What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-08-06 compared with 2026-05-07 · 288 added, 256 removed, 211 unchanged (72% of the section changed)

20 unchanged sentences

“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.

“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

4 unchanged sentences

Risks and uncertainties that could cause actual results to differ materially include, without limitation:

and future economic and financial market conditions, either nationally or in the states in

which we do business, including conditions such as inflation, recession, unemployment, changes

in interest rates, fiscal and monetary policy, U.S.

government shutdowns, an increasing federal

government budget deficit, the failure of the federal government to raise the federal debt

ceiling, slowing gross domestic product, energy price volatility, potential or imposed tariffs,

withdrawal from or significant renegotiation of trade agreements, trade wars and other

change in trade regulation, and other factors beyond our control, any of which may result

in adverse impacts on our deposit levels and composition, the quality of investment securities

available for purchase, demand for loans, the ability of our borrowers to repay their loans,

and the value of the collateral securing loans made by us;

and future bank failures may reduce customer confidence, affect sources of funding and liquidity,

increase regulatory requirements and costs, adversely affect financial markets and/or have

a negative reputational ramification for the banking industry as a whole, any of which could

adversely affect the Company’s business, earnings and financial condition;

● instability

in global economic conditions and geopolitical matters (including the ongoing military conflicts

in Ukraine and the Middle East), and volatility in financial markets, which could have a

material adverse effect on our results of operations and financial condition;

in interest rates resulting from national and local economic conditions and the policies

of regulatory authorities, including monetary policies of the Board of Governors of the Federal

Reserve System, which may adversely affect interest rates, interest margins, loan demand

and interest rate sensitivity;

volatility of mortgage banking income, whether due to interest rates, demand, the fair value

of mortgage loans, or other factors;

that can impact the performance of our loan portfolio, including changes in real estate values

and liquidity in our primary market areas, the financial health of our borrowers and the

success of construction projects that we finance;

in customers’, suppliers’, and other counterparties’ performance and creditworthiness

may be different than anticipated due to inflationary pressures and/or other economic and

financial market conditions;

● operational

risks, reputational risks, legal and compliance risks, and other risks related to potential

fraud or theft by employees or outsiders, unauthorized transactions by employees or operational

errors, or failures, disruptions or breaches in security of our systems, including those

resulting from computer viruses or cyber-attacks;

ability to secure sensitive or confidential client information against unauthorized disclosure

or access through computer systems and telecommunication networks, including those of our

third-party vendors and other service providers, which may prove inadequate;

failure in or breach of our operational or security systems or infrastructure, or those of

our third-party vendors and other service providers, resulting in failures or disruptions

in customer account management, general ledger, deposit, loan, or other systems, including

as a result of cyber-attacks;

● competitive

pressures and factors among financial services organizations could increase significantly,

including product and pricing pressures, changes to third-party relationships and our ability

to recruit and retain qualified management and banking personnel;

losses of services of our key management personnel, or the inability to recruit and retain

qualified personnel in the future;

inherent in pursuing strategic growth initiatives, including integration and other risks

involved in past and possible future acquisitions;

● uncertainty

regarding the nature, timing, cost and effect of legislative or regulatory changes in the

banking industry or otherwise affecting the Company, including major reform of the regulatory

oversight structure of the financial services industry and changes in laws and regulations

concerning taxes, FDIC insurance premium levels, pensions, bankruptcy, consumer protection,

rent regulation and housing, financial accounting and reporting, environmental protection,

insurance, bank products and services, bank and bank holding company capital and liquidity

standards, fiduciary standards, securities and other aspects of the financial services industry;

in federal, state and/or local tax laws may adversely affect our reported financial condition

or results of operations;

in accounting standards, policies and practices may adversely affect our reported financial

condition or results of operations;

and regulatory compliance exposure, including the costs and effects of any adverse developments

in legal proceedings or other claims and the costs and effects of unfavorable resolution

of regulatory and other governmental examinations or inquiries;

availability of earnings and dividends from State Bank and excess capital sufficient for

us to service our debt and pay dividends to our shareholders in compliance with applicable

● current and future economic and financial market

conditions, either nationally or in the states in which we do business, including conditions such as inflation, recession, unemployment,

changes in interest rates, fiscal and monetary policy, U.S.

government shutdowns, an increasing federal government budget deficit, the

failure of the federal government to raise the federal debt ceiling, slowing gross domestic product, energy price volatility, potential

or imposed tariffs, a U.S.

