BAR Harbor Bankshares: Form 10-Q for the period ended Sep 30, 2025

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 nine months ended September 30, 2025 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” for the year ended December 31, 2024, 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).

• Liquidity remains strong, with cash and available for sale securities representing approximately 16% of our total assets at September 30, 2025. We maintain the ability to access sources of contingent liquidity at the FHLB and the Reserve Bank. We consider the Company's current liquidity position to be adequate to meet both short-term and long-term liquidity needs. Refer to “Liquidity and Cash Flows” for additional information.
• Capital remains strong, with both the Company and the Bank well capitalized under regulatory guidelines at period end as further described in Note 7 – “Capital Ratios and Shareholders’ Equity” to our unaudited consolidated financial statements.
• Asset quality remains strong, with non-performing assets to total assets of 0.25% as of September 30, 2025 and net charge-offs of $316 thousand, reflecting our continued strong credit performance in the midst of a challenging environment.

Merger Completion with Guaranty Bancorp, Inc.

On July 31, 2025, we completed our acquisition of Guaranty Bancorp, Inc. (“Guaranty”), the parent company of Woodsville Guaranty Savings Bank (“Woodsville”), and its results of operations are included in the Company’s consolidated results since the date of acquisition. Therefore, the Company’s third quarter and nine months ended 2025 results reflect increased levels of average balances, net interest income, non-interest income and expense compared to its prior quarter and nine months ended of 2024 results. 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. The Company recorded goodwill of $22.3 million and core deposit intangibles of $14.0 million in other intangibles related to the acquisition.

With the completion of the acquisition, we increased our presence in New Hampshire with the addition of 9 branches. As of September 30, 2025 we have over 60 branches across Maine and New Hampshire. Our total assets increased to $4.7 billion as of September 30, 2025.

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.

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

Earnings (quarter ended September 30, 2025, compared to the same period of 2024 unless otherwise stated)

• Third quarter 2025 GAAP net income of $8.9 million or $0.54 per diluted share and adjusted earnings (Non-GAAP) of $15.4 million or $0.95 per diluted share compared to GAAP and adjusted earnings (Non-GAAP) net income of $12.2 million and $0.80 per diluted share for the third quarter 2024.
• Adjusted return on assets (Non-GAAP) was 1.35% versus 1.20% and adjusted return on equity was 12.16% compared to 10.68%. Adjusted return on assets (Non-GAAP) increased due to disciplined loan pricing, managed deposit costs and Woodsville acquisition. See “Financial Position” for further discussion.
• Net interest income was $37.0 million compared to $29.0 million and net interest margin (“NIM”) was 3.56%, versus 3.15%. Loan income increased $6.4 million for the third quarter 2025 compared to the third quarter 2024 driven by $4.6 million from the Woodsville acquisition and $1.2 million driven by rate changes on the commercial portfolio.
• Allowance to total loans increased to 0.95% from 0.94% as net charge-offs on loans continue to be minimal and stable while credit quality continues to remain strong. Total non-accruing loans to total loans was 0.27% compared to the prior third quarter 2024 at 0.23%.
• Non-interest income increased $914 thousand in the third quarter 2025 to $10.6 million compared to $9.7 million in the same quarter 2024 primarily driven by customer service fees driven by the Woodsville acquisition. Customer Derivative income increased $697 thousand year over year driven by timing of swaps and the interest rate environment.
• Non-interest expenses increased $8.0 million to $32.7 million in the third quarter 2025 compared to $24.8 million in the third quarter 2024 driven by $5.0 million in acquisition, conversion expenses, $1.6 million increase in Salaries and benefits, $474 increased Occupancy and equipment, and Other expenses increased $520 thousand for the third quarter 2025 compared to the third quarter 2024.
• The efficiency ratio improved to 56.7% compared to 62.09% reflecting net interest income growth and continued discipline on loan and deposit pricing year over year.

