pooling loans into portfolio segments for loans that share similar risk characteristics. For all loan segments measured on a collective basis, the Company utilizes a discounted cash flow (“DCF”) methodology to estimate credit losses over the expected life of the loan. The DCF methodology applies the probability of default (“PD”) and the loss given default (“LGD”) assumptions over the remaining contractual life of the loan which is adjusted for prepayment speeds, curtailment rate and time to recovery assumptions to estimate a reserve for each loan. The Company uses regression models to develop the PD and LGD assumptions, which are derived primarily from segment-specific selected peers. The loss rates are adjusted by an economic forecast over the reasonable and supportable forecast period after which time they revert back to the historical mean.

Assumptions evaluated each reporting period include the probability of default and loss given default assumptions, macroeconomic forecast variables, prepayment speed assumptions, and the determination of the qualitative factors. As of December 31, 2025 management utilized National Unemployment Rate, Commercial Real Estate Price Index and House Price Index in their economic forecast.  Hypothetically, if the economic forecast was deteriorated by 100bps compared to management’s base scenario the impact to the allowance would be an increase of $1.3 million. Hypothetically, if the economic forecast improved by 100bps compared to management’s base scenario, the impact to the allowance would be a decrease of $1.3 million. Hypothetically, if prepayment speeds doubled there would be a decrease to the allowance of $2.6 million. Hypothetically, if prepayment speeds were decreased by half there would be an increase to the allowance of $2.9 million.