withdrawal from or significant renegotiation of trade agreements, trade wars and other change in trade regulation,

and other factors beyond our control, any of which may result in adverse impacts on our deposit levels and composition, the quality of

investment securities available for purchase, demand for loans, the ability of our borrowers to repay their loans, and the value of the

collateral securing loans made by us;

● recent and future bank failures may reduce customer

confidence, affect sources of funding and liquidity, increase regulatory requirements and costs, adversely affect financial markets and/or

have a negative reputational ramification for the banking industry as a whole, any of which could adversely affect the Company’s business,

earnings and financial condition;

● instability in global economic conditions and

geopolitical matters (including the ongoing military conflicts in Ukraine and the Middle East), and volatility in financial markets, which

could have a material adverse effect on our results of operations and financial condition;

● changes in interest rates resulting from national

and local economic conditions and the policies of regulatory authorities, including monetary policies of the Board of Governors of the

Federal Reserve System, which may adversely affect interest rates, interest margins, loan demand and interest rate sensitivity;

● the volatility of mortgage banking income, whether

due to interest rates, demand, the fair value of mortgage loans, or other factors;

● factors that can impact the performance of our

loan portfolio, including changes in real estate values and liquidity in our primary market areas, the financial health of our borrowers

and the success of construction projects that we finance;

● changes in customers’, suppliers’,

and other counterparties’ performance and creditworthiness may be different than anticipated due to inflationary pressures and/or

other economic and financial market conditions;

● operational risks, reputational risks, legal

and compliance risks, and other risks related to potential fraud or theft by employees or outsiders, unauthorized transactions by employees

or operational errors, or failures, disruptions or breaches in security of our systems, including those resulting from computer viruses

or cyber-attacks;

● our ability to secure sensitive or confidential

client information against unauthorized disclosure or access through computer systems and telecommunication networks, including those

of our third-party vendors and other service providers, which may prove inadequate;

● a failure in or breach of our operational or

security systems or infrastructure, or those of our third-party vendors and other service providers, resulting in failures or disruptions

in customer account management, general ledger, deposit, loan, or other systems, including as a result of cyber-attacks;

● competitive pressures and factors among financial

services organizations could increase significantly, including product and pricing pressures, changes to third-party relationships and

our ability to recruit and retain qualified management and banking personnel;

● unexpected losses of services of our key management personnel, or the inability

to recruit and retain qualified personnel in the future;

● risks inherent in pursuing strategic growth initiatives,

including integration and other risks involved in past and possible future acquisitions;

● uncertainty regarding the nature, timing, cost

and effect of legislative or regulatory changes in the banking industry or otherwise affecting the Company, including major reform of

the regulatory oversight structure of the financial services industry and changes in laws and regulations concerning taxes, FDIC insurance

premium levels, pensions, bankruptcy, consumer protection, rent regulation and housing, financial accounting and reporting, environmental

protection, insurance, bank products and services, bank and bank holding company capital and liquidity standards, fiduciary standards,

securities and other aspects of the financial services industry;

● changes in federal, state and/or local tax laws

may adversely affect our reported financial condition or results of operations;

● changes in accounting standards, policies and

practices may adversely affect our reported financial condition or results of operations;

● litigation and regulatory compliance exposure,

including the costs and effects of any adverse developments in legal proceedings or other claims and the costs and effects of unfavorable

resolution of regulatory and other governmental examinations or inquiries;

● continued availability of earnings and dividends

from State Bank and excess capital sufficient for us to service our debt and pay dividends to our shareholders in compliance with applicable

legal and regulatory requirements;

ability to adapt to or comply with regulatory requirements and increasing scrutiny and evolving

expectations from customers, regulators, investors and other stakeholders with respect to

the Company’s environmental, social and governance (ESG) practices, which could affect

our reputation and business and operating results;

ability to anticipate and successfully keep pace with technological changes affecting the

financial services industry;

unexpected inability to obtain needed liquidity which could adversely affect our business,

profitability, and viability as a going concern;

impact on our businesses, as well as on the risks described above, of various domestic or

international widespread natural or other disasters (including severe weather events), pandemics,

cybersecurity attacks, system failures, civil unrest, military or terrorist activities or

international conflicts, including Russia’s ongoing war in Ukraine and the conflict

in Iran (and the resulting disruptions to oil and other commodity markets and supply chains),

which can affect our earnings and capital as well as the ability of our customers to repay

risks identified from time to time in the Company’s other filings with the Securities

and Exchange Commission, including the risks identified under the heading “Item 1A.