***Financial Position (***September 30, 2025, compared to June 30, 2025 unless otherwise stated)

• Total assets increased $610 million or 15% to $4.7 billion at the end of the third quarter 2025 primarily due to the acquisition of Woodsville. The Company used available liquidity, including deposits and cash acquired from Woodsville, to repay wholesale borrowings.
• Total cash and cash equivalents were $136.7 million at the end of the third quarter 2025, compared to $87.0 million at the end of the second quarter 2025. Interest-earning deposits held with other banks increased to $94.0 million at the end of the third quarter 2025, compared to $36.1 million at the end of the second quarter and yielded 4.49% and 4.68%, respectively. The change in cash balances was driven by the acquisition of Woodsville.
• Available-for-sale debt securities increased $69.1 million to $597.8 million compared to $528.7 million at second quarter 2025 driven by acquired securities of $115.6 million from Woodsville, organic purchases of $15.1 million, calls and paydowns of $31.5 million and sales of $40.8 million. Fair value adjustments decreased the securities portfolio by $53.0 million at quarter-end compared to $64.1 million at the end of the second quarter. During the third quarter, there was a $241 thousand gain on available-for-sale debt securities. There was no provision for available-for-sale investments in the third quarter of 2025 and 2024. We have one nonaccrual corporate bond of $8.0 million that we have written-off $5.8 million as of September 30, 2025, of which $4.9 million is recognized in losses on available-for-sale debt securities. The quarter-to-date weighted average yield of the securities portfolio was 4.14% compared to 3.86% at the end of second quarter driven by continued purchase of higher coupon fixed-rate securities and acquisition of the Woodsville portfolio. As of third and second quarter-end, our securities portfolio had an average life of 7.4 years and 8.4 years respectively, with an effective duration of 5.3 years and 5.5 years. All securities remain classified as available for sale to provide flexibility in asset funding and other opportunities as they arise.
• FHLB stock declined $4.1 million to $8.6 million at September 30, 2025 driven by the decline in FHLB borrowings as a result of the repayment of $119.2 million in FHLB advances. This was partially offset by the acquisition of $4.4 million in stock and the assumption of $97.1 million of borrowings from Woodsville.
• Total loans increased to $3.6 billion from $3.2 billion in the second quarter driven by acquisition growth of $413.4 million from Woodsville. Total Commercial loans increased to $2.3 billion from $2.2 billion in the second quarter with $143.5 million in acquisition growth and an increase of $36.8 million organic growth which equates to an annualized growth rate of 5%. Residential real estate loans increased to $1.0 billion driven by a $248.5 million increase from acquisition loans. Loans held for sale grew $2.7 million as we experienced continued seasonal increase in demand for mortgage products with contributed changes in the interest rate environment.
• The allowance for credit losses on loans increased $5.1 million which was driven by $4.0 million in reserves on non-PCD loans, $1.6 million in PCD loans from Woodsville and $316 thousand in net charge-offs. As a result, the allowance grew to $33.9 million at the end of the third quarter 2025 compared to $28.9 million at the end of the second quarter 2025. The allowance for credit losses to total loans coverage ratio for the third quarter 2025 compared to the second quarter 2025 increased to 0.95% from 0.92%.
• Premises and equipment increased $6.2 million in the third quarter to $58.8 million compared to $52.6 million at the end of the second quarter 2025 driven by $6.6 million in acquired assets from Woodsville. There was a $206 thousand gain on sale of premises and equipment from the sale of driven by the sale of two properties.
• Goodwill increased $22.3 million in the third quarter 2025 as the result of the acquisition of Woodsville assets and other intangible assets increased $13.5 million in the third quarter 2025 compared to the second quarter 2025 to $17.0 million driven by $14 million core deposit intangible asset of the acquisition offset by amortization.
• Cash surrender value of bank-owned life insurance increased $12.5 million driven by $11.8 million in acquired bank-owned life insurance and $665 thousand in returns within the plan compared to the second quarter 2025.
• Total deposits grew to $3.9 billion at the end of the third quarter of 2025 driven by $531.3 million in acquired deposits related to the Woodsville acquisition complimented by 16% annualized quarter to date organic growth compared to the second quarter 2025. The increase was driven primarily by non-interest bearing demand and money market accounts.
• Senior borrowings decreased $116.5 million at the end of third quarter 2025 driven by loan paydowns, deposits and proceeds from investment portfolio sales were strategically utilized to decrease borrowing levels. $97.0

million in borrowings were acquired from Woodsville of which $15.0 million was paid off shortly after acquisition. $119.2 million of the Company’s senior borrowings were paid down within the quarter.

