KBRA Affirms Ratings for Bar Harbor Bankshares

KBRA affirms the senior unsecured debt rating of BBB, the subordinated debt rating of BBB-, and the short-term debt rating of K3 for Bar Harbor, Maine-based Bar Harbor Bankshares (NYSE American: BHB) (“the company” or "Bar Harbor"). In addition, KBRA affirms the deposit and senior unsecured debt ratings of BBB+, the subordinated debt rating of BBB, and the short-term deposit and debt ratings of K2 for the lead subsidiary, Bar Harbor Bank & Trust. The Outlook for all long-term ratings is Stable.

Key Credit Considerations

The ratings are supported by Bar Harbor’s stable earnings profile, with ROA averaging roughly 1% over the last five years and increasing to 1.22% through 1H26. Profitability benefits from a diversified revenue mix, with noninterest income consistently accounting for ~25% of operating revenue, anchored by meaningful wealth management and other recurring fee-based businesses. More recently, earnings have benefited from meaningful margin expansion, with NIM increasing following the Guaranty Bancorp, Inc. ("Guaranty") acquisition and reaching 3.51% for 1H26. Notably, total deposit costs were 1.53% at 1H26, ~40 bps below similarly rated peers and among the lowest in the KBRA-rated universe despite a comparatively modest NIB deposit mix of 18%. The favorable pricing reflects BHB’s longstanding customer relationships and strong market positions across its less rate-sensitive rural markets. Looking ahead, while the contribution from purchase accounting is expected to moderate, KBRA expects modest additional NIM expansion given the company’s slightly asset-sensitive balance sheet, continued commercial loan growth, and comparatively favorable funding costs. Funding remains predominantly core deposit based, with core deposits representing 85% of total funding at 2Q26.

Asset quality performance has remained favorable, characterized by historically low loss content and manageable problem asset levels. While some negative credit migration has emerged within the commercial portfolio, deterioration has remained concentrated within a limited number of relationships rather than reflective of broader portfolio weakness. NCOs ticked up during 1H26, largely tied to a $3.3 million partial charge-off associated with a previously identified nonaccrual relationship, though loss content remains well contained, and the broader portfolio continues to perform soundly. Investor CRE concentration remains meaningful at 336% of risk-based capital at 2Q26; however, underlying performance has generally remained stable, supported by meaningful borrower equity and conservative collateral protection across most major property types. KBRA considers the concentration risk manageable given the company’s historically favorable credit performance, disciplined underwriting, established market expertise, and proactive credit monitoring. Capital protection is adequate with regard to the company’s overall risk profile. While capital ratios declined following the Guaranty acquisition, BHB has rebuilt capital relatively quickly, with CET1 and TCE increasing to 11.5% and 8.6%, respectively, at 2Q26. The improvement has been supported by solid internal capital generation, earnings retention, and measured balance sheet growth, while management continues to maintain a relatively conservative approach to capital deployment. Absent another meaningful strategic transaction, KBRA expects continued earnings generation and retention to support further capital accretion.

Rating Sensitivities

A rating upgrade is unlikely in the intermediate term; however, continued geographic expansion and growth resulting in improved scale, sustained above-peer earnings, preservation of a healthy funding profile, and capital ratios in line with the higher rating category could lead to positive rating momentum over time. Conversely, asset quality deterioration, including elevated levels of nonperforming loans or outsized credit losses resulting in earnings pressure, a material contraction in capital ratios, or substantial degradation in the funding profile could have negative rating implications.

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