Risk Factors” of Part I of the Company’s Annual Report on Form 10-K for the fiscal

year ended December 31, 2025.

● our ability to adapt to or comply with regulatory requirements and increasing

scrutiny and evolving expectations from customers, regulators, investors and other stakeholders with respect to the Company’s environmental,

social and governance (ESG) practices, which could affect our reputation and business and operating results;

● our ability to anticipate and successfully keep

pace with technological changes affecting the financial services industry;

● an unexpected inability to obtain needed liquidity

which could adversely affect our business, profitability, and viability as a going concern;

● the impact on our businesses, as well as on the

risks described above, of various domestic or international widespread natural or other disasters (including severe weather events), pandemics,

cybersecurity attacks, system failures, civil unrest, military or terrorist activities or international conflicts, including Russia’s

ongoing war in Ukraine and the conflict in Iran (and the resulting disruptions to oil and other commodity markets and supply chains),

which can affect our earnings and capital as well as the ability of our customers to repay loans;

● other risks identified from time to time in the

Company’s other filings with the Securities and Exchange Commission, including the risks identified under the heading “Item

Risk Factors” of Part I of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025.

Undue reliance should

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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.

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”)

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Critical Accounting Policies

Note 1 to the condensed consolidated financial

statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025, describes the significant

accounting policies used in the development and presentation of the Company’s financial statements.

The accounting and reporting

policies of the Company are in accordance with accounting principles generally accepted in the United States and conform to general practices

within the banking industry.

The preparation of financial statements in conformity with generally accepted accounting principles 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, and/or complex.

Note 1 to the consolidated financial statements included in the Company’s

Annual Report on Form 10-K for the fiscal year ended December 31, 2025, describes the significant accounting policies used in the development

and presentation of the Company’s financial statements.

The accounting and reporting policies of the Company are in accordance with

accounting principles generally accepted in the United States and conform to general practices within the banking industry.

The preparation

of financial statements in conformity with generally accepted accounting principles 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, and/or complex.

Allowance for Credit Losses – The

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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

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

2 unchanged sentences

Other intangible assets are amortized over their estimated

useful lives using straight-line or 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 impairment analysis requires

management to make subjective judgments concerning estimates of how the acquired asset will perform in the future.

Events and factors

that may significantly affect the estimates include, among others, customer attrition, changes in revenue growth trends, specific industry

conditions and changes in competition.

A decrease in earnings resulting from these or other factors could lead to an impairment of goodwill

that could adversely impact earnings in future periods.

Three Months Ended March 31, 2026, compared

to Three Months Ended March 31, 2025

Net income for the

first quarter of 2026 was $4.3 million compared to net income of $2.2 million for the first quarter of 2025, an increase of $2.1 million,

or 99.1 percent.

Diluted earnings per share (“DEPS”) of $0.69 for the first quarter of 2026 were higher compared to the DEPS

of $0.33 for the first quarter of 2025.

Net income for the first quarter of 2026 was positively impacted by higher interest income on

useful lives using straight-line or 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 impairment analysis requires management

to make subjective judgments concerning estimates of how the acquired asset will perform in the future.

Events and factors that may significantly

affect the estimates include, among others, customer attrition, changes in revenue growth trends, specific industry conditions and changes

in competition.

A decrease in earnings resulting from these or other factors could lead to an impairment of goodwill that could adversely

impact earnings in future periods.

Three Months Ended June 30, 2026, compared

to Three Months Ended June 30, 2025

Net income for the second

quarter of 2026 was $4.5 million compared to net income of $3.9 million for the second quarter of 2025, an increase of $0.6 million, or

16.7 percent.

Diluted earnings per share (“DEPS”) of $0.72 for the second quarter of 2026 were higher compared to the DEPS

of $0.60 for the second quarter of 2025.

Net income for the second quarter of 2026 was positively impacted by higher interest income on

loans, partially offset by higher interest expense on deposits and wholesale borrowings.

The quarter included a recapture on Mortgage

The quarter included a small impairment on Mortgage

Servicing Rights (“OMSR”) of $0.05 million.

Total noninterest income increased slightly compared to the prior year to $4.7

Mortgage loan volume was higher as compared to the prior year, with sales of originated mortgages for the first quarter of 2026

up 36 percent as compared to the same period in 2025.

Total noninterest income was $5.0 million and decreased slightly compared to the

prior year second quarter.

Mortgage loan volume was lower as compared to the prior year by 19 percent, with sales of originated mortgages

for the second quarter of 2026 also down by 5 percent as compared to the same period in 2025.