• The Company's book value per share was $31.22 as of the end of the third quarter 2025 compared to $30.60 at the end of the second quarter 2025. Tangible book value per share (non-GAAP) was $21.70 at the end of the third quarter 2025, compared to $22.58 at the end of the second quarter 2025.

COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2025 AND DECEMBER 31, 2024

Cash and cash equivalents

Total cash and cash equivalents were $136.7 million at the end of the third quarter 2025, compared to $72.2 million at the end of the fourth quarter 2024. Interest-earning deposits held with other banks increased at the end of the third quarter 2025 to $94.0 million, compared to $37.9 million at the end of the fourth quarter and yielded 4.49% and 4.92%, respectively. The change in cash balances was driven by pay downs in loans and the acquisition of Woodsville cash.

Securities

Securities available for sale was $597.8 million compared to $521.0 million in the fourth quarter 2024 driven by purchases of $67.7 million, $115.0 million in acquired investments, offset by $40.8 million in acquired investments sold, $73.1 million in paydowns and called securities. The average yield of the total securities portfolio for the third quarter 2025 was 4.14% compared to 3.69% for the fourth quarter 2024 primarily due to the change in the profile of the yield curve and a shift from commercial lending obligation investments to agencies and higher coupon fixed-rate securities. Fair value adjustments were $53.0 million at the end of the third quarter 2025 compared to $62.3 million at the end of the fourth quarter 2024. As of the end of the third quarter 2025 and fourth quarter 2024, respectively, our securities portfolio maintained an average life of 7.4 and 9.0 years with an effective duration of 5.3 and 5.0 years. All securities remain classified as available for sale to provide flexibility in asset funding and other opportunities as they arise.

Management recorded an allowance for credit losses on two corporate notes where there was a change in future estimated cash flows during the year ended December 31, 2024. A discounted cash flow approach was used to determine the amount of the allowance. The cash flows expected to be collected, after considering expected prepayments, are discounted at the original effective interest rate. During the third quarter 2025, there was a $241 thousand gain on sale of acquired available-for-sale debt securities, and a $200 thousand write-off of the corporate debt securities compared to $5.6 million in the second quarter in corporate debt securities due to credit deterioration. For the nine months ended September 30, 2025, management wrote down $5.8 million on available-for-sale debt securities and other receivables. The losses were included in net gain (loss) on available-for-sale debt securities in the consolidated statements of income. The losses were driven by credit deterioration caused by fraudulent activity by the borrower on a security initially investment-grade.

Federal Home Loan Bank Stock

Federal Home Loan Bank stock decreased to $8.6 million at the end of the third quarter 2025 compared to $12.2 million at the fourth quarter 2024. The acquisition of $4.4 million in FHLB stock was offset by net redemptions of $8.0 million in FHLB stock primarily driven by the strategic deployment of cash to pay down advances from the FHLB.

Loans

Total loans were $3.6 billion driven by the acquisition of $413.4 million from Woodsville. Total commercial loans increased to $2.3 billion from $2.1 billion in the fourth quarter 2024 with $143.5 million from the acquisition and organic growth of $75.1 million. Residential real estate loans increased to $1.0 billion driven by $248.5 million in acquired loans. Loans held for sale increased $4.3 million driven by demand for mortgage products with corresponding changes in the interest rate environment.

Allowance for Credit Losses

The allowance for credit losses on loans increased $5.2 million to $33.9 million at the end of the third quarter 2025 compared to $28.7 million at the end of the fourth quarter 2024 driven by $4.0 million in reserves on non-PCD loans and $1.6 million in PCD loans from Woodsville. The allowance for credit losses to total loans coverage ratio was 0.95% at the end of third quarter 2025 compared to 0.91% at the end of the fourth quarter 2024. Strong asset quality metrics and general macroeconomic trends impact the loan portfolio and drive ACL levels.

