Commercial Bancgroup, Inc. (CBK)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our
financial condition and results of operations should be read together with our unaudited consolidated financial statements and related
notes included elsewhere in this Report and our audited consolidated financial statements and the related notes and the discussion under
the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the
2025 Annual Report. In addition to historical information, this discussion and analysis contains forward-looking statements that involve
risks, uncertainties and assumptions that could cause actual results to differ materially from our expectations. Factors that could cause
or contribute to such differences include those discussed below and elsewhere in this Report, particularly in the section titled “Cautionary
Note Regarding Forward-Looking Statements,” as well as in the section titled “Risk Factors” in the 2025 Annual Report.
We assume no obligation to update any of these forward-looking statements except to the extent required by law.

Overview

The Parent Company is a bank holding company headquartered
in Harrogate, Tennessee that has elected under the BHC Act to become a financial holding company. The Parent Company was incorporated
in Tennessee in 1975 and operates primarily through its wholly owned subsidiary, the Bank, a Tennessee-chartered banking corporation organized
in 1976. We provide banking services from 34 offices in select markets in Kentucky, North Carolina, and Tennessee, and we also operate
one loan production office in Lincolnton, North Carolina. The Bank is a full-service community banking institution that offers traditional
consumer and commercial products and services to serve businesses and individuals in our markets.

Our management’s discussion and analysis
of financial condition and results of operations is intended to provide the reader with information that will assist in the understanding
of our business, results of operations, financial condition and financial statements; changes in certain key items in our financial statements
from period to period; and the primary factors that we use to evaluate our business.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared
in accordance with GAAP and follow general practices within the banking industry. The application of these principles requires management
to make estimates, assumptions and complex judgements that affect amounts presented in our consolidated financial statements. These estimates,
assumptions and judgements are based on information available as of the date of the financial statements; accordingly, as this information
changes, the consolidated financial statements could reflect different estimates, assumptions, and judgements. Management has identified
the ACL, as a critical accounting policy included in Note 1 of our consolidated financial statements as of and for the fiscal year
ended December 31, 2025, and included in the 2025 Annual Report, to be an accounting area that requires the most complex and subjective
judgements and, as such, could be most subject to revision as new and additional information becomes available or circumstances change,
including changes in the economic climate and interest rate changes. Critical accounting policies we have identified, along with the disclosures
presented in the notes to our consolidated financial statements and in this discussion and analysis, provide information on how significant
assets and liabilities are valued in the financial statements and how those values are determined. There have been no significant changes
to the accounting policies, estimates, and assumptions, or the judgments affecting the application of these policies, estimates, and assumptions,
from those disclosed in the 2025 Annual Report.

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Emerging Growth Company

Pursuant to the Jumpstart Our Business Startups
Act of 2012 (the “JOBS Act”), as an emerging growth company, the Parent Company can elect to opt out of the extended transition
period for adopting any new or revised accounting standards. The Parent Company has elected to take advantage of the extended transition
period, which means that when a standard is issued or revised and it has different application dates for public and private companies,
the Parent Company may adopt the standard on the application date for private companies. The Parent Company has elected to take advantage
of the scaled disclosures and other relief under the JOBS Act, and the Parent Company may take advantage of some or all of the reduced
regulatory and reporting requirements that will be available to us under the JOBS Act, so long as it qualifies as an emerging growth company.

Three and Six Months ended June 30, 2026 Highlights

Results of Operations

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Financial Condition

Primary Factors Used to Evaluate Our Business and Results of Operations

The most significant factors we use to evaluate
our business and results of operations are net income, return on average assets (“ROAA”) and return on average equity (“ROAE”).
We also use net interest income, noninterest income, noninterest expense and efficiency ratio.

Net Income

Our net income depends substantially on net interest
income, which is the difference between interest earned on interest-earning assets (usually interest-bearing cash, investment securities
and loans) and the interest expense incurred in connection with interest-bearing liabilities (usually interest-bearing deposits and borrowings).
Our net income also depends on noninterest income, which is income generated other than by our interest-earning assets. Other factors
that influence our net income include our provisions for credit losses, income taxes, and noninterest expenses, which include our fixed
and variable overhead costs and other miscellaneous operating expenses.

Return on Average Assets

We monitor ROAA to measure our operating performance
and to determine how efficiently our assets are being used to generate net income. In determining ROAA for a given period, net income
is divided by the average total assets for that period.

Return on Average Equity

We use ROAE to assess our effectiveness in utilizing
shareholders’ equity to generate net income. In determining ROAE for a given period, net income is divided by the average shareholders’
equity for that period.

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Net Interest Income

Net interest income is our principal source of
net income and represents the difference between interest income and interest expense. We generate interest income from interest-earning
assets that we own, including loans and investment securities. We incur interest expense from interest-bearing liabilities, including
interest-bearing deposits an

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Item
7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition
and results of operations should be read in conjunction with our consolidated financial statements and the related notes appearing elsewhere
in this Report. This discussion and analysis contains forward-looking statements that are subject to certain risks and uncertainties and
are based on certain assumptions that we believe are reasonable but may not be realized. Certain risks, uncertainties and other factors,
including those set forth under “Risk Factors,” under “Cautionary Note Regarding Forward-Looking Statements”
and elsewhere in this Report, may cause actual results to differ materially from those projected results discussed in the forward-looking
statements appearing in this discussion and analysis. We assume no obligation to update any of these forward-looking statements.

Certain monetary amounts, percentages and other figures included
in this discussion and analysis may have been subject to rounding adjustments. Accordingly, figures shown in totals in certain tables
or charts may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may
not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.