Provision for Credit Losses:

first quarter provision for credit losses was $214,000 as compared to a $387,000 provision for the prior year first quarter.

had net chargeoffs of $26,000 for the first quarter of 2026 compared to net chargeoffs of $84,000 for the year-ago quarter.

second quarter provision for credit losses was $299,000 as compared to a $597,000 provision for the prior year second quarter.

had net chargeoffs of $193,000 for the second quarter of 2026 compared to net chargeoffs of $46,000 for the year-ago quarter.

The provision

expense included $300,000 of growth-related provision, partially offset by a recapture of $86,000 for unfunded commitments.

expense included $200,000 of growth-related provision, and a provision $99,000 for the growth in unfunded commitments.

Total delinquent

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Consolidated Revenue:

revenue, consisting of net interest income (“NII”) and noninterest income, was $17.4 million for the first quarter of 2026,

an increase of $2.0 million, or 13.3 percent, from the $15.4 million generated during the first quarter of 2025.

NII for the first quarter of 2026 was $12.7 million,

which was up $1.4 million from the prior year first quarter’s $11.3 million.

Comparing the first quarter of 2026 to the prior year

first quarter, the Company’s earning assets increased $133.3 million, and the average yield on earning assets increased by 6 basis

The net interest margin for the first quarter of 2026 was 3.48 percent compared to 3.40 percent for the first quarter of 2025.

Funding costs (interest paid to consumers and other entities) for deposits and other interest-bearing liabilities for the first quarter

of 2026 were 2.31 percent compared to 2.32 percent for the prior year first quarter.

revenue, consisting of net interest income (“NII”) and noninterest income, was $17.9 million for the second quarter of 2026,

an increase of $0.7 million, or 4.5 percent, from the $17.2 million generated during the second quarter of 2025.

NII for the second quarter of 2026 was $13.0 million,

which was up $0.8 million from the prior year second quarter’s $12.1 million.

Comparing the second quarter of 2026 to the prior

year second quarter, the Company’s earning assets increased $112.5 million, but the average yield on earning assets decreased by

3 basis points.

The net interest margin for the second quarter of 2026 was 3.43 percent compared to 3.48 percent for the second quarter

Funding costs (interest paid to consumers and other entities) for deposits and other interest-bearing liabilities for the second

quarter of 2026 were 2.34 percent compared to 2.33 percent for the prior year second quarter.

Total noninterest income was $5.0 million for

the first quarter of 2026, which increased compared to $4.1 million for the prior year first quarter.

the second quarter of 2026, which decreased minimally compared to the prior year second quarter.

Mortgage revenue decreased during the

second quarter of 2026, as detailed below, however wealth management and customer service revenue were up compared to the prior year.

Impairment of mortgage servicing rights decreased noninterest income by $0.05 million in the quarter, compared to a recapture of $0.16

million in the prior year second quarter.

SBFG Title contributed revenue of $0.58 million in the second quarter of 2026, level compared

to the prior year.

Noninterest income as a percentage of average assets for the second quarter of 2026 was 1.24 percent compared to 1.35

percent for the prior year second quarter.

State Bank originated $79.3 million of mortgage

loans during the second quarter of 2026 and sold $70.3 million, with $9.0 million of loans held for investment.

This compares to $97.9

million originated for the second quarter of 2025, of which $74.3 million were sold with the remainder of loans held for investment.

second quarter 2026 originations and subsequent sales resulted in $1.5 million of gains, in line with the gains for the second quarter

Net mortgage banking revenue was $1.92 million for the second quarter of 2026 compared to $2.16 million for the second quarter

Consolidated Noninterest Expense:

Total noninterest expense for the second quarter of 2026 was $12.1 million, which was up $0.3 million compared to $11.9 million in the

prior-year second quarter.

The quarter included higher expenses related to incentive accruals and other employee benefits.

Income Taxes:

Income taxes for the

second quarter of 2026 were $1.01 million (18.3 percent) compared to $0.88 million (18.5 percent) for the second quarter of 2025.

Six Months Ended June 30, 2026, compared

to Six Months Ended June 30, 2025

Net income for the first

six months of 2026 was $8.8 million compared to net income of $6.0 million for the first six months of 2025, an increase of $2.8 million,

or 46 percent.

DEPS of $1.41 for the first six months of 2026 were higher compared to the DEPS of $0.93 for the first six months of 2025.