Deposits

Total deposits grew to $4.0 billion at the end of the third quarter of 2025 driven by $531.3 million in acquired deposits related to the Woodsville acquisition complimented by $149.2 million in organic growth compared to the fourth quarter 2024. The increase was driven primarily by the acquisition of Woodsville and the organic growth of $41.4 in interest-bearing demand, $27.9 million in non-interest bearing demand, $30.4 million in money market, and $52.8 million in time accounts.

Borrowings

Senior borrowings decreased $110.0 million at the end of third quarter 2025 to $140.0 million as loan paydowns, deposits and proceeds from investment portfolio sales were strategically utilized to decrease borrowing levels. $97.0 million in borrowings were acquired from Woodsville of which $15.0 million were paid off shortly after acquisition. As a result of the acquisition, we acquired $11.2 million of subordinated debt from Woodsville in the third quarter 2025.

Equity

The Company's book value per share was $31.22 as of the end of the third quarter 2025 compared to $30.00 at the end of the fourth quarter 2024. Tangible book value per share (non-GAAP) was $21.70 at the end of the third quarter 2025, compared to $21.93 at the end of the fourth quarter 2024.

COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2025 AND SEPTEMBER 30, 2024

Net Income

Third quarter 2025 GAAP net income was $8.9 million or $0.54 per diluted share and adjusted earnings (Non-GAAP) was $15.4 million or $0.95 per diluted share compared to GAAP net income and adjusted earnings (Non-GAAP) of $12.2 million or $0.80 per diluted share in the third quarter of 2024.

At September 30, 2025 year-to-date GAAP net income was $25.2 million or $1.60 per diluted share and adjusted earnings (Non-GAAP) was $36.6 million or $2.33 per diluted share compared to GAAP net income of $32.5 million or $2.13 per diluted share and adjusted earnings (Non-GAAP) of $32.2 million or $2.11 per diluted share in the nine months ended September 30, 2024.

The net interest margin increased to 3.56% in the third quarter 2025 compared to 3.15% in the same respective quarter 2024. Loan income increased $6.4 million for the third quarter 2025 compared to the third quarter 2024 driven by $4.6 million from the Woodsville acquisition and $1.2 million by rate changes on the commercial portfolio.

The net interest margin for the nine months ended September 30, 2025 was 3.32% compared to 3.14% for the nine months ended September 30, 2024.

Interest and Dividend Income

Total interest and dividend income increased by 15.1% or $7.3 million to $55.9 million in the third quarter 2025 compared to $48.6 million in the prior year primarily driven by the repricing of commercial adjustable-rate loans and $265.3 million higher loan balances within the commercial real estate portfolio driven by $117.8 million in acquired loans. Yields on earning assets grew to 5.36% compared to 5.24% in the third quarter 2024. The yield on commercial real estate loans grew to 5.88% in the third quarter 2025 from 5.67% in the third quarter 2024. Total loan yield growth was partially offset by a decrease in the commercial and industrial yields to 6.45% for the third quarter 2025 from 6.98% in the third quarter 2024. Consumer yield remained flat at 7.23% for the third quarter 2025 and 2024 respectively.

Total interest and dividend income increased by 7.7% to $152.1 million for the nine months ended 2025 compared to $141.2 million in the prior year primarily driven by the same reasons noted for the quarter. Yields on earning assets grew to 5.23% for the nine months ended 2025 compared to 5.19% for the nine months ended 2024. The yield on commercial real estate loans grew to 5.73% for the nine months ended 2025 from 5.57% for the nine months ended 2024. The residential real estate yield increased from 4.12% to 4.23% and the commercial and industrial yield decreased to 6.47% from 6.80% for the nine months ended 2025 and 2024.

Net Interest Income and Net Interest Margin

The net interest margin increased to 3.56% in the third quarter 2025 compared to 3.15% in the same respective quarter 2024. Loan income increased $6.4 million for the third quarter 2025 compared to the third quarter 2024 driven by $4.6 million from the Woodsville acquisition and $1.2 million by rate changes on the commercial portfolio.

