3
Noninterest
expense
for the
second
quarter
of 2026
totaled
$42.6
million, a $1.3 million, or 3.1%, increase
over the
first quarter
of
2026 and
a $0.1 million,
or 0.2%,
increase over
the second
quarter of 2025.
The increase
over the first quarter
of 2026
was primarily
attributable
to increases
in other expense
of $0.9
million and occupancy
expense
of $0.
2
million. Increases
in other real estate
(ORE) expense
of $0.4
million, travel/entertainment
expense
of $0.2
million, professional fees
of $0.1
million, and miscellaneous
expenses
of $0.1
million drove the increase
in other
expense.
The increase
in occupancy
expense
was primarily attributable
to
higher FF&E
maintenance
agreement
expense.
The increase
over the
second
quarter
of 2025
reflected increases
in other expense
of
$0.5 million
and
occupancy
expense
of $0.2
million that
was partially
offset
by a
$0.6
million decrease in compensation
expense,
including
a $0.3
million decline in salary
expense
and
$0.3 million decrease
in associate
benefits.
For the
first six months
of 2026,
noninterest
expense
totaled
$84.0
million, a $2.8 million, or 3.4%, increase
over the
same
period of
2025
and
reflected increases
in other expense
of $3.4
million and occupancy
expense
of $0.6
million that
was partially
offset
by a
$1.2 million
decrease
in compensation
expense.
The increase
in other expense
was primarily due
to a
$4.2 million increase
in ORE
expense,
which reflected
a lower level
of gains from
the sale
of properties,
namely
a large gain
realized from
the sale
of our
operations
center building
in 2025. Higher
expense
for charitable
contributions
of $0.6
million was partially offsetting.
The
increase
in occupancy
expense
reflected higher expense
for FF&E maintenance
agreements
and
software
licenses. The decrease
in
compensation
expense
reflected lower salary
expense
of $0.9
million and associate
benefit
expense
of $0.3
million. Lower
commission
expense
drove the
decline in salary
expense
and
the decrease
in associate
benefit
expense
was attributable
to lower
stock based
compensation.
We
realized income
tax
expense
of $5.0
million (effective
rate of
23.4%) for
the second
quarter
of 2026,
compared
to $4.8
million
(effective
rate of
23.5%) for
the first quarter
of 2026
and
$5.0 million (effective
rate of
24.9%) for
the second
quarter
of
2025.
For
the first six months
of 2026,
we realized income
tax
expense
of $9.8
million (effective
rate of
23.4%) compared
to $10.1
million
(effective rate
of 24.1%) for
the same
period of
2025. The effective
rate for the
second quarter
of 2026
reflected a tax
benefit
related
to an
investment
in a solar tax
equity fund
during the quarter
and
the effective
rate for
the first quarter
of 2026
included a
discrete
item related
to stock
-based
compensation.
Absent discrete items
or new tax
credit investments,
we expect
our annual
effective
tax
rate to
approximate
23.5% for
2026.
Discussion of
Financial
Condition
Earning Assets
Average
earning assets
totaled
$4.069
billion for the second
quarter
of 2026,
a decrease
of $21.0
million, or 0.5% from the
first
quarter of
2026, and
an increase of
$32.9 million,
or 0.8%
over the
fourth quarter
of 2025.
Compared
to the first quarter of
2026,
the
change
in earning asset
mix reflected
a $42.6
million decrease in overnight
funds
and
a $32.4
million decrease in loans
held for
investment,
partially
offset
by a
$48.2
million increase in investment
securities and
a $5.8
million increase in loans
held for sale
(“HFS”).
Compared
to the fourth
quarter
of 2025,
the change
reflected a
$161.3
million increase in investment
securities and
a $6.2
million increase
in loans
HFS, partially offset
by a
$72.4
million decrease in overnight
funds
and
a $62.2
million decrease in
loans
held for investment.
Average
loans HFI
decreased
by $32.4
million, or 1.3% from the
first quarter
of 2026,
and
decreased
by $62.2
million, or 2.4%
from
the fourth
quarter
of 2025.
Compared
to the
first quarter
of 2026,
the decline was
primarily attributable
to decreases
in
residential
real estate
loans of
$14.4
million, commercial
real estate
loans of
$14.4
million, and commercial
loans of
$5.2 million,
partially
offset
by increases in
home equity
loans of
$1.9 million. Compared
to the
fourth
quarter
of 2025,
the decline was
primarily
attributable
to decreases
in residential real estate
loans of
$30.6
million, commercial
real estate
loans of
$24.5
million, commercial
loans of
$6.6 million, construction
loans of
$4.1 million, consumer
loans (primarily
indirect auto)
of $2.9
million, partially offset
by
an
increase in home
equity loans
of $5.9
million.
Loans
HFI at
June 30,
2026,
decreased
by $18.5
million, or 0.7% from March
31, 2026,
and
decreased
by $46.2
million, or 1.8%,
from
December
31, 2025.
Compared
to March
31, 2026,
the decline was
primarily due
to decreases
in other loans
of $9.7
million,
construction
loans of
$7.5 million, and
commercial
real estate
loans of
$5.2 million, partially
offset
by increases
in commercial
loans of
$2.3 million, and
consumer
loans (primarily
indirect auto)
of $1.3
million. Compared
to December
31, 2025,
the decline
was primarily
attributable
to decreases
in residential real estate
loans of
$22.8
million, commercial
real estate
loans of
$18.1
million, commercial
loans of
$7.8 million, other loans
of $2.1
million, consumer
loans (primarily
indirect auto)
of $1.5
million,
partially
offset
by increases
in home
equity loans
of $3.6
million, and construction
loans of
$2.2 million.