Net income for the first six months of 2026 was positively impacted by higher interest income on loans, partially offset by higher interest

expense on deposits and wholesale borrowings.

Total noninterest income increased slightly compared to the prior year at $9.7 million.

Mortgage loan volume was higher as compared to the prior year by 7 percent, with sales of originated mortgages for the first six months

of 2026 also higher by 9 percent as compared to the same period in 2025.

Provision for Credit Losses:

provision for credit losses for the first six months of 2026 was $513,000 as compared to a $984,000 provision for the prior year first

The Company had net chargeoffs of $219,000 for the first six months of 2026 compared to net chargeoffs of $130,000 for the

year-ago first six months.

The provision expense included $500,000 of growth-related provision, and a provision $13,000 for the growth

in unfunded commitments.

Consolidated Revenue:

revenue, consisting of NII and noninterest income, was $35.4 million for the first six months of 2026, an increase of $2.8 million, or

9 percent, from the $32.6 million generated during the first six months of 2025.

NII for the first six months of 2026 was $25.7

million, which was up $2.3 million from the prior year first six months’ $23.4 million.

Comparing the first six months of 2026 to

the prior year, the Company’s earning assets increased $121.0 million, with the average yield on earning assets increasing by 1

The net interest margin for the first six months of 2026 was 3.45 percent compared to 3.43 percent for the first six months

Funding costs (interest paid to consumers and other entities) for deposits and other interest-bearing liabilities for the first

six months of 2026 were 2.31 percent compared to 2.30 percent for the prior year first six months.

Total noninterest income was $9.7 million for

the first six months of 2026, which increased 6 percent compared to the prior year first six months.

Mortgage revenue increased during

the first quarter of 2026, as detailed below, with wealth management revenue also up compared to the prior year.

Impairment of mortgage

servicing rights increased noninterest income by $0.45 million in the quarter, compared to a recapture of $0.01 million in the prior

year first quarter.

SBFG Title contributed revenue of $0.49 million in the first quarter of 2026, up $0.09 million from the prior year.

Noninterest income as a percentage of average assets for the first quarter of 2026 was 1.21 percent compared to 1.14 percent for the

prior year first quarter.

the first six months of 2026, as detailed below, with wealth management and customer service revenue also up compared to the prior year.

Noninterest income as a percentage of average assets for the first six months of 2026 was 1.23 percent compared to 1.25 percent for the

prior year first six months.

State Bank originated $145.7 million of mortgage

loans during the first quarter of 2026 and sold $53.4 million, with $12.3 million of loans held for investment.

loans during the first six months of 2026 and sold $123.7 million, with $22.0 million of loans held for investment.

This compares to $137.7

million originated for the first quarter of 2025, of which $39.3 million were sold with the remainder of loans held for investment.

first quarter 2026 originations and subsequent sales resulted in $0.98 million of gains, slightly higher than the gains for the first

quarter of 2025.

Net mortgage banking revenue was $1.89 million for the first quarter of 2026 compared to $1.46 million for the first

quarter of 2025.

million originated for the first six months of 2025, of which $113.6 million were sold with the remainder of loans held for investment.

The 2026 YTD originations and subsequent sales resulted in $2.5 million of gains, up slightly from the gains for the first six months

Net mortgage banking revenue YTD was $3.75 million for 2026 compared to $3.62 million for YTD 2025.

Consolidated Noninterest Expense:

Total noninterest expense for the first quarter of 2026 was $11.9 million, which was down $0.5 million compared to $12.4 million in the

prior-year first quarter.

The quarter included higher expenses related to increased mortgage activity and various expenses related to

pending conversions of our technology systems.

The prior year quarter included $0.73 million in one-time costs related to the merger

of Marblehead into the Company.

Total noninterest expense for the first six months of 2026 was $24.1 million, which was down $0.2 million compared to $24.3 million in

the prior-year first six months.

The prior year included $0.75 million in expenses related to the conversion of Marblehead Bank.

Income Taxes:

Income taxes for

the first quarter of 2026 were $0.99 million (18.7 percent) compared to $0.43 million (16.6 percent) for the first quarter of 2025.

Income taxes for the

first six months of 2026 were $1.99 million (18.5 percent) compared to $1.31 million (17.9 percent) for the first six months of 2025.

Changes in Financial Condition

Total assets at March 31, 2026, were $1.60 billion,

Total assets at June 30, 2026, were $1.62 billion,

up $74.7 million, or 4.8 percent, since December 31, 2025.