The net interest margin was 3.32% for the nine months ended 2025 compared to 3.14% in same respective quarter 2024. As average loan balances grew $231.6 million year over year, the yield on loans grew to 5.48% for the six months ended 2025, up from 5.40% in the same period for 2024. Costs of interest-bearing deposits decreased to 2.41% for the nine months ended 2025 compared to 2.59% for the nine months ended 2024.

Total interest expense decreased $659 thousand for deposits in the third quarter 2025 compared the third quarter 2024. Deposit costs were up $245 thousand or 1.5% year over year driven by the acquisition of $531.3 million in deposits from Woodsville partially offset by lower cost of funds on interest-bearing deposits yields at 2.12% from 2.35% for the third quarter ended 2024. Borrowing costs decreased $904 thousand or 26.2% driven by the $216.2 million in paydowns offset partially by $97 million in acquisition borrowings accompanied by lower borrowing rates at 4.04% for the third quarter 2025 compared to 4.57% for the third quarter 2024.

Total interest expense for the nine months ended September 30, 2025 was $56.3 million compared to $56.5 million for the same period ended 2024 driven by higher cost of funds on deposits. Cost of borrowings decreased $2.1 million driven by the strategic deployment of cash to pay down advances from FHLB.

Provision for Credit Losses

The Company recorded a $4.0 million reserve on non-PCD loans established through provision expense.

There was no provision for available-for-sale investments in the third quarter of 2025 and 2024. We have one nonaccrual corporate bond of $8.0 million that we have written-off $5.8 million as of September 30, 2025, of which $4.9 million is recognized in losses on available-for-sale debt securities. At December 31, 2024 we had $9.0 million of corporate bonds that we allocated $568 thousand in related allowance for credit losses. In the first quarter of 2025, a $1.0 million nonaccrual security matured and was transferred to a financing receivable non-cash asset. In the second quarter 2025, the Company determined that it no longer intended to hold the security until the recovery of the amortized cost basis.

Non-Interest Income

Non-interest income increased $914 thousand in the third quarter 2025 to $10.6 million compared to $9.7 million in the same quarter 2024 primarily driven by customer service fees which increased $523 thousand driven by the Woodsville acquisition. Customer Derivative income increased $697 thousand year over year driven by timing of swaps and the interest rate environment. Trust management fee income offset decreases $226 thousand driven by financial service income timing.

Non-interest income for the nine months ended 2025 was $24.1 million compared to $27.5 million for the same period ended 2024 driven by the write down of one available-for-sale debt security previous discussed above.

Non-Interest Expense

Non-interest expenses increased $8.0 million to $32.7 million in the third quarter 2025 compared to $24.8 million in the third quarter 2024 driven by $5.0 million in acquisition expenses related to Woodsville. Salaries and benefits increased $1.6 million to $15.9 million in the third quarter 2025 compared to $14.4 million in the third quarter 2024 primarily due to cost-of-living adjustments, additional salary from the Woodsville acquisition, and employee insurance costs. Occupancy and equipment increased $474 thousand driven by higher computer processing fees and maintenance contract costs. Professional services fees decreased $145 thousand driven by timing, while marketing increased $221 thousand and amortization of intangibles increased $233 thousand due to the acquisition at the end of the third quarter 2025. Other expenses increased $520 thousand for the third quarter 2025 compared to the third quarter 2024 due primarily to increases in software expenses. Gain on sale of property increased year-over-year by $206 thousand driven by the sale of two properties in the third quarter 2025.

Non-interest expenses increased $11.8 million to $83.9 million for the nine months ended 2025 compared to the same period of 2024 driven primarily by $6.4 million in acquisition expenses from the Woodsville acquisition and $1.6 million in salaries and benefits mostly due to cost of living increases. Occupancy and equipment costs for the nine months ended 2025 were $10.8 million compared to $10.2 million for the same period 2024 driven by computer processing fees, maintenance contracts and lease expenses.