Overview

The Company is a bank holding company with principal executive offices
located in Harrogate, Tennessee that has elected under the BHC Act to become a financial holding company. We were incorporated in Tennessee
in 1975, and we operate primarily through our wholly owned subsidiary, the Bank, a Tennessee banking corporation organized in 1976. We
provide banking services from 34 offices in select markets in Kentucky, North Carolina, and Tennessee, and we also operate one LPO in
Lincolnton, North Carolina. The Bank is a full-service community banking institution that offers traditional consumer and commercial products
and services to serve businesses and individuals in our markets.

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We have pursued a strategy of disciplined organic and acquisition-fueled
growth. Since 2008, we have successfully completed five whole-bank acquisitions. Most recently, in June 2023, we acquired a majority (76.83%)
ownership interest in AB&T Financial Corporation (“AB&T”), the parent company of Alliance, for total consideration
of $23.8 million, which included cash, debt forgiveness, and shares of Class C Common Stock. An approximately 57.17% ownership interest
in AB&T was acquired in exchange for a combination of cash and debt forgiveness, with the AB&T shares being valued for this purpose
at two times the tangible book value per share of AB&T’s common stock as of May 31, 2023. We acquired the remaining portion
of the majority ownership interest in AB&T, or an approximately 19.66% ownership interest, in exchange for shares of Class C Common
Stock, with the shares of Class C Common Stock being issued pursuant to exemptions from registration under the federal securities laws.
This exchange of shares was completed using the tangible book value per share of the Company’s common stock and Class B Common Stock
($3,551.38 per share), on the one hand, and AB&T’s common stock ($0.56 per share), on the other hand, as of April 30, 2023,
with shares of AB&T common stock converting to shares of Class C Common Stock on a book-for-book basis at a ratio of 0.000158 shares
of Class C Common Stock for each share of AB&T common stock. We acquired the remaining minority (23.17%) ownership interest in AB&T
on June 30, 2024, for aggregate cash consideration of $5,678,150, or $0.74 per share of AB&T common stock. This per share price
was supported by a valuation of the AB&T common stock as of June 30, 2023, commissioned by a committee of the board of directors
of AB&T comprised solely of independent directors. On July 1, 2024, Alliance merged with and into the Bank. Our acquisition of
Alliance added four branches and one LPO to our network and expanded our reach into North Carolina, including the Charlotte MSA.

Our management’s discussion and analysis of financial condition
and results of operations is intended to provide the reader with information that will assist in the understanding of our business, results
of operations, financial condition and financial statements; changes in certain key items in our financial statements from period to period;
and the primary factors that we use to evaluate our business.

Fiscal Year ended December 31, 2025 Highlights

Highlights of our financial condition and results of operations as
of and for the fiscal year ended December 31, 2025, and other key events that occurred during the fiscal year 2025 are provided below.

Financial Condition

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Results of Operations

Primary Factors Used to Evaluate Our Business

Results of Operations

The most significant factors we use to evaluate our business and results
of operations are net income, return on average assets (“ROAA”) and return on average equity (“ROAE”). We also
use net interest income, noninterest income, noninterest expense and efficiency ratio.

Net Income

Our net income depends substantially on net interest income, which
is the difference between interest earned on interest-earning assets (usually interest-bearing cash, investment securities and loans)
and the interest expense incurred in connection with interest-bearing liabilities (usually interest-bearing deposits and borrowings).
Our net income also depends on noninterest income, which is income generated other than by our interest-earning assets. Other factors
that influence our net income include our provisions for credit losses, income taxes, and noninterest expenses, which include our fixed
and variable overhead costs and other miscellaneous operating expenses.

Return on Average Assets

We monitor ROAA to measure our operating performance and to determine
how efficiently our assets are being used to generate net income. In determining ROAA for a given period, net income is divided by the
average total assets for that period.

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Return on Average Equity

We use ROAE to assess our effectiveness in utilizing shareholders’
equity to generate net income. In determining ROAE for a given period, net income is divided by the average shareholders’ equity
for that period.

Net Interest Income

Net interest income is our principal source of net income and represents
the difference between interest income and interest expense. We generate interest income from interest-earning assets that we own, including
loans and investment securities. We incur interest expense from interest-bearing liabilities, including interest-bearing deposits and
other borrowings, notably FHLB advances, the CTB Loan and the Subordinated Debentures (as defined below). To evaluate net interest income,
we measure and monitor: (i) yields on our loans and other interest-earning assets; (ii) the cost of our deposits and other funding
sources; (iii) our net interest spread; and (iv) our net interest margin. Net interest spread is the difference between rates
earned on interest-earning assets and rates paid on interest-bearing liabilities. Net interest margin is a ratio of net interest income
to average interest earning assets for the same period.

Changes in market interest rates and interest rates we earn on interest-earning
assets or pay on interest-bearing liabilities, as well as the volume and types of interest-earning assets, interest-bearing liabilities
and noninterest-bearing liabilities, are usually the largest drivers of periodic changes in net interest spread, net interest margin and
net interest income.

Noninterest Income

Noninterest income primarily consists of: (i) service charges
on deposit accounts; (ii) net realized gains on the sale of premises and equipment; (iii) net realized gains on the sale of
foreclosed assets; (iv) automated teller machine (“ATM”) and debit card fees; (v) benefits from changes in the cash
surrender value of BOLI; and (vi) other miscellaneous fees and income.

Our income from service charges on deposit accounts, which includes
nonsufficient funds fees, is impacted by several factors, including number of accounts, products utilized and account holder cash management
behaviors. These are further impacted by deposit products utilized by custom

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