Total loans, net of unearned income, were $1.18 billion as of March 31, 2026,

Total loans, net of unearned income, were $1.19 billion as of June 30, 2026,

up $9.0 million, or 0.8 percent, from year-end.

Total deposits at March 31, 2026, were $1.37 billion, an increase of $64.6 million,

or 4.9 percent, since 2025 year end.

Total deposits at June 30, 2026, were $1.39 billion, an increase of $83.9 million, or

6.4 percent, since 2025 year end.

Borrowed funds (consisting of FHLB advances, repurchase

(“REPO”) agreements, trust preferred securities and subordinated debt) totaled $67.0 million at March 31, 2026.

(“REPO”) agreements, trust preferred securities and subordinated debt) totaled $59.3 million at June 30, 2026.

This was down

slightly from year-end 2025 when borrowed funds totaled $77.3 million.

Total shareholders’ equity for the Company of $143.7 million

now stands at 8.95 percent of total assets compared to the level at December 31, 2025, of $141.2 million, or 9.14 percent of total assets.

Adjusting for the temporary impairment of Accumulated other comprehensive loss, total equity would increase to $165.5 million, or 10.31

percent of total assets.

The allowance for credit losses of $16.4 million is up $0.27 million, or 1.70 percent from the December 2025

year-end level.

from year-end 2025 when borrowed funds totaled $74.3 million.

Total shareholders’ equity for the Company of $146.7 million now stands

at 9.06 percent of total assets compared to the level at December 31, 2025, of $141.2 million, or 9.14 percent of total assets.

for the temporary impairment of Accumulated other comprehensive loss, total equity would increase to $168.6 million, or 10.41 percent

of total assets.

The allowance for credit losses of $16.4 million is up $0.28 million, or 1.7 percent from the December 2025 year-end

Capital Resources

As of March 31, 2026, based on the computations

As of June 30, 2026, based on the computations

for the FFIEC 041 Consolidated Reports of Condition and Income filed by State Bank with the Federal Reserve Board, State Bank was classified

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State Bank must maintain capital ratios as set forth in the table below.

There are no conditions or events since March 31, 2026, that

management believes have changed State Bank’s capital classification.

State Bank’s actual capital levels and

ratios as of March 31, 2026, and December 31, 2025, are presented in the following table.

Capital levels are presented for State Bank

only as the Company is exempt from quarterly reporting on capital levels at the holding company level:

To Be Well Capitalized Under

There are no conditions or events since June 30, 2026, that management

believes have changed State Bank’s capital classification.

State Bank’s actual capital levels and ratios

as of June 30, 2026, and December 31, 2025, are presented in the following table.

Capital levels are presented for State Bank only as

the Company is exempt from quarterly reporting on capital levels at the holding company level:

For Capital Adequacy

Prompt Corrective Action

Capitalized Under

Prompt Corrective

Action Procedures

($ in thousands)

As of March 31, 2026

As of June 30, 2026

Tier I Capital to average assets

19 unchanged sentences

Liquid assets totaled $327.1

$319.1 million at March 31, 2026, compared to $263.1 million at December 31, 2025.

million at June 30, 2026, compared to $263.1 million at December 31, 2025.

Liquidity risk arises from the possibility that

8 unchanged sentences

The Company’s commercial real estate, first

mortgage residential, agricultural and multi-family mortgage portfolio of $979.9 million at March 31, 2026, and $978.2 million at December

mortgage residential, agricultural and multi-family mortgage portfolio of $988.1 million at June 30, 2026, and $978.2 million at December

31, 2025, which can and has been used to collateralize borrowings, is an additional source of liquidity.

1 unchanged sentence

current liquidity level, without these borrowings, is sufficient to meet its liquidity needs.

At March 31, 2026, all eligible commercial

At June 30, 2026, all eligible commercial

real estate, first mortgage residential, agricultural and multi-family mortgage loans were pledged under an FHLB blanket lien.

2 unchanged sentences

an adequate level of liquidity.

A discussion of the cash flow statements for the three months ended March 31, 2026, and March 31, 2025,

The Company experienced negative cash flows from

operating activities for the three months ended March 31, 2026, and positive cash flows from operating activities for the three months

ended March 31, 2025.

Net cash used by operating activities was $3.0 million for the three months ended March 31, 2026, and net cash

provided by operating activities was $6.7 million for the three months ended March 31, 2025.

A discussion of the cash flow statements for the six months ended June 30, 2026, and June 30, 2025, follows.

