SB FINANCIAL GROUP, INC. (SBFG)

Item 2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations

Cautionary Statement Regarding Forward-Looking
Information

This Quarterly Report on Form 10-Q, including
Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains certain forward-looking statements,
which are not historical fact, that are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Forward-looking
statements, which are provided to assist in the understanding of anticipated future financial performance, provide current expectations
or forecasts of future events and are not guarantees of future performance. Examples of forward-looking statements include: (a) projections
of income or expense, earnings per share, the payment or non-payment of dividends, capital structure and other financial items; (b) statements
of plans and objectives of the Company or our management or Board of Directors, including those relating to products or services; (c)
statements of future economic performance; (d) statements regarding future customer attraction or retention; and (e) statements of assumptions
underlying such statements. Words such as “anticipates”, “believes”, “plans”, “intends”,
“expects”, “projects”, “estimates”, “should”, “may”, “would be”,
“will allow”, “will likely result”, “will continue”, “will remain”, or other similar expressions
are intended to identify forward-looking statements, but are not the exclusive means of identifying those statements. Forward-looking
statements are based on management’s expectations and are subject to a number of risks and uncertainties. Although management believes
that the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially from those expressed
or implied in such statements. Risks and uncertainties that could cause actual results to differ materially include, without limitation:

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Undue reliance should
not be placed on the forward-looking statements, which speak only as of the date hereof. Except as may be required by law, the Company
undertakes no obligation to update any forward-looking statement to reflect unanticipated events or circumstances after the date on which
the statement is made.

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Overview of SB Financial

SB Financial Group, Inc. (“SB Financial”)
is an Ohio corporation and a financial holding company registered with the Board of Governors of the Federal Reserve System (“Federal
Reserve Board”). SB Financial’s wholly owned subsidiary, The State Bank and Trust Company (“State Bank”), is an
Ohio-chartered bank engaged in commercial banking.

Rurban Statutory Trust II (“RST II”)
was established in August 2005. In September 2005, RST II completed a pooled private offering of 10,000 Trust Preferred Securities with
a liquidation amount of $1,000 per security. The proceeds of the offering were loaned to SB Financial in exchange for junior subordinated
debentures of SB Financial with terms substantially similar to the Trust Preferred Securities. The sole assets of RST II are the junior
subordinated debentures, and the back-up obligations, in the aggregate, constitute a full and unconditional guarantee by SB Financial
of the obligations of RST II.

State Bank Insurance, LLC (“SBI”)
is an Ohio corporation and a wholly owned subsidiary of State Bank incorporated in June 2010. SBI is an insurance company that engages
in the sale of insurance products to retail and commercial customers of State Bank.

SBFG Title, LLC (“SBFG Title”) is
an Ohio corporation that was formed in March 2019. SBFG Title engages in the sale of title insurance services.

SB Captive, Inc. (“SB Captive”) is
a Nevada

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

SB
Financial Group, Inc. (“SB Financial”), is a financial holding company registered with the Federal Reserve Board and subject
to regulation under the Bank Holding Company Act of 1956, as amended. Through its direct and indirect subsidiaries, including The State
Bank and Trust Company (“State Bank”), SB Financial is engaged in commercial and retail banking, wealth management and private
client financial services.

The
following discussion provides a review of the consolidated financial condition and results of operations of SB Financial and its subsidiaries
(collectively, the “Company”). This discussion should be read in conjunction with the Company’s Consolidated Financial
Statements and related Notes as of and for the years ended December 31, 2025, and 2024 included in this Annual Report on Form 10-K.

Strategic
Discussion

The
focus and strategic goal of the Company is to grow into and remain a top decile (90th percentile) independent financial
services company, as measured by annual return on average assets compared to our defined peer group. The Company intends to achieve and
maintain that goal by executing our five key initiatives.

Increase
profitability through ongoing diversification of revenue streams: For the twelve months ended December 31, 2025, the Company generated
$17.1 million in noninterest income, or 26.1 percent of total operating revenue, from fee-based products. These revenue sources include
fees generated from saleable residential mortgage loans, retail deposit products, wealth management services, saleable business-based
loans (small business and farm service) and title agency revenue. For the twelve months ended December 31, 2024, the Company generated
$17.0 million in noninterest income, or 29.9 percent of total operating revenue, from fee-based products.