Income Tax Expense

Income tax expense was $2.2 million for the third quarter 2025 compared to $1.4 million for the third quarter of 2024, respectively. Our GAAP effective tax rate third quarter 2025 and the third quarter 2024 was 20% compared to 10% and the effective tax rate on adjusted earnings was 22% and 20%, respectively. The prior year decrease in taxes and tax rate represents a one-time multiple year tax refund on tax exempt loan income and a state apportionment adjustment.

Income tax expense for the nine months ended 2025 was $6.1 million compared to $6.5 million in the same period 2024. The effective tax rate for the nine months ended 2025 was 19% compared to 17% for the same period 2024.

Liquidity and Cash Flows

Liquidity is measured by our ability to meet short-term cash needs at a reasonable cost or minimal loss. We seek to obtain favorable sources of liabilities and to maintain prudent levels of liquid assets 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 our ability to meet liquidity needs, including variations in the markets served by our network of offices, 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, by using historical data and through forecasts under multiple rate and stress scenarios, allows the Bank to employ strategies necessary to maintain adequate liquidity. The Bank's policy is to maintain a liquidity position of at least 8% of total assets. A portion of the Bank’s deposit base has been historically seasonal in nature, with balances typically declining in the winter months through late spring, during which period the Bank’s liquidity position tightens.

As of September 30, 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 our amortizing securities and loan portfolios. As of September 30, 2025, we had unused borrowing capacity at the FHLB of $384.7 million, unused borrowing capacity at the Reserve Bank of $98.0 million and unused lines of credit totaling $41.0 million, in addition to $136.7 million in cash.

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 us. Our management believes 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 our liquidity position.

Capital Resources

Please refer to “Comparison of Financial Condition at September 30, 2025 and December 31, 2024 - Equity” for a discussion of shareholders’ equity together with Note 7 - “Capital Ratios and Shareholders’ Equity” in the unaudited consolidated financial statements. Additional information about regulatory capital is contained in the notes to the consolidated financial statements and in our most recent Form 10-K.

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 $15.0 million and $13.3 million for the nine months ended September 30, 2025 and 2024, respectively. All dividends declared and distributed by us will be in compliance with applicable state corporate law and regulatory requirements.

Off-Balance Sheet Arrangements

We are, 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 our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources, that may be material to investors.

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.

Our off-balance sheet arrangements have not changed materially since previously reported in our Form 10-K.

IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

Please refer to Note 1 – “Basis of Presentation - Recent Accounting Pronouncements” of the Consolidated Financial Statements in this Form 10-Q and Note 1 - “Summary of Significant Accounting Policies” of the Consolidated Financial Statements to our Form 10-K.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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, 2024. 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.

SELECTED FINANCIAL DATA

The following summary data is based in part on the unaudited consolidated financial statements and accompanying notes and other information appearing elsewhere in this Form 10-Q or prior SEC filings.

(1) Non-GAAP financial measure. Refer to the Reconciliation of Non-GAAP Financial Measures section of the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in this Form 10-Q for additional information.

(2) All performance ratios are annualized and are based on average balance sheet amounts, where applicable.

(3) Fully taxable equivalent considers the impact of tax-advantaged investment securities and loans.

(4) Earning assets includes non-accruing loans and interest-bearing deposit with other banks. Securities are valued at amortized cost.

(5) Current quarter annualized.

CONSOLIDATED LOAN AND DEPOSIT ANALYSIS (UNAUDITED)

The following tables present the quarterly trend in loans by collateral type and deposits and accompanying growth rates as of September 30, 2025 on an annualized basis:

LOAN ANALYSIS

(in thousands, except ratios)

DEPOSIT ANALYSIS

(in thousands, except ratios)

71

AVERAGE BALANCES AND AVERAGE YIELDS/RATES (UNAUDITED)

The following tables present average balances and average yields and rates on an annualized fully taxable equivalent basis for the periods included:

(in thousands, except ratios)

(1) The average balances of loans include non-accrual loans and unamortized deferred fees and costs.

(2) The average balance for securities available for sale is based on amortized cost.

(3) Fully taxable equivalent considers the impact of tax-advantaged securities and loans.

(in thousands, except ratios)

(1) The average balances of loans include non-accrual loans and unamortized deferred fees and costs.

(2) The average balance for securities available for sale is based on amortized cost.