The Company experienced positive cash flows from

operating activities for the six months ended June 30, 2026, and June 30, 2025.

Net cash provided by operating activities was $3.8 million

for the six months ended June 30, 2026, and $3.1 million for the six months ended June 30, 2025.

Highlights for the current year include

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was a use of cash of $129.4 million, which is up $11.1 million from the prior year .

For the three months ended March 31, 2026, there

was a gain on sale of loans of $1.1 million, and depreciation and amortization on premises and equipment of $0.6 million.

The Company experienced positive cash flows from

investing activities for the three months ended March 31, 2026, and March 31, 2025.

Net cash provided by investing activities was $2.1

million for the three months ended March 31, 2026, and $9.2 million for the three months ended March 31, 2025.

Highlights for the current

year include $4.4 million in proceeds from maturing securities, partially offset by a $1.4 million decrease in loans.

The prior year

activities include a $23.0 million decrease in loans and $3.0 million paid for the Marblehead acquisition, net of cash acquired, offset

by $6.1 million in proceeds from maturing securities, and $30.1 million in proceeds from the sale of securities which were acquired from

For the six months ended June 30, 2026, there was

a gain on sale of loans of $2.7 million, and depreciation and amortization on premises and equipment of $1.2 million.

The Company experienced negative cash flows from

investing activities for the six months ended June 30, 2026, and positive cash flows from investing activities for the six months ended

June 30, 2025.

Net cash used in investing activities was $2.9 million for the six months ended June 30, 2026, and net cash provided by

investing activities was $7.2 million for the six months ended June 30, 2025.

Highlights for the current year include a $10.3 million

increase in loans and $2.5 million interest bearing time deposits purchased, mostly offset by $8.9 million in proceeds from maturing securities.

The prior year activities include a $29.7 million increase in loans and $3.0 million paid for the Marblehead acquisition, net of cash

acquired, offset by $11.5 million in proceeds from maturing securities, and $30.1 million in proceeds from the sale of securities which

were acquired from Marblehead.

The Company experienced positive cash flows from

financing activities for the three months ended March 31, 2026, and March 31, 2025.

Net cash provided by financing activities was $55.6

million for the three months ended March 31, 2026, and $63.3 million for the three months ended March 31, 2025.

Highlights for the current

period include a $65.6 million increase in transaction deposits compared to a $45.5 million increase for the three months ended March

Repayments of Federal Home Loan Bank advances for the three months ended March 31, 2026, were $7.5 million, compared to $1.0

million for the prior year three-month period.

financing activities for the six months ended June 30, 2026, and June 30, 2025.

Net cash provided by financing activities was $65.6 million

for the six months ended June 30, 2026, and $43.2 million for the six months ended June 30, 2025.

Highlights for the current period include

a $72.3 million increase in transaction deposits compared to a $32.2 million increase for the six months ended June 30, 2025.

of Federal Home Loan Bank advances for the six months ended June 30, 2026, were $12.5 million, compared to $1.0 million for the prior

year six-month period.

Off-Balance-Sheet Borrowing Arrangements:

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real estate, first mortgage residential, agricultural and multi-family mortgage portfolios in the total amount of $988.1 million were

pledged to meet FHLB collateralization requirements as of March 31, 2026.

Based on the current collateralization requirements of the

FHLB, the Company had approximately $171.8 million of additional borrowing capacity at March 31, 2026.

The Company also had $26.7 million

in unpledged securities available to pledge for additional borrowings.

pledged to meet FHLB collateralization requirements as of June 30, 2026.

Based on the current collateralization requirements of the FHLB,

the Company had approximately $180.9 million of additional borrowing capacity at June 30, 2026.

The Company also had $41.0 million in

unpledged securities available to pledge for additional borrowings.

The Company has contractual obligations consisting

of long-term debt obligations and operating lease obligations.

In addition, as of March 31, 2026, the Company had commitments to sell

mortgage loans totaling $20.4 million.

The Company believes that it has adequate resources to fund commitments as they arise and that

it can adjust the rate on savings and time deposits to retain deposits in changing interest rate environments.

If the Company requires

funds beyond its internal funding capabilities, advances from the FHLB of Cincinnati and other financial institutions are available.

In addition, as of June 30, 2026, the Company had commitments to sell mortgage

loans totaling $19.9 million.

The Company believes that it has adequate resources to fund commitments as they arise and that it can adjust

the rate on savings and time deposits to retain deposits in changing interest rate environments.

If the Company requires funds beyond

its internal funding capabilities, advances from the FHLB of Cincinnati and other financial institutions are available.