Strengthen
our penetration in all markets served: Over our 123-year history of continuous operation in Northwest Ohio, we have established a
significant presence in our traditional markets in Defiance, Fulton, Paulding and Williams counties in Ohio. In our newer markets of
Bowling Green, Columbus, Findlay, Toledo (Ohio) and Ft. Wayne (Indiana), our current market penetration is minimal, but we believe our
potential for growth is significant. Over the past few years, we have expanded and committed additional resources to our presence in
the Findlay and Edgerton markets in particular; however, we continue to seek to expand the presence and penetration in all of our markets.
On January 17, 2025, we established our presence in Ottawa County with the acquisition of The Marblehead Bank located in Marblehead,
Ohio. In late 2025, we expanded our Loan Production office in Angola, Indiana into a full service retail location and we expanded into
the neighboring community of Napoleon, Ohio with a hybrid retail location.

Expand
product utilization by new and existing customers: As of December 31, 2025, we operated in 15 counties in Northwest Ohio, Central
Ohio and Northeast Indiana with 27 full-service offices, 27 ATM’s and four loan production offices. Combined in the 15 counties
of operation, we command 0.93 percent of the deposit market share, which has steadily grown. In our traditional markets of Northwest
Ohio, the deposit market share is 4.63 percent, which is up from 4.40 percent in 2024.

Deliver
gains in operational excellence: Our management team believes that becoming and remaining a high-performance financial services company
will depend upon seamlessly and consistently delivering operational excellence, as demonstrated by the Company’s leadership in
the origination and servicing of residential mortgage loans. As of December 31, 2025, the Company serviced 8,886 residential mortgage
loans with an aggregate principal balance of $1.48 billion. As of December 31, 2024, the Company serviced 8,750 loans with an aggregate
principal balance of $1.43 billion.

Sustain
asset quality: As of December 31, 2025, the Company’s asset quality metrics remained strong. Specifically, total nonperforming
assets were $4.7 million, or 0.30 percent of total assets. Total delinquent loans at December 31, 2025, were 0.49 percent of total loans.
As of December 31, 2024, the Company
had total nonperforming assets of $5.5 million, or 0.40 percent of total assets. Total delinquent loans at December 31, 2024, were 0.63
percent of total loans.

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The
successful execution of these five strategies has enabled the Company to improve financial performance across a broad series of metrics.
These metrics over the last five years are outlined in the following table. Specifically, the Company has increased total assets by $286.2
million, or 22.7 percent. The growth has been on both sides of the balance sheet over the five-year period, with loans growing $307.9
million, or 35.3 percent and deposits growing $258.2 million, or 24.6 percent.

During
the prior five-year period, the Company has raised capital through the issuance of debt securities to the market, which has improved
capital significantly and expanded liquidity for potential strategic expansion. Strategic expansion has also occurred during the period
with the acquisition of two small community banks (The Edon State Bank of Edon, Ohio in 2020 and The Marblehead Bank in January 2025),
the opening of five branch offices and the acquisition of two full-service title agencies.

Financial Highlights

Year Ended December 31,

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Critical
Accounting Policies and Estimates

The
accounting and reporting policies of the Company are in accordance with U.S. GAAP and conform to general practices within the banking
industry. The Company’s significant accounting policies are described in detail in the Notes to the Company’s Consolidated
Financial Statements for the years ended December 31, 2025, and 2024. The preparation of financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions. The Company’s financial position and results of operations can be affected
by these estimates and assumptions and are integral to the understanding of reported results. Critical accounting policies are those
policies that management believes are the most important to the portrayal of the Company’s financial condition and results, and
they require management to make estimates that are difficult, subjective or complex.

Allowance
for Credit Losses: The Company believes the determination of the ACL involves a higher degree of judgment and complexity than its
other significant accounting policies. The ACL is calculated with the objective of maintaining a reserve level believed by management
to be sufficient to absorb estimated credit losses over the life of an asset or an off-balance sheet credit exposure. Management’s
determination of the adequacy of the ACL is based on periodic evaluations of past events, including historical credit loss experience
on financial assets with similar risk characteristics, current conditions, and reasonable and supportable forecasts that affect the collectability
of the remaining cash flows over the contractual term of the financial assets. However, this evaluation has subjective components requiring
material estimates, including expected default probabilities, the expected loss given default, the amounts and timing of expected future
cash flows on individually evaluated loans, and estimated losses based on historical loss experience and forecasted economic conditions.
All of these factors may be susceptible to significant change. To the extent that actual results differ from management estimates, additional
provisions for credit losses may be required that would adversely impact earnings in future periods.

Goodwill
and Other Intangibles: The Company records all assets and liabilities acquired in purchase acquisitions, including goodwill and other
intangibles, at fair value as required. Goodwill is subject, at a minimum, to annual tests for impairment. Other intangible assets are
amortized over their estimated useful lives using straight-line and accelerated methods, and are subject to impairment if events or circumstances
indicate a possible inability to realize the carrying amount. The initial goodwill and other intangibles recorded and subsequent impa

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