(3) Fully taxable equivalent considers the impact of tax-advantaged securities and loans.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (UNAUDITED)

The following reconciliation table provides a more detailed analysis of these, and reconciliation for, each of non-GAAP financial measures:

(in thousands)

(in thousands)

(1) Assumes a marginal tax rate of 24.26% in the first and second quarters of 2025, 23.82% in the second quarter 2024 and 24.01% for the first quarter 2024.

(2) Non-GAAP financial measure.

(3) Tangible shareholders' equity is computed by taking total shareholders' equity less the intangible assets at period-end. Tangible assets is computed by taking total assets less the intangible assets at period-end.

(4) All performance ratios are based on average balance sheet amounts, where applicable.

(5) Efficiency ratio is computed by dividing adjusted non-interest expense net of franchise taxes and intangible amortization divided by adjusted revenue on a fully taxable equivalent basis.

(6) The $4.9 million loss represents a $4.5 million loss on corporate debt securities and $549 thousand on a matured debt security.

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. The most significant market risk that affects us is interest rate risk. Other types of market risk do not arise in the normal course of our business activities.

The responsibility for interest rate risk management oversight is the function of the Bank’s Asset and Liability Committee, or ALCO, chaired by the Bank’s Chief Financial Officer and composed of various members of the Bank’s senior management. ALCO meets regularly to review balance sheet structure, formulate strategies in light of current and expected economic conditions, adjust product prices as necessary, implement policy, monitor liquidity, and review performance against guidelines established to control exposure to the various types of inherent risk.

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 each 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 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 the ALCO to evaluate the overall risk profile and to determine actions to maintain and achieve a posture consistent with policy guidelines.

Interest Rate Sensitivity Modeling:

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 for 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 option provisions are examined on an individual basis in each rate environment to estimate the likelihood of exercise. Prepayment assumptions for mortgage loans are calibrated using specific Bank experience while mortgage-backed securities are developed from industry standard models of prepayment speeds, based upon similar coupon ranges and degree of 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.

The simulation models a parallel and pro rata shift in rates over a 12-month period. Using this approach, we are able to produce simulation results that illustrate the effect that both a gradual “rate ramp” and a “rate shock” have on earnings expectations. Our net interest income sensitivity analysis reflects changes to net interest income assuming no balance sheet growth and a parallel shift in interest rates. All rate changes were “ramped” over the first 12-month period and then maintained at those levels over the remainder of the simulation horizon. Changes in net interest income based upon these simulations are measured against the flat interest rate scenario.

As of September 30, 2025, interest rate sensitivity modeling results indicate that the Bank’s balance sheet was asset sensitive over the one- and two-year horizons.

The following table presents the changes in sensitivities on net interest income for the periods ended September 30, 2025 and 2024:

(in thousands, except ratios)

Assuming short-term and long-term interest rates decline 200 basis points from current levels (i.e., a parallel yield curve shift) over the next twelve months and the Bank’s balance sheet structure and size remain at current levels, management believes net interest income will deteriorate over the one year horizon while deteriorating further from that level over the two-year horizon.

Assuming short-term and long-term interest rates increase 200 basis points from current levels (i.e., a parallel yield curve shift) over the next twelve months and the Bank’s balance sheet structure and size remain at current levels, management believes net interest income will improve over the one year horizon while improving further from that level over the two-year horizon.

As compared to September 30, 2024, asset sensitivity has increased in both year one and year two.

The preceding sensitivity analysis does not represent a 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, we 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 changes, 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 Senior Executive Team 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.

(a) Disclosure controls and procedures.

Under the supervision and with the participation of our senior management, consisting of our principal executive officer and our principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this Form 10-Q. Based on this evaluation, our management, including our principal executive officer and principal financial officer, concluded that as of September 30, 2025, our disclosure controls and procedures were effective to ensure that information required to be disclosed by the reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by using our Exchange Act reports is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

(b) Changes in internal control over financial reporting.

There were no changes in our internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Except as set forth below, there were no material changes to the risk factors discussed in Part I, Item 1A. “Risk Factors” of our Form 10-K.