Asset Liability Management

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for sale) which are primarily funded by interest-bearing liabilities (deposits and borrowings).

With the exception of specific loans

which are originated and held for sale, all of the financial instruments of the Company are for other than trading purposes.

Company’s transactions are denominated in U.S.

With the exception of specific loans which

are originated and held for sale, all of the financial instruments of the Company are for other than trading purposes.

All of the Company’s

transactions are denominated in U.S.

dollars with no specific foreign exchange exposure.

In addition, the Company has

limited exposure to commodity prices related to agricultural loans.

The impact of changes in foreign exchange rates and commodity prices

on interest rates are assumed to be insignificant.

The Company’s financial instruments have varying levels of sensitivity to changes

in market interest rates resulting in market risk.

In addition, the Company has limited exposure

to commodity prices related to agricultural loans.

The impact of changes in foreign exchange rates and commodity prices on interest rates

are assumed to be insignificant.

The Company’s financial instruments have varying levels of sensitivity to changes in market interest

rates resulting in market risk.

Interest rate risk is the Company’s primary market risk exposure;

extent, liquidity risk also impacts market risk exposure.

Interest rate risk is the exposure of

a banking institution’s financial condition to adverse movements in interest rates.

to a lesser extent, liquidity

risk also impacts market risk exposure.

Interest rate risk is the exposure of a

banking institution’s financial condition to adverse movements in interest rates.

Accepting this risk can be an important source

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When assessing the interest rate risk management process, the Company

seeks to ensure that appropriate policies, procedures, management information systems and internal controls are in place to maintain

interest rate risks at prudent levels of consistency and continuity.

Evaluating the quantitative level of interest rate risk exposure

requires the Company to assess the existing and potential future effects of changes in interest rates on its consolidated financial condition,

seeks to ensure that appropriate policies, procedures, management information systems and internal controls are in place to maintain interest

rate risks at prudent levels of consistency and continuity.

Evaluating the quantitative level of interest rate risk exposure requires

the Company to assess the existing and potential future effects of changes in interest rates on its consolidated financial condition,

including capital adequacy, earnings, liquidity and asset quality (when appropriate).

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interest rate risk, which will form the basis for ongoing evaluation of the adequacy of interest rate risk management at supervised institutions.

The policy statement also outlines fundamental elements of sound management that have been identified in prior Federal Reserve Board

guidance and discusses the importance of these elements in the context of managing interest rate risk.

Specifically, the guidance emphasizes

the need for active board of director and senior management oversight and a comprehensive risk management process that effectively identifies,

The policy statement also outlines fundamental elements of sound management that have been identified in prior Federal Reserve Board guidance

and discusses the importance of these elements in the context of managing interest rate risk.

Specifically, the guidance emphasizes the

need for active board of director and senior management oversight and a comprehensive risk management process that effectively identifies,

measures and controls interest rate risk.

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liabilities in a declining rate environment.

There are several ways an institution

can manage interest rate risk including:

1) matching repricing periods for new assets and liabilities, for example, by shortening or

lengthening terms of new loans, investments, or liabilities;

There are several ways an institution can

manage interest rate risk including:

1) matching repricing periods for new assets and liabilities, for example, by shortening or lengthening

terms of new loans, investments, or liabilities;

2) selling existing assets or repaying certain liabilities;

and 3) hedging

existing assets, liabilities, or anticipated transactions.

An institution might also invest in more complex financial instruments intended

to hedge or otherwise change interest rate risk.

Interest rate swaps, futures contracts, options on futures contracts, and other such

derivative financial instruments can be used for this purpose.

Because these instruments are sensitive to interest rate changes, they

require management’s expertise to be effective.

The Company does not currently utilize any derivative financial instruments to

manage interest rate risk.

As market conditions warrant, the Company may implement various interest rate risk management strategies,

including the use of derivative financial instruments.

and 3) hedging existing assets,

liabilities, or anticipated transactions.

An institution might also invest in more complex financial instruments intended to hedge or

otherwise change interest rate risk.

Interest rate swaps, futures contracts, options on futures contracts, and other such derivative financial

instruments can be used for this purpose.

Because these instruments are sensitive to interest rate changes, they require management’s

expertise to be effective.

The Company does not currently utilize any derivative financial instruments to manage interest rate risk.

market conditions warrant, the Company may implement various interest rate risk management strategies, including the use of derivative

financial instruments.

Quantitative and Qualitative Disclosures About Market Risk

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis